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cstauffer

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  • Predictable Fast Growing Healthcare Dividend Growth And Growth Stocks For Your Retirement Portfolios: Part 5 [View article]
    Chowder, I am going to engage you in this conversation not because I want to argue with you, but because I want to understand how you think about value. In 2011 KO's net income was $11.8B and last year it was $8.6B. I am sure through share buy backs they was able to mask this negative growth because EPS have been relatively flat over this time. In constrast PEP, which is largely in the same business and has a similar dividend yield has grown its Net Income from $6.4B to $6.7M and saw its EPS rise by 10% over those three years. PEP has a more diversified business line and has, by most measures it has been a better managed company as PEP's ROE is 30 versus 24 at KO. So, I don't understand how KO cannot be over-valued given that it is being awarded a higher PE ratio than PEP in today's market. I just picked PEP since it was a convenient comparison.

    I think that many investors get emotionally attached to their companies and that breeds complacency and clouds objectivity because objectively PEP is the far superior investment based upon the last several years and current stock valuation and company growth and efficiency metrics.
    Feb 7, 2015. 08:14 PM | 3 Likes Like |Link to Comment
  • Predictable Fast Growing Healthcare Dividend Growth And Growth Stocks For Your Retirement Portfolios: Part 5 [View article]
    Gabby, very well said again. Thank you. I think that you and I probably have more in common than different when it comes to seeking value. I just am a little more skeptical when it comes to placing a premium on the intangible than you might. For me very few brands warrant a 4 or 5 multiple points other than possibly Disney because of its timeless intellectual property that it is so adept at monetizing over and over again. Many companies that I look at are great companies, but as investments I struggle when I have to pay up for a slow growing stream of value creation which comes from top and bottom line growth. A dividend stream, unless it is reinvested, is just that, a stream of income that should be valued as such using an appropriate discount rate.

    I have to admit that I am not a big fan of reinvesting dividends automatically. I personally believe that it makes more sense to use the dividends of slower growing "safe" mature companies to purchase shares in faster growing companies selling at a discount to their growth trajectory.

    I guess at my core I believe stocks represent wealth creation vehicles and bonds are savings vehicles. Once in a while I come across a stock the for now allows me to have my cake and eat it too such as ABBV. With ABBV one gets to invest in a growth company at a reasonable price, while at the same time receiving a stream of income from dividends higher than the market dividend yield.
    Feb 7, 2015. 07:44 PM | 2 Likes Like |Link to Comment
  • Predictable Fast Growing Healthcare Dividend Growth And Growth Stocks For Your Retirement Portfolios: Part 5 [View article]
    Chowder thanks for your thoughts, however KO is not as stable as you would like to believe. Yes it has a great balance sheet, but certainly not as great as Apple's, which is trading at around 13X earnings. KO's business is struggling to grow at all. The likes and dislikes of consumers due to health concerns has place their core product, carbonated beverages in jeopardy of losing market share to other alternatives where KO does not have a competitive advantage.
    Feb 7, 2015. 07:29 PM | 1 Like Like |Link to Comment
  • Predictable Fast Growing Healthcare Dividend Growth And Growth Stocks For Your Retirement Portfolios: Part 5 [View article]
    Banmate, as far as large-cap value goes, there are still values to be had. Of course in the energy space right now and you named one already with CBI. I would throw our two examples that everyone knows GILD and AAPL.
    Feb 7, 2015. 04:39 PM | Likes Like |Link to Comment
  • Predictable Fast Growing Healthcare Dividend Growth And Growth Stocks For Your Retirement Portfolios: Part 5 [View article]
    pete, here is my struggle with paying 18X to 22X earnings for a <5% long-term growing company that pays a 3.50% dividend - the P/E ratios for these companies should normally contract as the company gets larger and earnings growth slows as a result. I believe that the reason that this has not happened on average is the one-way secular move in long-term interest rates. This secular move in interest rates has lowered the discount rate that is used to value the present value of the assumed forward stream of dividends. Very much like why a 5% coupon bond issued when rates were higher is valued at a significant premium today. We are currently at zero on the short-end and we are at a negative real long-term interest rate in this country. One of two things has to happen. Inflation needs to go much lower or negative create a positive real interest rate or interest rates need to rise. The way I look at things neither scenario will be very constructive for slow growth high dividend equities. If rates rise I believe the premium multiple will disappear and if inflation falls further or we have deflation, these companies who were only growing 3% to 5% will see their growth fall further.
    Feb 7, 2015. 01:39 PM | 1 Like Like |Link to Comment
  • Predictable Fast Growing Healthcare Dividend Growth And Growth Stocks For Your Retirement Portfolios: Part 5 [View article]
    gabby, please be assured that I am not being argumentative. Because you articulated your point very well, I would love to hear how you address the likes of GE and AT&T which have steadily seen their multiple contract.

