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Ray Merola  

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  • Is Now The Time To Jump Into United Rentals? [View article]
    That's what makes a market, Joey G.
    Jun 23, 2015. 03:33 PM | 1 Like Like |Link to Comment
  • Wells Fargo Is Broadly Meeting Growth Projections; Can It Hit $60 Before The Year Is Out? [View article]
    Just in the way of data, during the 10 year period 1996 to 2007 (immediately prior to the 2008-09 financial crisis) Wells Fargo stock commanded an average 17x P/E ratio. The annual EPS growth rate during the same period was 11%.

    Coming out of the crisis through 2014, the average P/E has been 13x. EPS grew at 25% a year across the same time frame, though I believe going forward we will see WFC show considerably lower growth.

    The current P/E is ~14x.

    Does that support or question the notion of continued multiple expansion from here?

    Jun 23, 2015. 08:26 AM | Likes Like |Link to Comment
  • Wading Into The Oil Patch? Focus On The Balance Sheet - Part II [View article]
    Thank you for the encouragement, karlfigg

    Re BHI acquisition hurdles: there's nothing on the radar screen, but it's like a real estate transaction, nothing is done until you're at the closing table and the other guys has the check in hand. I do not believe there is finality on what Halliburton must divest to satisfy regulators. However, my view is Halliburton's desire to get the deal done and the $3.5 billion penalty for failing to complete the acquisition will be enough motivation to see it through.

    My general rule for managing gains (a high-grade problem) is to sell about about 25% of my shares if I have a 25% profit. The idea is to take a little off the table and avoid (at all costs) a "round trip." After distributing shares, I'd consider repurchasing these at lower prices if the underlying long-term investment thesis remains intact; and the security is a "core" holding.

    There are cases where I break my own rule: but not too often.

    Hope that helps.
    Jun 18, 2015. 10:59 AM | Likes Like |Link to Comment
  • Wading Into The Oil Patch? Focus On The Balance Sheet - Part II [View article]
    hogie

    I believe the merger will close under the current terms.

    When the deal was announced, the deal valued BHI at ~$78. The transaction formula now placed the value of BHI shares at ~$70. Currently, BHI stock has a market price of $63.81.

    An unknown is what assets Halliburton must sell to satisfy regulators, and what price these will fetch.
    Jun 18, 2015. 08:40 AM | 2 Likes Like |Link to Comment
  • Wading Into The Oil Patch? Focus On The Balance Sheet - Part II [View article]
    Thank you for the kind words, Mr. Ogilvie
    Jun 17, 2015. 11:35 PM | Likes Like |Link to Comment
  • Wading Into The Oil Patch? Focus On The Balance Sheet - Part II [View article]
    Thank you, vigma

    I've owned HAL shares for years and rode the energy cycles. I believe you've made a good purchase in the low $40s. Halliburton is tied closely to energy prices; from experience, these prices won't stay low forever.

    "The best cure for low oil prices is low oil prices."

    I believe HAL and BHI will be a forceful combo. In part because Halliburton management is in charge: it is not a "merger of equals."
    Jun 17, 2015. 09:32 PM | 3 Likes Like |Link to Comment
  • Myopic Analyst Syndrome Gets It Wrong: Part I - Procter & Gamble [View article]
    Very good article, Richard

    The information presented is straightforward, and the conclusions reasonable. While traders may temporarily ding PG price based upon emotion, investors need not fret much about rising rates. Indeed, few commentators believe rates will rise very quickly, either.

    This situation is similar (same church different pew) to some responses to an article I wrote about Aflac (AFL). Aflac is another Dividend Aristocrat, outstanding management, wide moat, etc. However, the recent weakening of the Yen versus the Dollar has lead some folks to the conclusion, "Aflac's earnings and share prices are linked to the USD/JPY exchange rate."

    Unfortunately, this is another case of Myopic Analyst Syndrome.
    Jun 16, 2015. 08:41 PM | Likes Like |Link to Comment
  • United Rentals: An Undervalued Company In The S&P 500 [View article]
    Thanks for a well-written article, Aaron

    I concur that URI is an undervalued growth stock with business concentrated in North America. As pointed out, debt is high, but other parts of the balance sheet are fine. No debt comes due between 2016 and 2020.

    An item unmentioned in the article was free cash flow. Despite a capex-intensive industry, United Rentals generates tremendous operating cash. FCF is likewise in the black and forecast to grow smartly.

    Recently, I spoke with a URI management person and they clarified the company has 6% of its business is concentrated in the Upstream oil & gas industry.

    Premising reasonable growth in the U.S. non-res and industrial sectors, URI should do well. Management is shareholder-friendly.
    Jun 16, 2015. 08:14 AM | Likes Like |Link to Comment
  • Wading Into The Oil Patch? Focus On The Balance Sheet - Part I [View article]
    Yes. Hence a key part of an investment thesis for owning the shares.

