Notes to Myself…Open Text Corp…One of my Core Holdings

Notes to Myself…Open Text Corp…One of my Core Holdings

Open Text Corp…55.47 on the TSX…42.52 on the Nasdaq

Since Open Text has grown to be one of my largest holdings (and that’s saying something considering my huge positions in Brookfield Infrastructure Fund as well as Renewable Power and Property Partners…I thought I would jot down a few details about the stock to remind myself why it is one of my core holdings. I first bought Open text in the summer of 2015 after a second earnings miss and I think the CEO may have been suffering from Leukemia at the time…Anyway I already knew about the stock as it was one of the top holdings of a fund manager I follow in the states…The fund is Disciplined Growth Investors. The fund manager wrote a great book about growth stock investing called ‘Benjamin Graham and the Power of Growth Stocks’…great book by the way. I felt strongly that it was an opportunity to pick up a quality stock at a discount so I did…

Open Text Profile

Open Text Corp is a Canada-based company engaged in software development sector. The Company provides a platform and suite of software products and services that assist organizations in finding, utilizing, and sharing business information from any device. The Company designs, develops, markets and sells Enterprise Information Management (EIM) software and solutions. Its EIM offerings include Enterprise Content Management (ECM), Business Process Management (BPM), Customer Experience Management (CEM), Business Network, Discovery and Analytics. Its software and services allow organizations to manage the information that flows into, out of, and throughout the enterprise as part of daily operations. Its solutions incorporate collaborative and mobile technologies and are delivered for on-premises deployment, as well as through cloud, hybrid and managed hosted services models.

Recent Earnings Results from TD Securities Inc as of May 2, 2019

Revenue meets consensus; margins beat. We believe that investor sentiment heading into the quarter was cautious, given that Q3 has historically missed expectations. The above-consensus results should be received positively. Revenue of $719.1mm was in line with our estimate of $716.4mm and consensus at $710.4mm. EBITDA of $261.8mm was in line with our $259.4mm estimate, but 4% higher than the Street at $251.5mm. EPS of $0.64 was in line with our $0.63 estimate, but beat consensus of $0.60 by 7%. We believe that higher mix of license revenue helped margins exceed consensus expectations. The dividend has also been raised by 15%, in line with our expectations.

Guiding for muted seasonality in Q4. Q4 tends to be a seasonally strong quarter for OpenText. Given the strong results this quarter, management expects a more muted sequential increase. Professional Services is expected to deliver flat revenue of ~$71mm q/q and FX is expected to affect revenue by -$20mm. Opex is expected to rise 4-6% q/q, much lower than our forecast. Liaison is expected to affect EBITDA margin by 100bps, but the integration is on track for it to be on the OpenText model within the first year. The F2019 target model has been left unchanged. Given that the YTD EBITDA margin is already 38.5%, above the high-end of the range, we believe that OpenText will easily meet its target.

Record cash flow; strong balance sheet. The company generated another record quarter of $269mm in FCF, following the previous record of $244mm in Q3/F18. TTM FCF is now at a record $779mm, implying that the stock is trading at a TTM FCF yield of 7.5%, the highest in our coverage universe. The company ended the quarter with $1.9bln of net debt, or a net debt/EBITDA ratio of 1.7x, well-below management's comfort level of 3.0x.

Tit-bits from TD Securities Action List at the Beginning of the Year

Proven integration capabilities. OpenText deployed ~$2.4bln in capital to complete numerous sizeable acquisitions in F2017 and F2018. Despite the large acquisitions, OpenText expanded its EBITDA margin to 36.2% in F2018, from 34.6% in F2017. As of Q1/F19, OpenText's TTM ROIC is 14.4%, a steady increase from 12.6% in F2017. We believe improved margins and ROIC demonstrate management's ability to source and integrate accretive acquisitions.

Healthy recurring revenue should provide financial stability. We highlight that OpenText achieved 73.6% recurring revenue during the last twelve months. We believe businesses will continue to shift towards the cloud. As a result, we expect OpenText's recurring revenue to keep growing, providing financial stability and predictability.

Recent Developments

WATERLOO, Ontario, July 11, 2019 /PRNewswire/ -- OpenText™ (NASDAQ: OTEX), (TSX: OTEX), a global leader in Enterprise Information Management (EIM), and Mastercard (NYSE: MA), a technology leader in the global payments industry, today announced a partnership to help companies increase financial efficiencies across global supply chains, starting in the automotive industry. The collaboration will further advance a connected and scalable digital ecosystem, allowing companies irrespective of size, location or technical capability to build increased trust and security into trading partner relationships.

