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  • 4 Reasons To Buy 'Old Tech' Stocks Like Microsoft Right Now [View article]
    I was referring to Windows and Office, and yes together they are probably 75% of cash flow Microsoft generates. Office is not a consumer product at all, as you know, thus the title of its operating segment. If Windows and Office were a separate company they would have generated better returns than tobacco stocks the past decade, in my opinion.

    You know the actual returns, unfortunately. Compare those to VMWare or any other upstart who made something better than MSFT in their server and business market. I think the reason is that microsoft seems to invest a lot of money in companies and products that aren't quite good enough to move the needle, and in some cases are a complete waste of money.

    I'm sure they have some successes--dear god, they have nearly 100,000 people working there and many of them are brilliant. But I'd wager most are kind of ancillary to the Windows platform like Microsoft Lync you mention--nobody buys that if they are using Unix or LINUX. And speaking of Lync, let's wait and see how they integrate skype into it. Maybe it will prove to be a game changer, worth the $6B they paid for Skype. I doubt it.

    I'm involved with hiring people for IT consulting; MSFT is less important by the year in that ecosystem. But don't take my word for it: (if you can't see the link, go to Google trends and enter "Microsoft certified."

    Look, invest in MSFT if you think Ballmer will allocate your capital well. To me, I'm just saying there's too many examples where he didn't to make me comfortable giving him money.
    Mar 18, 2013. 04:36 PM | 2 Likes Like |Link to Comment
  • 4 Reasons To Buy 'Old Tech' Stocks Like Microsoft Right Now [View article]
    The definition of a value trap.

    Microsoft has been reinvesting all of the money made by Windows and Office software into underwhelming copycat Apple products (Zune, Surface, even some Windows computers copy aspects of Macs now), Skype, and whatever noname company that was which Microsoft recently wrote down for $6B. They rival HP in atrocious capital allocation and strategy, with the main difference that Microsoft has the peerless Windows monopoly which supports all the other bad decisions in Redmond.

    Ballmer has been responsible for nearly all of this. As long as he is there, run away. A bet on him leaving is understandable, but Ballmer-nomics has had a long time to seep into that company culture, I'm not sure anyone, even Bill Gates, could change that very quickly.
    Mar 17, 2013. 08:02 PM | 2 Likes Like |Link to Comment
  • 3 Small Cap Biotech Plays Potentially Facing Cash-Flow Issues [View article]
    But why add the total of operating cash flow and FCF? FCF already incorporates operating cash flow, I don't understand why you sum those two numbers.

    Conceptually it would make sense to divide cash by FCF if you want to calculate "How many periods would the current cash hold up assuming past operations continue." By adding CFO and FCF you muddy the issue and I think your resulting numbers aren't as relevant.

    I'm mainly interested in your answer to the above, but as a more general observation you are targeting companies who are growing very fast--30% YoY or so--and who are valued for earnings often 2-3 years out. Past results tend to be more unreliable for them.
    Feb 20, 2013. 07:52 PM | Likes Like |Link to Comment
  • 3 Small Cap Biotech Plays Potentially Facing Cash-Flow Issues [View article]
    I'm confused after the first example. You divide the cash balance by the combination of negative free cash flow and negative cash from operations? Why not just FCF? Why is NEO's number for the latter $23M? i.e.:

    "After crunching the numbers, and dividing the company's total cash of $2.04 million by the total of both its operating cash flow and free cash flow which equaled $23.38 million"

    I see $2.04M on the balance sheet (in September, not December, when it was actually 1.8M). But where does the $23.38M number come from?
    Feb 20, 2013. 03:33 AM | Likes Like |Link to Comment
  • Armour Residential: Strong Dividends Set To Continue [View article]
    I am curious about the misbalance of their interest rate risk in assets to liabilities: essentially they borrow short-term to fund long-term. This pattern has destroyed companies (and countries) in the past, what do you all think about ARR's exposure here?
    Jan 22, 2013. 03:50 PM | Likes Like |Link to Comment
  • Intel: Highlighting The Biggest Growth Opportunity [View article]
    It think ptmmac's comment hit my question as well: you mention server's margins are high because they were made on fabs already depreciated during their use (I assume) on PC chips. Will this dynamic shift as PCs lose their market share? It seems like Intel invests tremendously, and thereby keeps their tech advantage, because they are able to cover their costs both in the PC market and the server market.
    Jan 14, 2013. 01:41 AM | Likes Like |Link to Comment
  • Herbalife Speaks For Itself As Ackman And Loeb Duke It Out Over The Company [View article]
    The main driver in this trade is a guy with 20% of HLF's shares short trying to get the government to sanction/close down HLF. The "trading probabilities" have to incorporate what that guy will do.

