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  • A Critique Of Carl Icahn's Apple Fair Value Revaluation To $240 Per Share [View article]
    Icahn's projections are ridiculously overoptimistic both on the top and bottom lines. I believe he is simply trying to financially engineer a big payday for himself, as increasing the buybacks will be beneficial to the stock price.

    Apple is currently fairly valued based on Yahoo Finance analyst projections. Some 40-45 analysts project average revenues of $231 B this year and $244 B next year. YOY revenue growth for FY2016/2015 would only be 5% based on these estimates. They project average EPS of $8.99 this year and $9.66 next year. So YOY EPS growth would only be 7% over this period. And about half of the EPS growth is from buybacks, not organic growth.

    The P/E calculated from these estimates is 14.5 based on this year's EPS and 13.5 based on next year's. With 7% EPS growth, the PEG is around 2, indicating reasonable valuation.

    The problem is the lack of significant long term growth. Apple is not a 20+% grower anymore, 2015 excepted. Icahn knows this but publicly states the opposite just to get a big payday for himself.
    May 21, 2015. 04:48 PM | Likes Like |Link to Comment
  • Carl Icahn Is Wrong, Apple Is Not Worth $240 Today [View article]
    A very rational article. Carl wants increased buybacks which by themselves push up the stock price. The more he can convince Cook that the stock is undervalued, the better his chances of getting him to increase buybacks. His $240 price target is totally unrealistic. For one, 2016 EPS will be closer to $10 than $12. Yahoo Finance has $9.64, up only 7% from their 2015 estimate of $8.99. My own estimate is $8.63 for 2015, and flat to down EPS in 2016 despite the buybacks, and I consider myself a better analyst than Icahn and most Wall Street analysts. Because EPS growth will stall next year, the stock deserves a low multiple. Will the iphone7 come to the rescue? Who knows? And Icahn's contentions abut the TV and automobile are absurd at this point.
    May 19, 2015. 09:46 AM | 7 Likes Like |Link to Comment
  • Icahn hikes Apple target to $240, sees FY16 EPS of $12 [View news story]
    About the only forecast that he's directionally right on are the slowing in iphone sales growth in 2016/2017. But even single digit growth is too high. I think 2015 will be a peak and that iphone sales will fall next year. He's right about increasing the buybacks. But it won't get the stock anywhere near his projections.
    May 18, 2015. 12:22 PM | 13 Likes Like |Link to Comment
  • Apple's Stock Price Correlates Well With A Key Metric [View article]
    After what will be an undoubtedly stellar 2015, the various estimates of 7% EPS growth for 2016 seem high to me. Perhaps 4% of the growth will come from financially engineered buybacks. That would mean only 3% of organic growth. My estimate is for 2% EPS growth in 2016, with 4% of financially engineered growth and negative 2% organic growth. EPS growth beyond that is an open question, or rather, a guess because of the many variables involved. I don't know how anyone can estimate this. Also, their $195 billion in cash must be viewed in light of their debt and the taxes due upon repatriation (since most of that cash is overseas), and figured into the stock valuation.
    May 17, 2015. 10:47 AM | 1 Like Like |Link to Comment
  • Why A Cure Is Actually Good For Business [View article]
    Cure, shmoor. What matters is competition for Harvoni/Sovaldi and increasd discounting pressures. They are not going to have a monopoly until their patents expire. Until Gilead can show reasonable growth after this year, its stock price will not have a substantial runup. The buybacks confirm Gilead's concern over its slow growth prospects, as they are a way of financially engineering EPS growth. Despite the above, I have been and remain long GILD. I just think it is fairly valued at present and not woefully undervalued as most SA authors and commenters think.
    May 14, 2015. 12:32 PM | 3 Likes Like |Link to Comment
  • Gilead Sciences Is Poised To Break Out [View article]
    Gilead's problem is that organic EPS growth after this year is uncertain, mainly due to HCV competition and the possibility of further discounting. The timing and success of its pipeline are also uncertain. The buybacks are a means of bolstering EPS, and suggest that the company is concerned about growth. Some 20 analysts polled by Morningstar estimate revenue growth of 21% for 2015. But these same analysts estimate essentially no growth (i.e., 0.5%) for 2016. Until growth after this year is better established, the stock will have a hard time breaking out.

    Disclosure: I remain long GILD but sell OTM calls while waiting (currently, the August 115s).
    May 13, 2015. 08:50 PM | 2 Likes Like |Link to Comment
  • American Capital Agency: Riding The Volatility [View article]
    I've posted a similar comment before and just want to share my thinking.

    The way I look at it, with the current $2.40 annual dividend, book value of $25.32, and stock price of $20.60, it seems a good bet that if long rates rise faster than short rates, spread income will rise and the dividend should be stable at the least. So if book value (and the stock price) decline at a rate less than the dividend, there should be a net positive return.

    You can't say the same for long bonds. I'm in low investment grade long term corporates, yielding about 6.5% on average. Continuing declines over the next year are most likely and will probably be at a rate greater than the interest earned. This was evident the past few weeks. Will it continue? Who knows?

