by Travis Johnson, Stock Gumshoe | August 20, 2021 7:54 am
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Thanks Travis great info!!
Do you ever decide to rest your brain?
don’t discourage him, ha/
FYI, another potential IIPR competitor starts trading today — NewLake Capital Partners (NLCP), trading OTC.
I skimmed the offering, this is a new company built from two smaller cannabis real estate portfolios. They have some good tenants as a base, and intend to pay a dividend right away, but I haven’t done the work to figure out what kind of valuation they’re carrying — I suspect that at the IPO price ($26) it’s cheaper than IIPR on a FFO/cash flow basis, and more expensive than PW. They’re aiming for essentially the same market as IIPR, larger deals ($20+ million) with established multi state operators, but I don’t know how they’re pricing the deals — presumably they’re getting cap rates something close to the 12-16% IIPR typically gets, but we’ll see. They will also need to raise a bunch of capital to scale up, they have less than $100m in cash and some of it is already committed to existing deals.
Worth watching because I’m pretty sure it will be cheaper than IIPR, and they have established real estate folks running the show and a decent foundation of a portfolio already, but I haven’t spent enough time on the filings yet to have a real opinion.
Thanks Travis! What do you think of SAND dropping below $7?
Seems mostly to be caused by a combination of a pullback in gold and another push into the future for potential revenues from Hod Maden, with the progress toward production slow and Sandstorm, as a passive junior partner, not really driving the bus.
I’m willing to be patient, mostly because I think of my gold royalty companies as a persistent long-term hedge against currency debasement. If they do badly in the future, odds are good that the rest of my portfolio will be doing better, and the structure of that business means they don’t go bankrupt in the down cycles… so patience works, over time, unless gold goes consistently lower for a long time.
I don’t have any idea
the shares might rise again, though, that really depends on gold sentiment.
Assuming one’s average cost on PSTH is $20 or under (very doable at this point), then IF you get the $20 redemption on PSTH shares, the SPARC shares are essentially free warrants. FREE warrants? Yes, please (remember, we used to pay for these). Granted, there’s a lot of IFs in there, but there’re risks with any investment and right now it feels like there’s quite a bit of risk with a lot of investments. Overall the risk/reward profile still feels quite favorable to me. Besides, my cash pile is quite large at this point so I’m holding on with an average cost of about $20.50. For those who bought when it was closer to $30, I’m truly sorry.
I agree, there’s very little risk of permanent. loss below $20. I just don’t see a lot of upside potential, mostly because I suspect getting the SPARC approved and listed is going to be harder than Ackman believes, and maybe impossible… and without the SPARC and the fast redemption, it’s a wait for a deal that seems much less likely to happen with the lawsuit on the table, which means a higher probability that we end up without any upside. It’s the lower probability. of upside that gets me to sell, not worries about downside at this point.
And yes, this is a harsh lesson about the risk of spending $30 for a $20 bill and a smile, and I feel bad about those who got sucked up in the story over the past year, and particularly those whose first experience with the market mania led them to levering. up with options and warrants on that $20 bill. We all learn some lessons the hard way from time to time, but it does hurt.
Travis,
I hold PSTH warrants with avg $10.22 with considerable percentage of my portfolio, now it is running at $1.03
More or less same is the case with MNTS(SRAC) commons and warrants .
Wondering if there are any chances of recovery or I it is better to get out of them as soon as possible.
It would be great if you put your comments on both. Thanks is advance.
PSTH warrants are not going to be recoved but in case of PSTH warrants is there any chance if they get little better than current rate.
If PSTH goes through to the deadline next summer and the shares are redeemed at $20, the warrants will expire worthless.
If Ackman is allowed to go through with the SPARC conversion, he wants to turn the currently traded warrants into SPARC warrants. They’d be worth whatever anyone will pay, and the SPARC may or
May not have an expiration date. Lots of uncertainties there as we wait to see what regulators and the NYSE allow.
If PSTH actually makes a deal, the warrants become 5-year warrants at the deal consummation, and the value will depend on whether investors like the deal and think the company will grow over time.
I personally think the most likely outcome is that the SPARC structure is not approved, they fail to make a deal over the next year, and the warrants expire worthless next year and the SPAC shares are redeemed at $20 — but that’s just my opinion about the probability, there are certainly more optimistic possibilities.
And the warrants have pretty much never traded at a rational price, I’m very sorry that you got caught up in that, so in the near term it’s anyone’s guess what happens next — that will probably have as much to do with the tide of opinion on Reddit as it does on Ackman’s negotiations with the SEC.
