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Ray Merola

 
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  • Explain To Me Again Why I Should Own Bank Of America Stock? [View article]
    sdz

    There's plenty of blame to go around. Bank management made a series of acquisition and operational blunders, some apparently forced by the government.

    But just for the record, I picked the stock as one of my 9 favorites for 2015; so I'm actually doing more accumulating than whining.
    Jan 27, 2015. 08:06 PM | 4 Likes Like |Link to Comment
  • Explain To Me Again Why I Should Own Bank Of America Stock? [View article]
    Appreciate the comment in defense of my eyesight, WD40k

    Frankly, I cannot say I completely understood the previous commentator. I know what a "short-sighted view" means. Or a taking a "long view." Does a near-sighted view mean that I can see things up close, but not far away?
    Jan 27, 2015. 08:04 PM | 6 Likes Like |Link to Comment
  • Explain To Me Again Why I Should Own Bank Of America Stock? [View article]
    Thanks for reading, jccully.

    I actually think it's a fairly rationale view, backed up with thesis expectations and facts.
    Jan 27, 2015. 08:00 PM | 8 Likes Like |Link to Comment
  • Energy Transfer Merger Creates Second Largest MLP, Scale Economies [View article]
    Hi Jennifer

    Good summary.

    ETE is a direct beneficiary of the deal since the GP owns ~16% of the RGP units outstanding. The company garners a windfall on the transaction, while retaining the IDRs from both ETP and ETE. Note that ETE did agree to some future IDR relinquishment; $320 million over several years if memory serves me.

    I began investing in ETP quite some years ago. However, over the past 3 years I've been advocating ETE as a better total return play.
    Jan 27, 2015. 04:28 PM | 3 Likes Like |Link to Comment
  • Intel: A 'Sustained Mojo' Choice [View article]
    JimHacker

    I have a couple of thoughts. First, if one is thinking short-term: beware. The $80 floor has held several times over the past 4 years. However, this guidance is so low that it's difficult to say what will happen now. The 2015 EPS forecast has surprised Wall Street and that isn't good.

    Caterpillar is a classic, cyclical stock. Many times for such names, if the earnings tank, the multiple rises. By the same token, as the company approaches peak earnings, the PE compresses. I think that's a reasonable scenario.

    Today, we're looking at a rough earnings report on a day when the market is set to open down almost 300 points.

    For investors with a longer view, I continue to believe that purchasing shares ~$80 will end up being a good risk-reward.

    If the stock cannot hold $80, could the stock breach $70? Sure. A better question is if that happens, would it stay down there? I don't know.

    My immediate reaction is to review the earnings release carefully, read or listen to the conference call, run a few numbers on the results versus 2013, and let the dust settle. Right now, I have no plans to try to guess forward price: just spend time trying to better understand the global situation. In a week or two, I suspect we will have a better idea of the new price vector.
    Jan 27, 2015. 09:07 AM | 1 Like Like |Link to Comment
  • An Assorted List Of Mojo, Catalyst, Overhang And Contrarian Stocks For 2015 [View article]
    jonk

    The purchase is very good for GP Energy Transfer Equity. ETE owns about 15% of the RGP units outstanding, so the company is a direct beneficiary. The new ETP/RGP combo entity also simplifies GP administration for parent ETE.

    On the other hand, ETP investors didn't seem to like it so much. I suspect it will blow over. ETP paid a 13% premium for RGP units. Often times, the acquiring entity gets dinged immediately after these kinds of announcements. Let's wait a week or so and see where the dust settles.

    I'd like to read or hear more about the details.
    Jan 27, 2015. 08:46 AM | 1 Like Like |Link to Comment
  • A Second Chance To Profit Does Not Happen Often So Don't Miss It [View article]
    RS

    Always good to read your work and points of view.

    For the patient investor with a longer time horizon, Bank of America may pan out well. It is a most hated stock today. Some of it for good reason.

    I've got a S.A. article in the hopper on BAC that you may find of interest. It includes a specific fair value evaluation. I hope you may comment on it.

    The stock could rise from ~$15.75 today to $22-23 in 2016. EPS should improve, but as you've noted in this article, I'd keep my eye on Net Book and TBV.
    Jan 26, 2015. 02:29 PM | 6 Likes Like |Link to Comment
  • Union Pacific Is Worried About West Coast Labor Dispute [View article]
    Certainly reasonable thought process, Michael

    S&P IQ consensus estimates peg 2015 EPS at $6.51. Zack's has it at $6.56, with a high estimate of $6.70. Therefore, I could argue $6.95 EPS is a bit tall, not much factor of safety built in.

    Forward PE on current consensus 2015 EPS is ~18x, using a current share price of $120 and the most recent analyst expectations. However, I recognize that consensus expectations aren't gospel.

    Seeking a factor of safety, I'd be more inclined to look at no higher than $6.50 projected EPS and use a 17x multiple to ensure a fair value entry point. Of course, that's a function of investors' willingness to "pay up" to get in.

    Another factor is the long run-up in equity prices. While I have no idea when, it would seem reasonable to premise that a garden-variety correction will occur at some point......that will drag down shares on its own accord.

    All in, and upon further thinking, I could get behind Fair Value of $111 ($6.50 x 17); adding a factor of safety for general market downdrafts could still get me down to ~$100-$105. In addition, I prefer to see heavy industrial stocks trade at less than 10x operating cash flow. Using this metric, UNP is over Fair Value on 2015 projections.

