I agree with the analysis of ROIC. I have written a 3-part series on the importance of ROIC for the capital intensive utility sector and an awaiting publication of the third article. Energy is very capital intensive and ROIC should be a component of all energy sector analysis.
"Further, Exxon, HSBC, and Lenovo could be good short-sale candidates."
I would be very careful shorting HSBC. Of the list you offered, HBC is the only true international bank with an overexposure (compared to the other) to developing countries, especially Asia. I own HSBC just for the reason it should not be included as a comparison in the list you offer - it is not a mainly US/Europe focused financial institution.
Should You Follow Gabelli In Terms Of Utility Sector Buys And Sells? [View article]
techwonk,
Thanks for your comments and I agree with you that investors should know what they buy and why they buy it. Watching fund managers movements over time may provide a bit more insight into your portfolio and may offer either red flags worth investigating or may provide new names worth researching. I find that recent fund movements are a bit more important than analyzing the top ten holdings as one does not know when the top 10 were purchased.
Utility Investors Should Focus On ROIC, Not Dividend Yield - Part II S&P Utility Index [View article]
Travel4Yields
Thanks for reading and your comments. SCG;s ROE for TTM and 5-yr avg is the reported the same. I use the financial information on reuters.com as an easy method of accumulating the data. Below is the link to the financial page - scroll down to the bottom or ROE numbers. http://reut.rs/18goDM5
Thanks for the info on GAS. As most all info from various websites is ticker driven, it will take me a while to get the individual info from annual reports. I appreciate your comments
Utility Investors Should Focus On ROIC, Not Dividend Yield - Part II S&P Utility Index [View article]
Well, I'm up for a food fight, as long as it does not involve wasting lobster, crab, or other seafood.
I am rolling the premise and the corresponding table around in my head, like the "Spinning Wheel" of the Blood, Sweat and Tears era (am I dating myself?)
Kind of like that stupid jingle you can't get out of your mind and you keep humming it all day long. http://bit.ly/10MVdD9
Utility Investors Should Focus On ROIC, Not Dividend Yield - Part II S&P Utility Index [View article]
Scooter-Pop,
The talking heads are discussing cylical and industrial vs defensive, IMHO. I think this stems from the belief that the economy was to be in a slowing/contraction mode and the talking heads said to go defensive. With new growth rates pegged at 2.5% to 3% for the year, growth sectors will be reciepent of the good news.
I hardly never "rotate" out of utilities - ie as in sell. Going flat, as you describe, merely means to collect the growing income stream. FOr most long-term invetors, that may mean almost double digit yield based on cost of capital.
Utility Investors Should Focus On ROIC, Not Dividend Yield - Part II S&P Utility Index [View article]
Qniform,
Thanks for reading and posting your comments. I appreciate your kind words. I have used ROIC as one of my top fundamental criteria for stock selection for a long time. I hope the dividend "growth" guys get a hold of this series. Maybe I should title the last one - "Forget Dividend Growth Investing - It's ROIC Investing".
Utility Investors Should Focus On ROIC, Not Dividend Yield - Part II S&P Utility Index [View article]
martinfrosa,
Thanks for your comments. I agree SO has outperformed the sector for the past few years. I find it very interesting that Gabelli Funds has sold about 8% of their holdings in SO during the first qtr 2013. This was the largest percentage decrease of any utility holding. This info is included in another article written and submitted, but not yet published.
Utility Investors Should Focus On ROIC, Not Dividend Yield - Part I: DJU Index's Best [View article]
Scooter-Pop,
To a certain extent, yes. The skewing is based on MLPs being a pass-through structure for taxes and the accounting for the Incentive Distribution Rights.
However, it is still useful to compare ROIC within sectors. Below is the TTM ROIC for a few MLPs: co ltdte roe rioc reuters DPM 1.54 12.81% 5.0% 7.9 PNG 0.40 5.69% 4.1% 4.2 DMLP 0.00 28.50% 28.5% 28.2 EPD 1.11 19.10% 9.1% 8.8
Reuters.com offers a calculated ROIC based on their numbers and formulas. Go to their stock information, financial, and scroll to the bottom. http://reut.rs/Z7FmAI
Utility Investors Should Focus On ROIC, Not Dividend Yield - Part I: DJU Index's Best [View article]
maddynuke,
Thanks for reading and your comments. I agree these fundamental factors are merely screens and not the sole determining factor in selecting investments. Expanding the screens to include ROIC calculations should aid in selecting better quality managers, and in turn better quality companies that should rewards investors over time.
