S.R.T.Z Investments

Long/short equity, deep value, value, growth at reasonable price
S.R.T.Z Investments
Long/short equity, deep value, value, growth at reasonable price
Contributor since: 2011
Waldipup,
Couldn't have phrased your case better, agree with every word.
As much as I like that monthly check (long O for a long time), when you think about it financially- a dividend has NO meaning, your investment's value didn't increase by a single USD.
You could as well have O pay NO dividend, reinvest the money themselves into the business and sell a bit of your holding every month/quarter etc.
Of course as a REIT they must hand out dividends but I assume you get my point.
By the way, my being long O for a long time has nothing to do with dividends, just with it being a good business.
Interesting article, thanks.
I'm on the sidelines with PM mainly due to their leverage levels and the fact their dividends+buybacks > cash from operations consistently.
One comment: you mention:
"Philip Morris remains a great value stock, but obviously would be a lot better buy at $85 than at $90."
I think that if you conclude them to be a value stock, the additional 5.8% don't make much of a difference for the long term.
I just don't think they are a value play for now.
Thanks for your comment.
That's ok to think so but my point was-borrow with your own money, I don't want management to do that for me.
And if they believe price is low it's ok to buy back stocks, but don't over do it with loans that may explode in investor's face when interest goes up.
Hello Todd,
Nice article, thanks.
I've been tracking them for a while and like PM for its geographical diversification.
However, I very much dislike their high leverage level. Any thoughts about this point?
I also wrote about this a few months ago here: http://seekingalpha.co...
Hello mgordon10 and thanks for your comment.
This is a good question but I don't think I can provide an answer to that as the share price is dictated by market forces rather than just economics or accounting.
I suggest you put on a graph side by side the interest rate vs. the share prices of selected REITs, same as I did for the entire REITs (^jdr) - this way you get the empirical results but they will not necessarily be the same in the future.
Hello Nesivos and thank you for the comment.
It is not necessarily a bad thing to conduct a reality check every once in a while, so although your style is one of the worst I met and although I disagree with most of what you say - I am happy with the comment.
With that out of the way I will try to answer your criticism:
1. You mention the effect of interest rate hike on national debt and unemployment. You fail to mention other effects as well: the effect on government investments in the real market (construction, infrastructure etc.), on consumer investments and the list goes on and on.
Since this article was not meant to be a PHD study, these effect were indeed left out and I did mention that I assume all else remains the same. The extent to which I had to go for the aspect you mentioned and the ones you forgot are far beyond those of such an article.
Yet, I agree the move of interest rate hike will not be an easy one to perform and as I mentioned - will not happen overnight but may take months (maybe more ?).
But I do expect other market and global forces to make that move a necessity.
However, since the hike will be gradual, I tested the effects of 1% - 4% range, not just 4% overnight.
Right or wrong? I don't have a crystal ball, maybe you do but still I think your guess is as good as mine.
2. As for Obamacare - that was mentioned and discussed in a former article I published here. It is yet another risk among many others, again - you mention some but forget many others. I didn't have any intention to cover all possible risks and their effects on REIT prices or performance - this article is just about the interest rate risk.
3. Regarding the dividend yields and the % over 30 year treasury rate - IMHO - you're completely missing the point. Even if in the past there was an empirical connection - the only law REITs have to comply with is the 90%, the link you mention is irrelevant and will not necessarily be kept if performance deteriorates.
To conclude my response:
1. I am sorry you see this article as "just a bad piece of FUD", especially when considering the points you try to make to support that.
2. I don't really care if you think I live in a bubble. To be honest I don't see the connection between your comments and my bubble.
The article never intended to cover or map all possible types of risks to REITs, especially healthcare ones you stick to.
It just tries to cover the effect of interest rate hike which - as mentioned - will probably gradual. Hence the 1%-4% range.
Despite your comment - I do think it will happen once inflation picks up. By the way - I think inflation does exist at a higher level than reported, just not measured as it should be.
I do hope other readers can see the point I tried to make and make a note to themselves to keep an open eye on the subject and act accordingly.
It all depends on the contracts they sign and during renewals - on the market condition. The market will not always let you raise rent despite inflation and even though real estate is considered inflation-protected.
Thanks for the comment!
That's one of the problems I have with DG investing: the idea of holding a DG stock as long as its dividend is secure and growing misses huge fluctuations that you can predict.
While timing the market or a stock is almost impossible, Intel at $28-29 was simply too expensive.
Sold @ $27 and bought again @ 20.3.
My strategy is to sell even DG stocks when the stock gets pricey, regardless of the dividends: the few annual dividend percentages you collect simply do not cover a -20% or -25% decline in the stock price.
Can't agree more!
Sure, my thoughts are value,value,value.
Only thing bothering is that they didn't provide 2013 outlook.
Hello again Timmy,
Since I'm not such a fan of dividend growth investing, I would like to ask you to read an article I wrote several months ago :
http://seekingalpha.co...
Whichever way you choose - good luck with your portfolio.
When the market gets us there I guess many of us will feel like kids in a candy store.
Agree to all you say, tried to express that in my article. Thanks for your comment!
Hello Legend,
Thanks for your comments. Basically I think you and I see things the same; that's some of what I wrote in the article. The main issue is how long it will take, no doubt it will be quite some time until smartphones kick in to these populations.
Good luck!
Hello Timmy,
Thanks for your comment, glad you liked the article.
