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  • Howard Hughes Corp. Sees Uptick in Las Vegas Property Activity [View article]
    Yes, I took into account all the operating assets of HHC. Owner earnings from operating assets accounted for 53% of total owner earnings for HHC in 2011.

    I did NOT account for increase in owner earnings due to redevelopments (such as redevelopment of South Seaport) and development of strategic assets. The only two assets which are likely to give significant owner earnings are redeveloped South Seaport and Hawaii condo project (which is a joint venture) and both won't give more than 5-10% of the owner earnings, so the error due to not including them is not big.

    The other problem in considering Net Asset Value for HHC is that its assets don't really produce regular income (like say farm land or houses do via rent). So NAV is not a good way to analyze this stock (for more details, read this quarterly letter from Marty Whitman on where NAV is applicable - http://bit.ly/Newz7B
    Jun 19 11:19 AM | 1 Like Like |Link to Comment
  • Howard Hughes Corp. Sees Uptick in Las Vegas Property Activity [View article]
    There is no doubt that the land would be worth more than the carrying value on the books. However, the land is undeveloped and hence not the same as owning lots of houses which are income producing assets.

    I think DCF can still be used by using some assumptions - for example, one could assume that the sale of acreage increases 10% over the next 5 years (very positive estimate). Lets assume the price of land only increases 3% per year (land/house prices long term just keep with inflation). Let's assume that the operating assets owner earnings increases 4% an year. The amount of time needed to sell the total acreage per MPC is given in 10-K (for example Summerlin is expected to be sold by 2039) - this enables reverse calculation of increase in acreage sold per year. I use a discount rate of 9% (the highest rate of interest on long term treasuries in the last 10 years). I get the DCF value of 2.3B.

    I didn't account for any income from strategic developments which are likely to yield income in the future. Even with all these assumptions, I could be wrong and so must insist on margin of safety of 30-40%.

    Since I don't see the margin of safety, buying this stock does not make sense to me. I'd rather look at the risk than look at the reward.
    Jun 19 01:54 AM | 1 Like Like |Link to Comment
  • Howard Hughes Corp. Sees Uptick in Las Vegas Property Activity [View article]
    I agree with the first two commentators. You have presented good data, but without using discounted cash flow, the valuation is meaningless.

    Also, though more acres were sold at Summerlin in 2011, the price per acre dropped sharply. The 10-K report says that Vegas land sale per acre value dropped 30% in 2011 from 2010. So I don't think Summerlin is seeing a bright spot yet. However, Houston MPCs showed better results in 2011.

    I think there is a need of analysis which involves DCF because the value of the land will be unlocked over long time period.
    Jun 16 07:37 PM | 1 Like Like |Link to Comment
  • Great Lakes Dredge & Dock Corp: Significantly Understated Assets [View article]
    Frank: Nice find and good article.

    I agree with Ron Myers' comment : Owner earnings are more important that asset value itself. Also, there is no clear way for this asset value to unlock since the assets are old and not likely to sell for much.

    Some more points to think about:
    1. How bad will the Return on tangible Assets look if you take asset value to be the same as replacement value?
    2. If one thinks about the long term expenses, these older assets will need to be replaced. That cap ex will affect owner earnings in the future.
    May 30 12:36 AM | Likes Like |Link to Comment
  • Despite What Market Says, Chesapeake Energy Believes It Actually Has A Simple Business Strategy [View article]
    Thanks Craig for your excellent and detailed reply. Sorry for my late response due to travel.

    I'm invested in CHK but I am re-evaluating my investment. Your reply gives me better insights to do that. For capital intensive companies, using DCF sometimes does not show great value - CHK is such a case. But based on acreage sold to other companies, the remaining CHK acreage makes CHK look undervalued. That is why I am trying to understand more and more about the business to analyze it better. Also, CHK has made it tough for investors with their complex financial operations, JVs, subsidiaries etc
    Feb 14 11:19 AM | 2 Likes Like |Link to Comment
  • Despite What Market Says, Chesapeake Energy Believes It Actually Has A Simple Business Strategy [View article]
    Craig: Thanks for agreeing to answer my questions.
    1. How do companies identify lower quality acreage based on
    a.. lower IPs (do they not report these IPs to the buyer?
    b. smaller EUR ( does this not meant they've already invested enough to drill several wells)

    2. Flipping leases and getting cash flow is a dubious method to achieve growth. It reminds me of housing boom while rental yields were falling. If they are not able to produce gas economically at current rates and if they are using lease flipping method, it does not point to a long term, sustainable, cash flow growth method.

