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Ray Merola  

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  • How To Identify Good Stocks, Part 1 [View article]
    Dangerous stuff listening to me, raykrv6a! But thank you.

    (Very) long AFL.
    Apr 3, 2014. 04:48 PM | Likes Like |Link to Comment
  • How To Identify Good Stocks, Part 2 [View article]

    I suspect you have overlooked 3 stock splits over the past 10 years. The split-adjusted price return over the period has been over 20% a year.

    However, the aforementioned in secondary. It is less important as to where a stock has been versus where an investors believes it will go.

    Even if Express Scripts' EPS growth eases to an average 15% over the next several years, and the multiple is compressed accordingly, investors may find it a profitable ride. I tend to emphasize current year EPS and one out versus longer-term projects. 2014 appears strong.

    While not covered in the article, ESRX is one of those stocks whereas free cash flow is a good yardstick. This likewise promises to be quite strong going forward.
    Apr 3, 2014. 03:59 PM | Likes Like |Link to Comment
  • How To Identify Good Stocks, Part 2 [View article]
    Thank you SBF. I appreciate your bio. After reviewing it, I plan to "follow" you even though you came here to read my article.
    Apr 3, 2014. 03:32 PM | Likes Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]
    Yes, I figured you would appreciate them, Chuck. All the best.
    Apr 3, 2014. 03:14 PM | 1 Like Like |Link to Comment
  • How To Identify Good Stocks, Part 2 [View article]
    Thanks for stopping by and the positive remarks, RS. Onward and upward.
    Apr 3, 2014. 02:53 PM | 2 Likes Like |Link to Comment
  • Why I Sold All Of My Intel Shares This Week [View article]
    A key data point is Europe. The EU has been mired in recession for years and just recently has begun to show green shoots. This market is significant; representing developed nations and developed international businesses. When this region (in aggregate comparable to the United States) revives, I suspect it will provide a boost to PC sales. Businesses continue to provide employees with content-creating PCs (or PC hybrids).

    How well do investors believe future demand for this area has been forecast?
    Apr 3, 2014. 08:00 AM | 2 Likes Like |Link to Comment
  • Why AT&T Will Not Bid For Vodafone [View article]
    It's interesting to try to read the tea leaves. However, it's largely academic.

    On its surface, VOD buying ONO would appear to diminish the likelihood that T would buy VOD. However, since the "new" Vodafone shares went public, the price has dropped from ~$41 to $37. As a suitor, T is interested in the VOD share price.

    S.A. editors published an article I wrote about a Vodafone/AT&T post-VZW deal:

    I suggested T would need to come up with about $115 billion for such a transaction. VOD's $10 billion for ONO, and T spending $11 billion on share buybacks are material, and perhaps clues to the future.

    They are not, IMHO, concrete drivers to nix such a potential deal.
    Apr 2, 2014. 12:54 PM | 1 Like Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]

    If one has FAST graphs, the "normalized PE" is found on the right-hand side of the subject regular chart. It's written within the blue box, and corresponds to the blue line connected with stars on the graph itself.

    A future normal PE must be interpreted from the "Earnings and Return Calculator" FAST graph. Each of the lines on the graphs corresponds to a different PE as noted on the legend found on the right of the chart. For example, if one looks at the subject chart for Eaton in the article, a 15x PE is the bold orange line. A 16.5x PE is the line above the heavy orange line, and a 13.5x PE corresponds to the one below it. An investor, based upon his/her view of past multiples and future earnings projections, must decide what PE ratio appears reasonable going forward. With experience, it's generally not too difficult to get a pretty good handle on this if one subscribes to the view that price and earnings correlate over time.

    If one does not have FAST graphs, the "average normalized PE" may be computed by taking X number of annual PEs for a given stock, eliminating the high and low PEs, and averaging the rest. The raw PE data may be found via several different sources. For instance, S&P500 IQ is a good one. That publication even shows annual high and low PEs for each year. The reason for taking out the high and low markers (the "normalization" process) is to remove outlying data from the calculation.

