Ben Sender

Value, growth at reasonable price, contrarian, long-term horizon
Ben Sender
Value, growth at reasonable price, contrarian, long-term horizon
Contributor since: 2011
Company: Stock Grader
Unfortunately Seeking Alpha had a technical glitch - this article should have been published on Sunday.
Thanks for the comment. The terms of the contracts lock Hess and Marathon Oil in for the entire duration. If they could negotiate or cancel they would, as these contracts are at day-rates far above current market prices.
No, the options for the lease on WilHunter expired as expected.
Thank you for the kind words. As for SDLP, I have not, but I will look into it!
While it's hard to rationalize price movements, particularly those under a year's time frame, I'd say most investors don't want to see MA above a PE of 30, and so it's price has halted until it sees more growth. The five year price graph, of course, show a much different picture.
Thanks! And it would appear that I did in fact put a 1 in front of the number. I'll try to get that corrected.
Thanks. I ran very similar experiments and got similar results. I think my point was that they were not the same, but still close. In this case, it didn't matter much. Although, if you were using a longer time frame and/or higher returns (i.e. 10% dividend, 15% earnings growth), the difference would be wider.
Thanks. If you look at the models I provided it should confirm what you say. Compound growth is easy to mess up with as growth rate can change it dramatically. In this case, by adding dividend yield and earnings growth, an artificially high growth rate was created. What should be done is to find the total return (all dividends received + earnings growth * multiple change), and then find the n'th root of that to make it annualized (i.e. TR^.1 for 10-year annualized return).
As I see your last comment, I see where you're coming from. Try doing it for 2 years, or even better, 5 or 10 years. In your example it was only for 1 year. They won't compound together like you think. If you have both 10% dividend and 10% growth, they compound separately (and it's actually a little more complicated than that too, depending on a few other factors). Please try for yourself - its useless trying to explain this as a comment.
But, for those of you who read this article, don't despair. The estimates put forth here are still very close. However, if the author had used a time frame such as 20 years, the estimates would be far off.
As I read it, that model says capital gain + dividend = total return. Percentages are different. Even if I'm wrong about that, the math stays the same. The fact of the matter is that you can't add these two percentages. I invite you to do the math for yourself (as in step-by-step, year to year), as I did in my previous example: the result will be different from what you did. Perhaps the math you just did works for one year, but it becomes a far different picture when you compound it, as you did in the article. By having a 5% dividend, as well as 5% earnings growth, you're not necessarily doubling you're annualized return, but rather only your total return. The difference between the two becomes startling after only a few years.
Exactly. Compound growth is a tricky area, as it relies on a certain growth rate. By adding dividends to earnings growth, he effectively rose the growth rate (for the annualized return), even though earnings is still compounding at 9%, and dividends at 9% (if payout ratio is consistent).
Example: A stock is growing at 20%, the dividend yield is 10%, the dividend is growing at 20%, the price is 10 and the P/E is 10. The correct way to calculate the return would be to do 1*1.2^5 * 10(P/e) + dividends received. Dividends received =(.1)+(.1)*1.2+(.1)*1.2^2 etc. In total, the future value of this stock would be $27.54, compared to today's $10, for an annualized return of 22%. On the other hand, if I were to add dividend yield to growth, I would have gotten an annualized return of 30%. In just five years time, this would put my figure way off mark. If I were to use this for 10 or 20 years time, the figure would be approximately 5 times larger.
I'm not sure if the way in which you calculated the return using dividend yield is correct. You can't just add the dividend yield to the earnings growth to get the annualized return. Depending on how the dividends are reinvested, how the payout ratio changes and a few other mathematical factors, the way you did the calculation can become way off. Annualized growth, and in a broader sense compounding growth, can do a few tricky things that make it hard to use accurately.
In this case, I would have calculated each return separately, and then calculated the annualized return from there. That is, predict future earnings and multiply it by the multiple and add that product to the total amount of dividends received over the next 5 years (which would be about $16.75, if you agree that earnings can grow at 9% and the payout ratio will remain at about 50%). The resulting sum could then be turned into an annualized return by doing x^.2, for 5 years. Overall good article, but be careful with the math you use for compounding.
Good point but you're a little off. That number is closer to about 46%, and its not all from the land necessarily. That 46% includes rent (for land), and some of the fees charged. Perhaps your 2/3 number includes the Franchise royalties too, which would bring 46% up to 68%. The other third of their profit comes from their own company operated stores.
