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  • 5 Reasons Cisco Systems Will Stage a Comeback [View article]
    While I agree with most of your points, I disagree with CSCO's policy of stock buybacks. They are horrible at capital management and the buybacks have not helped the investors. Rather than buying back stock, CSCO should pay a decent dividend to attract the dividend investors. The 1-2% planned dividend is meaningless. The company can safely payout 40 to 50% of its earnings as dividends which would result in a yield of 3 to 4%. Tech companies in general have this weird fascination with huge stock buybacks with little or no dividends. It only works when the stock price rises as is the case with Apple. For companies such as MSFT and CSCO, paying a healthy dividend is a much better way to reward the shareholders.

    Disclosure: Long MSFT and CSCO
    Mar 9, 2011. 01:23 PM | 8 Likes Like |Link to Comment
  • Why Microsoft Should Buy Research In Motion [View article]
    If MSFT ever tried to acquire RIMM, I am positive that deal wont be for anything less than 100% premium. RIMM currently has abt $2 Billion in cash. In unlikely scenario that a deal does go through, it will be in excess of $50 Billion. MSFT will probably have to resort to issuing new debt and risk its AAA rating.
    Oct 7, 2010. 06:20 PM | 5 Likes Like |Link to Comment
  • Going Defensive With Johnson & Johnson [View article]
    This what happens if you try to post a quick reply while being extremely busy at work. You are right, capitalizing R&D adds to the assets on the balance sheet. The net effect on operating income depends on whether the amortization of the research asset is greater than the R&D expense in the current year.

    For high growth firms, typically the R&D expense is greater than the amortization leading to an increase in operating income. but for mature firms, with relatively stable R&D expense, the operating income can actually decrease. Such is the case with JNJ. Without capitalizing the R&D expense, the value of JNJ stock increases.
    Oct 6, 2010. 11:30 AM | 5 Likes Like |Link to Comment
  • Going Defensive With Johnson & Johnson [View article]
    Capitalizing them actually reduces the net value. By capitalizing them, I am treating the R&D as capex which would therefore reduce the FCF.
    Oct 6, 2010. 10:43 AM | 4 Likes Like |Link to Comment
  • Cramer's Being Reckless About Netflix [View article]
    That was one good article. I completely agree with you on NFLX. I like the company and would probably not short it, but its simply way to expensive at these levels. A P/E closer to 40 might be the upper limit in my book.
    Oct 26, 2010. 03:46 PM | 3 Likes Like |Link to Comment
  • Intel: Trading at a Discount [View article]
    S&P 500 was at 1175 in 2001, where is it today?
    Oct 14, 2010. 09:23 PM | 3 Likes Like |Link to Comment
  • Offshore Drilling: Analyzing Major Players Using Relative Valuation [View article]
    I use several spreadsheets for my analysis. Most of these are interlinked. But, it is not as simple as plugging numbers. According to me, plugging numbers is akin to "garbage in, garbage out" . I like getting the feel of every step of the process to see if the numbers and calculations make sense.
    Oct 3, 2010. 01:31 PM | 3 Likes Like |Link to Comment
  • Cisco's Stock Buybacks Not As Rosy As They Seem [View article]
    Hi Brad,

    Let me assure you that it was never my intention to make inaccurate statements. I apologize if you felt that I was willfully making erroneous statements.

    With that said, based on my limited knowledge of how companies deal with stock based compensation, looking at cash flow statements of the last three years, the company paid a total of $3.86 billion in SBC. During the same time period, company repurchased a total of $21.8 billion worth of stock. The net reduction though was only worth $10.1 billion. Thus, looking at the SBC and the total shares repurchased, SBC doesnt seem to be the critical component accounting for only 18% of the total stock buyback.

    Now, I am an amateur, especially when it comes to stock based compensation and its accounting methodologies, and you are clearly an expert. Please tell me what am I missing which makes my analysis and my statements inaccurate? I will appreciate your feedback in this matter.

