Seeking Alpha

Shailesh Kumar

 
View as an RSS Feed
View Shailesh Kumar's Comments BY TICKER:
Latest  |  Highest rated
  • When To Sell Stocks In Your Value Investing Portfolio? [View article]
    Thank you for digging deeper into the mechanics and asking great questions. I do run a pure value based portfolio so unfortunately can't comment on the crossover aspects but I would like to remark that in the end you will/should end up adapting a strategy and make it your own that matches your goals, psychology and approach.

    1. I have never run a DCF model in my life, other than perhaps at business school. Majority of my investment decisions are balance sheet based (tangible assets) so in a way it keeps everything simple. There are situations where I will switch over to fixed multiples comparisons but only for industries that are asset light (service industries, for example) or in cases a company has converted its tangible asset to future cash stream (used cash to acquire another company, entered a new market, etc). I find current or historical based multiples much more palatable than using future estimates.

    Peer multiple comparisons do not make sense to me much in most cases since the question I ask when making an investment is how profitable this is going to be for me. How competitors are valued is generally irrelevant, except to

    a. Verify that you are indeed getting the best value in the sector (still needs to make sense on an absolute basis), and,

    b. In rare scenarios where there is a range of extreme valuations in an industry (both high and low) that may indicate increased M&A. This may happen in cyclical industries

    2. Portfolio context: I generally limit my exposure to any single stock to less than 10% of my portfolio when buying. Price appreciation may move the weightage to above this limit but that does not trigger selling until there is a reason to sell. I also limit my exposure to any one sector to about 10% of my portfolio.

    This gives me a fairly diversified and yet focused portfolio. If there are not enough pockets of values in diverse sectors, the portfolio will end up being cash heavy, which is acceptable to me. In cases when I want a strategic exposure to an industry and there is no investment available at a good valuation, I will end up giving this industry a pass. Ultimately the goal is to maximize my investment returns, diversification and asset allocation are just tools to reduce risks and improve the chances. There is a propensity to turn diversification and asset allocation into goals, and we must guard against it and use these as mere tools. Cash is better at reducing risks than diversification and gives you an added option of being able to make a great value investment in the future when it becomes available.
    Jul 4 10:45 AM | Likes Like |Link to Comment
  • Full House Resorts: A Casino Operator That Might Be A Royal Flush [View article]
    Looking at the comments, it is fairly obvious why this company is as undervalued as it is today.

    A secondary is not always dilutive. They do get $1 in cash for every $1 of stock they sell. It is not like they are issuing stock for the heck of it. Whether it is dilutive or not depends on the use of the funds and how the stock is being valued in the market.

    There is significant value in this company based on the assets they have acquired over the years and the prices they have paid. It is a balance sheet story where the parts are greater than the whole.
    Jan 17 07:13 AM | Likes Like |Link to Comment
  • Maxygen: A Free Option If Ever There Was One [View article]
    Shareholder approved. As of Aug 29, the stock will be worthless after the liquidating distribution is paid and you will be unable to trade it as the company closes its stock transfer books and delists. I assume there will still be some market for its stock otc but the liquidity will dry up. The only claim that will remain is a potential $0.09/share in contingency reserves which is apparently worth 4 cents according to the market today.

    This is the end of the road.
    Aug 13 01:12 PM | Likes Like |Link to Comment
  • Maxygen: A Free Option If Ever There Was One [View article]
    MAXY plans to delist its shares and is going forward with dissolution subject to shareholder approval within the next week.
    Aug 12 11:58 AM | Likes Like |Link to Comment
  • Why Friedman Industries Is My New Pick To Click [View article]
    Sure Jae. Look forward to what you conclude
    Aug 12 11:56 AM | Likes Like |Link to Comment
  • Why Friedman Industries Is My New Pick To Click [View article]
    You are welcome MWinMD! Commodity businesses can be fickle and it is good to insist on a larger margin of safety for these kind of businesses. I am glad I could help.
    Jul 29 12:16 PM | 1 Like Like |Link to Comment
  • Why Friedman Industries Is My New Pick To Click [View article]
    Would like to elaborate on the after market equipment valuation.

