Archive for the 'Investment Ideas' Category

OTC Stock Manual

 
If you’d like to purchase Jan Svenda’s Manual Of Stock (like an updated online Walker’s Manual)…click, here.
 
You can see samples to Jan’s manual, here.
 

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Summary

Calloway's Nursery was first discussed in Episode #22.

In this episode of The Intelligent Investing Podcast, Eric Schleien sits down with Jan Svenda to discuss Calloway's Nursery, Inc. (CLWY).

This may possibly be the least obscure stock that Jan has ever discussed on the show.

The company runs a small chain of garden centers in Texas. There is an activist investor in the management who has been a good steward of capital. The original pitch was that the company was trading below liquidation while business was solid. New management came in and realized value. There’s been about an extra 10% return with special dividends. The company currently spits out $3,000,000 a year in free cash flow which is backed up by real estate and a healthy balance sheet. The company is opening up new stores. There’s also the possibility of future improvements in free cash flow. The company is currently valued at about a 10% free cash flow yield. The coronavirus should not hurt them too badly.

 

About Jan Svenda

Jan is a “deep value” investor/analyst mainly focused on the US small-cap and micro-cap universe. He started out with a long-only bias (stocks trading close to NCAV etc.) which led to his interest in the OTC world.

Jan now covers this space through his exclusive newsletter service where he shares his latest long ideas and a watchlist of OTC stocks which should help subscribers generate material returns and allow them to “monitor” the OTC space more efficiently.

The service also acts as a community of engaged members who share the same focus. On top of this, he is interested in short-focused research especially in the thesis revolving around accountancy or earnings manipulation.

From time to time he also contributes to Safety in Value’s marketplace ‘Microcap Review’.

 

STAYING IN TOUCH WITH JAN SVENDA

To learn more about Jan and his manual of OTC stocks, you can visit his website.

He can also be reached via LinkedIn.

 

Staying In Touch With Eric Schleien

 

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For the full video interview on YouTube, click here.

 

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Overview

Endor AG is a Munich-listed holding company whose sole asset is Fanatec, the premium provider of racing wheels and other accessories for sim racing games played on consoles and PCs

Despite being a German-listed small-cap, the company has ~80% market share in the premium wheel/accessories segment and has essentially locked up exclusive branding rights for all the major OEMs and racing organizations (F1/Nascar/WRC) to produce branded replica racing wheels.
 

Growth

 
Endor AG grew 70-80% last year and has compounded revenues at 40% over the last 10yrs, as iRacing/simulated racing has grown organically in popularity at very high rates

COVID-19 Impact

Current growth is exploding due to COVID-19 and the mainstream recognition sim racing has garnered with normal sports closed for the last three months.
 
The current business is growing 100-200% per annum, so much so that the company can barely keep up with demand.
 
 
The company has already leaked they are targeting 150-200mm in revenues at 25-30% EBIT margins in the next couple of years (versus 40mm revenues last year and 80mm this year).
 

Going Forward

The stock currently trades at ~11x 2021 earnings, and ~2x 2021E sales, despite a multi-year runway where the business could grow 30% for a very long time.
 
Fair value on a 'normal' exchange with English disclosures/investor relations would probably be 4-5x the current price. Jeremy believes that even on the minor German exchange, it's hard to see how the stock doesn't double or triple again.
 
 

Staying In Touch With Jeremy Raper

 

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OTC Stock Manual

 
If you’d like to purchase Jan Svenda’s Manual Of Stock (like an updated online Walker’s Manual)…click, here.
 
You can see samples to Jan’s manual, here.
 

Subscribe

If you like The Intelligent Investing Podcast, please consider subscribing on:

 

 

IF YOU’D LIKE TO WATCH THE INTELLIGENT INVESTING PODCAST ON YOUTUBE, CLICK HERE.

 

Summary

In this episode of The Intelligent Investing Podcast, Eric Schleien sits down with Jan Svenda to discuss Altair (ATCD), a dark OTC stock.

 

Articles

 

About Jan Svenda

Jan is a “deep value” investor/analyst mainly focused on the US small-cap and micro-cap universe. He started out with a long-only bias (stocks trading close to NCAV etc.) which led to his interest in the OTC world.

Jan now covers this space through his exclusive newsletter service where he shares his latest long ideas and a watchlist of OTC stocks which should help subscribers generate material returns and allow them to “monitor” the OTC space more efficiently.

