Go Palantir Go!!!!

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ubermensch's picture

chad,
shipping is the most cyclical industry you will ever come across. You cant compare them to businesses operating in a stable industry. For example, you’d be a fool to have invested in OSG in 2008 when its ships were earning 200k a day - that’s about a 950% margin on each ship (break-even operating costs are about 21k). Would you tell me at the time it was an awesome company to own? Margins are down now no doubt but it was expected - shipping follows well defined cycles. A company like this has to be valued on its liquidity position and equity cushion. Its debt/equity ratio is about 0.5 compared to its peers like FRO which debt of 2x its equity. Just a couple of months ago it acquired a $900m revolving credit facility. I am also guessing the bank is pretty confident in its knowledge of the company to provide it with such a large credit line.

One of its directors has been accumulating shares since September with prices ranging from about $16/share all the way down to $10. So far he has spent around $6.1m. There are a couple more insiders who have spent over a $1m each over the past couple of months. There are two explanations to this - either that’s clever accumulation or they are just stupid amateurs who don’t understand the market. I would think the former explanation makes more sense.

Think about this - the guys who made killings on mining, steel etc. stock didn’t buy them when metal prices were selling at their peaks. They bought them when prices were low and margins were thin. When the companies usually had poor earnings and probably high P/Es

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FrankArabia's picture

ok, so you got a company levered up to the anus in a capital heavy industry in a severe downturn……..if you want to play the break up of this company, you buy the debt,not the equity….even in this case, its risky…..

in terms of takeovers, problably won’t happen cause the whole industry is in shambles….

but….if they do make it through the downturn, you better be right about shipping rates, but from what I hear, there is a glut….

go palantir go!

ubermensch's picture

Frank,
there is a glut now like there was a shortage in 2008. What we do know is conditions change, fundamentals change. And OSG is NOT ‘levered up to its anus’. It is financially comfortable with a current ratio of 2.44. Also over the last six months insiders have purchased 1.7m shares that’s about 7.6% of the available float. What does that mean?

There’s a huge short interest in the stock and it seems like this could be a good contrarian play

FrankArabia's picture

you’re emotionally attached to this stock……

your first argument does’t even make sense….fundamentals will change how? just cause there was a shortage before doesn’t mean things will return, and if they do, no saying they will be profitable
second argument makes no difference….i trust the short sellers more than insiders….
what is their interest coverage on average over the last 5 years?

Palantir's picture

I agree, why don’t you just buy their debt? Maybe convertibles?

Not all men were meant to dance with dragons.

The Righteous Hacksaw's picture

I love defense. It will be the last US industry left standing. While we there are threats about spending less I think a much more likely scenario is that all this recent twittering in the middle east gets us involved in another war. I just can’t decide if it will be a hot or cold one. It already appears to me that we are at war with Iran. It just looks more like it did with the Soviet Union.

Welll, guess what, we spent tons then on R & D and I bet we will too. You wanna bet the CIA and Department of Defense is happy about that recent spy plane hacking.

Secondly, if we are fighting a war someone else will be doing it soon for us or with our weapons. This will mean that regimes everywhere are gonna need to stock up on whatever guns and tech they can get their hands on. You think Israel isn’t working on getting the most state of the art stuff they can buy? You wanna bet the saudi royal family isn’t? Oh man. I bet its great to be an arms dealer in that part of the world.

So I know the big players, but who are the smaller growth companies in defense.

No Homo

Palantir's picture

Re: model building.

I don’t build any models. I just rather focus my time on evaluating qualitative aspects of the business, and I use real basic models and keep it as simple as possible. I prefer to look for businesses with enduring value - especially those that can be run well with a totally different management team - I’m basically interested in institutions that can stand the test of time.

Usually I just do 10*FCFE+Cash-Debt to come up with a conservative valuation. The most complicated I get is a one stage DCF with a conservative growth rate.

Not all men were meant to dance with dragons.

FrankArabia's picture

i’m much more sophisticated, i used DCF for infinite periods…..

stand the test of time, didn’t you buy MSFT? BRK.B isn’t going to be the same without Buffet, don’t even try to argue that…..

Palantir's picture

I’m confident MSFT will stand the test of time. Same with BRK.B. If anything, BRK is very much designed to stand the test of time, you think WEB’s masterpiece is not going to be around 100 years from now? Think about it’s underlying firms, it should not be treated as an investment firm.

Not all men were meant to dance with dragons.

ubermensch's picture

Palantir,
the simple and honest answer to that is you never know. Lehman Brothers was a 100+ year institution and it still failed. You might be right. It may exist a 100 years from now but in what form and would it have generated enough value. Today, I don’t think Buffet himself would have invested in BRK. By his own admission size is the enemy of returns and Berkshire is pretty much at a size where any additional acquisition only makes a marginal impact on earnings. If you’re a guy who looks at the more qualitative aspects why not look at younger companies with good ideas? I mean shouldn’t we try to be more like sequoia capital than WEB in picking our stocks. If you’re good at the qualitative aspects even being right in 2 out of 10 investments could produce stellar returns.

This is no way an argument against your investment philosophy. I am just trying to think independently.

Palantir's picture

Disclaimer, I bought BRK when P/B = 1. I think it is worth considerably more than that, and I think it will last a long time. I don’t need growth to create value. Even with no growth I’m expecting > 40% upside.

I don’t disagree with you on picking smaller stocks, I was looking at small stocks up until fall of 2010 when they started rising. However, I think you should broaden your scope to include mature businesses as well. There is less growth, but if you can get a good price you will generate alpha.

