Thanks for covering deep value. This is my jam. I use an initial screener and then use a mix of objective and subjective criteria to narrow down the good ones.
My experience - buy and hold NCAV stocks quarter to quarter - max 2 Q's. Share price / current asset value per share must be greater than 1. Cash value per share is far less important to me. Market cap to working capital ratio is the most important ratio here - must be less than 0.6, this is the most important fundamental. Market cap ideally between 50 - 150 mil. 100 mil is the sweet spot. ROIC and margins should indicate the business is viable. Disregard Health Tech or Finance stocks and stick to European or US markets. Look at insider buying or selling. Get a good screener to do such checks. Bear in mind that one should only be making 2 or three of these bets per year. That's when you know you're onto a winner.
Great coverage of net-net, not something you see alot of! Although I feel Deep Value investing got a bump off the back over the Gamestop saga with Roaring Kitty - his style is a bit different to Ben Graham's style as it seems to rely on larger, better known companies that are heavily beaten down, not net-net stocks per-se, but ones dependent on momentum and require good credit analysis, so that they don't go bust in the 2 years he typically held them. Given the complexity of Roaring Kitty's process. Do you think you'd ever be able to do a review of his style, something that shows a different side to Deep Value investing?
But if a business sells commodities and the value of the commodity drops suddenly, then your margin of safety can erode overnight assuming that inventory constitutes a sizable chunk of the firm's current assets...
It's possible, but a lot of the time these companies are already priced for such a severe downside scenario that commodities dropping wouldn't be that much worse. In other words their prices already reflect it to an extent
Can you take a look at PK - Parks, Hotels & Resorts? It is a hotel reit, a spin-off from Hilton back in 2017. It trades well below liquidation value at 0.62x book value and returns a 4% dividend, which the company can cover easily with their ffo. Their ffo is close to pre covid level, however, it still trades at a discount. Management believes their stock is undervalued and approved a 300M buyback on 2B worth of market cap. They believe the stock is 40 - 50% below its NAV and working to reduce their debt levels. (Debt level is around 5.1x net debt to ebitda). They also decided to pull out of San Francisco, by deciding to cease payments on a 725M CMBS loan on two of their San Fran hotels. By getting rid of their 2 hotels in San Fran, their exposure to San Fran will be reduced to 3%. I also believe FFO will continue to grow as management provided guidance for growth in high single digits to mid teens. Travel has also been booming with other travel stocks such as airlines, crusie ships and OTA (online travel agencies), reporting results well above expectations.
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Thanks for covering deep value. This is my jam. I use an initial screener and then use a mix of objective and subjective criteria to narrow down the good ones.
Nice, do you look at net net stocks or other types of deep values stocks as well?
@@investingsucks I will look at them all but I prefer net nets or near net nets as my primary goal is downside protection.
@@anthonyschneider8835in the us or do u find em all over the world?
and can you share some net nets u think are interesting right now.
My experience - buy and hold NCAV stocks quarter to quarter - max 2 Q's.
Share price / current asset value per share must be greater than 1. Cash value per share is far less important to me.
Market cap to working capital ratio is the most important ratio here - must be less than 0.6, this is the most important fundamental.
Market cap ideally between 50 - 150 mil. 100 mil is the sweet spot.
ROIC and margins should indicate the business is viable.
Disregard Health Tech or Finance stocks and stick to European or US markets.
Look at insider buying or selling. Get a good screener to do such checks. Bear in mind that one should only be making 2 or three of these bets per year. That's when you know you're onto a winner.
Great points
Great coverage of net-net, not something you see alot of!
Although I feel Deep Value investing got a bump off the back over the Gamestop saga with Roaring Kitty - his style is a bit different to Ben Graham's style as it seems to rely on larger, better known companies that are heavily beaten down, not net-net stocks per-se, but ones dependent on momentum and require good credit analysis, so that they don't go bust in the 2 years he typically held them.
Given the complexity of Roaring Kitty's process. Do you think you'd ever be able to do a review of his style, something that shows a different side to Deep Value investing?
He actually does a fairly in-detail overview of his strategy on his channel
Interesting point about commoditized businesses. Energy stocks (e.g., Tourmaline) and potash (e.g., Nutrien) seem to be in a lull currently.
Very well. Looking forward to more content like this
But if a business sells commodities and the value of the commodity drops suddenly, then your margin of safety can erode overnight assuming that inventory constitutes a sizable chunk of the firm's current assets...
It's possible, but a lot of the time these companies are already priced for such a severe downside scenario that commodities dropping wouldn't be that much worse. In other words their prices already reflect it to an extent
Can you take a look at PK - Parks, Hotels & Resorts? It is a hotel reit, a spin-off from Hilton back in 2017. It trades well below liquidation value at 0.62x book value and returns a 4% dividend, which the company can cover easily with their ffo. Their ffo is close to pre covid level, however, it still trades at a discount. Management believes their stock is undervalued and approved a 300M buyback on 2B worth of market cap. They believe the stock is 40 - 50% below its NAV and working to reduce their debt levels. (Debt level is around 5.1x net debt to ebitda). They also decided to pull out of San Francisco, by deciding to cease payments on a 725M CMBS loan on two of their San Fran hotels. By getting rid of their 2 hotels in San Fran, their exposure to San Fran will be reduced to 3%. I also believe FFO will continue to grow as management provided guidance for growth in high single digits to mid teens. Travel has also been booming with other travel stocks such as airlines, crusie ships and OTA (online travel agencies), reporting results well above expectations.
What is your favorite deep value stick based on the analysis in your video?
Probably O2Micro, since it was the most clear cut example of how this strategy is supposed to work and it actually did well