If you have been investing in the market for a while you either love or hate earning season. It’s that time of the year when we get new information regarding all of the “going concerns” we hold in our portfolio. The time of the year when you watch you thesis play out or blowup right in your face.
It can be a time of informational overload. Companies reporting multiple times in the day. Some in the morning and some at the close. And if you are into microcaps sometimes these guys report in the middle of the day with no announcement.
Here is what my week typically looks like during earning season.
Get to the office earlier than normal: A lot of the companies I invest in report bright and early. I like to get to the office a few hours before the market opens on these days so I can update my models and go through all of the information before the stock starts trading. When you are dealing with microcaps it is good to know everything that is going on pre-market as there can typically be a lag before a company re-rates. Sometimes its possible to know news before someone else which allows me to buy a stock before everything is digested.
Update calls with management teams: After a company reports that I own I like to have an update call with the management team. This is typically a 30-45 minute call where I can ask the management team more information that I want color on. These can be helpful but also very time consuming — especially if I have more than 15 names in my portfolio. Fifteen update calls is around 15 hours of phone calls and another 15 hours of prep work.
Updated models and listen to earning calls of competitors: Anytime I invest in a company I like to have models built out for all of their public competitors. This helps me understand the industry and also helps when trying to forecast future cash flows. So when earnings are out I spend a lot of time updating models and listening to what competitors have to say about the recent quarter and the future.
Find more companies to invest in: Some of the best times to find new companies to invest in is during earning season. You can get wild price swings in small illiquid companies. And sometimes there will be news out that the market has not fully digested. Earning season is a great time to stay alert and present as it seems like there are way more opportunities.
For those of you who are subscribers, I will be providing updated articles on each company I currently hold in the portfolio (find all seven here) over the next month when earnings are released. It will be a busy time as most of these are reopening or cyclical commodity plays and there will be a lot of digest. I may also provide updates on the four companies I have exited if the information is relevant and the stock price moves.
In addition, it is likely I will be finding new companies to potentially invest in over the course of the next month. I will be going through hundreds of transcripts, 8-Ks and press releases and will likely be putting out information to subscribers on new companies that catch my eye. The more information you go through the more money you will make!
Most of these companies I probably won’t be buying as I need a pretty large hurdle to underwrite anything new to the portfolio (I will need in excess of 75% upside to add something to the portfolio with limited downside). But there are always pretty interesting opportunities for investors during this time and I’d like to document some of these ideas for y’all.
Anyways, if you want access to all of my prior research and future research on these tiny companies not may other investors are covering consider subscribing for only $10/month along with 500 other investors.
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Warrior Met Coal Is Poised For A Free Cash Flow Bonanza: Investment idea on Warrior Met Coal (“HCC”).My take: This guy is a pretty good and usually directionally correct when it comes to out of favor commodity companies. He has made great money on commodities in the past and I think he will during this cycle as well. In terms of the idea, once HCC gets out of their strike they will be a cash flow machine if spot prices stay anywhere where they currently are. Travis says they will do $200 million in free cash flow per quarter which is where I am coming out at as well. With a market cap of $900 million and enterprise value of $1.1 billion this looks really cheap. HCC has also shot off a ton of dividends to investors in the past and wouldn’t be surprised to see them do this in future.
LSB Industries (LXU) Earnings Report: LXU will be reporting their earnings after the close today. Why does this matter? For subscribers to the newsletter, I have highlighted CVR Partners (“UAN”) as one of my top positions. LXU is a decent competitor for UAN and it will be good to see how LXU does. Last quarter LXU bombed the quarter and both stocks tanked on the news, with UAN eventually recovering. What is more interesting, is LXU is up 75% in four days over news on their preferred stock exchange. If LXU can go up 75% in four days on a preferred stock exchange it will be interesting to see what happens to UAN once they report earnings (which I expect them to be profitable and the re-establishment of the distribution (I have seen analysis of $5-7/unit levels)).
Wedbush screens movie-theater picks, on uneven road back to normal: "While a sizable portion of the adult population has been vaccinated in the U.S. and Europe, and studios are holding their current release dates, a resurgence of COVID is threatening to derail the summer fun," the firm says. "We expect significant pent-up demand to drive box office receipts closer to normalized levels throughout the summer and holiday quarters, assuming theatres remain open in major markets." But that road is getting twistier with a resurgence in COVID-19 cases via the Delta variant, a threat to the upcoming release slate, Wedbush says – and likely cause for more volatility in exhibitor stocks.
My Take: I am in general agreement here. The box office is recovering nicely with over $485 million in box office in July. This is still down 62% from 2019 levels but a big improvement from 2020. I expect the box office to continue to improve every month. The rest of 2021 looks pretty solid and 2022 should be a banner year for theaters. I’m long one movie theater chain (see research here) and expect them to generally do well. The stock has been soft due to the Delta Variant. But I expect this company to generate meaningful shareholder value of the long-term. I generally feel pretty comfortable underwriting the company here and will add on any pullbacks.
In addition: IMAX reported decent results last night and stated the following about the theater industry: "Most encouragingly, the domestic box office is showing the same signs of pent-up demand for moviegoing we've seen throughout Asia and other key markets — with each successive major tentpole release delivering an incrementally stronger debut." "We believe the table is set for a dramatic rebound for blockbuster moviegoing beginning this fall and throughout 2022, as a powerful slate of Hollywood tentpoles representing many of the biggest global franchises in entertainment arrives in theaters worldwide." Shares are up a decent amount after hours.
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