Not all men were meant to dance with dragons.

FrankArabia's picture

size doesn’t matter for me……BRK.B is excellent….i made a huge mistake not buying that and Fairfax….but….in the long run, the 15% i missed out on ain’t no biggie…..thing i hate about BRK.B is they don’t pay a dividend….

Palantir's picture

ubermensch -any small/micro ideas? No special situations, just normal good companies just doing their business.

Not all men were meant to dance with dragons.

FrankArabia's picture

please provide your weekly update….there were a few articles i read over the weekend on intel and microsoft (barrons, businessweek)….your thoughts?

Palantir's picture

I haven’t seen much change on MSFT prospects, their presentation at CES was well received. (I’ve seen their Windows Phone, it has a super nice interface, IMO better than Android).

I’m probably going to submit an application for Value Investors Club with a pitch for Northrop Grumman, if only this damn L3 would go away.

I am long CCJ, target price 30+. Sadly I did not buy HII in October. Can’t recall why…….dammit it was a perfect Joel Greenblatt style spinoff play.

Not all men were meant to dance with dragons.

FrankArabia's picture

your price target is baloney…….

krazykanuck's picture

Great idea for a thread. I need to invest my new Roth contributions, hopefully soon. I’m thinking of putting some of it into a high yielding REIT for the income, but I don’t know what to do with the rest. I overhauled my portfolio at the end of December for tax reasons and I just need to rebalance, so I’m more/less starting from scratch in 2012.

chad17's picture

Hello all, been super busy with work - modelling day and night is no fun. Good to see this thread is still up and about!

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‘08, ‘09, ‘11 - 3/3

Palantir's picture

I have a feeling Buffett may plot a position in Siemens AG (SI). Pretty good price.

It has all of the characteristics, large mature company with strong moats, diversified product base and will likely be around for a long time. It’s like a European version of GE. Furthermore, Buffett has pointed out that many of his investments have been made in times of macroeconomic uncertainty, and SI prospects have likely been hit substantially by Euro crisis.

I havent gotten into the firm much, damn L3.

Not all men were meant to dance with dragons.

FrankArabia's picture

not bad palantir, i will look into SI….i have yet to buy an industrial stock yet…..

FrankArabia's picture

just printed out annual report and the numbers look ok so far…..valuation is attractive….now lets see if I can understand what they do…..

Palantir's picture

With a firm like Siemens that has a diversified industrial base I don’t think it’s that important to get all the details as that will probably bog down the analysis if you start looking at every product they sell. I think it’s more important to quickly find out whether they have a moat and whether a conservative estimation of future earnings can justify or even exceed what the market price implies.

Not all men were meant to dance with dragons.

FrankArabia's picture

Their annual report is over 300 pages long…..

how would you determine if they have a moat in this case? to me at this moment, their moat is their ability to produce high quality products and charge an above average price….they have brand recognition as well, but so does GE, hitachi etc…..i’ll have to masturbate to this when i get home today….keep me up to date with what you find……

Palantir's picture

I think their moat is basically what you said, they’re a respected name that makes expensive things, everything from home appliances to (formerly) nuclear reactors. (regarding that, I believe Iran’s enrichment facilities use Siemens software). They may not have an edge over a firm like GE, in fact I think they’re very comparable to GE, but I think these large conglomerates will tend to coexist and perhaps even cooperate.

I wouldn’t consider GE because it simply has terrible financials. 450B in debt wtf?

Not all men were meant to dance with dragons.

FrankArabia's picture

that comes from their finance business……i’ll keep pushing….will have results later on during the week…

Palantir's picture

It seems to me from their annual report that they are transitioning from being an industrials manufacture oriented company to more and more a services-type firm with its associated higher margins. Te closest comparison I can think of is IBM. IBM is also moving towards more of a software/services type firm. Most importantly though, Siemens seems diversified, with fingers in many many pies. As for what will unlock value, a simple dividend increase would do. Remember, they make money in all currenceis, not just euro.

http://www.sec.gov/Archives/edgar/data/1135644/000119312511325840/d25993...

Not all men were meant to dance with dragons.

FrankArabia's picture

i’m still going through it….its a good industrial firm from what I can see….but pretty busy with all the earnings coming out this week i won’t have time to sit and think til the weekend….

i’m not so sure if I can put 20% of my money in this yet……maybe 5% but whats the point in that?

I would look at other industrial companies cause their margins, ROEs etc are closer to them…..they display the same cyclicalities as well you can see how they really measure up….on relative rankings, i can see they’re at least average….

Palantir's picture

Yes take your time, it’s no hurry, I think this stock will be “attractively priced” for a while. I’m not confident there needs to be a dominant edge over other industrial firms, I think it just needs to be competitive enough to defend its position. And if we can get the right price it could prove to be a very good investment in a stable firm. But I do think that moving into high margin areas like software will prove to be a powerful edge combined with its strong brand name.

Not all men were meant to dance with dragons.

The Righteous Hacksaw's picture

I like SI too. I’m so short Europe right now this would be a good way to maybe hedge that a bit

No Homo

Palantir's picture

I have made a new investment.

Gastar Exploration 8.625% Series A Cumulative Preferred Stock

(NYSEAMEX:GST-A)

Basically the preferred’s are yielding 10%, with a 25% bump if the issues are called.  The way I see it is tha tthe firm is selling at a discount to its net asset value because of poor natural gas market. Hence common stock is doing poorly, but preferred’s has a nice dividend, and I don’t need to wait for a catalyst.

Not all men were meant to dance with dragons.

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