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Wide Moat Investing

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  • Oil And Gas Trust Value Rankings, Q3 2014 [View article]
    Great article, thank you. ECT looks particularly interesting given that it is 100% gas and at a discount to its SEC NPV-10.
    Dec 10, 2014. 02:16 PM | Likes Like |Link to Comment
  • Three Reasons to Cast Back on Seanergy [View article]
    "Correct me if I'm wrong, but isn't MCS and Ship pretty much all owned by the same family. And don't forget that 2/3rds of ships shares are not in the public float, but owned mostly by said family?"

    Yep, that's right.

    "There's enough cash on hand at ship right now to buy back All the public float."

    Makes sense to me if it is as undervalued as management says. The fact that they haven't should signal something.
    Jun 7, 2010. 01:34 PM | Likes Like |Link to Comment
  • Three Reasons to Cast Back on Seanergy [View article]
    Recall the minority interest on the MCS ships. Earnings power of a subsidiary shouldn't count at 100% if they don't own 100% of the economic interest in the subsidiary.
    Jun 7, 2010. 10:05 AM | Likes Like |Link to Comment
  • EDCI Holdings: No Fire Sale Here [View article]
    The reverse split should create an arb opportunity for late comers, so depending on the cash-out price for small shareholders, the announcement of the reverse split should catalyze price movement.

    I expect the cash-out price will be higher than the current market price per share.
    May 31, 2010. 09:41 AM | Likes Like |Link to Comment
  • Artificial Life: Attractive Trade for the Booming iPhone/Pad Market [View article]
    They keep having to raise capital because their receivables don't seem to come in. So, reported earnings here exceed true "owners' earnings."

    That, and their licensing rights are expensive and paid up front.

    Both of these issues lead to serious cash problems despite having positive "earnings."

    I've been following them since the 3M investment, and will continue to wait until some real cash starts to come in.
    May 14, 2010. 10:16 PM | Likes Like |Link to Comment
  • Graham Corp.: High Quality Business With Free Growth Kicker [View article]
    Thanks for the write-up.

    I also appreciate management's candor and disclosure.

    I see a moat, but it strikes me as narrow. Given the nature of biz, projects and revenues are lumpy, which means your competitive advantages and accumulated customer goodwill do not often lead to repeat transactions. Compare, say, to Coke's biz, where their accumulated goodwill can drive daily purchases from the same happy customers. In Graham's case, you have to hope that your accumulated goodwill gets dispersed through the industry by word-of-mouth, reputation, etc. Of course, that will happen, but defending the moat becomes a much more complex task.

    In addition, it's probably not cheap enough for me at these prices. Backing out the cash, EV looks like 10x EBIT. That strikes me as a full price, and I'd want a margin of safety (i.e. a discount).

    May 14, 2010. 09:56 PM | Likes Like |Link to Comment
  • Why Chesapeake Energy Is One of the Best Plays in the Natural Gas Space [View article]
    "The fact that investors were willing to pay more than 16% over today's closing price on the last transaction says a lot regarding demand for CHK and its gas reserves. CHK raised a fresh $1.1 billion at a decent interest rate, natural gas futures are rallying, and the rig count was down this week; I believe all of which are bullish signals for CHK."

    These may all be bullish for the stock price; frankly I'm not any good at predicting buy side sentiment.

    What I DO know is that this company has spent FAR more cash than it has generated for the last four years--to the tune of 15B, acc to Morningstar's numbers.

    Even worse, to generate cash in the future, they will need to raise a lot more money from somewhere in the years to come. Drilling on all their properties will not be cheap.

    In my lights, the question that matters most for the Chesapeake investment thesis--will they be able to raise 15B more in the next five years? Perhaps, but take note--this company's destiny is completely dependent on the kindness of those with capital. Oh, and the price of natural gas...
    May 14, 2010. 09:24 PM | 8 Likes Like |Link to Comment
  • Amazon, eBay: March Same Store Sales Tick Down [View article]
    "SSS tick down" here means that the rate of growth slowed YOY (in Amazon's case, from 77% to 72%). Ja?

    At that rate of growth, it would seem that Amazon can only decelerate.
    Apr 6, 2010. 11:48 AM | Likes Like |Link to Comment
  • Savannah Bancorp: Well-Run Microcap Overlooked by the Market [View article]
    Thanks for the idea.

    Cost of funds is a crucial component of a bank's moat. SAVB looks decent--with a 2.23% interest rate on 844m in liabilities (at 9/30/09), coupled with 82m in non-interest bearing deposits.

