Seeking Alpha

Ray Merola

View as an RSS Feed
View Ray Merola's Comments BY TICKER:
Latest  |  Highest rated
  • How To Identify Good Stocks, Part 2 [View article]
    mbkelly75

    I tend to agree. Despite its popularity, EBITDA (and its cousin EBIT) appear more contrived than some other measures. I get the idea: an attempt to isolate a core business emphasizing a function of cash flow and stripping out leverage costs.

    I prefer straight cash flow, or FCF.

    When reviewing a business-within-a-busi... ... sometimes EBITDA may have a place.

    P/E, P/CF, P/Book, and P/Sales are generally my "go to" valuation metrics.

    Return data (RoE, RoA, RoIC) and debt metrics (D2E, D2Cap) and others are
    helpful when analyzing the business but are less useful when determining if the stock is trading at a discount or premium.
    Apr 19 03:25 PM | 1 Like Like |Link to Comment
  • Shell: 7%+ Dividend Growth Is Possible [View article]
    Shell stock is basically a "steady Eddie." It's better than an bond as measured by either current yield and potential appreciation, but due to a history of under performance may lack the appeal of Super Majors XOM or CVX.

    I believe the RDS asset base, financial strength and intellectual capital is equivalent to any peers. If Shell were to hit on all cylinders without excuses, it could be a monster.
    Apr 19 01:14 PM | 2 Likes Like |Link to Comment
  • Shell: 7%+ Dividend Growth Is Possible [View article]
    Royal Dutch Shell has a legacy of "over-promise and under-deliver." Nevertheless, hope springs eternal. The new CEO has a reputation as a no-nonsense kind of a guy who helped steer the chemicals business from the red to the black.

    The challenge is that the enormity of the company and its deep culture appear to work against change. This culture is the source of many of Shell's greatest strengths, but also its longstanding deficiencies.

    We shall all watch closely to see if the current CEO can deliver on promises or investors end up with more "hockey stick" charts.
    Apr 19 10:39 AM | 4 Likes Like |Link to Comment
  • How To Identify Good Stocks, Part 2 [View article]
    Thanks for reading, Hamdy

    You've rattled off many of the better fundamental metrics. In addition to the ones mentioned, I like to view PEG, dividend growth rate, P/Cash Flow.

    In some cases, what to check depends upon the stock sector and industry.

    For instance, capital-intensive industries are often best gauged by cash flow or even free cash flow instead of earnings. On the other hand, many banks and tech companies may be measured by EPS just fine.

    I like to use the PEG ratio as a key indicator. However, instead of using the projected 5-year growth rate, I use an EPS growth estimate of only one or two years out.
    Apr 19 10:09 AM | 1 Like Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]
    Yen-to-dollar strength will certainly improve AFL GAAP earnings. It really will not affect the underlying business much at all. Thanks for reading, bobhairgrove.
    Apr 19 10:02 AM | 1 Like Like |Link to Comment
  • General Motors - The Story Just Keeps Getting Worse [View article]
    I might have suggested a short position ~10% higher prices. Now the prognosis isn't as clear. Published short interest through April 15 will be coming out soon. The last report indicated about a 2.5 short float, not excessive. That will be a benchmark to check.

    In addition, suggest watching Buffett's BRK quarterly SEC disclosure report.

    The recent bankruptcy proceedings and may prove to offer GM some corporate cover, particularly if Ms. Barra is proven to escape clean.

    Historically, most auto recalls are messy but the industry weathers these events fairly well. This does not diminish the seriousness and loss associated with drivers of these vehicles that were injured or died as a result of the ignition switch failure.
    Apr 13 09:18 AM | 3 Likes Like |Link to Comment
  • Caterpillar Digs Out A Decent Yield And High EPS Growth [View article]
    Thanks for an article about Caterpillar, DA

    CAT has no true peers. The business is segmented into 3 parts that have line-of-sight individual competitors, but none collectively.

    In the Resource Industries segment, one may consider Joy Global a direct counterpart.

    In the Construction Industries business, Deere or Komatsu appear line-of-sight.

    The newly-designated Energy & Transportation sector (previously Power Systems), find Cummins Engine a decent peer alternative.

    There are other companies out there that compete with Caterpillar in these business segments. However, I believe none are true head-to-head comparables with the entire enterprise.
    Apr 13 09:07 AM | 5 Likes Like |Link to Comment
  • Funds Buying UnitedHealth: Stunning Div Growth [View article]
    raykrv6a

    I agree in principle. The issue is that premiums are set based upon a given user profile. If the profile is skewed toward high-cost users, then either the premiums go up or the profits go down. If the premiums go up too much, it prices more out of the market; thereby further shrinking those wanting the product and forcing in those with no alternative (highest-cost users).

