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cstauffer

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  • Update: Alcatel-Lucent - Encouraging Q4 Trends Give Confidence To The FY15 Outlook [View article]
    Again, I don't focus on the stock dynamics so much as I focus on the downside versus upside in regard to the future values of the business. So, at a $10B market cap, if the patent book is worth $5B to $7B and other parts of the business could be sold off for $1B to $3B, the downside appears to be 20% to 30% at today's value. However, if the turnaround is modestly successful the company should be worth at least 75% of the value of NOK, which translates to a $21B market cap or 100% above where it is today. If the turnaround is very successful the upside should put ALU's value ahead of NOK, which would be a 200% plus gain from today's value.

    I don't really care who owns the stock today, this is a company with $15B in revenues and positive cash flow, it has intrinsic value. That being said, a 5:1 reverse stock split would be helpful and enable the stock to be more widely owned in the institutional universe.
    Feb 11, 2015. 01:03 PM | 1 Like Like |Link to Comment
  • Update: Alcatel-Lucent - Encouraging Q4 Trends Give Confidence To The FY15 Outlook [View article]
    Glad you all enjoyed the dialog even though it was not a match because I have no views on NOK at all other than it is a pretty good comp to compare ALU to. Similar to comparing Nintendo to Sony last year at this time. Nothing wrong with Nintendo per se, but the comparison showed how cheap Sony was being valued at.
    Feb 11, 2015. 12:12 PM | Likes Like |Link to Comment
  • Update: Alcatel-Lucent - Encouraging Q4 Trends Give Confidence To The FY15 Outlook [View article]
    Doug, that is all great, but all of that is more than priced into NOK's market cap in my view. Investing in a company like ALU is not about the last three years, but instead the next three. Everything about owning a stock is about informed speculation and those who do the best at informing themselves and knowing how to value a company will be the most successful. What NOK has done is in the stock, but what ALU may do is apparently not in the stock or what ALU might be worth to an acquirer apparently is not in the stock. ALU's stock appears to largely be a "show me" stock, but again an informed investor knows that in these situations once ALU shows investors that the turnaround is a sure thing, the stock will have already appreciated 50% to 100%.
    Feb 10, 2015. 03:06 PM | Likes Like |Link to Comment
  • Update: Alcatel-Lucent - Encouraging Q4 Trends Give Confidence To The FY15 Outlook [View article]
    Even if you look at revenue forecasts out to 2016, ALU is forecast to have more revenue and higher growth than NOK. I don't want to delve into the pros and cons of NOK as I don't know that company well. I am not and would not in this forum recommend buying or selling any particular stock as that is a decision that has be made investor by investor. However, in the spirit of discussing the relative under-valuation of ALU versus NOK it appears to me that ALU is currently valued at too steep of a discount compared to NOK if that is the best yardstick to use.
    Feb 10, 2015. 02:45 PM | Likes Like |Link to Comment
  • Update: Alcatel-Lucent - Encouraging Q4 Trends Give Confidence To The FY15 Outlook [View article]
    Doug,

    For me in a turnaround opportunity one cannot focus on the stock per se. One has to look at the company. For example, NOK's market cap is $28B and ALU's is $10B. However, NOK's FY2013 revenues were $14.20B, while ALU's was $15B. On an EBITDA basis, ALU's EBITDA in FY2013 was around 60% of NOK's EBITDA, which is not bad considering that ALU's market cap is just 35% of NOK's. ALU operating margin is below NOK's, but catching up quickly and ALU is expected to see revenue growth double that of NOK over the next two years. Either NOK is over-valued or ALU is under-valued the way that I see this.
    Feb 10, 2015. 02:01 PM | Likes Like |Link to Comment
  • Update: Alcatel-Lucent - Encouraging Q4 Trends Give Confidence To The FY15 Outlook [View article]
    Doug,

    Please consider that ALU has pretty health EBITDA currently and its operating margins are in the range that management said they would be by 2015. Jeremy Grantham once wrote that the market turns, and I think that this applies to turnaround stories also, not when it sees light at the end of tunnel, but when the end of the tunnel is just less dark than before.

    The ultimate catalyst for a company like ALU, which has something of great durable value (Bell Labs patent book), is either that they execute a turnaround better than the market expects, they downsize (e.g. Sony) and unlock value by cutting away the cancer, or a much larger capitalized competitor takes them out before they have a chance to prove that they can turnaround. In any of these scenario an investor who gets in when the end of the tunnel is simply less dark than it once was can profit under any of the aforementioned scenarios.
    Feb 10, 2015. 12:56 PM | Likes Like |Link to Comment
  • Upping Our Fair Value Estimate Of Alibaba [View article]
    FCARONE, I wish you the best of luck with your option strategies. However, I beg to differ with you in your assumption that market price reflects efficient pricing of sum of the parts in a particular special situation investment like YHOO. I admit that in theory you should be correct, but in practice my experience indicates that you are wrong. I bought YHOO from $26 to $32 per share ahead of the "known" BABA U.S. IPO and I used the low end of the anticipated BABA market cap and while I was building my positions between $26 and $32 I could very easily back into a $40 to $45 sum of the parts valuation. Right now it is very easy to get to $55 per share even with BABA around $90 per share.

