Zeke Ashton's Presentation on BMW Preferreds: Value Investing Congress Las Vegas

We've posted up notes from the Value Investing Congress in Las Vegas and next up in the series is Zeke Ashton of Centaur Capital Partners who pitched BMW Preferreds.


Zeke Ashton's Value Investing Congress Presentation

•    Founded Centaur Capital Partners in 2002. Long-Bias, goes both long and short.
•    Started out as a “hybrid”, value investing made sense in 1997 – value stocks would just stay cheap. If you  bought tech stocks, made 50% in a month. Since he was new, looking at what worked. Was a value investor at heart, but couldn’t help himself to invest in some of these tech stocks.
•    Ballard power –speculative investment went from 100 to 2.
•    Deswell – cigar butt investment at that time – went up 50% and sold it. Bought it for 2x PE. Stock price declined and was flat, but shareholders received their capital back through dividends.
•    What to take from this? Graham and Dodd works – but buying good companies is better.
•    Comparison – Yahoo! Acquisition of broadcast.com is eerily similar to Facebook’s acquisition of WhatsApp.  Doesn’t know how Whatsapp will play out, but we know what happened with Yahoo! (Plus it was a win for us Dallas Maverick Fans)


•    Opposite End of the value scale – Tesla Vs. BMW. End of the day, both are Car Companies. Market Cap for Tesla $30B market cap, 23,500 cars sold, expecting 35k next year – BMW 2MM cars a year, not counting motorcycles – cars sold growing. From a scale standpoint, completely different businesses.
•    Tesla wasn’t so much in the car business – made a lot of revenue from various “regulatory credits”, which are deducted from your COGS! Alone, these are 8% of revenues. As a percentage of gross margin 45%.
•    TSLA has a smart group of guys – interesting how they hid the credits.
•    BMW is entering the EV market – has been prepping for this for a long time.
•    One BMW model – I3 and the I8 - $135K BMW convertible. 
•    BMW partnered with a Chinese car company to create an EV brand – Zinoro. If TSLA gains billions off opening one Chinese dealership, then what happens ot the JV which is opening multiple dealerships.
•    Financial services business is phenomenal. BMW Finance is a hidden asset. Also has an insurance operation – extended warranties, etc. Amazing businesses. They obtain 45% of all BMW sales as customers – captive base.
•    What would it take to replicate BMW? Well over the past ten years, they have spent over $100B in CapEx and $41B in R&D. Another secret sauce – can access the credit markets at attractive terms.


•    Buy BMW through the preferred – 25% discount or 8x earnings and 3.9% dividend yield. One of the best brands in the world, along with an attractive FinCo
•    SOTP – 6x OCF for the OpCo and a multiple for the FinCo in line with the market. Fair value for common shares $100 euros, common is at $91 – hence preferreds are the most attractive.
•    Tesla is priced for perfection, I wouldn’t recommend a short but it is an interesting company.
•    Q&A asked about the comparison between Chobani and General Mills (Tom Russo’s presentation).  BMW takes their time to be perfect.

Be sure to check out the rest of the Value Investing Congress presentations.

Notes From Value Investing Congress Las Vegas 2013: Day 2

Yesterday we posted up some quick notes from day 1 of the 2013 Value Investing Congress in Las Vegas and today we'll highlight key takeaways from day 2 below:


Whitney Tilson, Kase Capital: AIG, Hertz (HTZ)

He talked about how American International Group (AIG) is still a position he likes as it's still cheap and the company has been streamlined to something much easier to understand and there's been a lot of advancement since the financial crisis and even since last year.  It's around 14% of his portfolio and was his largest position as of last month.  Tilson also likes his long of Berkshire Hathaway (BRK.A / BRK.B) and recently adjusted his intrinsic value figure to just north of $193,000.  Additionally, he mentioned he's started a new position in Hertz (HTZ) and you can read the pitch on Hertz in this newsletter that convinced him.


Guy Gottfried, Rational Investment Group: WPX Energy (WPX)

His pitch was on WPX Energy, a spin-off from Williams Companies last year.  He says it trades at 8x free cashflow and .66x book value.  Gottfried feels it's a very cheap stock for a play on natural gas that doesn't require gas prices to head higher.


Mark Boyar, Boyar Value Group: Weight Watchers (WTW), Dole Foods (DOLE), Western Union (WU)

He thinks we might be in the midst of multiple expansion.  Boyar likes Weight Watchers (WTW) as a play on the weight management industry and notes it's down 50% over the past 12 months.  He also pitched Dole Foods (DOLE) as the company reduced its debt load by selling the packaged foods business.  His third and final pick was Western Union (WU).


