I spent last night working on my taxes for 2006 - yeah, I know, tons of fun. Although I have an accountant prepare my final return, I prefer to do as much of the prep work as possible to avoid having to pay CPA rates for things that are pretty easy and that programs like Quicken automatically generate for you. Plus, I was able to complete a couple of full returns myself - the ones for my daughter and the one for my corporation.
I learned more about "qualified dividends" which I should have already known more about, but I didn't - but, now I do :-). What I thought was great was that if you hold a stock that pays dividends long enough (61+ days basically), all dividends on that stock going forward become qualified dividends. Qualified dividends get taxed at a lower tax rate than ordinary dividends. Basically, from a long term standpoint, if you can accumulate stocks that pay dividends, ultimately, all dividends from that stock get a lower tax rate. So, say one day, after many years, you were able to own 50,000 shares of PFE. With the dividend currently at $1.16 - and let's just assume it stays there for now and forever (not likely as they have 40 straight years of dividend increases) you would receive $58,000 in dividend income. And let's assume this $58,000 is your only income. Since the stock has been held on for so long, it is in the form of qualified dividends. So, you would only pay the 15% tax rate on this - rather than 28%-35%. That's a pretty big savings in terms of paying taxes. Let's hope this legislation stays in place.
I also prepared my own Schedule D. Schedule D is the form that you fill out to list capital gains and losses you experienced during the year, primarily through investing in stocks. This is a good exercise to do because you really see how you actually did. You will find most people talk only about their winners, but never talk about their losers. I had a very solid year in this arena - mostly because I had a couple of big winners and was able to limit my losses quickly.
Furthermore, I significantly moved away from "day trading" which I used to do in the past with greater frequency. I did have some success in it in the past, but by going through the actual work, you can see how small incremental gains can quickly be chewed up by larger losses that you are vulnerable to when you maintain too much of a short-term focus.
Here is a great example...one of my best performers of the year, CECE. My average purchase price was $4.35/share with various purchases in 2005. My average selling price on that block of shares was $9.53, which is a 120% return. However, during the course of the run up from $4 to $13, the stock, for instance, would go from $4 to $7, back to $5.50. So, if my focus was too short-term, I would have bailed when it dropped back to $6 - sure, locking in a gain, but being distracted by the dynamics of short-term trading, I would have missed out on the larger gains.
Furthermore with CECE, after exiting the position with a gain, you always tend to feel "what if I am missing out", I bought some shares back thinking it would go back up or I'd get a quick scalp. I bought back in at an average of $9.32 and sold at an average of $9.05 a day or so later - a 2.7% loss - cutting into my gains. Turns out, I didn't miss out - CECE fell down to $7 shortly thereafter and although it rebounded back to $11 temporarily, it's at around $9.00 right now - so, I never missed the boat.
Other winners I had this year that I either closed out the position or have held on include the following.
ASTE - +38.9% (closed out)
SVVS - +17.3% (closed out, too early though, as this one ran)
RDTA - +23.1% (made some dumb trades that cut into return)
ASHG - +15.7% (1-year performance, hold)
MRK - +11,4% (Aug 2006-present, hold)
NBG - +10.1% (Sep 2006-present, hold)
SEB - +36.4% (Oct 2006-present, hold)
And, yes, I had losers - but I did a great job of cutting my losers before they got too bad. I was planning on cleaning up the portfolio on the last day of the year to sell off any losers, but I really didn't have that much of a problem as the only loser I held was LRT, down 12%.
Other losers I sold off this year before they became too bad. Note my actual loss and how much worse they could have gotten. These were mostly attempts to be 'short term' trades - and they didn't work out too well from a short term standpoint, but could have been a disaster long term.
HYBT - down 7.7% (rather 73.2%)
ATVE- down 12.2% (rather than 88.7%)
NSLT- down 5.6% (rather than 11.2%)
GHLT- down 0.8% (rather than 77.2%)
Since I was able to focus on the winners - rather than the losers and cut my losses, I was able to have a pretty strong year in this arena.
Sunday, December 31, 2006
Wednesday, December 6, 2006
Wabash National (NYSE: WNC)
Another day, a new stock has caught my eye and I have taken a position. Wabash National Corp. (NYSE: WNC) at $15.01 per share. I bought a few shares and some of the July 2007 $17.50 calls/options.
This is likely not a home run, but Jeffrey Gendell, the same value investor who brought us (well me) the likes of CECE, ASTE, and IOSP (missed the boat on that one, though I did call it), has shown up by annoucing his 10%+ position last week and subsequently purchasing another 136,600 shares on the open market. His track record is strong and WNC appears it has an above average chance to reach $20-$25 in the next 6-12 months.
The company manufacturers truck trailers and more information can be found on their web site at http://www.wabashnational.com/.
The company has been out of favor, citing some tough times with getting enough supplies to fill orders, some costs to launching their new ERP system, and general market conditions.
Regardless, revenue for the company was up and it appears the bad news is already priced into the company.
Short and sweet, it seems that their new ERP program may alleviate some of the supply problems they have faced. They also continue to secure new accounts. Trucking is here to stay and demand will continue to be placed on this industry to deliver the goods and raw materials we use everyday. Furthermore, it appears that the company is well on its way to correcting some of their intrinsic problems they faced that led to this decline in overall income. The company trades at 1.6 times book value and 0.4 times sales, so there does appear there is some strong value to be had. The company also produces about $25M per year in free cash flow.
Again, this one is probably not a huge winner, but probably a relatively safe place to place your money and should yield a 50%+ return over the next 6-12 months. Plus, the fact that Gendell is loading up, and may continue to do so, is certainly a big plus. There is also a fair 1.2% dividend yield, though historically, it has been closer to 0.5% - so perhaps a double or even more is not out of the question.
Also, 10% of the outstanding shares are sold short - and with 12+ days on current average volume to fully cover those short positions, if the company does experience an upside, positive earnings announcement (which may be 2 or 3 quarters away), we could see return to a fair value and an additional boost from the short squeeze.
