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  • Which mREITs Will Outperform In 2012? [View article]
    Very disappointing article. You merely stated the obvious. You make no assessment of the SEC action. You make no assessment of the falling/fallen long term rates and flat yield curve other than to say we should watch interest rates. WOW, what insight!! What should I watch for - rising rates, falling rates, high or low prepayments? Your article is useless and unfortunately typical of much of what is published on SA.
    Best wishes for a happy new year. Hope this helps you improve your analytical and writing ability.
    Jan 3 12:14 PM | Likes Like |Link to Comment
  • Earthlink (ELNK -0.6%) issues a notice of redemption for its 3.25% Senior Notes due 2026, joining a long list of companies paying off debt with free cash. What does it say about the corporate world when a once high-flying tech-bubble stand-in is settling now for retiring low-interest debt?  [View news story]
    To answer your question, the notes are convertible, hence the low rate. By redeeming the notes the company is reducing dilution of the equity holders. The company has adequate cash flow and does not need the capital. This is a good thing.
    Oct 15 08:58 AM | Likes Like |Link to Comment
  • Income Investors Face Enormous Macro Risks Ahead [View article]
    Quick comment: Point 1, first sentence - "the Fed will spare no recourse...in order to prevent depression and associated inflation." I believe you mean deflation, not inflation. In a depression, prices fall due to lack of demand. Falling prices creates a vicious cycle of people waiting for prices to fall further before buying. This is what the Fed has been trying to prevent by massive monetary stimulus and low manipulated rates. That sows the seeds for future inflation, but we have to get out of a recession induced by deleveraging first. That could be a very long time. Ask the Japanese.
    Sep 10 10:28 AM | 2 Likes Like |Link to Comment
  • Merger Ideas for Sprint [View article]
    I believe you have really under estimated the complexity of Clearwire. S had a controlling interest in CW but renounced it removing its board representation in order to avoid any potential liability in the event of a CW bankruptcy. Obviously S would like to buy the minority interest of CW. It is just a matter of price. S wants to buy low; CW wants to sell high. CW financing options are limited; they are financially stretched. They still have network to build out to give S its desired penetration. I suspect the ATT deal will bring them closer together.

    Any informed readers have any idea as to the stand alone value of S/CW network if they sold it off?

    Thanks
    Mar 24 12:36 PM | Likes Like |Link to Comment
  • Merger Ideas for Sprint [View article]
    I thought S was upgrading its network to LTE. Why would it not be compatible with MetroPCS? What do you think of their network upgrade plan? Thanks
    Mar 24 12:30 PM | Likes Like |Link to Comment
  • Microsoft: Can You Really Find a Better Risk / Reward Scenario? [View article]
    Thank you Chris
    Mar 24 12:04 PM | 1 Like Like |Link to Comment
  • Microsoft: Can You Really Find a Better Risk / Reward Scenario? [View article]
    I see your point and understand your concern. However, in theory, any company's value is equal to the PV of the FCF it generates in perpetuity. Another way to think of the perpetuity value is to think what the company could be sold for, say to a private equity firm. You can also look at the perpetuity value as the EV/EBITDA or P/FCF x at given point.

    I baked in a 0% growth factor which does not even allow for inflation so I think I am pretty conservative. My TV is only 10x FCF. The problem with DCF models is that small changes in a variables can have very large changes in the fair value.

    What this boils down to is do you think that MSFT's cash flow and earnings are going to start to decline significantly 4-5 years from now? Will windows machines really start to decline in favor of tablets? What about their Office franchise? Business division sales were up 24% in '10. Will the corporate world throw away the PC and office in 5 years? What about their new game controller? Sales in the entertainment division rose 55% to $3.7b. Kinectx sold 8m units. Granted, Windows revenues were $300m short in '10 but overall the company way beat expectations. Then there are the cloud computing contract wins over Google - Dept of Agriculture, Dept of the Interior, NYC, CA and MN. (per Fred Hickey).

    This is a very solid company with huge cash flow generating ability and cash reserves. It appears cheap to me now
    Mar 23 10:29 AM | 1 Like Like |Link to Comment
  • Microsoft: Can You Really Find a Better Risk / Reward Scenario? [View article]
    I agree with Mr. Lau's and your conclusions and I have a few comments and observations on MSFT's valuation.

    First, I would like to point out that you jumped from Cash flow from Ops to Free Cash Flow without mentioning cap ex. FCF is CFFO - Cap ex. However, I believe you took it into account in determining your FCF yield as CFFO for '10 was $24B but you used $21B for FCF so I assume you estimated $3B for cap ex. If that is true, then your calculation of FCF yield of 10.9% is correct. And, that assumes on growth, which Mr. Lau points out is quite possible.

    So let's make some assumptions of FCF growth for 5 years and a terminal value. If you use TTM as of 12/31/10 as proxy for FY 6/11 and grow CFFO by 3% per year, assume cap ex for the next 5 years is $3B per year (it has averaged $2.8B p/y for the last 3 years) then FCF would grow about 2.7% per year for 5 years. If you add a terminal value assuming 0% growth in perpetuity and discount that stream back at 10% and add $31B in net cash divided by 8.7B fully diluted shares you get a value of $32.68 per share.

    If it takes 3 years for the market to recognize the value discrepancy and you pay $24.80 per share today and receive $0.64 dividend per year and sell the stock for $32.68 you would generate an IRR of 12%.

    Seems like a reasonable return from a AAA credit. Who knows maybe they will actually create some new innovative products or buy some and growth may be higher than 3%.

