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Ray Merola  

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  • Union Pacific: Worries Create Long-Term Opportunities In This Quality Stock [View article]
    Fine article, thank you.

    You have addressed the fuel surcharge issue that I've questioned before. My initial reaction was lower diesel costs would more than offset reduced energy-related freight (coal, oil, frac sand, etc.). However, this is not the case.

    I'd like to see share prices fall to ~$100 before I'd begin to rebuild my UNP position. I consider it a core holding, so while I don't sell out completely; I scale out of Union Pacific shares when I believe these trade greater than fair value. I trimmed back by half as the shares approached $120 and more.
    Apr 9, 2015. 10:49 AM | 2 Likes Like |Link to Comment
  • Nucor: Too Expensive [View article]
    Frank Isaksen

    Certainly this is a well-researched article and you put a lot of work into it. Thank you for sharing the results.

    However, the difficulty with economic models is their inability to include the underlying corporate narrative. This is often critical to the investment thesis.

    1) Nucor is a Dividend Aristocrat. The company has increased the regular dividend for over 30 consecutive years. That track record, plus management's commentary upon it during conference calls, would appear to set a very low probability that the payout would ever remain static, let alone cut.

    2) The modeling assumes that the U.S. dollar will forever remain strong, foreign steel dumping will continue unabated, and North American non-residential construction (which fuels about half of Nucor's business) will remain sluggish. In fact, many believe all these items are transient and will improve. Each item has the propensity to alter the trajectory for Nucor revenue and cash.

    3) Nucor has a world-class DRI facility that has been off-line due to repairs for nearly 6 months. When this asset returns to service, a major component of the business will be producing cash again. It was scheduled to return to service at the end of March / early April.

    4) A combination of the DRI facility and lower scrap prices make mini-mill manufacturer Nucor (and perhaps STLD) the low-cost North American steel producers. U.S. Steel and AK Steel are traditional blast furnace operators. There is a strong argument that the high probability of a cost disconnect will hurt the latter to the betterment of the former.

    The Steel industry is challenged, for sure. However, I submit that Nucor is the best operator, with the best management, the most flexible labor force, and the lowest cost structure in the field. The secure dividend pays investors to wait. It is the only steel producer with an investment-grade credit rating.
    Apr 8, 2015. 08:37 AM | 4 Likes Like |Link to Comment
  • Celgene Has Plenty Of Mojo Left: But Don't Get Greedy [View article]
    No worries, all on board

    While we cannot be absolutely sure, I believe we've still go a tiger by the tail in Celgene. The recent fall has not come on any particular news or fundamental change in the stock ownership thesis. The dip is typical for fast growers: retracements are fast and hard.

    An encouraging sign is shown in the charts: daily volume has fallen the past few days. This may be a sign sellers are exhausting themselves. A return to normal volume could signal the share price will stabilize. Celgene reports earnings on April 22.
    Apr 7, 2015. 08:00 AM | 1 Like Like |Link to Comment
  • Celgene Has Plenty Of Mojo Left: But Don't Get Greedy [View article]
    all on board

    I disagree altogether with the basics of your argument. However, it certainly remains your prerogative to maintain it.

    First, for disclosure, I accumulated a CELG full position at prices much lower than today.

    I encourage investors to have a clear understanding of what he/she believes is a stock's fair value: PRIOR to purchase, and then update routinely. In the case of Celgene, I believe fair value is ~$123; based upon the methodology outlined in the article. Good investors may agree or disagree upon that benchmark.

    If the shares climb above this marker, I believe the shares become rich, and overvalued.

    On the other hand, as a stock falls below fair value, it becomes more attractive to long-term investors. When accumulating a position, I'm happy if the price goes down. This permits me to purchase more at cheaper prices.

    When the price rose above $123, I would begin to think about offloading shares to take profits and potentially reinvest when share prices fell. Unfortunately, I did not sell at ~$127 (the near-term high). I planned to begin lightening up around $130.

    Price is what you pay, value is what you get. Some investors struggle with this concept.

    If a sweater is valued at $50, based upon knowledge of its fabric, craftsmanship, and brand; and Macy's puts it on sale for $25, it doesn't make the sweater less valuable. It's still a $50 sweater. The buyer just pays less for it.

