FedEx Results Suggest More Likelihood of a Sustained 2nd-Half Market Rebound [View article]
that's interesting -- I don't remember exactly when it was, perhaps last summer -- but I started getting increasingly optimistic when some of the large casinos announced big monthly sales gains
FedEx Results Suggest More Likelihood of a Sustained 2nd-Half Market Rebound [View article]
Thanks -- tough to trade this market on a day-to-day basis driven by macro concerns, but over time corporate fundamentals will win out. I believe very strongly that we are going to be pleasantly surprised by the majority of company earnings and guidance this earnings season -- especially with regards to revenue guidance.
Microsoft's Skype Acquisition: A Low-Risk Defensive Bid to Stay Relevant [View article]
Good point about the tax rate David. I would add Skype's assumed weighted average cost of capital would also benefit.
A deeper study reveals a more positive view on Skype though it doesn't change my original, quickly drawn conclusion.
In 2010 Skype had gross margins of 52%, and an Operating Margin excluding amortization of intangibles of 34.8%. Assuming no cash taxes paid, Earnings Before Interest After Taxes (EBIAT) was $21m. Adjusting by +$161m for depreciation and amortization of intangibles, -$35m for capital spending and assuming a +$11m adjusted working capital benefit gets you to a recurring free cash flow figure of +$157m.
Using that as a base one can extrapolate growth rate and synergy assumptions -- still, if you are conservative you will not get much of an incrementally positive impact to MSFT.
Applying optimistic assumptions you start getting some interesting values. Even assigning a low-probability to realizing some optimistic scenario improves MSFT's valuation potential because the worst-case just is not that bad.
Would note, MSFT was probably able to "overpay" for this acquisition because it will probably be able to realize synergies in a way that Google, Facebook and others would not be able to.
I elaborate on all of this in a detailed report supported by detailed models; it should soon be available via a technology research firm that serves institutional investors, corporate marketing and strategy departments.
Microsoft's Skype Acquisition: A Low-Risk Defensive Bid to Stay Relevant [View article]
Thanks for all your comments. Especially Twain's last one -- that cracked me up. Twain's right, I will not be owning MSFT anytime soon. Anyhow, since it seems a surprising amount of people are wondering where the possible upside is to MSFT with the Skype acquisition I'll follow up with a more detailed analysis.
I suppose if I were a large-cap institutional portfolio manager that already owns MSFT, I would be happy with this Skype acquisition. The key question for that fellow would be -- what is the risk to the MSFT stock price? There is little if any.
Since I do not tie my investments to arbitrary market cap or investment styles (that is not completely true -- I do focus on $2.5b+ market cap companies that demonstrate strong growth and a reasonable price -- GARP), I am finding plenty of relatively better ideas than MSFT out there. In the Tech sector for example, there are still a few semiconductor companies I still like, though no software companies.
2 Stocks That Look Better Than National Semiconductor [View article]
Yes I share much of your viewpoint. I don't expect a flurry of deals, but I do think it will (already has) perked interest in the group.
NSM deal may be an insurance policy. Perhaps there is a new product line TXN is involved with and it believes there is a recently heightened level of probability it may fail.
For example, now in retrospect its pretty clear to me that Intel should have bought NVIDIA in the summer of 2008 even if for 2x value, but it ended delaying/under-delivering its multicore integrated GPU chip and recently paying NVDA for infringed patents.
Then again perhaps I am giving TXN too much potential credit. It will be interesting to see how the merged company does for sure.
Meanwhile, a lot of semis still look very attractive to me since they may be already embedding a near-term peak in the cycle, and there is a better chance than not that the cycle may be extended due to a "surprisingly" improving economy and growth in new product lines (tablets, smart phones).
I also think fears of a glut in tablets is overblown in that it may be more of a problem for the product manufacturers than for the semi companies themselves.
It's "pure ignorance" not to conduct some form of technical analysis before allocating capital into any position, even for fundamental investors, ChessNWine says. "A little bit of due diligence looking for a relatively healthy chart - even for a value investment - will go a long way... Blindly buying and holding, even quality firms, is textbook laziness." [View news story]
If I had followed that advice I would have missed huge runs in stocks such as FCX, FOSL, LYB over the last few months, and would have sold my RES and UAL positions last week. LOL indeed.
Are We at the Beginning of a Silver Lining Rally? [View article]
While I have long-term holding strategies available, the strategies I've been writing about on Seeking Alpha have high monthly turnover of about 30-70%, so for these strategies I'm only interested in monthly performance. In any case, I did add more UAL because I simply couldn't find another industrial that was relatively cheaper, had better operating momentum and overall fundamentals. I ended up not purchasing F, because based on my research ROIC will probably stay in the single digits for the year. Instead I purchased LEA, which adds to my holdings in TRW and ALV. You can follow the returns to the model based on real trade data here: covestor.com/ascendere... I've also recently began experimenting with posting a few of my live trading updates on StockTwits: stocktwits.com/steve_a...
