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  • NextEra Energy, Part 1 - This Utility Leader's Upside Might Be Limited [View article]
    I'm not sure what your source is for earnings per share growth. The company has estimated consistently that its earnings growth will continue to be around 6 to 7 percent a year. Given that estimate, along with the dividend history, one can also assume a like growth in dividends.

    Also, it would be helpful if you could analyze the impact of the NEP spinoff. Does it create any benefits for NEE shareholders?

    Disclosure: Long on NEE for over 15 years.
    Feb 23, 2015. 03:50 PM | Likes Like |Link to Comment
  • SanDisk - More Weakness Ahead, Don't Pull The Buy Trigger Yet [View article]
    A strategy of selling put options, while considered by many to be high risk, in this case may not have the level of risk that would ordinarily encourage investors to be extra cautious.

    The main factor in favor of rising SNDK earnings is the strong, rapidly growing demand for enterprise and other forms of solid state drives. SanDisk has good (though not the only) technology for these devices and stands to grow at least as fast as its competitors in this sector. The main competitors appear to be Intel, Micron, Samsung, and Hynix. SanDisk so far has shown that it is the low cost SSD producer, even if it hasn't demonstrated 3D devices yet. At the same time, SanDisk has continued a policy of buying back shares, thereby limiting downside risk.

    To take advantage of option premiums requires an expiration date at least six months in advance, not just two or three. In this regard, it seems more worthwhile to consider a July '15, or even better, a January '16 expiration. As for the striking price, it should be preferably ABOVE the current price (i.e., not in the money). If one is selling put options, using this strategy, one must be prepared to have the shares put to his account at the striking price. In other words, are you as an investor comfortable with having to buy shares at a price of, say $85? If so, you get a handsome reward for taking a risk that is mitigated by SanDisk's future profits. And the premium you receive for the sale of puts at that striking price is likely more than the difference between the striking price and market value if for some reason the share price remains below $85.

    Disclosure: Long on SNDK since 1998.
    Feb 23, 2015. 11:09 AM | Likes Like |Link to Comment
  • Solazyme Gains Momentum In Food Ingredients [View article]
    Kevin, there may be a way out of the patent dispute in favor of SZYM. A few years ago, the Supreme Court ruled on the issue of "non obviousness" in a dispute between KSR and another company that had a method for lifting the accelerator pedal in vehicles in order to accommodate shorter drivers. The original KSR patent provided a mechanical linkage between the accelerator and the carburetor (i.e., at a time before fuel injection and electronic controls over engine speed). A later application gave the competing company (Telsar, I believe) a patent for lifting the accelerator when the linkage to the engine was electronic, not mechanical. The Supreme Court ruled that the later patent did not fulfill its NEW CRITERION for non obviousness.

    This ruling could protect SZYM in the sense that its earlier patents may be seen as prior art, invalidating some or all of the five patents in question, and forcing Roquette to pay royalties on the earlier, essential patents. I'm not a lawyer, but as an investment advisor, I try to keep current on patent issues that may affect investments. I'm also long on SZYM.
    Feb 23, 2015. 10:51 AM | 3 Likes Like |Link to Comment
  • 2 Reasons Why China Settlement Turns Qualcomm Into A Buy (And One Reason Why I'm Still Concerned) [View article]
    Very good analysis of the potential pros and cons of the agreement with Chinese regulators. There is a possibility that the agreement will yield even higher profits for Qualcomm, owing to a clause in earlier licensing agreements that placed a cap on more expensive device selling prices in order for the OEM to be more competitive. In other words, with the provision that the 65% of selling price replaces the earlier cap, the royalties derived from the new agreement could be higher than under the older agreement.

    Additionally, Qualcomm made a provision in its earlier licensing agreements that reduced the royalty rate for firms using only the LTE related patents held by Qualcomm. The new royalty rate for LTE–only devices may turn out to be substantially the same after the 35% discount from the selling price as it was under the royalty discount of the older agreement.

