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Slim Shady

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  • Almost-Free Leverage On Intel [View article]
    So if Intel paid no dividend, but there was a $1.45 time premium, would that be "as close to free leverage" also? That is the same thing... You are paying $0.10, forgoing $1.35 in dividends, and your capital outlay is $14.90 less by buying 15 strike options than by purchasing the stock. You are deluding yourself (and potentially your uneducated readers) if you think that is free leverage.
    Jul 18 12:12 PM | Likes Like |Link to Comment
  • Shocking statistic of the day: The six heirs to the Wal-Mart (WMT +0.1%) fortune are as wealthy as the bottom 41.5% of U.S. families combined, according to analysis from the Economic Policy Institute. The Walton clan, known for speaking soft and carrying a big stick, are also trending higher at a faster pace than the masses with Wal-Mart on a resilient 22% YTD run. (Previous: WMT, investment or deflation hedge?[View news story]
    J 457 - Wal-Mart isn't the only one that sells food or shoes. People buy from Wal-Mart not at the dictate of a politician, but of their own free will. Arguably, they have helped more U.S. families than any other company in history by providing lower cost products to anyone who chooses to shop there. They directly employ 1.4 million employees in the U.S. - or approximately 1% of the entire U.S workforce (140.8mm non-farm employed at 6/12). They certainly have done more for lower income families than the Government, without having to force other people to pay for it. And on top of it, they paid $5.35 billion in U.S. Federal, State and Local taxes in 2012 alone.

    You may want to pay more for items that are produced in the U.S. and you are free to do so. And, if you want to form a company that sells all U.S. made products and you believe that you are able to market that concept and charge a premium price to do so, thank goodness you are still able to do that in the U.S.
    Jul 18 12:07 PM | 3 Likes Like |Link to Comment
  • Almost-Free Leverage On Intel [View article]
    Skyler, it's not exactly free since by holding the options, you do not get the dividend on the stock. Current quarterly dividend is $0.225 per share and there will be 6 dividends between now and January 2014. So if they do not cut their dividend (it is more likely they will raise it), you will forgo a minimum of $1.35 per share to leverage your position. On the 15 strike, your cost is 9% on the capital saved.
    Jul 18 11:39 AM | 3 Likes Like |Link to Comment
  • Shocking statistic of the day: The six heirs to the Wal-Mart (WMT +0.1%) fortune are as wealthy as the bottom 41.5% of U.S. families combined, according to analysis from the Economic Policy Institute. The Walton clan, known for speaking soft and carrying a big stick, are also trending higher at a faster pace than the masses with Wal-Mart on a resilient 22% YTD run. (Previous: WMT, investment or deflation hedge?[View news story]
    And how much better off are the bottom 41.5% of U.S. families combined due to Wal-Mart providing lower cost products for those families to have a higher standard of living? Seems like a fair trade with nobody coerced into any transactions against their will. I'll take a system where individuals can succeed based on providing value that others want over a system where tyrannical dictators use force to keep all equally impoverished. 
    Jul 18 11:29 AM | 7 Likes Like |Link to Comment
  • Here Is Why I Like Verizon The Most In The Telecom Sector [View article]
    Unfortunately, your calculation of EV/EBITDA is not correct. You include 100% of the EBITDA from Verizon Wireless (VZW) and then only include $51 billion of Minority Interest in your EV for Vodafone's 45% stake in VZW. 45% of the VZW EBITDA is about $13 bln, so you are saying that Vodafone's interest in VZW is only worth 3.9x EV/EBITDA, while comparable companies are trading at 6.3-6.9x EBITDA.

    If you exclude the Minority Interest from EV and the $13 bln attributed to their non-ownership of 45% of VZW, the EV/EBITDA multiple is 7.0x, which is the highest of any of the comps. In addition, this does not take into consideration the Pension Liability of $6.5 bln and unfunded Health Care liability of nearly $25 bln as of 12/31/11. Your chart indicates it is also trading at a 16% premium based on P/E and has the highest P/E of the whole group.

