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Brendan O'Boyle  

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  • 2 Trends, 1 Railroad Stock: Guangshen [View article]
    With a dividend yield of nearly 5% how can the CEO just be cooking the books? That dividend is coming from somewhere. My only complaint about the dividend is that management has been inconsistent about raising it. Their payout 10 years ago was too high, but the payout ratio has compressed to less than 40%. So I think from here you can expect more consistent dividend growth.

    GSH is a great value investment, trading at 8x earnings, a 5% dividend, below book value and 14x 10 year normalized earnings with 12% average EPS growth over the past 10 years. Also note that the demand for coal in China is skyrocketing along with increasing electricity generation.

    The dividend should provide support for the current stock price, the current correction is an excellent entry point.
    May 28, 2012. 11:09 AM | Likes Like |Link to Comment
  • Retail Stock Ownership Rate At Its Lowest Level Since 1998 [View article]
    Inflation hurts bonds AND equities, but it depends on the amount of inflation. Below 5% equities do fine, above that (as in the 70s) the stock market was not a fun place to be. Of course the bond market at that time was an even less fun place to be.

    In a high inflation environment commodities and cash are where you want to be.
    May 27, 2012. 12:43 PM | Likes Like |Link to Comment
  • And You Thought The Correlation Bubble Popped [View article]
    High correlations are a blessing in disguise and does not mean the end of stock picking.

    Stock pickers should be accumulating during correlated markets and selling into uncorrelated markets. Anyone ever heard of buy low sell high?
    May 26, 2012. 10:15 PM | Likes Like |Link to Comment
  • Is Teva Pharmaceuticals An 'Investment Classic'? [View article]
    TEVA has been unfairly oversold each time the market has entered a correction. Their business is very a-cyclical and the current sell off should represent a buying opportunity. I agree with Ken on TEVA and AMAT - both are strong buys at the present time.
    May 26, 2012. 01:32 PM | 3 Likes Like |Link to Comment
  • Staying Committed To Europe - Even If It Is In Cash [View article]
    I am curious how do you use the 10 month moving average to determine asset allocation?

    I always just try to feel my way along based on how the market is doing, but I always wonder if it would help to have a more quantitative approach.
    May 25, 2012. 07:37 PM | Likes Like |Link to Comment
  • The Coal Panic Has Arrived, It's Time To Buy [View article]
    Maybe Obama is trying to plan for the world he's leading us into ; )

    But seriously you can always take the reverse argument. Maybe he is critically thinking about problems that the author's thought would lead to the end of America and trying to think of policies to reverse those problems.

    Listening to a point of view doesn't mean you agree with it or want it to happen.
    May 25, 2012. 01:38 PM | Likes Like |Link to Comment
  • Treasury Buyers Might Get Burned [View article]
    Look at it this way, stocks are at a 10 year CAPE of 20, which is a 5% earnings yield on 10 year normalized earnings. The historical average is 16.4, which is 6.1%. So by that metric stocks are rich 110 basis points.

    A 10 year T-note, on the other hand is at 1.7% nearly 300 basis points below its historical average and just above its all time low. Therefore, between stocks and bonds I think you can expect the normal out performance plus 190 basis points. I think bonds have a very real chance of providing negative nominal returns over the next 10 years.

    I would also add that in my experience, buying the cheapest stocks on the market outperforms by the same amount you would expect to get from timing the market by getting in when the CAPE is undervalued historically. For example, if you had bought the 20 most undervalued 5 star S&P stocks you would have gotten a 20% return in the first quarter. This to me seems like a far superior strategy than waiting for years for the market to become cheap. Stocks will not magically become cheap, you will need enough negative surprises to cause them to sell off by 40%. Historically bear markets of this strength are the exception. There have been 4 in the last hundred years, but 2 of these occurred in the last 10. But I don't happen to think that makes another 40% bear more or less likely in the next year.

    I agree with you on commodities, but personally I would rather get exposure to commodities through dividend paying companies. I have bought RIO and COP on the current pullback, with each trading at about 5x forward earnings and not that far above book value. It is very hard to convince me these two are not cheap at the current price. And I can collect an average dividend between the two of 4% while I wait.
    May 25, 2012. 01:14 PM | Likes Like |Link to Comment
  • Treasury Buyers Might Get Burned [View article]
    If they have already left the market they cannot put downside pressure on equities. They cannot sell and can only buy. Institutions will be back some day don't worry about that, and they won't be buying just because the market went down, they will buy because the market has gone up for a while and seems "safe."

    Bonds are hugely overbought and stocks are cheap by comparison. Anyone can see that, but few will act on it until equities have outperformed. I don't know if 1320 is the best point to jump in mind you, I bought most of my stocks last year and don't see any reason to sell everything now.
    May 25, 2012. 09:34 AM | Likes Like |Link to Comment
  • Treasury Buyers Might Get Burned [View article]
    Ok I thought your number was nominal, not real.

    The trouble is it's all relative, with bonds giving an expected negative real return you have to take some risk to stay ahead of inflation. A 10 year note is 270 basis pts below the historical average, what if only 100 basis pts of that transferred into equities? A CAPE of 16 implies investors demand 6.2% earnings yield on ten year normalized earnings. Push that down to 5.2% and the market is fairly priced. But fairly priced would still imply a lower return, along with lower GDP growth and I think 6% is reasonable.

    I also think labor is in very difficult straits for the foreseeable future. And if labor reclaims it's share remember there is a flip side of the coin. Higher wages would be transferred into more consumer spending, so I feel that it will be a minus in one column and a plus in the other. Margins were also at record highs in the 50s, compression never led to a disaster in the equity market.

