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Fresh Ideas From Great Investors & More COVID-19 Fallout

Didn’t March feel like an eternity? Not even the entire month. Just the last two and a half weeks. It’s amazing the power a constant stream of news has on your perception of time. I’m not sure we’ll have another month as crazy as March for financial markets.

Then again, I bet that’s what people said after the Black Monday and the GFC.

We’ve got a full line-up of great content this week. But before we dive in, check out our latest podcast episodes!

Our Latest Podcast Episodes:

Here’s what we cover this week:

    • Opportunities in COVID-19 with Kuppy
    • Bill Miller on “A Once in A Decade” Opportunity
    • Digging Up Jeremy Grantham Writings
    • Retailers Say “No” To Rent Payments

Let’s get after it!

April 1, 2020

Sneak Peek of Value Ventures newsletter: Hey guys, normally I throw in a nerdy fact I find interesting. This week, though, I want to let you know about my latest Value Ventures newsletter.

This month’s edition features half a dozen different preferred stocks that trade at least 30% below face value and pay handsome yields. We’ve scoured through hundreds to find these names. And we’re excited to bring them to you.

If you’re interested in receiving this April edition of Value Ventures, click here.

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Investor Spotlight: Investment Opportunities with Kuppy & Bill Miller

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I’m a huge fan of Harris Kupperman (aka, Kuppy). He writes an excellent blog and his twitter account is worth the follow. If his name doesn’t ring a bell, try thinking about “that one guy who always talks shipping”.

Last week Kuppy joined Real Vision to discuss the current opportunity set in financial markets. You can find the link to the video here.

Here’s the cliff-notes from the video:

Q: Where is the excess oil supply going to end up?

Kuppy: “It’s going to the tankers … because that’s the only place you can put this stuff.”

Q: How will more tankers going into storage impact charter rates?

Kuppy: “As you start taking a few a day out of the global fleet, its going to push up the charter rates for the vessels moving oil around. You’re only going to have so much oil to move around … ignore what tankers are earning right now ($300K/day). Let’s assume it earns $100K/day. That means it earns $30M after expenses for the year. That’s 150% on your equity each year.”

Q: Is this priced in?

Kuppy: “Of course not! Everyone’s panic selling. It’s not priced in. What’s the crazy part is you can buy a lot of these tankers at half asset value.”

Kuppy’s given us a game-plan: Buy tankers. But which ones? He specifics in the video, saying:

“I think your best bet is buying a diversified basket of tankers. I think you want to have a wide basket.”

Kuppy didn’t give us individual names, but reading his blog gives us clues:

    • DHT Holdings, Inc. (DHT)

    • Euronav (EURN)

    • Dorian LPG (LPG)

    • Scorpio Tankers. Inc. (STNG)

    • Teekay Tankers (TNK)

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Bill Miller: Once In A Generation Opportunity

Bill Miller went on the TD Ameritrade network to discuss (what he calls) a “once in a generation” opportunity.

Here’s some snippets of Bill from the video:

    • “I think this is one of the best buying opportunities of my adult time.”
    • “Right now, this is the time to have a financial crisis. US economy has never been stronger. The economy is in a free-fall, but the recovery will be pretty fast — in terms of the overall economy, maybe a quarter or two away.”
    • “This is the fastest bear market recovery.”
    • “These aren’t bailouts of the airlines, but policies of the government.”
    • “You have to compare P/E ratios with whatever else you can do with your money.”
    • “What you’re seeing in this three-day rally is a view about how this market will recover, when it eventually recovers. And the answer there is that it’ll recover in the exact same way it will in any other recession.”
    • “We’re considering Carnival (CCL).”

Bill then lays out his playbook for investing in the current crisis. This is the same playbook he used during the 08-09 crisis (where he killed it):

    • “Taking a look at all the names in the market where they traded before the massive sell-off”
    • “Those valuations were in a decent economy and a very good stock market”
    • “We want to see how stocks were valued then, and assume those will be reasonable proxies for what will happen in the next year or two”

Finally, Bill offers his take on the next cohort of names that will rise during the coming recovery:

“Real companies with dominant positions, those companies are not expensive and they will do well. They just won’t do as well in the short-medium term. That will be more for the new era cyclicals.

