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A money manager and professional investor, respected financial and corporate advisor. George has founded, invested in and helped to build companies engaged in a broad range of industry sectors, including financial consulting, media, real estate investing, real estate management, employee... More
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  • Lorillard A “Smoking Dividend” Through A Rolling Recapitalization, Stock Is Going Higher

    Recently on the Stock Watch segment of the nationally syndicated George Jarkesy radio show Clay Mahaffey and I discussed two specific stocks, Strayer Education (NASDAQ: STRA) and Lorillard (NYSE: LO). The first was significant not so much for the trade itself, which listeners that day realized a nice twenty percent profit if they sold six days later on April 26th. STRA was part of the National Eagle and Angel, Micro Dynamic Portfolio, that employs a strategy of looking for stocks that the market has over reacted to and are undervalued or overlooked. In the case of Strayer we have a stock that the market sold off on some bad news, but ignored the underlying fundamentals. The stock then experienced a rebound over the course of a week and produced around a 20 percent return.

    With Lorillard we discussed a company that has utilized debt creatively to effect a rolling recapitalization and stock buyback. This very interesting strategy which Lorillard has deployed is explained by the Chief Analyst of the National Eagles and Angels Association below.

    George Jarkesy: If you listen to the George Jarkesy Show, and if you were listening to George Jarkesy Show on April 20, 2012, you would have learned about Strayer Education, because Clay Mahaffey, Chief Analyst of the National Eagles and Angels Association, recommended it $86.00, and I hear that today it closed at $99.00 on great earnings. That's right. They had big earnings; the stock was up 20 percent in a week. Mahaffey and I spoke about it just last week. Clay Mahaffey, is the chief analyst of the National Eagles and Angels. He comes on last week and he's talking about Strayer Education, stock symbol STRA. This week the stock's up 20 percent and it's interesting, because Clay was talking about it regarding a dividend play with growth upside, that growth was almost instant. Joining us now is Clay Mahaffey, the Chief Analyst of National Eagles and Angels.

    Clay Mahaffey, CFA: Yeah, George, how are you doing?

    George Jarkesy: Well you look like a hero. A lot of our listeners made a lot of money in the last few days on Strayer Education. , you're up 20 percent in less than a week. You were buying it for the dividend, it has a nice dividend, the company has been buying back shares, things were going good, even though they had been off a little bit, I think on the revenues, if my memory serves me correct. You still like the dividend. You thought they were long-term dividend with upside play, and wow, 20 percent returns in a week that's impressive.

    Clay Mahaffey, CFA: It just shows you people will over react in a sell off. They were looking at the last quarter of new students registering in the prior quarter was down 20 percent. The stock as you know is down from $250.00 to $86.00. So you just look at it that way and there enrollment has increased so the stock was really beaten down and everybody thinks these students are going to finish their education. Still it's a four-year effort; its one quarter. People were really over reacting over one quarter of enrollment, and projecting like they sky is falling down.

    George Jarkesy: This bring up such a good point that you're always making, which is that those over reactions, create buying opportunities as well as, selling opportunities. Selling meaning, you made a lot of money very quick, and it went higher than it was expected to go in a short period of time, and buying opportunities because of the sell off and it ends up getting much cheaper, which is a lot of what you're talking about in what you built in the National Eagle and Angel, Micro-Dynamic Portfolio, correct.

    Clay Mahaffey, CFA: Yes, that's part of the strategy, of companies that have been beaten down unfairly, there is typically an overreaction. You just look at the fundamentals, the valuations, and some of the projection as to where the stock should be, and with stocks like Strayer, with it's nice dividend, yielding 4.6%, how low is it going to go?

    George Jarkesy: We've heard a lot of good things about Strayer this today, a lot of great response, but what do you have today, that our listeners can make money with?