The new solution from OpenText and Mastercard aims to increase the speed, compliance and security for business information, payments and financing in the automotive supply chain. It is designed to facilitate integrated payments and to enhance the management of vendor master data, enabling suppliers to better manage risk for trade finance, accelerate cash flow for outstanding invoices and secure financial transactions with enhanced digital identity.

The integrated OpenText and Mastercard offering will also provide OpenText Business Network customers the ability to access spot financing through the Mastercard Track™ B2B global trade enablement platform. It will leverage the OpenText Supplier Portal (formerly Covisint Supplier Portal), the OpenText Identity Portal and the OpenText IoT Platform, integrated with Mastercard's financial partners.

OpenText and Mastercard will provide a single user interface which links users to supplier portal functionality and to Mastercard Track, with a secure, permissioned repository of more than 210 million registered entities worldwide. Buyers and sellers maintain and exchange key information related to their businesses and Mastercard Track provides monitoring on sanctions, credit and other business standards. This eases supplier selection, compliance and risk management; enhancing the comprehensive up-to-date supplier profiles in the OpenText Supplier Portal. Expanded supplier portal capabilities such as parts and services management and IoT contextual telemetry help auto companies avoid supply chain disruptions by identifying vendors with available parts to fill production gaps.

Waterloo, ON – 2018-11-7 – OpenText™ (NASDAQ: OTEX, TSX: OTEX), a global leader in Enterprise Information Management (EIM), today announced a new partnership with Google Cloud to bring key OpenText EIM solutions to Google Cloud Platform. 

“The world’s leading enterprises need a stable and secure hybrid-cloud infrastructure to manage their most valuable business assets, information,” said Mark J. Barrenechea, Vice Chair, CEO and CTO at OpenText. “OpenText is committed to providing the widest possible range of deployment options to customers, and Google Cloud provides a strong platform for companies to securely manage their content and applications with planetary scale.”

As part of this collaboration, Google Cloud and OpenText will work together to deploy OpenText’s EIM solution suite on Google Cloud Platform. This work will include a containerized application architecture for flexible cloud or hybrid deployment models. Deploying OpenText solutions on Google Cloud Platform will allow customers to autoscale their deployments as their businesses demand.

OpenText has selected Google Cloud as its first partner to support OpenText Anywhere to deliver hyper-scale hosting functionality to customers.

“Information is a critical asset for any business, but many large enterprises have not yet fully realized the value of their Enterprise Information Management solutions. That’s why we’re delighted to partner with OpenText to help customers run their Enterprise Information Management solutions securely, flexibly and at scale,” said Kevin Ichhpurani, Corporate Vice President at Google Cloud. 

“Enterprises across all industries are looking for a flexible, secure and stable cloud infrastructure to support their transformation into intelligent and connected enterprises,” continued Barrenechea. “We are committed to working with partners, like Google Cloud, to support our customers on their cloud journey.”

Finally some observations from James Telfser of Avenue Asset Management as of May of this year on BNN’s Market Call

Open Text is a solid long-term investment with mid-single digit organic growth, substantial free cash flow growth and catalyst potential through acquisitions ($6 billion spent on 30 acquisitions in the last 10 years). Open Text trades at a significant discount to peers in the software space (11 times EBITDA versus peers at 17 to 18 times). While this discount has been driven by “lumpy” quarterly results over the years, we’ve noticed a change in management focus towards consistency, return on capital and organic growth which will help close this gap. We like the fact that annual recurring revenue makes up 75 per cent of total revenue, including cloud-based services which in the recent quarter were up 14 per cent year-over-year. We also like that the business model of Open Text drives significant free cash flow, which helps drive the M&A cycle. If you think in years versus quarters with Open Text, we believe you will be rewarded with strong shareholder returns that will likely outpace the major indexes.

Postscript

I visited the companies’ website as well and downloaded a couple of investor slideshow presentations. There is so much information there my head was swimming but the important point is this…try to get a handle on the broad-brushstrokes of what is going on. Peter Lynch once said that you should be able to explain your investing thesis with a crayon…So with Open text I see high recurring revenue coupled with lots of free cash flow which seems to be based on their business model as detailed below from an earlier blogpost of mine...and one more thing, a lot of free cash flow makes the debt a company carries on its books much less of a problem as management can pay down their debt using the cash flow churned out by the business itself...

‘Companies that have high recurring revenue usually exhibit lower sales volatility and greater predictability of their earnings and cash flows which help management lessen the operational risk of running their business. It reduces the strain from growth since a company with high recurring revenue has to put forth a lot less effort to grow revenues. Companies whose customers need to buy their products or services on a consistent basis usually exhibit less earnings volatility thus lessening risk to both the company and its investors.

