Message Font: Serif | Sans-Serif
 
No. of Recommendations: 41
I’ll close out all the portfolio’s positions shortly, but I wanted to provide you all with my final thoughts on the portfolio’s stocks and what to watch for in the future if you continue to hold them.

BAC – The bank is still underpriced, and the A warrants give you more leverage on an increasing stock price. They go out for 4 more years still, so lots of time for the market to figure out BAC. Still a good buy.

VEC – This defense spinoff has come a long way in a short time. I bought at around 7x this year’s earnings. The stock is now up 50% from when I purchased just 4 months ago or so. I’m looking for about $40 or thereabouts – 14x trailing earnings – as a reasonable sell price. A couple more quarters could do it. I’d hold this stock at today’s prices.

CTRE – CTRE will be a repeat of my success in SBRA (something like 88% total return in 3.3 years; 22% annualized return). It just announces its dividend, but it hasn’t appeared on the dividend screens for now, but it will. The current yield is about 4%, which should escalate quickly over the next couple years. Continue to see if they can make attractive deals. It seems like they’ve got quite a few lined up in the weeks ahead. This is still an undiscovered gem, and with better management than SBRA. After it gets a couple deals done, the market will start to take notice. This is worth $16 today and at least $20 a couple years out if they make smart deals. Today’s prices are still pretty good.

HLF – HLF is not a pyramid scheme, though its business will be weak over the next year as they move to a different onboarding process for distributors in an attempt to sustain longer-term growth. Eventually the FTC will clear them, though not perhaps without some fines. The fact that they’ve made some hires in the compliance area shows that they’re already working with the FTC to get things right. And then Bill Ackman is done and has no strings left to pull. On the options front, if I were still running the portfolio, I would close the long calls today and continue to hold the short put, with the expectation that the stock appreciates and waiting for time value to diminish.

NRF syn long – The synthetic long on the pre-split NRF has been a huge success and there still remain 13 months on the LEAPs. I set up a leveraged position on the syn long, with a $17 strike price when the stock was in the low $16s. Because of that, I was able (with only a little additional cash) to buy 2 calls for every put sold. The price of the puts has been cut in half, while the calls have doubled. The options – NRF1 – have a deliverable of 50 shares of NRF and 50 shares of NSAM, so they have leverage to the very fast-growing NSAM unit. It looks increasingly likely that NSAM will grow cash available for distribution by 50% in 2015 (over annualized Q3 figures). The market hasn’t caught on to this yet. I think a reasonable price for NSAM today is $28-$30.

NRF – This stock is yielding 9.2% as I write this, and will likely bump its dividend next year by another 8 cents annually, so the forward yield is closer to 9.9%. And there are plenty of catalysts remaining. Management has been threatening to spin off divisions if the market doesn’t award the stock the right price. And being added to REIT indices should help valuation, too. I still think the value is closer to $25 a share today. I’d buy more at today’s prices.

EXETF – This was a truly unfortunate experience, but management just worked over shareholders in a terrible way. They ran the American business into the ground and then sold it a low point (very much like buy high/sell low investors). The conference call announcing the deal was unbelievable and you could hear the fear in the CEO’s voice. And with no cash going back to shareholders – either as a dividend or buybacks – shareholders were right to dump the stock. It would be much more accretive to buy back stock at these prices, but management wants to expand the business – poor capital allocation. So I’m selling.

MSG – I still think the endgame here is a buyout. The position is up 150%+ for me, and there is another catalyst on the way in the form of a spinoff, and a $500 million buyback should help boost the stock, too. While I wouldn’t buy more now, it still makes a good hold as the company figures out what it’s spinning off.

HTZ – This remains a very good situation, and while it will take longer to play out, there are numerous catalysts to help keep the upside high – a spinoff (now likely pushed back to early 2016), buybacks, and activists, among others. A pending accounting review is gumming things up now, but with an oligopolistic industry, it’s going to be easy for HTZ to generate growing profits once they right the ship. I’d buy more today.

SSW – This has gotten hit recently on concerns about the global economy, I suppose. That seems silly to me. I’d watch for the dividend announcement in early March 2015 as a key catalyst. I expect a 10% bump in the dividend, and I may invest in options (as I did here one year) to play the increase, especially if the stock is near an option strike. I’m much less enthused about SSW than I was 4 years ago or so when I started buying. Management just hasn’t really moved the dividend enough in the past year. Still, it remains a likely source of 15% total annual gains from here, so not awful by any stretch.

AIG warrants – AIG continues to work on getting its act together, though it’s been sluggish in the last year in doing so. If it does, the stock could trade to book value, and the warrants would move up even faster than the stock.

TTS – This stock is now in “show me” mode, and is something of a broken growth story for now. They’ll have to show that there’s still a growth opportunity here, and the new CEO has plenty of work to do. Potential huge opportunity. But I have other fish to fry for now.

