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Value Mole
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I am an individual investor that has spent 8 years on Wall Street and now resides in Shanghai, China. I manage my own portfolio only and my goal is to help all individual investors also become comfortable managing their own money. I focus on value stocks.
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Value Mole
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  • What's BP Worth....$42 Per Share!

    Actually, based on our analysis, BP is worth $39.11 - $44.45 a share. We took the average which is approx $42. Here's how we came to our analysis, based on applying industry average multiples (see for explanation of multiples).

    BP is a large, cap intetrated oil company, similar to Exxon (NYSE:XOM), Chevron (NYSE:CVX), and Conoco Phillips (NYSE:COP). We took the average of these three for the industry multiple, which came out to 9.3x 2010E P/E.

    Next, we applied the industry multiple to BP's 2010E EPS to arrive at an implied price. We also applied XOM's multiple of 10.3x, given BP is most similar to XOM in terms of size, growth, oil reserves, future projects, etc.

    We then took out the cost of oil spill, which based on recent 2Q10 BP earnings is estimated at $32.2 billion. That then got us to a implied range for BP of $39.11 to $44.45 per share.


    If you don't own BP, an arbitrage profit of 10% (BP current price and implied price of $42) is probably not worth the risk. If you want to go long oil, just buy one of the other integrated oil companies.

    If you currently own BP, it's worth holding on to until prices get closer to $42 per share. Once it does, then there is no longer an arbitrage play between BP versus other integrated oil companies, and we'd recommend you sell BP and just own XOM.

    Disclosure: Position in BP

    Tags: BP, XOM, CVX, COP
    Jul 04 6:57 AM | Link | Comment!
  • "Deeper Dig on DuPont" by Value Mole
    DuPont (NYSE:DD) recently reported 2Q10 earnings that easily exceeds Wall Street expectations by nearly 25%, reporting 2Q10 EPS of $1.17 per share versus Wall Street average of $0.94 her share.  The Company also raised its 2010 full year projections nearly 15% from $2.50 - $2.70 per share to $2.90 - $3.05 per share.  That type of performance is worthy of a deeper dive. 

    DuPont is one of two specialty materials companies in the Dow, the other being 3M Corp (NYSE:MMM). 

    Segments and Geography:
    The Company operates in several industries: Agriculture (32% of sales), Specialty Chemicals & Materials (21%), Safety & Protection (11%), and Electronics & Comm (6%).  Geographically, the Company operates in U.S./Canada (40% of sales), EMEA (28%), Asia (20%), and Latin America (12%). 

    The Company currently trades 12.6x 2010E EPS.  This is a 23% discount to 3M Corp (NYSE:MM), which trades at 15.5x 2010E EPS.  The company's 5 year projected EPS growth is 9%, which implies a 1.4x P/E/G.  Dividend yield is 4.20%, or $1.64 per share.  Dividend payout ratio is only 53.8%.  The company has maintained or increased dividend payments in the past 10 years.

    We typically look for less than 1.0x P/E/G for a screaming bargain (DD trades at 1.4x), however given that DD is trading at 23% discount to MMM and DD is also paying a 4.3% dividend yield (that will either remain as is or increase given the past 10 year dividend payout history), DD is a steady, low-risk long term investment. 

    Timing wise, we're waiting for the stock to pull back to around $35 per share.  DD is definitely now on our RADAR though.   

    Disclosure: No position
    Tags: DD, MMM
    Jul 29 3:51 AM | Link | Comment!
  • Highest Dividend Stock on the Dow - Verizon! by Value Mole

    We looked at the highest dividend yield stock on the Dow Jones Index.  The top yielder is Verizon (NYSE:VZ) with 6.8% dividend yield.  Second place and third place is AT&T (NYSE:T) with 6.6% and Pfizer (NYSE:PFE) with 4.9%, and the average dividend yield for the 30 stocks in the Dow is 2.8%. 

    Overview:  Verizon is a large-cap telecommunications provider of fixed-line, wireless, and data services and is the #1 telecom provider in the U.S. with nearly 93mm customers as of 1Q10.  Wireless business comprises 58% of revenue and Wireline business represents 38% of revenue (as of 1Q10).  The top 4 telecom provider in the U.S. are Verizon (92.8mm customers), AT&T (87.0mm), Sprint Nextel (48.1mm) and T-Mobile (33.7mm). 

    In July 2010, Frontier Communications (NASDAQ:FTR) completed its acquisition of Verizon’s rural telecom business in 14 states for approximately $8 billion, tripling Frontier’s customer base.  Each Verizon shareholder received 0.24 shares in Frontier stock for each stock of Verizon owned.  Verizon sold off its rural telecom business in these 14 states, partly due it its acquisition of Alltel in 2009 for $28.1 billion. 

    Rumors have been circling regarding Apple ending its exclusivity with AT&T and adding Verizon Wireless as one of its service providers.  Given that JD Power and Associates latest study for period ended December 2009 ranked Verizon Wireless #1 for highest call quality, everyone can see why Apple and Verizon combination would make complete sense.  Even without Apple’s iPhone, Verizon has been delivering recently do to the phenomenal success of Google’s Android OS smart phones (ie: Motorola’s Droid and HTC).  

    Valuation:  Verizon currently trades at 12.9x 2010E P/E, 5.5x 2010E TEV/EBITDA, and 2.0x Price/Book.  The Company’s annual dividend of $1.90 per share (6.8% yield) represents a 88% dividend payout ratio, which is higher than we would normally like.  However, with a corporate debt rating of A and consistent dividend growth in the past 5 years of 3.2% average increase each year ($1.62 per share from 2005 to $1.90 per share in 2010), we feel comfortable with Verizon maintaining and growing its dividend in the future. 

    Summary: With a dividend yield of 6.8% (compared to U.S. Treasury yields of 2-3%), along with recent momentum with Google Android smartphone success and possible iPhone addition, we believe Verizon is worth adding to your portfolio as a dividend yield play.  Even if the stock does not appreciate, you collect a cool 6.8% annual yield, not bad compared to 1% in a savings account or 4% in a high-grade bond fund. 

    Disclosure: Long position in VZ, KFT
    Tags: VZ
    Jul 26 9:36 PM | Link | Comment!
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