What We're Reading ~ 10/30/19

The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution [Gregory Zuckerman]

How TikTok holds our attention [The New Yorker]

Inside the Nordstrom dynasty [NYTimes]

Is Amazon unstoppable? [The New Yorker]

Schwab kills commissions to feed its flywheel of scale [Intrinsic Investing]

Learning from Costco's Jim Sinegal [MastersInvest]

How Irish butter Kerrygold conquered America's kitchens [Bloomberg]

TheRealReal: the internet's luxury consignment shop [The New Yorker]

On the importance of humility [NYTimes]

With summer over, will hard setlzer's popularity go away? [LATimes]

The strange revival of vinyl records [The Economist]

On filtering the barrage of financial news [CFA Institute]

Graham & Doddsville New Issue: Polen Capital, Glenn Hubbard & Joseph Stiglitz, DG Capital

The winter issue of the Graham & Doddsville newsletter is out.  Columbia Business School's publication this time around interviews Glenn Hubbard and Joseph Stiglitz, as well as Damon Ficklin and Jeff Mueller of Polen Capital, and finishes up with DG Capital Management's Dov Gertzulin.

The newsletter also features student investment pitches from the 2018 Women in Investing conference: long Nordstrom (JWN) and a pitch from the 2018 CSIMA stock pitch challenge: long Lions Gate Entertainment (LGF.A).

Polen Capital talks about their positions in Alibaba (BABA), Adobe (ADBE), Align Technology (ALGN), and Starbucks (SBUX).

Embedded below is the Winter 2018 issue of Graham & Doddsville from Columbia Business School:



You can download a .pdf copy here.

What We're Reading ~ Analytical Links 2/11/15

Henry Singleton's five strategies for business success [ValueWalk]

A list of blogs/financial sites you should be reading [Morgan Housel]

A look at AutoCanada [Value Venture]

A pitch on Graham Holdings [Beyond Proxy]

Meditations on the Eurozone and secession [All About Alpha]

Investment Managers are human too [Squared Away]

Thoughts about risk and portfolio management [Value Venture]

The digital future of TV networks & the original series crunch [Media Redefined]

Zulily: the billion-dollar e-commerce company you know nothing about [Fast Company]

China's biggest problem [Joe Magyer]

Devaluation by China is the next great risk for a deflationary world [Telegraph]

General Motors: saved by the trucks [Economist]

Why Nordstrom's digital strategy works [HBR]

Amaya: is PokerStars a high-quality, high-growth business? [Alpha Vulture]

Why Lone Pine's Steve Mandel Likes Kohl's (KSS)

At the Ira Sohn Conference last month, Steve Mandel of hedge fund Lone Pine Capital talked about how he was long Kohl's (KSS) and bearish on fixed income.  Since KSS was the only particular stock he spoke of, we thought it was worth examining why Mandel likes Kohl's.

During Steve Mandel's presentation, he noted that he likes "share count shrinkers": companies that use free cashflow to shrink the number of outstanding shares by 8% to 10% annually.  He cited KSS as an example as the company has gone from 30 stores to national over 20 years and they have higher sales than J.C. Penney (JCP).

Mandel said that at $46, the stock trades less than 10x 2012 eps and is buying back stock.  The bear case on the name is that the company is viewed as 'obsolete' as internet retailers take market share.

Now, the above is direct from Mandel.  But we wanted to take it a step further to look for other potential reasons as to why Lone Pine might like the stock.


Kohl's: Best of a Bad Bunch

The following is a guest post from valuhunteruk.com: 

Kohl’s is a national chain of 1,100+ department stores with a moderate focus toward the Midwest/West regions of the US. Department stores generally got very hard hit by the market decline in 2008 and they have slumped since the end of 2009 so valuations are quite reasonable with Kohl’s trading at roughly 10x trailing earnings.

If we first look to Kohl’s operating performance we find that this it is an able competitor. The competitors I have chosen to focus on are those in the Department Store Index apart from Sears: Nordstrom (NYSE: JWN), Macy’s (NYSE: M), Dillard’s (NYSE: DDS), and J.C. Penney (NYSE: JCP). On the basis of these comparisons Kohl’s should be trading at a slightly more ambitious multiple.

The core of this advantage appears to be structural — Kohl’s stores are on average far smaller than competitors. For example, Nordstrom’s average store is 211,000 square feet, Dillard’s is 174,000 but Kohl’s is only 87,000. As a result, Kohl’s SGA (selling, general, and administrative) costs are the lowest in the industry at the per store level. Coping with pressure on the top-line is far easier with this kind of advantage.

