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Glen Bradford, MBA is the CEO of ARM Holdings LLC; a Hedge Fund Advisory Company and emphasizes risk averse investing. His lifelong goal is to empower success. Glen is NOT an investment advisor. Never let school interfere with your education. Make uncertainty work for you. Likes: Autotelic,... More
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  • Yellow Media Inc - 10-bagger - 1000%+ return for those who buy now 17 comments
    Dec 24, 2011 10:23 AM | about stocks: YLWPF.PK
    First Off:
    Why would you listen to me? I've done it before. Note that when I wrote that article I had titled it: "There is no risk with Conseco" but SeekingAlpha retitled it. What makes this a great opportunity is that no one will publish my thoughts on this company. Also note that I spent the last 2 hours arguing with my parents over why this company is worth owning and they think I'm insane for suggesting that this is a great value. No one wants to look at this company from the long side. PERFECT!
    Set the stage:
    I have taken a siesta since earlier this year when I turned an about face regarding Chinese equities listed on US Exchanges. I used to think that they were real. Boy, was that an awakening experience. Apparently investing in the fundamentals as they are stated in SEC filings is not fundamental investing. Fundamental investing is investing in what those fundamentals are supposed to represent, the future and present profitability combined with the present financial position of a company. I recently restarted my e-mail newsletter and a good friend of mine says that I should take a look at this company traded in Canada. Historically, I've never spent much time at all looking at Canadian companies. After looking at this one, however, I am baffled by the present price. Well, that's a lie. I'm not baffled. There are reasons that the company is cheap. But all of them combined do not warrant the present price being a sustainable price. My forecast is that higher prices are indeed in this company's future. The chart below explains their past.




    I looked at the website and clicked the chart and then ignored it:
    I feel like this is the theme song coming from anyone who I recommend this company to. Everyone hates phone books. Everyone hates falling prices. That is, everyone but me, apparently. The short list of reasons why everyone hates this company:
    1. They cut their dividend.
    2. They were removed from an index.
    3. They are below $1.
    4. They are traded outside the USA.
    5. They are in a dying industry
    6. They might have credit problems.
    7. Their revenues are declining.
    8. They just lost a lot of money this last quarter, probably going bankrupt.
    9. The company has stopped giving guidance.
    Even the analysts have given up:
    I went out of my way to call the analysts. Optimistic? Not in the slightest. I had to practically beg them to give me information. They sounded completely dreadful. It was hilarious. Then, they admitted that they'd probably be fine at least through next year. Great success. Here are their reports: report 1, report 2.

    Their last quarter's results are on tap here.

    All things aside, here are the reasons that I am buying:
    1. The company is hugely cash flow positive, especially on a price basis.
    2. This could be a 10-bagger from here fairly easily.
    3. The old owners wanted a dividend. When the dividend was cut, I expect all the grandmas sold.
    4. Tax loss selling ends soon.
    5. Sometimes people are forced to sell at low prices.
    6. The analysts have given up.
    7. The analysts projections are really really good! The price they justify is clearly not paying attention to their fundamentals!
    8. I've never seen a company go under that is making money and can pay their debts as they come up.
    ProTip:
    If you own YLO, take a look at their preferreds. There's arbitrage opportunity if you short their common and go long their preferred A shares.


    Disclosure: I am long YLWPF.PK.

    Additional disclosure: I also own their series A preferred shares. I own both common and preferreds on behalf of myself and my investors.
    Stocks: YLWPF.PK
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This post has 17 comments:

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  •  
    Insiders don't seem to share your enthusiasm. No purchases that I can find.
    24 Dec 2011, 01:11 PM Reply Like
  •  
    There has also been no "insider selling".
    27 Dec 2011, 02:08 PM Reply Like
  •  
    I too, believe this will be a big winner since the numbers including cash flow, profits and book value simply don't add up to anything below a few dollars a share. That said, I suspect they might opt for a 1 for 5 or 10 reverse split soon. Disclosure:Own 120,000 common and still buying.
    27 Dec 2011, 09:01 PM Reply Like
  •  
    Bonds are the safest bet assuming cash flow stays positive. Big risk is bank credit facility not being renewed in 2013. I do hold some 2014 paper at 0.50 - nice upside if they can pull it off.
    28 Dec 2011, 12:55 AM Reply Like
  •  
    The preferred A are subject to a forced conversion to common shares. That makes the arbitrage for those specific preferreds totally different than the arbitrage you might do against preferred C or D. The forced conversion terms are awful to preferred A and B holders.
    28 Dec 2011, 04:48 AM Reply Like
  •  
    Hi Bradford,

    I'm sorry. I missed your post yesterday. I'm busy with getting ready for Christmas and finishing up some things for work.

    I believe you also sent me an inbox message asking about preferred shares vs commons.

    I will try and list pros and cons of each.

    Commons
    Pros
    - Liquidity - big daily volume, easy to trade you way out of if things don't work out
    - Have lots of capital gains potential since the company is trading at about 1/20 of book value -- a turnaround and signs of stability going forward are needed to get anywhere close to realizing the potential
    - Big short position with little room to go down -- eventual short squeeze may happen
    - Very oversold

    Cons
    - Risk of downwards pressure due to dilution when A series and possibly B series prefs are converted to commons
    - Lots of manipulation occurring by swing traders, shorts, etc
    - There has been lots of forced selling due to removal from indexes and dividend cut
    - No dividend anymore
    - No capital recovery in insolvency/bankruptcy scenario

    Pref shares (C&D)
    Pros
    - Very high dividend yield due to severely depressed prices -- dividend pays off your investment in under 2 years
    - Less shorting and trader induced manipulation
    - If the company turns around, strong capital gains potential exists (issue value of $25)
    - Slightly higher on the totem pole in the event of insolvency/bankruptcy
    - Likely to be bought back by the company ahead of any common share repurchase programs

    Cons
    - Poor trading liquidity due to very low volumes
    - Risk of dividend suspension
    - Low chance of capital recovery in insolvency/bankruptcy scenario
    - Less capital gains potential than commons

    Pref series A are different than ordinary pref shares because of their conversion clause. Buying these is effectively like buying commons at a discount. 12.5 for 1 conversion very likely in the early to late spring. Comparing prices of commons vs series A, there is currently an arbitrage opportunity.

