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Great ideas are the lifeblood of the investment business and the exclusive focus of The Manual of Ideas. Authored by investment and finance professionals who have grown up on the teachings of Ben Graham, Warren Buffett and Joel Greenblatt, and have studied under or worked with luminaries such as... More
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The Ideas Report For Serious Investors
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  • November issue of The Manual of Ideas is now available!

    The major U.S. stock indices are roughly flat year-to-date as of this writing, but it has not felt that way. The worldwide market turbulence has carried echoes of 2008, and some companies’ stock prices have been decimated. In this report, we look at twenty equities that have suffered major price declines this year. The group includes former highfliers that seemed destined to conquer the world only a few years ago but are now headed for doom, at least according to short-sellers and some analysts. Yet, many of the naysayers now that the stocks trade at single-digit earnings multiples were cheerleaders when those equities were selling for double-digit sales multiples or triple-digit earnings multiples.

    One such company is First Solar (Nasdaq: FSLR), which we highlight as a top idea this month. First Solar could seemingly do no wrong before the downturn. The stock price hit $300 per share, a market value of $24 billion, in 2008, a year in which the company had sales of $1.2 billion and net income of $350 million. Revenue and income roughly doubled by 2010 and should be not too dissimilar in 2011, yet the stock has been cut to under $50 per share, a market value of $4 billion.

    First Solar’s recently revised EPS guidance of $6.50-7.50 in 2011 compares favorably to the stock price. What’s more the shares trade only ~10% above tangible book value, with no net debt on the balance sheet. As a result, even if profitability declines further while the industry works through the current glut of capacity, the downside should be reasonably protected.

    The key might be whether First Solar’s “thin film” technology really is superior to traditional crystalline silicon solar technology, as the company and analysts have long claimed. This appears to be the case, at least for the time being. The company is focused on continuing to lower cost toward grid parity. Achieving this goal will be crucial as government incentives are phased out due to sovereign fiscal woes.

    The example of Netflix (Nasdaq: NFLX; not profiled in this issue) also reflects Wall Street’s ability to go from exuberance to despondency in a short time. Value investor Whitney Tilson sold short Netflix in the past couple of years, suffering big losses as the shares continued their momentum-driven rise. Tilson finally threw in the towel when the stock catapulted to over $200 per share. The subsequent rally took Netflix to over $300 per share in July of this year. One earnings disappointment later, and Netflix is back to under $80 per share at the time of this writing. Tilson now views the stock as cheap enough to justify a long position.

    All of the companies analyzed in this issue have fared terribly this year in terms of stock price performance, and investor sentiment reflects this fact. Investors generally sound smarter when they discuss the poor near-term business outlook as justification for passing on a stock or selling it short, often with little regard to the relationship between price and intrinsic value. On the other hand, it is much harder to sound smart when advocating the purchase of a company that trades at a single-digit earnings multiple or a discount to tangible book value while the fundamental outlook is cloudy. One is easily dismissed as naïve: “Don’t you know how bad things will get for the industry/company due to overcapacity, price competition, regulation, etc?” — ”Yes, but the price more than compensates for these risks.” This is a perfectly fine answer, but the contrarian uttering it can be easily dismissed as ignorant of the risks. Ultimately, however, the investor who accurately assesses the gap between price and value should be vindicated. By the time this occurs, the analysts and pundits will have moved on to another smart-sounding theory, with no one typically calling them on their previous blunders.

    Table of contents:

    The Manual of Ideas, November 2011
    — The Fear Issue (105 pages)

    Editorial Commentary — John Mihaljevic highlights six investment ideas
    Superinvestor Update — Tracking the portfolio moves of top investors
    Exclusive Interview with Tom Gayner — Revisiting March '09 interview
    20 "Fearful" Investment Candidates — Analyzing large YTD price losers
    Favorite Value-oriented Screens — Ideas for bargain-hunting investors
    This Month's Top 10 Web Links — A selection of third-party resources
    Extra: Valuation Scenarios — Test sensitivity to key assumptions

    Subscribers, enter the Exclusive Forum to read the full report.