Good try but I think you should look beyond the "key statistics" and into the real depth of Wendy's. Wendy's has only made $10 million last year, and it lost $5 million the year before that. This means that even if it can stay stable at $10 million (which it hasn't been able too, as almost every quarter in the past 10 years it has lost money), it would take 35 years to pay off current liabilities alone (which are due in less than 1 year). It would take over 230 years to pay off all of its debt, and that assumes it is able to earn at the level it has this past year. Now, this may seem very bleak but that's mainly because of taxes and depreciation (which you left out in your article); Wendy's is actually bringing in much more cash than this small earnings number.
My conclusion: Wendy's is an inefficient company with low margins and high leverage. This article would be dramatically better if you accounted for things that made Wendy's bad, as opposed to only including what makes it good. Also, I'm not sure where you got your numbers, as others have stated too. It seems your growth figures are way off (the historical ones, which are factual not predictions). On the other hand, a company like McDonald's has extremely stable earnings, fast and stable earnings growth, a healthy balance sheet and a durable competitive advantage. You would be hard pressed to point out one thing bad about McDonald's, but it is quite easy to find several about Wendy's.
What I interpreted it as was just a high-risk move. Berkshire is very large, too large to just pick up a few good companies. When Buffett does decide to make a 10B purchase, the share price surges, making it impossible to buy much more. He has stated countless times that he is finding it more and more difficult to make money with such a large size. GM was cheap enough that he could make a purchase.
In addition, Buffett is very "American-oriented". He believes you can't go wrong investing in America, which I relate to his investment in GM. If the economy is able to pick up, GM will do very well. There cost structure is improved, and they have a competitive lineup.
Sadly, I agree. I am looking for an exit on GM. For the record, Warren Buffett is investing in GM currently because of the supreme cheapness. But, GM does not fit the bill as an amazing company - which is what he usually agrees with. I purchased GM following a Graham philosophy (of just buying cheap stocks after carefully evaluating the risk), but COH follows the modern Buffett methodology of that quote. RL does too, but as stated, not as well as COH does. The margins and overall brand aren't strong enough to constitute a competitive advantage, at least using Buffett's standards, for RL. For that reason, RL and GM are not amazing companies - RL doesn't have much going for it when compared to COH, but GM is cheap. It's price and strategic advantages (because of the government restructure) may lead it to go higher in the next 3-5 years, but it is not investment grade like COH.
Thanks for saying it better than I'm allowed to. I think that from here on, I'll avoid replying to comments that trolling or irrelevant. It seems that those who have the motivation to comment are usually motivated negatively. The ones who are on the other end (in that they enjoyed the article, agreed or have a constructive question) generally write me a personal message - those I give the most attention too.
Ben Sender
No problem. If you have any future questions please message me.
Ben Sender
I'm sorry I didn't even see that question. Apple is in my portfolio and in my online portfolio (which people subscribe too). But, that is none of your business. If you actually read my articles and the analysis, why would my disclosures be relevant? I don't just say Buy or Sell, in which a disclosure would be relevant as it could prove the motives of the author. I have all of the facts here that I used to form my basis, so you can make a judgment for yourself. I encourage this judgment to be different than mine, but using relevant evidence. You are for some reason bringing up TA in an article that isn't using it at all, as opposed to disagreeing with what was presented in the article.
You can continue to obsessively check the disclosures of my articles from a year ago, or fact check everything I have ever said on Seeking Alpha, but I don't see the point. Your first comment demonstrates no curiosity or actual commentary, but rather only trolling, ranting and intrusiveness. What is your motivation of posting comments like this? I really would like to know because SA is being ruined by this. Honestly, I apologize for responding to you like this, but it is warranted considering your invasive and rude questions that were unprovoked and unnecessary. I am glad to respond to a different point of view, or even harsh critisism if it has basis. Unfortunately, you have no basis. I have yet to see a single fundamental reason from you regarding my analysis, or my previous analysis (which for some reason was brought up?). Rather, I see talk about price swings and timing. Although I believe that is largely impossible, it may have a place somewhere. There are articles, published every minute, about "hot stocks" and speculatives like Gold. I have even made posts that include this. But, this article was entirely focused on the fundamentals of a company, and how they are amazing and only getting better. This would be the last place to bring up those type of TA topics. Still not sure why you did, other than to troll? Please do not comment again here. If you feel the need to get the last word, which I'm 100% sure you will considering your obsessively going through my past, just send me a message.
