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Ray Merola  

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  • Halliburton: The Bottom Might Be In [View article]
    31October

    What is instructive about the H Gas Fund versus some other energy benchmark? The information is most interesting, but I'm wondering why Halliburton's business would be so closely linked to gas; the company does far more work with liquid hydrocarbons.

    It causes me to suspect the benchmark is a coincidental versus fundamental link.

    In any event, good food for thought. I believe HAL is a good buy at these levels, but my P/E and EPS valuation model indicates the shares could fall to $36. Will know more after 1Q earnings.
    Mar 19, 2015. 05:16 PM | 3 Likes Like |Link to Comment
  • Reviewing The Compensation Incentives At Annaly Capital Management [View article]
    CWM

    Good, logical review. Much clearer now. It does appears that issuing equity helps management, and buybacks do not. Shareholder interests are, in general, the opposite.

    It would seem that if the agreement stated that capital used for share repurchase was not subtracted from the equity calculation, the interests of management and shareholders could be better aligned?

    If so, then I wonder what it would take for a major institutional shareholder, or otherwise, to consider this and begin a process for change?
    Mar 19, 2015. 05:01 PM | 1 Like Like |Link to Comment
  • Aflac Is Undervalued In This Hot Market: Don't Buck The Duck [View article]
    II

    Indeed. I likewise plan to do some more work on PRU, too. Along the way, I read there's been some management problems, but the bald numbers are compelling.
    Mar 19, 2015. 03:19 PM | Likes Like |Link to Comment
  • Aflac Is Undervalued In This Hot Market: Don't Buck The Duck [View article]
    Jeff

    There's 2 good links: the one you provided, and another within that link about Aflac. Having read these, it appears that Aflac filled a niche. Even the writer could not link the company with promoting fear; just offering an cancer insurance product, that for a variety of reasons, seems to resonate far more with Japanese consumer than those here in the U.S.

    I did not realize the level of stigmatism cancer victims continue to receive in that country versus other nations.

    For additional info, the benefit ratio (benefits paid / premiums) for Aflac Japan is over 60%; that's for all products, of which Third Sector is a portion. Here in the U.S., where cancer insurance is not so popular, the benefit ratio is barely 50%. You may interpret that in more than one way.
    Mar 19, 2015. 03:17 PM | Likes Like |Link to Comment
  • Aflac Is Undervalued In This Hot Market: Don't Buck The Duck [View article]
    Good points all, kwylee

    Yen repatriation was greater in 2014 than prior years. If the Yen stay weak and the Dollar strong, the 125 ex-rate is possible; with the corresponding translation to USD.

    Please note that Aflac uses currency futures and derivatives to hedge the difference somewhat.
    Mar 19, 2015. 10:39 AM | Likes Like |Link to Comment
  • Reviewing The Compensation Incentives At Annaly Capital Management [View article]
    CWM

    Thanks for referencing me in the article, and your excellent work on this topic.

    I remain unclear on whether NLY management is incentivized to repurchase shares to increase book value. In the management agreement, the definition of shareholder equity is:

    "..the sum of the net proceeds from any issuances of the Company’s equity securities since inception less any amount that the Company pays for repurchases of its equity securities (determined as of the most recent month end).."

    plus retained earnings and

    "any unrealized gains, losses or other items that do not affect realized net income as adjusted.....to exclude one-time events pursuant to changes in GAAP and certain non-cash charges.."

    If "any amount that the Company pays for repurchases of its equity securities," is excluded from the shareholder equity calculation, does that mean that share repurchases are neutral? It seems that the cash used to buyback shares doesn't reduce equity, but fewer shares could improve book value per share.

    I'm trying to get my head around it. Maybe I'm reading it wrong.

    What say you?

    A second question is the disposition of preferred shares. The language in the agreement appears ambiguous to me.
    Mar 19, 2015. 09:47 AM | 1 Like Like |Link to Comment
  • I Want Book Value: Annaly's Weakness Is Not The Dividend [View article]
    Looking forward to reading your latest article this morning. Will get to that shortly.

    To answer your question, I saw no reference to share repo being neutral. I tried to think it through and interpret based upon the language, "...less any amount that the Company pays for repurchases of its equity securities."

    This would seem to have the effect of cash spent for repurchases not reducing shareholder equity, but the actual share count being lowered?
    Mar 19, 2015. 08:02 AM | Likes Like |Link to Comment
  • Aflac Is Undervalued In This Hot Market: Don't Buck The Duck [View article]
    21811041

    Thanks for taking the time to comment.

    In a nutshell, PRU may a good investment; maybe superior to Aflac. I find particular interest in MetLife, too. NONE of the ones listed appear bad.

    However,

    FAST graphs are only part of the story. It's a review of how well past earnings have tracked price via historic PE or CF multiples. Leading up to 2015, Prudential has experienced faster growth than Aflac. Looking forward (more important) on the FAST forecasting graph, we see that PRU has a 6% projected EPS growth rate. Aflac is expected to see 4.5% growth. Not too much difference there; including the fact that AFL has a flat 2015 baked in.

    In addition, FAST graph operating earnings include currency translation. Aflac management suggests investors review operating earnings AND currency-neutral EPS growth.

