Stay TRU with TransUnion

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.

Obamacare is a cash cow for insurers! Long Anthem.

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.

Radian is rad

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.

This newsletter noted in a 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.

New items in the aisle at Wal Mart

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

Hey Hey Sallie Mae

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.

Pioneer Natural Resources: US Shale Oil play

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: The future of media, mobile content

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

Like everybody else, going short treasuries, with a untwist

It does not take a genius to assess that the QE taper may increase the yield curve. But markets do not move in a straight line, and often relapse. Thus the movement will be jerky, and pronounced. But with that said, the net effect is a high probability of a trend toward higher rates over a 12 month period. This blog believes obtaining a leveraged return on anticipating a small upward movement is the best way to gain from the "untwisting" of long term rates when the bond purchases subside. The author is long JAN 2015 $100 TLT Puts and short JAN 2015 $95 TLT Puts for a net debit of $2.4.

Ambac : Back from the dead

Even five years after the financial meltdown, investors need a forward view of the bond insurers, especially Ambac. The "new" Ambac earned $58m in premiums this quarter (est. $200m annual) and holds a market valuation of $1b. Ambac also has lawsuits outstanding against the major banks that were settled with competitor MBIA for $1.6b. It is risky to speculate on the legal system, but Ambac lawsuit should yield a larger settlement than the MBIA due to the proportional size of the damages to Ambac. There is deep value in this company, and "somewhat" risky legal event upside also. That makes looking back at the old, dead predecessor distracting from the green shoots that investors should take hold of. The author is long AMBC at $22.50.

Buy Radian Group : Benefit from the re-privatization of the US mortgage insurance market

Since the downturn over 40% of all mortgages issued in the US were through the FHA program. Now that the housing market has stabilized the government seeks to reduce its role. To that end, FHFA has increased incentives NOT to obtain loans from the FHA program by mandating that on June 3, any mortgage obtained through FHA where the purchaser puts less than 20% down at purchase will be required to pay private mortgage for the life of the loan, regardless of LTV (loan to value) of the property. This is a far cry from the previous rule of mandated PMI for 5 years and 80% LTV. Why? The government is trying to revive the private mortgage insurance market. Radian Group is one of the largest private mortgage insurers that will benefit from this government pullback. After suffering huge losses in the financial crisis, there are tailwinds for the company. The company is well reserved, the delinquency rate of the legacy portfolio is rapidly declining, and the company maintained national operations ready to handle the volume of work that will be available. Most importantly, earnings from new mortgages is now outpacing the losses from old mortgages. The author has purchased RDN at will buy RDN at $13/share.

Kids know best #2: Mattel

Daddys and daughters. One of those two is hopeless in the gaze of the other. So for my daughters birthday she wanted a new doll. Not any doll, an American Girl doll. I happen to think Disney's business model takes lessons from the Branch Davidians and Jamestown to keep their following loyal. I found another business very similar. American Girl. $100 for the doll. Extra $20 to get the doll's hair done. Another $10 for a "facial" for the doll. There was a line at the "makeover counter" to do this. I did not see anyone get the facial. I might have started reading the book of "Revelations" for other signs of the apocalypse if I had. So I need to know who is making this killing? Mattel. The makers of Barbie. Diversification has been long coming. I looked at the financials. Great. Steady income growth and a modest P/E ratio. Plus the look my daughter gave when she walked away with her doll. The author bought shares at $37.15.

Kids know best: Fedex

Recently I opened a stock market account for each of my kids. Might as well start teaching them early, right? I asked my son what he wanted to buy first. "Fedex". I asked why? "I like the stores." We recently spent time there faxing, printing, and producing publications. He bought a combination lock with his own money. I guess it was a high point. So I took a look at Fedex. A dead stock for the past two years, there is much to like. Over the last two years earnings have been growing at a 30% rate as the company cut costs, shifted services, and most importantly benefited from the recovering economy. The brand is intact. The potential federal cuts to the postal service and the long term increasing use of online retail purchases all bode well for delivery services like Fedex. TheStreet.com expects a 5% increase in net operating income YOY this quarter. Considering the current p/e ratio of 13.9, it is underpriced to the S&P 500 p/e of 17. I like the reliability of FDX earnings, so the p/e seems low. Overall, I think my boy made a good choice. I will follow him. Will buy FDX JAN 14 $87.5 calls at $11.30 and sell FDX JAN 14 $90 calls at 9.95. Spread of $1.35 with a upside of $1.15.

Facebook: A value investment?

Not quite. But the pessimism is over done. The valuation of sub $50B given the potential ad revenue (mobile and desktop) is too cynical for a platform with 500m active users. What turned the table for me is the hope and promise of the new Facebook Exchange. This tool sells real time data on user interest and then sells the add spots related to that subject. "Facebook is doing a better job than Google Inc. (GOOG) in getting Web surfers to click on advertising based on browsing history, according to some partners using Facebook Exchange. Facebook Exchange, or FBX, generates as much as four times the return on ad dollars than other real-time bidding systems, said Triggit Inc., which makes software tools to help Facebook deliver the ads. Another partner, AdRoll, said advertisers used to getting $10 for every $1 they spend are making $16 for every dollar spent on FBX." If Facebook is able to garner even part of the promise of this enhancement of the platform, the valuation will skyrocket from here. Unfortunately, based on the authors personal 'user experience' with Facebook, this investment is still a opportunitistic trade on the markets enthusiasm for high potential concepts rather than an intended long term holding. The author has already initiated a position in Facebook at $21.90.

