Armanino is a company that makes a variety of frozen prepared foods for the food service industry. It is a wonderful company that has enjoyed years of growth and high returns on capital. This company trades on the pink sheets and deregistered its shares in 2005.
P/E ratio: 15.4 (according to Google Finance)
Market cap: $46.82M
Share price growth over past 10 years (annualized, excluding dividends): 18.5%
Express Scripts (ESI) is the largest pharmacy benefit manager (PBM) in an industry where scale is a competitive advantage. It has been able to compound earnings, free cash flow, and free cash flow at very high rates (over 20%) over the past ten years. Fundamentally, I believe that Express Scripts’ returns are mostly driven by its CEO, George Paz, who has held the position since 2005. In the past, ESI never had the benefit of scale. Its success was driven by the quality of its management. In the future, ESI will begin to see advantages and disadvantages from its larger size.
On the other hand, the PBM industry has some dubious practices that creates regulatory risk. The PBMs are rarely transparent with their customers and have often taken kickbacks from drug manufacturers. There is a chance that future government intervention will target such practices.
Contango Ore is a mineral exploration company that spun off from Contango Oil and Gas (MCF). Brad Juneau, MCF’s long-time oil & gas exploration partner, is the CEO. Avalon Development Corporation provides geological services for the company. Contango Ore has interesting drill results though it’s too early to tell if it has an economic deposit.
CF produces nitrogen fertilizer. It is a bet on:
The current P/E is roughly 6.25. CF is buying back shares and building new capacity.
(This post is featured on Market Folly, a blog that tracks what top hedge funds have been buying/selling and why they do it. Check it out!)
Altisource is a rapidly-growing business that is riding the trend of financial companies outsourcing their mortgage servicing. The process of servicing mortgages has become more complex as the US government continually adds more regulations to protect homeowners from foreclosure. The cost of complying with government regulations and creating automated systems to handle mortgage servicing is mostly fixed. These economies of scale will likely push the industry towards consolidation.
Altisource has grown its revenues per share by an incredible 36%/year from 2008-2012 (see gurufocus.com for historical stats) and currently trades at a P/E ratio of 21.6 (at $97.36/share). Its growth next year is practically guaranteed due to its unique relationship with Ocwen. Its forward P/E is roughly 11.8 (according to Yahoo Finance). I believe that Altisource is the best managed mortgage servicer in its field.
A year ago, Cliffs put out some information on the economics of its Black Thor project in its Investor’s Day presentation by Bill Boor (see Cliffs’ website). I’ve only stumbled across it and read it now. In the figures given out in the presentation, there are some extremely aggressive price assumptions used and the stated IRR is only 14-17%. The projects’ economics are overstated and this project doesn’t look economic at all. I wish I had realized this sooner.
Now I’m in an uncomfortable position with KWG Resources and Noront. Both their fortunes are tied to Cliffs building a mine and smelter that it shouldn’t.
Originally, I was interested in Osisko since it has dropped by three quarters since 2011 and it seemed cheap. However, the company consistently uses aggressive accounting so it’s not as cheap as it seems. Overall, Osisko is hard for me to evaluate since (1) I don’t trust the promotional management and (2) there isn’t enough information being disclosed. I also prefer to invest in management teams that are really good at generating value.