Another advantage from smaller stores is high sales per square foot. Nordstrom is way in the lead here with $400 of sales per square foot but Kohl’s with $190 per square foot is way above everyone else. Again, it appears that that these smaller stores allow Kohl’s some protection against changes in the top line and allow it to use its space more effectively.

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Kohl's historicals are just as strong.  Over the past five years, Kohl’s has continued to expand adding 198 stores and nearly 16,000,000 square feet of capacity whilst the rest of the sector, except Nordstrom, has stood still.

More surprisingly, whilst this expansion has led to declining sales figures at a per store and per square foot level, the pace of decline is comparable to that experienced  by the sector as a whole. It has outpaced Dillard’s, the clear laggard, and only Macy’s managed to prevent declines in sales per store and per square foot over the past five years.

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At an operating level, it is difficult to understand that the market has attached to Kohl's.  On the basis of trailing P/Es, Kohl’s trades at a 30% discount to Nordstrom and a 14% discount to Macy’s.

On an EV/store basis, this gap is even larger although this is surely complicated by accounting for leases. Considering the fact that Kohl’s has the second highest pre-tax margins in the industry, a structurally lower cost base, and more potential for expansion we may argue that this discount is unwarranted.

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The company is also attractive at a financial level, which seemed to be the focus of Stephen Mandel's decision.  Kohl’s has just begun paying dividends but it is the share buyback program that is most interesting. In 2010, the company bought back just under 19m shares worth $1bn and in 2011, Kohl’s bought back just under 46m shares worth $2.3bn. In the first quarter of 2012, $325m worth of shares were bought back.

This program is being achieved through drawing down the company’s cash balance, which amounts to a modest re-leveraging. However, despite the substantial repurchases already made, EBIT/Interest Expense (inc. rental expenses) was 7.2x at the end of January 2012. The company expects to return another $1bn through 2012.

On both a financial and operating basis, the case for Kohl’s looks strong. However, in this sector one always has to consider the effect of broader movements in consumer spendings. Pundits are widely divided on where the economy is going although, as might be expected, the recent decline in broad market indexes has led to a wave of negativity.

For this sector, one should bear in mind that over the last five years (the longest period for which results are comparable) there was very little to choose between the companies in terms of sales growth.

Certainly, Kohl’s and Nordstrom were boosted by continued store expansion but the standard deviation of sales growth for the group was steady around 5.7%. Kohl’s definitely stands out in the sector, but the investor must feel comfortable with taking the risk of investing in the department store sector as a whole.



To see what other US stocks this prominent hedge fund owns, head to the new issue of our premium research: Hedge Fund Wisdom.

Jeffrey Gundlach's Ira Sohn Presentation

We're posting up notes from the Ira Sohn Conference.  DoubleLine Capital's Jeffrey Gundlach gave a presentation on going long: IBEX, 1 year LIBOR, natural gas, and cash.  Short: SPX, Nordstrom (JWN), Apple (AAPL), and 2 year swaps.  He previously ran TCW's bonds but manages $34 billion at DoubleLine now.

"Investment Cubism 2012" Building portfolios that can handle seismic shifts.

Quotes Marx about fight between oppressed and oppressor. Non-cooperation causes bear markets. Invention is a key driver of economic growth, but it alters the existing balance. Massive buildup of worldwide debt. EZ massive unemployment. Spain now 22.9%. Germany has dropped, now only 5.6%. Europe borrowed a lot of money, and gave it all to Germany. Youth under 25 Spain unemployment at 50%. Art sales show that the very wealthy are moving out of currency, into hard assets.

Mocks "Growth plus prosperity" talk. Tax rates on the top have actually dropped over time. Middle class has actually had a tax increase. Debt limit is just a gimmick. 2007 severity in job losses, taking twice as long to get back.


LONG: IBEX, 1 year LIBOR, natural gas, cash

SHORT: SPX, Nordstrom (JWN), Apple (AAPL), 2 year swaps


GOOG vs AAPL chart overlay. "Apple shoeshine boy" moment. Natural gas "the anti-Apple" long, he says. JWN- says "wants vs needs" retailing. Doesn't like the chart. Long IBEX, the hedge for inflationary money printing in Europe. Short SPX against the IBEX. Doesn't like SPX chart. Put 100 bills in cereal boxes, no one will steal them. The idea is invest the portfolio as a whole, don't just take one his ideas in isolation.


P.S. - Don't miss other presentations from David Einhorn, John Paulson, Bill Ackman & more: notes from Ira Sohn Conference 2012.