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  • Oil Price Rebound Not Imminent, But Underway [View article]
    I do not understand the title of this article. If the oil price rebound is "not imminent", how can it be underway? Is this some sort of unusual logic puzzle? Is the author suggesting that the price rebound has already started? The majority of the article cites continued pressure on oil prices due to oversupply, with perhaps a long term rebound due to reduction in future production due to low prices. Call me confused.
    Nov 25, 2015. 08:25 AM | 2 Likes Like |Link to Comment
  • An Analysis Determining If Cummins Inc. Should Motor Its Way Into My Portfolio [View article]
    I appreciate the author's careful analysis of the financial health of Cummins. I agree with the financial conclusions regarding the company. I do not understand the following seemingly critical line in the article

    "low diesel prices are also great news for America's truckers, farmers and construction firms." In other words low diesel prices mean more potential buyers of diesel products.

    The author clearly notes that diesel trucks account for 98% of the heavy truck engine market, so there is virtually no room to grab additional market share, regardless of the price of diesel fuel. So who are the additional buyers who may select diesel versus an alternative? The farm market consists of tractors and powered vehicles, many of which are diesel, and some of which are gasoline powered. Since the price of gasoline has dropped roughly in parallel with diesel fuel, there would seem to be limited opportunity to grab farm market share based on fuel cost alone. As for the construction firms, virtually all of the heavy construction market is already diesel powered, and the light construction equipment is similarly not likely to transform into diesel users just because diesel fuel is lower cost than it used to be.

    There may be a case to be made that diesel equipment will be used more hours per year than previously since there is a lower cost per hour to operate. And additional hours of operation could lead to increased wear on the engines, thereby improving the rebuild market. And possibly the operators will elect to purchase new equipment as the old equipment wears down faster. But I think this is a stretch, as equipment operating hours are generally tied to productive use, which is a function of the business market, not so much the cost of fuel.

    So my conclusion is that the author has demonstrated that Cummins has a solid business, is on strong financial footing, and is likely to earn revenue and profit consistent with past experience. The author has not demonstrated to me that the near term future for Cummins will lead to top line revenue growth, and I remain puzzled as to how Cummins succeeded in increasing profit over the past few years without commensurate top line revenue growth.

    Clearly the market is valuing Cummins at a lower than historical P/E ratio. Either the market has lost confidence in the ability of Cummins to generate profit growth, or the market is undervaluing the company with respect to historical performance. My hunch is that the overall downturn in the construction market, the Volkswagen diesel engine scandal, the slowdown in Chinese growth, and the weakness of the South American market, is contributing to investor concern over the ability of Cummins to grow revenue and profit, hence the reduction in P/E ratio. If the P/E ratio remains at 11 or so, look for little or no change in the stock price over the next few years, and perhaps the average investor would do better looking elsewhere for income or growth.
    Nov 20, 2015. 08:26 AM | 2 Likes Like |Link to Comment
  • Cummins (Part 1): The Dividend And The Writing On The Wall [View article]
    I want to thank the author for an interesting, well presented article on a company I have been interested in for some time. The author notes that Cummins has improved its profit margin, yet the stock has fallen from a high of approximately 160 in June 2014 down to approximately 98 at the present time. The P/E ratio has fallen from approximately 15 in early 2015 down to less than 11 at the present time. This seems to suggest that the market is valuing Cummins stock at less than historical P/E ratio would suggest is fair market value. Can the author shed some light on why he thinks the stock has dropped substantially while the financial performance of the company has remained strong. Does the author believe this is the market misunderstanding the intrinsic value of the company, or does the author think that the market is correctly factoring in a future reduction in profitability?
    Nov 18, 2015. 06:37 PM | 2 Likes Like |Link to Comment
  • Why Diversification Is An Important Tool Of Managing Risk [View article]
    The author notes several examples where well known investors made (in hindsight) significantly poor investment decisions. The author does not emphasize that the same investors made some spectacularly good decisions also. It is far from clear how an individual investor who had followed one of the named experts would have fared over time. The author appears to be engaging in a form of selective Monday morning quarterbacking, picking a few examples of bad calls, but not examining the overall track record of the persons named.

