Howard Marks – Don’t Abandon Time-Honored Disciplines, Here’s Why

Johnny HopkinsHoward Marks Comments

One of our favorite investors at The Acquirer’s Multiple – Stock Screener 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 February 2007 piece in which Marks discusses examples of lenders and investors departing from time-honored disciplines when cycles move to extremes. It’s a must read for all investors.

Here’s an excerpt from that memo:

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Alexander Roepers – Focus On Transparent Businesses That You Can Understand Quickly

Johnny HopkinsAlexander Roepers Comments

One of favorite investors at The Acquirer’s Multiple – Stock Screener is Alexander Roepers.

Roepers is the Chief Investment Officer of Atlantic Investment Management, a global equity value-investing firm he founded in 1988. Roepers applies a differentiated constructive shareholder activist (CSA) investment approach to unlock incremental value in high-quality, undervalued companies in the consumer, industrials and businesses services sectors. Atlantic’s highly experienced investment team has successfully influenced change at many leading companies over the past 28 years in the U.S., Europe and Japan.

As of December 2016, Atlantic Investment Management had $809.38 million in assets under management (AUM).

One of our favorite Roepers interviews was one he did with Value Investor Insight in 2007. What particularly struck a chord was his approach to picking stocks – We favor companies with transparent businesses that we can understand fairly quickly and those that have large and recurring maintenance, repair and overhaul revenues from an installed base, such as elevator companies or aerospace-parts firms. It’s a must read interview for all investors.

Here’s an excerpt from that interview:

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Charles Bobrinskoy – Buy, be patient, wait for that short-term problem to go away

Johnny HopkinsCharles Bobrinskoy Comments

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

Bobrinskoy is Vice Chairman, Head of Investment Group & Portfolio Manager at Ariel Investments LLC, a Member at Economic Club of Chicago and Member-Library Board at Duke University. He oversees Ariel’s domestic investment team and manages the focused value strategy—an all-cap, concentrated portfolio of U.S. stocks.

Prior to joining Ariel in September 2004, he spent over 21 years as an Investment Banker at Salomon Brothers and its successor company Citigroup, where he rose to Managing Director and Head of North American investment banking branch offices.

As of December 2016 Ariel Investments has $8.47 Billion in assets under management (AUM),

One of the best Bobrinskoy interviews was one he did earlier this year with The Wall Street Transcript. It’s a must read for all investors.

Here is an excerpt from that interview:

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Joel Greenblatt: Human Intervention Hurts Your Performance | Talks at Google

Johnny HopkinsJoel Greenblatt Comments

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

Greenblatt serves as Managing Principal and Co-Chief Investment Officer of Gotham Asset Management, the successor to Gotham Capital, an investment firm he founded in 1985. Since 1996, he has been a professor on the adjunct faculty of Columbia Business School where he teaches “Value and Special Situation Investing.” Greenblatt is the author of You Can Be A Stock Market Genius (Simon & Schuster, 1997), The Little Book that Beats the Market (Wiley, 2005), The Little Book that Still Beats the Market (Wiley, 2010), and The Big Secret for the Small Investor (Random House, 2011).

One of the best resources for investors is the series of presentations at Google by a number of investing gurus called Google Talks. One of our favorites is Greenblatt’s presentation where he discusses how human intervention hurts your performance when you’re using an evidence based mechanical investing strategy, like the one we use here at The Acquirer’s Multiple. It’s a must watch for all investors.:

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Undervalued Continental Materials Corp Trading At 25% Discount to TBV

Johnny HopkinsStocks Comments

One of the cheapest stocks in our Acquirer’s Multiple, Small & Micro Cap – Stock Screener is Continental Materials Corporation (NYSEMKT:CUO). With a market cap around $34 million, few investors have ever heard of this undervalued nano-cap.

Continental Materials Corporation (Continental) produces and sells heating, ventilation, and air conditioning (HVAC) products; and construction products in North America. It operates in two groups, HVAC Industry Group and Construction Products Industry Group. The HVAC Industry Group offers gas-fired wall furnaces, console heaters, and fan coils, as well as evaporative coolers. The Construction Products Industry Group produces and sells concrete, aggregates, and construction supplies; and hollow metal doors, door frames and related hardware, wood doors, lavatory fixtures, and electronic access and security systems.