    I will never know exactly why the market is so inefficient in the short-term even in the face of available information that refute the market share price of a security.

    I have debated this with many people and all I really have to do to prove my point is to look at any give six month period in the market and take the three or four largest buyouts of publicly traded stocks and average the premium paid. The premiums typically average 20% to 30% on an anecdotal basis. Those prices paid at a premium to the market value represent the true intrinsic value of the company given that those transactions are negotiated deals by knowledgeable insiders at arms length.
    Feb 9, 2015. 10:06 PM | 2 Likes Like |Link to Comment
  • Update: Alcatel-Lucent - Encouraging Q4 Trends Give Confidence To The FY15 Outlook [View article]
    "institutional investors of the index and other fund types, excluding hedge funds, don't rush out to invest their clients money into companies who don't show net profit".

    Doug, from my experience net profit is not what good value oriented institutional investors focus on at all. What they focus on is cash flow. In particular they focus on Economic Value or how much greater return that a company is generating from invested cash flow over their WACC (weighted average cost of capital).

    Take a look at Sony (SNE) over the last 12 months. Last year at this time and every quarter in 2014 Sony lost money from a Net Profit standpoint. They also lost money from a Net Profit standpoint almost every year for the last 10. That being said, over the last three years the company's return on invested capital was around 18% and the company's WACC was around 8%. The company generated a 10% cash return on the capital that they have been investing, which is above average for a company like Sony. All it took over the last 12 months was bold restructuring moves and any evidence that the restructuring was beginning to pay off in order to move the stock up over 50%.
    Feb 9, 2015. 07:47 PM | Likes Like |Link to Comment
  • Predictable Fast Growing Healthcare Dividend Growth And Growth Stocks For Your Retirement Portfolios: Part 5 [View article]
    Chuck,

    Thank you, and to sum up my feeling toward your response - I 100% agree!
    Feb 9, 2015. 10:44 AM | 1 Like Like |Link to Comment
  • Predictable Fast Growing Healthcare Dividend Growth And Growth Stocks For Your Retirement Portfolios: Part 5 [View article]
    I would be very careful buying into a utility fund today. The utility sector was up 23% last year, beating the overall index by 10% on virtually zero growth in earnings and more burdensome clean air regulations on the horizon. The valuation of most electric utilities that I see is in the high teens up to 20X. I can find no other explanation for this other than investors chasing yield who are blind to relative valuation metrics.
    Feb 9, 2015. 08:44 AM | 1 Like Like |Link to Comment
  • Predictable Fast Growing Healthcare Dividend Growth And Growth Stocks For Your Retirement Portfolios: Part 5 [View article]
    Big, I think that you need to re-read my post where I "guestimated" the return. I was not referring to any specific stock when I backed into 6%. I was thinking back many years ago when I was working to bring a stodgy old bank trust department into the 21st century when it came to investment strategy. I was referring to many accounts that I saw that had been with the bank for 30 and 40 years and were filled with blue chip dividend paying stocks.
    Feb 8, 2015. 07:09 PM | Likes Like |Link to Comment
  • Predictable Fast Growing Healthcare Dividend Growth And Growth Stocks For Your Retirement Portfolios: Part 5 [View article]
    Alton, banmate6 gives you some very good advice. I would just add that if you do start out indexing with the S&P 500 and you have the opportunity to choose what vehicle that you are using to get that market exposure, I would suggest that you use an equal weighted S&P 500 product such as Guggenheim's (RSP) ETF.

    I am not a big fan of market cap weighted indexes like the S&P 500 or price weighted indexes like the Dow Jones Industrial Average. I usually explain the problem with a market cap weighted index like the S&P 500 this way: in 1999 as the technology bubble got closer to bursting the largest sector represented by the S&P 500 was technology, which at the peak represented 31% of the index. In late 2007, right before the housing finance bubble burst the largest sector of the S&P 500 was the financial sector at 21%. As you can see market-cap weighted indexes are really a reflection of the past and as such the imbalances associated with a particular market cycle build up within the index and over-weight the riskiest parts of the market and conversely under-weight the areas where value can be found.

