Analyzing Bargain Stocks

RMR Group Inc. (Company) owns a 52.1% economic interest in RMR LLC (RMR), which provides services to various REITS and real-estate businesses. It services assets of $32bn across 2,100 properties. The non-controlling interest is held by ABP Trust – controlled by Adam D. Portnoy. RMR provides management services to four publicly listed REITs – ILPT, OPI, SNH, and SVC – in the industrial, office, senior housing, and hospitality sectors. It also provides services to three real-estate related operating companies, one real estate securities mutual fund, and one firm specializing in commercial real estate finance. It earns fees in the form of base management fees (ranging from 0.6% to 1.7% of asset values), incentive business management fees (for beating the REIT benchmarks), and advisory fees. These are incorporated in 20-year agreements with the REITs. The company has generated average underlying pre-tax earnings, excluding incentive management fees, of $100-120m. Incentive

Coal, the energy source that’s the bane of climate activists everywhere, is still one of the cheapest sources of electricity. Natural gas-powered plants are the closest cost substitutes; otherwise, the key risk to this industry comes from government mandates on sourcing renewable energy. Consol Coal Resources (CCR) is a master limited partnership listed on the NYSE that holds a 25% interest in the Pennsylvania mining complex that includes three coal mines: Bailey, Enlow Fork, and Harvey, along with a centralized coal processing facility. The balance 75% is owned by Consol Energy (CE). CE is also the parent of CCR - owning 60.8%. The public float is 17.6% and doesn’t have much say in governance matters. This situation will also prevent the manifestation of any takeover premium for this stock. The three mines have coal reserves of 767m tons with a life of 23.5 years at current production rates. CCR sells 66% of coal to US electricity generators, 1% to other domestic pur

Here’s another company that does most of its business in China and is relatively unloved by the market. Hollysys Automation Technologies is headquartered in Singapore and manufactures integrated automation systems for the a) Industrial b) Railway Transport and c) Mechanical and Electrical solutions segments. It generated 85% of its revenues from China with the balance from other markets in South East Asia and the Middle East. It reported sales of $575m in 2019, ebitda (a proxy for cash earnings) of $107m , and net income of $117m. Other income comprised interest income from cash balances, rental income from certain properties in Beijing with 10 to 15-year leases, and dividends from an investee company (disposed during the year and gains of $5.8m recorded). Normal ebitda has ranged between $100-140m in the recent past. Capital expenditures have been relatively negligible at less than $10m per year. Good free cash flow generation has enabled the company to virtually wipe out i

China-based companies listed in the US via reverse mergers don’t get much love from investors – particularly when they don’t pay any dividends. Ever-Glory is one such company engaged in the wholesaling and retailing of branded fashionwear. In its wholesale business, it manufactures on contract for various prominent global clothing brands. It also retails clothing under its own brands in 1,100 stores across China. The sales mix for wholesale and retail is approximately 50/50. 51% of its sales are in China, 19% in the UK, 18% in the US, 10% in Japan, and 2% in Germany. The company generated $383m of sales in 2019 and generated EBITDA (a proxy for cash earnings) of $12m (down from $449m and $23m in 2018). It borrows regularly to finance purchase of capital equipment and ended up with bank borrowings of $30m offset by cash of $49m. Net current asset value (a proxy for liquidation value) as at December 31 st  2019 is $28m. Considering these facts, it’s extraordinary that the e

Practically all stocks featured on this website face a significant headwind, which can knock some of them out. Quite a few of them face multiple such headwinds that have beaten their stocks to a pulp. Mammoth Energy is primarily involved in the provision of oilfield services and electrical infrastructure and is listed on the NASDAQ. Revenues have tumbled continuously every quarter from $262m in March 2019 to $67m in December 2019 and cash flows have turned negative. The company was hit severely by the decline in demand for oil services and the run-off of electrical infrastructure work it executed for the Puerto Rico Electrical Power Authority (PREPA) following Hurricane Maria in 2017, which contributed 61% of revenues in 2018. In addition to the decline in oil demand, the company faces multiple lawsuits in the manner it obtained the PREPA contract. The allegations are that the management of its ‘Cobra’ subsidiary obtained contracts from the US Federal Emergency Manage

It’s generally unprofitable to join a multi-level marketing company - far better to own one. Natural Health Trends Corp is a US-listed direct seller of personal care products. The vast majority of its sales (81%) are generated in Hong Kong, who sell to members in China via e-commerce through various importers. The company applied for a direct selling license in China in January 2019 but was advised by a “Chinese governmental authority” later in the year to withdraw its application, which the company did so. The company suffered a double whammy in 2019 as the Chinese authorities began an intensive review of general direct selling practices in China – and the company received a lot of negative social media coverage. The pro-democracy protests in Hong Kong also curtailed activities that added to its woes. As a result, 2019 saw a decline in its sales from $192m to $78m and its net profit of $31m turned into losses of $6m. And now, Covid-19 has further postponed meeting events

The ‘China Hustle’ was a 2017 documentary that showcased the frauds perpetrated by Chinese companies taking over publicly listed US ‘shell’ companies and raising money from the public. Their financials were exposed as fraudulent when compared with videos of factory activity and filings with Chinese regulators (SAIC). Shineco wasn’t named specifically in the documentary and is listed on the NASDAQ. It processes Chinese herbal products. It listed in 2016 and is currently selling at under $12m or $0.43 per share. It appears to be extremely cheap based on the financials – selling at just 24% of net current asset value (a proxy for liquidation value) and less than 2x average earnings. The current assets are primarily comprised of cash of $42m, supposedly entirely in Chinese banks. Despite having $42m in liquid cash deposits (and supposedly generating net cash flows of $6.1m in the last six months), the company has embarked on three equity raises since September 2018 aggregatin