28 Nov The Lato Letter: Volume 2, Issue 15.
This link is to the Report on Business article following my Market Call Appearance last night.
On this quiet US Thanksgiving Day (& Chanukah), I thought I would elaborate on the Top Picks. In case you missed the show, here is the link to the Top Picks segment. These can also be accessed through the Library section of this website.
NCR Corp (NCR-NYSE, $34.79)
As you can see from the chart below, NCR has been weak since holding its Analyst Day on November 11th. The company provided their outlook for the next three years and there was some concern the outlook was somewhat cautious. NCR has tended to be conservative in the past and I feel that investors have over-reacted in the short term to their conservative outlook and that a great entry point for new investors has been provided. As I mentioned on the show last night, a year ago NCR was a Top Pick at $24.91 and 10 times the then current estimate of 2013 earnings. A year later, the stock is trading at 11 times the current estimate of 2014 earnings and still represents excellent value. Another 39% return this year, might be a bit much but an another above average return is certainly possible.
Parex Resources (PXT-TSX, $6.17)
Parex’s stock price has perked up in the last week after they outlined their 2014 capital program and production guidance on November 18th. Their self-funded capital budget of $250.0M will include 22 exploration wells and 15 development wells with the majority being drilled in the first half of the year. Production is expected to grow another 15% to somewhere between 17,500 to 18,500 boe/day. As further catalysts, there will be several drilling announcements to come on their 2013 drilling program prior to the end of this year and then the release of their new independent reserve analysis in February. Parex has also tended to be conservative in their guidance and the current multiple of less than 3 times cash flow is reflective of that conservatism. With any increase in that multiple and better than expected exploration results and/or reserve estimates, the stock could easily approach its highs from early last year.
Sears Holdings (SHLD-NASDAQ)
An investment in Sears Holdings is not for the faint of heart. This holding is an aberration for Padlock’s Growth At a Reasonable Price (GARP) methodology in that I do not expect any growth in earnings. In fact, I am not really anticipating any earnings at all. The holding is based on the value realization plans of the company’s CEO and largest shareholder, Eddie Lampert. Mr. Lampert between his control of ESL Investments and his personal investment, holds 55% of Sears Holdings shares. The company is being transformed from a simple bricks and mortar retailer to a multi-faceted retailer offering both shop at home and shop in the store opportunities. While that transformation is going on, Sears plans on realizing value through the disposition of some of its ancillary businesses such as Lands End and Sears Auto Centers, the possible sale of one or more of its branded products such as DieHard batteries, Kenmore appliances and Craftsman tools and the disposition of real estate such as the disposals that they have recently done through Sears Canada. As these events unfold, they could serve as a catalyst to force buying of the stock by the huge number of investors who are currently “short” Sears Holdings. Sears Holdings currently has a short position of over 30% of the float that could lead to significant demand for the stock as the shorts give up on their bet. It’s tough to bet against a guy who was able to talk his way out of his own kidnapping, as Mr. Lampert did in 2003.
This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change without notice.
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