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Ray Merola

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  • General Motors: Recall Sell-Off Is Overdone [View article]
    Agree with your analysis, Bret

    The shares are inexpensive on several fundamental metrics, included a key one: FCF. As a long-term investor, the recall is unfortunate, but not a click to sell.

    I rounded out my position in the 4Q last year, so I'll not add more unless the shares get silly cheap. I prefer accumulating some Materials and Energy names instead.

    All the best.
    Mar 18, 2014. 02:28 PM | 3 Likes Like |Link to Comment
  • Zacks' Bear Of The Day: International Paper [View article]
    Interesting move, Gene

    I had the same idea, but missed the timing a bit. A couple weeks ago, I sold the Jan 45 puts at $3.10; if put, a net under $42 a share. The stock has remained above this level since early 2013. I figured with a modest 3Q dividend increase, the resultant yield support around 3.5% would kick in, too.

    I also didn't see a normal probability of the shares going below $42 based upon Fibonacci retracement, either.

    If put, I'm happy to buy more. IP has been in my portfolio since 2009; trimmed back in 2012 and now building up again. CEO Faraci is outstanding. The company should do well as the TI acquisition is digested and North America sees any kind of a decent economic expansion.
    Mar 18, 2014. 02:23 PM | 1 Like Like |Link to Comment
  • Intel: Justifying A $33 Price Target [View article]
    The outline is plausible. However, I suspect investors will need to see evidence of earnings growth before multiple expansion. This could come in November with a good management "pitch" for projected 2015 EPS.

    In the meantime, I'm less convinced that the shares will get to $26 through mid-year. I just don't see any catalysts; though CEO Krzanich could be an ace in the hole.

    The current P/E is 13x. Even with a $2 EPS, and holding that multiple, we're at $26 sans a kickstart.
    Mar 18, 2014. 12:23 PM | Likes Like |Link to Comment
  • Intel - Skeptics Beware, Analysts See Upside [View article]
    One might check Zacks for consensus estimate figures. I tend to discount Wall Street estimates in general, and particularly individual predictions. However, at least Zacks has a relatively large number of analysts baked into their consensus numbers.

    Based upon that information, it appears that Intel 2014 EPS forecasts have eased slightly over the last 60 days. There are some analysts raising earnings expectations, but some lowering them, too. Somewhat more lowering than raising.
    Mar 18, 2014. 12:13 PM | Likes Like |Link to Comment
  • Friedman Industries: A Sound Micro-Cap Tossed Into The Bargain Bin [View article]
    Yes, it would seem the release is not surprising given the weather. Friedman management indicated the 1Q weather was a bit of a headwind, too.

    My concern would be if management altered their earlier view projecting a nascent 2014 non-residential construction rebound.
    Mar 18, 2014. 10:22 AM | Likes Like |Link to Comment
  • Friedman Industries: A Sound Micro-Cap Tossed Into The Bargain Bin [View article]

    It's hard to say, since FRD is so small.

    My intuition says the U.S. Steel situation does not affect Friedman. Friedman works through USS buying off-spec pipe, reprocessing it, and re-selling it back to U.S. Steel. In addition, it buys coil from USS to process tubular products.

    Nucor, the other major supplier/customer, is faring better than USS.

    Friedman will ride the wave of mid-continent non-res construction. I believe that missing piece will drive business revenues and margins from here.

    Mar 17, 2014. 07:29 PM | Likes Like |Link to Comment
  • 2014 Strategies And Stocks: Part 6, International Paper [View article]

    I was looking at this over the weekend.

    IP does business in Russia primarily through the Ilim joint venture. It's booked as unconsolidated equity earnings, meaning only the pro-rata profits/losses are carried to the income statement. Typically, in these cases there's no physical plant assets or JV liabilities on the balance sheet.

    Last year, Ilim lost money. This year, Ilim was projected to make IP ~$30 million equity earnings, or about $0.07 a share. That's about 2% of projected operating earnings. Not that much, on balance.

    Since it's a JV, not a subsidiary company, I suspect things are more likely to work out in the long run. As a joint venture, my view is that International Paper and the Russians need each other to some degree.

    Perhaps the market is over-reacting a bit this morning. It's hard to justify a big hit to the shares based upon a joint venture that generated a 2013 bottom-line equity loss. While I suppose it's possible that the Russian government could push IP around, it would seem less than likely they would want to spend much time goofing around with a paper and packaging company located in Siberia; already controlled by nationals.
    Mar 17, 2014. 10:39 AM | 1 Like Like |Link to Comment
  • Rich And Retired? It Is ALL About Capital Preservation, Folks! [View article]
    A very good read, RS.

