- Where do SA and Wall Street diverge?
- Who is right?
- Who is worth following?
Seeking Alpha Favorites
This year, Seeking Alpha authors and Wall Street analysts diverged radically on certain stocks, especially Gannett (GCI), Deutsche Bank (DB), Dillard’s (DDS) and Soc Gen (OTCPK:SCGLY). SA authors were, on average, very bullish while Wall Street was bearish or very bearish. This basket more than doubled, increasing by over 110% year to date.
Dillard’s was the standout. It has been a top performer since the initial March 2020 Covid shock. SA’s Dillard's: When Assets Are More Important Than Earnings laid out the bull case shortly thereafter. Shares subsequently soared.
What did SA authors see that Wall Street missed? One important factor in the long-term success at Dillard’s has been its relentless decrease in share count.
This can be extremely good for maximizing shareholder wealth but extremely bad for Wall Street – such companies are just enriching owners instead of enriching bankers with dilutive secondary stock offerings. And Wall Street equity research is largely a marketing tool for investment banks. The people who really got this one right were far from Wall Street. Harris Kupperman was early in really understanding this name, which he wrote up in An ED Trade From The Road…. It is astonishing how well he did with that idea. Shares are up over 533% since I shared it on StW.
Berkshire Hathaway’s (BRK.A) (BRK.B) Ted Weschler might be the biggest Dillard’s winner. Last year when shares were down by over 40% YTD, he bought over a million shares or almost 6% of the company. Sadly for Berkshire holders, he didn’t buy it for Berkshire. He not only bought it for his personal account, he bought it for his IRA (one of the greatest IRAs in America, behind few others such as Peter Thiel). Weschler described it here in reaction to the press revelation that it had ballooned to over $264 million by 2019. With the help of DDS, it is far larger today in an accomplishment more worthy of emulation than envy-driven political attacks.
What did Kuppy and Ted see? When they first disclosed their positions, DDS tangible book value was about $63 per share with shares trading around half that price. They owned valuable real estate with a value that could more than cover their debt. The company would avoid bankruptcy. At the same time, DDS has cash flow and uses it to buy back shares. Even dinged for the pandemic, the business had value. It was probably worth at least what they paid in the worst case reasonably likely scenario. And it was worth at least four times that much in a recovery which is what happened.
Wall Street Favorites
At the same time, Wall Steet loved ALFI (ALF), Uranium Energy Corp (UEC), Energous (WATT), and Blue Apron (APRN). Wall Street was very bullish; Seeking Alpha was bearish or very bearish. They declined an average of over 14% YTD with none beating the S&P 500 (SPY).
Over the long-term, Energous has pursued the opposite tact as Dillard’s, running up its share count with a zeal that would make central bankers blush.
Wall Street loves it; Seeking Alpha authors don’t. Keubiko, one of the best debunkers on Seeking Alpha and Twitter (TWTR), was an early skeptic, correctly writing that Energous Could Be A Crowded Exit. Subsequent to his bearish take, shares have had a rough go of it.
But if you like the shares, there are plenty more where that came from – management will doubtlessly keep printing them around the clock. It is down over 81% since first mentioned as a short idea on StW but remains overvalued today, despite what Wall Street says.
It is good to be Ted Weschler.
Analyst's Disclosure: I/we have a beneficial long position in the shares of DDS either through stock ownership, options, or other derivatives.
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