And so, over the last two or three years, the stock price was $60 a couple years ago. Today, it’s in the mid-$20s. It got down to the low $20s last summer. And then, after the election, ran up to close to $40 a share, and it’s come back down to the mid to upper $20s since then. 

But what I like about this stock is that I think we’ve seen the bottom of the cycle for nitrogen fertilizer prices – urea and ammonia, nitrates and those types of things. Prices could be improving. For them going forward, there’s been a lot of supply that’s come off the market. China has basically shuttered about 9 million tonnes of production a year last year. It looks like 6 to 7 million tonnes will come off the market this year. And North America depends on imports of these products. We don’t produce enough for North America to meet demand. So being the largest producer in North America has its advantages. 

One of those is the access to cheap natural gas. So natural gas is their main product that they use to refine and create nitrogen fertilizers. They have a low cost advantage there, and they also have the advantage of being right here in the market and not having the transportation costs from shipping from China. 

So, I think they’re at the point now where they’re going to start to see the cycle turn up again. Management thinks it’s going to happen next year. We’ll start seeing pricing improve again, and those supply demand dynamics come back into alignment. 

For me, I look at the fundamentals from price to book value, it’s cheaper than its average over the last 5 to 10 years. Price to sales is also kind of similar to the lower half of its valuation range. I think in terms of valuation, it’s probably worth about $35 a share. 

But if today, it’s about $27, I think. It closed today. So there’s some upside there, but if urea prices start to improve, this has a lot of optionality where it could, I think head back to $50 to $60 if the pricing really starts to improve. 

The final thing that I look at is technicals. I do a lot of technical analysis with these things. And to me, it looks like it’s bottoming on the charts. On the weekly chart, it looks like it’s in the process of forming a head and shoulders bottom pattern, which looks not really bullish to me. When all those stars align, I get excited, and CF Industries looks like that type of situation to me.

Tobias Carlisle  5:39  

Jesse, can I ask a question? Just the technical, the head and shoulders. Why is that bullish? What’s the significance of that particular pattern?

Jesse Felder  5:47  

Well, it’s one of the most effective patterns I’ve seen. I started looking into technical analysis a little over 10 to 12 years ago. And one of the biggest problems we have as value investors is trying to avoid catching falling knives. We’re either buying things that are cheaper for a very good reason. And I think the technicals really helped with that when there’s strong downside momentum. 

I typically stay away because momentum has a habit of keeping price going in that direction. And so, a head and shoulders pattern, is just a clear sign that momentum is shifting in the price pattern. In the head and shoulders bottom, you see a couple of lows in the momentum really shifting in the other direction right now. 

And so for momentum, I look at RSI [relative strength index], and MACD [moving average convergence/divergence]. And I also use demark indicators which show trend exhaustion on multiple timeframes. And so when all those things kind of show me the momentum is potentially shifting the other direction, that helps confirm my fundamental thesis. 

Preston Pysh  6:43  

So Jesse, I was reading a book by Jim Rogers recently on it. It’s a commodities book that he wrote probably like 10 or 15 years ago. And the big driver that he talks about when you’re trying to understand the shifts and the changes in commodity prices is just simple supply and demand. If you can kind of wrap your head around what the big picture is for supply and demand. You can maybe see the direction that these are going.

So, whenever we’re talking about a company that’s highly dependent on nitrogen prices and things like that. Are you looking at that, or are you looking at the supply and demand of where nitrogens kind of heading? And are you seeing that kind of trending in a different direction for your expectation moving forward?

Jesse Felder  7:20  

Yeah, absolutely right. The demand is pretty steady. And it’s like I said, it grows about 2% per year, just farmers need this stuff. They have to put it down every year. And so demand doesn’t change from year to year, but it’s the supply. So prices get good and people put on a lot of new capacity, and that brings prices down. Too much supply brings prices down. So now prices have been horrible the last couple of years, and really kind of looked like they bottomed out last summer. 

A lot of capacity is just coming offline now because it’s uneconomical to produce the stuff. I think these things that are really cyclical like this are interesting to me because sentiment really runs with the cycle. There’s another thing from a macro perspective why I like this trade. One thing that I’ve tweeted about a bunch is that real assets have never been cheaper in relation to financial assets in at least the last 50 or maybe 100 years. 

And so, I think over the next 10 years or so, real assets are going to benefit at the expense of financial assets. And so, when I find ideas that kind of play into that, farmland and commodity prices and these types of things, which is CF is all about that, it makes sense from a macro perspective to my view. 

Preston Pysh  8:39  

You know it’s funny because we had a conversation with Jim Rogers, probably two or three weeks ago, Stig, something like that. And he said the exact same thing as you, Jesse. Exact same thing as far as being very bullish in the farming and commodity-type ideas. 

Stig Brodersen  8:57  

I guess I’m a little concerned about the supply that’s being taken out of the market. I mean, obviously, it’s good if you take out a supply at the market. But the reason why I say that is that I don’t know the impact, and I don’t know if it’s enough. And I don’t know, especially China, what their long-term strategy is for this. 

And the reason why I’m saying this is if I look back at history, for instance, what happened with steel. You could bring up the same argument saying, it’s not profitable producing so much steel anymore. The Chinese didn’t even need it anymore. They have to slow down. So why do they keep producing so much, even flooding the North American market? Well, there’s a lot of employment there. So, I’m sure you see where I’m going with this. 

The numbers might say that you shouldn’t do it. The numbers say we’ll enter another cycle. Yes, I definitely think we will, if you read up on the market. I don’t know when it will happen. And I think it’s also, whenever you read about the sector, like CFO saying that, yes, we are positioned for the recovery, and when it will come, we will bounce back and we will hit that hard. 

And it kind of also reminds me of some of the companies I’m reading about now in the oil industry. They’re saying the exact same thing, especially in the offshore industry. When it goes up to $70, then this happened. When the oil price goes up to $90, this happens. Assume that it will at a shorter period of time. So, I guess that’s my concern. And I’m curious Jesse, about your thoughts on the relatively negative look, in terms of taking up the supply.

Jesse Felder  10:18  

That’s absolutely a great point, and it’s really tough when you’re dealing with commodity-based industries. I think Buffett has said, “commodity-type business, you’re only as smart as your dumbest competitor”, right? I’m not calling the Chinese dumb because they’re trying to manage their economy and they might just be trying to produce jobs. It doesn’t even matter if they’re selling a product at a loss. 

What I feel like with CF is that because they have a low cost advantage, that even if prices just stay where they are, the stock is still cheap. I feel like I have a margin of safety at today’s prices where the stocks probably were $35 if I can pay $27 today, and then have some optionality if your prices do recover. I feel like my downside is pretty protected. So, that’s kind of where I’m coming from with that. 

