David Tsao

Using the Magic Formula With Dividend Stocks

A good angle. I'm currently testing his system, but at times I throw other filters on top of it (like PEG < 1, etc.), and run this picks through a DCF analysis.

Now's a good time for these types of screens.

Why I Bought Financials (Despite the Mess)

The selling surge will continue. I admit it is hard to buy stocks in this environment, but some stocks are on sale now. I got into XLF a few months ago. Was it the bottom? Well of course not... that's easy to say now. They key is I took a small bite. If it continues to go on sale, and you believe the world isn't coming to an end, then now is a better time to feast on those quality companies you've always wanted to own.

5 Sectors That Do Well in a Shrinking Economy

Do you guys mean to do deep analysis like this?

seekingalpha.com/artic...

Sorry, I couldn't help but plug myself.

Is Amazon.com Really Worth Over $70 a Share?

What did you guys set your your SG&A, and COGS as a percentage of top line revenues? My assumptions back in Janurary were slightly different, and I came up with a $60/share valuation. My assumptions gave AMZN every benefit of the doubt, and put set them up under very optimistic scenarios. Almost half of their revenues come from outside the US. 6 months ago, I thought their overseas operations would be somewhat immune to the credit crisis unfolding here. It's a different story now.

Although they see high margin channels through 3rd party sellers, AMZN has extremely tight margins for the overall business. With such tight margins and rising input costs, companies that operate on tight margins are going to feel it. I'm not sure what type of agreement Amazon has with UPS or USPS, but at some point Amazon is going to eat rising costs of shipping, or pass it on to the customer.

Either option isn't great. Customers for the most part, associate AMZN with low cost or free shipping.

There are too many other factors to outline here. I'm not sure what Citi (Mark Mahaney) and Goldman see that I don't with their bullish calls on Amazon.

And please, let's not have another analyst try to compare the Kindle to the iPod.

Two different customer segments, two different purposes.

Freeport McMoran: With Copper Prices Rising, It's Still a Buy

There is a fundamental reason for the selloff. There is a nationwide strike going on in Peru, and FCX is caught up in this. This will obviously drive up copper prices, but companies like FCX and PCU will have to leave money on the table.

www.mineweb.com/minewe...

Check up Otto Rock's postings under PCU regarding his analysis on how long this strike could go. In fact, if you want good coverage on metals and south america, I would highly recommend his blog.

www.incakolanews.blogs.../

Should Analysts Who Don't Own Stock Be Trusted?

Unless they are your best friend, or within your inner circle, it's hard to trust them whether they own the stock or not. If they own it, their style of communication maybe construed as "pumping". If they don't own it, you start to question whether they are "pumping" the stock because their clients have a majority stake in it

At the end of the day, it's like trying to find a good car mechanic... Once you find one you trust, you go to them for all your work. Other times you try to go it your own way only to learn the hard way when your fist flies into the engine block at a 100mph because the lug nut has been torqued to death while you attempt to change the oil (yes, this happened to me).

Is Amazon's Free Cash Flow Overstated?

The change in net operating working capital is a factor in determining free cash flow available to the firm. William's argument about extending Current Liabilities out over several periods can affect FCF since it is a component in determining working capital. However, attention should also be paid to AMZN's LT debt obligations and the structured lines of credit agreements they have. I still think AMZN is overvalued, margins are thin, and there will be no improvement for some time to come.

Another thing with respect to AMZN is to watch out for Citi's analyst Mark Mahaney... his research and calls on AMZN are a bit off the wall.

Lululemon Reduces Guidance; Could Present Buying Opportunity

I wish LULU good luck in proving/proving these lofty valuations going into 2008/2009. Christine Day's experience at Starbucks may not translate over well into women's apparel. I wasn't impressed much with the earnings call as Bob Meers and Christine Day both fielded questions back and forth. If you're going to pass the reigns over, hand it over to the new CEO.

