Bullseye Brief presents three thematic, actionable investment ideas every other week. My goal is to help identify only those opportunities most worthy of your time… by analyzing data, distilling complexity and sharing insights from a deep network of experts. I love what I do and invite you to join me.
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Adam Johnson

Adam Johnson anchored several business programs at Bloomberg Television over five years, interviewing CEOs, heads of state, and Nobel laureates. His daily video investment blog, Insight and Action was sponsored by a major U.S. lender. Previously he managed global risk assets for ING Furman Selz and Louis Dreyfus, trading oil futures, listed equities and equity options. Adam began his career at Merrill Lynch with a degree in economics at Princeton.


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Cheap Gas

Driller With Upside

  • Best in Breed E&P has a unique opportunity to unlock significant upside through asset divesture
  • Activist investors already circling and demanding the company consider options to simply structure
  • Management has expressed willingness to explore asset sales and/or potential spinoff in 2018

Complexity is out, transparency is in. It’s why Delphi separated drivetrains from Electric Vehicles, and why GE is shrinking by 30%. Companies are easier to value when they are easier to understand. The same is true in the oil business, which has become incredibly compartmentalized over the past decade. Exploration and Production companies for example, disclose oil and gas production separately. Refiners have sold distribution assets to focus on processing. MLPs handle storage and transport exclusively… with one notable exception. A recent merger has created a powerhouse producer of natural gas in the Appalachian basin which also has a significant gathering system. It’s a compelling merger synergy story, but it’s not getting the valuation it deserves because of the embedded pipeline business and activist investors want it spun off. They want two standalone companies which are easier to value. Management has undertaken a comprehensive review and promises an answer in coming months. I think they’ll act, and given the market discount, I’m willing to take a position.


January 13, 2018

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Own the News

Create the FOX Stub

  • Disney’s proposed acquisition of select Fox assets creates an opportunity to own a News/Sports pure play
  • The News/Sports stub trades at a significant discount to Disney’s own proposed valuation metrics
  • Under terms of the transaction investors can own this premier media franchise for mid-single digits

21st Century Fox (FOXA) presents an incredibly compelling value opportunity in light of the “partial” acquisition currently proposed by The Walt Disney Company (DIS). Under the terms of the transaction, Disney seeks to acquire about three quarters of the company, while spinning off the bread-and-butter businesses most of us recognize as FOX News, FOX Sports and local FOX TV stations. This remaining portion is what pros call a “stub” and it is exactly the part of FOX I want to own. You may recall I first recommended FOXA in a piece last April entitled “No’Reilly No Problem.” I argued then that the FOX franchise is far more valuable than simply one man’s advertising numbers. Now Disney has proven my point by putting a $66B valuation on the company as a whole. What I want to buy however is something very specific, the so-called stub. This non-Disney portion offers real value, and we can create it very simply. Allow me to explain.


January 13, 2018

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Engineering Tomorrow

EU Industrial Sweet Spot

  • Europe’s economy has finally begun to accelerate and will re-couple with the U.S. in 2018
  • Buying E.U. Industrials now creates an attractive entry point to capture the E.U. business cycle upswing
  • One Swiss-based manufacturer offers both strong earnings visibility and reasonable valuation

William Sutton Jr. (aka Slick Willie) famously told authorities he robbed banks because “that’s where the money is” and I have to admit I admire the logic. It’s about following the action, and at the moment I think a portion of the action is shifting to Europe. The U.S. economy has gradually gained steam over the past 18 months, and some key indicators suggest Europe is now poised to play catch-up. The U.S. may be stronger, but early cycle momentum can create exciting opportunities, especially among industrial companies. One Swiss-based conglomerate has caught my attention. Earnings are forecast to grow 40% over the next two years, and yet shares trade at a discount to global peers. May take is investors haven’t liked its zip code, but the neighborhood is ripe for gentrification… which implies there’s an added value component to the growth story. I especially like the company’s tag line: Engineering. Tomorrow. Together.


January 13, 2018

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11

As in Wal-Mart will increase its minimum wage to $11/hour for all U.S. employees as competition stiffens to attract for workers.
#WagePriceSpiral

500

As in Boeing (BA) unveils a drone which can transport 500 pounds of cargo up to 18 miles.
#PersonalDronesWillHappen

6,000,000,000

As in rail operator Union Pacific Corp. (UNP) estimates tax reform will raise 2018 earnings by $6B.
#RocketFuel

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“We intend to monitor the impact closely for any signs the weighting of news sites is politically motivated.”
–News Corp. CEO Rupert Murdoch on Facebook’s announcement to tweak how it allocates public posts in personal news feeds 
#PotCallingTheKettleBlack

“As of now we have not received any information that these exploits have been used to retrieve customer data.”
–Intel CEO Brian Krzanich on fallout over revelations about chip security vulnerability

#AskMuellerToInvestigate

“You have to treat every game like it could be your last because you never know when it is.”
–Pittsburgh Steelers QB Ben Roethlisberger commenting on rumors his 15th season at Three River Stadium could be his swan song

#UpsettingButWise