Shiraz Lakhi's Instablog Shiraz Lakhi is a stock & real estate speculator, entrepreneur, innovator, perpetual traveler, writer, spiritual seeker... Shiraz Lakhi http://seekingalpha.com Undervalued Tech Stock Kulicke & Soffa Industries Boasts 13.9% Free Cash Flow Yield & Ultra-Low PEG Ratio http://seekingalpha.com/instablog/814363-shiraz-lakhi/192841-undervalued-tech-stock-kulicke-soffa-industries-boasts-13-9-free-cash-flow-yield-ultra-low-peg-ratio?source=feed 192841 By Shiraz Lakhi - Many investors who follow my articles and trade ideas here on SA will know I look primarily for strong free-cash-flow-yield metrics, as a basic starting point for potential plays - preferably within a 'sector' which has become technically oversold.

One such company which appears on my radar today, is Kulicke & Soffa Industries (KLIC). This semiconductor equipment and materials company currently generates leveraged-free-cash-flow of $89.43 million on a trailing 12 month basis. The last trading session valued the business (Enterprise Value) at $641.44 million, hence returning a significant free-cash-flow-yield (FCF/EV) of 13.9%.

KLIC Stock Chart & Trend Signal Indicator

Additional metrics in favor of KLIC include: a low PEG ratio of 0.39, a quick-ratio of 3.24 (strongly bullish), and a current-ratio of 3.82 (strongly bullish). KLIC currently trades at $11.41 per share, around 116% above its 52 week low.

With fundamentals in favor of KLIC, I look to time my entry into the stock. Here, a simple rule is adopted - to trade when the sector for the specific stock (in this case, the technology sector (XLK) becomes oversold, and exhibits multiple technical buy-long signals.

A simple sector based technical analysis indicator, such as the Technology Sector Trend-Indicator, freely available at tradepilot, is applied - where for example, if I am looking at selective stocks within this sector, I wait for the Trend-Indicator to become oversold, and to signal a fresh reversal/new green-bar long signal.

The timing method effectively reconciles 'both' fundamentals and technical analysis into a disciplined stock selection and entry process - knowing 'which' stocks to focus on, and 'when' to buy them.

By Shiraz Lakhi - Indenpendent Investor/Entrepreneur

Enterprise Value/Free-Cash-Flow Data Sourced From Yahoo Finance. Stock Data & Performance Analytics Sourced From TradePilot.com.
 
]]> Tue, 05 Jul 2011 13:07:12 -0400 By Shiraz Lakhi - Many investors who follow my articles and trade ideas here on SA will know I look primarily for strong free-cash-flow-yield metrics, as a basic starting point for potential plays - preferably within a 'sector' which has become technically oversold.

One such company which appears on my radar today, is Kulicke & Soffa Industries (KLIC). This semiconductor equipment and materials company currently generates leveraged-free-cash-flow of $89.43 million on a trailing 12 month basis. The last trading session valued the business (Enterprise Value) at $641.44 million, hence returning a significant free-cash-flow-yield (FCF/EV) of 13.9%.

KLIC Stock Chart & Trend Signal Indicator

Additional metrics in favor of KLIC include: a low PEG ratio of 0.39, a quick-ratio of 3.24 (strongly bullish), and a current-ratio of 3.82 (strongly bullish). KLIC currently trades at $11.41 per share, around 116% above its 52 week low.

With fundamentals in favor of KLIC, I look to time my entry into the stock. Here, a simple rule is adopted - to trade when the sector for the specific stock (in this case, the technology sector (XLK) becomes oversold, and exhibits multiple technical buy-long signals.

A simple sector based technical analysis indicator, such as the Technology Sector Trend-Indicator, freely available at tradepilot, is applied - where for example, if I am looking at selective stocks within this sector, I wait for the Trend-Indicator to become oversold, and to signal a fresh reversal/new green-bar long signal.

The timing method effectively reconciles 'both' fundamentals and technical analysis into a disciplined stock selection and entry process - knowing 'which' stocks to focus on, and 'when' to buy them.

By Shiraz Lakhi - Indenpendent Investor/Entrepreneur

Enterprise Value/Free-Cash-Flow Data Sourced From Yahoo Finance. Stock Data & Performance Analytics Sourced From TradePilot.com.
 
]]> klic xlk shiraz lakhi klic kulicke soffa free cash flow enterprise value peg ratio quick ratio current ratio undervalued stock technology sector oversold sector oversold stock technical signal Undervalued Technology Stock Vishay Intertechnology (VSH) Boasts 18.8% Free Cash Flow Yield http://seekingalpha.com/instablog/814363-shiraz-lakhi/192837-undervalued-technology-stock-vishay-intertechnology-vsh-boasts-18-8-free-cash-flow-yield?source=feed 192837 By Shiraz Lakhi - Many investors who follow my articles and trade ideas here on SA will know I look primarily for strong free-cash-flow-yield metrics, as a basic starting point for potential plays - preferably within a 'sector' which has become technically oversold.

One such company which appears on my radar today, is Vishay Intertechnology Inc. (VSH). This broad line semiconductor  company currently generates leveraged-free-cash-flow of $381.36 million on a trailing 12 month basis. The last trading session valued the business (Enterprise Value) at $2.02 Billion, hence returning a significant free-cash-flow-yield (FCF/EV) of 18.8%.

VSH Stock Chart & Trend Signal Indicator

Additional metrics in favor of VSH include: a low PEG ratio of 0.62 and consensus analyst mean target price of $20.50 (significantly above the current price). VSH currently trades at $15.70 per share, 24% below analyst estimates and around 129% above its 52 week low.

Note the emphasis on the free-cash-flow-yield. This simple to calculate metric measures the Free-Cash-Flow (or FCF) generated by a business, divided by the Enterprise-Value (or EV) of the company. The FCF is a superior, more accurate reflection of a company's ability to generate profits than the basic, out-dated 'earnings' or 'EBITDA' figure, which is often prone to tactical/questionable accounting...

