Value Investing Ideas

The title sounds like a terrible advertisement, doesn’t it?

I wonder if anyone is still reading this, given I haven’t updated in quite a while.

Anyway, the amount of cash and cash equivelents in the S&P 500 has reached $1.19 trillion dollars.(http://www.bloomberg.com/apps/news?pid=20601087&sid=aE6W8c9z9Bms&pos=5). That’s a lot. The linked story goes into the details of why and how this is happening. It’s what you’d expect, corporations are trying to insulate themselves against the credit market, they are cutting costs, freezing hiring, not buying back stock, etc.

Yesterday after hours ATP released news that they discovered additional sands at the Mirage Prospect at Telemark, doubling their pre-drill estimates.

Putting this in context, before this find Telemark will double ATP’s production starting in 2010. Now, they are finding that their initial estimates are, well, a bit on the low side.

The stock price has been on a tear lately - but it is only beginning. I’ve documented tha value of this company very well. It has attracted big investors such as David Einhorn, shorts are at still 20% of the float. Short term movements are irrelevant, but I must say it is satisfying to watch it go up, while at the same time I’d love to be able to buy more back at the $3 level.

I decided to see how well I’ve done in the last several months. I know how well I’m doing in my real accounts, but what about the stocks I have written about here? As I say, this is for fun, as 8 months worth of data is pretty meaningless for this kind of investing. As you might imagine, if the returns were negative it would be a lot less “fun”. Anyway, here are the numbers:

Not too shabby. It doesn’t really represent my personal investments, as I’ve never owned BXLC, only had BTF very briefly (better opportunities out there), and I don’t remember if I ever held MGA. Furthermore, I’ve been buying ATPG steadily as it fell down into the $3-$5 range. I’ve also been doing some troubled companies investing where the story has not played out yet. There are several other oil stocks I have been buying but not writing about here (PETD, RAME, et al), plus some boring mega cap stocks, and some interesting companies with value to hedge funds.In some way these writeups disappoint me, in that I have several other very good ideas, but on the other hand I feel that what I do write about I support very well, and they have been great performers. Furthermore, they have a lot more legs left.

With all that caveat out of the way, this chart probably still represents some of my best ideas to date.

I’m still very hot on ATPG, ACTS, and IPHS. I have no opinion on the others, as I’m not really following them. BXLC was trading up to $29 earlier in the year, but gave it all up. I wonder if they will ever do something with their cash - it’d still be a home run for investors if they did.

Anyway, compared to the S&P 500, which has an annualized return of about 25% since Dec 15th, I’d say I’m doing satisfactory.

I wrote about Actions Semiconductor here. The story has changed somewhat since then, but in a good way. Better yet, although the stock price has recovered somewhat, this is still a net-net play, and it is still trading below cash on book.

At the time I wrote the original writeup ACTS was resisting buying back shares, preferring to “grow” the business through acquisitions. Indeed, they ended up making a bid on an manufacturer, and it looked like a done deal. Management was playing this close to their chests, refusing to discuss the business or its prospects in their conference call. The analysts were very persistant, and several emphasized the extraordinary value that could be created by buying back ACTS ADRs.

Well, management listened. The acquistion was cancelled, and ACTS has retired over 9 million shares, or just over 9% of the outstanding stock, leaving 86MM shares outstanding.

At this point ACTS has $236.5MM of cash and equivelents on their books vs a market cap of 200MM. So, on cash alone you are still buying $1 for $0.85.

How about the business? Well, in this extremely difficult global crisis, they lost $0.02 two quarters ago, and $0.01 this most recent quarter. In other words, during global financial catastrophe they almost broke even, and had a huge war chest that would have protected them had they lost real money.

How about costs? Well, at the beginning of the year they announced that they were cuttting the salary of senior management by 20%, and then they cut the manager level salaries by 20% in the second quarter. They have not reduced the salaries of the technical staff. Management is eating their own cooking.

As I wrote before, this is a tough business sector to value. Changing consumer tastes in gadgets makes it extremely difficult to build a moat unless you have significant IP (have I written about DMRC? - they have a moat). Still, trading at a discount to cash, a huge war chest, and pretty much breaking even during a major worldwide crisis - it’s a no brainer to me. This company is ripe for a takeover, or merely for the share prices to recover once earning return to a normal level. In either case, management is continuing to help make your investment more valuable by buying back and retiring shares.

