Dividends For The Long Haul

Long-term horizon, dividend investing, dividend growth investing
Dividends For The Long Haul
Long-term horizon, dividend investing, dividend growth investing
Contributor since: 2012
Earnings report released 10/29 supports the hypothesis of the ARII lease fleet driving long term value.
Check it out here: http://bit.ly/1PbOtHM
Latest earnings report confirms the hypothesis that long term value will be driven by growth in lease revenue.
Check it out here: http://bit.ly/1PbOtHM
It seems like good news, but until we hear about the final terms and the concessions that had to be made to get this approval it's hard to say for sure.
Well put. In my mind the biggest issue with Tesla is burning cash. The company is generating plenty of revenue and still burning 100s of millions of dollars in cash each quarter and weakening the balance sheet. They have $1.5B in cash which at current rates could last no more than 6 months. Obviously they may be able to generate some savings, but if they raise more cash through equity they dilute the investors they have today. If they raise $1B in debt, expenses go up 10s of millions of dollars in debt servicing every year. As they introduce new products to market expenses are going to climb.
The balance sheet is not a positive in anyway. It's a company with $1.5B in cash, $1B in inventory of an inherently depreciating asset, $1B in accounts payable. The only significant asset they have is their plants, equipment, and property.
How long can TSLA continue burning cash at these rates? And how much value can an unprofitable company burning cash so quickly have?
The concepts behind Tesla products are great, and Musk is a great marketer, unfortunately the economics of the business are less supportive of future success.
More signs of strength in the railcar manufacturers. ARII could be the best of the bunch for investors. http://bit.ly/1GQA4dD
Sounds a lot like "One Ford"
Bret and Matthew,
Appreciate the analysis on this. I agree that railcar manufacturers are one of the best values out there, but think you left of what may be/have been the best value altogether. American Railcar Industries, Inc. (ARII), started the week around $48/share and has already rebounded about 5%.
http://bit.ly/1GQA4dD
I do share your same outlook on the long term profit potential for investors in railcar stocks based on the current values.
Barkeater,
You seem pretty knowledgeable on ARII, and I appreciate your view on the variability of earnings and the cyclical nature of the industry warranting a lower PE. One of ARII's primary competitors, GBX, currently trades with a PE of 14+. Is there something about GBX that warrants a PE near 15, whereas ARII would only warrant a high single digit low double digit PE?
Any thoughts on this would be appreciated.
Chancer,
While I'd certainly love to be able to get into a stock like ARII at a price under $40, I have a hard time envisioning a company with a book value of $23.20/share, earnings near $5/share, and 2014 free cash flow near $200M (1/5 of current market cap) trading at such a low valuation. Trading at $40/share, ARII would have a P/E near 8.
Interestingly enough, GBX announced $1B in new railcar orders. (http://seekingalpha.co...).
I am uncertain on the percentage that could be cancelled, but of the backlog 24% are intended to remain "in-house". Again, I would anticipate rather than cancel, many of those railcars scheduled for delivery would be deferred and "replaced" with a lease.
The biggest short term risk for ARII is shipment of crude, and the unknown costs associated with updating manufacturing facilities and procedures to comply with any new regulations that are put in place. Additionally, the current low oil prices may encourage companies to push out receipt of new railcars, but large scale cancellations do not appear to be an issue at this point. In fact, I would anticipate that in the event of order cancellations or deferrals, those produced railcars would be turned over to the lease fleet and would begin generating revenue, often from the company who was scheduled to take delivery.
This represents a short term hurdle for the company, given that new guidelines for shipping crude by rail will result in a need for new railcars and retrofits of existing rail cars to comply.
Risks are always part of an investment decision, but in the case of ARII the risks appear to be strongly outweighed by the long term value, and current low valuation.
And the award for least surprising news of the day goes to Bloomberg
Jimbaux, excellent point. Too often with investing, we look to oversimplify, which can be dangerous. Like you said, not all freight moved by rail competes with trucking. While higher fuel prices may lead to higher conversion to rail, those higher fuel prices will have an impact on the bottom line.
Everything should be made as simple as possible, but not simpler.
Rails aren't going to become less valuable either. http://bit.ly/1tTJW1t
Very true, and the railroads that exist are in no danger of going away.
J,
I agree that UNP, as a company is positioned for the greatest growth over the long term. I feel at this point, however, that the valuation is stretched to the point of limiting gains for some time. I would need UNP to pull back significantly to get the entry point I would want. I believe CSX offers the best value as an investment TODAY.