Similarly, the EV is a superior, more authentic reflection of the true worth of a company, than the commonly used 'market-cap' figure, which most retail investors take at face value. The EV, in simple terms, takes into account the company's debts and cash holdings, effectively 'revaluing' the business based on what a potential acquirer would theoretically pay, in other words, the true value of a business.

Hence, by dividing FCF by EV, we arrive at the free-cash-flow-yield. It is the percentage of true net income a company generates relative to its true overall value. The higher the yield, the more potentially undervalued the stock.

Moreover, the yield provides an excellent basis for comparison of competing stocks within the same industry/sector, and forms a solid basis (starting point) for further analysis into a specific company...

For instance, a stock offering a high (minimum 10%) free-cash-flow-yield, in addition to positive metrics, such as a low price-to-earnings-growth (or PEG) ratio, bullish analyst estimates, increased insider and institutional (smart money) buying, management competence (entrepreneurialism, innovation and drive), provision of a product (or service) within a growth market, all provide weight to strong upside potential.

With fundamentals in favor of VSH, I look to 'time' my entry into the stock. Here, a simple rule is adopted - to trade when the 'sector' for the specific stock (in this case, the technology sector (XLK) becomes oversold, and exhibits multiple technical buy-long signals...

A simple sector based technical analysis indicator, such as the 'Technology Sector Trend-Indicator', freely available at tradepilot, is applied - where for example, if I am looking at selective stocks within this sector, I wait for the Trend-Indicator to become oversold, and to signal a fresh reversal/new green-bar 'long' signal.

The timing method effectively reconciles 'both' fundamentals and technical analysis into a disciplined stock selection and entry process - knowing 'which' stocks to focus on, and 'when' to buy them.

By Shiraz Lakhi - Independent Investor/Entrepreneur

Enterprise Value/Free-Cash-Flow Data Sourced From Yahoo Finance. Stock Data & Performance Analytics Sourced From TradePilot.com.
 ]]> Tue, 05 Jul 2011 12:56:26 -0400 By Shiraz Lakhi - Many investors who follow my articles and trade ideas here on SA will know I look primarily for strong free-cash-flow-yield metrics, as a basic starting point for potential plays - preferably within a 'sector' which has become technically oversold.

One such company which appears on my radar today, is Vishay Intertechnology Inc. (VSH). This broad line semiconductor  company currently generates leveraged-free-cash-flow of $381.36 million on a trailing 12 month basis. The last trading session valued the business (Enterprise Value) at $2.02 Billion, hence returning a significant free-cash-flow-yield (FCF/EV) of 18.8%.

VSH Stock Chart & Trend Signal Indicator

Additional metrics in favor of VSH include: a low PEG ratio of 0.62 and consensus analyst mean target price of $20.50 (significantly above the current price). VSH currently trades at $15.70 per share, 24% below analyst estimates and around 129% above its 52 week low.

Note the emphasis on the free-cash-flow-yield. This simple to calculate metric measures the Free-Cash-Flow (or FCF) generated by a business, divided by the Enterprise-Value (or EV) of the company. The FCF is a superior, more accurate reflection of a company's ability to generate profits than the basic, out-dated 'earnings' or 'EBITDA' figure, which is often prone to tactical/questionable accounting...

Similarly, the EV is a superior, more authentic reflection of the true worth of a company, than the commonly used 'market-cap' figure, which most retail investors take at face value. The EV, in simple terms, takes into account the company's debts and cash holdings, effectively 'revaluing' the business based on what a potential acquirer would theoretically pay, in other words, the true value of a business.

Hence, by dividing FCF by EV, we arrive at the free-cash-flow-yield. It is the percentage of true net income a company generates relative to its true overall value. The higher the yield, the more potentially undervalued the stock.

Moreover, the yield provides an excellent basis for comparison of competing stocks within the same industry/sector, and forms a solid basis (starting point) for further analysis into a specific company...

For instance, a stock offering a high (minimum 10%) free-cash-flow-yield, in addition to positive metrics, such as a low price-to-earnings-growth (or PEG) ratio, bullish analyst estimates, increased insider and institutional (smart money) buying, management competence (entrepreneurialism, innovation and drive), provision of a product (or service) within a growth market, all provide weight to strong upside potential.

With fundamentals in favor of VSH, I look to 'time' my entry into the stock. Here, a simple rule is adopted - to trade when the 'sector' for the specific stock (in this case, the technology sector (XLK) becomes oversold, and exhibits multiple technical buy-long signals...

A simple sector based technical analysis indicator, such as the 'Technology Sector Trend-Indicator', freely available at tradepilot, is applied - where for example, if I am looking at selective stocks within this sector, I wait for the Trend-Indicator to become oversold, and to signal a fresh reversal/new green-bar 'long' signal.

The timing method effectively reconciles 'both' fundamentals and technical analysis into a disciplined stock selection and entry process - knowing 'which' stocks to focus on, and 'when' to buy them.

By Shiraz Lakhi - Independent Investor/Entrepreneur

Enterprise Value/Free-Cash-Flow Data Sourced From Yahoo Finance. Stock Data & Performance Analytics Sourced From TradePilot.com.
 ]]> vsh xlk shiraz lakhi vishay intertechnology vsh free cash flow enterprise value peg ratio analyst estimate undervalued stock technology sector oversold sector oversold stock technical signal Dynamics Research Corp. (DRCO) Deeply Undervalued By Free-Cash-Flow-Yield, A Low PEG Ratio, And Analyst Estimates... http://seekingalpha.com/instablog/814363-shiraz-lakhi/191649-dynamics-research-corp-drco-deeply-undervalued-by-free-cash-flow-yield-a-low-peg-ratio-and-analyst-estimates?source=feed 191649 By Shiraz Lakhi - Many investors who follow my articles & alerts here on Seeking Alpha, will know I look primarily for strong Free-Cash-Flow-Yield metrics, as a starting point for further analysis, on a potential stock trade, within a 'sector' which has become 'technically oversold'.

By focusing on a cyclically oversold sector (continually tracking technology, consumer goods, services, and basic materials sectors) based on simple technical trend indicators, then drilling down to the specific stock(s) which represent the strongest fundamentals based on the Free-Cash-Flow-Yield 'starting point', investors can establish a solid basis for strong potential upside in the selected stock, which combines both technicals and fundamentals.

