Ford Motor Valuation Confirms Its Current Bearish Inflection Point [View article]
Lets compare apples to apples and not 'Apple' to Trucks.... and yes, pun intended. Apple and Ford are two entirely different firms, catering to entirely two different markets/industry, with two different cap structures and the list of differences goes on... Of course ROI, ROIC, PEG and P/E metrics are going to differ! Therefore, you cannot compare the two and attempting to do so is useless.
Now lets look at this from a diversification standpoint. If one is looking for a mega-cap tech stock then Apple may be the choice for you. However, one should due their due-diligence before investing and compare Apple to Microsoft, Intel to AMD, HP to Dell, you get the point... Now if one is looking for exposure to a large auto manufacturer, then naturally you should compare, F to GM, Honda to Toyota. I apologize for this remedial briefing but after reading this article I feel that it is necessary.
This being said, when looking at Ford's current valuation and then look at what top management is doing in terms of R&D I feel it is an attractive place to put some money. However, the point of this comment is not to say whether Ford is a buy/sell or if Apple is a buy/sell. Rather, it is a message to all those novice investors out there who are reading this article and think that this persons arguments are valid and financially coherent. They are not. So here is a few things to keep in mind.
1.) A value/growth comparative analysis works best when the two companies are in the same industry or even better sub-sector. Remember, we like to compare 'apples' to 'apples' and NOT 'apples' to 'oranges'.
2.) Never EVER EVER! Please never ever look at a company and its stock price a decade ago and compare it to where they are today. Past-performance by no means is an indicator of future performance and quite frankly, a company's stock price does not really mean much on an absolute basis. There are firms that are 1/1000th the size of Apple or Ford and have much higher stock prices. The author mentions Ford in this context. However, did you know that Ford in 2000 had approximately 1.5 billion shares outstanding and in 2010 had 3.3 and 3.7 billion in basic and diluted shares outstanding, respectively? The value of a firms share price, in its most basic form, is calculated taking the firms total value and dividing it by the shares outstanding... (Firm Value/# Shares Outstanding). Therefore, from an arithmetic standpoint the authors argument is invalid... There are just too many factors to mention that further invalidate the authors point. But one more... Look at Apple ten-years ago, you could have said the same thing about Apple what the author is saying about Ford. Needless to say, we have all seen Apple's price performance over the past decade. So I reiterate, please do not judge a company by past performance on all levels (stock price, roe, debt levels, growth). In order to evaluate a firm, you need to look at where they and the industry is now and take it from there.
3.) Fundamental v. Relative Valuation: The author seems to have mistaken relative valuation for fundamental valuation. Relative valuation is when you take multiples or metrics such as P/E and P/S and apply it to an earnings estimate to obtain a target price. This is the quick and dirty method of obtaining an intrinsic value and widely popular amongst both sell-side and buy-side analysts. However, it is useful and credible. A true 'fundamental' valuation, similar to the ones that value-investing was based on is that of a DCF valuation model... or Discounted Cash Flow model. In Finance, the present value of any asset or security can be determined by discounting the future cash flows associated with that security. In doing so, you obtain a firm value and then by dividing that by the shares outstanding obtain a target price. The author above keeps on stressing the importance of fundamentals, and I agree they are the most important thing and are necessary when performing a 'security analysis'. However, if they are so important then why does the author not mention them at all? Instead he confuses fundamentals with relative valuation metrics. Fundamentals are well... the Fundamentals! Fundamentals are the information you will find in a companies financial statements (Cash flow, income statement, balance sheet, etc).. With this information you can determine the financial health and condition of the company. Relative valuation simply tells you how the company is priced relative to its earnings and can fluctuate substantially based on Mr. Market or sentiment. For example, during the tech-bubble, you could find internet stocks trading at $80 per share and 200x their earnings or at p/e of 200x. However, if you did a fundamental valuation analysis you would probably would have discovered that based on its cash flow generation was only worth $40 per share. Consequently, the bubble burst and prices came crashing down to value-based levels. This is why mistaking fundamentals for relative valuation metrics or just focusing purely on these sometimes meaningless ratios can really hurt you in the long-run.
