Investing Performance for 2014 - ALN, GPRC, SKBI, BH

The year 2014 will be remembered as the let-down year for my performance. It was the type of year where I was patiently sitting and waiting for the intrinsic value of the undervalued companies in my portfolio that have attractive growth characteristics to be realized by other investors. It did not happen but this is only a test of my patience.

At the time of this writing as well as at the end of the year American Lorain Corporation represented slightly over 50% of the whole portfolio. Just to recap, here is an excerpt from last year's letter on why I am so heavily invested in Chinese Reverse Merger companies.

At the end of 2010, an accounting scandal of incredible proportions was affecting the sphere of Chinese reverse merger companies. Investors were relentlessly dumping their share holdings on the market and all companies related to china saw their share prices prices fall over 70%. 

ALN is one of the falling knifes I was able to catch right. Let's hope I did it before it hit the ground. At the time of writing this article on 23/02/2015 after market close, the company's stock has already returned over 32% year to date. I am convinced that more impressive gain s still remain to be harvested over the next two years.

There are also a few blunders to mention. Guanwei Recycling Corp. is one of the reverse mergers that burned me for the year. If it was not for that company, my performance for the year would have hovered around 0% for the year. This would have been acceptable considering that ALN, my main position, is still consolidating.

Biglari Holdings Inc, formerly know as (Steak n Shake) is the new addition for the year. A small position was opened just to follow and understand what the company's Chairman, CEO and biggest shareholder, Sardar Biglari is trying to build over time.

Here are my positions for the year:

Long:

Skystar Bio-Pharmaceutical Company
American Lorain Corporation
Guanwei Recycling Corp.
Biglari Holdings Inc

Taking those positions into account, my performance in 2014 was a disappointing -16.2%, and the S&P/TSX did 7.4%, so it makes it that I under-performed it by 23.6%. This is very in line with that I should expect with my level of experience in that market. Last years performance was likely due to chance and it is very improbable that I will be able to replicate it in the future.

Previous Years Performance:
2013
2010
2008

Buying Google Inc. (GOOG, GOOGL) for the next 5 years?

As 2014 marks the 10th anniversary of Google Inc's IPO, let's take a look at what the company has delivered so far and see what the stock might have for investors in the next 5 years.

For those unfamiliar with the company, more information can be found on their investors relations webpage.

Google Inc . Logo

Here is a brief description provided by Reuters:

Google Inc. (Google), incorporated on October 22, 2002, is a global technology company. The Company’s business is primarily focused around key areas, such as search, advertising, operating systems and platforms, enterprise and hardware products. The Company generates revenue primarily by delivering online advertising. The Company also generates revenues from Motorola by selling hardware products. The Company provides its products and services in more than 100 languages and in more than 50 countries, regions, and territories. 

Considering the stocks lowest P/E ratio over the past 5 years of 21.73, the present price of the stock assumes that the earnings of Google Inc. will grow by roughly 5.8% over the next 5 years, giving us a 2019 price of $552. However, public information tells us that earnings have been growing at and annual rate of 61% over the past 10 years and 26% a year over the past 5 years. Using a more realistic number of 24%, the company is now worth $1,256 per share for a 5 year holding period.

That is a more extreme example but using 4 different valuation methods and relatively conservative assumptions regarding the future growth of the earnings of the company, we got an average price of $847 per share.

The two models that are based on the earnings tend to provide a higher estimate than the ones based solely on free cash flows. This point might prove to be a cause for concern in the long term. Even if it's not a screaming Buy, the company however seems to present a discount based on it's current price. Only time will tell which valuations method is right.

Disclosure: The author has no position in GOOG or GOOGL.

How much do you think Google Inc. is worth?