One such company which appears on my radar is Dynamics Research Corporation (DRCO). This 'business software & services' company currently generates free-cash-flow of $20.63 million on a trailing twelve month basis. Last nights close valued the business (Enterprise Value) at $133.81 million, hence returning a robust Free-Cash-Flow-Yield (FCF/EV) of 15.4%.

DRCO Stock Chart Including Trend Indicator

Additional metrics in favor of DRCO include: a low PEG ratio of 0.93, and consensus analyst mean target price of $19.83 (significantly above the current price). DRCO currently trades at $13.11 per share, around 34% below analyst estimates, and around 51% above its 52 week low.

Note the emphasis on the Free-Cash-Flow-Yield. This simple to calculate metric measures the Free-Cash-Flow (or 'FCF') generated by a business, divided by the Enterprise-Value (or 'EV') of the company. The FCF is a superior, more accurate reflection of a companys ability to generate profits than the basic, out-dated earnings or EBITDA figure, which is often prone to tactical/questionable accounting. Similarly, the EV is a superior, more authentic reflection of the worth of a company, than the commonly used 'market-cap' figure which most investors take at face value. The EV, in simple terms, takes into account the company's debts and cash holdings, effectively 'revaluing' the business based on what a potential acquirer would theoretically pay, in other words, the 'true value' of a business.

Hence, by dividing FCF by EV, we arrive at the Free-Cash-Flow-Yield. It is the percentage of 'true net income' a company generates relative to its 'true overall value'.

Investors can quickly measure and identify potential undervalued plays as an excellent starting point for further analysis/diligence (looking at additional fundamentals such as PEG ratio, analyst estimates, long and short term debt, management competence, entrepreneurialism, innovation in product/service, whether the business operates within a growth or shrinking market and so forth), when selecting and short-listing potential plays.

It is also valuable to seek out fundamentally superior stocks, at a time when the overall 'sector', or the general market as a whole (S&P index) becomes cyclically undervalued. There are numerous technical trend indicators which provides a basis to determining the overall market sentiment in any specific sector (such as technology), or the market (S&P), using readily available, free-to-use trend and oversold/overbought indicators. The key is to select an oversold sector, then drill down to the most fundamentally robust stock(s) within that sector.

Wishing you every success in your investments, and good spirit...
Shiraz Lakhi - Independent Investor/Publisher

Enterprise Value/Free-Cash-Flow Data Sourced From Yahoo Finance. Stock Data & Performance Analytics Sourced From TradePilot.com.
 ]]> Thu, 30 Jun 2011 06:09:15 -0400 By Shiraz Lakhi - Many investors who follow my articles & alerts here on Seeking Alpha, will know I look primarily for strong Free-Cash-Flow-Yield metrics, as a starting point for further analysis, on a potential stock trade, within a 'sector' which has become 'technically oversold'.

By focusing on a cyclically oversold sector (continually tracking technology, consumer goods, services, and basic materials sectors) based on simple technical trend indicators, then drilling down to the specific stock(s) which represent the strongest fundamentals based on the Free-Cash-Flow-Yield 'starting point', investors can establish a solid basis for strong potential upside in the selected stock, which combines both technicals and fundamentals.

One such company which appears on my radar is Dynamics Research Corporation (DRCO). This 'business software & services' company currently generates free-cash-flow of $20.63 million on a trailing twelve month basis. Last nights close valued the business (Enterprise Value) at $133.81 million, hence returning a robust Free-Cash-Flow-Yield (FCF/EV) of 15.4%.

DRCO Stock Chart Including Trend Indicator

Additional metrics in favor of DRCO include: a low PEG ratio of 0.93, and consensus analyst mean target price of $19.83 (significantly above the current price). DRCO currently trades at $13.11 per share, around 34% below analyst estimates, and around 51% above its 52 week low.

Note the emphasis on the Free-Cash-Flow-Yield. This simple to calculate metric measures the Free-Cash-Flow (or 'FCF') generated by a business, divided by the Enterprise-Value (or 'EV') of the company. The FCF is a superior, more accurate reflection of a companys ability to generate profits than the basic, out-dated earnings or EBITDA figure, which is often prone to tactical/questionable accounting. Similarly, the EV is a superior, more authentic reflection of the worth of a company, than the commonly used 'market-cap' figure which most investors take at face value. The EV, in simple terms, takes into account the company's debts and cash holdings, effectively 'revaluing' the business based on what a potential acquirer would theoretically pay, in other words, the 'true value' of a business.

Hence, by dividing FCF by EV, we arrive at the Free-Cash-Flow-Yield. It is the percentage of 'true net income' a company generates relative to its 'true overall value'.

Investors can quickly measure and identify potential undervalued plays as an excellent starting point for further analysis/diligence (looking at additional fundamentals such as PEG ratio, analyst estimates, long and short term debt, management competence, entrepreneurialism, innovation in product/service, whether the business operates within a growth or shrinking market and so forth), when selecting and short-listing potential plays.

It is also valuable to seek out fundamentally superior stocks, at a time when the overall 'sector', or the general market as a whole (S&P index) becomes cyclically undervalued. There are numerous technical trend indicators which provides a basis to determining the overall market sentiment in any specific sector (such as technology), or the market (S&P), using readily available, free-to-use trend and oversold/overbought indicators. The key is to select an oversold sector, then drill down to the most fundamentally robust stock(s) within that sector.

Wishing you every success in your investments, and good spirit...
Shiraz Lakhi - Independent Investor/Publisher

Enterprise Value/Free-Cash-Flow Data Sourced From Yahoo Finance. Stock Data & Performance Analytics Sourced From TradePilot.com.
 ]]> drco shiraz lakhi peg ratio analyst estimates free cash flow enterprise value Apple vs Netflix - Making A Case For What Could Emerge As The Perfect "Long AAPL/Short NFLX" Pair Trade... http://seekingalpha.com/instablog/814363-shiraz-lakhi/190601-apple-vs-netflix-making-a-case-for-what-could-emerge-as-the-perfect-long-aapl-short-nflx-pair-trade?source=feed 190601 By Shiraz Lakhi - Independent Investor/Publisher - As a predominantly 'hedged' pairs trader, I am rarely inclined to trade outright long or short stock positions, being more comfortable (and profitable) placing funds into 'non directional' market neutral pairs trading ideas that have a proven track record of success.

