Northeast Bank: Well-Managed, Opportunistic Purchaser of CRE Loans

January 18, 2024 in Audio, Best Ideas 2024, Best Ideas 2024 Featured, Diary, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

Javier López Bernardo of BrightGate Capital presented his in-depth investment thesis on Northeast Bank (US: NBN) at Best Ideas 2024.

Thesis summary:

Northeast Bank is a small US regional bank based in Maine, with a market capitalization of USD ~400 million. The bank is led by Rick Wayne, a banker with an excellent three-decade track record of around 20% CAGR, focused on buying CRE loans in the secondary market.

NBN has structural advantages over its competitors, both regional banks and private debt funds, that the market does not recognise. Although structured as a bank, it has an investment philosophy of opportunistic loan purchases and a vision of long-term shareholder value creation.

The recent turmoil in the banking sector has enabled the management team to acquire loan portfolios at deep discounts, which will add significantly to NBN’s book value over the next few years. Rick and his team have had no credit losses on their loan portfolio over the past decade.

Finally, the bank is trading at a fair valuation. NBN’s ROA and ROE have recently been 2% and 20%, respectively. By trading close to book value, the valuation is reasonable and does not take into account other one-off opportunities the management team may encounter, as they have done in the past.

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About the instructor:

Javier López Bernardo is Portfolio Manager (equities and high yield) at BrightGate Capital SGIIC, an independent asset management boutique company based in Madrid, Spain.

He holds a Bachelor in Business Administration (major in finance) from the Universidad Complutense de Madrid, a Master in Corporate Finance and Investment Banking from the IEB and a Master in Economics from Kingston University, where he also earned a Ph.D. in Economics. His academic research on equity markets and growth theory has been published in leading international journals.

He is a CFA Charterholder and was a two-year full scholarship recipient of the Ramón Areces Foundation. He is a lecturer for the CFA programme and also at the Advantere School of Management, where he teaches asset management and behavioural finance.

Capri/Tapestry: M&A Arbitrage Situation With Attractive Risk/Reward

January 18, 2024 in Audio, Best Ideas 2024, Diary, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

Jeffrey Stacey of Stacey Muirhead Capital Management presented M&A arbitrage idea Capri Holdings (US: CPRI), which is in the process of being acquired by Tapestry (US: TPR), at Best Ideas 2024.

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About the instructor:

Jeffrey Stacey is the founder of Stacey Muirhead Capital Management Ltd. and he has over 35 years of investment industry experience. Jeff has an Honours Bachelor of Business Administration degree from Wilfrid Laurier University and is a Chartered Financial Analyst.

Jeff has been involved in many charitable and board activities throughout his career. He has served on several investment committees including for two Canadian universities. In addition, he has served on the advisory boards for two university student managed investment funds.

Jeff is married and has two children. Personal interests include hiking, fitness, reading, travelling, and playing drums.

TPI Composites: Wind Turbine Blade Maker at Cycle Inflection Point

January 17, 2024 in Audio, Best Ideas 2024, Best Ideas 2024 Featured, Diary, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts, Transcripts

Ian Clark of Dichotomy Capital presented his investment thesis on TPI Composites (US: TPIC) at Best Ideas 2024.

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About the instructor:

Ian Clark is the Managing Member of Dichotomy Capital, a power focused investment manager that looks for opportunistic returns in the public and private markets. Ian leads the public security selection process for Dichotomy Partners, a long/short hedge fund that primarily invests in utilities, power companies, and the power industry daisy chain.

He is also the Chief Commercial Officer of Elevate Power LLC, an entity that owns and operates renewable energy assets that produce more than 120 GWh/ yr of power and has a dedicated retail energy arm. He is a regular contributor to State level energy policy and is active in numerous energy trade groups.

Prior to founding Dichotomy, Ian was an analyst for a NY-based hedge fund where he led research on private power investments and analysis of publicly traded independent power producers. He received his M.S. in Chemistry from the University of Oregon.

American Express: Well-Run, Cheap Compounder Hiding in Plain Sight

January 17, 2024 in Audio, Best Ideas 2024, Diary, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

Stephen Dodson of Bretton Fund presented his investment thesis on American Express (US: AXP) at Best Ideas 2024.

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About the instructor:

Stephen Dodson is the president and founder of Bretton Capital Management and serves as the portfolio manager to the Bretton Fund, a mutual fund with a long-term, concentrated, value strategy. Stephen serves on the San Francisco advisory board for YIMBY Action, a housing advocacy group.

