Although prone to cyclicality, Crocs' (CROX) current earnings stream and growth potential appear undervalued by the market. Over the past few years, Crocs has transformed itself from a single-product company focused on injection molded clog style shoes sold primarily in the U.S. to a multi-product company with a large variety of styles sold around the world. This transformation has allowed the company to grow from $722 million of revenue in 2008 to $1.1 billion in 2012, while funds from operations have grown from $17 million to $196 million over the same period. Crocs has been able to achieve this growth while maintaining a low-double-digit corporate IRR, implying that future growth can be accomplished while creating value for shareholders. Finally, while some challenges and risks exist, Crocs current market price seems to reflect these to an adequate degree and I believe the shares represent good long-term value.

Description

Crocs operates as

The Japanese yen (FXY) (JYN) has been on the move in recent months, depreciating from a high of 77.64 per US dollar on 9/14/12 to an intraday low of 94.20 on 2/25/13. This large move has created a lot of discussion as to the true value of the yen. Before proceeding, here is the chart showing the recent history of the yen against the dollar:

To understand this move better and determine if it should continue or perhaps reverse this article will look at some of the fundamental factors that determine exchange rates, especially the concept of purchasing power parity and the impact of inflation on exchange rates. In addition, the article considers Japan's motivations for setting an inflation target and whether the country's stated intentions are credible.

Purchasing Power Parity

The concept of purchasing power parity (PPP) is central to the determination of exchange rates over time. From Wikipedia:

Summary

Molson Coors (TAP) is a brewer of some of the most iconic beer brands in the U.S., Canada and the U.K., including Coors, Molson, Miller and Carling. The company has suffered from a weak beer market, especially in so-called premium beers in which the company is heavily invested as one of the market share leaders. Operating results in terms of volumes have been weak and revenue has been impacted as price increases have not been able to counter volume declines. Free cash flow has been strong at the company and returns on capital are good as well.

In terms of valuation, at the current run rate of earnings and returns on capital, the shares should generate about a 5.5% real rate of return from the current share price which compares favorably to many consumer goods companies at current market valuations. However, it is possible that returns on capital will

Summary

Whirlpool (WHR) in a multinational manufacturer of large home appliances. In recent years, starting with the onset of the financial crisis, unit and revenue trends at the company have been challenging with some pockets of strength, notably in Latin America. The company earns returns at about the cost of capital driven by some attractive industry characteristics balanced by a high level of industry rivalry and buyers motivated to find the best deal. With Whirlpool's shares trading near $104, the long-term expected return to equity holders will be around 4% per year in real (inflation-adjusted) terms, in my view. Some risks to the long-term growth potential of the firm and the industry as a whole exist. High grade investors may find the notes due 2022 attractive on a relative basis.

Description

Whirlpool is manufacturer of a broad range of appliances, including washers, dryers, refrigerators, dishwashers, cooktops, ovens, microwaves, compactors

CA Technologies (CA) is a provider of enterprise software operating in three segments: Mainframe Solutions, Enterprise Solutions and Services.

Software in the Mainframe Solutions segment comprises a suite of small utilities that aid technicians in the maintenance of mainframes. These utilities may deal with a optimizing the performance of a database, providing security to a mainframe or managing storage.

Enterprise Solutions products move beyond the mainframe to provide services such as task automation and data management in a distributed network environment. The company also produces a host of security products for use outside of the mainframe environment and project management software.

The services segment is principally engaged in supporting CA's software sales through implementation projects, consulting and training.

CA currently trades at an 11.2x PE multiple and generates a dividend the yield of 4.5% on a roughly 50% payout ratio. Certainly the stock looks attractive based on these valuation metrics.

As fellow SA contributor J Mintzmyer detailed recently in his article Tremendous Upside Potential On A THQ Bet, THQ's (THQI) longstanding problems have finally come to a head where now the company is on the verge of insolvency. The company will very likely need to restructure or sell itself in order to survive the next six months. With that in mind, it is worth taking a look at the liabilities senior to the equity to determine how much enterprise value is needed for the equity to have value. However, there is a possibility that through a restructuring process, even if the equity has some theoretical value, it ends up cancelled; alternatively, in the event of a sale, a premium could be offered to entice the equity holders to sell.

The following table lays out the liabilities of the company, as I believe a restructuring professional or strategic buyer

The revolution in shale oil is changing the composition of crude oil available to U.S. refiners, including Valero (VLO). Over the past several decades, crude imports and domestic production have become increasingly heavy as marginal supply has come from heavier oil projects in places such as Canada, Venezuela, Mexico, Colombia and even traditional light suppliers such as Saudi Arabia. In the U.S., the transition from onshore to offshore for oil production over the past several decades has seen an increase in medium weight oils such as the deep water MARS blend. In response, certain refiners have reconfigured their plants to run heavier crude slates or have focused acquisitions on refineries that are designed to handle those same heavy crudes with Valero especially leading the charge in this area.

