Live Nation- Everybody Wants to Rule the World

Date: May 2, 2013 Price: $12.50 Mkt. Cap.: $2.4 billion

An investment in Live Nation (LYV) provides investors with an opportunity to buy into a unique set of assets that provides an ecosystem to maximize that amount of revenue and profits available in the live entertainment industry. Unlike most of our typical investment reports which focus on free cash flow utilization, net asset value investing, mean reversion of margins or special situations, this report will look at the investment merits of a company that generates little free cash flow at the moment and is somewhat of a growth investment if company management is successful in achieving its objectives. Their dominant size is a competitive advantage and the presence of a significant, value creating long-term investor (Liberty Media)  provides additional margin of safety from a liquidity standpoint. The strategy is not without risks and we will discuss those as well.. What follows is our analysis of the merits of Live Nation’s three year plan to grow its Adjusted Operating Income (AOI) by 30-35%.

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Body Central: Cheap for a reason, isn’t that always the case…

Investors have a tendency to look at stock charts after a stock has significantly increased in value and think the could have made that big return if they had just known about the opportunity at the time. In reality it doesn’t work that way. Most stocks that are near their lows or out of favor are “cheap for a reason”. Here is an example of one, Body Central (BODY), a former high flying growth stock that is now trading at one-third its peak valuation and more importantly less than enterprise to sales ratio of 40% and cash equal to 30% of the market cap. Similar stocks have been acquired at 2X the current multiple.

When stocks are out of favor and priced inexpensively, investors tend to focus on the reasons they are out of favor. When they are in favor and priced fully, investors tend to focus on the reasons they are priced that way. In truth, most of the time those reasons are always present, it is just that investors tend to focus on just the negative when stocks are declining and focus on just the positve when they are increasig.

Here is our take on the reasons BODY is cheap and some thoughts on what the reasons could be  when it isn’t cheap any more….

I have spent almost my entire career in the investment industry, over 27 years of it anyway, as an analyst focused almost entirely on “value” stocks. Most aspiring value investors are intellectually attracted to the investment style because it makes sense intuitively. Buy enough “safe” cheap stocks and thanks to mean reversion or shareholder activism or just plain time, your results should outperform the market. Investors see successful investment results ex-post and believe in “hindsight” they too could have made that investment. However, I believe that, “if you could have you would have.” What most investors fail to understand is that the value stocks that have done well where most likely “cheap for a reason” at the time the potential gains were the greatest and there was no clear reason or “catalyst” to buy the stock at that time. As others have said, “valuation can be its own catalyst.” What follows is an analysis of Body Central (BODY), a stock that is “cheap for a reason” and has no “visible catalyst.” Anyone that is still reading this article after that last sentence, thank you for your support!

Seeking Alpha Body Central Article

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