    Thanks
    Feb 7, 2015. 01:12 PM | 3 Likes Like |Link to Comment
  • Predictable Fast Growing Healthcare Dividend Growth And Growth Stocks For Your Retirement Portfolios: Part 5 [View article]
    Pete, see my comments to Banmate above, which touch on some of what I would have replied to you. On the current interest rate situation in the U.S., I believe that U.S. rates can and will rise in spite of global rate levels. Global rates will likely act as an anchor and keep our rates from rising as fast and as much as they otherwise would have, but I do believe that our rates will indeed rise sooner than later. I also believe that when this happens the complacency that currently exists, which in my opinion is based on the belief that our economic recovery is not sustainable and therefore the Fed will not raise rates or if they do it will be short-lived, will quickly go away. When this complacency goes away those investors who are using high yielding blue chip stocks and regulated utility stocks (sector was up 23% last year and P/E ratios are at all time highs) will run for the exits.
    Feb 7, 2015. 10:00 AM | 3 Likes Like |Link to Comment
  • Predictable Fast Growing Healthcare Dividend Growth And Growth Stocks For Your Retirement Portfolios: Part 5 [View article]
    Banmate6, thank you for clarifying your philosophy. Your discipline is impressive and has served you well. I like that fact that you indicated that you would not purchase JNJ shares at today's levels, but maybe if it fell below $100. I don't know what your empirical reasoning is to pick $100 per share, but given your historical cost basis, the "averaging up" effect would likely be minimal.

    My prior comments come from my experience of seeing companies like GE and AT&T go from being awarded a market premium valuation due to their earnings consistency and perceived safety and soundness to over-time see that premium disappear as their multiples contracted. Like a growth stock that is awarded a multiple of 30X to 40X earnings, we know that as the company, no matter how good it is, grows in market cap and EPS growth inevitably slows, the company's multiple will contract. There is no better example of this than Apple Computer and Google recently. Because of these company's slowing growth due to their size, they both now trade at a discount to the market multiple and most of the stocks that you probably own. In my way of looking at value (more akin to GARP), these company's multiples have contracted to much and give investors both value and a margin of safety.

    I too greatly admire and studied Graham, Buffett/Munger and I would have not problem paying a market multiple for JNJ, PG, etc. even if their forward growth rates were slower than the market overall, but I have great trepidation in today's ultra-low interest rate environment paying the "bond premium" for the dividend stream that seems to be built into the current multiples of these stocks.

    Thanks for the dialog.
    Feb 7, 2015. 09:53 AM | 3 Likes Like |Link to Comment
  • Upping Our Fair Value Estimate Of Alibaba [View article]
    BABA's stock price decline has pulled YHOO's stock price down over the last several weeks. Just like over the last two years, the market has not accurately priced YHOO high enough based upon the sum of the parts, including the BABA stake. At $100 per share for BABA, it is very hard not to conservatively get to $55 per share for YHOO. If BABA were to trade up to $120 as the author indicates is justified, there is really no reason that YHOO would not be worth between $60 and $65 share.
    Feb 6, 2015. 09:21 PM | 5 Likes Like |Link to Comment
  • Predictable Fast Growing Healthcare Dividend Growth And Growth Stocks For Your Retirement Portfolios: Part 5 [View article]
    Pete, if you are reading The Intelligent Investor by Ben Graham, where do you find a valuation metric that would justify owning a 3-4% growing company at a price determined by an earnings multiple of 20 or higher. If I am not mistaken Graham liked companies that were selling at below a 1.00 PEG ratio if he could find them. The PEG ratio on PG is over 2.00 and even if you add the dividend yield to the long-term growth rate as Peter Lynch suggests doing, the PEG ratio is still right around 2.00.
    Feb 6, 2015. 09:10 PM | 1 Like Like |Link to Comment
  • Predictable Fast Growing Healthcare Dividend Growth And Growth Stocks For Your Retirement Portfolios: Part 5 [View article]
    I believe that your thinking is very commonplace today and that such thinking is meaningfully contributing to the "nose-bleed" relative valuations of the slow growers that you mentioned. I guess that I look at valuation a little different than Mr. Carnevale in that I believe that with low or no dividend growth stocks, valuation is derived from a discounted cash flow of an assumed string of future cash flows or profits. That discounting will be affected by the discount rate that is used, which is relative to the prevailing interest rate environment. With slow growing high dividend paying stocks, the discounting mechanism is more heavily weighted towards the expected future string of dividends. Discounting these dividends is very much like how a bond is valued. Just like a bond, the prevailing interest rate environment has everything to do with whether that bond can be bought or sold at a premium or a discount to par.

