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Efsinvestment.com website offers simple do-it-yourself type of investment ideas. You can download excel files that can easily calculate the Fair Value of a stock, along with O-Metrix score and Margin of Safety. Investment philosophy is to first determine the maximum loss, and invest... More
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  • Testing O-Metrix
    Full List of Articles

    Article 1:  Picking Dividend Stocks for the Next 5 Years
    Article 2:  Picking Electric Utility Dividends for the Next 5 Years
    Article 3:  Picking the Best Mid-Cap Basic Material Stocks for the Next 5 Years
    Article 4:  Selecting the Best Industrial Dividends for the Next 5 Years
    Jun 11 6:30 PM | Link | Comment!
  • 7 Energy Investment Ideas for Strong Income

    Although oil prices moved up and down in recent weeks, many prominent investors believe that in the intermediate-term, there are compelling reasons for higher oil prices. Recently, in an interview with CNBC, Frank Holmes, the chief investment officer at US Global Investors, stated

    As an investor, this volatility can be difficult to handle. Throw in the uncertainty of today’s geopolitical environment and investors feel the need to downsize their position in commodity investment, such as oil … The 1.3 million barrels of demand growth that is expected for 2011 is less than last year, but is more along the lines with historical rates and maintains the forward momentum for rising oil demand.

    The oil prices will be hovering above $100 due to relatively weak dollar, rising market demand, and political uncertainty. Although subject to recent volatility, energy stocks are still attractively valued for income oriented investors. Here, is a list of seven energy trusts/partnerships paying substantial dividends/distributions (data from finviz and morningstar):

    BP Prudhoe Bay Royalty Trust (BPT) is one of the most widely followed U.S. oil and natural gas royalty trusts in the market. The Company is the largest conventional oil and natural gas trust in USA. BPT has one of the largest oil fields in North America. Market cap of the BPT is $2.39 billion, and P/E ratio is 12.80. The company comes forward with a projected yield of 8.6%. BP Prudhoe Bay recently paid $2.39 per share with ex-dividend date of April 13th.

    Global Partners LP (GLP) is involved with commercial distribution of refined petroleum products and natural gas. It provides ancillary services in the United States and internationally. The market cap of the company is $554.61 billion, and P/E ratio is 14.63. Global Partners LP’s projected yield is 7.78% and the company paid $0.5 dividends per share in the last 2 quarters. Global Partners LP announced financial results for the first quarter 2011. According to this report, product volume of the company increased to 1.3 billion gallons and gross profit of the company climbed 18% to $56.3 million.

    Natural Resource Partners LP (NRP) is a master limited Partnership headquartered in Houston. The company is principally engaged in business of owning and managing mineral reserve properties. NRP owns coal, aggregate oil and gas reserves across the US. The market cap of the company is $3.42 billion. P/E ratio is 18.98, but forward P/E falls to 15. NRP has a projected yield of 6.8%. Shareholders will enjoy a quarterly distribution of $0.59, in the next quarter. The stock is up by almost 60% within a year. The company announced that the revenues increased by 34% and net income attributable to limited partners of the company increased by 163% compared to the first quarter of 2011.

    NuStar Energy LP (NS) is a San Antonio-based, publicly traded and partnership. The company has over 94 million barrels of storage capacity, and is one of the largest asphalt refiners and marketers and the second largest independent liquids terminal operator in the US. NS has a market cap of $4.01 billion. P/E ratio of the company is 18.93, and forward P/E ratio is 16.74. Dividend yield and quarterly dividends paid per share are 6.93% and $1.08, respectively. Furthermore, the company has a nifty current ratio of 2.45.

    Permian Basin Royalty Trust (PBT) is a U.S. oil and royalty trust based in Dallas, Texas. It is a one of most profitable royalty trust companies in the United States. The market cap $964.36 million. PBT has a P/E ratio of 14.99, and offers 6.60% yield. Recently, PBT declared a cash distribution of $0.136 per unit, payable on June 14, 2011, to unit holders of record on May 31, 2011.

    Pioneer Southwest Energy Partners (PSE) engages in the ownership acquisition of oil and natural gas properties in the United States. The company was founded in 2007 and is based in Irving. The market cap of the PSE is $975.05 million. Although trailing P/E ratio is 18, forward P/E ratio falls to 10.19. Distribution yield of the PSE is 6.93%. PSE will pay $0.51 quarterly dividends for each share. Recently shares experienced extreme volatility, dropping from $36 high to $28 low. However, $28 seems to be a strong support level as shares bounced back to $30.

    Suburban Propane Partners LP (SPH) operates in the retail marketing and distribution of propane, fuel oil and refined fuels, and marketing of natural gas and electricity in the United States. The company’s market cap is $1.87 billion. P/E ratio is 16.88, and forward P/E ratio falls to 14.18. It has a yield of 6.45%. This year, so far, shareholders enjoyed quarterly payments $0.85 per share. Suburban Propane Partners has a good balance sheet with $136.92 million in cash and a current ratio of 2.61.

