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  • Ford Pricing In 0% Long-Term Earnings Growth [View article]
    "I find that to be ludicrous and as such, I still think Ford shares are very cheap."

    So the heart of the matter is that the author has presented an interesting discounted cash flow model, which is useful in valuing the COMPANY, not the stock. If Berkshire Hathaway wanted to buy Ford, they would not doubt perform a discounted cash flow analysis, and might decide that it is a valuable asset. But buying a few hundred shares of stock has nothing to do with buying the company, you don't get a seat on the board, you almost certainly do not even go to the annual meetings, and you certainly have nothing to say about how the company is run.

    The price of the stock has everything to do with how other investors feel about the stock, which may be related to how many cars Ford sells, or it may be related to the profit Ford makes, or maybe it is related to the phase of the Moon. Clearly investors are not willing to pay a premium P/E multiple for this stock, and arguing that the average investor is misguided, ignorant, and in denial about the value of the company is not likely to change this fact.

    Conclusion: Ford as a company looks pretty strong. Ford as a stock looks like a loser.
    May 28, 2015. 12:52 PM | 3 Likes Like |Link to Comment
  • Can Peabody Hold On? [View article]
    The author suggests that Peabody may gain market share at the expense of Appalachian coal. This may not be possible. Appalachian coal typically has higher sulfur content than PRB coal, and higher unit heat content. Each coal fired power plant is designed and tuned to use a particular type of coal. Since there are no new coal fired power plants in construction, any gain in market share for PRB coal versus Appalachian coal would require a coal fired plant to convert from Appalachian coal to PRB coal. This would require changes to the physical configuration of the plant, including the controls, pollution control equipment, and coal delivery systems. The author offers no evidence that any given plant would be able to make such a transition economically.

    Perhaps a more likely scenario is that existing coal fired plants will continue to operate so long as they can earn a profit, using the type of coal they were designed to run on. When no longer profitable, they are likely to shut down, as has already happened with plants across the country. Once shut, there is little likelihood they will be rebuilt as coal plants. More probable is that the electrical generation capacity will be replaced with gas fired plants.

    Conclusion: Coal is certainly not going away, but any claim that a given name (BTU) is likely to grab market share away from other producers requires strong evidence.
    May 27, 2015. 10:55 AM | 6 Likes Like |Link to Comment
  • Competitive Analysis Of Cameco Highlights Company's Many Strengths [View article]
    The author notes that compared to the other names in the article, Cameco is doing very well. But gross revenue is down since 2008, profit is down,and there are serious tax issues unresolved. So perhaps this is a case where the author is comparing the condition of four individuals who are drowning, and argues that some are doing better than others.

    Certainly Cameco would do better if the price of uranium on the spot and contract market increased. There is nothing in the article suggesting when such a happy event might occur, so it is difficult to understand what actionable investment idea the author is presenting. Buy CCJ now because it is financially better off than the other names, and may increase in value at some unspecified future date? Seems a little thin.
    May 27, 2015. 06:45 AM | 1 Like Like |Link to Comment
  • Silver Is Shaping Up To Be The Best Precious Metal Play Of The Decade [View article]
    "This indicates that silver is heavily undervalued in comparison to gold and that now is the optimal time to invest in silver."

    I am confused by this article. The author carefully points out that silver has significant use as an industrial metal, compared to gold which has limited use (8% by the author's statement) as an industrial metal. Yet the author claims that the price ratio of silver to gold demonstrates that silver is heavily undervalued. If the author is correct in his argument that silver is fundamentally an industrial metal, it would seem that it should be priced as an industrial metal similar to copper, and would have minimal relationship to gold, which is priced as a precious metal similar perhaps to platinum. Perhaps it makes as much sense to compare the price ratio of silver and gold as it would to compare the price ratio of lead and gold.
    May 26, 2015. 01:09 PM | 5 Likes Like |Link to Comment
  • The Easy Oil Is Gone [View article]
    Call me confused. The author states that the first trillion barrels are out of the ground and consumed. And the next trillion barrels, according to the author, will cost about the same as the first trillion barrels. A trillion barrels is about 10 years of supply at current consumption rates (including estimated increased consumption rate). So is the author saying that there will be no net increase in oil cost for the next decade? Or is the author saying that future increased pricing of oil (further out than ten years) offers an actionable investment strategy today?
    May 25, 2015. 07:59 AM | 3 Likes Like |Link to Comment
  • JetBlue: An Analysis After The Sell-Off [View article]
    "Taking the average S&P 500 PE ratio of 20.78 and multiplying it by $1.78 EPS gives a share price of $36.99, significantly above its current price."

