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It’s been a while since I last summed up the status of the stocks I covered on this blog and as requested by a reader, I owe it to many of you who bought based on what I wrote.
Upfront disclosure is that I hold each one of these companies, but this is not the complete list.
There are more which I did not write about or mention.
Sorry, I won’t be discussing those here.
Despite everything you read in the media, a company doesn’t change in a year.
Strip out the noise and AAPL is still a strong company. Earnings will be out next week and although their fundamentals have dropped compared to last year, at current prices, it’s a solid pick.
There is no investment edge with a pick like AAPL. Unless you are Carl Icahn and have the influence to move the stock price of a 470+ billion company, the only way to profit is to buy low and sell high.
Production for the iPhone 5C has been scaled back but read this opinion on why the 5c is actually doing what it was supposed to do.
I still believe AAPL is worth at least $700 easy.
ADDvantage Technologies (AEY)
AEY has been quietly chugging along this year.
Nothing has changed at AEY and that’s why there isn’t much to write about.
ROE/ROIC/CROIC isn’t that much different than last year. The top line has been dropping and there were write-downs on its balance sheet. This year there has only been slight improvements.
Not all that great, but a step in the right direction.
Not worried though.
FCF is improving, they own their niche and it’s just a matter of giving them time to work things out.
There is no catalyst, and I like that. Nowadays, if a stock doesn’t have a catalyst, even value investors won’t look at it.
It was a small position to begin with but now it’s become a tiny position.
All I can say is that I have a 100% success rate with retail.
100% success rate at losing money that is.
Although retail is supposed to be easy to understand, it’s one of the most difficult, dynamic and fast changing industries to invest in. I argue that retail (especially fashion) changes faster than tech.
There are some good points fundamentally though.
- No debt, positive FCF, stock buyback and a potential activist.
My biggest mistake when I bought ARO was looking at the previous highs of $30 and expecting a reversion to the mean.
Friedman Industries (FRD)
I love it when I get constructive feedback. People just don’t give enough of it nowadays.
It also helped that I respect Shailesh a lot. Great stock picker in case you were interested.
Here’s what he said.
In the private market, steel service companies this size tend to sell for 2-3 times EBIT or tangible book value whichever is greater, this being a commodity business. Primary reason being the steel price volatility and the bloated scrap market that values the equipment at pennies for a dollar of book (if you go for liquidation valuation). The LIFO book versus market gap can flip from being an asset to being a liability and back within a few months. Knowledgeable acquirers know this and will not put too much stock in the inventory valuation drift.
In my previous life I have bought, run and sold whole steel companies like this. It is a hard business to make a buck when you are smack in the middle of the value chain as you have no control over prices, supply or demand. If any value is created, it is mainly by gaining economies of scale and/or scope. I looked into FRD 6-7 years ago and it looked attractive then as well but knowing the market dynamics I passed on it.
Great insight regarding the industry but after some more research and thought, Friedman is different because of the operational excellence.
If Friedman was just another player in the steel space trying to make a buck, it would be prudent to sell based on this knowledge.
However, Friedman has great management, strong shareholder friendly policies, and an excellent track record. Despite being a middle man, a public company like FRD doesn’t deserve to trade or be sold at 2-3x EBIT or tangible book.
Tangible book value is $9.30 by the way. Current stock price is $9.92.
Here’s an image that I created in the Friedman analysis.
FRD has gotten cheaper now. NCAV is now $7.55 compared to $7.29 when I last wrote about the company.
Still long FRD.
Volume in GRVY has picked up the past couple of week.
I have no idea why.
An investor sent me his write-up on GRVY and his latest findings and thoughts.
Ragnarok may be a bust, but their new game, Tower of Ascension, seems to be doing better than anyone anticipated.
Although I’ve trimmed the sizing down, it’s too cheap to throw out.
I still believe INFU to be undervalued with a great moat, but I labeled it as my worst performing pick of 2013.
I offer apologies to anyone who bought INFU based on my excited post on the buyout arbitrage opportunity.
Didn’t work out well, but I was aware of the downside.
INFU is now at $1.45 sitting very close to what I figured it would trade for if the bid failed.
But I am still very long INFU. For those who asked me what my opinion is on INFU, I haven’t sold a single share.
The company is far from perfect, the financials is not the cleanest or the most exciting, but the signs of improvement, new business developments and the way it generates revenue pleases me.
This one isn’t a popular pick. It’s a net net and most people, even value investors don’t like it.
The one part that played out correctly so far is the huge jumps in revenue. Single license sales of its technology is up because customers don’t want to buy an aging license in bulk. They prefer to pay as they go.
This has provided a big temporary boost and increase in FCF which was one of the main points.
- Q1 2012 to Q1 2013: 79% increase in revenue
- Q2 2012 to Q2 2013: 88% increase in revenue
More shares have been bought back with diluted shares now at a low of 3.03m.
PRLS booked some losses in Moduslink (MLNK) which is bad timing because it shot up 30% recently.
The concern over trading activity has also slowed.
Overall, it’s a net net so it’s nowhere near perfect, but my thesis is to hold and watch what the CEO does with all the cash.
Does he return some to shareholders?
Or does he continue his search for companies to buy and takeover and remove the cash shell label?
Retail Holdings (RHDGF)
A 5% distribution will soon hit my account. It’s less than the near 10% I received last year, but RHDGF continues its shareholder friendly policies.
The management is trying to maximize shareholder return as much as possible. I can’t rave on enough about the CEO. He is the type of person every shareholder wants to be leading their company.
Results announced a couple of days back shows that Singer Asia is doing fantastic.
Retail Holdings’ strategy remains unchanged – to maximize and monetize the value of its assets including Sewko, the Company’s most important asset, distributing the resultant funds to shareholders. The Company believes that this strategy is the most compatible both with shareholder objectives and the interests of other stakeholders. Consistent with the strategy, the Company has distributed to shareholders funds surplus to its requirements, with a total of $8.75 per Share having been distributed since commencement of the distribution program in 2007.
Retail Holdings will not, however, agree to a disposal of Sewko, or of any of its other assets, at less than fair value, reflecting in the case of Sewko, the strong performance to date and substantial future potential. Given current equity market conditions and ongoing economic and political uncertainties, the Company has concluded that it is not possible at the present time to realize fair value from a Sewko IPO. Consequently, the anticipated IPO and listing of the Sewko shares on the Singapore stock exchange has been deferred until 2014.
That sums it up perfectly.
Stock performance wise, it has done nothing this year, but it’s music to my ears since I’m not in the business of trying to meet quarterly or annual performance targets.
Long all stocks mentioned.
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