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Paul Zimbardo

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  • Unwise to Tax the Rich to Pay for Health Care [View article]

    Why should the "rich" be forced to sacrifice to support the poor? The wealthy should feel fortunate for their successes and voluntarily donate to those who are less fortunate but the government should not force them to do so.
    Jul 16, 2009. 09:48 AM | 12 Likes Like |Link to Comment
  • Kinder Morgan's Dividend Payout Rate Is Unsustainable [View article]
    Looks like I have sparked some debate which is always a good sign. Thank you for the positive feedback and constructive criticism. To those who chose to merely insult me for a) contributing to the community and b) trying to help other investors; that is your prerogative. I welcome constructive criticism and comments as that is the only way that we will all learn and grow. As always, make sure that you understand and are comfortable with any investment that you choose to make. While I typically like to respond to each comment individually, due to the overwhelming number of comments I will use a more general approach to responding.

    First I would like to point out that I am familiar with Master Limited Partnerships; however, I have not analyzed any of these vehicles in the past. In retrospect I should have explained MLPs a little more thoroughly and stated why I believe the payout rate is unsustainable. I hope to do so in my comments. My primary source for research on MLPs is S&P, specifically the website below:


    First, I understand that they are really distributions rather than dividends and units rather than shares but the points I made are the same. I would also like to address the common misconception that MLPs must “pay out at least 90% of its distributable cash flow” as Mr. (or Mrs.) Sitting Duck and others mentioned in his/her comment.

    In reality, MLPs “must GENERATE at least 90% of its income from qualified sources” and there is no requirement about distributions. In return for meeting this requirement, MLPs receive beneficial tax treatment (in sum, the MLP does not pay income taxes and instead each partner pays based upon their ownership stake, similar to an S-Corp). Based upon this critical distinction, MLPs yield is based on earnings just as much as it is upon cash flows. As you can see from KMP’s financials, revenues and cash flows have been steadily declining. No magically operating structure can permit this type of company to continue growing its earnings at its historic rate with these fundamentals.

    This was the point that I was trying to stress: you need to analyze BOTH cash flows and earnings when investing in MLPs as there is no minimum cash flow payout requirement.

    I am quite surprised at the number of comments that say that believe that MLPs have to payout 90% of their cash flows, what that is certainly not the case. Judging from the “+10” rating at the time of my writing this on Sitting Duck’s comment, I am forced to believe that this is the prevailing misconception among our community. At the very least, my article helped to correct a misconception. Maybe as I follow-up article I will write about MLPs in general, specifically: 1. What they are; 2. What the requirements are for this treatment are; 3. Benefits to this treatment; and 4. Disadvantages to this treatment. Thoughts?

    You cannot ignore the underlying fundamentals of the company: revenue is falling, debt is rising, and the company is paying out more in dividends than it can afford to based upon its cash from continuing operations and used for investing activities (specifically, CapEx). Just look at the issuance of debt the past few years alone would have be alarmed if I were an investor.

    In regards to Penn West, yes, every investment can “cut both ways” as for everytime someone sells, someone else is buying.

    @djj420 I have no intentions of investing in KMP and it would be unethical for me to not disclose if I had intentions of investing in a company that I write about.

    In closing, even if you still disagree with my analysis of MLPs or application of my framework to KMP, hopefully you can still appreciate my effort and use this framework when analyzing other high yield stocks. If I was able to help at least one other person (thanks Milt!), I believe my work was worth the effort. In the end, this will only help to make me a better writer and analyst.
    Jul 28, 2009. 12:24 PM | 11 Likes Like |Link to Comment
  • Why I Sell Put Options (Part I) [View article]
    I have been selling cash-secured puts for over a year now and I find them a great tool that I have added to my bag of trading skills. Good post but I believe that you should stress a few points:

    1. The biggest risk involved in selling cash-secured puts is the “catching a falling knife phenomenon”. This scenario happens when you sell a put and the stock price falls far below the strike price of the put. If this scenario materializes, you will be forced to be the stock at the strike price, often far above the current market price of the stock. This often happens when bad news or poor earnings are reported before the exercise date. Therefore it is important to always check the economic calendar of any stock you are selling a put on. For example, AAPL reports earnings tomorrow. If you sell the $145 put and AAPL reports disappointing numbers, you could easily be forced to buy the stock at $145 when it is trading at a much lower price.