    I don't understand this approach. Why does the author believe that applying a PE ratio for the S&P 500 is appropriate for an airline? The S&P 500 includes all sorts of different companies with radically different business models than an airline, including manufacturers, tech stocks, financials to name a few. It seems to me that assigning a realistic PE ratio to a stock is the most important piece of the valuation puzzle for valuing the stock, yet the author effectively waves his hands and says either use the S&P average, or use 15, without any examination of historical PE ratio for Jet Blue, PE ratios for other airlines, or PE ratios for other transportation stocks.
    May 23, 2015. 03:59 PM | Likes Like |Link to Comment
  • Why Investors Should Not Pull The Power On Plug Power This Year [View article]
    I don't understand why the author believes that PLUG is a buyout candidate. So far as I understand, they do not make their own fuel cells. Further, fuel cells are old technology (first fuel cell built over 100 years ago), so PLUG is simply a repackager of a commodity. PLUG does not make its own hydrogen, or the hydrogen delivery system.

    Their GenKey system seems to be a decent job of integrating existing technology, nothing wrong with that, but they have not figured out how to make a profit from their approach. Why would a big player want to purchase a money losing company that integrates existing technology? If there were a large moat of specialized patents I could see it, but so far as I understand there is not.

    Conclusion: I would not touch PLUG until they demonstrate the ability to earn a profit using their fundamental model of integrating existing technology into a salable package.
    May 23, 2015. 10:03 AM | 4 Likes Like |Link to Comment
  • The Great Beta Hoax: Not An Accurate Measure Of Risk, After All [View article]
    It is unfortunate that this article creates a straw man by defining beta in a way that is inconsistent with it's rigorous mathematical definition, then proceeds to argue that beta is essentially worthless as a measure of risk. There are numerous discussions about beta on the internet, many of which simply misunderstand the mathematics of the term, perhaps because the formula is scary looking, and most people have long since forgotten statistics.

    The Formula for Beta is (taken from

    beta=[ Cov(r, Km) ] / [ StdDev(Km) ]2

    r is the return rate of the investment;
    Km is the return rate of the asset class.

    For those not familiar with statistics, Cov is the covariance of the fluctuations (volatility) in the rate of return of the investment compared to the rate of return of the asset class as a whole. StdDev is the standard deviation of the return rate of the asset class (a measure of volatility). Essentially beta is measuring a normalized correlation between the volatility of the particular stock, bond or fund we are interested in compared to the volatility of the overall class of the investment. Note that the DEFINITION does not in any way claim that beta actually measures risk, all the definition does is provide a useful measure that compares the movement of a particular asset compared to the asset class.

    The following quote is from Morningstar, and represents a better than average description of the meaning of beta.

    "It is important to note that a low beta for a fund does not necessarily imply that the fund has a low level of volatility. A low beta signifies only that the fund's market-related risk is low. (Standard deviation is a measure of a fund's absolute volatility.)"

    Beta is a useful measure, but certainly no one familiar with its actual meaning would claim that beta is a satisfactory measure of risk. In fact, beta has little or nothing to do with risk, but is a useful way to measure anticipated movement of a particular asset compared to the asset class.
    May 22, 2015. 01:22 PM | 19 Likes Like |Link to Comment
  • Retired Investors: When Dividend Growth Slows What Should You Do? [View article]
    Just want to make sure I understand your benching concept. Say you bought STO at $30 per share. Then, like many of the major oils, it dropped down to around $25 per share in a quarter. At this point, your stock is down about 17%, which exceeds the 10% threshold you have, so you bench the stock. In the next quarter, it stabilizes around $25, so you take it off the bench? If it then declines again to $20 (its approximate current value), it goes back on the bench? Then if it stabilizes for a quarter it goes off the bench? If I understand your thinking correctly, you end up with a stock that lost 33% of value, but remains in your portfolio.

    Not quarreling with your approach, just making sure I get it.
    May 20, 2015. 01:42 PM | 1 Like Like |Link to Comment
  • Clean Energy Fuels Remains A Buy Despite Stock Price Stagnation [View article]
    "A lot of power plants have already converted from coal to natural gas. The transportation industry has taken some time to do the same because it is more fragmented and the conversion is not that convenient. "

    The author may wish to revise this paragraph. There is no reference discussing how many power plants have converted from coal to natural gas. Conversion of a power plant from coal to natural gas is not simple, see for a full discussion about the complexities. As a result, there have been few conversions. The following source claims that virtually all of the "conversions" have in fact been replacements of coal fired plants with natural gas plants. Certainly there are essentially no new coal fired plants being constructed in the United States, so all new generating capacity is either natural gas, solar, wind, or a handful of new nuclear plants.