    If you are not yet a subscriber, claim your 30-day free trial.

    Tags: FSLR, NFLX, HOV, IRE, SNV, long ideas
    Oct 27 4:18 PM | Link | Comment!
  • New Issue Is Available Now!

    The Manual of Ideas — The Model Portfolio Issue
    October 2011 (111 pages)

    Editorial Commentary— John Mihaljevic highlights six investment ideas
    Superinvestor Update — Tracking the portfolio moves of top investors
    Exclusive Interview with Michael Mauboussin — On investment strategy
    Exclusive Interview with James Montier — On overcoming biases
    9 Current Model Portfolio Holdings — Surveying some of our best ideas
    11 Potential Model Portfolio Holdings — Surveying promising candidates
    Favorite Value-oriented Screens — Ideas for bargain-hunting investors
    This Month's Top 10 Weblinks — A selection of third-party resources
    Extra: Selected Valuation Scenarios — Test sensitivity to key assumptions

    Read it now in the Exclusive Members Area or subscribe.

    Sep 29 7:49 AM | Link | Comment!
  • Coming Soon: The Manual of Ideas: "The Superinvestor Issue"

    The recent market turmoil carries with it echoes of 2008, but relying too heavily on analogies from the last market panic seems misguided. Europe and the U.S. must address serious sovereign debt issues, but the financial system itself appears less vulnerable than in late 2008.

    There is now no doubt that Bernanke’s Fed will do everything in its power to alleviate the pain of market participants. The Fed is doing many foolish things and distorting capital allocation decisions, but one thing is clear: Given the central bank’s ability to print dollars, repayment of U.S. government debt in nominal terms is not in doubt. Neither is the Fed’s ability to flood the financial system with cheap liquidity.

    While we are sympathetic to the cautious views of superinvestors like George Soros and Seth Klarman, we are equally sympathetic to the view that preferring an asset that is easily printed in unlimited quantities is foolish. Holding cash has little appeal to us following the recent market decline. We would much rather own cheap blue-chip corporations such as Cisco Systems (NASDAQ:CSCO), Dell (NASDAQ:DELL), Goldman Sachs (NYSE:GS), Hewlett-Packard (NYSE:HPQ), Microsoft (NASDAQ:MSFT), Pfizer (NYSE:PFE), and Sony (NYSE:SNE), to name a few. HP’s Leo Apotheker deserves much criticism for his recent boneheaded allocation of capital (e.g., buying Autonomy instead of HP stock), but this does not mean investors should miss out on the capital appreciation HP shares will likely deliver over several years. Never let anger get in the way of profits.

    Researching this superinvestor issue has been quite exciting for us because most recent superinvestor buys have traded down materially on little or no news. For those who are not paralyzed by macro concerns, this presents an opportunity to scrutinize investments favored by some of the smartest value investors around — and to buy at a discount. Probabilistically speaking, this doesn’t sound like a losing proposition.

    We find the following three superinvestor holdings particularly noteworthy... [read more]


    The Manual of Ideas, August 1, 2011 [view excerpt]
    — The Superinvestor Issue (176 pages)

    Editorial Commentary — John Mihaljevic highlights three investments
    MOI Model Portfolios — Tracking our favorite ideas in three portfolios
    Exclusive Interview with Lisa Rapuano — On finding quality, cheaply
    50+ Portfolios with Signal Value — Surveying ideas of top investors
    Screening 900+ Holdings of 50+ Superinvestors — Hunting for bargains
    Profiling 20 Superinvestor Holdings — Analyzing superinvestor favorites
    Value-oriented Stock Screens — Screens for bargain-hunting investors
    This Month's Top 10 Web Links — A selection of third-party resources

    The new report is being mailed to members worldwide. Not a subscriber? Join now.

    Aug 25 6:13 PM | Link | Comment!
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