Ben Sender
Please don't take my comment out of context. I said I would not buy it at $80. Timing the market is futile, but getting a good deal isn't. So, buying it now if I'm happy with the price is fine, and if it drops 90%,that's irrelevant. As long as the fundamentals are still solid, I'll wait for the irrational market to come back. Furthermore, your comment seems to be entirely an attack on previous comments, which is unfair because some of my comments were just a response to trolls.
But, I do see your point in what you're saying about timing the market. The fact of the matter is that no one can time the market, so don't act like you can. You surrender your credibility when you do. If you have a great company at a good price, buy. If it drops, buy more or just wait. This applies for the long term, 10+ year time frame. If you are in a more speculative time frame, then of course timing is more important. Although it may be impossible to do accurately, if you're only holding it for 1 year, buying it at $80 may not have worked out.
Can you please explain? This article is an Editor's Pick, and is featured on the front page. Not saying that means it's good, and you are free to question its merit. But if you are questioning it, how about you question the article, instead of just saying, "I can't believe this article could be taken seriously". I strived to offer insightful analysis on a site where this is often lacking. What frustrates me is that just about every article, from anyone, always gets comments like this - I thought offering real, high-quality analysis would keep the trolls away. My mistake.
Ben Sender
I can't comment on that with any certainty, because the market (not the company) can behave very inefficiently. Also, $80 was the highest high in history for COH, so a large retracement is "normal" in this scenario. By normal, I mean it is often - not necessarily rational. I personally would not have invested in COH at $80, because there are too many similar candidates at a better price. And, as I discussed, the conservative estimate representing a deep margin of safety would no longer be positive. If I, a bullish investor on Coach would not have invested in it, it becomes clear why it dropped to a lower level. Although the future earnings easily supports a $80 price tag, the risk is elevated and the near-nearsightedness of the market fails to value it correctly.
Not meaning to sound like a rant, but proven? Payout ratio of 150%, very inconsistent margins and earnings. Any company/investment can pay just about any dividend. Not hard when you're willing to pay a dividend 50% higher than your total earnings. The only reason I saw given for the consistency was a 2 year track record. Consistent dividends means 50 year track record. Again, any company can pay a 15% dividend for 2 years. On the other hand, no good company would do so. I understand this is not a normal company, but that kind of payout ratio is outrageous. I find it alarming that you would recommend such an investment, labeling it "proven" and "consistent". Some of your analysis seems solid, at least from what I saw. But I think both you and I know this 15% is too good to be true.
Thanks. I do agree, and I am waiting for a better entry also. In fact, I'm staying up late right now, trying to decide whether I should just buy it tomorrow to make sure I don't miss this huge opportunity, or try to save 5-10% on entry. I believe there is a good chance for a market decline, probably in the 5-15% range. I plan on entering Coach at $53, but if you believe the market will drop more I recommend $50. These levels are based on technical analysis. What I think is the best choice would be too purchase some now, and be prepared to pick up more if it does drop. Otherwise, you can either just hold what you have or potentially buy more at a slightly higher price (or maby on a retracement).
Thanks, I appreciate it. I didn't know that COH was doing that with their shares. I guess that only adds to the value.
Ben Sender
Notice I have plans to initiate a position within 72 hours. In addition, even if I didn't, that is irrelevant to the analysis. But, I see your point.
I agree with you that it would seem the fashion industry cannot withstand a recession. When I saw that Coach was able to generate that kind of earnings trend, despite its luxury (which I would think would translate into erratic earnings, especially during the recession), I was very surprised. But, it did. I ask you to re-read the section surrounding my first graph, which discusses this. In addition, take a look at the part concerning the profit-margins. It was a long article, so these points may not have been drived home. You say that Coach cannot withstand a recession as well as other industries; you mention cars. It is my understanding that GM went bankrupt, and the entire auto-industry is struggling to break even. Coach, during the heat of the recession, had only 1/10 of its earnings taken out of the picture. I do know where you're coming from, and there are a few candidates that match what you're saying. Fashion companies with lower margins, namely. I know that its hard to believe Coach did so well, but the fact of the matter is that it did. My suggestion-start believing, and start investing!