    If the new agreement allowed Chinese regulators a face saving way out of the dilemma, that's fine with me. The only adverse part, as far as I can see, is that the new agreements are more complicated than the earlier bundled license that allowed users to pick and choose any patents/claims without having to negotiate a rate tied to a particular patent/claim.
    Feb 20, 2015. 11:44 AM | 1 Like Like |Link to Comment
  • Can Intel Succeed In Tablets? [View article]
    Just as there are many types of 3G (e.g., CDMA2000, WCDMA, TD–SCDMA) so are there at least two types of LTE, one of which is being pushed in China, which is different from the LTE in the U.S. Not only that, there are several wave bands used by different service providers. A radio chip suitable for LTE must be compatible with these varying specs if it is to be widely used. The first integrated Intel radio and processor chips used only LTE (one variety), so it is understandable why they weren't successful.

    There is no difference between 4G and LTE, except that it is misleading to think that LTE has only one set of specs.
    Feb 17, 2015. 11:54 AM | Likes Like |Link to Comment
  • Qualcomm Raises Guidance: Let's Analyze It [View article]
    The formula you propose sounds good, but it starts to fall apart when you have an unusual situation like QCOM, where long term debt is zero and most of the equity is in cash and marketable securities, not in the meat and potatoes part of the company. You mention intangible assets, but again this cannot reflect the value of at least two–thirds of QCOM patents that were developed in house and have a zero value on the books.

    Based on the royalties generated by the total of more than 17,000 patents, it might be possible to impute a value for the patents and then add this value to equity. Though you might end up making some heroic assumptions, the calculation might give a better picture of the true value of the company.
    Feb 15, 2015. 09:12 PM | Likes Like |Link to Comment
  • Can Intel Succeed In Tablets? [View article]
    Re: ". . . the relatively new LTE baseband chips that already are in several tablet designs. That relieves the leverage that QCOM has had on tablet manufacturers."

    It does little good to have an LTE baseband chip WITHOUT capability to handle all types of 3G and 4G systems. LTE by itself simply will not attract many customers. And this brings out one of the chief problems that Intel faces – they don't have state–of–the–art engineering for the radio frequency end of their devices.

    In some markets, customers are satisfied simply with a Wi–Fi connectivity, but even here, Qualcomm has become more advanced in Wi–Fi.
    Feb 15, 2015. 09:03 PM | 1 Like Like |Link to Comment
  • Qualcomm Raises Guidance: Let's Analyze It [View article]
    Yes, he does mention other factors, but the focus of my comments was on qualitative measures of management quality. An investor can't depend simply on numbers – free cash flow, return on investment, etc. And if one wants to concentrate on the numbers, well then, why not include ALL the numbers, such as book value per share and the percentage of book value in cash and marketable securities? For QCOM, cash is a very high percentage of book value, which means, in effect, that the rest of the company, including the patents, has an intrinsic value much higher than book value. Investors shouldn't be myopic.
    Feb 13, 2015. 11:04 AM | 1 Like Like |Link to Comment
  • Qualcomm Raises Guidance: Let's Analyze It [View article]
    Having been long on QCOM since early 1992, you can be assured that I disagree with your statement that "Qualcomm has unfortunately never generated a buy signal for the conservative investor and would need to go much lower from where it is currently priced . . ."

    In fact, your reliance on FROIC as a key factor in evaluating a stock is evidence in itself that the measurement is imperfect as a predictor of future profits.

    What does predict future profits, however, is management quality, which can be measured several different ways. Qualcomm, for instance, has over 17,000 patents, with the list growing year to year, and many of these patents are well nigh essential for any company that wishes to market high performing wireless communication devices. Qualcomm has a position in wireless technology akin to that of the old RCA Corp. and its key radio and TV patents stretching from the early 1920's over the next 60 years.

    Management skills are also demonstrated when a company faces attempts by others to obtain use of its proprietary technology for almost free, as has occurred with Chinese regulators. Qualcomm successfully defended its patents, and more importantly, its business plan for collecting royalties based not on individual component costs but on the overall cost of the device containing those components.

