« prev   random   next »

0
0

Companies in crisis are always great buys

By SFace following x   2012 Feb 8, 3:10pm 6,438 views   20 comments   watch   nsfw   quote     share    


Over the last 10 years of observing the market, companies in short term crisis not related to the fundamentals of the business have always proof out to be great buys. Example,

Merck: Sued
BP: Oil Leak,

The point is they always come back and prove to be great buys. Which leads to Diamond Foods ("DMND")

Diamond is a company in crisis after deferring expenses to pump up shares which they used on an acquiring spree. They apparently did it twice. But I am also fairly confident the problem is limited as I know some people in the SF audit desk. The Board of directors decided to clean house and admit to integrity issues. The fundamentals of the business has not changed that much and it's not like a customer looking to buy some snacks from Diamond thinks about these things anyway.

The thesis is of course there is nothing fundamental wrong with the company, except for integrity. You know how it goes, once integrity comes into question, the new management will be double sensitive and most likely will not be an issue again and probably over do it. It's just a matter of time before the money come back (my observation is money comes back in around 3 -6 months). I will be a buyer of DMND sometimes within the next 3-6 months.

1   uomo_senza_nome   ignore (1)   2012 Feb 9, 3:07am   ↑ like (0)   ↓ dislike (1)   quote   flag        

SFace says

Over the last 10 years of observing the market, companies in short term crisis not related to the fundamentals of the business have always proof out to be great buys

This is true. This regularly occurs because the market over or underestimates the progression of various companies’ operating profits. The fickle minded nature of the masses imply that screaming buy opportunities exist for the keen observers.

Here's an Austrian view of the stock market:

The purchase of DuPont’s stock in March 2009 at $17 was discounting a 600 basis point fall in operating margin. DuPont’s operating profit in 2008 was $3.5bn, and this share price was discounting a fall (over at most three years) to under $1.1bn by then end of 2012. Purchasing the stock at $17 would already discount a collapse in operating profit yet to be observed and run through the tills.

http://bullionbasis.com/web_documents/course_of_the_exchange_first_quarter_2010.pdf

Thanks SFAce. will checkout the stock.

2   uomo_senza_nome   ignore (1)   2012 Feb 9, 3:15am   ↑ like (0)   ↓ dislike (2)   quote   flag        

SFAce,

I'm curious what is the implied revenue/operating margin collapse dictated by the market as the stock stands today.

3   zzyzzx   ignore (1)   2012 Feb 9, 3:17am   ↑ like (1)   ↓ dislike (1)   quote   flag        

They are only a great buy if they don't go under. BOA and ETFC fit your description of troubled companies, but have basically been dead money for years.

4   anonymous   ignore (null)   2012 Feb 9, 3:50am   ↑ like (0)   ↓ dislike (2)   quote   flag        

DRYS anyone?

5   anonymous   ignore (null)   2012 Feb 13, 11:25pm   ↑ like (0)   ↓ dislike (2)   quote   flag        

Drys is steaming

Weeeeeeeeeeee!

6   clambo   ignore (4)   2012 Feb 14, 8:36am   ↑ like (1)   ↓ dislike (0)   quote   flag        

How about RIM?

7   jkennedy   ignore (0)   2012 Feb 17, 3:45am   ↑ like (1)   ↓ dislike (1)   quote   flag        

rimm has a reason to be where it is. They don't have a competitive product anymore.

8   B.A.C.A.H.   ignore (0)   2012 Feb 17, 4:43am   ↑ like (0)   ↓ dislike (1)   quote   flag        

SFace says

Companies in crisis are always great buys

Reminds me of a College Professor friend of mine who bought Wang, he called it a "turn around company".

9   SFace   ignore (0)   2012 Feb 17, 10:52am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Don't like RIMM at all. Went to Bestbuy mobile stores recently and it was basically Apple, Samsung, and MOTR. IOS and Driod. RIMM is hopelessly behind and the consumer will not come back. The commodity (cheap) phone market is not RIMM's strength.

RIMM would be a perfect target for Google, except they already bought Mortorola Mobile so I can't see an acquirer as well.

Which is too bad because "crackberry" started it all. Management's lack of vision killed them. It would be great business strategy topic and I'm sure every business school will be studying the case of RIMM.

10   Vicente   ignore (0)   2012 Feb 17, 3:17pm   ↑ like (1)   ↓ dislike (1)   quote   flag        

E-man says

RIMM reminds me of PALM and its slow death. It may get acquired for it's patents, but that's it.

Yes this is about the only reason I could see buying RIMM. There may actually be a play there you know.

I actually bought some TiVO recently. I love their products but they've never managed to turn their great product into a market dominator. Owned it a decade or so ago for several years but eventually got tired of waiting for the stock to DO something. However they hold a bunch of patents and I'm betting that some larger fish will buy them up just to acquire that portfolio.

