What do you think about the semiconductor shortages in the auto industry? and how it can affect Garrett's revenue since it relays mainly on OEMs selling cars?
I have thought about this and recognize that it is one of the risks associated with Garrett. My time frame is for a 2-3 year horizon with this one. I expect that the semiconductor shortages will be forgotten in about 12 months.
Ive considered this as well because I'm interested in Garrett. Im a long time technician at Ford motor company. The semiconductors are primarily used in control modules. Engines and powertrain components are built separately and everything comes together on the assembly line. The turbos bolt directly to the engines. I know for a period of time Ford has been producing their vehicles almost to completion and leaving then until the control components can be supplied.
Can you please explain how the convertible preferred shares work? I buy them at X , get 11% yield from face value paid in common stocks, and can convert them to common shares? whats the conversion ratio? Face value / 5.25$? (As long as the terms apply?)
The way I understand it they convert 1:1, however, the yield is currently paid in equity 11%/annually on $5.25 par. Therefore, the value of the yield is approximately .58/year. It looks like the conversion will not happen for at least 2 years. This means that the preferred should be 1.16 higher than the common- that is what it represents within two years. Remember when you calculate this to project out two years on the company and identify this preferred as if it were common stock to account for the share dilution that may occur if converted. Let me know if this helps.
@@specialsituationsinvesting3310 it does help, but i wonder why buying the preferred? It seems tax inefficient. Also ill be happy if you can explain the asbestos liability, wasn't it related to a business that was part of honeywell but had nothing to do with garret? And if that is the case, how come they can just pass that liability to garret? Great content, definitely a subscribe:)
@@amitweil7500 The asbestos liability was from a business owned by Honeywell that made brakes (If I remember correctly, it was Bendix brakes). Honeywell stopped the Bendix business as they realized the asbestos liability was making it unprofitable. Like you, I question why Honeywell was able to offload this to Garrett in the spinoff. It looks like Honeywell's legacy automotive business was solely left in the Garrett turbo business when the spinoff occurred. In an attempt to offload the liability, Honeywell lumped it with Garrett's spinoff. I think Garrett's leadership did the correct action by petitioning for relief through the courts when Honeywell appeared to mask the economic responsibilities of the asbestos liability. As to your question on the preferred, I can see that it is tax inefficient if you have it in a taxable account. I personally am holding this in retirement accounts. However, I also expect this situation to work itself out over about 2.5-3 years and in the current tax code long term capital gains and dividends are taxed at a lower rate than normal income. Thanks for subscribing!
@@specialsituationsinvesting3310 thanks for your answers, i still dont understand why buying the preferred over the common? Is it for preferred position in case of liquidation? (Preferred shares rarely get a cut), whats the reason buying the preferred ones?
@@amitweil7500 I went for the preferred because they have liquidation preference and it seemed like some of the big names that are investing in this company did all they could to get preferred shares after the bankruptcy. Note that my LEAPs (Long term options) are for the common. I don't think an investor will do poorly with either.
Great video! I took a look at GTX awhile back but didnt catch my interest at the time, good luck though ! I like the addition of the LEAPS. Same thing that I've done recently. I've also started selling covered calls for collecting premiums and that's been fun as well.
I was reading about the preferred shares. Do you get a 11% dividend pay out? When would it potentially start and how often? Finally could you do a follow after the earnings today?
The 11% dividend looks like it will be paid in common shares. The dividend for the first two years is already reflected in the price, this is the reason for the premium represented in the GTXAP share price to that of GTX common. The dividend is worth about .05 cents per share per month from May 2021 to May 2023. I would be more than happy to discuss earnings-do you have a specific question(s) you want me to address?
@@specialsituationsinvesting3310 so what is the ultimate benefit having preferred a vs. Common if we are a 16% premium? Based the yesterdays earnings has your intrinsic value of increased and/or reassured your thesis?
@@pornstarpat There is not much benefit in owning preferred over common. However, I am holding preferred because it has seniority to the common if the company gets into trouble. I expect that the triggers for the preferred to convert to common will be met no later than the next 36 months. I will keep my values the same until the year finishes. It is my way to superficially keep my expectations low. However, if the company continues at the run rate that it seems to be having this year, they will trigger the repayment option to Honeywell and pave the way to clean up the balance sheet further. This is in line with my thesis that the company's different equity types would be cleaned up over the next two years (this is actually faster than I expected).
@@specialsituationsinvesting3310 okay that's what I thought was the extra security if they would fold up. Well thank you for the reply and I look forward to future videos.
Thanks for the informative video! You have about 1%-2% of your portfolio in leaps calls at strike: $7.5, $10 and $12.5. Am I correct in assuming that those leaps are jan-23 and combined stands for 1%-2% and not 1%-2% per leaps? May I ask at roughly which price you got the leaps for?
Sure 12.50@.65, 10@1.08, 7.5@1.75. You are correct that the total I have in them combined is 1.1% of my portfolio. I don’t count my investments in mutual funds in this portfolio size calculation - just the portfolio set aside for special situations and individual stock investing.
Thanks for the video Gregg! Garret just partnered with DriftHQ Adam LZ so they should be selling a ton of turbos now. Where do you go to know more information about garret motion so I can keep up with the news? Also, are you exposed to BWA? If yes, how much % of your portfolio in it? Thank you!
Great video! Thanks!
What do you think about the semiconductor shortages in the auto industry? and how it can affect Garrett's revenue since it relays mainly on OEMs selling cars?
I have thought about this and recognize that it is one of the risks associated with Garrett. My time frame is for a 2-3 year horizon with this one. I expect that the semiconductor shortages will be forgotten in about 12 months.