The service also acts as a community of engaged members who share the same focus. On top of this, he is interested in short-focused research especially in the thesis revolving around accountancy or earnings manipulation.

From time to time he also contributes to Safety in Value’s marketplace ‘Microcap Review’.

 

STAYING IN TOUCH WITH JAN SVENDA

To learn more about Jan and his manual of OTC stocks, you can visit his website.

He can also be reached via LinkedIn.

 

Staying In Touch With Eric Schleien

 

Disclosure

Eric Schleien and clients of his company Granite State Capital Management have no position in Altair. I, Eric Schleien, recorded this podcast myself, and it expresses my own opinions. This episode should not be considered investment advice. Please do your own due diligence.

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Summary

In this episode of The Intelligent Investing Podcast, I sit down with David J Flood to discuss TSR, Inc (TSRI).

 

 

About David Flood

David runs the blog, Elementary Value, and is a private value investor based in the UK. His investing approach is grounded in the fundamental precepts of value investing based upon Ben Graham’s core concepts of ‘Intrinsic Value’ and ‘Margin of Safety’. His investment strategy involves looking at both ‘Deep Value and ‘Franchise Value’ situations and using the value investing framework to analyze the financial and corporate facets of a given prospective investment.

 

Staying In Touch With David Flood

 

Staying In Touch With Eric Schleien

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If you'd like to watch this episode on YouTube, click here.

 

Coronavirus Investing Series: Part 12

This is Part 12 of a special Coronavirus Investing Series. If you have not listened to Part 1, please click here to get the overall context/market overview during this unprecedented time.

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Summary 

In this episode of The Intelligent Investing Podcast, Eric Schleien sits down with Jack Bosch to discuss land arbitrage. It's a pretty unique value investing strategy with low competition due to the non-scalable nature of the investment. For those interested in obscure kinds of investments, you may find this useful.

 

Staying In Touch With Jack Bosch

 

Staying In Touch With Eric Schleien

 

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Summary

In this episode of The Intelligent Investing Podcast, I sit down with David J Flood to discuss Microwave Filter Co (MFCO).

You can read more about the company on David's Blog, here.

 

About David Flood

David runs the blog, Elementary Value, and is a private value investor based in the UK. His investing approach is grounded in the fundamental precepts of value investing based upon Ben Graham’s core concepts of ‘Intrinsic Value’ and ‘Margin of Safety’. His investment strategy involves looking at both ‘Deep Value and ‘Franchise Value’ situations and using the value investing framework to analyze the financial and corporate facets of a given prospective investment.

 

Staying In Touch With David Flood

 

Staying In Touch With Eric Schleien

 

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Coronavirus Investing Series: Part 10

This is Part 10 of a special Coronavirus Investing Series. If you have not listened to Part 1, please click here to get the overall context/market overview during this unprecedented time.

You can also listen to:

 

Summary

Eric Schleien and Brian Dress discuss investment opportunities in the bond market. Brian Dress is an investment analyst at Left Brain Capital Management, LLC.  Brian's angle relates to value opportunities his firm is seeing in the corporate and municipal bond markets, based on the massive selloff in credit markets over the past 6 weeks.  Particular discussion points in this episode include:

 

Discussion of Bond Markets Pre-COVID 

Brian thinks the spreads were far too tight which made it very difficult to position portfolios with income to match future expenses.  Investors were forced to take too much risk to attain yield. This is something we have discussed extensively before on The Intelligent Investing Podcast.

 

How Credit Cycles Work Historically

The main takeaway here is that credit booms and busts occur far more often than do booms and busts in the equity markets.  Savvy investors should be willing to take risks on bonds in trough phases like this one and gradually lighten the load as spreads tighten, creating the capacity to take advantage of the next down cycle. 

Note: high yield bonds have led stock recoveries after every market drawdown since 1980 (1982, 1991, 2002, 2008-9, 2016) 

 

Observations In Credit Markets 

Brian has noticed indiscriminate selling related to a liquidity crunch, causing bonds at all levels of credit quality to sell off heavily.  Brian believes this creates fantastic opportunities across the credit spectrum, which he and his company are taking advantage of to reposition clients. I discuss that in regards to all markets, here.

