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maddynuke

maddynuke
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  • The New Chowder Rule And How To Find Value In Owner Earnings [View article]
    I agree with you that he has a flawed approach. But as an engineer myself (BS, MS, MPhil and PhD) and as an ex-professor, now in research, I would still make sure that I am not adding apples and oranges!!! Multiplying numbers (scalars) to get a design margin, does not change the units of the original parameter.

    For example, I may calculate that I need to have a bridge to be able to handle a static (time-independent) load of 1,000 pounds per square inch (psi) to handle traffic. But to have MARGIN, I multiply, say by 3 to get 3,000 psi. So I design the trusses, steel, etc to handle much heavier traffic at 3,000 psi, knowing I have over-designed the bridge. The 3 is a scalar, unitless number.

    But if my other parameter is a RATE, to handle the dynamic load on the bridge, such as inches displaced in a second as the truck rolls over the bridge, and there are deflections, movement in the road, I have different parameter here. It is change or delta x inches PER second, for example 2 inches/second deflection. Adding the 3000 psi to the 2 inches deflection (delta) per second is meaningless.

    I got your idea, but remember that engineers like me are very fussy about comparing apples, oranges, adding them, or dividing by the number of chairs in the room.

    (Can you tell that I was a very exacting design engineering professor for years??!!)
    Jun 26, 2014. 02:52 PM | 4 Likes Like |Link to Comment
  • The New Chowder Rule And How To Find Value In Owner Earnings [View article]
    I hate to tell you this but I think you are simply adding 2 numbers that are not congruent, or matched properly and should NOT be summed!
    Let me be specific:
    First the profit per share (Normalized EBIT Share Value) is a number, and should be unitless if it is normalized properly, namely ($ earnings before taxes)/ $ cost of each share.
    Next, the profit growth per share (OE Growth Rate Number) is a RATE, that means per year and is NOT unitless! So it would have be change in a number (difference in EBIT year over year in $)/($ cost per share)/YEAR.
    So you are adding: Normalized number (no units) + (change in number/year).
    This means your new chowder "number" has mixed units and therefore is meaningless!!
    Jun 26, 2014. 02:33 PM | 4 Likes Like |Link to Comment
  • Why Coca-Cola Is Still A Solid Long-Term Investment [View article]
    How does PEPSI compare with KO. It would be good to see such a comparison. I am long KO.
    Jun 25, 2014. 01:48 PM | Likes Like |Link to Comment
  • PSE&G proposes to lower gas bills by nearly 9% [View news story]
    Absolutely amazing! What would happen if all of the utilities that have/use/distribute natural gas were to reduce their utility customers' bills?? The pipeline would start being built asap. More gas sources would be developed.....
    Jun 5, 2014. 04:19 PM | Likes Like |Link to Comment
  • Bristol-Myers Squibb Should Be In Your Retirement Portfolio [View article]
    This article doesn't even look at MRK or JNJ, which are larger companies than BMY, or ABT. BMY does fairly well over 1, 2 and 5 years compared with JNJ, MRK, PFE and ABT. In fact BMY has the highest price increase of these stocks over 5 years. It is only when a time frame of 6 months or less is used, BMY has poor comparison results. So the recent BMY drop was really a buying opportunity, IMHO.

    I disagree with the comment above that using a decade of data for BMY shows "lackluster" growth and the author's assessment. Given the severe 2008 drop in the market, any use of decade-long comparisons is practically meaningless! Five years after the 2008 "Great Recession" drop is the better time period.
    May 28, 2014. 12:44 PM | 1 Like Like |Link to Comment
  • Passing Up On High-Yielding Duke [View article]
    When compared to other utility stocks, the high yield seems to compensate for any issues about risk. Also the forward P/E is not to high, when compared to other utilities the author may consider "safer" bets, but current trailing P/E is about 25. Also the forward PEG is 3.66 according to Thomson Reuters.

    But who buys utility stock for growth potential? DUK has a very low beta, good history of dividend payouts, and even if the payout ratio is greater than 100%, at least the DUK management did not CUT the dividend as EXC did last year.

    If the author bothered to plot DUK vs. D, PEG, SO, EXC for example over 5 years, 2 years, or 1 year, he would see that DUK held its own and did not go negative like EXC. DUK actually has fairly good results for 1, 2 and 5 years. Dominion D shines, but DUK's results are not too shabby.