    Presumably the author means to suggest that conversion of diesel or gas powered engines to natural gas is equally inconvenient as the conversion of a coal plant to natural gas, and this certainly correct. Converting a gasoline vehicle to run on natural gas requires a different fuel storage system, and engine modifications. The author offers no statistics on how many gasoline or diesel engines have actually been converted to run on either compressed natural gas or liquefied natural gas, but I imagine the number is very small, as the process is certainly difficult, and perhaps not cost effective.

    The overwhelming majority of natural gas powered vehicles are new builds, with new engines and storage systems. Unfortunately in the United States adoption of natural gas engines has been pretty slow, perhaps due to the lack of infrastructure for refueling, maybe due to general indifference since gasoline and diesel are less expensive than a few years ago, or maybe due to cost issues with natural gas powered engines. I don't know why adoption has been slow, but certainly if one is going to recommend a stock that is totally dependent on increased use of natural gas for vehicles, it would seem like a good idea to present some statistics about total consumption of natural gas for transportation over the past few years, and attempt to look forward to see if there is a real market here or just more talk. I note the author has no position in this name, and no plans to initiate, so perhaps the author believes that the market for natural gas engines is likely to expand slowly, and this name is too much in debt to profit much from the limited expansion over the next few years.
    May 18, 2015. 11:29 AM | 2 Likes Like |Link to Comment
  • Why Should Value Investing Work? [View article]
    I am confused by your article. You compare the performance of the top 30% book to price ratio to the bottom 30% book to price ratio stocks, and argue that this demonstrates that value stocks (presumably the top 30%) have better performance than growth stocks (presumably the bottom 30%). It appears you have defined value and growth stocks in a very specific, seemingly unusual manner.

    Most authors on this site, and elsewhere, seem to define value and growth differently. Often a value stock is defined as one with a price/earnings ratio below historical average. The definition of growth stock seems to be more variable. Some consider a growth stock to be one where the total revenue is rapidly increasing, some seem to put more importance in increase in total profit, and others seem to use a more qualitative definition. But I can't square the wheel here, can you perhaps further explain why you think a stock in the bottom 30% book to price makes this a growth stock, and why an upper third book to price makes it a value stock?
    May 18, 2015. 08:46 AM | 2 Likes Like |Link to Comment
  • Why I'm Rating Statoil As Hold [View article]
    I don't understand your thesis. You say you recommend "holding" the stock. Most analysts who use the word "hold" mean that if you already own a position, you keep it. A "buy" recommendation usually means if you do not currently own a position, you purchase one, and a "sell" recommendation means you sell your existing holdings, and naturally do not make any new purchases.

    But you seem to be using the word "hold" to mean initiate a new position, based on your premise that STO stock price will increase. So I am confused, are you making a "buy" recommendation, but calling it a "hold" recommendation?
    May 18, 2015. 08:34 AM | 2 Likes Like |Link to Comment
  • Alcoa Offers An Attractive Risk-Return [View article]
    I am pretty confused by this article, perhaps the author can help me out. The number crunching is based on assumptions that appear to have no basis in fundamental analysis, or if they do I must have missed it in the article. The author notes that the user is free to substitute their own assumptions, which of course will result in a different conclusion about the future of Alcoa.

    The author reaches the conclusion that Alcoa offers an attractive risk reward profile. Yet there was no discussion about the real risk of Alcoa, and the reward seems to be based on extrapolation of past history. Certainly if history were an infallible guide, stock picking would be a lot easier. But Alcoa is a wildly cyclical stock, as are many commodity based producers, and its future price would appear to be highly dependent on which way the commodity market for aluminum is heading. I don't know how anyone can predict the future price of aluminum based on historical pricing, and certainly predicting future risk based on historical performance would appear to be a dangerous game.

