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Ray Merola

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  • How To Identify Good Stocks, Part 1 [View article]
    Thank you, steve2334

    Investors take a long view.

    "Over the short-term, the market acts like a voting machine. Over the long-term, it's a weighing machine." -- Benjamin Graham

    For many of us, it's easier to be an engineer than a pollster.
    Mar 26 11:20 AM | 3 Likes Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]
    me39

    This is an interesting observation. There is validity to it. Financial institutions tend to do better when interest rates are higher, thereby providing better net spreads on the investment portfolio. Both the U.S. and Japan have experienced historic low rates lately.

    It would appear difficult to argue that rates will stay forever low, as experience indicates that interest rates, like price-and-earnings, tend to "revert to the mean." As rates rise towards the long-term averages, companies like AFL should benefit; with the double-whammy of improved earnings growth and multiple expansion.

    Aflac has seen fairly consistent multiple contraction since 2000. However, interest rates have been trending down for decades; Aflac PEs were similarly low in the mid-to-late 1990s, but rose to a market norms towards the beginning of the millennium.

    AFL shares have experienced some multiple expansion since 2013. The bump in interest rates may be a contributor.

    While I agree that interest rates do influence affect financial stocks (including Aflac), I am not prepared to state interest rates alone are a silver bullet to explain the stock's apparent multiple compression. Nor do I believe it will take higher interest rates alone to see future P/E expansion.

    Good comment.

    Mar 26 09:44 AM | 2 Likes Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]
    Thanks for the kind words, Mike

    Aflac management has stated the long-term objective is to grow operating EPS ~7% a year, and coupled with the dividend should result in a total annual return around 10%.
    This assumes no multiple expansion.

    The 5-year dividend growth rate has been 8%. While I agree with you it's slowed recently, I think it reflects more of a temporary consolidating phase in the business than a fundamental shift. The U.S. and Japanese economies have both hit rough patches during the last several years, and that does affect the supplemental insurance business. In the meantime, Aflac did a major deal with the Japan Post. That has the potential to juice earnings down the road. Some internal projects and portfolio strategies have likewise kept the string tight for the long-term, but resulted in a little less short-term growth.

    Notably, the share repurchase plan has remained in place and strong. Through the plan, Aflac continues to reduce shares outstanding in a meaningful way.
    Mar 26 09:24 AM | 4 Likes Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]
    Thank you, PfR

    Japanese debt and policy has worried some Aflac investors. I believe the risk of disruption is low. Japanese debt is largely owned by its own private citizens (versus overseas investors), by nature the culture is conservative, and the economy is large and diverse.

    While investors should monitor the situation, I suspect the monetary and fiscal concerns create more of an opportunity to buy than a reason to sell.
    Mar 26 09:10 AM | 2 Likes Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]
    Mr. Market will recognize Aflac at some point. I cannot say when. For the investor, it's a matter of patience. For the trader, it's another story.
    Mar 25 08:14 PM | 1 Like Like |Link to Comment
  • 2014 Strategies And Stocks, Part 8: Energy Transfer Equity [View article]
    reader

    Thank you for stopping by!

    Personally, I own both ETE and ETP as the two sister companies are similar but not alike. ETE owns GP interests, whereas partnership assets (primarily) reside in the ETP structure. The GP is more likely to see better capital gains, while the LP should show better income.

    RGP business assets are outside the Energy Transfer family (though Energy Transfer and Regency do own/operate together one large joint venture). RGP appears to be a good MLP in its own right. However, since ETE owns the Regency GP interests, one already has some interest in RGP by owning ETE.

    Therefore, I'd view it as a choice between ETP and RGP. Own one and not the other; and get the GP interests of both through ETE.

    This also reflects my personal strategy / discipline to own a limited number of equities. I prefer to keep the total number of positions relatively low (between 15 and 20, typically with some "on the way out"). I find owning too many stocks makes them difficult to follow properly.
    Mar 25 05:28 PM | 1 Like Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]
    United HealthGroup is one of a minority of large-cap, undervalued Health Care sector stocks. The company has some decent growth prospects.
    Mar 25 01:54 PM | Likes Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]
    Thank you Pink26

    It's good to know that you are still kicking around. Haven't heard from you in awhile!
    Mar 25 01:52 PM | 2 Likes Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]
    Many thanks, cbmetcalfe
    Mar 25 12:10 PM | 1 Like Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]
    rungrandpa

    Aflac has demonstrated better 5-year revenue and EPS growth rates than ALL and TRV. I have not done any research on HIG, though I did own some Hartford bonds awhile back.