    So what is an investor to do? Sell all your long bonds? I don't think so. I'm currently 60% stocks (including AGNC), 35% bonds, 5% cash. I say sit tight with AGNC and your bonds and don't worry about further book value declines or dividend cuts with AGNC.
    May 13, 2015. 10:10 AM | 2 Likes Like |Link to Comment
  • Apple Stock: Affirming My $140 Target By The End Of May [View article]
    Richard, you made a prediction and so will I. I have no idea how Apple will trade this month, but there is no way it will reach 140. I expect it to tread water until later this year. When it becomes clear from fiscal 1Q16 guidance in late October that YOY revenues will decline, the stock will sell off. The buybacks will help bolster EPS and help mitigate the decline, but organic growth will stall, and that will be the reason for the selloff.
    May 11, 2015. 10:55 AM | Likes Like |Link to Comment
  • Here's Why Apple Is Weak Since Earnings [View article]
    Good article Paulo. Apple's share buybacks are bolstering EPS. Without them, I believe that we will see a decline in EPS in 2016. This should be evident in late October when Apple guides to fiscal 1Q16 revenues. I believe that guidance will indicate a decline in fiscal YOY 1Q16/1Q15 comps, and that the stock will sell off substantially, if not before then.
    May 8, 2015. 09:03 AM | 1 Like Like |Link to Comment
  • American Capital Agency: The Sky Is Not Falling [View article]
    I'm long AGNC and am betting that its price will not fall by an annual amount greater than its dividend. So if the dividend is $2.40 and its current price is $20.50, I'm betting that its price a year from now is greater than $18.10 (i.e., $20.50 minus $2.40). With a book value of around $25.50, this seems like a good bet. Granted, the dividend could be cut further, but with a $5 disount to book, the prospect of buybacks, and the prospect of better performance from Gary Kain, I'm putting my money on it. The worst case to me seems like there will be little to no return, so capital would be preserved. The best case would be a narrowing of the discount to book and maintenance (or even an increase) of the current dividend, for a substantial positive return.

    Btw, I wish that commenters who simply whine about the decline in dividends over the past few years would stop. Those comments serve no purpose.
    May 6, 2015. 10:32 AM | 11 Likes Like |Link to Comment
  • Trading At Discount To Book Value Means Strong Entry Point Into American Capital Agency Corp. [View article]
    Analysis of AGNC's prospects is just too hard. Here's my thinking:

    First, the Fed has gotten us into a quandary with its zero interest rate policy. Real Estate is in a bubble in certain areas as people buy the property they can qualify for without regard to the property's intrinsic value. When long rates eventually go up, property values will correct, perhaps substantially.

    The Fed keeps backing off its timing to raise short rates. I don't blame them. It could further dampen a weak economy. They don't know how to get out of this one.

    The yield curve could flatten as they raise short rates if long rates don't go up as fast. Not good for spread income. If long rates rise as well, not good for book value. Gary Kain has his hands full.

    I recently reduced my position in AGNC to where I feel comfortable. If long rates increase and book value continues to decline, there's a substantial discount (currently 20%) to serve as a cushion. Even so, I expect the stock to sell off further. If the rate of decline is less than the current yield, there will be a positive return.

    Gary Kain will try to manage for a positive return, adjusting hedges, duration, leverage, perhaps buybacks, etc. He's done a good job and my bet is with him, although I've reduced the bet.
    May 6, 2015. 09:50 AM | Likes Like |Link to Comment
  • Trading At Discount To Book Value Means Strong Entry Point Into American Capital Agency Corp. [View article]
    All you do is whine. There's never any analysis in your posts.
    May 6, 2015. 09:22 AM | 2 Likes Like |Link to Comment
  • Apple: We May See 3 New iPhones In September [View article]
    The fat lady will sing in late October when Apple gives guidance for fiscal 1Q16. If its guidance shows a decline from 1Q15, the shares will sell off substantially.
    May 5, 2015. 12:45 PM | Likes Like |Link to Comment
  • Why Gilead Sciences Is A Great Investment Right Now [View article]
    Reading the comments, the problem is that no one can forecast what will happen, especially if they are trying to forecast the future.

    Seriously, I expect that Gilead will earn around $10/sh this year, but will show little organic earnings growth in 2016 and 2017. The buyback addresses this by financially engineering perhaps 5% of annual EPS growth for these out years. This is similar to what Apple is doing with their buybacks. Both Gilead and Apple had great quarters, but what next? They both have similar problems - reliance on mainly one product category (Hep C drugs and iphones), growing competion in those markets, and a lack of serious alternative growth prospects. If they had such prospects they would be investing in them rather than returning cash to shareholders.

    The 0.52 PEG stated in the article is based on past growth and does not represent value. If organic growth comes to a halt in the next few years, the only growth remaining is the 5% annual engineered growth from the buybacks. At a current P/E of 10 and with only 5% of engineered growth, the PEG is 2.0, not 0.52. So the stock is currently fairly valued at best.

    The problem with all of the comments that are disappointed and angry that the market does not recognize Gilead's value (based mainly on its great 1Q15), and that it should be rocketing upward to the sky is that they believe the faulty analysis presented in various articles that look at past growth - such as YOY comparisons, e.g., 1Q15 vs 1Q14. This doesn't address future growth and past growth cannot be extrapolated. With Gilead, the future is cloudy, hence it is stalled at the $100/share level. If it can maintain its competitive edge in Hep C and if its new drugs in other segments are successful, it can work its way higher. But don't expect the market to believe the faulty analysis that Gilead is woefully undervalued.

    Despite the above, I have been and remain long GILD. I think it's a good bet, but not a sure thing.
    May 5, 2015. 12:20 PM | 4 Likes Like |Link to Comment
  • Gilead Sciences: Not Even Bears Can Spin These Results [View article]
    Bret, the consensus EPS estimates of 9.70 (2015) and 10.40 (2016) suggest only 7& growth. If the $15 B buyback reduces the float by 10% over this period (say 5% each year), then organic growth is only 2%. This is Gilead's dilemma, and why it is being valued at only 10 x next year's earnings. The uncertainty with their pipeline is what is holding the stock back, as earnings from the hep C segment will likely peak and then decline over the next few years.

    Still, I have been and remain long, with GILD being my largest holding.
    May 2, 2015. 09:46 AM | 10 Likes Like |Link to Comment