Ricardo Espinosa

Long/short equity, value, growth at reasonable price, portfolio strategy
Ricardo Espinosa
Long/short equity, value, growth at reasonable price, portfolio strategy
Contributor since: 2012
Great charts, especially the truck tonnage vs S&P, keep up the good work!
Yesterday was a great shakeout of weak hands holding USO or futures.
Still long USO via short puts sold yesterday in the midst of the panic.
Buy fear, sell greed.
Excellent article, especially the Graham quotes, they ring true now more than ever when stocks are extending their valuation multiples. Great read.
It is feasible, as you can see on the "Pessimistic Scenario" that $55-56 is a feasible price, but at that level, with $2 dividend per share, at 3.6% dividend, I would be a buyer with both hands. The downside when (if) that level is achieved would be very limited. I hope the stock gets punished hard soon, but it seems the price is stabilizing and yesterday´s action got all the weak hands out of the stock. Let´s see what happens from here to the end of the year.
Still holding and yesterday I sold $LVS put spreads which are now Out-of-the-money.
I am waiting for $65 to buy more, maybe with tomorrow's GDP numbers we might get it. If not, I will still keep the long position. At $65, the dividend yield alone would be 3.08% (because of the $2 per share current dividend per year).
I think anything above a 3% dividend yield (because of the lower price) would be absurd not to buy, unless a serious issue with the future cash flows of the business were in jeopardy. I, in the meantime, will be selling puts while the stock is below $70.
Thanks for the info Ivan, I recently went long USO because of its oversold condition and it held its fibonacci pivot at 34.69. Although the rebound might be temporary, so is my investment.
The effects of the St. Regis hotel are not addressed, along with the ancillary revenue streams like the shopping malls in order to have a more conservative valuation in case the company's gaming (VIP and mass market) cash flows don't materialize as planned. That's also why I use a 10% discount rate for all my investments, it's not their WACC but MY hurdle rate.
I adressed the growth of the Macau market:
"Macao is the largest gaming market in the world and the only market in China to offer legalized casino gaming. According to Macao government statistics, annual gaming revenues reached $45.3 billion in 2013, an 18.5% increase over 2012."
This means a market share of around 17.6% in the Macao market, considering the company's revenues in Macao in 2013 of $7.97 billion (from the company's 10-k) and the Macao government statistics taken from the same filing." End quote.
I share your views on LVS increasing its market share, especially once the Parisian Macao is completed in late 2015.
Regarding CAPEX, for maintenance CAPEX, which includes all the expenses that the company incurrs to replenish its assets each year, I used a growing $1 billion per year, depending on the DCF scenario, plus the remaining +$4 billion to finish constructing and begin operating the Parisian Macao for 2014 and 2015 only.
Hope this helped clarify some of your doubts, cheers.
Ricardo.
IF Japan gets to open up to gambling. In a culture like Japan, I doubt it, and if it happens, it will still take years for them to be up and running at full occupancy. I don't quite see them as a direct competitor quite yet, but thanks for the comment.
All fundamental analysis aside, I shorted $TSLA 255/265 call spreads, now that they gained around $360 per contract, I rolled down to 245/265, mainly to hedge against this week´s events.
The market has been advancing very fast and I have been way too long for the past few days, gotta protect those gains!
Their cars are great (if they don´t explode), but yeah, the valuation is way ahead of itself, but the market will stay irreverent longer than you or I can stay solvent.
Stay hedged!
Maybe in the UK...in Helsinki, even with very aggressive taxes on alcohol (making bottles cost double or triple its regular price), all the finnish do is take a ferry to Tallinn, take their car and fill it up with bottles and beer for the rest of the year (or months, they DO drink really heavily).
Surprise, surprise. Overoptimism strikes again!
Finally Amazon is being started to be dropped like the expensive stock it is...took years, it was making me think this day would never come.
"The market can stay irreverent longer than you can stay solvent".
$92.50 per share based on what? Its earnings or expectations would need to go up +20%...please ellaborate on your calculations for your price target.
Hold your horses, this is the FIRST quarter of declining GDP (annualized). So no recession yet, unless the release on July 30th for Q2 2014 is also negative.
Q4 2013 GDP was +2.6%, Q1 2014's GDP was first estimated at -1%, then re-stated to -2.9% because "the increase in personal consumption
expenditures (PCE) was smaller than previously estimated, and the decline in exports was larger than previously estimated"...
Link: http://1.usa.gov/vgZr0y
In a DCF scenario, with revenues doubling by 2018 and maintaining margins, discounting growth CapEx, KORS would be worth around $85-100 if the growth "normalizes" below 10% by 2020.
EPV says KORS is worth around $86 with $2 billion EBITDA (double what is has).
Price/Cash flow is 29, while COH has 8.
So yes, market is expecting high growth from KORS (double in 4 years) and only 1% revenue growth for COH forever.
If you disagree, go long COH or short KORS. I will sell COH puts for Nov, probably 35 strike, with a 20% annualized yield or being forced to buy.
KORS is attractive for me around 70. Above 90 there is not much margin of safety.
Excellent work Valuentum, very clearly presented, saved me a lot of work. Keep up the good job. Going long GE with deep ITM call spread.
The expectations for FB are way too high for the stock to continue flying higher. The earnings and revenue beat are incorporated into the stock price. I am not a "mega-cap" bank and could see that anything over $55 is too expensive.
The $40 stock price might come sooner than expected, but if you're a FB bull, this is good news to you, because you can back up the truck and sell at $85 (more than double?!) ,oh boy what a great opportunity!