    Asset quality here makes me nervous--the sum of all the residential and commercial land loans, development loans, and construction loans looks double tangible common equity.

    Anyone know how real estate looks in Savannah? Better or worse than average?
    Mar 3, 2010. 01:11 AM | Likes Like |Link to Comment
  • Deconstructing Buffett [View article]
    Let's say that Berkshire throws off 10B in owners earnings per year. It needs to find a home that will produce returns at 8-10%.

    What are Buffett's options?

    1) Write more insurance [but if prices at bad?]
    2) Buy securities in businesses with a durable competitive advantage (so, with an E/P near 8-10%, or 10-12 PE) [but there are few of these out there]
    3) Buy whole businesses with a durable competitive advantage
    4) Put capex into current companies, if they can get adequate returns on capital.

    My sense is that Buffett sees #'s 1-3 as relatively difficult propositions over the next decade. In the S&P 500, say there are about 200 companies with a market cap greater than 10B. Let's say he bags 10 over the next decade (either by buying the whole thing, or buying 10B of the biz), one a year. Are there even ten that he would want at prices he would deem reasonable? Perhaps not.

    Keep in mind too that in 2020, Berkshire may have annual owners earnings of 25B. So #'s 1-3 will become increasingly difficult with each passing year.

    Hence the need for Berkshire to move to "good" (rather than "great") businesses that consume significant surplus capital, but also return reasonable rates.

    I suspect that Berkshire would much rather have McDonald's business than BNI, if the price paid were the same (based on OE/P). Of course, that would continue to exacerbate his "problem" of surplus capital.
    Mar 1, 2010. 02:39 PM | 1 Like Like |Link to Comment
  • High Conviction: A 'Stunningly Cheap' Telecom Stock [View article]
    Thanks for the idea. I like the current business, but have a hard time knowing what the industry looks like in three years.

    Particularly, this concern (cited from the last 10K)

    "We also face indirect competition from carriers that directly connect their switches. When there is a significant amount of traffic between two switches, carriers have an economic incentive to establish direct connections to remove intermediate switching. We believe that our customers are currently frequently directly connecting their networks, even for lower traffic switch pair combinations, for various reasons, including in order to avoid paying a transit fee. As our customers grow, the amount of traffic exchanged between them grows, thus leading to the risk that they will increase the number of direct connections between their switches and remove traffic from our tandems. The risk of direct connections will increase as more carriers move to an IP-based interface, because direct connecting between two IP-based carriers is less complex, thus enabling more direct connections..."

    That suggests to me that increased consolidation and more IP-based interfaces means a big threat to revenues. Thoughts anyone?
    Feb 26, 2010. 01:14 PM | 8 Likes Like |Link to Comment
  • Berkshire's Intrinsic Value Won't Change by Replacing Burlington Northern in S&P 500 [View article]
    I agree, Ravi, Berkshire's IV is largely unchanged.

    I will say though that index inclusion has been a well-documented catalyst for price movement. No sure thing, but a likely thing.

    If the discount to IV dissipates or disappears, that would enable Buffett to be more flexible in issuing stock for acquisitions. In other words, Buffett would have a new source of funds that is currently unavailable. More avenues of funding does strike me as a boon to intrinsic value. A small boon perhaps, all things considered. But not irrelevant.
    Jan 27, 2010. 12:07 PM | 1 Like Like |Link to Comment
  • George Risk Presents a Potential Bargain with Limited Downside Risk [View article]
    Looks like Sanborn Map. Anyone going to be in Kimball, NE anytime soon? Ideally they could do a stock for securities swap, and the result would be that Mr. Risk could increase his ownership.
    Jan 22, 2010. 03:55 PM | Likes Like |Link to Comment
  • Corporate Executive Board: Attractively Valued High-Quality Business [View article]
    Thanks for the write-up--competing with such a well-developed database would seem an expensive proposition.

    I am curious about the content that EXBD distributes. I don't know the product, but I'm just imagining that few businesses would be willing to truly give up their "best practices." And if so, wouldn't there be a giant incentive to glean mountains of competitive information while giving little?

    I'm sure they've thought about this, but it would be good to know more about the content, to discern how truly necessary clients find it to be.
    Jan 12, 2010. 12:22 AM | Likes Like |Link to Comment
  • Are There Any Real Bargains Left? [View article]
    What the story on the workers' compensation claims at BBSI? In the quarter ending June 30, 09, they took a $11.8m hit. I don't have a good sense of whether that represents excessively conservative reserving, or underreserving from the past. Thoughts?
    Jan 7, 2010. 01:56 PM | Likes Like |Link to Comment