    I am long MSFT
    Used Morningstar for financial figures
    Mar 19 02:57 PM | 3 Likes Like |Link to Comment
  • MLPs Enter Challenging Week [View article]
    I wish I could figure out a way to use any of the obvious information in your article. Exactly what challenges will MLPs face next week? Volatility has increased. There is a flight to safety. MLP's may go down as a result. Boy, that's insight!!!
    May 11 12:00 PM | 4 Likes Like |Link to Comment
  • The Nine Best Natural Gas, Oil Pipelines for Income and Capital Gains [View article]
    You are a little light on explanation about why you would purchase the companies you recommended. Are they selling at a cheap price to fair value? What is the fair value? You also don't go into much information about GP companies vs LP companies. You don't discuss hedging positions for gathering pipelines nor contract details about how a company generates revenue. There is a big difference between a keep whole agreement for a gathering pipeline and a long term transport agreement for a long haul pipeline.
    Sep 16 09:43 AM | 2 Likes Like |Link to Comment
  • Plenty of Natural Gas: Exploration and Production Companies Keep Increasing Oversupply [View article]
    Well done article but I have a question for you and the 2 previous commenters.

    As I understand it, NG demand has fallen significantly primarily due to a drop in industrial demand and utility demand. Supply has increased as new unconventional plays have gone into production. So producers, who cannot just shut off wells like a light switch, have started to store gas in hopes of higher prices down the road. Storage is becoming full. Once full wells may be forced to shut down. Pressure in the system will fall so even pipelines won't be making revenue as no gas will be moving. Voila, end of the world. Do I have this correct?

    But wait, if you want to sell your gas at say $4.50 rather than $2.73 all you would have to do is sell a futures contract for Dec delivery. That is 3.5 months away! There must be plenty of producers that have sold their production forward for winter delivery and intend of delivering. And, if you want $5 all you have to do is sell for June '10. What am I missing here?? I would appreciate some help.

    Also, the economy seems to be turning around a bit. That should start to increase industrial and utility demand. How do you see that playing out??

    Lastly, how do you see the Pickens theory play out with conversion to NG use away from Petroleum. I suspect that is a ways off but some government car fleets are now being converted?

    Thanks to all for your help
    Sep 11 10:31 AM | 2 Likes Like |Link to Comment
  • Tiber Oilfield Spells Major Upside for Prices [View article]
    Interesting and well done article. A couple of points:

    1. Reserves do NOT represent the total amount of estimated oil in a given resource as "proven" by geologic assessments and initial drilling. In fact, the reserves of a given well or resource can change year to year on a company's balance sheet, regardless of new finds or depletion. This is caused by the fact the reserves are a function of the amount ECONOMICALLY recoverable oil. So, with low oil prices, it may not be economic for a company to lift the last bit of oil out of the ground. However, if oil prices rise, it would be economic to make extra investment in the well such as injection and recover the last bit of oil. In this case, the company's reserves would increase even though no new oil was found in that well. I recently learned this distinction in talking to a domestic E&P company.

    2. Another point about Peak Oil, not only does the rate of production decline after reaching Peak, the cost of recovery goes up. To get the final bit of oil from a well requires injection and other techniques, which add to the cost of recovery. Another point is that most of the easy oil finds and recoveries have been made. New oil discoveries are being made in areas where recovery is difficult and expensive.
    Sep 8 02:52 PM | 2 Likes Like |Link to Comment
  • A Simple Valuation Model for Large Cap Stocks [View article]
    I sure would not call this simple! Doubt you will get many readers on this site.

    Very informative article. I have intuitively been suspicious about complex FCF discount models given their sensitivity to small changes. However they sure give you better insight into a company's IV that just a multiple. I have tried to translate what a multiple might mean in terms of ROIC and growth and then look to see if that is a reasonable assumption for the company.

    You are a bit vague on how to get SEPS and the CRA. I will check out your website.

    Good article. Thanks
    Jun 1 09:43 AM | 2 Likes Like |Link to Comment
  • Klarman, Witmer & Einhorn: Examining 2009 Q1 13F Filings [View article]
    Thanks for doing the work.
    May 19 10:48 AM | Likes Like |Link to Comment
  • Dividends: A Company's Leading Indicator [View article]
    Well done article. I have a few points to add:
    1. Stock buy-backs - these are a tax efficient equivalent of dividends. Many companies that have extra free cash flow will buy back stock instead of paying more dividends. Management wants to show steady increases in dividends and they never want to cut them as they know many widows and orphans depend on the income. So they buy back their own stock. In my opinion this is an invention of the devil. Managements are notoriously over optimistic about the value of their own stock. They will buy back stock to offset the increase in shares from stock options, which hides how much regular shareholders are being diluted. Tech companies like Yahoo horde cash for future growth and acquisitions. That hasn't always been a successful strategy. It's my money, dammit. I'd prefer to pay the taxes and reinvest the money myself.
    2. Neither the economy nor companies growth at a steady pace. Therefore how can dividends grow at a steady pace? I think the desire to produce a long track record of steady dividend growth has caused management to underpay dividends. Also there will be periods where companies have great opportunities to make attractive investments and compound capital much faster than an individual can do on his own. In a perfect world it would make sense for a company to reduce or even suspend its dividend rather than pay an investment banker to raise more capital, if it was available. I know this variable dividend policy is unlikely to be enacted by any company but it makes economic sense.
    May 18 01:36 PM | 1 Like Like |Link to Comment
COMMENTS STATS
140 Comments
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