Omaha seemed a bit empty yesterday. As I arrived for day one of the Value Investing Congress, the last of the Berkshire Hathaway (BRK.A/BRK.B) annual meeting attendees (with the exception of those staying for the Congress) were leaving town. The Congress kicked off with some great presentations and some compelling ideas.
I'm always interested to hear what David Nierenberg of D3 Funds has to say; he is perhaps most well-known for taking fairly concentrated positions in broken tech companies, typically micro-caps, then playing the role of friendly activist when necessary. Yesterday, Nierenberg took a departure from the usual, presenting his investment thesis for midcap oil-field services name Superior Energy Services (SPN).
Superior has little exposure to natural gas at this point. Fracking represents about 18% of revenue, but just 5% of revenue is related to fracking for natural gas. Nierenberg sees many growth opportunities for Superior, including deep water drilling in the Gulf, water management and exposure to international markets. Superior currently trades at 12x trailing earnings, and just over 6x 2013 consensus estimates. Nierenberg believes shares may be worth 3x their current price.
Fairholme Capital Management alumni Larry Pitkowski and Keith Trauner, who now run GoodHaven Capital Management and the GoodHaven Fund, believe that the environment is becoming favorable for insurers. They presented the case for two property and casualty names, White Mountains Insurance Group (WTM) and Alleghany (Y). Both are interesting stories, but insurance is not my cup of tea; I just don't understand it well enough.
Perhaps the highlight of the day, for me anyway, came via Advisory Research duo Bruce Zessar and Matthew Swaim, who presented on the benefits of dividend growth and combining dividends with share buybacks. I've long been a believer that growing dividends may be a better measure of a company's success and future prospects than earnings and that the concept demonstrates management's confidence in the business. Zessar and Swaim took that theory to new levels, citing research that is contradictory to the mainstream belief that paying dividends can reduce a company's opportunities for growth.
Zessar and Swaim presented evidence that higher dividend payouts can actually lead to higher future earnings growth. They are, however, cautious about focusing on the highest-yielding names, due to the possibility of dividend cuts.
One name they cited as showing great promise is Vail Resorts (MTN), which operates six ski resorts and also has lodging and real estate segments. Vail initiated its first dividend in 2011 and raised it this year. Although there's not much history, Zessar and Swaim believe that Vail is on the right path and has the necessary attributes to be a solid dividend grower.
Now it's back to the Congress for day two.
