WWII 076: David Dreman the Contrarian Investor 13F Review, Retail REITS are Adapting to the New Normal, Corvex Management Influences Energen ($EGN)

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Main Topic: David Dreman the Contrarian Investor 13F Review

Born in Winnipeg, Manitoba, Canada in 1936, DavidDreman is the founder of Dreman Value Management, has written four books, and a column for Forbes magazine. Dreman is on the board of directors of the Institute of Behavioral Finance and is the publisher of the Journal of Behavioral Finance.

David worked for Rauscher Pierce, the senior investment officer with Seligman and senior editor of the Value Line Investment Service.

I first discovered David when I found used copy of his book “Contrarian Investment Strategies” at a used book store I frequent.

Here are some recent buys by David Dreman

$RAI – Reynolds American Inc. - Reynolds American Inc controls roughly 35% of the U.S. cigarette market and is the second- largest domestic cigarette manufacturer behind Altria. Its brands include Camel, Pall Mall, and Newport. Reynolds also owns the Grizzly and Kodiak smokeless tobacco brands. Another subsidiary, Santa Fe Natural Tobacco, manufactures superpremium Natural American Spirit cigarettes. In 2013, Reynolds entered the electronic cigarette market with its Vuse brand, which captured a significant share of this small but growing market.

RAI is being pursued by British American Tobacco and is most likely an arbitrage

$APC Anadarko Petroleum - Anadarko Petroleum, based in The Woodlands, Texas, is one of the largest independent exploration and production companies in North America. Its asset base includes conventional and unconventional properties in the U.S. and deep-water oil and gas projects in the Gulf of Mexico and Africa. Anadarko holds an interest in nearly 65 million net acres, and 8 million on which it owns mineral rights. At the end of 2015, proven reserves totaled 2.1 billion boe, with net production of 836 mboe/d. Natural gas made up 47% of production and 49% of reserves.

$PPL PPL is a regulated utility with three key segments. The international regulated delivery segment operates distribution networks providing electricity service to customers in the United Kingdom. The Pennsylvania regulated delivery and transmission segment provides distribution to customers in central and eastern Pennsylvania. LG&E and KU are involved in regulated electricity generation, transmission, and distribution in Kentucky.

$FOXA Twenty-First Fox - 21st Century Fox is a media conglomerate with a wide range of assets: a film studio, which creates television programs and movies; broadcast television, including the Fox broadcast network and local TV stations in the U.S.; cable networks, which comprise over 300 channels around the world; and direct-broadcast satellite TV in the form of SKY, a satellite pay-tv provider in Europe.

$KR Kroger Co - Kroger is one of the largest retailers in the U.S. As of the end of fiscal 2016, the company operates 2,796 supermarkets, 784 convenience stores, and 319 jewelry stores in 35 states. In addition to its namesake banner, Kroger operates several other chains, including Ralphs, Fred Meyer, King Soopers, Fry's, Harris Teeter, and Food 4 Less. Kroger acquired Roundy's at the end of fiscal 2015.

$BOFI BofI Holding Inc is a holding company. The Company through its bank holding provides diversified financial services including consumer and business banking products through the branchless distribution channels and affinity partners.

$ODP Office Depot - Office Depot offers office products and services globally. The company uses multiple channels, including office supply stores, Internet sites, an outbound telephone account management sales force, direct marketing catalogs, and call centers. It offers a broad selection of branded office products, including its own branded products and services, under the Office Depot and OfficeMax brands. The product labels offered are TUL, Realspace, WorkPro, Office Depot, OfficeMax, Foray, Ativa, Brenton Studio, Highmark, Grand & Toy, and Viking Office Products.

$ASGN On Assignment Inc. - On Assignment Inc is a provider of in-demand, skilled professionals in the technology, life sciences, and creative sectors. The company offers contract, contract-to-hire, and direct-hire services, which include recruiting, verifying credentials, hiring, training, administering pay and benefits, and compliance services. In its Apex segment, On Assignment offers large and local talent pools, while the Oxford segment focuses on specialised workers and national recruiting centers. Professionals matched with corporate customers are individuals with technical, scientific, or creative skill sets looking for contract work or permanent placement opportunities.

