ValueArtifex

Value, growth at reasonable price, small-cap, long-term horizon
ValueArtifex
Value, growth at reasonable price, small-cap, long-term horizon
Contributor since: 2013
James,
In my mind, the benefit comes from being able to purchase a substantial new "footprint" of locations from oil companies, which can then be incorporated into the broader network of the company.
The way I conceptualize it is a lot like railroad companies buying each other - as they have more track miles they can leverage both scale, efficiency and new customers. Adding more locations to the payment network makes it more valuable.
When it comes to Healthcare, I think that the most simple way I can describe the opportunity is being able to allow employers to issue a card that can be utilized by employees on a discretionary basis for approved medical expenses (sort of like your health credit card at the doctors office, pharmacy, optometrist etc and makes it much easier to track for insurance purposes) but also the cross-selling benefit between small and medium sized businesses that utilize WEX for fleet management as well.
One of the best investors of all time and his investment style and knowledge have been of great help through the course of my own career.
I've been a long term holder of this company for several years and there is a lot to like. The company is also getting closer to hitting the $1 Billion dollar asset threshold (Just shy of 900M currently) which is often cited as being the level at which compliance costs can be effectively diffused economically over the company's asset base.
They also are well positioned to either continue acquiring companies or to be acquired themselves, and have a solid focus on increasing fee based income (like retaining MSR's on the mortgages they originate) and deposit share in their areas of business. They are also aggregating deposits right now in preparation for a raise in interest rates which should lead to some significant long term gains for patient shareholders.
All with a 3% cash and a 5% stock dividend.
The only drawback to the company is a mechanical one - the fact that the stock is relatively illiquid and trades in a wide spread. However as the company grows and gets noticed by more investors I think this issue will become less important over time and I think that investors with a long time horizon will continue to be rewarded by this bank and it's excellent management team.
Long LARK
Thanks Chris, big fan of your stuff btw!
Thanks for writing this article. This is an extremely important if not difficult subject to talk about. I rarely if ever see mainstream financial media or institutions discuss this issue.
Long MATX since the 20's. This is an extremely high quality company that is well positioned on several fronts and has a significant competitive moat. Investors can't ask for more.
Agree. Long time fan of CHRW. Thanks for the article.
I see Mill Road holding a little over 4% as of March 31st here (http://yhoo.it/TsXUcq) and there was not enough volume traded in the intervening time to indicate that they have disposed of their stake - If I am wrong I will obviously re-evaluate my position. Thanks for the comment.
Glad to see you got SPAN - I'm long the name and debating if I should add more. They are also very liberal with special dividends - it's a small gem of a company in my opinion. Great article!
NewNeo,
I'm sorry I forgot to include that in my terms discussion, shareholders will have your principal refunded in 2033 per the prospectus. Dividends do not go up (unlike some common stocks) however.
Best,
VA
Look at the 30 year chart for Commerce and look at the once for Wells Fargo.
The growth profile is almost identical, except for the fact that Commerce has a market capitalization of around $4 Billion and Wells has around $250 Billion.
I think that Commerce might be one of the best permanent holdings available to younger investors.
I started buying shares of GLW at $11.50 in late 2012.
While I agree that the company might face some short term headwinds, I believe that the company has the potential to continue to earn well over the next few years due to new products like Willow, fiber optics, Ultra High Def TV's (LCD/Lotus Glass), Labware and deploying Gorilla Glass in new areas like cars in addition to the growth of mobile devices.
I also think that the Sapphire situation is overblown, particularly when you account for the materials higher cost and the fact that it is much heavier. Gorilla Glass itself is also not an unchanging product, the company is continuously improving the material.
I also like the use of an ASR program and I think it is important to note that Samsung went with convertible preferred shares in GLW after they consolidated their Korean operations, similar to Buffett's style.
In the near term from a strict Grahamian perspective (Graham Number somewhere around $21) I could see why many would want to sell this stock.
I'll keep holding because I think that the company can continue to meaningfully increase it's dividend (and pushes my aggregate Yield at Cost closer to 4%). At 18~17 I would consider adding more.
Always appreciate the read.
Indeed. Very interesting and unusual volume for the past two sessions. I agree that something is going on.
Agree, I wrote an article about this name a few months ago and was happy to see the valuation come down to more attractive levels.
This is a remarkable little company. Can't go wrong with telephone poles and cross-ties (in addition to a longer term call option on the resurgence of the US Aluminium market.)
A masterstroke, Mr. Karsan!
Great article Mr. Default,
I had some shares that I sold in the aftermath of the tender offer for a pretty healthy annualized return. Glad to see you giving this company the attention it deserves.
I'm waiting to see if they are going to try and take the company out via a short form or try and use something called "conversion" for their ownership portion of the NOL's that they have on the books (where they can get 90% of the NOL but not short form the company) - wish I was a securities lawyer!
Very interesting name.
Best,
VA
What do you think about the potential of the company engaging in spin-off activity in a similar manner to Conaco Phillips? I always thought that could unlock some significant value.
Thanks for the comments.
I was under the impression that the bank had repurchased higher interest Series A preferreds and replaced them with B preferreds tied to SBL performance.
I think that as far as a catalyst goes the company could be acquired given the cheap valuation. I also think that it will be more of a slow march upward with a lower risk profile.
I prefer the term "Buying Opportunity" =)
I agree with you William, this has been a challenging year. Not for the lack of returns however, but the amount of effort that it takes to obtain these returns with a margin of safety.
For value oriented investors, investing in this climate is extremely challenging. A large portion of my portfolio has been placed in cash, cheaply priced assets like regional banks and special situations like short term arbitrage commitments.
A year ago when I would screen for cheaply priced companies I would find hundreds of results and many small gems - now I only find a few dozen. Interesting times indeed.
I agree with you, GSBC looks very attractive. I am interested to see what they are going to do as they are nearby a bank that I hold as well as another bank which I have covered.
Great article.
You got me there Gadget! Correction made!
Thanks Chris! Did you see the Gabelli interview on CNBC yesterday? I usually watch financial TV on mute but he had some very interesting things to say about the Bearings division over the long term.
I've bought some shares near NAV and forgotten about it. I like it as a HY play, right up there with Vector Group and some banks that issue stock+cash dividends.
Agree - this business has gotten extremely attractive at close to 2x book. Great writeup and reasoning as well.
If there is any action prior to 2014 there is a .50 cent per share penalty that Hallmark has to pay to the owners of the remaining equity because of a standstill agreement.
An interesting situation indeed, I have been very interested in the realized value of it's real estate assets particularly when you look at the time when the company purchased the assets (during the financial crisis) particularly when compared against the significant appreciation of commercial real estate indices.
I think that the problem in this situation is extremely manageable given the company's high credit rating, access to cheap money and predictable cash flows offered by the underlying assets. Combine this with the company's ability to leverage it's operating experience in this field, there are significant benefits going forward in my opinion when it comes to this asset class.
Cryptocurrency as a whole has the potential to become a hugely disruptive force in the payment space.
While there were hundreds (if not thousands) of automobile companies at one time early in it's history that gradually consolidated, bankrupted or merged out, one thing was certain: Horses lost.
Once volatility is controlled and/or a large enough system is put into place for market making with cryptocurrency, many payment companies will see their moats vaporize. One major challenge that needs to be surmounted is the lack of a "chargeback" feature and there are many clever people working on this.
Brian,
In the grand scheme of things, Bitcoin may not be the cryptocurrency winner however the Protocol and applied math that has been developed is a huge win. It's sort of how Xanga or MySpace was briefly popular, but then got totally eclipsed by Facebook. This process and growth will be occur over a span of decades.
I think for the global economy it is a big win however considering the usurious rates charged by many money transmitter and payment services. Once the kinks are worked out I am very excited to see how this will unfold.
MOSMan,
Yes, except if I remember correctly their Class A shares automatically convert to B shares if they change hands from the person they were issued to, which means I think that for us outsiders there is effectively one class.
Best,
VA
Great work Dr. Akston.
I've been a fan of NatGas utilities, but I found EGAS to be both difficult to understand and the insider selling to be troublesome.
I've also found the monthly method of dividend distribution (in contrast with almost every other utility with only a few outliers) to be suspiciously similar to a "honey trap" for retail investors.
Combine that with the massive insider selling, cautious investors have little cause and now ample warning against going after the pennies in front of this steam-roller.