The Curious Investor

Merger Arbitrage Opportunity With Allied and Ares Capital

Einhorn wrote his book in 2002 and since then Allied stock has fallen dramatically. Whether this is a result of the improprieties or simply the result of a credit crisis unseen since the Great Depression, we'll never really know. What we do know is that Ares is getting Allied for a significant discount to book value which has already been written down significantly from the valuation that Einhorn believed was unsustainable. Is this discount enough? Well, Ares conducted months of diligence and thought so and Ares' lenders are willing to extend additional credit so at least some set of sophisticated lenders with close knowledge of Allied's assets continues to believe that the Company supports its current valuation.

Is Apple's Stock Headed for a Reversal?

Hey Molltjm, Seeking Alpha editors provide the titles for my posts here. On my own blog at TheCuriousInvestor.com, I wrote "Are Apple bulls exhausted?" which is a more technically focused (and maybe more snarky) title.


On Oct 30 11:26 AM mollytjm wrote:

> i think your title was misleading, in an otherwise good article,
> which doesn't read like the title. The Title reads like you think
> Apple will fall apart, which i don't think you mean.
> even really great stocks have some ups and downs and some doldrums
> and unless you buy and hold (i do) then it's a gambler's game to
> try and figure out when to move in and out. i just look for dips
> so i can buy in cheaper.
> there's no way to put a cap on Apple's market share for any of it's
> products, since it's an international company now and just into China
> nov. 1 with the iPhone. Because it's market share is low in many
> places, there's enormous room for growth.
> And once people own an Apple product, it's pretty hard for them to
> put up with something else, or to be able to resist the next Apple
> product. I think Apple will keep making money for us.
> long APPL

Allied Capital Goes from Value Trap to Deep Value

Good catch. I see your point and it is valid. You can get upwards of 7% worth of dividend simply by buying ARCC here. As such, ALD provides just a 1% discount and a whole lot more risk. I think the ultimate thesis that ALD is a much stronger stock as a result of this transaction still holds, but it is not the slam dunk opportunity I thought it was. Thank you for your insight. It's really nice to get constructive comments from the Seeking Alpha community. I'll be sure to post a follow up on my blog.

On Oct 29 11:53 PM BeauZeau wrote:

> Your math is faulty. If you short ARCC and buy ALD as you suggest
> you would have to pay (probably) two dividends to the person your
> shorted ARCC to. That would wipe out any apparent difference in
> the price. The arbs moved in on this as soon as it was announced.
> There is no free lunch here or anywhere else. Both stocks are
> being depressed right now by year end tax lose selling in ALD.
> Just buy ARCC for the least risk here.

Is Apple's Stock Headed for a Reversal?

Again, I am fully aware of Apple's fundamental value. If not, I wouldn't hold it. I think it's perfectly reasonable, however, to take a realistic look at how the stock trades. No stock trades in one direction only, at least in the short term. Is it not inappropriate to take profits and enter again at a better position.

Galleon had $7 billion under management. At $200/share and with average volume near 20 million shares a day, I don't believe Galleon could be entirely responsible for Apple's stock movements in the past weeks. It's an interesting point, but there very likely could be stronger forces at work.

Isis Pharma No Longer Paints a Profoundly Bullish Picture

nova,

While I wouldn't consider myself completely versed in biotech, I do appreciate the fundamental thesis behind investing in various biotech businesses. In fact, in this article, I link to a more fundamentally focused post that I wrote on ISIS.

I'm not sure why you seem so upset that I'm recommending shying away from ISIS right now. My argument is purely technical and has nothing to do with the underlying business or technology (antisense therapies) which I continue to be bullish on. There's no debating, however, that ISIS is at least a year away from any material catalyst for value with regards to its most promising trials and that the Company will burn cash until it is able to get another drug to market. Is it wrong, then, to opportunistically trade the stock knowing that fundamental value is not likely to be driving the stock's price in the short/intermediate term?

I know this may feel contrary to the "spirit" of "investing" in something you believe in and holding it through thick and thin. But, let's be honest, most of us invest to make money, not just vote our dollars for a great idea. ISIS is a publicly traded company and the capital it raised through its IPO is permanent. If you're worried about my short term bearish call, let me assure you that buying and selling the stock on the open market does not fundamentally hurt the business.