    It is funny that we more or less agree on the expected forward returns. I'm saying equities are risky, but still give the best expected return. You are focusing on the risky part, but if you hold stocks for long enough you never lose money. Even a lump sum invested in the Wilshire 5000 on Dec 2007 is now above water, or was a couple weeks ago.
    May 23, 2012. 08:15 PM | Likes Like |Link to Comment
  • Risk Ratio Indicating More Correction Coming [View article]
    That's why this article's advice doesn't work. It's all hindsight bias.

    When I allow someone the benefit of 1 month hindsight of course they seem smart. However, I doubt the author sold all his stocks above 1410. You need a 5% correction before a top is evident and you need a 5% recovery before a bottom appears to be in place. That is why no one in the history of Wall Street has made a living timing these small corrections.

    When Ken Fisher, Warren Buffett and every other successful investor say they can't predict where the market will be in 3 months or a year, they aren't lying. Now that a downward trend is in place everyone says we are going to 1100. The same people who said we were going to 1000 last year.

    Just because the direction is up at 1400 doesn't mean we are on the cusp of 1500. And just because the direction is down at 1285 doesn't mean we are about to break 1100. It's all forecasting and hindsight bias, if you use it you will buy high and sell low every time.

    If you think the market will decline big time because of Europe you shouldn't be in it to begin with. If you think that no more Fed easing means >30% downside, again you shouldn't be in the market. If the decline is less than 15-20% it doesn't matter because you couldn't have timed it anyway.
    May 23, 2012. 08:06 AM | Likes Like |Link to Comment
  • So Far, 2012 Is Eerily Similar To 1987 [View article]
    We know 2000-2012 has been spent in the same trading range. We do not know if we are on the upward path of the next secular bull. Sellers in 1987 didn't know either, why do you think everyone sold on that day? For all every trader in 1987 knew maybe they had hit the top for another decade.

    It's never obvious what the short or medium term direction of the market is, over the long term it's always up.

    Also what sense does it make comparing now to 1987? In 87 Stocks went up for a while then they crashed. Most of the time the market goes up for a while, this gives no sense of timing that would be required to know when to exit the market. I will note that in 1987 the market had gone up very aggressively for the entire year. The crash brought the market back to where it was in January. At only 50 pts above Jan there is little danger in buying now.
    May 21, 2012. 08:47 PM | 2 Likes Like |Link to Comment
  • Risk Ratio Indicating More Correction Coming [View article]
    The problem with your chart is that like stock prices, you only can identify peaks or troughs in retrospect. Did you use this analysis to identify Sept. 2008 as a wonderful buying opportunity?

    And while we see a local peak it is still considerably lower than the last leg of the bull market. Thus predicting the overall direction of the market is a guess. I don't see a reason for a big downturn, if we go lower I doubt it will be much further than 1200. What this does show is that now is a good time for a long term investor to put money to work, aka buy the dips.
    May 21, 2012. 06:54 PM | Likes Like |Link to Comment
  • Treasury Buyers Might Get Burned [View article]
    I don't know what's in your model, but 2.8% is excessively bearish. The dividend yield of the SnP 500 alone is 2%. Going to Shiller's site and taking the past 10 year's gave 19 at SnP 1290, if you have over 20 I believe it hasn't been updated for last year's earnings.

    Starting in 1950 is arbitrary, however, the modern era is much safer for investors in equities than the past was. For all the focus on how bad 2008 was, it would have turned into another 1929 bear market (or panic of 1907) had the Fed not stepped in. I think there is a good argument to be made that demand for stocks is also higher in the modern era as investing in them is much more common and accessible. Higher demand + equal supply = higher prices.

    I do not concede that we can adjust the CAPE by removing overpriced years. If you want to remove 2000, I want to remove 1980, after all interest rates were so high temporarily that they depressed demand for stocks. That isn't likely to happen again soon either, right? The whole point of using it is that it's an average and you count over and underpriced years.

    However, even conceding 15.7 vs. 19 now is a 17% overpriced market. Equities have since 1926 averaged 9.9% annually, which would mean even overpriced by 17% they should be poised to return 7.8% over 10 years.

    But I'm not that bullish, I think 5.5-6% sounds about right with dividends. The effects of the housing crisis are going to linger and slow GDP growth for years, however, I am not as bearish when it comes to margins. Margins are high because companies have become very lean, I don't see that changing. They have cut costs to the bone and outsourced or used technology to minimize costs. Do you think tomorrow they will decide to undo that?

    Certainly corporate profits will slow when the next recession hits, but as ECRI has aptly demonstrated knowing when that will happen is anyone's guess. I think the most appropriate reason to be bearish after 2012 is slowing government spending. Regardless of what the talking heads on CNBC think, high government deficits are very bullish for stocks via the multiplier effect. If we launch a European style belt-tightening session after the elections have finished it could be bad for the market and the economy. But through the end of 2012 I don't see any problem, the market does not look speculative, I do not believe we have seen the top of this bull market yet.
    May 21, 2012. 06:07 PM | Likes Like |Link to Comment
  • Netflix Executive Out, Massive Insider Buy: What's Going On? [View article]
    Perhaps he just thinks the stock has bottomed and is buying low?

    Does there really need to be a better explanation than that?
    May 21, 2012. 07:46 AM | Likes Like |Link to Comment
  • Cramer's Mad Money - 13 Things To Watch In The Coming Week (5/18/12) [View article]
    BBY depends on your time horizon, as a value investor it's probably a good buy, but if you are expecting to make any money soon I wouldn't hold your breath. P/E being low doesn't matter if the E is declining.
    May 21, 2012. 07:36 AM | Likes Like |Link to Comment
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