Jonas Elmerraji

Jonas Elmerraji
Contributor since: 2008
Company: The Rhino Stock Report
Book value is mentioned just for reference. A 43% premium to book isn't in and of itself a particularly lofty number even for a company that does use its book assets to generate earnings. For a company that doesn't, it's even more impressive...
Book value doesn't speak to the company's earnings potential, but AB's chairs and computers, etc. are an important part of its valuation. I'd much rather buy an asset manager for the price of its assets than based on AUM (as should be the case).
Actually Steve, AMAT has two PV lines, SunFab, which is the company's trade name for a thin film PV product, and the second is AMAT's standard crystalline silicon photovoltaic line, which boasts the highest efficiency of any commercially available PV technology right now.
AMAT has been working to increase commercial efficiency by getting their cost per watt down. That's significant.
Like the article says, PV manufacturing hasn't been a particularly strong segment in the last couple of years. It's the forward growth prospects that are compelling.
No, but there is still overlap regardless.
Right -- check out my ETF arbitrage comments above.
When liquidity causes B shares to get a slight premium, arbitrageurs can buy BRK.A and convert them to BRK.B to get the premium. At market speed, this happens almost instantaneously -- but it doesn't mean that BRK.B prices are being held down... instead, BRK.A prices are rising to meet them.
That's effectively the same as a premium for BRK.B owners because it means that A shares are playing catch-up to their prices.
Just to clear up something: Berkshire's B share's don't face a price ceiling at 1/30 of that of the A shares... they only face an economic ceiling at that level. Price, as with any other market-traded security, is determined by the market.
In the past, shares have kept that ratio in tact because not trading at that fixed rate would have represented a discount or premium for one class of shares -- something that makes no sense normally. But when one of the most famous companies in the world joins the other 99% of stocks from a liquidity perspective, I suspect that we'll start to see small premiums or discounts to class A shares.
With much of the liquidity in the B shares, I wouldn't be surprised if the A shares were playing catch up (much like ETF arbitrage among institutional investors).
Ravi, I agree with you that Berkshire is undervalued right now. I think that the financial pundits are discounting the BNI acquisition too much. But I also think that market minutiae are the catalyst that makes buying now a prudent move.
Great in-depth article... You can see my updated take on the situation here: seekingalpha.com/insta...
I'm still not sure what the COP reference was about... I've never written about that stock.
Just to be clear, this article is in no way advocating shorting the market right now. It's saying that we should expect the rally and slide cycles of the last few months to continue at the moment -- the current part being the slide...
In the longer term, the uptrend is still holding strong (see the chart above).
Hey guys, glad to see that the discussion's heating up... Just to clarify a few points:
Yes, NRG is highly leveraged. That's par for the course in the power generation industry, and at present the company's debt service is relatively secure through 2010.
NRG's book value less intangibles and goodwill is around $17 per share, but that assumes that the company's power generation assets are only worth book. Like the article mentions, though, that's unlikely the case. I'd estimate that with a more realistic valuation on those properties, we're looking at $39.70 per share with those same intangibles discounted.
Morningstar's Travis Miller puts NRG's sum-of-the-parts valuation at closer to $50 per share.
Because the company is such a strong buyout candidate, that real-world valuation carries a lot more weight than it would otherwise.
Not sure about the ConocoPhilips reference...
Eric - the idea that long term investing can't be judged on a one year basis is the part of the point I'm trying to make. Also, the S&P index is used as an example of the market as a whole, not as an example of a good value investment.
The point is that value investing has been misapplied over the last decade; now some are saying that value investing is deal as a result. That's just not true.
Hey guys, thanks for the comments -
David, I do agree with most of what you say, but the fact remains that whether or not attentive investors should have pared these positions, lots of people still own the stocks on this list (for a myriad of reasons). There are still lots of stocks out there that have decent payouts, but not these guys.
Oh, and thanks for the link to your article... it's a great read!
mdpath - Good catch. Thanks.
"And AFTER that it could go either way.
You're entitled to your opinion but if you would deal with reality and and do some real research you would see that the future of the stock market over the next two decades is all but set in stone."
Fred, this is a technical piece; it takes a look at short-term trends (notice that we're looking at a 6 month chart) to take a look at where the market will be in weeks and months, not years.
