Alan Brochstein

Healthcare Stocks Have a Serious Drug Problem

You omitted the #1 cost reducer (ahead of electronic records): Just don't pay the doctors or other service providers!

On Apr 27 07:44 PM Steven Hansen wrote:

> obama's thrust into this market is to lower health care costs and
> make health care accessible for all americans. this cannot happen
> with simply computerizing health care records.
>
> for me there is a grand plan to drive costs down (and therefore earnings)
> and to put the government into the health care industry. this will
> create a lot of confusion and pain. this is like getting on a bus
> and not knowing where it is going.

Healthcare Stocks Have a Serious Drug Problem

Massive short interest in some of those names, but some came off after the Obama drama

S&P 500 Watch: March 'Winners' Are Actually the Biggest Losers

I think we are in a range of 730-880 roughly over the next several months. We will possibly make new lows but most likely test the recent bottom later this year. In any event, I agree with you that stocks won't be making anyone rich for quite some time (except those who can trade opportunistically).

I find it interesting that some of the demolished stocks have come back, but others haven't (as I demonstrated on the first chart as well as what I saw with the same analysis applied to the R2000). Could it be that GM really isn't worthless? I doubt it. The reality appears to be that BAC, GM, GE etc. aren't going to see their stocks zeroed out - for now.

On Mar 29 08:54 AM prudentinvestor wrote:

> Thanks for an informative analysis. When the market was near its
> lows I had argued that sound stocks were by no means "cheap"; and
> that the low SP500 was more due to some of its constituents being
> demolished, rather than due to its good companies becoming "cheap".
> This was just an observation, now bolstered by your excellent analysis,
> which says that the demolished ones have stirred back to life in
> the ER, boosting the SP500.
>
> I still maintain that at current levels stocks are not "cheap" except
> relative to the bubble era. Dividends are being slashed at astonsihing
> rates, and historically, companies which drastically cut dividends
> have restored them slowly, if at all. Thus, I expect SP500 dividends
> will not climb back to 2007 levels for many years, and this suggests
> to me that stocks will be worth less than they were in 2007 for many
> years as well.

S&P 500 Watch: March 'Winners' Are Actually the Biggest Losers

I agree with your idea, but I don't really have good data on short interest integrated into my analytical tool (StockVal). The good news for me is that I will soon have it when I migrate to BaseLine in the coming months.


On Mar 29 08:43 AM Chezfrederick wrote:

> Excellent article. I especially like the approach you have taken
> to analyse the outcome of the recent rally. Good perspective and
> good advice.
>
> One of your conclusions is that pook performing stocks in the past
> year performed better in March because of short covering. It would
> have been interresting to see the volume of shorts before and after
> the rally for some of the leaders in the rally. Have these actually
> dropped or increased.
>
> Thanks and keep the articles coming.

Cash Analysis: Wal-Mart, Lilly, Verizon Not Quite So Rich

Imclone? yes

On Mar 19 12:29 PM User 379270 wrote:

> Is the number associated with LLY AFTER their recent $6 B acquisition?

Cash Analysis: Wal-Mart, Lilly, Verizon Not Quite So Rich

ok, thanks...


On Mar 18 12:08 PM BS Detector wrote:

> Alan Brochstein wrote:

Cash Analysis: Wal-Mart, Lilly, Verizon Not Quite So Rich

While I am aware of your point, I am unsure how to incorporate it into my analysis. If you look at the balance sheet for WMT, you will find a massive AP ($29 billion). This goes into the Current Liabilities metric of course. So, WMT is "borrowing" from its vendors, and the cash that they show is owed to them.


On Mar 18 01:41 PM Joseph Sherman wrote:

> Great article. Would you take into account favorable trade credit
> terms that Wal-Mart uses with suppliers as a substitute for cash.
> For example, much of Wal-Mart's supplies give the firm several months
> to pay for goods, Wal-Mart makes a sale, in cash or credit card,
> and holds onto the cash for a month or two before paying the supplies.

Cash Analysis: Wal-Mart, Lilly, Verizon Not Quite So Rich

Zoltan, your assessment is correct. I am aware of the limitations of this exercise, but I believe that it actually goes a long way towards rooting out companies with the illusion of high cash balances. As transitory as it might be, I believe that you will find by looking over quarters and quarters of the relationship for a given stock, one will find that it isn't transitory though it could theoretically be so.