So that is my two cents or maybe five-dollars... From reading prior comments I understand there are some grammar lovers, so I apologize for my grammatical mistakes in advance. Please for those of you out-there please take this authors 'contribution' or 'lack there of' with a tremendous grain of salt. While everyone is entitled to their own investment strategy, and the authors may work very well for him, it is simply dangerous and incorrect on so many different levels. Therefore, for those aspiring investors out there who may not have the background or experience to evaluate the credibility of this article themselves, I hope my comment helps.
Why Micron Technology Is Undervalued [View article]
Down 33.5% YTD Down 11.9% 1-YR Down 14.6% 3-MO P/E 5.11x
MU is an interesting stock, and the street seems to be all over the place in terms of estimates. I have seen target prices as low as $6 and as high as $28. With the median of estimates around $12.53. However, the 3-MO and YTD sell-off suggests that Mr. Market is siding with the bears. To offer my opinion based on recent performance, volume and RSI, this stock is approaching oversold territory and it seems that the worst-case scenario is already priced-in to this stock. The street is expecting the worst when MU reports earnings after the close in two days Oct 7th. Considering Septembers rally and the markets performance YTD is a little bit of an anomaly that MU is down so much. This being said, if MU comes out on Thursday and reports in-line with the streets expectations or even beats by a small amount, I would expect this stock to take off. MU is trading at a deep deep discount to its peers and the industry on a relative basis. MU is profitable, generating cash and has a great product and just the other day announced that it won a deal with Hitatchi. Normally, news of a contract win would have sent this stock up but the announcement coincided with cautious outlook from UBS. My question is, how cheap is this stock going to get? It is already trading at 5x earnings, what is it going to go down to 3x? I certainly don't think so... My point overall is that MU is one out of only a handful of companies out there that are trading near their 52-week lows, trading a steep discount to the industry and has solid fundamentals and growth prospects. MU is at a bottom and I would be a long buyer of MU around $7.00...
Down 15% after earnings!? This is blatantly irrational market behavior... I understand that they guided down Q4, however it is not due to weaker demand or deteriorating conditions amongst their customer base. Q3 came in above estimates largely because they realized Hitatchi revenue sooner than expected... Barber made it clear that this was a surprise as they were not expecting this until Q4... Therefore, the lower Q4 guidance makes complete sense as they realized a portion of the Hitachi revenue in Q3 as oppose to Q4. Further, FY10 Revenue and EPS estimates are coming in above estimates between 4.23 and 4.56 attributed to better execution and a broad-base increase in customer demand. Not to mention that Xyratex is only trading a p/e of around 5-6 of 2011 earnings EPS estimates of about 2.80.... Considering that its peers are trading at P/E multiples in the high teens/lower twenties, and XRTX has historically traded at 12-15x earnings, to place an extremely conservative 10x multiple on 2011 earnings, implies that this stock should be trading around $20. To go even further, XRTX has a book value of about $9.50 as of Q2 and with $35 mil of cash flow generated in Q3 and 30 million shares outstanding you can tack on an addition $1.15 to that for a book value of $10.65.... Even in the most bearish case this stock should at least be trading around $18-$20.... Overall, yesterdays conference call and earnings and guidance release does not justify a 15% sell-off. Lets hope that this attributable to profit taking considering the stocks one-month run-up and that people begin to realize what a bargain this stock is trading at... Oh yea... Did I mention that this company is still a prime take-out candidate for acquisition? Its cheap, profitable and has a great product that all the big hardware players seem to like... If I were NetApp, I would buy XRTX in an all-cash transaction as it only has a market-cap of $500mil and take business away from their competitors... If this were to happen I would expect a premium of at least 50%, probably more.