    Hope this helps.
    Mar 31, 2014. 08:55 AM | 2 Likes Like |Link to Comment
  • Ultra-Low-Risk Retirement Strategy For Folks Who've Saved $1 Million [View article]
    One of the most thoughtful and practical articles in this forum. I teach a night class a couple times a month about financial matters; right up this alley. You're hitting on all cylinders, RS!

    Owning 15-20 individual stocks (you've got 14 listed) is spot-on for balanced diversification. I've seen some investors with 30 or 40 separate names. In that case, many would find life easier, simpler, and get better results via a mutual fund or ETF.
    Mar 29, 2014. 09:09 AM | 2 Likes Like |Link to Comment
  • How Will The Recall Issue Affect GM Stock? [View article]
    I checked the charts for the SPY and Toyota Motors ADR (TM). It appears from Feb 2010 to Jan 2013 Toyota stock flatlined for better part of 3 years. It rose from Jan 2013-to-date for a capital gain of ~21% over the entire time period.

    Meanwhile, the S&P 500 gained 72%.

    Please explain where my figures are off. This very cursory view appears to say that the recall caused Toyota Motors to miss the 2010-12 rally; then it lagged the SPY in 2013, though still logging a respectable gain. Shares have fallen in 2014, along with other automakers.
    Mar 27, 2014. 08:41 AM | 1 Like Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]

    Aflac's multiple has generally wandered down over the past ten years or so. Since you already utilize FAST graphs, you can review any stock's P/E versus interest rate history for yourself. Some research will show that while the Aflac's P/E ratio has drifted down, other insurers like PRU, TRV, and ALL have not. Therefore, I believe AFL has experienced multiple compression for more than just interest rate decline.

    To answer your second question, I offer my personal approach. There are many other equally valid approaches.

    First, as noted in the beginning of the article, I predominately seek "premier" companies, or "best-of-breed." I provided a short bullet list outlining what one may seek when screening for those businesses. When the fundamental bar is set high, the number of qualifying companies comes down pretty quickly. Not included on that bullet list is another metric important to my portfolio construction: dividend growth. So the first step is to screen to separate the prospects from the suspects. Many web site offer excellent screening tools: Fidelity Investments has one of the very best.

    After screening to whittle down a limited number of companies to review, the task of determining valuation become one of patience and diligence. It's just good, hard work. FAST graphs can do in moments what used to take me much longer.

    Since I don't trade stocks, I don't deal with much portfolio turnover. In addition, I tend to favor stock sector rotation within the overall economic business cycle, so this likewise helps to keep down the number of stocks to review.

    Second, I believe in the old adage espoused by Peter Lynch, the great manager of the Fidelity Magellan Fund. He said, "Sometimes your best friend is an old friend." What he meant is that contingent upon the circumstances, valuation, fundamentals, and business cycle phase, returning to re-invest in stocks owned previously is a pretty good approach. I very much agree.

    While I may do a quick check on all kinds of various stocks I learn about or pique my interest via print, TV, or word-of-mouth, etc. and occasionally uncover a nugget: the bulk of my portfolio is constructed of a limited number of well-managed, cash generating, dividend-growing corporations with good balance sheets and strong franchises. Warren Buffett sometimes calls them "wonderful businesses."

    Such a process has worked for me over the course of many years.

    Mar 26, 2014. 05:54 PM | 7 Likes Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]
    Thank you Jeremy. I appreciate your comment.
    Mar 26, 2014. 04:39 PM | 1 Like Like |Link to Comment
  • Consider Aflac If You Like Buybacks, Long Dividend Streaks And Cheap Valuations [View article]
    Thank you Timothy for an article about one of my favorite stocks: Aflac.

    Please note that Aflac converts very few Yen to Dollars. Some investors are not aware of this. The JPY/USD conversion is an accounting issue, not a financial one. The dividend is easily covered by U.S. operations alone.

    A combo of currency fears, EU PIIGS debt exposure, Japanese fiscal policies, and low interest rates have held back the shares. Some of these concerns have been fixed or are red herrings.

    S.A. just published an article I submitted about AFL, too. Long Aflac.
    Mar 26, 2014. 01:04 PM | 6 Likes Like |Link to Comment
  • 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, 2014. 11:20 AM | 3 Likes Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]

    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, 2014. 09:44 AM | 2 Likes Like |Link to Comment