Ultimately, I feel like your anger and belief that we should NOT invest in biotech is misplaced. In fact, if you believe in the business so much, my bearish opinion and selling of the stock is merely providing you an opportunity with which to enhance your ownership at depressed prices. Why not be constructive and start buying aggressively? While the risk I see in the charts is too great for me and MY time frame, it may suit yours just fine.

On the flip side, if you care to share and think that I'm missing something significant in my analysis, I welcome your thoughts. Please, enlighten us so that we can be more adroit in our investing.

On Oct 06 11:57 AM nova wrote:

> Gentlemen, please do NOT invest in biotech. You don't know shit about
> it.

3 Steps to Calculating if Apple Is Fairly Valued

P/E multiples are merely a "shortcut" in the attempt to determine the "value" of cash flows. When it comes down to it, fundamental value lies in cash flow and not GAAP earnings. In the case of Apple, GAAP earnings are misleading because of the accounting treatment of iPhone sales which are booked ratably over the two year contract that most iPhone buyers purchase under. As such, with the iPhone growing at astounding rates, GAAP earnings (the number your P/E ratios are based off of) will understate true cash flows since they will lag actual iPhone sales by over eight quarters.

This topic has been covered by bloggers for months and was what many believe was the source of the massive undervaluation earlier in the year. People, like yourself, avoiding the Company due to perceived "high" valuation based on a mythical P/E instead of real cash flows. Unfortunately (or fortunately for those of us who bought the stock), the market and Wall St. analysts seem to have caught on and nearly anyone who follows Apple now focuses most of their attention on the non-GAAP earnings numbers which they report (adjusting for the iPhone deferred revenue accounts).


On Aug 27 09:38 AM manuel wrote:

> sorry but you do not mention apple P/E, it seems high, 30 on Reuters,
> so Peg would be more than 1 if your growth is 15%, seems overvalued,

3 Steps to Calculating if Apple Is Fairly Valued

I use this analysis as part of many different analyses whenever I make an investment. I'll admit that over the past year I've held some positions "too long" and gotten caught in the downturn. I, in fact, purchased my first position in Apple at $150/share only to watch it rise near $200 and fall to $89 where I purchased again.

I'm not advertising this model as the be all and end all for your investment. I think it gives you a baseline for which to compare your assumptions. That is, I shouldn't buy the stock if the model shows that implied growth rate is greater than something realistic. Or, I should look to sell whenever market values imply a growth rate beyond something I'm comfortable with. The time frame, unfortunately, is difficult to pin point. Discipline is also another factor. I, personally, think that 14% year over year growth rate for the next five years is bordering on "reasonable" for Apple. Should I already have sold? Or, should I wait until the market implies something even greater than my comfort zone? (20% perhaps? which would equate to ~$180 - $200/share)

3 Biotechs, 3 Big Pharma Plays for the Coming Generics Boom

I apologize. It was late. For some reason I thought people from Switzerland are Swedish... when clearly they are Swiss. I will endeavor to improve in the future. Thank you for the correction.

Yahoo-Microsoft Deal: Long Term Merger Arbitrage?

I'm aware that Yahoo's scale and technology is impressive. My argument that they aren't a true tech firm/development house is that they don't drive value through their tech offerings. It's somewhat similar to why I believe Apple is much more a high-end consumer products play than a tech play. That being said, Apple has shown an ability to combine technological innovation with their consumer facing services - i.e. the iPhone OS platform which is in fact a technological feat.

Yahoo, on the other hand, has not succeeded to this regard - particularly in search. For all the IP that it owns and all the innovations it's trying to push with BOSS, it's search offering as well as its contextual advertising system still lags its competitors by a noticeable degree. It took GMail to push Yahoo to update its mail system and even the recent upgrade has been more front-end than backend. Google has introduced conversation threading, filters, starring, etc. Yahoo's new search, apart from featuring some slick AJAX, behaves as any other run of the mill e-mail client.

Head-to-head comparisons aside, I think we can all agree that Yahoo's real value lies in its "eyeballs." It's status as maybe the only remaining, successful web portal (unless you count AOL...) as well as its ability to drive traffic within its content network. That's why I see them as a media play and it would seem that's what Carol Bartz believes as well given that she's willing to license away Yahoo's most precious tech assets - search.