Continental flies under the radar of most institutions simply because of its size and its thinly traded shares. In fact, there are no analysts currently covering the company.

A quick look at the company’s share price over the past twelve months shows the stock has risen 55% to $20.15, 35% off its 52 week high.

(Source: Google Finance)

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Steven Romick – Admiting to His Mistakes on Hewlett Packard

Johnny HopkinsSteven Romick Comments

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

Romick is the Managing Partner at FPA Funds, he serves as Portfolio Manager for the FPA Crescent Fund, Source Capital, Inc. and the FPA Multi-Advisor Strategy. Prior to joining FPA, he was Chairman of Crescent Management and a consulting security analyst for Kaplan, Nathan & Co. Romick was named a Morningstar Domestic-Stock Fund Manager of the Decade Nominee in 2009 and, along with Mark Landecker and Brian Selmo, Morningstar U.S. Allocation Fund Manager of the Year in 2013. Both awards were in recognition of his leadership with the FPA Crescent Fund.

What we really like about Romick is his shareholder letters, which are a great resource for all investors. One of our favorites is his 2011 letter in which he admits to making two mistakes with the purchase of Hewlett-Packard. It’s a great demonstration of how to convey these mistakes to your shareholders.

Here’s an excerpt from that letter:

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Bill Miller – The question is not growth or value, but where is the best value?

Johnny HopkinsBill Miller Comments

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

Miller served as the Chairman and Chief Investment Officer of Legg Mason Capital Management and is remembered for beating the S&P 500 Index for 15 straight years when he ran the Legg Mason Value Trust.

One of the best resources for investors are the Legg Mason Shareholder Letters. One of the best letters ever written by Miller was his Q4 2006 letter in which he discussed the end of his 15 year ‘winning streak’ and how too many investors miss the most important aspect of investing by focusing on value or growth. Miller writes, “The question is not growth or value, but where is the best value?” It’s a must read for all investors.

Here’s an excerpt from that letter:

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Bill Ackman – How To Apologize to Your Shareholders 101

Johnny HopkinsBill Ackman Comments

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

Ackman is the Founder and CEO of Pershing Square Capital Management, L.P. From 1993 to 2003, Ackman was the co-investment manager of Gotham LP, Gotham III LP and Gotham Partners International.

One of the best resources for investors are the Pershing Square shareholder letters. One of the best letters ever written was Ackman’s December 2016 shareholder letter in which he apologizes for Pershing Square’s investment in Valeant, which turned out to be a huge mistake. It’s a must read for all investors.

Here’s an excerpt from that letter:

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(Month 6) – Up 4.2% – TAM Deep Value Stock Portfolio

Johnny HopkinsTAM Portfolio Money Game Comments

Today is the end of month six of The Acquirer’s Multiple $45,000 – Deep Value Stock Portfolio – Real Money Game, and the portfolio is up 4.2% since inception, compared to 8.85% for the comparative Russell 3000 (INDEXRUSSELL:RUA).

The Deep Value Stock Portfolio – Real Money Game means I’m investing my entire superannuation valued at $45,000 into a real life Acquirer’s Multiple Portfolio and documenting it here.

The plan is to build my portfolio over the next twelve months and ongoing. After twelve months I’ll have thirty stocks equally weighted in the portfolio, then I’ll re-balance each position after one year and one day to minimize tax.

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Undervalued Micro-Cap Goldfield Corp – Well Positioned For Continued Growth

Johnny HopkinsGV, Stocks Comments

One of the cheapest stocks in our Acquirer’s Multiple, Small & Micro Cap – Stock Screener is Goldfield Corp (NYSEMKT:GV).

With a market cap around $136 million, few investors have ever heard of this great little micro-cap.

Goldfield Corporation (Goldfield), is a leading provider of electrical construction and maintenance services in the energy infrastructure industry primarily in the Southeast and mid-Atlantic regions of the United States and Texas. The company specializes in installing and maintaining electrical transmission lines for a wide range of electric utilities. Goldfield is also a real estate developer of residential properties on the east coast of Florida.

