Warren Buffett – Bubbles Happen When Price Action Overtakes Common Sense

Johnny HopkinsWarren Buffett Comments

(Image Source, Huffington Post, http://www.huffingtonpost.com/john-g-taft/the-warren-buffett-effect_b_5577685.html, [Accessed 7 Mar, 2017])

One of our favorite investors at The Acquirer’s Multiple – Stock Screener is Warren Buffett.

I recently re-read an awesome interview that Buffett did with the Financial Crisis Inquiry Commission back in 2010, where the commission was charged with the task of understanding the causes behind the 2009 financial crisis. Part of this interview includes Buffett’s thoughts on what causes such bubbles. It’s a must read for all investors.

Here’s an excerpt from that interview:

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Michael Mauboussin – Common Mistakes Even Smart Investors Make

Johnny HopkinsMichael Mauboussin Comments

(Image Source, YouTube.com, [Accessed 5 Mar, 2017])

One of our favorite investors here at The Acquirer’s Multiple – Stock Screener is Michael Mauboussin.

Mauboussin is the Managing Director and Head of Global Financial Strategies at Credit Suisse. He’s also written three books, he’s been an adjunct professor of finance at Columbia Business School since 1993, and received the Dean’s Award for Teaching Excellence in 2009.

One of my favorite Mauboussin interviews was one he did with Barbara Kiviat at Time back in 2009 where he discusses how investors, like any other group of people, are prone to make mistakes that stem from faulty approaches to decision-making.

Here’s an excerpt from that article:
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Robert Robotti – DCF Should Be Renamed The “Deliberate Certainty Fabricating” Model

Johnny HopkinsRobert Robotti Comments

(Image Source, YouTube.com, [Accessed 5 Mar, 2017])

One of our favorite investors at The Acquirers Multiple – Stock Screener is Robert Robotti.

Robotti is the President and Chief Investment Officer of Robotti & Company. Robotti & Company has been in the securities business since 1983.  Robotti specializes in identifying undervalued securities often in cyclical businesses that are cyclically depressed. He prides himself on a disciplined bottom-up approach and holds a BS from Bucknell University and an MBA in Accounting from Pace University. Some of his areas of coverage include Special Situations, the Energy Industry and Home Building.

One of our favorite Robotti interviews was one he did with Value Investor Insight earlier this year. It’s a must read for all value investors.

Here’s an excerpt from that interview:

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Undervalued Micro-Cap Network-1 Technologies Inc, FCF/EV Yield 134%

Johnny HopkinsNTIP, Stocks Comments

One of the cheapest stocks in our Small & Micro Cap – Stock Screener is Network-1 Technologies Inc (NYSEMKT:NTIP).

With a market cap around $89 million, very few investors have ever heard of this great little company. Network-1 Technologies Inc (Network-1) has a remarkable record of taking on and beating technology behemoths like Apple and Microsoft in court.

Network-1 is engaged in the development, licensing and protection of its intellectual property assets.  The company presently owns twenty-eight (28) patents including, The Remote Power Patent, The Mirror Worlds Patent Portfolio, The Cox Patent Portfolio, and The QoS Patents.

A quick look at the company’s share price (below) over the past twelve months shows that the price is up 104% to $3.80 from $1.86 in March 2016. That is 10% off its 52 week high of $4.15, but closer inspection shows that the stock remains undervalued.

(Source, Morningstar)

Network-1 is a great little company with a impeccable record of winning litigation settlements against tech heavyweights Apple, Microsoft and Dell. With a market cap of $89 million the company is way too small for most institutions with just 10% institutional ownership. Network-1 clearly has a good eye for acquiring the right patents to add to its portfolio. Recent favorable settlements have included Apple ($25 million), Dell ($6 million) and Alcatel and ALE USA Inc. ($1.9 million). Current litigation with Google and YouTube is also proceeding well.

In terms of its patent runway, Network-1 has recurring revenues from quarterly or annual royalties associated with the company’s Remote Power Patent which expires in March 2020. It is reasonable to expect that these revenues will be further boosted by favorable court rulings against the four remaining defendants for infringement of the company’s Remote Power Patent.

Add to this the October decision by the PTAB in favor of Network-1 regarding the company’s Cox Patent Portfolio. The PTAB ruled that Google had failed to show that any of the thirty-four (34) claims of U.S. Patent 8,904,464 were unpatentable. The company continues to grow its patent portfolios highlighted by the February 2017 announcement that Network-1 had received a new patent from the U.S. Patent Office expanding its Cox Patent Portfolio to seventeen patents.