    Of course, balance sheet strength must be considered, though the FAST graphs do note that both companies have an "A" S&P credit rating.

    Prudential has a far superior 5-year dividend growth rate. I did not evaluate PRU prospective dividend expectations. However, we do know that Aflac is a Dividend Aristocrat, and aggressively buys back shares.

    My intuition tells me any of these insurers could be a good investment; however, I maintain that Aflac has the best management / experience / leadership in the business, a long-term iron clad dividend track record, and is facing transitory interest rate and currency headwinds.

    Great question.

    Mar 18, 2015. 10:12 PM | 2 Likes Like |Link to Comment
  • Aflac Is Undervalued In This Hot Market: Don't Buck The Duck [View article]
    positivethoughts

    AFLAC, as many financial institutions, are having a difficult time obtaining decent investment margins. While I'm not an insurance portfolio manager, my suspicion is that insurance funds must be carefully / conservatively invested in order to ensure the cash flows match actuarial outlays. In addition, Japan in particular has some tough capital requirements and coverage ratios.

    In the U.S., government debt doesn't pay squat now; Japan is worse. Aflac spent several years extricating itself from the EU debt crisis. An interesting study I may check is reviewing investment portfolio yield among the peer insurers noted in the article.
    Mar 18, 2015. 09:42 PM | 2 Likes Like |Link to Comment
  • Aflac Is Undervalued In This Hot Market: Don't Buck The Duck [View article]
    Jeff

    FWIW, the Japanese are the most heavily insured population in the world. It's cultural. Third Sector products (which include cancer insurance) are very popular there. I see no regulatory risk for that; no one forces the folks to purchase it. On a cultural front, I see very little risk. First, AFL management is well aware of the on-the-ground trends; second, the retention ratio for Aflac Japan is a remarkable 95-96%. This means that nearly everyone with insurance, renews the following year. Very sticky.

    Here in the U.S., the retention ratio is far lower.
    Mar 18, 2015. 03:18 PM | 1 Like Like |Link to Comment
  • Aflac Is Undervalued In This Hot Market: Don't Buck The Duck [View article]
    II

    Recommend reading through the 10-K and earnings filings for some additional background on your question and assumptions. As noted earlier in this comment board, AFL did repatriate more Yen this year than last. They also hedged more than last year, too.

    I believe your question really begs a bigger question: why would you worry about it? The JPY/USD rate goes up and down in cycles. As noted in the article, the currency cycle does not correlate to Aflac's share price. Operating earnings drive the share price; in the case of Aflac, this linkage is strong.

    Aflac is a financial institution. Management butters its bread with investment savvy and good use of derivatives. The current investment portfolio is denominated in all manner of currencies. The portfolio manager uses futures, options and other derivatives to hedge these. The current portfolio manager is a top gun.

    I prefer to focus upon revenues, operating earnings and investment portfolio growth; the benefit ratio, the expense ratio, net investment income, new premium growth, return-on-equity, etc.

    Upon research, my underlying investment premise is AFLAC has some of the very best management in the industry. If this is correct, they will continue to successfully navigate transitory currency rates and interest rates as they have done for the past 40 years.

    Indeed, I view AFL shares as an investment, not a swing trade.
    Mar 18, 2015. 02:12 PM | 1 Like Like |Link to Comment
  • Aflac Is Undervalued In This Hot Market: Don't Buck The Duck [View article]
    conkjc

    Management makes a difference. It's a major part of my investment thesis for any security purchase. Aflac management is tops.

    If you were laying probabilities on NFL football games, would you go with Bill Belichick or Gary Kubiak? Kubiak is ok (maybe), but Belichick is the bossman. Even if I hate the Patriots, I have to respect him.

    Same for major corporations.
    Mar 18, 2015. 01:06 PM | 3 Likes Like |Link to Comment
  • Celgene Poised For Growth, 41% Upside [View article]
    rope879

    I was going to offer many similar comments, but you beat me to it.

    Celgene isn't expensive. CEO Robert Hugin is one of the best in the business, and as you've pointed out, Celgene "beats and raises" consistently. Management makes a difference, and Huglin knows the internal business, and how to manage Wall Street expectations.

    The company also has done a number of investor presentations offering guidance out to 2020. This is unusual, but management remains confident. In a recent presentation, senior management explained why the out-years' guidance was "conservative." They are only providing expectations for current drugs: nothing included for new pipeline approvals.

    Caroline and team have done a nice job here.

    Assuming 2017 operating EPS of $7.50 and a 22x multiple suggests a $165 stock in 2016. The PEG ratio would still only be ~1.0.

    Long CELG.
    Mar 18, 2015. 12:50 PM | 2 Likes Like |Link to Comment
  • AT&T: Some Good News [View article]
    Excellent link, BWwRD.
    Mar 18, 2015. 12:37 PM | 1 Like Like |Link to Comment
  • Aflac Is Undervalued In This Hot Market: Don't Buck The Duck [View article]
    Agree with that overall investment strategy.

    I like to say, "Seek well-managed companies with a good balance sheet, strong franchises, that earn profits mostly in cash, and are shareholder-friendly." Purchase when such securities trades below fair value.

    Foreign currency exchange rates and interest rates are transitory.

    Mar 18, 2015. 12:34 PM | 4 Likes Like |Link to Comment
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