Prior to founding Bretton in 2010, he served as president, portfolio manager, and chief operating officer of Parnassus Investments, a family of mutual funds. He previously worked for the venture capital group of Advent International, a private equity firm, and was an investment banker for Morgan Stanley in New York and Menlo Park.

Aaron Edelheit Shares His Thoughts on the Cannabis Industry

January 17, 2024 in Audio, Best Ideas 2024, Diary, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

Aaron Edelheit of Mindset Capital discussed his fundamental outlook and investment thesis on the cannabis industry at Best Ideas 2024.

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About the instructor:

Aaron M. Edelheit is the CEO and Founder of Mindset Capital, a private investment firm. Aaron also was the Chief Strategy Officer of FLO Technologies, after being one of the first investors in the company, helping the company grow from a pre-revenue startup to raising $28 million and launching in over 500 Home Depot stores. FLO was acquired in January of 2020 by Fortune Brands.

In his previous role as CEO of The American Home, Aaron founded and grew a company from 16 rental homes to one that owned 2,500 single family rental homes and was sold in April 2015 to a publicly traded Real Estate Investment Trust.

Aaron also founded and ran a successful money management firm, Sabre Value Management from 1998 to 2011.

In 2018, IdeaPress published Aaron’s first book, The Hard Break: The Case for a 24/6 Lifestyle. The book makes the case for taking one day off from work, email and smartphones for a more productive, healthier and more creative life.

Aaron has served on the boards of non-profits such as the Moishe House Foundation, Global Village Project, and Dignity Moves. He is also a member of Social Venture Partners in Santa Barbara, California. Aaron has also been featured and quoted in the Wall Street Journal, New York Times, Bloomberg, and CNBC among others and has given lectures on business and entrepreneurship in the U.S., Canada and South Africa.

nLIGHT: Founder-Led Laser Business, Expanding Into Defense Market

January 16, 2024 in Audio, Best Ideas 2024, Diary, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts, Transcripts

John Barr of Needham Funds presented his in-depth investment thesis on nLIGHT, Inc. (US: LASR) at Best Ideas 2024.

Thesis summary:

Established business growing, while investing in new business. nLIGHT has an industrial business that serves the welding, cutting, additive manufacturing and microfabrication markets. The company has been investing in its business since 2019 and has accumulated $161 million of losses. nLIGHT has also invested in the defense business with the acquisition of Nutronics, a new manufacturing facility in Camas, WA, which John believes has $1 billion of capacity and sales and marketing to diversify its revenue base away from China.

After years of research and development across industry and government, the laser industry has seen rapid progress over the last few years. Laser systems may be operationally deployed in the defense industry within the next five years, and nLIGHT could be one of a handful of suppliers.

Can the company be 5-10x its current size? nLIGHT serves the microfabrication, industrial and defense markets and the company estimates that in 2025, these markets will total $3 billion, including $1 billion from defense. In the last 12 months, nLIGHT had industrial and microfabrication revenue of $127 million, aerospace and defense revenue of $37 million, and government fiber laser defense contract revenue of $50 million. With 25% annual growth, the existing product business could achieve $500 million of revenue in five years. This business is lumpy based on economic activity.

The upside in nLIGHT comes if defense fiber laser systems see their first operational deployments. The U.S. DoD has a pressing need for fiber laser defense systems to combat the asymmetric threat from low-cost drones. In September 2023, Laura DeSimone, Executive Director, Missile Defense Agency (MDA) said, “However in recent months, the agency has seen ‘that technology maturation is happening,’ including at the US national laboratories, the Department of Energy and within industry.” If fiber lasers are ready for defense markets, they could be quickly adopted.

Purchase with a margin of safety. As of September 30, 2023, nLIGHT had $112 million of cash and no debt, other than $14 million of leases. John estimates nLIGHT will use less than $10 million of cash before turning EBITDA positive, which could leave $2.00 per share of cash. The cash cushion provides protection from a worst-case scenario.

The ultimate measure of safety comes from the profitability of the business. Wall Street estimates show nLIGHT with $42 million of net losses in 2023. John estimates that nLIGHT will reach breakeven in two to three years at approximately $350-400 million of revenue.

nLIGHT’s minimal reliance on China, along with its U.S. headquarters and manufacturing also provides a margin of safety. In 2016, 38% of nLIGHT’s revenue was from China. nLIGHT has invested to diversify its revenue base away from China and in 3Q23, revenue from China was down to 5%. nLIGHT is one of just a few companies with the expertise and capacity to meet the U.S. DoD requirements. As nLIGHT has pivoted its plans toward the U.S. DoD, it is imperative to have minimal presence in China.

