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IN THIS ISSUE

Two Ugly Ducklings? Perhaps Not!
By Vitaliy N. Katsenelson
Amcon Distributing Company (DIT)
By Marcelo P. Lima
Greenlight Capital Shareholder Letter
By Greenlight Capital
Book Excerpt: The Era of Uncertainty
By Francois Trahan
Street says Freescale has Promise (and Debt)
By Paul Quintaro

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THIS MONTH'S ISSUE

Amcon Distributing Company (DIT)
By Marcelo P. Lima

Warren Buffett likes to say that when management with a reputation for brilliance tackles a mediocre business, it is usually the reputation of the business that remains intact. Yet Buffett has on several occasions invested in businesses that would be subpar if not for very intelligent management and superior capital allocation. In fact, the industry that built Berkshire Hathaway into the behemoth it is today – insurance – remains cyclical and unattractive in the hands of inferior management.

It took Berkshire some very talented executives, originally in the form of Jack Ringwalt and most recently Ajit Jain, to weave gold from the company’s insurance subsidiaries (excluding GEICO). In a similar context, Buffett has entered tough, low margin businesses if the price and management were right.

For example, in 2003 Berkshire acquired McLane from Wal-Mart. One of the nation’s largest wholesale distributors of groceries and nonfood items to convenience stores, drug stores and other retailers, McLane had been bought by Wal-Mart on December 10, 1990 from Drayton McLane.

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NK
Comment
Sat August 20, 2011, 22:35:41
Cool write up. How were you first introduced to DIT being that it's such a tiny company?
Comment
Tue August 09, 2011, 10:32:06
Nice article. I own Amcon myself. I think normalized fully diluted EPS is around $10, though I assume it will increase to around $12 after the LP Shanks business becomes profitable. I think Chris Atayan is a very capable manager, having turned the business around. He is also far more financially sophisticated than most CEOs and I think he really understands value creation, and he has demonstrated he is a very disciplined acquirer. The debt is only temporarily high right now, due to the recent acquisition and what I believe are opportunistic inventory investments, and it will most likely come down a lot over the next few quarters. Quarterly earnings are very volatile, even if you normalize bad debt expense, stock compensation, inventory charges and other non-recurring items, which I think is probably due to inventory holding gains, the small size of the company, and rebates/special deals from suppliers. The volatile earnings are probably a drag on the valuation; it is certainly the reason for the decline in the stock following the last two quarterly announcements. Though there aren't really any catalysts, the stock is just way too cheap to ignore.
Christian Olesen
christian.olesen@olesenvaluefund.com