Peter Mycroft Psaras

Time to Go to Capital Preservation Mode?

I have found it is best to just go to heavy cash and wait, because if I am wrong in the short term, I don't get burned if the markets continue to go up while I am waiting.


On Dec 01 09:25 PM Old Trader wrote:

> Peter,
>
> Just out of curiosity, do you ever employ any sort of hedging strategy,
> or is that too "aggressive" for your tastes (or your clients?), and
> you just go into heavy cash?

Microsoft and News Corp. Search Pact? It Adds Up

I think Murdoch is just upset as Google is slowly destroying his empire and he sees no way to win. I doubt the deal will go through as 25% of the Wall Street Journals internet traffic comes from Google. I think this is a publicity stunt by Microsoft and I feel nothing will come from it. The world on newspapers will only survive if they go digital. I subscribe to Barron's and WSJ online and love it as I get my news immediately. I pay a lot less for my news and can print out what I need. Murdoch needs to stop fighting with Amazon and Google and understand that the world is much different then when he started out 50 years ago. The worst business decision he can make is to remove his content from the provider of 65% of the worlds searches and give it to one that has only a 10% market share.

Murdoch is not that stupid!

Disclosure : Long GOOG, MSFT No Position in AMZN or News Corp.

The Fine Print: As Registered Investment Advisors, we see it as our responsibility to advise the following: We do not know your personal financial situation, so the information contained in this communiqué represents the opinions of Peter “Mycroft” Psaras, and should not be construed as personalized investment advice.

It should not be assumed that investing in any securities we are investing in will always be profitable. We take our research seriously, we do our best to get it right, and we “eat our own cooking,” but we could be wrong, hence our full disclosure as to whether we own or are buying the investments we write about.

The Buckle: Steady Growth Through Conservative Management

Awesome Article on The Buckle that compliments my research and goes in depth on the qualitative aspects of the business model.

stocks.investopedia.co...

The Fine Print: As Registered Investment Advisors, we see it as our responsibility to advise the following: We do not know your personal financial situation, so the information contained in this communiqué represents the opinions of Peter “Mycroft” Psaras, and should not be construed as personalized investment advice.

It should not be assumed that investing in any securities we are investing in will always be profitable. We take our research seriously, we do our best to get it right, and we “eat our own cooking,” but we could be wrong, hence our full disclosure as to whether we own or are buying the investments we write about.

J&J vs. 10-Year T-Bonds: The Power of Rising Dividends

Great Article;

Some more info to compliment it is that JNJ has (FROIC) Free Cash Flow Return on Invested Capital of 23% and currently trades at a 2010 price to free cash flow of 12.46. In 2002 it was trading at 31.42 times its free cash flow, which would have made it a sell in that year and is the reason why the stock has not moved on Wall Street since then.

On Main Street though Free Cash Flow has gone from $6.34 Billion in 2002 to an estimated 2010 $13.25 Billion. I only buy stocks when they drop below 15 times Price to Free Cash Flow and sell them at 30 times or twice my buy price. The company might seem boring to most as does Microsoft, but when you look at their valuations compared to their Main Street numbers, they become far from boring.

I have back tested my system going back to 1950 and here are the results for anyone interested.

mycroftresearch.com/up...

The Fine Print: As Registered Investment Advisors, we see it as our responsibility to advise the following: We do not know your personal financial situation, so the information contained in this communiqué represents the opinions of Peter “Mycroft” Psaras, and should not be construed as personalized investment advice.

It should not be assumed that investing in any securities we are investing in will always be profitable. We take our research seriously, we do our best to get it right, and we “eat our own cooking,” but we could be wrong, hence our full disclosure as to whether we own or are buying the investments we write about.

The Buckle: Steady Growth Through Conservative Management

Thank You,

I wish I could give you 100 votes for your wonderful comments.

