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  • U.S. moves to designate Alaska areas off limits to oil and gas drilling [View news story]
    According to the New York Times:

    "The president’s proposal requires congressional approval, and given that Republicans control both chambers, that outcome seems unlikely."

    Glad I voted republican.
    Jan 26, 2015. 11:23 PM | 12 Likes Like |Link to Comment
  • U.S. moves to designate Alaska areas off limits to oil and gas drilling [View news story]
    When I read a comment like Larry's it makes me wish I had a "dislike" button.
    Jan 26, 2015. 10:57 PM | 2 Likes Like |Link to Comment
  • Why I Like Exxon Mobil While Others Don't [View article]
    B&H and Larry,

    XOM continues to be my largest holding in oil and gas. I am very happy with their investment decisions including long-tail projects like LNG and oil sands as well as the buyback and dividend program. Of course there is always someone to complain with a big and widely held company.

    Jan 26, 2015. 06:15 PM | 1 Like Like |Link to Comment
  • IBM suggests layoff report is off the mark (updated) [View news story]
    Tom - Actually I am very glad to see this - Cringely has decisively shown how credible are his assertions this time - I had my doubts before of course. As for Chanos and Drunkenmiller, it always bugs me how these are highly compensated analysts with no accounting rigor behind their assertions - but I guess that is the way of the world. Meanwhile you & ER crank out the good solid analysis - it may not be as high profile but I appreciate it. WD
    Jan 26, 2015. 12:23 PM | 2 Likes Like |Link to Comment
  • Report Says IBM Set To Cut 26% Of Workforce [View article]
    Well that gives me another data point on Cringely. Not that I need one.
    Jan 26, 2015. 11:49 AM | 1 Like Like |Link to Comment
  • IBM Falters In Attempt To Join The Big Three Cloud Service Providers [View article]
    Ray - By the way, thanks for the article and and comments - you got me thinking about this again. Certainly IBM has a lot of work to do. It will be interesting to see how the various competitors change. It is interesting to me how companies like IBM and Microsoft seem like they are falling victim to change only to morph into new formidable competitors. That makes the future very hard to predict.
    Jan 26, 2015. 11:46 AM | Likes Like |Link to Comment
  • Oil: The Biggest Hairiest Guess Out There? [View article]

    That is why we asset-allocate. If your portfolio is 70% COP (as one commenter stated at one point) then you feel some stress right now. I think an equity allocation of 8-12% oil and gas including refining and midstream assets makes sense longer term.

    But that said, the best predictor of "forward weighted" oil prices going forward is the marginal cost to maintain production at the demand level. That is in the range of $60-100 a barrel depending upon whose numbers you believe. Chevron claims the the number is $100 - and they seem most credible to me. Of course the Saudi's could disrupt that by over-producing and driving the supply above the demand which is in fact what they are doing. They have done this in the short run but the big capital reductions will result in an oil shortage in about 2 years - the time required for substantial declines.

    Jan 26, 2015. 10:47 AM | Likes Like |Link to Comment
  • IBM Falters In Attempt To Join The Big Three Cloud Service Providers [View article]
    Well I think it is a bit more complicated than that. Hadoop is an analytics technology platform that is industry-generic. IBM is participating in it of course - with ownership of Cloudant for example. What I was referring to was the industry vertical software which is not really the same category. It can be layered with Hadoop-type technology or it can be entirely separate depending upon the technical requirements. Much of that software is entrenched in the enterprise which is a key advantage. I notice that Google has purchased some industry vertical SW companies as well but I don't think they have an offering that can rival IBM's enterprise offerings. That just isn't their focus.
    Jan 26, 2015. 10:37 AM | Likes Like |Link to Comment
  • Report Says IBM Set To Cut 26% Of Workforce [View article]
    I have to agree that the title & headlines of this article are misleading and irresponsible since it is based on a unverified source. The right thing to do is to retract it. I have seen the Cringely website, and it always seemed like a highly biased blog trying to sell his story - which I personally don't find very credible.

    It may be that IBM is planning some smaller scale restructuring but I am highly skeptical of this one.
    Jan 26, 2015. 10:20 AM | 2 Likes Like |Link to Comment
  • IBM Falters In Attempt To Join The Big Three Cloud Service Providers [View article]
    To the author - I think you partly made this point - none of the "big three" providers of cloud services has the analytics technology of IBM. Certainly not Amazon whose only expertise is product selection analytics. Microsoft and Google provide search engines but even that is not the same - although one could argue that search is a broad type of analytics.

    IBM's analytics are very strong in various industry verticals and certain specific enterprise functions which is not the same as generalized search. The analytics can be layered or integrated into the cloud offerings. The IBM cloud revenue may be smaller but I suspect that the margins are better. My guess is that IBM's cloud business will be tough to replicate by the other players based on the huge depth and breadth of their analytics capabilities.
    Jan 25, 2015. 07:24 PM | 7 Likes Like |Link to Comment
  • Why IBM Actually Grew Sales In 2014 [View article]
    Hi P&D,

    Just putting in my "two cents" on this question - since it is one I have tried to understand myself. I think the best practice is to look at the company parts and story in detail and then formulate how to quantify it. A few examples:

    Apple: The business model involves very little capital investment. Most acquisitions add new capabilities or revenue. Thus FCF is a reasonable starting measure of "owner earnings" because most of the FCF is available of stock repurchases and dividends - although some gets parked overseas to avoid repatriation taxes, so there may need to be an adjustment for that factor. Apple's ratio of enterprise value to forward looking FCF looks very enticing now but, unfortunately, there are some adjustments to be made that may quell the enthusiasm.

