William Kabourek

William Kabourek
Contributor since: 2009
I agree with your premise and think CLF has a good shot at being a classic turnaround success. But it faces additional hurdles that the author doesn't discuss in depth.
First, the potentially competitive Essar plant could change the competitive landscape even if not as efficient and doesn't produce the same quality pellets. A weak, wounded competitor is still a competitor and can affect contract renewal terms. Next, the Bloom Lake complex may be the savior of CLF as a good sale would put a sizable amount of money in Cliffs coffers that can be used to reduce debt. But, the same iron ore pricing and steel dumping affects potential buyers willingness to offer higher prices as well. Shutting it down and entering CCAA was the right move, I just hope the stars align for Cliffs and it moves for a decent amount of cash. The current war on coal presents the same situation for disposal of the coal properties. Lastly, I hope bankruptcy doesn't look easier and better as events develop. cliffs USIO remaining business is going to be a great one, its just how you get there. If asset sales and improving prices materialize the current shareholders will reap the benefits. If too many obstacles present themselves a restructuring could be the way it morphs. There is lots of debt and it can be bought cheap and the debt holders could become the new major stockholders. Management may have bought some shares, but those positions are likely only a modest percentage of their net worth and easily replaced with new options and incentives. I hope it doesn't move this direction and its 50-50 at this point.
The wild card that could really help CLF turnaround for the current shareholders is the possibility of a DRI arrangement with a Nucor or the like. While expensive to construct, a contract would make a DRI plant financeable and profitable. It would not only replace any lost business from Essar, but would be a path to growth by doing business with the largest segment of the US steel industry.
Not a well researched, or thought out, article.
Eman, why would you own shares of a company that you know so little about? Your questions are very basic and you should have had an opinion before any purchase.
undervalued dividend ideas? STD is in line for recapitalization because it is full of poor real estate loans, southern european government bonds, and inadequate reserves. France Tele has a payout ratio of 97%! How long can you maintain a dividend if you aren't maintaining the business with reinvestment. These two touts are irresponsible as dividend plays. Speculations OK, but not for dividend investors.
Whoa Stone Fox. You neglected the A/P. A/P+STD & CMLTD basically equal inventory so there isn't going to be much fluff from that segment. Sears may resort to bankruptcy if they can't get their retailing act together. As far as Lampert's great real estate play, I don't think there is one. Most Sears outlets are in enclosed malls [ out of favor ] and K-Marts are small, and poorly sited, in relation to WalMarts. Real estate leases can't come due soon enough and that's where a BK could come in handy. That's not a prediction, but Sears is far from a company that is worry free.
Cloud Peak, CLD, is a PRB keeper at recent prices.
I'm long JASo and TAN, so I agree with the author. Also own an American solar-related company, PWER, Power-One. They don't make cells and modules like JASO, but the inverters that are necessary for solar energy to work in society. Valuation is slightly better than the chinese pv companies, but not much. If there is anything to worry about being Chinese solar panel manufacturer, you get with PWER American accounting standards and a 1/3 of the company that has been in the power solutions business for 30+ years.
So, if you like the outlook for solar, but are worried about anything chinese, PWER is not as cheap, but nearly.
Excellent article. High priced acquisitions rarely play out and reserves don't equal earnings power. i heard all these same arguments from groupies of the aggregates industry. Vulcan Materials and Martin Marietta have struggled despite vast reserves and difficulties in permitting new properties. Caution is in order when pricing gets extended.
A couple of thoughts in response to comments:
The Gabelli manager that shorted PWER, according to articles, manges only $40MM! That isn't a 1st stringer. I hope he didn't put his trades on near his announcement date, because the easy money had been made already.
While obviously not as important as knowing how the sales channel is going, it is antedotaly reassurring that PWER has 4 pages of professional job openings on their Careers page. If sales don't materialize, they may have found a use for some of their $200MM of cash as they don't appear to frozen by potential tariff changes and resultant impact on demand.
