Bruce Schrader

Bruce Schrader
Contributor since: 2010
I think you incorrectly read my analysis regarding the P/E.
Since August 2010 MSG has been trading at an average P/E multiple of 24x. Assuming 24x is a fair valuation, for MSG to justify the $32.32 share price, its EPS would have to be $1.35 ($32.32/24=1.35).
MSGs trailing 12 month EPS is $0.97. Therefore, based on the 24x assumptions, EPS must increase by 40% ($1.35/.97-1=40%) to justify MSG share price.
Thank you both for your comments.
In terms of an asset value, based on the increase in MSG market cap from February 3 to today, if Jeremy Lin were an asset he would be worth just over $203M, this is a hefty sum. By comparison Forbes estimated in January (so before Linmania), that the Knicks, as a franchise, was worth $780M or just 3.5x more than the value attributable to its newest star player (see This does not seem plausible to me. Forbes likewise puts Tiger Woods as the most valuable athlete. It is unclear what exactly Forbes means, but at $55M it is no where near the implied $203M of Lin.
True, there is the team (part of MSG Sports), merchandise (part of MSG Sports), gates sales and refreshments (part of MSG Sports) and TV rights (Part of MSG Media). As noted in the article, the Knicks sell out every game; if you followed the link you would have seen the Knick sell close to 20,000 seats a game. In a city the size of New York it is tough to believe that they only fill half their stadium as the commenter has insinuated (even my home team Raptor - based on the few games I have been to - seem to do better). In terms of MSG Media, this division accounts just under 50% of total revenue and almost all of operating income. MSG Sports accounts for 1/3 of revenue and MSG Entertainment the rest (based on the latest 10K).
Although Jeremy Lin may drive more people to watch games and therefore increase advertising revenue etc. as the MSG Media division is further divided over many channels across many sports (remember MSG has a station for the Islanders and Devils as well) Jeremy Lin’s effect will be reduced. I point to the facts that (i) for the three quarters between January 1, 2011 to September 30, 2011 revenue at MSG Media was up on average 4.5% YoY and (ii) for the quarter ending December 31, 2011 (e.g. the quarter with the NBA lock-out) MSG Media revenue was down just 1%. Although the quarter ending December 31, 2011 typically only has 2 months of basketball (not 3) the above noted fact suggests to me that if the absents of basketball does not cause revenue at MSG Media to plummet then a star player should not cause the division’s revenue to skyrocket. Whether this is due to revenue sharing, long term contracts or the number of stations at MSG Media is beyond the scope of my analysis.
Without more support to the contrary, I continue to maintain that, given the size and diversification of MSG, if the recent run up in MSG's share price is totally attributable to Lin, then the run up is irrational.
Thank you all for your comments, I will try to address each.
Serious, I agree GPSs are still fairly new, but the examples you mentions do not lead to a case for Garmin. Any existing GPS player or a new entrant can enter the fields you mention e.g. tracking a pet. Garmin does not have an competitive advantage in this space.
MP1, you are correct and incorrect. Although many cell phones do use triangulation to measure location there are examples of true GPS phones, my expectation is that as cost come down more cell phones will have this technology.
mahelan, cell screens are getting bigger, cars are getting more connected to phones (think of plugging in your phone to your car's screen) and more and more cars come with sat nav (as with CD players that cost thousands of dollars when they were first put into cars, the cost for an equipped car is likely to come down)
Bluehawk01, I had to google Red Lodge MT (near Yellow Stone), while this is a good point, what you mention is the specialty market, being the marine and outdoor fitness segment. I don't expect that these segments can maintain Garmins growth. Also, as mentioned, I expect more phones to have true GPS
robert3892, I think of your post as a little trollish. You mention Navigon as if everyone is to know what that is. Navigon makes GPS devises and software and therefore competes in the same space as Garmin. The thesis should equally apply. Although Navigon is focused significantly on Apps, it represents only a small portion of Garmin. It is a little presumptions to think that it will this factor alone should counter act the entire thesis.
I closed out my position in mid January after a pretty good run up. Although my conviction in ARM is less than it was at the time of righting, there is still pretty good momentum behind the stock a few big names have also indicated that they will be using the chip (e.g. MSFT). Likewise the table market (more and more expensive chips) is growing. I would not be rushing for the exists, but I would also not have it as a core holding.