Peter


On Nov 19 03:23 PM User 73585 wrote:

> Outstanding analysis, Peter.
>
> The Goldman initiation of coverage to "Sell" of Buckle, just before
> earnings, and just as it was beginning to pick up some pre-earnings
> momentum, confirms that Wall Street in general, and Goldman Sachs
> in particular, are just as crooked, corrupt, and manipulative as
> they were before the crisis. This was an obvious and blatant attempt
> on the part of GS to manipulate the share price downward on behalf
> of its short hedge fund cronies and clients.
>
> And GS's upgrade of ANF to its "Conviction Buy List," in spite of
> continuing dismal revenues, earnings, and future prospects, merely
> confirms what has long been suspected; that Goldman sells its ratings
> in the same way that Moody's, S&P, and Fitch sold theirs -- pay
> us enough money, and we'll rate you any way you want us to.
>
> Goldman Sachs = total corruption and lack of integrity
>

The Buckle: Steady Growth Through Conservative Management

The Buckle (BKE) Beats estimates for 3rd quarter on Sales and EPS.

www.buckle.com/marketi...

Microsoft and SAP vs. Oracle - A Very Big Deal

Here is the official press release on the deal;

finance.yahoo.com/news...

Microsoft and SAP vs. Oracle - A Very Big Deal

I am sure Ballmer would love to get his hands on both SAP and ACN as they both have strong FROIC (Free Cash Flow return on Invested Capital) and both are wonderful free cash flow generators.. Both are much better deals for Microsoft than Yahoo would have been. If Ballmer thought he could get regulatory approval he would have bought SAP, ACN , Adobe and Intuit a long time ago. What I am happy about is he has realized that it is cheaper to partner with them then to buy them.

Disclosure : Long MSFT,SAP, ACN No position in ORCL, ADBE, Intuit

The Fine Print: As Registered Investment Advisors, we see it as our responsibility to advise the following: We do not know your personal financial situation, so the information contained in this communiqué represents the opinions of Peter “Mycroft” Psaras, and should not be construed as personalized investment advice.

It should not be assumed that investing in any securities we are investing in will always be profitable. We take our research seriously, we do our best to get it right, and we “eat our own cooking,” but we could be wrong, hence our full disclosure as to whether we own or are buying the investments we write about.


On Nov 18 08:36 AM zorrow wrote:

> Acn and Sap are in the same business. Is acn in play as a takeover
> target?

TJX Q3: Beats Estimates, Raises Guidance

I don't own TJX but my 2010 estimates are as follows;

Price to Free Cash Flow = 12.12
Free Cash Flow Return on invested Capital = 39%

These are amazing numbers and the company is also using their strong free cash flow to buy back stock.

I have never analyzed it qualitatively so I can not give my opinion on it, but if story matches the numbers then you have a very strong stock here in TJX.

Disclosure : No Position in TJX

The Fine Print: As Registered Investment Advisors, we see it as our responsibility to advise the following: We do not know your personal financial situation, so the information contained in this communiqué represents the opinions of Peter “Mycroft” Psaras, and should not be construed as personalized investment advice.

It should not be assumed that investing in any securities we are investing in will always be profitable. We take our research seriously, we do our best to get it right, and we “eat our own cooking,” but we could be wrong, hence our full disclosure as to whether we own or are buying the investments we write about.

The Buckle: Steady Growth Through Conservative Management

The shorts are taking an amazing risk on BKE, because if they are wrong they will get slaughtered as the float is so small that everyone's going to be covering at the same time.

I don't own TJX but my 2010 estimates are as follows;

Price to Free Cash Flow = 12.12
Free Cash Flow Return on invested Capital = 39%

These are amazing numbers and the company is also using their strong free cash flow to buy back stock.

I have never analyzed it qualitatively so I can not give you my opinion on it, but if story matches the numbers then you have a very strong stock here in TJX.

Disclosure : Long BKE, No Position in TJX

The Fine Print: As Registered Investment Advisors, we see it as our responsibility to advise the following: We do not know your personal financial situation, so the information contained in this communiqué represents the opinions of Peter “Mycroft” Psaras, and should not be construed as personalized investment advice.