If you think that it's out of the question to see a 20% swing in the next few months after the market jumped 23% in the last three weeks, that's your opinion, but it's one that I have some trouble resolving to.
The fact of the matter is that we're looking at a different kind of market; that's both scary and exciting. My subscribers - some of whom have been in the market since the 1960s - are saying the same thing. Still, it's an exciting market because there are myriad opportunities to make smart investments right now. Our track record is proof of that.
The fact is that the market has been irrationally exuberant for a long time doesn't mean that everything's ready to change now. To quote John Maynard Keynes, "...the market's ability to stay irrational often outlasts our ability to stay liquid."
Investor sentiment and economic fundamentals are changing on a daily basis, and right now, and that's going to dictate where the market goes much more directly than the P/E ratio of the S&P 500.
Maybe that'd be a good topic for a future article. Stay tuned.
Exactly... but that is a big IF. If you want to take the technical trade, wait to see what happens after SPY hits that thick red resistance line. Until then, it could go either way (see the "bounces").
schlumpf - You're right... it's the fact that everyone is long now that should make SA investors nervous. As great as March was, the chart in the article shows that we're still in an unquestionable downtrend.
If stocks break out above the trendline, we'll likely see the short-term uptrend continue in a sustained way, but from a technical perspective I think that the 200-day moving average (currently around 1000 for the S&P) is going to pose a serious ceiling for stock prices.
PhilV - Good call... looks like the rest of the sentence got clipped somehow. Should say:
"Surprised? Well, in the past month dividend-payers on the S&P have underperformed non-payers by 4.71%; they’ve underperformed by 12.76% since January."
Haha, Come on Chris, give me some credit - "I think it's certainly possible that Textron may cut its dividend in the short-term. But I also think that if you're looking at a company like Textron, you have to think long-term, and I don't see this company withholding dividends from shareholders over a longer timeframe. "
Overall, I think that the press release TXT put out today is favorable, especially when the market is fearing for the worst. The company may have cut dividends, but it didn't drop them. That's important. They also announced that their financial realignment of TFC is ahead of schedule.
Obviously I'd rather see them announce that they stuck gold underneath their corporate HQ, but if this is the earth-shattering news that the soothsayers have been proselytizing with, I'm fine with it.
You're right – TXT is a value play... a big chunk of our positions since the second half of 2008 have been value because of the volume of opportunities out there.
I think that if you're looking at Textron as a going concern, dividends have to be included in the pot. TFC is the dark cloud that's lingering over the company right now, but if they can shed the division successfully in the next couple quarters they'll be in substantially better shape.
For now, liquidity is an issue for sure. Still, management has an aggressive liquidity plan in place that I'm betting will help the company hold out until they get their ducks in a row.
I'm sorry that you disagree with my rationale for holding Textron, but I do hope that the stock does well for you (for the obvious reasons).
C. Fischer:
No. I guess I should have said don't judge an article by its title/a single paragraph/a single sentence. Before the word "dividend" is so much as mentioned there are around a thousand words breaking down why TXT is a bargain stock right now. This article came from a GARP investment letter, and the income was worth mentioning for subscribers who don't hear about it much.
Dividends ARE important for Textron, and they'll continue to be, but only in the context of value. It's the value that makes the yield that high, after all. The two are invariably connected.
To suggest that TXT is a buy based on dividends ALONE would be foolish, but I don't think it's accurate to say that's what's going on in the article. I also don't think it's reasonable to think that Textron will slash its dividends completely this year and never ever pay them again -- that's why dividends shouldn't be left out of the investment equation here.
Just to be clear - the premise of the article is that Textron's core business segments are still going strong, not that Textron will NEVER EVER cut their dividends. There have been quite a few comments about the future of Textron's dividends, and I just wanted to clear up some misapprehensions...
Yes, TFC has created a slew of problems for the company. Yes, those problems do threaten Textron's ability to deliver a dividend in the short term. But I don't think that what the company is going through now (which is purely thanks to the credit crunch) will be its undoing. It's my assertion that once that becomes clear to Wall Street, Textron's owners will be rewarded. We've certainly been rewarded since taking the position (you can see total returns at rhinostocks.com/member... )
Textron does have quite a bit of pressure to keep their dividends in place. That doesn't mean that they will when faced with the economic challenges the next couple of quarters will bring. That said, I think that over the long-term, the stock will recover.