Goldfield recently reported record revenues for the fifth consecutive year but flies under the radar of most institutions simply because of its size. In fact, there are no analysts currently covering the stock but according to Nasdaq.com, the company had thirteen new institutional shareholders as of December 31, 2016.

The company’s growing revenues and strong margins are due mainly to its strong geographic footprint in the Southeast and mid-Atlantic regions of the United States and Texas, combined with a large modern fleet of equipment in each of its locations that maximize efficiency and minimize downtime.

Goldfield has a great track record of retaining its customers and completing its projects based mainly on its strict policy of committing only to an amount of work that the company believes it can properly supervise, equip and complete to the customer’s satisfaction and timetable. Goldfield has a 5 year CAGR of 15% when it comes to projects awarded.

The company has a healthy backlog and is well positioned to capitalize on some favorable industrial tailwinds, which include President Trump’s plan to prioritize and jumpstart infrastructure projects around the country, and projected transmission investments by EEI members.

Goldfield has a very strong balance sheet and solid free cash flows and has started to generate interest from a number of institutions.

In terms of the company’s valuation. Goldfield is currently trading on a FCF/Price Yield of 10% (ttm), a FCF/EV Yield of 10% (ttm) and an Acquirer’s Multiple of 6.45, or 6.45 times Operating Earnings. Add to this the company’s P/E of 11, compared to its 5Y average of 14.5, and Goldfield remains squarely in undervalued territory.

You can read our full stock analysis on Goldfield Corp at ValueWalk here.

Cliff Asness – Investing Strategies Can Still Work Even If Everyone Knows About Them, Here’s Why

Johnny HopkinsCliff Asness Comments

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

Asness is the Founder, Managing Principal and Chief Investment Officer at AQR Capital Management. He’s also an active researcher and has authored articles on a variety of financial topics for many publications, including The Journal of Portfolio Management, Financial Analysts Journal and The Journal of Finance. He’s received five Bernstein Fabozzi/Jacobs Levy Awards from The Journal of Portfolio Management, in 2002, 2004, 2005, 2014 and 2015. Financial Analysts Journal has twice awarded him the Graham and Dodd Award for the year’s best paper, as well as a Graham and Dodd Excellence Award, the award for the best perspectives piece, and the Graham and Dodd Readers’ Choice Award.

One of the best resources for investors is Cliff’s Perspective on the AQR Capital Management website where Asness writes a number of articles to help investors. One of our favorite articles is titled, How Can a Strategy Still Work If Everyone Knows About It? It’s an article that answers one question that a lot of investors ask and that is, “If everyone knows about an investing strategy that works, can it continue to work? This article also appeared in the September 2015 issue of Institutional Investor, and it’s a must read for all investors.

Here’s an excerpt from that article:

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Marty Whitman – Value Investors Should Focus On Fundamental Finance, Here’s Why

Johnny HopkinsMarty Whitman Comments

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

Whitman is the Chairman and Founder of Third Avenue. He’s recognized as a legend in the world of value investing and has proven for more than 50 years that active, opportunistic investors can find under-priced securities in companies with strong balance sheets. He’s also been a strong critic of GAAP earnings, citing the following in Kiplinger’s Personal Finance Magazine:

“Earnings are vastly overrated. Look at the title of my new book, Value Investing: A Balanced Approach (John Wiley & Sons). No smart businessman treats one accounting number as more important than another. They are all part of the whole. The goal of any business person is to create wealth, and except on Wall Street, profits are viewed as the least desirable way to create wealth because of the income-tax disadvantage. It’s a lot easier to look at the quantity and quality of resources a company has than to forecast its earnings. If you have good management, it will convert those resources into something of value.”

One of the best resources for investors are the Third Avenue Shareholder Letters, and one of the best letters ever written was Whitman’s 2012 letter in which he discussed the difference between traditional value investing and Fundamental Finance, which includes value investing. It’s a must read for all investors.

Here’s an excerpt from that letter:

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David Einhorn – The Ultimate Shareholder Letter When Your Fund Underperforms

Johnny HopkinsDavid Einhorn Comments

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

Einhorn is the founder and president of Greenlight Capital (Greenlight), a long-short value-oriented hedge fund. He started his fund in 1996 with $900,000 and generated 16.5% annualized return for investors from 1996 to 2016. As of 2017, Greenlight has $9.27 billion in assets under management. Einhorn was ranked 44th in Time’s 100 most influential list of people in the world in 2013.