Vitaliy Katsenelson, Investment Management Associates: Whistler Blackcomb (WB.TO)

He said that profit growth is slowing down and that the market is actually getting expensive on a P/E basis.  Katsenelson argued that there's no secular bull market, at least not yet.  In the mean time, he likes stocks with solid dividends and says that the vast majority of returns in sideways markets are derived from dividends.  He's the author of The Little Book of Sideways Markets, by the way.  His pick was a high dividend payer (over 7%) in Whistler Blackcomb, the owner of the popular ski resort.  He likes their lower costs due to no property development etc.


Zeke Ashton, Centaur Capital Partners: Fidelity National (FNF), First American (FAF)

He emphasized the importance of learning from mistakes.  While you will encounter your own mistakes as an investor, it's also easy to learn from others' mistakes too.  Ashton argued that emotional mistakes are much more prevalent than analytical ones and so obviously behavioral finance is an important part of investing.  As far as current opportunities in the market go, he's having a hard time finding good ones as so many shares have been bid up.  He's not a big fan of homebuilders but if you want a play on housing, he said to look at the title insurers as a proxy with lower risk.  His picks were Fidelity National (FNF) and First American (FAF).


Joe Altman & Chris Kyriopoulos, COMPOUND Capital: TARP Warrants, Nathan's (NATH)

They launched their fund at a hell of a time: during the financial crisis when Lehman Brothers failed.  These two mentioned that they like TARP warrants, which we'd note has been a hedge fund favorite (especially AIG and BAC warrants, though Compound prefers AIG and COF ones).  They note these are liquid plays that are often underfollowed.  However, their pitch today was Nathan's (NATH), the popular hot dog proprietor.


David Hurwitz, SC Fundamental: Long KISCO, Short Salesforce.com (CRM)

He pitched one long: KISCO in Korea (001940.KRX) and one short: Salesforce.com (CRM).  He says KISCO is much cheaper than CRM.


Chris Mittleman, Mittleman Brothers:  Revlon (REV)

He pitched this as a turnaround story, praising management for a good effort.  Ron Perelman owns a ton of the company and that's partially the reason it's so cheap.  Mittleman likes that it's essentially a recession resistant business.  A solid portion of their revenues come from Walmart.  He also mentioned Carmike Cinemas (CKEC).


Ori Eyal, Emerging Value Capital: Hilan Tech

Eyal talked about the opportunities to invest in Israel, somewhere he specializes in (launching the Emerging Value Israel Fund).  He says the country is stable and pro-business and has a growing economy.  He pitched Hilan Tech, which he dubbed the 'ADP of Israel.'  He says Israeli stocks on the whole are cheap as they've largely traded sideways the past few years.


Harris Kupperman, Mongolia Growth Group: Real Estate

He touched on how there's too many investors out there all doing the exact same thing (i.e. herding).  One place that there certainly aren't many investors involved is Mongolia.  He says the country's GDP will explode 10x over the next decade or so, creating a big opportunity and he recommended real estate there.


For more from this event, head to notes from day 1 of the Value Investing Congress.

Zeke Ashton on Centaur Capital's Investment Approach: Interview

Zeke Ashton is the founder of Centaur Capital Partners in Dallas, Texas. He focuses on long/short equity value investing and has compounded at 16% per annum since inception in 2002. His interview focuses on his non-traditional entrance into the hedge fund industry as well as his focus on 'hated' stocks.

Ashton started out in the Treasury and risk management consulting business. And, like so many value investors, he later shifted to investing after discovering Warren Buffett. Ashton actually worked at The Motley Fool for a while where he refined his skills with the basics and crafted his own investing style.

Ashton started with less than $1 million but attracted the likes of Whitney Tilson (of hedge fund T2 Partners) as an investor. Today, he manages $110 million and we've covered Ashton's presentations at the Value Investing Congress as well.

Centaur's Investment Approach

Ashton likes a concentrated portfolio, but not extreme concentration. He likes the 20-stock model and while he does short, he is long-biased. He often holds 20 longs and 6-8 shorts. Typically, he avoids cyclical and leveraged businesses and prefers companies that hold a lot of cash and generate a lot of cash.

The hedge fund manager's picks are often found in a pocket of opportunity nestled between growth and value. The stocks Ashton typically invests in don't grow fast enough to attract growth investors and aren't cheap enough for deep value players. As Ashton says, "boring is beautiful."

OpalesqueTV sat down with Ashton and the video interview is embedded below (email readers come to the site to view it):



We've posted up some other great hedge fund interviews, including Phil Goldstein of Bulldog Investors and David Gerstenhaber of Argonaut Capital.

Zeke Ashton, Guy Spier, & Michael Lewitt: Value Investing Congress Presentations

Given the large amount of speakers at the Value Investing Congress, we're trying to dissect the day's events into digestible nuggets of information. The following article details the presentations from Zeke Ashton (Centaur Capital Partners), Guy Spier (Aquamarine Fund), and Michael Lewitt (Harch Capital Management).