    To be short on this trade, you have to be sure that the government will act on Ackman's analysis. That's not about facts, that's predicting the future--and a future that has almost no precedent. The FTC just might make this company worth zero, but I'd like to know when they've done that in the past to a $3B dollar company, especially when urged on by a short-selling hedge fund manager.

    For all Ackman's efforts over SEVEN years to get the SEC to act on MBIA, they never did...his bet won because MBIA's balance sheet and Triple A rating imploded. And also because Ackman's derivative short allowed him to wait that long with minimum realized losses. In the meantime he was hounded by Spitzer and others.

    My point is that in this case if Ackman has to wait even two years for the FTC not to do something, HLF will have used their cash flow to buy back shares and squeeze him dry, along with everyone else who has jumped on the bandwagon. I suspect there are about 50 trading desks in Wall Street who are waiting to hop on and make some money as all of the shorts cover.

    Good luck to all of you though.
    Jan 12, 2013. 10:57 PM | Likes Like |Link to Comment
  • Herbalife Speaks For Itself As Ackman And Loeb Duke It Out Over The Company [View article]
    CDS's are marked to market, but because they are derivatives the potential for gains is much, much higher than the potential for losses. Ackman was paying about 3bps each year for a $1M payout, which means he was booking a $30,000 loss each year for each potential $1M gain. Peanuts of a loss to his portfolio.

    In this case his position is much less attractive: if the position moves against him he books losses in a 1-1 ratio. If his average cost is about $55, every dollar the price moves above that raises the pressure on him to buy back shares...a horrible feedback mechanism and short trading risks 101.

    If something negative happens (FTC says they've looked into HLF and will not prosecute, etc.) he is completely screwed as everyone will crowd against him. Completely different risk profile than his earlier CDS bet.

    Not all others are long. Followers like Whitney Tilson with much less patient investors are also short. They may have to cover before Ackman, making the price rise, making more of Wall Street interested in packing on Ackman, etc. etc. There is HUGE risk in this bet for Ackman.

    The only risk for longs is that the gov't does something. Otherwise the company will continue to slowly but surely buy back shares....
    Jan 11, 2013. 10:21 PM | 2 Likes Like |Link to Comment
  • Herbalife Speaks For Itself As Ackman And Loeb Duke It Out Over The Company [View article]
    One reason this stock is interesting is that people are emotional about it: the chances for mispricing are immense.

    The summary of an investor's decision as I see it:

    Short: Assume FTC takes action, or that Ackman's presentation otherwise affects future earnings of what has been a prolific cash flow generator

    Long: Assume HLF can continue to generate solid cash flow, buy back shares, and increase earnings to the point the shorts have no choice but to cover their 20M share position.

    Personally the long thesis seems much more compelling. The FTC has looked into HLF before--they are not going to be galvanized by a hedge fund manager who thinks herbalife is "the best product no one [in my billionaire neighborhood] has heard of." Ackman was notoriously patient in his CDS bet against MBIA, but that was a derivative bet he could hold a long time without massive mark-to-market declines. If HLF lasts for a year or more and materially buy backs stock, Ackman could get painfully squeezed and I don't see how he can maintain a short position if he needs to report significant negative positions at the end of year to investors. If Ackman needs to buy back his 20M shares while Wall Street smells blood this stock could go to the moon.

    As an aside, I once had a comment rejected by SA because it was too rude to the author even though I was only pointing out the accounting in his analysis was flat out incorrect. How did the preschool bullying-type comments on this article get through?
    Jan 11, 2013. 03:05 AM | 4 Likes Like |Link to Comment
  • Microsoft: Don't Worry About Google Chromebooks [View article]
    I disagree with your comment that photo/video editing and other processing-hungry needs necessarily requires "powerful software (that isn't going to be run from a browser) as well as powerful hardware."

    That may be the case now, but my understanding is that bandwidth/storage is a primary limiting factor. Photographers can upload RAW files over the internet, and a remote processor could provide all the computer power to manipulate files, leaving the tablet/PC with simple control input and display duties--similar to a DVD. That such a solution does not exist means there are difficulties, but I wouldn't put my money in a bet someone doesn't innovate such a tool, especially as bandwidth increases.