My suggestion is if you believe in managements ability, buy some more as the share price is a bargain. If you are overly critical of the company's leadership, why would you stick around and risk further deterioration?
All investors in downward spiraling stocks, myself included, clamor for announcements from management that will act like a magic bullet and send the share price upward. But shouldn't really be management's focus. I'd much rather the CEO concentrate on working thru any inventory glut, actually penetrate the US and China markets, continue to stay one step ahead of the competition technically. We're paying him, and his team, to build a great company, not to have a smoothly functioning stock price. So, it would be nice if something consoling came out of HQ, but I really want them focused on running the company. My leaps have an end date, but the other shares will benefit most if this company performs best for years.
Your 30 years of industry experience trumps my level of aggregates knowledge, but I still think the Baker's did a great job of selling and James a poor job of buying. 20 years after the Fl Rock acquisition that purchase may be celebrated as brilliant, but most VMC shareholders over the past several years probably aren't happy. The unfortunate thing is that many sold and won't be around for the benefits.
Neal, this past year VMC lost 100MM and paid out about 120MM in dividends. They have two tranches of long term debt on which they are paying over 10% interest! I can't comprehend why they are paying ANY dividend. Another questionable management issue. They already have too much debt, they don't need any more and a basic way to reduce debt is don't pay it out.
MLM had a long time ceo that was always unloading boat loads of stock at the peak, but he ran a good company. I just thought that was a sign that he suspected that the market had gotten ahead of what was sustainable. Basically due to that I rode a short position nicely in the downturn. The old guy retire and I don't have an opinion on his replacement, but they have remained with a better balance sheet and operating results than vulcan. They're smaller, but still have a large geographic reach. If I were to buy, I'd prefer MLM.
Successful businesses, besides good products, have excellent management. Management can either enhance the brand or reposition the company. I'm not impressed by the guys running VMC, nor Cemex for that matter. I have no doubt that building will return and aggregates companies will do well as they are almost monopolies due to permitting issues and freight concerns.
If I were to buy one today I'd purchase MLM; better management same industry and still plenty of scale. But these aggregates operators were just an example. There are many copper, gold, silver, moly, iron ore, ree, and energy companies that are selling at near all time highs because they are riding high commodity prices and it doesn't look like it will end. But those prices are prompting many new projects and that will increase supply and when the world economy next stalls they will see a severe industry downturn, like aggregates. My suggestion is that one should own those types of miners that are avoiding big acquisitions and serious increases in debt.
My posts receive much more exposure on Seeking Alpha than they do on this site. Consequently that's where I get the most feedback; usually of little value.
The rare earth bubble article stirred the pot pretty good. My thesis was rare earths aren't rare, rising prices will attract big miners, REE companies are selling for insane valuations, and finally, if you want to be near the space, buy FCX or TC as they will benefit if the bubble doesn't explode and you'll not lose your nest egg if it does. Most commentors didn't want to get it.
I usually get this type of response when I advocate shorting a stock. All the supporters rally with inane logic and never dispute the central facts. Same thing here. The owners of REE stocks defended the price rise with all types of mineral trivia, mine location, and personal attack. Nobody bothered to re-think their investment and convince me that paying $5B for MCP, a development stage junior, that has committed most of its eventual production to W.R. Grace at a fixed price and therefore won't materially benefit by any huge run up in REE prices, is a prudent investment. That attitude and lack of discipline is how bubbles develop and one is developing, if not already present.
I did receive one comment worth reading. A person that could actually read and understand called me on my reference to Alfred Einstein, hoping it was Albert's brother. I have no idea as what I was thinking about when I typed that other than I probably had a scotch in my hand and wasn't concentrating deeply. It's better to make typing errors than investment errors.
The above comment was posted this morning on The Crusty Credit Analyst.
Twenty comments, mostly about various factoids on REEs. Nothing about the financial soundness of buying Molycorp at a nearly $5B valuation. That's not investing, it's speculation. If it isn't a bubble it's well on the way.