FFNW – This remains a good opportunity, though if I were buying, I’d want it at a lower price than what we’re seeing now. I still think the game plan is to sell off the bank, the usual MO of activist investor Joe Stilwell, who owns an 8.4% stake here. A most interesting move happened a couple weeks ago, when the holding company decided to upstream $70 mn from the bank. Could it be in preparation for a special dividend? So a good opportunity that could be sold at any time, but it’s entirely possible that you can buy it cheaper than it is today. Buy opportunistically.

TFSL – The stock has had a very nice 2014, and I expect plenty more buybacks over the next 18 months. Then it will be interesting to see how they use their cash. In future years, the dividend could be bumped substantially just by virtue of the reduced share count, and that would help support the stock when these accelerated buybacks end. That’s what to watch going forward. Now at 60% of tangible book value, TFSL remains a great buy.

RHP – RHP has been a solid performer, since it converted to a REIT and started paying a huge dividend. There’s potential for the company to spin off its Grand Ole Opry unit, but it’s still just speculation at this point. I think the stock is worth about $60 today. The company has a phenomenal collection of hotel properties and can rapidly grow earnings even without buying/owning a new hotel. This makes a good hold, but I’m not really keen on buying here.

SIRI – SIRI remains a good investment opportunity. The company is rapidly buying back stock, leveraging itself to do that. It’s a classic John Malone play. His Liberty Media will slowly take over the company, in large part by having the company repurchase its own stock while Liberty does NOT sell into the buybacks. So expect another buyout offer at some point in the future. But if you like SIRI, you might rather own LMCA or LMCK, since they’ll be the beneficiaries and will be sure to extract value for shareholders. At a good price today but not a lot of special situation/catalyst right now. They’ll just keep doing smart things.

CBB – The company is rapidly building out its high-speed capacity while the telecom market in Cincinnati is in flux due to a pending merger. The legacy wireline continues to decline while the new investments are growing rapidly. As these become a greater share of total revenue, watch to see if revenue continues to grow. Margins should dip in Q1 2015 before rebounding. If this can turn into a growth company again and management dials back capex, the free cash flow will roll in. It still has a 44% interest in CONE, which has done phenomenally since being spun off in early 2013.

My Best Buys Now
1. NSAM (only owned via NRF1 options)
2. TFSL
3. CTRE
4. NRF
5. HTZ

Mistakes?
Despite many good performances, I made too many mistakes. Here are some of the most notable. I’d like to note that I made money on each of the stocks below, but I could have made much more if I’d been acting intelligently. There were errors of portfolio management, courage, and analysis –plenty to suit everyone’s taste. So you can make money and still do dumb things. I believe it’s tremendously important to evaluate your success and failures so that you don’t repeat them and so you can make more money in the future.

SBRA – The company got whacked in 2011 when CMS trimmed reimbursement rates for Medicare and Medicaid, hurting its virtually only tenant, Sun Healthcare. SBRA dipped from ~$16-18 to ~$10. I sat on my hands even though Sun would make it through the situation and SBRA was pretty well insulated as the property owner. Sun shareholders got really whacked, however, with the stock moving from something like $14 to $2 before ultimately being taken out for $8 or so. Did I also miss an opportunity in Sun?

UNTD – This was a massive failure of portfolio management. I nailed the valuation. It looked like the market was pricing the declining dial-up business at -$200 mn, despite it producing cash and having about $100 mn in the bank. The price you were paying for the combined company was less than the price UNTD paid for FTD in 2008, even as that business in 2012 looked comparable to back then. The market paid me to buy this and I put a measly 2% of my capital into it, when I should have put at least 10%, if not 20%. This is not hindsight bias, either. The valuation was spot on at the time.

RRGB – I sold a turnaround story for a 50% gain and then left another 100% upside (would have been a total 200% gain easily) on the table. I sold it for something like 13x FCF. Way too cheap when I sold it and the company was again becoming a profitable and consistent growth story.

TRIP – Again, I got the basic thesis right here, and this was a spinoff I had been waiting for all year, in 2011. However, I sold much too early after a ~50% gain. (At its height, I would have been up close to 300%.) This was a company that could create value for years. In retrospect, I should have purchased the stock pre-spin rather than post-spin, since TRIP made up a sizeable portion of the total company, leaving some optionality on the price of its former parent, EXPE.
There are a couple other 200%-300% stocks that I did not even purchase, though I liked them at the time.

If you want to continue to follow me, you can see my thoughts via Twitter (@TMFRoyal), where I'll post ideas from time to time. As I said, this discussion board may remain open indefinitely, and I’m happy to continue posting, but will have to limit many discussions. That’s unfortunate. So get your final questions in now! ;-)

Foolish best!

Jim
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.