    You also state that "Over the past few years, annual dividend payments only represent less than a half of the company's free cash flows." This is also false as it would have to include 100% of the cash flows of VZW, even though they only own 55%. For a better article explaining Verizon's ballooning dividend payout ratio, read this well researched article:

    http://seekingalpha.co...
    Jul 16 08:42 AM | 1 Like Like |Link to Comment
  • Intel looks like an attractive short at these levels, says JPMorgan, noting AMD is off 30% over the past 90 days, and Intel down just 6%. (see last night's AMD warning) INTC -1.4% premarket. (via Notable Calls)  [View news story]
    AMD had a market cap of $3.9 bln, cash of $1.7 billion and debt of $2,000 with TTM EBITDA of $131mm. INTC has a market cap of $131.6 bln, cash of $14.6 bln, debt of $7.45 bln and TTM EBITDA of $23.536 bln. Intel is investing more in ASML to accelerate its technology lead over AMD and others, than AMD entire's enterprise value. Why should those companies trade in tandem over the last 90 days?
    Jul 10 08:44 AM | 3 Likes Like |Link to Comment
  • Are Netflix Shares Undervalued? [View article]
    Don't believe everything you read at the Motley Fool. The $3.7 billion off-balance sheet liability is for streaming content obligations, which will be an operating expense in the future. In the above calculation, this amount is included when obtaining the "EBIT" number, so additionally subtracting that amount from the value as debt is double counting. You may argue that going forward, EBIT will be lower because of the obligations. However, it is incorrect to count this as "debt", just like you wouldn't include inventory purchases a retailer has to make over the next five years as debt.

    At the end of the 1st quarter, NFLX had a minimum of $1.885 bln of streaming content obligations due over the next 12 months (on balance sheet Current Content Library of $1.155 bln and off balance sheet Streaming Content Obligations within 1 year of $729.6mm) and a quarterly streaming revenue rate (both domestically and international) of $550 million, or $2.2 billion annualized with no growth. While the potential profitability of the streaming business is certainly in question given those economics as well as current levels of marketing, technology & development, and G&A costs, the
    arguments of impending doom and gloom due to the $3.7 bln of content obligations is simply misinformation.
    Jul 9 04:43 PM | Likes Like |Link to Comment
  • Are Netflix Shares Undervalued? [View article]
    Good approach Charles, but you are incorporating some bad data into your calculation.

    First, you add back 25% of "D&A", which includes the "amortization" of their content costs. This is very different from Depreciation of long-lived fixed assets. Amortization of content costs is an operating expense, i.e. if you don't have any content to amortize, you won't have any revenues because people will not pay for a service that has no content. If you add back 25% of just the depreciation of amortization of property, equipment, and intangibles, this would be approximately $11 million, instead of $272 million. This alone would reduce your valuation by $2.747 billion, or $49.50 per share, reducing it to $43.

    Second, your TTM numbers are not accurate. TTM Revenues are 3.355 bln and EBIT is 280.9mm.

    Third, EBIT and revenues for the prior twelve months are mostly irrelevant given the change underway in the business from DVD to streaming. The only business unit that is currently profitable after allocating Technology & Development and G&A costs is the DVD business. Streaming, both domestic and international, has yet to become profitable. The contribution margin for DVD fell 25% from Q4/11 to Q1/12 alone. Your "no growth" scenario fails to incorporate the profit cliff of the DVD business, which has no sign of abating.

    I like the Greenwald approach that you use. However, based on the uncertainty of any of the inputs for a business that is transitioning away from its only profitable division to a business which has yet to become profitable, it becomes an irrelevant exercise.
    Jul 9 01:04 PM | 3 Likes Like |Link to Comment
  • It May Be Time To Buy Halliburton [View article]
    If you are bullish long term for 3-10 years, why did you sell a call that expires in 7 months? If there is 50% upside in the stock, why did you sell a call that was $0.80 in the money?

