Fall 2019

Mohnish Pabrai discussed his views on IPSCO, indicating a positive outlook on the company.

Mohnish Pabrai mentioned GrafTech, suggesting he sees potential value in the stock.

Matthew Peterson discussed his recent investment in DJCO, highlighting it as a favorable opportunity based on his investment criteria.

David Hao, Eric Niu, and Freda Zhuo recommended a long position on Aramark, highlighting its strong market position and growth potential in the food services sector.

Edgardo Guttierez, Yuri Rettore, and Rodolfo Zeidler recommended investing in US Foods, Inc., emphasizing its competitive advantages and favorable market trends.

Aramark is undervalued due to market sentiment, with significant upside potential in its core catering and uniform businesses. The company has opportunities for operational improvements and activist involvement could accelerate value creation, leading to a potential 37% IRR over three years.

We believe that Aramark's core operations are undervalued and can see significant EPS enhancement through operational improvements and potential spinoff of its Uniform business. Our base case price target of $58 represents a 23% IRR, based on conservative growth and margin expansion assumptions, while a bear case of $25 assumes no growth and a lower multiple.

We recommend a long position in ServiceMaster due to its durable competitive position and strong cash flow generation abilities. The pest control industry has a long growth runway, and with a 3-year price target of $78, we see a 59% upside and an IRR of 20%.

We propose a three-fold constructivist plan for ServiceMaster to enhance shareholder value, including expanding the board with pest control experts, improving employee training and technology at Terminix, and spinning off ServiceMaster Brands to unlock additional value. Our analysis suggests that a tax-free spin-off could increase the IRR on the investment from 17% to 20%, with a target price of $78 based on a sum-of-the-parts valuation.

We recommend a long position in US Foods, which operates in a recession-resistant industry and has strong competitive advantages. The stock has recently declined over 30% due to operational challenges, but we believe that with activist involvement, the implied IRR can be improved from 23% to 33%.

USFD is positioned to benefit from its scale in the fragmented food distribution industry, which has high barriers to entry. The company has shown strong earnings growth and has the potential to narrow the valuation gap with Sysco. Despite market concerns regarding management credibility and the recent acquisition of SGA, we believe these factors are being overestimated and that the acquisition will ultimately be value accretive.

US Foods is positioned for significant gross margin expansion driven by independents and private label growth. The company has a clear path to reduce operational expenses and improve EBITDA margins, while activist involvement could further enhance shareholder value and close the valuation gap with Sysco. The projected EPS growth and potential for an increased P/E multiple suggest a strong investment opportunity.

Canadian Natural Resources is facing significant liabilities related to its tailing ponds, which could range from CA$2 billion to CA$9 billion or more. This presents a more negative skew in its valuation, making it less attractive compared to other opportunities.

Intertek is well-positioned to benefit from the rising concern for environmental sustainability, as it is developing a sustainability assurance service. The company has a strong market position in testing, inspection, and certification, which is attractive from a business model perspective.

Wolters Kluwer holds strong market share positions in tax and accounting, as well as in health, with a revenue growth rate that has improved recently. Despite trading at 23x earnings and having a moderate internal rate of return, its unique characteristics make it a stable investment as it is less affected by economic cycles.

The investment in Google is viewed as a long-term hold despite current headwinds in the advertising market. The company has strong fundamentals, including ownership of the Android platform and a robust search system, but faces risks from competition and potential antitrust actions.

Constellation Software remains a strong investment due to its excellent capital allocation and ability to turn around underperforming businesses. However, there are concerns about the legacy portfolio and the need for ongoing investment in cloud transitions.

Microsoft has a dominant position in the operating system market and has successfully transitioned to the cloud. The company's cloud services are deeply integrated into its software, making it difficult for customers to switch providers, which provides a long runway for growth and optionality.

ARMK is considered a compelling long investment with a projected 23% internal rate of return over three years and a favorable 4-to-1 upside/downside risk profile.

GrafTech makes ultra-high-performance electrodes used in electric arc furnaces for steel production. The odds of losing money are muted, and there is potential for significant upside, possibly doubling or tripling the investment in a relatively short time.

