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New Purchase – Biogen (BIIB)

I just added a position in Biogen.  I sold off some of my bond holdings to add it.  I also sold a smaller portion of $SIVR (silver ETF) in order to add it.

Here is a PDF with my analysis if you’d like to see what I look at: Biogen (BIIB) Assessment

Biogen is a biotech that focuses on neurosciences with a particular focus right now around MS related diseases and moving quickly into spinal muscular atrophy diseases. Longer term they are focused on developing/expanding other areas related to neuroscience. These are the diseases that are least understood and in my opinion the ones with the most ‘runway’ ahead of them (as we attempt to solve some really, really, really bad diseases). By the way…1 BILLION people suffer from these diseases worldwide! They are the leading cause of disability and second leading cause of death.

I actually just listened to the Stan Druckenmiller interview on RealVision earlier this week finally and heard him talk about how the biggest part of his philanthropic effort is aimed squarely at neurosciences. He does this for the same reason that Biogen focuses on them. They are a huge problem, with almost no resolution to date. He views it as the most important thing he can focus his billions in wealth on to aid society. He is a smart guy so I’ll trust him on it. Great interview by the way!

I’ve had this company on my short list of companies in the healthcare world for a while. This past week the stock got hammered (down greater than 30% from Wednesday’s close) when they announced they were suspending one of their Alzheimer’s drugs that was in Phase 3. Not good news BUT from what I see of this company they are excellent capital allocators on almost all fronts. So, if they think they need to stop expending capital on this then I have no reason to see that as horrible. I’m sure they have had this happen many times (and will many times more). All while still being around to tell the tale. That is part of the game in biotech (and they understand this and have been here before).

About the only thing I don’t like about this company is the debt level. At 46% debt to equity it carries higher debt than typical biotech companies. They have around $6 billion in long term debt. The average biotech runs around 26% debt to equity. BUT this is not a typical biotech company…it is a behemoth! Earlier in the past decade the company had much lower debt but in 2014 increased debt pretty substantially to 70% debt to equity. Since that time, they have bought back 34 million shares (or around 15% of share outstanding). This would be around $11 billion-ish (using Wednesday’s prices in the $323+ range). Some would argue that that ‘investment’ has now been vaporized due to the large drop late last week. I wouldn’t…each to his own.

Why does the higher than normal debt level cause me very, very, very little concern? I hate companies with debt and especially hate to see a company add to debt when they don’t have to. This should be a huge red flag for me (and is). But this company also generates substantial cash flow and free cash flow. Even with the increase in debt the company can easily service their debt. It could pay off all debt with operating cash flow (based on 2018 figures) in 2 years and all long-term debt in 1 year. These numbers are very similar for free cash flow at 2.3 and 1.1 respectively. The Piotroski F-Score of 7 and the Altman Z-Score of 4.52 also indicate everything is good to go on the debt/financial strength front. So even though the debt level is higher than I’d like there is very little concern that the company is in any financial distress at all.

With the recent price decline the company is cheap across a variety of financial metrics like PS, PE, PB, PCF, EV/EBIT, EV/EBITDA, EV/REV, Shiller PE and Price to Owners Earnings (against the industry and against its own history). The company also has outstanding ROIC, ROE, ROA, and gross margins over the past decade which is a sign of a great business and/or great management or both. Of course, all of these could deteriorate drastically if they have more instances where they walk away from a major Alzheimer’s drug in Phase 3. That is obviously a/the concern from Wall Street who crushed the stock late last week. My bet is they will have more successes than failures like this one.

It is rare that you get to buy a company that, I believe, is a very wide moat business at a big discount over similar businesses. It is also rare to get to buy that business at near what I calculate the Intrinsic Value of the firm to be. I’ve been looking to add a healthcare company to my portfolio for some time and this one is the one. Could this price drop be the beginning of me catching a falling knife in a business that will start to see more and more missteps? Maybe, but that is not what its history suggests. I believe I will hold this stock for a long time and will be a very happy shareholder. I’m purchasing the stock based on the 85% certainty rating I have calculated.

I’m sharing my analysis here. If you have thoughts on this company, I’d love to hear them hit me up on Twitter @mymoneytrainer

MyMoneyTrainer Investment “Group” Update – February 2019 (Month 16)

MyMoneyTrainer Investment Group Scorecard_2019_02 (Month 16)

For full update download this ^^^ PDF.

Performance Update

My goal is to beat the stock market over time.  Why stocks? Because stocks have been an asset class that over long periods of time provide high real returns (inflation adjusted returns).  I measure myself against the US stock market (S&P 500) and the world wide stock market (VT a world wide ETF). So how is it going?