    It is not obvious whether the author suggests holding current shares, but it seems he is only not willing to buy more DUK, because of its small growth percentage. Clarification seems to be needed about whether he is advocating selling shares....
    May 28, 2014. 12:05 PM | Likes Like |Link to Comment
  • Southern Company - Another Dividend Hike, But Is There Really Much Appeal Besides Dividends? [View article]
    The author and some making comments have made some erroneous remarks that need to be corrected:
    1. Kemper is not the first plant with the technology, but it is a recent plant-build that has had problems, but its cost will be recovered over its long lifetime.
    2. The concept that solar, renewables, etc. could reduce energy consumption by 20-25% is naive, and that the solar installation costs can overcome its inherent inefficient operation is quite unrealistic. This stale mantra has yet to even show a break-even, due to the subsidies, solar inefficient power conversion, high cost for manufacture, upkeep, etc. Even with government credits, installation loans, etc. we have not seen large numbers of households going for solar installations. Even if the installation company services the units, the maintenance costs are high.
    3. The concept that banks or investors will not provide loans for new coal or nuclear plants is not correct. The utilities do not have to go to banks for loans--they become their own bank, issue preferred stocks, debentures, bonds etc. to self-finance projects, thus saving on interest paid to banks!
    4. It is VERY CLEAR that the author does not understand or even read annual reports when he says he hasn't seen the latest balance sheets! His statements about high debt levels, vs. income, cash flow etc. show ignorance about how/why utilities self-finance large projects!
    5. The author states that utility investors take a high risk because Southern for example is a highly regulated utility. Nonsense! It is because SO is highly regulated, there is a strong guarantee that the electricity rates will be charged to meet the true costs of generation, O&M, costs of capital, etc.! There is a guaranteed revenue stream! If SO was non-regulated, perhaps in a merchant generator situation, the cost recovery would be more difficult!
    6. The author compares SO regular stock risk to US Treasuries' risk. Well, let's look at the US Government risk, debt ratio, revenue stream, and the horrible situation the Obama administration has put our economy into--13+ trillion in debt, less than half of the population paying any taxes, more freebies, OBAMA-care etc. --this means that Treasuries and bonds are significantly riskier than any utilities (even FE, EXC, etc.!)
    QED
    May 5, 2014. 12:45 PM | 5 Likes Like |Link to Comment
  • What Exactly Is Risk? [View article]
    This fuzzy discussion about "risk" shows how poorly financial gurus and liberal arts majors are trained!

    Engineers (especially those in aerospace, nuclear, civil and mechanical engineering) have a very precise definition of RISK

    RISK = Probability of event scenario (failure) x CONSEQUENCES of event (failure).

    Risk analysis becomes a probabilistic analysis of delineating various scenarios that could lead to failure or bad consequences. Very important for risk calculations for nuclear power plants, airline safety vs. design and costs, bridges falling down, etc.

    So in this mumbo-jumbo article, let's see if there could be a grain of sanity or methodology to use:

    Volatility of price, fluctuations, and BETA are parameters to use for probability of the event or failure. BETA is defined as how a particular stock behaves relative to the entire market domain. Volatility defines how the entire market gyrates. So the event, perhaps defined as having price drop by 20% is a function of V and Beta. Beta is a scalar multiplier, and a can be used as a multiplier if the stock XYZ moves in the SAME direction as the market does when it moves as a whole.

    Probability of stock XYZ dropping 20% = F(V, beta) or BETA * F(market V)

    What are the CONSEQUENCES of the price of XYZ dropping by 20%? The stock could reduce or suspend the dividend if the payout ratio is high, stagnate its earnings growth rate, reduce its trading volume or liquidity, reduce its safety factor, timeliness in terms of momentum changes, etc. Each parameter is somewhat dependent on the others, but correlations can be used or developed based on XYZ's previous performance characteristics. The volumes of trades may be dropped if the price drops too much, so TVR = trading volume ratio changes. Gurus leave the market for XYZ stock. Let's say we could use an equation to the stocks return on investment (dividend yield + stock growth) to get a function G:

    G ( payout %, yield, stock price growth, momentum, TVR, etc.)

    RISK = BETA * F(market V) * G (payout,yield, price growth, momentum, TVR)

    Various models exist for F and G
    Apr 17, 2014. 06:36 PM | 2 Likes Like |Link to Comment
  • ModernGraham Annual Valuation Of Spectra Energy Corp. [View article]
    This shows the blind approach that the author is using!

    SE spun off 8 years ago, so how could it have 10 years of data?

    Also, the calculation that "Debt to Net Current Assets ratio less than 1.1 – FAIL" is WRONG!!!

    If you use:
    Total Debt $12,488,000,000
    Total Assets $33,533,000,000
    then Total Debt/Total Assets = 37%
    (A more meaningful ratio if you ask me!)

    or Current Assets $2,081,000,000/ Total debt = 16%.

    Both less than 110%....