    On the Chromebook: I agree that as a singlular product it does not immediately threaten Windows OS.

    But the Chromebook is only one of multiple threats to the Windows eco-system, and increasingly stockholders are betting that Balmer and MSFT's management team can navigate these threats. Personally, MSFT management's record at acquisitions and innovations over the past decade doesn't instill me with confidence they can do it.
    Jan 8, 2013. 10:55 AM | 1 Like Like |Link to Comment
  • Einhorn And Buffett Are Right: General Motors Is A Great Buy [View article]
    Thanks KRV. I disagree on your valuation technique: current liabilities won't be "covered" by operational cash flow--they stay on the balance sheet as claims against the assets you are using to value equity, and their claims are superior to equity holders. Hopefully the current liabilities will be offset by current assets, but I challenge you to find a company--no matter how strong the cash flow--which is able to eliminate current liabilities so that they disappear from the balance sheet.

    If you are valuing a company based on the balance sheet, you can't ignore current liabilities. You need to net them out from current assets. That's why your value per share for GM is too high.
    Dec 24, 2012. 01:00 AM | Likes Like |Link to Comment
  • Einhorn And Buffett Are Right: General Motors Is A Great Buy [View article]
    Or, to simplify my point, GM's equity book value on their last 10-q is $42B, or between $22-$27/share depending on whether you use shares outstanding, diluted, etc. There's no way you get to $30/share, a premium, after the adjustments you make.
    Dec 21, 2012. 09:58 AM | 1 Like Like |Link to Comment
  • Einhorn And Buffett Are Right: General Motors Is A Great Buy [View article]
    Thanks for clarifying the long-term liabilities issue; in the article you seem to use "long-term liabilities" to mean both debt and pension liabilities, which I think is confusing. i.e. "When you remove the entire long-term liabilities, I get $64.8 per share."

    Your math elsewhere seems off to me. Per the last 10-q, after you discount receivables and inventory by 15% and 40% respectively, their current assets are roughly:
    34B (Cash)
    14B (discounted receivables)
    9B (discounted inventory)
    57B - total current assets (discounted off book value of 72B)

    I'll give you 15% of PP&E (28B), so add another 4.2B. Then I'll give you 100% of their subsidiary values and investments (8B), and LT receivables (7B).
    That totals 76B.

    Once you start taking out liabilities: 57.6B in current liabilities, plus another 10B in LT debt, your net assets get whittled down to about 9B, or $4.89/share. And that's before discussing any pension or other retirement obligations.

    I'm not sure why Einhorn/Buffett invested in GM, but I suspect they have confidence in the company's new efficiencies and cash flow generation. If they were to run into trouble again I don't think your analysis is very accurate on liquidation value.
    Dec 21, 2012. 09:57 AM | 2 Likes Like |Link to Comment
  • Einhorn And Buffett Are Right: General Motors Is A Great Buy [View article]
    I do not understand why you discount long-term liabilities. Why would you not assume they are not senior claimants on the assets?

    Your estimate of PP&E is high for any realistic liquidation scenario.. If GM were to be in that situation, the only buyer would be other car companies, who likely wouldn't want that stuff either.

    Also, GM does not, as you say, "have a long-established and validated method of valuing physical assets as close to market as possible." Those assets are held on their books at cost, not market value. As long as they are generating revenues it is unlikely GM would write down the assets no matter what the market value may be. Ben Graham used 15% of property as a rough guide--that would be more appropriate.

    I think you are committing the double whammy in terms of valuation: overvaluing the assets and undervaluing senior claims like liabilities. No way GM's liquidation value is anywhere near 36.
    Dec 21, 2012. 06:51 AM | 10 Likes Like |Link to Comment
  • Looking For A Long-Term Pharma Play? [View article]
    I echo fatbaboon. Recommending dividend stocks solely on what one may find on Yahoo's Key Statistics page just doesn't cut it for stock analysis--readers might as well go to the casino. Business fundamentals are what allow dividend payments, and AZN has a huge gaping hole in their OP after 2016 when Crestor comes off patent. Crestor revenue decline seems to have begun this year, as Lipitor's patent expiration last year has driven sales down 7% YoY in their previous quarterly announcement. What is their next blockbuster that will pay you your dividends? There is a reason investors are demanding a high yield in return for this risk.
    Dec 11, 2012. 06:15 AM | Likes Like |Link to Comment