    If Celgene stock were to trade between $100 and $105, I believe this represents unusual value. Even though I have a full position already, I'd likely try to overweight the shares since I believe the discount is so large. This doesn't happen all too often.

    I like buying stocks at a discount, then selling when buyers over-pay me to take these same shares off my hands.

    It's true that the market can remain irrational a long time. It's up to each investor to determine the best values, and then have the patience to wait until the shares reach fair value. It's a long game. It takes patience, fortitude and hard work. Recognizing when the facts change is a key; however, not "scaring out" is likewise an imperative.

    It's a prescription for making consistent, out-sized investment gains.

    "The only investment advantage is for a new investor snatching up the shares at basement prices." For a deep enough discount, I will put forth considerable effort to free up capital. For that purpose, I am indeed a "new investor."

    Good luck with all your 2015 investments.
    Apr 6, 2015. 11:51 PM | 3 Likes Like |Link to Comment
  • Celgene Has Plenty Of Mojo Left: But Don't Get Greedy [View article]

    Correct. Sell-offs in go-go growth stocks can be swift and nasty. For investors, it creates an opportunity.

    My valuation methodology, as offered in article, says Fair Value is ~22x 2016 estimated EPS. CELG management has a strong track record for making earnings forecasts. As such, $123 appears a reasonable share price.

    Now ~$113, the stock is at a discount? I think so, and getting better. I have a full position, but may find a way to add a little between $100 and $105; representing (to me) a significant investment discount.
    Apr 6, 2015. 03:06 PM | 1 Like Like |Link to Comment
  • A Brief Tale Of 1937 [View article]

    Other actions contributing to the "Roosevelt Recession" included an insistence upon raising taxes on the "wealthy," and sympathetic policy / rhetoric for the labor unions, a powerful voting block at the time.

    Some historians concluded it was a classic example of political overreach.
    Apr 6, 2015. 07:45 AM | 5 Likes Like |Link to Comment
  • Shedding Light On Why I Bought Royal Dutch Shell [View article]

    I believe you have made a good choice to invest in Shell Oil. I own shares, too, and worked for the company for over 30 years.

    The near-term layout: Shell management went on record and provided a rough estimate that for each $10 drop in the price of crude, it would cost the company ~$3.3 billion operating cash flow.

    For 2014, the company generated $45 billion OCF at an average $90 price per bbl. A year at $50 oil suggests 2015 cash flow could be about $32 billion.

    2014 capex was $33 billion. The dividend costs about $12 billion. So something has to give.

    However, there are paths forward. First, capex will get cut back. Second, Shell announced plans to sell ~$15 billion assets in 2014-15. About $10B was completed last year. Therefore, 2015 net capex could get some $5 billion skinnier on a net basis, assuming successful asset sales. Third, the balance sheet is outstanding. Shell could borrow to close the cash flow gap; at least for a year or so.

    In addition, the company announced a dividend share script program. Some 2015 dividend cash may instead be distributed in equity, not cash.

    Finally, Royal Dutch Shell has not cut the dividend since 1945. Management is well-aware of that fact. CEO Van Beurden spoke to that in the most recent earnings conference call, referenced Shell's "track record."

    Long RDS.A

    Happy Easter to all.
    Apr 3, 2015. 11:45 PM | 16 Likes Like |Link to Comment
  • Bank Of America: Still Disappointing Shareholders, But For How Much Longer? [View article]

    Agree with the TBV (versus BV) approach to valuation. In addition, I believe a P/E approach may be used as additional confirmation. Most banks (including BAC) show a price-and-earnings correlation.

    That said, I question the conclusion the banks isn't trading at a discount.

    Currently, the P/TBV is ~1.0. This indicates BAC has little to no value as an ongoing business enterprise. It could be liquidated for approximately the shares go for today.

    However, Bank of A DOES have value, as indicated by consistently positive earnings. That's not to say the earnings are acceptable, or providing adequate returns. It's simply to note that the business has emerged from the Recession with the ability to generate positive bank earnings, even in a difficult interest margin environment.

    I suppose the investment community could be taking the approach that the tangible assets are cooked, or the liabilities understated; though I've not seen that suggested directly.

