This is the announcement of the winners of the June Value Idea Contest. In June we received 13 submissions, which covered companies from international mobile operater Vodafone (VOD), reinsurer Munich Re, tech giant HewlettPackard (HPQ), computer hard drive maker Western Digital Corp (WDC), payday loan company Cash America International (CSH) etc.
These are the submissions in June:
These are the comments from the judges:
Interesting to see someone take the negative case for value. A brave choice and it seems the negative reviews had a lot to do with the popularity of Amazon. Less to do with the quality of the work. That said, this report left a lot to be desired. Little discussion of the actual business (just some general comments about e-commerce) and none on mgt. Financials were viewed in snapshot fashion. Little discussion of financial strength other than some ratios viewed in a vacuum. Back out cash and recalculate? While I agree with the conclusion, the author did not back up the thesis, but assumes the reader will see it as self-evident. Could be a winning idea, but requires FAR more work.
Would have liked a more thorough discussion of the business (geographies, mix, competition)
But a very clear value thesis with multiple approaches to valuation
Presentation could have used some work (clearly breaking out the various approaches w/ conclusions for each).
Excellent responses to comments
CSS Industries (CSS)
A well written and organized report even if the data (at times) did not seem to support the conclusions drawn. Clear thesis with multiple value approaches (even if all did not apply). Excellent presentation of historic financial trends. But comments from readers hit on the issue of sustainability. Author states that the company is seasonal in the piece and then says he doesn’t see it as a seasonal business.
Then why loses in 1H and profits in 2H? Clearly there is a perception difference between author and market. This is great, except we don’t know what is going to force change. Buyout? 2011 numbers seem far below average/trend numbers. Is competition finally catching up? Who is this (foreign) competition? What is the catalyst to a higher valuation? Is the company going to liquidate and have shareholders realize book value or some derivation? Could this be a value trap? Is there the possibility that one year comes when they borrow money in Q1 and Q2 and don’t earn enough in the back half to pay it back? Seems like there are more risks than the author admits to. Nonetheless, an interesting piece.
The operating margin has been in consistent decline since 2008. What will bring the margin back?
Well organized report with an excellent discussion of company history and management. Good snapshot of current metrics (mkt cap, debt levels, dividends, etc) and historical financials. A good company to discuss because the competitors are well known… but appreciate that author discussed the competition and put names and faces with the term “competition”. But the actual discussion of industry dynamics is a bit thin. Author talks at length about SAB sale, but the company will readily say that they can NOT sell SAB due to bond rating considerations (I had this exact discussion with them). So this is a catalyst which is not really a catalyst. More discussion on regulations, lawsuits, and the sustainability of higher prices on ever lower volumes would have been helpful. So strong start with a somewhat weaker end. Valuation approach seems weak. Reader is supposed to see that MO is cheap on its face. But perhaps author should be a bit more circumspect about the current price in light of the risks and non-catalysts. A discussion with the company would help.
Buckle Inc. (BKE)
Another well-written and organized report that hits all the relevant topics. Interesting that vast majority of the business is jeans and tops. Not exactly an undiscovered business or one without risks. Good discussion of who management is. Insight into what makes them better than other managements in the industry will strengthen the argument.
Not sure the value thesis is that clear. Buckle is not demonstrably cheaper than others in the industry. And plenty of its peers are seeing long-term growth rates suffer in the current environment. But author believes that growth will continue.
The business is highly competitive. It will be nice if the author discusses more about competition and risks.
Commenters were trying to get at this issue of sustainability. With high margins, is it that Buckle is better than everyone else or just lucky to be selling higher margin goods? And will that last? Good back and forth with the commenters, but the jury is decidedly out on Buckle (and all of retail). Presentation of financial strength could use some work instead of just saying that cash is X% of assets. Is the cash really excessive? Viewed relative to market value, the cash does not seem very significant either in absolute or relative terms. So this is a pure earnings/cash flow + growth story. Valuation part is kind of weak. More work with valuation is appreciated.
Wynn Resorts (WYNN)
More discussion of the business will be nice. No discussion of trends, direction, etc. Valuation is weak for value investors. Again, while I may agree with the conclusion, the author’s belief that they have led a horse to water is misplaced.