GrafTech is uniquely positioned in the ultra-high-performance electrode market due to its backward integration with needle coke production, which is critical for electrode manufacturing. The company has secured 70% of its production through locked-in contracts, ensuring predictable cash flows and margins. Given the constraints in supply and the potential for electrode prices to rise again, GrafTech presents a compelling investment opportunity.

IPSCO was an attractive investment due to its strong cash position and predictable cash flows, with $15 per share in cash and locked-in earnings for the next two years. The stock was trading at $45, effectively valuing the rest of the business at zero, which presented a significant margin of safety.

GrafTech is seen as a potential compounder that could be undervalued, making it an attractive investment for someone who is cautious about price. The investor believes that with the right conditions, it could yield significant returns.

MasterCard is considered a compounder, but the investor is uncertain about its current valuation multiple. Despite this, it remains a strong candidate for long-term investment due to its business model.

The investor believes that investing in the South Korean market, potentially through the KOSPI index, could yield good returns as the market cap is relatively low compared to major US companies. The investor sees significant upside potential in the region.

The investor has maintained their position in Fiat Chrysler, believing in the company's strong management and execution of its business plan post the passing of its former CEO, Sergio Marchionne. The investor trusts the current leadership and their ethical standards.

Kweichow Moutai is viewed as a high-margin company with a strong brand in the luxury liquor market. The investor highlights its significant market cap and pricing power, suggesting it is a solid investment despite not knowing the management.

Despite being downgraded and facing challenges from internet business models, Pitney Bowes generates significant free cash flow and is investing in new business lines. However, the investor exited the position after management consistently failed to meet expectations regarding profitability and margins.

The investor held onto Constellation Brands after it was upgraded to Investment Grade because it was maturing later in the year, indicating confidence in its credit quality and future performance.

HCA is a significant position in the investor's portfolio, with both secured and unsecured paper held. The investor believes that despite trading like Investment Grade, there is still value in holding HCA due to its strong credit quality and the expectation of future returns.

Tenet is a 4.25% position in the investor's portfolio, with a focus on secured hospital bonds, which are considered very safe unless fraud occurs. The investor appreciates the spread pick-up from holding the unsecured part of the capital structure despite the challenges in the healthcare sector.

I like Nielsen for its underlying cash flow generation, but there are questions about the sustainability of its business model. It has a clear pathway to paying down debt, which makes it a viable investment despite the risks associated with potential acquisitions.

Sprint is a company that many High Yield investors have a love-hate relationship with. My investment thesis is based on the value of the spectrum it owns, which is substantial enough to cover the bonds easily, despite the company not generating free cash flow.

Olin is a chemical company with a stable management team and a conservative capital structure. It generates significant free cash flow and has the potential to be upgraded to Investment Grade, which could lead to substantial bond price appreciation due to spread compression.

Penske Automotive is an auto retailer that generates stable free cash flow from its parts, service, and repair operations. Despite concerns about the long-term auto cycle, the company has shown resilience in past downturns, making it a solid investment even in challenging economic conditions.

Ingles Markets is a supermarket company that has successfully navigated increased competition over the years. Its strong performance and the ability to adapt to market changes make it a valuable addition to the portfolio, especially given its smaller bond size that allows for significant impact in a focused investment strategy.

Daily Journal is a misunderstood company with significant off-financial statements value, including deferred revenue and a hidden technology business that is not reflected in its financials. The company has a strong management team and operates in a resilient niche market, making it a compelling long-term investment.

The Daily Journal Corporation has significant hidden value in its technology business, which is expected to generate at least $150 million in recurring revenue over the next decade. With a current market cap of $300 million and substantial assets in real estate and cash, the market is undervaluing the company's potential. The SaaS business model offers high margins, and the company is positioned to achieve close to $40 million in EBITDA in the near future.

Talas Capital focuses on undervalued Turkish securities that trade for three times earnings, and despite market declines, the fund has remained flat. The long-term strategy aims to outperform both the Turkish market and the S&P 500, indicating a strong belief in the potential of these investments.

Peterson Capital Management has acquired about 3% of Mohnish Pabrai’s Dhandho Holdings through private transactions, viewing it as a way to gain indirect exposure to the Indian stock market.