    This is primarily the result of the long term trend in the steel industry as the steel companies of all types in the US have declined in numbers over many decades and most of the steel production has moved overseas (China, Russia, Korea, etc). As a result, there is a pronounced glut of the used equipment in the US market resulting from business closures with very few buyers and they mostly tend to get scrapped.
    Jul 25 01:46 PM | 2 Likes Like |Link to Comment
  • Why Friedman Industries Is My New Pick To Click [View article]
    In the private market, steel service companies this size tend to sell for 2-3 times EBIT or tangible book value whichever is greater, this being a commodity business. Primary reason being the steel price volatility and the bloated scrap market that values the equipment at pennies for a dollar of book (if you go for liquidation valuation). The LIFO book versus market gap can flip from being an asset to being a liability and back within a few months. Knowledgeable acquirers know this and will not put too much stock in the inventory valuation drift.

    In my previous life I have bought, run and sold whole steel companies like this. It is a hard business to make a buck when you are smack in the middle of the value chain as you have no control over prices, supply or demand. If any value is created, it is mainly by gaining economies of scale and/or scope. I looked into FRD 6-7 years ago and it looked attractive then as well but knowing the market dynamics I passed on it.
    Jul 25 01:39 PM | 2 Likes Like |Link to Comment
  • Maxygen: A Free Option If Ever There Was One [View article]
    The free option on remaining asset is worth zero. They are not going to spend any more time marketing G34.

    The only value you might have is an additional $0.09 from the current prices and that is not guaranteed. It is a bad idea to tie up your money in this stock at the current prices.
    Jul 11 08:18 AM | 1 Like Like |Link to Comment
  • Maxygen: A Free Option If Ever There Was One [View article]
    The gap between $81 m in cash and $70 million that is being distributed is for contingent liabilities for any lawsuits that may arise out of prior operations. This leaves very little to none to pay executive salaries if they were not to close shop right away.

    There is also a bunch of employee stock options that are exercisable in few months (I forget exactly when, but it is probably early next year. It is there in the 10-K) which would be highly irresponsible for them to payout given that there is no on going business. The management has been upstanding in returning value to the shareholders and they would wind down the business before the options become exercisable. If they stretch the inevitable end out until the options are exercised, and there is still no deal by then, than it is lawsuits waiting to happen.

    This tells me they are not planning to spend any more time on trying to sell MAXY-G34.

    It is indeed a free option as you state, but you incur the opportunity cost of money you tie up in this stock. Ultimately, the company came out with a press release stating they are closing the business. Not sure if it can get any more clearer.
    Jul 10 07:03 PM | 1 Like Like |Link to Comment
  • Maxygen: A Free Option If Ever There Was One [View article]
    Paulo, I think the time has passed. They spent about a year trying to monetize their asset before handing in the towel and calling it quits.

    Another thing you need to keep in mind is that their expenses run at about $2.7 million/quarter so the value of the cash keeps eroding longer they have to wait. At some point they would figure that waiting longer is detrimental to the shareholder value and I suspect they have already made that decision.

    We took a position in MAXY last year for this option value and sold out when they decided to liquidate taking it as a signal that the end is here.
    Jul 10 04:51 PM | 2 Likes Like |Link to Comment
  • Soon To Be An Energy Stock, Is Freeport-McMoRan A Good Value? [View article]
    yes, of course :-) Wonder if all that traveling was getting on their nerves
    Jan 23 06:30 PM | Likes Like |Link to Comment
  • Soon To Be An Energy Stock, Is Freeport-McMoRan A Good Value? [View article]
    Thanks Derek! All the articles seem to be forgetting Canada, but we shall see. A lot is happening in the sector for sure.
    Jan 16 03:09 PM | 1 Like Like |Link to Comment
  • Soon To Be An Energy Stock, Is Freeport-McMoRan A Good Value? [View article]
    This is concerning of course. There may be a strategic fit so the acquisition in itself may be okay, but who knows how they figured the price they should pay
    Jan 16 03:07 PM | Likes Like |Link to Comment
  • Soon To Be An Energy Stock, Is Freeport-McMoRan A Good Value? [View article]
    Arrgh, I did not even put the ticker for Southern Copper. Must have been added by the editor.
    Jan 16 03:05 PM | 1 Like Like |Link to Comment
COMMENTS STATS
101 Comments
0 Likes