Monthly Round Up: July

Portfolio Updates

• Capital One Financial COF 0.00%↑ is one of my larger holdingsCOF. Here are some highlights from their Q2 earnings release: All comparisons are to Q1 2024, EPS $1.38 compared to $3.13, revenue up 1%, net interest margin of 6.7% an increase of 1 basis point, deposits stayed about the same, net charge offs increased from $2,616M to $2,644M. CEO Richard Fairbank commented that consumers on the whole are in pretty good shape, but some on the margin may be stretched by inflation. COF seems fairly valued and I am tempted to sell it, but maybe I’ll hold on to see how their proposed acquisition of Discover pans out.

• My largest holding right now is British American Tobacco $BTI, here are some figures from their earnings: Sales down 8.2% YoY but that was mostly exchange rates and sale of Russian assets, operating profit down 28.3% but flat on adjusted basis, EPS up 13.8% to $3.43 due to ITC monetization (ITC is an Indian tobacco conglomerate), revenue from smokeless products is 17.9% total, initiated a $900M buyback for 2024 and $1.15B for 2025, adjusted total combustibles sales down 2.6%, US adjusted total combustibles sales down 8.5%. BTI already has a nice dividend, so the share buybacks are an added bonus and hopefully can be the catalyst to get the stock price closer to fair value.

• Recently I sold Charter Communications CHTR 0.00%↑ to break even after holding for almost two years. I bought the stock because it seemed like a quality company that was going through a rough patch and seemed cheap. Eventually I realized there are a lot of dynamics going on in the telecom space right now that made it hard for me to tell if Charter can compete. These uncertainties were heightened because of Charter’s large debt balance.

• Jewett-Cameron JCTCF 0.00%↑ has sold off a bit lately so I have been doing some buying. It is trading modestly below its NCAV and there have been reports that the company is working on selling some of its buildings and land.

Watchlist Updates

Even though my watchlist keeps expanding as I profile stocks in my Idea List series, it has been a while since I have discussed the full list. Keep in mind many of these fair values are rough estimates and in many cases I haven’t done full due diligence. Companies like EMCORE, PetMed Express, or Walgreens could be in terminal decline, but I’m not sure yet. That being said, some of the stocks that appear to be at big discounts are in the queue to be further analyzed. Stocks from the list that I have bought include HURC 0.00%↑ , JCTCF 0.00%↑ , MPAA 0.00%↑ , and TLF 0.00%↑ .

I Almost Bought a Laser Tag Business

Every now and the then when I am bored, I will scroll though Biz Buy Sell to see what kind of local businesses are for sale. Recently I came across local laser tag business that has been around for 30 years. What caught my eye was supposedly $95k in cash flow from the owner working 15 hours a week. I have been considering transition from my engineering job to something investing or business related, but that is something that would probably be a few years away. Despite that I entertained the idea of buying the laser tag business and contacted the broker to get financials.

The business was selling for about 3x cash flow which seemed like a reasonable price for a small business. After doing some due diligence on this deal, the business seemed decent but could use improvements such as raising prices since the owner has been slow to do so. There were part time managers on the clock each day that the business was open. Then the owner’s 15 hour work week consisted of administrative tasks and working a 6 hour management shift on Saturday’s.

I debated long and hard whether I could manage the business while also work my full time job and raise a family. Perhaps I could have roughed it for a couple of years until I stepped back from my engineering job. However this felt rushed and impulsive instead of a well thought out plan to transition into being an entrepreneur. Also after doing some spreadsheeting, it looks like it would make more sense for me to save and invest for a few more years, then either buy a larger business that adequately replaces my current income, or shoot for the moon starting a business. Then there is the reality that I would have to dramatically scale back my Substack effort which would be unfortunate because I feel like I have some nice momentum going. I was a little sad to decline the acquisition, but it was a good experience in researching a small business.