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  • Is The Fall Of Whole Foods A Buying Opportunity? [View article]
    I'm a frequent shopper at Whole Foods and a periodic stock owner.

    The store itself is pretty solid. Yes - prices can be high at times. Sometimes they lack reasonably priced options for the budget shopper. For example - why do all the items on the fish counter need to be expensive? So I shop at competitors to compliment the products I feel are overpriced at Whole Foods. A store lineup with some lower priced products - at normal margins - would be very attractive and replace Kroger, Publix, and others for my shopping.

    From a stock standpoint, WFM seems to periodically get ahead of itself. It did that earlier this year and the stock has been pulling back well before the earning announcement. The previous high was around $42 - not far from the current price. There is a strong floor in the mid 30's. I think there is a little more room to drop, but expect that in the low 40's the stock is a buy again for me, and in the upper 30's its a strong buy and a real bargain.

    Boulder Brands BDBD - is a way to play WFM. BDBD just announced positive results - but is still off 40% from a recent high over 16. It seems to have built a base in the 9 range, and has some upside. I like WFM better, but BDBD is a place to bide your time while WFM settles.
    May 9, 2015. 01:28 PM | 1 Like Like |Link to Comment
  • BofA: Room for more cuts in compensation [View news story]
    CEO and officer compensation has cash and stock components. The cash compensation is relatively reasonable, and the big money is in stock. The stock portion is both grants and incentive awards. Grants have immediate value when awarded, but can't be exercised for a number of years - sometimes with delayed vesting. Options have low value when awarded other than option value, but with appreciation have value when vested or beyond. For both - the income is reported by the company years after the original award - typically when options are exercised. Former CEO Ken Lewis had lots of options that fell below the strike price and were never exercised. He also had grants. Moynihan's comp is high - but largely linked to stock performance.

    The bigger deal here is the original article about compensation to revenue. The Merrill side of the organization and investment banking in general has a very high level of compensation to revenue. You can't compare that business to regional banks or many peer top tier banks. Still, BAC needs to generate more revenue - not necessarily just cut costs. The answer all to often is the easy step of cutting employees and hiring them back as contractors. What they need to do is run the business in a manner that grows revenue in each business.

    Getting rid of Moynihan is not the answer. Just run each business at the top of the peer group. BAC has a huge footprint and needs to dominate market share in the retail and commercial businesses. Instead, they are slowly bleeding into becoming a smaller bank.
    Apr 19, 2015. 12:51 PM | 1 Like Like |Link to Comment
  • Bank Of America: Are We Going Sideways For Another Year? [View article]
    Given the high profile nature of this, and what should be a close working relationship with the Fed, you would think the plan should have been modified so that it was approved. This reflects badly on the bank leadership, the people in the CFO office who put together the plan, and the Fed staff assigned to BofA since obviously the relationship is not collaborative. If they can't collaborate on a capital plan and get it done, why should the Fed have any influence on BofA's future activities.

    If 28 other companies can figure out a way to submit a plan that get's approved, BofA deserves some blame. Arrogance?
    Mar 12, 2015. 03:44 PM | 15 Likes Like |Link to Comment
  • Bank Of America: The Best Bank To Buy For The Next 5 Years? [View article]
    I'm not sure you can completely relate the management of today to past management. The company's management for the most part was not with BofA 10 years ago. They largely came through acquisitions over the past 10-12 years - including the ML team.

    Whether that's good or bad is an unknown. ML has brought on a different set of issues and problems extending the litigation problem. Unfortunately, they keep encountering new problems rather than recognizing risks and avoiding them. You can't govern an i-bank like a conventional bank - or vice versa.
    Mar 10, 2015. 08:45 AM | 1 Like Like |Link to Comment
  • Bank Of America: The Best Bank To Buy For The Next 5 Years? [View article]
    BAC has had a discount of 20-30% for the past 15+ years. It's among the biggest and gets hit with every problem that affects the industry. More recently, it's the biggest target for litigation.