Fiber laser peers in the defense sector, such as Lockheed Martin Corporation (LMT), RTX Corp. (RTX), Northrop Grumman Corp. (NOC), are much larger companies. These larger companies are not vertically integrated and are customers of nLIGHT’s semiconductor diodes business. IPG Photonics Corp. (IPG) is a peer in the industrial market, but has significant operations in Russia and Belarus, which hinder its ability to compete for U.S. defense business.

The final element of margin of safety comes from the valuation and John’s long-term earnings estimate. nLIGHT is valued at $13.50 per share with approximately $2.00 per share of cash. This $13.50 stock price reflects the outlook for the next 12 months. Since 2022, nLIGHT’s financials have shown gross margin in the low 20%s and declining revenue, as China revenues declined and low-margin fiber laser defense research and development contract revenue grew. Gross margin and net income are estimated to remain unremarkable until fiber laser defense product sales grow.

At some point in the next five years, we could see a substantial boost in the defense systems business, and nLIGHT could earn up to $2.50 per share. The market will start to recognize this value in advance with technical and commercial progress. Risks to this estimate: The defense business may not succeed and the industrial business may not grow.

Management: founders, family, long-tenured. nLIGHT was founded in 2000 and its three co-founders are still active in the business. CEO Scott Keeney was previously CEO of Aculight Corporation. Aculight was a laser defense company purchased by Lockheed a few years after Scott left. Mark DeVito is VP of Device Engineering, and Scott Karlsen is an optical engineer. Founder CEOs tend to think long-term, which matches John’s investment time horizon. We want nLIGHT’s management to make appropriate investments, like the defense business, that may not pay off for several years.

nLIGHT fits John’s criteria of a “hidden compounder”, as it is investing in manufacturing capacity and the defense business, and has the potential to be 5-10x its current size. The U.S. DoD has a pressing need for fiber laser defense systems to combat the asymmetric threat from low-cost drones. When fiber laser systems are ready, their adoption could be rapid.

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About the instructor:

John Barr manages the Needham Aggressive Growth Fund, NEAGX and co-manages the Needham Growth Fund, NEEGX. He has managed these funds since January 2010. John started on Wall Street in 1995 with Needham as a sell-side analyst following technical software companies, including electronic design automation (EDA) companies. John rejoined Needham in 2009 because of the culture, which lives and breathes growth companies and long-term investing.

From 2000-2002, John was a managing director and senior analyst at Robertson Stephens, following semiconductor technology companies. He was an Institutional Investor All-Star and was ranked by Reuters as leader of one of the top software teams. In 2002 John moved to the buy-side and joined Buckingham Capital Management where he served as a portfolio manager and analyst for their diversified industry long/short domestic equity hedge fund.

John’s first career was outside of Wall Street, where he spent 14 years in sales, marketing and management, primarily in the EDA industry. Working in these small companies makes him think like an owner and to look for that trait in his investments. John loves the challenge of identifying businesses with compounding characteristics and getting to know the companies over the course of years. From his industry experience, he looks to invest in companies that he would have liked to have been part of.

Jeff Auxier Shares His Thoughts on Value Investing and Arch Capital

January 16, 2024 in Audio, Best Ideas 2024, Diary, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

Jeff Auxier of Auxier Asset Management shared his thoughts on value investing and discussed his thesis on Arch Capital Group (US: ACGL) at Best Ideas 2024.

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About the instructor:

Jeff Auxier began lessons in finance early–at age 11, mowing the lawn of Robert Pamplin Senior the former long-time CEO of Georgia Pacific and recipient of the “World’s Top CEO Award”. Mr. Pamplin tutored Jeff on living a life of ethics. As Jeff puts it, “Mr. Pamplin always put his shareholders first and believed business should be transparent. He said the language of business is accounting, and that if you can’t speak the language, you can’t make money.” In 1981, Jeff graduated with honors from the University of Oregon with a degree in Finance and an emphasis on accounting. Immediately, Jeff began calling or personally meeting with some of his investment heroes, long before they became today’s financial rock stars. Names like Warren Buffett. Not yet known as the Oracle of Omaha, Mr. Buffett graciously took several of Jeff’s calls and offered advice, most notably, “Number one don’t lose your principal and number two, never violate the first rule.” To this day, the cornerstone of the Auxier Focus Fund is respect for the power of compounding.

