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Ray Merola  

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  • Procter & Gamble: Expensive Dividend Stock? [View article]
    Thank you, DG, for a good article about Procter & Gamble.

    For many stocks, PG included, it is best to compare operating EPS versus GAAP earnings. It provides a far truer picture of the underlying core operations.

    For FY 2015 1Q, P&G had operating EPS of $1.07 versus GAAP earnings of $0.69. Much of the difference was a Goodwill writedown on the Duracell business.
    Oct 27, 2014. 10:58 PM | 3 Likes Like |Link to Comment
  • Retirement Strategy: Sometimes It's Easy To Put Cash To Work [View article]
    Veritas1010

    Thank you for the query.

    My view is that T is a company that individual investors love to hate. It may stem from experiences via the customer side, but seem spill over into the investor domain.

    I see no problems with AT&T strategy. The bigger picture appears to be a slow, methodical move to be the dominant "data content" provider; via any medium. Wireline losses are offset by U-Verse. DirecTV offers a new content distribution medium for TV and internet, including expansion into Latin America. The wireless business is evolving to create enterprise and personal networks of users. AT&T is spending vast capital to build out its infrastructure. The company has the wherewithal to morph into whatever the masses want. The business model seems to reflect, "the customer wants it, then we will deliver it," more than "we will create it, and then sell it to the customer."

    Unlike Verizon, the other mega-telco company, AT&T has more tentacles. Verizon may even lead the U.S. wireless business; however, they do not have the scope and span to internet and TV, nor international ambitions.

    AT&T looks a lot like a semi-regulated utility. I expect slow top line and earnings growth; consistent, modest dividend growth; and a strategy of not necessarily leading all peers...but once taken, rarely giving ground.
    Oct 25, 2014. 05:17 PM | 10 Likes Like |Link to Comment
  • Retirement Strategy: Sometimes It's Easy To Put Cash To Work [View article]
    AT&T pays an outsized dividend and over time, he growth rate tends to meet or exceed inflation. Since the Great Recession, the dividend has increased ~2% a year. This sounds about right given much of the period saw de minimus inflation or threats of deflation. Prior to the crisis, dividend hikes were higher and somewhat aligned with inflation. Sometimes even a bit better.

    I have owned T shares for some time, and seek to accumulate on significant weakness; which has not rolled around. I seek picking at shares below $33, and ramping up to round out a position below $32. Assuming a penny per quarter dividend increase in 2015, a $31.33 price provides a 6% yield. THAT would be the time for a big set up.
    Oct 25, 2014. 04:17 PM | 7 Likes Like |Link to Comment
  • Aflac: Time To Take Another Look [View article]
    madhat68

    Thanks for some excellent commentary. I agree with you (and the referenced investor material) that the Aflac business model is under pressure, both here and in Japan. The Amos brothers, certainly some of the best in the business, may be able to work out of it with renewed promotion, sales remuneration packages, and new products. Once the ACA settles out, it may also provide some stabilization; maybe even a new market. However, none of this is certain.

    On the other hand, the reason I have remained in the AFL shares has been valuation. The current, trailing valuation multiple is only about 9x. This appears too low from either an historical or peer perspective. AFL's 10-year average PE is about 12x. This figure is aligned with the range most of Aflac's insurance industry peers enjoy today. Most of these peers all have middling growth prospects, too; perhaps nominally better than Aflac's, but not much. The issue of currency exchange compounds these comparisons.

    Therefore, one may elect to "hang around" with AFL shares as long as the EPS advances, even modestly (which I believe is reasonably likely), and the dividend increases (which I believe is highly likely), perhaps awaiting an 11x multiple before checking out. That would be a point below the 10-year average.

    Based upon 2015 EPS of $6.30 (about 2-3% better than expected for FY 2014), such a view could yield a stock target fair value of ~$69. That's a good 17% higher than today's price, sans dividends.

    Would I pound my fist on the table for Aflac? No. However, at least for now, would I bail? A second no.
    Oct 25, 2014. 01:31 PM | 1 Like Like |Link to Comment
  • Update: Caterpillar Beats Earnings, Rises Outlook, Remains Attractive [View article]
    Good article Jonathan

    Caterpillar management has regained its footing after being thrown for a loop in 2013. Resource Industries appears to have bottomed, though that segment remains woeful. So the CAT is running on 2 legs instead of 3.

    The stock isn't exactly cheap at 15.2x projected FY 2014 EPS, but it's worth a look on dips given the shares are hobbling along with little contribution from RI. The dividend is safe, the business is spinning off a lot of cash, and the company is buying back shares.
    Oct 25, 2014. 12:04 PM | 1 Like Like |Link to Comment
  • Aflac: Time To Take Another Look [View article]
    Yes, CapeCap

    That was a lively comment board!
    Oct 25, 2014. 08:58 AM | 1 Like Like |Link to Comment
  • EOG Resources: A Best-Of-Breed Selling Below Fair Value [View article]
    Aricool

    Thanks for reading.

    Assuming I understand the acronym correctly, I do not know EOG's AISC (all in sustaining cost) per bbl. Nonetheless, the following slide pack set provides some interesting competitive comparisons between EOG and others. It may help shed light on your question:

    http://bit.ly/1z6jB4x

    Slides 8 through 15 may contain particular insight.

    I believe EOG has several similarly-situated competitors: namely Apache, Anadarko, Devon and Noble. Other reasonable peers are Marathon, Murphy, Occidental, and Hess.