The purest form of recurring revenue involves periodic licensing fees that follow upfront product purchases. This license model often appears in the software industry, where customers pay an upfront installation charge and subsequently make monthly or annual payments for maintenance, support and upgrades.’

I'll re-visit Open Text in the future and next time I'll seek out information from the management team themselves...and a big thank goes out to Frederick K. Douglas and the management team at Disciplined Growth Investors who first alerted me to this outstanding company.

Notes to Myself…Intact Financial Corp…One of my Core Holdings

Notes to Myself…Intact Financial Corp…One of my Core Holdings

Intact Financial Corp…125.95 on the TSX

Company profile

Intact Financial Corporation is a holding company, which provides property and casualty (P&C) insurance. The Company operates through P&C insurance operations segment. It offers a range of car, home and business insurance products, including personal auto, personal property, commercial P&C and commercial auto. It offers various levels of coverage to customers for their liability, personal injury and damage to their vehicles through personal auto. Its coverage is also available for motor homes, recreational vehicles and others. Under personal property, it covers individuals for fire, theft and other damages to both their residences and its contents, as well as personal liability coverage. Under commercial P&C, it offers coverage to a group of small and medium-sized businesses, including commercial landlords, manufacturers, transportation businesses, agriculture businesses and service providers. Under commercial auto, it provides the same type of coverage as personal auto category.

Intact Financial Corporation is the largest provider of property and casualty insurance in Canada by annual premiums as of 2017.^[2] Formerly an ING Group subsidiary, ING Canada, Intact changed its name from ING Canada to Intact Insurance in 2009.

The company has over 13,000 employees and insures more than five million individuals and businesses through its insurance subsidiaries. The company distributes insurance under the Intact Insurance brand through a wide network of brokers, including its wholly owned subsidiary, BrokerLink, and directly to consumers through belairdirect.

The company came together through a series of major acquisitions starting in 2011 when Intact acquired AXA Insurance's Canadian operations for $2.6 billion. The next year Intact acquired Jevco Insurance Company for $530 million, which allowed the company to expand its service to brokers through the opportunity to offer their clients complementary specialized products such as recreational vehicle insurance and specialty lines products to businesses.

In 2014, Intact acquired Metro General Insurance Corporation which operated largely in Newfoundland and Labrador. In 2015, it acquired Canadian Direct Insurance Incorporated (CDI), extending its direct-to-consumer operations from coast to coast.

Business and Business Segments

Intact's multi-channel distribution operates under the following distinct brands:

·                    Intact Insurance

Intact Insurance is Canada’s largest home, auto and business insurance company.

·                    belairdirect

Established in 1955, belairdirect is a direct-to-consumer P&C insurance company. In 1997, belairdirect became the first car insurance company in North America to offer an online car insurance quote directly to consumers. The company became an Intact Financial Corporation company in 1989.

·                    BrokerLink

Established in 1991, the companies, which include Canada Brokerlink Inc., Canada Brokerlink (Ontario) Inc. and Macdonald Chisholm Trask Insurance, together constitute one of the largest Canadian property and casualty insurance brokerage operations with over 115 offices and more than 1,400 employees across Ontario, Alberta and Atlantic Canada. The BrokerLink companies are subsidiaries of Intact Financial Corporation (TSX: IFC).[16]

BNN Comments

Intact Financial is the largest property and casualty insurer in Canada with a mid-teens market share. Its product mix is roughly two-thirds personal lines (auto and home) and one-third commercial lines. The company has well-established track record of outperforming the industry's profitability. Intact’s return on equity (ROE) is over 500 basis points above the industry average over the last 10 years.

They also have a great track record of growth through a series of acquisitions. Since its IPO in 2009, Intact has increased EPS at a 11 per cent compound annual growth rate, exceeding its long-term goal of 10 per cent. Intact is able to leverage its scale to achieve competitive advantages in pricing and segmentation (more data, more actuaries, and better technology), and claims (through internalizing all functions and supply chain savings), which drives margin improvement. Organic growth is supplemented by earnings-accretive insurance company and insurance broker acquisitions. 

Unlike the Canadian banks, Intact also has plenty of opportunities to continue consolidating its still-fragmented industry in Canada. With 70 per cent of Intact’s business in auto (50 per cent) and home (20 per cent) insurance, Intact also provides better downside risk protection if macro conditions worsen, given its defensive attributes operating in the property and casualty insurance industry.

Teal Linde, Linde Equity Report

With an 18 per cent market share, Intact Financial is the largest property and casualty insurer in Canada.  Intact underwrites auto, home, commercial and specialty insurance policies and is best known for the efficiency of its operations and its consistent underwriting profitability, which enables them to target a return on equity 5 per cent higher than its rivals and which currently stands at 13 per cent.