That short $FB 65/70 call spread and long $AAPL 500/530 call spreads doing great. Intelligent investors sell to optimists and buy from pessimists.
That´s extactly what the market is expecting, for Facebook to be like Google circa 2000. But the point is, there is very small room for mistakes. If they fail to provide positive guidance in any quarter, the market will punish the company more than it will drive the price up when Facebook beats guidance.
Let´s keep tuned and check back by summer how this stock is doing.
My aim is still to generate maximum absolute returns, and my tolerance for risk is enormous. What I cannot do is put blind faith in a "story" stock such as Facebook. This company might as well be the next Google, but while I differ from this, my investment focus is on buying exclusively cheap companies. I do not think Facebook can deliver over 60 years of revenues as dividends, and do think the "greater fool" will stop buying once he realizes that the stock is valued to perfection (not anymore at stock below $60, but still expensive).
The evidence has made me focus on companies that the market values as worse than their current assets globally, making us believe the company is better off being sold immediately rather than being operated by current management. This strategy returned 35% vs. a market return of 17% (data from 1985-2007, data from SG Equity Research).
I do think you have developed a great diversified portfolio and have accumulated great experience in the market, let's hope to see the results of going long "cheap" stocks and short "expensive" stocks such as Facebook. Maybe this time it is different.
I do hope to see you around in future articles, your POV is greatly appreciated.
Think of it from a marketer's perspective. Let's say you have a $10 million buget to advertise. What would justify you spending double that amount in 3 years? Only if your profits (not revenues) increase by more than $10 million from that ad spending. And how would you track how many incremental profits you have from advertising on Facebook? It's difficult, but you could say, if your profits increase by more than what you are spending on ads, you could theoretically keep advertising to about 7-10% more people per year, which is around what Facebook's users would keep growing year over year. So most of the +40% revenue the market is expecting from Facebook comes not from incremental users, but from price increases on ads. What I state is that I do not believe marketers would keep purchasing ads at any price, they are not that stupid.
That's true, Facebook is a growth stock and investors have, historically, placed a premium valuation on these stocks. At the end, those with high historical growth and continued high growth have, historically, given worse returns than the S&P 500.
Of course my assumptions of future marketer demands are simply assumptions, and time will prove them right or wrong.
And if Facebook is like Google around 2000, then this is the best buying opportunity you will ever get. I do not think that is the case, and I do not think this company will go bankrupt, just that it will not grow as much as expected, but that's why there are markets, buyers and sellers, everyone has a different opinion. Thanks for laying out your response logically.
Those are great purchases Nicholas! But I disagree that valuation metrics are exclusive to 3M or "mature" businesses. There is ample evidence suggesting investors overpay for growth. LaPorta (1996) and Forsythe (2007) showed that stocks with the highest long-term earnings growth forecasts delivered lower returns. Cusatis and Woolridge (2008) took a sample from 1984 to 2006 and found out that analysts and investors expected "growth" stocks to return 17% per annum, but results showed that actual delivered growth was a meager 7%.
Take miners, as Greenwald did in his great book "Value Investing", where the market expected these stocks to have 27% earnings growth for 2 years and 15% long-term growth, or around 20% for 10 years. At the time this book was written (2009), the mining industry was trading at around 60x earnings. That didn't end very well.
Right now,the only industries trading at above 4 times price/sales ratio (more than 4 years of earnings= "growth"?), according to data from Prof. Damodaran (http://bit.ly/w4jRpw~adamodar/New_Home_Pag... , with data from Bloomberg, are:
Biotech (10.27), Computer Software (4.43), Information Services (4.14), R.E.I.T. (5.03), Real Estate, Development (6.04), General/Diversified Real Estate (10.32). Facebook is trading at 22.61 times sales. If that doesn't sound like investors are overpaying for growth, I don't know what does.
Google going bankrupt? Not even close, it has effectively diversified its business lines into cash-generating machines. Its search engine is not only the most used, but when people search google, they are also looking for information about products and services. Also, people pay to get their web page advertised in the first results. Facebook has none of these 3 characteristics. I did not say they were going bankrupt, I just pointed out that investor's expectations of future cash flows for this company are too optimistic ($15-$20 billion EBITDA) for the present share price to be justified.
Hey friend! How is that investment on BBRY doing? Pretty sweet I guess.
Close at least half of your short position today.
I have not traded time spreads, although I don't think they are bad, I prefer short or long put or call spreads but of the same time frame.
Close the short position sold at $27.37, repurchase said option position at $21.85 per contract or less for a nice 25%+ gain.
haha well you were right on 2 out of those three assumptions Mark, cheers!
That's true, that's why I see NFLX and this market entering a "greed" phase, where there is no fear at all, people just ride long positions, when the fall comes, as you correctly stated, no stop order can help you if an AH, earnings or black swan event happen.
No, the DCF model states that company and hence its stock price, is derived from the expected cash flows the company will earn in the future.
The $217 price is, and based on the assumptions stated in the article, what would need to happen in the next years for the stock price to be at that level right now.
I don't know why people would like to get their hands on this stock, given the risk/reward ratio, at this levels.
If NFLX has given you gains, I suggest you take them now or at least place stops in place.
I am NFLX user but I would not buy its stock, it is way too volatile for my taste, even when it was around the $60-70 area a couple of months back.
Kurtis, I am also long AAPL via Sep call spreads, it does create a nice pair trade when you factor in shorting NFLX.