Andrea Bernasconi

Long only, value, medium-term horizon, mutual fund manager
Andrea Bernasconi
Long only, value, medium-term horizon, mutual fund manager
Contributor since: 2012
Hi,
(unfortunately) I am not an expert in the semiconductor technology, but as an investor and analyst, I see some reasons supporting the stock:
- the market is an oligopoly and total earnings are less volatile, allowing for higher multiples, across the board (not just for AMAT);
- the market is growing (increasing number of layers + growing memory and storage demand), benefiting everybody;
- the stock is 30% below the recent tops, with a 2% dividend yield and a buyback program of around 12% of the market cap;
- the company has cut its operating costs, increasing the R&D expenses. We can argue on the efficiency of their R&D but to me it looks like a better way to invest.
You speak about growing the market share, but this is something I have never mentioned. Regarding the disappearance of AMAT/TEL synergies, it is clearly in the price (10% correction the day of the announcement).
Let me know your thoughts, have a nice day,
Andrea
thanks a lot for sharing
Hi, can you please expand on that? It would be very interesting for us to understand better the situation. Each time the CEO writes to investors, he says how important employees are, how much innovation they bring, ...
Not everyone tells it, so I thought that such an emphasis had a certain level of truth... what do you think?
on raw aluminum there are still significant tariffs (China wants to move up the value chain and reduce production from highly-polluting factories), but I agree that the Chinese government can lift those tariffs in no time if the economy needs a stimulus. Alcoa would be impacted, but less than other aluminum producers, given its higher exposure to complex finished goods.
I don't really have a target price, but I think the commodity is around the bottom, the stock is already beaten down and the fundamentals look solid.... for me it is enough to suggest a buy recommendation: 1) downside protection and 2) many drivers for an increase.
Hi Dave, hedges can buy time and allow companies to wait for better pricing. 80% of production is covered for 2015, maybe 20-25% for 2016, so there is some cushion. Some E&Ps produce gas as well, which recently dropped less than crude.
Flexibility q-o-q is exactly what you say, apparently they want to optimize cash-flows, they have the balance sheet strength to potentially wait for better times and the ability to quickly switch investments on and off.
On the services costs, I just report their thoughts, but your point about buyer's markets is quite compelling!
Thanks and have a nice day
I think now it is probably a good moment to monetize the long, since I fear markets are getting a little ahead of themselves...
but there are also some significant negatives:
- the VEC and GHG subsidies will be reduced or eliminated sooner or later and they accounted for 15% of the revenues in Q1/13 (about $68 + $17 million);
- superchargers and a distribution platform bring additional costs as well as additional revenues;
But I agree that the business model can evolve and bring huge revenues, especially if they are good and lucky enough to set a new standard.
20-25% is the gross margins. I model the net margin at 15% by 2015 and converging to 10% in 2017. If instead we consider 20% net margins in 2015 converging to 15% in 2017 then we would need only 65% revenue growth to justify the current price.
Hi, the Gen III is experiencing some delays, probably will be ready by 2016/17 as well. Of course this could be a game changer but I guess margins would be lower on this model and the development troubles push the equity risk premium up. But I agree with you that it would have huge implications despite being uncertain for the time being.
Hi Julian, on the interest rate, this is 1.5% but it is a convertible, with warrants behind and dilution. It has an equity component which is not captured by the interest rate alone.
On the gross margin you are right but we should take it a little more cautious, since they promised an operating profit for Q1 which was not delivered, for example. In any case, I assumed net margins of 15% which is still very generous. But it is true that they said 25%.
Have a nice day
It would be an interesting analysis but so far Tesla gets little revenues from battery pack and drive-train sales. They just ended an agreement with Toyota that was worth $10 million per quarter and they have in place another one with Daimler for around $33 million in total (this quarter it brought in $6.5 million).
Of course Toyota and Daimler are shareholders and special deals or even a take-over are always a possibility...
1) "This input appears to be in error. Management has promised this figure at 25% by end 2013."
they promise "gross margins" of 20%.
2) Sales-to-capital has nothing to do with marketing effort. It is about R&D investments, plants and factory building, changes in non-cash working capital
3) Suggesting a 1.5% cost of capital for a Tesla-like company is ridiculous
http://bit.ly/19gLHLY
For the second generation, Tesla is promising even greater things. In an interview with AutoCar, Tesla boss, George Blankenship, said that the next Roadster will be something never seen before and will "push the envelope beyond what anybody else is doing."
Hi John, thanks for underlying the issue.
Probably I am not the person who can judge the technology behind or the trends in the automotive industry but I just wanted to show what are the implicit sales assumptions behind today's price. I leave to others the guess of the likelihood of achieving those results.
Have a nice day
Maybe it is not entirely the same thing...
Nostradamus?
I think now the correction took place and it is time to buy back the stock and maybe even go slightly long.
Thanks for the comment, especially in the last paragraph, I think you express perfectly what I wanted to say. I did not want to really play one stock against the other (albeit being a fund manager I have probably a professional bias, I see benchmark and relative bets everywhere!) but considered selling Apple as a way to "finance" the long bet on MSFT. Since Apple is probably the stock which is most owned and I think it has reached a plateau, it looked like a natural candidate to free some money.
Good point. What I wanted to say is just that Apple price embeds already high expectations, which makes it more likely to disappoint investors. I am not certainly debating the effectiveness of their business plans, just saying that probably the market already discounts that!
Many compliments, well-written article, which presents a "slightly" different way to look at the company. Thanks
I'm not a technical analyst and I don't believe in it. And I don't have the crystal ball. I am saying that I think for the rest of the year (before any meaningful announcements regarding Q1/13 production) the stock will probably move around the current levels. My entry point would be 28 and I would sell it at 31. It's arbitrary, I know, but that's my feeling, based on the expectations of a lack of news.
Of course, but the point is not only to identify a trading interval but also to point out the fact that the next months will probably be "light" on data releases, which might offer some trading opportunities before a trend develops.
Thanks. I used that headline as I am analyzing what to do when the market has a negative day, which is when (figuratively) investors are bleeding. My suggestion is to buy, so "buy when there is blood in the streets"....
they have been incredibly productive, I agree with you. And incredibly focused and successful. That's why they are now the biggest company in the world. But investing is about finding stocks that can grow more than the index. I think Apple stocks will grow at best as the market, while other more undervalued stocks have the potential to outperform...
a he... I'm Italian, here it is a male name
I completely agree, they have been the best at doing so. And they probably deserve to be the biggest company in the world because of that. But my point is that with so much creativity and investments (also) elsewhere, there might be a major revolution not led by Apple itself. Rest assured that $120 of cash can help in the catch-up process....
I agree, but sometimes innovation comes from research in an adjacent field. Anyway, that's a good point.
I am not concerned about the recent (minimal) dip. As I wrote, short-term the stock can even touch new highs but medium-term I think there might me more troubles than what most expect....
I agree with you: too many people following the strategy would reduce the possible gains. But the strategy is quite consistent over time and has worked for a long period, so my guess is that these market inefficiencies are persistent. Investor behavior is sticky! And my theory is not only that "investors will jump in on the day following a sell-off to pick up bargains" but also that they over reacted on the previous day, probably scared by the sell-off, causing an excessive drop which naturally recovers the day after.
Hi thinlim, so far I have just analyzed the 1 day return. My idea is to try to avoid to remain stuck in a prolonged down move typical of bear markets. But in a future article I will cover the topic of longer holding periods. Thanks for your suggestion, B.A.