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I am a professional by day and an amateur investor by night. I have been investing since I was a teen and continue to thoroughly enjoy every minute of it!
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  • ALCS: Potential Short-Term Arbitrage Play Without The Typical Risk

    Alco Stores Inc. ("ALCS") is a relatively unknown public company in the USA that operates in a niche market. ALCS operates more than 200 general stores in 23 States. Its stores sell a wide array of items from electronics to apparel.

    ALCS operates in a niche market. The company only operates stores in low populated areas which have populations that would not attract Targets, Wal-Marts, etc. Therefore, ALCS operates in markets where the large competitors do not exist.

    This doesn't mean ALCS has no competition. There is always companies such as Big Lots and Family Dollar to provide some level of healthy competition.

    ALCS has a very low float of approximately 3.26 million shares which means that any trades in its stock could cause large fluctuations. With that being said, the company has very low daily volume, about 3-5 thousand per day.

    Now I will explain what makes me very interested in this company and why I believe it is a potential arbitrage play worth between $6-8/share in the short term.

    The company has a book value of about $25/share and tangible book value of about $16/share. The company currently trades at $10.16/share.

    In the summer (July/August) 2013, the company received a takeover offer from Argonne Capital at $14/share in cash. Argonne is a private equity firm that owns several restaurants and real estate properties across the USA.

    ALCS's Board accepted the offer which was subject to shareholder approval. Argonne allowed ALCS's Board a limited time to seek higher offers.

    An offer of $14.30/share came from Everbright Development Overseas which is a Chinese company whose business is unclear.

    Both offers were rejected by shareholders in October 2013.

    It is important to note who the primary holders of ALCS are:

    1. Aegis Financial - about 10.85%

    2. Heartland Advisors - about 11.7%

    3. Everbright Overseas Development - about 17.4%

    4. Activist Michael Price - about 8.1%

    *Not to mention several other institutional investors

    The company adopted a poison pill in the spring of 2013 primarily due to the accumulation of its shares by Michael Price and/or other of the above companies.

    There is a very good chance that ALCS will be acquired over the next several months as it is quite common for companies whose shareholders reject takeover offers based on valuation to receive higher offers soon thereafter.

    I believe that this is an opportune time to invest in this company for the short term (6-9 months). In addition, it appears that any future takeover offer would be approximately $16-18/share, the former of which is the tangible book value of ALCS. Therefore, in the short term there is potential to earn approximately $6-8 per share.

    What if I am wrong? I do not see much, if any, downside risk here as the company is trading at such a low valuation ($10/share compared to $16/share in tangible book and $25 in tangible/intangible book). I suspect that it could be argued that if the company is not sold in the near term then some of the above institutional investors will want to sell which could lead to a further price reduction ($6-8/share in the short-term), however, again I point to valuation.

    Please note that I am not yet a shareholder but intend to initiate several purchases over the next few weeks on any dips.

    Disclosure: I am long ALCS, ACTS, GNW, RF, FNFG.

    Mar 16 10:17 PM | Link | Comment!
  • Genworth Financial: Just When You Thought The Fun Was Over ...

    Genworth Financial or "GNW" is primarily an insurance company. Its main business segments include, but are not limited to, the following:

    1. Life Insurance - United States;

    2. Mortgage Insurance - United States, Canada, Austrailia, and Europe; and

    3. Long Term Care Insurance.

    During 2008/2009, GNW's stock free-falled to less than $2/share due to staggering losses in its mortgage insurance business. This was a result of what many refer to as the "housing crisis". Before the "crisis" it traded at approximately $35/share as the high.

    Since then the stock has recovered very nicely and has traded as high as approximately $15/share. It just recently hit a new 52 week high at above $17/share.

    Why the rebound? The rebound is primarily attributable to the return of the US (and European) housing markets. During the 2008/2009 downturn the Canadian and Australian mortgage insurance arms remained strong as opposed to the US and European arms. Now the company has both the US and European arms reaching profitability, and continued strong performance from the Canadian/Australian arms.

    Given the above, one would think that any reasonable return in the stock price has already occurred and that the stock is trading at its fair market valuation.

    In actual fact, the fun has just begun.

    a. The company has just announced that it plans on taking its Australian mortgage insurance arm, which is performing very well, public either in the upcoming quarter or at the end of this year. This could be announced anyday now. Such an IPO would add additional liquidity to GNW's books which could be used to pay down debt, buyback stock and/or initiate a dividend;

    b. The Canadian mortgage insurance arm, which is also performing very well, will likely soon increase their insurance premiums as CMHC, their lead competitor, just announced such an increase. This is good news for GNW as it receives dividends from the Canadian arm every quarter;

    c. The company's CEO continuously states that he is focused on shareholder value. He has stated that he intends to use the additional funds from the Australian IPO towards debt repayment and stock buybacks as opposed to a dividend. This is great news as buybacks would lower the float and assist in increasing, already escalating earnings;

    d. The company's Long Term Care arm has suffered in the recent past from increased costs when compared with stagnant premiums. The company has applied for numerous increases in insurance premiums on a State-by-State basis, many of which are, or are in the process of, being approved; and

    e. The company is also benefiting from increases in insurance premiums at its life insurance arm, not to mention new product offerings.