Xyratex: A Long-Term Value Despite Recent Under Performance [View article]
There is no question that the board has a legal fiduciary duty to shareholders. Further, Brad Driver of Investor Relations replied to my inquiry as such, "We still are planning to implement our dividend in Q3." Assuming a 2% dividend, on their current share base would equate to approximately $6 million in distributions annually. I am comfortable that Xyratex will be able to accomplish this. The buyback is a different story. On the call, management suggested that they would consider the buyback depending on where the company's stock price is later in the year. They did not provide a schedule. Therefore, unless they are actively buying back shares the repurchase program is worthless. Management did not seem confident and passively eluded that the buyback is in place as a last ditch effort. I understand your position as I was an avid Xyratex bull myself up until two quarters ago. And after this quarter I have fully lost all confidence in management and do not believe they have a sustainable business model considering the amount of consolidation going on in the industry. The market seems to feel this way as well considering they are trading below book value. I believe Xyratex will continue to be punished by the market due to their inconsistency in earnings and margins. It is essentially impossible to model the company because margins are all over the place and management never seems to provide accurate, solid guidance. My money has been against XRTX since January @ 15.80.
Xyratex: A Long-Term Value Despite Recent Under Performance [View article]
Much Agree! I come to learn the hard way that XRTX management is terrible at providing guidance and have lost all credibility in my view. As for the buy-back and dividend... Well management only mentioned the dividend when asked and provided no time line or pace for the buy-back. I also find it interesting that during a time where management is focused on 'cash management' they are planning on spending $50 million on buybacks and $6 million in dividends. Thats not to say Im against returning value to shareholders, but it seems that it is just managements way of trying to 'buy' investor confidence for the time being. Not to mention the recent speculation that Samsung may be spinning of its hard drive unit just as Hitachi did not too long ago. One last comment... on the latest call, an analyst asked management whether they would consider putting the company up for sell, suggesting that they may be a better fit in a larger company with more scale. Management responded by saying that they do not believe that they would be an attractive candidate due to their position within the industry.... Well if management feels this way...... Enough said.
Ford Motor Valuation Confirms Its Current Bearish Inflection Point [View article]
Now lets look at this from a diversification standpoint. If one is looking for a mega-cap tech stock then Apple may be the choice for you. However, one should due their due-diligence before investing and compare Apple to Microsoft, Intel to AMD, HP to Dell, you get the point... Now if one is looking for exposure to a large auto manufacturer, then naturally you should compare, F to GM, Honda to Toyota. I apologize for this remedial briefing but after reading this article I feel that it is necessary.
This being said, when looking at Ford's current valuation and then look at what top management is doing in terms of R&D I feel it is an attractive place to put some money. However, the point of this comment is not to say whether Ford is a buy/sell or if Apple is a buy/sell. Rather, it is a message to all those novice investors out there who are reading this article and think that this persons arguments are valid and financially coherent. They are not. So here is a few things to keep in mind.
1.) A value/growth comparative analysis works best when the two companies are in the same industry or even better sub-sector. Remember, we like to compare 'apples' to 'apples' and NOT 'apples' to 'oranges'.
2.) Never EVER EVER! Please never ever look at a company and its stock price a decade ago and compare it to where they are today. Past-performance by no means is an indicator of future performance and quite frankly, a company's stock price does not really mean much on an absolute basis. There are firms that are 1/1000th the size of Apple or Ford and have much higher stock prices. The author mentions Ford in this context. However, did you know that Ford in 2000 had approximately 1.5 billion shares outstanding and in 2010 had 3.3 and 3.7 billion in basic and diluted shares outstanding, respectively? The value of a firms share price, in its most basic form, is calculated taking the firms total value and dividing it by the shares outstanding...
(Firm Value/# Shares Outstanding). Therefore, from an arithmetic standpoint the authors argument is invalid... There are just too many factors to mention that further invalidate the authors point. But one more... Look at Apple ten-years ago, you could have said the same thing about Apple what the author is saying about Ford. Needless to say, we have all seen Apple's price performance over the past decade. So I reiterate, please do not judge a company by past performance on all levels (stock price, roe, debt levels, growth). In order to evaluate a firm, you need to look at where they and the industry is now and take it from there.
