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jstratt

jstratt
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  • Warren Buffett Buys These 8 Dividend Stocks [View article]
    I am not as impressed with Berk stock picking as I once was.

    I will say that I understand VZ as an investment. With a PE dropping to 11 where historically 13 would be more normal.

    I see VZ as having the best wireless network and with FIOS the best fiber network. Growth in EPS suggests a higher valuation and longer term the internet of things suggests more people using more items to connect for more time.

    All with a 4.3% dividend for income!

    VZ does keep dropping and suffers from the threat of competition. They do have a lot of debt but it is in my mind supportable.

    After a few years ago selling out of T/VZ I am beginning to nibble at VZ for good long term returns.
    Aug 20 12:50 AM | Likes Like |Link to Comment
  • Rates And Reality [View article]
    I enjoyed the article!

    Not sure I find any actionable conclusions though I understand the logic being used. Some thoughts!

    1) The Fed stopping its purchases doesnt seem to have an immediate effect to cause interest rates to rise. It may have more of an effect on volatility of rates. The shortage of world growth looks like the current driver of interest rates.

    2) I see the decumulation ahead but I also see other counter factors. From stocks being purchased by countries thru SWFs and even into treasuries direct. More and more stocks are being held by ultra high income investors who while older arent going to decumulate. Finally government policies today protect equities vs in the past more of a focus was on protecting consumers.

    In the end I think stocks and bonds compete for flows of funds. As bond interest rates drop, companies issue debt and invest in growing EPS. When debt cost rises companies lower their debt. Government have numerous tools to manage the volatility of change and to encourage commerce.
    Aug 20 12:09 AM | 1 Like Like |Link to Comment
  • The Bull Case For IBM: A Revision Of The DCF, A Look At ROIC [View article]
    Good news! The IBM Server business sale to Lenovo has been approved.

    The nearly $5 billion revenue business was sold for $2.3 billion after IBM initially was asking for $5 billion.

    Still that is better than the Chip Mfg business where the buyer wanted $2 billion cash from IBM to consider taking it.

    If you add the two businesses up IBM could have given both businesses away and had a little change to show for it.
    Aug 19 05:39 PM | Likes Like |Link to Comment
  • Buffett's IBM Stake Surpasses 7% With Strong Upside To Fair Value [View article]
    As an investor I use "fair value" meaning that the risk I take is worth the reward and I could invest.
    Aug 19 05:21 PM | Likes Like |Link to Comment
  • Hewlett-Packard Earnings Preview: 4X Cash Flow, Ex Balance Sheet Cash - Still A Fan [View article]
    Excellent Article!

    I have been wrestling with my HPQ strategy. Some thoughts

    1) I think HPQ has the wind at their back with the PC refresh cycle and even if that were not the case I think they would buy enough shares back to meet their EPS target so I am positive on earnings.

    2) The 35.51/3.72 = 9.55 PE FY2014(Oct) Still a very low valuation for a very high FCF company.

    3) I really think if I was running HPQ I would buy back a significant amount of shares. They could be more conservative than IBM and still make a big difference.

    So I will suggest that HPQ beats its EPS estimates handily and that the stock rises to 10x 2014 or $37.20 in a few weeks. I also think there is a small chance they could have revenue that is slightly growing rather than a 1% decline.

    The odds are against a disappointment in my view.
    Aug 19 03:40 PM | Likes Like |Link to Comment
  • Coke Rated Juicy: It's Playing The Monster Deal The Right Way [View article]
    I thought I would add a few thoughts regarding an investment in KO.

    One way to sum it up succinctly is to say you appear to be buying minimal EPS growth by paying 22 times earnings.

    The EPS growth is currently zero but it is fair to expect that with $7.5 billion KO can take negative revenue growth and provide positive EPS in future years.

    Now about that dividend growth, with 63% of earnings paid out to the dividend KO is not likely to grow its dividend much.

    KO stock is really trading as a bond. As 10 year Treasury yields have fallen money has flowed into safer dividend companies. In my opinion this has raised KO from $39 to $41 a share.