    Apr 2, 2015. 11:06 AM | 3 Likes Like |Link to Comment
  • Celgene Has Plenty Of Mojo Left: But Don't Get Greedy [View article]
    all on board

    What's your view of Celgene shares at $114.20 : an opportunity, disappointment, or a threat?
    Apr 2, 2015. 09:39 AM | Likes Like |Link to Comment
  • Express Scripts - An Attractive Value Opportunity [View article]
    Blue Tower

    Thank you for a well-researched article about Express Scripts.

    What is your management opinion of CEO George Paz? In the article, you mentioned his reputation for being frugal. However, he remuneration package isn't. I have viewed this with a level of scrutiny.

    Over the past few years, Cash Flow and FCF have declined. Is this a concern vis a vis your long-term thesis?
    Apr 1, 2015. 08:51 AM | Likes Like |Link to Comment
  • Bank Of America: Reasons To Be Bearish [View article]

    I don't invest in many ETFs. I prefer individual stocks. The oil field is treacherous now, but will come back. It will take some patience. Buying best-of-breed is important. Weak hands will get shaken out.

    No one knows what the price will do in the short-run. Some oil men think the low has been put in; but that doesn't mean it will immediately go up, either.

    Energy stocks versus plays on the commodity itself seems like a better deal to me. Others may disagree about that.
    Apr 1, 2015. 08:28 AM | 1 Like Like |Link to Comment
  • Bank Of America: Reasons To Be Bearish [View article]
    Many thanks Edi222

    You recalled an article from quick awhile back. Wells is clearly the best-of-breed large bank. I sold off Citi to swap into Wells Fargo. I'd listen (or read) those old C conference calls, and couldn't figure out what they were talking about. Too much mumbo jumbo.

    WFC speaks very clear English. It's the second-biggest position in my portfolio.

    I'm willing to give BAC awhile to get their schtick straight. I'd prefer it be without Moynihan, but I'll tolerate him due to the valuation call only.

    Modest portfolio position is all for now.
    Mar 31, 2015. 10:16 PM | 1 Like Like |Link to Comment
  • Nucor: Weighing The Pros Against The Cons [View article]
    I like Nucor stock today. However, I believe the major issue facing the business is the dramatic rise in imported steel. This is crushing the industry. Nucor is best positioned to weather the storm, but the storm may not blow over quickly. Many of the world's economies are weak.

    Recommend watching anti-dumping complaints and resulting tariffs. This may get some traction in 2015. The steel industry won a few such skirmishes in 2014.
    Mar 31, 2015. 09:05 PM | 3 Likes Like |Link to Comment
  • Bank Of America: Reasons To Be Bearish [View article]
    I share serious concerns about Bank of America management accountability and internal governance. I especially don't like Moynihan being CEO and Chairman. On the most recent CC, Moynihan was a bit arrogant when pressed on goal-setting. As a long-time owner of Wells Fargo shares, I could not imagine that management team offering such weak responses to direct questions.

    Likewise, I believe the bank may be too big for itself.

    On the other hand, the litigation issues should be winding down; I see nothing on a go-forward basis near of the magnitude of what's fading away in the rear-view mirror. In addition, BAC is the most levered to interest rate margins. Margin expansion is inevitable. That will simply take patience.

    On a P/E basis or P/TBV, the shares are cheap. TBV has been rising, and this is the metric I'd watch closest. I believe that Bank of America has the potential to earn 1.4x TBV: an equivalent to JP Morgan Chase, another "hated" bank. (Though perhaps somewhat less hated of late). Bank capitalization should be monitored closely.

    Long BAC and would pick at the shares again ~$15.25 or below. One can purchase January 2016 10 strike LEAPS (DITM) for a nickel / dime per share more than a straight long buy.

    I plan to give the bank another year or two to get its act together.
    Mar 31, 2015. 08:55 PM | 3 Likes Like |Link to Comment
  • Celgene: Do The Revlimid Polymorph And Use Patents Matter? [View article]
    My view is Wall Street is creating the buzz, not the company. Celgene management has been steadfast; stating there is a "fortress" of patents around the Revlimid drug. I believe Celgene emerged from the Markman hearing with confidence.

    I hope others more knowledgeable than me provide additional color around the apparent "panic" around CELG losing Revlimid exclusivity ~2022.
    Mar 31, 2015. 04:07 PM | Likes Like |Link to Comment