Picky about homebuliders: Buy Ryland

Ryland avoided the worst of the housing crisis due to geographic diversity in it's land portfolio, and selective development. Since then Ryland Homes has waited for turnaround in the market.

Now Ryland has communities being built in desirable areas and thus should expect high demand during a turnaround.

Ryland has 36.7% debt to value ratio, and $300m cash on the balance sheet. There has been a 40% increase in orders in the 2nd Quarter of 2012 with a positive outlook for the future. The company expects to be solidly profitable through the end of this year and into 2013. The author is long RYL at $29.24.

More on Vietnam

A recent arrest of one of the top bankers in Vietnam is identified as the catalyst of recent swoon in the price of VNM. "Then came news of the arrest of two noteworthy Vietnamese banking scions, headlines that dealt a blow to investor confidence in the country's banking system. What is ironic is that Vietnam is a former French colony and it is the French that have a term for these kind of unforeseen events. 'Force majeure,' or act of God, is arguably not an exaggeration when comes to the impact recent events in Vietnam have had on VNM. The arrest of tycoon Nguyen Duc Kien, one of the founders of the Asia Commercial Bank, has struck fear in the hearts of investors that previously had not been shy about embracing VNM or Vietnamese equities." Read more: http://www.minyanville.com/sectors/emerging-markets/articles/investing-in-vietnam-vietnam-ETF-ETFs/8/29/2012/id/43611#ixzz26H2Na9Fl Yet the banking sector remains strong. "What is lost amid all the negativity now surrounding Vietnamese financials is that the country's banks had $575 million in excess cash as of mid-April." Thus the banks are very well capitalized and there has been no major economic policy changes. The author is still very optimistic on Vietnam and looks at this as a great entry point for Vietnam.

Investing in Vietnam

New locations are emerging as investment hot spots, Vietnam is one of these places. "In an interview Wednesday, Søren Skou, head of the container-shipping division of Denmark's A.P. Møller Maersk A/S, said the Chinese market is facing fundamental changes. "It's pretty clear China is losing competitiveness in a number of industries," he said, adding that China is "by far the most important market for what we do." Maersk's customers who ship shoes, toys and other labor-intensive goods are increasingly located in countries like Vietnam and Bangladesh, he added." Vietnam is open for investment through the Vietnam market index (VNM). This author is long VNM at $16.75.

Apple: Too easy

The Apple Iphone 5 is scheduled for introduction on Sept 9. The company, before this new product cycle, is selling at 10x forward earnings and growing at a declining 30% rate. 10%+ of market cap in cash on hand. Too cheap. Bought $650 April 2013 calls Sold $655 April 2013 calls at a net debit of $2.4. Looks simple.

Get a piece of the Borg: Buy ACN

When the author was in technology consulting, the premier delivery firm was Anderson Consulting, now called Accenture. The people all looked the same. The delivery tools were always canned and consistent. It was so uniform it was like the Star Trek community called the Borg. And they always delivered. That is right, I started a sentence with 'and'.

I have no idea why one of the largest US government contract technology firms in the US can move their headquarters offshore to Ireland to avoid taxes and have any repercussions. In fact, their revenues have just compounded.

The author is buying ACN at $62.45.

Apple should be $600 / share

Apple is a steamroller. Unstoppable. It should be trading at $600/share right now. Plus the Ipad 3 is coming out and the author sees Ipads becoming an executive "must have".

The author has entered the following position.

Buy Apple Oct $555 Call $47.65
Sell Apple Oct $560 Call $45.30

Let me show you what has made me go crazy about Apple.

Here is the deal, all last year it was making $6B a quarter for a total of $27B revenue (average) / $6B in earnings growing at 40% rate.

Then came the new Iphone 4S last quarter, and then in one quarter it went to $46B revenue / $13B in earnings in one quarter. That blew the hinges off of any previous valuation. Assuming no growth and continued earnings they will make $52B in earnings this year and thus with a $470B market cap sell at less than 10 X earnings. Now think of the fact that they have $80B in cash on the balance sheet and they are selling at 8 X earnings.

If we get into normal valuations of 20 X earnings against 40% growth this is a $1T stock.

All this and the iPhone is still limited to 10% of the population in China because they have only one carrier, like the AT&T deal from two years ago.

This said, the stock has run really far really fast and should plateau for a bit. But it is going up from here.

Regeneron : Great portfolio of molecules

Regeneron has one of the best pipeline of new molecules. Despite the criticism the author believes there is significant upside.

The author has purchased Regeneron (REGN) at $88.24.