Shiv Kapoor

Transocean Earnings Analysis: A Buy at Current Levels

RIG has Trident 9 idle/warm stacked; which might go stacked; my view is that it will not - it will probably get work at lower day rates. Trident 6 is stacked - probably likely to stay that way as the jack up market is looking weak. These are jack ups which are unlikely to have a significant impact on results.

Sedco 709 is coming of contract in Nov 09; its running at $205k/day; the client has fixed options. This is a dynamically positioned midwater vessel; I do not believe it will be stacked, though it might be idle/warm stacked for a short while.

Actinia and GSF 135 are good through Apr/May 2010.

Overall, I do not see stack risk for 2010 as significant.

In fact a little bit of stacking in mid water will be good for day rates (utilization is calculated excluding cold stacked rigs) and as utilization rises, so do day rates.

On Nov 05 08:15 AM Wallach wrote:

> As far as I understand, the dayrates and out-of-service time reflects
> only operating rigs. If one was to average in the stacked rigs, the
> numbers would not look as good.

Wipro: Speculative Positions for Current Phase of Economic Cycle

Alan; it can possible to arb away the difference; in fact over the last two years the ADR premiums have shrunk very significantly for most actively traded counters mainly because of arbitrage. And as institutional interest in India increases, it shrinks further. Admittedly, the method to arb is far more convoluted, but it can be and is done. For the ADR premium to shrink, what is really needed is active interest in the security (from investors outside India who can trade dual markets [in India & the NYSE]) because you cannot take ADR's and exchange them for ordinary shares. This is what is lacking in WIT; only a tiny (below 8%) of WIT is held by foreign institutions and custodians. This compares with near 55% for Infosys. It is not worth the effort to use an arb trade using twin derivative strategies on two separate sets of securities if the foreign interest is just not there. For arb to work an active interest in the security is needed and that is what is lacking. Cannot figure why because it is a good, well governed company.

On Nov 04 10:34 AM Alan Young wrote:

> The ADR premiums persist because India's securities laws do not permit
> the kind of trading that would allow arbitrage. Of course, if they
> even start to talk about changing that law, watch out!

India Remains an Attractive Market

India's primary driver is expanding domestic consumption (56% of GDP). The external stimulus which was required to create income to consume has been delivered through export; now momentum caused by external demand has created a virtous cycle of need coupled with ability to pay in the domestic economy. Export remains important (it is about 22% of GDP); but not critical - revenue will be depressed and margins squeeze on strength of Rs, but this is limited mainly to export sector - and there too some pressure relief will come from productivity gains (India is very behind on productivity & those gains can drive margin growth to offet currency strength). BTW - I think sectors to focus on in India are materials/energy/infra... - anything driven by domestic demand - investing in export (IT/textile etc) driven sectors might be relatively weak. See my post on INFY.
India is a long term story; and the risks are high - risks will only start reducing once prosperity permeates through society - need per capital GDP to rise - see maxkapital.blogspot.co.... Until per capita GDP rises, expect volatility over economic cycle + also degree of external wealth through exports will be required. Import dependency is also high - particularly on machine/fert/chemicals... the latter 3 worry me most because these are supply contrained + food and energy security are very, very important for stability.

Get more info on GDP breakdown at www.mospi.nic.in/PRESS...


On Oct 09 11:37 AM TvC wrote:

> Shiv,
> What about the effect of the strengthening rupee in turn depressing
> revenue and earnings of the Export Driven portion of the Indian economy.
> This will in turn reduce the net returns to the Foreign investor.
> Could you elaborate on what portion of the Indian GDP is Export Driven
> and what portion is focused domestically.

An Ode to Pepsi Stock

well trying to be too clever. My capital tripled and I reckoned I would sell and buy back cheaper. I never did! One of my bad calls.


On Oct 09 09:23 AM David Van Knapp wrote:

> Pepsi is a superb company. I own it as part of a dividend portfolio,
> so am less concerned with its price du jour. On the dividend front,
> it just keeps kicking out those checks every quarter like clockwork,
> and they've been increasing for decades.
>
> I have faith in Pepsi's management. Even if healthcare worries and/or
> regulations cause people to turn away from heretofore core products,
> I believe that Pepsi has the foresight and agility to develop healthier
> products ahead of the curve and maintain its leadership in snacks.
> I've been eating Baked Lays for years based on my own health concerns,
> and they are great. Just a small anecdotal example of what Pepsi
> can do with its franchise, including its unmatched distribution network.
>
>
> Shiv, sorry you jumped off the gravy train. I don't quite follow
> your reasoning for selling in 2000, nor for being unable to find
> enough value for 4 years to buy back even though the stock went nowhere.
> Personally, I find no value in categorizing stocks as "cyclical"
> or "growth" or "defensive," so such labels never play a role in my
> investment decisions. It sounds like those labels hurt you here with
> Pepsi.

