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Ray Merola  

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  • Intel: Is There Hope For A Strong Future? [View article]
    I do not have the technical background to opine on many of the observations made by the author. It appears, from reading others' commentary on this board, a number of these views are up for debate.

    However, while I agree the PC market is down in part due to the author's perspective, it seems to me there's another reason rarely discussed:

    Much of the world is mired in an economic recession, or at best a long malaise. As I have far more direct experience with industrial businesses, I can attest weak economic conditions equate to weak industrial demand.

    While technology changes rapidly, PC chips looks a lot like any mature, industrial-like application / product.

    China is in slowdown mode, I suspect worse than their central planners are willing to acknowledge. Latin America, particularly Brazil is a basket case. The EU has been down so long, I forgot what solid growth looks like in that region. Russia? In the tank. India? No great shakes.

    Only does North America have any real economic drive, and frankly, even our situation is not what anyone calls robust.

    A simple dose of reasonable global economic growth may do a world of good for Intel's CGD organization?
    Jul 31, 2015. 09:23 PM | 13 Likes Like |Link to Comment
  • Express Scripts Is Fairly Valued But Speculative [View article]
    FWIW, I utilize a "modified" Graham formula for intrinsic P/E

    P/E = 9 + 0.5 g, where g is the growth rate.

    I have found it appears to work better than the 8.5 + 2g version Graham noted in his book, "The Intelligent Investor." This formula offers figures that I believe are too high.
    Jul 31, 2015. 05:24 PM | Likes Like |Link to Comment
  • Eaton Seeing The Headwinds Blowing Harder [View article]
    I agree, Stephen.

    Though I must admit, from following ETN and Mr. Cutler for years, he strikes me as being a tough act to follow.

    He is one of the best CEOs in the industry, owning a demonstated ability to integrate M&A activity on-time, on-budget; then actually realize synergy expectations.

    I believe there's a net loss here. However, Eaton is a sound Industrial name that's currently on a down-cycle of sorts. Now doesn't seem like the time to bail, unless the shares were sitting on fair value.

    FV = $4.50 EPS x 15 PE or ~$67

    Sans global deterioration of its markets, earnings improvement next year should be significant, thereby boosting the FV higher.
    Jul 31, 2015. 04:16 PM | Likes Like |Link to Comment
  • Retired Investors Don't Buy Bonds Until? [View article]
    Thanks for the comments, Dave

    Reasonable assessment. If you need to pull your money out early, just about any bond or bond fund can bite; especially if interest rates are on the rise. I-bonds are an exception, (as you can't lose your principal), however; I-bonds pay 0.00% now. Zippo. I'm not much for an investment that guarantees my principal and likewise guarantees no return-- at least for six months. Might as well keep my money in the mattress.

    TIPS (using the Vanguard fund as a proxy) have lost about 1% a year for the past 3 years. The TIPS vehicle I use has done a bit better. Nonetheless, my view is looking forward, not backward. As the Fed raises rates, I expect inflation will rise modestly. Now this isn't traditional economics, as historically the Fed raises rates to curb inflation and slow down a hot economy. Perhaps this isn't our fathers' economic cycle. In today's case, I'd rather have inflation protection (the Fed seeks 2% inflation) versus nothing. Of course, I might be wrong.

    I-bonds have no principle risk (with a corresponding zero guaranteed return) versus TIPS funds having modest principle risk with some reasonable chance of income. Straight TIPS have no principal risk if held to maturity.

    I may add I assume the 2013 taper-tantrum effect may have been more of an anomaly than a future benchmark marker.

    2015 YTD TIPS +0.4%, I-bonds 0.00%.

    In any event, this is precisely the reason I absolutely tiptoe into anything fixed income, and keep investment positions small, duration relatively short, and diversified.
    Jul 31, 2015. 10:40 AM | Likes Like |Link to Comment
  • Retired Investors Don't Buy Bonds Until? [View article]
    Thanks for tackling a key subject for retirement investors, Chuck

    Excellent, well-reasoned, and articulate analysis and update.

    My 2 cents:

    I discontinued purchasing most bonds after the yield on 5-year T-notes dipped below 5%. That has long been my benchmark. Of course, the economic backdrop and interest rate landscape can taint the view, but over the long-term, the 5-year averages around 5%. That's my ticket to the ballgame. I tee off that figure.