    I believe based on the above that many investors such as yourself believe that the principles of valuation have been repealed because we currently have an artificially induced low interest rate environment. This in effect allows an investor such as yourself to receive 150% to 200% of the current long-term risk free rate (yield on the 10 year Treasury Note) and feel as though you are not taking excessive risk. This is the very definition of complacency.
    Feb 6, 2015. 09:01 PM | 2 Likes Like |Link to Comment
  • Predictable Fast Growing Healthcare Dividend Growth And Growth Stocks For Your Retirement Portfolios: Part 5 [View article]
    Chuck,

    It makes me uncomfortable that these quality blue chip stocks that are paying 3% or better dividends and far larger and slower growing than in the past are again being awarded a premium valuation. I suspect that this premium valuation has a lot to do with yield chasing in the current ZIRP environment. If this is the case, do you not believe that just like bonds selling at a premium, that these "premiums" will most certainly come down once the Federal Reserves finally is able to move away from ZIRP?
    Feb 6, 2015. 08:48 PM | 3 Likes Like |Link to Comment
  • Freeport-McMoRan: When Will The Pain Stop? [View article]
    Mbrot, Thanks! I am a value investor who likes portfolios made up of very desperate value opportunities where I believe that there is a high level of certainty that value will be created over a 2-3 year period. When I say desperate, FCX would be a value opportunity because one can buy in the bust part of cycle and selling during the boom period with a fairly high level of certainty and one's downside is protected over that period of time by the replacement value FCX's assets. In the same portfolio I would likely own oil refinery stocks today, cheap growth stocks like GILD, GOOG and Apple. I would own cheap blue chips like AXP and a few small and mid-cap stocks which are attractively priced, but out of favor. My flexibility has allowed me to buy YHOO and Facebook 18 months ago and Sony 12 months ago.
    Feb 1, 2015. 09:08 AM | Likes Like |Link to Comment
  • Freeport-McMoRan: When Will The Pain Stop? [View article]
    Colorado,

    Below is an interesting article from the FT:

    http://on.ft.com/1LvnjJV

    This article, as well as 2014 supply/demand data that has come out support Freeport's CEO's comments that I noted above. As a fundamentally based investor I have come to accept that traders, through futures schemes and shorting, can indeed overwhelm real world fundamentals for a period of time. Over the long-term fundamental reality prevails.
    Jan 31, 2015. 10:55 AM | Likes Like |Link to Comment
  • Freeport-McMoRan: When Will The Pain Stop? [View article]
    Dacc0947, as my comment above to the author indicates, I tend to have much more faith that management of these large mining companies have a better idea of what future supply/demand dynamics will be for their mined commodities than the capital markets, which are inherently short-term focused. China's GDP growth is slowing down, but China's 6% growth to 7% growth over the next several years will still contribute positive incremental growth to the global economy because 6% to 7% on the total size of their current GDP is greater than 8% to 10% of their economy's output 3-5 years ago. Furthermore, India has enormous infrastructure development needs as well and Modi has indicated that this will be a high priority for his country over the next several years.

    So i do believe the CEO's of companies that have to make multi-billion capital investment decisions every year based upon intermediate to long-term forecasts.
    Jan 31, 2015. 10:17 AM | 3 Likes Like |Link to Comment
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