Finding Cheap Opportunities Today | The Acquirer's Multiple®

In their latest episode of the VALUE: After Hours Podcast, Brewster, Taylor, and Carlisle discuss Finding Cheap Opportunities Today. Here’s an excerpt from the episode:

Tobias: I feel reasonably positive about the returns for, I don’t say value, but for things that you can do evaluation on. Let me say that. We’re ignoring whether it’s valuable growth here, but it’s fundamental. It’s actually generating some earnings throwing off some cash flow. I do think those things that they’re cheapish at the moment, although pretty good value to me. It does depend a little bit on where interest rates get too, but there’s a fair bit of headroom for some of those cheap ones.

Jake: Is it to play devil’s advocate? Is it possible that there’s some anchoring to the last few years of extreme prices that–?

Tobias: Teasing. Well, not so much the prices, but the E. [crosstalk]

Jake: Valuations, I mean.

Tobias: Teasing out the E is the difficult– Yeah, that’s probably fair. It’s cheap related to where it has been for a while. From October 9th, 2020, when I was talking about something, I look at these values. My valuations are lower now than they were at that point and all of the other metrics are roughly the same.

Jake: Okay. Based on October of 2020?

Tobias: Yeah.

Jake: So, two years ago?

Tobias: Yeah.

Jake: Well, that’s good news.

Tobias: And I thought that was when I was saying, I thought value was a big long at that point, because I thought it was unusually cheap. Yeah, I don’t know.

Jake: [laughs]

Tobias: I can’t get a run on it. You get six months and then-

Jake: It falls over?

Tobias: -falls apart. Even though I think the underlying is performing Jack @econompic illustrates like the underlying, it is doing pretty well. You got the multiple in your face all the time, the contraction you face. Tobacco, energy, that’s right.

Jake: Raising rates will do that to multiples.

Tobias: Also, true. I think the bigger the bigger issue when you’re doing the analysis is looking at trying to tease out that value, sorry, trying to tease out that sugar rush from or that stimuli that came through. All of those charts look exactly the same. Every single chart looks like a moon shot with a failed exit from gravity and now, return to gravity.

Jake: Yeah.

Tobias: Who knows where the bottom of that is. It showed up in the earnings and it showed up in the multiples. And the multiples contract first and maybe the earnings are still returning to Earth. They got the multiple right for where the earning’s going to level out. So, that’s why it looks cheap and it’s not. But I still think the opportunities pretty good. I think that everything points to better opportunities now that we’ve seen for a long time. A few years, at least.

Jake: Yeah, that’s good.

Bill: David Rosenberg says, no.

Jake: [laughs] Okay. He said no for– [crosstalk]

Bill: Nouriel Roubini also doesn’t like it.

Tobias: I would like to be the lone ball, where everybody else is bearish. That would be fun. I hate being on the bearish side and having everybody else being bullish. It’s much more fun being optimistic when everybody else is upset, which is why the stock market goes down.

Jake: We’ll get there. I think will be a good counterbalance at some point. I think we did a good job- [crosstalk]

Bill: We came bottom– [crosstalk]

Jake: -in March of ’20. I think I went back and watched it. We were pretty positive and constructive.

Tobias: Oh, that’s good.

Tobias: I was tweeting about Berkshire at that time. I had a few people telling me that the– Well, I had a few people telling me that the book value wasn’t where you posted the book value, because the underlying had also formed. But even with that, it was as cheap as it’s ever been on a price to book value basis. I thought that was about as easy as you get.

Jake: Yeah, that felt like a pretty safe, obvious thing to do, huh?

Tobias: It’s cheapish now too, even though it hasn’t come back. It’s not as cheap as it was then it’s still cheap. I think it was 1.3 or 1.4 times Book, which is not far– [crosstalk]

Jake: Yeah, it might be lower than that right now. Well, it’s hard to tell. You’ve got to mark down the securities portfolio to something.

Tobias: Yeah.

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