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Philip Marlowe

Philip Marlowe
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  • Google unveils fully functional self-driving car prototype [View news story]
    MBLY will not benefit from Google self driving cars. They are pretty much straight up competitors, they use different components.

    In general, semiconductor firms that make parts for the auto industry should benefit, because self driving cars would greatly increase the number of semiconductors in cars. Because of the tough environmental requirements for auto electronics, one cannot use ordinary semiconductors for cars -- one has to use special automotive ones.

    I like ISSI as a company that is well represented in the auto semiconductor market.
    Dec 22, 2014. 03:33 PM | Likes Like |Link to Comment
  • Short Selling: Cleaning Up After Elephants [View article]
    Hello,

    Thanks for one of the top two most useful articles I have ever read on SA. Interestingly, the other one was about short selling as well. I would like to join the others in encouraging you to write more.

    I do have a couple of questions: Is there any website or software that would allow you to screen stocks according to your criteria? For example, it seems like your favorite thing to look at is rate of earnings growth over rate of inventory growth. Is there a site that allows you to screen based on that? Or is that something only those super-expensive bloomberg terminals can do?

    Another question: sometimes companies build up inventory because they know that they will have increased sales next quarter. This often happens with tech companies. For example if a company has a new model of their main product coming out, it may suffer lower revenues in the quarter before the new model comes out because clients are waiting for the new model. It may also build up inventory of the new model expecting brisk sales once it comes out. This would make the company fall square in your short list. But this could also be a very successful company. If the new model is successful, the company will report great revenues next quarter and your short will blow up.

    This always scares me about shorting based on inventory. Companies tend not to report what exactly is in their inventory. So you do not know whether the inventory is full of old stuff nobody wants or new stuff that is getting ramped up because it is so desirable.

    Do you have a way to distinguish between the two cases?
    Dec 21, 2014. 06:34 PM | Likes Like |Link to Comment
  • Ubiquitii -4.6% on bearish Goldman launch [View news story]
    There are several things to note here:

    1) UBNT manufactures their products mostly in china and taiwan, and their currencies have been falling against the dollar too. Thus, UBNT will get some benefit from the strong dollar as well.

    2). UBNT has very high margins, and combined with (1) above they have a lot of room to lower prices if necessary.

    3). It is not clear whether hard times are bad for UBNT. Remember this company grew right through the great recession. UBNT's products tend to be much cheaper than most accepted alternatives. Thus, hard times often result in more UBNT sales, as customers review their spending plans and try to figure out ways to save money.

    It is true that last quarter UBNT saw a hit to earnings due to problems in eastern europe. But it is possible that this was more due to people cutting spending because they fear disaster rather than currency effects. Now the situation in russia is becoming normalized, there probably wont be war and Russia, the eu and ukraine made a deal on gas, so it is unlikely that russia will cut off eastern europe and let them freeze. Thus, it seems that disaster has been averted for now, so it is possible spending in eastern europe will rebound.

    4) UBNT may have the majority of their revenues come from emerging markets, but their US revenues are not negligible. One third of revenues came from north america last quarter, and this is their fastest growing market.

    5) UBNT has always made good profits from RD spending. Their CEO is an engineer and he knows how to create value from engineers. I am not that concerned about rising RD spending.

    In summary I will admit that i have no idea what will happen this quarter. But I know that in the long run UBNT will do well. They are in growing markets that are absolutely crucial for the modern economy, and their products are of high quality, high performance and usually much cheaper than the competition.
    Dec 19, 2014. 01:07 PM | 6 Likes Like |Link to Comment
  • Amazon activates Prime Now bike fleet in Manhattan [View news story]
    Kosmo is back! Although Kosmo was free. Those were the days. You could get a fresh bagel and a bottle of orange juice delivered to your door every morning for free.
    Dec 18, 2014. 10:35 AM | 4 Likes Like |Link to Comment
  • United Tech CEO says widebody engine unlikely anytime soon [View news story]
    Because new engine models are mostly demanded for increased fuel efficiency. If fuel costs are not pressing concern, clients are unlikely to pay extra for new engine models. They will probably prefer existing designs that are tried and trusted and are quite efficient already.
    Dec 12, 2014. 04:15 PM | 1 Like Like |Link to Comment
  • United Tech CEO says widebody engine unlikely anytime soon [View news story]
    Also one would think that the falling oil prices would damp demand for new jet engine designs.
    Dec 12, 2014. 03:38 PM | Likes Like |Link to Comment
  • Kocherlakota to exit Fed in 2016 [View news story]
    He will be missed.
    Dec 12, 2014. 03:08 PM | Likes Like |Link to Comment
  • Gross: Fed needs to tread carefully [View news story]
    No the fed did not create this problem. "The problem" i.e. the sharp drop of oil prices which may cause deflation was created by many things. Mostly one has to blame the factors that caused oil prices as well as all other commodity prices to climb to incredibly and unsustainably high levels in the beginning of the century. For this I mostly blame the wars. One could also blame deregulation which caused a bubble in commodity markets.

    There are other things to blame for deflation, such as technology costs bringing the price of everything down. This is a good thing, but the Fed has to act in response to it or we will have deflation which will cause a crash similar to the great depression.
    Dec 12, 2014. 02:21 PM | Likes Like |Link to Comment
  • Gross: Fed needs to tread carefully [View news story]
    You are absolutely right. There is a big danger of deflation and I hope that Yellen will see that and realize that this is the worst moment for tightening. What we really need now is a minimum wage hike. That will best fight off the possibility of deflation.
    Dec 12, 2014. 02:15 PM | Likes Like |Link to Comment
  • More on InvenSense: "Unconfirmed" rumor of Broadcom talks [View news story]
    I usually do not like buyout rumor mongering because it is often a sign of desperation, but I actually think this is very much a possibility. Invensense are on the cusp of something extremely rare in the semiconductor market - a monopoly. And a monopoly in semiconductors is worth its weight in gold.