    Two thoughts come to mind as I went through the article:

    1. Get Rich Slow. For young folks still a bit shy of the multi-million$ status: hey, there's time. Start early, invest, and let that nest egg roll up. For many, you can either be poor when you're young, or poor when you're old. Sacrifice a little young.....being old and poor sucks.

    2. Compound interest is magic. Remarkable stuff. Albert Einstein quipped, "The most powerful force in the universe is compound interest."
    Mar 17, 2014. 09:09 AM | 3 Likes Like |Link to Comment
  • A Pool Of Potential Insurance Company Investments [View article]

    I've written about AFL here and on other forums, too. For info, the U.S. arm of the company generates ~$1 billion earnings per year. Total dividends paid are about $600K per annum
    Therefore, the U.S. operations make more than enough to cover the payout.

    In addition the U.S. balance sheet has over $12 billion in cash.

    Yen do not need to be exchanged to USD to pay the dividend.
    Mar 14, 2014. 08:58 AM | 1 Like Like |Link to Comment
  • 2014 Strategies And Stocks: Part 9, Annaly Capital Management [View article]

    Good approach. Best to start small and then scale in.
    Mar 13, 2014. 12:07 PM | Likes Like |Link to Comment
  • Aflac's Japanese Risks Are Overstated [View article]
    Thank you for a well-reasoned and balanced article, Sean.
    Mar 13, 2014. 10:13 AM | 2 Likes Like |Link to Comment
  • How A Long Is Playing The GM Mess [View article]

    Good article on your thoughts about continued investment in GM.

    Likewise, my position was in GM warrants. Last week, I actually converted half of them to GM shares, immediately prior to the x-dividend date. My view was similar to yours insofar as I plan to hold General Motors for the duration. This recall does not change the long-term fundamentals for the company.

    By converting some warrants, I now will collect the dividend thereby generating some income on the position. The spread between the warrants and shares was somewhat narrow last week. Coupled with a good dividend, I felt the conversion was worth the additional capital.
    Mar 13, 2014. 10:09 AM | Likes Like |Link to Comment
  • 2014 Strategies And Stocks: Part 9, Annaly Capital Management [View article]
    For info, the Annaly Capital Management web site is back online.
    Mar 13, 2014. 09:55 AM | 1 Like Like |Link to Comment
  • Annaly Capital: 3 Correlated Values Suggesting A Potential Upside [View article]
    Good article, Marco

    I believe you've hit on a key mREIT metric: the short-long interest rate "spread." A reasonable proxy for this is the 2/10-year T-note chart illustrated in your article.

    Please permit me to suggest two other observations:

    First, there really are not too many intangible assets listed on the balance sheet. mREITs deal primarily with mortgage backed securities that can be readily priced at market. The balance sheet itself lists "goodwill" at not more than ~1% total assets. No intangible assets are noted.

    Second, Annaly Capital shares often don't correlate with the general market. The "beta" for this stock is 0.2; confirming that this stock may not move with the broader market at all. This can cut both ways for investors.

    Congratulations on your first S.A. publication, Marco. Looking forward to more of your work.
    Mar 13, 2014. 09:54 AM | 1 Like Like |Link to Comment
  • 2014 Strategies And Stocks: Part 9, Annaly Capital Management [View article]
    Thank you for your comments, Marco

    I checked out your NLY article mentioned above and we have landed on a few of the same thoughts.

    Regarding valuation, Annaly is actually stew of generally liquid MBS and CRE securities, with various hedging instruments mixed in. The underlying securities are not difficult to market price. There really isn't much ongoing "enterprise value" in the operation. However, it may be noted that management can make a difference in the bottom-line results contingent upon their use of hedges, leverage, security selection/duration and CRE purchases.

    Therefore, it would seem that the shares should not run too much above or below book value: unless investors are anticipating net book and / or net interest income will continue to diminish (or rise) in value.

    At this point, once the business bottoms and begins to show increasing book and NII, then it would appear reasonable to submit that share prices should bounce back to somewhere around book again. As with many securities, Mr. Market does not always prices them efficiently, all the time. Euphoria and despair often skew near-term results.
    Mar 13, 2014. 09:15 AM | 2 Likes Like |Link to Comment