51.3 means that most manufactures are expanding production. It doesn't make sense to talk about *expectations* with the ISM number because of how it is calculated. Therefore there is no "miss" and besides, if you want to complain about the economy just look at the 40,000,000+ persons on foodstamps. Keep in mind that if this were the 1930's, those people would be in-line outside of soup kitchens. As it is, we get to hide their poverty by sending people on food stamps discrete little visa cards which contain tax payer funds. While the grocers know, to some extent, the social appearance of poverty is effectively concealed from our eyes. Welcome to psychological economic management. Its an interesting system.
But the point still remains, ISM numbers are not the sort of numbers where "expectations" make any sense what-so-ever. It is like trying to predict the price of gold -- it is merely human caprice and subjective psychological anchoring.
3 High-Yielding Dividend Stocks With A Very Low Price To Free Cash Flow [View article]
I would avoid INTX because they lost their largest "customer" when Bank of America cancelled their business arrangement. Bank of America made up 52% of all customer referrals to INTX in 2011 and 47% of all referrals in 2012. "As a result," the company writes in the 2012 10-K, "our new subscriber additions were 61% lower in 2012 as compared to 2011." That's not good. Further, INTX has been accused of unsavory practices. All in all, INTX has a lot of risk concealed beneath their numbers.
Anyways, I agree about IDT -- I just wrote about them myself
Capital Southwest Corporation: $1.00 For $0.61 [View article]
Hey David,
What he said is true, the trouble is that the corporation has held onto its investments for very long periods so the $70m he noted above is only the current unrealized gain multiples by the 15% long-term capital gains rate. But that $70m figure: (1) will change and (2) be realized over time and perhaps over a very long time. Therefore there would need to be some time-value of money adjustment on it, likely making it smaller (although if capital gains increased it would increase obviously -- which is a good thing not a bad thing).
Therefore, the $70m figure would likely be realizing in such a way as to make the PV of the future tax less than $70m today; and therefore it would be smart to subtract less than $70m from the book. It is not an exact science but I would personally subtract half from the book or something like that to make a suitable adjustment.
Thanks depraved -- glad you think so. And I agree, I used earnings and free-cash-flow yield all the time -- since, mathematically, they are the implied discount rate given current market prices.
Discount rates (or should I say the marginal efficiency of capital) are a bit voodoo by definition...I like Keynes' definition because it, prima facie, sounds like voodoo and his definition has overlapping elements (see chapter 11 in the General Theory).
I should point out that while using "required return" is really appealing intellectually, it doesn't describe reality very well (in my opinion). And remember, when we are investing in stocks we are making a claim that the current reality does not reflect the intrinsic value of the security, as it will be reflected in a future reality. In the currently artificially low discount rate environment, a 20% discount will cut off a fair number of good stocks.
The problem with the WACC is that the cost of equity part is either done in two ways: the way of voodoo, or the way of Beta. Therefore the WACC is either also voodoo or total BS since beta has nothing to do with the risk of a stock.
I calculated some of the "implied" discount rates Buffett has used in various acquisitions some time ago, I've reproduced it below. I hope you find them interesting.
GEICO (1951): --------------------- Est. Net Income = 1.4 million Revenue = 8.01 million Market Price = 11.5 million
>>> Implied Discount Rate = 12.1% 10-year treasuries were at 2.57% Difference: 9.6%
======================= See's Candies (1972): --------------------- Purchase price = 25 million Net Income = 2.3 - 2.4 million
>>>Implied Discounted Rate at 9% 10-year treasuries were at 6.1 - 6.3% Difference: 2.7%
======================== Scott Fetzer (1986): ----------------------... Purchase price = $315,000,000 Net Income = $40,231
>>>Implied Discounted Rate at 12.7% 10-year treasuries were at 7.3% Difference: 5.4%
====================== MidAmerican Energy (2000): ----------------------... FCF = $195 million
Price of whole company: $2750 million (note: Berkshire only purchased 75% of the company)
>>>Implied Discount rate is 7.01%
[The market, at the time, was valuing the company with an implied discount of 9.1%--before Buffett offered a price 29% at a premium to the market price.]
Capital Southwest Corporation: $1.00 For $0.61 [View article]
Hey Douglas,
I looked at the public companies in terms of earnings and cash flow rather than tangible book -- on that basis they are fairly-valued (i.e., neither overvalued or undervalued). As for the EBITDA multiple, I have been trying to decide whether I think its too high or not. Its really very unfortunately that they use EBITDA as a metric here... completely idiotic since it tells us next to nothing but the world is enamored with that metric. But one thing is clear, if the private companies have little or no debt, and relatively low depreciation and amortization charges, then that multiple is not too high.
Again, it is impossible to know how conservative the company is when evaluating their private companies. But, as I sort of point out, I think the discount is large enough to make it so the downside is limited while the upside is more than adequate. Its a good trade off between risk of loss and risk of capital appreciation. I've seen the customary statement it quoted a lot the last few days but: "tails I win, heads I don't loose too much."
Western Refining's CEO Presents at Bank of America Merrill Lynch Refining Conference (Transcript) [View article]
"So I think we’re going to continue to see volatility, probably won’t see the high ends that we saw before, but I tend to think it’s going to be in that $10 to $15 range here, the next couple of years." Let's hope this is the case.
Alliance Healthcare Services: Worth At Least $10.60, Probably More [View article]
Mar. ISM Manufacturing Index: 51.3 vs. 54.0 consensus and 54.2 prior. [View news story]
Mar. ISM Manufacturing Index: 51.3 vs. 54.0 consensus and 54.2 prior. [View news story]
But the point still remains, ISM numbers are not the sort of numbers where "expectations" make any sense what-so-ever. It is like trying to predict the price of gold -- it is merely human caprice and subjective psychological anchoring.
