Franklin Street Properties

Posted on by SajitK

Ticker: FSP, Buy below $12.

Why I Would Buy

  1. Cheap– Franklin Street Properties is trading at just 11 times forward FFO (free flow from operations).
  2. Dividend – FSP yields over 7%, while the FFO payout ratio hovers around a healthy 75%.
  3. Credit Rating – FSP enjoys investment grade ratings.
  4. Insider Buying – Managers and directors at Franklin Street purchased 150,000+ shares during the past 12 months, of which 131,275 were purchased during the past 3 months. No shares were sold by insiders during this period.

What Could Go Wrong

  1. Hurricanes Harvey and Irma – Houston is one of the key markets for Franklin Street, and they own properties in Miami and Atlanta too. Therefore, the impact of Harvey and Irma on FSP’s cash flow is indeterminate at this point.

Disclosure: I am long FSP, please read additional disclosures here before taking any action based on this post.

China Mobile

Posted on by SajitK

Ticker: CHL, Buy below $55.

Why I Would Buy

  1. Cheap– Just 12 times forward earnings.
  2. High RoE – Return-on-Equity is my favorite metric for evaluating stocks, CHL has maintained RoE in the teens during the past decade.
  3. Dividend – CHL yields over 3%, while the payout ratio hovers around a healthy 40%.
  4. Credit Rating – Very strong credit ratings: S&P A+, Moody’s A1.
  5. Wide Moat – Largest cell phone, internet and telecommunications provider in China. CHL is the dominant player amongst an oligopoly of 3 participants.

What Could Go Wrong

  1. State Intervention – 70% of China Mobile’s shares are owned by the government, and it exercises considerable control over the company’s operations.  Being state controlled, the company’s profit motive can sometimes be subordinated by state’s social goals.

Disclosure: I am long CHL, please read additional disclosures here before taking any action based on this post.

British Land Company

Posted on by SajitK

Ticker: BTLCY, Buy below $9.

Why I Would Buy

  1. Cheap– British Pound is hovering near historic lows relative to the US Dollar. This makes now an ideal time to buy British hard assets (such as real-estate) on the cheap using the strong dollar.
  2. High Yield– British Land is a REIT, and yields 5+%.
  3. Discount – Shares trade at about 70% of book value.
  4. Buyback – Management (rightly) perceives shares to be undervalued and has initiated a massive buyback, setting aside 300 million pounds ($393 million) for this.
  5. Sponsored ADR – British Land is listed on the London Stock Exchange, however the company has sponsored an ADR for the benefit of American investors.

What Could Go Wrong

  1. Brexit –The Pound and British real estate are cheap for a reason: the full impact of Brexit on the British economy is unknown. Additionally, financial companies may leave London as a result of Brexit, reducing demand for real estate.

Disclosure: I am long BTLCY, please read additional disclosures here before taking any action based on this post.

Kroger Inc

Posted on by SajitK

Ticker: KR Buy below $25.

Why I Would Buy

1.       Cheap– Kroger trades at about 13x trailing earnings and 11x forward earnings.

2.      High RoE – Regular readers know that returns-on-equity is my favorite metric for picking stocks; Kroger has maintained double digit annual returns-on-equity during the past decade.

3.      Low Payout Ratio – Kroger pays about 2% dividend, but the payout is only about 20% of earnings.

4.      High Ratings –Both Morningstar and S&P rate the stock at 4 out of 5 stars.

What Could Go Wrong

1.       Highly Leveraged –Kroger has a large degree of indebtedness, more than that of its peers and more than I am comfortable with. Greater than 65% of the company’s capital structure is debt.  

2.      Low Credit Rating –This is related to the point above. Kroger has credit rating that is barely investment grade (Moody’s Baa1).

3.      Industry Risks – Kroger is grocery chain, selling groceries is a cut throat retail business with thin margins.

Disclosure: I am long KR, please read additional disclosures here before taking any action based on this post.

Aircastle Ltd

Posted on by SajitK

Ticker: AYR, Buy below $25.

Why I Would Buy

  1. Cheap– Aircastle trades at about 11x trailing earnings and 10x forward earnings.
  2. Concentrated Institutional Holdings –  More than 35% of outstanding shares are held by two large and savvy institutional investors: The Ontario Teachers’ Pension Plan Board and the Japanese conglomerate Marubeni.
  3. Dividends – AYR yield an attractive 4+%.
  4. Selling Below Book –Aircastle currently trades at 90% of its book value.

What Could Go Wrong

  1. Highly Leveraged –Aircastle like all leasing companies has a large amount of indebtedness. Greater than 70% of the company’s capital structure is debt.
  2. Significant Industry Risks – Aircastle structures it’s leases such that the cashflow from leases does not always the cover cost of their planes, Aircastle counts on being able to sell or re-lease their planes  at lease expiration. This may become difficult to accomplish if there is a prolonged downturn in air passenger or cargo demand, this can  occur due to any number of factors — higher fuel prices, global recession etc.

Disclosure: I am long AYR, please read additional disclosures here before taking any action based on this post.