    It is probably a little expensive for the earnings growth offered but it does yield 2.9% as a stable investment.
    Aug 19 03:02 PM | 2 Likes Like |Link to Comment
  • Buffett's IBM Stake Surpasses 7% With Strong Upside To Fair Value [View article]
    IBM is a fair value given a mix of risk and reward. I consider myself an IBM shareholder even though I sold all my shares 2 years ago after 20+ years. After those two years IBM is a relative bargain. Some points to understand are

    Risk Negatives

    - Revenue declining at about a 4% average rate methodically each quarter but only about 2% last quarter

    - A Hardware unit called Sys & Technology that is fracturing most recently symbolized by trying to sell their Chip mfg business and the business is worth less than nothing. The buyer demanded the Chip bus +$2 Bill in cash to take it.

    - Management overtaken by "the Cloud". Meaning that IBM Management stated IBM was the premier Cloud Company when many didnt even think IBM was involved in the Cloud. The government considered AMZN more of a cloud company.

    - Additional Truthfulness of Mgt in question; Mgt states debt is all financing and they are low debt when they bought 2 times more shares than their FCF in the past year and borrowed heavily to do it. Little doubt exists that they are throwing the balance sheet at getting to $20 non GAAP EPS in 2015.

    Opportunity! So why would IBM be a buy?

    IBM is a company with a great collection of cash flow businesses and due to the above its valuation has been greatly compressed. I do think IBM is likely to meet the $20 on a non GAAP basis as they can borrow heavily to buy back shares.

    If you remove the Sys & Tech division from the equation IBM is a remarkably stable high profit high cash flow business.

    The question comes down to whether you believe IBM will meet the $20 in FY 2015. If you do the stock is probably worth $250 a share.
    Aug 18 05:53 PM | 1 Like Like |Link to Comment
  • The Doom Of Deflation Over The European Union Horizon [View article]
    I believe in the end the EU will react properly to avoid long periods of deflation. Further the G7 countries allocate growth to keep the world economy on an even keel. That is one reason I dont sell out of stocks.

    Still when the news hit about 10 days ago of 200-400 year lows in several European 10 year Treasuries I immediately recognized that as deflation. So what could it mean for US investors.

    Immediately it means that money flows from the world into the US 10 year Treasury lowering rates. Which pushes some to buy stocks instead to get a better return.

    If deflation were to continue to play out company earnings would start to get revised down and stocks would suffer after the rapid inflow of funds dries up.

    I wouldnt be betting on another 10% quarterly increase in EPS as we had in 2Q.
    Aug 18 01:51 PM | Likes Like |Link to Comment
  • Disney: A Wide-Moat Stock To Hold Forever [View article]
    Excellent article!

    I want to offer investors a way to improve market returns with DIS as a prime example. The author has done a great investigation of DIS and its prospects. Unfortunately he concludes it is too expensive and I dont disagree with him. This happened to me for many years until I realized I didnt have any growth in my portfolio.

    So when I find a rare company like DIS that has great growth prospects with a history of solid growth matching I know it is going to be high, but I buy a little because you have to get into the game to be successful. Then if it drops you can buy a normal position.

    Over time you get some stocks in your portfolio that rise at a much higher rate and deliver excellent returns.

    Looking back I thought DIS was a little too expensive last year at this time but I added some shares which are up 44.4% as I write.

    I strongly recommend you consider a percentage of stocks for your portfolio that are expected to grow earnings by 10% or more over the next 5 years. It is that longer term compounding that really creates value.
    Aug 18 01:25 PM | 2 Likes Like |Link to Comment
  • Apache worker killed in Egypt, underscoring dangers of remote oil operations [View news story]
    Thanks for the above comments! As a shareholder it is a perspective I appreciate with the news story.
    Aug 18 10:22 AM | Likes Like |Link to Comment
  • Is The Dow Overvalued? Comparing Historical Valuations With Fundamentals [View article]
    After investing in the market for 35 years I will offer my view on DJI valuation and why it is overvalued in comparison with history.

    My point boils down to earnings growth vs valuation. Lets take PG with a 21.80 PE. Historically that has been an average PE for Proctor. Historically however that has been with a 10%+ growth rate. PG now has a past 5 year growth rate of 1.30%. They suggest a 8.72% forward 5 year growth rate but I suspect 5% will be hard to achieve.

    Given the growth rate I will suggest a fair PE for PG would be 18. An 18 PE is -17.43% from 21.80.

    I also question the authors valuation assumptions with DIS as an example. DIS has a 22.97 PE. It also has consistent growth which has increased 19.36% over the past 5 years and is forecast to be 15.92% for the next 5 years. DIS has a fair PE for its expected growth.