    While forward EPS and cash flow appears weak throughout the industry, and I have little insight as to the near-term, we can evaluate the balance sheet with a reasonable level of certainty.

    Under the premise that oil prices will rebound eventually, and industry profitability will return, I contend EOG is a best-of-breed in the domestic E&P space; uniquely positioned to capitalize upon better days ahead.
    Jun 15, 2015. 10:25 AM | 1 Like Like |Link to Comment
  • Wading Into The Oil Patch? Focus On The Balance Sheet - Part I [View article]
    SeattleInvestorAMS

    Thank you for the kind words. Indeed, my M.O. is to respond to the vast majority of the comments posted. The reader interaction is a major reason I choose to write for Seeking Alpha. I learn a lot from other commentators.

    Regarding your thoughts about turning on the "spigot," I suspect many North American swing producers have far less financial flexibility than EOG Resources enjoys-- precisely because of its strong balance sheet. Others' situation is one of cash survival: high debt requires significant cash to service it.

    So while there are some producers that may have the flexibility to drill, but not complete wells; I believe the list is relatively short.

    That said, I do suspect your second comment is valid, too. If some producers quickly ramp up after a crude oil price bounce, it could re-pressure prices somewhat. However, I believe postponement or cancellation of mega-projects by some of the Super Majors could be OPEC's end game. Some ultra-deepwater, tar sands, etc. projects seem to have a better likelihood to go away and stay away for awhile.
    Jun 15, 2015. 08:42 AM | 1 Like Like |Link to Comment
  • Annaly Capital Management: Look At The Income On Shares [View article]
    Yes, that's a built-in problem. One possible solution would be to simply "add back" repurchased share equity into the existing contract equation. Therefore, management could utilize buybacks and remain remuneration-neutral.
    Jun 14, 2015. 04:55 PM | Likes Like |Link to Comment
  • Buck The Traders: United Rentals On Sale Now [View article]
    For a couple of years I've been teaching a seminar entitled, "Get Rich Slow: Saving and Investing." The primary underlying thesis is "you can do it yourself." I have a generally low esteem for many financial industry professionals; who I believe, in far too many cases, make investing more complex and difficult than it needs to be. The system is for these fellas to charge fees and commissions upfront--and perhaps, if you're lucky, you get to make some money, too.

    "Something is worth what someone is willing to pay for it." This is a permutation of the "greater fool theory." I encourage folks to run, not walk, from such situations.

    Instead, when it comes to investing, I encourage the folks to seek well-managed companies, with a strong franchise, sound balance sheet, that earn profits largely in cash, and are shareholder-friendly. Purchase securities when these trade below fair value (calculated / probability-weighted FV, not hot air), and sell when these investments can be sold above fair value -- or the initial investment thesis has changed for the negative.

    Basic blocking and tackling. Been working for me for over 30 years.

    Jun 14, 2015. 03:45 PM | Likes Like |Link to Comment
  • Wading Into The Oil Patch? Focus On The Balance Sheet - Part I [View article]
    Gio Graves

    Great comment.

    You nailed the challenge investors face in cyclical / commodity sectors.

    Using multiples of earnings or cash flow doesn't work well during the down-cycle. Conventional valuation metrics (PE, P/CF, etc.) indicate a stock like EOG is "should" be worth between $30 and nil. Many peers are similarly-situated. Probably unlikely such shares price will materialize sans a total collapse of the U.S. economy.

    Hence my focus on the balance sheet and best-of-breed management.

    Indeed, investing in cyclical stocks requires a level of "faith," but some might view that faith as a probabilistic pattern?
    Jun 14, 2015. 01:54 PM | 1 Like Like |Link to Comment
  • Wading Into The Oil Patch? Focus On The Balance Sheet - Part I [View article]
    Thank you, PorT_Alex

    You got it! The other successive articles will be on tap. I plan to write the next one this upcoming week.

    Of course, cash is also an important factor. However, during steep, cyclic downturns most all Sector and Industry participants must struggle with weak cash flow.

    I contend the key differentiating factor is a strong financial foundation: namely, the balance sheet.
    Jun 14, 2015. 01:12 PM | Likes Like |Link to Comment
  • Wading Into The Oil Patch? Focus On The Balance Sheet - Part I [View article]
    wdchil

    Perhaps this is the case.

    Some Super Majors are curtailing huge projects due to lower prices. However, these companies do not expect the current low crude prices to stay down indefinitely. Theirs is a very long game.

    On the other hand, onshore independent producers like EOG are shaping up to be "swing" producers; these guy are not getting sweat out of the business like so many had postulated. Delaying well completions provides a quick spigot when prices recover. If prices then go back down, the strategy is repeated. In addition, the new technology advances U.S. producers now employ is remarkable.

    Indeed, the entire cycle should make an interesting economic study.
    Jun 14, 2015. 01:06 PM | Likes Like |Link to Comment
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