Dustin Small

Dustin Small
Contributor since: 2012
Agreed - and the 3-5% y/y sales growth used in the DCF model is too low in my opinion. Doesn't take much of a miss on those numbers to completely change the outcome of these sorts of models.
Hi Montie,
Yes, I've been steadily adding to my position on any dips to around $500. AAPL is still a good long term hold in my opinion.
David - I too found the "attaboy" from SA to be out of place (and really a bit odd to be honest), but didn't take the time to air my views on this. You've captured what I was thinking very well though - thanks.
Good article. Despite what the numbers show with respect to increasing EPS, etc. I just can't get past the fact that absolutely no one I know smokes, and that smoking is such a social stigma these days.
Some great advice. I am looking to transition a portion of my portfolio to fixed income (bonds) but agree with you that now is perhaps not the best time to do so.
Great article SG. I recently conducted a detailed analysis of CAT on my blog as well, and looked at several valuation techniques in the process. My valuation came out to about $91 at the moment, so it is indeed trading at a bit of a discount. Usually I would like more of a safety factor, but given that this is a solid dividend growth stock I did buy in at the 83.50 level.
Excellent article. I too initiated a new position in CVX recently, despite trading at all time highs. I agree with the points made in your article. Good work.
Good article and I agree with your analysis. I am long CAT as well and will be adding to my position at these prices.
If you do a "whois" query on their website, the website was only registered a few days ago (Feb. 16) so it appears this "company" was created simply to publish this article.
Well, finally hit our entry target today. Some of the fundamentals have changed since I originally wrote this article so be sure to use due diligence before entering.
Thanks very much snagit! Yes, we're not too far off now. I still plan to enter once the target entry price is hit. I think there's a very good possibility of that happening over the next few weeks - let's see.
Interesting comment - thanks. Yes, I've been keeping an eye on Yahoo as well now that Mayer is at the helm. If anyone can turn it around I think it's her. Will be interesting to see how this agreement with Yahoo plays out and whether both companies can come out stronger as a result.
Thanks very much for the kind words - I appreciate it!
Hi Paul - Yes, those "Apply guy vs. PC guy" commercials really did a great job in portraying Windows PCs as uncool. I agree though that now that Microsoft has the right mix of products to appeal to the younger crowd and if they put some solid advertising behind it, they will go a long way.
Hi Techy - thanks for the comment. It's always nice to get some validation for an idea and glad that you agree with me. Yes, it will be interesting to see how things pan out over the next year or so.
Thanks for the great article and I agree with most of your points. I too have upgraded all of my PCs to Windows 8, and also bought a surface. It's great how they all sync together. It's really what I was missing with from the apple products. I have an iPhone and an iPad as well, but my work computers are all windows based. Having MS-Office available on the surface is huge!
Microsoft also has many other avenues for increasing profit over the next few years. They are changing their Xbox line of consoles from pure gaming to complete media center including music, videos/movies, and this will sync with Windows 8 devices as well. In short, Microsoft is now in a position to offer the complete package of software and devices that cover all worlds: work, media/entertainment, gaming, and shopping.
Isn't Microsoft a minor investor in Facebook as well? Like 3-4%?
Think there's a typo: August 27 to Sept. 14 is only 3 weeks, not 7.
Thanks Curious, it's always nice to get some validation, especially if its by means of a different (albeit similar) strategy.
Thanks for the explanation p2invest - makes sense when you explain it that way.
Hi Nathan. Essentially I believe you are asking why I wouldn't be buying at current price levels instead of the 25-30% discount I am looking for. The reason is that the fair value of $26.87 is really nothing more than an educated guess as it is based on making future predictions of both EPS growth and PE. I am quite conservative in my investing approach, therefore I like to put a bit of a safety margin on my calculations. By buying at a 25% discount, I'm essentially giving myself some breathing room in case my value calc is incorrect.
As an example, let's see what happens to the intrinsic value if Ebix's earnings were to "only" grow at 16% per year instead of the 20% I assumed in the article: Intrinsic value drops to $22.68 per share! However if I bought in at $20.51 I'd still have managed to get in at a much smaller, but slight bargain.