    Apr 12, 2011. 12:42 AM | 2 Likes Like |Link to Comment
  • Cisco's Stock Buybacks Not As Rosy As They Seem [View article]

    The purpose of the article was not to say that the company retired only 26.6 billion worth of stock after spending 65 billion on buybacks. I apologize if thats what came across from my article. The purpose was to make it known that the 65 billion was deceptive. As an investor, I would want to not look at the 65 billion figure, but only at the 26.6 billion, as that is the actual return to the investors.
    Apr 11, 2011. 01:27 PM | 2 Likes Like |Link to Comment
  • Microsoft Repurchasing 2 Million Shares a Day: Implications for Investors [View article]
    Although the share count did drop 16%, the stock price dropped by 5% or $1.46 during the last 5 years (March 31, 2006 to March 28, 2011). Now you might argue that if the company had not bought back stock, MSFT would have been trading at a loss of 10 - 15% over the last 5 years. But, if the company was paying a significant dividend instead (something like a 60% payout in dividends, translating into a yield of roughly 4.5%), I doubt the stock would do any worse than what it is doing at the moment.

    The company can easily afford a payout of 60%. With an ROE of 40% and long term growth rate of 10%, the company does not need anything more than 25% to 35% of its net income.

    If the current share count was still 10.531 Billion (end of financial year 2006), the TTM earnings would have been 1.95 a share instead of 2.36. At 60% payout, as of today, the company would have paid a total of $5.11 in dividends as opposed to the $2.56 it paid. Thats an additional $2.55 which makes up for the decline in stock price of $1.46 even accounting for taxes paid on dividends.

    Disclosure: Long MSFT
    Mar 28, 2011. 02:31 PM | 2 Likes Like |Link to Comment
  • Going Defensive With Johnson & Johnson [View article]
    Another point I would like to make about R&D expenses. Going by theory, by expensing R&D, you are implying that R&D spending only provides benefit during the current period. However, usually thats not the case. Most companies to the contrary derive benefits from R&D spending in future years.

    On the other hand, capital expenditures are expenses which typically provide benefits over multiple time periods. For companies such as biotech and technology firms which do not really require lot of conventional capex, the R&D expense is the only way they can fund their future growth and operations (organically of course).

    Therefore, regardless of the impact on operating income, for companies with significant R&D expenses, I believe that capitalizing them is the right thing to do.
    Oct 6, 2010. 05:57 PM | 2 Likes Like |Link to Comment
  • Offshore Drilling: Analyzing Major Players Using Relative Valuation [View article]
    The utilization data and fleet size was obtained from It was mentioned in my instablog, but for some reason, it did not appear in the published article.
    Oct 1, 2010. 05:03 PM | 2 Likes Like |Link to Comment
  • Microsoft: 15% Upside Potential With Low Risk [View article]
    I agree with you. Multiples from earlier in the decade have little meaning today, which is why my multiple of 13 is based on the average of the last 3 years. From 2001 to 2007, the avg P/E for MSFT was approximately 31.

    During the last 3 yrs, MSFT routinely traded at multiples of 15-19. Considering that net income grew by 7% during the last 3 yrs (same as my projected future growth rate), I consider my price target of $29 (based on P/E 13) as a fairly easy price target for MSFT to attain.
    Sep 21, 2010. 01:23 PM | 2 Likes Like |Link to Comment
  • Evaluating Colgate-Palmolive [View article]
    Let me play devil's advocate for a moment. A company growing its revenue at 4% cannot sustain an EPS growth of 10% or even 8% over an extended period of time. The EPS growth is probably the result of better operational efficiencies. They cannot indefinitely improve their operations. Once this happens, the EPS growth and revenue growth should be fairly similar. Therefore, a better way to analyze CL would be to assume an EPS 4% growth rate to match the revenue. EPS 2019 = 4.3*1.04^10 = 6.36

    Additionally, your table indicates P/E compression over the last 10-15 yrs. I would want to look at this trend a predict a P/E 10-15 yrs in the future. Based on the data you provided, it is easy to expect a 25-30% reduction in future P/E resulting in a P/E between 12 and 13.

    CL price = 12*6.36 = $77 or 13*6.36 = $83
    Sep 13, 2010. 04:31 PM | 2 Likes Like |Link to Comment
  • BP's Gift to Investors: Cheap Energy Stocks [View article]
    I am not so sure about DO at the moment. They have, by far, the oldest fleet among the deepwater drillers. Management in the past had a policy of returning excess cash back to the shareholders as special dividends partly due to the pressure from Lowes which owns a ton of DO stock. I think using the money for upgrading the fleet would have been a better use of the cash.

    Disclosure: Long DO
    Aug 17, 2010. 01:32 PM | 2 Likes Like |Link to Comment