Value Investing Congress Blog

Vitaly Katsenelson- portfolio manager with Investment Management Associates and author of Active Value Investing, laid out his rationale for suggesting that markets are currently range-bound, and will continue to be so for the foreseeable future:

• Range Bound Markets are caused by valuation
• Interest rates are secondary
• Profit margins are near all time highs, and will revert
• As margins decline, the “E” in P/E will also drop, P/Es will rise
• Profit margins in most sectors will decrease
• Stocks are not currently cheap
• In range bound markets, careful stock selection is paramount

Katsenelson’s favorite idea is clothing retailer Jos A. Bank (JOSB)

• $420 million mkt cap, no debt, $80 million in cash
• Great service, quality at a reasonable price
• Wall Street hates the stock because of low inventory turnover, and the fact that management communicates terribly
• Despite pulling back considerably, returns on capital, and net margins are still rising to historic levels
• Currently trading around $25.50, Katsenelson believes the stock could be worth $41-$53

Next up were Atticus Lowe and Lance Helfert from West Coast Asset Management who run very concentrated portfolios, and look for the following: Margin of safety, catalyst, management quality and strong cashflow. They caution against the classic value trap, and getting sucked into ideas that appear cheap, but are actually facing obsolescence. They suggest that value investors take it upon themselves to:
• Observe like-minded investors- see what the managers you respect are buying
• Attend special events for ideas and information (trade shows, Value Investing Congress, etc)
• Observe businesses first hand—speak to suppliers, employees, management
• Use stock screens

Lowe and Helfert’s best idea is gas company Canadian Superior Energy (SNG)

• $500 million mkt cap
• Western Canada and Trinidad operations worth $500 million alone
• Catalyst is recent discovery in Trinidad—80,000 acres, offshore natural gas field, which, if successful may put the company value from $10-$15/share (currently $3.50).
• British Gas experience and involvement will help
• Value not dependent on soaring natural gas prices

Jonathan M. Heller, CFA