A similar thing appeared to happen to Powell Industries (NASDAQ: POWL) - another one of Gendell's holdings. Today, they announced strong upside earnings and the stock traded as high $29.39 before closing at $27.92 (up 16.7%). Part of the big gain was due to the surprise earnings and probably a fair portion was attributed to a short squeeze considering that not many shares are in the float and about 3% of their shares with a 9.9 short ratio (9.9 days to cover) was there.
Plus, WNC looks like it may benefit from what is called the January effect. Stocks that perform poorly during the year are often sold off in December to get some capital losses on a person's tax return. Often, people repurchase the shares sold off in the tax-loss selling in January, accounting for a burst upwards. That may or may not happen, but certainly a candidate to do so.
WNC is also well down from its January, 2004 highs of $30+ - partially attributed to how the high oil and gas prices impacted the transportation and trucking industry. With oil well off from its highs, appearing to stabilize, and the world getting used to $60+/bbl., business should very well start to flow again at WNC.
Double bottoms that occured in August 2006 also indicate that WNC is probably pretty close to the lower end of its trading range and likely is not going much lower than where it is today.
To sum up...
1. Most of bad news already priced in;
2. Gendell buying shares;
3. 10% of shares short - possible short squeeze on positive news;
4. Operational adjustments should help restore net income;
5. Great value at 1.6x book value, 0.4x sales, and $25M of FCF
This is likely not a home run, but Jeffrey Gendell, the same value investor who brought us (well me) the likes of CECE, ASTE, and IOSP (missed the boat on that one, though I did call it), has shown up by annoucing his 10%+ position last week and subsequently purchasing another 136,600 shares on the open market. His track record is strong and WNC appears it has an above average chance to reach $20-$25 in the next 6-12 months.
The company manufacturers truck trailers and more information can be found on their web site at http://www.wabashnational.com/.
The company has been out of favor, citing some tough times with getting enough supplies to fill orders, some costs to launching their new ERP system, and general market conditions.
Regardless, revenue for the company was up and it appears the bad news is already priced into the company.
Short and sweet, it seems that their new ERP program may alleviate some of the supply problems they have faced. They also continue to secure new accounts. Trucking is here to stay and demand will continue to be placed on this industry to deliver the goods and raw materials we use everyday. Furthermore, it appears that the company is well on its way to correcting some of their intrinsic problems they faced that led to this decline in overall income. The company trades at 1.6 times book value and 0.4 times sales, so there does appear there is some strong value to be had. The company also produces about $25M per year in free cash flow.
Again, this one is probably not a huge winner, but probably a relatively safe place to place your money and should yield a 50%+ return over the next 6-12 months. Plus, the fact that Gendell is loading up, and may continue to do so, is certainly a big plus. There is also a fair 1.2% dividend yield, though historically, it has been closer to 0.5% - so perhaps a double or even more is not out of the question.
Also, 10% of the outstanding shares are sold short - and with 12+ days on current average volume to fully cover those short positions, if the company does experience an upside, positive earnings announcement (which may be 2 or 3 quarters away), we could see return to a fair value and an additional boost from the short squeeze.
A similar thing appeared to happen to Powell Industries (NASDAQ: POWL) - another one of Gendell's holdings. Today, they announced strong upside earnings and the stock traded as high $29.39 before closing at $27.92 (up 16.7%). Part of the big gain was due to the surprise earnings and probably a fair portion was attributed to a short squeeze considering that not many shares are in the float and about 3% of their shares with a 9.9 short ratio (9.9 days to cover) was there.
Plus, WNC looks like it may benefit from what is called the January effect. Stocks that perform poorly during the year are often sold off in December to get some capital losses on a person's tax return. Often, people repurchase the shares sold off in the tax-loss selling in January, accounting for a burst upwards. That may or may not happen, but certainly a candidate to do so.
WNC is also well down from its January, 2004 highs of $30+ - partially attributed to how the high oil and gas prices impacted the transportation and trucking industry. With oil well off from its highs, appearing to stabilize, and the world getting used to $60+/bbl., business should very well start to flow again at WNC.
Double bottoms that occured in August 2006 also indicate that WNC is probably pretty close to the lower end of its trading range and likely is not going much lower than where it is today.
To sum up...
1. Most of bad news already priced in;
2. Gendell buying shares;
3. 10% of shares short - possible short squeeze on positive news;
4. Operational adjustments should help restore net income;
5. Great value at 1.6x book value, 0.4x sales, and $25M of FCF
Monday, December 4, 2006
Pfizer (NYSE: PFE) - Buy @ $24.80 & Other Updates
Today's big story in the stock market was the 11% decline of Pfizer (NYSE: PFE). On Saturday, PFE announced that it was ceasing development of its new cholesterol drug. This was a huge development because it has been said that this new drug was going to be a huge homerun for PFE and was going to be key in replacing lost revenue from Lipitor once the patent protection expires in 2010. So, with all of this being said, let the panic begin.
In the company's press release, the CEO of PFE was cognizant of the impact of the lost revenues that this event would have on PFE and the stock price. The CEO emphasized strong revenue growth to return in 2009, returning shareholder value through raising dividend & repurchasing shares, and noted the deep product line that is in the PFE pipeline (though admittedly, none had the alleged potential that the new PFE cholesterol drug would have). So, despite this set back, things do not look too bad, right?
Well, the media jumped all over this story all weekend - analysts and stock brokers were hyping the 'end of Pfizer' and the potential for an up to 25% fall in the stock price today. The stock did open low - yes - down 15% at around $23.50, but at that price, the buyers were ready in mass. Funny how EVERYONE says the stock is finished and going to collapse on the heels of this news, yet the buying at the open was huge. In fact, despite a couple of blips down to this price of $23+, you would have to go back to 1997 or thereabouts to when PFE actually first hit this price.
