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David Gaines
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Novice investor looking to learn more about effective trading strategies and eliminate all the mistakes made throughout the years.
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  • Stock Analysis: China Zenix Auto (ZX)

    China Zenix Auto (NYSE:<a href='' title='China Zenix Auto International'>ZX</a>)For whatever reason, I like exotic stocks. It may be why I'm not as rich as Warren Buffet. Or maybe it's because I don't have multiple billion to play with like Dub B.

    Regardless, my psyche gets psyched up for stocks of companies I never heard of. And if those stocks are foreign stocks, I get a little extra kick out of pouring money into them. The cherry on top is if the stock is dirt cheap per share relative to the Googles and Apples.

    But I'm getting a bit smarter with it. Instead of choosing stocks because I can get a ton of shares for nothing, I've been looking at their fundamentals. My watchlist does currently have companies we've heard of such as Goodyear Tire (GT), AT&T (T) and Corning (GLW), but it also has a few lesser known companies, at least companies I just learned about.

    One of them is started to separate from the pack, and I'm going to take a deeper look into its fundamentals.

    China Zenix Auto International Ltd. (ZX) is an auto components company based in Fujian Province, China. It specializes in the design, development, manufacture and sales of high-quality commercial vehicle wheels used by most types of commercial vehicles in China. With more than 230 series of tubed, tubeless and off-road steel wheels, it is China's largest commercial vehicle wheel manufacturer in both the aftermarket and OEM market in sales volume.

    Most important, to me, it's share price closed today at $2.98. But using the little knowledge I've learned in the past few days, China Zenix has caught my eye for more practical reasons.

    For starters Yahoo! Finance has it listed with a 0.828 beta which makes me feel safe. Traditionally I've been drawn to betas of 2.0+ which should come with a bottle of Pepto-Bismo. I've become a bit more conservative, aiming for 1.0, anything lower making me feel a little more comfortable when I go to bed.

    Its mean recommendation of 2.0 also is convincing, though I have no idea how much stock (excuse the pun) to put into those numbers. For the uninitiated, a mean recommendation of 1.0 is a strong buy; a mean recommendation of 5.0 is a strong sell. A 2.0 is closer to buy, but again, those change faster than you can blog about them.

    So digging deeper, I checked out China Zenix's P/E Ratio, and though not impressed with its 2.24x when the industry average is 14.0x, its operating gross margin of 12.80% versus the industry average of 2.10% and its gross profit margin of 26.03% versus the industry average of 17.47% make me feel a little better. Chinz Zenix's net profit margin (ttm) is 10.7%, easily destroying the industry average of 1.19%. In fact, China Zenix is one of the more profitable companies in the auto components industry.

    China Zenix has a debt to total capital ratio of 25.29% which is in-line with the industry. Taking in consideration its high profit numbers, there's no concern of China Zenix running into problems paying back debt. Its quick ratio is 0.95x and its current ratio is 1.27, both I can live with.

    But back to profits. China Zenix's return on equity is 20.96%, about six points below the industry average; its return on assets is 10.77% and its return on investments is 19.88%, both convincingly more than the industry average. These are clear signs that China Zenix is among its industry's best in managing their resources.

    Its PEG ratio (5 yr expected) is an attractive 0.15. Its annual dividend yield is 2.00% (eh). Its EPS (ttm) is 1.34 (eh) with operating cash flow per share of 1.77.

    From my novice perspective, looks like a winner to me. It may not be as glamorous as other stocks, its fundamentals may have some warts on them, but it has a lot of upside that I can see.

    If course, any veteran traders out there that can translate all these numbers into a buy or sell, please do share your opinions.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ZX over the next 72 hours.

    Additional disclosure: I don't have any current positions with ZX but plan to in the next week or two. The fundamental numbers listed above are from various sources, primarily Yahoo! Finance and a couple of the trading platforms I use. I don't encourage - more like highly discourage - anyone from making a buy/sell decision based on only what I write; do your research.

    Tags: ZX, Analysis
    May 07 9:30 AM | Link | Comment!
  • Understanding EPS And Operating Cash Flow To Make Smarter Stock Buys

    Picking stocks can be like picking a winning horse when you know nothing about horse racing. You read the odds but have no idea how they got there and if some horses' odds are too high or too low. And how often have the favored horses won versus the underdogs [or is it underhorse]?

    Microsoft FundamentalsReading fundamentals can be like reading a foreign language. Actually, it is - the language of investing your future in a bunch of numbers that make no sense.

    So, I'm dedicating myself to understanding what these numbers mean. I've read in some places that reading fundamentals isn't the best way to make purchases. Understood, but I can't see how it'll hurt. Doing a technical analysis on a stock's movement makes even less sense to me, but I'll be getting around to that as well.

    For now, though, I'm going to pick a topic and do what I can to understand it. And since I know a lot of people who are interested in investing but are terrified of this foreign language, maybe I can help make some sense of all these abbreviations.

    Let's start with earnings per share also known as EPS. In a couple of sentences, Investopedia defines it as the following:

    The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability.

