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01-03-2018, 07:38 PM
Quote: (01-03-2018 03:39 PM)Tail Gunner Wrote:
I did not misuse the term. Words have various connotations. I used the broader meaning. When Warren Buffet invested in the stock of Amex and Bank of America they were "distressed assets." Such assets tend to become distressed at sector cycle bottoms or market bottoms.
This is an interesting one. The banks main asset is its loan book. Bank of America's assets became distressed due to the rising bad/ doubtful debt situation which in turn created the requirement for them to raise additional capital to meet their capital adequacy requirements. They had to do something to remedy their situation, which in this case was to do the deal with Buffet.
I say it's interesting because the sector (the banks etc) largely bought this situation on themselves due to the lending practices at the time. When the extent of the bad loan situation became apparent it resulted in the freeze in the lending markets and resultant share market collapse.
The point is that the opportunity for Buffet to swoop as he did was caused by the lending practices of Bank America itself (and arguably a few other factors). Buffet wasn't looking at market cycles, though ironically the impact of the banking sector crisis resulted in a lot of other market opportunities ie; panic driven selling, forced selling etc. Interesting if Buffet took advantage of that, or whether he stuck to his usual approach.
I think I read somewhere that Buffet doesn't really worry about market cycles. He instead looks for value.
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01-03-2018, 11:33 PM
Pot stocks doing well today on the back of federal regulation to allow export of cannabis products.
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01-12-2018, 04:14 AM
Burner82 even though I believe crypto is a speculative bubble and is high risk I have recently started speculating in crypto (a little late to the party I know) because I have decided (changed my thinking) even though its a bubble its likely to keep inflating (not withstanding the current pull back) for at least another year or 2 (possibly longer) before imploding and I plan to bank profits and get out way before then.
I will address a few other points. In relation to what sectors I would invest in during a market crash (PK1098 thanks for your question) You can make money buying low quality deep cyclical stocks such as airlines, mining stocks, steel makers, auto companies, traditional retailers, etc but its not a strategy I would use. These companies have a higher risk of not surviving the downturn. The ones that do manage to survive the downturn and cut costs, etc do tend to provide solid returns when the market/economy starts recovering.
I believe as a retail investor you should leave that strategy to institutions who have large sums to invest (they are often too big to be solely focused on small and mid cap stocks) and instead you should focus on micrcocap, small cap and mid cap "industrials" (industrials in the share market sense meaning any companies that are not in the materials, banking and REIT sectors). Because in this space you can find micro-cap and small cap and sometimes even mid cap stocks which have decent balance sheets and are well managed but whose share prices are very low. You can get returns exceeding the returns generally available from buying low quality deep cyclicals and do it with less risk. Also its a more long-term strategy because low quality (most of them are low quality) deep cyclicals are typically not stocks you want to hold for the long-term so you would likely be selling after say 2-4 years and realizing gains and hence potentially paying tax whereas quality small and mid cap stocks you can keep holding for the very long-term.
Historical examples of buying such stocks during the GFC (global financial crisis) on the Australian share market and making massive returns would be (note price references in AUD and ticker codes are the ASX codes):
-Credit Corp Group (CCP) GFC low of around $0.39 per share in 2009 its now over $23 (A debt collection and consumer lending company)
-McMillan Shakespeare (MMS) GFC low of under $2.00 in late 2008, now $16.52 (A salary packaging and car leasing business)
-FSA Group (FSA) went from a GFC low of around $0.20 to now around $1.60 (a debt agreement, insolvency management and home/consumer lending business)
-ARB (ARP) Corporation (the company designs and sells 4 wheel drive accessories, etc) went from a GFC low of around $2.50 to over $17.70 currently.
-Seek Limited (SEK) owner of Australias largest jobs website Seek.com as well as owning stakes in overseas jobs websites and a few other activities also. The GFC low on this was around $2.50 per share its now around $18.85.
-Blackmores (BKL) hit a GFC low of under $12 and is now over $150. Its arguably Australias most well known vitamin and supplements company
-IMF (IMF) shares hit a GFC low of less than $0.60 and today the shares are $2.93. IMF is Australias largest litigation funder.
You can see buying these types of small to mid cap "growth" companies tends to give you a better return than buying low quality deep cyclicals like Qantas (QAN) or Fortescue Metals (FMG), Bluescope Steel (BSL) etc. Qantas hit a GFC low of around $1.63 and today is $5.03. Fortescue metals hit a GFC low of around $1.94 and is around $5.33 now. Bluescope steel was a little under $10 in the GFC and is now close to $16. Qantas is Australias largest airline, Fortescue is Australias 3rd largets Iron Ore Miner and Bluescope is a major Australian steel manufacturer.
Now you could try and argue all the examples I used were cherry picked but I think the general point still stands.