And I also think, the way that these facilities work, is once they’re kind of idled for six months or nine months, it costs a fortune to bring them back online, if they can even be brought back online. So, CF produces 19 million tonnes a year. So when that 9 million tonnes or actually 15 or 20 million tonnes or if a new capacity came on in recent years, that’s like, you just created a whole second largest producer in North America to compete with you. 

But now that 9 million tonnes has come back offline again. Another 6, 7 million tonnes are coming offline [and] are already idled. It’s very unlikely that’s going to come back online anytime in the near future. So I think that’s bullish for urea pricing for the foreseeable future.

Preston Pysh  11:46  

So Jesse, I have to admit whenever I was pulling up my notes and kind of studying each of the companies before we started the conversation tonight. This pick for me was one that was really eye opening because it was so much different than Toby and Stig’s pick and also my pick. 

So whenever I was looking at this, the first thing that I really noticed that stood out like a sore thumb was just the idea of the top line revenue. So, when you’re looking at the top line, you go to 2011, and it was $6 billion. And 2012, it was $6.1 billion. And after 2012, you see this thing just getting punished on the top line.

Jesse Felder  12:24  

And production has actually grown over that time. So that tells you what pricing has done. It just got in the toilet. 

Preston Pysh  12:29  

Wow. So that’s an interesting point because I didn’t know that part of it.

Jesse Felder  12:32  

Yeah, and there’s another factor. The company’s really shareholder-friendly. And the metric that they look at, which I like that they look at this is total production per thousand shares. So they’ve been trying to increase the production, the company’s production per share. And through a lot of stock buybacks, they bought Terra Nitrogen a few years ago. And they paid, I think $3 billion and then bought back $3 billion worth of stock. 

So essentially, that company bond paid for. But, the increase in the production from I think it was in 2010, they had 10 million tonnes of production per thousand chairs or something. And now it’s up to 35 million tonnes. So, the stock price is exactly where it was six or seven years ago. And the production per share is now three and a half times what it was back then. Once urea prices do improve, there’s just huge leverage to the share price.

Preston Pysh  13:27  

I agree with you there. That’s pretty interesting. So now my question. I guess for me, trying to time this and I know timing is insanely hard, if not impossible. But, if we’re trying to time this appropriately, for me, and whenever I’d see the top line stop that descent and plateau, and maybe even start to have better numbers than the previous year’s quarter.

For me, that would be a really interesting time to maybe start taking a position in this. So, I guess my question because I’m looking at annual numbers here. I saw in 2016, the number. I talked about the 2012 number which was $6.1 billion. And now last year, whenever they closed out at the end of 2016, it was $3.6 billion. So, almost half of the top line that they had from just 1, 2, 3, to 4 years before. 

So, my question for you is this, I don’t know if you know this off the top of your head, but, when they closed out the first quarter of 2017, did you see their first quarter top line revenues being higher than they were the previous year for the first quarter of 2016? Did they actually perform better in that first quarter on their top line?

Jesse Felder  14:33  

Well, that’s a great question. I think, year over year, it’s looking like it’s about flattened out with the revenue growth. But my feeling is this, and this is why I use the technicals and why I use the insider buying to try and confirm my fundamental thesis is that, by the time the fundamentals start reflecting a turnaround in the business, stock price is going to be doubled. 

And so, I want to try and find something where I think my downside is limited. Usually, I try and look for a margin of safety. I want to buy some $0.50 for $0.50. And when the stock was about $20 a share, I thought that was pretty darn close. $21 last summer, that’s pretty darn close to having a pretty hefty margin of safety that if things don’t ever turn around and urea prices go to $0. You liquidate this company and probably still breakeven. That’s for downside protection. But honestly, once they start showing revenue growth year over year, it’ll be fairly valued at least $35 a share probably.

Preston Pysh  15:32  

Yeah, well, I think that’s a good point that you’re saying that the revenues are starting to plateau out. I think that when you’re talking about a commodity-like business like this, that’s a great time to really assess whether this is the entry point or not. Now, were you seeing a lot of insider buying there in the first quarter or was that just in the middle of 2016 that you saw that?

Jesse Felder  15:51  

It was summer last year when they were really buying. This spring, I did see a lot of insiders exercise options and not sell any. And so, they have to pay tax when they exercise that stuff. So usually you see some selling to help pay for their taxes. To see options exercised and not sold is also fairly bullish, not nearly as bullish as these guys. 

The CEO last summer bought about $2 million worth of stock, which is not a huge amount, but when I see several executives buying stock, that’s the one thing that kind of gets me really interested. I mean, nobody knows the business better than those guys and CFO, especially. So when I see them buying, that’s putting their money where their mouths are, and that’s how I look at it. 

Preston Pysh  15:51  

The only other thing that I would say is when you pull up the cash flow statement on this company, the operational income has just been horrific lately. And so, to see insiders buying whenever you have such poor numbers, especially in the operational side, the free cash flow is just been negative for the last three years. So, to see insiders buying with those kind of fundamentals taking place is very interesting.

Jesse Felder  16:57  

The reason the free cash flow has been negative, I mean cash flow’s been still positive. But the free cash flow, I think you’re subtracting out what CapEx to look for free cash is they’ve been really investing in expanding capacity during this downturn. 

So, I think they expanded production 25% last year, even while prices were going down. So, for them to be able to maintain a healthy balance sheet and expand their production capacity through this downturn has been really impressive, actually.

Preston Pysh  17:26  

Now you make a good point because I’m looking at the numbers right here. So, 2014, 2015 and 2016, their operational income was $1.4 billion, $1.2 billion and $600 million in 2016. But their investments in their CaepEx was $1.8 billion, $2.4 billion, and then last year was $2.2 billion. So they’re making huge capital investments here.

Jesse Felder  17:49  

Yeah. And I think their sustaining CapEx is right around, $500 to $600 million to just maintain what they’re doing. So essentially, the last couple of quarters at least it’s just pretty much free cash flow neutral. Cash flow has been about $600 million, and they would have spent all of that on sustaining CapEx.

Preston Pysh  18:10  

Yeah, that’s what I’m seeing as well, Jesse.

Jesse Felder  18:11  

Yeah.

Stig Brodersen  18:13  

You look at the net property, plant and equipment, you can see that you go from around $4 billion in 2013. And for the last fiscal year, $9.6 billion. That’s massive. And when I look at how it’s financed amounted by debt, they’re taking on around $5 billion. So in total, we have around $6 billion, and right now they pay around $242 million in interest. 

It’s not because they’re paying so much interest, but they’re paying $800 million back in 2018. And whenever I see like at the cash flows, even though the sustainable cash flows might be lower. I’m concerned also about the share buyback, how much they can sustain that, and also the dividend. They still have a hardy of more than 4% dividend yield. So when I look at this, and clearly I don’t have the same insights about this company, as you have Jesse. For me it seems like they’re really depending on a recovery in the price, but then perhaps just a few years, whenever I look at how much they can back up their investments. Would you agree with that?