    Note that, while higher expected oil prices are more-or-less factored in the stock prices, those listed above pay pretty good yields for income oriented investors. Given the extremely low bond yields, high distribution yields surely offer better income opportunities. For a detailed analysis of Master Limited Partnerships, see David Fish’s excellent article, focusing on MLPs. 

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    May 27 2:18 PM | Link | Comment!
  • 4 High-Tech Companies with Ultra-Conservative Balance Sheets

    Millard Brown recently released the list of Top 100 Most Valuable Global Brands. Millard Brown is a global research and consulting company that helps its customers “to quantify the intangible in financial terms”. The clients, in turn, can objectively estimate the value of their brands and optimize their marketing budget. I like objective brand value estimations, because it gives us an opportunity to compare these estimates with the companies’ own projections on intangible assets. A cross-check of the list with firms’ balance sheets reveals 4 High-Tech companies with ultra-conservative balance sheets:

    Apple (AAPL) finally claimed the first spot with 84% brand value increase, last year. Apple’s brand value is estimated at $153.3 billion. Apple has the highest brand value, and the most conservative balance sheet in the list. The financial statements show goodwill of $741 million, and intangible assets of $342 million. I like companies with conservative balance sheets. Apple gets another thumbs-up in the balance sheet.

    When we look at the current valuations, Apple has a P/E ratio of 16.55, and a forward P/E ratio of 12.18. The PEG value stands at 0.81, ROA and ROE ratios are, 25.73% and 38.78%, respectively. Almost all analysts are bullish on Apple with an average price target of $449. If the analyst estimates of 20% EPS growth hold, Apple will enjoy a net income of $50 billion by 2015. With a P/E ratio of 14, this implies a market capital of $700 billion in the next 5 years. Apple is a center of innovation, and stocks tend to go wildly up, as soon as a new product hits the market. It would be a good idea to buy Apple shares before iPhone5 gives a boost to the stock again.

    Google (GOOG), the fallen emperor, moved down to #2 with a brand value of $111 billion. While the goodwill and intangible estimates are not as conservative as Apple, they are still a fraction of Millard Brown’s estimates. With a market capital of $172.48 billion, Google has a trailing P/E ratio of 20.57, and a forward P/E ratio of 13.40.

    Similar to Apple, analysts are also extremely bullish on Google with an average target price of $708, implying 40% upside potential from the current value of $529.  In the last few weeks, the stocks were beaten enough. The current price of $534 is almost $100 below the $630 resistance. There is a temporary bearish sentiment on Google shares due to the recent law suits. In the first bullish move, the next short-term target will be $560.

    IBM (IBM) has a brand value of $100.8 billion, whereas the balance sheet shows a conservative goodwill estimate of $25.13 billion and intangibles worth $3.49 billion. Since IBM is a relatively older company with literally thousands of patents and inventions, it is normal to have a fair estimate of goodwill.

    The forward P/E ratio of 11.65 implies an undervalued company. The stocks are moving in a long-term upward trend, since September 2010. Analysts also have positive expectations about IBM, with an average target price of $179. The company is doing well, and the stocks are continuing the upside momentum. It could be a good buy in the first major correction.

    Microsoft (MSFT) is the 5th company in this list, with a brand value estimate of $78.2 billion. The conservative goodwill estimate of $12.39 billion is a good indicator in the balance sheet.

    Microsoft supports a market capital of $213.86 billion. Trailing P/E ratio is 10.06, while the forward P/E ratio is 9.16.  Shareholders enjoyed a dividend yield of 2.52% dividend. I am not sure whether the acquisition of Skype will bring any future profits to Microsoft, but you will never know. The current price of $25 is 20% below the average analyst price target of $32.79. Microsoft pays solid dividends, and net profit margin of 31.76% is a dream for many high-tech companies. Currently, shares are trading at very strong support levels. I expect the stock to bounce back near $30 in soon future.

    Note that while – at least theoretically - sum of goodwill and intangibles is almost synonymous as brand value; in practice, the accounting rules might be different. Consider Bank of America (BAC) as an example. Bank of America’s balance sheet shows a goodwill estimate of $73.86 billion. This high value reflects the premium price, Bank of America paid for its past acquisitions. However, due to this inflated goodwill estimate Bank of America has a P/B ratio of 0.6. The discrepancy in goodwill and intangible asset estimates should be another reason to thoroughly check the financial statements before making any investment decisions. For a detailed explanation of brand value, with an application of America’s most inflated balance sheets, click here.



    Disclosure: I am long MSFT.

    Additional disclosure: I might initiate a long position in Google within the next 72 hours.
    May 13 11:19 AM | Link | Comment!
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