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.

Retail and reversion to the mean

In investing, some people often make the argument that the profitability of a company will move away from the extremes towards the average of its (public) peers.  I see it often on valueinvestorsclub.com.  For example, this writeup on Aeropostale argues that Aeropostale’s profitability should trend back towards its past.  I think that this is a dangerous and flawed argument.

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.

Nanocaps: why I don’t like them

Nanocaps are stocks with a market cap less than $50M.  (To be honest, I used to think that the correct term was microcap.)

There are two main reasons:

1. The overhead of being a publicly-listed company is going to be a huge drag on performance.
2. Often these stocks are intentionally created knowing #1.  The brokers know that shareholders will have a hard time making money but they don’t care.

Premier Exhibitons: an even better short?

No news on the Titanic sale adds some validation to my thesis that the Titanic auction failed and that the assets aren’t going to sell for anywhere near $190M (see all my posts about PRXI).  As the valuation of Premier depends almost entirely on the value of the Titanic artifacts, this stock may plummet when investors realize that the Titanic artifacts can’t be sold for much.

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.

Intel: trimmed my position

Need to free up cash for other ideas.  I think that other stocks are a much better idea than Intel right now.

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.

Altisource (ASPS) brief update

I’m excited about this company and this seems to be a stock that many people simply gloss over.  This is a fantastic business trading at a good price.  And it’s a financial company that you can actually understand.  They aren’t an investment bank with a book full of opaque derivatives.  They aren’t sitting on tail risk from bad insurance deals.  And they aren’t sitting on hidden losses from bad loans.  They do mortgage servicing and they’re really good at it.