    Investors are scared from the decreasing margins announced last quarter. But experienced semiconductor industry executives in broadcom, intel, and qualcomm see what is really happening. Invensense is giving up margins in order to take over the entire market. And once you have a monopoly in a semiconductor market, you can hike up your margins to your heart's content. This an industry which is very very difficult to break into.
    Dec 11, 2014. 03:02 PM | 2 Likes Like |Link to Comment
  • Korn/Ferry beats by $0.06, beats on revenue [View news story]
    ... and guides current quarter revenues below estimates.
    Dec 9, 2014. 04:48 PM | Likes Like |Link to Comment
  • Avago Technologies declares $0.35 dividend [View news story]
    Avgo does not disappoint and raises the dividend for the sixteenth consecutive time. Keep the streak alive!
    Dec 9, 2014. 11:37 AM | 1 Like Like |Link to Comment
  • Barron's: Today's bubble is in private market [View news story]
    They have a point that private market valuations seem very high. However, private market valuations can be misleading. I will give you a little secret. Everyone that is anyone in the tech start-up scene knows this, but most people do not want to talk about it.

    The truth is that those headline private placement valuations are not exactly the same as stock market valuations. Those private placements are not usually straight up stock deals. They are complex contracts that provide that the investor can get more shares in certain circumstances. This makes the effective valuation much smaller in many cases. The headline number is often something to fool the outsiders with.
    Dec 7, 2014. 01:58 PM | 5 Likes Like |Link to Comment
  • Concurrent Computer Corporation Appears To Be A Value Trap [View article]
    The more you argue the more certain I am that you are secretly buying this stock. These are the kind of peculiar overly technical arguments one makes when one does not really believe what he is arguing.

    So maybe the dividend is unsustainable, by the peculiar technical definition of "unsustainable" you use, but in practice in the real world anyone can figure out that the huge pile of cash means that barring an absolute disaster this dividend is not getting cut.

    Regarding your statements about the business you again use clever definitions to make it sound like they play in dead end shrinking markets. Yes defense spending in general is probably not going up, but spending on computer simulation in defense and aerospace is definitely going up. Yes, communications companies are trying to limit their capex budgets, but IP video is growing very fast and will take a bigger and bigger part of such budgets. Also, you forgot automotive. I guess there was no way to say this market was shrinking.

    CCUR is a tiny company, their revenues are a very small fraction of the defense budget or the telecom capex budget. Their revenues will not be that correlated with overall budget growth but will depend more on how important and crucial their products are.

    I have no doubt that CCUR plays in hot growing sectors. There is however some doubt as to how well they can execute and how well their solutions perform.

    I am not sure what math or definitions you use to say the P/E is only slightly below average. But I have analyzed hundreds of stocks this year and am pretty certain that a P/E ex cash of 8 is far below average.

    P.S. The current average P/E for the SP 500 is 20. This is not ex cash, however. But there is no way subtracting cash would bring this anywhere near 8. I cannot currently find the latest small cap p/e ratio but this is usually higher than the sp 500.
    Dec 5, 2014. 01:03 AM | 2 Likes Like |Link to Comment
  • Concurrent Computer Corporation Appears To Be A Value Trap [View article]
    It is true that revenue this past quarter grew at a disappointing rate. But there still was growth. The quarter before that, revenue growth was excellent - 30%! If you wrote this article a quarter ago you could have said that CCUR is ready for takeoff with amazing revenue growth. If you projected that previous quarter's revenue growth in the near future you could easily see a quadrupling of the share price.

    But instead you wrote the article after the present quarter and you are all gloom and doom talking about revenue growth being minimal.

    The lesson to be learned here is that when you have a small company that sells few large ticket items to very large clients you are going to have some quarter to quarter volatility. It is a mistake to rely too much on one single quarter and to project the results of a single quarter into the future, as you do.

    If you look instead to the fiscal 2014 results you see a very good value. As you mentioned even if you remove the valuation allowance, you still see a P/E of 14 which is very good for these markets. However, if you remove the net cash you get a P/E of 8.26 sans cash which is absolutely excellent in these markets, especially for a technology growth stock.

    Now about the cash. You did not really mention it. But when 41% of a company's market cap is cash, this cash is a very important part of any financial analysis of the company. Especially if you talk about P/E ratios and dividend sustainability. In addition to that 41% cash, about 20% of the market cap is a valuation allowance that will eventually turn into cash. (I did not count the valuation allowance in my P/E calculation above, if you chose to take it into account it makes things even better).

    Regarding the dividends, the cash again makes a big difference. When you have so much cash on the books, a payout ratio of close to a 100% is not really a problem. Even if they run into problems and have zero earnings in the future, they will be able to pay out the current dividend out of their cash reserves for another 5 and a half years! But if they continue to make money, as they should, the large cash balance will allow them to keep the payout ratio close to a 100% level without any risk.

    Overall it is rather surprising that you did not consider the very large cash balance in your rather negative article. You may have reached a different conclusion.
    Dec 4, 2014. 09:17 PM | 2 Likes Like |Link to Comment
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