 

COVID-19 Gameplan 

Brian is upgrading the credit quality of bond portfolios, taking the opportunity to lock in large coupons on stable companies, some of which continue to trade at a discount. Markets have been starved for these types of opportunities in the bond world and, while many of these have already narrowed, plenty of mispriced securities are still out there for investors.  There are still chances to lock in great coupons, along with the potential for capital appreciation.  Brian believes it is important to recognize that it is likely we will be in a 0% interest world for the foreseeable future.

 

Bond Opportunities

After Eric and Brian discussed the general overview/strategy with respect to bonds, Brian presents a few examples where he sees opportunity.

  • Qurate (QRTEA) 8.25% 2030 bonds (Yield to maturity >12% at current price levels)
  • Travel and leisure: Delta 4.375% 2028s (yielding >7% at current prices) and Carnival Cruise (unsecured 2020s and secured 2023s)
  • Illinois Municipals General Obligation 5.1% bonds: effective yield of more than 8% for those in highest tax bracket, possible appreciation potential with interest rates now firmly at 0.

 

New Service

Brian is debuting a new service next week at Left Brain Investment Research, which is a twice-monthly pay-per-view Zoom call for investors of all types, where his firm will be introducing a single bond idea and a single stock idea each month and explaining the entire research process that went into those recommendations.  

Brian has his firm's “shelter-in-place” specials available on his firm's website

Listeners can enter the promo code “Eric” on the subscribe page and receive a full research service (stocks and bonds) for $99/month for the life of the subscription. 

***FULL DISCLOSURE, I, Eric Schleien, DO NOT MAKE ANY MONEY OFF THIS PROMO CODE. ALL SAVINGS GET PASSED BACK TO INTELLIGENT INVESTING PODCAST LISTENERS.

 

LBIR Investment Ideas Forum

Second, Left Brain Research has its LBIR Investment Ideas Forum with the first two installments coming on April 30 where Brian and his firm will discuss a stock idea with the same format.  Listeners can find all the information for these events on the front page of the LBIR website.

 

 

About Left Brain

Left Brain opened the wealth management business in 2014, a hedge fund in 2016, and an investment research platform in 2019. A differentiating characteristic of Left Brain's investing platform is an emphasis on selecting individual securities, particularly individual bonds in the high yield space. Brian genuinely enjoys and gets excited to share his investment philosophy with both individual investors and advisors.  The company has slowly built up its investment staff in order to cover a large universe of high yield bonds (about 900) and about 200 stocks.  What they've come to realize is that many advisors lack the resources to replicate this type of research apparatus, so they decided to create a product to provide this research to advisors so that they can select stocks and especially high yield bonds that will help clients achieve income goals in a compressed interest rate environment.

Data-Driven Bottom-Up Approach

Left Brain has a data-driven, bottom-up approach that incorporates technology to rank securities on the basis of a number of quantitative and qualitative factors, including revenue growth, gross margins, competitive dynamics, and accelerating results. The company portfolios are concentrated, as they view this as an allocation model with the best chance to deliver superior results and excess returns; usually no more than 20-25 stocks at any given time, particularly in the hedge fund.

 

Management

Company management is paramount in both equities and credit.  Left Brain wants to see a history of success for the CEO, a strong capital allocation strategy, and an alignment of interests with investors (“skin in the game”); also for equities and bonds, they want to see strong fundamentals in the underlying business, no matter what the valuation or possible yield compensation

 

Equities

The company looks for strong (and accelerating) revenue growth, high (and expanding) gross margins, favorable competitive dynamics

 

Distressed Bonds

For distressed bonds: Left Brain looks for deleveraging (either through improved EBITDA or retiring debt through asset sales), improving trends in operating metrics (revenue, EBITDA, total debt), high yield compensation per unit of leverage (Debt/EBITDA), and most importantly, a strong Free Cash Flow (FCF) profile.

 

Staying In Touch With Left Brain Investment Research

  • Click here for more information on Left Brain Investment Research
  • Click here for more information on Left Brain Wealth Management

 

Staying In Touch With Eric Schleien

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This is Part 8 of a special Coronavirus Investing Series. If you have not listened to Part 1, please click here to get the overall context/market overview during this unprecedented time.

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In this episode of The Intelligent Investing Podcast, I sit down with Jeremy Raper to chat about a potential opportunity in Japanese Mall REIT's which have been hit pretty hard during this coronavirus pandemic. 