Such a strategy involves simultaneously trading an 'undervalued stock long', against another competing 'overvalued stock short', when the two stocks move out of 'sync'. Such statistical arbitrage (or pairs) trades are popular, tried and tested methods practiced by most true-to-the-spirit hedge funds, quant trading desks, and an increasing number of independent self-directed traders...

The process involves application of statistical probability math on two closely related stocks which tend to move together 'most of the time', but 'temporarily' diverge. At some mathematically fixed 'extreme' point of divergence (using standard deviation), the pairs trader buys undervalued stock 'A', and shorts overvalued stock 'B', in equal dollar value, in anticipation of the pair reverting back to the 'mean'. This is a basic market-neutral trade based on statistical mean-reversion probability. The goal is to eliminate the broader market directional risk, and focus only on whether stock 'A' will outperform stock 'B'.



Such an opportunity is presently unfolding in a pair I continually track within my pairs watchlist - Apple stock (AAPL) versus Netflix (NFLX). On a purely fundamental basis, AAPL is heavily undervalued 'relative' to NFLX (I have listed some of the core fundamental metrics below)...

There is however, an additional, rare factor which can be attributed to this particular pair trade, which does not always appear in every pair I uncover - but when it does, provides for a compelling reason - a virtual no-brainer - to enter this pair trade without over analysis. While AAPL operates within a more diverse market of products and services than does NFLX, the almost inevitable, sustainable success of a certain service (the delivery of movies, television, streaming video, which Netflix depends upon almost exclusively) presently pursued in full flow by Apple, has a direct impact on Netflix, and provides added weight to the argument in favor of the long AAPL/short NFLX strategy.

Focusing on the fundamentals, many investors who follow my articles/tweets will know I look primarily for strong Free-Cash-Flow-Yield metrics, as a basic 'starting point' for further analysis. This simple to calculate metric measures the Free-Cash-Flow (or 'FCF') divided by the Enterprise-Value (or 'EV') of a business...

The FCF is a superior, more accurate reflection of a companies ability to generate profits, than the very basic, almost out-dated (at least by professional standards) 'earnings' or 'EBITDA' figure, which is often prone to tactical/questionable carry-back/forward accounting. Similarly, the EV is a superior, more authentic reflection of the 'worth' of a company, than the commonly used 'market-cap' figure. The EV, in simple terms, takes into account the companies debts and cash holdings, effectively revaluing the business based on what a potential acquirer would theoretically pay (the 'true' value)...

By dividing FCF by EV, hence calculating the Free-Cash-Flow 'Yield', investors can quickly measure and identify potential 'undervalued' plays as an excellent starting point for further analysis/diligence (looking at additional fundamentals, long and short term debt, management competence, entrepreneurialism, innovation in product/service, whether the business operates within a growth or shrinking market, and so forth).

Moreover, the Free-Cash-Flow-Yield allows quick 'comparison' between several competing stocks (or stocks which directly affect 'mutual' cause-and-effect markets, as in the case of AAPL/NFLX), which, with a little intricate research, starts to unfold some interesting, highly compelling potential market-neutral hedged pair trading opportunities...

At the time of writing, the current Leveraged Free-Cash-Flow figure for AAPL stands at $17.41 Billion, with Enterprise-Value being $272.56 Billion. The Free-Cash-Flow-Yield for AAPL is hence 6.38%. At the same time, the current Leveraged Free-Cash-Flow figure for NFLX stands at $421.82 million, with Enterprise-Value being $13.39 Billion. The Free-Cash-Flow-Yield for NFLX is therefore 3.15%, almost half of AAPL, providing AAPL plenty of upside 'relative' to NFLX.

Note, with pairs trading, I am not concerned in the least about the overall market direction, whether we are in a bull or a bear market - this is irrelevant - my only point of focus is whether AAPL will outperform NFLX. Even if both stocks tank, but NFLX drops more than AAPL, a net profit is produced.

Additional metrics in favor of the long AAPL/short NFLX trade include the Price-To-Earnings-Growth (or 'PEG') ratio with AAPL exhibiting an ultra-low PEG of just 0.74 (compared to NFLX PEG substantially higher at 2.58), the Forward P/E ratio (11.34 vs 39.29, in favor of AAPL), the Price/Book ratio (4.91 vs 49.04, in favor of AAPL), and the Debt/Equity ratio (0.00 vs 0.85, in favor of AAPL).

Pairs trading is an ideal strategy if you don't want to play AAPL long as an outright directional trade. Many investors sit on the fence, despite knowing the undervalue opportunity AAPL currently offers - anxious about the overall market sentiment, which can (and does) effectively drive many otherwise solid stocks, including Apple, into extended bear market negativity. With a pair trade, much of the directional market uncertainty is neutralized...

By trading stock pairs, whether based on bread-and-butter mean reversion statistical probability (when pairs move outside the mean by 2 standard deviations), or fundamental comparison metrics (such as the AAPL/NFLX pair trade idea), the goal is to insulate against the wider market risk/volatility. Pairs traders are not concerned about overall market sentiment or direction. It does not matter if the stock market (or a sector) rallies, declines, or crashes. The only objective is that stock A outperforms stock B...

If you are long A and short B, and the specific industry sector (or the entire stock market) pops, then the loss on the long position in stock A, would be generally counter-balanced by the profitable short position in stock B. The objective is, over time, the fundamentally superior stock will tend to outperform the weaker, allowing the astute pairs trader to keep his/her head when it seems, all others are losing theirs. I am long AAPL, short NFLX, equal dollar value either side.