India Remains an Attractive Market

EPI is good on quality with reasonable holdings in Bharti, Reliance Industries, Infosys.

PIN is great in quality, it has good holdings in Bharti, Reliance Industries, Infosys; all Dow Global Titans. Personally, I like quality, but short term I think its exposure to Infosys is too high. I am also not keen on their exposure to ONGC - that is a public sector entity and why it is a great holding, its profitability is very influenced by goverment policy.

IIF I do not like at all.

Overall I like IFN best. Their portfolio quality is excellent and while there is some exposure to public sector undertakings (I generally avoid PSU's), most are infrastructure plays which are positively influenced by policy. I am not keen on State Bank of India because its profits can be hurt by goverment dictates on how much to lend and to who, but that is only a small position.
1. Reliance Industries, Ltd.
2. Infosys Technologies, Ltd.
3. Bharti Airtel, Ltd.
4. Housing Development Finance Corp., Ltd.
5. Oil and Natural Gas Corp., Ltd.
6. Jindal Steel & Power, Ltd.
7. Bharat Heavy Electricals, Ltd.
8. HDFC Bank, Ltd.
9. ICICI Bank, Ltd.
10. State Bank of India
11. ITC, Ltd.
12. Reliance Infrastructure, Ltd.
13. Mahindra & Mahindra, Ltd.
14. Larsen & Toubro, Ltd.
15. Hindustan Unilever, Ltd.
16. Lupin, Ltd.
17. Tata Consultancy Services, Ltd.
18. Wipro, Ltd.
19. Hero Honda Motors, Ltd.
20. Sterlite Industries (India), Ltd.
21. Jaiprakash Associates, Ltd.
22. Power Finance Corp., Ltd.
23. Punjab National Bank, Ltd.
24. Axis Bank, Ltd.
25. NTPC, Ltd.


On Oct 07 10:48 AM jimp wrote:

> Shiv,
>
> Do you have a preferred ETF that you think
> is most able to take advantage of India's
> present & future investment potential?
> Thanks for the great article.

What Is McDonald's Thinking?

When payout ratio's rise and the rise is expected to be long term, multiples shift downwards with a time lag. Investors who buy before the time lag can get hurt because while they gain via the dividend, they lose on account of lower capital growth. If interested have a look at maxkapital.blogspot.co....


On Sep 25 06:20 AM imc wrote:

> "The payout ratio is over 58% which compares with historic payout
> ratios of 28% at median levels over the past decade. What this means
> is that a lower multiple must be applied - if value is returned via
> dividends, the value delivered via capital appreciation must fall."
>
>
> I don't understand your rationale. Why must a lower multiple be applied,
> surely you would value the company based on the income together with
> the capital appreciation you get from holding the stock. A multiple
> should be based on earnings and likely growth of those earnings,
> MCD has shown consistently that it outperforms its competitors in
> this fashion.
>
> A number of your other arguments regarding the balance sheet may
> or may not hold water to influence your thoughts on discounting the
> multiple but the rate of dividend surely shouldn't as it's not a
> business that requires large reinvestment of its earnings to maintain
> or develop its growth.

What Is McDonald's Thinking?

FYI sale of treasury stock to pay down debt would be dilutive to future earnings. This would have a significant impact on valuations - it is probably one of the main reasons I do not like MCD. I think there are better defensive plays with sounder capital structures.


On Sep 29 10:52 PM No Moss wrote:

> "Their balance sheet is so terrible; their net debt to net debt plus
> equity is up over 73%. What this means is any impairment of its assets
> will cause shareholder equity serious damage - and consider that
> 2.18 of its book value of $3.02 comes from Goodwill. In a rising
> rate environment this stock could suffer serious damage."
>
> Sorry, I had to laugh at this analysis. Their "net equity" includes
> a huge debit (reduction of equity) for treasury stock. For those
> unacquainted with the term, treasury stock is stock that has been
> repurchased by the company. While this nominally reduces equity,
> it is actually a huge plus. The company could pay off all of its
> long-term debt by either sellling half of its treasury stock, or
> alternatively pay off its debt in a few years by ceasing to buy back
> stock for that period.
>
> Goodwill arises when you pay more for an investment than the book
> (historical) value of that investment. The net difference is booked
> as goodwill. To give you an example of how that works, if you bought
> McDonald's today, you would pay far more than its book value--hugely
> more. Just on the basis of real estate, they have $21 billion in
> net book value (asset historical cost minus accumulated depreciation)
> which is actually worth, I would guess, at least three times that
> amount. Do you think McDonald's would actually sell an urban corner
> lot purchased 20 years ago for what it paid for it, much less its
> net book value? Then you would have to pay for the value of McDonald's
> as an incredibly successful business (the term goodwill actually
> stems from the reputation of a business and the value of its brand).
>
>
> MickeyD is a formidable cash machine. It generated about $6 billion
> in cash flow from operations in 2008, and used about $4 billion of
> that to repurchase stock. The real question is whether MCD's shareholders
> are better served by paying off debt or by repurchasing stock and
> receiving dividends.
>
> The mistake that most people make in analyzing MCD is to think of
> it as a restaurant company. It is a huge REIT, a franchisor, and
> a restaurant company. As a REIT, it collects increasing rent revenue
> even as the net book value of the rented properties decreases. This
> accounting anomaly gives rise to the use of FFO, or funds from operations,
> as a method of computing the real return (and the source of dividends)
> for REITs.
>
> What it is also becoming is an investment company, it business plan
> being to actually invest in companies that purchase land and property
> for new restaurants. This allows them to increase their return on
> assets.

