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Ray Merola

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  • Halliburton Investors Get Another Bite At The Apple [View article]

    What a great question.

    I believe the issue is primarily the drop in crude oil prices. The drillers take the biggest hit because these companies have some of the most direct line-of-sight to prices.

    However, in these times of proliferating index funds, ETFs, and HFTs; all energy stocks get pushed down in sympathy to an event(s). These baskets of stocks are bought and sold as blocks without much discretion as to what's in it. SLB and HAL will continue to be under pressure as long as crude sinks.

    My view is to avoid the drillers. These stocks are right in the cross-hairs of the bears and those fearful of falling oil prices. Stocks like SLB/HAL (global service companies), RDS.A/XOM (integrated global super majors), and ETE, KMI (pipeline operators) look a step better.
    Sep 23 06:34 PM | 3 Likes Like |Link to Comment
  • Halliburton: Target Met Again, Raised Again [View article]
    Thank for the call-out!

    Indeed, your articles are well-done, too, my friend.

    Readers should note that we agree on general fundamental principles, and hence tend to find ourselves in agreement on many individual securities.

    All the best, Ray
    Sep 23 03:48 PM | 1 Like Like |Link to Comment
  • Halliburton Investors Get Another Bite At The Apple [View article]
    Agreed, DAG1996

    The Macondo overhang and related financial concerns are effectively over.

    Issues now are crude oil prices falling (WTI) below $90 a bbl, and general overproduction here in the U.S. However, my experience has been that whenever the pundits believe that we are awash in oil, something happens to close it up.

    My view is oil would have to go to $75 before we have a real problem. Most energy decisions on not "risk on, risk off" quick draws.
    Sep 23 03:45 PM | 1 Like Like |Link to Comment
  • Halliburton Investors Get Another Bite At The Apple [View article]
    Thank you, mustjay and David G., for your kind words of encouragement.

    Seeking information about one's stocks when they go down is critical to becoming a strong investor. If one sells, it's because the investment thesis has changed, or some overarching need to liquidate: not fear.
    Sep 23 02:04 PM | 3 Likes Like |Link to Comment
  • Retired Investors: Learn The Success Secret Of All Great Value Investors: Part 2 [View article]

    I teach a small class about saving and investing, entitled, "Get Rich Slow." The syllabus has changed over time, now focusing more upon securities evaluation. What has not changed is espousing the foundation principles of Benjamin Graham investing; which you so wonderfully communicate time and time again.

    Breaking a short-term trading mentality is one of the most important things an investor can do to pump up overall returns.
    Sep 23 01:59 PM | 7 Likes Like |Link to Comment
  • Halliburton Investors Get Another Bite At The Apple [View article]
    Update for readers:

    "Moody's changes Halliburton's outlook to stable from negative"

    The stable outlook reflects Halliburton's improved financial performance, lower trending leverage profile and positive cash flow generation to fund capital spending and dividend payouts, leaving free cash flow to fund its share repurchase authorization," commented Andrew Brooks, Moody's Vice President.

    In addition, Moody's cited removal of the Macondo incident overhang.
    Sep 23 01:42 PM | 2 Likes Like |Link to Comment
  • Bank Of America Should Earn $1.75+ Next Year [View article]
    Good article, Josh

    The path to $2 EPS is coming into focus. The bulk of the financial crisis litigation expense is behind the bank now. The dead legacy assets are being worked off.

    Another potential upside are changes in Washington. The mid-terms are likely to reinforce political gridlock; good for business. When a new administration is elected in 2016, I believe it's probable it will be less hostile to business and banking.

    A 13x multiple on $2 EPS yields a $26 stock.
    Sep 23 08:30 AM | 7 Likes Like |Link to Comment
  • Procter & Gamble: More Than Just A Bond Substitute [View article]
    Yes, I did see that Tom

    I like the fact that P&G is now in a mindset to concentrate its businesses. The Clorox deal (which I'm glad has not been completed) could have been attempted as a way to spin out into other, concentrated consumer staples.
    Sep 22 01:00 PM | Likes Like |Link to Comment
  • Procter & Gamble: More Than Just A Bond Substitute [View article]
    Thank you, Tom, for a very well-written article about P&G

    For me, the timeliness is spot-on. I have concerns about the General Mills, a current holding of mine. These revolve around what appears to be a long-term, secular decline in breakfast cereals; coupled with struggling growth offsets featuring international growth and alternative products.

    As a potential Consumer Staples substitute, I have been considering P&G. Having done considerable research on the firm, I believe your article has reinforced many of the findings, offered confirmation via different pathways, and provided good analysis overall. Very much appreciated.
    Sep 22 11:42 AM | Likes Like |Link to Comment
  • Restoring My Growth Portfolio With Restoration Hardware By Closing Out Celgene [View article]
    Abba's Aces

    Recommend reviewing CELG stock on operating earnings versus GAAP EPS. If so, the ttm P/E on is 27x. Operating Cash Flow reveals an even better story: the CCR (cash conversion rate) is >100%. This means the company converts a dollar of earnings into greater than a dollar of actual cash flow.

