Oaktree Capital is an US-based listed asset manager specializing in alternative assets and more specifically in “distressed” securities. Co-founder Howard Marks became quite famous and is one of the most intelligent people in the investment industry. I had reviewed his book 5 years ago and read everything he writes with great interest.
Oaktree is clearly one of the “Highest quality” names in Alternative Asset Management with a very good long-term track record. A reader mentioned Oaktree in the “ideal company post” and as I had them on my list anyway I decided to make this my first analysis for 2017.
Yesterday, I sold my complete Kinder Morgan position at ~21 USD per share with a total gain of around 25% (in EUR, including dividends). Why ?
When I bought the stock in April I argued like this:
For me, the “expected case” would be something like a 8% discount rate and 1% growth resulting in a fair value of around 25,60 USD per share. Also, under my assumptions, the downside is relatively limited. Based on 18 USD per share (at the time of writing), that would imply an upside of around +42% which for me would be an acceptable return over my typical 3-5 year investing period (plus any dividends).
So why did I sell out now and didn’t wait for higher prices ? Well, something has changed: Interest rates went up. Since April, the 10 year USD Swap rate went up by +0,90% and the 20 year rate by around +0,70% p.a. If we look at my valuation grid from back then we can see that the value reacts significantly to change in interest rates:
Camellia Plc is a pretty odd company for UK standards. It is a conglomerate with interest in plantations around the world, as well as some engineering businesses, a UK cold storage business, a fish trader in the Netherlands and a private bank plus an art collection, a stock portfolio and other stuff.
Some UK blogs have covered Camellia like Richard Beddard and Expecting Value.
Camellia seems to be a favourite among deep value or “assets at a discount” investors and as I do like strange companies (and conglomerates) , I decided to take a deeper look at it. Also as it is in the same sector as ACOMO makes it easier to get “into it”.
Some years ago I introduced a 27 point “beta version” of an investment check list. This check list contained a lot of quantitative aspects, such as P/E, P/B or other multiples as well as some qualitative aspects. I used this as a rough guideline for analyzing potential long-term holdings but I found out that the quantitative aspects in a check list are not very helpful, because it leads to discarding really well run companies at a very early stage.
On the qualitative side however some things were missing, especially how a company is run for me became more and more important over the past years.
I think this aspect is not well covered by many other investors as most concentrate (only) on the “what”:
- What moat does a company have ?
- What industry are they in ?
- What ROE/ROIC/EBIT Margin does the company generate ?
- At what EPS/EBIT/Book multiples does the stock trade ?
- What is the “Magic Formula” that generates Alpha without actually looking into the companies I invest
For me the “what” in many cases is actually only a secondary result of the “how”. Moats for instance are not created out of thin air.
Provident Financial is a UK-based “financial service provider”. What makes Provident “special” is that the company is extremely profitable:
Market Cap 4,2 bn GBP
Among its shareholders there are many “famous” investors for instance Marathon AM, Neil Woodford and Tweedy Brown.Stock analysts are quite bullish, according to Bloomberg 9 out of 12 have the company as “buy”, although the target price at 31,00 is only a few percent higher than the current price.
The stock has done pretty well over the last years, “the great financial crisis” had almost no impact on the share price:
I think it is no exaggeration to say that Clayton Christensen is THE management guru on innovation. His first book, “The innovator’s dilemma” is a must read classic management book.
When I looked at Novo Nordisk 3 months ago, I found the stock too expensive at 315 DKK/share. That was my summary back then:
What could make the stock interesting again ?
Well, that’s simple: Either a lower stock price or higher growth. Maybe management has low-balled growth ? Who knows. Maybe the market over reacts if the next quarters don’t look that good ? According to Bloomberg, analysts officially still expect double-digit earnings per share growth well into 2019. Even adjusting for share buy backs, this will be difficult to achieve based on the growth rates communicated by management.
For me, the stock would become more interesting at around 250 DKK under the current growth assumptions. I think I would also like to see more negative comments from analysts.
With the stock now trading at ~229 DKK, it is clearly necessary to revisit the stock again.