Several of you have asked me for updates on ATP. Rather than blather on, I’m mostly just going to link to an excellent write up on an analysts breakfast held by ATP this Thursday, where the bull case is laid out far better than I can make it.

However, let’s look at developments since the last time I wrote. ATP is pressing full steam ahead in developing Telemark, their company changing lease in the GOM. When it comes on line it will more than double ATP’s production. They got the developers to agree to foot the bill for the development, about $200MM, in return for getting paid with future profits. They have several asset monetizations in the works - selling the Gomez pipeline, selling Titan, et al. Al Reese said this is as “close to 100%” sure as anything could be, as you will see in the link. GE and other companies are interested.

As is typical with these fields, the reserve volumes used to calculate PV-10 is very conservative. If you look back at ATP’s history, they’ve beat these estimates by huge margins. Don’t get tooooo excited about that, as that extra production comes in on the back end, and the present value of money means you have to discount those cashflows over several years. But still, take the > $5B in reserves as a low ball estimate.

They have other irons in the fire. North sea, for example. They are currently bidding on and winning new leases in the GOM near their current hubs.

Their bankers are working very closely with them over Telemark. They recognize the great value in that field, and it’s pretty hard to believe they’d shut down the company to get their money a few weeks earlier. The risk right now is that ATP is not going to do their monetization for the debt until Titan is in place and ready to go, so if there were significant delays they could actually blow a few covenants.

I said Telemark is company changing. Let’s put that in perspective. At todays strip prices, ATP’s cash flows next year will equal the current market cap. Yes, ATP is trading at 1x 2010 cash flows. A typical number is more like 10x. ATP plans to have *all* of the debt paid off by then.

Okay, so I did blather on. Anyway, here is the link backing up those points.

http://boards.fool.com/Message.asp?mid=27920815&sort=postdate

There have been quite a few positive developments in ATP since I wrote about them last. Perhaps I will address them in a later post. However, elsewhere you see a lot of hand wringing over whether ATP will execute their plans for the next few quarters. Make no mistake, if they do execute them (and I see no reason why they won’t) it will be a transforming event for them - huge free cash flows, all debt paid off, etc.

However, for any company I own I try to “break it”. Figure out what can go wrong in a perfect storm, and get a feel for the results.

The PV-10 value of ATP’s reserves is $5.3B. The infrastructure value, almost all of it new construction with a 25-40 year life span, is $1B. That value is based on what it cost ATP to build it, not the present value of cash flows they will generate (which of course will have a greater value). This number is backed up by the deal made with GE, where GE paid the estimated value for the Innovator platform.

Total liabilities, including long term debt, income tax, accounts payable, etc., is just under $2B. That gives us an enterprise value of $4B, vs a current market cap of under $500MM. A pretty huge disconnect.

Why is the stock price so low? Everyone is hand wringing over the debt covenants. When ATP renegotiated their debt, it came along with a bunch of provisions, most of which I talked about before. They had to sell assets, devote 75% of the proceeds to debt reduction, they had to earn revenues at some multiple of the debt, etc.

Of their covenants, the requirement that debt be less than 3x EBIDAX gets the most attention. Right now the plan is to make the majority of that money via asset sales. They were helped along with a sweetheart deal with a driller, whereby the driller pays for the cost of development and gets paid with profits. Still, ATP has to execute some sales to meet the covenant.

But, is this a big deal? Sure, we don’t want them to blow the covenant. But suppose they do? They won’t go bankrupt over it, but pretend they did. ATP would be put up on the block, and over $6B of assets would be sold to generate $2 worth of money to pay off debtors.

While we would all be extremely disappointed by the demise of a company with such a great future, under any reasonable scenerio there would be more than enough money to pay off shareholders. Would we end up with $70/share? Probably not, trying to sell that many assets at once in this environment probably means we’d end up selling some things for less than they are worth.

So, while I’d hate for them to end up bankrupt (let’s very clear here, I don’t consider that a real risk), it’d hardly be a disaster. I’d fully expect to make money from the deal.

Realistically, blowing a debt covenant means sitting down with your debtor and renegoiating terms. Sure, they could demand repayment in full immediately, forcing some kind of bankrupcy proceedings. But is that likely? Given that ATP recently coveyed 3 limited-term NPIs for the development of Telemark (meaning the devlopers pay for the development, and get paid from future profits) we can conclude that there is future value in ATP. Debtors are unlikely to walk away from such cash flows. Instead, they’ll turn the screws a bit and get more favorable terms. Nothing is guaranteed - a debtor that needs cash can always demand repayment, but it is unlikely. If it does happen, stockholder still win, though much less than they could have.