It is kind of trying to time the market (not a good idea generally...) but I think with current atmosphere we will see more declines.
Good luck with your portfolio construction!
Hello Derrick,
Thanks for your comment. It's hard for me to invest in a stock that has a valuation which is not supported by its fundamentals.
When it goes up too fast it will either go down or freeze until fundamentals rise accordingly, which might take some time.
I'll stay on the sideline and wait for either to happen.
Good luck anyway!
bhoff,
We're both happy then.
Maybe you bought it expensive to begin with, but that doesn't mean the stock is a "sell". Maybe it means NOW it sells at good prices?
I think @ around $21 you have a margin of safety here but we all have to do our own due diligence and arrive a possibly different result.
Good luck with your new investments.
Hello Brad,
Thanks for the comments.
I don't think GOV is a risk-free investment.
But then again - I don't know any risk-free stock, just CDs or T-bills.
Part of the reason I think GOV is cheap is BECAUSE its total return recently drags after the industry. I think O and NNN are simply more expensive now (at least for my investing type - I like to buy @ discounts, not necessarily at fair value), and I think so despite their still respectable dividends - compare their P/FFO to GOV's. I find a P/FFO of 20 too high for a REIT.
I agree with most risks you mention and can provide some more. Most of them can be found in most REITs, like early terminations.
However, after evaluating them, at the bottom line - I still consider GOV as a long term buy & hold (anyone said SWAN ?).
Hello Old Trader. It is an article on an interesting industry (or industries) that I believe should be great for the investor in the future due to global macro trends.
In order to reach a "go/no-go" investment decision I would consider several other metrics and data:
1. short term assets + LT investments +fixed assets to total liabilities.
2. Market cap to Free cash flow.
3. Payout ratio.
Etc...
If you use these metrics, you will see that for example ADM has net assets (forget intangibles) almost as high as market cap, not to mention the nice free cash flow. Even if net assets are worth less than that, to me that's much better condition than competition.
Then, to get a clear picture you may also want to check the situation in commodities, after all results for the firms you mention are highly dependable on these markets.
I'll be happy for your thoughts about these points.
Hello donkegen,
I agree it is well overpriced. Considering it a junk real estate... I respectfully disagree but will be happy to know why you think so.
Thanks Bruce.
I think mainly thanks to the general mood in the market. But that's what value investing is all about, isn't it?
I can't point to some basic flaw that should have made the stock fall. They buy assets at low prices & long term leases, utilization is ok and no defaults.
There was a renewal of one of their leases with some discount but that's not a reason for such a drop in price.
I think it's just one of those opportunities the market throws at you from time to time, but then again - there can always be something we are not aware of.
I suggest you go over their website as well as other resources on the web, that should give you a good picture.
Hello shaz568,
Please keep in mind that a stock split is meaningless for the stock's price (or the company's value) as it has no economic impact.
It will however make it easier to trade with lower amounts.
Good luck!
Hello Joergens,
Thanks for the comment. I accept your correction - my idea for value investment is as defined in the literature - buy 100 for 70 (or other discounts as you decide).
Once I determine how much a company is worth I compare that to its price on the market. If the company is worth considerably more (in my humble opinion) - I will buy its stock.
PM as I wrote in the article is a great business to own, just too expensive in my opinion. But the fact they have their ambitious stock repurchase program does not mean you should be buying at any price levels.
The fact is some people DO buy MO and not PM (maybe for the better dividend yield ??), I completely agree with you I wouldn't do that.
Thanks for your comment.
I agree most of the market went up, probably too much too fast.
But looking ahead and waiting for a correction - I want to make sure NOW that I have my shopping list ready. That's the idea behind the list in the above and future articles.
One could find other alternatives, I will discuss the ones I am currently interested in.
By the way, I did the same with Intel - owned from 19+ to 26.99.
Hi Rockbox64,
All 3 are great businesses to own a piece of, that's why they are on my watch list. Many stocks have rocketed lately but while there are some I would like to own when their price declines - there are many I wouldn't.
AAPL - probably the toughest question today. If they can maintain market share - my answer would be definitely not overvalued- but that's a huge "if".
Thanks for your comment, Nickstinger.
Generally speaking I love their cash flows and balance sheet but have serious doubt if it should grow considerably in the future.
I just see there too many "if"s - about windows 8, their smartphones & tablets penetration, cloud and skype...
You could argue the same for Intel but the barriers in favor of Intel are much higher than those MSFT enjoys.
Thanks kevineleven, I appreciate it!
I think so too, not to mention that each has a different focus and specialty.
Hi wdjax0n,
That's a good comment. The way I see it:
To fund their operations they sell shares from time to time. That's an alternative to bonds/preferreds that strengthens the balance sheet. The recent sell was in June 2011, almost $21 per share.
Then, in August as the shares fell to $16-$17 they increased debt to buy shares.
Warren Buffet said in his last annual report that he feels uncomfortable buying out his partners at low prices, but even he does that when Berkshire's stocks fall.
Hello Shellv,
Thanks for your comment. I don't think this is too much since although they are both in healthcare - their focus and specialty are different. I also think the industry is a good place to be in despite the planned reform.
As far as Omega's strength is concerned - given the strong management, their extensive experience and their unused credit lines I think they should be able to hold on well in the future.
I hope I'm not wrong, after all - I'm long Omega.
Thanks GD, I appreciate it.