 

As a consolidator of the still-fragmented insurance market, Intact has grown earnings at a 9 per cent compound rate over the last five years and mostly recently made a foray into the U.S. with the purchase of specialty insurer One Beacon.  Macroeconomic forces like climate change risk, rising property values and rising interest rates all advantage Intact through higher policy premiums on higher insured property values and higher income earned on their insurance float. 

It's a growth story with a lower payout ratio than the larger life insurance companies. It's different from the lifecos, because they are the biggest Canadian property and casualty insurer. They've enjoyed significant capital appreciation. Their costs are lower than their peers and they have a strong balance sheet, allowing them to make acquisitions. They recently bought an American company. An excellent CEO. This will continue to grow.

Brian Madden, Goodreid Investment Council

Book Review: You Can be a Stock Market Genius

Book Review: You Can be a Stock Market Genius

Investing books are always popular because everyone is looking for that silver bullet that will lead them to riches. Knowing this the book industry publishes a lot of trash about getting rich in the stock market…Having said that, there are however some real gems out there if you hunt for them. One really outstanding book that has greatly influenced the way I’ve invested over the years has been, You Can be a Stock Market Genius by Joel Greeblatt…Its an awful title to an outstanding book…Below is a pretty good review on it to give you an idea of what it’s about.

Originally published in 1997, “You Can Be A Stock Market Genius” remains popular today and is enthusiastically endorsed in a number of reviews on the internet.  The author, Joel Greenblatt, ran hedge fund Gotham Capital racking up a 50% average annual return over a 10 year period spanning the mid 80’s to the mid 90’s.  “You Can Be A Stock Market Genius” reveals how he did it and suggests that a motivated individual could do it too, even if he wasn’t all that smart.  Mr. Greenblatt has since acknowledged in subsequent books that these methods require more work than the average individual investor can muster.  His two subsequent books “The Little Book That Beats the Market” and “The Big Secret for the Small Investor” suggest stock screening methods that outperform the market without much effort from the individual.

I was enthralled with the book when I first read it in 1998 and have 14 years of experience since then implementing some of the strategies.  I’ll tell you my own experience later but first let me summarize the chief ideas in the book.  First, when a small individual investor goes up against professional portfolio managers, it’s no contest.  The professional portfolio manager doesn’t have a chance.  The intelligent and competent professional’s performance is strangled by the billions of dollars he has to invest.  Liquidity demands limit him to choosing among the largest and most followed stocks.  The individual, by contrast, has a universe of 10,000+ stocks to choose from including many smaller companies that are inefficiently priced.  Mr. Greenblatt points you in the book to the microcap space to look for mispriced securities.

He goes further than that, however, pointing you to specific situations where microcaps are especially likely to be undervalued.   In particular, there are certain situations where securities are dumped into the brokerage accounts of investors who didn’t buy them and don’t really want them.  This can result in indiscriminate selling and a temporarily depressed stock price.  A large company spinning off a smaller subsidiary to its stockholders is his favorite example.  The spinoff security just shows up in brokerage accounts all over the world at the same time.  Investors didn’t buy the security, they likely know little about the company, and in some cases may not even be allowed to own it.  A large-cap mutual fund, for example, may receive a microcap spinoff that their charter forbids them to own.  The value of the spinoff compared to the value of their investment in the parent may be small so they’re motivated to sell it without even investigating its fair value.  Company management doesn’t want to promote the new spinoff company until after their stock options are priced.  At the same time investors are selling indiscriminately, therefore, there’s also a dearth of information available for prospective buyers.

A second special situation is companies emerging from bankruptcy.  Many debts are reduced in bankruptcy and some of the debt is replaced by issuing new shares to the former creditors.  These new shareholders are in the business of loaning money and not owning equities so when the equity securities are issued to them they may want to sell perhaps indiscriminately.  A third special situation arises from company buy-outs.  In merger agreements, warrants or bonds or other securities are sometimes issued to sweeten an offer.  If you own shares in some large company that gets bought out, for example, you might receive $90 a share in cash and some 5-year warrants to buy additional shares of the acquiring company.  The tradeable warrants may be worth only a few dollars.  Many investors will just dump the relatively low-value warrants indiscriminately.  Mr. Greenblatt covers a number of other special situations including divestures and recapitilizations and discusses the use of options and LEAPS to provide leverage.

The book is full of specific examples of these situations from Mr. Greenblatt’s Gotham Capital days.  He includes his thinking that went into his decision to buy and later the decision to sell.  Mr. Greenblatt believes in personal motivation.  He likes to see generous option packages to incentivize the management team of a new spinoff, for example.  The very best situations arise when Wall Street doesn’t want the new security but the management or major owners do.  He cites specific examples involving spinoffs that Wall Street dumped but insiders (Malone and Hilton) wanted that became big winners.