Wishing you every success in your investments... and good spirit...
Shiraz Lakhi - Self-Directed Investor/Publisher

Enterprise Value/Free-Cash-Flow Data Sourced From Yahoo Finance. Stock Data & Performance Analytics Sourced From TradePilot.com
 
]]> Mon, 27 Jun 2011 06:16:46 -0400 By Shiraz Lakhi - Independent Investor/Publisher - As a predominantly 'hedged' pairs trader, I am rarely inclined to trade outright long or short stock positions, being more comfortable (and profitable) placing funds into 'non directional' market neutral pairs trading ideas that have a proven track record of success.

Such a strategy involves simultaneously trading an 'undervalued stock long', against another competing 'overvalued stock short', when the two stocks move out of 'sync'. Such statistical arbitrage (or pairs) trades are popular, tried and tested methods practiced by most true-to-the-spirit hedge funds, quant trading desks, and an increasing number of independent self-directed traders...

The process involves application of statistical probability math on two closely related stocks which tend to move together 'most of the time', but 'temporarily' diverge. At some mathematically fixed 'extreme' point of divergence (using standard deviation), the pairs trader buys undervalued stock 'A', and shorts overvalued stock 'B', in equal dollar value, in anticipation of the pair reverting back to the 'mean'. This is a basic market-neutral trade based on statistical mean-reversion probability. The goal is to eliminate the broader market directional risk, and focus only on whether stock 'A' will outperform stock 'B'.



Such an opportunity is presently unfolding in a pair I continually track within my pairs watchlist - Apple stock (AAPL) versus Netflix (NFLX). On a purely fundamental basis, AAPL is heavily undervalued 'relative' to NFLX (I have listed some of the core fundamental metrics below)...

There is however, an additional, rare factor which can be attributed to this particular pair trade, which does not always appear in every pair I uncover - but when it does, provides for a compelling reason - a virtual no-brainer - to enter this pair trade without over analysis. While AAPL operates within a more diverse market of products and services than does NFLX, the almost inevitable, sustainable success of a certain service (the delivery of movies, television, streaming video, which Netflix depends upon almost exclusively) presently pursued in full flow by Apple, has a direct impact on Netflix, and provides added weight to the argument in favor of the long AAPL/short NFLX strategy.

Focusing on the fundamentals, many investors who follow my articles/tweets will know I look primarily for strong Free-Cash-Flow-Yield metrics, as a basic 'starting point' for further analysis. This simple to calculate metric measures the Free-Cash-Flow (or 'FCF') divided by the Enterprise-Value (or 'EV') of a business...

The FCF is a superior, more accurate reflection of a companies ability to generate profits, than the very basic, almost out-dated (at least by professional standards) 'earnings' or 'EBITDA' figure, which is often prone to tactical/questionable carry-back/forward accounting. Similarly, the EV is a superior, more authentic reflection of the 'worth' of a company, than the commonly used 'market-cap' figure. The EV, in simple terms, takes into account the companies debts and cash holdings, effectively revaluing the business based on what a potential acquirer would theoretically pay (the 'true' value)...

By dividing FCF by EV, hence calculating the Free-Cash-Flow 'Yield', investors can quickly measure and identify potential 'undervalued' plays as an excellent starting point for further analysis/diligence (looking at additional fundamentals, long and short term debt, management competence, entrepreneurialism, innovation in product/service, whether the business operates within a growth or shrinking market, and so forth).

Moreover, the Free-Cash-Flow-Yield allows quick 'comparison' between several competing stocks (or stocks which directly affect 'mutual' cause-and-effect markets, as in the case of AAPL/NFLX), which, with a little intricate research, starts to unfold some interesting, highly compelling potential market-neutral hedged pair trading opportunities...

At the time of writing, the current Leveraged Free-Cash-Flow figure for AAPL stands at $17.41 Billion, with Enterprise-Value being $272.56 Billion. The Free-Cash-Flow-Yield for AAPL is hence 6.38%. At the same time, the current Leveraged Free-Cash-Flow figure for NFLX stands at $421.82 million, with Enterprise-Value being $13.39 Billion. The Free-Cash-Flow-Yield for NFLX is therefore 3.15%, almost half of AAPL, providing AAPL plenty of upside 'relative' to NFLX.

Note, with pairs trading, I am not concerned in the least about the overall market direction, whether we are in a bull or a bear market - this is irrelevant - my only point of focus is whether AAPL will outperform NFLX. Even if both stocks tank, but NFLX drops more than AAPL, a net profit is produced.

Additional metrics in favor of the long AAPL/short NFLX trade include the Price-To-Earnings-Growth (or 'PEG') ratio with AAPL exhibiting an ultra-low PEG of just 0.74 (compared to NFLX PEG substantially higher at 2.58), the Forward P/E ratio (11.34 vs 39.29, in favor of AAPL), the Price/Book ratio (4.91 vs 49.04, in favor of AAPL), and the Debt/Equity ratio (0.00 vs 0.85, in favor of AAPL).

Pairs trading is an ideal strategy if you don't want to play AAPL long as an outright directional trade. Many investors sit on the fence, despite knowing the undervalue opportunity AAPL currently offers - anxious about the overall market sentiment, which can (and does) effectively drive many otherwise solid stocks, including Apple, into extended bear market negativity. With a pair trade, much of the directional market uncertainty is neutralized...

By trading stock pairs, whether based on bread-and-butter mean reversion statistical probability (when pairs move outside the mean by 2 standard deviations), or fundamental comparison metrics (such as the AAPL/NFLX pair trade idea), the goal is to insulate against the wider market risk/volatility. Pairs traders are not concerned about overall market sentiment or direction. It does not matter if the stock market (or a sector) rallies, declines, or crashes. The only objective is that stock A outperforms stock B...

If you are long A and short B, and the specific industry sector (or the entire stock market) pops, then the loss on the long position in stock A, would be generally counter-balanced by the profitable short position in stock B. The objective is, over time, the fundamentally superior stock will tend to outperform the weaker, allowing the astute pairs trader to keep his/her head when it seems, all others are losing theirs. I am long AAPL, short NFLX, equal dollar value either side.