Current Month

MyMoneyTrainer
Investment “Group”
US Stock Market
S&P 500 NAV (SPX5)
World Stock Market
Vanguard World ETF NAV (VT)
This Month -0.29% 3.17% 2.70%

Yearly

Year MyMoneyTrainer
Investment “Group”
US Stock Market
S&P 500 NAV (SPX5)
World Stock Market
Vanguard World ETF NAV (VT)
2017* 8.30% 4.14% 3.48%
2018 1.28% -4.75% -9.68%
2019** 6.61% 11.38% 11.07%

* Since Inception Nov 1, 2017  ** Year To Date

Cumulative

MyMoneyTrainer
Investment “Group”
US Stock Market
S&P 500 NAV (SPX5)
World Stock Market
Vanguard World ETF NAV (VT)
Cumulative** 16.93% 10.49% 3.81%

** Cumulative Nov. 1, 2017 – February 28, 2019 (16 Months)

Well after a dramatic December the stock markets around the world came roaring back in January which continued into February and ended up right back around the levels of last fall.  So, much ado about nothing I guess?!?! Although the comeback was impressive they still have not been able to get back past November levels. International markets did actually but they were already trailing US markets substantially.

My portfolio was basically flat as a pancake during the month of February while the markets kept roaring onward.  Since I’ve been tracking all this my cumulative returns are beating the stock markets of the world and US. Both indexes obviously gained on me during this month.  It is never easy to beat the market so I’ll take it when I can get it. It is only 16 months though…so time will tell if I can keep up the superior performance! If this month is any indication I have some tough sledding ahead of me!

Transactions This Month

Sold: BSCJ – Invesco Bulletshare 2019
Bought: ARLP – Alliance Resource Partnership
Bought: TX – Ternium
Bought: VIAB – Viacom Class B
Bought: M – Macy’s

Thinking: I added to some position after reassessment of all my current portfolio positions using my updated tools.  I’ve learned a lot over the past 16 months and recently incorporated a lot of that learning into my tools that I use to analyze my investments.  It took many hours/days to reassess everything. It takes several hours to analyze a single investment (even one I am very familiar with). At the end I was pretty tired of analyzing investments and just wanted to buy an index fund!  Ha! This was especially true when I realized I had made some mistakes and was currently holding some investments that I wish I wasn’t! This wasn’t because the price had moved down on me (well it was that too) but it was mainly because they do not have the characteristics of a company that I want to own long term.  When I reran all my investments through, I found several that I wish I had never bought and I found a few that I felt I could add more money to. I added to ARLP, TX, VIAB and M along the way. These were mainly just top off investments for the most part. Some of these stocks had moved a bit since I purchased them but still were at values I thought were good.  Others were even better deals than when I originally bought them. The investment thesis on each had not changed (or had improved since my original purchase). I rate things on a certainty at the end of my analysis and then invest a specific amount in each position based on the level of certainty I calculate. The amount of capital invested in these positions was under the certainty level I calculated so I added to these positions.  In general, I sold off my bond positions to make these investments. When I redid my analysis, I also came up with some ‘unwanted’ stocks (TIVO, TPRE, HA, TUSK, KRO). I did not sell off any of the newly ‘unwanted’ stocks in my portfolio to top off the prior investments because at this point, I would rather move money out of bonds and back into the market (at attractive valuations) than replace these stocks. I think that in general all these ‘unwanted’ stocks are all mostly really beat down right now and probably overly so.  I’m not in a huge hurry to book a big loss just to be done with them but if they rise back to anywhere close to where I bought them, I will sell them. Alternatively, if I find better options in the same industry/sector to replace them with I will. I am currently looking for stocks to replace these investments (same industry/sector but better investment alternative).

Things I’m Working On Now

  • Rescreen / Find New Stocks To Invest In (Versus Bonds) – I don’t want to have any bond holdings but I also don’t want to own overvalued stocks.  I need to rerun my tools and find some new names to research and invest in. I’m excited to do this rather than rehashing my current investments over and over.  I am looking to do two things with this 1) find investments that are better than bonds and 2) find investments to replace some of my current ‘unwanted’ stocks that I currently hold in my portfolio.
  • Reading
    • The Intelligent Investor – I finished reading The Intelligent Investor for the first time.  I had started Security Analysis but realized I had never finished this one so I put it on hold for  a bit and went with this one (to get a better intro in to Graham). The book was good the last sentence said “To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks.”  After doing this for 16 months I can say I agree fully. Owning an index fund/all weather portfolio would be a lot simpler but I enjoy the time I spend working on my investing/investment portfolio and don’t necessarily do it for ‘ease’.
    • Margin Of Safety – I’m currently reading Seth Klarman’s Margin Of Safety.  I’ve never read it before and am about halfway through it. I’ve underlined a good deal of passages so I think it is worth the time investment.
  • Further Research On Commodities vs. Stocks – I continue to believe stocks (actually all financial assets) are overvalued and commodities are undervalued.  I want to come up with some ongoing metrics that I can use to track and monitor this (to be able to reallocate accordingly…slowly).  I’ve got some basic tools in place right now but I want to bolster this a bit.