Two old books and years of annual letters will give you a good grounding. Beyond that learn basic financial analysis. All the mumbojumbo you hear about VIX, technical analysis, etc is just noise in the long run.
REQUIRED READING: The Intelligent Investor, Benjamin Graham. Extraordinary Popular Delusions & Madness of Crowds, Charles Mackay. All Berkshire Hathaway annual report letters
Good luck on keeping and growing your money. swing for singles not center field.
The poytks need to pray for steady inflation as their net worth will tumble in bond funds if rates rise. They will get their 4 % interest, but won't want to look at the value of the funds as they will be lower. There are virtually no, easy places to hide like CDs in the old days. Then again, if we encounter deflation the poytks will feel like they belong to mensa.
Let me know the outcome.
Kamalbro, lighten up. The hats comment was my attempt at humor.
The point of my post is that HUSA is priced very richly. It has to have great production to ever justify the current market cap. I believe the odds favor my view.
I haven't stacked the financials up against one another for about a year, but memory places BG as a much better performer. Beyond that, and as I said in the article, the balance sheet is more compelling now that they've monitarized the fertilizer business. I like the BG sugar and ethanol business in brazil better than the corn ethanol biz of adm and my grain friends say bg is better grains merchandiser and their culture is not as stodgy. Cargill is the best, but bg is the next best bet since cargill is private, plus the market is letting us buy bg at a cheaper set of multiples than cargill would ever consider parting with equity.
I owned CZZ up until a few days ago. I have been a fan of the company and the real. My waning interest started when they bought a couple hundred gas stations several months ago. Now the Shell deal where they raded partial ownership in their mills for Shell's local stations. I haven't pounded out the numbers to determine who got the better end of the valuations because I just didn't like CZZ morphing into the retail gas station business. Unless Brazil evolves differently than the USA, CZZ will be divesting itself of retail stations down the road just like Shell and their big brothers.
I bought Bunge [BG] as a Brazilian sugar, ethanol substitute. No gas stations.
Parrot here. I'm speaking as a taxpayer. Governments have been too generous with pension benefits and, combined with poor investment results, have dug a huge hole for consituents. The problem exists and is getting bigger.
Parrot says be wary of municipal bonds.
The waterford bank example is flawed. The $800k difference between book assets and insured deposits can't be directly compared to the FDIC's estimate of losses. First, the insured deposits don't include all deposits, i.e., those over $250k. Second, bank assets get funded not only by total deposits but also by capital and borrowings.
What isn't flawed is the fact that failed banks have lots of bad assets, hence the 51MM loss estimate. Good times and sloppy regulator supervision allow too much risk to be taken on. The problems of little banks are easier to handle so they can generally be sold off to investor groups, albeit expensively to the FDIC.
The big banks need to suffer through years of smoke and mirrors since they can't be closed as easily. The regulators let them "earn" their way through their loan losses. industry wide, big banks don't have enough loan loss reserves to recognize losses present in their home equity, credit card, and commercial real estate portfolios.
big banks aren't a safe haven.
What goes into the "net interest expense" category on the Fed's income statment? When you create money the cost is essentially zero. Buy some mortgage backed bonds, fund it at no cost and you make billions. Hand those "profits" over to the Treasury and the government has more mystery money to spend and the Fed can sound like it actually earns money, as opposed to creates money.
Yikes! Don't we ever learn? Don't we ever regulate? Why fiddle with new financial regulation when the Fed, OCC, and SEC don't use their current powers? If I understand the product correctly, I agree, it should not be allowed. Taxpayers are already responsible for too much transfered risk. We don't need more.
I won't argue with you that community banks have serious real eatate lending problems, are capital shy, and many will fail. But don't kid yourself that big banks are adequately capitalized. Loan loss reserves are judgement calls and the provisioning is light in my opinion. A telling statistic would be loan recoveries. A comparison with past disaster cycles will show that the percentage recovered after charge off is much worse and should result in a larger reserve.
there's more downside risk than upside potential in big bank stocks.
