For-profit dialysis: an unethical industry / DaVita (DVA)

I’ve been researching the dialysis industry because Berkshire Hathaway owns DaVita (DVA), one of the largest dialysis providers in the US.  However, I’m not quite sure why Berkshire Hathaway owns this stock.  The for-profits are rarely rewarded for creating value while there are large financial rewards for unethical behaviour.  Buffett has been vocal about not owning Lorillard (a tobacco company) so I don’t see why he would be ok with owning DaVita.  It is possible that Buffett hasn’t researched the company much as Ted Weschler (probably) made the decision to buy it.

Historically, DaVita has been very rewarding for shareholders ever since Kent Thiry saved it from bankruptcy and turned it around.  However, his integrity strikes me as questionable and I’m of the opinion that entrusting your money with unethical people is not a good idea.

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Crocs (CROX): A wonderful company at a fair price

Crocs has very high returns on capital (~31%), is growing, and is trading at a P/E of around 11.98 (or 12.45 based on my adjustments).  They bought back shares in the past two quarters.

Tracking John Malone (Part 4) – Live Nation (LYV)

Liberty Media continues to buy shares of LYV on the open market.  I don’t see crazy undervaluation at LYV, though there are a few things about the company that stand out to me.

1. The accounting is misleading.  Live Nation has lots of non-cash depreciation and amortization charges that deflate earnings.  Its stated depreciation is excessive.  Its true earnings might be somewhere around $120-150M/year.  This suggests an adjusted P/E ratio of around 16-20 (at $12.69/share).
2. This company is leveraged.  If you account for the debt, its valuation seems a little rich.
3. Live Nation seems to be a bet on innovation increasing its earnings.

Lululemon: one of the greatest retailers of all time?

Lululemon has pre-tax returns on capital (well) above 70%.  This is pretty insane.  Imagine you could invest in bonds that yielded 70%/year- you would become filthy rich pretty quickly.

Altius Minerals (ALS.TO) – Great business trading at a discount

I would consider Altius Minerals to have the best management team in the resource sector.  Currently, this company is trading below what its assets are worth and is buying back shares.

Contango (MCF): I don’t like the new management

Contango recently announced a merger with Crimson Exploration.  It’s crazy.  I think that the late Ken Peak chose the wrong person to be Contango’s CEO.

Tracking John Malone (Part 3) – Liberty Media (LMCA)

Liberty Media is John Malone’s flagship.  Of all of Malone’s companies, I am interested in Media the most since:

1. It is likely that Malone will continue to put his best ideas into it.  This is probably the company that will grow the fastest.
2. Continued share repurchases suggest that it trades at a slight discount to the value of its assets.

Liberty Media is difficult to understand.  Historically, John Malone has used complexity as a weapon against institutional investors to mislead them into selling stock at too low a price.  Malone’s complex Liberty companies have always tended to trade at a discount to what its assets are worth.  This allows Malone to continually buy back shares at low prices (this is like free money).  A secondary effect of this is that size becomes less of an anchor on future performance.  Historically, you would have done the best if you had stuck to buying the most complex part of Malone’s empire that he owns the most of.  He keeps the best businesses hidden in his flapship and spins off the mature businesses (e.g. Global’s cable assets), the slow-growing ones, and the not-so-great businesses (e.g. production companies/Ascent).  So, I would expect that his flagship company (Liberty Media) will grow faster than the rest of his empire.

This is a great business at a good price.