Cash America (CSH)
Good explanation and discussion of Cash America’s business. The authors covered the areas such as financials, competition, valuation, management and risks. Especially for valuations, the authors use multiple techniques and reached similar conclusion. This seems to be a good company sold at a large discount.
Interestingly, since the writing, the stock is up more than 15%. Since March 2009, the stock has gained 400%. If it is undervalued now, how was it in March 2009?
Since this is a company making loans to low income groups, discussions of loan risks will be much appreciated.
Author does a great job of illustrating the business (mix, geography, etc), the value thesis, with 2 (relevant) approaches, and why the opportunity exists. Not sure I got a good handle on management, but the thesis is clear and compelling. Would have liked a bit more about industry dynamics (other than just that it is consolidating). But an interesting idea and the author illustrates macro and micro trends that work in its favor.
Reading about insurance can’t be anyone’s idea of a good time, but this was an interesting read. Good discussion of who/what Munich is. A good “getting to know you” article. And if the author wanted to convey that Warren Buffett likes Munich, he succeeds. But we don’t know why. In the end, this article needs more detailed discussion on valuation. Comparison to other reinsurers? What makes Munich different? Does Buffett own only Munich or others too?
Excellent responses to commenters, but can be improved if the above mentioned areas are discussed.
Hewlett Packard (HPQ)
For a huge company with lots of moving parts, the author does a decent job of illustrating that HP is in a time of transition. Good overview of business and presentation of historical financials. Legacy businesses continue to generate lots of cash, but direction is unknown. Author seems uncertain as to his conclusions. We are to believe that low multiples indicate undervaluation but suspicion is that the company is a value trap. Unlike many others in techland, HP does not have net cash. Buybacks have been questionable use of cash, especially leveraging to do so.
Author illustrates a very steady-state company (for now) and fails to make the argument that the price/value must go higher. And if so, by how much.
More work on valuation, discussion of competition, risks etc will be appreciated.
But it is a very relevant topic since HP has probably crossed the desk of every value investor on earth. The article left me wanting more.
Amcon Distributing (DIT)
An interesting read, though I (at first) felt like I was arriving in the middle of a conversation.
An introduction of the company and its business will help readers to understand more. Article left me feeling like I did not understand the company or the industry well enough. Author gave it at the start, but I kept thinking about Sysco. Is it a relevant comp? Probably not. Convenience store focus vs. restaurants. But is the analogy the same? The gorilla and the ants?
Does this company have to acquire to survive? Why do an acquisition if your stock is so cheap, etc. So the strategic issues were a big question. A CEO with an investment banking background? Is that good, bad, ugly?
But there is a clear thesis with compelling numbers behind it. Enjoyed the article, but it needed to go further to sell the idea to the reader.
Western Digital (WDC)
A thorough piece for sure on a very relevant topic given the activity in the industry. Overriding factor in the drive space (for this reader) is the cyclicality that many seem to forget. Author does a good job of addressing these concerns, though I would have preferred more. Good presentation and organization. Thesis seems clear, though a lot of the upside rests on M&A multiples that may not ever apply to WDC. Management bios were great, but would have liked more on the perceived (by author) quality of the management. More responses to readers’ comments are appreciated.
Action Semiconductors (ACTS)
As a reader, I don’t come away with a good understanding of this company. It has problems. Ok, fine. But why? Competition? From whom?
Good organization, well written, with good historical data.
But when the author says: Action “is a perennial net-net since 2009” and talks about “value if liquidated”, he illustrates the trouble with the thesis. What is the catalyst?
Thesis is unclear and not compelling given the risks… the revenue drop alone makes a 30+% upside seem pretty slim. It will nice if the author gives some comment on future revenue trend and why.
These are the score from our judges:
|Company||Ticker||Business Quality||Financial Strength||Management||Analytical Depth||Undervalued?||Presentation||Comments||Total|
Therefore the winners are:
· The Second Place ($200): Value Ideas Contest: Don't Miss the Forest for the Trees by Ryan_Fusaro
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With this announcement, GuruFocus is calling for our July Value Idea Contest submissions. Please submit your best value ideas and get feedbacks from the most intelligent group of value investors on the internet.