Cash Analysis: Wal-Mart, Lilly, Verizon Not Quite So Rich

Deferred revenue means that the company collects cash but hasn't booked the sale. In the future, it will have a sale, but no cash associated with it. Hence, a company can have "earnings" but not see its bank balance increase. The presence of a large amount of deferred revenue vs cash tells me that the cash won't go up in the future, al lthings equal (unless they grow deferred revenue). There is also always a remote risk that the customer cancels and wants their cash back. The point is that the cash is on the books but hasn't been run through the P&L yet.

On your second comment, that is precisely what I am saying. If current assets are to fund current liabilities and they aren't converted to cash as is expected, the cash on the balance sheet, all things equal, would have to be used to pay current liabilities.

Stocks Will Continue to Erode In This Busted Economy

NWC, I offer the example of GM bonds trading at 14 cents on the dollar. While it is extreme, corporate bonds in general have been pounded. When a bond's price falls, it becomes more equity-like. At 100 (par value), a bond-holder to maturity already knows the most that they can make (the interest payments plus the return of principal). Hypothetically, if a bond investor buys a new issue that goes belly up the next day, he could be out 100% of his investment. The most he would have ever made is the interest. That is a pretty bad risk/reward scenario (though the odds would typically be very low that the investor would lose everything and so quickly, though there is that risk).

When the bond price tanks, the risk/reward ratio changes - the holder now has upside (like the equity investor). Since technically the bond holder has additional downside protection in the event that there is a bankruptcy (equity investor wiped out before bond investor loses a penny of principal or interest), you can probably appreciate that scenarios exist, especially in distressed situations, where the bond becomes superior to stocks. In the case of GM, why would you buy equity at any price if you could buy debt trading at 14 cents on the dollar? While GM stock could "double" or "triple" in a "good" scenario, the bond would probably do even better. The answer is complex, but I believe that it has to do with how one values an option (being long GM is a way out of the money option, but volatility is high and expiration is way out there) and the potential for the reorganization to not wipe out equity holders if it happens. As corporate bonds have become cheaper, stocks have discounted this phenomenon. As long as pressure remains on corporate bonds, there should be pressure on stocks as well.

So, I am not sure I am answering your question exactly as you expect, but yes, sometimes it makes sense to buy deep discounted debt and hedge it by shorting the stock. In a broader sense

Stocks Will Continue to Erode In This Busted Economy

I am long and I didn't say that the next move is down the drain, just that I can more clearly see a rationale for this move continuing for some time. I am not an investment advisor, but you wouldn't qualify to be my client if I were due to your irrational expectations about the necessity or ability to predict the very short-term.

Stocks Will Continue to Erode In This Busted Economy

Are you blind? I disclosed at the end longs only and said in the article that I am long. I remain long in my heart and my ass just not my brain. I was hopeful that maybe someone would have a stronger criticism than yours.

The market is extremely oversold, like never before. My contribution wasn't a suggestion to go and sell today but rather that we should open our mind that "the" bottom may just lie further off in the future and lower than we might ordinarily expect.




On Nov 24 09:37 AM DonSuper wrote:

> U WISH U STUPD SHORT

Stocks Will Continue to Erode In This Busted Economy

I have learned that "cash" isn't always "cash", as sometimes it is spoken for. In the case of software companies, they book sales with large up-front cash before they are actually able to book the revenue (deferred revenue). Honestly, I am not sure why AAPL has so many liabilities - they aren't listed on my balance sheet in the normal detail. The FACT is that while they have a ton of cash, they also have a ton of liabilities. If you are an AAPL investor, you should be aware, so why don't you explain?

AAPL is on the list solely because it has a high market cap. If you notice, the leverage is among the lowest of all the companies. You will also note that AAPL has a relatively low P/TB. Instead of thinking that I am picking on AAPL, which I assume you do, you should take comfort in its relatively better position. Leverage in general ranges from a mathematical low of 1.0 to sometimes astronomical levels (though negative equity can lead to negative numbers). So, to answer your point, AAPL does have low leverage, but it does have significant liabilities nonetheless.

Stocks Will Continue to Erode In This Busted Economy

Andy, you are correct about the cash being $24.5 billion, but the book value (or common equity) is actually less: $21 billion. How? Equity is Assets less Liabilities. Total assets for AAPL are $39.6 billion (cash plus inventory, receivables, etc.). Total liabilities are $18.5 billion roughly ($14 billion short-term, which includes payables and $4+ billion long-term). With a market capitalization of $73 billion, the ratio is 3.5.

32 Big Dividend Payers: Buy Now, Profit Later

Thanks for the comment, Ed. In fact, 19 of them have increased their dividends every year for at least the last 10:

CVX, ROH, RPM, MMM, MGCR, EMR, CTR, HD, VFC, MCD, KMB, DO, MKC, LLY, JNJ, ABT, ERIE, ALL and PAYX.