What Is McDonald's Thinking?

AH - I would never consider buying MCD at $53. I do not like the stock now and believe there are far superior defensive plays available. Well each to his/her own.

On Sep 27 10:20 AM Suren The Man wrote:

> I think this is a feeble attempt to discredit the company to keep
> the stock price low. Your analysis is like a "spin-zone" talk. You
> leave out so many critical inputs in your analysis. I balked at your
> analysis and then realized that such an outcome can only have one
> motive.
>
> Lemme ask you - Did you miss buying this stock when it fell to $53.88
> waiting for $52 or lower? Now, you are panicking and want in. Wow,
> you can keep waiting for less than 12 times earning to buy and i
> am sure you will spend your entire lifetime waiting for this to happen.
> McDonalds will keep expanding and building their brand and buying
> back shares and increasing the dividend each year and your posts/analysis
> will become more despearate and then your receding hairline will
> completely dsintegrate (you will become bald and old). Keep waiting.
> While you are at it, based on your analysis, you should be waiting
> for 7 - 8 times earnings. Why do you want to cough up a premium of
> 50% (12 times earnings) if you expect the growth rate to be meagre??
>
>
> ROFL!!

Is ConocoPhillips a Potential Multi-Bagger?

It is not possible to own every stock I like. I create a watch list and look to buy into various stocks I like as and when I replace a position I have recently exited (normally to book a profit or rotate to sectors I expect will outperform).
For example, at present I am keen on buying HD and HMC as these are discretionary stocks, which I feel are good long term buys and I expect them to outperform in the short term - I could buy them buy booking some gains on my early cyclicals but am reluctant to do so simply because the condition of the US consumer is a higher risk compared with growth opportunities in IT/Industrials/Materials which are getting better support from overseas. Nevertheless first use of surplus cash will go to these stocks because I am as overweight early cyclicals as I will accept. If HMC/HD outperform following purchase, I will book profits (not principal) in 3 to 6 months and use the profits to buy into COP/CVX which are also stocks I like; but I expect these (energy sector) to outperform later in the cycle; I will also use funds from partial exit of industrials to finance build in energy positions.

Slightly further down the road, I am very keen on buying JNJ/KO/VOD/WMT; these will be defensive & income positions and will be purchased on exit of positions (more likely booking profits) in early cyclicals - basic materials/industrials/...

There is really nothing sinister about writing about an interesting stock and watching it until it makes sense to buy - after considering alternative opportunities and liquidity and forward outperformance expectations. Can you honestly declare that you own every stock you like? If not, why should I?


On Oct 01 06:43 PM Oilbull wrote:

> Just joking on the Dell thing...but seriously, why write up a report
> on something you have no interest in either pro or con?

Is ConocoPhillips a Potential Multi-Bagger?

Stop being amazed. It is not possible to own every stock I like. I create a watch list and look to buy into various stocks I like as and when I replace a position I have recently exited (normally to book a profit or rotate to sectors I expect will outperform).
For example, at present I am keen on buying HD and HMC as these are discretionary stocks, which I feel are good long term buys and I expect them to outperform in the short term - I could buy them buy booking some gains on my early cyclicals but am reluctant to do so simply because the condition of the US consumer is a higher risk compared with growth opportunities in IT/Industrials/Materials which are getting better support from overseas. Nevertheless first use of surplus cash will go to these stocks because I am as overweight early cyclicals as I will accept. If HMC/HD outperform following purchase, I will book profits (not principal) in 3 to 6 months and use the profits to buy into COP/CVX which are also stocks I like; but I expect these (energy sector) to outperform later in the cycle; I will also use funds from partial exit of industrials to finance build in energy positions.