    Clay Mahaffey, CFA . It's was way up today. I was going to talk about it Friday. I think it went to $130.00 today. It's up 3-4 percent. This is another dividend yield story, but it's yielding 4.8 percent today, they basically do a rolling, recapitalization of the company. This is a cigarette manufacturer, primarily, menthol cigarettes. They're famous for Newport, that's their big brand. It's an extremely profitable company. And by rolling recapitalization, they generate $1 billion, per year, in free cash flow. They don't spend practically anything on plant equipment. What they have is good enough. They're just maintaining it to keep it in operation. Regularly, they go out in the market and they can borrow additional funds around $700 million per year, at a 4.7 percent average. So now, they have basically, $2 billion per year to distribute. The way they distribute that cash is based on $1.1 billion buying back their shares and the additional $900 million to get to shareholders to pay dividends so they're leveraging themselves and you say how can they do that? They have such a low debt level and debt coverage ratio -this is a key factor- they can pay the interest and their cash flow to interest is over 10 times. Normally, banks would required a ratio of 2 or 3 to 1, they have a 10 to 1 ratio, so they can keep borrowing this amount of money for years. Another point is that they have been doing this for three years now. They bought back 20 percent of the stock in the last three years. They bought back 10 percent last year alone. So if you extrapolate this forward, I don't think people are going to quit smoking Newport's tomorrow, If they keep buying back 10 percent of the stock per year, in five years this is going to be like a $300 stock.

    George Jarkesy: Right, that's fantastic.

    Clay Mahaffey, CFA: The denominator is going so low; it's down to 132 million shares. And the buying back of five or 10 million shares per year, with these ratio's, it just keeps going up and up and up.

    George Jarkesy: Yeah, they know what they're doing. They're basically, forcing the price of their stock up.

    Clay Mahaffey, CFA: Exactly.

    George Jarkesy: With the buy back. They're buying it back cheap and they're buying it with cash flow. That's sounds like a great opportunity 4.8 percent wide.

    Clay Mahaffey, CFA: George, they're leveraging themselves. Every other company in the world is deleveraging, trying to pay down the debt they took on. This is one of these rare companies that had too little debt, and they're taking on more, because of the market, the rates were available.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours..

    Disclaimer: The George Jarkesy Show or the National Eagles and Angels Association are not investment advisors. Any content published by The George Jarkesy Show or the National Eagles and Angels Association does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. All content on The George Jarkesy Show Website and The National Eagles and Angels Association is produced independently of any advertising relationships.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    May 22 1:07 PM | Link | Comment!
  • Cardiovascular Systems, A Company Changing Lives And A Stock With Room To Grow

    Cardiovascular Disease is a killer that affects millions of people and touches families from all walks of life. Recently, on the Stock Watch segment of my nationally syndicated The George Jarkesy Show, I talked with Chartered Financial Analyst and the Chief Analyst of National Eagles and Angels about Cardiovascular Systems, Inc. (CSII : NASDAQ) and their work with a specific cardiovascular disease called PAD or Peripheral Arterial Disease. Below is the transcript in which I had an in depth discussion about CSII and the company's prospects going forward.

    George Jarkesy: Clay, What is your stock pick of the day?

    Clay Mahaffey: Well, George, this is the tech stock. It's Tech Tuesday, and I have a tech stock. Cardiovascular Systems, Inc. (CSII) is a medical device manufacturer. It's a fairly new company. They've only been in business about four years, but I like this company because it has a good growth story and value ratio there. It's not real expensive; the problem they solve is pulmonary arterial disease, or PAD. These are blockages in the arteries of your legs. Mostly found in people who are over 65. It can lead to severe pain, and amputation of the leg.

    There are 12 million people suffering from this disease, and their solution in layman terms is like a plumber's roto rooter tool. It's a hand held device. They insert the wire into the artery. There's a crown on the middle of the wire that rotates. This crown is diamond encrusted, it's very hard. It twirls around real, real fast, and breaks up the clots, that are in the vessel, and they are just flushed away in the blood stream.

    And it's amazing. The procedure only takes a few minutes, with a local anesthetic, so they are just sanding away the deposits from the inside of the blood vessels. And these devices sell for several thousand dollars. They have 77 percent gross margin. The business is up to about $90 million in the last 12 months of sales, and they have a number of good growth opportunities. One of the new products received the new technology of the year award from an Industry Trade Group, and they're working with the FDA to introduce a new product for coronary blockages with the similar technology, and they would be the only vendor licensed in the coronary application. That annually is a $700 million market. This company only has $90 million in sales, so there's a lot of upside if they can get this new product approved.

    George Jarkesy: How big is the total market Clay? I mean $90 million of sales seems like it's big for such a young company.

    Clay Mahaffey: Vascular products are around $2 billion; a cardiologist has a number of options to treat their patients. Surprisingly, the No. 1 option is amputation, very severe step, than you have stents and bypass, and putting in a balloon, and this idea of a plaque removal inside the vessel is an emerging technology. They have three competitors that have a similar type of product, but I can say they have only 15 percent of this market with the plaque removal-like Cardiovascular System's.