    I'm not sure the discount will go away - certainly not with this administration. The management team has changed completely and the discount did not change. But looking ahead, you could expect the discount to move toward the low end of the range. Even that kind of move could mean a 15-20% appreciation above the peer group which has a positive outlook.
    Mar 10, 2015. 07:07 AM | 1 Like Like |Link to Comment
  • Goodrich Petroleum Announces Financing, Amendment To Credit Facility And Year-End And Fourth Quarter Financial And Operational Results [View article]
    I'm not sure what management is thinking. The management presentation has a great set of slides showing the model for revenue and gross profit on new wells. The foot note at the bottom shows an assumption of $75 per barrel oil - and all but the breakeven scenarios show oil at $65 per barrel or higher. There are only partially hedged into 2015. Economic viability appears to be built on reducing drilling cost by 20-25% and an increase in the price of oil from current levels to at least $65 per barrel.

    I know it's a tough economic environment right now, but it looks like the company lacks the ability to sustain $50-55 oil. Probably the one area of upside is if production from the existing wells is greater than built into the models - so costs are recovered eventually.
    Feb 27, 2015. 07:54 AM | Likes Like |Link to Comment
  • GT Advanced Technologies: What Went Wrong And What Investors Need To Know About The Bankruptcy Process [View article]
    Agreed - this project was facing significant delays and missed milestones. Apple reported being in close contact with GTAT, but by August was already near the point of having to announce the iPhone without sapphire. If you can't meet the technical production requirements in August, you can't ship screens to assembly in time for release in September. I'll bet it was obvious to everyone involved with the project.

    GTAT financials showed a concerning rise in accounts payables in prior quarters. Some of that was likely related to the new plant, but not all unless the cash flows were wrong.

    The facility was reported by the WSJ to have been leased by Apple for GTAT. Apple was just funding the equipment and start up of production with their loans.

    Since the "assets" are leasehold improvements, specialized equipment, and capitalized startup costs, you would be lucky to realize 25 cents on the dollar in liquidation or resale - a write down of at least $400 million if the project does not move forward into production.

    Bond holders and convertible debt holders would have priority. I assume Apple's loan is structured as a secured obligation and they would have first claim on the plant in liquidation. There is not much left for common shareholders unless the production problems are resolved and Apple uses sapphire from GTAT (GTAT is not their only supplier of sapphire).
    Oct 9, 2014. 12:27 PM | 5 Likes Like |Link to Comment
  • Did GT Advanced Technologies Mislead Investors? [View article]
    It seems to me that Apple wanted to go with sapphire, but pulled the plug after repeated production delays and quality problems. Given the timelines, Apple needed to make a decision on their iPhone 6 - and GTAT simply could not deliver in spite of Apple monitoring the situation and working closely with them for months to fix problems.

    That leaves GTAT with an expensive plant, a specialty product, and really no customers. Apple likely will come back at some time, but the lack of sapphire glass is not important enough to delay a release of a product. Of course, who knows whether GTAT will have a business by that time.

    I think we all got a little lazy at looking at cash flows on this one. It was pretty obvious there were problems with Mesa, cash flow was tight and they were delaying trade payments, and cash was being burned rapidly. There was simply no fallback position for GTAT without sapphire in iPhone 6.

    There are plenty of similar high risk companies - and you get some hits and misses. Probably the biggest warning here is the lack of an upward revision with clear forecasts at the end of Q2. At that point it was either go or no go on the iPhone.
    Oct 8, 2014. 08:19 AM | 1 Like Like |Link to Comment
  • Banks reportedly delaying hiring on increased scrutiny [View news story]
    Most of these banks have a hiring freeze in effect anyway. If they want to hire someone, they work through contractors and pay premium rates to circumvent direct hiring rules.
    Sep 9, 2014. 12:27 PM | Likes Like |Link to Comment
  • Whole Foods, Wal-Mart And The Coming Commoditization Of Organic Grocers [View article]
    Overall a good article and an interesting perspective.

    The big impact on the organic market from WMT is on the supply chain. WMT tends to buy and sell in such large volumes, that they stimulate change in the supply chain. There will be more producers of organic food and existing producers will likely increase in size.

    WFM does a lot more local sourcing than WMT and others. That means WFM will maintain access to products and have new suppliers available. Using small independent suppliers does not fit the model of large grocery chains and WMT. They need existing suppliers to increase organic production.