    On a risk vs reward opportunity VZ might be the best value and is in my opinion undervalued.

    So it is a market of stocks some undervalued and some overvalued. The DJI is probably 10% overvalued but is currently benefiting from an excellent 2Q earnings bump and ultra low world 10 year Treasury rates.
    Aug 18 09:17 AM | 4 Likes Like |Link to Comment
  • Eli Lilly: Strong Future Prospects Will Restore The Company's Financials [View article]
    I guess it depends on how you look at things. I admire LLY for its success in the 20th century.

    Unfortunately the future I see is with biotech companies developing newer more improved drugs. LLY meanwhile will have drug patent expirations.

    My view is best expressed by a 10 year chart which shows the S&P500 up 77.15%. At the same time LLY is down 5.67%. MRK is up 27.15% and PFE down 9.77%.

    What made anyone interested in LLY/MRK/PFE was exciting new drugs that improved lives in the 1980s and 1990s. The baton was passed to biotech at least 10 years ago.

    Decline management is not likely to be successful and I do not see anything in the LLY pipeline that would rise above the patent expirations.
    Aug 18 08:28 AM | Likes Like |Link to Comment
  • Why Active Managers Underperform [View article]
    Interesting article!

    As I try to meet or beat S&P500 returns I have given much thought to this question.

    I think the answer is I am unwilling to take the risk of an S&P index. Cash is a good point but also my beta is much lower. As an example VZ has a 0.04 beta, KO a 0.34 and PG a 0.40 beta as some of my lower holdings. Financials raise it back up with BAC as an example at 2.0.

    At times I have used a 20% margin to keep a lower risk portfolio at an expected growth level. At other times I am more bullish on financials and raise my beta. Overall my goal remains to beat the S&P500 return and take less risk.

    If you want to beat the S&P return invest in high beta stocks such as financials. At times when things are good I do take an above average risk. One of the advantages of active investing is that I can construct the risk level I want and the expected return to the S&P return.
    Aug 18 12:10 AM | 1 Like Like |Link to Comment
  • The Only Metric That Really Matters For Long-Term Bank Of America Shareholders [View article]
    Thanks for a good article!

    I am long BAC and think it will go up over the next year.

    That said, my guess is as 10 year yields drop around the world and bank margins are compressed, you might find an entry point below the current price.
    Aug 17 11:45 PM | 1 Like Like |Link to Comment
  • Retirement Strategy: How Dividend Income Grows To Staggering Levels By Reinvesting And Compounding [View article]
    If you use the model described by the author you better plan to work longer instead of retiring! Lets see what he is missing!

    T - great company that has grown at 3% for the past 5 years. It has been borrowing heavily to give you that 5% dividend. So yes historically it has grown earnings more rapidly and the dividend grew with it. Looking at the financial statements I would say you are getting a 3.2% dividend and a 2% return of capital. Dont expect that rapid dividend growth.

    KO - I love KO and what it has done for me in the past. Again it has actually had a decrease in profits for the past couple years. So where does that rapid dividend growth come from? My guess is 2% growth in dividends.

    PG - The money PG has made is great I hate to criticize it. However the 1.3% growth in profits the past 5 years is going to generate how much future dividend growth. Plug 1.3 into your formula for dividend growth that sounds about right to me.

    GE - I dont dislike GE as it has better forward prospects but the dividend decline has been substantial

    MCD - since MCD has declining profits what kind of a dividend growth rate are you going to put in? My expectation is for a zero growth rate

    WMT - at least their past 5 year growth rate is higher than the number of fingers on my hand. I am suspicious of predicting a growth rate higher than 2% for the next 5 years. My expectation for dividend growth would be zero.

    PFE - with a past 5 year growth rate of 1.3% and a forward expected growth rate of 3.1% good luck with that. My expectation would be for more patent expirations and declining earnings since they already cut most of their research staff.

    My problem with this strategy is that it is the one I followed in the 1980s and 1990s when these companies had 10%+ growth rates. It worked well in those days.

    I wish I could close my eyes and see what the author sees. What I see are the worst candidates for earnings or dividend growth in the future. Historically once companies stop growing they tend to drop off of the Dividend Champion list and are even subject to dividend cuts.

    I own small amounts of several of the above stocks but largely had to move away from them. How is it you expect a stagnant company to provide good returns?
    Aug 17 11:22 PM | Likes Like |Link to Comment
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