    The author then goes on to argue that diversification would have avoided the spectacular examples cited. Certainly this is true, if one purchases an ETF that invests in a broad class of stocks, bonds or anything else, clearly the investor will earn average returns (which may be positive or negative). But that is clearly not the objective of the individuals named. Their goal is outperformance, and by a wide margin.

    There is no doubt that putting a large fraction of a portfolio on a single bet creates greater potential volatility than broad diversification, however there is nothing in this article that demonstrates that the risk is any lower, where risk is defined as the potential to lose money. The author may wish to consider the possibility that a smart, knowledgeable investor may actually have lower risk by selecting a few quality stocks than buying the whole market, which contains winners and losers. And when the whole market goes down, diversification may simply guarantee average loss, rather than providing the hoped for risk reduction.
    Nov 17, 2015. 10:34 PM | 3 Likes Like |Link to Comment
  • Mark Our Words, Something's Brewing For Micron [View article]
    I am somewhat puzzled by this article. The author notes that Micron stock is cheap, hence the stock looks like a good investment. Fair enough. But acquisition of stock by itself does not give Tsignhua Group access to the intellectual property they presumably are looking for. Perhaps a strategic investment might give them access to the secrets of production, or advance look at XPoint production facilities, but it is unclear to me what impact on the stock price a strategic investment would have.

    I understand why a company would want to buy Micron the company, and presumably the buyer would offer a premium stock price. But an investment in stock, not clear how that would affect those of us who own the stock. After all, people buy and sell Micron every day, it would certainly seem possible for a company to acquire a substantial position in Micron slowly and quietly, and perhaps have little effect on the price.
    Nov 16, 2015. 10:02 AM | 7 Likes Like |Link to Comment
  • Peabody Energy: Rumors Of Coal's Demise Are Greatly Exaggerated [View article]
    I have to give the author credit for consistency and effort, the series of articles discussing Peabody hammer on the same themes repeatedly. That said, there is little in this article to support the thesis that Peabody is a good investment at this time, either the bonds or the stock. To argue that SUNE stock is dropping rapidly, therefore solar energy is non-competitive with coal, seems to be the flip side of folks arguing that natural gas is going to permanently put coal out of business, a thesis the author soundly rejects.

    I have commented repeatedly over the last year that the death of COAL as a commodity is greatly overstated. I believe this is true, coal will continue to supply a significant fraction of world energy needs for the foreseeable investable timeline, which I take to be 20 years. However, translating the continued need for coal as a commodity into a claim that Peabody is somehow a good investment is baffling to me. Other coal companies have declared bankruptcy due to the need to retain cash, and there is nothing in this article, or others by the author, to suggest that Peabody will not do the same. This is not to say that Peabody will stop mining coal, far from it, I anticipate that a bankruptcy will have nothing to do with their mining, but will merely wipe out the current crop of investors, and replace them with a new group. Maybe the company will go private. I wish the author good luck in his single minded focus on Peabody, but I think it would be prudent to remind the rest of the investment community that Peabody is a singularly risky investment, not suitable for those without a cast iron stomach, and prepared for the potential of a total loss.
    Nov 11, 2015. 11:19 AM | 6 Likes Like |Link to Comment
  • The IBM Valuation Disagreement [View article]
    Interesting analysis of IBM the company. Where I disagree with the author is in exactly what he is valuing. I believe the author is valuing IBM the company, and is suggesting that IBM the company is likely to achieve 10% annual rate of return, based on his assumptions about profitability, stock buyback, top line revenue growth etc.

