Dan Miller works for GAMCO investors and the Gabelli funds, he manages 35 industry analysts. His talk is called “Investing with Conviction”, and he’s working with the Gabelli concept of “private market value” — they call it “PMV with a Catalyst” and he published a quarterly list of the “Focus Five” — the five most compelling stocks from 2006-2011, which did extraordinarily well.
They turned that into a mutual fund, with the ability to put 50% in five companies (cap of 15% in any one industry), they hold 25-35 companies and can hold cash. Have a lot of cash lately because the fund has grown quickly.
They look for open communication with management, a share price that’s 30-50% below private market value, does it have a franchise or the ability to lever the balance sheet. And want a long term holding of 2-3 years and an identifiable catalyst within the next 3-18 months.
So what are his ideas? He has three stocks that he thinks are at big discounts to private market value, and down hard from recent highs.
RealD (RLD) — $330 million market cap, $30 million in debt. 3D screen and projection technology, they give the technology to movie theaters and get 10-year contracts to get 3-4% of every ticket sold, so it’s a recurring revenue stream … and it’s more popular outside the US than it is here.
It costs a studio about $5 million to convert a film to 3D, and they can charge an extra dollar or two per ticket. Good business case for all parties.
The cokmpany boomed when they went public at a much higher price because expecdtations were that they would license their technology for glasses-free 3D for home use. It’s now at $7, 5.5X EBITDA, much less than Dolby or Imax. It’s a very likely target for acquisition — an acquirer could get rid of a lot of the costs.
The CEO and founder holds a large position and is aligned with shareholders, they think he’ll cut operating costs dramatically partly because of a rough summer box office — 3D lost some market share this Summer after a very good year the year before.
They’re also buying back stock, about 10% of the company so far. And they may do more buybacks before next earnings, in concert with cost cutting.
They project a private market value of $13 ...