    Likewise, I used to invest in I-bonds when the base rate was at least 2%. I-bonds add an inflation adjustment kicker, which can make these attractive at the right time. Now isn't the time.

    Intermediate corporates should pay something better than T-notes, or why bother?

    So that doesn't leave much in the fixed income world; with a few exceptions:

    A little high-yield (junk) is ok. Now isn't as appealing as a few years ago, but my general rule is when the Baa yield is at least 2% higher than the 10-year T-note, it's worth a look. Junk bonds are often less interest-rate sensitive than investment-grade bonds. I found a few good bonds in the energy patch; panic drove the ask price down and the yields up enough for me. I also hold a few shares in the Pimco Hi Yield fund. Just a dab.

    An international bond fund can add to the mix. I like the Templeton International Bond fund. A very long-term record of outstanding performance in all markets and cycles. I do not fiddle with any individual bonds from the dark side.

    TIPS or a TIPS fund is alright. Ostensibly, an increase in interest rates should correspond with an increase in inflation. TIPS should hedge interest rate risk a bit. At least that's the idea.

    All the aforementioned--- I use a light touch. My objective is some income, diversification, and mitigate interest rate risk.

    Currently, I liken interest rate risk similar to playing with a loaded gun that has a loose trigger.

    However, I wouldn't put everything into stocks. Case in point: check out the bluest of blue chips Procter & Gamble. Any company (and its stock) can stumble.

    On the other hand, I have been systematically pulling money out of my high-yield space and putting it into RDS.A stock. I wrote an article about this some time ago. I believe the Royal Dutch Shell stock dividend is safer than a basket of junk bond interest. RDS.A forward yield touched 7% last week.

    Good luck on all your 2015 investments.
    Jul 30, 2015. 11:28 PM | Likes Like |Link to Comment
  • An Assorted List Of Mojo, Catalyst, Overhang And Contrarian Stocks For 2015 - Mid-Year Review [View article]
    Good comment Zug

    Perspective is reality. While I own my results, I'm no short-term trader. As an investor, mine is the long game. Some of these names have been in my portfolio for years and harbor large gains. I like to accumulate/distribute shares over time and only around the edges.

    In general, I like to give any investment at least 18 months, unless the investment thesis has been proven very wrong.

    While I'm unhappy with some price action here, I'm not out of any of these names. I've accumulated shares of a few, like NUE and GM.
    Jul 29, 2015. 09:07 AM | 2 Likes Like |Link to Comment
  • Wells Fargo Investors: Don't Get Duped By The Media [View article]
    You are most welcome and thanks for reading, longinthetooth
    Jul 28, 2015. 08:14 AM | Likes Like |Link to Comment
  • Intel Is Pushing Aggressively Into The Internet Of Things [View article]
    Stepping back a bit, I recall when Intel was considered a go-go growth stock. The growth began to slow a number of years ago, and dried up during the Great Recession.

    Emerging from the G.R., Intel began an investor transformation from a growth to a value name. In 2008-09, the shares were sold down to extremely low levels. These transitions are difficult and take time; a complete overhaul of investors must transpire before the growth-to-value process is complete.

    Now Intel has hit another bump in the road. In 2014, the stock began to reach full value. Top and bottom line growth has stagnated a bit as PC chips are in secular decline. Intel must re-imagine itself. Data Center, NAND, and IoT are the newest hot tickets.

    If Intel is successful, it will regain form. However, if very successful, the shares may transform once again: back to a growth stock.

    I believe it can. Having been long INTC since 2009, and willing to wait long-term, I'm ok collecting the good dividend while the prospective scenario plays out.

    The question is whether Data Center, NAND and IoT can eclipse (by a significant margin) the slow PC Client decline.
    Jul 27, 2015. 02:14 PM | 3 Likes Like |Link to Comment
  • Explain To Me Again Why I Should Own Bank Of America Stock? [View article]
    Thank you for sharing your views, sdz

    One part of the commentary I noticed for sure: the folks who combine politics with investment thinking may find it a volatile mixture. They should do so at their own peril.