Wishing you every success in your investments... and good spirit...
Shiraz Lakhi - Self-Directed Investor/Publisher

Enterprise Value/Free-Cash-Flow Data Sourced From Yahoo Finance. Stock Data & Performance Analytics Sourced From TradePilot.com
 
]]> aapl nflx shiraz lakhi apple netflix pair trade free cash flow enterprise value Does The Recent Pullback In TNAV Offer A Compelling Opportunity To Load Up On This Stock?... http://seekingalpha.com/instablog/814363-shiraz-lakhi/186350-does-the-recent-pullback-in-tnav-offer-a-compelling-opportunity-to-load-up-on-this-stock?source=feed 186350 Does The Recent Pullback In TeleNav Inc (TNAV) Offer A Compelling Opportunity To Load Up On The Stock?...

By Shiraz Lakhi - Self Directed Trader/Publisher

A recent pullback saw the shares of TeleNav correct around 20% from the 52 week high, starting early June 2011. On closer analysis, could this recent, much needed pullback - largely engineered by overall market sentiment in the broader market/indexes - offer a good buying opportunity for such progressive, cash rich companies as TNAV...

In my research, I look for stocks with a minimum market capitalization of $50m, which are trading above 60% of their 52 week low, and present a strong 'fundamental' bias to the upside. Looking at TNAV clinically, revealed some very interesting (and compelling) metrics...
 
Firstly, a little info about the company: Headquartered in Sunnyvale, California, TeleNav, Inc (TNAV). primarily offers location based services for consumers and enterprises in the US and internationally, providing GPS Navigator, a voice guided, real time mobile navigation service, which delivers live traffic alerts, route planning, and updated points of interest...

The company offers GPS Navigator on a 'white label' basis, such as sprint navigation and AT&T navigator under the TeleNav brand. The company also provides enterprise-centric solutions such as mobile resource management solutions, which helps monitor and manage mobile workforces and assets by using its location based services platform to track job status and the location of workers, field assets, equipment, etc. The company also focuses increasingly on developing location based services for mobile phones, including location based mobile advertising, commerce, and social networking, a fast growth sector, requiring carefully managed products to develop niche advantages.
 
Focusing on fundamental metrics, what I look for as a core measure, before shortlisting any stock as potential play, is the 'Free-Cash-Flow To Enterprise Value'. In the case of TNAV, this is presently (largely due to the pullback) asignificant (I am tempted to say 'phenomenal') 30.69%.

This means that the cash-flow (true profit booked into the account - see next paragraph) is over 30% of the true value of the company. This is an enterprise where around $4.42 of its $14.43 stock price is 'pure cash flow' generation...
 
Note, the 'free cash flow' (FCF) metric is a more accurate measure of a companies 'earnings', as it reflects the true operational performance (generation of actual cash profits) of a business. This eliminates any potential misrepresented accounting, or dubious 'non-operational' entries into the profit/loss statements.
 
The 'enterprise value' (EV) metric is a more accurate representation of what a company is 'worth'. Many investors simply take the 'market cap' as a determination of a companies value. This is flawed, as it does not account for debt and cash the company may hold. A potential buyer would only pay the true worth of a business, which is the market capitalization PLUS debt (the acquirer would have to buy the debt), MINUS cash (the acquirer, once the company is purchased, also gains the cash reserves).
 
Hence, unlike the commonly observed P/E ratio (which is based on the very basic, and questionable 'market cap' and 'earnings' metrics), the FCF/EV ratio more accurately represents the amount of true earnings a company produces as a ratio (or percentage) of the true worth of the business.
 
In the case of TNAV, the current free-cash-flow generated is $119.37m, and the enterprise-value is $388.89m. Hence the FCF/EV ratio is 0.3069 (or 30.69%).

Additional 'positive' fundamental metrics in favor of TNAV include a Price-to-Earnings-Growth (PEG) ratio of 1.34, zero debts on the balance sheet, over $210m in cash (on balance sheet), year-on-year sales growth over the last 5 years. Even if the sales drop, the most supportive metric in favor of the business remains the cash-flow-to-enterprise-value.

The stock is currently priced at $14.43 (pre-open Monday 13th June 2011), which is 210.3% above the 52 week low.

Wishing you every success in your investments... and good spirit...
Shiraz Lakhi - Self-Drected Trader/Publisher

Enterprise Value/Free-Cash-Flow Data Sourced From Yahoo Finance. Stock Price, Technical & Performance Analytics Sourced From TradePilot. View Shiraz Lakhi's Daily Trading Blog Here (Latest Articles Based On FCF/EV Yield).
 
]]> Mon, 13 Jun 2011 04:31:06 -0400 Does The Recent Pullback In TeleNav Inc (TNAV) Offer A Compelling Opportunity To Load Up On The Stock?...

By Shiraz Lakhi - Self Directed Trader/Publisher

A recent pullback saw the shares of TeleNav correct around 20% from the 52 week high, starting early June 2011. On closer analysis, could this recent, much needed pullback - largely engineered by overall market sentiment in the broader market/indexes - offer a good buying opportunity for such progressive, cash rich companies as TNAV...

In my research, I look for stocks with a minimum market capitalization of $50m, which are trading above 60% of their 52 week low, and present a strong 'fundamental' bias to the upside. Looking at TNAV clinically, revealed some very interesting (and compelling) metrics...
 
Firstly, a little info about the company: Headquartered in Sunnyvale, California, TeleNav, Inc (TNAV). primarily offers location based services for consumers and enterprises in the US and internationally, providing GPS Navigator, a voice guided, real time mobile navigation service, which delivers live traffic alerts, route planning, and updated points of interest...

The company offers GPS Navigator on a 'white label' basis, such as sprint navigation and AT&T navigator under the TeleNav brand. The company also provides enterprise-centric solutions such as mobile resource management solutions, which helps monitor and manage mobile workforces and assets by using its location based services platform to track job status and the location of workers, field assets, equipment, etc. The company also focuses increasingly on developing location based services for mobile phones, including location based mobile advertising, commerce, and social networking, a fast growth sector, requiring carefully managed products to develop niche advantages.
 
Focusing on fundamental metrics, what I look for as a core measure, before shortlisting any stock as potential play, is the 'Free-Cash-Flow To Enterprise Value'. In the case of TNAV, this is presently (largely due to the pullback) asignificant (I am tempted to say 'phenomenal') 30.69%.