The company is an extremely low cost operation with a strong balance sheet and ability to generate a loads of free cash flow. A quick look at the Network-1’s balance sheet ending September 2016 shows that Network-1 had cash and cash equivalents of $59 million and zero debt. If you could buy the entire company at its current market cap of $89 million and you would get $59 million in cash and cash equivalents.

In terms of Network-1’s valuation. The company is currently trading on a FCF/Price Yield of 45% (ttm), a FCF/EV Yield of 134% (ttm) and an Acquirer’s Multiple of 2.62, or 2.62 times Operating Earnings*. Add to this the company’s P/E of 3.72, a P/B of 1.7 and a P/B of 1.44 and Network-1 remains clearly undervalued despite the 104% growth in the company’s share price over the past twelve months.

You can read our full stock analysis on Network-1 at ValueWalk here.

Buffett scorns tricky Wall Street accounting, but defends buybacks

Johnny HopkinsWarren Buffett Comments

(Image Source, Huffington Post, http://www.huffingtonpost.com/john-g-taft/the-warren-buffett-effect_b_5577685.html, [Accessed 1 Mar, 2017])

One of our favorite investors at The Acquirer’s Multiple is Warren Buffett.

I just read a great article on Reuters where Buffett shares his thoughts on two things; corporate America’s misuse of GAAP accounting principles, and share re-purchases.

Here’s an excerpt from that article:
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Seth Klarman – Margin of Safety – Trading Sardines and Eating Sardines

Johnny HopkinsSeth Klarman Comments

(Image Source, Investopedia, http://www.investopedia.com/news/who-seth-klarman, [Accessed 28 Feb, 2017])

One of our favorite investors here at The Acquirer’s Multiple is Seth Klarman. Klarman wrote one of the best books ever written on investing called Margin of Safety. Such is the popularity of Margin of Safety that at the time of writing there are 12 used copies selling for $1349 and 6 new copies selling for $1779.

One of my favorite parts of his book focuses on what he calls, Trading Sardines and Eating Sardines: The Essence of Speculation.

Klarman writes when purchasing stocks, “You may find a buyer at a higher price—a greater fool—or you may not, in which case you yourself are the greater fool.”

Here’s an excerpt from Klarman’s book, Margin of Safety, in which he discusses the importance of doing your homework and avoiding speculation when it comes to investing:

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Howard Marks – Random Thoughts on the Identification of Investment Opportunities

Johnny HopkinsHoward Marks Comments

(Image Source, CNBC, http://www.cnbc.com/2014/12/19/howard-marks-oil-prices-expose-debts-weaknesses.html. [Accessed 27 Feb. 2017])

One of our favorite investors at The Acquirer’s Multiple is Howard Marks.

Howard Marks is Chairman and Co-Founder of Oaktree Capital Management, the world’s biggest distressed-debt investor. He’s known in the investment community for his “Oaktree memos” to clients which detail investment strategies and insight into the economy, and in 2011 he published the book The Most Important Thing: Uncommon Sense for the Thoughtful Investor.

One of our favorite memos is his January 1994 piece where Marks discusses his Random Thoughts on the Identification of Investment Opportunities. It’s a must read for all investors.

Here’s an excerpt from that memo:

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Undervalued Ternium SA (ADR) Well Positioned For Growth With Its CSA Acquisition

Johnny HopkinsStocks, TX Comments

One of the cheapest stocks in our all All Investable – Stock Screener is Ternium SA (ADR) (NYSE:TX).

Ternium is a leading steel producer in Latin America, with an annual production capacity of approximately 11.0 million tons of finished steel products. The company manufactures and processes a broad range of value-added steel products for customers active in the construction, automotive, home appliances, capital goods, container, food and energy industries. With production facilities located in Mexico, Argentina, Colombia, the southern United States and Guatemala, Ternium serves markets in the Americas through its integrated manufacturing system and extensive distribution network. In addition, Ternium participates in the control group of Usiminas, a Brazilian steel company.

A quick look at the company’s share price over the past twelve months (below) shows that the stock has risen 109% to $26.30 just 7% off its 52 high of $28.04.

(Source, Google Finance)

While the twelve month rise in the company’s share price has been phenomenal, closer inspection shows the company still remains undervalued.

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