Chancer mentions FRO and Mr. Frederikson as being a great manager. Although I agree with this point, I also would like to point out that he is generally negative on the sector (
That being said the company has a generally solid dividend track record, even if it maintains a 25cent dividend for the next 4 quarters that would result in a 3.7% yield.
Everyone: I've done a quick update to this article based on today's earnings release.
I've quickly jotted down my initial thoughts, and all-in-all although the market is reacting positively, I am a little disappointed.
Thank you all for your input, despite many people owning this security it seems that most of you are bearish; which is concerning.
As a Canadian, I have a tough time getting a feel the retail trends in the US telco sector (each Canadian market is in essence a duopoly between, depending on location, RCI, BCE, T (for Telus) and a few others in Quebec and the West). Despite our high rate of technology acceptance, we are no where near 4G as a replacement for our cable modems.
I'm surprised to hear that many believe 4g as a replacement for "wired" internet will happen in the near future. Regardless, this is another reason to monitor the high speed internet subscriber numbers closely.
I'll take be thinking about your comments on 4g and the Qwest merger in deciding my exit strategy.
Interesting point, of course missing the fact that trading is a little bit more active than just holding during the day (hopefully no one consistently follows that strategy).
It is interesting that two of the three companies listed are telecoms. I for one am a buyer of telecoms (I just wrote an article on CTL--
CTL is a little different, because (1) its payout is under 100% (although still high at 85%) and (2) although it's roots are rural, with the Qwest merger it is moving away from these roots.
The goal in looking at these dividend stocks is to determine whether the dividend is sustainable. I agree with most of the above posters that cash flow is a better measure. For CTL I not only looked at the existing cashflow but also at when debt will come due.
If you read my article you'll see that my major thesis for CTL is that although earnings are decreasing, the rate of decline is beginning to level off in large part of because of new internet subscribers. I would suspect the same is true for WIN and FTR
Thanks, for the article; with lot of buzz surrounding investors seeking yields it is very timely (and interesting).
I by no means consider myself a US tax expert (especially since I am Canadian), but I was wondering about the tax aspects of these corporate loans. I'm pretty sure that interested is taxed as regular income (no tax breaks). Whereas a bond, depending on if it trades at a premium or a discount, will have a capital component (which is taxed more favourably) in addition to the interest component.
Obviously, if you choose to invest through a ETF or a fund, the tax consequences for the ultimate unit holder are different (I don't think ETFs are flow through entities) but nonetheless tax is paid at some level.
In your experience how would tax affect the above conclusions/analysis?
His comments on WMT are related to the dollar. Schiff explains that the big box retailers import from China (cheap manufacturing, although getting less cheap) and elsewhere, they resold at thin margins. This will no longer be possible (with the USD depreciating) and hence the big boxes (e.g. Wal-Mart) will suffer.
As for the service sector, I take it that Schiff does not believe an economy can service on service alone (today 2/3 of US GDP comes from service). With the coming collapse, demand for domestic services will dry up. People wont be able to spend on lawyers and accountants (According to Schiff).
To your put about the government. My experience with the large law firms is that Reg. Compliance work is a small portion of what a firm does. That being said, a change in a statute can lead to other types of legal work (e.g. here in Canada the bankruptcy regime has recently been overhauled, these changes, especially given the slower economy, has lead to a boom for bankruptcy lawyers, who must learn and test the new acts).
A final comment about lawyering, already a lot of the due diligence, that is passed off to younger lawyers is done through electronic data rooms. The task consists of paying people $100K+ (who have 7yrs of school) to skim documents looking for change of control clauses etc. Once found, the document is flagged and someone more senior looks at it. With higher speed internet, this work could be passed off to India for a fraction of the cost. You don't need a lawyer to look for a change of control clause; you only need him to interpret it.
First, I want to thank everyone for the great discussion.
Yes, Peter is a controversial guy...but that is what makes him interesting to follow.
Yes Warren is a great investor but the way Warren and Peter play the market is very different. Buffett wants to own companies (he does not like to sell...EVER.). Peter is more of a Macro guy.