So, what is the fear that makes ATP trade so low? I don’t know, I’ve never seen anything reasonable articulated.

edit: I haven’t bothered looking at all the little terms in the debt - with that we could get a more realistic assessment of what happens if a debt covenant fails. My position is: who cares? If I win even if the company breaks I don’t need to know much more.

This has always struck me as an easy question, so the amount of handwringing over it has always left me nonplused. To be fair, many of the top value investors, people I admire, have said it is a tough question, so perhaps everything I write in this post will be wrong. But, judge for youself.

It’s my impression that people use the wrong mindset when deciding to sell. They seem to drop their value investing roots and start to try to guess what the market is going to do in the short term. If you try to do that, then yes, it’s hard to decide when to sell. It’s my opinion, backed by a lot of evidence, that no one can determine short term market movements. If so, if you try to do it all you are doing is speculating. It’s no more correct to speculate on the sell side than on the buy side.

Okay, so how do you decide to sell? Well, the most important thing to understand is that money has no memory. For example, say you buy a stock, some bad news comes out, and it drops 20%. Let’s say it is really bad news - a fundamental shift in the outlook for the company. In this case it makes no sense to just hang on, hoping to eventually make up the 20%. You sell, take the loss, and put the money into a better company.  Your $800 doesn’t know it used to be $1000, and that company is not going to increase in value just because you invested in it and took a paper loss. Always, always, always put your money in an investment with the best rate of return.

So, we use that simple rule to decide when to sell. The rest of this argument is going to be phrased as if you are buying another stock, however, the argument still works if you are going to take the money and put it in a sock drawer or buy a boat with it. Why? Because money has no memory. It doesn’t know if it was used to buy a new stock, or a new boat, or whatever.

Okay, since money has no memory, don’t bother looking at your account and saying “I have 10,000 shares of XYZ”. You do have them, but that knowledge doesn’t affect the sell decision. You certainly don’t say “I bought 10,000 shares of XYZ at $10.00″. That also doesn’t affect the sell decision.

Pretend you have $100,000 to invest. In the entire universe of stocks, what stock or stocks would you buy? The very best stock you know of.

How you make that decision depends on your version of investing, and I won’t go into that here. But obviously you will be looking at FCF, multiple vs yield, your expectations of the future, and risk/reward.

Let’s say ABC is selling at $5 and you think it is worth $10. XYZ is selling at $10 and you think it is worth $13. Both have equal risks and uncertainty. In this case, forgetting for the moment that you own XYZ, you’d definitely buy ABC. Well, how do you get that 100K to invest in ABC. Well look! You have $100K worth of XYZ in your account. Sell it and buy ABC.

That’s extremely straightforward. Just own whatever you think are the best bargains out there. If that means you have to sell something, so be it. Every time you sit down to review your portfolio, figure out what you want it to look like, forgetting what you own now and the paper profit/loss on those. Then, do whatever you need to do (buy/sell) to make your portfolio look like it should.

A few complications: The US government taxes you differently based on your holding period. 15% vs 30% or whatever your effective tax rate is. There are dividends, currently taxed at 15% unless you have an MLP or somesuch. Etc. Natually, you have to factor those into the equation, but they are pretty simple. In this case you could argue the problem gets a lot harder, because you are deciding between selling today at a known price vs next year at an unknown price. Here I pretty much assume no changes in prices, which is a bit conservative given that over time markets rise. You could look at beta, but I think that’s a bit of voodoo.

Another issue related to taxes. Say you bought XYZ, and it dropped 20%. You love this stock, and the price drop was irrational. Normally you’d back up the truck, right? Well, let’s say ABC is equally depressed, and you love ABC just as much as XYZ. In this case, sell XYZ, take the tax write off, and buy ABC. You have the same dollar amount in stock as before, the future is equally bright in ABC vs XYZ, but now you have a juicy tax write off!

The final thing I might think about is delaying the tax bill. If I am figuring out what to sell and it is Nov 30th, I may just wait until the next fiscal year to sell my stock, merely to push the tax burden out a year. But this only works if you aren’t filing quarterly. If you are managing serious money, you are probably filing quarterly.

