Fiver Capital

Long/short equity, growth at reasonable price, hedge fund manager, contrarian
Fiver Capital
Long/short equity, growth at reasonable price, hedge fund manager, contrarian
Contributor since: 2011
America is great again? I wouldn't even know where to start with that one. Is winning still winning if you cheat? What makes traders nervous (at least the ones swift enough to think it through) is the artifice of cheap money.
Interesting article. I've considered writing my own article about what I see as intellectual dishonesty in the argument for dividend growth investing. Restricting your universe of stocks to those that have been raising the dividend for 25 years and projecting that behavior well into the future is a perfect example of the normalcy bias in action. On the other hand, following a system; a framework; a discipline that reflects your understanding of the market (no matter the assumptions!) is critical to successful investing, so who am I to judge?!
I believe learning a little something about every approach provides the ultimate benefit. I pay attention to how much I'm paying for the growth in a growth stock; the reliability of the dividend in a DGI stock; the profitability of the business model; the strength of the balance sheet, etc. My blended approach has led me time and time again to high-quality names like Disney and Starbucks, which I'm happy to hold alongside a deep value dividend payer like Walmart and a bombed-out contrarian call like the gold miners. That's where diversification comes in, not in some magical number of stocks held.
Reuters is reporting Black Friday sales and average spend per customer were both down this year, -1.5% and -1.4% respectively. Online sales, however, were up 18%. Wal-Mart landed 3 deals (including #1) on USA Today's Top 15 Black Friday deals, so it will be interesting to see how the retailer performed when final numbers are published.
Nice earnings beat this morning. Shares up 3% before the open. WMT should outperform the sector from here.
The free cash flow yield is 6.5%. Earnings yield is 8.5% (vs. 5.2% for the S&P 500). While I l believe catalysts are important, I can't predict exactly what earnings are going to do, so DCF analysis doesn't appeal to me. Too many assumptions. Having said that, Morningstar's fair value based on DCF is right in line with my own.
It's back inside the range it was in for more than a decade (broke out to new highs in 2012). My guess is that further downside ought to be contained in the low 50s/upper 40s. The bottom of the range, however, isn't until $42; I don't expect it to get there, but extreme conditions could cause it to test that level.
Well ...that escalated quickly! My VIX target got smashed this morning.
Bullard made some unscheduled comments on Aug 21 and they were not widely considered to be dovish.
Per Bloomberg: “I have talked about the dangers of staying at zero too long,” Bullard said, adding he remains confident inflation will move back to the Fed’s 2 percent target once the transitory influences of falling commodities prices go away.
The function of QE is not to inflate the market directly. What it does do, however, is drive malinvestment, which dramatically distorts the true level of economic activity. Do you really think the U.S. government could afford that shiny new missile if the Fed wasn't buying treasury debt? Could that banker afford his latte if his books reflected the true value of his mortgage holdings? Could Joe 12 Pack afford that Budweiser if the government wasn't paying for his meat and potatoes? The examples are many and varied. Bottom line, the fundamentals are not improving, only the perception of such.
For those technically inclined, I've noticed that each of the last two cyclical bears were preceded by a long-wicked month that punches through the lower bollinger band. Almost as if opening a hole that later allows the decline to continue. Saying it another way, an unusually fast move occurs that punctures dynamic support. We've still got a week left in August, but I expect this level to rupture, which sets up a bigger decline in September.
Based on my studies, the ultimate line in the sand is at 1792, just under the October 2014 lows. A monthly close under this level signals a 2000/2008 type event. On the other hand, holding this level coupled with a strong month that closes over the middle bollinger band means the market has new highs to make next year.
Totally agree. It's the rise that's been irrational, not the plunge. Everything is cyclical, reversion to the mean etc etc. But it's too early to buy. Give it a month and see if Janet has one last trick left up her sleeve. QE4 would net us the most vicious blow-off the world has ever seen, but that just puts the end of the bear further out. I'd much rather get it over with over now. We'll see.
If you look at what happened in 2007/08, commodity stocks rallied into the first leg of the market's decline. However, you might experience some pain in Sept/Oct when the overall market takes a second leg down. So it all depends on your time frame. Personally, I would use stops with any commodity positions heading into October.
Andy, you're going to owe tom o'brien dinner on this one! The dollar may launch later in the year but I don't expect the hike in september to happen, and the dollar is going to flounder until then. You're too early.
Hi Mercenary, I'm a long-term dollar bear and suggested a bearish turn for the dollar at 100 on the DXY. It's been a nice trade and I still expect the dollar to test back to 93 before it moves higher, but I'm preparing a follow-up article re: the closing of my short. I still don't believe the Fed's threats to hike will amount to anything, but money will likely flow to the dollar anyway as Europe, and then Japan, implode. My main difference with the dollar bulls is that I view dollar strength as an illusion supported by volatile capital flows, not fundamentals. You don't mention your long-term view here, but I imagine you'll be right in the near-term. As we get out a couple more years though, the dollar will once again present an excellent shorting opportunity.
I'm one of those investors who's been bearish on IBM. Comparing a media company like Disney that controls some of the most beloved franchises in the world to a tech company like IBM is silly. Disney is mildly over-valued here but I've been holding since summer 2013 for nearly a 100% cumulative return. Sell some calls against your position? Sure. Short DIS?? Ridiculous.
Sorry, but you lost me at Bob Pisani. While the rising tide lifts all boats insanity of central banks can certainly support another bull leg in asset prices, there is a VERY significant chance of a mean-reverting event before the reflationary launch occurs. You say you don't want to miss it, that you can't time it, but buying multi-year highs is not prudent.
