Quick Ideas #3

Closing 3 and 1 new one

I want to close some ideas, and I got a new one. 

I just sold out of Lastminute (LMN). Earnings forecasts for 2023 and 2024 have collapsed, and the stock no longer looks all that cheap. Only reason to own is on speculation of a buyout, which I also don’t think is all that likely. It has returned 37% since I mentioned it, and outperformed the index by 19%. I don’t think they have a solid enough moat for me to speculate on an earnings recovery. Price has gone up since I mentioned it while fundamentals seem to have deteriorated.

I actually made a loss on it myself. I blindly followed Jeremy Raper into it, which was a mistake. I actually realised it was a mistake shortly after I bought it, but since the price had already fallen I held on to it. Honestly most of my mistakes can be attributed to a combination of following others into stocks and having a scarcity of ideas of my own. Which is why I put the disclaimer at the bottom, since I have made a few mentions of stocks here that were clear mistakes even without the benefit of hindsight. Discipline is so important with investing, and occasionally I still have my weak moments. So don’t ever blindly follow me or anyone else into a stock!

It was also a bearish signal that I did not feel like mentioning this stock here in 2022, and I should have just sold it at a loss right away. But oh well, live and learn I guess. 

I mentioned Celanese (CE) last year, and I want to close that one as well. Mentioned it at $110 and it now trades at $122. Thought it would do $2bn+ in earnings. But turns out it will be a lot lower at around $1.2-1.3bn. And possibly $1.5-1.7bn in a few years. Maybe there is a recovery, maybe not. But Debt/EBITDA won’t go below 3x before 2025. Stock is up since I mentioned it, while fundamentals are down significantly, so moving on. 

Closing Sitio Royalties (STR) as well. Was hoping for higher oil prices, but since WTI has fallen to mid $70’s I don’t think this one is all that attractive anymore. I don’t think it is a bad stock to own though, it will probably outperform the index given it will likely generate about $3/share in FCF which will slowly grow from acquisitions. But just not cheap enough for my taste. STR has performed and outperformed by more than 70% since mentioning, including dividends. And up more than 50% since my dedicated write-up in January 2022 despite oil prices being down.

As far as oil stocks are concerned, Petrobras is still the way to go. It has paid nearly $2 in dividends since I wrote it up last November when it traded at $8.75. I still own a sizable position in the A shares. And expect another $3-5/share in dividends in the coming 2 years if oil prices don’t collapse.

New idea is Global International Credit (1669), a Hong Kong nano cap holding a bunch of mostly mortgage debt. It is a simple idea only suitable for smaller portfolios as it is pretty illiquid, so beware. Trades at 4x earnings, a 10% dividend yield and 22% of tangible book value. I don't think this will ever sustainably trade at 1x book value, but at least it should trade at somewhere close to 0.4-0.5x book value? Given management’s willingness to pay a large dividend (close to 20% even in 2020 on current share price), either they grow earnings or the dividend will increase at some point. Given the lack of leverage. It is also impressive how low loan impairments are given their high yield debt portfolio.

Takes some patience to build a position though. It is one of those tiny buy and forget positions for me.

I will have another idea ready soon, a special situation that is very juicy (but sadly also illiquid). But I am still building a position so hopefully in the next few days I will post it.