$HA – Hawaiian Holdings Inc. - Hawaiian Holdings Inc provides air transportation for passengers and cargo. Its primary asset is the sole ownership of Hawaiian Airlines. Routes are principally focused on transportation between the Hawaiian Islands, United States, and the South Pacific regions of Asia and Australia. In addition, it operates various charter flights. The company markets through several distribution channels, including its own website, travel agencies, and wholesale distributors. Partnerships have been established with other airlines to accommodate customers, and the company also participates in a frequent-flyer program. Flights in the United States constitute approximately three fourth of total revenue.

$CXW – CoreCivic Inc. – F.K.A. Corrections Corporation of America, or CCA, is a real estate investment trust involved in the ownership and operation of private prisons. CCA mainly controls medium security correctional and detention facilities located throughout the U.S. The company derives the vast majority of its income in the form of management revenue from medium-term contracts. CCA is compensated on a per diem rate based on the bed capacity and range of services offered at its facilities. Total revenue for the company is split fairly evenly between contracts with federal agencies, such as the Federal Bureau of Prisons and US Marshals Service, and state entities, such as the State of California Department of Corrections and Rehabilitation.

Favored stocks underperform the market, while out-of-favor companies outperform the market, but the reappraisal often happens slowly, even glacially."

David Dreman

Ask JB: Should I cash out completely since the market is going to crash?

Decline in retail is noticeable in REITs primarily invested in retail (look at $O). But as these REITs P/B drops lower they become more enticing.

JB SAYS: There has been a clear decline in the major mall anchors in recent years like Macy’s. Amazon is changing the face of retail as we know it, and malls are either changing and adapting, or are in trouble. Since this shift is unprecedented, it’s not clear whether mall owners will react the right way and succeed. If you buy into a mall REIT that is undergoing a complete shift in its store base, you are really speculating that things will work out in the end and benefit you as shareholders.

Perhaps the bottom hasn’t been reached yet. Perhaps the mix of what a mall operator ends up with isn’t attractive to consumers and the mall continues to struggle. You will really have to understand the underlying assets of any REITS that you are considering and come to some conclusion about whether they are making the right moves.

Whether a Sears can be repurposed into a data center is unclear. The power requirements alone will be problematic.

ASK JB: I'm thinking of cashing out (self.investing)

submitted 1 day ago by elongated_smiley

I started investing just around the bottom of the 2008-2009 market crash, and have been investing steadily ever since (until 03-2017). Now I'm thinking of cashing out.

I know that trying to time the market is generally discouraged here, but if one feels a market dip is coming with 0-2 years, then why exactly not?

I live in Denmark, by the way, and invest mostly in various mutual funds. I don't consider myself to be an investing expert in any sense of the word. I don't think I can perfectly time the bottoms or tops, of course, either.

Basically, at what point is it justified to cash out? (and then wait to re-invest)

JB Says: You said “if one feels that a market dip is coming in 0-2 years”. On what do you base your “feeling?” You are essentially using your feelings to predict the future, which never works. People “felt” that the election of Donald Trump would lead to a market crash and sold out, only to watch the market rise by almost 20% since. Now they are questioning whether they should jump back in, yet the market “feels high”. Another “feeling.”

Instead, I side with Ken Fisher who suggests that you should have 30% cash on hand until markets correct. If the market has fallen from its peak by 10%, put in 1/3 of the cash. If the market has fallen 20% from its peak, put in another 1/3 of the cash. You are left with cash that is 10% of your portfolio. Only put that into the market if the market corrects 30% or more.

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!

Activist Investor Action Alert: Corvex Management Influences Energen ($EGN)


Thoughts on this podcast? Disagree with me on some point? Something I missed? Leave a comment!

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.

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