Good stuff! As someone currently embarking on a different kind of diet (food!), I love the idea of relabeling "ignorance" as a low information diet. Makes total sense; just because it's there doesn't mean it's relevant or good for you.
I'm keeping on eye on this one too. This fundamentals appear solid IF the macro environment holds up. CHSP traded 11.5 million shares on June 6, 2014 between $29.62 and $31.07. The trading action on this day makes it an important price level to keep an eye on. If the stock continues to push into this level on lighter volume, it could be a great buy point. If interest rates continue to rise and GDP continues to slow, the stock could blow through the level on strong volume and we'd be looking at the mid 20's.
Any thoughts on anti-trust risks for CNK and AMC, and the possibility of the DoJ possibly cracking down on exclusivity deals?
Your article led me to check out YCharts and it looks like FB and SALE actually have terrible value scores. I'd like to check out the rest of this series but can I trust the data?
The dollar is tanking this morning on lousy jobs data. A deterioration in the employment picture was all that was needed to complete the run of poor data we've had recently. There's no rate hike coming. The rate narrative has given the japanese and european central banks breathing room to launch their own programs; from here on out it's all talk from all 3 banks as they attempt to manage their exchange rates against each other and prevent their respective currencies from imploding.
You make good arguments here, Stephen. I suppose where we really diverge is in the idea that the Fed is poised to tighten. They may talk tight, but actions speak louder than words. Ben Bernanke even kicked off his inaugural blog post by admitting, "When I was at the Federal Reserve, I occasionally observed that monetary policy is 98 percent talk and only two percent action." That tells you all you need to know on how they intend on handling the strength in the dollar - with a lot of talk.
My view is that the incessant double-talk will eventually lead to a loss of confidence in the dollar, and confidence is way more important than the fundamentals you've laid out here. Personally I've never given much credence to the idea of a "fair value" for currencies. I understand that international deal making and trade plays a role on the demand side, but I sat and watched the dollar dive over 5% in a couple hours on Fed day. That's an incredible amount of speculative interest with no stake in GDP metrics or M2 figures. And it's all on one side of the boat!
In any case, we will both likely be right in the near term as I expect a lot of volatility. In the long term, the current system doesn't make sense for the majority of participants and the winds of change are howling.
Wow, nothing like rattling the cages of the dollar bulls! To be clear, I'm not advocating using 100 to 1 leverage to go out and buy the euro. That's not what this article is about. In fact, I've said I'm happy to short the euro (or the pound) as a a hedge. I'm using just enough leverage to allow me to stay in this trade no matter what the dollar does in the near term, and the currencies I'm long are paying me - I'm collecting a leveraged carry yield that pads the account day in and day out.
As for the technicals, it looks to me like to dollar has just completed a double zig-zag correction off the 2008 lows. If the dollar backs down in a 4th wave and heads higher in a 5th wave, then we could be looking at a more impulsive move in the coming years. But for now, the dollar index is more overbought on a monthly basis than at any time in the last 20 years and the volume says that sellers are overwhelming buyers.
The volume looks the same on the dollar index futures charts. Distribution at highs. And if we come off a little more into the end of the month, there's a nice shooting star reversal candle in play on the monthly chart.
Alex, I'm long silver via call options, but I'm not entirely convinced the bottom is in with the metals yet. I'm willing to tolerate a little volatility in the dollar because I'm getting a nice leveraged yield, but the metals don't pay me to wait. My silver target is $22, then I'll wait for a test of the lows to get back in.
I've been trading currencies for a long time. I don't get excited by "little rallies." What gets me excited is when loud mouths try to shout me down with the company line. It's like giving the contrarian in me a yummy ice cream cone, and it's hot here, so thanks.
Yellen's press conference was truly a low point for the Fed. A comparison to the teacher from The Peanuts is a little too obvious, so I liken her communication style to that of a muzzled platypus. A whole lot nothin with an anti-charisma cherry on top.
Yes, PE based on growth rate. I used to spend a lot of time chasing my tail on growth stocks that I considered fairly valued because the P/E equaled the growth rate (PEG/the Peter Lynch method), but there ought to be a limit on how much you're willing to pay up. And riskier companies ought to be penalized while quality should be rewarded. Kastenelson's model addresses all of this, and makes good sense to me as valuation tool.
Here's a link to the specifics on Kastenelson's absolute PE model:
With a projected growth rate of 12%, DIS would earn a fair value P/E of 15 plus one point for its dividend = 16. The rest of the fair value P/E is derived from the subjective factors discussed in this article. I could easily assign DIS a premium of 15-20% (Kastenelson suggests somewhere that no stock deserves more than a 30% premium, that's the max) which gets us up to 18-19. I'd also argue that analysts are under-estimating Disney's growth potential and with a growth rate of 15%, the fair P/E is more like 21. This puts DIS fair value at $95, so it's gotten a little ahead of itself on the recent pop.
TF17, I recommended Disney last year and it remains a core holding, though I feel like it's fairly valued at current levels.
If IBM were to reverse the current no-growth trend, then it could absolutely justify a higher valuation. I just feel it's rapidly becoming one of those old guard companies that has a real fight ahead to get its mojo back. Based on the comments here, there are plenty of investors that disagree with me; only time will tell.
I owned a Tacoma for several years and it was the best vehicle I ever owned! So I appreciate the analog :)
Thanks, WJ. The markets are a humbling place. I learn a lot from my peers and appreciate the checks and balances of a venue like this.