Utility Investors Should Focus On ROIC, Not Dividend Yield - Part I: DJU Index's Best [View article]
disallussioned,
Thanks for your comments. When calculating debt to equity ratio, I figure it such that when debt = equity, the ratio is 1.00. Your calculation would have the ratio as 10. I agree that the calculations do not take into account the interest rates paid on debt, but as an expense in calculating ROE, interest expense is a consideration.
The goal of ROIC is to incorporate a management effectiveness tool that accounts for the amount of debt used to generate shareholder returns. Two companies generating the same return on equity but having vastly different debt components are not creating the same value for shareholders.
Utility Investors Should Focus On ROIC, Not Dividend Yield - Part I: DJU Index's Best [View article]
cocomurph,
Thanks for your comments. I agree that correlation is not the same as causation. The purpose was to bring the discussion of ROIC as being more important than current yield to those who focus mostly on yield.
EXC's ROIC is deteriorating based on the poor fundamentals of the merchant power markets in the east and midwest, as reflected in the JMP auction pricing. Again, ROIC is just one factor to be evaluated and is not the end-all-be-all of fundamental analysis. When any company has a substantial reduction in TTM ROIC compared to 5-yr averages, as EXC demonstrates, it should generate questions prior to investing. Cherry-picking? I don't think so as all these companies are components of the DJUI. They are sorted by TTM ROIC.
One mostly forgotten aspect of utility investing is the concept of its capital intensive nature. ROIC brings this aspect front and center.
Utility Investors Should Focus On ROIC, Not Dividend Yield - Part I: DJU Index's Best [View article]
Marek,
Thanks for reading.
Like Chester The Income Investor indicated, I have yet to find a crystal ball that is 100% accurate. Rather, I rely on a matrix of information rooted in past performance to make what I believe is an intellegent guess about the future of specific companies vis-a-vie their current valuation. ROIC is one tool I use, and give it more importance over current dividend yield.
Concerning dates on figure 1, as the article was published in 2007, I would assume it is for the time period 2004-2006.
Estimating Sector Relative Valuations [View article]
I agree with the analysis of ROIC. I have written a 3-part series on the importance of ROIC for the capital intensive utility sector and an awaiting publication of the third article. Energy is very capital intensive and ROIC should be a component of all energy sector analysis.
Estimating Sector Relative Valuations [View article]
I would be very careful shorting HSBC. Of the list you offered, HBC is the only true international bank with an overexposure (compared to the other) to developing countries, especially Asia. I own HSBC just for the reason it should not be included as a comparison in the list you offer - it is not a mainly US/Europe focused financial institution.
Should You Follow Gabelli In Terms Of Utility Sector Buys And Sells? [View article]
Thanks for your comments and I agree with you that investors should know what they buy and why they buy it. Watching fund managers movements over time may provide a bit more insight into your portfolio and may offer either red flags worth investigating or may provide new names worth researching. I find that recent fund movements are a bit more important than analyzing the top ten holdings as one does not know when the top 10 were purchased.
Utility Investors Should Focus On ROIC, Not Dividend Yield - Part II S&P Utility Index [View article]
Thanks for reading and your comments. SCG;s ROE for TTM and 5-yr avg is the reported the same. I use the financial information on reuters.com as an easy method of accumulating the data. Below is the link to the financial page - scroll down to the bottom or ROE numbers.
http://reut.rs/18goDM5
Thanks for the info on GAS. As most all info from various websites is ticker driven, it will take me a while to get the individual info from annual reports. I appreciate your comments
Utility Investors Should Focus On ROIC, Not Dividend Yield - Part II S&P Utility Index [View article]
I am rolling the premise and the corresponding table around in my head, like the "Spinning Wheel" of the Blood, Sweat and Tears era (am I dating myself?)
Kind of like that stupid jingle you can't get out of your mind and you keep humming it all day long.
http://bit.ly/10MVdD9
Utility Investors Should Focus On ROIC, Not Dividend Yield - Part II S&P Utility Index [View article]
The talking heads are discussing cylical and industrial vs defensive, IMHO. I think this stems from the belief that the economy was to be in a slowing/contraction mode and the talking heads said to go defensive. With new growth rates pegged at 2.5% to 3% for the year, growth sectors will be reciepent of the good news.