Momentum is one of the few SPACs that has actually come under legal pressure for being “too optimistic” or misleading in their investor materials, and like all space SPACs it’s probably mostly a 2025 story so it will be a while before we have any idea whether they have a chance of long-term success. I’d rather stay away from companies that are that far away from having a real business, and that lie to me… but, of course, there’s sometimes a thin line between excitable futurists and liars, and a hard stance on that would have kept us out of Tesla, too, everyone has to make their own call on that.
Thanks a lot Travis for putting your views.
Thanks Travis great as always. I own Gan but keep looking at fltr . I know you’ve mentioned it a few times so what do you think of it as a stand alone investment. Paddy power is extremely popular here in the uk and if they can spin out fan duel on the us markets I imagine it would do really well.
Also as someone who usually just buys and holds what are your thoughts on selling options or setting up credit spreads,? do you think as a starter this is this a safer way to play options?
I haven’t looked in detail at Flutter lately, but when I looked into it last. year it was essentially a cheaper way to buy a business that was roughly as appealing as DraftKings, actually with a higher market share at that point, but not as well known to US investors. The challenge is that the rest of the business is growing slowly, though nicely profitable, which makes the idea of a spinoff appealing.
And on options, yes, I dabble in options speculating as a way to manage my animal spirits and do a little betting, but the safer way to play options is to sell them. You can usually make a pretty steady income selling options, either with buy/writes or credit spreads or whatever else, but you do have to make it into an almost mechanical system and stay disciplined for it to work, and, as is generally the rule with most trading systems, the less risk you take, the lower the income.
I saw a graph! I think every Friday File should include, at a minimum, one interesting graph.
Good idea, thanks!
I just wish I had backed up the truck a few months ago when I got into SE. When the Singapore gov’t awarded them a digital banking license you know that they are a serious player. Their Shopee ads are crazy annoying though.
Wow Travis, what wonderful detailed reporting. You have to be the best investor’s investor. Thanks for all the good work you do. It’s amazing.
Travis, any thoughts on Berkshire-B’s up and down now and not going, seemingly, anywhere?
Where do you want it to go? It’s up almost 15% a year over the last five years, better than I expected.
My expectation is that Berkshire will more or less keep up with the S&P 500 in up markets, maybe trailing a bit, but will, thanks to their huge cash pile and steady railroad/utility/manufacturing businesses, probably do better than the market in the next big downturn and recovery cycle. I hope Warren has one more opportunistic bear market in him, a chance to deploy $100 million making a good buy or two in the next few years, but we’ll see. I will be surprised if Berkshire is ever one of my most exiting investments, but having a large position makes me feel better about those big stakes in far more volatile stocks (TTD, ROKU, etc)
Travis, you did mean $100B did you not.
Regards,
Frank
Oops, yes. They’re up over $140 billion now. Sorry.
Trade Note: You Had Me at 5%
Camping World Holdings (CWH) is a giant in its industry, the largest chain of RV centers in the US, and one that’s still on an acquisition spree to build out a broader presence, but it’s also still, with a market cap of about $3.5 billion, a pretty small stock in the context of the broader world. I’ve had my eye on this one for a while, dabbling in call options at least once (unsuccessfully) as I try to figure out whether the last year’s boom in RV sales is even close to being sustainable… and today I came down on the “yes” answer.
That doesn’t mean I’m certain, and part of the challenge is that the stock has been one of the best performers in the world over the past year and a half, and it’s emotionally hard to buy into a stock that far from the “bottom,” admitting that you missed something earlier (which is silly, of course, we all miss hundreds of great stock runs a year — but still, it weighs on the psyche). What pushed me over the edge was the combination of insider buying from the CEO and a massive increase in the dividend, announced yesterday, which, combined with the improvement in the balance sheet over the past year and some share buybacks, even as they’ve continued to invest in their national brand through more acquisitions and new retail RV dealerships, gives me some increased confidence in their future growth prospects (even if this year represents peak earnings for a while). Part of this investment requires believing in the changes they’ve made at the company to expand and improve their margins over the past few years, and believing that the RV industry will continue to be robust post-pandemic, that the general push for experiential vacations and outdoor adventure is likely to continue to boost the industry, and therefore boost the only real national brand when it comes to retail, service and support for RV owners.