One of the analysts asked an interesting question regarding why the management/personnel changes now, and what LULU was missing prior. Part of the argument put forth by Christine Day, was the hire of Sheree Waterson who has prior e-commerce experience. She does, with enfashion.com during the dotcom days, but those online properties are now defunct. Starting up an online sales channel based on the company's growth strategy and free cash flow position will not be easy and eat into margins. Depreciation of IT systems was estimated at $1.2mm. Pay attention to CapEx and SGA in the coming quarters. Maybe they will outsource this operation... to "try" and keep growth costs down.

time will tell.

DeVry: DoJ Investigation May Complicate Matters

The student lending kickbacks came to light for several schools last year in the time frame you mention, but DeVry's exposure was in relation to Citibank back in 2004 and 2005.

www.chicagobusiness.co...;id=24686&seenIt=1

I'm still keeping my eye out for this story and the implementation details for the government to buy student debt.

My Nutrisystem Bonehead Move

I got in at $23 back in January expecting a worse case fall out to $19 based on 5% top line revenue decline for the next two years. I should have added more at $12, but I'm trying to stay disciplined here.

My bad move was missing STRA. They also had a huge run up recently. I had them on my screen, but it's been taking me a few weeks to wrap up my analysis on that company. Another missed boat.

Microsoft's Cash-Back Search: Return of the Sneakerphone

To continue the argument... I decided to try live.com to search for the one of the hottest things around now... the Ninentedo Wii.

search.live.com/result...

What you end up seeing is the top half of the page reserved for sponsored links, and videos. I have to move down to the bottom half of the page to see my search results. What makes Microsoft think that I care for videos?

Just give me what I want.

Microsoft's Cash-Back Search: Return of the Sneakerphone

Microsoft just needs to build a better search engine, plain and simple. Incentive gimmicks don't work. If you want me to use your search engine, make it good so that I use live.com to find something... not for some cash handout. At the end of the day you haven't solved my problem which is to find something quickly and that is also relevant.

I'm not sure who at MSFT conjured up this idea, but my guess it was some "ingenious" idea that arose from the marketing team. Get back to the basics. You have a smart engineering team, leverage it.

Amazon: Forget Analysts, Kindle Still Irrelevant

You couldn't have written it any better. The focus and "noise" should be around the company's operating margins, not the Kindle.

Citigroup Makes Bold Projection on Amazon's Kindle Based On...Well...Guessing

I've been keeping my eye on Mark Mahaney for a few months now for amusement. This Kindle estimation probably has to take the cake. Unless AMZN breaks out segment revenues in more detail from their digital initiatives, AWS, and Kindle, how can you extrapolate out to 2010???

I think Mark is trying to claw his way back to credibility or to keep a positive spin on AMZN after his missed calls early in early January when he made a bold prediction that AMZN would hit $119/share

www.tengrandchicago.co...

Mark... read the 10k/10Q's and tell me how you can justify these estimates for the Kindle? Maybe you have connections into the supply side for Kindle equipment, although I highly doubt it.

Microsoft and Yahoo: The Deal That Wasn’t Meant to Be, For Now

Microsoft did the right thing. They already have enough strategic things to focus on. MSFT has always been a company to chase and come in late to the game (IE over Netscape, Excel over Lotus, etc.) and has done well. With respect to their search advertising business and content in general this is something I have a hard time believing will ever materialize into a revenue generating machine. Content/Ads are not at Microsoft's core. This was evident with their recent MSN/Ad chief leaving the company (Joanne Bradford). MAdison Avenue graduates, and Engineers don't mix very well.

This type of mix seems to have also plagued Yahoo. Troubles were brewing long ago, if you happened to read the "Peant Butter Manifesto". A great read by the way.
paul.kedrosky.com/arch...

So the question now is how does Google continue to breed the Marketing/Engineering mix so well given their massive growth? Most of Google's applications bleed engineering talent, with Marketing initiatives taking a back seat (at least that is what I perceive). At some point the company will experience the law of "too many people" competing agendas, egos and the like can derail any organization, and surely will surface if not already within Google. The company's CEO (Eric Schmidt) made a slight mention of this challenge on a CNBC interview last night about "managing the creative process"
www.cnbc.com/id/243873.../

That's a fancy sentence for, "I have so many smart people, and some of them simply hate each other"