I think PFE is a long-term buy at these levels, but probably best through its direct stock purchase plan as there are absolutely no fees and the key to this one is long term focus. Close to a 4% dividend yield, less than 11x next year's earnings, $1.75/cash on hand (some say to more aggressively purchase shares and to potentially raise the dividend), and over $17B in operating free cash flow.
Of course, with this, I feel even better about my decision to buy MRK over PFE, although the experts said PFE was the better buy. You can see my blog on this from October 13, 2006 (when I went up 1-0) and the original blog on September 5, 2006 (when the article came out and my discussion points).
Regardless, I see this dip as an opportunity to enter into PFE and start accumulating a stake for myself and my daughters. This is certainly a long term one that you want to put a chunk of money in every month or even once a year (Dogs of the Dow Theory), re-invest the dividends, and then just commit to fund your position every year.
Regardless, look for PFE to return to $28 within 6 months - on to other updates.
INFT - At Last We Will Reveal Ourselves to the Jedi
Well, I can see nobody jumped on the announcement and bought any INFT before I bought today. I know this because my trade was the first of the day. I picked some up at $3.69 and $3.70 and it closed at $3.72. I suppose it didn't really bounce up all that much as I thought it had the chance to, but that is a good thing. This provides more time to acquire shares at these levels. In all honesty, it probably will not move up much until 2007 sometime - we may even seen it decline some as we plow through the usual December tax selling. I will strategically and incrementally add to my position during this time.
SEB - Breaking $1,700 - We're Gonna Need a Bigger Boat
Another banner day for SEB - closing at $1,715, up 2.7%. Of course, I wish I bought more at $1,290 when I first blogged on it and I really wish I first bought when it was at $1,200 when I first started looking at it - but, better to wish you bought more than wish you bought less. So, with that being said, I grabbed the sack and picked up a little more today at $1,703.89. The fundamentals for SEB are making it look outrageously cheap from a long term standpoint and there continues to be heavy buying of shares out in the marketplace. Of course, there are shares for sale, but someone is buying them away. Rumor has it that it is the company that is doing so or value investors. I still think SEB is a $2,000+ stock by the end of 2007 and possibly as much as $3,000-$3,500 per share over the next 3-5 years. So, if it gets there, I'll wish I bought more, of course, but I'll feel better knowing I could have had even less than if I didn't pull the trigger at these levels. It probably was not the wisest move to buy near the upper end of the day's range on a very strong day, but I think in the end, I'll be glad I bought some more.
NBG - More Value at $9.20 - BORK! BORK! BORK!
NBG had a tough day down 1.8% to $9.15. I purchased some more last week between $9.26-$9.32, which was well off from its $9.60 highs. The pull back was not at all unexpected following the earnings announcement (buy on rumors, sell on news) and a welcome one. I might look to pick up a little more tomorrow. From a present day value, with the stock at $9.60, analysts said it was 'inline' with its peer group. So, that fact alone should make it a screaming buy at $9.15. Plus, NBG is assembling a massive growth strategy like no other bank in their region. It will be a couple of years before we see the real value from their acquisitions take hold - perhaps even longer - but this is still a $15-$20 stock or has a very viable chance to be within the next 12-24 months.
In the company's press release, the CEO of PFE was cognizant of the impact of the lost revenues that this event would have on PFE and the stock price. The CEO emphasized strong revenue growth to return in 2009, returning shareholder value through raising dividend & repurchasing shares, and noted the deep product line that is in the PFE pipeline (though admittedly, none had the alleged potential that the new PFE cholesterol drug would have). So, despite this set back, things do not look too bad, right?
Well, the media jumped all over this story all weekend - analysts and stock brokers were hyping the 'end of Pfizer' and the potential for an up to 25% fall in the stock price today. The stock did open low - yes - down 15% at around $23.50, but at that price, the buyers were ready in mass. Funny how EVERYONE says the stock is finished and going to collapse on the heels of this news, yet the buying at the open was huge. In fact, despite a couple of blips down to this price of $23+, you would have to go back to 1997 or thereabouts to when PFE actually first hit this price.
I think PFE is a long-term buy at these levels, but probably best through its direct stock purchase plan as there are absolutely no fees and the key to this one is long term focus. Close to a 4% dividend yield, less than 11x next year's earnings, $1.75/cash on hand (some say to more aggressively purchase shares and to potentially raise the dividend), and over $17B in operating free cash flow.
Of course, with this, I feel even better about my decision to buy MRK over PFE, although the experts said PFE was the better buy. You can see my blog on this from October 13, 2006 (when I went up 1-0) and the original blog on September 5, 2006 (when the article came out and my discussion points).
Regardless, I see this dip as an opportunity to enter into PFE and start accumulating a stake for myself and my daughters. This is certainly a long term one that you want to put a chunk of money in every month or even once a year (Dogs of the Dow Theory), re-invest the dividends, and then just commit to fund your position every year.
Regardless, look for PFE to return to $28 within 6 months - on to other updates.
INFT - At Last We Will Reveal Ourselves to the Jedi
Well, I can see nobody jumped on the announcement and bought any INFT before I bought today. I know this because my trade was the first of the day. I picked some up at $3.69 and $3.70 and it closed at $3.72. I suppose it didn't really bounce up all that much as I thought it had the chance to, but that is a good thing. This provides more time to acquire shares at these levels. In all honesty, it probably will not move up much until 2007 sometime - we may even seen it decline some as we plow through the usual December tax selling. I will strategically and incrementally add to my position during this time.