    While WFM does have stores in affluent areas, if you visit stores in middle class areas, you'll find they are still packed with consumers that want high quality fresh produce and meats. My WFM is certainly does not cater to an affluent customer base. It caters to organic market customers who are much less likely to be affluent.
    Jul 14, 2014. 11:41 AM | 8 Likes Like |Link to Comment
  • It Appears As Though Shares Of Bank Of America Will Be Taking A Hit On Monday [View article]
    $12 billion covers a lot of attorney fees. For that kind of money you can hire every experienced attorney DOJ puts on the case. Holder does not personally do the work on these cases - it gets done by staff attorneys and there number of them is limited.

    There is a point at which you need to play hardball. Getting money from settlements has turned into the gift that keeps giving. It's simply blackmail. Until you are willing to play hardball, you keep getting viewed as a schmuck that will settle for increasingly large amounts.

    There is no better time to push back than when Citi is pushing back as well.
    Jun 15, 2014. 07:56 AM | 6 Likes Like |Link to Comment
  • Bank Of America: How Bad Is The Mortgage Situation? [View article]
    BofA has stopped buying mortgages originated by third party brokers. Its third party origination that added to the problems of bad loans. This significantly reduces both volume and servicing.

    Secondly - BofA is reducing the amount of loans carried on its balance sheet. They sold a large portfolio of seasoned performing loans to NationsStar and others. The long term benefit is the balance sheet is better positioned if rates rise. It also reduces capital requirements. But it means that they lost servicing on much of this portfolio.

    BofA has reduced staff to align with lower volume on both the origination and servicing sides. The timing is not perfect as there is a lag. That means profitability will improve when volume is stable at any level.

    The quality issues that led to aggressive lending are well known - selling off the loans to FNMA, nobody cared about lack of equity since properties were appreciating, and everyone felt the risks were acceptable. They weren't - and were even worse with mortgage brokers. But the bigger issue now is the banks don't want mortgages on their balance sheet due to capital needs and rate risk. There are plenty of loans they could originate safely but the secondary market is more restrictive - and largely government only. The uncertainty over changing capital requirements and the risk of rising rates are going to preclude a material portfolio of loans being held by any major bank.
    May 22, 2014. 10:34 AM | 1 Like Like |Link to Comment
  • Bank Of America: Top 3 Annual Meeting Takeaways [View article]
    I agree that the original capital plan will be resubmitted and approved.

    It makes sense. $4 billion is not material to the capital plan. It's not an operating issue - it is a calculation for the purpose of regulatory capital reporting - reporting that is new to banking in general and did not exist prior to 2009.

    It also makes sense that BofA and the Fed would agree that the plan needs to be put on hold and resubmitted if there is something incorrect. Materiality would not be evaluated without a new report. The approach is conservative, but provides the basis for an evaluation by the Fed and a clean bill of health.

    BofA remains well capitalized and able to continue with the proposed plan. The resubmission is necessary but really just a formality.

    I've increased my position in BofA by more than 100% since the error was reported.
    May 7, 2014. 07:13 PM | Likes Like |Link to Comment
  • JPMorgan warning hits the big banks [View news story]
    You know, at some point it's cheaper to hire $10 billion worth of lawyers than to keep settling this stuff. The reason these settlements keep coming is it's easy money. You have a few lawyers at Justice and with plaintiffs that make a living by filing claims against the banks. The banks all have the same issues and they all settle. An aggressive defense and delaying with endless motions and appeals has some merit and might be a cheaper way out.
    May 7, 2014. 08:08 AM | 1 Like Like |Link to Comment
  • What Does JPM Settlement Mean For Our Bank Of America [View article]
    Clearly, the lesson learned here is when the government agrees you take on no liability for actions by the acquired company, that is not worth the paper it is written on.

    This JPM agreement - and the upcoming agreement with BAC - make it clear financial institutions cannot trust government representations. Management wants to this stuff to end so they can move forward - regardless of the impact.

    So the real risk here is that the Fed and other government entities can no longer count on big banks to step in and acquire failing institutions, so the Fed will need to continue to run those organizations and taxpayer losses will be much larger. And there is much greater potential for a system meltdown.
    Nov 20, 2013. 02:42 PM | 1 Like Like |Link to Comment
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