Updates on $ANFI, $SYT, and $ADNT

Have you subscribed to my podcast yet? If not, you can click the buttons below to subscribe:

Main Topic: Updates on $ANFI, $SYT, $ADNT, and $MPW

I has been a while since I have talked about a specific idea on the podcast, so I chose this 110th episode to discuss some of the ideas I layed out for your in previous episodes.

In this group today:

  1. $ANFI - Amira Natural Foods, Inc. which you first heard in the only interview episode I have done so far which is episode 78.5 (it was a bonus episode) with Dr. Sven Carlin. In that episode we discussed many of the attribute of the company and Sven's expectations for earnings growth in the company.

    On November 30th, ANFI came out with an earnings report that did not yet reflect the rising earnings due to rising basmati rice prices. It also showed an aging of the accounts payable of the company that caused Sven some concern. As such, a few days after the ANFI release, Sven recorded a youtube video essentially pointing out these problems and implying that he had dumped his position for a short-term gain.

    This may (or may not) have caused the price of $ANFI to fall from around $6 per share to just below $4 per share recently.

    Just recently, the price rose above $4 per share on news that company received permission to convert some of their old factory land to residential. This permission should result in the monetization of some of its unused, raw land. It should also pave the way for conversion of the rest of their land around their old rice plant.

    In order to accomplish this, they need to get their current lenders on board or refinance them out in some way.

    In summary, the $ANFI is not for the faint of heart and there is a lot of risk in the ongoing turnaround of the company. Higher Bismati prices are important for $ANFI but are not the only important thing for them.

    Check out the original show notes for that Sven Carlin episodes for more information about the $ANFI thesis. 
  2. $SYT - In episode 92 about the squeeze-out of Syngenta shareholders by buyer ChemChina that I released September 27, 2017, I mentioned that I was assuming the transaction would close in the following few months and estimated the return at approximately %6-12%, far better than holding cash and earning a meager amount of interest.

    Well, the squeeze out transaction, which was already underway before I got involved, finally closed on January 16, 2018, a full four months later. So, instead of even the lower end of my estimate range, I received a return of $1,555 and a weighted average annual return of 3.1%.

    Still way better than holding cash for those four months, and a reasonable return for what was almost no risk.

    For the original podcast episode discussing the $SYT squeeze-out, follow this link.
  3. $ADNT was the first spin-off idea that I brought to your attention in episode 89. In that episode, I laid out a pretty simple earnings based thesis for the company: normalized earnings power for the company is between $9-10 per share. And, given that it was selling at $67 at the time, it was cheap for a company with the largest market share in its main category: automotive seating.

    The price of $ADNT rose into the low 80's until ADNT released its most recent earnings and pointed to weakness in its seating business and a huge per-share tax asset valuation allowance, resulting in more than a two dollar per share loss.

    There are two things I will point out about these issues. The first issue related to weakness in demand over time will be just a transient problem. ADNT is also getting into airline seats by forming a joint venture with Boeing. This could open up a substantial new market for the company's highly engineered solutions. I view the operating earnings weakness as transitory, and management has laid out how they will be addressing it quickly.

    The second issue, and the one with the largest impact, was the write-down of the company's deferred income tax asset by a $260 million valuation allowance, which impacted earnings by $2.80 per share. Without this allowance and some other one time expenses, earnings would have been $1.06 for the quarter.

    The deferred tax asset write-down will be a theme for every company reporting earnings this quarter, and perhaps the next quarter as well. Since the U.S. Congress passed the most recent tax bill, companies have had to analyze their deferred tax assets for impairment. With lower corporate tax rates, these deferred tax assets may not be used within the twenty year timeframe required and there some portion of them will expire worthless, hence the need to write them down.

    This write-down will be across the board. Any company with a deferred tax asset will most likely be reporting lower earnings for a few quarters as the valuation allowances hit their profit and loss statements. Could be a reason to go short a company with outsized deferred tax assets that dwarf the rest of their balance sheet.

    Ultimately, I believe that ADNT is going to do just fine over time, and since the price has fallen back to the original price I began accumulating it at, it appears a true bargain once again.

    For more on the original thesis, check out the $ADNT podcast episode 89.

Ask JB: What to do with a large holding you inherit?

Just learned that my father is sitting on 10k shares of exxon mobile stock exclusively.(self.investing_discussion)

submitted  by xpogro

My great grandfather bought them sometime in the early 1900's. My grandfather recently died and my father, who is anything but financially minded, is doing his best to manage everything. He wants me to visit and speak to a financial manager of some sort with him. I have only taken an interest in the markets and investing in the last few months, and am more than willing to do tons of research, but i would very much appreciate any advice for diversification or choosing someone to manage this money that this sub might have. Thank you.

JB Says: Receiving an inheritance of one large position is an interesting challenge. On one hand, I'm not an estate planner, but I believe that when you inherit stock, your cost basis in the stock is the market value of the stock at the time of the death of the deceased.

What this means is that if you sold it immediately after his/her death, there would be no capital gains tax. This would allow you to diversify somewhat without incurring a major tax headache. 

Consider the dividends as well. 10,000 shares of Exxon is worth about $890,000 and pays you about $31,000 per year in dividends (which you will pay taxes on). 

 There could be worse companies to have a large holding in, but it still is not good practice to be exposed to just one stock. Lots of Enron stockholders thought they had invested in the next Exxon.

Take some time and put together a plan to gradually diversify the position over some years into equally large, blue-chip type companies that pay the same or higher dividend yields and you can turn that $31,000 per year into much, much more.

Be sure to talk to an investment professional to get help with your diversification plan.

Ask JB: What does cash and fixed income mean?

Understanding my investment portfolio. (self.investing_discussion)

submitted  by Datemike13

I signed up for an app called Mylo, which invests money for you. It’s showing that my asset classes will be 40% cash and money market and 60% fixed income. What do these two classes mean?

JB Says: Cash and money market are very low or no return "asset classes". 60% fixed income means that Mylo will invest you in a bunch of bond ETFs and /or bond mutual funds with high expense ratios (probably). It also means you have no exposure at all to the stock market. 

Bonds are not the best place to be for anyone not old as dirt, because interest rates are rising and this means bond prices will fall. Whatever yield you get from them will probably be offset by falling prices.

The question you raise is part of the problem of unsophisticated, uneducated "investors" using apps and robo-whatevers. Their poor judgement from ignorance will lead to bad outcomes anyway, no matter how "convenient" these tools are.

Do you have a burning question on investing you would like answered? Click the button below to send it to me and I will answer it on the podcast!

News: Rate Hikes and Payroll

About the Author

Jeremy Scott Bailey is an investor, author, entrepreneur and host of the "What Works In Investing?" podcast now available on iTunes. He is founder and Chief Investment Officer of Burgeón Group, Inc. an investment advisory firm that provides portfolio management services to families and individuals.

Leave a Reply 0 comments

Leave a Reply: