Investment Fund

The Walt Disney Company – Position Update

The Walt Disney Company

Disney is a DOW Jones Industrial Average member, which means it is one of the top 30 publicly traded companies. Anytime an investor can buy this company at a low price, it will reward patience. This site’s Value Investment Fund took advantage of the recent market decline along with the entertainment industry’s setbacks and now owns three separate tranches of The Walt Disney Company.

The Walt Disney Company – Sold PUTs

The Walt Disney Company

Today, May 9, 2022, the Value Investment Fund sold 200 PUTs of The Walt Disney Company. Market price at 11:06 AM was $107.34. The Fund has set the intrinsic value at $116 per share with a ‘Buy’ point of $110, a 5% discount from intrinsic value. On Friday the 6th, the Fund bought 180 shares at $110 each for a total investment of $20,000 including transactions fees. The current options trading matrix is below. For a buy price of $105, current PUTs are selling at $9.80 each. Thus, the Fund will net $8.80 per PUT contract. This totals $1,760 in realized earnings for a strike price of $105 through October 21, 2022 (5 1/2 months). 

Sold PUTs on JPMorgan Chase & Co.

JPMorgan Chase & Co.

Yesterday, May 3rd, 2022, the Value Investment Fund sold 246.9135 PUTs on JPMorgan Chase & Co. with a strike price of $80 per share. These PUTs expire on June 16, 2023 (13 months). The Fund sold the PUTs for $2.76 each and netted $1.76 each after fees. Total realized income was $434.57 (246.9135 * $1.76/ea).

Value Investment Fund – April 30, 2022 (Monthly Report)

Value Investment Fund

Risk reduction is an incredible tool to protect one’s portfolio during market downturns. Over the first four months of 2022, the market as a whole has decreased more than 10% on average. Yet, this site’s Value Investment Fund improved slightly. When a value investor buys a security at less than intrinsic value, there is dramatic resilience against continued losses or sudden market downturns. In effect, there is less volatility. In exchange for this increased security, the value investor gives up instantaneous value growth due to the greater than normal stability of the respective investments. The secret to making a profit is to buy low and wait patiently for the market price recovery; the returns are still considered outstanding. Again, with value investing, expect returns above 30% on average per year. Do not expect returns greater than 40% as these are highly stable companies and well respected; thus, their market prices will rarely deviate dramatically in either direction.

Bank of New York Mellon – Monitor Closely

Bank of New York Mellon

Overall, Bank of New York Mellon is in good financial condition and even with the adjustment for a reduction in revenue tied to Russian transactions, the bank will regain market value once the entire market shifts towards a positive position in comparison to the various index values on 12/31/21. However, the current market price is still too high to warrant a ‘Buy’. Intrinsic value is set at $42 per share and given the additional risk associated with securities valuation and the impact reduced fees will have in the short-term related to earned amounts from Russian activity, a 9% discount is warranted. Thus, a ‘Buy’ price is now set at $38 per share. 

Domino’s Pizza Inc. – Intrinsic Value

Domino's Pizza

Domino’s Pizza is the third largest publicly traded fast-food chain in the world. With over 18,800 locations worldwide, the business model is three pronged with franchising as the primary profit center. However, it has one glaring flaw, the company is highly leveraged to the tune of more than $5 Billion. There is ZERO equity in this company. It’s average annual earnings over the last five years are around $380 Million. The interest expense alone has almost doubled from $99 Million in 2016 to $192 Million in five years. 

Even with an average annual earnings of $525 Million per year, it will take 10 years to get the debt under control. Domino’s Pizza Inc. keeps recapitalizing its debt every couple of years. This recapitalization process increases the aggregated interest paid and given the current Federal Reserve’s attitude towards interest rates, this is going to be a detrimental problem for Domino’s in a few years. The weighted average borrowing rate is currently 3.8% and will remain stable for several years due to timing issues. However, there is a $1.2 Billion refinancing requirement in 2025 which will most likely result in an increase the average borrowing rate. Thus, the ability of Domino’s to continue profitability at more than $600 Million per year after 2025 is questionable.

End of 1st Quarter 2022 Report – Value Investment Fund

Value Investment Fund

During the first quarter of 2022, all major indices experienced dramatic retrenchment with the market value of their respective index. At some point during the quarter, most indices had double digit value reduction; the last half of March 2022 saw all of the various types of funds recover from the low points earlier in the quarter. However, this site’s Value Investment Fund experienced continued growth. This is the result of exercising highly selective buys that reduce risk dramatically. In turn, this risk reduction principle minimizes any type of potential loss associated with an economic wide downturn.

McDonald’s Intrinsic Value

McDonald's

President, Chief Executive Officer and Director of McDonald’s Inc. said it best in the earnings call in late January 2022, we are “… witnessing the beginning of the next great chapter at McDonald’s, …”. He continued with “2021 was a record-setting year for McDonald’s on many dimensions, …” Simply put, McDonald’s had the best financial performance ever in its history during 2021. It just didn’t marginally exceed records, McDonald’s dramatically surpassed all financial records in its entire history. McDonald’s was already the standard bearer in the informal-eating-out industry; it took this standard to a whole new level. When a company has net profits of more than 20%, it is labeled a ‘darling’; over 25%, it is just unheard of financial results; in 2021, McDonald’s net profit was greater than 32%. This sets such a high standard for fast-food restaurants; it is unlikely to be matched by others – EVER.

When a company performs to this level, intrinsic value soars. Intrinsic value is built on a company’s inherent worth. The more stable and reliable a company, the greater the intrinsic value for that company. The reason is simple, the discount rate used with evaluating earnings improves because management demonstrates that it can indeed perform and in this case, perform at exceptional levels.

What is even more fascinating is this: 

If you look at McDonald’s balance sheet, total assets on 12/31/21 are $53.8 Billion; total liabilities are $58.4 Billion. McDonald’s has a NEGATIVE EQUITY POSITION OF $4.6 BILLION. You read that correctly. In simple layman’s terminology, this is called ‘Bankrupt’. Every business textbook used in college defines bankruptcy as liabilities exceeding assets. This makes McDonald’s performance just that more impressive. They are so solid, even creditors ignore this situation and will still loan money to McDonald’s. During 2021, McDonald’s was able to acquire long-term loans totaling $1.154 Billion.  To further validate the incredible worthiness of McDonald’s, from page 57 of their filed SEC Form 10-K (annual report), “There are no provisions in the Company’s debt obligations that would accelerate repayment of debt as a result of a change in credit ratings or a material adverse change in the Company’s business.” You can only count on one hand the number of companies that have this level of credit. 

McDonald’s is financially rock solid.

Watch Huntington Ingalls Industries

Value Investing

Today is March 17, 2022. If you are value investor, you need to watch Huntington Ingalls Industries market price closely. Get ready to buy. 

Back in November 2021, this site’s Value Investment Fund purchased a $20,000 position in this company. On December 12th, the facilitator posted an article detailing the intrinsic value, buy price and market conditions. In February, the Fund updated the sell point due to the quality of financial performance during the fourth quarter of 2021. Last week, the Fund sold its position in Huntington Ingalls Industries when there was a sudden upward spike with the market price. It turned out as an excellent value investment; one that any value investor desires as a performance investment. 

error: Content is protected !!