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Ray Merola

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  • 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
  • How To Identify Good Stocks, Part 1 [View article]
    Great to hear from you, chowder. You are a famous guy....'The Chowder Rule' gets talked about all the time.

    I see AFL as undervalued, too. Fundamentals remain strong and the story line is good.

    While I haven't studied S&P 500 IQ, I agree that I don't know when Mr. Market assigns Aflac "fair value." However, history says at some point it will.
    Apr 7 12:32 AM | 1 Like Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]
    Scipio

    Your view is what makes the market. I agree that markets look forward, but our views part after that.

    I think that a company that is projected to grow at 7% generally commands more than a 9.5x multiple. From my specific knowledge about AFL and it's business model, I think it's conservatively worth a 13-handle. I won't go into those reasons here. There are several reasons as can be buttressed by various fundamentals and metrics, but none of that PROVES anything. I mentioned things like the Graham formula, too. There's a large body of evidence out there; we may decide to use it or suggest that it's no longer relevant.

    One guy sells, the other guy buys. One guy is looking for a swing trade, another is looking at a multi-year investment.

    I accumulated my position in AFL stock about 15 points and 2 multiple points ago. I believe it's got another 20 points and a 3 multiple point expansion left in it.

    This has been my M.O. for a very long time. Not always right, but the odds tend to break right for the long and patient who buy undervalued merchandise.


    Apr 6 07:56 PM | 1 Like Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]
    You have not seen my ask anyone to subscribe, nor will you. I am not trying to sell any products to anyone. Thank you for your commentary.

    Likewise, I appreciate all manner of tables, graphs and investment tool data in others' articles. This is one way I learn and expand my personal understanding.
    Apr 6 02:37 PM | 5 Likes Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]
    David Fish is a titan within the investment community. He has contributed enormously to individual investors' knowledge base via his web site and columns.
    Apr 6 02:34 PM | 3 Likes Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]
    Thanks Zoomiesa

    It sounds like you have a sound underlying investment philosophy. As I'm a bit younger, I can tolerate a modest amount of growth stocks in my portfolio. However, I attempt to ensure that even if low-dividend, higher-growth; the shares are at or below fair value. Thanks for reading.
    Apr 6 01:11 PM | 1 Like Like |Link to Comment
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