A quick note of housekeeping before we begin. I think it’s time for a different format for the Friday/weekend link dump. The stats tell me they’re not very popular, and after approximately 3 years worth of them, it’s obvious the format is getting stale. So instead, we’ll do something like I was doing for the freelance link roundups. I’ll touch on a subject that just isn’t in depth enough for its own post, and then we’ll do links. Cool?
Let’s talk about Automodular, the company that I bought a whack of last November. I thought it was worth about $2.80 per share, based on assets on the balance sheet and the expected cash flow. The company was paying a succulent 10+% dividend, so I would be slowly be getting my cash back.
Automodular just announced it is officially closing down its plants in Oakville at the end of the year. It’s still hoping to pick up some other work in stuff like making wind turbines, but it doesn’t look likely.
So here’s where we’re at. At the end of June, the company had a book value of $2.35 per share. Earnings have slowed as Ford has begun the process of bringing some of the work in house. I did not anticipate this happening, but in hindsight it should have been obvious.
I predicted the company would make $25 million in cash flow in 2014. Though two quarters, it’s been less than $7 million. Part of that is because the company put more money aside to cover closing charges, but the fact is that business is slowing, and that’s affecting cash flow. Let’s assume just $5 million in cash flow over the last two quarters of the year to be conservative. That’s an extra $0.25 per share in cash flow.
Meaning, the company is currently worth $2.35, and I project it to earn another $0.25 in cash flow over the next six months. So if it liquidates at the end of 2014, I’m looking at $2.60 per share in assets, plus I would have collected my two $0.06/share dividends in the meantime. I’m not including additional dividends because they’d just come out of additional cash flow.
The company also has an outstanding lawsuit against GM for the way it severed the contract between the two companies back in 2010, but let’s file that under “not likely.”
So it turns out my initial analysis was a little optimistic, but it’s not looking too bad. As I type this, shares are trading at $2.16, and I think they’re worth $2.60 in just a few months. I should be buying more.
So far it looks pretty good. Not quite as good at the $2.90 I first anticipated, but still good enough for what I’m predicting to be a 23.6% return in a little over a year.
Time for links
Think it’s impossible to get a reliable car for under $5,000? You’re wrong, and the folks over at Jalopnik can prove it, with a list of 10 high quality cars you can put in your driveway for less than 50 Sir Robert Bordens. And those are on eBay. Shop around locally, and you can probably get an even better deal.
Garth Turner points out something I’ve been saying for years now. We’re throwing all sorts of resources towards teaching people financial literacy (including, according to Turner, $20 million per year from the feds) with very little to show for it. It’s embarrassing, and we’re learning nothing from it. It’s time for a different way.
Over at Motley Fool, I wrote about a Canadian way to get in on Warren Buffett’s latest purchase, auto dealerships. It’s not exactly a value stock, but there’s certainly growth potential.
I also wrote about Encana Corporation’s latest takeover, and how I’m not exactly a fan of the company diversifying back into oil.
Apparently it’s the Nelson link fest, cause it’s yet another article from yours truly. This one is over at Sustainable Personal Finance, and it covers my one tip on how to save money on nearly everything. I had to throw the nearly in there because, y’know, lawsuits. What? I get threatened with lawsuits 4 times a day.
Over at Earn Save Grow, my homeboy Robb points out how that extra 5% of your portfolio you leave aside for investing in long-shot high risk stocks is probably a bad idea, and should be invested just like the rest of your cash. I agree, but also think that the folks who don’t understand value investing think I’m doing the same thing with companies like MRRM.
And that’s about it. Have a good weekend, everyone.