Saturday, August 30, 2014

Macro Enterprises

I maintain a watch list of two hundred or so names that I have looked at and think are interesting in the expectation that the one or more will, sooner or later, come down to a price I'm comfortable paying. I use google drive.

Macro is a straightforward enough idea that it requires very little narrative and therefore provides a good opportunity to share the form and content of my watch list. 

It links to more detailed notes and to a spreadsheet whose essential elements look like this:


Disclosure: I am long MCR

Sunday, August 17, 2014

Texhong Textile 1st Half Results

Texhong has reported its first half results. Those of us who have been following this stock saw what we had expected to see: 3 months of cotton inventory bought at higher than current market prices were sold at lower cotton yarn ASPs. Gross margins were crimped, and operating leverage ensured that net margins were gutted.

If we add back the 302 million yuan lost due to this temporary mismatch between the historical cost of cotton inventory and its current market cost, we would have something that looked like this:

The higher cost cotton inventory should have already burned off and the second half of the year should see margins return to near normal levels. Plus, added capacity in the second half of 2014 and in 2015 should see earnings resume its upward trend. 

We had also expected to see brokerage downgrades and they have arrived with target prices ranging from ~$5.50 to ~$10. The most significant would have been a downgrade of Texhong's debt by Moody's but that hasn't happened (yet). Consequently, the shares have not sold off as much as I would have liked.

A  29% forward earnings yield is interesting if one believes, as I do, that Texhong is a long term compounder benefiting from major tailwinds.

Disclosure: I own shares in Texhong.