Thursday Night Links

• Many a value investor has declared Tesla the ultimate overvalued stock, and yet fortunes have been obliterated on the short side of this trade for years. The stock rose 36% in the quarter and 50% in the past year. But facts are instructive, if not ultimately predictive. The market cap and the enterprise value (EV) are both about $1 trillion. Tesla is barely profitable and sold a little over 900,000 vehicles in 2021. Let’s assume that number triples in short order to 3 million cars, and let’s also assume that it generates strong operating profit per vehicle of $3,500, equal to what luxury car maker Mercedes Benz has earned over the last several years. Those assumptions put the stock at an EV/EBIT of 95X. Not cheap enough for Tesla bulls? Let’s assume Tesla takes 100% of the global auto industry, selling 70 million units per year and earns that same luxury margin of $3,500 per car, which is multiples of what the industry overall earns per car. That would generate about $245 billion of operating profit, putting EV/EBIT at 4X or about 5-6X after tax earnings at some distant point in the future; after all, it should take Tesla at least a decade to put the rest of the industry out of business. Meanwhile, legacy auto original equipment manufacturers (OEMs) currently trade at around 5-6X THIS YEAR’S earnings. So, if Tesla takes over the entire world production of automobiles and earns multiples of what the industry earns on a per car basis, it is about fairly valued before adjusting for the time value of money. [Artisan Global Value Fund]
• This article comes from a leading Israeli virologist. The short summary: 1) respiratory viruses cannot be defeated, 2) mass testing is ineffective, 3) natural immunity trumps vaccines, 4) those vaccinated can be and are infectious, 5) Covid death risk is highly concentrated among the elderly and those with several co-morbidities, 6) vaccine side effects are not insignificant, 7) children and young adults should never have been isolated, and 8) masks and lockdowns are ineffective and counter-productive. I can't pass up the opportunity to repeat my prediction of April/May 2020: "The shutdown of the US economy will prove to be the most expensive self-inflicted injury in the history of mankind." [scottgrannis]
  
• Canadian oil companies just seem unbelievably cheap. I do not understand why anyone is buying cryptocurrencies or the Robinhood bubble stockswhen there are cheap pipelines, oil companies, tobacco companies, and banks. Capital markets have a good $5 trillion of worthless securities and coinz bouncing around. For that price, you could buy the entire energy industry, pipeline industry, tobacco industry, and community bank sector. [CBS]
• We have since learned that this block sale was between an investment bank and broker-dealer dedicated to the community banking sector (JWTT Inc.) and LICOA. We have also learned that LICOA bought more stock from JWTT on October 14th: a smaller purchase of $32 per share for 2,131 shares. So it would appear as though the company has an appetite to make repurchases at accretive prices now. (Meanwhile, very little stock has traded since a $24 print in early November. It is unclear whether the market is incorporating news of these repurchases yet.) The information below is from a portfolio review of LICOA's investments dated as of September 30, 2021. Something interesting is that LICOA has significant unrealized gains in its investment portfolio (market value $11.7 million greater than book value), which comes from fixed income securities. [Oddball Stocks]
• We've seen in the past with other liquidating Oddballs, there's a temptation for managements to stretch out the liquidation so that they can remain on salary, but this is bad for shareholders because it (obviously) reduces the eventual proceeds due to the overhead cost but also reduces the IRR of the investment due to the delay. [Oddball Stocks]
• It doesn't matter what the market thinks your timberland is worth because the trees' little solar panels are capturing photovoltaic energy and turning it into product that gets more valuable the longer you wait to sell it. Wood is a Lindy miracle material that has been with us through all the Ages of stone, bronze, iron, and steel. Just as tobacco and even oil are Lindy. Meanwhile, somewhere a dork's Tesla is catching on fire in his driveway. As he waits on indefinite hold with Tesla Insurance, he checks his Robinhood app and watches his portfolio of unprofitable fad stocks crumble. He didn't realize that even the profitable companies (the tech monopolies) were over-earning and trading at high multiples, which made the long thesis an error of double-counting, one that smart resource investors know better than to make. Already, storm clouds were on the horizon; catalysts appearing that would crunch the earnings and the multiples at the same time. The only thing Lindy about the Tesla dork being short value against growth was that so many had made the same mistake before. [CBS]