SEB - Breaking $1,700 - We're Gonna Need a Bigger Boat
Another banner day for SEB - closing at $1,715, up 2.7%. Of course, I wish I bought more at $1,290 when I first blogged on it and I really wish I first bought when it was at $1,200 when I first started looking at it - but, better to wish you bought more than wish you bought less. So, with that being said, I grabbed the sack and picked up a little more today at $1,703.89. The fundamentals for SEB are making it look outrageously cheap from a long term standpoint and there continues to be heavy buying of shares out in the marketplace. Of course, there are shares for sale, but someone is buying them away. Rumor has it that it is the company that is doing so or value investors. I still think SEB is a $2,000+ stock by the end of 2007 and possibly as much as $3,000-$3,500 per share over the next 3-5 years. So, if it gets there, I'll wish I bought more, of course, but I'll feel better knowing I could have had even less than if I didn't pull the trigger at these levels. It probably was not the wisest move to buy near the upper end of the day's range on a very strong day, but I think in the end, I'll be glad I bought some more.
NBG - More Value at $9.20 - BORK! BORK! BORK!
NBG had a tough day down 1.8% to $9.15. I purchased some more last week between $9.26-$9.32, which was well off from its $9.60 highs. The pull back was not at all unexpected following the earnings announcement (buy on rumors, sell on news) and a welcome one. I might look to pick up a little more tomorrow. From a present day value, with the stock at $9.60, analysts said it was 'inline' with its peer group. So, that fact alone should make it a screaming buy at $9.15. Plus, NBG is assembling a massive growth strategy like no other bank in their region. It will be a couple of years before we see the real value from their acquisitions take hold - perhaps even longer - but this is still a $15-$20 stock or has a very viable chance to be within the next 12-24 months.
Thursday, November 30, 2006
ASTE - The End of the Road
It is a very bittersweet day - I have officially closed out my position in ASTE - exiting with approximately a 45% gain over the course of 10 weeks. It is always difficult to part with your winners - there is always the fear that they will go higher and that you will miss the boat on it. However, you have to keep your strategy in check. When I originally purchased ASTE back in September, the vision was a rebound into the mid 30s range after getting whacked down 50%+ following an excellent earnings report that did not meet Wall Street expectations. My September 5, 2006 blog highlighting ASTE at $24.71 discusses this. So, it's time to move on.
My reasoning is as follows. First, it hit my short-term target of the mid $30s. Also, although prospects for the company remain strong and ASTE could very well continue its upward trend, it appears that the current trend is running out of gas. $35+ has been challenged a couple of times, but on relatively light volume - at least compared to what brought it up to $30+.
Additionally, the downside seems to be more of a risk, especially now that the market is expecting ASTE to overperform in the 4th Quarter 2006 as that information was disclosed in the conference call regarding 3Q 2006 numbers. Basically, the bulk of the potential upside to a strong 4th Q may already be priced in.
So, now with ASTE gone, I need to find another position to fill up my day and replace ASTE in the portfolio. I will also be evaluating how I would like to use the principal and proceeds from this trade to strengthen my positions in NBG, INFT, ASHG, and possibly SEB. NBG looks very attractive right now after it reported strong earnings and is down 3.5% on the news - buy on rumors, sell on news as they say.
My reasoning is as follows. First, it hit my short-term target of the mid $30s. Also, although prospects for the company remain strong and ASTE could very well continue its upward trend, it appears that the current trend is running out of gas. $35+ has been challenged a couple of times, but on relatively light volume - at least compared to what brought it up to $30+.
Additionally, the downside seems to be more of a risk, especially now that the market is expecting ASTE to overperform in the 4th Quarter 2006 as that information was disclosed in the conference call regarding 3Q 2006 numbers. Basically, the bulk of the potential upside to a strong 4th Q may already be priced in.
So, now with ASTE gone, I need to find another position to fill up my day and replace ASTE in the portfolio. I will also be evaluating how I would like to use the principal and proceeds from this trade to strengthen my positions in NBG, INFT, ASHG, and possibly SEB. NBG looks very attractive right now after it reported strong earnings and is down 3.5% on the news - buy on rumors, sell on news as they say.
Saturday, November 4, 2006
SEB - Hits $1,540. ASTE and INFT updates.
Who bought SEB when I told everyone too when it was at $1,290? Anyone? Anyone? Bueller? Bueller? Didn't think so....biggest crickets.
I initially suggested that SEB would hit $1,500 by the end of the year...I lied. It did it Friday, Nov. 3. Today, SEB closed at $1,540 per share...up 19.3% from my mention. Well, too bad for me I bought some when I announced it :-). Anyway, solid company and reported solid financials, again. Nothing spectacular in terms of growth, but SEB is just producing a lot of cash and appears to be grossly undervalued trading at less than 7 times earnings. This really is a $3,000+ per share stock. It will take patience though - maybe 2-3 years. I hope I can buy some more.
ASTE has been relatively flat and has been somewhat soft since it's huge run up to $33.99 intraday. It has trickled down, but after a so-so trading day, it closed strong at $31.69 (up $0.18). Right now, we are seeing a natural breather following the very aggressive run up and probably some profit taking on valuation and just stock timing. 2 items to consider with ASTE: (1) the cup and handle; (2) trade shows and Don Brock's retirement.
1. CUP AND HANDLE
A pattern on bar charts resembling a cup with a handle. The cup is in the shape of a "U" and the handle has a slight downward drift. The right-hand side of the pattern has lowtrading volume. It can be as short as seven weeks and as long as 65 weeks. As the stock comes up to test the old highs, the stock will incur selling pressure by the people who bought at or near the old high. This selling pressure will make the stock price trade sideways with a tendency towards a downtrend for four days to four weeks... then it takes off. The chart on ASTE is showing just that formation. I think we will see another strong upward move in the next 6-10 weeks and it might take it closer to $37-$38, my personal price target for it. Unfortunately, it is not a perfect U shape - the closer it is to the U shape the better, but the technicals are lining up that way. No promises.