It should not be assumed that investing in any securities we are investing in will always be profitable. We take our research seriously, we do our best to get it right, and we “eat our own cooking,” but we could be wrong, hence our full disclosure as to whether we own or are buying the investments we write about.

The Buckle: Steady Growth Through Conservative Management

Schwab Research gave BKE an "F" or strong sell and they gave the following reasons

1) The Buckles Cash Flow Strength is Negative.

Sorry Schwab, BKE PFCF = 10.23

2) Efficient Management of Working Capital is Negative.

Sorry Schwab, BKE has a current ratio of over 3.7 and zero debt.

3) Capital Intensity is Neutral.

Thats a new one for me! FROIC is 30%, you can't get more intense then that.

Then they compare their research with others;

Thomson Reuters = Outperform 11/12/2009
S&P = 4 stars BUY
Ned Davis = BUY
Market Edge = BUY

I don't know if this is market manipulation or not but I find Schwab research to be terrible. It is computer generated and lists no actual analyst doing the research. It seems to me to be programmed to get their customers to trade more and thus generate more revenues for Chuck.


On Nov 17 09:57 AM John Galt wrote:

> See that's my neck of the woods and I'm pretty sure if they put a
> store in the upscale mall in Tysons Corner VA that they'd do well.
> I'm pretty sure that if they put a store in Manhattan they'd be just
> as packed as H&M is. They could put stores in Princeton NJ etc.
> There are too many people with too much money to have the closest
> store in King of Prussia Pennsylvania for millions of people.
>
> I checked out some of the analyst reports and Goldman's recent one
> had a sell rating. It looked like a very short term outlook.
>
> " Little square foot expansion potential"
> "Operating margins at peak levels"
> - To me that says they do a good job of managing stores.
>
> "Buckle's outperformance usually only lasts 3-4 years"
> - This is a stupid point. It's like saying the Dallas Cowboys are
> usually only a good team for 3-4 years, without looking at the current
> team.
>
> " The stock usually sells off when comps turn negative"
> - Short term outlook once again.
>
> "Google insights has a declining interest in their brands"
> - I might concede this point to them, people googled Skurban and
> some of their brands less, but it's not a reason by itself to short
> the stock.

The Buckle: Steady Growth Through Conservative Management

Thanks for your comment John,

They are in 41 states currently and only have 1 store in Buffalo NY. They will be expanding heavily in New York, DC, NJ , Boston, Conn, and I think they will do extremely well over the next 3-5 years. The management reminds me of the elite management at Coach (COH), where their CEO Lew Frankfort is second to none. It's always a great thing when management owns such a large amount of shares as they can control the pace of growth and not be bullied into making mistakes by Wall Street.

Amazing Management, great numbers and plenty of room for growth in key markets. As a long term investor you couldn't ask for a better combination.

Disclosure: Long BKE,COH


On Nov 17 09:09 AM John Galt wrote:

> The closest store for NJ was the King of Prussia mall in Pennsylvania.
> I could be wrong but I think the furthest south store they have is
> Richmond, maybe one somewhere in NY, but nothing really close for
> people in NJ all the way down to DC. ( I think they are bigger in
> the midwest but I could be wrong?)
>
> They don't really sell just for teens, I'd say people in their young
> 30's could find jeans and stylish shirts in there too. I had a friend
> who heard great things about the store and I ventured to the King
> of Prussia mall to the store. I'd say they compete with the H&M,
> Express, Bananna Republic but they are a little bit different than
> the others. I'd say they are probably most like Express but once
> again they are a little bit different.
>
> I liked the place and I think the clothes were of better value than
> some of the other mall stores. If they put more in some of the east
> coast malls between NYC and DC I think they'd do well. Tysons Corner,
> Potomac Mills, Manhattan etc.
>
> I liked the store so maybe they are worth doing some DD on. I guess
> the reason why people wouldn't like the stock would be based on the
> consumer spending less of thier paycheck and saving more.

