Kase Capital Management’s Whitney Tilson on why he is long Micron Technology and the Airlines – Slides from Robin Hood Conference.  Tilson references David Einhorn, whose third quarter letter ValueWalk posted today, so check that out right here.

Whitney Tilson: The Three Most Dangerous Words in Investing: “I Missed It”

  • The “I Missed It” phenomenon is the emotional mistake of looking at a stock that’s moved up a lot and, sometimes subconsciously, saying to yourself, “Rats, I missed it,” and doing no further work on it
    • I know people who looked at Berkshire Hathaway, after it had run from $100 to $1,000 (and $1,000 to $10,000, and $10,000 to $100,000) who fell into this trap
    • I’ve talked to many people who started doing research on Netflix after my presentation two years ago, but then when Carl Icahn filed on the stock a few weeks later and it ran from the low $60s to almost $80 in two days, they fell into the “I missed it” trap and didn’t buy
  • Therefore, anytime you hear yourself saying “I missed it,” STOP! Re-do your work, ignore the historical price, and focus on the only question that matters: is the stock, at today’s price, an exceptionally attractive investment? If so, BUY IT (or short it)!
  • I am going to present a number of stocks today, some of which have made big moves
  • Despite this, I not only own them, but have been adding to most of them at current prices and if I were starting a new portfolio from scratch today, I would put on all of these positions

The Railroad Industry: What Can Happen When an Industry Consolidates

  • The semiconductor, U.S. airline, and auto rental industries today remind me of the railroads a decade or so ago: a lousy, capital-intensive industry – characterized by cut-throat competition, low margins, low returns on capital, and high debt levels – consolidates and slowly turns into a much better industry
  • When this happens, there can be a decade-long tailwind of strong top-time growth combined with improved pricing, margins, and returns on capital, leading to rapidly rising earnings
  • This, combined with investors awarding these earnings a higher multiple, can lead to tremendous long-term stock returns (the worst performer is up 7x!):

Whitney Tilson Railroad Industry

Whitney Tilson: The Two Big Ideas I Got From Last Year’s Robin Hood Conference: 1) Micron

(Thank you David Einhorn!)

  • Micron Technology, Inc. (NASDAQ:MU)’s stock had more than tripled in the previous year
  • How many people would have looked at this chart and said to themselves: “I missed it”?

Whitney Tilson Micron

But You Hadn’t Missed It: The Stock Is Up 50% Since Then

Whitney Tilson Micron

To Evaluate Micron Today, You Only Need to Answer One Question

  • Are the record earnings over the past year the top of yet another cycle or does it reflect a long-term fundamental change in the industry?

Whitney Tilson Micron

Whitney Tilson: Current Thoughts on Micron

  • Micron Technology, Inc. (NASDAQ:MU) has pulled back 15% in recent weeks, yet the company and industry fundamentals remain excellent:
    • Demand is very strong
    • Spot and contract pricing is stable/up
      • Little evidence for the bear thesis of a collapse in DRAM pricing
    • Capacity discipline and stabilization, in which growth is in line with demand
      • Micron has no plans to add any capacity
  • Less than a month ago, Micron Technology, Inc. (NASDAQ:MU) reported a very strong quarter (revenues rose 49% year over year and operating income quadrupled) and gave excellent guidance
  • Industry leader Samsung, in an otherwise dismal Q3 update, said: “Earnings for the Memory business improved on-quarter led by continued strong seasonal demand momentum, including PCs and servers, price stabilization under tight market supply and demand conditions”
    • While Samsung Electronics Co. Ltd. (LON:BC94) (KRX:0059935) is building a new chip plant, production won’t begin until 2017 and the CEO dismissed concerns of a price war, saying “there definitely will not be any game of chicken”
  • Inotera Memories Inc (TPE:3474) also reported solid numbers for September

See full PDF here.