Jesse Felder  19:14  

I think, yes. If they want to pay the dividend going forward and all that stuff, yes. They’re going to need probably a recovery or, to scale back those CapEx. And this year, they actually have decided to scale back the CapEx. I think CapEx this year is going to be things at $550 million. 

So, I think they’ve done all the expansion that they want to do. And a lot of that, expansion too, is not just an expanding capacity, but it was also into expanding their ability to adjust to market conditions. They can change any of their facilities from urea to ammonia in half a day, depending on which has the best margins. In which we depend on demand, they can switch their production. 

They’ve also invested in a lot of warehousing and transportation so that if prices in North America are poor, they can ship to South America. They can ship to Europe. They can ship wherever pricing is best. They’ve shown in the last few quarters that they’ve been really adept at basically maximizing profit potential based on where prices are the best. 

So, yeah, you’re right. They do probably need a rebound in urea to maintain the dividend. But they’ve already scaled back the CapEx this year.

Preston Pysh  20:30  

Yeah, that’s going to give them a lot more cash. 

Stig Brodersen  20:34  

Whenever I’m looking at the stock right now, I’m also thinking, yes, it makes a lot of sense that they will scale up now because they can actually bring capacity when everyone’s trying to get out. But I’m also thinking, “Will their very shareholder-friendly policy that they have, and especially since 2011, whenever they’re trying to buy back shares, [is that] how you should be doing that?” 

So I’m just curious, which path it would take because I definitely know what the market will *inaudible* is clear that would be the cut in dividend. But I definitely see much more room for buy back in stock if anything. And I guess like reading through the earnings transcript, I don’t think it’s a priority right now compared to the other avenues, and I think that’s more like a management concern, I guess. 

But I’m really sorry, Jesse if this comes up really negative. I mean, I’m typically also very negative when it’s very exciting because I really want to be sure that if this is a stock pick. So that’s why I’m like pitching all this at you. So, please forgive me for being a bit skeptic about a few things here.

Jesse Felder  21:29  

Nothing to forgive, I appreciate it. It’s absolutely stuff to be concerned with. There’s nothing that I hate more than seeing management buy stock at $60 a share, and then stock goes to $20, and they’re not buying anymore. What the heck are you guys doing?

Preston Pysh  21:45  

All right. So who wants to go next? You guys have anything else? Toby, you got another one for Jesse?

Tobias Carlisle  21:53  

No, I have owned CF Industries in the past. I think I pitched it on like a Jeff Macke, Yahoo! Finance show in August 2014. And we liked the buyback and the dividend, in addition to it being otherwise cheap. It’s one of those funny stocks that it looked a lot cheaper. The way that I do these analyses in 2014, when I think I was trading it in a high 40s. And we saw that like high 50s or 60s about 12 months later. It was looking a little bit more expensive. 

It’s one of those stocks that when I look at it now, it’s sort of on a fundamental basis. It’s more work that needs to be done. I would need to do more work on the business to sort of get comfortable with it. That’s just not enough screen. So, it’s not something we know well. But it’s funny that when it was higher, it looked cheaper, and at lower, it looked more expensive, which doesn’t make sense. It must be cheaper now than it was.

Jesse Felder  22:45  

That’s the way that cyclicals work, right. I mean, they look cheap at the top and they look really expensive at the bottom.

Preston Pysh  22:52  

Okay, well. Let’s go ahead and hit up the next one. The reason I really liked that last conversation is because it was a great conversation about a commodity-type business. Some of the other ones don’t necessarily fit that mold. So we’re going to go into a different sector here. People can kind of hear how we pick through maybe some different companies here. So Stig or Toby, either one of you guys want to go next.

Tobias Carlisle  23:13  

So I think the pitch that we had about this time last year was Humana, which was our biggest position. I was trading like high 160s then, and the reason that we pitched it is because it had a takeover from Aetna. Eventually the takeover was busted. But the stock is still traded up basically to the takeover bid. So we’ve trimmed that right back. 

Our second largest position last year, which has now become our largest position is a short guarantee. And the ticker for our short guarantee is AGOE [Assured Guaranty Municipal Corp]. It’s a reasonably complicated stock to sort of get your head around, and there’s a lot of reasons why it trades cheaply. Basically, it’s a muni bond reinsurance, that means that when a local government wants to issue debt, they need to get insurance wrapped around it. And so that’s what this guys do *inaudible*. 

You can imagine the problem that creates anytime a government like Puerto Rico, or Stockton, California, or Illinois somewhere in LA. Anytime something happens, AGO is going to be in the news. And it gets a hit whenever it happens. But the few we like about it, very simply, it’s trading at. So, they published this figure in the financial statements, they call it adjusted book value. And we think it’s a pretty good proxy for value. And it’s sort of $70 plus, loss $70 *inaudible*. The stock can be bought today for about $38. 

It’s run a lot since we started buying it last year. But the underlying value has improved sort of commensurately and maybe even more than the stock is up, because they’re such an aggressive purchaser of their own shares. So I bought 34% of outstanding shares back since 2009. And they’ve got cash there to buy back more stock. 

The current reason why it’s cheap, it’s Puerto Rico, which is defaulting on its debt and I’ve wrapped some of that debt. They’ve aggressively provisioned it. And they’ve been through these processes before, and they’re very good at this sort of stuff they get to the table and they negotiate. It’s a reality for these governments that they can’t negotiate too hard with AGO because they’re going to need AGO when they go to issue more debt subsequently, which they’re going to need once they get through this process. 

If it wraps debt with its guarantee, and the debt trades down, it’ll buy back the debt strip off the guarantee and resell the debt back into the market. Pays a little dividend. Business looks a little bit like it’s in legacy rundown just because there’s not as much business to be done, but they’ve been using that. That frees up capital all the time, which is part of the reason they’ve been able to buy back stock. 

It’s also allowed them to buy lots of competitors. Anytime they do it, it’s accretive to earnings per share, adjusted book value, all those sort of things. So we think that is sort of the biggest and the strongest thing to keep on buying competitors buying back stock. And they’re going to either not lose money in Puerto Rico, or they’re going to be able to release some of the provisioning that they’ve got there. So we think it’s halfish price.

Preston Pysh  26:09  

Toby, whenever I’m looking through some of my notes that I took on this one, the first thing that I would say is [the] 2007 to 2008 timeframe, they had a really rough time going through that. I would suspect that if we would experience another systematic kind of event that they would have experienced hard times like any other company. They didn’t weather that very well. 

But whenever I was doing my assessment on it and trying to determine what I think the value was, I used the free cash flow rate of around $233 million, which was an average of the free cash flow that this company produced over the last 10 years. 

What I did is I didn’t take any growth into the future. I basically said that that free cash flow is what’s going to basically persist over the next 10 years and let’s figure out what rate that’ll give me if you do an IRR [internal rate of return] on the company. 