2. ASTE INVESTOR SHOWS & DON BROCK
ASTE was founded by Dr. Don Brock, 67, who remains the company's CEO today. He is also a significant shareholder with 11% of the company. ASTE recently announced their attendance at an investor show. I would not be surprised to see ASTE pursuing suitors in light of his possible retirement. This is pure speculation, but he may be ready to diversify and have an exit strategy for his estate and 'golden' years. A fair purchase price for ASTE would probably be in the $38-$48 range; probably closer to the lower end of the spectrum. It appears that ASTE may be on the path to considering offers.
Inforte (NASDAQ: INFT) has not moved much. In fact, it has actually come down some, but there appears to be a lot of buyers ready in the $3.92-$4.02 range. I took the opportunity of INFT falling to $3.90 today and purchased a little more. I hope it makes me look like I made a good decision.
NBG, which I raised my buy everything you can price limit to $9.50 almost crossed that threshold this week by touching $9.40. NBG closed today at $9.23. It is still a good buy under $9.50 and I believe we will see $11 by the spring of 2007.
I initially suggested that SEB would hit $1,500 by the end of the year...I lied. It did it Friday, Nov. 3. Today, SEB closed at $1,540 per share...up 19.3% from my mention. Well, too bad for me I bought some when I announced it :-). Anyway, solid company and reported solid financials, again. Nothing spectacular in terms of growth, but SEB is just producing a lot of cash and appears to be grossly undervalued trading at less than 7 times earnings. This really is a $3,000+ per share stock. It will take patience though - maybe 2-3 years. I hope I can buy some more.
ASTE has been relatively flat and has been somewhat soft since it's huge run up to $33.99 intraday. It has trickled down, but after a so-so trading day, it closed strong at $31.69 (up $0.18). Right now, we are seeing a natural breather following the very aggressive run up and probably some profit taking on valuation and just stock timing. 2 items to consider with ASTE: (1) the cup and handle; (2) trade shows and Don Brock's retirement.
1. CUP AND HANDLE
A pattern on bar charts resembling a cup with a handle. The cup is in the shape of a "U" and the handle has a slight downward drift. The right-hand side of the pattern has lowtrading volume. It can be as short as seven weeks and as long as 65 weeks. As the stock comes up to test the old highs, the stock will incur selling pressure by the people who bought at or near the old high. This selling pressure will make the stock price trade sideways with a tendency towards a downtrend for four days to four weeks... then it takes off. The chart on ASTE is showing just that formation. I think we will see another strong upward move in the next 6-10 weeks and it might take it closer to $37-$38, my personal price target for it. Unfortunately, it is not a perfect U shape - the closer it is to the U shape the better, but the technicals are lining up that way. No promises.
2. ASTE INVESTOR SHOWS & DON BROCK
ASTE was founded by Dr. Don Brock, 67, who remains the company's CEO today. He is also a significant shareholder with 11% of the company. ASTE recently announced their attendance at an investor show. I would not be surprised to see ASTE pursuing suitors in light of his possible retirement. This is pure speculation, but he may be ready to diversify and have an exit strategy for his estate and 'golden' years. A fair purchase price for ASTE would probably be in the $38-$48 range; probably closer to the lower end of the spectrum. It appears that ASTE may be on the path to considering offers.
Inforte (NASDAQ: INFT) has not moved much. In fact, it has actually come down some, but there appears to be a lot of buyers ready in the $3.92-$4.02 range. I took the opportunity of INFT falling to $3.90 today and purchased a little more. I hope it makes me look like I made a good decision.
NBG, which I raised my buy everything you can price limit to $9.50 almost crossed that threshold this week by touching $9.40. NBG closed today at $9.23. It is still a good buy under $9.50 and I believe we will see $11 by the spring of 2007.
Saturday, October 21, 2006
Market Commentary - ASTE & Caterpillar, Inc. (NYSE: CAT) and a possible buy
Shareholders of Caterpillar (NYSE: CAT) had a very rough Friday. The company reported record-setting profits and sales and forecasted higher sales #'s and higher profit #'s for 2007.
Well, officially, they said 2007 sales and profit would grow in the range of 0%-5% and 0%-10% respectively. All sounds good, right? Well, on the day of this seemingly positive announcement, Caterpillar's stock fell nearly 15%. This decline is in addition to the 15% the stock was already down (pre-earnings announcement) since May, 2006, it's all time high. Basically, the stock is down 28% in the last 5-6 months.
The culprit? The company also reported that some segments of their business, like the U.S. housing market, was going to suffer another decline in 2007. The company also said that global growth would slow - not decline, but slow down. However, the company also said that many other segments of their business were going to continue to experience strong growth in many other aspects of their business, so what's the problem?
This one event sent shockwaves through the stock market on Friday. The Dow Jones was down 9 points and many estimate that Caterpillar's drop probably took 50-70 points off of the Dow. Basically, if it was not for CAT, the Dow would have been up another 50 points or so to another all time high.
CAT's decline also impacted just about every other stock in its industry. For instance, one of my holdings, Astec Industires (NASDAQ: ASTE) which is still up 6% since I mentioned it September 5, 2006 (despite being down 7% on Friday) had a rough day. For ASTE, this is probably a good thing. ASTE's stock cranked up to $28.50 on strong volume on Thursday before getting whacked on Friday thanks to CAT's earnings and partially to the October 2006 options expiring which always adds some volatility to the stock price.
Here are the realities:
1. Gap Filled
The stock closed the gap down that occurred in late July from $27.50 to $24.50. If you look at a 1 year chart, you will see the gaping whole in the stock price. The stock market is nothing but inventory management of the shares out there - more often than not, these gaps get filled somewhere along the line to restore balance. This has just recently happened and the upward pressure in the inventory to get back to close the gap was possibly responsible for the big upswing on Thursday morning. It's kind of like the stock getting ahead of itself. Controlled movements up are more solid than big explosions, though the latter are very exciting.
2. Support Held
From a technical standpoint, the stock held it's support line at $26.02. Of course, only time will tell, but long term, the current marketplace indicates things still bode well for ASTE.