This post implies a lot of selling/buying. I hope that isn’t the takeaway point. If you bought Berkshire in the 80s and love it, why sell for a few extra percentage points? You know Buffett, presumably you agree with his investment and business philosophies, why go to somebody untried? But that should be part of the decision of “what do I want my portfolio to look like”? Me, I want some solid, indisputable performers like Berkshire, and then some higher risk, but world changing returns like ATP. That way if my risky buys don’t work out, I still have a comfortable nest egg. If they do work out, I’m not just comfortable, I’m very well off. But, here we are veering into buy decisions, which is a different topic.

So, my advice is pretty simple. Figure out the optimal portfolio for you, and just make it happen, not worrying about what you currently have in your portfolio. But don’t give Uncle Sam too much extra money if you can avoid it.

Disclosure: I own ATP, I don’t own Berkshire. They were just chosen as examples of different risk/reward profiles.

Of all the investing literature I have read (and I’m talking Greenblatt, Graham, et. al), it seems that this topic gets very short shrift. However, to my mind (based largely on tracking down everything Bruce Berkowitz has ever said or written publically), it is perhaps the most important topic for a value investor. I can almost understand why this is so. Free cash flow (FCF) is not easy to calculate, and you will not find it in most financial statements nor on online sources. However, to my mind, it is absolutely critical to understand and compute.

Okay, what is FCF? Forget the formal definition for a moment - I assume most could reel it off. Free cash flow is simply the money that is left after you have paid for everything - labor, expenses, research, periodic replacement of equipment, lawsuits, etc. That may sound like earnings - sometimes it is, sometimes it isn’t. Take your personal finances for a moment - you get paid, say, twice a month, and pay your bills. At the end, you (hopefully) have cash left over. However, unexpected things come up - medical bills, an unplanned vacation, gifts to the grandchildren, replacing the roof, whatever. Only after all of that can you really say I have X leftover. That amount is your free cash flow.

Its extremely important to know FCF for a company because this tells you what money actually flows to you, the owner. The money can be used in many ways. It could be used to grow the company, buy back shares, pay for dividends, or just build up in a bank account, reducing the enterprise value to you. It’s a measure of a healthy company, one that can pay for business with cash, not debt.

So, what price to pay for FCF? You will often see multiples bandied about: XYZ is trading at 8x trailing FCF. These multiples are compared to peers, announced as attractive or not, but why? What’s a good price to pay?

As always, we need to perform a discounted cash flow. And, as always, we shy away because who wants to pull out Excel?

Well, you don’t need Excel. There’s a trivial formula that allows you to do it in your head. It’s merely the first year’s FCF multiplied by 1/d, where d is the discount rate. The typical discount rate is 10%, so 1/d = 10. So, multiply the FCF by 10. Easy peasy. Done. If this year’s FCF is $23.8MM, you would be willing to pay $238MM for the company (Enterprise value, of course).

“But wait!” you say, XYZ is supposed to grow, which means FCF will grow. That formula is worthless.

Not so. Just subtract the growth rate from the discount rate. So, if you are going to grow FCF at 3%, then you would have $23.8MM * 1/(10%-3%) = $340MM. If they are going to shrink, add the shrinkage: $23.8MM * 1/(10%+4%) gives the value if FCF reduces by 4% a year.

This may appear counterintuitive: what if the growth rate is 10%? The formula tries to divide by zero, implying the security is worth infinite money. Well, it is. Assume I give you $1 dollar today, $1.1 next year, $1.21 next year, $1.33 the next, etc, 10% more each year. Well, our discount rate is 10%, so next year’s $1.1 is worth $1 today. The $1.21 I’ll get in 2 years is worth $1 today. We have an infinite series of $1 bills.

“But Grape grows at 40% a year, you say. Why isn’t their stock priced in the billions per share? ” Well, first of all, Grape probably doesn’t grow FCF at 40%, but some other measure. But secondly, this kind of growth is never sustained. In 20 years at that pace the company would be worth more than the entire United States. So calculations for these big growth stocks use another formula, one that assumes say 10 years of high growth, 10 years of modest growth, and then a plateau. Ben Graham gives a formula for this, if you are inclined. I avoid this stuff, because you will soon see how wildly the value changes based on just a 1-2% growth change. My crystal ball is not that finely tuned. As an aside, I see “Grape” stock valued at absurd values, assuming this kind of infinite growth. If you do this kind of calculation, look at the actual end value of the company. If you are calculating that it will be selling $250B of i-matches in 20 years, think again. Ain’t no market can absorb that many of anything.