Are Markets Headed for an 800-Point Blow-Off Day?

Markets crash when everyone is bullish and there are no problems on the horizon. We are in a scenario where everyone is bearish but are secretly fully invested. In 2000-2001 stocks could do no wrong and Warren Buffett was considered a "has-been" but he was right then and we were all wrong.

Now Buffett is a bull and spent $34 Billion on a clear play on commodities. I got out of the market in 2008 and went to cash when I heard him say two words "Pearl Harbor". I have done well over the years watching what he says and observing what he does. He is the greatest financial mind who has ever lived and we are blessed to have him around. I hope he makes it to 100!

Inflation has to come back, but not yet. The U.S. dollar has no chance of going up over the long run for the simple reason of supply and demand. The treasury is working 24/7 printing money that no one is buying, so we have oversupply vs. zero demand, which is the worst of all worlds.

The equity markets and commodity markets are the only way to play the next 3 to 5 years as the dollar will continue to tank. People will see no value in real estate or bonds as they will be over taxed by municipalities in real estate and their principal on their bonds will drop like a rock once interest start to rise.

Companies have become lean and mean and are ready for the return of inflation. When it does I will put my clients in commodity plays and just sit back and enjoy the ride. That I will do only when I see the Fed raise rates. Until that day comes I will not invest in them as oil could go way down before it goes up as we have oversupply and little demand in commodity markets currently.

That will change when the Fed raises. As for the U.S.A dollar, which is now a sad story, will eventually become a nightmare. But not for us but for the next generation that will follow. I have a feeling that this generation will be looked down upon by history and generations that will come after us will scorn us as they attempt to pay down our debt. There are no free rides in this business but top quality equities are the only place to be.

9 Dividend Stocks Sending More Cash to Shareholders

I have taken the list of nine stocks and put them through a free cash flow analysis. With dividend plays you want to always make sure that the dividend that is paid out can be covered by the company’s free cash flow otherwise they will need to borrow money to pay you. All the company’s on this list can cover their dividends through their free cash flow.

My key ratios for analysis are price to free cash flow (PFCF) and Free Cash Flow Return on Invested Capital (FROIC) as well as debt to equity.

When investing I look for PFCF below 15 times and FROIC above 20%+. When you are lucky enough to find a combination of the two you find a perfect balance of growth + value and you get capital appreciation through capital preservation.

For those who don't know;

PFCF =Market Price/ (Cash flow per share-Capital Spending per share)

FROIC = FCF per share/ (long term debt per share + shareholders equity per share)

FROIC basically tells you how much return in free cash flow a company generate for every dollar of Total Capital they employ.

I consider FROIC the primary determining factor in identifying growth companies as you can compare every company (except financials) on an equal basis. The question I ask every company I analyze is = how much return (in percent) in FCF are you going to give me for every dollar of total capital you invest?

The following are 2010 estimates (Data Source= Value Line)

WYNN RESORTS (WYNN)

FCF PS = $ 1.00
TCAP PS = $ 49.75
FROIC = 2.00%
PRICE TO FCF = 69.22

BAXTER INTERNATIONAL (BAX)

FCF PS = $ 3.60
TCAP PS = $ 20.00
FROIC = 18.00%
PRICE TO FCF = 15.28

AUTOMATIC DATA PROCESSING (ADP)

FCF PS = $ 2.40
TCAP PS = $ 13.00
FROIC = 18.46%
PRICE TO FCF = 18.12

CLIFFS NATURAL RESOURCES (CLF)

FCF PS = $ 2.05
TCAP PS = $ 22.05
FROIC = 9.29%
PRICE TO FCF = 19.85

DEVRY (DV)

FCF PS = $ 2.35
TCAP PS = $ 16.19
FROIC = 14.51%
PRICE TO FCF = 22.63

TENNANT COMPANY (TNC)

FCF PS = $ 1.70
TCAP PS = $ 12.70
FROIC = 13.39%
PRICE TO FCF = 17.29

SPAN AMERICA MEDICAL (SPAN) (no 2010 estimates available for this company)