    IBM the stock is quite a different matter. Since the stock is effectively priced at auction every time it is bought, there can be no assurance that there is any correlation between the discounted cash flow value of the company, and the value of the stock at any given time. My take is that IBM the stock is losing favor because of investor perception that IBM has missed the boat on technical issues such as cloud computing and software development. Regardless of whether IBM is in fact still a technology leader, if the investment community comes to believe that IBM is closer to DEC than to Apple, the long term stock value is in deep trouble, regardless of the "intrinsic" value of IBM the company. Or perhaps the author believes that the stock price over the long run in fact reflects the DCF of the company?
    Nov 6, 2015. 02:41 PM | 5 Likes Like |Link to Comment
  • FuelCell Energy - The Turnaround Will Continue [View article]
    "The adoption of fuel cells is going to increase in the future as they occupy less space and can work on a variety of fuels."

    Less space than what?
    Perhaps in theory fuel cells can operate on a variety of fuels, but is it not true that Fuel Cell sells only hydrogen fueled cells? This article is about Fuel Cell, so it would seem appropriate to discuss the actual cells manufactured by Fuel Cell when explaining why Fuel Cell will increase business in the future. Or does the author mean to suggest that other manufacturers with cells that run on alternate fuels like methanol or natural gas will take market share from Fuel Cell?
    Nov 4, 2015. 06:54 PM | 5 Likes Like |Link to Comment
  • Kinder Morgan: Lies, Damned Lies, And Statistics [View article]
    I am confused by this article. The author carefully and patiently points out that it is essentially impossible to value KMI due to the numerous unknown variables. Fair enough. Then he goes on to value the company at $39. If the author wishes to make the point that KMI cannot be valued due to the complexity of it's business, then why try to value it based on what some analysts think? Clearly the market values KMI stock every day based on an auction process.

    If the author believes that the intrinsic value of KMI the company is different than the stock price, I understand that argument, folks like Chuck Carnevale make that point in most of their articles, i.e. the stock price can become divorced from the intrinsic value for long periods of time. But generally those who make that argument put forth a rigorous basis for valuing the company based on profitability, growth, and other measurable metrics. In the case of this article, there is simply an assertion that the stock is worth 40% more than it's current level, and the dividend is safe. Hardly reassuring from my perspective.
    Nov 4, 2015. 07:42 AM | 11 Likes Like |Link to Comment
  • We Like Union Pacific... Should You? [View article]
    "Shares are not overly appealing right now with a FCF yield of 4.01% and a dividend yield of 2.37%."

    I am confused by this article, and especially by the conclusion. The author carefully points out that there are major headwinds at the present time, specifically low cost of energy causing a reduction in shipped oil volume (the author states oil and gas, but I don't think UP actually ships LNG). The author also notes that coal volumes are down, maybe permanently. The author concludes by arguing that shares are not overly appealing right now, and I believe his article supports this thesis. Why would you buy shares now in a business that is likely to lose top and bottom line revenue over the next few years?

    Then the author concludes "We see a great company at a reasonable price at current levels. " Where is the support in this article for the conclusion? Certainly UP is well managed, has good free cash flow, has a large moat etc. But all of that is priced into the stock at this time, and if the author's thesis is accurate, the price seems likely to decline for a few years.
    Nov 1, 2015. 09:18 AM | 9 Likes Like |Link to Comment
  • Peabody Energy: It Feels Like March 2009 [View article]
    The coal mining industry will no doubt survive the current issues of high debt and low prices. Their most logical method of survival is bankruptcy and restructuring, all the while continuing to mine coal. Once they have restructured, they will emerge leaner and presumably profitable, much as the auto industry did, and the airlines, and as many other industries have over the years. In the process equity holders will be wiped out, and bond holders are likely to be close behind.