Okay, so there you are. If you want to buy Coke, and your discount rate is 10%, multiply FCF by 10. If it is 15%, multiply by 6.7. I seem to remember some famous investor in Coke who can value companies in his head in about 15 seconds. What was his name? Buffer? Buffy? Something like that…. everyone wonders what his secret is. It’s just simple math.

Edit: I left out an important point. If your DCF says the FCF is worth $300MM, that means you should be indifferent about getting $300MM today, or the cash flows for the forseeable future. In the real world, that is madness, because who can perfectly predict the future? You need to be compensated for the risk you are taking. So, we look for a discount to the FCF. If the DCF value is $300MM, and the enterprise value is $280MM I’d probably pass. If the enterprise value was more in the $150MM-200MM range, and all other factors looked good (good management, solid balance sheet, etc), then I would snap it up.

This will just be a brief update. However, the price fall of the stock suggests either an incredible buying opportunity, or incredibly bad recommendation on my part. As always, I don’t invest based on short term (meaning under 3 years) price movements, but on long term value.

At the moment of posting, Innophos is trading at $8.84, for a PE of 1.0. That reflects an extraordinary pessimistic view of the long term earnings of Innophos. Innophos had their year end conference call in Febuary, and the transcript is available on their website here: http://ir.innophos.com/

Let’s look at what they had to say. I’m not going through the full thing; I’ll extract a few telling comments. Let’s start with the previous year’s performance:

“Full-year results can only be described as exceptional.”

“Innophos delivered solid results in the fourth quarter despite a selling environment that became significantly more challenging through the quarter. Net sales for the fourth quarter were up 50% over fourth quarter 2007”

But, of course, we buy stocks based on their future potential, not previous glories. And yes, we can’t expect a repeat of 2008. Here’s what Innophos has to say about that:

“Going forward as result of these pressures, we expect to see downward pressure on selling prices which are currently at historically high levels. In response, we are taking a more aggressive stance to retain our leading market position and keep profitable business going forward.”

“We are benefiting from declining sulfur, energy and transportation costs in comparison to 2008 levels”

There is about a 2 page description of all their business segments, with the market’s effects on costs and sales estimated. I can’t summarize all of that. Needless to say, there is pressure on them. They summarize with:

“In expressing an outlook for Innophos financial performance in 2009, we must consider several issues. We cannot now predict how severe the recession will be, nor the associated impact on industrial and agricultural demand. With the uncertainly around Mexican phosphate rock cost and operating levels, and along with greater competitive intensity, we have to conclude that we cannot offer reliable and specific operating income guidance for the year.

We can give you an idea of first quarter outlook. We expect that first quarter 2009 volumes will be up approximately 15% from fourth quarter 2008 levels. For selling prices, with the usual puts and takes from various customer agreements, we expect to increase prices in some areas, primarily in the US, but this will be offset in our less specialized product areas and should result in overall prices that should remain somewhat similar to those of fourth quarter 2008. Lastly, our cost structure should remain relatively flat as well.
Beyond the first quarter, volume impacts are uncertain and we believe are recession dependent. We do expect to see selling prices trending down, while Mexican cost structure increases also start to kick in mid-second quarter, again, to some extent affected by operating levels.”

Okay, not perfect news, but exactly what we would expect from a stellar company selling staples in a recession. In short, they (like everyone else in the world) have no particular insight into when the recession will end, and they will have to tighten their belts a bit until it is over.

Note that all of the uncertainty here is to the extent of the profitibility during the recession, not whether there will be profit, or whether IPHS will survive. Yet stock prices have plummeted. IPHS is currently selling for 40 cents less than last years EPS! They are being priced as if they are a fertilizer business, and as if fertilizer will never go up again. Hoewever, they are primarily a specialty products business, with margins in the 30%+ range, not the under 10% margin of raw products like fertilizer. They do sell raw materials, and lower end materials, and there they are facing significant competition from the Chinese and such.

I feel like typing more, but the situation is uncertain. We can set and weigh the different components of the business, try to estimate the future of the recession, predict prices for raw materials, predict how changes in China will effect competition, etc. I’d be a fool to think I could do that better than the managment of IPHS, and their position is: “I don’t know”.