    3. Their financial operations are very complex. I understand that they need to hedge for natural gas prices. But they have preferred shares and several JVs and convertibles. I understand having common and preferred stock separately but the other ways of financing make it complex to analyze.

    Thanks!
    Feb 9 08:46 AM | 1 Like Like |Link to Comment
  • Oil Services Group May Stage Robust Rally [View article]
    Webscribe, thanks for your reply and all the information. I'll check out the conference call transcript from NOV for more details.
    Feb 8 12:18 PM | Likes Like |Link to Comment
  • Despite What Market Says, Chesapeake Energy Believes It Actually Has A Simple Business Strategy [View article]
    CHK perplexes me.
    1.They seem to sell leases to other companies and if one takes these lease amounts, the value of CHK should be way higher than their market value.
    2. They are a gas and oil producer, but I hear less about their production or efficiency, but more about how they flipped leases
    3. They've always had negative cash flow. They always seem to want to sell their assets to other companies to meet the debt gap.
    4. If they say some investors are yield hungry, why are they not giving a good dividend? Also they could just have one common stock and one preferred convertible with higher dividend.
    Feb 7 10:36 PM | 2 Likes Like |Link to Comment
  • Despite What Market Says, Chesapeake Energy Believes It Actually Has A Simple Business Strategy [View article]
    Craig Cooper: You still didn't answer how CHK is selling lesser quality acreage? You've skirted around the issue but not answered it. I am neutral in this argument, but right now I think Investor111 is more convincing.
    Feb 7 10:31 PM | 3 Likes Like |Link to Comment
  • Shale: This Time It's Different [View article]
    You've given quotes from 1920, 1960 and recently. Right now, it appears that CHK is flipping leases and making a speculative play on natural gas. However, it would be great if you could also explain on the lines below:
    1. How much are these wells really making in profit when production starts on them? I am sure someone is drilling shale gas and not just playing lease flip game.
    2. Technology has changed much since 1920 and 1960. Isn't that going to make getting shale gas and shale oil easier?
    3. The price of oil has been increasing since the rich reserves (conventional) are depleting fast. Now it becomes economical (relatively) to explore shale oil/gas plays. Doesn't this mean that shale gas and oil now become feasible to be drilled?
    Feb 7 10:06 PM | 2 Likes Like |Link to Comment
  • Oil Services Group May Stage Robust Rally [View article]
    Very good article. Can you provide more information on how NOV will benefit from fracking? NOV will definitely benefit from increased rig count. I also heard that they are making their own "fracking gear" (fracking pumps, chemicals etc). Do you know more on how NOV will specifically benefit from fracking activity?
    Feb 7 05:29 AM | Likes Like |Link to Comment
  • 2012 Investment Choices To Cope With The 'Great Contraction' [View article]
    Thanks for your nice comments, Red the Bear. I'm going to write the next article when I have substantially good material. I am glad for all the thoughtful commentary here which has been encouraging and has given me great thinking points.

    I agree that I did not mention pipeline and gasline companies in this article. Part of the reason is that I've not analyzed them well till now. I'll try to take a look at them in a later article.
    Jan 24 11:36 PM | Likes Like |Link to Comment
  • McDonald's: Fundamentally Overpriced [View article]
    Joseph,

    Thanks for your article, though I don't agree with your calculations.

    I agree with Cerenity here. 20% discount rate is extreme, especially for a stable company like McDonald's. You are using rates almost as if you were a tech VC.

    Also applying DCF calculations to earnings is probably not the way to go. Apply it to cash flow - Stern's Damodaran has some excellent slides available online wherein he talks about DCF and where to apply it.
    Jan 24 04:09 PM | Likes Like |Link to Comment
  • Waste Management Remains Undervalued, Boasts Nice Yield [View article]
    I understand that you need to advertise your investment services. However, I asked simple questions about the article that you posted here at Seeking Alpha. I think you should answer the questions here because when you say WM is undervalued, its based on your assumptions. I asked simple questions about your assumptions for this article which you are not willing to answer.

    I would have probably thought about your investment service in more positive light if you had replied to my questions here at Seeking Alpha.
    Jan 23 10:10 PM | 1 Like Like |Link to Comment
  • Planning Ahead for Volatility: 4 Defensive Dividend Stocks to Consider [View article]
    You've considered operating cash flow and capital expenditure for WM. Another things to consider might be expenses for acquisitions. WM seems to spend large amounts - in FY 2010 it was 400 million. If you do the FCF calculations including this number, you can see that the FCF has been reducing since 2009, showing the cyclical nature of WM.
    Jan 23 03:30 AM | Likes Like |Link to Comment
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