So whenever I looked at the current price at $38, I came up with around 6% return, 5.5% to 6% at the current price. Would you agree with that assessment? Are you looking at it as a similar annual return at the current price?

Tobias Carlisle  27:11  

That’s not how I would value it. I think for insurers, the better way to value the insurers is on a book-value basis. You just want to buy them at a big discount to book value. And so these guys are at a big discount to adjusted book value. And when they’re at big discount, and they’re taking advantage of it by buying back stock, that means that you’ve got past the sort of realizing or catalyzing that valuation. 

Preston Pysh  27:32  

Explain to our audience a little bit of your thinking on the price to book; why you’re saying that when you’re dealing with an insurance company that you do the price to book, so people understand this. 

Tobias Carlisle  27:42  

Just because the accounting and insurance is a little bit odd, sometimes when they’re writing business that can depress their earnings. It’s slightly complicated further because the business is slightly in runoff, which happens to insurers every now and again. They go through periods of expansion and contraction. When they contract, they’re freeing up capital with what they had previously allocated to business that they had written. It was to support the business that they’d written. 

So, cashflow is not a great indicator of what the company does even on an average basis. And it does vary from insurance company to insurance company. But typically, book value is, you want to adjust book value to roughly the value that you think it’s worth. And these guys do it in that it’s not a gap, of course, but they sort of do this calculation, which is a pretty good guide.

Preston Pysh  28:25  

And I just want to throw it out to the audience. So the industry average for this type of business is to pay 1.4 price to book. So the industry average today is about 1.4. Toby’s pick, the ticker again is AGO is at a .7, so it’s literally half of what the rest of the industry is pricing these companies at, and I would assume, like he said, it’s mostly due to the Puerto Rico exposure that they have in their portfolio that it’s being priced down to .7. But it’s half of what the rest of the industry is being priced at.

Tobias Carlisle  28:58  

This headline’s risking this business. It’s always gonna stumble from bad headline to bad headline and then in between that you’ll get a quarterly that’ll be a good result. Book value will be up substantially though. Bought back a lot of stock, and it’ll get that little goose along and then it’ll stumble into the next headline. So the time to buy this thing is, anytime you see it in the news associated with Puerto Rico or something like that, that’s when you go and buy it. 

Preston Pysh  29:22  

What price did you get into it, Toby? 

Tobias Carlisle  29:24  

We’ve bought it a few times. I’m not entirely sure, but it was up, like, not 100%. But in that kind of vicinity. It’s up 70% or 80% for something like that. 

Preston Pysh  29:32  

Fantastic. 

Tobias Carlisle  29:33  

Still cheap. They’re still really cheap. Some biggest position because it’s so cheap.

Stig Brodersen  29:38  

Toby, whenever I read through the financial statements of AGO, I was pretty excited. And I was excited for a few reasons. First of all, I was excited because it had something to do with Puerto Rico. The loss that they have provisioned here is approximately $250 million. It sounds like a lot of money, and if you read that in the heading, you would be like, “Oh, my god! What’s going on with this company? They lost $250 million.” 

It’s actually not that much money. If you think about the hit that it has been taking because of it. You’re looking at a company here with a net income, around $1 billion. Clearly, it’s not good, but there’s no reason to necessarily trade down to low 20s as it has been within the last 52 weeks. 

Another thing that I really liked about this company is that they expect to ramp up the repurchase of common stock, which they’ve kind of been halting in 2016. So, in the latest earnings call they said that they will go back to the 2013 to 2014 timeframe, where they bought back for $500 million plus. That’s a lot of stock for a company with a market cap of $4.7 billion. And they really liked the timing of that. So I just want to say 10% buyback yield that sounds like something my buddy Toby really likes because he’s really into cannibals, I’ve heard.

Tobias Carlisle  30:54  

Mohnish is the quantitative cannibal bub. We like buybacks, but we like materially, big, meaningful buybacks when the stock is very cheap. We think that’s a really good indicator because it tells you three things. 

It tells you that one, management cares enough to sort of do it at the right time. It tells you that they’ve got the genuine free cash flow there like that’s assuming that they’re not using debt to do it, if provided that they’re sort of doing it out of free cash flow and cash that goes sitting on the balance sheet. That’s a great thing to see because it’s proof free cash flow. 

And then, that it’s sort of concentrating. They’re telling you that they think the stock is cheap, too. And so at $38, their average buyback price last quarter was $39.50. So you’re buying it at a discount to where the company was buying itself last quarter. 

Jesse Felder  31:40  

Speaking of headline risk, there’s been a couple of pension funds in the United States that look like they’re insolvent or going to be insolvent and probably more than a couple over the next 10 years, in terms of their assumed rates of return versus what they probably are going to earn over the next 10 years. How does that factor into your analysis of this company? You’re insuring municipalities, and they have pension funds that are likely going to go bust over the next 10 years, at least in my view, how does that potentially going to  affect this insurer?

Tobias Carlisle  32:13  

They’re very careful about the nature of the bonds that they insure. They can find a specific revenue stream that’s backed by and then it’s not part of the, I can’t think of the exact words, it’s secured against that individual revenue stream rather than relying on being mixed in with all the other liabilities. General revenue, general obligation, revenue, whatever they are.

Jesse Felder  32:34  

Yeah because that pension issue could be a problem going forward. And if you’re insuring that general obligation or general revenue bonds. But if they’re secured by something specific. And there was another point that I was going to make too. 

For me, financials are always such a black box in terms of trying to read their financial statements. You really have to have a lot of confidence in management. And that they’re, one, honest. And that, two, they know how to run their operation. So I mean, what are your thoughts on management?

Tobias Carlisle  33:05  

Unusually for us, we tend to be in things that we don’t think have particularly great management. We thought Humana had very good management that was doing material buyback at the right time. We do think management here is super smart. It’s a little bit like a listed hedge fund the way that they trade. You know, buy back the debt, take off the wrapper, resell the debt, buy back their own stock. 

So we do think that the business is good, and management is good, and management is doing something about the fact that there’s a big discount to valuation. So, unusually for us, that is a good management. 

Just one final word, the reason that it’s a free cash flow and the buybacks partially, that’s a regulatory issue that they have to get permission in order to do those certain buybacks. So that’s why, you might see them go quiet in a particular year and then they won’t be able to release some capital this year, and then it will be a meaningful buyback this year.

Preston Pysh  33:54  

Alright, Stig. It’s either yours or mine.

Stig Brodersen  33:57  

Okay, I’ll go next, Preston. So my stock pick is Bed, Bath & Beyond. The stock ticker is BBBY. I think most people probably in the States, they’re familiar with Bed, Bath & Beyond, but they sell bath towels, kitchen electronics, cookware, everything that has to do with your home. 