On Jul 30 05:13 PM achates wrote:

> The rest of the piece is, I think, just wrong on a bunch of points,
> but "Yahoo is finally embracing the fact that it is not a true tech
> firm or development shop." shows utterly no awareness of the level
> of technology involved in building and running a property on the
> scale of Yahoo!

Hotel REITs: The Most Contrarian Idea I Have

In the article, I described "RevPAR" as "occupancy rate MULTIPLIED BY AVERAGE DAILY ROOM RATE". You'll notice that this is a mathematical identity with what you describe as "revenue per number of rooms available to rent" which is actually rather redundant with the name - "RevPAR" or "REVenue Per Available Room."


On May 07 05:48 PM User 397226 wrote:

> 1. RevPar is revenue per number of rooms available to rent, not
> occupancy rate (which is the number of rooms actually rented/number
> of rooms available).
>
> 2. Check the preferreds.....almost all are cumulative.

GE: Still a Compelling Proposition for Value Investors

Cash flow wouldn't necessarily be affected by marks in the GE Capital business. It would, however, likely require GE to reserve additional capital in case the marks turn into true performance. The MTM write downs for GE is understandably lower given the fact that it does not trade its securities; does not originate CDOs, SIVs, or CDSs; and does not originate mezzanine or high-yield debt. They do have significant consumer credit exposure (29% of the portfolio) across mortgages, credit cards, small business, autos, etc. But, I would guess that this diversification will prevent the eye popping writedowns that you saw with other banks. Further, the paying back of loans in the other 71% of the portfolio will likely cover losses as long as GE has the capability to refinance debt and thus buy time for its assets to perform.

Let's not forget that GE Capital was, in fact, cash flow positive in 2008. While it will not be delivering dividends to GE in 2010 (and possibly 2011), this does not mean that the unit will not be profitable, only that it will be retaining earnings to shore up its capital base. In fact, as of a March 19 presentation, the Company projects profitability in the finance segment for Q1 2009 and 2009 overall.

Dell's Perplexing Strategy

My main purpose in the article is to examine the motivation behind this attempt at a brand and image change is on the consumer end. Why play copy cat in a market environment where the "luxury" model has flagged? Further, I don't believe that any mass market PC manufacturer can, in fact, create this kind of brand image. As referenced above, even HP launches its "high end" computers at price points below Apple's. The baseline Adamo is $200 more than the MacBook Air and is suspiciously similar in specifications.

Is this not a big deal because Dell is mainly an enterprise focused business? Well, I think it definitely speaks to the quality of decision making at this Company. Further, it would seem that the consumer segment is a significantly higher margin business. It would be foolish not to pursue an effective strategy there when your Company clearly ought to have the core competencies to do so.


On Mar 19 07:54 AM cloughg wrote:

> Question - I presume your stats only focus on the consumer market
> share and CPU share? 80% of Dells revenues come from business to
> business sales therefore I would expect a predominately consumer
> focused manufacturer such as apple to be streaks ahead in the consumer
> space.
>
> 2008 Stats for Dell's consumer only business - Notebook units grew
> 43% in 2008 while desktops units were down 18%. Dell grew Notebook
> units in the consumer space 1.9 times faster that the rate of the
> industry concluding that Dell is gaining market share in the consumer
> space.
>
> Overall stats (consumer & business sales) are: Apple sold 2,5million
> Macintosh® computers during quarter Q4 compared to Dell's 4.47 million
> units. Therefore despite Dells Q4 decline in market share share they
> still shipped nearly double the number of units that Apple shipped
> in Q4.
>
> In 2008, Hewlett-Packard Company accounted for 20% of Intels net
> revenue (17% in 2007) and Dell Inc. accounted for 18% of Intels net
> revenue (18% in 2007). No other customer accounted for more than
> 10% of Intels net revenue including apple.
>
> The Adamo notebook on its own is not about gaining market share for
> Dell, im sure Dell dont beleive that launching a single notebook
> will do this.
> What is it will do is re-enforce the brand and image change that
> Dell are attempting to make and will continue to make throught 2009.
>
>
> The Adamo is a consumer gimic. Consumers buy gimics as they are emotive
> buyers if Dell continue to drive innovative designs like this in
> the consumer space it will continue to change the perception about
> Dell in both the consumer and business markets which can only be
> a good thing.
>
> The real money for Hi Tech companys is in the large corps - Servers,
> Storage and services are where the big $$ sit. Not in shifting tin
> like PC's, notebooks into consumers etc - there is simply no margin
> in this area.
>
> Tell me one fortune 500 that runs on apple? None
>
> Thats why apple will never overtake Dell or HP or IBM the dont have
> crediability to play with the big boys in the market area which makes
> the real money