    Personally I have stayed clear of Alcoa the last few years because there seems to be a glut of aluminum now and for the near term, there is strong competition from composite and carbon based products, and high strength steel is less expensive for equivalent strength products. I believe Alcoa is trying to reinvent itself by focusing more on fabricated aluminum products, and this may be a critical factor in its future success, but I saw little discussion in the article about how the author sees the change in focus effect on future profitability.
    May 11, 2015. 09:41 PM | 3 Likes Like |Link to Comment
  • The Powerwall's Implication On The Electric Utility Industry [View article]
    The author seems to be breathlessly enthusiastic about battery storage, but unfortunately short on careful analysis of reality. Let's take a look at some of the claims in the article.

    1."Tesla (NASDAQ:TSLA) recently announced a revolutionary energy storage product called the Powerwall". There is nothing revolutionary about this product. Battery storage has been available for over a hundred years. The first automobiles were powered by battery. The use of batteries for residential storage is not new either. When I visited Cabo Pulmo in Mexico two years ago, the entire town was solar powered with conventional lead acid storage batteries used for storage of power. There is no grid at all in Cabo Pulmo. Whether the Powerwall is a cost effective solution has yet to be determined.

    2. "The degree to which industry experts got their predictions wrong is indicative of the incredible progress being made in the energy storage industry." The fact that Tesla elected to price their product below where some analysts thought they would does not demonstrate "incredible progress" in energy storage, it simply demonstrates that Tesla priced lower than some people expected. Whether Tesla can earn a profit at that price point is not even referenced in the article, and is far from obvious.

    3. "While the Powerwall is still not cost-effective enough to cause mass defection from the grid, it highlights the huge and attainable potential of energy storage technology." The potential of energy storage technology is complex, and not at all clear. Utility scale energy storage has been in use in the United States for over a hundred years in the form of pumped storage hydroelectric facilities such as the R. B. Russel dam in Georgia. These facilities take advantage of energy arbitrage, meaning they generate power during peak power periods, and pump the water back up during off peak hours. This is cost effective for utilities because of the price differential between on peak and off peak power. A device like the Powerwall is not likely to allow many residential users to go off grid, since 10kwh storage represents only a few hours of use for the average household, certainly not enough to run your house for a few days. For that, you would need a backup generator. The average residential user is going to find it difficult to get any return on investment for the thousands of dollars to fund a battery that will not allow them to disconnect from the grid.

    4. "This ultimatum will entail that the utilities either work with distributed solar companies, or face complete collapse." This is a remarkable conclusion. The utility industry earns its money through production and distribution of energy. There is nothing in this article, or anywhere else I have read, that supports the conclusion that any more than a tiny fraction of users will ever go off grid. There is simply too much value obtained from a dependable, stable electric connection. Certainly installed solar power will increase over the next 20 years at least, as the cost per unit of energy decreases. Distributed producers will continue to connect to the grid, selling power when they have excess, and buying power when they are short. And the utilities will continue to earn money by distributing the power, and producing power for the majority of users who are either not distributed power producers, or have a shortage of power at a given time. The argument between the utilities and distributed power producers is more about who will pay to maintain the grid than anything else, and that argument is likely to continue for many years.
    May 10, 2015. 02:33 PM | 24 Likes Like |Link to Comment
  • What Oil Price Is Sustainable? [View article]
    This was a very interesting article on an important topic, and I thank the author for a clear presentation of a murky subject. Generally I agree with the thesis that long term the real price of oil will rise, due to the real increase in the cost of extraction, and the likelihood that total consumption will continue to rise for at least the next 20 years, which is as far out as anyone can realistically look.

    That said, the author reaches the dangerous conclusion that if the price of oil were to drop below the "break even" price, that would be a signal to buy. As the author takes pains to point out, the actual selling price of oil is a determined by complex factors including, financial, political and psychological elements. At any given time, spot oil may be above, below or at "break even" prices, and can remain so for extended periods of time.

    Since any real world investor has a timeframe for a given investment, it is difficult, probably impossible, to know with any certainty what the price movement of oil will be within any given timeframe, regardless of the current price of oil relative to production costs. If one had infinite time, then it would certainly be reasonable to argue that if oil drops below break even cost to produce, it would be a good investment to purchase, but most of us are not going to invest for an infinite period, certainly not for a highly variable commodity like oil.

    Perhaps a more realistic conclusion would be that if oil drops below break even for an extended period of time, it would be reasonable to consider purchase of well capitalized, well managed oil majors, with strong capability for finding oil and bringing projects in on time and within budget. If oil prices are depressed below break even, I would be staying far away from speculative junior oil stocks, marginal producers, and mid or junior level oil service companies.
    May 8, 2015. 08:16 AM | 8 Likes Like |Link to Comment