This means that the cash-flow (true profit booked into the account - see next paragraph) is over 30% of the true value of the company. This is an enterprise where around $4.42 of its $14.43 stock price is 'pure cash flow' generation...
 
Note, the 'free cash flow' (FCF) metric is a more accurate measure of a companies 'earnings', as it reflects the true operational performance (generation of actual cash profits) of a business. This eliminates any potential misrepresented accounting, or dubious 'non-operational' entries into the profit/loss statements.
 
The 'enterprise value' (EV) metric is a more accurate representation of what a company is 'worth'. Many investors simply take the 'market cap' as a determination of a companies value. This is flawed, as it does not account for debt and cash the company may hold. A potential buyer would only pay the true worth of a business, which is the market capitalization PLUS debt (the acquirer would have to buy the debt), MINUS cash (the acquirer, once the company is purchased, also gains the cash reserves).
 
Hence, unlike the commonly observed P/E ratio (which is based on the very basic, and questionable 'market cap' and 'earnings' metrics), the FCF/EV ratio more accurately represents the amount of true earnings a company produces as a ratio (or percentage) of the true worth of the business.
 
In the case of TNAV, the current free-cash-flow generated is $119.37m, and the enterprise-value is $388.89m. Hence the FCF/EV ratio is 0.3069 (or 30.69%).

Additional 'positive' fundamental metrics in favor of TNAV include a Price-to-Earnings-Growth (PEG) ratio of 1.34, zero debts on the balance sheet, over $210m in cash (on balance sheet), year-on-year sales growth over the last 5 years. Even if the sales drop, the most supportive metric in favor of the business remains the cash-flow-to-enterprise-value.

The stock is currently priced at $14.43 (pre-open Monday 13th June 2011), which is 210.3% above the 52 week low.

Wishing you every success in your investments... and good spirit...
Shiraz Lakhi - Self-Drected Trader/Publisher

Enterprise Value/Free-Cash-Flow Data Sourced From Yahoo Finance. Stock Price, Technical & Performance Analytics Sourced From TradePilot. View Shiraz Lakhi's Daily Trading Blog Here (Latest Articles Based On FCF/EV Yield).
 
]]> tnav shiraz lakhi tnav telenav undervalued stock 7 Basic Materials Stocks, With Strong Upward Momentum, Generating Significant Free-Cash-Flow. http://seekingalpha.com/instablog/814363-shiraz-lakhi/186185-7-basic-materials-stocks-with-strong-upward-momentum-generating-significant-free-cash-flow?source=feed 186185 7 Basic Materials Stocks, With Strong Upward Momentum, Generating Significant Free-Cash-Flow...

By Shiraz Lakhi - Self Directed Trader/Publisher

If, like me, you are presently looking for defensive plays within the Basic Materials sector, with strong upward momentum (trend), and generating robust 'Free-Cash-Flow to Enterprise-Value' metrics, the following may provide an interesting starting point for further analysis...
 
To compile the list, I have applied the following screening criteria...
 
1: Stocks should be within the Basic Materials sector.
2: Each company must have a minimum market capitalization of $50m plus.
3: Each stock must be trading above 60% of the 52 week range.
4: The 'Free-Cash-Flow To Enterprise Value' must be above 10%.
 
Note, the 'free cash flow' (FCF) metric is a more accurate measure of a companies 'earnings', as it reflects the true operational performance (generation of actual cash profits) of a business. This eliminates any potential misrepresented accounting, or dubious 'non-operational' entries into the profit/loss statements.
 
The 'enterprise value' (EV) metric is a more accurate representation of what a company is 'worth'. Many investors simply take the 'market cap' as a determination of a companies value. This is flawed, as it does not account for debt and cash the company may hold. A potential buyer would only pay the true worth of a business, which is the market capitalization PLUS debt (the acquirer would have to buy the debt), MINUS cash (the acquirer, once the company is purchased, also gains the cash reserves).
 
Hence, unlike the commonly observed P/E ratio (which is based on the very basic, and questionable 'market cap' and 'earnings' metrics), the FCF/EV ratio more accurately represents the amount of true earnings a company produces as a ratio (or percentage) of the true worth of the business.
 
Given this information, I have listed the 7 stocks I have found to provide the most favorable FCF/EV metrics. Each company produces a minimum 10% of free cash flow (FCF) relative to its overall worth (EV)...
 
1: CF Industries Holdings (CF):
 
This basic materials stock operates within the agricultural chemicals industry, with a market capitalization of $10.9B. The stock is presently trading at 156.04% above its 52 week low. Leveraged Free Cash Flow is $1.54B, and Enterprise Value is $11.39B, implying an FCF/EV ratio of 0.1352 (or 13.52%).
 
2: Valero Energy Corporation (VLO):
 
This basic materials stock operates within the oil & gas refining and marketing industry, with a market capitalization of $14.23B. The stock is presently trading at 62.14% above its 52 week low. Leveraged Free Cash Flow is $1.87B, and Enterprise Value is $17.93B, implying an FCF/EV ratio of 0.1043 (or 10.43%).
 
3: Noranda Aluminum Holding Corp. (NOR):
 
This basic materials stock operates within the aluminum industry, with a market capitalization of $913.5m. The stock is presently trading at 132.88% above its 52 week low. Leveraged Free Cash Flow is $210.46m, and Enterprise Value is $1.29B, implying an FCF/EV ratio of 0.1631 (or 16.31%).
 
4: Gulf Island Fabrication Inc. (GIFI):
 
This basic materials stock operates within the oil & gas drilling and exploration industry, with a market capitalization of $413.7m. The stock is presently trading at 100.04% above its 52 week low. Leveraged Free Cash Flow is $41.11m, and Enterprise Value is $351.49m, implying an FCF/EV ratio of 0.1169 (or 11.69%).
 
5: Ferro Corp. (FOE):
 
This basic materials stock operates within the specialty chemicals industry, with a market capitalization of $1.07B. The stock is presently trading at 84.88% above its 52 week low. Leveraged Free Cash Flow is $164.8m, and Enterprise Value is $1.39B, implying an FCF/EV ratio of 0.1185 (or 11.85%).
 