    If the government "bails out" the health providers by propping up cash flow and holding down premiums, it may avoid the death spiral.

    UNH is arguably the best managed of the lot. Indeed, they know the calculus.

    Long UNH.
    Apr 11 12:59 PM | Likes Like |Link to Comment
  • Funds Buying UnitedHealth: Stunning Div Growth [View article]
    UnitedHealthGroup is my selection of choice for many of the reasons cited above. The operating ratio, not mentioned in the article, is another key metric whereas UNH demonstrates peer leadership.

    Investors will watch carefully how ACA handles the upcoming 2015 rate increase: if the rates are determined to go up significantly, I understand there is a clause in the law to kickback government dollars to the insurers to subsidize the premiums.

    While anecdotal, those signing up for ACA appear to be older, sicker, high med requirements, HIV patients; not yet offset by younger, healthier, payees. See recent ESRX data points and others. I believe UnitedHC among the very-best-managed of the healthcare lot and is likely to navigate the process successfully.
    Apr 11 08:59 AM | Likes Like |Link to Comment
  • General Motors - Emerging As A New Trend [View article]
    Shorts trying to force? The same comments appear to follow each S.A. General Motors column.

    Methinks thou doth protest too much.

    Short ratio still not bad. I suspect Buffett doesn't sell out, either. Could be a tough trade.
    Apr 9 07:31 PM | Likes Like |Link to Comment
  • General Mills: My Outlook [View article]
    The General is a trusty stalwart stock. However, I have trimmed my position just a bit this year. The 5x Price-to-Book started looking a little frothy. Shareholder equity growth has eased the last couple of quarters. I'd like to see the net book per share pick up, or the price drop back a bit, getting the P/B back in-line.

    Outstanding long-term position.

    Long GIS.
    Apr 9 07:21 PM | Likes Like |Link to Comment
  • Retirement Strategy: Want To Own A Bank Stock For Income? Wells Fargo Will Pay You Nicely [View article]
    Wells Fargo is arguably the best run of the major banks. Key bank metrics: RoE, RoA, EPS growth, Efficiency ratio, and shareholder return-of-capital leave Wells near the top of the class in every category.

    The balance sheet is best-in-class. Notably, the Allowance for Loan Losses stands at $14.5 billion. As a function of Total Loans, the ratio is 1.8%. Prior to the financial meltdown, this ratio was a little over 1%. Much of the dead weight was taken on as part of the Wachovia deal. If WFC were to whittle down the Allowance for Loan Losses to a similar pre-crisis ratio, it would add $5.6 billion to shareholder equity, or another $1 a share.

    The new dividend has now eclipsed the pre-crisis quarterly payout.

    Wells is a Main Street bank, not a Wall Street Bank. It's best-in-class kissin' cousin: U.S. Bancorp (USB). Though smaller, USB is the only major bank with even better metrics than Wells. Management has a remarkably similar banking philosophy. Wonder why Warren Buffett owns this one, too?

    Long WFC and WFC warrants, and USB and USB floating rate preferred.
    Apr 9 07:16 PM | 4 Likes Like |Link to Comment
  • General Motors - Priced For Earnings Contraction [View article]
    Josh

    I like the notion of differentiating between fair value and a target price. Onya! Thank you are a sensible and well-reasoned article. I generally do not use straight DFC valuation analysis, but I appreciate your perspective very much.

    We both "arrive" at the same destination.

    Long GM and GM warrants.
    Apr 9 10:36 AM | Likes Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]
    You got the right ideas, brother!

    And thank you for the kind words.

    Years ago, I used to go to the library to use ValueLine Survey and screen/research stocks. Then I'd go to the copy machine and pay per page to keep a record of stocks that I wanted to own or follow up upon. Slow and tedious. Trading commissions used to be about $40 a pop, too.

    The electronic world has compressed the amount of time necessary to obtain the same information to a fraction of the past.

    Indeed, I'm a FAST graph user, not a peddler. Frankly, I'm kind of a cheapskate that way and it took me a long time to even try them. I stuck with doing the math manually after collecting the raw data. I've softened up in my older age, I guess.

    All the best.
    Apr 7 09:30 AM | 1 Like Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]
    drftr

    Indeed, screening and researching companies is a lot of hard work. At least there's good computer screens out there! I remember having to sift though stocks "by hand," often using ValueLine at the library. Slow sledding.

    You've outlined another reason why investing takes time and patience. Pushing the "buy" button is the easy part.
    Apr 7 09:24 AM | Likes Like |Link to Comment
COMMENTS STATS
2,724 Comments
3,898 Likes