    Using total debt/current assets as a ratio is still bizarre as an "inverted ratio". It says that you need to pay all of your debt NOW (or in the current year) with this year's assets rather than paying over a few years......
    Apr 17, 2014. 04:13 PM | 2 Likes Like |Link to Comment
  • Constructing And Designing The Stock Portfolio That's Just Right For You: Part 1 [View article]
    Thank you for your detailed, and very prompt reply! Your answers were very clear, and have helped me understand your approach better.

    Again, it is great to be taught by such a clear, patient, and very thoughtful Professor of Stock and Portfolio Analysis!
    Apr 17, 2014. 02:00 PM | 4 Likes Like |Link to Comment
  • Constructing And Designing The Stock Portfolio That's Just Right For You: Part 1 [View article]
    Thank you for providing such good examples. My question is what criteria would you use to search for such gems, since there are so many stocks to research?
    It looks like these would be the screening variables:
    1. Pick known companies, e.g. only from S&P 500 list.
    2. Yield greater than x % (3%) (I put in numbers to make easier, but you fill in the numbers.
    3. P/E less than or about equal to market x 1.yy factor. So P/E less than 20 perhaps.
    4. Long-term, 5 year EPS growth rate greater than 20%
    5. Intermediate (1-3 years) EPS growth rate less than 50%
    6. BETA less than 1.2 to handle volatility.
    7. Large company (already in S&P 500) but encompassing large market, multi-national bases. So sales greater than $ 200 M or a certain value.

    If you screen for these with the S&P 500 you may get some of these:

    AVB, CVX, DPS, HCP, INTC, LEG, LO, MAT, MCHP, PBCT, PM, PNW, VTR and WEC.

    But JNJ and the others you featured are not there. So there must be a different screen set.
    What other factors would you screen for?

    If I lower the minimum growth rate to 7%, we add strong companies like MCD, NU, KO, CMS, CAG, MO, but JNJ still does not show up.

    If the yield is reduced to 2.5% then TGT, UPS, WMT, XOM are added, but not JNJ, and there are 36 stocks.

    Could you be more precise with the screening criteria you would use ?

    The volatile cyclical stocks would not be on my "wish" list so criteria for those aren't requested.
    Apr 16, 2014. 07:51 PM | 1 Like Like |Link to Comment
  • CalPERS, NYC pension funds to vote against four Duke Energy directors [View news story]
    These directors could be external directors, i.e., they do not work at Duke. Only directors that are Duke employees, in LINE management, should be booted. Kicking them all out without looking at their affiliations, voting record, etc. is foolish.
    Apr 15, 2014. 12:31 PM | Likes Like |Link to Comment
  • Southern Company: A Utility Stock For Your Portfolio [View article]
    I meant the Southern Company's KEMPER "clean coal" plant construction project. The Kingston Coal plant is in TN, and had a massive coal ash spill destroying a large community a while back. The "clean coal" technology is very costly and as a "demonstration" plant the KEMPER unit have several kinks to alleviate.

    IMHO, "clean coal" is an oxymoron! Burning coal is NEVER clean, regardless of how much technology is used to remove fly ash, SOx, and polluting effluents.
    Apr 9, 2014. 03:20 PM | Likes Like |Link to Comment
  • Southern Company: A Utility Stock For Your Portfolio [View article]
    Great analysis for the aspects of nuclear electricity generation, and Southern's building campaign, BUT, you failed to mention the cost over-runs and issues with the Kingston Coal fired unit. The SO Vogtle project is going very well, but the Kingston building project is a mess.
    Apr 9, 2014. 02:54 PM | Likes Like |Link to Comment
  • Public Service Enterprise: Buy For Transmission Growth [View article]
    It is no surprise that the LIPA mess has to be cleaned up by bringing in PSE&G into the Long Island transmission arean. I lived through the days when LIPA was set up as a state authority to take over the transmission of the New York Power Authority (NYPA) electricity from upstate NY, with the under-the-Long-Island-... cable, when the LILCO Shoreham nuclear plant was shut down. The LILCO stock tanked, and fortunately I had options/shorts out so that when LIPA was formed, LILCO stock jumped, etc......

    The transmission cable that was to be built under the water (sound) and hook up on Long Island was stopped, delayed by all of the uproar in the Long Island towns where the cable would end and be connected to new over-land transmission lines. No one wanted to have new towers in their backyards, but they didn't want Shoreham, and still wanted cheaper electricity.
    The LIPA was set up as a political move to distribute the "cost" of the transmission cable, Shoreham mess, etc. to everyone in NY state. The LIPA management was a joke from the start.

    Again, PSE&G taking over the transmission and market for LIPA will be a bonus for PEG stockholders, a win-win for Long Island electricity customers
    Mar 19, 2014. 01:22 PM | 1 Like Like |Link to Comment
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