    2. Since you do not own the stock, you are not entitled to any dividends, nor do you have the ability to sell covered calls to generate income on the position.

    3. Selling puts often requires account approval from your brokerage provider.
    Jul 20, 2009. 10:49 AM | 11 Likes Like |Link to Comment
  • Apple Is Cheap, But Stay Cautious [View article]
    Correct - per BGR, Best Buy has denied this. Even if this were true, I fail to see how this significantly impacted Apple's future earnings.
    Apr 10, 2011. 10:59 AM | 10 Likes Like |Link to Comment
  • Why Apple Is Worth $80 [View article]
    @other commentors: No need to be nasty with the replies.

    @Kai: As with the majority, I strongly disagree that Apple is "worth" $80. The most obvious reason why is the companies outstanding balance sheet.

    Apple has over $26 per share in cash and has a book value per share of $31. Are you trying to tell us that one of the most innovative companies in the world that is growing at a phenomenal rate should be trading at 3x cash and 2.5x book value? Heck, even value investors would be tempted by those multiples.
    Oct 25, 2009. 02:22 PM | 9 Likes Like |Link to Comment
  • Nvidia: What The Heck Happened? [View article]
    I am long Nvidia and find the stock attractively valued, but I see Project Shield adding no value to the stock. If video game leaders such as Sony and Nintendo are having difficulty selling dedicated hand-held gaming consoles, what makes Nvidia think they will have any luck?

    At best this is a platform to showcase its new processor and I hope the firm gets back to its core competencies or I will have to reconsider my ownership.
    Jan 12, 2013. 01:35 PM | 8 Likes Like |Link to Comment
  • Is Apple the 'Short of the Century'? [View article]
    I just watched the clip and here is my reaction to his comments:

    1. "Apple is all about Steve Jobs". False! Maybe when he returned to Apple after being with NexT this was true but not anymore. It is a bit foolish to think that a company the size of Apple is dependent on one man. Apple has great management (Cook) and lead designers (Ivy) who have done very well in Jobs' absence

    2. "It is trading at too high of a multiple versus other big caps (20 vs 14)". Apple trades at a much higher multiple because it is growing much faster than any other large cap company. Basic finance theory dictates that growth companies trade at higher multiples. Back out Apple's $60B+ in cash and you have a borderline value company... a scary thought for shorts indeed.

    3. "Look at the chart and tell me you don't see a bubble". Well first Mr. Chambers was relying on fundamental analysis but when all else fails he moves onto the technical approach. I do not make my decisions solely on technical analysis. All I see in that chart is a company that is highly volatile. I agree that other large cap companies do not have charts like that because they do not trade like growth companies.
    Feb 20, 2011. 11:09 AM | 7 Likes Like |Link to Comment
  • Putting iPad Pre-Orders in Context [View article]
    "Only an Apple (AAPL) freak would buy a product without ever trying it out."

    People buy products all of the time without trying them out. Look at video game systems, cell phones, and numerous other products that people commonly purchase without first using them. Would you call all of them "freaks"?
    Mar 15, 2010. 06:10 PM | 7 Likes Like |Link to Comment
  • Hey Apple, How About a Dividend? [View article]
    Dividends are not a right. If you want growth, invest in Apple. If you want dividends, invest in a company like Wal-Mart. It is not as if the fact that Apple does not pay dividends is a surprise.

    "At some point, investors should begin pushing for Apple to follow examples of companies like Microsoft (MSFT) and Intel (INTC) and pay some portion on this cash flow back to investors." Neither of the two companies you cited have been able to generate any capital gains even close to the magnitude of Apple.
    Mar 15, 2010. 05:37 PM | 7 Likes Like |Link to Comment
  • Wal-Mart Remains a Below Average Dividend Stock [View article]
    You can hardly blame Wal-Mart for its lack of growth. The company was extremely overvalued in 2000 at a PE of 42.5. EPS has tripled over the last ten years and has been growing at 12% rate.

    Blame yourself for investing for overvaluing such a mature stock, not WMT. Even still, it is hard to complain with decent dividends. While 2% isn't great, it could be much worse.

