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Albert Meyer

Albert Meyer
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  • Cisco: A Good Margin of Safety [View article]
    In the months of February 2010, March 2010 and May 2010, John Chambers cashed in stock options realizing $127 million in option gains. "Aggressive" stock buybacks (as the company announced) have no benefit for shareholders. They merely mop up the dilution (increase in share count through options) caused by equally aggressive option exercises being conducted relentlessly by Chambers and his executive elite. This being so, shareholders are hugely overcompensating a management team that has given them nothing in shareholder value since 1998, unless you are a day trader.

    CEO Chambers has taken out on average more than $50 million per annum in stock option gains the past decade. Why would any investor or money manager allocate capital to a company with a business model designed to enrich management beyond the realm of avarice, while shareholders hold the bag.

    For those who invest in index funds, consider that Cisco is inevitably part of the index and hence they have no choice but to help executives at Cisco monetize their compensation. They are not saving for they retirement. They are the victims of a massive wealth transfer, in full view of the intransigent SEC, from middle class America to America’s corporate elite. While your index fund managers buy the stock, Cisco executives are frantically selling – check insider sales.

    On October 23, 2006, when Cisco's stock traded at $24, Barron's published this letter of mine - nothing has changed:

    Bundles of Options

    To the Editor:

    For those contemplating an investment in Cisco (" Cisco's Bundles of Joy1," Oct. 9), bear in mind that Cisco spent the bulk of its profits the past 12 years to buy back 1.5 billion shares issued to employees in lieu of cash compensation.

    Stock-option exercises dilute shareholders. Rather than shrink the share count, as Cisco's CFO claims, Cisco's buybacks merely stemmed the tide of dilution. Stock repurchases that combat dilution are a roundabout way of paying compensation.

    Cisco employees hold another 1.4 billion stock options. A 22% ownership dilution threatens - not counting any future option grants - unless the company spends the next decade's profits on share repurchases. Cisco shareholders are on a treadmill to nowhere.

    Those who bought Cisco at $47.88 at the end of October 2000 are still waiting, ten years later, for their bounce back; a negative return of -8.36% p.a. and no dividends, while the CEO took home more than $50 million p.a. in compensation and option gains.

    When you buy Cisco stock, you are not making an investment. You are merely facilitating the executives and employees to monetize their compensation. They get the cash and you hold the suspect script.

    The stock does bounce back from time to timeand management exploit the bounces. When the stock tanks, they get option grants. When the stock “ramps,” they bail out. They have done that on multiple times the past ten years, racking up billions of dollars in option gains, while shareholders patiently waited for a return on their investment.

    Never has so much been taken from so many and given to so few. A fool and his money are soon parted, or as Balzac wrote: “Behind every great fortune lies a great crime.” Wise up.
    Nov 17 10:09 AM | 20 Likes Like |Link to Comment
  • I'm Shorting This 'Too Good To Be True' Story [View article]
    With respect, you don't have any clue either. CEOs never provide any detail about government investigations. So, you raise a moot point, hopefully inadvertently. One thing we do know is that the wheels of the bureaucracy grind very slowly and in most instances they seek some kind of a settlement that does nothing other than to try and justify their dubious existence and expense to the taxpayer of running their bureaucracy. One could apply Citron's reservations to 99% of all bio techs/pharmaceuticals; again nothing earthshattering.
    Oct 31 09:41 AM | 17 Likes Like |Link to Comment
  • Is China the Next Great Bubble? [View article]
    Nobby 74: "It is very hard to know if the businesses are truly as profitable as they state. However , I think it's a lot healthier than some would like to think." Reconcile the cash flow numbers with earnings. If they match you can believe the numbers. (In the US, unrealisitc accruals, allowances, charges and every accounting trick in the book distort cash flow and earnings. If so, just walk away.) Look at China Mobile's cash flow and growth... and $25 billion in cash, roughly $6 per ARD share. If you can find a US company with similar fundamentals, buy it... and, by the way, let me know!
    Apr 24 09:27 AM | 11 Likes Like |Link to Comment
  • Ron Paul's Long-Term Holdings Outperform The Market And Most Pros [View article]
    Ron Paul is an obstetrician, turned politician, turned potential "savior" of a nation that has lost its ways. He would be the last one in the world to claim that he is an astute investor. He is very clued in on matters economics, fiscal and monetary. He wrote many books, notably one on foreign policy.

    Most importantly, Ron Paul is a man of great integrity, almost surreal compared to what we have come to expect from our politicians.