On Nov 20 05:55 AM bbro wrote:
> Your blanket statement on dilution is misquided and misinformed.
>
> The larger banks have enough capital ( and more importantly pre
>
> provision earnings) it is the smaller banks that don't have enough
>
> capital that haven't reserved enough and don't have enough pre<br/>provision
> earnings.....
thanks for the comments. First, the thrust of my thought was aimed at the looming need for additional capital to support off balance sheet assets, not the ongoing need for capital replensihment to fill the bad lending hole. Second, on commercial real estate, there wouldn't be increased provisioning for commercial real estate loans if the underwriting would have required more equity, greater debt service coverage, and firmer lease up requirements before construction commencement. The values have definately fallen, but lenders would be in a much better position had they maintained the more stringent terms of past decades.
Regarding the upcoming dilution, yes I understand that in return for the shares you get cash and the opportunity to reinvest those proceeds in assets that generate income. If banks were raising cash to fund organic growth that would be acceptable. But in the case of FAS 167, the off balance sheet earnings stream is already included in the P&L and , since loan demand is not robust, the new cash is apt to be invested in low yielding securities. Therefore, current shareholders are not going to get a big uptick in earnings from the new money, but they are going to have to share future earnings with all the new shareholders. Coming dilution remains bad for commercial bank shareholders.
On Nov 19 08:33 PM satyr wrote:
> A few things could use some qualificaiton or clarification here.
> First off, the current problems in commercial real estate are not
> so much the result of poor underwriting as the falling value of the
> assets. I would not blame underwriters for not anticipating that
> collateral would lose 30% of its value. Second, it should not be
> assumed that capital levels will be bolstered by stock sales. There
> are other means for accomplishing this, so until a financial institution
> announces a stock sale, I would not suppose it. And, third, when
> a company sells shares, it does not necessarily result in dilution,
> other than in the very short run. Remember, they get cash in return
> for the shares, and this is a new asset owned by all shareholders.
> In turn the cash will be exchanged for other assets that generate
> income. This should not be characterized as a negative, because
> if capital is properly deployed, it is actually a benefit to existing
> shareholders.
CTOPIN, I thought I was being clear regarding my opinion of politicians:neither party is working for the taxpayer, but the Republicans are marginally better. Now, I'm finished unless you want to talk economics or securities. If you want to blather on, then go to a yahoo board or a political site.
Nice little political hornet's nest I stirred up. Good. First, I generally vote Republican, but they are far, far from perfect. I suspect they would have made significant errors if they were in charge. But they aren't, so I call it like I see it and it isn't pretty. It's hard to feel confident in our economic future when you witness trillions of debt obligations rising and know that the likely solution is increased taxes and/or inflation. The USA will survive, but I'd prefer that my grandkids live the life I've had as opposed to that of a Frenchman. All of the above make it hard to buy and hold equities beyond a trade. Thanks for reading my article and responding.
Wish I knew for sure, but I don't. A better question is why do we owners allow such large stock grants that a Baule gets to reload for 30M plus grants per year and Packard 150M. Last proxy had Baule owning 220000 shares and Packard 1500000 so they should be interested. Like most corporate executives they take dollars off the table because they know it will be replaced annually.
First, he isn't or wasn't a commercial banker. He was CEO of Time Warner. Second, he hasn't been there just a few months but is a carryover from the original board.
Given the fact that he was part of the problem, I'd have gotten rid of him, but he's an Obama supporter and that is evidently enough qualifications.
Your views echo mine. K12 is a fine company in a good space. I feel it's the best of the for-profit education companies as they are not subject to the student loan funding, exorbident tuition, and dubious job prospects that trouble the on-line trade schools and so called universities.
K12 lowers education costs which bodes well in bad times.