For those that follow this blog, I once wrote about an asset class known as business development companies, particularly middle-market lending BDCs. These businesses typically concentrate on investing through the financing of middle-market private equity transactions. Over the last year, some have come under pressure as a result of government regulations over BDCs which require them to maintain certain asset coverage levels. As a result of the disjunction in the markets, mark-to-market mark downs on BDC portfolios resulted in some BDCs (most recognizably Allied Capital and American Capital) falling out of line with asset coverage regulations, tripping debt covenants, and discontinuing dividends.

On Monday, a major shakeup was announced within the BDC industry. Ares Capital (ARCC), one of a few BDCs which has managed through the recession while maintaining a substantial dividend, announced that it was acquiring a former giant

Consumer advocacy letters are always fun. And, in case those of you felt that McDonald’s was not unique in its cordial response to my letter, here’s a follow up with a letter I wrote to Burger King (BKC). Forgive me, I wrote this letter last summer, but haven’t had a reason to share it on this blog for until today.

To whom it may concern:

I recently returned from a trip to China and had several terrific experiences at Burger King locations there. With the hype of the Olympics still in the air and increased interest by Americans in all things Chinese, I think it’s a great time for your Company to think about bringing one of your best menu items in the world to the US – the Spicy “Ma-La” Whopper.

To be honest, when here in the US, I

Above is a 5-year weekly chart for McDonald’s (MCD). As described by David Gordon of The Deipnosophist, MCD seems to have entered a hesitation after a strong, multi-year bull run. Over the last year, however, a symmetrical triangle seems to have formed which is a type of intermediate term base which is expected to end in a breakout or breakdown, though usually symmetrical triangles signal a brief pause before the continuation of the primary trend. But, I’ll leave the discussion of technical analysis for another post. If you’re interested in an extensive analysis of MCD’s chart patterns do follow the above link to David’s post.

While this technical strength as well as McDonald’s 3.7% dividend are tempting to me, I am typically reticent to invest in a stock which has had such

The S&P has rallied nearly 50% from its lows and is up over 10% year to date. For those that sat out the rally afraid to get in, the market is starting to look (at the very least) fairly valued. It’s hard to say where things will go from here. But, a closer look at the leaders of the recent rally sheds some light on some stocks which just might have been over looked. Not having benefited from the powerful rally we’re just experienced, it would stand to reason they will have less to correct should the market turn and offer more of an opportunity for appreciation as investors continue to look for uninflated assets.

The above chart graphs the Dow Jones Industrial Average against a proxy

I recently highlighted a small biotech firm, ISIS Pharmaceuticals, as a potential “value” growth play. ISIS took a tumble after earnings despite being just a penny off of estimates. Despite slightly lower than expected earnings, the Company showed a strong cash position, moderate cash burn, and a likelihood that it would be able to at least make it through full trials for its most promising drug. I know that for some even this doesn’t count as value. Afterall, the Company is not free cash positive and any value ascribed to the Company is derived from future expectations of its drug pipeline of which there are none currently in distribution.

For those looking for more proven business models but still looking to take advantage of the coming shift towards genetic pharmaceuticals as opposed to small molecule pharmaceuticals, a look at ISIS’s partners may clue you into some

Private equity funds are much maligned for being inaccessible and merely being a vehicle for the rich to get richer. Well, if you can’t beat them, join them! A little known asset class made a few headlines in recent days when two participants – Ares Capital Corp. and Apollo Investment Corp. – filed public offerings to raise capital. These two companies are a subset of a little known asset class which was created to provide small investors access to private equity investments while also providing more capital to help small and middle market companies grow.

These companies are known as Business Development Companies (BDC) and, when publicly listed, are roughly akin to closed end funds. Ares and Apollo represent the most typical style of BDC – those which provide financing through debt and equity instruments to middle-market companies. Typically speaking, the deals that these types

Recently read an article, “Texas Pacific Group Made Money On J. Crew, Did You?,” that seems to paint a rather damning picture of private equity, particularly Texas Pacific Group and its investments. The article makes note of the fact that TPG recently sold the last of its shares in J. Crew and officially exited its investment after a 12 year relationship with the Company. In the end, it estimates that TPG managed to make over $600 million on an investment of just $137.4 million (15.2% annualized return). Unfortunately for public market investors who bought into JCG’s IPO, the stock has actually lost value since its $20/share IPO in 2006. The article then points to TPG’s investment in Burger King (BKC) as yet another example where TPG took a company private and supposedly victimized public market participants upon exiting via public offering. 

I’ll be

Any reader of my blog recognizes that I generally have an affinity for consumer products and retail facing stocks. In this recession, I’ve also become quite the fan of dividends as manifested in my recent investments - GE, VLO, MO, and LINE. As such, this investment idea probably comes as no surprise - Hotel REITS. 

What are Hotel REITs? Hotel REITs are a subcategory of Real Estate Investment Trusts. These are businesses which invest and (usually) operate income producing real estate. The benefit of this classification is that qualifying REITs do not need to pay corporate taxes on income which they distribute to shareholders in the form of dividends. As a result, there’s a particular incentive for these businesses to remit 100% of their earnings

Over the last year, “cash is king” has become the modus operandi for companies everywhere. In an environment where revenues are declining and credit markets are difficult to access, the conservation of cash is an important aspect of maintaining the business and living through the recession.

To gain a better view of the cash flow generation ability of a business, a lot of focus has been put on free cash flow and, in many instances, EBITDA in various valuations as price-to-earnings has become less and less meaningful in a market where earnings visibility is at a minimum and valuation multiples are volatile.

One aspect that many investors overlook, however, is working capital. Most retail investors view working capital as strictly current assets - current liabilities and view it as a glorified quick ratio. Working capital analysis, however, is much more useful than simply a measure of solvency.

If one defines working capital as current

Generally speaking, I see myself as a value investor. Why then, would am I so often looking towards retailers and generally consumer facing businesses for my best investment ideas (see: A Retail Reversal and Irrational Retail Valuations)? After all, many of the best retail stocks are those that rely on growth to provide shareholder return. And, in the case of liquidation, the bulk of their assets are held in inventory and property* that are rarely liquidated at full value. Then again, Warren Buffett, a value investor if there is any, has made serious bets on consumer product and retail businesses like Coca-Cola (KO), CarMax (KMX), Wal-Mart (WMT), and Costco (COST).

* To be completely fair, significant value in property can often