The book is dated in one respect.  The method that Mr. Greenblatt suggest to find these special situations is to read a lot.  Articles in the Wall Street Journal or other publications pointed him to these situations while at Gotham Capital.  There are other ways today that are easier although reading a lot is still a good idea for any investor.  A search of SEC filings for form 10’s will bring up a list of recent and upcoming spinoffs for example.  There are free websites that maintain such a list as well.  Divestures can be found with a Google search.  I use the term “definitive agreement to sell” in the search and have results e-mailed to me daily.

I’ve had great success implementing two of Mr. Greenblatt’s methods.  A large company spinning off a micro-cap happens a few times a year and almost always results in an undervalued security.  Let it trade for at least two weeks before buying as prices nearly always fall initially.  Divestures often uncover a successful and undervalued remaining company just as Mr. Greenblatt explains in the book.  I’ve made a lot of money on these situations over the years.  Recapitalizations seem to be very rare these days, and I’ve never invested in such a situation.  I have come across an occasional merger security but never invested in one.  Mr. Greenblatt acknowledges in the book that the bankruptcy emergence situations didn’t seem to be as profitable as they once were.  The problem, he explains, is that hedge fund managers now buy up the debt before the company emerges from bankruptcy.  The issued equity doesn’t go to a bank but rather to a sophisticated hedge fund that knows what it’s worth.  I’ve invested in a few bankruptcy emergence situations with pretty mixed results.

I heartily recommend the book.  It’s both an interesting and humorous read while providing very valuable ideas and specific advice on what to look for in special situations.

Mark Vonderwell

Resources,

https://microcapclub.com/2012/07/book-review-you-can-be-a-stock-market-genius-by-joel-greenblatt/

Book Review: You Can be a Stock Market Genius: Chapter 1 – 2

Book Review: You Can be a Stock Market Genius: Chapter 1 – 2

Here is a review of Greenblatt’s classic book that focuses on the basic investing tenants covered in the first two chapters. These investing insights have become basic to my whole investing approach and echo what I have always intuited…despite what the financial industry/academia say, volatility is not risk…it is noise.

In the opening chapter, Greenblatt explains how the ordinary investor has a chance against all the portfolio managers who dominate the market.

For one thing, many of the well-educated MBA-types subscribe to the Efficient Market Hypothesis, which makes them measure risk in an absurd way according to value investors. Price volatility is considered the best measure for risk for these market participants, and since value investors evaluate risk upon better measures (e.g. risk of bankruptcy, revenue risk etc.), opportunities are out there.

Second, institutional managers have a much smaller domain in which to invest. A billion-dollar fund can only buy positions in billion-dollar companies, or else the positions will either be so small that they will not affect returns, or the position sizes would be large and market-moving. Ordinary investors, on the other hand, have thousands more stocks to choose from, increasing the chances of finding a diamond in the rough.

In order to benefit from these advantages, ordinary investors have to look in places that no one else does, since the opportunities available to them will not be publicized. Greenblatt compares this kind of investing to antique shopping for bargains. Antique shoppers that have some knowledge of the market for certain objects can often find bargains in out-of-the-way places where others of their ilk aren't competing with them. Greenblatt argues that small investors must employ a similar strategy, and this book is dedicated to illustrating how.

Chapter 2.

Greenblatt discusses some requirements that investors must follow if they plan to outperform in the market. First, they need to do their own work. The opportunities offering the best rewards will not be covered by the media or Wall Street. Investors must also not take advice from others, including brokers and analysts. These advisers are paid based on how much they generate in business for their firms, and not by how well you do.

Greenblatt also argues against too much diversification. For one thing, he cites research suggesting that as the number of stocks in the portfolio increases, the benefits of diversification drop quickly. For example, he argues that the diversification benefit between owning eight stocks and owning five hundred stocks isn't that large; but the benefit of owning eight stocks is that you can really pick your spots in terms of choosing stocks with potential upside that is higher than the potential downside. A better method of diversifying, Greenblatt argues, involves keeping some money out of the stock market (e.g. in cash, bonds, home equity etc.).

Greenblatt also advises that investors avoid looking at an investment in terms of its upside potential. Instead, look at the downside, and employ a margin of safety with all purchases. If you look after the downside, the upside usually takes care of itself.

Finally, Greenblatt discusses the fact that there are many ways to make money in the stock market. Every investor cannot possibly participate in even a fraction of the opportunities that are out there. Furthermore, there are many different methods by which investors can be successful. For example, Ben Graham used a quantitative, statistical approach, whereas Warren Buffett identifies and exploits competitive advantages. Greenblatt goes through a number of situations in the following pages that demonstrate the ways in which enterprising investors can profit from the market.

