(Image: Zen Buddha Silence, by Marilyn Barbone)
July 12, 2020
We continue with examples of Boole’s quantitative investment process in action.
Recently, we looked at the following companies:
Ciner Resources LP (CINR): http://boolefund.com/ciner-resources-lp-cinr/
Global Ship Lease (GSL): http://boolefund.com/global-ship-lease-gsl/
Alico, Inc. (ALCO): http://boolefund.com/alico-inc-alco/
Genco Shipping (GNK): http://boolefund.com/genco-shipping-gnk/
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 The Manitowoc Company, Inc. (MTW). Manitowoc has been producing cranes for nearly 100 years. MTW has a market cap of $351 million, with $104 million in cash and $347 million in debt. (The company has no significant debt due until 2026.) The current stock price is $10.17.
First we screen for cheapness based on five metrics. Here are the numbers for Manitowoc:
- EV/EBITDA = 4.16
- P/E = 5.40
- P/B = 0.56
- P/CF = 2.59
- P/S = 0.20
(These figures reflect the trailing twelve months of results. Revenues, earnings, and cash flows will be down this year due to the impact of the coronavirus, but should reach even higher levels in a few years.)
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/
MTW has a Piotroski F-Score of 8. (The best score possible is 9, while the worst score is 0.) This is very good.
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). Manitowoc has TL/TA of 61%, which is decent.
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 Manitowoc, insider ownership is approximately 2.2%.
Shareholder yield is the dividend yield plus the buyback yield. At MTW, dividend yield is zero and buyback yield is about 4%, so shareholder yield is 4%. This is good. (Note: The company has suspended its buybacks for now in order to conserve cash to manage through the coronavirus.)
Each component of the ranking has a different weight. The overall combined ranking of Manitowoc places it in the top 10 stocks on our screen, or the top 0.4% 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 third quarter 2020 presentation from November, 2020: https://s21.q4cdn.com/264200883/files/doc_presentations/2020/11/05/Q3-2020-MTW-Earnings-Call-Presentation_Nov-5-2020.pdf
CEO Barry Pennypacker and his associates have significantly improved Manitowoc’s operations. They have meaningfully improved margins. They have upgraded the product portfolio. They have reduced costs. And they have increased operating efficiencies. Moreover, Pennypacker has a track record of significantly improving operations, which he did when he was at Gardner Denver. See: https://www.valueinvestorsclub.com/idea/MANITOWOC_CO/6436441136#description
(To access the link to valueinvestorsclub.com, you may have to create a guest membership, which is free.)
Intrinsic value scenarios:
- Low case: Book value per share is $17.87. Manitowoc could be worth 50% of book value, or $8.94 a share. That’s 12.1% lower than today’s $10.17.
- Mid case: Normalized EBITDA is approximately $230 million. Manitowoc is likely worth an EV/EBITDA of at least 6x. That would mean the stock is worth roughly $33.82, which is over 230% higher than today’s $10.17.
- High case: Normalized EBITDA may be $345 million. Manitowoc is probably worth an EV/EBITDA of at least 6x. That would mean the stock is worth $53.82, which is about 430% higher than today’s $10.17.
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.