(Image: Zen Buddha Silence, by Marilyn Barbone)
June 7, 2020
We continue with examples of Boole’s quantitative investment process in action.
Recently, we looked at the following companies:
SEACOR Marine (SMHI): http://boolefund.com/seacor-marine-smhi/
Tidewater (TDW): http://boolefund.com/tidewater-tdw/
TravelCenters of America (TA): http://boolefund.com/travelcenters-america-ta/
Teekay Tankers (TNK): http://boolefund.com/teekay-tankers-tnk/
Ranger Energy Services (RNGR): http://boolefund.com/ranger-energy-services-rngr/
Macro Enterprises (Canada: MCR.V): http://boolefund.com/macro-enterprises-mcr-v/
This week, we are going to look at Genco Shipping (GNK). Genco Shipping is a leading provider of international seaborne drybulk transportation services. The company has a market cap of $290 million.
First we screen for cheapness based on five metrics. Here are the numbers for Genco Shipping:
- EV/EBITDA = 4.60
- P/E = 6.52
- P/B = 0.34
- P/CF = 2.07
- P/S = 0.70
(Normalized EBITDA is about $140 million, while normalized earnings is approximately $45 million.)
Next we calculate the Piotroski F-Score, which is a measure of the fundamental strength of the company. For more on the Piostroski F-Score, see my blog post here: http://boolefund.com/piotroski-f-score/
Genco Shipping has a Piotroski F-Score of 6. (The best score possible is 9, while the worst score is 0.) This is decent.
Then we rank the company based on low debt, high insider ownership, and shareholder yield.
We measure debt levels by looking at total liabilities (TL) to total assets (TA). Genco Shipping has TL/TA of 38.4%, which is pretty good.
Insider ownership is important because that means that the people running the company have interests that are aligned with the interests of other shareholders. At Genco Shipping, insider ownership is approximately 1%. This is low.
Shareholder yield is the dividend yield plus the buyback yield. The company has not bought back shares, but the dividend yield is 1.2%. So the shareholder yield is 1.2%.
Each component of the ranking has a different weight. The overall combined ranking of Genco Shipping places it in the top 50 stocks on our screen, or the top 2% of the more than two thousand companies we ranked.
The final step is to study the company’s financial statements, presentations, and quarterly conference calls to (i) check for non-recurring items, hidden liabilities, and bad accounting; (ii) estimate intrinsic value—how much the business is worth—using scenarios for low, mid, and high cases.
Here is the company’s investor presentation from November, 2020: http://s21.q4cdn.com/456963137/files/doc_financials/2020/q3/Genco-Q3-2020_Earnings-Presentation.pdf
Intrinsic value scenarios:
- Low case: Genco Shipping may be worth 50% of current book value (which is understated) of $20.36 a share. That’s $10.18, which is over 45% higher than today’s $6.94.
- Mid case: Genco Shipping is likely worth at least book value (which is understated) of $20.36 a share. That’s over 190% higher than today’s $6.94.
- High case: Genco Shipping may be worth 150% of book value (which is understated) of $20.36. That’s $30.54, which is about 340% higher than today’s $6.94.
BOOLE MICROCAP FUND
An equal weighted group of micro caps generally far outperforms an equal weighted (or cap-weighted) group of larger stocks over time. See the historical chart here: http://boolefund.com/best-performers-microcap-stocks/
This outperformance increases significantly by focusing on cheap micro caps. Performance can be further boosted by isolating cheap microcap companies that show improving fundamentals. We rank microcap stocks based on these and similar criteria.
There are roughly 10-20 positions in the portfolio. The size of each position is determined by its rank. Typically the largest position is 15-20% (at cost), while the average position is 8-10% (at cost). Positions are held for 3 to 5 years unless a stock approaches intrinsic value sooner or an error has been discovered.
The mission of the Boole Fund is to outperform the S&P 500 Index by at least 5% per year (net of fees) over 5-year periods. We also aim to outpace the Russell Microcap Index by at least 2% per year (net). The Boole Fund has low fees.
If you are interested in finding out more, please e-mail me or leave a comment.
My e-mail: firstname.lastname@example.org
Disclosures: Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Boole Capital, LLC.