Tag Archives: transactionname

It’s Time For General American Investors To Take Action

Insider buying has picked up in the last couple of weeks. Shares currently trade at a discount of 15% to net asset value. Company has augmented its share repurchase program and more action could be on the horizon. By Andrew Sebastian General American Investors (NYSE: GAM ) operates as a closed-end fund with investments in the global equity markets and utilizes a fundamental, bottom-up approach to stock-picking. Insiders have been buying shares as of late with Jeffrey Priest, GAM’s CEO and portfolio manager, leading the way with the purchase of 6,000 shares in the last 30 days. Joining Priest were Anang Majmudar and Eugene Stark, both vice presidents at GAM, with purchases of 885 shares and 2,440 shares, respectively, over that same time. On the flip side, Spencer Davidson, the company’s chairman, sold 2,000 shares of GAM during this time. Hedge fund Levin Capital Strategies had an unchanged position in the shares of GAM with 24,869 shares of the investment manager. Two other funds, however, sold out of substantial stakes in GAM. Weiss Asset Management dumped 60,410 shares and Mariner Investment Group sold out of a 24,452 share position. We are interested in insider transactions because studies show that insider trading can produce alpha. Academic research shows that certain insider purchases have outperformed the market by an average of 7 percentage points per year. While there are many reasons why an insider would sell, there is only one reason why an insider would buy and the insiders have been net buyers of GAM as of late. In addition to following insiders, another way to beat the market is by following the small-cap stock picks of hedge funds. GAM is a small-cap stock with a market cap of $1 billion. Our research shows that the 15 most popular small-cap stocks among hedge funds have outperformed the market by nearly a percentage point per month between 1999 and 2012. We have been forward testing the performance of these stock picks since the end of August 2012, and they managed to return more than 132% over the ensuing 2.5 years – outperforming the S&P 500 Index by nearly 80 percentage points ( read the details here ). Unlike insiders, hedge funds have been net sellers of GAM as of their latest filings, so it is not one of those popular small-cap picks. Nonetheless, the company offers up some interesting valuation metrics. GAM currently trades at a discount of 15% to its net asset value, which is more than the discount has been on average over the last six months and over the last three years when it was closer to 14%. The company has aggressively been buying back shares in order to close this gap and reward stakeholders, repurchasing about 626,000 shares in the first quarter. In comparison, GAM repurchased only about 541,000 shares in all of 2014. The company also recently received authorization from its board to repurchase another 1,000,000 shares if the discount to net asset value is 8% or more – meaning that GAM has a lot of share repurchasing still to do. Some shareholders have grown weary of the substantial discount and investment manager Special Opportunities Fund has requested that GAM make a tender offer for all of the outstanding shares of GAM at or near net asset value. If GAM were to go through with such a proposal, holders of GAM could realize a return upwards of 17%. Special Opportunities also suggested converting GAM into an exchange traded or open-end mutual fund in order for the closed-end fund to realize its net asset value more closely. Special Opportunities also suggested liquidating the fund altogether. GAM’s discount to net asset value is substantial even for a closed-end fund and the company’s management should do more to close the gap. The hedge funds exiting their positions in GAM likely grew impatient with the company’s growing and stubborn discount. Special Opportunities’ proposals should be wholeheartedly considered by GAM and put in motion if share repurchases or other measures do not significantly reduce the discount. Perhaps GAM’s insiders’ recent buying of the fund’s shares alludes to a future move on this front. If the discount were to grow any wider, shareholder activism would only grow, so a move by GAM is likely on the horizon in order to minimize the valuation gap. Thus, GAM could lead to a significant gain in the interim with the only substantial risk that action does not happen sooner. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Dominion Resources: Strong Business Fundamentals