Now with the "good" companies I mentioned these companies are all much larger and more well known than 10 years ago so who knows if they would ever get as cheap during the next crash but the point is look for stocks with a strong earnings track record, good management and decent balance sheets in the microcap, small cap and midcap space and exclude "deep cyclicals" such as airlines, miners, banks, retailers, REITS, etc. This way you can get high returns while keeping risk to a a modest level. I would be looking at companies with a good long-term earnings track record and a market capitalization under $1 billion dollars who are in sectors other than REITs, banking, airlines, auto, retail, telecom, etc. You want to be focusing on services companies, financial (non bank) companies, niche manufacturers, healthcare companies, software companies, etc. who are not too big and have a good track record.
Also during the next crash I would be looking to buy into listed investment companies (LICS) or ETFs with an emerging markets or Asian focus as those markets tend to get hit harder during a downturn than markets like the U.S.A., U.K. or Australia.
As for the issue of Warren Buffett saying turnarounds seldom turn and his investment in American Express it depends on what your definition of a turnaround is. Buffett's approach generally (once he got over the cigar butt strategy) has been to buy quality companies with a strong track record experiencing temporary/one off problems as opposed to buying rubbish companies that have been rubbish for a long time and now have a new strategy to try and turn the company around. Now some people might lump together both types of business in the "turnaround" category but they are clearly not the same. Buying shares in General Motors after its reemergence from bankruptcy is a completely different type of investment to buying American Express after the salad oil scandal. The comparison is apples and oranges.
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01-12-2018, 06:26 AM
Quote: (01-10-2018 11:12 PM)Tail Gunner Wrote:
Quote: (01-10-2018 09:04 PM)Roardog Wrote:
Finding high yield, low risk investments is the holy grail for any investor but as you say, very hard to find. If you've got some advice on finding them I'd love to hear it.
You just need to be out of the market and invested in real tangible high-quality investments that produce yields that are superior to the stock market with lower risk
Ok, so if you are invested at a superior yield and lower risk...why are you even in the stock market in the first place?
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01-12-2018, 02:56 PM
Tail Gunner, in Australia most of these deep cyclical businesses in Australia have a very patchy earnings track record and if you look at the earnings of companies like Qantas (QAN), Bluescope steel (BSL), Fortescue Metals (FMG), BHP Billiton (BHP), Rio Tinto (RIO), Virgin Australia, etc you will see that over the long term (10+ years) earnings performance is very woeful. Even our largest supermarket Woolworths (WOW) and another large retailer (Metcash) have been struggling and these aren’t even deep cyclicals. Go on, look up the long-term performance of these companies if you don’t believe me.
These type of deep cyclicals (most of them are rubbish in Australia) are very different to a high quality deep cyclical like Catapillar in the U.S. now if you are talking about buying into quality deep cyclicals like Caterpillar then yes I agree it’s a good strategy but we just have very few of those types of high quality large cap deep cyclicals in Australia. It’s a different market to the U.S.
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06-04-2018, 04:33 AM
It was just in the business news today that quarterly corporate profits in Australia are up 6% continuing the bullish run for business conditions. Australian businesses post the last financial crises have generally been lagging their global peers and are finally gaining some earnings momentum. Business confidence is generally strong as are business investment numbers.
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06-24-2018, 09:29 AM
I think Credit Corp (ASX code: CCP) currently presents a good buying opportunity. It is a stock I have owned for many years. An anonymous report which lacked credibility and was mostly wild unproven speculation was recently released (presumably by a short seller) and has pushed down the company's share price (despite a strong rebuttal statement from the company).
The share price last closed at $17.46 (AUD). Based on the top end of its current earnings guidance of $1.34 AUD it is trading at around 13 times this years forecast earnings. This is for a high quality business which will keep compounding its earnings at more than 15% per annum while paying an attractive dividend.
Credit Corp is Australia's largest debt collection company and it also has a fledgling U.S. debt collections division as well as an Australian consumer lending business. The management team which has been in place for a long time is top notch (with a history of under-promising and over delivering). The company generates consistent high returns on equity and the balance sheet is in reasonable shape.
I think at current prices its a buy and people looking for a solid Australian company to invest in should research it further. If anybody has questions about the company post your questions here and I will try to answer.
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08-01-2018, 05:53 AM
Currently full year earnings season in Australia is in full swing with more companies to report this month.
Credit Corp (ASX code: CCP) came out with its full year results yesterday and the stock reacted positively. The shares today closed at $21.90 (AUD) up substantially since the last post I made (when it traded at $17.46). All three divisions (Aussie/NZ debt collection, Aussie consumer lending and U.S. debt collection) of the company were showing growth and sound fundamentals. Productivity (hourly collection rate) improved, the NPAT margin edged slightly higher and balance sheet gearing was reduced (whilst return on equity simultaneously increased to over 24%). Fully diluted e.p.s. growth was around 16.5%.