Thanks
Ben Sender
I agree. I am assuming you are attempting to argue that means this analysis is without merit, because the analysis doesn't follow the share price? The fact of the matter is, I don't care about $25. Warren Buffett - doesn't care about $25. You bring up a great point, one that when turned around is an argument for the presence of merit in the analysis. This is that Coach is a great company now, as it was before. The market price is not relevant to the investment. COH took a big hit in market price, but the underlying company, Coach, continued strong. And good news for those that did purchase COH at $80-they will still most likely have a huge return in 5-10 years. The one point I disagree with you on, in terms of them being the same is how much could be purchased now versus then. Although I said I don't care about $25, which is true, this price decrease allows me to purchase nearly 50% more than I would have been able to at $80. The returns for both purchases, on a per share basis are very similar, but I will have 50% more shares.
Nonetheless, I am not attempting to time the market. Notice nowhere in the article do I say "NOW IS THE TIME - BUY! BUY! BUY!". The closest to that I say is "Coach is currently priced very attractively." At $80, COH would likely earn quite a bit, but the margin of safety number at about $70 would mean a loss. So that piece of the analysis would not be the same at $80. If Coach goes down to $15, I may check my numbers again, sure. But I will most likely hold on, waiting for the day Coach is at its peak and the market knows it. In fact, what I would more likely do is buy more at $10, and I hope you do too.
ThanksBen Sender
The reason I exclude the time value is that it does not actually affect the intrinsic value directly. If a stock will be worth $200 in 5 years and is currently at $100, then I can separately see if this gain is greater than that of the risk free rate. If the risk free rate is very high, that company is not worth less, the gain just becomes more meaningless. By doing the calculations this way, the formula can create an estimated gain, or discount. In the example above, the discount is 100%. If it were discounted, it would show how much money the investment would make over a certain rate, but not how much total. So, to answer your question, no, I did not discount the values. If you would like to discount the values, I can say that they are from five years out into the future.
The valuation method used in this article is proprietary. Although, I can tell you that's very close to what I said. It uses growth and earnings to see how much the investor will theoretically earn in approximately five years, and how much the stock can be sold for after five years.
Certainly. The Intrinsic Value calculation that was used in this article was based upon how much the investor will earn from the stock in approximately five years (company earnings and growth) and then, how much the stock can be sold for at that point (Return Resale). This can be found by estimating future earnings, and multiplying those earnings by a reasonable P/E for that stock.
I did not use a discount rate, as the time value of money does not affect the intrinsic value, it is only used to see if the intrinsic value is worth the time to reach it. The same goes for dividends, as they do not change the intrinsic value. Thanks for asking this question, as I did not want to cloud the article with this information. If you, or anyone else reading this has any more questions, please send me a message.
Thanks
I only said that one may have to wait 5 years because many viewers unfamiliar with value investing or intrinsic value may not realize that the stock will stay stagnant for some time. One must be prepared for this, but the market may realize the intrinsic value much earlier.
Thanks for the insight but please give reasons for why you think this.
I was already aware of the support link problem, and that will be fixed asap.
There are many tools that use "secret" calculations, yet users still trust them. You don't have to use ReturnResale, I included it because in my opinion it is better than the other formulas available to the public. Furthermore, it would be hard to show others the formula because it is very complex.
Two of the four formulas are available online, and in many texts. This was actually what the app was originally intended for. The user was to have an app that would make using the Graham formulas easier. You can find the exact formulas for these online. I don't want any user of my application to invest money using the app alone. It should only be used to make calculations easier, faster, more accurate and to introduce new formulas. Please do more analysis on your own or contact a professional. If you are unable to find them, message me.
The user formula cannot be explained because it is adjusted by the user. The slider allows the user to adjust the variables in the formula. Thus, adding "weight" and taking weight from Growth (what the company is expected to be) and Value (what the company is now).
I understand you are an expert investor, but most of my users are not. I cannot add advanced features to the app, when the whole idea is that it's automatic and easy. It would make it too confusing. Trust me, I get tons of questions every day from much simpler things. Although, I may create a different, more advanced app in the future, or have an additional in app purchase. Please keep in mind this is an iPhone application which means it has limitations on a cost and performance basis. There are certain things that cannot be done on the iPhone.
Please contact me privately with any further questions or concerns, as I would like to keep the comments more relevant to the article.
Ben