Summary Company’s strong business fundamentals will support future performance. Robust planned growth investments for next five years will allow D to expand and optimize its generational fleet. Planned investments will support company’s future EPS growth of 6%-7% and dividend growth of 8%. Dominion Resources (NYSE: D ) has a positive fundamental outlook and I think the company will enjoy above industry average earnings and dividend growth in the next five years, which makes it an attractive prospect for income-seeking investors. Going forward, the company’s growth will be mainly driven by the successful execution of its planned Cove Point LNG export facility. Also, the creation of MLP Dominion Midstream Partnership will add value for the company’s shareholders wealth through the ownership of General Partnership shares. Furthermore, I think the monetization of the merchant solar portfolio to YieldCos will also positively affect the stock price. Given the company’s strong growth prospects, I think the stock should trade at premium valuations in comparison to its competitors. Also, a pullback in the stock presents a good entry point for long-term investors to buy the stock; the stock price is down almost 13.5% year-to-date. Positive Fundamental Outlook The company has a strong business fundamental outlook, which is supported by its growth projects, including the construction of combined-cycle natural gas plants and expansion of midstream business. The company is expected to grow its earnings in a range of 6%-7% in the long run, which will be mainly driven by its robust capital spending of $19 billion from 2015-2020. The chart below reflects the company’s planned capital expenditure profile. (click to enlarge) Source: Company’s Report The company is aiming to monetize its merchant solar portfolio to YieldCos, which will positively affect shareholder wealth and will optimize cash flows from its contracted solar assets. The company’s management has stated that several YieldCos have shown an interest in its contracted solar portfolio. The company is expected to form a partnership that will allow Dominion to contribute a partial stake in solar assets to JV in exchange for cash proceeds, followed by a total sale after tax restrictions expire. Moreover, the company plans to grow its contracted solar assets from 384MW to 450MW by the end of 2015 and to 625MW by the end of 2016. The company is expected to provide an update on the merchant solar portfolio monetization in late summer or fall 2015. Given the highly competitive current merger and acquisition environment for renewables in the industry, I think there will be no shortage of interest in the company’s solar assets. The monetization of the assets will help to alleviate growth investment needs going forward, and allow it to achieve the long-term EPS growth target. Furthermore, the company announced another 11,000 acreage farmout agreement in Marcellus, extending it for two years, which will be accretive to EPS. The company is negotiating with producers to expand its farmout business into Utica. Dominion has already completed 125,000 acres, which will contribute almost $270 million of pre-tax earnings over the next five years, and the company expects an additional 180,000 acres of Utica mineral rights through 2020. Given its efforts to expand its farmout business, Dominion expects its farmout business to generate EBIT of $450-$500 million from 2015-2020, which will fuel its consolidated earnings growth in the coming years. Separately, the construction of the company’s Cove Point and ACP (Atlantic Coast Pipeline) facilities stays on track. The construction of Cove Point stays in the planned timeframe, with an expected in service date of late 2017; engineering at Cove Point Facility is almost 80% complete. Also, the construction of the company’s ACP facility is progressing nicely and is expected to be in service by November 2018. The completion of both facilities will allow the company to expand its operations, which will in return fuel earnings growth. In future years, given the healthy cash flow profile of IDR payments under its General Partnership structure with its MLP and low maintenance capital expenditure requirement for the assets, I think the company will direct cash flows not only towards growth investments, but will also use cash to grow its dividends and undertake share repurchases, which will bode well for its stock price. The company’s target dividend growth rate of 8% from 2015-2020 will be mainly driven by its growth initiatives. Also, I think the company’s future cash flows will stay strong and support its dividend growth. Dominion’s healthy dividend yield of 3.9% , along with robust expected dividend growth rate of 8%, makes it a good investment option for income-hunting investors. The stock is currently trading at a forward P/E of 17.5x , higher than the sector average forward P/E of 15.75x , which I believe is justified, given the company’s strong growth prospects. Given the company’s robust growth outlook, I believe the stock warrants premium valuation. Summation The company’s business fundamentals stay strong, which will support its future performance. The company’s robust planned growth investments for the next five years will allow it to expand and optimize its generational fleet. Also, the planned investments will support the company’s future EPS growth of 6%-7% and dividend growth of 8%. Also, once completed and operational, Cove Point and ACP facilities will increase the company’s revenues and earnings stability, which will improve the company’s risk profile. And given the company’s robust growth outlook for the next five years, I believe the stock’s premium valuation is justified. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Ben Graham’s Advice On Choosing Stocks During Tough Markets