They have 1,500 stores that also include the subsidiaries. That would be like Christmas Tree Shops, Cost Plus World Market, Buy Buy Baby, and a few others. But that split would be around 1,000 just little more than thousand and the rest would be the subsidiaries. Bed, Bath & Beyond are the biggest stores. Typically, they would be around 45,000 square feet, which is very, very large homeware. 

The reason why this really popped up on my radar, again, I used to own this stock years ago, was that it seemed to be priced really fair *inaudible*. So price earnings less than 8, price to cash flow 5, enterprise value to EBITA of 5.5. 

I mean, to me it looked interesting and I’ve decided to look closer into it. So the story is basically that I used to own this stock. I think I bought it in January 2014. I bought it not at a really good price. I think I bought it in the mid $60s or around $60, and I sold it 18 months later. 

Now, so the reason why I pitch this is that it was actually around $80 whenever it peaked, and now it’s around $35. Honestly, I don’t see the business changing so much. So that’s really what’s interesting for me. 

If you look at the EPS [earnings per share], if we should do that to begin with. It’s been very stable between $4.5 and $5. But, this is fueled by share buyback. I like cannibals too. And they are buying back a lot of shares. So, it’s been fueled by that. The margins are not as good as they have been. If you go back just a few years, call it four or five years you would see an operating margin of 15%. 

Now, we’re just short of 10%. Obviously it sounds really, really bad that your margins erode. The reason for this is that they are starting to sell products in a different way. They’re scaling up the online store where they have lower margins. They also fueled a lot of revenue growth with coupons, which will give people a 20% discount. They are also starting to do free shipping for $29, before it was $49. So they’re really giving up a lot of the margins to compete in this market. 

It’s hard really to say bath Bed, Bath & Beyond. And I’m just going to play devil’s advocate for myself here before you guys have a chance to *inaudible* us apart. It’s really hard to say anything in retail without talking about Amazon. And Amazon is definitely a force to be reckoned with. If we stay here to just talk about what Bed, Bath & Beyond had been doing in that part is that online store for them is growing by 20% per year. It’s around 10% of the total revenue right now. 

What that also meant is that the SGA, so the sales general and administration overhead would go from 25% to 28% of the revenue. And a lot of that can be attributed to the new I.T. sensor that they built a few years ago in North Carolina. That’s really the driver behind this. So I would perhaps expect a slight pullback, but I don’t think necessarily that you will see a significant pullback in the overhead cost of that. I’m curious to hear your thoughts about this stock.

Jesse Felder  37:32  

I mean, this is the cheapest it has ever been when I look at the valuation measures. It’s never been this cheap. That was also because it was growing rapidly and had good profit margins. One of the things that I’m always afraid of as a value investor is buying something that’s cheap for a very good reason. And that for me, when I look at this thing, that’s the red flag that goes up. This is probably cheap for a very good reason. Why does it not deserve to be cheap? Why should it trade at a higher valuation?

Stig Brodersen  37:59  

Wow, I really like that question. For me as a value investor, it really comes back as value breeding and driving itself. [It’s] like I can’t find the catalysts. That will actually also be a question I would like to send to the group. I can’t see a catalyst right now that would just bump it up to $70. I see that whenever I look at the cash flows, whenever I look at the earnings of this company, really strong balance sheet, and capable management. I’m thinking this is undervalued. 

I’m looking at perhaps a double digit return on this. You’re saying, Jesse, that it can be a value trap. Have we only seen the tip of the iceberg? Okay, the operating margins used to be 15%. Now it is 9.3%. Is it 5% in three years? Is that what we’re looking at? So I completely understand your concern.

Preston Pysh  38:43  

Just so you know, Jesse, whenever I do my stock pick, you can ask the exact same question. It’s kind of the exact same scenario. But anyway, so Stig, what I did with this one, and I think Jesse brings up a fantastic point is I can’t find what the problem is. 

The only thing I could suggest that why it’s trading so low is because of this Amazon effect that’s happening for all retailers. So you’re seeing the JC Penney’s of the world, the Macy’s of the world all just getting crushed. And I mean, absolutely murdered right now at the beginning of 2017, and at the end of second quarter 2017. And so is this pick kind of going with that momentum with that group or that basket of stocks? I don’t know. But that’s the only thing that I can kind of see by the numbers. I guess for me, I’m always wanting to see the top line of the income statement because it’s such a raw number. 

If that number is still growing, and that number is holding strong. For me, that’s a really good sign that the company’s still doing great business. And whenever I look at Bed, Bath & Beyond, their top line’s still growing. I looked at the first quarter of 2017 compared to the first quarter of the year previous, and it’s higher. 

The top line has gone up. So that to me is surprising. You would think that maybe it’s being punished so badly because maybe the top line is contracting with some of these others maybe not as strongly, but at least they’d be contracting a little bit. And it’s not. So I find that really interesting. 

Now, whenever I think about myself personally, and how I shop, I don’t shop at Bed, Bath & Beyond. I shop at Amazon. I can’t think of one thing that I would buy at Bed, Bath & Beyond. Maybe it’s because I don’t shop there that I couldn’t get at Amazon or some other store. 

I guess I don’t understand the competitive advantage of Bed, Bath & Beyond as a retailer compared to anybody else. What makes them unique? And I can’t tell you what it is. So that’s concerning. But when you look at the financials, and you look at the numbers, they’re everything but concerning. They look phenomenal. They’re absolutely incredible. In fact, let me just tell you my valuation that I came up with. 

So, when I looked at the free cash flow in the company, that free cash flow has been holding its own. I took the lowest number in the last five or six years, which was $668 million in free cash flow. I grew that at 0% over the next 10 years. I just said the free cash flow is going to be fixed. 

And I took, like I said, the lowest number that they’ve had in the last five or six years, and I came up with a 13% annual return based off of the current price, which the current price is $35. So, I mean, that’s insane. That’s huge when the rest of the S&P 500 is priced at 3.5% or 3%, or whatever you want to use. I mean, that’s 10% higher.

Jesse Felder  41:39  

Let me just jump in here real quick, Preston. I mentioned the Buffett quote. In a commodity business, you’re only as smart as your dumbest competitor. Bed, Bath & Beyond, their main competitor is Amazon. What does Amazon sell these products for? What profit margin? 0 or negative?

Preston Pysh  41:57  

Not much.

Jesse Felder  41:57  

Yeah. So if your biggest competitor’s selling your products at 0 or negative, you have a problem. Bed, Bath & Beyond, their earnings in the first quarter were down 3% from the year earlier. And the quarter before that, they were down. The year ago quarter was down 7% from the year earlier.

Preston Pysh  42:15  

On the bottom line, you’re talking the bottom right?