Glenn Surowiec Shares His Thoughts on Intelligent Investing in 2024

January 16, 2024 in Audio, Best Ideas 2024, Diary, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts, Transcripts

Glenn Surowiec of GDS Investments shared his thoughts on intelligent investing in 2024 in a conversation with John Mihaljevic at Best Ideas 2024.

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About the instructor:

Glenn Surowiec founded GDS Investments in 2012. From 2001 to 2012, he worked for Alsin Capital Management, Inc. as an equity research analyst (2001-2003), co-portfolio manager (2003-2008), and portfolio manager (2008-2012). Before joining ACM, Glenn worked for Enron Corp. as a derivatives structuring manager, and for Commerce Bancorp (now TD Bank) as a real estate credit analyst.

​Glenn has a B.A. in Management (Accounting concentration) from Gettysburg College and an MBA (Finance concentration) from Southern Methodist University. He graduated in the top 10% of his MBA class and participated in study-abroad programs both as an undergraduate (Seville, Spain) and graduate student (Melbourne, Australia). Glenn’s interests (outside investing) include running, cycling, golfing and spending time with his wife and three teenage boys.

KINX: High-Quality, Growing Data Center Services Provider in Korea

January 15, 2024 in Audio, Best Ideas 2024, Diary, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

James Fletcher of Ethos Investment Management presented his investment thesis on KINX (Korea: 093320) at Best Ideas 2024.

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About the instructor:

James Fletcher is an experienced Emerging Markets portfolio manager with a strong history of alpha generation and top quartile fund performance with 19 years of investment experience. James is the founder and CIO of Ethos Investment Management (www.ethosinvest.com), which manages approx. $100M AUM in small and midcap EM stocks with a focus on quality businesses and was founded in 2021. Previously James was the Director & Senior Portfolio Manager of the EM SMID Cap fund at APG Asset Management since 2016, where he managed a ~$1.2B portfolio, one of the largest EM SMID cap funds in the world. APG is the largest pension fund manager in the Netherlands and a global leader in ESG investing. From 2013 to 2016, James was the Lead Portfolio Manager at Kayne Anderson Rudnick’s EM Small Cap fund (ticker VIESX), a Morningstar 5-Star rated fund that was awarded 2015’s “Best Fund Product for High Net Worth Clients” by Private Asset Management. Previously James was Senior Analyst at Westwood Global Investments from 2005-2013. James is a CFA charterholder. He is also the founder of the global non-profit, Young Investors Society (www.yis.org). James has an undergraduate degree in Finance from Brigham Young University and is fluent in Portuguese and proficient in Spanish and has lived in Brazil and Hong Kong.

DRDGOLD: Niche Player, Synergistic Relationship With Parent Sibanye

January 15, 2024 in Audio, Best Ideas 2024, Diary, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

A.J. Noronha of Desai Capital Management presented his investment thesis on DRDGOLD (US: DRD) at Best Ideas 2024.

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About the instructor:

A.J. Noronha, CFA has over ten years of investment management experience, and has worked closely with Mr. Desai since Desai Capital Management’s inception in 2013 with all aspects of the fund, with his primary responsibilities being equity research, due diligence, and developing investment theses for DCM’s portfolio.

He has been ranked as highly as #1 (Value), #6 (Long), and #9 (both Overall and North America) in SumZero’s independent analyst rankings, and his independent research on Dow Chemical was selected as one of their top ideas of 2015.. He served as an instructor for MOI Global’s Best Ideas 2018-present and Wide Moat Summit 2018, and was an invited participant (non finalist) in the 2017-2018 Sohn Conference Foundation Idea Contests, 2017 SumZero/Van Biema Value Partners Idea Challenge, and 2017-present SumZero Top Stocks Contest.

In addition to DCM, A.J. is involved with several early-growth stage private market funds. Prior to DCM, Mr. Noronha gained investment experience working for a mid-market PE/VC fund, and also co-founded and served in a C-level role for a biomedical engineering startup. He earned a degree in Finance, magna cum laude, from the University of Notre Dame, where he was selected to be a member of the prestigious Applied Investment Management honors finance course where students manage a portion of the University endowment under the guidance of the Chief Investment Officer, and also holds a JD with Dean’s List honors & a concentration in business enterprise (selected coursework taken through the Kellogg School of Management) from Northwestern University. He is a proud CFA Charterholder, is an active Candidate Member of the CFA Society of Chicago & serves on its Professional Development Advisory Group Board, and is a member of Irish Entrepreneurs & Harvard Alumni Entrepreneurs.

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