    Ron Paul is the complete package. A candidate of his quality only comes around once in a lifetime.
    Aug 29 09:39 AM | 9 Likes Like |Link to Comment
  • Calculating Free Cash Flow: 5 Illustrated Examples From Actual 10-Ks [View article]
    "If the board uses the money to buy back stock, you’ll become very rich." Cisco's board has spent tens of billions of dollars during the past 14 years buying back stock, so why have shareholders only experienced pain? Because the Cisco-type buybacks are not of the conventional type. They merely mopped up the dilution caused by stock option exercises - like paying compensation at the backdoor. Deduct the cash outflows allocated to this mopping up operation and you will be left with what I call "unfettered free cash flow." Don't swallow the hype that stock buybacks always return cash to shareholders. Some of the shareholders are executives dumping stock obtained through option exercises.
    Dec 27 11:43 AM | 9 Likes Like |Link to Comment
  • I'm Shorting This 'Too Good To Be True' Story [View article]
    I have found in the past that there is somewhat of a correlation between P/S and net margin. A net margin of 5% normally attracts a P/S of about 1.0, a 10% net margin about 2.0... a 25% net margin about 5.0, etc. So, $800 million in revenues and a net margin of 35% should roughly translate into a P/S of 7.0 (35%/5) and a market cap of $5.6 billion. QCOR's $3.6 billion market cap heavily discounts the current uncertainties. The current target price set by analysts assumes that these issues would be resolved and hence a P/S of 7.0, based off a net margin in excess of 35%, makes for a $90-plus price and $5.0-plus billion market cap.
    Oct 31 10:51 AM | 8 Likes Like |Link to Comment
  • How Much of China's Export Industry Is Owned by U.S. Corporations? [View article]
    "It also explains why the idea of "bashing" China for the current account deficit is pointless, as is the debate of the value of the Yuan. All China provided was an environment where free markets and free enterprise could prosper, Yankee know how and ingenuity did the rest. There is no reason why America can't do that, but "Stimulus Packages" and intrusive government, won't achieve it."

    Thank you. Very important points that need to be kept in mind by those who agnonize about trade deficits and call for protectionism. We are slouching towards socialism. China is marching towards capitalism, however slowly. Our ingenuity is being crushed by the neocons' trillion dollar foreign entaglements:

    costofwar.com/
    Sep 4 08:24 AM | 8 Likes Like |Link to Comment
  • Southern Copper Corp: An Interesting Way to Play the Commodity Rebound [View article]
    Great company. Second largest copper reserves in the world, behind Chile's Codelco. Pays all compensation in cash only - no stock options, no dilution, no games. CEO comp in 2007, $1.4 million. Distributes profits liberally. Power plants are being built in China and India at a healthy rate; more than 1MW per week being added (fact check this). China added 80GW in 2008, 1.5 MW per week. Creates demand for copper. Cash cost of production, net of by-product revenue, $0.50 per pound, but in some quarters in 2007 and 2008, by-product revenues exceeded cost of production. Net margin in excess of 20%, ROE 35%+. Totally transparent and shareholder-friendly company, strong balance sheet, great margins, etc.
    Mar 27 09:02 AM | 8 Likes Like |Link to Comment
  • America's Rental Crisis [View article]
    Interesting article, but...

    Government spending is prosperity-negative. So, how to solve an increase in poverty levels? Get government to spend more on helping the poor. Geez, why haven’t I thought of this before?

    If you take $100 million from the private sector and give it to Washington (as done through the tax system), Washington could use this booty to create jobs. The question is: how many jobs? Nobody knows, but the exact number doesn’t matter. Just call it “X” number of jobs.

    If we keep the $100 million in the private sector, it will also lead to job creation. Again, we do not know how many, but we can call it “Y” number of jobs.

    We are now faced with a very simple mathematical equation:

    Is X > Y?

    Or is Y > X?

    The folk who lived in the old Soviet Union, where the ruling class laid claim to virtually all of the country’s production and labor, know without a shadow of doubt that Y is always bigger than X. There was a direct correlation between the decline in jobs (increase in poverty) and growth in the size of the Soviet government.

    We can’t hope to raise the water level in a swimming pool by taking water from the deep end and pouring it into the shallow end. In the same way, we can’t generate prosperity as a nation by taking hard-earned wages from the subject class and giving it to the ruling class. The ruling class can create a modicum of prosperity, especially when reinforced by talking heads on TV.