3. Buffer for Earnings Announcement
As strange as it sounds, I actually welcomed this correction. I do have some nervousness about ASTE's earnings report on Monday morning. If the ASTE stock was flying high above $28 and maybe even breaking $30 going into Monday, well, if the earnings announcement was anything less than spectacular, we would have seen a very strong correction downard. Even worse, if the earnings report were negative, it would have been even worse. Additionally, even if the earnings were strong, it probably would not have had a huge upward effect on the price as that event may already have been priced in. Come Monday, regardless of earnings announcement, we likely would have seen a correction upward. The market always overreacts in the short term - either too high or too low. The steep decline on Friday will likely return some of the gains it took away come next week. Plus, in the event of a bad earnings news, CAT's announcement already laid the groundwork for that possibility and subsequently priced it into ASTE's stock price.
All in all, the fundamentals have not changed; I am not further acting on ASTE until I see the earnings announcement come Monday morning. If anything, I will add to my position, but I may just hold with what I have.
As for Caterpillar, down 15% in one day...and 30% in 5 months...it could very well be a buy for the long-term. When a stock has historically delivered 10%+ annual returns and then in a short period of time like 5 months or even 1 days...gives back 1-3 years of hard earned gains, it might make sense to dive in.
Well, officially, they said 2007 sales and profit would grow in the range of 0%-5% and 0%-10% respectively. All sounds good, right? Well, on the day of this seemingly positive announcement, Caterpillar's stock fell nearly 15%. This decline is in addition to the 15% the stock was already down (pre-earnings announcement) since May, 2006, it's all time high. Basically, the stock is down 28% in the last 5-6 months.
The culprit? The company also reported that some segments of their business, like the U.S. housing market, was going to suffer another decline in 2007. The company also said that global growth would slow - not decline, but slow down. However, the company also said that many other segments of their business were going to continue to experience strong growth in many other aspects of their business, so what's the problem?
This one event sent shockwaves through the stock market on Friday. The Dow Jones was down 9 points and many estimate that Caterpillar's drop probably took 50-70 points off of the Dow. Basically, if it was not for CAT, the Dow would have been up another 50 points or so to another all time high.
CAT's decline also impacted just about every other stock in its industry. For instance, one of my holdings, Astec Industires (NASDAQ: ASTE) which is still up 6% since I mentioned it September 5, 2006 (despite being down 7% on Friday) had a rough day. For ASTE, this is probably a good thing. ASTE's stock cranked up to $28.50 on strong volume on Thursday before getting whacked on Friday thanks to CAT's earnings and partially to the October 2006 options expiring which always adds some volatility to the stock price.
Here are the realities:
1. Gap Filled
The stock closed the gap down that occurred in late July from $27.50 to $24.50. If you look at a 1 year chart, you will see the gaping whole in the stock price. The stock market is nothing but inventory management of the shares out there - more often than not, these gaps get filled somewhere along the line to restore balance. This has just recently happened and the upward pressure in the inventory to get back to close the gap was possibly responsible for the big upswing on Thursday morning. It's kind of like the stock getting ahead of itself. Controlled movements up are more solid than big explosions, though the latter are very exciting.
2. Support Held
From a technical standpoint, the stock held it's support line at $26.02. Of course, only time will tell, but long term, the current marketplace indicates things still bode well for ASTE.
3. Buffer for Earnings Announcement
As strange as it sounds, I actually welcomed this correction. I do have some nervousness about ASTE's earnings report on Monday morning. If the ASTE stock was flying high above $28 and maybe even breaking $30 going into Monday, well, if the earnings announcement was anything less than spectacular, we would have seen a very strong correction downard. Even worse, if the earnings report were negative, it would have been even worse. Additionally, even if the earnings were strong, it probably would not have had a huge upward effect on the price as that event may already have been priced in. Come Monday, regardless of earnings announcement, we likely would have seen a correction upward. The market always overreacts in the short term - either too high or too low. The steep decline on Friday will likely return some of the gains it took away come next week. Plus, in the event of a bad earnings news, CAT's announcement already laid the groundwork for that possibility and subsequently priced it into ASTE's stock price.
All in all, the fundamentals have not changed; I am not further acting on ASTE until I see the earnings announcement come Monday morning. If anything, I will add to my position, but I may just hold with what I have.
As for Caterpillar, down 15% in one day...and 30% in 5 months...it could very well be a buy for the long-term. When a stock has historically delivered 10%+ annual returns and then in a short period of time like 5 months or even 1 days...gives back 1-3 years of hard earned gains, it might make sense to dive in.
Wednesday, October 18, 2006
The $100 Million Family Trust - Automatic Investing & Direct Stock Purchase Plans
Today, I started my first ever automatic investing plan and signed up for my direct stock purchase plan with Merck (NYSE: MRK). Of course, I have made investing an integral part of my financial strategy, but not like this.
First, thanks to SogoInvest.com, you can easily set up automatic investing plans for as little as $1.00 per trade. Regular stock trades are only $1.50-$3.00 each, which is better than anything I have ever seen. There is also no minimum balance to open an account and for the first 90 days, trades are $1. This is awesome. Even if you do not trade a lot, the cheap commissions are key. For instance, say you have $100 to invest and you want to buy a couple of shares of MRK at $44/share. Well, excluding the fact that at most brokers you have to deposit anywhere from $500 to $2,500 just to open the account, you will be paying anywhere from $7 to $15 for the trade. So, if you wanted to put aside $100 each month and buy MRK, well, at the end of the year, you would have put aside $1,200 and paid $120 in commissions...that is 10% of your investment. If you can get those trades for say $1 each, then you are only down 1% of your investment. It really makes a difference in terms of being able to have all of your money go to investing rather than commissions. I only wish I heard about these guys sooner. Sogo's automatic investing plan is pretty sweet. You can schedule your trades in advance (daily, weekly, monthly) and you can specify how much total money you want to invest and how you want to spread it around (e.g., 100% in one stock or 50% each in 2 stocks). They also enable the purchase of fractional shares in the automatic investing plan, so you can get 100% invested in your stocks. For instance, if you put aside $100 and wanted to buy MRK at $44, you would have to only buy 2 shares and have $12 left over. Now, it would let you buy 2.2727 shares of MRK. Big difference over the long term. Anyway, I would check out SogoInvest if you have not opened a trading account or you want to switch. Personally, I have chosen to automatically invest in shares and fractional shares of NBG and SEB through my automatic investment program with Sogo.
