SLVM - Sylvamo Corporation: Look For Cannibals

2024-06-19 01:24:10 ET

Summary

• Trading at a near 10% earnings yield, Sylvamo Corporation is a global uncoated papers company with low-cost operations and a history of offering premium quality papers.
• Charlie Munger advised investors to focus on buybacks when it comes to spin-offs, in his words, cannibals.
• Unique of a spin-off, Sylvamo has reduced its long-term debt by a significant amount since the spin in 2021 and reduced net interest expense by nearly half.
• The company is buying back shares and increasing retained earnings, as they now have navigated debt into a coasting position.

Wise words from Charlie Munger

Going down a long list of recent spin-offs , which I do from time to time, one stock piqued my interest. Not only was it apparently cheap, as most spin-offs are, but it also was showing some growth and another rare attribute, buybacks :

“Charlie [Munger] mentioned if an investor did just just three things the end results would be vastly better than the rest. 1) Carefully look at what the other great investors have done, 2) Look at the cannibals , ie businesses buying back huge amounts of their stocks, and 3) carefully study spin-offs. Charlie said that an investment operation that focussed on these three attributes would do exceedingly well.” Mohnish Pabrai

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