In Valero's own words "we are still basically a heavy complex coking refiner," meaning a large portion of the company's refining

On Monday June 18th Walgreen Co. (WAG) announced a two-stage transaction to purchase Alliance Boots, a retail and wholesale pharmacy group in Europe, paying $6.6 billion for a 45% equity stake in the company, with an option to purchase of the remainder within the next three years.

Alliance Boots operates as both a retailer and a wholesaler of pharmaceuticals. The retail side trades under the Boots brand and operates retail facilities selling beauty, pharmacy and sundry items primarily in Great Britain although Norway, Ireland, the Netherlands and Thailand are also served. The business closely resembles Walgreen's core business although the stores are typically much smaller and the front-end merchandise more limited and focused on certain categories.

The wholesale business distributes drugs to pharmacies in Germany, France and the U.K. as well as several smaller, primarily European countries. The wholesale pharmacy is somewhat uniquely a European business model because the ownership

Egypt has become a major focus of attention and sore point for Apache (APA) investors due to political instability. At the company's recent investor day, CEO Steven Farris stated that he fielded more questions about Egypt than about any other single topic, highlighting the importance of the issue to investors. The company generates some 25-30% of its cash flow from Egypt, making a change of regime quite risky due to the possibility of higher tax rates or a confiscation of assets. Even with the loss of a substantial portion of Egyptian cash flow, the company remains at worst fairly valued and at best significantly undervalued, in my view, and the market does not need to recognize the discrepancy for investors to benefit over the long-term.

Recent political trends in Egypt are not giving investors much in the way of positive news. The country's recently elected parliament, dominated as it

Chesapeake Energy (CHK) recently announced its intention to sell its Permian Basin assets. The Permian is a well-established basin with oil and gas activities originating in the early 1930s. It is composed of a number of sub-areas, including the Northwest Shelf, The Midland Basin, The Central Basin Platform and the Delaware Basin, with the two basins sitting on each side of the platform.

Originally, a significant portion of conventional activity occurred on the Central Basin Platform and later enhanced oil recovery techniques were applied to this area and others. In recent years, the industry has increased non-conventional production in the Midland and Delaware Basins.

The Permian is a liquids rich play, with most companies in the area reporting about 75% of non-conventional production coming from oil and NGLs on a volume basis, with oil making up a clear majority between the two at about 40%-45% of the total. With

Business

Walgreen Co. (WAG) operates a total of 8,290 facilities across the U.S., comprising 7,841 drugstores, 354 worksite health facilities, 82 infusion and respiratory services facilities, 11 specialty pharmacies and two mail service facilities. In addition, during the current quarter the company acquired around 33 specialty pharmacies from BioScrip (BIOS) in an asset sale.

The largest portion of Walgreen's revenue comes from retail drugstores. These stores are located throughout the U.S. and the company claims that 63% of Americans are less than 3 miles from a Walgreen location. For the fiscal year ending August 31, 2011, the company filled 819 million prescriptions, although this number should fall in excess of 5% in 2012 due to the loss of a key pharmacy benefit manager, Express Scripts (ESRX). About 65% of Walgreen's revenues are from prescriptions, while the remaining 35% are from "front-end" merchandise.

The company's worksite facilities provide medical, pharmacy and

Amazon's (AMZN) high PE ratio has made some investors nervous about the company's valuation. Using an economic profit model with adjustments made to better reflect the economic substance of Amazon's investment spending, it will be shown that Amazon's market value relative to its current profitability is not egregious. Even if a stock is not overvalued, it can perform poorly in subsequent periods; for example, investment plans can go awry, producing poor returns or profitability of existing business lines can suffer due to changes in the market. In Amazon's case, there is plenty of room for failure, but subsequent stock performance will not be solely influenced by today's PE.

The basic economic profit formula is: FV = (R - d) * NCI / d + NCI, where: FV = Firm value; NCI = Net capital invested; R = Rate of return; and D = discount rate. In the implementation of the

Consolidated Edison "Con Edison" (ED) is an electric and natural gas utility serving customers primarily in the NY Metro area. The company operates out of three segments with CECONY, a fully regulated utility, being the most important in terms of revenue (81% of total in 2011) and operating profit (93%). CECONY owns electricity, natural gas and steam distribution and transmission assets in New York City as well as a very limited amount of generation capacity in order to produce steam. CECONY provides electricity to 3.3 million customers, natural gas to 1.1 million customers and steam to 1,735 customers. The electricity, natural gas and steam businesses have authorized returns on equity of 10.15%, 9.6% and 9.6%, respectively.

The company's second largest segment is O&R which produces 7% of the company's revenue and 5% of operating profit. O&R owns two small regulated utilities serving 300,000 customers in southeastern New York, New Jersey

A recent article about Senior Housing Property Trust (SNH) brought to the forefront the issue of depreciation and dividends in real estate investing. In my view, depreciation is a real expense, which is to say, it has significant economic substance. In some industries, assets can be depreciated for years with little in the way of maintenance capital expenditure needed, while in others the impact is felt more quickly. However, in all cases, the amount of yearly depreciation will roughly capture the deterioration of the asset in question and in return the reinvestment needs.

