Over the last couple of days I lightened up on my position in Radian Group and added to my position in MGIC. While I am nervous that this runs contrary to the claims of analysts (which have been getting on board the Radian train lately) I can’t find a hole in my work and cannot ignore the value I see at MGIC.
A few weeks ago I worked through a “blue sky” estimate for both Radian and MGIC. I was pretty surprised by the results. The following is not intended to be 2013 estimate or really an any-particular-time-period estimate. It is simply a look at what earnings might be once defaults “normalize” and each company’s reserve additions revert back to being those on new delinquencies only.
I finished a post over the weekend giving some thoughts about the macro-environment and how it pertains to my portfolio. As a consequence of the conclusions drawn, my portfolio has been growing and my cash level decreasing, to the point where I have now been on margin for the last month and a half. Right now I have about 11% margin. While I am typically wary of using margin, when I look at what I own there are no stocks that I feel compelled to reduce. We’ll see if this turns out to be folly. This is, however, about as much risk as I’m comfortable with, so any stocks added hereon will have to be balanced by equivalent removals. And as per the strategy I profess, I will sell without remorse if the market turns abruptly.
On to some of the moves I made over the past 3 weeks. Read more
My investment strategy is to invest in small and often illiquid companies. This is where I have the greatest advantage. I am willing to spend time investigating names that very few others have even heard of. I have my doubts that there are more than a few handfuls of investors in the world that have spent the number of hours I have on Community Bankers Trust (BTC) or Rurban Financial (RBNF).
Investing in micro/nano/nonexistent cap companies gives me the opportunity to take advantage of what can sometimes be large price discrepancies. But it also has its drawbacks. In particular, because the companies are illiquid, I often cannot get out quickly once the tide has turned.
While I try to hedge this risk with due diligence, there is another aspect that cannot be mitigated with company specific research. In particular, when the macro becomes trump, these little stocks can become very difficult to unload.
I am not very good at holding tight through thick and thin. Perhaps I am a child of 2008 where I learned the rather significant lesson that buying and holding because the business is sound is not always a preferable strategy. In addition to the money and time lost by holding on, there is the mental toll that it takes. I hate to use cliches, but the one that fits well here is that it is better to live to fight another day.
I went back and reviewed some of my past posts on the macro-scene. I haven’t written very much about the macro-environment since my post “It’s a bull market“. In that post I outlined that while I remained wary of the long-term conditions in Europe and was concerned that the LTRO was only short-term panacea that would eventually be overcome by a tide of falling economic data, that the bottom-line was liquidity, which was abundant, and as far as stocks go that tends to trump all:
The underlying condition right now is one of liquidity. It is not the intent of this blog to philosophize (too much) on the eventual consequences of such liquidity. There are plenty of folks, like the wonderful Ms. Park, who are already describing those consequences eloquently. The intent here is to try to evaluate those conditions clearly, and to describe how I am acting to capitalize on those conditions.
For the moment anyways, that means that I own stocks. Read more
I was a little surprised by the reaction to the release of YRC Worldwide’s 4th quarter earnings. While the stock moved about 6% higher, I thought it would have moved more. In the first 15 minutes of trading when the stock ran up to $7.40, that seemed about right to me. But it did not stay there, quickly falling back below $7 and settling at $6.81.
I was impressed by how good the results were. I didn’t expect as much improvement as the company showed, especially what occurred at YRC Freight (the company owns 3 regional trucking businesses which they consolidate as their “regional” segment, and a nationwide LTL business called YRC Freight). Read more
While I think IDT is cheap when evaluated on its mature business lines, I’m not a big fan of investing in a company simply because its cheap. You can end up sitting on a stock waiting indefinitely and often your patience runs out before something happens. So there needs to be a catalyst.
In the case of IDT, I see a couple of catalysts. First, I think they are reaching an inflection point where the declining calling card business is overcome by the growing cardless long-distance (Boss Revolution) business. And second, probably the biggest reason for me to have bought the company is that I think they have a hidden gem in a little subsidiary called Fabrix. While I am going to talk about Boss first, it is Fabrix that I believe that holds the real potential. Read more
As I’ve tweeted about, early in the new year I took a position in Tricon Capital (TCN.to) after being introduced to the company by a friend in early December. It took me until January to become comfortable with the name and until now to write about it. I’m slow.
I have found Tricon complicated to analyze; they have both an asset management business with a number of separate investment vehicles in addition to an on-balance sheet housing portfolio (which is my primary focus). They are also opaque; like most Asset under Management (AUM) companies the details about the investments held within the vehicles is scattered and incomplete.
The part of Tricon that I am most interested in is its home purchase business. Tricon has been buying properties across the US since Q2. Their purchases have been concentrated in Sacramento, Bay Area, Southern California, Phoenix, Charlotte, and SE Florida. They are looking to expand into LA county (where they recently signed a contract with a management company that would look for an purchase homes in the area), and potentially Orlando. Read more
I’ve been building a position in IDT Corporation (IDT) over the last month. The more time I spend looking at the company, the more compelled I am to hold a substantial position in the stock.
I was putting it all together today and I was really struck by the free cash flow when I put it together in the table below.
Note that I have updated this table from the original post to distinguish the total reported cash flow from operations versus the cash flow from continuing operations. In my estimate of cash flow from continuing operations I tried to eliminate all one time items that impacted cash. The free cash flow estimate is based on the continuing cash flow from operations:
In addition to the above cash generation, cash and cash equivalents on the balance sheet work out to about $7 per share. If you account for restricted cash (which given the nature of the restricted cash on the balance sheet I am admittedly not sure you should) then cash is over $8 per share.
The only significant debt on the balance sheet is the “notes payable” item, which is $29 million (or a little over $1 per share), and relates to mortgages on two buildings the company operates in. The other significant liabilities are accrued expenses and deferred revenues.
The current share price has been fluctuating in the $10 range.
I’ve been looking into the businesses that IDT operates and will post on that in the near future.