    Exactly why the author elects to invest in BTU is somewhat mysterious to me. If the author thinks that coal prices will improve, perhaps investing in coal futures would make sense. As to arguments that the coal industry is being driven out of business by a socialist minded administration hell bent on driving the country to disaster, suppose that is true. All the more reason to avoid coal stocks at this particular moment in time. Plenty of opportunity to purchase shares in the "new" Peabody when they emerge from bankruptcy, or a friendlier administration is elected.
    Oct 30, 2015. 03:38 PM | 4 Likes Like |Link to Comment
  • Interest Rate Shocks Hammer Book Values [View article]
    "There should be some regression to the mean when it comes to the spreads between assets and the cost of funds for a moderately hedged portfolio."

    Can the author explain why the spreads should exhibit regression to the mean? Are there economic or mathematical studies that support the belief that spreads exhibit this behavior?
    Oct 30, 2015. 03:26 PM | 1 Like Like |Link to Comment
  • Risk Tolerance For The Dividend Growth Investor [View article]
    The author carefully points out that volatility does not measure risk, and I agree. The author also notes that there is no single metric, and likely no combination of metrics, that allows the investor to measure the probability of loss of dividends. And the author does not provide an alternative to volatility for the measurement of risk of loss of principal. Further, the author notes that if a stock fails to maintain dividends, the author is likely to consider sale of the stock, which of course would convert the "paper" losses, if there are any, to real losses.

    So at the end of the day, we have no obvious way of measuring the risk that the author is concerned about. We have dismissed volatility as a measure of risk, which I agree with. But we have no obvious substitute. Certainly it is possible to assume, without proof, that quality stocks purchased below "fair value", however we determine it, are "less risky" than low quality stocks purchased above "fair value". But absent hard evidence, which involves a proven method of computing the risk, this approach is simply an assumption, not fact.

    The author appears to fall into the camp who values dividends above capital growth. That works until one is forced to sell a stock, or elects to sell due to reduction in dividends or similar event. Then the loss of capital can bite very hard.
    Oct 27, 2015. 08:17 PM | 10 Likes Like |Link to Comment
  • Coal Appears Done - Stick A Fork In It [View article]
    The author makes a reasonable case that many of the current U.S. based coal miners will declare bankruptcy. The author offers little evidence to demonstrate that coal mining will end any time soon, which seems to be the meaning of the headline. The coal companies that have gotten into so much trouble make expensive acquisitions several years ago when coal prices were high, and are getting killed for their spectacularly poor timing.

    There is not doubt that coal consumption is decreasing in the United States, but to declare that coal as an energy source will be replaced permanently by natural gas and renewables seems to be at best a stretch. The author asserts that wood used to be a primary heat source and has now disappeared, however I can assure the author that this is not the case, there is a relatively small but quite durable segment of the heating market that uses wood and wood pellets (I am one of them). The same may well be true of coal, the industry is likely to continue at perhaps a lower than current production rate, but the companies which are in such trouble will simply declare bankruptcy, reorganize, dump their high priced union contracts and debt, and emerge to continue mining coal, albeit at a lower total production. Certainly the current coal companies are a risky bet, but to declare the death of an entire industry is pretty aggressive.
    Oct 27, 2015. 01:33 PM | 5 Likes Like |Link to Comment
  • Buying Freeport Is A Fool's Game [View article]
    "We've witnessed a bit of market inefficiency here as despite their excessively weak earnings report, the stock has seen a small gain because of the production cuts."

    The author argues that the market is inefficient based on his assumption that the market failed to correctly (in his opinion) react to a negative earnings report. Then he argues that the small gain was due to production cuts. What is the basis for the author's belief that the small gain was due to production cuts? Perhaps the small gain was random noise, or was due to investor perception that the bottom is in for copper prices, or is a reaction to better than expected Chinese economic performance, or is a reaction to one of a million other possible factors?

    The efficient market thesis argues that investors all have access to pertinent stock information, thus the efficient market hypothesis would claim that the price variation of FCX is due to publicly available information. I see nothing in this article that refutes that claim. Not saying the market is efficient, I have no idea, but this article does not appear to refute the efficient market hypothesis for FCX.
    Oct 25, 2015. 11:03 AM | 1 Like Like |Link to Comment