    However, my analysis did not uncover any other E&P or second-tier integrated energy company with a better overall production profile, cost structure, growth record, and underlying balance sheet strength. Check out slide 7 and 8 of the slide pack. EOG just appears to stand above the others.

    Curious about your thoughts/response.
    Oct 25, 2014. 12:32 AM | 2 Likes Like |Link to Comment
  • Aflac: Time To Take Another Look [View article]
    Thanks Inzkeeper, for the comment. I agree the market is inefficient, and thus I plan to just sit tight with Aflac for the time being. Too high to buy, too low to sell. Just reap some dividends and wait.....
    Oct 24, 2014. 11:35 PM | 1 Like Like |Link to Comment
  • Aflac: Time To Take Another Look [View article]
    Since the Great Recession the insurers have been hit pretty hard, and some have still not recovered. Aflac, for a variety of reasons, has languished of late.

    The company remains a stalwart: well-managed, sound balance sheet, generates a lot of cash, good business model, and strong franchise. The dividend has been increased for over 30 consecutive years.

    The shares have a modest place in my portfolio. I am not willing to purchase more, at least at these prices, but I am not in any rush to sell either.

    Those who dislike AFL shares due to currency concerns may wish to check the historical link between the exchange rate and share price: it's pretty specious. Seeking Alpha editors published an article I wrote about this awhile back. I believe it continues to suggest an accurate reflection of the situation.
    Oct 24, 2014. 08:10 PM | 1 Like Like |Link to Comment
  • General Motors: Buy This 2015 Play Now [View article]
    While I rarely comment in the negative, I believe most readers understand that a few commentators at these boards provide little to no useful information about GM and a few other specific stocks. It seems the objective is to hijack the board and repeat (over and over and over again) the same recycled opinions and data. We get it.

    For what ends? Please enlighten us.

    It appears most readers fully understand your views about GM, opinions about its management, and your personal views on the future direction of the stock. You may rest assured most of them got the message after the tenth, fifteenth or twentieth rehash.

    Please accept my apologies in advance.


    Oct 23, 2014. 09:55 PM | 16 Likes Like |Link to Comment
  • General Motors: Buy This 2015 Play Now [View article]
    Thanks for a quick summary, Bret

    I always appreciate your work.

    I was concerned about the significant decline in operating cash flow this year versus last. While I understand the recalls reflect much of this, there's still not much growth even after adding back recall costs.

    I also watch gross margin. This likewise contracted YoY. The recalls should not have affected this figure.

    What do you think?
    Oct 23, 2014. 01:28 PM | 1 Like Like |Link to Comment
  • AT&T: Wireless Price War Behind Soft Results, As Leverage Remains High [View article]
    Fair and balanced summary. Thank you, VI. Much appreciated.

    Margin compression was my biggest concern when reviewing the quarter. Significant deterioration was experienced in both the Wireless and Wireline segments. Something to watch closely going forward.

    I see no issue or threats to the dividend, as well as its expected bump in 2015. About a penny additional a quarter is all I expect.
    Oct 23, 2014. 12:38 PM | 2 Likes Like |Link to Comment
  • 8 Major Reasons Why The Current Low Oil Price Is Not Here To Stay [View article]
    Outstanding article, Value Digger. Thank you.
    Oct 22, 2014. 08:28 AM | 12 Likes Like |Link to Comment
  • The Technical And Fundamental Differences For United HealthCare Group [View article]
    This is a curious article. Thank you.

    United Health management has noted 2014 earnings are facing considerable headwinds (~$0.35) due to the ACA. Without ACA impact, EPS growth would be about 10%. Management has gone on to say that it is their expectation that ACA headwinds should abate in 2015. Analysts are currently expecting 8% growth.

    Over the past 5 years, the average normalized PE has been a little above 10x. However, this includes the Great Recession and ACA impact. The 15-year PE has been above 16x.

    If UnitedHealthGroup makes good on their promises to resume growth beginning next year, I suspect the current 15x PE will remain viable. A reasonable target price on 2015 EPS could be $91 ($6.05 earnings on a 15x multiple); indicating the stock is at fair value currently.

    Given rapid growth of the Optum segment and international operations, one could suggest there is some upside. Furthermore, UNH managed elected to go-slow on participating in the health care exchanges. Next you the company will wade into the mix, armed with a years' worth of monitoring peers and related data.
    Oct 21, 2014. 02:25 PM | Likes Like |Link to Comment
  • EOG Resources: A Best-Of-Breed Selling Below Fair Value [View article]
    perplexedtex

    Very good points.

    I recall the oil price crash in '86, too. I lived in Houston at that time (still do), and worked for a Super Major oil company for over 30 years. Those were not good times for the industry.

    I cannot say with certainty such an occurrence will not happen again. I do not believe anyone can predict (reliably) moves in oil prices. There are too many variables.

    On the other hand, I seek to invest in best-of-breed companies that appear undervalued at the time of purchase. As you know from my work, this is based upon careful analysis of the financial statements, operations, management, and the overall business narrative. I am interested in oil prices, but my investment decisions are based upon companies and management.

    EOG shares fell some 23% since the summer. The fundamentals indicate (to me), that traders have overshot to the downside. Indeed, if the price of oil plummets to $40, perhaps I will have played the probabilities incorrectly. However, even in such a scenario, I recognize that the price of oil doesn't stay static. If not, and prices stabilize at above $80 a bbl, EOG should do just fine over the long haul.

    While I don't trade, I purchased additional shares last week at $84.70 each. Today, those shares are worth $94.80. What's really changed in a week?
    Oct 21, 2014. 11:28 AM | 4 Likes Like |Link to Comment
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