Hope this answers your question.
Hi Endymion, thanks for the comment.
To answer your questions, if by "real" referring to the goodwill reported on the balance sheet, you mean that it is not artificially high, then yes I believe it is real. The goodwill represents the non-tangible cost paid to acquire the many companies they have purchased lately. My understanding is that on a regular basis, companies are required to perform a DCF analysis on these purchases and must take a hit on the income statement to mark down this value if they are not performing in line. I don't see anything out of the ordinary on the income statement, so I assume that the goodwill is legitimate. I'm not an accountant, so if someone could correct me on this if I'm wrong, please feel free to do so.
Hi Adamii,
Thanks for the analysis - you make a good case for a lower EPS growth expectation. I will have a look at this on my next update of BWLD. Yes, I think that buying in at the $60 - $70 range should provide a margin of error in the numbers.
Yeah, I would tend to agree with you on that one. I pay less attention to the moat aspect myself than the other traits I've highlighted in the article. For me, consistency is key. What other companies do you follow?
Thanks Jim - nice to get some feedback that I'm not too far off the mark. What discount are you using for your entries? Regarding the credit - yes on my other articles I have always given credit - not sure how I missed it on this one.
Hi Kang Wei, thanks for your comment and your support. Yes, I believe RUE is a great company and agree that they are somewhat hard to comeby. The easiest way to find these stocks are to use a screener like those found on google finance, or yahoo. You can input the criteria you want such as ROIC, EPS growth etc. and screen from there. Some others that I am following are BRLI, BWLD, AAPL, EBIX, CMG, ISRG, & MNST to name a few.
No problem Frank - thanks again for the suggestion. It still needs to be refined a bit I agree, but I think it's a good compromise for some earlier entries using this strategy.
Hi pk,
The premise of the stategy is that you continue to invest as the price goes down, ONLY if you believe that the true value of the company remains high. Again, the point to understand (my belief anyways) is that price <> value. If I believe the value of the company to still be $900/share + and I am buying at $420, then that's a great thing. The key is to have confidence that you are correct and not missing something in the big picture, and that is not always easy I admit.
Hi IValue,
Yes, I do utilize puts as well on occasion but for purposes of simplicity haven't gone into the details in my articles thus far. Will probably delve into that in the future however.
Hi Glen,
First - thanks for the very detailed response. This could be a separate article on its own! Some valid points, for sure.
I question your notion however that there are not many undervalued stocks at any given time - this screams of the efficient market theory which for those that aren't familiar with it essentially states that it makes no sense to try and time your entry, as the market automatically prices in all available knowledge at any given time -- in other words the market price IS the true value of the stock. It just strikes me as odd that you state the ONLY stock to be undervalued at this time in your opinion is AAPL -- probably the most highly watched and discussed stock in existence!
My own opinion is that there are many given stocks either under or overvalued at any given time. Many at 50%+? Maybe not, but 25 - 35% is fairly common.
I'm not going to get into the ins and outs of where money should be invested when on the sidelines, but by your reasoning every cent should be invested in Apple from what I gather. I prefer to diversify myself.... but that's my own preference.
Excellent points on missing the big opportunities - I agree. The other side of the coin is being in when a stock is highly valued and seeing the price drop 50% - equally possible, although less likely in a company like Apple as you have noted.
Thanks again for your analysis and opinions.
Hi richbar - thanks for the comment. Yes, I've often questioned too "Just how much bigger can Apple get?". It already has the highest market cap in the world at over $600B now and I agree that it is facing steep competition from the likes of Samsung and to a lesser extent Amazon in the phone/tablet market that may slow Apple's growth moving forward. That said, Apple is planning entry into at least one new market - TV, in the near future, and if they can dominate in that industry as they have in the music and phone industries, even if their overall share remains in the 25-28% range, the pie that they're taking that share from may grow bigger. Excellent analysis - thanks again.
I like it! Definitely has potential. You're right that it would allow you to enter much sooner than waiting for an overly conservative entry point, and a smaller amount would be invested if the discount was less, which takes into account a certain degree of safety. I'm definitely going to explore this one further - thanks for the idea and detailed explanation.