In my last article I shared the strategies of three famous value investors. Each investor had one shared theme: focus on downside protection.
Q3 2019 hedge fund letters, conferences and more
These investors knew that in order to generate outsized returns, they needed to not lose money. Not losing money keeps them around long enough to reap the benefits of deep value investing.
Venturing Where Others Won’t
It’s also important to know where these investing legends found their ideas. How did they screen for stocks? Which rocks did they overturn? What was their sourcing process?
Let’s take a look at each investor.
Seth Klarman
Klarman searches through the market’s junk drawer. He focuses on companies on the verge of bankruptcy and stocks trading below cash or assets. These aren’t crowded investment spaces. You won’t find these companies on CNBC, Bloomberg or FinTwit.
Where to Find Klarman-like ideas: SEC Filings, Google Alerts, All-Time Lows
The tool I use to find companies on the verge of bankruptcy is to set Google Alerts. I’ll set alerts for the keywords:“Reorganization of bankruptcy” or “Chapter 11 stocks”. You can also scroll through filings of companies trading around their all-time lows.
You gotta put in the work. But then again, this is valuable work as other investors aren’t looking in these spaces.
Joel Greenblatt
Greenblatt loved spin-offs and dedicated most of his book You Can Be a Stock Market Genius to the topic. We’ve covered spin-offs in previous emails, but let’s recap.
The reason spin-offs are attractive is because of forced selling. Institutions can’t hold certain spin-offs. This forces them to sell the shares for non-fundamental reasons.
Where to Find Spin-offs: Google Alerts, SEC Filings, Spin-off websites
My favorite tool to find new spin-off ideas is a simple Google Alert for the keywords “stock spin-off” or “spin off”. You’ll sift through a few TV show spin-off rumors, but it’s worth the time. I also search for SEC filing Form 10-12/B. Companies must file this form when spinning off a company.
For more information on spin-offs, check out the website Stock Spinoff Investing.
Michael Burry
Burry preferred ‘ick’ stocks. These are stocks most investors pass over without a second glance. Along with these, Burry looks for ‘rare birds’. Rare birds are liquidation situations, stocks below net cash, etc. Things you’d find Klarman looking at.Where to find ick stocks: 52-week low list, all-time low list
Where’s The Next Deep Value Corner?
These investors go where others won’t to generate differentiated returns. In this month’s Value Ventures we’re diving deep into one of those areas.
This area remains untouched by a majority of the investment community.
Yet we believe this area is on the cusp of a major bull run and we’re revealing our top two picks.
A Potential 5-Bagger
Whenever you hear “potential five-bagger”, you roll your eyes and assume it’s another high-flying, cannabis stock. Yet one of the companies we found has the potential to be a five-bagger without much growth. In fact, if the company stays exactly where it is, we still see 300% upside.
This potential five-bagger meets all our requirements for an off-the-beaten-path idea. Management owns over 90% of the business. It’s the leader in its industry. It’s growing revenues, EBITDA and paying down debt. It trades less than $3,000 per-day. And market cap is around $350M.
It’s one of the cheapest businesses I’ve found in 2019.
You can read all about it in this month’s Value Ventures report. All you have to do is sign up at the link below:
Click here to discover the market’s next 5-bagger!
If you have any interest in catching this stock’s run make sure you subscribe now, because sooner or later the herd’s going to jump in and send this stock soaring.
Click here to subscribe to Value Ventures!
Article by Brandon Beylo, Macro Ops