FCF PS = $ NA
TCAP PS = $ NA
FROIC = % NA
PRICE TO FCF = NA

MDU RESOURCES (MDU)

FCF PS = $ 0.70
TCAP PS = $ 25.95
FROIC = 2.69%
PRICE TO FCF = 31.67

ALLIANCEBERNSTEIN (AB)

FCF PS = $ 2.15
TCAP PS = $ 18.87
FROIC = 11.40%
PRICE TO FCF = 12.55

FROIC gives me a real return on Main Street and if I can get a 20%+ return on Main Street and at the same time buy a stock that is selling for less than 15 times its FCF then there is a very high probability that it should be very successful investment.

By choosing 20%+ as my minimum FROIC I have built a portfolio of 29 holdings for my clients that has a combined portfolio FROIC of 32% and sells as a group for 12.35 PFCF.

As for PFCF I came up with the 15 or less number as being Ideal after performing a 58 year backtest. To view the backtest just click the link below.


mycroftresearch.com/up...


Disclosure: No Position in any of these stocks.

The Fine Print: As Registered Investment Advisors, we see it as our responsibility to advise the following: We do not know your personal financial situation, so the information contained in this communiqué represents the opinions of Peter "Mycroft" Psaras, and should not be construed as personalized investment advice.

It should not be assumed that investing in any securities we are investing in will always be profitable. We take our research seriously, we do our best to get it right, and we “eat our own cooking,” but we could be wrong, hence our full disclosure as to whether we own or are buying the investments we write about.

Barrington Raises Sirius XM Price Target on Q3 Report

I posted this previously on another article and thought it would be fitting to post it here to try and warn potential investors of the dangers of investing in SIRI;

Here it is;

As I have said before, I love the product on Main Street and both my wife and I have the Sirius radio in our cars. The problem I have with the company as an investment is that the management is as fiscally irresponsible as Congress and thinks that the way to grow a company is to just keep issuing more shares. The management of the company is a text book case in how to destroy an amazing franchise in 10 easy lessons. Here are my proofs;

In 2001 the company had 57.46 million shares outstanding and today have 3.815 billion. That is an average growth rate of share issuance of 82.09% per year over the last 8 years or 6,539%.

During this time they have racked up $-4.344 Billion in negative free cash flow so it has cost them $228 in free cash flow to gain each subscriber that they have.

Its bad enough that they have set the world record in diluting their shareholder base percentage but they also saw fit to borrow $3.316 Billion during those 7 years in question.

The question is how are you going to pay back $3.316 billion in Long term debt with negative free cash flow?

The answer to this question is to first fire all the management and replace them with bean counters to clean up the mess. The product is amazing and the fees are reasonable but will the company ever stop issuing shares to finance the company?

The company may have 19 million subscribers but they have yet to turn a profit and have never shown that they know how to.

I have been analyzing companies for the last couple of decades and have never seen such a terrible management run a company into the ground faster then this management has.

The solution is get rid of management and put Dr. Malone in charge and have him do a reverse split of 1 for every 50 and concentrate on two things = getting rid of the debt and turning a profit.

The share count is insane and so is the debt level averaging out to about $175 per subscriber.

The company has one of the most amazing and unique products on earth, but it must be run as a business and not as share certificate printing business.

I love the company and would love to invest in it someday but you can't argue with the numbers as "numbers don't lie, only people do"

Disclosure : No position long or short in SIRI

The Fine Print: As Registered Investment Advisors, we see it as our responsibility to advise the following: We do not know your personal financial situation, so the information contained in this communiqué represents the opinions of Peter “Mycroft” Psaras, and should not be construed as personalized investment advice.

It should not be assumed that investing in any securities we are investing in will always be profitable. We take our research seriously, we do our best to get it right, and we “eat our own cooking,” but we could be wrong, hence our full disclosure as to whether we own or are buying the investments we write about.