The next thing I did was sign up for direct investment purchase plan with Merck. I set up three accounts - 1 for me and 1 for each of my 2 daughters. Basically, direct purchase plans (DPP) allow you to directly invest in the company's stock with out going through an online or regular broker. Typically, the fees are less and they make it very attractive to get involved. For instance, MRK's plan is a $5 set up fee, $2 for each deposit, and $0.01/share commission when purchasing. There is a $5-$10 fee when you want to sell stock. There is no minimum balance as long as you agree to commit $50/mo. via an automated withdrawl each month. You can also come up with $350 upfront. All funds are used for investing in the stock (even in fractional shares) and all dividends are fully reinvested (at your discretion) in more shares of the company. Fees by companies vary. For instance, Quanex (NYSE: NX) has a $15 set up fee and no fees for deposits, purchases, or reinvestments. It's totally free to buy shares, although there is a $50/mo. minimum required investment. Wells Fargo (NYSE: WFC), for instance, has some fees ($10 to set up, $1 per deposit, $0.03/share to buy), but their monthly minimum automatic investment is $25.00.
So, why the sudden motivation to start this?
Well, first, they say the best way to save and build wealth for yourself is to get into the habit of saving and maintain the discipline to put aside even if just a little bit each month. Whether it is $20 or $100 or whatever, you should just do it or find a way to do it. And, while that is not easy, the trick is, where do you put it.
Obviously, if it is 'savings', you probably want it to be in something stable and consistent, and not things that are volatile. Besides, this is for the long term or for an emergency or to buy a house one day and you want to have some confidence in the future value of these savings. Unfortunately, most people opt to put money in savings accounts or bank CDs. Not for me.
Even if you are totally risk averse and want 'guaranteed' (note that nothing is guaranteed) return, you can do a lot better putting your money into a bond fund of some sort.
Why do I say this, banks are not just necessary evils, they are thieves. I mean, not only do we all just give them our money, but then they use our money to make money for themselves....and charge us fees for doing so!!! Talk about the double dip, I mean really. Actually a triple dip...because more often than not, they do not give you anything back in return for you giving them your money. Sometimes, you get interest, but it is very small and there are minimum balances, etc. I just don't believe it.
Wait a second, Terence, you say....but, don't you own stock in a bank (e.g., National Bank of Greece, NYSE: NBG).
Actually, I am glad you brought that up. Banks are thieves and therefore can make a lot of money and can be good investments, just not the best place to park your money.
So, ok, I answered your question where not to park your money, so natuarally, where do you park it? For the automatic investment plans, I have opted to enlist in those offered by MRK, perhaps WFC, and maybe NX. I might do WFC in the next couple of months, but will start with MRK now. MRK's DPP Web Site & Information.
I chose MRK because I believe in the company's stability and ability to deliver shareholder value over the long term. I keep pretty good track of my finances via Quicken, but for these accounts, I am not going to record them as an asset. Basically, it is going to be like I spent the money and it disappears. Of course, I know I'll have them, but I won't look at them every day. I think this is part of the discipline that will make it easier to make this strategy successful. I have my contributions clearly delineated so I can track contributions to the DPP, but I will not actually see its performance day to day.
Anyway, back to the original point, "Why MRK?". Well, again, I believe in their long term ability to drive shareholder value through both price appreciations and dividend yield. Currenty yield (or payout) is about 3.5% - the dividends alone beats just about any savings or money market account you can get at a bank. If you invested $100 in MRK back in 1984-2004 and simply re-invested the dividends and did not buy any more along the way, it would be worth over $2,200 today. Compare to a 5% CD during th esame time period and your $100 would be worth $265. If you go back even further to the 1970s and earlier, the MRK return is even more impressive.
That is the goal here. Not only to just have it there 20, 30, 40 years from now - but to continually add to the position and re-invest all dividends to purchase more shares. Maybe I'll have enough shares to be on the board of MRK - that'd be cool.
The other thing that really opened my eyes to this strategy was an article I read about some of the wealthiest families in the country. Most of these people you have not heard of, but they are worth tens of millions if not hundreds of millions of dollars. How did they do it? Well, they inherited it in many cases, but these people that analyzed the holdings of these families. Large blocks of their worth was tied up in the big name stocks, blue chip stocks - GE, MRK, IBM, JNJ (Johnson & Johnson), KO (Coke), AXP (American Express). Strong histories and operations coupled with strong dividend payouts that simply got reinvested in more shares of the stock.
So, that is where I am at. I probably won't make tens of millions or hundreds of millions of dollars during my life. I might, but probably not. But, I want to see if things I do today can create that opportunity for my daughters and perhaps their children as well to be in that position. No promises, but automatically investing, re-investing dividends, & taking advantage of direct purchase plans with their lower fees & ease of effectively investing in small incremental amounts - these are all steps in the right direction to building that legacy.
