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  • 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 06:51 AM | 10 Likes Like |Link to Comment
  • This Gold Slam Is A Massive Wealth Transfer From Our Pockets To The Banks [View article]
    Goldbugs buy gold, bury it in the ground and complain when someone doesn't pay them more to take it and bury it somewhere else.

    Rule #1 of Goldbugs: Gold prices should always rise. Natural market demand increases as people try to hedge against central bank printing, and because gold HAS to go up, dammit, otherwise you don't understand economic laws and the rule that shiny objects hold lots 'o value.

    Rule #2: if perchance gold prices go down, it's because of some massive conspiracy amongst central banks and short selling schemes preventing gold price to continue upward. See Rule #1.
    Apr 16 09:25 AM | 6 Likes Like |Link to Comment
  • The Real Bad Dogs Of Dividend Investment [View article]
    I want to stay polite here, but your analysis is completely misleading. There are a number of flaws but I will focus on the biggest two:

    1) A "Stray Dog," as you define it, has a high dividend yield year after year, which you seem to think offers higher returns. You assume this is better than a stock with a high yield one year but not the next. This is not true a priori (I'd believe it if you offered some data). A stock with a high yield one year and not the next usually, with a few rare exceptions, has a lower yield because of capital gains--i.e. the stock rises to make the yield lower. This is especially true of DJI components. A stock that maintains the same high yield does so partly because the stock price is not rising as much. Which is better? I suspect the stocks that rise do better long-term.

    2) Your data set is horribly limited. Taking one year returns as evidence stray dogs are a great investment? Try 5 years. 10 years. I could pick any strategy in the world that works for one year--show me something that has worked over time.

    I would guess that your strategy performs worse than the normal Dog of the Dow over the long term because you are preferring stocks that by definition are not likely to be posting large price gains. But show me some longer term results and I might change my mind.
    Apr 24 08:16 AM | 5 Likes Like |Link to Comment
  • 4 Tobacco Giants' Financials Reviewed [View article]
    What is the point of this article? To translate concise financial statements into wordy English paragraphs? Come on, add some value somewhere or make a statement, bold or wrong or otherwise. Some SA writers seem like they have a form document with blanks where they fill in revenues and EPS growth and think that's worth reading.
    Apr 9 09:43 PM | 4 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 03:05 AM | 4 Likes Like |Link to Comment
  • Lorillard: The Risk And Opportunity Of Pending Regulations [View article]
    LO trades at 13.5x forward earnings vs. 15x for both RAI and MO. The difference in yield is admittedly not quite as distinct--but LO has provided on average about 17bps higher yield than MO in 2013, compared with 53bps less yield than MO in 2012--a decent swing.
    May 24 09:25 PM | 3 Likes Like |Link to Comment
  • The Worst 'Big 4' Tobacco Company Right Now [View article]
    @ maybenot: probably should look at the div payout ratio for MO sometime. In the past three years you're looking at 78%, 96%, 82%. This year EPS should be a little higher so it won't likely be so high (although I'd love to see a hike!).

    Tim I believe the P/E ratios you mention are a bit misleading...all of the big 3 tobacco companies trade at about 15x forward earnings. RAI in particular is forecast to have a large jump in EPS ending 12/2013 which makes the 18x last year's earnings look misleading. However you are right: on a historical basis they ALL are expensive.

    The cigarette industry will be fascinating to follow in the next few years...there is something to be said for a super high dividend payout ratio in an industry which is suffering volume declines.

    You also do not mention debt...LO and MO have both leveraged to the tilt to maximize shareholder returns...LO's negative book value of equity is a good lesson in the difference between accounting and economic value. RAI is not quite as levered and has some room to maneuver here.

    I'm long MO. I like the focus on shareholder value, slight diversification, and yes the high payout ratio--cash does nothing sitting in coffers! PM is promising too but the international exposure adds an element of FX and country risk I think people underestimate.

    Thanks Tim.
    May 22 01:34 AM | 3 Likes Like |Link to Comment
  • Smart Investment In The Skies: Boeing And Lockheed Martin In A Dogfight [View article]
    What is the point of your analysis if your conclusion picks Boeing because "of the exploding demand for its planes?" Your upside shows only 4% for BA while 15% for LMT. Your analysis doesn't even touch on demand for the planes that Boeing makes. Why did I waste my time reading your analysis if even you ignore it completely?
    Apr 30 04:25 PM | 3 Likes Like |Link to Comment
  • Altria Group Has Huge Fair Value, Solid Dividends And A Favorable Trend [View article]
    I am long MO, but this article lowers the bar and needs some improvement.

    1) MO is NOT diversified geographically--its sales are 100% North America. PM has marketing rights overseas.

    As such the discussion on "initiatives of some countries concerning smoking initiatives" is completely off target. Frankly I stopped reading once I saw this as the author completely lost credibility with me.

    2) Revenue growth of 3% is hard to imagine when cigarette volumes are declining year over any case revenues certainly aren't correlated to Industrial Production or Pending Home Sales!

    A more interesting discussion: MO's premier brand Marlboro being able to continue gaining market share while maintaining price increases of previous the recent Florida supreme court decision will affect MO's litigation risks going forward...and the e-cig trend towards traditional tobacco and when (if) that will affect big tobacco. Will MO acquire one of these players?

    Long MO, but please work on your fundamental analysis before publishing.
    Apr 3 06:14 PM | 3 Likes Like |Link to Comment
  • A Number Of Concerning Catalysts To Consider Before Creating A Position In Altria Group [View article]
    One note on your entry point...a price of $30 would give MO a dividend yield of 6.4%. In the past 30 years, the yield has risen above 6% only three times: 1999 dot com bubble (max 8.7%), 2003 (max 7.9%), Great recession (max 15.8%).

    Maybe that's a good entry point, but it also might be a long wait until that comes.
    Aug 26 09:29 AM | 2 Likes Like |Link to Comment
  • Lorillard: The Risk And Opportunity Of Pending Regulations [View article]
    @maybenot: That's what I suspect too. But I think--and maybe hope--that the FDA will come out with regulations that 1) make headlines and 2) sound more limiting and foreboding for than they realistically are.
    May 24 11:40 PM | 2 Likes Like |Link to Comment
  • AT&T: A Toxic Aristocrat [View article]
    "The dividend is currently being kept afloat by accounting improvements."

    I'd argue the other way around. The net income is being kept lower than usual by non-cash accounting charges. There are a number of one offs here--someone else mentioned the $3B T-Mobile expense, which is cash but non-repeatable--and the non-cash actuary losses on pension obligations will need to be paid over time, assuming they're not reversed by a gain in future years.

    Dividend coverage is all about cash, cash, cash. And AT&T's business model is wonderful at generating it, as most people's cell phone bills show. Recent CAPEX numbers ($20B/year!) are a concern as T builds the LTE network, but if management can manage this going forward the dividend is more than safe.

    I'd like to see more cash-focused analysis rather than looking at net income.
    Mar 28 03:02 PM | 2 Likes Like |Link to Comment
  • 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 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 08:02 PM | 2 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 10:21 PM | 2 Likes Like |Link to Comment