In my post from earlier today I mentioned that I had made some portfolio changes over the past fews weeks and would be sharing them in a series of short posts. In this one I want to talk about what I did and then undid because of the debt ceiling.
In my last monthly update, posted on the 12th, I wrote about how I was reducing exposure to stocks in response to the uncertainty about the debt ceiling.
In my accounts I go into the weekend with more than 25% cash (I’m a little under that in the practice account I show here, at around 23% including my remaining Novus position, as I didn’t quite keep up with the selling I was doing elsewhere). I should perhaps be at an even higher level, but many of the stocks I own are so obscure and out of the mainstream that I feel some confidence that they will be spared some of the carnage that will occur if the debt ceiling is not raised out of indifference alone. The stocks I trimmed the most were the one’s that have proven most volatile to market swings.
By Tuesday of the next week, October 15th, I had moved to a little over 35% cash in my accounts. I received a few comments that this was a silly move, that the US government wouldn’t be stupid enough to let its interest payments lapse. They turned out to be right. Nevertheless, I stand by my decision; I work hard to grow my portfolio and putting that hard work at risk on the assumption that the people in positions of power will do the sensible thing is, in my mind, an unnecessary risk. Remember Dick Fuld? Read more
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
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
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.