    Over the past 5 years, the Aflac dividend growth rate has been 8.1% a year. Travelers have been better, AllState much worse. As noted in the article, AFL is a Dividend Aristocrat.

    Aflac has a 95% "persistancy ratio" (a measure of policyholder renewal rates) in Japan. The others cannot touch this. AFL has a 78% PR here in the U.S., still an outstanding figure.

    Besides some of the numbers, Aflac has a different business model. The company concentrates primary on supplemental insurance in Japan and the U.S. Japanese operations account for over three-quarters of total revenue.

    On the other hand, the other insurers noted tend to deal with multiples lines of insurance products. Many tend to have operations throughout the world, whereas Aflac has its business concentrated into the two largest insurance markets in the world.

    TRV and ALL stocks appear to be quite decent. I especially like Travelers. However, in my view AFL is a better stock for the long-term.
    Mar 25 10:29 AM | 6 Likes Like |Link to Comment
  • GM Recall: Let The Data Speak [View article]
    Thank you for a level-headed, well-reasoned article, Johannes.

    Headline risk typically exaggerates underlying real risk. Agree that GM will make its way through this one, too. The Feds may also have some culpability in this case. I believe I read that GM put out an internal bulletin on these potential problems that was also sent to the regulators; who took no action.

    Will be a tough test for new CEO Barra.

    Mar 24 01:40 PM | 3 Likes Like |Link to Comment
  • Zacks' Bear Of The Day: International Paper [View article]
    Sounds like a great trade, Gene. I already have a full long position (some of it going back to 2009), so I have less contracts outstanding, and less cash tied up. I'm in IP for the long haul and believe they will do just fine.
    Mar 20 05:52 PM | 1 Like Like |Link to Comment
  • I Love My 'Magic Pants' And My Partners Wear Them Proudly [View article]
    Thank you, David

    My view is that virtually no academic halls teach how to become a good investor. The statistics and theories are fine studies in market generalities, but for the individual investor it's all about specific stocks and hard work.

    "It's not a stock market, it's a market of stocks."

    While a bit upfield of the thread, here's another viewpoint:

    I do not necessarily believe that greater investment risk leads to greater investment reward. I believe more investment due diligence leads to greater reward and less risk. Investing is has a lot to do with probabilities and uncertainty. Asymmetric risk/reward can be attained via sound effort. While compatible with any number of academic studies, this view runs alongside classroom notions of "The Market," and human behavior, not through it.
    Mar 20 12:03 PM | 8 Likes Like |Link to Comment
  • Annaly: Buying The Dips Before The Company Announces The Next Dividend [View article]
    Good article, RS

    Indeed, I suspect the most recent sell-off on the Fed announcement is an opportunity. I believe there is reasonable probability the next dividend will be increased. That may whipsaw the trader/sellers once again.

    You've hit the high points well: NLY makes money on the spread, the business model does not take well to sudden jolts in rates, management does have several arrows in their quiver to mitigate short-long rate, and Crexus offers diversification and a somewhat different risk profile via CRE.

    Long NLY and NLY-D
    Mar 20 11:43 AM | 4 Likes Like |Link to Comment
  • I Love My 'Magic Pants' And My Partners Wear Them Proudly [View article]
    Interesting articles both: Swedroe and Carnevale.

    Chuck did an excellent job of defending himself and his position courteously and professionally. I would expect nothing less.

    I found many subsequent comments outstanding; adding to the discussion.

    I teach an informal class about investing and one of the things I note is that much of the academic literature written about investing lacks key points-of-view: how underlying markets work and investor psychology. Academics often attempt to take enormous volumes of data and trying to create a thesis based upon it. Practical investors focus upon making money. In my younger days, a wise investor told me, "Do you want to be RIGHT, or do you want to MAKE MONEY?"

    During the dot-com era, another investor (perhaps more likely a trader) told me, "Dividends indicate that the company's management can find nothing better to do with excess cash, so they dish it out to investors and they pay taxes on it." Over the years, I have reflected upon that statement. While sounding good, I suspect it's more of a false choice. It supposes that management will be more prudent and efficient handling excess cash versus permitting the investor to utilize it. Unspoken, there's also an inference that Mr. Market will recognize any of it in the price of the security.

    For the record, I'll stick with Chuck's viewpoint and the dividends.

    Mar 20 08:51 AM | 18 Likes Like |Link to Comment
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