One of the best resources for investors is Greenlight’s shareholder letters, and one of the best letters ever written by Greenlight was the Q4 2015 letter in which Greenlight explained to shareholders why 2015 had been such a bad year and what they can expect in the future. It’s a great illustration of how funds and companies should write a letter to their shareholders when everything goes wrong.

Here’s an excerpt from that letter:

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Seth Klarman – 30 Timeless Investing Lessons

Johnny HopkinsSeth Klarman Comments

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

Klarman is a value investing legend who runs The Baupost Group, one of the largest hedge funds in the U.S. He also 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 21 used copies selling for $968 and 6 new copies selling for $1500.

Back in 2010, Klarman wrote a piece about the lessons that investors should have learned for the market crash of 2008 but were subsequently repeated in 2009. The lessons are timeless and a must read for all investors.

(Source, 10 Year Dow Jones Industrial Average, Google Finance)

Here’s an excerpt from that piece:

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Barrons – Behavioral Obstacles to Successful Value Investing

Johnny HopkinsValue Investing News Comments

We’re always on the look out for the latest value investing news here at The Acquirer’s Multiple – Stock Screener.

I recently found a great value investing article at Barron’s by Robert Johnson, the President and CEO of the American College of Financial Services. Johnson writes, “In an ADHD world, patience is, unfortunately, in short supply. Advisors who face regular questioning from clients about quarterly investment returns know this all too well.”

Johnson highlights the timeless principles of patient and discipline in order to be a successful value investor today.

Here’s an excerpt from that article:

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Undervalued and Undiscovered Flanigan’s Enterprises Inc. Well Positioned For Growth

Johnny HopkinsBDL, Stocks Comments

One of the cheapest stocks in our Acquirer’s Multiple, Small & Micro Cap – Stock Screener is Flanigan’s Enterprises, Inc. (NYSEMKT:BDL). With a market cap around $46 million, few investors have ever heard of this great nano-cap.

Flanigan’s Enterprises, Inc. (Flanigan’s) operates a chain of full-service restaurants and package liquor stores in South Florida. The company operates package liquor stores under the Big Daddy’s Liquors name, which offer private label liquors, beer, and wines; and restaurants under the Flanigan’s Seafood Bar and Grill service mark that provide alcoholic beverages and full food service. The company operates 26 units consisting of restaurants, package liquor stores, and combination restaurants/package liquor stores; owns 1 adult entertainment club; and franchises 5 units comprising 2 restaurants and 3 combination restaurants/package liquor stores. The company was founded in 1959 and is headquartered in Fort Lauderdale, Florida.

Flanigan’s flies under the radar of most institutions simply because of its size and its thinly traded shares. In fact, there are no analysts currently covering the company.

Flanigan’s is a great little nano-cap. The company has maintained a solid five year annual revenue growth rate of 7.8% while at the same time growing its book value per share by 11.5% and its operating income by 20%.

In addition to its successful company owned operations, Flanigan’s is able to generate significant revenues through its Limited Partnership Agreements (L/P agreements) as opposed to a traditional franchise royalty fee.

The company has also shown it’s very prudent when it comes to managing the real estate component of its business. While Flanigan’s operations are conducted primarily on leased property the company also owns approximately 70,000 square foot of real estate and several parcels of real property, while maintaining low levels of debt.

Flanigan’s has a very strong balance sheet, and solid free cash flows. The company is thinly traded, with daily volumes around 1000 per day, and protected from large institutions due to its size and its approximately 70% ownership from family insiders and two 5% stakeholders.

In terms of Flanigan’s valuation. The company is currently trading on a FCF/Price Yield of 16% (ttm), a FCF/EV Yield of 14% (ttm) and an Acquirer’s Multiple of 7.67, or 7.67 times Operating Earnings*. Add to this the company’s P/E of 15, its P/B of 1.56 and its P/S of 0.44 and Flanigan’s remains squarely in undervalued territory.

You can read our full stock analysis of Flanigan’s at ValueWalk here.