I will probably be wrong!
Ive considered this as well because I'm interested in Garrett. Im a long time technician at Ford motor company. The semiconductors are primarily used in control modules.
Engines and powertrain components are built separately and everything comes together on the assembly line. The turbos bolt directly to the engines.
I know for a period of time Ford has been producing their vehicles almost to completion and leaving then until the control components can be supplied.
Also there will still be demand, although quite a bit less, for replacement turbos for units already in service.
@@JSHTech1 Thanks for sharing your perspective. I think it will be interesting to see where this goes.
Can you please explain how the convertible preferred shares work?
I buy them at X , get 11% yield from face value paid in common stocks, and can convert them to common shares? whats the conversion ratio? Face value / 5.25$? (As long as the terms apply?)
The way I understand it they convert 1:1, however, the yield is currently paid in equity 11%/annually on $5.25 par. Therefore, the value of the yield is approximately .58/year. It looks like the conversion will not happen for at least 2 years. This means that the preferred should be 1.16 higher than the common- that is what it represents within two years. Remember when you calculate this to project out two years on the company and identify this preferred as if it were common stock to account for the share dilution that may occur if converted. Let me know if this helps.
@@specialsituationsinvesting3310 it does help, but i wonder why buying the preferred? It seems tax inefficient.
Also ill be happy if you can explain the asbestos liability, wasn't it related to a business that was part of honeywell but had nothing to do with garret? And if that is the case, how come they can just pass that liability to garret?
Great content, definitely a subscribe:)
@@amitweil7500 The asbestos liability was from a business owned by Honeywell that made brakes (If I remember correctly, it was Bendix brakes). Honeywell stopped the Bendix business as they realized the asbestos liability was making it unprofitable. Like you, I question why Honeywell was able to offload this to Garrett in the spinoff. It looks like Honeywell's legacy automotive business was solely left in the Garrett turbo business when the spinoff occurred. In an attempt to offload the liability, Honeywell lumped it with Garrett's spinoff. I think Garrett's leadership did the correct action by petitioning for relief through the courts when Honeywell appeared to mask the economic responsibilities of the asbestos liability.
As to your question on the preferred, I can see that it is tax inefficient if you have it in a taxable account. I personally am holding this in retirement accounts. However, I also expect this situation to work itself out over about 2.5-3 years and in the current tax code long term capital gains and dividends are taxed at a lower rate than normal income. Thanks for subscribing!
@@specialsituationsinvesting3310 thanks for your answers, i still dont understand why buying the preferred over the common? Is it for preferred position in case of liquidation? (Preferred shares rarely get a cut), whats the reason buying the preferred ones?
@@amitweil7500 I went for the preferred because they have liquidation preference and it seemed like some of the big names that are investing in this company did all they could to get preferred shares after the bankruptcy. Note that my LEAPs (Long term options) are for the common. I don't think an investor will do poorly with either.
Great video! I took a look at GTX awhile back but didnt catch my interest at the time, good luck though ! I like the addition of the LEAPS. Same thing that I've done recently. I've also started selling covered calls for collecting premiums and that's been fun as well.
Covered calls are a great way to collect a little cash and establish a “make me sell” price.
I was reading about the preferred shares. Do you get a 11% dividend pay out? When would it potentially start and how often?
Finally could you do a follow after the earnings today?
The 11% dividend looks like it will be paid in common shares. The dividend for the first two years is already reflected in the price, this is the reason for the premium represented in the GTXAP share price to that of GTX common. The dividend is worth about .05 cents per share per month from May 2021 to May 2023.
I would be more than happy to discuss earnings-do you have a specific question(s) you want me to address?
@@specialsituationsinvesting3310 so what is the ultimate benefit having preferred a vs. Common if we are a 16% premium?
Based the yesterdays earnings has your intrinsic value of increased and/or reassured your thesis?
@@pornstarpat There is not much benefit in owning preferred over common. However, I am holding preferred because it has seniority to the common if the company gets into trouble. I expect that the triggers for the preferred to convert to common will be met no later than the next 36 months.
I will keep my values the same until the year finishes. It is my way to superficially keep my expectations low. However, if the company continues at the run rate that it seems to be having this year, they will trigger the repayment option to Honeywell and pave the way to clean up the balance sheet further. This is in line with my thesis that the company's different equity types would be cleaned up over the next two years (this is actually faster than I expected).
@@specialsituationsinvesting3310 okay that's what I thought was the extra security if they would fold up. Well thank you for the reply and I look forward to future videos.
Thanks for the informative video! You have about 1%-2% of your portfolio in leaps calls at strike: $7.5, $10 and $12.5. Am I correct in assuming that those leaps are jan-23 and combined stands for 1%-2% and not 1%-2% per leaps?
May I ask at roughly which price you got the leaps for?
Sure 12.50@.65, 10@1.08, 7.5@1.75. You are correct that the total I have in them combined is 1.1% of my portfolio. I don’t count my investments in mutual funds in this portfolio size calculation - just the portfolio set aside for special situations and individual stock investing.
@@specialsituationsinvesting3310 Thanks, much appreciated.
Thanks for the video Gregg! Garret just partnered with DriftHQ Adam LZ so they should be selling a ton of turbos now. Where do you go to know more information about garret motion so I can keep up with the news? Also, are you exposed to BWA? If yes, how much % of your portfolio in it? Thank you!
I get most of my information on Garrett from SEC filings
investors.garrettmotion.com/
I am not exposed to BWA. Thanks for your comment.
@@specialsituationsinvesting3310 thanks