Recreational vehicles have been a real boom and bust industry over the past few decades, and there are both demographic trends (retirees buy a lot of RVs) and macroeconomic trends (low interest rates and easy borrowing terms drive sales, with stimulus payments helping a lot of people make down payments), so it’s entirely possible that there will be meaningful legs down in this business as well — it’s been around for a long time, and has had many bad years, but the long-term trend has certainly been for growth in the business… and my current thesis is that the boom from the pandemic obscured the fact that they were improving the underlying business before that.
The huge dividend increase (doubling to $2/year now, so a 5% yield at $40) is a really big management bet that their improvements and new strategies are going to continue to bear fruit. It’s likely that they won’t top this year’s earnings (forecasted to be over $6/share) in the near future, but the stock price doesn’t represent a bet that earnings will immediately grow from this level (it’s trading at less than 7X current-year earnings, about 7X analyst estimates for next year’s earnings, so the stock price right now represents an assumption that the business will decline). I’m willing to follow that bet with a small investment here, and we’ll see how it goes — this is a small enough stake that I’m willing to hold off on a stop loss, since the company would likely be more appealing if it fell by 30-40%, and I’d be likely to buy more. Earnings have been very volatile over the past decade, but the average is about $2.10 in earnings per share since 2013, so even if we think the business has not improved over that time (I think it has, partly with some meaningful nationwide expansion), we’re paying about 20X average earnings and getting a 5% yield. It’s possible things could get ugly at some point, rising rates would hurt and a recession would hurt and maybe the return of the cruise and resort industries hurts RVs, too, but it’s also possible that the good times will continue. Certainly the demand for RVs is huge now, they can’t get enough inventory to satisfy customer demand, and the community of members for their Good Sam Club of RV owners is growing nicely.
I’ve gone in with a small position of about 0.25% at about $39, and I’ll let you know how it goes — the next meaningful news should come out of their investor day meeting on September 14, and they’ve also announced that on the following day, Sept. 15, they will hold some sort of product introduction or showcase related to electrification in the RV world. I wouldn’t bet on that becoming meaningful anytime soon, and they’ve already had two EV partnerships that seem unlikely to go anywhere (Lordstown and Nikola), but you never know what will capture the attention of investors. Their most natural partner among EV makers in the “outdoorsy” world would be Rivian, which is trying to sell itself as the Tesla of the trail, and Rivian could also use a service center network for their consumer EVs, but that’s probably just wishful thinking… all of the big RV makers are also exploring electric vehicles, and, probably more important in the near term, battery-powered alternatives to gas and diesel generators for RVs, so there are a lot of possible things they could focus on next month.
I have been watching this stock for a while, too. Wishing I had purchased it yesterday per plan… instead of continuing to reflect on it after it increased 4% today! My guilty pleasure is watching CEO Marcus Lemonis on The Profit!
Salt Lake City native here — CWH is a big deal around these parts and the amount of sales that the RV industry had over the past year or so has been astonishing. Ditto for boats, power sports, etc. I have worked in the marine industry for about 7 years and the amount of boats that have been sold recently is unprecedented — same can be said for all the aforementioned sectors (anybody want to pay a 35% premium for a SXS from a year ago?).
But I don’t think we’ll see what we have been recently seeing in the near future in terms of growth for these industries, including RV, which you recognized. Still, the 5% yield definitely gives a little room (it has normally traded around 2% yield or thereabouts).
The only thing about this that worries me is something macroeconomic in nature as opposed to company specific. I’m not suggesting that a repeat of the sub-prime fiasco is in the cards, but the amount of spending on “fun stuff” that has been occurring is, especially given the context of a global pandemic, unbelievable. Banks can tighten their policies but they can’t change basic human tendencies. I bought a new home about 4 years ago (thought I overpaid then but have already seen its value rise by 50%; life is funny sometimes) and there was a large divide between the amount I qualified for and what I actually felt comfortable paying. People can still overleverage themselves regardless of a bank’s qualification rules and I think we saw a fair amount of that this past year.
And while a crash and/or recession negatively impacts pretty much all stocks, these industries like boats, RVs, etc., are the first to go and the hardest hit. In 2008-2010 there were many dealerships shutting their doors. You saw something like a 70% decreases in sales at many dealerships within a year or so. It was as swift was it was brutal.
Good points, thanks — I agree that macro is the biggest risk, it’s certainly got the potential to be super cyclical.
There’s a nice gap in price between 8/23 & 8/24 in the range of $37.42 to 38.62. It’s an ideal entry point if one is not in a hurry and if price comes down a bit.
Travis, what do you think of GPS with the great earnings. I took a small position
Thanks
Just updating this discussion to add that Hagerty HGTY went public today on NASDAQ exchange.