    T and XOM: These companies go through long cycles of capital investment which eventually rolls off as major long cycle initiatives are completed and the benefits of those investments are realized. Thus, the proper measure is somewhere between CF and FCF. For example, T is apparently on the verge (over the next few years) of ramping down on a heavy round of capital spending. Thus some of the CF will turn into FCF and that has made some investors decide that the stock is undervalued - but keep in mind that part of the CF is dedicated to "maintenance CAPEX" that tends to be ongoing.

    Anyway, it is always a complicated art to decide on valuations. Sometimes I see what looks like a "steal" only to find that I didn't properly consider all the adjusting factors. That is what makes investing a tough business - for me anyway.

    Jan 25, 2015. 07:11 PM | 1 Like Like |Link to Comment
  • Update: The Silver Lining In McDonald's Numbers Nobody Seems To Be Talking About [View article]
    We all hear these anecdotal stories about how this McDonalds is doing poorly etc., and how much better this other quick-serve is doing.

    However, the average per-store earnings productivity is still head and shoulders better than other companies. The average McDonalds location has sales equal to 250% of quick-service industry average. That is the number that matters.

    MCD has a AA- bond rating with an EBITDA to interest ratio of 18 to 1 with a very steady recurring earnings business model. ROA is 14% and ROE is 35%.

    MCD therefore has flexibility to retune their business model without worrying about survival - unlike most "washed up" retail enterprises.
    Jan 25, 2015. 02:10 PM | 1 Like Like |Link to Comment
  • Why IBM Actually Grew Sales In 2014 [View article]

    This is really a good work here - one of the best I have seen.

    (1) Based on your numbers IBM's key core businesses are nearly flat over recent years - a lot better picture than the unadjusted numbers would suggest for the core business. I can't really tell what the recent trend is though.

    (2) With an investment in IBM you are partly investing in foreign currency because that portion of the investment is unhedged. If you wanted to invest in the "core IBM" you would need to couple it with a counteracting currency hedge. If the dollar weakens relative to the Euro then things will swing the other way.

    It is interesting that very few articles point this out anywhere close to accurately. As a note I am a paid subscriber to Morningstar. The analyst did point out the currency headwind but not to the level that your table does here. This provides a much more accurate view.

    (3) As Tom Armistead (another favorite author) pointed out in an earlier article, the sale of the semiconductor unit will reduce the CF required for maintenance capital. That is a positive.

    (4) From what I understand the new mainframe will ship in September. So the "big turnaround" could be in 2016 when the full benefit will be realized.

    So I am staying with the position and letting dividends accrue because my allocation is plenty large. It may be a couple years before we see the big benefit. But at least the underlying business still seems very healthy. As I probably pointed out in an earlier post, IBM's bond rating is AA- (Morningstar) and the EBITDA to interest ratio is 50.07 to 1. Combined with a stable business this should not be one keeping you up at night.
    Jan 24, 2015. 05:05 PM | 5 Likes Like |Link to Comment
  • Does Microsoft Have More Growth Potential Than Apple? [View article]
    Dana - I can't argue with your premise, and, in fact, I do own both. However, I bought each when severely depressed and have been in "haircut mode" over the last year to bring them to my allocation limits. Microsoft just proves that when you have a lot of smart folks (I have worked with them in the past) and a lot of money you can find a way to morph the business in a positive way. Therefore my method is to buy great companies (IBM, MSFT, Apple, QCOM, Oracle, CISCO, etc.) with strong balance sheets when they are depressed and reduce when optimism returns. Of course I also require that they have a workable plan - in my judgement - to move forward. And anything with a bond rating below investment grade is not an option. The aforementioned companies all have exemplary bond ratings and Microsoft is AAA. WD
    Jan 24, 2015. 03:23 PM | 2 Likes Like |Link to Comment
  • United Parcel Service Hints At Peak Season Pricing Changes [View article]
    Paulo - a few additional facts regarding UPS courtesy of Morningstar and company press releases:

    UPS has a 2.6% dividend and forecasts 9-13%/year EPS growth rating going forward. This suggests a rapidly growing dividend and a 11-15% total return at constant PE for the next few years.

    UPS has a bond rating of A+ and an EBITDA to interest ratio of 22.37

    UPS has returns on invested capital of about 2X the cost of capital and higher margin than peers despite being extensively unionized. This has to do with the high market share for ground delivery and the better use of assets to handle both expedited and regular delivery.

    UPS appears to be a favorite of the fund VDIGX - which tends to invest in companies like JNJ, CVX, WMT, etc. - and whose manager I have a lot of respect for. This may be a good entry point to pick up some shares.
    Jan 24, 2015. 03:12 PM | 2 Likes Like |Link to Comment