    Third, Qualcomm has always ranked high among companies deemed desirable to work for by their employees. And finally, management has taken a leadership role in transparency, being among the first companies to fully implement the disclosure requirements of Sarbanes–Oxley (e.g., certification of financial reports in a timely manner).

    Thus, to be motivated to invest in superior companies for long term growth, I believe you need to rely on a lot more than FROIC.
    Feb 12, 2015. 01:36 PM | 2 Likes Like |Link to Comment
  • Qualcomm Still Challenged In China After Settlement [View article]
    This article is novel for predicting lower profits and margins without offering a single number to justify any of the opinions. If Chinese companies build lower cost phones for markets in emerging nations and sell three times the number of higher end phones, does Qualcomm's royalty income drop? Provide the numbers or, better yet, don't write anything.

    Qualcomm does face a challenge in China that the writer failed to mention. There remains a serious possibility that smaller companies producing for the domestic market will simply use QCOM technology without paying for it. That will require some enforcement and some help from Chinese authorities. Will they comply? From recent conference calls, it appears management still has quite a few tricks up their sleeve to gain better compliance. To the extent that management is successful in obtaining royalty payments for past sales and future ones, the revenue and income guidance could be, once again, on the conservative side.
    Feb 10, 2015. 05:12 PM | 4 Likes Like |Link to Comment
  • Oil majors failing to find reserves to counter falling output [View news story]
    The accounting rules do not change revenue and profit but can have a serious impact on asset value – i.e., proven reserves.
    Feb 9, 2015. 12:30 PM | Likes Like |Link to Comment
  • Oil majors failing to find reserves to counter falling output [View news story]
    "When the oil price increases, more projects will become economical and the reserve number will go up."

    In fact, I believe that FASB accounting rules require that reported reserves include only those which can be developed profitably at current prices. With crude oil and natural gas prices still at unusually low levels, this would account at least in part for lower reserve figures.

    Expanding on this notion, I would also note that the overall trend in cost of finding new reserves has been going up. It's true that shale projects using tracking methods have lowered the costs of development, but if you average these costs with other development costs from areas throughout the world, you see increasing costs of finding and developing reserves.

    Eventually these trends lead to higher oil and gas prices. Given the stumbling world economic growth, especially in Europe and China, it may take a year or longer for oil prices to resume their upward trend, but I think it's fair to assume the trend is in that direction.
    Feb 6, 2015. 11:22 AM | Likes Like |Link to Comment
  • Whatever You Do, Don't Sell Qualcomm - Instead, Buy This Cash Machine [View article]
    The $31.8 billion reported in the latest earnings release comes from cash plus short and long term marketable securities.
    Feb 2, 2015. 03:02 PM | Likes Like |Link to Comment
  • Qualcomm Reports A Strong Q1'15 But Lowers Guidance For Fiscal 2015 [View article]
    Really nothing much new here that wasn't already reported by Qualcomm in its financial statement and conference call. There is a tendency among some analysts to underestimate the value of Qualcomm patents, many of which are essential for any firm wishing to compete in the wireless communications sector. And of course, most of these 17,000 or so patents have no value on the books, since they were developed in house.

    Thus, the book value of QCOM, at $23, underestimates the intrinsic value of the company and also hides the fact that $18 of that book value is cash. Looked at in that light, the shares appear to be extremely undervalued, even considering a lower growth rate in earnings for the remainder of this fiscal year.

    Qualcomm over the years has been a favorite of traders and their mentors seeking to create volatility and a greater potential for short term profits. For its shares to be priced no higher than in 2006 seems incongruous.
    Jan 29, 2015. 06:06 PM | 9 Likes Like |Link to Comment
  • Stock Pick Of The Week: Qualcomm [View article]
    Let's see. At current price near $63, QCOM is about where it was 9 years ago. And they haven't improved profits or cash position in all those years? Maybe there's just a bit, a tiny bit of overreaction! Note also that QCOM owns most of the essential patents for wireless data communications and receives royalties accordingly from most manufacturers (other than some in China, for the moment).

    Long on QCOM since early 1992.
    Jan 29, 2015. 01:47 PM | Likes Like |Link to Comment