Thursday, June 25, 2015
There are three major credit agencies in the US Experian, TransUnion, and Equifax. Oligopoly. There are no competitors with the leverage to threaten their position as a core credit information provider. Wide moat, as Buffet would say. TransUnion has come public in the last week with a $3.75B valuation generating $400m EBITDA (annually). Assuming a conservative 35% tax rate, this valuation is 13 P/E on a company growing earnings at 15% rate. Cheap, cheap, cheap. Currently there are $3B of debt and minimal cash on the balance sheet, with high interest rates on their debt. The author of this newsletter thinks management will refinance this debt first chance available. Regardless, this company is to well established and too cheap to pass up. The author has purchased shares at $25.73.
Wednesday, December 3, 2014
Anthem has first mover advantage in selling health insurance through Obamacare exchanges. In their recent earnings announcement they topped earnings expectations, raised guidance on earnings, suggested a dividend increase, mentioned that health insurance plan prices will increase at 6% rate for the foreseeable future, and also said the market was overestimating the costs of the new health plan members enrolling through the Obamacare exchanges. Every one of those data points provided by the company is a positive sign for future earnings. Moreover, it is expected that many enrollees in Obamacare plans will reenroll with the same plan into next year, further supporting earnings growth that Anthem has seen over the past year. The author of this newsletter is long ANTM JAN 2016 $130 Calls / short ANTM JAN 2016 $135 Calls at a net price of $2.45.
Wednesday, November 5, 2014
Ever since Fannie and Freddie priced themselves out of the private mortgage insurance market, it has been a feeding frenzy. Both Radian and MGIC have leveraged up with equity offerings to expand their market reach to take advantage of the new market opportunities. Radian has started to significantly benefit from that investment. previous post that Radian was already showing decreasing deliquency trend that was ahead of Wall Streets valuation. In Q3 of 2014, Radian actually doubled analysts earnings estimates for the stock. Based on earnings this year Radian is selling at less than 10 times earnings. Extremely cheap for a market leader. Not to mention this is the value when home sales are still way below historical mean. Also home lending credit is tight and in the process of loosening, which will bring an increasing amount of customers to use mortgage insurance. The kids say "Radian is rad!" The author of this blog will buy RDN May 2015 $17 Calls and sell RDN May 2015 $18 calls for a net cost of $.34. $.34 down side, $.66 upside.
Saturday, August 23, 2014
Wal-Mart recently has suffered from cuts in government assistance payments after the end of the Great Recession. As a result, same store sales have suffered as low end shoppers retrench. But after three years of flat earnings, decreasing US unemployment trends, accelerating wage increases, and a tuned online strategy should return Wal Mart to earnings growth. Moreover, Wal-Mart international continues to expand. All of these factors should bring Wal-Mart higher over the next year. The author of this blog is .... Long Wal-Mart JAN 2016 $75 CALL Short Wal-Mart JAN 2016 $77.5 CALL ....for a net credit of $1.25
Tuesday, November 26, 2013
With the market ignoring all bad news and missed earnings, it is hard to find a bargain. But here it is, in the most reviled area of the financial services industry, the student loan servicers. Sallie Mae is trading at P/E of 8 for current earnings. With employment increasing, default rates are declining significantly. Moreover, there is no more reliable a buyer of a stock than the company itself. Sallie Mae has allocated $400m to buyback shares. Guidance for 2014 is $2.94 a share. If the $400m is used at an average stock price of $28/share earnings will be $3.03/share. That makes Sallie Mae seem very cheap, assuming no upside in servicing or originations. The author has entered a long position in SLM. Bought JAN 2015 $27 CALL for $1.90 Sold JAN 2015 $30 CALL for $.90 Net price $1. Upside $3 / Downside $1.
Sunday, October 27, 2013
The largest pure play on shale oil in the US is Pioneer Natural Resources. Pioneer Natural Resources has leveraged heavily to accumulate the largest position in the Permian Basin. Pioneer estimates that the Permian Basin has 50 billion barrels of exploitable oil, second only to the Gnawar oil field in Saudi Arabia in size. As long as the price of oil stays high, then Pioneer Natural Resources will benefit heavily from this domestic drilling location. The author will enter a long position at $211/share, at a $30B market cap.
Google is the king of search. Via Youtube, Google has the potential to be the king of media content distribution. Youtube will soon introduce paid subscriptions. This will allow content providers to completely circumvent cable networks and market directly to their audience. No more Nielsen ratings, the truth will be in click counts. The amount of users accessing Youtube from mobile devices is up from 6% in the same quarter the previous year to 40% last quarter. Mobile is where the largest growth in advertising revenue is occurring in the industry. Imagine if Google advertised show premiers by emailing all Google Android users the trailer of the new program? It is nearly inevitable that this distribution medium will have a major impact. This position has very little to do with current value, or quantification of the future. It has everything to do with future potential that can be realized in the very near future. The author has established the following position... Bought GOOG Jan 2015 $1050 Call Sold GOOG Jan 2015 $1060 Call ...for a net debit of $4.70