This is a short post. No hard financial analysis here.
A few weeks ago I purchased some stock in FLIR Systems (Nasdaq: FLIR). I have been familiar with the company for more than a decade, but this is because of their technology and less from a financial perspective although I have checked in from time to time.
They hit a few sweet spots for my investing criteria. One is that their technology is likely to be utilized in mass deployment across the planet in regards to temperature detection. The other is that they have US Military contracts and have a sufficient amount of their IP and technology on-shore (some supply chain is manufactured in China but not the military sensitive ones for obvious reasons). As a bonus, they are getting into the UAV, military robotic and sensor business, and they have strategic synergies that will work with this.
Financially, the only real current blemish is that they have US$425 million in the form of a unsecured note due on June 2021, but I do not envision any difficulty them rolling it over later this year or early next one. They are cash flow positive. Prior to Covid-19, I generally got the sense the market viewed them as a stagnant business (their position in IR imaging was quite strong competitively).
As this is a large-cap stock ($5 billion market capitalization) I am not worrying about my rambling spiking up their share price. They’re even one of the smaller components of the S&P 500. But clearly somebody with money clued in today how well positioned this company is strategically in the post Covid-19 environment. I’m not a typical large-cap stock investor but this one was too much to resist in the depths of the CoronaCrisis.
The other company I considered was Fortive (NYSE: FTV) but they are a larger industrial products company and have other economic sensitivities that I particularly did not care for.
Been lurking for a while and thought to drop a comment.
What is it you find attractive about the valuation? From a first glance it seems that the expected return should land in the 5%-7% range given the FCF-generation. Is it something I´m missing?
Op cash minus PPE additions (very crude metric, I know there are write-downs and acquisitions and other items) in 2018 was $343M/$2.53EPS, 2019 was $325M/$2.42EPS, but other than demonstrating their core business makes money in normal times (which provides cover for their refinancing), strategically speaking their business will be in demand going forward, which is the important part.
Clearly after today’s 10%+ runup the valuation is less attractive, but this one’s got some way to go.
Yeah, that´s about what I arrived at. But it seems a bit different than your other picks given the relatively lower yield, that´s all.
I´m still amazed at the opportunities this crisis opened up for with the small-caps. Especially in China and Europe.
@JWK: The post Covid-19 environment has dramatically shifted the playbook. You’re probably accustomed to my parsimonious nature when it comes to stocks, but adapting to new circumstances (and especially these ones that are truly unique, at least in my lifetime) requires throwing out previous rules that worked in the past, but will not be optimal in the current environment.
While you won’t see me buy things like Shopify, there’s a lot of stuff in the mid-tier (the $5B market cap range) that is interesting. The first question though I ask is what will be in demand in a post Covid-19 world?
You should check out something like Huami Corporation or Viomi Technology then. At least Huami and ‘health’-technology seem to be on the rise. They´re both VIEs though, with the given ‘ick’-factor.
I have a general policy of not investing in a jurisdiction where English isn’t a primary language (I have broken this on occasion, for example in Quebec!). I’m absolutely sure there are a lot of legitimate companies in China that ‘honourably’ have the VIE structure in the Caymans or wherever, and that there will be a lot of gainers, but I have no way of picking them. TCOM, for example, is a pretty decent way of playing a domestic China travel recovery…
Makes sense. I´m guessing they speak french in Quebec 🙂 (Swede)
You´re right, not investing in China is a good way to avoid permanent capital loss. However, I do give them a chance at times if I can track the sales outside of the country.
https://www.secinfo.com/d11MXs.h2HKq.d.htm
Normally when I see a pre-announcement of revenues, I was concerned. Next quarter’s revenue at $480M vs. $450 previous quarter. Don’t think the market appreciates this one enough by taking the stock up 6%.