Resources,

https://www.gurufocus.com/news/123943/book-review-you-can-be-a-stock-market-genius-chapter-1--2

Notes to Myself…Blackberry Ltd…A Possible Takeover Target

Notes to Myself…Blackberry Ltd…A Possible Takeover Target

Blackberry Ltd…9.67 on the TSX...7.41 on the NYSE

Instead of picking stocks outright…a strategy I’ve employed with success over the years is gathering resources that focus on information that is off-the beaten track and somewhat contrarian by nature. Stephen Takacsy of Lester Asset Management (a small investment fund) has been a frequent source of a lot of my investing ideas. Another good source of information is the website, Seeking Alpha…now because it is a website; there can be a lot of nonsense there as well. An investor has to be discerning in his hunt for valuable (hidden and underused) information. That being the case, rather then focus on the articles that are published on the site which gets all the attention, I instead focus on the comments of other investors making observations about the article…Now as you could well imagine most of the comments are a waste of time, but the odd time I will find a well-thought out piece of analysis that is thought provoking and informative. The people making these comments usually only do it once and move on (a good sign, where as a lot of the others post comments again and again (a sign of a big ego) without saying anything worthwhile…Below are a couple of observations about the Canadain Tech company, Blackberry Ltd…

Many investors don’t realize that BlackBerry is now a pure software company with a growing double-digit recurring revenue base from three streams:

Enterprise security software for mobile communication, which the company is traditionally known for and it's transitioning into a software-as-a-service model;

The QNX operating system, the gold standard for the automobile industry for infotaiment and advanced driver assistance systems and for which BlackBerry gets a royalty per car (120 million cars so far); and a large patent licensing business.

BlackBerry also just acquired Cylance, a leading cybersecurity software firm that uses AI and machine learning technology to predict and prevent cyberattacks before they happen.

The stock trades at only 3.5 times revenues. We expect BlackBerry to be acquired within a few years at 7 to 10 times revenue by the likes of Microsoft for $20 to $30 per share.

Stephen Takacsy

"I have to admit however that the assets BB has purchased, together with its own technology assets, have the potential for much higher growth. The problem is that the company is still not there yet."...(quote from article)...

To me, that does't make sense.  When you take on an investment you are looking for future value, not the present value.  Why do you think CRWD has has the huge valuation that it enjoys at present. It's revenue is $250M with $140M losses and has a valuation of ~13B. CRWD is certainly not there yet to deserve such a huge valuation.

"Never, ever invest in the present. It doesn't matter what a company's earning, what they have earned." (Stanley Druckenmiller)

"BlackBerry operates primarily in four different segments.

The Enterprise and Software Services segment (ESS) provides core software offerings, including its Enterprise Mobility suite, BlackBerry’s secure communications platform, which accounts for 31% of revenue.

BlackBerry Technology Solutions (BTS) includes its automotive software technologies, including the QNX platform, which intends to take driver assistance and safety systems to the next level by building next-generation systems; it accounts for 20% of total revenue.

The company’s licensing/intellectual property segment accounts for 27% of revenue, and this is where the company’s global patent portfolio is managed and monetized, providing it with a competitive edge as it protects its technologies as well as monetizes them through licensing agreements.

Lastly, Cylance, which accounts for 19% of total revenue, is BlackBerry’s $1.4 billion next-generation cybersecurity provider acquisition, which elevated BlackBerry’s game in the fast-growing cybersecurity industry. This was a good move, as this industry will see explosive growth in the next few years, as more and more machines are connected and as the Internet of Things industry hits its growth projections of more than doubling by 2021 (relative to 2017 levels)."

ca.finance.yahoo.com/...

BB has so much more going for it than CRWD.  One can compare CRWD to BB as they are direct competitors in only one of BB's pipeline offerings.  Why such the Huge disconnect in valutions of CWRD verses BB. I have no doubt that time with solve this disconnect...

P.S  If one has any doubt that BB is not working on future growth they can only pay attention to John Chen during the CC when he states "We have two main operation priorities and one is to step up our investment to sustain that future growth. We are -- some of us are already working on the next fiscal year. So -- only Bryan works in the current fiscal year. Bryan’s probably on the call and that put a little bit more pressure on him.

And we will focus on integrating Cylance, which will yield a much longer-term shareholder value and we are off to a really good start on integration, products, people, so I am very pleased with that."

Zach 800, Seeking Alpha contributer

Postscript

The financial industry cater to the great unwashed (people who don't know about the markets). They try to market flashy, seeming easy ways to invest in stocks (Quant ratings that do the investor's thinking for them). As Gordon Gekko observed in the eighties film, Wall Street...'The most import commodity I know of is information'

And the more unobserved that information, the better...money is made in the dark, not the light.