The company gave a solid outlook declared its second half dividend and gave positive (increased) earnings guidance for the year ahead. I think based on the company's history of beating its own guidance and the positive business outlook for all 3 of its divisions that they will lift their earnings guidance at the November AGM. I continue to hold the shares and believe its one to watch and accumulate on any dips.
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11-03-2018, 01:05 AM
There are some more Australian companies I wanted to talk about but it might be better to let the thread die. The thread is beginning to feel like a monologue.
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11-03-2018, 03:15 AM
Hey, I'm always interested in other peoples insights if you want some encouragement!
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11-19-2018, 07:12 AM
Anyone thinking of partaking in the Coles IPO? Seems like a solid income stock given the nature of the underlying business, but the analysis I have read suggests it won't be sold at a discount. So you would basically get what you pay for.
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12-10-2018, 05:13 AM
I recently posted this in another thread but I will re-post it here because its relevant to the thread:
In order of attractiveness (my opinion) I think you should consider the following 4 shares:
1) Credit Corp Group (ASX code: CCP). Today's closing share price $18.40 which i have mentioned in another thread already. Australia's largest debt collection company. Today's closing share price was $18.40. I have been buying in recent months at anything below $19 per share. I forecast (I think they will beat their own guidance) earnings per share of at least $1.50 and dividends per share (fully franked) of at least $0.75 for FY2019. That is a fully franked yield of over 4% and a price to earnings ratio of less than 12.5 times for a company that will continue to grow earnings per share at double digit rates and has a 24% return on equity.
Broadly speaking the company has 3 major divisions:
First division is the Australia and New Zealand debt collection division (primarily the purchasing of defaulted credit card debt, personal loans, utility bills, etc). The second division is Australian consumer lending (e.g. personal loans, car loans, small business loans, etc). The third division is the U.S. debt collection division.
If you break down the 3 divisions the largest division of Australia and New Zealand debt collection will be steady (most likely no or minimal growth). This is due to unsecured consumer lending being largely static in Australia (the credit growth in Australia in recent years has largely occurred in the areas of mortgage debt and government debt) and them operating in a highly concentrated and competitive market where they are a price taker. this division can be considered fully "mature" (i.e. low growth).
The consumer lending division will continue to grow at a rate of knots. Other companies operating in the consumer lending sector such as Cash Convertors, Thorn Group, etc are still reeling from the effects of tougher regulations, whereas the products they provide are designed to be more consumer friendly and thus have and will continue to avoid the harsher levels of regulatory scrutiny that other companies in the sector have faced. This means they will continue to gain market share. Tougher regulations that are likely coming through the pipeline will only strengthen their lead over competitors.
U.S. debt purchasing. Dynamics in the U.S.A. debt collection industry are favourable after a number of difficult years. A number of the large companies in the sector are struggling with weak balance sheets (meaning less competition), meanwhile banks are offloading a higher portion of their bad debts to debt collectors. This has resulted in ample supply and attractive pricing for U.S. debt ledgers. It appears these favorable tailwinds will continue for some years to come.
Disclosure: I own shares
[b]2) Platinum Asia Investments (ASX code: PAI). Todays closing share price $1.01[/b] This is a listed investment company run by Platinum asset management (ASX code: PTM) who have a good track record in outperforming the market. It had its IPO in late 2015 at $1.00 per share and ran up to around $1.35 earlier this year before tumbling recently. I would recommending buying at or below $1.00 per share (i.e. if the share price falls further). The shares are around NTA and it represents a good opportunity to benefit from the undervaluation/weakness of Asian stock markets.
Disclosure: I own shares
3) Sunland Group (ASX Code: SDG) Current closing share price $1.34. The management and directors own over 30% of the company and it has been around a long time. Its a property developer (and property owner) that is heavily/primarily weighted towards the Queensland property market. They do a mix of residential, retail, office property, etc. The last reported NTA was $2.50 per share (notwithstanding any potential declines due to property price declines which could occur). If it keeps falling I would recommend buying some at anything below $1.25 per share (i.e. half NTA). The current guidance for FY2019 is around 27 - 30 million (AUD) in NPAT. Even if you downgrade it to $25 million NPAT that is more than $0.16 in earnings per share. If you buy at $1.25 that is less than 8 times earnings and half NTA for a well established company. It pays a healthy dividend and if you are willing to look past the current impending property downturn (i.e. take a long-term view) it offers good value.
4) Thorney Technologies (ASX Code: TEK). It today closed at $0.185 per share. I would be buying at these levels. Recent market declines and the rotation out of tech stocks has seen its share price plummet. Its a listed Investment Company (specializing in Australian technology companies) run by Alex Waislitz the clever and successful Jewish businessmen (and also the son in law of billionaire businessman Richard Pratt). Disclosure: I own shares.
If I had to pick only one stock it would be Credit Corp Group (ASX code: CCP).
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12-10-2018, 08:19 AM
Australian stock market looking pretty beat up at the moment. Lots of good companies on sale.
Lots of crap too.