    The other thing that I will caution you about is when one simply invests in a huge basket of stocks representing the market it is very difficult to know what the priced of that basket should be. Because of this human nature causes people to worry whether the market is over-valued and ready to correct/crash, which creates a market-timing mentality. Unlike an individual stock where management, competitiveness, growth and value can be assessed in order to determine whether it is time to buy or lighten up, with the market many investors feel that their only choice is to be in or out. This is dangerous mindset to get into.

    Read as much as possible and remember seek out value and buy low and sell high.
    Feb 8, 2015. 03:00 PM | 3 Likes Like |Link to Comment
  • Predictable Fast Growing Healthcare Dividend Growth And Growth Stocks For Your Retirement Portfolios: Part 5 [View article]
    Big, I don't know what relevance 1985 has, but unless you are 90+ years old, which you would be if you began building a position in GE as a 60 year old, I don't understand how such a statistic is useful. Investing is about the future, not the past for most investors and that is even more so the case today when a retiree can expect to spend just about as much time in retirement than he or she did working.

    I had mentioned that GE and some of these other great companies that many people are using as DG stocks were also large-cap growth companies 30 to 50 years ago. They are no longer large-cap growth stocks. They are now very mature, slow growing (at best) mega-cap stocks. GE as an example gave investors an almost 20% total return according to the website that you provided between 1985 and 1995. That was a tremendous return for a large-cap blue chip company. However, from 2003 until today GE's total return has been 3.10%, which means that in "real" inflation adjusted terms it has been zero.

    I guess my only point is that trees don't grow to the sky, even the mighty redwoods have their limits. I am all for the concept of DG, however I believe that those portfolios need to be monitored and that the time tested concept of value, growth and business fundamentals need to apply to all investments no matter how long they have been owned and what one's cost basis is.

    So if I were 70 years old and have had a very good run with GE, T, PG and some of these stocks whose growth has petered out and whose valuation looks stretched, I personally would at least reduce my position, if not eliminate it and redeploy to company's like GILD, AAPL and GM, which are very well positioned to grow top and bottom line, grow dividends and be what GE was between 1985 and 1995.

    That's all I am talking about.
    Feb 8, 2015. 02:40 PM | Likes Like |Link to Comment
  • Predictable Fast Growing Healthcare Dividend Growth And Growth Stocks For Your Retirement Portfolios: Part 5 [View article]
    Dave, DG is not a new concept to me, I have been managing portfolios to meet a diverse goals and objectives for a long-time. My dialog here has been more of exploring how an investor justifies over-paying for one stock, say KO with a 22X P/E and when the company's growth has been slowing and has actually stalled out recently when they can by a company such as GM, which is growing, has a pristine balance sheet, a higher dividend, and a comparable payout ratio.

    Again, I understand all of the attributes of DG strategies, I however struggle with the complacency that this type of strategy tends to require. I do not believe that it is beneficial to get married to a particular stock because the market is very large and at any point in time many stocks are over-priced and many are under-priced. These dividend growth stocks like KO are not bullet proof and GE and AT&T have proven that over the last 20 years. During the 1980's and into 1990's these two companies would have been included in the very portfolios of the types of investors that you are referring to. I know this because I spend several years working in a trust department of a bank that had utilized a DG strategy for many decades before I began working there. I definitely was the slow and steady approach. I remember an old trust officer showing me several accounts that had been there for 50 years and telling me how much that account was worth 30 or 40 years ago and from that perspective the growth appeared remarkable. However, when I actually measured that growth it calculated to around a 2.5% annualized return. Now of course the account paid out a its dividends over that time, however assuming that dividends may have averaged 3.5%, the accounts tended to an average total return in the 6% range. This was roughly on half of the return of the board equity markets over the years being measured. As a fiduciary that was troubling.

    So I am not engaging in this dialog to disparage do it yourself investors who are satisfied with how well their DG strategy is serving them. I am just trying to understand the rationale better.

    Thanks
    Feb 8, 2015. 09:13 AM | 4 Likes Like |Link to Comment
  • Predictable Fast Growing Healthcare Dividend Growth And Growth Stocks For Your Retirement Portfolios: Part 5 [View article]
    Chowder, thanks again. I understand you well articulated explanation, although as a portfolio manager by training I can't say that I rationally understand it. When I read you words about why someone would want to own a stock like KO today, I think that the KO of today is much different than the KO of 30, 50 or 100 years ago. During most of those years KO was a growth stock. Looking at KO today and applying what you are saying I have to wonder why one would not just buy KO's long-term bonds. Yes KO has given people a great confidence that they will continue to pay dividends at an incrementally higher rate each year, but a bond coupon from KO would even be more secure.

    The way I look at dividend paying stocks, they are stocks first and growth has to present and they are dividend paying securities second. So for me I would find GM much more attractive than the likes of KO, PG, DUK, and MO.
    Feb 7, 2015. 08:55 PM | 3 Likes Like |Link to Comment
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