    George Jarkesy: So they have a lot of room to grow?

    Clay Mahaffey: There's a lot of room to grow. It's a cheaper, easier procedure. It can be done in a doctor's office. You don't have to go into the hospital, increased medical costs, reducing medical expenses of that type are working in their favor, and those add to the growth potential. The other reason I like it this company George is they had put out announcement that their sales were slowing down, the stock sold off 50 percent last year, and it's come back a little bit. It's well below the high of the year. Last year was $16.00.

    George Jarkesy: So you like the company growth potential and the industry?

    Clay Mahaffey: Yes.

    George Jarkesy: The stock is beaten up, and it's got a lot of upside here.

    Clay Mahaffey: It's up slightly now, however I think it could approach $16.00 towards the end of the year.

    George Jarkesy: That's what I like buying growth at distressed prices. I have to tell Clay, you do something so valuable that our listeners need to understand and replicate. If you're an investor, and you buy a stock, and you can't explain it like Clay Mahaffey just did on the stock you bought, you shouldn't own it. If you can't explain what you own, why you own it or what the upside is, in relatively quick elevator pitch, than don't own the stock. It's a great pitch, it's a great story, it's beaten up, and it has good upside potential. It's has a large market to grow in and a foothold of market share, but it could grow too much larger percentage of market share. That's a good pitch, and the fundamentals have to be in line, but it's got to start with you have understand what you're buying. Clay, thanks for being on the George Jarkesy Show and for your information on Cardiovascular Systems.

    Clay Mahaffey: Okay, Thanks George.

    Disclaimer: The George Jarkesy Show or the National Eagles and Angels Association are not investment advisors. Any content published by The George Jarkesy Show or the National Eagles and Angels Association does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. All content on The George Jarkesy Show Website and The National Eagles and Angels Association is produced independently of any advertising relationships.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Apr 10 11:43 AM | Link | Comment!
  • Gold: The Safe Haven Investor Vs. The Profit Investor

    The internet is overloaded with articles about gold, with analysts and experts attempting to predict which direction the price of gold is heading based on current and anticipated actions or lack of action in United States and in foreign markets, especially Europe.

    The risk of defaults in the Euro Zone raises the stake for all currencies around the globe. Iran is a tinderbox awaiting the mere spark of a breakdown in an already dysfunctional political effort to expunge the nuclear ambitions of Mahmoud Ahmadinejad through economic sanctions. Ben Bernanke is showing his hand that things are not well and more QE 3, 4 or 23 may be coming. Inflation, which is largely ignored by most Americans as long as interest rates are low, seems to slip through to consumers quietly with higher prices in everyday items and sometimes through the things we buy actually containing smaller and smaller quantities. Has anyone noticed that a "half-gallon" of ice cream hasn't been a full 64 ounces for quite some time now? The jugs may look similar, but whenever manufacturers shave off a bit of the quantity, consumers end up paying more for what they need without even realizing it.

    Call it what you want, but the only certainty in our world is that we live in a world of uncertainty. If you haven't figured it out by now, an allocation of precious metals to your overall portfolio is a smart move. However, the question that you have to ask yourself is - are you a Safe Haven Investor or are you a Profit Investor? While being a Safe Haven Investor doesn't preclude you from making profits on your position, being solely a profit focused investor puts you in the position of trying to call the relative floors and ceilings of your position in order to secure your return.

    Gold is trading at around $1,650, off its early September highs of approximately $1,900, and the Dow is currently over 13,000. Time to shift back into the stock market, right? Wrong. The allocation of your portfolio to gold and other precious metals is an integral part of ensuring that you are well positioned for the continued devaluation of all other U.S. Dollar or foreign currency denominated investments, which is why being a Safe Haven Investor is the right strategy for most allocations to gold.

    The Safe Haven Investor is not concerned with benchmarking their return against an uncorrelated asset class, such as stocks; rather they maintain their allocation to precious metals in order to maintain purchasing power and to protect against significant financial shocks to the market, which seem to be more frequent these days. The Profit Investor will spend hours and hours benchmarking returns on their allocation to gold against other investments in their portfolio, which directly defeats the reasons why most investors hold gold in the first place. In addition, the Safe Haven Investor can benefit from the privacy aspects of owning metals.

    Bottom line, be certain that you decide why you're taking a position in gold, what the correct allocation is and what you're trying to accomplish with your allocation to the yellow metal.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: long-ideas
    Apr 10 11:42 AM | Link | Comment!
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