In the property world, capital expenditure can be quite lumpy and the cash generated by depreciation can be used for a number of years to service debt, pay dividends or reinvest in new properties. An example from my own professional experience is Tishman Speyer which owns property around the world, but has a strong focus on

Public Service Enterprise Group (PEG) is an electric and natural gas utility with assets in New Jersey, Pennsylvania, New York and Connecticut.

Public Service operates through two key segments, Power and PSE&G, and a third segment, Energy Holdings that produces only a very small portion of profit.

The Power segment has produced the greatest portion of profit in recent years and comprises the company's power generation assets which are operated on a wholesale basis. The Power segment generated about 56% of its electricity in 2011 through the operation of three nuclear facilities comprising five units. One unit is wholly owned while the remaining four units are partnerships with Excelon (EXC). Public Service operates two of the facilities and Excelon operates the remainder. The unit's operating licenses expire starting in 2033 with the last in 2046.

The next largest source of electricity produced in 2011 was natural gas at 28% with

Senior Housing Properties Trust (SNH) is a healthcare REIT focused on private pay senior living facilities. The company pays a hefty dividend of $1.52 per share representing a 6.9% yield, albeit with a forward payout ratio in the neighborhood of 150%. By comparison the largest healthcare REIT, HCP (HCP), yields 5.1% with a forward payout ratio of about 110%. If we normalize payout ratios at HCP's level, SNH would yield about 5.1%, or the same as HCP. Without digging into valuation any deeper, this alone suggests that despite a higher yield, SNH is not necessarily undervalued in relation to HCP.

There are a few facts about SNH which make it an inferior investment to HCP, in my view. The first has to do with the nature of the company's related party transactions. SNH is a holding company for real estate only (it has no employees) with the management of the

China released a spate of important economic indicators on Monday that Chinese equity investors should focus on. The first of these reports was on retail sales of consumer goods for March. The year-over-year change in the overall index came in at 15.2%, with strength in food categories, garments, medicine and petroleum products, among the larger categories. Weakness was apparent in household appliances and AV equipment and auto sales, most notably. The overall rate was an improvement from January and February but remains off from the prior year when most monthly readings were above 17%.

Weakness in automobiles is probably most concerning because this segment is a large part of the total. Compared to January and February, this metric continued to decline. This development could also prove interesting for General Motors (GM) since it has such a large business in China. High petroleum prices are likely having some

Solera Holdings (SLH) produces software used in the auto insurance and collision repair industry. Solera's offerings allow customers to estimate the cost of auto repairs, automate the claims process and monitor trends in their business. At core, the company's software is an enormous database of information related to auto repair, including product and labor costs and inventory management. The company serves 1,500 insurance companies (40% of fiscal 2011 revenue), over 35,000 collision repair facilities (36%) and 7,000 independent assessors (10%). In addition, the company serves 30,000 automotive recyclers (14%).

The company generates the majority of its revenue and profit in the EMEA region, principally in developed Europe. Sales in EMEA represent about 60% of the total with 82% of that revenue coming from Europe. The U.S. comprises the remainder of revenue at about 40%. Operating profit margins in each region are similar although EBITDA margins in the U.S.

On April 16th, the Government of Argentina moved to nationalize a portion of YPF Sociedad Annima (YPF), the country's largest oil and gas company. Some form of nationalization has been expected for some months as the government has stepped up its criticism of YPF and its majority shareholder Repsol over lack of investment, but a full nationalization was not expected.

The situation regarding investment is more somewhat more complex than Argentina has made it out to be, as is often the case. YPF has in fact been investing heavily in its business. From 2005 to 2011, the company reinvested 1.57x the rate of depreciation. In 2010 and 2011, the rate was 1.66x and 2.25x, respectively, showing investment has been increasing. Even at the height of the recession in 2009, the company reinvested 1.16x the rate of depreciation.

Digging a little deeper, we can analyze the percentage of net

Scripps Networks Interactive (SNI) operates lifestyle-oriented cable television channels with distribution primarily in the U.S.

Scripps's two main revenue generators are the Food Network and HGTV, each representing about 36% of revenue. Food Network is 69% owned by Scripps with the remainder owned by the Tribune Company. Food Network's programming is centered around food preparation, and restaurant experience and review while HGTV is focused on home remodeling, decorating and other related topics. Another important asset, generating 13% of total revenue, is the Travel Channel, owned 65% by Scripps and 35% by Cox Communications.

Remaining revenue is split between a number of tertiary assets, including DIY Network, Cooking Channel, Great American Country (GAC) and Digital. Revenues in the last category are attributable to a number of websites, some based on television brands such as FoodNetwork.com, Food.com and CookingChannelTV.com.

For the company as a whole, about 70% of revenue is