Tuesday, August 16, 2022
Tuesday, May 24, 2022
A recent Marketwatch article, titled “Gloomy
Goldman offers 20 ‘safety’ stocks with valuations below the previous 2 bear
markets,” listed 20 “safety stocks” that Goldman Sachs (GS) chief U.S. equity
strategist David Kostin proposed for a potential downturn. According to Kostin,
the companies are not only large and have strong balance sheets, they are also
'…[their] price/earnings multiple after a 20% haircut to expected 2023 earnings is below the forward p/e at the bottom of either or both of the March 2009 and March 2020 bear markets.
“Importantly, given the different real interest rate environments, the highlighted stocks are more attractively valued today on a yield gap basis relative to the rest of the index than they were in either 2009 or 2020,” said Kostin and the team.'
A stock that is cheaper than in 2009 and/or 2020 does sound cheap! In that context, I looked at the list...(Read More)
Sunday, January 16, 2022
World Acceptance Corporation (WRLD) is an
installment lender that generally makes loans at higher rates of interest to
people with weaker credit. The company’s stock has performed strongly since the
end of 2020, rising by around 112%.
At first glance, it seems obvious why the company’s stock has gone up. When COVID struck the U.S., many lenders feared a wave of defaults as borrowers lost their jobs and got sick. One April 2020 US News article described how “financial institutions around the world are bracing for consumers and businesses to default on outstanding loans.” Once investors realized that wave of defaults wouldn’t materialize due to government stimulus and a quick end to lockdowns in many states, it makes sense they would start buying the stock of lenders such as World. Moreover, we’ve seen a bull market in the past year, so it makes sense World’s stock would rise at the same time.
Though these arguments make sense, once we compare World to some of its peers, it becomes less obvious that they are the reasons for the stock’s rise...(Read More).
Friday, December 31, 2021
Happy New Year's Eve, everyone! I just had my first SeekingAlpha article published in over a year; I hope you all enjoy it!
investors, Chesapeake Energy (CHK) needs no introduction. Under its founder
Aubrey McClendon, the company pioneered the use of fracking to extract oil and
natural gas from shale deposits. Later, in June 2020, the company went
bankrupt. The company exited bankruptcy in February 2021 and its stock has
risen since then by around 40%.
Historically, post-bankruptcy stocks have outperformed the market, which makes Chesapeake Energy’s stock interesting. To see if it might outperform the market, we need to know if the company is undervalued. We can know that by looking at its oil and gas reserves, which are the company’s ultimate source of value. If Chesapeake is trading at less than the value of its reserves, its stock may outperform in the future. (Read More)
Monday, September 14, 2020
Sixth Street Specialty Lending's Historical Value Creation May Offer Insights Into Its Future Returns
Sixth Street Specialty Lending, Inc. (TSLX) is a business
development company, or BDC. The company primarily invests in companies with
earnings before interest, taxes, depreciation, and amortization, or EBITDA,
between $10 million and $250 million, according to the company’s most
recent earnings presentation. Almost all of Sixth Street’s investments are
in the companies’ first-lien secured, floating-rate debt.
I recently wrote about another BDC, Prospect Capital (PSEC), that looks cheap because it trades at a steep discount to book value.
Sixth Street Specialty Lending does not look cheap. The company trades at a price to book ratio of around 106.5%, compared to the average P/B ratio for BDCs, which is around 83%. This means each dollar of stock buys only 93.9 cents in equity in Sixth Street, compared to around $1.20 in equity in the average BDC.
That said, as in life, in investing you often get what you pay for. In several recent articles, I’ve described two common types of investment opportunities:
- High quality companies trading at a modest discount to intrinsic value.
- More average companies trading at a much larger discount to intrinsic value.
Tuesday, August 25, 2020
Dynex Capital, Inc. (DX) is a mortgage real estate
investment trust, or mREIT. The company invests in mortgage-backed securities,
or MBS, securities whose income is based on the performance of pools of
I’ve written two recent articles about mREITs Ladder Capital (LADR) and Anworth Mortgage (ANH). Both those articles were written because those mREITs look cheap. Dynex Capital does not look cheap. The company trades at a price to book ratio of 94%. In contrast, Anworth and Ladder have, respectively, P/B ratios a little over 60%. The market certainly seems to think it is a higher quality company than other mortgage REITs, given how much higher its valuation is.
To see if Dynex Capital is a high quality company, we can use the methodology I used in my previous mREIT articles. We can look at how much value the company has historically created for shareholders. This will help us predict the company’s future value creation, and thus the company’s possibilities for future share price growth and dividends. (Read More)
Sunday, August 16, 2020
Anworth Mortgage Asset Corporation (ANH) is a mortgage real
estate investment trust, or mREIT. The company invests in residential mortgages
as well as mortgage-backed securities, or MBS, securities whose income is based
on the performance of pools of residential mortgages. Those securities include
both agency-backed MBS whose performance is guaranteed by Fannie Mae (OTC:FDDXD) and
Freddie Mac (OTC:FMCC), as well as non-agency MBS whose performance is not guaranteed.
According to the company’s most
recent quarterly report, over 70% of Anworth’s investments were in agency
By several metrics, Anworth’s stock looks cheap. The company’s price to book ratio on August 13th was 63%. This means each share of the company’s stock trading at $1.81 a share corresponded to around $2.85 of the company’s equity. Anworth also has a dividend yield of around 11%.
In that context, Anworth’s cheapness raises a question. Is it a high quality company I can “buy and hold” forever while it compounds my investment?
To see if Anworth Mortgage Asset Corporation is a high quality company, we can use the same methodology I used in my recent article about Prospect Capital. We can look at how much value the company has created for shareholders since its 1998 IPO. This will help us predict the company’s future value creation, and thus the company’s possibilities for future share price growth and dividends. (Read More)
Tuesday, August 4, 2020
Prospect Capital Corporation (PSEC) is a business development company, or BDC. The company invests in middle market companies with an “enterprise value between $5 million and $1000 million,” according to the company's profile. Prospect invests in both the companies’ secured and unsecured debt as well as their equity.
By several metrics, Prospect’s stock looks cheap. The company’s price to book value ratio on July 31st was 63%. This means each share of the company’s stock trading at $5.01 a share corresponded to $7.98 of the company’s equity. Prospect also pays a monthly dividend of $0.06 per share, giving the company an annual dividend yield of over 14%.
Prospect Capital’s cheapness raises a question. Is it a high quality company I can “buy and hold” forever while it compounds my investment?
To see if Prospect Capital is a high quality company, we can use the same methodology I used in my May 2020 article about Ladder Capital. We can look at how much value the company has created for shareholders since its 2004 IPO. This will help us predict the company’s future value creation, and thus the company’s possibilities for future share price growth and dividends. (Read More)
Wednesday, July 22, 2020
SandRidge Mississippian Trust II Is Dissolving, Leaving Investors With Large Losses And Important Lessons
Wednesday, June 3, 2020
A 2012 report from the National Association of Insurance Commissioners shows this. CLO issuance peaked before the Great Recession and almost disappeared during the Recession:
Few analysts expect CLO issuance to reach much higher than $50 billion this year…
Tuesday, May 19, 2020
Friday, May 15, 2020
Wednesday, May 13, 2020
- High quality companies trading at a modest discount from normal prices.
- More average companies trading at a much larger discount to their intrinsic value.