We posted up comprehensive notes from day 1 of the Value Investing Congress here encompassing presentations by John Burbank, Lee Ainslie, and more. We've also highlighted Bill Ackman's question and answer session in a separate post as well. Make sure to check out those resources. Without further ado, the rest of the presentations from day 1:

Zeke Ashton ~ Centaur Capital Partners

Ashton has seen an impressive 16% CAGR since inception with his hedge fund, Centaur Capital Partners. He had some ideas in the property & casualty insurance space, notably Fairfax Financial (FRFHF) as well as Aspen Insurance (AHL). Fairfax is run by Prem Watsa, a man many have dubbed the 'Warren Buffett of the north' as he's based in Canada.

Aspen Insurance is a name we've seen in David Einhorn's portfolio for a while as well and Ashton believes it could see $40, a book value of 1.15 (it currently trades around $30 per share) as the company continues to buy back stock at a discount. He also sees Liberty Mutual as potential value when they eventually come public.

Turning to his next play, Ashton brought Biglari Holdings (BH) to the table. While he believes retailers in general are cheap, he sees BH trading at 8x free-cashflow and Sardar Biglari (the man in charge) only gets paid if FCF grows 6% per year. Many investors (particularly in the value investing community) have taken issue with Biglari's compensation package. Ashton sees lots of real estate value in BH and likes that they are shifting to a franchise model with their Steak n' Shake stores.

Biglari is essentially trying to create a Berkshire Hathaway-esque holding company/model as his company has made buyout offers for insurer Fremont Michigan (FMMH). Many have pondered whether or not Steak 'n Shake (now Biglari Holdings) was the next Berkshire Hathaway. Biglari also recently revealed a position in Sonic (SONC).

Centaur Capital Partners currently has 20% overall exposure to the retail sector. Ashton believes diversifying between retailers, restaurant, and a high quality operator (like Target - TGT) is beneficial in the space.

Lastly, Ashton mentioned that equity asset managers are cheap due to the public's current distaste for equities. He feels buying a basket of these stocks is a solid approach. He cited (CLMS) as an undervalued asset manager, Janus Capital (JNS), and also MVC Capital (MVC). Interestingly enough, the Centaur Capital Partners manager also noted his use of the iShares 20+ year treasury (TLT) as a hedge against interest rate risk.


Guy Spier ~ Aquamarine Fund

From a theoretical/educational standpoint, Spier highlighted to pay heed to a sign in Warren Buffett's office reading 'invest like a champ today.' Spier profoundly professed that starting relationships with the right people can have a very strong impact on your life as an investor. In particular, choosing the right investors for your fund sets your fate. He highlighted Whitney Tilson and Glenn Tongue's partnership to form hedge fund T2 Partners as well as Markel Corp (MKL) as another good example. On this notion, Spier recommended Michael Eisner's book, Working Together: Why Great Partnerships Succeed.

Shifting to specific picks, Spier actually sees Japan as a compelling potential investment. Screening for stocks in this universe returns a lot of companies with negative enterprise value, many of which are paying dividends and partaking in share buybacks. In particular, the Aquamarine Fund manager singled out Otaki Gas (TYO:9541), a pipeline company that owns assets in Japan. His best idea is slightly morbid in Heian Ceremony Service (JSD:2344), a funeral service business that can benefit from Japan's aging population.

Lastly, Spier had an intriguing quote on the notion of liquidity. He says that liquidity today is not important. Instead, liquidity is important when you want to exit a position.


Michael Lewitt ~ Harch Capital Management

Lewitt, also the author of The HCM Market Letter, started out by saying that we need to rid ourselves of fiscal problems because the traditional tools aren't working. He would prefer a constructive approach instead of pumping out another trillion dollars via quantitative easing round two. Lewitt feels that central banks are destroying currencies (especially in Japan). Also, he feels that naked credit default swaps (CDS) shouldn't exist and highlighted the situation with BP (BP) as an example. You'll recall that in the past we highlighted that Bill Ackman bought BP CDS.

In terms of opportunities, Lewitt sees bank loans as an attractive asset class because they are secured, can be leveraged to enhance returns, and many have 7% floating rates. As a play on bank loans, he likes KKR Financial (KFN). He highlights the 5.5% yield which should increase. He also singled out Tetragon Financial Group (AMS:TFG) trading in Europe.

Turning to bonds, Lewitt says junk bonds have been on fire (obviously). While he likes them, he notes you obviously have to be very selective due to their very cyclical nature. In particular, he finds value in BB and BBB corporate bonds.

Lastly, The HCM Market Letter author recommended utilizing ProShares UltraShort 20+ Year Treasury (TBT) as a way to short bonds. Keep in mind that since this is a leveraged ETF, it suffers from tracking error over longer time periods. He also advocated a long position in gold, something many managers have done.


That wraps up the presentations from these speakers. If you are on Twitter, we are posting live updates from the Congress on our @marketfolly Twitter feed. Be sure to also check out our comprehensive notes from day 1 of the Value Investing Congress.