    Series B may or may not convert to commons after June. Thus they have some characteristics of C/D shares and some of series A.

    I am currently in hold mode with some commons and recently some pref C shares.

    Others may have things to add. As I'm sure you'll realize, some posters are more credible than others.

    Mark

    http://bit.ly/spH4SK
    28 Dec 2011, 11:52 AM Reply Like
  •  
    Glen,
    The Chinese companies that you recommended were not subject to SOX or any other real U.S. regulation. So for you to blame their financial statement fraud on the SEC is ridiculous. Don't blame the SEC for your own greed and ambition. You really think the SEC can audit a Chinese based company? My advice is to never listen to this guy, he is a scam artist. Look at his methodology for "picking" stocks, and you will begin to see the cracks in this guys logic. Anyone who follows Glen's recommendations really deserves what they get.
    29 Dec 2011, 12:06 AM Reply Like
  •  
    Thanks for the insight Andrew. I blame myself for all of my mistakes. I agree with your perception that there is a case for me being an idiot for an extended period of time in the past. :-) Do you have any thoughts on YLO besides ad hominem attacks? Thanks in advance.
    4 Jan, 09:21 PM Reply Like
  •  
    Glen,
    I was simply stating facts, no personal attacks were made. I have a question. Do you know how accounting/finance works? Do you know that a positive cash flow doesn't mean anything if debt levels are increasing? You obviously have no idea what you are doing, and I have no idea how you "managed" a hedge fund. Positive cash flow does not = successful. Look at your article telling people to sell Apple and buy Sprint. In this article you seemed to think since Sprint generates cash flow above its earnings its undervalued. WRONG. Sprint generates positive cash flow by taking on more debt. Sprint is now trading at $1.50 than when you recommended it, and Apple is trading higher than when you recommended to sell.

    I am not getting personal Glen. I am stating facts Please tell me otherwise so I can understand how you pick your winners.
    16 Jan, 02:37 AM Reply Like
  •  
    Andrew, you can and should look at whether a business generates operational cash flow and free cash flow. To the extent the business generates free cash flow, it covers both its debt service and its capital expenditure investments and still has cash left over. It's certainly never a bad sign.

    Debt doesn't generate operational or free cash flow. Sure, debt affects the financing section of the cash flow, but that cannot be what he was referring to. I didn't read his article, but it would be a truly bizarre interpretation of cash flow to read a debt financing on the financing section of a cash flow as affecting free cash flow.
    16 Jan, 03:50 PM Reply Like
  •  
    FCF is OCF - CAPEX. FCF is what is left over to service debt,dividends etc. Generating a few hundred million/quarter in FCF to service 18 billion doesn't instill confidence. Sprint hasn't generated positive cash flow in the past 3 quarters either. This is my main point to Glen. A positive cash flow, and negative earnings doesn't = a good company.
    16 Jan, 08:30 PM Reply Like
  •  
    I understand the perspective you give on sprint and apple. probably need to look into that again.
    17 Jan, 11:49 PM Reply Like
  •  
    Andrew, this is interesting, but it looks like Free Cash Flow gets defined different ways. Here for example they define it using EBIT (1-TaxRate) as a starting point:

    http://bit.ly/wqvwoZ

    Unfortunately, it looks like Yahoo is giving a different number. Yahoo's operating cash flow is starting with Net Income (which includes the Interest and Tax payments), and I don't see Yahoo adjusting those two out in order to come up with operating cash flow? Free cash flow would then be operating cash minus capex.

    Do you see a line on the Yahoo adjustments to net income where they derive operating cash flow that would be where they take out interest and tax?

    Yahoo is reporting as "Levered Free Cash Flow" the free cash flow subtract the interest. Yahoo does show Sprint with positive Levered Free Cash Flow, but I haven't studied Sprint at all and won't defend the correctness of the calculation.
    16 Jan, 10:19 PM Reply Like
  •  
    Glen there is something seriously wrong with everything you have stated. I almost feel badly for you because it truly seems that you are not suited to be writing any articles about investments. I am actually not certain you even know how to copy and paste! to wit, your "comment" to yourself which was possibly a private message to your inbox.....and, it was posted after Christmas, so the content was even old. You do not know the difference between common and preferred stock?????? Seriously?

    Personally, I feel that no article that you ever write should be published, nor should SA even allow you to comment.

    I realize that sounds extremely hasrh, yet something tells me that your rhetoric is pure hogwash.

    Someone should discuss this with SA management.....I really urge you to take a long hard look at what you are doing!

    I am sure you are a decent fellow simply misdirected.

    Have a nice life son
    10 Feb, 10:37 PM Reply Like
  •  
    Thanks for your opinion.
    14 Feb, 05:31 PM Reply Like
  •  
    Why does the path of this stock remind me of the Chinese stocks you were touting in your previous incarnation? Now down 30% from when you recommended it in a market that has gone due north.
    14 Feb, 05:26 PM Reply Like
  •  
    The Chinese Stocks are fraud. This company has price targets from analysts at around $0.01 and is priced at $0.13 at present.

    I still say it is worth $3.
    14 Feb, 05:32 PM Reply Like
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