    Political views and investment theses may dislocate each other.
    Jul 26, 2015. 03:29 PM | 1 Like Like |Link to Comment
  • United Rentals: $96 Fair Value [View article]
    Very reasonable thought, as the interest rate is high. However, it begs answering some additional questions:

    What are the prepayment terms of the 7.65% debt and what is the term (in years) of the notes? The annual delta interest expense may be small when compared to management's view of attempting to boost share valuation, especially after the recent enormous drop.

    I think I recall no debt comes due until 2020 (or 2019). Management has expressed desire to get the debt-to-EBITDA ratio down.

    Perhaps it's a function of trying to weigh the value of paying down higher-interest debt versus shoring up the share price.
    Jul 25, 2015. 03:42 PM | Likes Like |Link to Comment
  • United Rentals: $96 Fair Value [View article]
    Seems that way, doesn't it?

    I'll wait until Monday before taking any action. I like to let news settle for ~3 business days first.
    Jul 24, 2015. 11:41 AM | 1 Like Like |Link to Comment
  • United Rentals: $96 Fair Value [View article]
    I own my mistakes: I bought URI earlier this year.

    Now I am thinking about what to do with the shares. Yesterday's drop was breath-taking, and the stock is down another $2 this morning.

    I agree investors have over-done the decline. However, the conference call provided little forward catalysts for owning the shares now. This will change over time given reasonable non-res construction improvement, and of course the stabilization of energy markets.

    The guidance cuts were not horrendous, though I believe management has held OCF about flat into 2016. Your model shows it continuing to grow smartly.

    My difficulty is evaluating share share valuation. What metric works?

    At 5x operating cash flow, URI is a $100 stock. That's cheap. A 5x P/C is low. United can make $20 per share OCF this year.

    Over the years, price has tracked operating earnings closely: 2015 EPS of $6 and a conservative 13x multiple yields a $78 stock. That P/E seems low for a growth stock, but I suspect the Street will take a wait-and-see attitude now. A 13x P/E indicates 2% EPS growth.

    Price-to-sales is another story. Over recent years, the P/S ratio has been around 1.0x. On $6.05 billion sales and 92.5 million shares, the math indicates just a $65 stock.

    How do you handicap it?
    Jul 24, 2015. 10:33 AM | 3 Likes Like |Link to Comment
  • Inexpensive Income Investment: Eaton [View article]
    Yes, I believe CEO Sandy Cutler announced his retirement for May 2016. He is one of the best in the business. While I've owned ETN shares for years, I harbor concern when he departs; not due to his replacement being weak or ineffective, but simply unable to duplicate the strength and results of Mr. Cutler.

    On the basic fundamentals, Eaton is a good pick and a fine long-term investment.
    Jul 24, 2015. 08:00 AM | 2 Likes Like |Link to Comment
  • Is Union Pacific A Buy After The Q2 Earnings Release? [View article]
    CDGI

    Well done article.

    I like your valuation methodology. I came up with a similar figure on earnings. However, on Operating Cash Flow, I can see a 2015 FV of $88. Picking up shares between $88 and $93 seems like a reasonable investment.

    The question is coal. The volume decline was breathtaking. This could very well be a secular trend down; not good for UNP. However, there's other freight that isn't in secular decline that can make up the slack. For instance, I noted that while crude oil shipments are down, LNG and chemicals are up. This lead to a flat 2Q 2015 "Chemicals" division result.

    UNP has a strong balance sheet, good management, outstanding franchise, and is shareholder-friendly.

    Long UNP. Accumulating cautiously.
    Jul 23, 2015. 08:26 PM | 8 Likes Like |Link to Comment
  • Annaly Capital: Management Changes, But Don't Get Your Hopes Up About Stock Buybacks [View article]
    I believe the primary obstacle is the current management remuneration agreement, ratified by shareholders in 2013.

    Buyback penalize exec compensation, as it reduces total shareholder equity. Total SH equity growth is the sole driver for executive remuneration.

    Therefore, it seems to me that until Annaly management proposes (or gets behind) an amendment to the remuneration clause, nullifying the current penalty for reducing net book via buybacks, there is little chance of share repurchase.

    However, amending the agreement is doable. Perhaps Mr. Keyes will consider such an approach.
    Jul 22, 2015. 05:30 PM | 12 Likes Like |Link to Comment
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