Update...Dateline August 6, 2019...

We also increased our Blackberry position given how much it pulled back from a strong first quarter performance. Our thesis is that Blackberry is grossly misunderstood by the market. Investors still believe that it is a dying company. While its handset business is going to zero, its other segments are growing. Blackberry is entirely a software company today and is a global leader in enterprise security and encryption, imbedded operating systems in 150 million cars, licensing (owns 37,000 patents) and cybersecurity using predictive technology such as AI and machine learning with its recent purchase of Cylance. With the proliferation of connected devices and endpoints for hackers to attack, Blackberry’s goal is to become the dominant provider of software solutions to protect these vulnerable endpoints. The market’s current obsession with faster growing yet unprofitable companies has created attractive opportunities among the unloved like Blackberry. As its high margin recurring revenues grow and flow to the bottom line, Blackberry’s valuation multiple should expand and drive its share price significantly higher over the next 2 to 3 years, becoming a target for the likes of Microsoft.

Stephen Takacsy, Jordan Steiner, Tony Boeckh,

Lester Asset Management,

Second Quarter Letter, 2019

Notes to Myself...Maxar Technologies Inc...Turnaround Opportunity

Notes to Myself...Maxar Technologies Inc...Turnaround Opportunity

Maxar Technologies Inc...11.66 on the TSX...8.95 on the NYSE

I bought MAXR (Maxar Technologies Inc) back in early 2018. It was a play on space technology (satellites, so you could say it was hard tech), they had just acquired Digital Globe (soft tech). It seemed like a good fit as they now had both the hardware and software side of things in their industry…but they took on a ton of debt to make the acquisition.

Then, a short report came out and yada, yada, yada…the stock cratered...More bad news followed in the form of disappointing earnings and I cried uncle in December of last year and sold out my position at a deep loss. The CEO has since resigned and interesting enough the CEO of the acquired software company (Daniel L. Jablonski) has been handed the top job of running the company.

Something seems to be afoot here…heavy institutional money came into the stock earlier this year. Two value orientated fund managers I follow…Taylor Asset Management Inc and Penderfund Capital Management Inc…who both run narrow concentrated portfolios (that means they do their due diligence) took on big positions in the stock. Another institution that I don’t know well but that added to their position was Shapiro Capital Management LLC.

I visited the companies website and they seem to have become more transparent in the way communicate with their shareholders...that's usually a good sign...www.maxar.com

There is a lot of corporate news coming out about the company…new orders, possible sale of their space robotics unit to pay down their debt...The following is one investor’s take on what is going on…

I thought they were smart enough to do this in the first place and I said that they would as part of my investment thesis. They should finish WorldView construction and then sell off MDA, using the money mostly to reduce debt but also to provide additional working capital with which to continue to grow & expand the satellite imagery business. If possible, I think they should hold onto select small satellite manufacture capabilities and get rid of the larger ones but if it's not possible then I would understand and still think they should sell. A sale of the capital intensive MDA would reduce debt significantly and the result would be a growing business with much higher margins and a lean operating model. I would even like to see them (if this is even possible, I don't know) negotiate a deal with whoever buys MDA, either sign a contract or some kind of future letter of intent to provide a build out of the next generation of satellites in the future (for the generation following the soon to be finished worldview constellation,) and to provide support for the current generation of satellites. Either way, I think it would create a strong business with big margins.

Kagami426, Seeking Alpha contributer

That would make sense in that the current CEO (Jablonski) was the guy who use to run the software company that was acquired…an interesting restructuring and turnaround story with all of the bad news of last year already priced into the company's stock...

I don't have any money to buy in right now but I am going to follow this story.

Postscript

I put this blogpost together on the weekend, but already stuff appears to be happening...Check out the latest news item below...

01:50 PM EDT, 07/02/2019 (MT Newswires) -- Italy's Leonardo and France's Thales are considering the joint acquisition of a space business from Maxar Technologies (MAXR), Reuters reported on Tuesday, citing Leonardo's CEO Alessandro Profumo as saying.

"We are considering that with our partner Thales," Profumo told Reuters, referring to the MacDonald, Dettwiler and Associates business (MDA). "For us, they have a very good technology in the antennas for satellites, so it is an option we are considering."

(Market Chatter news is derived from conversations with market professionals globally. This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed.)

