Quick ideas #1

And a few closures

It has been harder and harder to find good bargains in the market. 2018-2022 were good years to be a value investor. A lot of stuff has run up and I see major risks on the horizon. 

The US seems to slowly descend into fascism. Maybe it will fizzle out, or maybe it will be supercharged in the 2024 election? When I look at political discourse in the US it seems far from healthy. Everyone is way too angry and hateful (on both sides, but more so on the conservative side) and there seems to be a sizable minority who lives in a completely alternative reality. Just look at Seeking Alpha comments on anything vaguely political. And this seems to be getting worse.

And Russia will likely steadily be ground down in Ukraine and that could cause China to help. The West’s strategy seems to be to to slowly cook the Russians alive, so that there is no one large event that could cause escalation. The Chinese have said they are very committed to being Russia’s ally, so not even sending a little military aid looks kind of bad right? Especially when Iran is doing it as well. Now there are rumors China will send suicide drones to Russia. Not to mention the potential Taiwan blockade/invasion still hanging over our heads like a sword of Damocles. 

So I think it is a good idea to reduce China exposure. Which was getting close to 40% of my portfolio at some point. So I am closing China Dongxiang (3818) with a 47% gain. I already sold out, but forgot to make a post about it. Closing TK group (2283) as well with a 4% gain since they will be caught right in the middle of an escalating trade war. And it wasn’t a very high conviction position anyway. Closing Kinetic Development (1277) as well with 5% loss. Coal and gas prices have plummeted and it is still trading at about the same price as where I bought it. 

Then I will close Magnachip (MX) as well. For a 36% loss. I sort of unofficially did in the comments and on my now deleted Twitter, but that doesn’t really count right? They will likely generate a loss in 2023 and I don’t think the company will be sold soon. This stock really showed that with special situations you cannot have thesis drift. If certain conditions don’t work out and you can get out at a reasonable price, just sell. 

Olin Corp (OLN) earnings have fallen more than I expected and the stock seems to still hold strong in the low $60’s. At about 8-10x FCF it does not seem terribly interesting. So I will close this for a 13% gain. 

There was news that Tegna (TGNA) would extend the deadline for the merger. And that deadline for the DOJ to object has passed. FCC approval remains to be seen. The stock has run up for a 10% upside to remain. But 2023 earnings estimates have declined. So I sold all my shares for a nice and quick 10% gain. I like to treat these mergers as trading vehicles and not stubbornly hold on until the spread is 0%. Of course if you have to pay 30-40% capital gains taxes that might be less attractive. But I find it hard to handicap the odds of FCC approval. 

And I have a sneaking suspicion it might drift lower again in the coming months. 

New Ideas

US Masters Residential (URF), is an idea I got from Jeremy Raper. He ran a successful activist campaign, preventing a lowball buyout last year. I put it on my watch list a while ago and then sort of forgot about it. It is a fund that holds single family homes in the New York metro area. They are liquidating and have a NAV of A$0.6 per share vs a $0.285 share price. Management incentives start once $0.4 per share has been returned to shareholders. Which is the main reason I decided to buy. 

And it looks like they are trying to juice this with buybacks. Debt to equity of ~100% is on the high side, but their real estate is in a relative prime area of the US. Not in some backwater town in Alabama. So long at $0.285/share.

Then I also bought a small stake in Sesen Bio (SESN) for $0.59/share. Based on Clark Street Value’s blogpost. For $0.59 you will get a capital return of $0.36 very soon, a CVR potentially worth $0.14 and a stub in Carisma pharma which seems at least somewhat promising, estimated to be worth $0.41/share. The large capital return coming soon makes this juicy, despite the low absolute total upside. 

Another idea that looks interesting, but I am not sure how to buy is Beximco pharmaceuticals (BXP). The UK traded shares at a huge discount to the Bangladeshi shares. And also at a absolute historical low valuation:

It is a generic pharmaceutical manufacturer with a slightly above average ROIC. They have been enjoying steady growth and steady margins. Although recently margins have slightly compressed, presumably because of inflation. 

It looks like there is some currency risk though. Forex reserves of Bangladesh are at about $32 billion and have been falling by over $1bn a month. They have a large trade deficit. If that continues you could see a large gap down in the Bangladeshi taka at some point. Mitigating that is fast economic growth. The economy is expected to grow 5% in 2023. 

And the stock is trading under 4x earnings. So I think part of that is priced in already. 

If anyone knows on which euro brokers I can buy this, please tell me!

Ofcourse do your own due dilligence and I may sell and buy any of the above stocks at any time.

Oh and I will start numbering these from now on. Makes it easier to keep track.