 

Overview

If you are willing to look through whatever happens in 2020 and assume we go back to a normalized environment in 2021, then you should be looking at some of the most beaten-down sectors.

You have to ask yourself a few questions when valuing names in the most beaten-down sectors of the economy:

 

  1. Is the equity going to survive?
  2. What losses are they taking along the way?
  3. What does that post-corona-world look like?

 

Japanese REITs

Japanese Mall REITs fall within the broader subsector of Japanese REITs. REITs are real estate investment trusts. Furthermore, REITs must pay 90% of their income as dividends. 

 

Japanese Hotels

Why Japan hotels in particular? Japan has been under-hoteled for a long time. There has been a shortage of hotels and that had been rectified somewhat on the runup to the Olympics. 

However, the hotel fleet is still pretty tight. 

 

Two Cheap Japanese Hotel REITs

On this episode, we discuss two Japanese Hotel REITs

 

Both REITs trade at fractions of NAV and high normalized cap rates.

 

Staying In Touch With Eric Schleien

Staying In Touch With Jeremy Raper

 

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This is Part 6 of a special Coronavirus Investing Series. If you have not listened to Part 1, please click here to get the overall context/market overview during this unprecedented time.

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In this episode of The Intelligent Investing Podcast, Eric Schleien & Jeremy Raper discuss opportunities in the Gold Sector.

Macro View

The macro view is that due to the massive debasement of currency during this coronavirus pandemic, that will be bullish for gold prices. In addition, gold companies such as Kinross Gold are shutting down production due to coronavirus outbreak which ends up being a net-positive for the commodity. Unlike commodities such as copper, gold demand is not impacted by economic activity due to less actual functional utility. 

 

Gold Mining Stocks

 

However, Jeremy prefers Gold Minding stocks to owning actual physical gold outright. The reason for this is that if you can buy a gold miner that has been dumped during this coronavirus crisis, and you can find one where their revenue is in US Dollars but their costs are in their local non-US currency, you can also benefit from margin expansion. The margin expansion comes from cheaper labor costs, a lower price of oil, and a debasement of non-US currencies which have been destroyed in relationship to the US Dollar.

 

Polyus Gold

Polyus PJSC (Russian: ПАО "Полюс") is a Russian gold mining company. It is the largest gold producer in Russia and one of the top 10 gold mining companies globally by output (2.84 million ounces of gold production in 2019). It is headquartered in Moscow and is listed on both the Moscow and London Stock Exchanges.Polyus’ main assets are located in Eastern Siberia and the Russian Far East - in the regions of Krasnoyarsk Krai, Irkutsk Oblast, Magadan Oblast and the Republic of Sakha.

The company is controlled by Said Kerimov, son of Russian billionaire and politician, Suleyman Kerimov.

Due to the majority share ownership of Polyus by Said Kerimov, the company is not a buyout candidate. However, the company will benefit from margin expansion and Jeremy believes the company is trading at low-mid single digits of earnings based on $1,500 gold price. That equates to a 7.5% dividend yield on a conservative basis and probably higher with margin expansion.

If you want to listen to the episode of Jeremy discussing Polyus Gold, you can listen here. You can also listen to the commentary on Polyus on YouTube.

 

DRD Gold

 

Another gold mining stock that Jeremy likes is DRD Gold based out of South Africa. Like Polyus, they will benefit from a depreciation in their local currency (Rand), and benefit from higher gold prices. Unlike, Polyus, the company is a takeout candidate as their parent company has moved up its ownership stake in DRD from 40% to over 50%. DRD has a boatload of cash and no debt. The company currently trades at a very low P/E bases off $1,500 gold and their parent may very likely buyout shareholders in order to take advantage of the low stock price. Furthermore, the parent will probably want access to a large amount of cash being that the parent is somewhat levered. It's interesting to note that DRD pays an unusually low dividend which Jeremy suspects are due to marching orders from the parent company.

 

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Staying In Touch With Jeremy Raper

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This is Part 5 of a special Coronavirus Investing Series. If you have not listened to Part 1, please click here to get the overall context/market overview during this unprecedented time.

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OVERVIEW

In this episode of The Intelligent Investing Podcast, Eric Schleien sits down with Jeremy Raper to discuss some merger arbitrage and special situation investment opportunities in this coronavirus market environment.

 

Staying In Touch With Eric Schleien

Staying In Touch With Jeremy Raper

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