Jesse Felder  42:17  

I’m talking bottom line. That compares to free cash flow to me. So I think when you’re making the assumption of 0% free cash flow growth, that might be aggressive. We might have to assume a -5% rate for cash flow growth or earnings growth for a company when their biggest competitor is willing to sell products at a loss. So, what does Bed, Bath & Beyond sell that Amazon doesn’t? I don’t think there’s a single product. So I mean, the question is for me, what multiple do you put on a company whose earnings are falling 5% a year?

Stig Brodersen  42:48  

Yeah, so I have a comment to what Preston is saying. Not going to Bed, Bath & Beyond. It’s not completely true because I actually went to Bed, Bath & Beyond with Preston. I know this sounds like a weird story. So it goes something like this. We went to the Berkshire meeting in 2014. We were sitting six guys in a van. 

And then suddenly, what appears out of the blue was a Bed, Bath & Beyond. And it actually turned out that not only did I invest in that stock, also another guy in the van invested in that stock. So Preston’s dad, who was also in the van said, “Guys, let’s go on a field trip.” So, we went on a field trip into Bed, Bath & Beyond. The regular thing you would do with six guys on a Friday. We just toured the place. 

Now, for me, that was not like a super exciting experience. Like for me, it really didn’t say anything to me to go in there. But I kept thinking to myself, my wife would thoroughly enjoy being here. Now, my wife also shops at Amazon. But the reason why she likes to go to places like Bed, Bath & Beyond is that they have the racetrack layout. People would drive to walk around in a Bed, Bath & Beyond. 

To walk around and just shop is not as fun, especially for women because it’s not a question about being efficient necessarily in shopping. It’s an experience. And I think all the good things you can say about Amazon, and yes the retailer, the site, to you as the user. It’s not the same for women. I don’t know if I will get a lot of angry emails now for the few female listeners we do have, but that’s my experience.

Jesse Felder  44:22  

I will validate that, Stig. My wife and my daughter just went to go buy her new bedspread and stuff. They went to Bed, Bath & Beyond. They got new pillowcases and all that because they wanted to look at it in person. And my wife sends me there to go refill the SodaStream cartridge. So you can’t do that on Amazon. I got to take it in person. I shop there. My family shops there, so I hear you.

Tobias Carlisle  44:45  

Stig, I’ll be the only person who supports you in this. We do think it’s one of the cheaper stocks around. It is one of our favorite stocks. The reason that what’s a free cash flow and they’re buying back stock. Having said that, we can’t figure out what the catalyst is to drive it up. 

At the moment, we have a basket of these cheap retailers. We’ve got Office Depot, Bed Bath & Beyond, Best Buy, [and] Target. We’ve just got a tiny little holdings course. We don’t have any view. I get the feeling that long Amazon short all of these terrible little retails as the most crowded trade in the market at the moment. 

So, I just like being on the other side of those trades, but we don’t have any, to Jesse’s question, what makes this thing trade higher in the future? I don’t know. So that’s why it’s only going to be a small position for us.

Preston Pysh  45:34  

Jesse, I’d have to do the numbers. But I think even if you would take the free cash flow today, the lowest one that I said that I used, and you would row that at a -5% growth rate for the next 10 years. I think you’d still come up with a pretty high return. I think you’d probably be above a 7%. Just off the top of my head just kind of thinking through it.

Jesse Felder  45:56  

Well, it’s probably a classic. Well, I mean, it depends on how much online business they can garner. But to me, it feels like a cigar butt. Like classic Buffett. It’s got a few puffs left in it. You might see it trade up 20% to 30%. But longer term, the fundamentals for the business, it seems to me it really has no moat. And, from a Buffett perspective, that is a big check mark against it.

Preston Pysh  46:23  

No, I think everyone agrees with you on that, right? Everyone’s nodding their heads, right?

Stig Brodersen  46:26  

I think there’s a lot of good things to be said about creative destruction. I mean, yes, it does make a lot of sense to say, here comes Amazon and everyone else is hurt, because we see so many of these retailers just being punished. Like, you mentioned Target briefly. Even though Target has been out with a somewhat negative earnings guidance. 

I mean, you still get a lot of value if you invest in that company. It might not be insanely only undervalued, but I think it’s still a very, very good price right now. And I think Target can do a lot of things that Amazon can’t. So I just think that there’s this sentiment right now in the market that if it has do with retail, we need to sell it because we have Amazon. Yes, to a certain extent again, but I definitely see all reactions, and it’s been going on for years now. 

Jesse Felder  47:09  

I’ll just make one other point. As I have seen some insider buying in Target. But in the retail sector generally, I haven’t seen any insider buying. And for me, that’s what’s kept me away from energy over the last two months. 

As energy has been absolutely crushed, but insiders have no interest in stepping in front of that downtrend. And so, for me, that’s a huge thing that I look at. And, like I said, I’ve seen insider buying in Target but I really haven’t seen anywhere else in the retail sector.

Preston Pysh  47:38  

Well, on that note, let’s talk about my cigar butt. Alright, so I was originally going to be talking about Apple tonight, but then I decided to mix things up and make things interesting. So, I picked GameStop. This is the retailer that sells video games. 

At the end of the day, this thing deserves a lot of beating here because, I mean, it’s not sexy. If anything, they’re selling used video games. They’re not even newer a lot of the times, but from a numbers standpoint, this thing has some powerful numbers behind it on the financial statements. Just to give everyone a heads up. So, the ticker is GME. It’s GameStop. It’s trading at $23.78, whenever we’re recording this. 

So for me, whenever I go into this thing, and I look at the numbers, and I look at the top line again, and we’re looking at the revenue of the company, it’s been very flat. The last year, it’s at about $9.3 billion. So the numbers have been pretty flat right around $9 billion for the last 8 years. When you look at the free cash flow of the company, they’ve been pretty consistent. Anywhere from $300 billion. The best that you’ve seen in the last 10 years was $600 billion for the free cash flow, but really flat once again. 

Well, one note that I would like to say is in 2008 to 2009, you really didn’t see this company go through too much turmoil. Their top line was contracted only about a billion dollars off of the $9 billion that it’s been doing ever since. So, it does really well through a deep recession kind of period. And the free cash flow during that time period was really quite well. 

So what I did is I took the lowest free cash flow that I saw over the last 10 years, which was $320 million. And I did an IRR [internal rate of return] on this to figure out what I thought that the return would be based off of the current price. And I came up with 13% on this company using the lowest free cash flow that the company has seen in the last 10 years and it has very stable numbers across the board. So, I found this to be quite interesting. 

And although I think that there’s concern with the whole Amazon and all that kind of stuff. I think at the end of the day, a lot of people that frequent these stores want to go there and kind of maybe have some of the experience that Stig was talking about with the Bed, Bath & Beyond. 

But they go there, and they’re trading in their old games because I think whenever somebody is going through this, they’re wanting something right now. They’re not wanting to wait three days to get a new game, maybe they just finished playing some game that they were playing, they go to GameStop to basically sell it, get some money and have a little bit of money to basically invest in their next video game. And they buy it there on the spot, and they want that immediate interaction. They don’t want to have to wait for it. And I think that that’s why maybe this business model is sustainable. 

