Black Coral Research

Value, growth at reasonable price, long-term horizon, dividend investing
Black Coral Research
Value, growth at reasonable price, long-term horizon, dividend investing
Contributor since: 2013
Company: Black Coral Research, Inc
Update that readers might be interested in. Buffett exited his 3.7 billion investment in ExxonMobil.
http://usat.ly/1E5Yot2
-Clinton
Mr. Chawla - I can see how articles appear contradicting.
I still believe IBM's drop in share price was justified. The main reason I stand by that is because Q3 Earnings showed financial engineering my be running out or steam.
While I was writing that article I realized claimed value investors around the site were buying into IBM since the share price dropped. In an effort to try and view it from that perspective, I decided to calculate the Margin of Safety that I thought was missing from others' analysis. My initial bias was that it would not have sufficient margin of safety to justify buying at $165.
As I did the analysis, it turned out there was exactly 100%, just enough to be sufficient for Graham.
I however still have my doubts about the stock (b/c the revenue is not growing and I think the financial engineering is running out). I tried to point that out with my note at the end that investors shouldn't use just one piece of information to make an investment decision. In hindsight, maybe I should have expanded on that before concluding.
I appreciate you reading both articles and hope this helps clarify,
-Clinton
Ah, sorry I can see how that statement can be confusing.
Remaining earnings power = earnings yield - dividend yield = 9.15% - 2.57% = 6.58%
That 6.58% divided by the bond YTM gets you to the 2:1.
The dividend yield is subtracted out because the money is no longer within the company to re-invest.
Sorry for the confusion,
Clinton
Well stated Josh. This is the exact point I was trying to articulate when I wrote my article explaining why IBM shares were down 10% since the Q3 14 Earnings Release:
http://seekingalpha.co...
-Clinton
Thanks for the comment Eridu. I agree with you that management has done a great job improving margin. It wasn't the focus of the article, but it is a valid point for investors to keep in mind. I am a bit concerned that management might not be able to continue to expand the operating margin.
Clinton
Agree, it is a great point.
-Clinton
Income in Q3 was $3.5B, down 17% vs last year. Revenue was 22.4B, down 4% vs. last year.
The issue is revenue is not growing and has started to erode faster than the financial engineering can growth the bottom line.
-Clinton
I think your point about mixed messaging is spot on. Make sure to read part II. I will be discussing where WTW is going with their business model and why it is a much more attractive space then where they are playing today.
Stick around for Part III. I'll be explaining then.
Amazing article. Thanks for the insights. Buffett is a genius...
Thanks for sharing Rich, this definitely adds value to the analysis. We used to carry a subscription to the WSJ and this makes us think we should r-subscribe.
The WSJ makes a valid point that it would leave a large amount of key assets open to being acquired by someone else.
BCR
Great article. We're planning to link to it in a future article. Readers of this article might be interested in our analysis as to why AT&T's dividend is at 5%.
http://seekingalpha.co...
-BCR
It is tough to say what would happen if T share prices if converted into an REIT.
In theory, if all the assets on AT&Ts balance sheet were real estate ( which they aren't), the resulting distribution would be higher because the REIT has to pay out more than 90% of the profits in order to qualify for the tax breaks. Without knowing how the deal would be structured, we don't know which of the assets that would be a part of the REIT and which would remain in T shares.
This might be a good follow up article. For more info on REIT's see the following:
http://1.usa.gov/Z6vCAs
Great points Yost28.
Great point. An analysis of the debt structure might be the topic of a future article.
Thanks for the comment PVFederico.
Agree with you that this article is trying to find a rational reason for why the market is valuing the shares at the ~35$ price point and that the reality is the market doesn't always behave rationally. I believe at best my article is nothing more than hypothesizes for why people might be lukewarm on the stock.
With respect to Tesla and Twitter, those high valuations are definitely the result of high speculation (excitement) about the future of those businesses. People buying those shares are gambling on the futures of those companies. To be fair, as long as they know that is their strategy I don't see an inherent problem with it. What I don't like to see is people purchasing shares of stocks like Tesla and Twitter thinking it is an investment rather than speculation.
I'll submit a correction for that, it should have read "In the trailing twelve months, AT&T paid just about $1.40 per share in dividends on $3.40 in earnings per share."
Fair point. I'm just surprised the price hasn't run higher. Why did investors lose appetite for the stock when the yield hit roughly 5.25%?
Totally agree. I mentioned the no debt but didn't call it out well. Your spot on about the cash too. Have the Burberry buyout the company is sitting on a large position of cash and short term equivalents.
Great points Brad. I want to add two things, 1) Buffett hasn't increased his position in BAC since the initial purchase of BAC, while he has been steadily buying Wells for years now, 2) The position in BAC is less than a 4th of his investment in WFC, which was his top holding as of November this year.
http://cnb.cx/19ihSbm
Best Regards,
BCR
Happy to clarify Bizcardnut. We based it on dividends per share / earnings per share.
Best Regards,
BCR
Thanks for sharing Sundowner. How have you contacted them in the past?
Best Regards,
BCR
We don't have a bunch of short clients, but if we did they would have relished today. Down 25% after earnings loss.
Best
BCR
Retired Guy 2 Thanks for commenting! Could you share a link describing the lawsuit?
Thanks!
BCR
Thanks for clarifying HFranks. We are not tax attorneys and appreciate you clarifying.
Best Regards,
BCR
The stock certainly isn't listening... but our opinion still hasn't changed :)
Thanks for the feedback FCI Research! It feels good to hear positive feedback every once in a while. Really glad you enjoyed the article.
Best Regards,
BCR
Thanks for the comment Bizcardnut! The intent of this article was to share of list of the fast growing health care stocks and provide some basic information so that investors could decide how to start their own more thorough analysis. Do you think it delivers on that purpose? If not, we'd love to hear more about what your looking for so we can write better articles for you in the future.
Best Regards,
BCR
Thanks for the link back Terry. We just might have to make a play on earnings now :)
Thanks for the comment Contrarian! IMO you've labeled it correctly - it is a gamble. If you are comfortable acknowledging that and understanding the risk still think there is an opportunity, then there is no reason you shouldn't buy shares. Just be careful not to blur the lines between investment and a gamble :)
Best Regards,
BCR
Bebopr - I think you accurately summed up our 1000 word article into 4 words! Hahaha
We will message you next time we are struggling to be concise :)
Best Regards,
BCR
Some great points Darcangelo. Thanks for sharing!