Just as you shouldn't judge a book by its cover, please don't judge an article by its title - SA authors don't write them. Editors do.
You're Kidding: Sorry to hear that you lost money last year. I'm happy to discuss the virtues (or detractors) of SDS, but is the name calling and profanity really necessary? We're all grown-ups here.
Best in breed means that of all the ultrashort funds out there, SDS is the least volatile. While that may seem hard to fathom after losing 33% in such a short time, just take a look at some of the other ultrashort ETFs (like SKF). Their distortion is wildly greater than SDS.
Like I said in the article, SDS isn't a set it and forget it stock pick... you have to watch this one, or at the very least place a stop loss.
My subscribers are up around 3% right now on the position in about a month while the S&P has dropped just over 1.5%.
Puts could be a good idea, but beyond the newsletter's limitations.
Oh, I see what you're getting at tunaman... a sort of ultra ETF arbitrage. While that would work great in a down market, like the one we're in, that method breaks down when things go up. Nice thinking though.
Sorry tunaman,
SDS has gained 21% since last February, so shorting it wouldn't have turned out very well. The only reason your portfolio would have made money is because SSO got creamed so badly (-68% over that period), not because they BOTH went down.
(note: it was ONLY 21% because of that volatility error we've been talking about)
San Fran, like the article says, volatility is what creates the long-term distortion between an ultrashort and the index it tracks. The S&P's relative stability makes SDS best in breed of the ultrashorts - its distortion has been minimal over the last year.
Also, like davboz says, the proportions you hold in your portfolio matter big time. It's a hedging tool. For us, SDS makes up only 13% of the Rhino Stock Report's portfolio and it's done a good job of achieving its objective thus far.
I think it's certainly possible that Textron may cut its dividend in the short-term. But I also think that if you're looking at a company like Textron, you have to think long-term, and I don't see this company withholding dividends from shareholders over a longer timeframe.
TXT's Cessna business will also likely take a hit this year (as I mentioned in the article), but I think that order cancellations will be offset by the company's huge backlog.
Last quarter was dismal indeed, but if you remove TFC from the mix, Cessna and Bell actually performed pretty well. Given the company's value price, I think this bargain stock will fare well long-term.
Peter –
2002 comes straight from the article that's referenced in that paragraph. I think that the ensuing comments do a good enough job of arguing timeline. This article is more about 2008 performance.
Good catch Pilsner, thanks!
I would have to agree with you that WDC is another good looking stock right now. Aside from being bullish on hard drives, the company has awesome financials. You're right, WDC does score higher than STX on a number of metrics, but ultimately, it's Seagate's unbelievably low valuation that pushes it over the top.
If I were just picking "good stocks" WDC would likely have made the cut... unfortunately, two HDD manufacturers didn't make sense for the Rhino Stock Report's model portfolio.
Watkins is pressured... margins got hit hard in the last quarter (per the article), but I think that Seagate will be able to tighten their belt in the next six months.
I wouldn't take the company's downgrade too seriously for a long term position... even if you do, you could look at their upgrade by Dinesh Moorjani as an offsetting rating.
The market does suggest the stock is cheap right now for a reason, but it doesn't have to be a good one... We'll get our first glimpse on January 21 when they report earnings.
Woodsey, cash rich companies are definitely one step toward being recession resistant...
If you're thinking about building positions in this market, my recipe for defensive plays consists of a strong balance sheet (i.e. the cash you mentioned and a manageable debt position), positive free cash flows, and a low price-to-book ratio.
John, you're absolutely right if you think that the employees and shareholders are going to be left holding the bag if the big three collapse. The fact of the matter is that companies (not just car companies) have gotten too used to seeing their employee pension funds as assets they can leverage to expand their business. After all, a well-designed pension fund is supposed to be self-sufficient... that's what they pay all those portfolio managers and actuaries the big bucks for.
But if you look at the companies I mentioned, you'll see that these guys make a profit and provide benefits to their employees at the same time (I know, a crazy concept these days). Having worked for one of the biggest pension fund managers in the world, I can tell you that profitability and employee benefits aren't mutually exclusive. Once a lot of companies realize that, the world will definitely be a better place.
That's true, though I don't think that those shortages are going to be the limiting factor in construction for the near term (in most places). Right now, capital shortages are the real problem the industry is facing.