This is the list of the submissions:
· DryShips: Value with a Catalyst Set to Double
· Back From the Dead but Looking Uglier Than Ever: First Marblehead
· Western Union: Old Name, New Opportunities
· Value Ideas Contest: The World of McDonald’s (MCD)
· Solitron Devices: The Microcap for Prudent Investors
· DirecTV: A Sensible Way to Get Access to the Latin American Consumer
· Value Ideas Contest: Bank of America (BAC) with a compelling entry point for long term investors
· Century Casinos – an Asset Play with an Earnings Catalyst
These are the comments from the judges:
Solitron Devices (SODI)
More discussion of the company’s business and products are needed. What are they used in? Substitutes? In short, is this a dying business? Why are they so still after so many profit years
As the comments suggest, there are more questions than answers here. A management team that isn’t a team. One man whose motivations are a mystery. Capital allocation decisions? Environmental liabilities and excess cash (that is not really excess cash), etc.
So the author gives us a bull and bear case based on some dubious scenarios and tries to bookend a valuation when such an approach seems ridiculous given the above.
No real discussion of governance issues, recent insider selling (though minor, it makes one wonder) etc.
Again I believe the commenters nailed it. Not exactly a clear-cut value thesis. If the author wants to sell the idea that McDonalds is a good company that has done well, then he has an easy sale and a willing audience. But the article feels disjointed. Some illuminating illustrations and a fair amount of cut and paste fluff. A lot of comparisons to competitors but not a lot of context, just a string of variables. In the end, the value proposition is not evident from the article. But the author explains the company quite well. Little insight into management or capital allocation plans (other than the company has a big marketing budget). One would imagine that McD’s has to do a lot just to justify its current valuation.
Any discussions on why MCD is undervalued will certainly help. Author certainly proved that the company is of high quality. But valuation is rich, as the author stated himself.
Western Union (WU)
Author touched off a great debate about the significance and durability of WU’s moat in the comment section. This was a nice cap to an excellent article. Good treatment of the business, strengths, threats, reach, etc. Clear investment thesis even if people disagree with the conclusion and magnitude of undervaluation. Author questions his assumptions, etc. Nice discussion of management and a review of their actions that gives color to how they treat shareholders. Also approaches valuation from a couple of different angles.
First Marblehead (FMD)
Great title that calls out to all value investors. An interesting article about an industry undergoing extreme change. Author covers the downside extensively, but the upside is necessarily fuzzy. Good job on management but will industry change trump mgt efforts? If new business model fails does/can this become a value trap? The article presents an interesting case, but fails to make the argument, perhaps because the information to make the case is unavailable. In the end, I learned a great deal from the article, but the value proposition needs clarification. Also a good value idea needs more than just downside protection.
Century Casinos (CNTY)
Author says, “When compared to other stocks in the casino industry, CNTY is significantly cheaper in virtually all valuation metrics and carries extremely safe liquidity ratios.” But there is no mention of any other casino company in the article. The article had a lot of potential, but the value thesis is muddled. Book value does not seem to be a very instructive approach. Does bv reflect private market value of the assets? And then author moves to “modified” cash flow approach with not a lot of discussion about underlying calculations. Strength is discussion of management and their actions. Readers obviously were a bit lost and left no comments, but registered discontent. Jumbled presentation probably does not help.
Thought this was a bio of John Paulson initially. DTV is not mentioned until about halfway point. No mention of competitors, industry, cable, etc. Cursory treatment of valuation. Really no mention of management. Thesis is unclear, etc. An idea that lends itself to the Value Contest but this article fails to do it justice. Lack of comments and rating reinforce this view.
Claims like “Bad infrastructure in many of these companies” are not substantiated, but just left hanging on the reader.
Bank of America (BAC)
A decent overview of the bull case for BAC. But details are few and far between. The phrase “quick and dirty” comes to mind. By now we all know that Berkowitz likes BofA. Presentation is a bit sloppy. “Upside risk”? Is upside a risk? Or an opportunity? Lackluster treatment of risks and valuation approach was very myopic. Berkowitz’s discussion was far more in depth, not just a look at bv and tangible bv. For a company as large and complicated as this, the article needed more depth. Kept looking but did not find it.
“institutional investors may pile back on to the stock.” Could probably be used as a positive catalyst for any large cap. And I have not seen a reverse split listed as a positive catalyst before… more likely a negative one.
These are the score from our judges:
|Company||Ticker||Business Quality||Financial Strength||Management||Analytical Depth||Undervalued?||Presentation||Comments||Total|
|Bank of America||BAC||3||3||2||3||3||3||2||19|
Therefore the winners are:
· First Place: Western Union: Old Name, New Opportunities
· Second Place: DryShips: Value with a Catalyst Set to Double
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With this announcement, GuruFocus is calling for our August Value Idea Contest submissions. Please submit your best value ideas and get feedbacks from the most intelligent group of value investors on the internet.