So is the price fall justified? Well, they are going to be cash flow positive in 2009, they will continue to pay down debt, they will continue to be profitable. They still sell specialty products required for all kinds of staples. A segment of their business is still highly resistant to competition - food additives. They expect to maintain their margins in their specialty products.

Investors confuse uncertainty with risk. We cannot reliably make 2009 EPS predictions. We cannot clearly see what the competitive landscape will be in 2011 and on. What we can see is a company that has been making specialty chemicals for a very long time, remaining highly competitive, with high margins, with a strong balance sheet, cash flows, and the ability to compete and react to the market (something a debt heavy, poor balance sheet company often can’t do).

I don’t know what 2009 will bring IPHS. Read the transcript for some of the possibilities. What I do know is that this company will continue to make money, will continue to be very competitive, will continue to try to increase market share. Nothing is looming to make us think that IPHS is about to disintegrate - the uncertainty about it’s future is no more uncertain than a JNJ, Berkshire, etc. We don’t know next year’s earnings, but we know in the long term the company will continue to make money, and thrive. A PE of 1.0 gives us a huge margin of safety - far beyond the 50% required by value investors.

Actions Semiconductor is a Chinese fabless semiconductor company. Their main market is producing chips and platforms for mobile media players. No, not iPods, Jobs keeps all fab in house, but the plethora of systems flooding the Asian markets. They specialize in SoCs, or system on a chip. These integrate the functionality of an entire system on one chip. This vastly reduces the fab costs for devices since the circuit board complexity is greatly reduced, and as a result, offers improved reliability (fewer solder connections to go wrong, etc). They market other devices - for example, they just started shipping a GPS on a chip.

This is a competitive market, and it is pretty hard to identify a moat in this business, let alone predict sales rates, growth, future innovations, etc., all the things needed to determine what price you are willing to pay for the company. So, on to the “too hard pile” and on to the next stock.

Well, let’s just look at that balance sheet first. No debt, $3.05/share in cash equivalents, vs a stock price of $1.55 today. Yes, not only is it trading at 50% of cash, but 50% of enterprise value. In the trailing 12 months, their earnings were $0.54, a PE ratio of 2.9x. Net profit margin is 40%, and ROE is 17%.

On cash alone this is a screaming buy. What are the risks?

First risk is that this is in China. The rules can change at any time. We do not have the transparency into the cash - much of it is invested with major Chinese banks. Analysts probed this issue again and again in the most recent earnings call, and management assured everyone that the investments were equivalent (in safety and returns) to the US’ short term CDs.

Second risk, bad decisions by management. They seemed about to make a bad decision - they had announced plans to buy a touch screen manufacturer. No one really understood why - and they claimed that they could not name the business because they were partnering in the investment with others. They assured us the business would eventually be quite profitable, and that the business owners were investing their own capital. However risk is nothing more than uncertainty, and what could be more uncertain than an investment in an unnamed business not directly related to the core business of Actions? It seemed a questionable way to deploy cash, especially given the tight credit market and extremely low share price.

Management was repeatedly encouraged to buy back shares. The company acknowledged that was a great way to enhance shareholder value, but said they needed to grow the business long term. This makes some sense to me - looking at short term returns it is always great to see share buybacks at under 50 cents on the dollar, but it would also be nice if the business grew. That decision seems aligned with long term shareholder interests.

I must admit my interests are more short term on this one. The margin of safety is very large. We are actually being paid $134 to own a profitable semiconductor business - a company earning roughly $20MM EBIDTA.

Of course, like all semiconductor manufactures, they face a tough future. Earnings have been down, and are projected to fall further. Depending on your assumptions, the current share price could be normal (in this environment, not a typical market). However, I view the cash as a huge safety net. Yes, the company could turn unprofitable for a number of years, yes, they could fritter away the money in senseless acquisitions. However, they seem to recognize that danger, and are being conservative. It’s not hard to keep an eye on them and bail if they do anything outrageous.

If you are a Schloss type investor you would pick this up without a thought, as it is a perfect cigar butt purchase, and you would be insulated from significant losses with the other 100 equities you own. If you run a concentrated portfolio, you’ll definitely not want to take a huge position on this without more research than I have provided above. I think this company will have a decent to very good future. But if the stock was to appreciate to the point where they are giving the company away for free it’d still be a double for us.

Short term (a year or so) I wouldn’t be surprised if the shares went lower. If earnings do indeed go down, and the market is still depressed the price could drop quite a bit on the news. But, we are trading at 50% of cash. That cannot persist long term.