    And if you're scratching your head because you don't know what an outstanding share is, well, I did to.

    Stock currently held by investors, including restricted shares owned by the company's officers and insiders, as well as those held by the public. Shares that have been repurchased by the company are not considered outstanding stock.

    So, EPS is how much of the profit a company allocates to each share owned by someone be it the company's CEO or you and me. The higher the EPS, the more attractive a stock should look. But it can't possibly be that simple, right? Looking at the most bought stock from the gurus of investing, Microsoft Corporation (MSFT) has an EPS of 1.94; meanwhile, Google (GOOG) has an EPS of 33.42. What gives?

    Well, to take a more thorough answer and sum it up for those in a rush to get to analyzing, you compare the EPS to the operating cash flow per share. Operating cash flow per sharedefined by Investopedia is:

    Cash flow per share shows the after-tax earnings plus depreciation, on a per share basis. Many financial analysts place more emphasis on the cash flow per share value than on earnings per share values. While an earnings per share value can be easily manipulated to appear more positive than it really is, therefore putting its reliability in question, cash is more difficult to alter, resulting in what some analysts believe is a more accurate value of the strength and sustainability of a particular business model.

    Essentially you compare what a company is reporting as profit allocated per share or EPS versus how much operating cash flow they have for each of those shares. A high EPS looks attractive, but if the company has low or no or negative operating cash flow per share, that's a bad sign. They could be taking out loans faster than they can pay them back which will only last but for so long.

    Let's take a look at two stocks on my watch list: Corning, Inc. (GLW) and Apollo Global Mgmt LLC (APO). Corning has an EPS of $1.30 while Apollo Global has an EPS of $3.71. At first glance, it's a no-brainer. But looking at each company's operating cash flow per share, well, let's think about it. Corning's operating cash flow is $2.38 per share; Apollo Global's operating cash flow is -$2.40. Yes, that's a negative.

    So from my elementary understanding of EPS and operating cash flow, Apollo Global is allocating more of its profit per share owned by the people, but it's not generating the operating cash flow to run the company without relying on lines of credit, loans or whatever companies like this do. Meanwhile, though Corning isn't allocating as much of its profits per share, it has the operating cash flow to run its business without the worry of someone cashing in on an IOU.

    But before someone from Apollo Global calls me to better clarify why their operating cash flow is low, which I'd welcome them to do (or call me to sue so I won't be posting my number), there may be valid reasons why companies have a negative operating cash flow that is normal, acceptable, common or even necessary. Beats me.

    Until I get a better understanding of it, though, I'm going to error on the side of caution. Let's see, Microsoft's operating cash flow per share is $3.02; Google has an operating cash flow per share of $35.78. Could it be because Microsoft has almost 57% more employees, any company's highest operating expense? Or for each dollar Google makes from AdSense, it spent virtually nothing? Maybe that explains Google's stock price being more than $800 more per share than Microsoft's.

    When I looked at my current portfolio, three of the stocks I own have operating cash flow of less than $1.00. Going to have to do something about that. And as I vet my watchlist, I'll be taking a closer to look to the EPS and operating cash flow, now that I know a little something, before making future purchases.

    May 06 11:21 AM | Link | Comment!
  • To Be A Stock Guru, Do As The Stock Guru Would Do

    As I re-re-restart my hand at investing, I find myself staring at numbers that don't quite make sense to me. I know what they mean, but interpreting them into good or bad buys isn't my strength. Instead, I reluctantly find myself relying on the gurus.

    So what are the gurus buying?

    I don't know who they are, but on one blog, there's a list of the Top 100 stocks bought by the gurus. I was seeing if any of the stocks in my portfolio were on this list. Nope. But there are some stocks on my watch list that this list is encouraging me to make my next purchases.

    Atop the list is Microsoft (MSFT) with 15 buys. Of the top 100 with 10 or more buys, the only other three stocks were Google (GOOG), Oracle Corporation (ORCL) and Coca-Cola Company (KO).

    Since I'm just getting back into investing, I have the tendency to look for stocks with a lower price, though. And far cheaper than Google's $800+ stock price. Of course, even Google doesn't compare to Berkshire Hathaway Inc. (BRK.A) and its six figure price tag, currently sitting around $160,000 a share.

    My goal, shamelessly, was to identify the stocks that the gurus were buying that were more friendly to my bank account. Looking for stocks around $15 a share or less, there were 10.

    • Western Union Inc. (WU)
    • Corning Inc. (GLW)
    • Charles Schwab (SCHW)
    • Dell Inc. (DELL)
    • Bank of America Corporation (BAC)
    • Staples (SPLS)
    • Resolute Forest Products (RFP)
    • Interpublic Group (IPG)
    • SandRidge Energy Inc. (SD)
    • Marvel Technology Group Inc. (MRVL)

    Just because the gurus are buying these stocks don't necessarily mean they're all going to be winners, and stocks that aren't on the list are going to be losers, but it's at least a start of where to look for my next purchases.

    You can view the entire list at Top 100 stock buys by the gurus.

    May 06 11:21 AM | Link | Comment!
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