6: Innophos Holdings Inc. (IPHS):
 
This basic materials stock operates within the chemicals (major diversified) industry, with a market capitalization of $922.03m. The stock is presently trading at 79.51% above its 52 week low. Leveraged Free Cash Flow is $117.46m, and Enterprise Value is $984.45m, implying an FCF/EV ratio of 0.1193 (or 11.93%).
 
7: Hecla Mining Co. (HL):
 
This basic materials stock operates within the silver industry, with a market capitalization of $2.06B. The stock is presently trading at 63.27% above its 52 week low. Leveraged Free Cash Flow is $208.5m, and Enterprise Value is $1.75B, implying an FCF/EV ratio of 0.1191 (or 11.91%).

Wishing you every success in your investments... and good spirit...
Shiraz Lakhi - Self-Drected Trader/Publisher

Enterprise Value/Free-Cash-Flow Data Sourced From Yahoo Finance. Stock Price, Technical & Performance Analytics Sourced From TradePilot. View Shiraz Lakhi's Daily Trading Blog Here (Latest Articles Based On FCF/EV Yield).
 
]]> Sun, 12 Jun 2011 06:31:34 -0400 7 Basic Materials Stocks, With Strong Upward Momentum, Generating Significant Free-Cash-Flow...

By Shiraz Lakhi - Self Directed Trader/Publisher

If, like me, you are presently looking for defensive plays within the Basic Materials sector, with strong upward momentum (trend), and generating robust 'Free-Cash-Flow to Enterprise-Value' metrics, the following may provide an interesting starting point for further analysis...
 
To compile the list, I have applied the following screening criteria...
 
1: Stocks should be within the Basic Materials sector.
2: Each company must have a minimum market capitalization of $50m plus.
3: Each stock must be trading above 60% of the 52 week range.
4: The 'Free-Cash-Flow To Enterprise Value' must be above 10%.
 
Note, the 'free cash flow' (FCF) metric is a more accurate measure of a companies 'earnings', as it reflects the true operational performance (generation of actual cash profits) of a business. This eliminates any potential misrepresented accounting, or dubious 'non-operational' entries into the profit/loss statements.
 
The 'enterprise value' (EV) metric is a more accurate representation of what a company is 'worth'. Many investors simply take the 'market cap' as a determination of a companies value. This is flawed, as it does not account for debt and cash the company may hold. A potential buyer would only pay the true worth of a business, which is the market capitalization PLUS debt (the acquirer would have to buy the debt), MINUS cash (the acquirer, once the company is purchased, also gains the cash reserves).
 
Hence, unlike the commonly observed P/E ratio (which is based on the very basic, and questionable 'market cap' and 'earnings' metrics), the FCF/EV ratio more accurately represents the amount of true earnings a company produces as a ratio (or percentage) of the true worth of the business.
 
Given this information, I have listed the 7 stocks I have found to provide the most favorable FCF/EV metrics. Each company produces a minimum 10% of free cash flow (FCF) relative to its overall worth (EV)...
 
1: CF Industries Holdings (CF):
 
This basic materials stock operates within the agricultural chemicals industry, with a market capitalization of $10.9B. The stock is presently trading at 156.04% above its 52 week low. Leveraged Free Cash Flow is $1.54B, and Enterprise Value is $11.39B, implying an FCF/EV ratio of 0.1352 (or 13.52%).
 
2: Valero Energy Corporation (VLO):
 
This basic materials stock operates within the oil & gas refining and marketing industry, with a market capitalization of $14.23B. The stock is presently trading at 62.14% above its 52 week low. Leveraged Free Cash Flow is $1.87B, and Enterprise Value is $17.93B, implying an FCF/EV ratio of 0.1043 (or 10.43%).
 
3: Noranda Aluminum Holding Corp. (NOR):
 
This basic materials stock operates within the aluminum industry, with a market capitalization of $913.5m. The stock is presently trading at 132.88% above its 52 week low. Leveraged Free Cash Flow is $210.46m, and Enterprise Value is $1.29B, implying an FCF/EV ratio of 0.1631 (or 16.31%).
 
4: Gulf Island Fabrication Inc. (GIFI):
 
This basic materials stock operates within the oil & gas drilling and exploration industry, with a market capitalization of $413.7m. The stock is presently trading at 100.04% above its 52 week low. Leveraged Free Cash Flow is $41.11m, and Enterprise Value is $351.49m, implying an FCF/EV ratio of 0.1169 (or 11.69%).
 
5: Ferro Corp. (FOE):
 
This basic materials stock operates within the specialty chemicals industry, with a market capitalization of $1.07B. The stock is presently trading at 84.88% above its 52 week low. Leveraged Free Cash Flow is $164.8m, and Enterprise Value is $1.39B, implying an FCF/EV ratio of 0.1185 (or 11.85%).
 
6: Innophos Holdings Inc. (IPHS):
 
This basic materials stock operates within the chemicals (major diversified) industry, with a market capitalization of $922.03m. The stock is presently trading at 79.51% above its 52 week low. Leveraged Free Cash Flow is $117.46m, and Enterprise Value is $984.45m, implying an FCF/EV ratio of 0.1193 (or 11.93%).
 
7: Hecla Mining Co. (HL):
 
This basic materials stock operates within the silver industry, with a market capitalization of $2.06B. The stock is presently trading at 63.27% above its 52 week low. Leveraged Free Cash Flow is $208.5m, and Enterprise Value is $1.75B, implying an FCF/EV ratio of 0.1191 (or 11.91%).

Wishing you every success in your investments... and good spirit...
Shiraz Lakhi - Self-Drected Trader/Publisher

Enterprise Value/Free-Cash-Flow Data Sourced From Yahoo Finance. Stock Price, Technical & Performance Analytics Sourced From TradePilot. View Shiraz Lakhi's Daily Trading Blog Here (Latest Articles Based On FCF/EV Yield).
 
]]> cf vlo nor gifi foe iphs hl shiraz lakhi free cash flow enterprise value basic materials stock defensive stock