    The 3-year EPS growth forecast is 27%. That's management speaking, not Wall Street. Celgene hasn't missed a quarterly Wall Street estimate in over 3 years. These figures indicate a 3-year PEG of 1.0x. Cheap.

    Celgene has enormous margins and returns.

    Bio-pharma is generally insulated from interest rates and macro economics.

    I have not researched Restoration Hardware. I have no negative bias towards that outfit. However, I could not think of many better long-term, explosive growth plays versus Celgene Corporation. I suggest owning Celgene shares, not renting them.

    Good luck with all your 2014 investments.
    Sep 21 07:55 PM | Likes Like |Link to Comment
  • Annaly Capital: The Waiting Game [View article]

    Thanks for your update on Annaly Capital Management. Some investors remain skittish on any whiff of a rate increase, as evidenced by the somewhat nasty share price fall over the past couple of weeks.

    However, in my estimation, this doesn't change 2 key drivers:

    The price-to-book is very low. An 18% discount indicates the market is expecting a rapid increase in rates. Based upon Yellen's comments, this just doesn't seem to be in the cards. This September, the 10-year treasury added about 10 bps and freaked out a few folks. Fears we are on the precipice of what happened in April-May 2013 are overblown.

    The second benchmark is the 2-10 year treasury yield spread. In NLY's history, there has not been such a disconnect between these dual metrics versus share price. Spreads are not compressing. I continue to point to this chart, the most recent time in March:

    In 2014, the gap between Annaly price and the yield spread has narrowed (a little) but the historic gap remains enormous.

    I suspect patient Annaly investors will be rewarded.
    Sep 21 09:26 AM | 6 Likes Like |Link to Comment
  • Buy Bank Of America Like Buffett: Warrants Offer Tremendous Value [View article]
    Thanks Matthew

    Yes, it's a call based upon premises. A LEAP holder may elect to exercise the options for $10 at a time of his/her choosing and capture the dividend and stay long indefinitely. The premise for dividends is another consideration. The warrants adjust while the LEAPs do not. I need to do some more math on it.
    Sep 19 11:13 PM | Likes Like |Link to Comment
  • Buy Bank Of America Like Buffett: Warrants Offer Tremendous Value [View article]

    Back during the darker days, I took a similar approach with Wells Fargo warrants and the investment is working out very well.

    However, in the case of BAC I'm wondering if the warrants are any better than the LEAPs. Currently, the BAC/WS trades for $7.65. Since the dividend was raised from a penny to $0.05, the new strike on the warrants is $13.26. This means the breakeven is or $20.91. This is a 23% premium over the current common share price of $16.94.

    On the other hand, one can purchase BAC $10 strike January 2016 calls for $6.95. The price is cheaper, the strike is lower, though the expiration is shorter. **Key: there's almost no premium.** I have not done the DCF math on one versus the other. There are no dividend rights, but if the dividend payout is raised to "normal" bank levels, the investor always have the opportunity to exercise the options and pay up to get the payout. If the dividend stays lower, then there's less reason to put up the extra capital.

    What do you think?
    Sep 19 01:46 PM | Likes Like |Link to Comment
  • Why Is The Price Of Gold Falling? [View article]
    Thanks, Cullen and commentators.

    I hold few DIM long GLD long LEAP calls for portfolio diversification and to keep a sleepy finger on the yellow metal. My objective is to write diagonal short calls against the LEAPs to generate annual income approximately equal to the yield on the S&P 500.

    As a fundamental investor, I enjoy reading articles about gold from time to time, and especially the comment boards, since I don't see any real "line of sight" fundamentals to it. That doesn't mean there isn't, but it seems opinions about gold grow like weeds, and the questions outnumber the answers. When does gold ever behave as we "expect" it to behave?

    Here's a thesis:

    If we begin with a 10-year, monthly chart for GLD; and draw a trendline beginning mid-year 2004 (a flattish price period) to mid-2007 (pre-crisis), then extrapolate that slope out to today, it shows a projected GLD price of ~$137. What if the 2007-2013 period was an anomaly before reversion to the mean?

    In June 2013, the trendline and price converged once again after 6 years. The price broke below that 10-year trendline in March 2014, and has ranged below it since that time.

    What if the GLD has simply over-reacted the other way-- it's now trading a bit lower than the long-term mean? If so, it will converge once again upon the trendline, just perhaps not when we want it to.

    Sep 19 08:42 AM | 2 Likes Like |Link to Comment
  • Kellogg Or General Mills For Your Retirement Portfolio? [View article]
    Thank you, mbn
    Sep 18 08:38 AM | Likes Like |Link to Comment