I think that game consoles in general are going to continue to be around. I don’t see gaming being moved on to like your MacBook. I don’t see that happening in the future. I see these, if anything, there’s probably even a growing demand as these games get more complex with the virtual reality and stuff to run that with a really high end processor with hardware that require some type of CD or DVD. I don’t play video games. So let me just disclose something here. I don’t play any video games. So I might be the worst person in the world to be talking about this. But from a numbers standpoint, this thing makes sense. So, go ahead and fire away and pick this thing apart for me.

Jesse Felder  51:10  

Well, I actually do play video games. My son and I’ve been playing video games together for like 12 years. He’s probably one of the more hardcore console gamers that you’ll find, and he insists that the real hardcore gamers are actually PC gamers that guys are really into it. But he plays console and GameStop is really focused on the console. 

I saw this was your pick, and I said, “Hey, Kurt! What do you think [of] GameStop? Should I buy some stock?” His two-word answer was, “No way.” He just thought, like the last few games he’s bought have been directly through the console through his Xbox One, and bought them directly through the Xbox store, so he doesn’t go there to buy games anymore. 

And I think that’s probably what’s going on with the stock price. Why the stock has been hurt because essentially right this is a video game pawnshop. They buy your used equipment. You use games at $5, and sell it for $25. And they have great margins in that business. 

But as this stuff is being digitized, and there aren’t physical games anymore, or they’re going in that direction, it’s hard for them to find a market for the business. So this is my son’s two cents. He said, “No way, Dad.”

Preston Pysh  52:21  

No, I think you bring up a fantastic point because I was thinking through that angle where they’re able to download the game straight into the consoles. But for whatever reason, you don’t see that happening very much today. You see these people that still just frequent these stores like crazy. But maybe what’s happening is in three to five years from now, you see a major movement towards that as the hardware is replaced and everything starts moving towards more of that. 

Now, where I was kind of thinking through maybe that wouldn’t be the cases because I would think that that would require an enormous amount of memory to download some of these virtual reality games because I really see a lot of it may be going in that direction, right?

Jesse Felder  53:01  

Yeah. And I did have to buy him a new hard drive. So he had room to download all these games. And I’ll tell you, this is a stock that’s been on my radar for four or five years because it’s been a cheap stock for a while. And so I’ve thought about it and looked at it and I just haven’t been able to pull the trigger because it’s incredibly cheap.

Tobias Carlisle  53:17  

I pulled the trigger in the past while smiling on it. Everybody knows the reason why it’s cheap. Sometimes that’s the sort of stocks that I like. Everybody knows why GME is cheap. This is a few years ago now, and I bought it then and I just become increasingly persuaded by the view of Jesse’s. I think that it’s sort of like a blockbuster Netflix at some stage. It just completely flips and there’s no need to go and buy the physical copy anymore because you can download them so quickly.

Stig Brodersen  53:49  

Yeah, I mean, I got to say, guys, I don’t agree with you at all. I know, I am so negative today, but it’s a good discussion. It’s a really good discussion. Honestly, I never heard about GameStop before Preston brought it up and told me how often he went there to play video games. 

But whenever I look at the breakdown of the revenue, 29% that comes from new video game software. At 26%, pre-owned and value game. I would assume that that is what Preston talked about before like you come with your own game, but also with older games. Just in general, it would be a value video game. 

And then, they have a really interesting segment called New Video Game Hardware. So what you for instance don’t see right now is that the new Nintendo Switch, they’re selling a lot and it’s not included in the latest earnings. 

So, a lot of this is seasonal. That’s another thing. They actually change their guidance policy. And now they’re doing like a yearly guidance instead of doing quality guidance, because it doesn’t make sense to look at it, go from this from quarter to quarter because, they mentioned themselves, Apple whenever they open the new iPhone what that means for them. They also talked about what’s happening with the new PlayStation 5 whenever that’s coming. So that’s the important segment. Another thing that’s very important for this company is that it used to be a physical shop. And that was also what you’re getting at before. 

Back in 2008, it was solely a physical store. Now the goal is, in 2019, it will be 50% of operating earnings [that] would be from non-physical game stores. And right now that number is 37%, that’s non physical. So they’re going in that direction. 

And one of the ways that they’re doing that is they have something called technology brands. And that’s something that they’re setting up together with Apple. So they’re actually selling a lot of Apple’s products. They’re selling more than a million iPhones now. And that’s something that’s just growing like a weed right now, that segment. 

And they also teamed up with AT&T. So the reason why you also see them make so many acquisitions, I think they spent more than $400 million in acquisitions, is that they have bought these small stores from AT&T where they are also licensed to sell their products. 

So, I think it’s a very interesting company. But again, it also really assumes that value is a driver in itself. A lot of good things going on good yield more than 6%. They’re buying back stock at a decent rate. I think for a margin of safety perspective, I like this pick. So, I’m curious to hear what you guys think. 

Preston Pysh  56:15  

If we were playing WrestleMania, Stig would have just jumped off the top rope on all of us. Stig, I really like some of your points there. And in fact, it sounds like you would have presented this idea more than me because you had some amazing points there. 

The thing that I would be curious where you were talking about the virtual store sales, and how, I forget the number that you said there is around one third of the revenues. Are you able to see how much of the margin is coming off of that? Is it just like top line revenue that doesn’t really produce any net income? Or are they actually making decent margins that are comparable to their in-store stuff?

Stig Brodersen  56:49  

Really insightful question, Preston. And if you look at the different categories, actually, where they have the highest margins, that’s in digital. That being said, digital is still a very, very small segment. They have 85.9% gross profit margin. 

By definition, since you will have very low variable cost since it’s digital. If you look at technology brands that we were just talking about before, that is 68.1% gross profit margin. And that is compared to the overall 35%. 

Really to answer your question here, Preston, yes, the newer non-physical gaming segment, the margins are actually a lot higher. And that’s actually what you see from fiscal year 15 to fiscal year 16, is that you can see the gross profit margin, which has been in the high 20s. In 2015, it was 31.2 that has actually gone up to 35%, which is the highest margin it has been for the past 10 years because they’re going into higher margin products. 

Another thing I would just like to add here in the end is that with all the new Apple products that they’re selling, one thing that I really like, and this is probably because it’s a more branded product, is that people really like to go out and look at Apple products. Speaking about what we also talked about with Bed, Bath & Beyond, there are some types of goods, you would actually like to go and see for yourself. It’s part of an experience. So, that’s why I’m also so excited about them teaming up with Apple.

