Chris Mittleman spoke on behalf of his family-run investment firm, Mittleman Brothers, and says he applies a more selective criteria to find real extremes of value. The presentation was about applying a private equity mentality to public equity — and they invest in a lot of companies that have substantial leverage. So unlike value investors who dislike leverage, they embrace it in certain situations where they have durable cash flows — still worried about a zero outcome, but looking for businesses that can be levered up.
They invest globally like many others, and have no mandate for company size — they’ll buy mega or micro cap companies.
Good quotes:
“Have opinions at extremes, and wait for extreme moments” — Joe Rosenberg, Loews
“Nervous energy is a great destroyer of wealth” — Fayez Sarofim
Sometimes you just have to sit and wait. Some of their best picks have been those that they rode all the way down or averaged down in 2008 before seeing their returns. The long term horizon is important to any successful investment strategy, not just value investing.
On to the stocks he talked about:
Revlon (REV)
Billion+ dollar market cap with a 10% free cash flow yield, half as cheap as many of their competitors.
Big exposure to Wal-Mart as their largest customer (20%+), global cosmetics company, high profit margin business and recession resistant with predictable free cash flow.
EBITDA and FCF grew during the “great recession” despite sales drop over 2007-2009.
The CEO has done a great job but is not well known, he was CFO before taking over in 2009.
75% of the company is owned by Ron Perelman, “who has occasionally tried to take advantage of minority shareholders in companies he has controlled over the years.”
Many presenters during the Congress have talked about the importance of control investors and management — one previous speaker said that if you’re in a company where Perelman has a controlling stake you should be prepared to “grab your ankles”. Mittleman acknowledged this and said in this case they have reasons for being comfortable with it — presumably the low valuation, not sure.
Their real strength is in the nail business, which is a big growth area, and they have emerging markets as an opportunity — 45% of sales are overseas and they’ve made progress in Russia and Brazil, for example … ...