Wall Street’s Blind Spot: Acquirer’s Multiple – Uncovering Hidden Gems the Market Ignores

During their latest episode of the VALUE: After Hours Podcast, Taylor, Carlisle, and guests Porter Collins and Vincent Daniel discussed Wall Street’s Blind Spot: Acquirer’s Multiple – Uncovering Hidden Gems the Market Ignores. Here’s an excerpt from the episode:

Porter: I just don’t think that Powell’s cutting like everyone, like, the market assumes. I don’t think that’s going to happen. Could the market retest the highs? It’s only 4% from here. So that’s not that big of a stretch. So could you see the retest of highs? Probably. I think from there, I think it’s going to be a bigger battle.

Before we started, we were talking about back to our screens of what we see and back to– I’ll call it what The Acquirer’s Multiple screen that we’ve named on our Bloomberg here. And it looks awful usually. The only companies that are included are of course the two, Ford and GM, Alibaba, every international oil company and some rogue shipping companies or not rogue, most of the shipping companies.

Tobias: They’re rouges

Jake: Yeah, all rogue.

Porter: All rogue. The funny thing is is that all those balance sheets are unbelievable. Look at Alibaba’s balance sheets. Fantastic. Look at the international oil companies balance sheets. They’re really good. Look at the shipping companies. It is ridiculous. Like, people hate. One of them is on there, we don’t own it, but we used to is this company Danaos, DAC, D-A-C. And if you just look at what the debt and the cash have done over time, they’ve gone like this. Everyone’s bearish on shipping and volumes. They’ve just quietly, totally reversed the course on their balance sheet, and it’s really good. And so, we’ll see what happens.

A lot of the stuff that we like are idiosyncratic names where we’re still in this Peabody Energy, BTU. They’re buying back 15% of the float a year at this point. And earnings are going to better than people think this quarter. People are going to better than they think in 2024. And so we have a stock which we think beats earnings and buying 15% of the float back.

The other one that we’ve owned for a while is AMR, the met coal producer. They’ve just shrunk the share count. You see what the stock has done, it’s gone vertical as just that– They’re just narrowing the share count down. I think that the value guys have learned this, or a lot of the value guys. I can’t get included into the gates of the S&P, where my stock goes up every day and in an algo. I have to control my own destiny, and so they have to bring the debt down to a level and build up the cash and say, “Hey, I’m just going to buy back my own stock.” The Acquirer’s Multiple list is everything under six times EBIT. And if you’re buying your stock back like Peabody is at two and a half times EBITDA, that usually works eventually.

Tobias: Eventually.

Vincent: Eventually.

Porter: You got to play the long game. You got to play the long game.

Jake: This is what Einhorn was lamenting, that you’re not getting a multiple re-rating right away when you go buy your cheap thing. But yeah.

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