    Mar 4, 2010. 08:03 PM | 7 Likes Like |Link to Comment
  • Geithner tells CNBC the Obama administration still hopes to hold the top tax rate on both capital gains and dividends to 20% next year - a big increase over the current 15%. but a lot better than the 39.6% top rate for dividends that some Democrats have said they were planning next year for higher earners.  [View news story]
    Well they may not tax the number of hairs on your head, but they will tax the haircuts!
    Jul 8, 2010. 03:26 PM | 6 Likes Like |Link to Comment
  • iPad Pre-Order Estimates: Apple Continues to Wow [View article]
    Thanks for all of the comments, keep them coming!

    A few points:

    1. I do not understand why people always insult Apple supporters for buying their products at a price premium. They always pass it off as an Apple bias and dismiss it. Look at Apple's track record: with the exception of the Apple TV, everyone of its products for the last decade has been quite a success and reviewed decently well. At this point people would have stopped buying Apple products if they failed to deliver but that has not been the case. The same doubters were present when the iPhone was released and look at them now.

    2. I apologize for the oversight regarding the US only preorders. That makes the numbers even more impressive.

    3. I am still short the Mar 220 Calls as part of my covered call strategy. Based upon Apple's huge run-up last week, I anticipate some profit taking this week. Either Apple closes below 220 and I get to keep the premiums on the calls or I am forced to sell Apple and I can buy it back if and when it sells off on the news of the actual release.

    Lastly, the latest estimates are in and preorders are up to approximately 150,000 but have slowed off dramatically.

    Mar 15, 2010. 09:44 AM | 6 Likes Like |Link to Comment
  • Jobs: Catch the App Store if You Can [View article]
    In a similar fashion to the iPod strategy, Jobs reveals once again that he is a student of Michael Porter's Five Forces Model, specifically the threats of substitution and entry of new competitors.

    By creating tremendous switching costs for customers (loss of applications, music, data, etc.) by switching, customers become locked into Apple's environment.

    Add in Apple's tremendous brand equity and unrivaled distribution paths and you have a company that is built to keep the enemies at the gates for a long time.
    Jul 14, 2009. 10:46 AM | 6 Likes Like |Link to Comment
  • Why Netflix Is a Short [View article]
    @Stone Fox Capital

    Sound analysis but you missed what I believe is the most important point and the reason why Netflix will continue to thrive – it’s partnership with Microsoft and Xbox Live. One of the biggest complaints surrounding digital distribution and internet media is that you have to sit in front of your computer and watch it. While this may be acceptable for watching a quick video on YouTube, this is often not ideal for watching a movie in a family setting. By partnering with Microsoft to stream Netflix over Xbox Live, Netflix instantly gains access to over thirty million customers in the comfort of their living room. Instantly.

    In addition, Netflix has extremely loyal customers for its services. As the transition continues to digital distribution, the more risk-adverse and traditional consumers will at the very least look toward an established company that they know rather than a start-up venture.

    As you pointed out, all is not rosy for Netflix as Apple and the major cable companies are going to try and dominate digital distribution but I do not see Netflix exiting the growth stage of its business cycle in the near future.


    You are wrong that “Only tekkie/PC geeks want internet streaming”. Your quote could easily mimic the sentiments of those who thought CDs would never defeat cassettes or that DVDs could never defeat VHS tapes. This is just the next step in content distribution. For proof, just look at services such as YouTube and iTunes that are exposing the mainstream to the benefits of digital distribution. With powerhouses including Microsoft, Apple, Amazon, and Google all pushing digital distribution, the question is not “if”, but “when” digital distribution will become the standard.
    Jul 10, 2009. 10:12 AM | 6 Likes Like |Link to Comment
  • Has Apple Lost Its Mojo? [View article]
    This article is alarming for its inaccuracies.

    1. “The stock rode this consensus to post solid gains over the last three months.”

    The stock is down .5% in the last three months. There have been no recent solid gains

    2. “The new CEO, Tim Cook, dominated a news cycle with his massive $378mm payday”

    The majority of the “pay” was for past performance when he was filling in for Steve Jobs as CEO. Furthermore, they are RSUs rather than cash.

    3. “The company is partnering with Target”

    Apple has relationships with both Wal-Mart and Best Buy – neither of which are luxury retailers

    4. “$100B in cash on the balance sheet”

    Just not true, there is ~$81.6B in “cash+”
    Jan 15, 2012. 02:21 PM | 5 Likes Like |Link to Comment