    Job creation and, by implication, prosperity, thrives in a country where the size of government is kept as small as possible. Singapore has grown its economy by more than +9% p.a. over the past 40-plus years. They have done so, because they have adhered strictly to the rule that kept the size of government to 12.5% of GDP. It is the fourth wealthiest country in the world, measured on a per capita basis. It has no natural resources to boost its GDP, for example, as is seen in oil rich countries. Singapore is a pure economic miracle based on the simple equation: Y is always > than X.
    Dec 13 11:08 AM | 7 Likes Like |Link to Comment
  • Cisco: A Good Margin of Safety [View article]
    They generate hoards of cash because they sell stock to executives and employees. Stock option programs are like a perpetual stock offering. The employees then sell the stock to you, picking up a nice gain. Seems foolishness to me. Find some real companies to invest in.
    Nov 17 12:58 PM | 7 Likes Like |Link to Comment
  • Chinese Economy Is Strong, Despite Media Claims [View article]
    The Wall Street Journal has become a tool of the neocons. Pretty soon it will be integrated with FOX News. Read the Financial Mail and the Economist for independent objective reporting.
    Jun 10 09:55 AM | 7 Likes Like |Link to Comment
  • StatOil: A Window of Opportunity? [View article]
    Statoil has a board of directors and a corporate committee, the latter takes fiduciary responsibility for the actions of the directors - an extra-layer of corporate governance.

    STO has Outperformed Exxon 2:1 over the past ten years. STO's CEO's basic is $990,000 (cash only), with an approx. $500,000 bonus (cash only). The total comp. of executives, board and corporate committee is less than $10 million. The Norwegian government owns about 70% of STO. They do not allow stock options for STO and other companies that they invest in. They consider the granting of options to executives akin to a criminal activity - correctly so.

    One major hurdle for STO is its 65% tax rate, which includes an oil levy. It would make sense for the Norwegian government to lessen the levy as revenues from Norwegian oil fields decline relative to other sources. Don't bet on it, but it is a thought.

    The government runs a huge budget surplus every year and its Sovereign Wealth Fund is equal to $100,000K per man, woman and child. Allowing the oil levy to slowly decline would create shareholder value. What the government gives up at the tax line, it will gain in market capitalization. It is not like the government is short of cash.

    My fund, MIRZX, owns STO - 2.66% position. We invest in stocks that make minimal use of options or not at all.
    Feb 7 02:40 PM | 6 Likes Like |Link to Comment
  • Telefonica: A Buy on the Sovereign Debt Pullback [View article]
    Yield 2.7%? One TEF ADR = 3 TEF shares.

    Management confidently guided that the board would authorize dividends of €1.15 (~$4.48 per ADS), €1.40 (~$5.46 per ADS) and €1.75 (~$6.82 per ADS) in 2010, 2011 and 2012, respectviely. At $69, the 2012 dividend would translate into a dividend yield of approximately 9.9%, depending on exchange rate. The current yield is 6.20%. A dividend of approximately $6.82 in 2012 at a yield of 6.2% would give a price of $110, a more than 25% p.a. return at current levels. A credit crisis in Spain could cause the stock to go lower, but longer-term the returns are attractive for a well-managed company with competitive advantages in Europe (including UK – O2 brand) and South America.
    Dec 15 10:15 AM | 6 Likes Like |Link to Comment
  • Dividends vs. Stock Buybacks: Exxon [View article]
    Your analysis omits a hugely important issue. Not all stock buybacks are equal. Stock issues to employees who exercise their options, increase the share count. Stock buybacks to mop up the dilution merely pays compensation through the backdoor. The cash outflows related to these buybacks should be set off against cash from operations. It is not a financing activity. How many of the 2.2 billion repurchases merely mopped up dilution? Difficult to calculate, hence just about nobody bothers – big mistake.

    From 1998 to 2007, Cisco spent $30 billion, net of employee strike-price contributions, to repurchase 2 billion shares. The share count remained unchanged and there were still 1.6 billion options awaiting exercise over the next ten years. I guess you would have been happy by the CEO’s contention that the company returns cash to shareholders through buybacks? Not me.

    At StatOil, the CEO’s compensation of $1.6 million is paid in cash only. The company does not grant options to employees. Exxon CEO, much to the chagrin of shareholders as proxies show, picks up more than $20 million per annum, most of it in stock-based compensation with the true cash component dispensed unnoticed in the financing section of the cash flow statement as stock repurchases.

    StatOil was listed in October 2001. Over the past nine years, StatOil shareholders earned 18.4% p.a. By comparison, Exxon shareholders had to be happy with a return of 7.1% p.a. By the way, StatOil’s tax rate is 65%, but obviously no hindrance in rewarding shareholders, rather than insiders. Avoid companies that bamboozle you with stock buybacks, when they are merely mopping up dilution.

    [Disclosure: I own STO for my clients and in the mutual fund, MIRZX, that I manage.]
    Sep 15 12:25 PM | 6 Likes Like |Link to Comment
  • High Conviction: A 'Stunningly Cheap' Telecom Stock [View article]
    Price/Sales is relative to net margin... no merit in high or low P/S in and of itself.
    Feb 26 11:59 AM | 6 Likes Like |Link to Comment
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