Jesse Felder  58:18  

I would just add one thing to that. And I think, Stig, you brought up a good point, which is, in this industry, there’s a console cycle. And so, when a new console comes out, the game creators have a huge burst in their business. And so we saw that, actually when the Xbox 360 came out. And then in the early 2000s, you see the software companies do really well, Activision and EA. But then GameStop, later in the cycle, did really, really well, because that’s when all those popular games started being resold in the store. And so, I think GameStop was traditionally late cycle and the software companies were traditionally early cycle. 

This time we’ve seen the new console just came out the Xbox One and PS4 [PlayStation 4]. And they all did well together. The software companies have been doing really well. And GameStop, later in the cycle this time has actually been doing very poorly. 

So this cycle, I’m seeing something different than previous cycles, and that to me is a big red flag. Where right now, the resale business for all of these popular games should be really doing well. And this is when GameStop should be doing really well and they’re really not. So to me, that’s a big flag from a cycle standpoint. 

I will applaud you guys for picking retailers. I think if there’s any segment in the market right now that’s even halfway contrarian, its retail. And it takes a lot of guts to pick these types of names right in here, which is usually, if it takes guts to do it. I mean, some of my best investments of all time, the ones where I am literally telling myself, Jesse, you’re crazy for buying this right now.

Stig Brodersen  59:58  

I think it’s really interesting that the four of us, we all picked very, very unpopular stocks. I mean, it’s not like Toby said Tesla, and I said Google. We’re talking about something that’s extremely unpopular.

Preston Pysh  1:00:12  

Guys, this was awesome. This was such a pleasure to kind of shoot some holes through various ideas. I think the thing for me that was really interesting is to hear, at least for the audience, they can kind of hear how we’re picking through and troubleshooting each other’s picks. And I don’t know any of these four picks. But it’s a great exercise to talk through things to hear how people are thinking through the problem, when I think that’s the real value of this. If we go across all four of us, we all think that we’re at a stock market high or very close to it. When we think we’re due for a very large systematic event, and I hope I’m not taking words on anyone’s mouths. If I am, let me know. Everyone’s kind of shaking their heads no. 

So, we’re here talking about this when the market is extremely high on what we could potentially buy and knock it crushed if something like that would happen. We want to throw this out here so people can hear how we think. So any other comments that you guys want to say before we kind of wrap things up with the assessment of the stocks or any just market discussions in general that you find interesting right now?

Jesse Felder  1:01:15  

Just that I appreciate what I’m hearing and it be might be fun to come back a year from now and be able to explain why I was such an idiot to buy CF Industries today.

Stig Brodersen  1:01:24  

I think my question for you guys would be: Did you change your opinion about any of your stock picks? 

Tobias Carlisle  1:01:30  

About somebody else’s stock picks.

Preston Pysh  1:01:31  

I did about Jesse’s for sure. I kind of came into this thinking like, “Oh, that thing’s ugly, but I didn’t know the background on it. So after hearing him talk about it, it makes a whole lot more sense now that I heard it.”

Tobias Carlisle  1:01:46  

In relation to GME, Preston. In relation to your pick, I think it’s one of the problems with being around in the market for a little bit of time and seeing it. So just you know, I’ve seen GME. I’ve known GME for years and years and years and bought, and lost money. 

And so, just when I see the ticker, it just gives me chills these days. So the fact that Stig, sees it the first time and thinks it’s cheap. I mean, maybe you’re finally going to get it right. But I can’t think about it anymore.

Preston Pysh  1:02:14  

Real fast before we end the show here. We are really, really excited to make this announcement. So our good friend, Jesse Felder, who’s with us today is starting his own podcast. As you guys can see, Jesse is brilliant, and he has just amazing comments. And I know, as a former billion dollar hedge fund manager, his network has to be huge. And I know the people that he’s going to be bringing on the show and the discussions that they’re going to be having are going to be phenomenal. 

So all of our listeners, we can’t help promote Jesse’s show enough because we are so excited to know that he’s going to be putting fantastic information out there. I know you have a listener sitting right here that can’t wait to hear some of your conversations, Jesse. So congrats on starting the new show.

Jesse Felder  1:02:59  

Thanks, Preston, that’s really kind of you to mention it. I’m really excited about it. I think I’m just a finance geek at heart, who wants to just pick the brains of smart guys. And that’s what I’m going to do with it. So, we’ll see. I’m a total newbie, you guys are super polished at this, and I’m going to look like a fool in trying to make it look half as good as what you guys do, but I’m excited about it.

Preston Pysh  1:03:22  

Oh, well. Thank you, Jesse. And yeah, we’re very excited. I see Toby nodding his head. He’s excited as well to hear some of your conversation. So congrats on that.

Tobias Carlisle  1:03:30  

It will be great. I’m looking forward to it.

Stig Brodersen  1:03:33  

And Toby, something I’m always looking forward to is whenever we have a chance to invite you on the show. I did a count here before the show and you’re actually the person that we had most frequently on the podcast. 

And I’m really, really proud to say that because it’s really, really hard for me to find anyone out there that’s an authority in value investing like you are, and especially in deep value. And I’m sure everyone who’s listening to you in this episode, but also in the previous episodes, they will all agree with me. So, Toby, please tell people where they can learn more about you.

Tobias Carlisle  1:04:07  

I’ve written three books that you can check out in Amazon. I don’t think they’re sold for GameStop or Bed, Bath & Beyond. You have to go to Amazon to get these ones. Yeah, “Deep Value.”

Preston Pysh  1:04:18  

They’re not selling there yet, Toby.

Tobias Carlisle  1:04:20  

Hopefully, yes. And my next one will be for Bed, Bath & Beyond, “Deep Value,” “Quantitative Value,” and “Concentrated Investing.” And if you want a free stock screener that has some pretty good research and data backing it up, you can find it at acquirersmultiple.com. It’s the largest thousand ranked on The Acquirer’s Multiple which is the metric private equity firms and activists use to find takeover targets. And so, we write some stuff there, and you can find me on Twitter @greenbackd.

Jesse Felder  1:04:50  

And I’ll just jump in, and I have to endorse Toby’s website. I use that screener on a regular basis and “Deep Value,” one of my favorite value investing books with a lot of nuggets there you won’t find anywhere else. So yeah, definitely check that stuff out.

Preston Pysh  1:05:04  

Yeah, “Deep Value” is absolutely one of the best books on value investing out there. So, if you guys haven’t picked that up, you’re missing out for sure. And after you read it, you understand why we’re saying this. And Toby’s blushing now, so we’ll stop embarrassing him.

Stig Brodersen  1:05:20  

Alright guys, so no later than a year from now, we’ll invite Jesse back on the podcast to talk about how much money he lost.

Preston Pysh  1:05:29  

Come on, Stig.

Stig Brodersen  1:05:31  

I’m sure you would do very well with that stock pick, Jesse. I’m definitely looking forward to following that in the next few months. Next quarter, Toby will be back on the Mastermind group as usual. And in a week, Preston and I will be back with another episode of The Investor’s Podcast.

Outro  1:05:45  

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