I hardly never "rotate" out of utilities - ie as in sell. Going flat, as you describe, merely means to collect the growing income stream. FOr most long-term invetors, that may mean almost double digit yield based on cost of capital.
Utility Investors Should Focus On ROIC, Not Dividend Yield - Part II S&P Utility Index [View article]
Thanks for reading and posting your comments. I appreciate your kind words. I have used ROIC as one of my top fundamental criteria for stock selection for a long time. I hope the dividend "growth" guys get a hold of this series. Maybe I should title the last one - "Forget Dividend Growth Investing - It's ROIC Investing".
Utility Investors Should Focus On ROIC, Not Dividend Yield - Part II S&P Utility Index [View article]
Thanks for your comments. I agree SO has outperformed the sector for the past few years. I find it very interesting that Gabelli Funds has sold about 8% of their holdings in SO during the first qtr 2013. This was the largest percentage decrease of any utility holding. This info is included in another article written and submitted, but not yet published.
Utility Investors Should Focus On ROIC, Not Dividend Yield - Part I: DJU Index's Best [View article]
To a certain extent, yes. The skewing is based on MLPs being a pass-through structure for taxes and the accounting for the Incentive Distribution Rights.
However, it is still useful to compare ROIC within sectors. Below is the TTM ROIC for a few MLPs:
co ltdte roe rioc reuters
DPM 1.54 12.81% 5.0% 7.9
PNG 0.40 5.69% 4.1% 4.2
DMLP 0.00 28.50% 28.5% 28.2
EPD 1.11 19.10% 9.1% 8.8
Reuters.com offers a calculated ROIC based on their numbers and formulas. Go to their stock information, financial, and scroll to the bottom.
http://reut.rs/Z7FmAI
Hope this helps
Utility Investors Should Focus On ROIC, Not Dividend Yield - Part I: DJU Index's Best [View article]
Thanks for reading and your comments. I agree these fundamental factors are merely screens and not the sole determining factor in selecting investments. Expanding the screens to include ROIC calculations should aid in selecting better quality managers, and in turn better quality companies that should rewards investors over time.
Utility Investors Should Focus On ROIC, Not Dividend Yield - Part I: DJU Index's Best [View article]
Thanks for your comments. When calculating debt to equity ratio, I figure it such that when debt = equity, the ratio is 1.00. Your calculation would have the ratio as 10. I agree that the calculations do not take into account the interest rates paid on debt, but as an expense in calculating ROE, interest expense is a consideration.
The goal of ROIC is to incorporate a management effectiveness tool that accounts for the amount of debt used to generate shareholder returns. Two companies generating the same return on equity but having vastly different debt components are not creating the same value for shareholders.
Utility Investors Should Focus On ROIC, Not Dividend Yield - Part I: DJU Index's Best [View article]
Thanks for your comments. I agree that correlation is not the same as causation. The purpose was to bring the discussion of ROIC as being more important than current yield to those who focus mostly on yield.
EXC's ROIC is deteriorating based on the poor fundamentals of the merchant power markets in the east and midwest, as reflected in the JMP auction pricing. Again, ROIC is just one factor to be evaluated and is not the end-all-be-all of fundamental analysis. When any company has a substantial reduction in TTM ROIC compared to 5-yr averages, as EXC demonstrates, it should generate questions prior to investing. Cherry-picking? I don't think so as all these companies are components of the DJUI. They are sorted by TTM ROIC.
One mostly forgotten aspect of utility investing is the concept of its capital intensive nature. ROIC brings this aspect front and center.
Utility Investors Should Focus On ROIC, Not Dividend Yield - Part I: DJU Index's Best [View article]
Thanks for reading.
Like Chester The Income Investor indicated, I have yet to find a crystal ball that is 100% accurate. Rather, I rely on a matrix of information rooted in past performance to make what I believe is an intellegent guess about the future of specific companies vis-a-vie their current valuation. ROIC is one tool I use, and give it more importance over current dividend yield.
Concerning dates on figure 1, as the article was published in 2007, I would assume it is for the time period 2004-2006.
Utility Investors Should Focus On ROIC, Not Dividend Yield - Part I: DJU Index's Best [View article]
Thanks for reading and posting again
Utility Investors Should Focus On ROIC, Not Dividend Yield - Part I: DJU Index's Best [View article]
Thanks for reading and posting your comments. I'm glad you found it worthy of your time.