Nostradamus Effect Lifts Freeport McMoRan, United Airlines and Waddell & Reed [View article]
I'm just trying to make the point in a tongue-in-cheek way that the models I use to generate stock ideas are sometimes so prescient that it seems they were built by Nostradamus who, according some made-for-tv movie I remember seeing 30 years ago, has predicted nearly every single major world event over the centuries. Maybe if he were around today he would be a Wall Street analyst or portfolio manager, who tend to be talented at proclaiming credit for nearly every positive action that occurs.
The reason the models I developed sometimes seem like they have the effect of Nostradamus in predicting future major sell side upgrades of individual stocks is because the models are based on a key fundamental tenet of of finance -- that cash flow growth and ROIC drive any asset's valuation. Strangely, basic fundamental stock picking done in a systematic fashion still works in a market that is driven by large and extremely sophisticated quantitative asset managers. Or maybe because of that.
Stocks Valuations: Both Cheap and Improving [View article]
With all the cost and efficiency measures taken over the last two years, companies are primed for big moves in cash flow growth and ROIC expansion. Any hint of sustained sales growth will send these companies soaring at higher PE multiples than experienced prior to the market crash.
We do not necessarily need employment growth to drive these key factors higher, but companies will likely start hiring to sustain this upward trajectory as comps get more difficult.
Of the names on your list, I like $TRW and $AVT a lot -- they represent 2 of 22 stocks I currently hold in a model portfolio based on real trade data: covestor.com/ascendere...
Big Lots (BIG) disappointed with its Q3 earnings, but Barron'ssees promise in the closeout retailer, not least because shares trade at just 10x forward earnings and much of the negative sentiment about slowing growth is already reflected in the stock price. For a patient investor, Big Lots could be the right long-term bet. [View news story]
Investor's would be better off buying stocks in the Consumer Discretionary sector that have taken a recent hit to the stock price without a material change in underlying fundamentals. Williams-Sonoma $WSM is one stock that comes to mind. In my opinion, $BIG does not seem to be managing its working capital very well and ROIC is high but appears set to decline over the next few quarters. $BIG seems like its a "value" stock for good reason.
Barron's puts the spotlight on Steve Madden (SHOO), which still trades at a lower earnings multiple than rivals despite nine consecutive quarters of 20%+ profit growth and the ability to get cutting-edge footwear into stores much faster than its peers. Shares could rise over 10% in the next twelve months. [View news story]
SHOO looks good on relative value, some measures of operating momentum and analyst revision momentum, but not everything is perfect. ROIC is high, but flat. Sales/operating assets have declined y/y. Also, current assets are accruing faster than current liabilities. There are so many other better Discretionary companies than SHOO -- FOSL, ROST, GES, M, LTD, FDO, etc. to name a few. If SHOO moves up 10% over 12 months, these others will be moving higher.
Growth vs. Value: The New Buggy Whip [View article]
There is a whole industry of "consultants" that take institutional portfolios and piece them together for clients based on weightings of growth, value and other factors. In my opinion, it pretty much guarantees under performance because like you mentioned these are arbitrary terms and have nothing to do with underlying valuation based on cash flow growth and ROIC. A few investment managers, including myself, advocate selection metrics based on quality. But there is no one definition of quality, as you can see here from this list put together by the CPA Journal: www.nysscpa.org/cpajou...
Personally, I focus on 4 key factors, which are summaries of numerous other factors -- 1) relative value; 2) operating momentum; 3) analyst revision momentum; and 4) fundamental quality. You can view a related model portfolio based on real trade data here: covestor.com/ascendere...
Interesting that we both rate TSN and FCX highly, but have a different view on ADBE.
Assured Guaranty Shares Look Poised to Drop Further [View article]
Lots of news articles on Google News indicating that bankruptcy isn't an option for a lot of municipalities (addding to Amistead's comment above): news.google.com/news/s...
From this Fortune article, it seems that some investors are actually stepping up buying of municipal bonds right now: finance.fortune.cnn.co.../
AGO continues to improve ROE and it is trading at 0.7x book value, and I think much less based on tangible book value. If municipal bond Armageddon is not on the table, this could be a great idea.
Having said that, I do own AGO in a model portfolio that turns over every month covestor.com/ascendere..., and I'm thinking of replacing it simply because I have since found a few relatively better shorter-term ideas. Maybe something like the private equity firm with public stock Ares Capital (ARCC), which is a good swap idea given the similar market cap size and other attributes.
Microsoft's Skype Acquisition: A Low-Risk Defensive Bid to Stay Relevant [View article]
The impact to $MSFT now has a more positive bias following July 6 announcement Facebook is integrating Skype.
www.scribd.com/doc/579...
FedEx Results Suggest More Likelihood of a Sustained 2nd-Half Market Rebound [View article]
FedEx Results Suggest More Likelihood of a Sustained 2nd-Half Market Rebound [View article]
Microsoft's Skype Acquisition: A Low-Risk Defensive Bid to Stay Relevant [View article]
A deeper study reveals a more positive view on Skype though it doesn't change my original, quickly drawn conclusion.
In 2010 Skype had gross margins of 52%, and an Operating Margin excluding amortization of intangibles of 34.8%. Assuming no cash taxes paid, Earnings Before Interest After Taxes (EBIAT) was $21m. Adjusting by +$161m for depreciation and amortization of intangibles, -$35m for capital spending and assuming a +$11m adjusted working capital benefit gets you to a recurring free cash flow figure of +$157m.