Notes to Myself...Dycom Industries Inc...Supplying a Future Market

Notes to Myself...Dycom Industries Inc...Supplying a Future Market

Dycom Industries Inc...58.35 on the NYSE

Dycom are a leading provider of specialty contracting services throughout the United States. They provide program management, engineering, construction, maintenance, and installation services for telecommunications providers, underground facility locating services for various utilities, including telecommunications providers, and other construction and maintenance services for electric and gas utilities. Dycom provide the labor, tools, and equipment necessary to plan, design, engineer, locate, expand, upgrade, install, and maintain the telecommunications infrastructure of their customers.

Developments in consumer and business applications within the telecommunications industry, including advanced digital and video service offerings, continue to increase demand for greater wireline and wireless network capacity and reliability. Telecommunications providers outsource a significant portion of their engineering, construction, maintenance, and installation requirements, driving demand for the services Dycom provide.

Telecommunications network operators are increasingly deploying fiber optic cable technology deeper into their networks and closer to consumers and businesses in order to better respond to consumer demand, competitive realities, and public policy support. Telephone companies are deploying fiber to the home to enable video offerings and 1 gigabit high-speed connections. Cable operators continue to increase the speeds of their services to residential customers and they continue to deploy fiber for business customers. Deployments for business customers are often in anticipation of the customer sales process. Fiber deep deployments to expand capacity as well as new build opportunities are increasing.

Significant demand for wireless broadband is driven by the proliferation of smartphones and other mobile data devices. To respond to this demand and other advances in technology, wireless carriers are upgrading their networks and contemplating next generation mobile and fixed wireless solutions such as small cells and 5G technologies. Wireless carriers are actively spending on their networks to respond to the significant increase in wireless data traffic, to upgrade network technologies to improve performance and efficiency, and to consolidate disparate technology platforms. Wireless construction activity and support of expanded coverage and capacity is expected to accelerate through the deployment of new or enhanced macro and small cells. These initiatives present long-term opportunities for Dycom with the wireless service providers they serve. As the demand for mobile broadband grows, the amount of wireless traffic that must be “backhauled” over customers’ fiber networks will increase.

From the Management’s Discussion and Analysis from their recent Quarterly Report

The company serves a narrow base of customers but they are huge in size…

T&T Inc.

Verizon Communications Inc

Comcast Corporation

CenturyLink Inc

Windstream Holdings Inc

Charter Communications Inc

This makes their earnings lumpy as these big guys will cut back on their capital spending depending on the way the economy shifts and turns over time. Wall Street in turn, punishes Dycom for the earnings misses that ensue…Yes its stupid but that’s the herd effect of the groupthink on Wall Street... but it’s all to the advantage of the individual investor who refuses to take the consensus view.

The following is the CEO's Letter to the Shareholders as of April 2019…

https://filecache.investorroom.com/mr5ir_dycom/345/2019%20Annual%20Letter%20to%20Shareholders.pdf

Gordon Reid of GoodReid Investment Counsel has been touting this stock for awhile now…the following are a sample of his comments while guesting on BNN Bloomberg’s Market Call (a call-in investment talk show)

'Dycom is a telecom services company, capturing a large share of the massive amount of work to upgrade wireline networks to accommodate greater bandwidth. Recent financial reports showed lumpy results, as customers’ annual budgets and consolidation in the telecom space led to a pause in spending. What’s lost in the market’s reaction is the decades-long initiatives that will likely result in an annual over 15 per cent growth in earnings before interest and taxes for Dycom.'

'Dycom is a telecom services company, capturing a large share of the massive amount of work to upgrade wireline networks to accommodate greater bandwidth. Recent financial reports showed lumpy results as customers front-loaded annual budgets and consolidation in the telecom space led to a pause in spending. What is lost in the market’s reaction is the decades-long initiatives that will likely result in an annual 15 per cent+ growth in EBIT for Dycom.'

'This is in the business of basically wiring North America for 1 Gb streaming of data transmission. We are all looking for “more”, which comes in the form of a more complex data packet, and certainly streaming. Everybody is getting into streaming and we are watching movies and TV shows on computers and mobile devices. We need the transmission infrastructure to do that, and this company does that. Management is confident that over the long-term, they can grow EBIT (earnings before interest and taxes) at a 15%-16% annual clip. This makes this a very compelling long-term buy. Be patient.'

Thank you, Gordon

Postscript

I was first alerted to Dycom Industries by scanning the holdings of Southernsun Asset Management LLC...That is another fund I follow as it has a narrow concentrated investment portfolio. Again, that means they prefer to do their own due diligence instead of diversifying their returns away. I often come across investment ideas that way...In this case Southernsun bumped up their already large holding of Dycom by an additional 30 percent by the end of the first quarter. I then did some quick research using other resources I have gathered together through the years...nothing intense really. And bang!...and interesting investment idea presented itself...This is largely how I go about researching investment ideas...By focusing on under-followed and under-valued information.