#investments #investing #stocks #cash #bonds #commodities #SP500 $SPX $ARLP $TX $VIAB $M

AGX (Argan Inc) – Annual Reassessment

I’ve owned this stock for a little over a year and just completed my annual reassessment on it (using tools I’ve updated significantly since I purchased this stock).  I’ve attached a PDF that has my analysis in case anyone else might find it useful:

AGX – Annual Reassessment

I purchased this stock back in December 2017 @ $45.95.  These are my thoughts after reviewing this when I completed my initial purchase in 2017:

  • PRO #1 – Has been growing steadily for years (through acquisition, mainly small ones, and without debt).  GPS is still 90% of their revenue however (as of the 2016 annual report).  Backlog has every one upset a) 1/31/2015 (from 2016 annual report) = $423m, b) 1/31/2016 (from 2016 annual report) = $1.1b-$1.5b, c) 1/31/2017 (from 2017 annual report) = $1.1b. Using the $2.96 EPS it returns 6% (still double the overall market).  If they can keep projects going and get back into the $5.00 range it is closer to 10%. And trades at 93% of intrinsic value.  I’d imagine management is pretty darn focused on getting new business to ensure this doesn’t happen.  Solid management with a proven track record with zero debt…what’s not to like.  The pipeline is presenting a buying opportunity.
  • CON #1 – They mainly build natural gas power plants.  Maybe not a good business going forward.  Pretty much everything new construction wise will be solar and wind.  I’m not sure I believe it.  There is no way we are going to just stop using fossil fuels.  Management is competent and rational and good capital allocators.  Everything we seem to need on earth is moving to electric power / batteries.  This will not slow down…neither will the building of these plants.  Management has not taken on wind/solar projects because ‘everyone with a truck and a ladder is in this space’ and the margins are horrible.  If I’m wrong and they somehow do not wind up gaining new business I can always sell (as this is priced in at this point)…and should have minimal future downside.  If the natural gas power plant business dries up they can just convert over and start building in other spaces (they are just choosing not to now).

I added to this position in September 2018 @ $41.34 because I really liked the company and wanted a full position. My thoughts on it were “Priced about the same as Feb ’18 (when really oversold AND there was no mention of a backlog like there was in yesterday’s report). No debt, decent insider ownership, seemingly smart management ready to weather any storm that may come. I’ll take it!”.  I continue to agree with Tobias Carlisle (as he said on TIP mastermind discussion) when talking about the backlog concern how he liked how people think a company that has been around for 60 years (and is well run) won’t be able to find new business.

Since then in February of this month they updated that they have increased backlog pretty big project that took backlog up over a billion again and it doesn’t include another project of similar size which could take it to around $1.5 billion again.  The last time they had that much backlog the stock was a $60+ stock.  Now I think it was completely overvalued back then…but more on that.

The other pretty decent news that has occurred recently is several larger competitors have moved on from this space.  So new business coming online and less competition should be a good recipe going forward.

I like the company a lot and I like how the concerns with it are being addressed and seem to be moving in the right direction.  I like that they are completely debt free.  I like that management owns stock in the company.  I like that basically no one follows this company.  I like the high ROIC and ROE.

That said, I don’t like the current valuation.  I’m using low estimates to do my analysis and who knows what the 2 analysts have included/not included in those estimates with regard to go forward plans but the estimates don’t leave a lot of room for growth in the share price or any margin of safety in the intrinsic value.  I’m calculating that this stock is barely better than owning the overall market at this point.  So why would I take the risk of owning an individual stock that doesn’t provide me with at least some logical opportunity to outperform the market?  I’m not sure.  Does this company have many characteristics the make it better than the overall market?  I think yes, so maybe that is reason enough.  This is where investing is just really hard.

I have made money in this stock which is not bad given the market has been “”not good”” during this time but I’m not sure I want to continue to own it from here on out.  I have other stocks in my portfolio that I would view as worse stocks and that I know I don’t want to continue to hold.  Argan was the last stock in my portfolio that I’ve completed my updated annual reassessment on.  In the end they are mainly just a well-run cyclical construction company.  They run the business well but that is what they are…which is not horrible but probably not worth the risks at the current valuation.  At this point I’ll probably hold onto it rather than sell it and not have anywhere to reallocate the money to.  But if I find something better to replace it with, I will do that without much hesitation.  Perhaps in the meantime they announce “officially” a few more deals and the backlog picture continues to take shape and the price moves up accordingly.  That is what should happen by the way!