    Instead of buying the stock and selling a call, you could've simply sold a Jan 13 27 put and achieved the exact same result. (look up put/call parity)
    Jun 25 06:00 PM | 1 Like Like |Link to Comment
  • This Company Could Pay An Enormous Dividend [View article]
    Ed - you cannot use cash in foreign subsidiaries for buybacks without incurring U.S. taxation.
    Jun 20 10:04 AM | 2 Likes Like |Link to Comment
  • This Company Could Pay An Enormous Dividend [View article]
    Pete -
    "none of his "investments" seem to have done much for the overall value of the company"

    The "value" of the company has grown significantly since you first purchased in 1999. From the end Fiscal Year ending 7/31/99, CSCO has grown revenues at almost 11% per annum (from 12 billion to 46 billion expected this year ending in July) and earnings per share at 13% per year (from $0.38 a share to $1.84 a share). The problem hasn't been growing the value of the company, it was the price you paid for the company in 1999. If you bought at the lowest price in FY 1999, you paid at least 29x earnings and 17.8x EV/EBITDA. If you bought at the average price in FY 1999, you paid 60x earnings and 40x EV/EBITDA! At the current price of the stock, Cisco is now trading at 9.5x earnings and 4.2x EV/EBITDA. John Chambers has no control over what people pay for the stock, only the results of the company. Compounding earnings at nearly 13% per year for the last 13 years is a very respectable record. Don't confuse stock price performance for business performance.
    Jun 20 10:02 AM | 1 Like Like |Link to Comment
  • This Company Could Pay An Enormous Dividend [View article]
    Shorty, - While Cisco has been liberal awarding stock options, it is not correct to say that it has been used for no other purpose than to soak up dilution. These are the actual numbers which you neglected to include in your post, assuming we would just believe you...

    The share count plus dilutive options since the beginning of Fiscal 2003 has declined 26.4% from 7.4 billion shares outstanding to 5.45 billion at the end of the last quarter. Over this time, net of equity issuance, they have spent about $52 billion on share repurchases, which works out to $26.67 per net share retired. The average share price over this period was around $20.63. If they paid the average price over this time period for all share repurchases, the dilution from options over this approximate 10 year time period would be $11.7 billion, or about $1.2 billion per year. Since 2006 (when they were first required to expense stock options), the annual amount expensed has been approximately $1.35 billion per year, which is included in their reported earnings per share numbers.

    On a net basis Cisco has, after the dilutive impact options which is being accounted for, repurchased about $40 billion of stock at the average share price over the last 10 years. Hardly an ugly picture.
    Jun 19 03:15 PM | 1 Like Like |Link to Comment
  • This Company Could Pay An Enormous Dividend [View article]
    Gimpex, you don't have to wonder...all you have to do is go to Edgar or their website and look in their 10Q for the quarter ending 4/28/12 in the section titled "Liquidity and Capital Resources". Of the $48.4 billion of Cash and Investments on the balance sheet, $42.3 billion is held by various foreign subsidiaries. The uncompetitive U.S. corporate tax rates and system causes companies like Cisco and others to hold cash offshore, rather than having the ability to distribute it to shareholders where it could be put to better use. Imagine the stimulative effect if the $500+ Billion that is trapped offshore could be deployed at no cost to the Government and without Bernanke & Co. having to print more dollars.
    Jun 19 02:39 PM | 4 Likes Like |Link to Comment
  • Why The FCC Chose To Believe A Lie [View article]
    Seems like you are the Marxist who needs to buff up on your history. Calvin Coolidge was certainly not a Marxist and "he gained a reputation as a small-government conservative."

    So now you claim that two is a monopoly, and have been led to believe that the evil railroads would have ruined mass manufacturing. I suppose you think that the Microsoft/Intel virtual monopoly over personal computers for over 20 years has hurt the progress of computing as well? Let's see, an unregulated virtual monopoly where perhaps the most progress has been made in any industry. And let's see, there are robust competitors to each that some would argue are making those companies obsolete now. We don't need to re-litigate the 1880's, we need to return to the limited government era that was established in 1787. The great progress that has been made in history has not come from State run economies, but by the free market.
    May 24 06:31 PM | Likes Like |Link to Comment
  • Why The FCC Chose To Believe A Lie [View article]
    If they were "required" to wholesale their capacity by whom? The Government? Get the Government completely out of the way and let the free market dictate what the price is. That would be a much better solution than "allowing" monopolies then dictating prices by central planning. You even listed "Cable operators and phone companies" - so who exactly has the monopoly over broadband Internet Access to the home?
    May 24 03:08 PM | 1 Like Like |Link to Comment
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