Yes Peter has been wrong in the past and could be wrong now. That being said it is the perspective that we are looking for. His perspective is that the US economy is in a world of hurt. Which based one the lack of manufacturing and ridiculous debt loads seems possible. If we agree (which you are free not to) then you should start preping your portfolio.
His book is not unique in how it tells you to do prep for the down-turn; buy defensive, buy foreign, buy gold, buy commodities. I view this as the key take away.
I'm looking at my US investments (I'm Canadian) and the exchange has been reducing my returns (I should have hedged with the FXC). Just another sign of weakness in the US.
Peter's concern was, with all these signs of weakness, the government can't reduce interest rate (already at zero) and can't spend or inflate its way out of trouble.
I will admit, however, that I was shocked with some of Schiff's comments while reading the book. If things get as bad as he claims, I think our portfolios will be the least of our concerns.
Richard, Thanks for the comment, it always nice to hear words of encouragement.
Not to mention BIR has some big name backers (Not sure if this link will work:
Thank you all for your comments, I did not expect this article to generate such controversy.
I would like to further two points brought up.
1) Alex, you seemed to indicate that we should be impressed with CMG's growth given its size. I take the opposite approach, the smaller a company is the easier it is to grow. With one store, you only need to open one new store to double, as the store count goes up, without increasing same store sales you need more and more stores to keep up the growth rate. Therefore even if CMG continues opening 120 stores a year, just because the base is growing, the growth rate will shrink.
2) Michael, I agree, if you have the guts to run up with this stock you could make some money (as with CROX and others). But the point of this article is that one day, as with the stocks I mentioned, the stock could come crashing down. If you disagree with this thesis, then that is a different story. But if you are in it until the growth stops, I think my warning is still valid. On the day CROX crashed it went from $72 to $47, a value it had not seen in 4 months, meaning anyone who invest in the last four months at best broke even, but more likely lost money. You mentioned the stop loss. Stop loss are good, especially when the stock is drifting up or down. However with CMG you are expecting the stock to explode up or down. The problem is, with a stop loss when the market price of a security hits the set level a market order is place. If you got in CROX at say $65 and had a 60$ stop-loss, on Nov 1 2007 you still ended up with a market order, perhaps being filled in the 40$ range. Think about what happened during the flash crash to people that had market order, they got forced to sell at extremely low prices (and not all of the trades got reversed).
In terms of the health food trend, lets not completely kid ourselves, sure Chipolte does not sell the KFC double down (and I appreciate that there are now healthier fast food alternatives), but it is not as healthy as home cooked meals. (also .
For everyone else, thank you for you comments, keep up the debate (I hope to be proven wrong).
The point was to find a company with a similar PEG ratio to that of CMG. As the PEG ratios are nearly equal the market is valuing the growth of CMG and AAPL similarly (admittedly CMG does have a lower PEG).
Based on my views of both companies, as compared to the growth prospects of Chipotle I have more confidence in Apple's growth due to its substantial history. Therefore, if you agree that AAPL's growth is more certain, you should be willing to pay more for that growth. Given the small difference in their respective PEG ratios I don't think the premium on AAPL growth relative to CMG is reflected.
Perhaps a industry peer would have been a better comparison, but I picked Apple as it is a darling in many peoples mind.
Hope this helps.
I posted ( early questioning CMG's potential growth. I could not agree more that investors should be wary. People are health conscious to a point, but as prices increase traffic drops.
The company already has seen a drop off in Same Store Sales and I question if this trend will reverse. Its only upside, is the company's ability to open stores (as far fewer Mexican grills exist as compared to McD's etc). However, by my math, CMG must be about at least double in size to account for its current valuation, at its current growth of 100stores/year that 7+yrs out (a long time in the investing world)
great article, thanks for posting it.
I think i was looking at 31.5 and 36 when I was calculating the return, but the point is the same given the volatility you can fairly quickly make a pretty good return. And the 75cent dividend was a nice little bonus.
I don't agree with you regarding holding onto it for its dividend yield. Given the volatility I don't see much of a point of holding it for the next two months, if you want the dividend you could probably wait closer to the Ex-dividend date and have your money elsewhere.
Otherwise I agree with you. Thanks for reading the article and your kind words.
My understanding of the the CEO pay is generally inline with yours, which adds to the discipline of the company and makes it such a nice company to follow.