Michael Kors (KORS) – Are these LEAPs cheap?

(This idea is not liquid as it involves LEAP options expiring Jan 2017.)

KORS is a luxury goods company with extremely high growth (44%+) and returns on capital (86%).

The trade I am interested in is going long KORS call options and long COH put options.  I think that both trades are compelling by themselves.  See my old and brief writeup on COH for my thesis on that company.  This post will focus on KORS.  The reason to go long KORS call options are:

1. Implied volatility is reasonably low (around 34-35).
2. Given the company’s ridiculously high growth, there is a good chance that the stock may see a lot of volatility on the upside.
3. The P/E ratio is around 16.6 and the PEG ratio is 0.84.  Arguably, the company is reasonably cheap from a GARP perspective.

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Kobex Capital: Insider buying continues

Kobex Capital (formerly Kobex Minerals) has a market cap of $23M and is traded on the TSX Venture.  It is a pile of cash (and 1 stock) trading at a very obvious discount to liquidation value.  I’ve written up the company in the past.  Paul van Eeden continues to buy shares of the company via Cranberry Capital, which is a joint venture between van Eeden and Altius Minerals.  It’s possible that the end game is a liquidation of the company if the share price continues to be depressed.  This is because Altius Minerals may eventually wish to withdraw money from Cranberry Capital to pay down its debt.

I think what will happen is that van Eeden will continue to buy shares of the company on the open market.  If the share price stays low, I think that a liquidation will eventually happen because it will be easy money for Cranberry.  If the share price goes up, then investors can flip their shares for a profit.

*Disclosure:  I am long KXM.

(OCN/ASPS) Ocwen settles with the NY DFS, Erbey steps down

Ocwen has reached a settlement with the NY DFS on onerous terms.  Highlights are:

1. Bill (William) Erbey steps down from every single company in his empire (OCN, ASPS, AAMC, HLSS, RESI).  It’s unclear to me whether he decided to join his wife in retirement or whether he was forced out.  I suspect that it is more of the former than the latter.
2. Ocwen will eventually be able to buy more MSRs though it does not look like this will happen in the short term.  Firstly, NY DFS must appoint an Operations Monitor.  Then, the Operations Monitor will develop a set of benchmarks to measure Ocwen’s capability in boarding new MSR portfolios.  Once Ocwen can demonstrate that it can meet all of the benchmarks, Ocwen will be able to board new MSR portfolios.  Future servicing transfers are conditional on the NY DFS’ approval.  Its approval is “not to be unreasonably withheld” according to the consent order.
3. The cost of servicing will go up due to more regulations.  For example, Ocwen must provide credit reports to borrowers in New York state if their credit was negatively impacted by Ocwen “regardless of whether such borrower’s loan is still serviced by Ocwen”.

Thoughts on media stocks (CHTR, LBTYA, DISCA, VZ, WWE, NFLX)

Overall, I think that cable companies are extremely well positioned going forward.  The value of the information carried over their pipes will naturally get better due to better content on the Internet, Internet TV getting better, and illegal downloading getting better.  Going forward, I think that video content will be increasingly higher quality and cost less.  This will give cable companies more pricing power.  The cable companies that may do the best are the ones that can raise prices without fear of competition.

Altisource and being greedy when others are fearful

Let me clarify how I feel about Altisource… I am extremely bullish on it.  It has everything I want in an investment:

1. Wonderful economics.  Historical growth over 30%/year with very high high returns on capital.
2. Low valuation.  P/E less than 10.  As a bonus, Altisource has gone crazy buying back shares after the share price fell.  It has bought back more than its free cash flow.
3. Talented management (see #1).
4. Ethical management.

In general, I always try to look at both sides of an argument.  To figure out if I am right about something, I try to prove myself wrong (e.g. to figure out the short thesis and to consider it).  That being said, I think that the fears over Altisource have been overdone.

Is now the time to be greedy when others are fearful?  I don’t like being promotional on this blog but I will say that I have been buying more Altisource.

Risks to Ocwen and Altisource

I apologize for the high volume of Altisource posts.  Altisource is by far my biggest position so I need to make sure that I’m not goofing this one up (especially because I have been doubling down on Altisource).

As far as the risks go:

•  Ocwen’s future earnings will likely be hurt as I do not see it taking kickbacks on force-placed insurance.
• Regulation can theoretically be very ugly for Ocwen and Altisource.
• Declining delinquencies could slow or reverse growth at either company.

Misconceptions about Ocwen and Altisource

This year, both Ocwen and Altisource’s share prices have gone down roughly two thirds.  I think that some of the fears regarding these stocks are based on misconceptions.