Rally Review: My Portfolio - part 2
This recent rally is no excuse to accept satisfaction with my holdings so I am continuing my portfolio review from part 1: Recession Review.
Continued in alphabetical order:
Exponent (EXPO)
-This consulting firm has had solid growth for many years and continues to be a leader in a new and expanding market. They have a team of very talented professionals that in turn helps attract more very talented professionals which in the past has consistently provided earnings growth crushing analyst expectations. Its low $400m market cap attracts little attention from wall street and I think is a large reason why it has not been priced up to a more accurate valuation around $6-700m.
Bottom line: This type of consulting firm has a very small place in the market right now and there is a lot of ‘wait-and-see’ type thought out there, but the information we do have suggests impressive growth and I think a $1.5b footprint is very reasonable in five years.
Landec Corp (LNDC)
-I am having trouble valuing this company because their past growth has been something I don’t understand particularly well and a recent sale of one of their subsidiaries has really skewed their numbers. However, analysts like it, CAPS all-stars like it, they have strong projected earnings growth, and the recent hit to agriculture suggest to me that it is worth at least somewhat more than what it is trading at now. It is one I will continue to watch very closely in the near future and may be ready to drop if I find something great.
Bottom line: I think the market valuation of $240m is relatively accurate and perhaps only slightly depressed by recession fears. Still, I am expecting market beating returns somewhere between $400 and $800 million (this range is a problem, I’m working on it) in five years.
NVDIA Corp (NVDA)
-This has been a popular tech stock for traders and has had really high volatility in recent days. However, long-term they are the leader by far in GPUs and they are focused intensely on positioning them self as the only viable chip maker worthy of bringing high end graphics processing to the masses. AMDs acquisition of ATI has produced less than perfect results and we’re still waiting to see how it turns out, but Nvdia is not letting this opportunity go away, it is rapidly building market share while ATI just tries to stay alive. This is the top dog with proven success in a fast growing market.
Bottom line: I would be willing to pay for up to a $23 billion valuation for NVDA, a 60% premium to its current price. Pending any major changes in the graphics market (that’s a big ‘if’ though), I think $100b on $5b earnings is a realistic five year goal.
Tsakos Energy Navigation (TNP)
-I love how cheap this oil transport company is. They have outstanding efficiency and proven growth strategies with little regard to the price of oil. Still, their valuation predicts declining earnings going forward. They do have large competitors that would love to gobble them up, but I think they are just too damn good at what they do to be eaten by a bigger fish. They already have a stronghold in the market and I think the big guys are really the ones needing to worry about losing market share. I will, however, exercise caution and keep a close eye on them in the near future.
Bottom Line: $1 billion is far too cheap for the performance this company promises to deliver in the future and has demonstrated in the past. $2 billion is more in line with where they stand and I expect a high probability of consistent growth to $6 billion on $500m earnings.
USG Corp (USG)
-USG is a leader in commercial and residential building materials yet they have been priced to pieces by slowing home growth. They will have downsizing pains from missed expectations of demand growth in the housing markets, but they are a well diversified supplier of materials in the commercial and industrial industries in addition to holding huge capital reserves. They have the staying power to weather the storm, and when it’s over, they will come out with a bang. Besides, Berkshire recently increased its position during the housing bubble burst and if it’s good enough for Buffet, it’s good enough for me.
Bottom line: Its $3b valuation is insulting to its earning potential and billions in cash and inventory. It’s not a pretty picture right now sure, but a company with a balance sheet like this, proven growth, and expanding market share deserves nothing less than a five year valuation of $10 billion.
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