What do you think is a fair earnings multiple for UNP?
That efficiency you mentioned is why rail becomes so much more attractive as oil prices rise.
J,
I agree that UNP is positioned for the most growth of the business. I just feel that the valuation on UNP is stretched at this point, limiting the shareholder value. I feel like I would want to see UNP shares pull beck ~10% before I would feel good about my entry point.
What do you feel would be a fair earnings multiple for UNP?
Rail efficiency is outstanding, and the more expensive oil prices are the greater advantage of shipping via rail versus trucking--pushing more traffic to the rails
J,
I agree that UNP is best positioned for the company to grow, my belief is that the valuation is stretched at this point limiting future gains. I would need UNP to pull back ~10% to feel great about my entry point.
What do you think would be a fair earnings multiple for UNP?
Rich,
While the current downturn in oil prices certainly bodes well trucking and airfreight companies over the longer term I still believe that oil prices will rise and rail will continue to grow.
I believe that the trucking industry is highly fragmented, barriers to entry are low, and volatility in oil prices lead to significant fluctuation in earnings and vale. Airfreight is a bet on the global economy, and declines in oil prices can significantly impact earnings.
Quoting Buffett “If you don’t feel comfortable owning something for 10 years, then don’t own it for 10 minutes.”
I'm comfortable with the idea that 10 years from now oil prices will be higher, shipping volumes will be higher, and freight rates will have climbed--all contributing to earnings growth for railroads and value for shareholders.
Ultimately, investors have the opportunity to make money with many transport stocks. In my opinion rails offer one of the best long term investments an investor can make.
$0.125/quarter--$0.50 annual
David,
I always enjoy reading your writings, and this is no exception. Just another great example of why DGI is a great strategy for investors with an eye towards their future/retirement.
Agree with most others on this note. This represents a setback for the company rather than a trend or long term implication. Regardless of what company this person worked for, it could have been just as easily an employee of LMT, NOC, or any other defense intelligence contractor. I think if anything this represents an opportunity to buy into the stock for longer term gains.
Randolph,
In theory, I agree with you. Most blue chip stocks have recovered to reach and exceed the levels from prior to the crisis; however, most blue chip stocks dont have a near $50 billion dollar a year finance arm. At the time of the financial crisis, the size and scope of GECC was even greater. In a lot of ways, GE must be compared to some of the larger banks. In terms of comparisson to the large banks, GE has significantly outperformed those blue chips, given the share price and dividend growth since the height of the crisis.
Arthur,
I agree completely. It's about the company, the business, and the financial implications of the investment.
I've had the same question. I own stock in GE because I believe in the business. While may people do not care for GE leadership, over the past 3 years management has done a lot to benefit investors who climbed on board after the financial crisis. Many shareholders who have held GE stock through the crisis never seem to be satisfied with the performance and leadership with the company; however, they continue to hodl the stock in their portfolios. I feel that if I were so opposed to an organization's leadership, that regardless of performance I would have such strongly negative perceptions, I would be much better off investing my money elsewhere.
Thanks Maybe,
I'm watching for the pullback to add to my position.
While I certainly can't agree with or support the totality of Immelt's past, in terms of announcing that GE would not cut thedividend prior to slashing it at the height of the financial crisis, I was not one of th investors burned by his misinformation or the mismanagement of GE Capital.
I watched the stock through the fall, and was able to buy in as management got their house in order enjoying the capital gains and steady stream of growing dividends. I think where it stands now, GE is poised to be a great investment for the long term. I think management and the Board of Director's could certainly use a refresh, but I would applaud the execution by and shareholder friendly policies of GE's management over the past 2.5-3 years
I think one thing worth noting is that the majority of talk surrounding a possible spinoff of GE Capital has focused on spinning off portions, not the entity as a whole. GE has established a target for GECC to provide 30% of revenue and earnings, and the company continues to consolidate the unit to reduce the size and scope of GECC. Losing 40% of earnings would be incredibly disruptive; but my understanding is that most talk has surrounded divesting portions of the unit to focus GE on its industrial elements.
Perhaps the term "boutiques" is not accurate, as the stores formerly operated as Movado Boutiques have all closed; however, the company still operates 35-40 retail outlets, and continues to gradually and selectively expand the retail footprint of the company.
Long term opportunities for MOV look strong:
seekingalpha.com/artic...