najdorf

Phil Fisher on Profit Margins, Part II

Very, very good analysis - much better than anything I've read on this site is a long time. Fisher's book is one of the best, and you expand on and apply its ideas very rationally.

I would add only that the logical alternative for a company like SBUX that saturated its growth opportunities (at least in the US, and international retail expansion is complex enough that I think it should be taken slowly) would have been to start paying a dividend. Too many companies insist that investors can get a better return on capital within the company than they can get by reinvesting their dividends elsewhere. Unless the manager is Warren Buffett, shareholders deserve the choice. Another example: although I love the progress in ORCL's share price over the last few years and the margins remain strong, I wish a company this big would pay at least a small dividend rather than continuing to acquire everything in sight. I would be an ORCL shareholder for life if it yielded even 1%, but with no dividend I'm always looking for a good point to take some capital gains and look for some smaller companies with better long-term growth prospects and some better dividend-payers. Similarly, if SBUX showed any interest in paying a dividend when they finish restructuring I would be all over the company at its current price; as they stand I'm worried that future U.S. earnings will be poured into building rows of Starbucks in Europe and China (which might not produce the same returns that good American stores have produced) and shareholders will never recieve the full earnings that they're entitled to.

American Express Calls Investment Banks' Bluff

Oh yeah, one more thing: price matters. You only talk about your subjective opinions of the companies, with no regard for the price they're selling at. Every major financial is still available at a discount to historical prices, reflecting the fact that they aren't out of the woods yet and some will never make it out. To make a useful assessment you have to compare price to value. The price has bounced so fast in the last week because prices were ridiculous. Now the next development is harder to call, but it's not a clear-cut sell/short situation with some potential bargains still out there.

American Express Calls Investment Banks' Bluff

The only thing you're right about is the one objective part of your article: Citigroup's results are horrible. The fact that they're participating in a rally led by profitable companies like BAC and WFC is just an indication that a lot of investors aren't reading the reports and instead trading financials as a basket on momentum.

Otherwise your article is emotionally-driven and short on facts. You don't tell us anything insightful about credit quality or earnings drivers for these companies. AmEx is a bit different from companies in the mortgage business, since AmEx loans are collateralized by people's desire not to have a low credit score (almost irrelevant, in today's environment of scare credit and more pressing financial concerns) whereas mortgage loans are collateralized by the roofs over people's heads (fairly valuable for most people, and a forecloseable asset in the event of default). When someone defaults on an AmEx loan, the whole thing the company can collect is one more name and address to sell to the collection agency for pennies on the dollar. When someone defaults on their mortgage, their bank gets a house, which should eventually be worth significantly more.

Also your comparison of AmEx cardholders to V and MC cardholders is spurious because most people have no more than 1 AmEx card (since they're issued by only one company) and many V/MC cards (since they're issued by every bank, stores, lenders, etc.). Also, even if your data point were comparable, I'm not quite clear on how people who charge a lot present less credit risk than people who charge a little, absent any information on net worth or income.

I understand that banks have exposure to second liens and uncollateralized consumer debt, but they have much less of it and much more stable business than a pure credit card company.