Using that as a base one can extrapolate growth rate and synergy assumptions -- still, if you are conservative you will not get much of an incrementally positive impact to MSFT.
Applying optimistic assumptions you start getting some interesting values. Even assigning a low-probability to realizing some optimistic scenario improves MSFT's valuation potential because the worst-case just is not that bad.
Would note, MSFT was probably able to "overpay" for this acquisition because it will probably be able to realize synergies in a way that Google, Facebook and others would not be able to.
I elaborate on all of this in a detailed report supported by detailed models; it should soon be available via a technology research firm that serves institutional investors, corporate marketing and strategy departments.
Microsoft's Skype Acquisition: A Low-Risk Defensive Bid to Stay Relevant [View article]
I suppose if I were a large-cap institutional portfolio manager that already owns MSFT, I would be happy with this Skype acquisition. The key question for that fellow would be -- what is the risk to the MSFT stock price? There is little if any.
Since I do not tie my investments to arbitrary market cap or investment styles (that is not completely true -- I do focus on $2.5b+ market cap companies that demonstrate strong growth and a reasonable price -- GARP), I am finding plenty of relatively better ideas than MSFT out there. In the Tech sector for example, there are still a few semiconductor companies I still like, though no software companies.
2 Stocks That Look Better Than National Semiconductor [View article]
NSM deal may be an insurance policy. Perhaps there is a new product line TXN is involved with and it believes there is a recently heightened level of probability it may fail.
For example, now in retrospect its pretty clear to me that Intel should have bought NVIDIA in the summer of 2008 even if for 2x value, but it ended delaying/under-delivering its multicore integrated GPU chip and recently paying NVDA for infringed patents.
Then again perhaps I am giving TXN too much potential credit. It will be interesting to see how the merged company does for sure.
Meanwhile, a lot of semis still look very attractive to me since they may be already embedding a near-term peak in the cycle, and there is a better chance than not that the cycle may be extended due to a "surprisingly" improving economy and growth in new product lines (tablets, smart phones).
I also think fears of a glut in tablets is overblown in that it may be more of a problem for the product manufacturers than for the semi companies themselves.
It's "pure ignorance" not to conduct some form of technical analysis before allocating capital into any position, even for fundamental investors, ChessNWine says. "A little bit of due diligence looking for a relatively healthy chart - even for a value investment - will go a long way... Blindly buying and holding, even quality firms, is textbook laziness." [View news story]
Are We at the Beginning of a Silver Lining Rally? [View article]
Are We at the Beginning of a Silver Lining Rally? [View article]
Nostradamus Effect Lifts Freeport McMoRan, United Airlines and Waddell & Reed [View article]
The reason the models I developed sometimes seem like they have the effect of Nostradamus in predicting future major sell side upgrades of individual stocks is because the models are based on a key fundamental tenet of of finance -- that cash flow growth and ROIC drive any asset's valuation. Strangely, basic fundamental stock picking done in a systematic fashion still works in a market that is driven by large and extremely sophisticated quantitative asset managers. Or maybe because of that.
Stocks Valuations: Both Cheap and Improving [View article]
We do not necessarily need employment growth to drive these key factors higher, but companies will likely start hiring to sustain this upward trajectory as comps get more difficult.
Of the names on your list, I like $TRW and $AVT a lot -- they represent 2 of 22 stocks I currently hold in a model portfolio based on real trade data: covestor.com/ascendere...
Big Lots (BIG) disappointed with its Q3 earnings, but Barron's sees promise in the closeout retailer, not least because shares trade at just 10x forward earnings and much of the negative sentiment about slowing growth is already reflected in the stock price. For a patient investor, Big Lots could be the right long-term bet. [View news story]
Barron's puts the spotlight on Steve Madden (SHOO), which still trades at a lower earnings multiple than rivals despite nine consecutive quarters of 20%+ profit growth and the ability to get cutting-edge footwear into stores much faster than its peers. Shares could rise over 10% in the next twelve months. [View news story]
Growth vs. Value: The New Buggy Whip [View article]
Personally, I focus on 4 key factors, which are summaries of numerous other factors -- 1) relative value; 2) operating momentum; 3) analyst revision momentum; and 4) fundamental quality. You can view a related model portfolio based on real trade data here: covestor.com/ascendere...
Interesting that we both rate TSN and FCX highly, but have a different view on ADBE.
Assured Guaranty Shares Look Poised to Drop Further [View article]
From this Fortune article, it seems that some investors are actually stepping up buying of municipal bonds right now: finance.fortune.cnn.co.../
AGO continues to improve ROE and it is trading at 0.7x book value, and I think much less based on tangible book value. If municipal bond Armageddon is not on the table, this could be a great idea.
Having said that, I do own AGO in a model portfolio that turns over every month covestor.com/ascendere..., and I'm thinking of replacing it simply because I have since found a few relatively better shorter-term ideas. Maybe something like the private equity firm with public stock Ares Capital (ARCC), which is a good swap idea given the similar market cap size and other attributes.