I like Miller’s thinking here. If you want to follow him into this cyclical expansion, check out Morningstar’s list of cyclical consumer stocks here.

I’m putting together a short-list of my favorite consumer cyclicals. Expect those write-ups in a future Value Ventures letter.

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Movers & Shakers: Revisiting 2009 Grantham Essay

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Jeremy Grantham is an investor and co-founder of GMO, a Boston-based investment firm. Grantham wrote an article in 2009 titled, Reinvesting When Terrified.

Fast forward to today and Grantham’s article remains true. It’s amazing the staying power of truth under adversity. The resiliency of steadfast principles under chaos. If it ain’t broke, don’t fix it.

Here’s some of my favorite highlights from the article (emphasis mine):

    • There is only one cure for terminal paralysis: you absolutely must have a battle plan for reinvestment and stick to it. Since every action must overcome paralysis, what I recommend is a few large steps, not many small ones.
    • Remember that you will never catch the low. Sensible value-based investors will always sell too early in bubbles and buy too early in busts. But in return, you may make some important extra money on the roundtrip as well as lowering the average risk exposure.
    • On the other hand, if you invest too little after talking about handsome potential returns and the market rallies, you deserve to be shot. We have tried to model these competing costs and regrets.
    • Finally, be aware that the market does not turn when it sees light at the end of the tunnel. It turns when all looks black, but just a subtle shade less black than the day before.

Absolute gold. Don’t worry about catching the absolute bottom. Start small, average into some of your favorite names.

Have dry powder to take advantage of further price declines (if they come). You don’t have to get your keep all in one shot.

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Resource of The Week: Retailers Say “Nope” To Paying Rent

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Retailers are having a tough time. That’s an understatement. Many retailers will go bankrupt, and we’re seeing the effects of no foot traffic in stores.

Because of that, landlords won’t get their rent checks this month. Bloomberg highlights this issue in their article, U.S. Retailers Plan to Stop Paying Rent to Offset Virus.

In short, retailers can’t pay their rents and want rent relief. Landlords aren’t happy about it and are fighting such relief efforts.

Here’s a few bits from the article (emphasis mine):

    • The situation is likely to get messier. The U.S. relief packages being considered don’t directly address rents. But the Federal Reserve’s actions may give banks the leeway to defer mortgage payments, allowing property owners to delay rent. It’s also unclear if retailers can declare a so-called “force majeure,” a contract clause that covers highly unusual events, and if landlords could then make the same case to insurers.
    • Mattress Firm, with about 2,400 stores, sent landlords a letter last week saying it would cut rent in exchange for longer leases and offering two options to do so. This week, it sent a more urgent note revoking its earlier offer.
    • Subway Restaurants, which has more than 20,000 U.S. locations, sent out a letter to landlords last week saying that it might cut or postpone rental payments due to the virus, according to a person with knowledge of the situation. The Real Deal, a real estate trade publication, reported on the communication earlier.

This has had devastating impacts on many REITs (and their preferreds). One such name is Simon Property Group (SPG). SPG is a well-known REIT. Take a look at its monthly chart …

Ouch. There’s dozens more charts that look just like that in the REIT space. Opportunity to dumpster dive? Without a doubt. Tons of bankruptcies on the horizon? 100%.

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Essay of The Week: Small Business Help From Permanent Equity

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Over the last couple weeks, Brent Beshore’s Permanent Equity has released killer content for small business owners. There might be small business owners that read Value Hive.

Because of that, I want to highlight some of Brent’s latest articles on various topics:

Summary: Permanent Equity answers questions from Twitter regarding banking, liquidity and navigating the turbulent waters of the current economic crisis.

Summary: The US government is taking all actions at their disposal to help small business owners stay afloat. Permanent Equity breaks down how small business owners can use such aids.

Summary: The US government is taking all actions at their disposal to help small business owners stay afloat. Permanent Equity breaks down how small business owners can use such aids.

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That’s all I got for this week. Shoot me an email if you come across something interesting this week at brandon@macro-ops.com.


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