Is Google a Great Buy Now?

You are no doubt right about the potential for sudden and catastrophic obsolescence in Google's business. Ultimately, the individual investor must decide to what degree to handicap valuation based on this risk. I don't think that 60% market share is a strong enough competitive advantage in the search space, but I do think that Google has shown a tremendous record of continuing to push innovative new products and time will tell whether this ultimately translates into revenue.

As far as my statement about technical analysis, short term technical analysis must be confirmed by a long term trend. The only time this is not true is during a reversal and obviously a reversal can't be confirmed until we have the benefit of hindsight.

If you look at the first long term stock chart, GOOG is in a decided long-term downtrend. The reason I found it interesting that GOOG swiftly sold off despite strong short term technicals is that it shows that the stock most definitely was not beginning a reversal as even strong short term technicals were not able to overcome the long term bias.


On Mar 11 12:22 PM Chris B wrote:

> "If the current share price holds, the implication is that the Company
> will not grow net income from 2008 levels for another three years,
> assuming that a stock’s return (30% CAGR, today) trends towards the
> long-term growth rate of a company."
> ----------------------...
> The clause begining with "assuming" underlies the fallacy of rear-view
> mirror investing. Understand that the same thing could have been
> said for Yahoo! in 2002. This is the pitfall of using past performance
> and chart lines to develop expectations for future performance.
> One commentor said that Google's "infrastructure" created a "significant
> barrier to competitors." Again, apply that to Yahoo! circa 2000.
> On the internet, a better product can unseat the biggest competitors
> within a couple years.
>
> I will speak heresy and say that there remain massive advances to
> be acheived in artificial intelligence, online finance, language,
> interface, cost, and information dissemination/overload control.
> Past experience indicates that established technology leaders such
> as Atari, Sony, IBM, Microsoft, and Yahoo are typically the least
> likely to drive these disruptive innovations. The reason is simple
> - top-notch innovators can make more money with their own businesses
> than by donating their output to a corporation. Google's innovative
> benefits and stock options won't be enough to offset this basic dynamic.
>
>
> This risk of sudden obsolecence should be reflected by discounted
> growth among technology companies. I just don't see that in the
> pricing for most technology companies. I see an annuity present value
> approach applied to inherently ephemeral companies, justified by
> past performance.
>
>
>
> "...it is interesting to note that all short term indicators were
> overwhelmingly positive just before Google’s swift and violent correction
> over the last month."
> ----------------------...
> Suggesting that there is something wrong with using these "indicators"
> to predict the stock price in the first place, right? If reality
> disagrees with your theory, pick a new theory.
>
>

America's Banks: Are They Really Insolvent?

For those still interested, I highly recommend this follow up article on the subject of bank insolvency. thecuriousinvestor.com.../

Asset Allocation: The Key to Proper Diversification

Not sure if I wasn't clear. But, in the sentence that you quote, I was referring to the 2000-2001 recession. The lesson taught to us in 2000-2001 was not to be overweight one sector. The lesson learned this time around (2008-2009) was more than that. It was that just being diversified within an asset class is not enough to insulate your investments from catastrophic draw downs. That's why I'm advocating looking outside of just equities (U.S. and global) and diversifying into other asset classes.


On Feb 16 07:36 PM cma cma wrote:

> "proper diversification likely could have avoided 40% losses caused
> mainly by one sector."
> Wrong, your own statistics show that only retrospective "proper diversification"
> could have reduced losses. If one had a market weight with "proper
> diversification" one would have lost 40% +.