11   Waitingtobuy   ignore (0)   2012 Feb 18, 9:29am   ↑ like (2)   ↓ dislike (0)   quote   flag        

It's a great time to buy Enron.

Yours truly,

Ken Lay

12   thomas.wong1986   ignore (3)   2012 Feb 19, 2:59pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

Anyone buy Sun Micro when it hit bottom...
Did you learn how to pray afterwards.. I bet you did!

13   Buster   ignore (0)   2012 Feb 19, 10:44pm   ↑ like (0)   ↓ dislike (2)   quote   flag        

Bank of America anyone?

14   APOCALYPSEFUCKisShostikovitch   ignore (40)   2012 Feb 20, 8:12am   ↑ like (0)   ↓ dislike (1)   quote   flag        

Sure they are.

You can shoot the starving employees running from the ruins and eat them.

15   JodyChunder   ignore (3)   2012 Feb 21, 1:28pm   ↑ like (0)   ↓ dislike (1)   quote   flag        

E-man says

I highly respect SFace's inputs & opinions. :)

That is what he wants. How can you value Inputs and opinions you paid diddly squat for?

16   thomas.wong1986   ignore (3)   2012 Feb 23, 10:27am   ↑ like (0)   ↓ dislike (1)   quote   flag        

SFace says

Companies in crisis are always great buys

"ARE ALWAYS" is an error.....

Would be better to use "MAY BE" ...

but do your homeowork... read the financial press, financial statement, news stories, do industry comparisions, understand the industry, and check with your professional network.

Than "MAY BE" its a buy!

Crisis = Accounting Irregularities.. run away as fast as you can, and dont look back...

Nothing worse than a day trader looking to dump on the misinformed.

17   michaelsch   ignore (0)   2012 Feb 24, 4:13am   ↑ like (0)   ↓ dislike (0)   quote   flag        

thomas.wong1986 says

Anyone buy Sun Micro when it hit bottom...
Did you learn how to pray afterwards.. I bet you did!

I knew a guy who lost hundreds of thousands $ of his own and apparently even more of borrowed money on buying Sun Micro, when it was half way down in 2001 (or 2002). He eventually lost his house in Beverly Hills to pay off his debt. (also his wife had left him). Note, Sun was a sound company with good products, great R&D, good work moral.

18   B.A.C.A.H.   ignore (0)   2012 Feb 25, 1:05am   ↑ like (0)   ↓ dislike (1)   quote   flag        

Then there's the engineer I knew who was laid off during the bursting of the Tech Bubble: rolled the 401 into a self-directed IRA in order to "invest" it all in webvan.

19   SFace   ignore (0)   2012 Feb 26, 5:21pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

uomo_senza_nome says

SFAce,
I'm curious what is the implied revenue/operating margin collapse dictated by the market as the stock stands today.

I spent way too many hours looking into Diamond Foods so I will just simplify it in footnotes. Do your own diligence.

* If the accounting irregularity is true, they are restated GAAP income, not Cash Flow or balance sheet. They will be on double SOX alert from here on out, so SG&A will be up because auditors will require more proof out. Not a huge concern for me. (please note what the issue is and what is and is not impacted literally)

* It looks like top leadership went a little too crazy from going public/nuts to Popcorn to chips and they almost pulled off "Pringles" in a short amount of time. Guilty of working too hard.

* Diamond has three brands essentially: Emerald nuts, Kettle chips and Pop Secret. Kettle and Pop Secret have lots of value just by eyeballing the placement of their products.

* Pringles potato chips was recently sold for 2.7B, Kettle chips may not be that far behind.

Diamond bought Pop Secrets in Aug 2008 and Kettle in 2010, 180M and 615M respectively. Those franchises are worth more given the good timing of their purchases or around 1B. The goodwill has real value.

* Debt load may be problamatic (due to above), especially if the terms are breached and Diamond will have to pay more to service their debt. Do they have to sell Kettle or Pop Secrets or would the cash flow take care of it?

* Nut vendors relationship needs to be reconciled. For the short term, their nuts will cost more.

* These are the type of opportunities that Ackerman's Pershing Square and TPG eventually buys. A lot of people are studying Diamond right now. If I was TPG, I would take over Diamond, sell Kettles and Pop Secret, pay the debt and pocket the excess cash to recover my purchase and restructure emeralds performance to take it public again/or sell to private party.

* I view the shares safe to own around 500M and would overload. Small risk, bigger rewards.

20   thomas.wong1986   ignore (3)   2012 Feb 26, 5:40pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

SFace says

* If the accounting irregularity is true, they are restated GAAP income, not Cash Flow or balance sheet. They will be on double SOX alert from here on out, so SG&A will be up because auditors will require more proof out. Not a huge concern for me.

Everthing is restated.. BS, PL, CF, disclosures, footnotes, entire SEC filings. ... when that happens.. SOX wont matter, blame is handed out, both at the company and audit firm firings and careers ended.


about   best comments   contact   one year ago   suggestions