I’m sharing my analysis here.  If you have thoughts on it I’d love to hear them hit me up on Twitter @mymoneytrainer

TIVO (TiVo Corp) – Annual Reassessment

I’ve owned this stock for a little over a year and just completed my annual reassessment on it (using tools I’ve updated significantly since I purchased this stock).  I’ve attached a PDF that has my analysis in case anyone else might find it useful:

TIVO – Annual Reassessment

I purchased this stock back in December 2017 @ $15.45.  These are my thoughts after reviewing this when I completed my initial purchase in 2017:

  • PRO #1 – Acquisition of TIVO (by ROVI…then keeping the TIVO name) was in late 2016—valued TIVO at $1.1b. They expect $100m in synergies from merger (65% of which in initial 12 months).  $800m in revenue an expects it to be $1b in next three years.
  • PRO #2 – New CEO just bought $1m in stock at $17.60. He was also awarded 1.2m shares (vesting over next 3 years).  New CEO’s stock grants are tied to stock price performance.  Must reach $28.
  • PRO #3 – 9 of 10 top pay tv providers use their software. In a patent lawsuit with Comcast (the 10th) and winning (based on initial rulings).  25mm US Households.  Moving into Latin America.  International will be strong.  Viewer analytics and advertising model.  Morningstar calls them a narrow moat company.
  • PRO #4 – They are a patent patrol company with 6,000 patents.
  • CON #1 – Shares rallied this morning because of rumors of a takeover from a private equity firm. Rumor is $20 per share.  I’d rather this not happen so I could just own it.  If it does happen that is a 30% premium over now.  They’d be stupid to take the deal (no one at TIVO has reviewed said deals or commented on them publicly).
  • CON #2 – Has 53% debt to equity ratio (which is not rock bottom but not terrible and with the valuation acceptable).

So, the morning after I completed my initial analysis and I decided to buy this stock rumors of a sale started cropping up.  No comment from the company.  Later they started saying the stock’s value was not being recognized and they were undergoing a “strategic alternative review”.  The new CEO came in and quit fairly quickly.  I’m not sure what that is all about but I doubt it is good.  I guess he figured out pretty quick he was not going to get to his $28 price target for his stock grants anytime soon under any exit scenario.  The current interim CEO (and I believe former CEO) has committed to stay in the role until the strategic alternative review is completed.  I don’t believe they are even looking for a replacement until they decide what their options are.

I’m completing this analysis a few days ahead of the 4th quarter 2018 results.  The company has been in a “strategic alternative” review for the better part of a year. No one seems to be terribly interested in the company “due to unique nature of the business”. They are not providing business outlook estimates based on this so the shareholders who they are working to maximize value for are flying blind.  They said during the 3rd quarter results that they expected to have this process wrapped up for the Q4 results.  So, if they are true to their word, we should know in a few days what they expect to do with that.  Based on my review I would be perfectly fine with someone coming in and buying this company and taking it off my hands.  There are a few reasons.

As soon as I read PRO #4 I should have immediately left the building.  If we are relying on lawyers as a strategy to run the business we are not in a good business. Ha.  I get the concept of fighting to keep your intellectual property rights from being violated or outright stolen but lawyers cost a lot of money and fighting legal battles with the likes of Comcast I’m sure is not inexpensive (nor fun).

The other reason is the company’s ROIC and ROE…oh my!  Get me outta here!  These boys haven’t turned but one positive ROE in the past decade and their return on invested capital is zilch!  They are not generally profitable on an EPS basis (although that is supposed to improve…but no guidance so who knows) their shares outstanding and debt level is a constant roller coaster which is very hard to figure out what they are doing there.  The only thing that is a major positive for me are the large gross margins (although they are falling fairly rapidly) and the very decent free cash flow (in spite of no regular earnings).  So, this company is not a fire sale emergency for me but it is not a company I would put money in to today.  All this was dug up in my enhanced analysis that I do now (this spreadsheet).  The 65% certainty I’m calcing on this is not a business that I’d invest in going forward and one I wouldn’t even hold long term.  That said I’m going to wait and see what happens on this week’s earnings call.  Perhaps they wrap things up as planned and some private equity buyer comes in and takes this company off the market.  If that doesn’t happen, I’d expect the price to get whacked and it if does happen I’m not expecting a huge premium over the current price.  I really only need to get back to $15ish to break even and if I can break even on this stock, I’d call it a successful year.  If none of that happens, I’ll likely just hold onto this until I can replace it with something else (it is my smallest position at this point anyway).  So not an emergency but I’d like to move along from this company.  Bye Felicia!