    I acknowledge a problem is this stock is riding high. So it comes back to, "How bad do you want in?"

    Premier company, great outlook, sound franchise.

    Long UNP.
    Jan 25, 2015. 12:49 PM | 1 Like Like |Link to Comment
  • Union Pacific Is Worried About West Coast Labor Dispute [View article]
    Nice update and detail, Michael

    Nonetheless, I believe the current stock valuation is over fair value. The current 21x ttm P/E multiple is at the extreme high end of the historic range. Over the past 10 years, the "highest high" P/E has been 21x, obtained time-to-time only. The average normalized P/E is about 17x.

    Therefore, on a price-to-earnings basis, the shares appear priced for perfection, trading about 4 multiple points above the mean.

    My view is the shares are stretching top-end Fair Value when $110; or 17 times 2015 projected EPS.

    For me, UNP is a core holding whereas I have a base position always. However, I've lightened up on the shares recently at $112 and $118 and $121. I do not plan to repurchase unless prices fall to ~$100-- or the underlying EPS premises change.

    What valuation methodology do you use to obtain a $117 entry price?

    Jan 25, 2015. 10:45 AM | 1 Like Like |Link to Comment
  • International Paper: To MLP Or Not To MLP? [View article]
    I wouldn't buy International Paper under the premise that its domestic paper mills are converted to MLP status. However, I would own the shares because IP is the best-of-breed paper and packaging company.

    In addition, to the potential for MLP conversion (which management has gone to the IRS for a ruling), the company has a sleeper interest: the Ilim JV in Russia. Currently, the Ukraine crisis / Russian sanctions / ruble collapse are hurting this facility. Eventually, this too, shall pass. Prior to these geo-political events, Ilim was on the cusp of returning significant, sustained cash to its investors.
    Jan 25, 2015. 09:12 AM | 2 Likes Like |Link to Comment
  • Annaly Capital Management: Assessing Movements Through The LIBOR Rate Curve [View article]
    After NLY tanked in 2013, my approach has been to only reinvest dividends, and wait 5 years. I have neither bought nor sold shares outright since mid-year 2013, only turned on dividend reinvestment.

    For the record, I did buy some NLY preferred shares, but that's another story.

    There's nothing special about holding for 5 years, but as a long-term investor I don't so much see anything wrong with Annaly's (or the mREIT) overall business model; my view is that within 5 years the situation will change sufficiently.

    The underlying issue seems to be the Fed's involvement in QE, interest rates, etc. Once the Fed is out from under QE, its balance sheet somewhat normalized, and regular market forces behaving typically, I'm suspect mREITS will recover; no be forever dead.

    In the meantime, the reinvestment plan may see the net shares pushing a double from the original purchase.

    I recognize the mREIT space is treacherous now; difficult to handicap. However, I point out that in 2014, just last year, NLY shares outpaced the S&P 500 by a comfortable margin. Indeed, it was a year when the benchmark did pretty well, too. Yield chasing is bad news. So is getting whipsawed?
    Jan 21, 2015. 11:29 PM | 4 Likes Like |Link to Comment
  • Just Happened: Energy Transfer Analyst Day [View article]
    If spot crude rebounds to $80 a bbl, all is well. This is reasonable, but the timetable is uncertain. I believe current prices do not reflect supply-demand. Historically, crude prices "crash" and recover; I can find no recent situation whereas prices went down and stayed down long-term. Based upon Halliburton management's discussion this week, I place higher probability that this downturn will likewise be V-shaped.

    "The best cure for low oil prices is low oil prices."
    Jan 21, 2015. 08:57 PM | 3 Likes Like |Link to Comment
  • Bank Of America Is Still Undervalued [View article]
    Good article Saibus R

    Reasonable thesis and objective facts, I like that you included risks, too.

    BAC stock is a 2015 "contrarian" pick for me; I plan to write about it next week. I agree with a prior commentator that this banks' investment portfolio is leveraged more to interest rates than some other large banks. This is a wildcard. I do not like how CEO Moynihan answered analyst questions about corporate goals and objectives if interest rates did not cooperate.

    As an investor (not a trader), I am willing to commit some capital to BAC on valuation and belief that a combo of earnings and book value will push the shares higher as so many overhangs are relieved.

    However, my clear (and current) choice amongst the banks is Wells Fargo: the best of breed. These shares appear fully valued now. While I have no intent to sell, I do not plan to accumulate stock, either.
    Jan 21, 2015. 08:48 PM | 3 Likes Like |Link to Comment
  • The State Of The Health Insurance Union Is Excellent [View article]
    Dana

    What are your thoughts on UNH valuation?
    Jan 21, 2015. 12:18 PM | Likes Like |Link to Comment
  • Halliburton: Short-Term Pain, Long-Term Gain [View article]
    Thanks DAG1996

    I reviewed the earnings release and conference call, then did a workup on a "dour" 2015 EPS forecast. My approach was to begin with 2014 regional segment revenues, and reduce them; take 2014 4Q margins, and reduce them; estimate SG&A, assume taxes rate 27% and go.

    Halliburton management provided some fairly vague figures, so it was a bit of guesswork. However, one can use the 2009 downturn as a rough benchmark. HAL management does not believe this down cycle will be as bad as that one.
    Jan 21, 2015. 11:50 AM | 3 Likes Like |Link to Comment
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