Did You Know These Important 'Details' About Xerox? [View article]
XRX gets 67% of its revenue from services. Just fyi.
3 High-Yielding Dividend Stocks With A Very Low Price To Free Cash Flow [View article]
Anyways, I agree about IDT -- I just wrote about them myself
Capital Southwest Corporation: $1.00 For $0.61 [View article]
What he said is true, the trouble is that the corporation has held onto its investments for very long periods so the $70m he noted above is only the current unrealized gain multiples by the 15% long-term capital gains rate. But that $70m figure: (1) will change and (2) be realized over time and perhaps over a very long time. Therefore there would need to be some time-value of money adjustment on it, likely making it smaller (although if capital gains increased it would increase obviously -- which is a good thing not a bad thing).
Therefore, the $70m figure would likely be realizing in such a way as to make the PV of the future tax less than $70m today; and therefore it would be smart to subtract less than $70m from the book. It is not an exact science but I would personally subtract half from the book or something like that to make a suitable adjustment.
Alliance Healthcare Services Management Discusses Q4 2012 Results - Earnings Call Transcript [View article]
This is actually supposed to read:
"I think we started tracking revenue gap many years ago and we were delighted to see us cross the positive line here in the fourth quarter."
They have a metric called revenue gap which is basically net contracts signed that year...(I believe).
Quad/Graphics: 15%+ FCF Yield [View article]
Quad/Graphics: 15%+ FCF Yield [View article]
Discount rates (or should I say the marginal efficiency of capital) are a bit voodoo by definition...I like Keynes' definition because it, prima facie, sounds like voodoo and his definition has overlapping elements (see chapter 11 in the General Theory).
I should point out that while using "required return" is really appealing intellectually, it doesn't describe reality very well (in my opinion). And remember, when we are investing in stocks we are making a claim that the current reality does not reflect the intrinsic value of the security, as it will be reflected in a future reality. In the currently artificially low discount rate environment, a 20% discount will cut off a fair number of good stocks.
The problem with the WACC is that the cost of equity part is either done in two ways: the way of voodoo, or the way of Beta. Therefore the WACC is either also voodoo or total BS since beta has nothing to do with the risk of a stock.
I calculated some of the "implied" discount rates Buffett has used in various acquisitions some time ago, I've reproduced it below. I hope you find them interesting.
GEICO (1951):
---------------------
Est. Net Income = 1.4 million
Revenue = 8.01 million
Market Price = 11.5 million
>>> Implied Discount Rate = 12.1%
10-year treasuries were at 2.57%
Difference: 9.6%
=======================
See's Candies (1972):
---------------------
Purchase price = 25 million
Net Income = 2.3 - 2.4 million
>>>Implied Discounted Rate at 9%
10-year treasuries were at 6.1 - 6.3%
Difference: 2.7%
========================
Scott Fetzer (1986):
----------------------...
Purchase price = $315,000,000
Net Income = $40,231
>>>Implied Discounted Rate at 12.7%
10-year treasuries were at 7.3%
Difference: 5.4%
======================
MidAmerican Energy (2000):
----------------------...
FCF = $195 million
Price of whole company: $2750 million (note: Berkshire only purchased 75% of the company)
>>>Implied Discount rate is 7.01%
[The market, at the time, was valuing the company with an implied discount of 9.1%--before Buffett offered a price 29% at a premium to the market price.]
30-year treasury rate: 6%ish
Difference = 1%
======================
Justine Industries (2000):
----------------------...
Revenue (1999): $509,811,000
Profit (1999): $28,326,000
FCF(1999): $15,080,000 (note: heavy capital expenditure in 1999)
Purchase Price: $583,075,462
Market Price (March 17, 2000): $454,872,108
(28% over the market price)
>>>Implied Discount Rate (Using FCF): 2.5%
>>>Implied Discount Rate (Using Earnings): 4.8%
30-year treasury rate: 6%ish
===================
McLane (2003):
----------------------
Revenue: $14.9 billion
(1% profit margin ?)
Profit: $149 million
Purchase price: $1.4 billion
>>>Implied Discount Rate: 10.6%
30-year treasury rate: 5% ish
Difference: 5.6%
========================
Capital Southwest Corporation: $1.00 For $0.61 [View article]
One question. Where did you get that 14-16x earnings estimates? Was that from a conference call? A filing?
Thanks.
Capital Southwest Corporation: $1.00 For $0.61 [View article]
Capital Southwest Corporation: $1.00 For $0.61 [View article]
I looked at the public companies in terms of earnings and cash flow rather than tangible book -- on that basis they are fairly-valued (i.e., neither overvalued or undervalued). As for the EBITDA multiple, I have been trying to decide whether I think its too high or not. Its really very unfortunately that they use EBITDA as a metric here... completely idiotic since it tells us next to nothing but the world is enamored with that metric. But one thing is clear, if the private companies have little or no debt, and relatively low depreciation and amortization charges, then that multiple is not too high.
Again, it is impossible to know how conservative the company is when evaluating their private companies. But, as I sort of point out, I think the discount is large enough to make it so the downside is limited while the upside is more than adequate. Its a good trade off between risk of loss and risk of capital appreciation. I've seen the customary statement it quoted a lot the last few days but: "tails I win, heads I don't loose too much."
SandRidge Energy: Activists Win, Why Is The Stock Down? [View article]
Weyco Group: Good Brands, Family Management, Growing Business [View article]
Western Refining's CEO Presents at Bank of America Merrill Lynch Refining Conference (Transcript) [View article]