Summary A tip from Bruce Lee on what it takes to be successful in the stock market. Examples of how to adapt to ensure success. 15 deep insights from Ben Graham on the process and mindset required to choose stocks. “What stock should I buy?” That’s a question I receive often when friends find out that I run an investment site. “Don’t know. What are your requirements for buying?” I ask. The conversation pretty much ends there because most people don’t know what they should be looking for. If I then rephrase the same question to a car, the list becomes blindingly clear. “I must have the following…” (note that it’s a must have and not a want) navigation 18″ wheels leather seats rear backup camera lane change assist indicator and the list goes on. The S&P500 was only up 1.23% at the end of the first half. And where things are tough to come by, are you adapting or updating your list of must haves? Or are you still hovering from one idea to the next without a firm idea of what to look for? Bruce Lee said the following: Markets are fluid beings. Things are constantly changing. As Ben Graham puts it The underlying principles of sound investment should not alter from decade to decade, but the application of these principles must be adapted to significant changes in the financial mechanisms and climate. It’s being able to bend, improve and not break during the tough times that will make you into a better investor. How Do You Adapt? Here are examples of what I mean to adapt, bend, improve. Make a buying mistake? Then identify where you went wrong and sell. Take the loss as your education fee. Is one of your stocks rocketing up too quickly? Then take some profit and let your house money ride. Or look back and what happened to a similar situation and adapt. Feel like you’re missing out? You’ll always be making less compared to somebody else . Get better, not bitter. Not sure what to buy when you feel the markets are overvalued? Then hold cash, ignore the noise and wait until a stock matching your checklist appears. There’s plenty of ways to be a bamboo or willow in the market. The stiffest trees are the ones that constantly monitor stock prices every minute on their phone like it indicates anything and is always plugged into the Wall Street market noise. But if you’re like me and you like to look for stocks regardless of market valuations, then take some advice from the black belt grand master of value investing, Ben Graham, on how to choose stocks and what your mindset should be. Value Investing Grandmaster Ben Graham’s Deep Insight on Selecting Stocks 1. It requires strength of character in order to think and to act in opposite fashion from the crowd and also patience to wait for opportunities that may be spaced years apart. 2. If a company was so sound that its stock carried little risk of loss, the company also must present excellent chances for future gains. It is easier for a company to build a profitable empire on a solid foundation than on a shaky one. 3. Never buy a stock immediately after a substantial rise or sell one immediately after a substantial drop. 4. Experience teaches that the time to buy stocks is when their price is unduly depressed by temporary adversity. In other words, they should be bought on a bargain basis or not at all. 5. People who habitually purchase common stocks at more than about 20 times their average earnings are likely to lose considerable money in the long run. 6. On the other hand, investing is a unique kind of casino – one where you cannot lose in the end, so long as you play only by the rules that put the odds squarely in your favor. 7. In market analysis there are no margins of safety; you are either right or wrong, and if you are wrong, you lose money. 8. It remains true that sound investment principles produced generally sound results. 9. The disciplined, rational investor neither follows popular choice nor plays market swings; rather he searches for stocks selling at a price below their intrinsic value and waits for the market to recognize and correct its errors. It invariably does and share price climbs. When the price has risen to the actual value of the company, it is time to take profits, which then are reinvested in a new undervalued security. 10. Never mingle your speculative and investment operations in the same account, nor in any part of your thinking. 11. The determining trait of the enterprising investor is his willingness to devote time and care to the selection of securities that are both sound and more attractive than the average. Over many decades, an enterprising investor of this sort could expect a worthwhile reward for his extra skill and effort in the form of a better average return than that realized by the passive investor. 12. Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble to give way to hope, fear and greed. 13. The stock investor is neither right nor wrong because others agreed or disagreed with him; he is right because his facts and analysis are right. 14. An investment is based on incisive, quantitative analysis, while speculation depends on whim and guesswork. 15. The intelligent investor is a realist who sells to optimists and buys from pessimists. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.