3.) Fundamental v. Relative Valuation: The author seems to have mistaken relative valuation for fundamental valuation. Relative valuation is when you take multiples or metrics such as P/E and P/S and apply it to an earnings estimate to obtain a target price. This is the quick and dirty method of obtaining an intrinsic value and widely popular amongst both sell-side and buy-side analysts. However, it is useful and credible. A true 'fundamental' valuation, similar to the ones that value-investing was based on is that of a DCF valuation model... or Discounted Cash Flow model. In Finance, the present value of any asset or security can be determined by discounting the future cash flows associated with that security. In doing so, you obtain a firm value and then by dividing that by the shares outstanding obtain a target price. The author above keeps on stressing the importance of fundamentals, and I agree they are the most important thing and are necessary when performing a 'security analysis'. However, if they are so important then why does the author not mention them at all? Instead he confuses fundamentals with relative valuation metrics. Fundamentals are well... the Fundamentals! Fundamentals are the information you will find in a companies financial statements (Cash flow, income statement, balance sheet, etc).. With this information you can determine the financial health and condition of the company. Relative valuation simply tells you how the company is priced relative to its earnings and can fluctuate substantially based on Mr. Market or sentiment. For example, during the tech-bubble, you could find internet stocks trading at $80 per share and 200x their earnings or at p/e of 200x. However, if you did a fundamental valuation analysis you would probably would have discovered that based on its cash flow generation was only worth $40 per share. Consequently, the bubble burst and prices came crashing down to value-based levels. This is why mistaking fundamentals for relative valuation metrics or just focusing purely on these sometimes meaningless ratios can really hurt you in the long-run.
So that is my two cents or maybe five-dollars... From reading prior comments I understand there are some grammar lovers, so I apologize for my grammatical mistakes in advance. Please for those of you out-there please take this authors 'contribution' or 'lack there of' with a tremendous grain of salt. While everyone is entitled to their own investment strategy, and the authors may work very well for him, it is simply dangerous and incorrect on so many different levels. Therefore, for those aspiring investors out there who may not have the background or experience to evaluate the credibility of this article themselves, I hope my comment helps.
Ford Motor Valuation Confirms Its Current Bearish Inflection Point [View article]
Why Micron Technology Is Undervalued [View article]
Down 11.9% 1-YR
Down 14.6% 3-MO
P/E 5.11x
MU is an interesting stock, and the street seems to be all over the place in terms of estimates. I have seen target prices as low as $6 and as high as $28. With the median of estimates around $12.53. However, the 3-MO and YTD sell-off suggests that Mr. Market is siding with the bears. To offer my opinion based on recent performance, volume and RSI, this stock is approaching oversold territory and it seems that the worst-case scenario is already priced-in to this stock. The street is expecting the worst when MU reports earnings after the close in two days Oct 7th. Considering Septembers rally and the markets performance YTD is a little bit of an anomaly that MU is down so much. This being said, if MU comes out on Thursday and reports in-line with the streets expectations or even beats by a small amount, I would expect this stock to take off. MU is trading at a deep deep discount to its peers and the industry on a relative basis. MU is profitable, generating cash and has a great product and just the other day announced that it won a deal with Hitatchi. Normally, news of a contract win would have sent this stock up but the announcement coincided with cautious outlook from UBS. My question is, how cheap is this stock going to get? It is already trading at 5x earnings, what is it going to go down to 3x? I certainly don't think so... My point overall is that MU is one out of only a handful of companies out there that are trading near their 52-week lows, trading a steep discount to the industry and has solid fundamentals and growth prospects. MU is at a bottom and I would be a long buyer of MU around $7.00...
Xyratex CEO Discusses F3Q10 Results - Earnings Call Transcript [View article]
Xyratex: A Long-Term Value Despite Recent Under Performance [View article]
Xyratex: A Long-Term Value Despite Recent Under Performance [View article]