Slightly further down the road, I am very keen on buying JNJ/KO/VOD/WMT; these will be defensive & income positions and will be purchased on exit of positions (more likely booking profits) in early cyclicals - basic materials/industrials/...

There is really nothing sinister about writing about an interesting stock and watching it until it makes sense to buy - after considering alternative opportunities and liquidity and forward outperformance expectations. Can you honestly declare that you own every stock you like? If not, why should I?

On Oct 02 01:24 PM The Hammer wrote:

> I amazes me that people write these articles then disclose they own
> 0 shares??
> COP has made some quality acquisitions, but mulva's timing is rather
> poor. In addition, When oil and Nat gas were sky rocketing in price
> over $100 and $12 mcf I wrote an email to the Board of directors
> telling them that they should hedge some production something like
> 25-50% and let the rest float with the market.. My main reason was
> that the oil prices was above the inflation adjusted highs and the
> company just made a few large acquisitions and it would be prudent
> to lock in some production to pay down debt , continue the dividend
> and maybe even buy in a few shares of stock. i received some non-sense
> email back stating that investors wanted the oil price to float and
> that they should hedge against it if you wanted.
>
> What a bunch of dolts on the board!

Exxon Mobil Is a Buy

Buybacks are very good as long as shares are bought back when shares trade at a discount to intrinsic value; even a slight premium to intrinsic is okay because there is better tax efficiency in buybacks.
As it happens, I agree I have been somewhat unfair in saying the buybacks were not smart - I know the share prices were elevated because of the benefit of hindsight, which vision was not available for XOM. In fact shares of XOM were trading at apparently reasonable valuations during 2006/2007/2008 - yet anyone who invests in energy knows it is highly cyclical - buybacks when the market is at and approaching cyclical troughs should be the strategy.
For me buybacks should be either smart (below intrinsic) or consistent (regardless of value sort of like a stable dividend with shares being bought back regardless of price - this gives a $ cost averaging advantage).

On Sep 27 07:16 PM Kilgore wrote:

> I don't know why you would describe the share buyback plan as "not
> smart". The company has a choice, it can either pay that same money
> out in dividends (and have shareholders be taxed twice on the same
> earnings) or it can return the money to shareholders by reducing
> the number of shares outstanding. For a company like XOM with such
> great long term assets, reducing the number of shares every year
> at a rate of 6-8% of total shares outstanding is the most prudent
> and shareholder friendly thing it can do.
>
> My only fear with XOM is that too many of its best assets are in
> places like Nigeria, Azerbijan (sp?), ect., where social unrest could
> very easily lead to a nationalization of assets like is occuring
> in Venezuela.

Is ConocoPhillips a Potential Multi-Bagger?

The calc indicates that for every $100 put in at annual average price of $18.10, you would have stock worth $327 today + dividend income. If you purchased 100 shares at $18.10 (adjusted for splits and div) which was the annual adjusted price during 1999, you would expect to have shares worth 3.27*$1,810 = $5,918 assuming you reinvested dividends. You have $9,508 and have done much better. My guess is that you were wise enough to have bought at lower adjusted closing prices (range during 1999 was $14.32-$21.67) and you must have benefited from the 2 for 1 split in June 05. In my view return of 525% over your holding period coupled with dividend income of over $250/year is a very good return.


On Oct 02 08:27 AM Shocked wrote:

> Something is very wrong with your math calculations. I have had 100
> shares since 1999 and I have reinvested the dividends and my total
> value is only $9508. So where is my money?

Expect Coke's Stock to Rise over the Next Five Years

10% is the approx annualized return. Absolute return will be > 40%.


On Sep 24 04:54 PM Doom Bloggers s**** wrote:

> How is that a return potential of over 10%. That is more like over
> 40%

A Lot to Like About Wal-Mart

Please read the valuation report & user notes if you are interested in figuring how I justify the $37 next cycle bear value and $44 values.


On Sep 16 10:31 AM U338129 wrote:

> Your title doesn't match your analysis and price target. "A Lot to
> Like About Wal-Mart" would suggest that stock provides a good value
> if it were purchased at this time. However, your price target is
> $37-$44 which is well below where it's at now and nowhere near what
> many believe it to be worth. Where do you get $37-$44; how are you
> justifying that price?

A Lot to Like About Wal-Mart

my title was wondering about wal-mart actually!


On Sep 16 10:31 AM U338129 wrote:

> Your title doesn't match your analysis and price target. "A Lot to
> Like About Wal-Mart" would suggest that stock provides a good value
> if it were purchased at this time. However, your price target is
> $37-$44 which is well below where it's at now and nowhere near what
> many believe it to be worth. Where do you get $37-$44; how are you
> justifying that price?