I’m sharing my analysis here.  If you have thoughts on it I’d love to hear them hit me up on Twitter @mymoneytrainer

ARLP (Alliance Resource Partners LP) – Annual Reassessment

I’ve owned this stock for a little over a year and just completed my annual reassessment on it (using tools I’ve updated significantly since I purchased this stock).  I’ve attached a PDF that has my analysis in case anyone else might find it useful:

ARLP – Annual Reassessment

I purchased this stock back in November 2017 @ $18.35.  These are my thoughts after reviewing this when I completed my initial purchase in 2017:

  • PRO #1 – First coal based MLP (formed in 1999). 2nd largest coal producer in the country.  8 b tons in reserves 37 m tons sold in 2016 (49 years available).
  • PRO #2 – I love the annual reports talk about ‘long haul’.
  • PRO #3 – Workforce is union free.
  • PRO #4 – Low debt and much lower debt to equity over 10-year period (lowest in most recent quarter). They spent downturn of 2016 bolstering the balance sheet (including lowering payouts).
  • PRO #5 – MLP eliminates double taxation.
  • CON #1 – Coal is out of fashion…but there is no way we don’t wind up figuring out how to burn this stuff without polluting. FACT!
  • CON #2 – Only 4 analysts follow them.
  • CON #3 – I’m not actually excited about owning an MLP…I guess. This is a MLP (no corporate income tax).  I researched owning these in my ROTH.  It will seemingly trigger the UBTI/UBIT tax rules (which I do not want to get into).  Need to own this in my taxable account (if at all).  Income (distributions/dividends) will be treated as income for me upon tax time.
  • CON #4 – Tax reform in Senate right now might impact creation of new MLPs (not impact existing ones).

So, one of the biggest things that looks different for this business is the large increase in shares outstanding.  What the heck happened?!?!  Was I diluted? This is a restructuring in the corporate structure.  The 2017 annual report says: “”The Alliance Partnerships also took the first step toward simplifying our structure through an Exchange Transaction. The Exchange Transaction eliminated AHGP’s incentive distribution rights and converted its general partner interest in exchange for the issuance of 56,100,000 ARLP common units. Completed in July, it further enhanced our capital markets capacity and access. We are also moving forward to complete the process of fully simplifying the Alliance Partnership structure, which will result in ARLP being the only publicly traded reporting entity””.  So this is related to the sister company AHGP – Alliance Holdings GP, L.P.  They are merging these two entities into ARLP. This should not be dilutive overall.  Honestly, I don’t claim to understand why they had the two entities to begin with and how the merging really impacts my position in ARLP overall.  My take is it is not a big deal but I could be completely wrong on this.

These guys think like owners…long term owners…because they are.  Insiders have 21% ownership and insiders are still buying (with Directors buying in $19.55-$19.85 late last year).  When I read the annual reports and see the language they use and match that up with their ownership I know these guys are going to run the company to their benefit.  I really like this aspect of this business…A LOT!

My one major sticking point with this entire investment is just the fact that it is coal production.  Coal is a dirty fuel, a declining industry, and a huge target for all the upcoming green energy investment.  It could also be on the wrong side of legislation/legislatures who want to make people using coal pay extra for using it (which could have an impact on pricing and demand).  I don’t view either of these risks as being outside the realm of possibility as the whims of governments can change based on who is in elected power.  Currently there is not too much bad on this front worldwide (other than generally the world is moving away from coal usage) but this could change and impact the company greatly.  All that said, I don’t think we stop using coal anytime soon (maybe ever) and there will be a need for the country’s second largest coal producer to continue to produce (and to use up their 49 years of available supply).

In general, I like this company and will likely add to my position in it a bit at this time based on this updated analysis.  I don’t really find too much wrong with this investment and the things I look at show a high degree of certainty.  I’ve been reinvesting the dividends since I purchased this.  With the really high yield associated with this that has not been insignificant.  I think going forward I will up my investment to be in line with my target allocation and then no longer reinvest the dividends and just let those flow into my account.  At the current rate the investment will pay for itself in a few years (and hopefully I’ll then have the original investment plus some extra capital to invest elsewhere).  I might also just keep reinvesting too since I think the value is right and I like the company.  Hmmm!  Not sure yet!

I’m sharing my analysis here.  If you have thoughts on it I’d love to hear them hit me up on Twitter @mymoneytrainer