    I remain a very pleased shareholder that is looking forward to the Australian IPO announcement, potential share buyback announcement and anticipated increased earnings which should assist in propelling GNW's stock over $20/share and closer to its book value of approximately $29/share (including intangibles). A bonus would be the reinstitution of a dividend which would attract plenty of institutional investors, some of which require a dividend in order for their funds to invest in the company.

    Disclosure: I am long GNW, ACTS, ALCS, RF, FNFG.

    Mar 10 10:15 AM | Link | Comment!
  • The Turnaround At Actions Semiconductor Is Here But Does Anyone Know About It?

    Actions Semiconductor (ACTS - "Actions") is a fabless semiconductor company that operates out of China. It has five primary offices and approximately 600 employees. Founded in 2001, Actions IPO'd in 2005 on the Nasdaq exchange. Since its IPO, Actions has seen its ups and downs.

    Actions develops chips for portable and non-portable multi-media applications such as tablets, boomboxes and various audio players. Actions main source of revenue is China but has revenue sources from around the world including several emerging markets, the USA and Europe.

    Actions has faced several issue over the past few years. The primary issue is that Chinese companies trading on US exchanges have been distrusted by the investment community as numerous companies have been caught operating as complete frauds. Another issue is that for years Actions has made little effort to market itself internationally (outside of Asia) and failed to keep the investment community informed of its developments on a continuous basis (which is not uncommon of Chinese companies). For example, when a new product came to market it would not make any type of press announcement to the investment community. In addition, for years Actions has carried a substantial amount of cash/short term investments on its books without making any effort to return the same to its shareholders. As a result of the above-mentioned issues, as well as its nominal size in the semiconductor industry, Actions is not well known and has not seen substantial interest from the investment community.

    So what has changed and why is it important to potential investors?

    In 2011, Dr. Zhenyu Zhou became the CEO of Actions. Since becoming the CEO, he has changed the focus of the company towards the Android tablet market while maintaining a strong foothold in the multimedia market. Actions has created a series of chips which include single and multicore chips (dual and quad core) which have attracted the likes of Ainol and Ramos to include these chips in there tablets. Thus far the focus has been to compete in the low end non-Apple tablet market with three chips (ATM7013, ATM7019 and ATM7029). In 2013, the company released its two new chips (ATM7021 and ATM7039) and has indicated that it would like to expand its product offering to include the higher end tablet market. Therefore, Actions has created a nice product line within a short period of time and has been able to attract several companies to incorporate the same into their tablets.

    As a result, Actions has seen improved business results over the past several years. Actions has been steadily increasing its revenue since 2010. In 2010, its annual revenue was 37.58M, in 2011-47.49M, 2012-54.33M, and 2013-on pace for approximately 69M (based on the low end of the company's expectations).

    The company has also been improving their PR and marketing. The company has developed a new website which is updated frequently. Furthermore, the company announces any of its new products through standard PR announcements. In addition, management has been travelling to several trade shows and meeting with other companies in the USA for business development. Although the above steps /items seem elementary and a necessity to the average public company, many Chinese ADR's simply lack such marketing of themselves and their products.

    The company has been carrying at least $208M in cash and short term investments since 2007. It currently has $215M in cash and short term investments with no long term debt and nominal short term debt. Based on the number of outstanding ADR's, the company currently has approximately $3.13 in cash per share (not including full book value - tangible and intangible assets) yet is only trading at approximately $2.60 per share.

    The company has finally come around to return their cash hoard to shareholders currently in the form of buybacks. As of September 30, 2013, the company has bought back 21.4M ADR's for a total investment of $48.6M which is quite aggressive for a company with such a low float. As of September 30, 2013, the company had only 69M ADR's outstanding. In its last conference call management indicated that they would continue to aggressively buyback shares at these levels and retire those shares.

    Most importantly, in its last conference call the company indicated that for the past few months it has been discussing the possibility of making a tender offer with several banks. This is certainly god news for current shareholders.

    In summary, you will note that this company in currently going through a positive turnaround that it actually working. It has new product lines that are selling, it has growing revenues and an excellent balance sheet. Moreover, it has a low float which is decreasing with every quarter and management is stating openly that it is actively investigating the possibility of a tender offer. This appears to be a "sleeper" or "diamond in the rough" that many investors hope to purchase before it appreciates. I simply ask that you take a good look at it before moving on. It will not be the next Intel but could very well double or triple in value with the blink of any eye if management continues their good work. This could very well be a company whose management takes it private only to go public in Asia at a future date.

    Please note that I have been a follower of ACTS for some time now and have been a shareholder on and off for more than one year. I am currently a shareholder.

    Disclosure: I am long ACTS, NCTY, RF, GNW.

    Dec 10 11:06 AM | Link | Comment!
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