I bought quite a few positions in the last few days. I will go over them one by one.
American Express (AXP) : Started a 3% position in American Express. I had previously bought and quickly sold around $71.
The company is paying 2.34% on its debt (2014 figure) and receiving ~ 8.3% in interest on the loans it has given to the customers. So, it is earning around 5% for the service (approximately $3.5B a year with $69B loan). If this stream does not grow *at all* and at 15% discount rate this part of the business is worth approximately 3.5 * 1/(1.15-1) = $23B. Looking at the income statement, the non-interest revenue – all expenses = $5B. Again, at 15% discount rate, this stub is worth = $33B And now, with $22B cash on balance sheet, I should be willing to pay ($23 + $33 + $22) B = $78B.
There are several risks with this investment thought. Costco is not renewing the AXP partner card (20% of the loan portfolio), V/MA have changed the business landscape and the management does not seem like they have a great plan in place.
I bought because I like the quality of the business and the fact that it is very cheap.
IBM : Started a 3% position. I have talked to several IT people in UBS/CS and have come to realize that even thought they don’t like their IBM mainframes, they have no other options. The reason is actually quite interesting. Setting up a new mainframe is going to cost a lot. Because banks see their IT as a necessary evil (banking is their main business), they find no reason to spend so much money on a complete revamp of the system when it is working perfectly fine with minor upgrades … Finally, at $122, I could not keep myself from buying the stock. Very cheap and I like the business.
TGS Nopec : Started a 2.5% position. This is an asset light company that collects seismic maps for oil companies. They have a great track record of being very disciplined with their investments. They have invested money when the markets were weak and have consistently maintained a great balance sheet. Again, the quality of the business/management is superb here.
CACC : Started a 0.8% position. I would like to buy more if the price is < $150. Also, in car lending (like America’s Car Mart). The CEO letter by Brett Roberts are worth a read.
Cullen/Frost bankers (1%), Svenska Handelsbank (2%): Svenska and Cullen/Frost are very well run banks. I had made a promise to not invest in banks but after reading their annual reports I was very impressed by the management. CFR has significant management holding (~ 7%) and Svenska’s management summary and compensation are a thing of beauty.
Baidu (2%), Apple (2%) : Again, cheap and great businesses.
Berkshire (1%), Bam (1.5%), Aggreko (3%).
In all these cases, I have tried to shift towards buying great business at good prices.