First, thanks to SogoInvest.com, you can easily set up automatic investing plans for as little as $1.00 per trade. Regular stock trades are only $1.50-$3.00 each, which is better than anything I have ever seen. There is also no minimum balance to open an account and for the first 90 days, trades are $1. This is awesome. Even if you do not trade a lot, the cheap commissions are key. For instance, say you have $100 to invest and you want to buy a couple of shares of MRK at $44/share. Well, excluding the fact that at most brokers you have to deposit anywhere from $500 to $2,500 just to open the account, you will be paying anywhere from $7 to $15 for the trade. So, if you wanted to put aside $100 each month and buy MRK, well, at the end of the year, you would have put aside $1,200 and paid $120 in commissions...that is 10% of your investment. If you can get those trades for say $1 each, then you are only down 1% of your investment. It really makes a difference in terms of being able to have all of your money go to investing rather than commissions. I only wish I heard about these guys sooner. Sogo's automatic investing plan is pretty sweet. You can schedule your trades in advance (daily, weekly, monthly) and you can specify how much total money you want to invest and how you want to spread it around (e.g., 100% in one stock or 50% each in 2 stocks). They also enable the purchase of fractional shares in the automatic investing plan, so you can get 100% invested in your stocks. For instance, if you put aside $100 and wanted to buy MRK at $44, you would have to only buy 2 shares and have $12 left over. Now, it would let you buy 2.2727 shares of MRK. Big difference over the long term. Anyway, I would check out SogoInvest if you have not opened a trading account or you want to switch. Personally, I have chosen to automatically invest in shares and fractional shares of NBG and SEB through my automatic investment program with Sogo.
The next thing I did was sign up for direct investment purchase plan with Merck. I set up three accounts - 1 for me and 1 for each of my 2 daughters. Basically, direct purchase plans (DPP) allow you to directly invest in the company's stock with out going through an online or regular broker. Typically, the fees are less and they make it very attractive to get involved. For instance, MRK's plan is a $5 set up fee, $2 for each deposit, and $0.01/share commission when purchasing. There is a $5-$10 fee when you want to sell stock. There is no minimum balance as long as you agree to commit $50/mo. via an automated withdrawl each month. You can also come up with $350 upfront. All funds are used for investing in the stock (even in fractional shares) and all dividends are fully reinvested (at your discretion) in more shares of the company. Fees by companies vary. For instance, Quanex (NYSE: NX) has a $15 set up fee and no fees for deposits, purchases, or reinvestments. It's totally free to buy shares, although there is a $50/mo. minimum required investment. Wells Fargo (NYSE: WFC), for instance, has some fees ($10 to set up, $1 per deposit, $0.03/share to buy), but their monthly minimum automatic investment is $25.00.
So, why the sudden motivation to start this?
Well, first, they say the best way to save and build wealth for yourself is to get into the habit of saving and maintain the discipline to put aside even if just a little bit each month. Whether it is $20 or $100 or whatever, you should just do it or find a way to do it. And, while that is not easy, the trick is, where do you put it.
Obviously, if it is 'savings', you probably want it to be in something stable and consistent, and not things that are volatile. Besides, this is for the long term or for an emergency or to buy a house one day and you want to have some confidence in the future value of these savings. Unfortunately, most people opt to put money in savings accounts or bank CDs. Not for me.
Even if you are totally risk averse and want 'guaranteed' (note that nothing is guaranteed) return, you can do a lot better putting your money into a bond fund of some sort.
Why do I say this, banks are not just necessary evils, they are thieves. I mean, not only do we all just give them our money, but then they use our money to make money for themselves....and charge us fees for doing so!!! Talk about the double dip, I mean really. Actually a triple dip...because more often than not, they do not give you anything back in return for you giving them your money. Sometimes, you get interest, but it is very small and there are minimum balances, etc. I just don't believe it.
Wait a second, Terence, you say....but, don't you own stock in a bank (e.g., National Bank of Greece, NYSE: NBG).
Actually, I am glad you brought that up. Banks are thieves and therefore can make a lot of money and can be good investments, just not the best place to park your money.
So, ok, I answered your question where not to park your money, so natuarally, where do you park it? For the automatic investment plans, I have opted to enlist in those offered by MRK, perhaps WFC, and maybe NX. I might do WFC in the next couple of months, but will start with MRK now. MRK's DPP Web Site & Information.
I chose MRK because I believe in the company's stability and ability to deliver shareholder value over the long term. I keep pretty good track of my finances via Quicken, but for these accounts, I am not going to record them as an asset. Basically, it is going to be like I spent the money and it disappears. Of course, I know I'll have them, but I won't look at them every day. I think this is part of the discipline that will make it easier to make this strategy successful. I have my contributions clearly delineated so I can track contributions to the DPP, but I will not actually see its performance day to day.
Anyway, back to the original point, "Why MRK?". Well, again, I believe in their long term ability to drive shareholder value through both price appreciations and dividend yield. Currenty yield (or payout) is about 3.5% - the dividends alone beats just about any savings or money market account you can get at a bank. If you invested $100 in MRK back in 1984-2004 and simply re-invested the dividends and did not buy any more along the way, it would be worth over $2,200 today. Compare to a 5% CD during th esame time period and your $100 would be worth $265. If you go back even further to the 1970s and earlier, the MRK return is even more impressive.
That is the goal here. Not only to just have it there 20, 30, 40 years from now - but to continually add to the position and re-invest all dividends to purchase more shares. Maybe I'll have enough shares to be on the board of MRK - that'd be cool.
The other thing that really opened my eyes to this strategy was an article I read about some of the wealthiest families in the country. Most of these people you have not heard of, but they are worth tens of millions if not hundreds of millions of dollars. How did they do it? Well, they inherited it in many cases, but these people that analyzed the holdings of these families. Large blocks of their worth was tied up in the big name stocks, blue chip stocks - GE, MRK, IBM, JNJ (Johnson & Johnson), KO (Coke), AXP (American Express). Strong histories and operations coupled with strong dividend payouts that simply got reinvested in more shares of the stock.
So, that is where I am at. I probably won't make tens of millions or hundreds of millions of dollars during my life. I might, but probably not. But, I want to see if things I do today can create that opportunity for my daughters and perhaps their children as well to be in that position. No promises, but automatically investing, re-investing dividends, & taking advantage of direct purchase plans with their lower fees & ease of effectively investing in small incremental amounts - these are all steps in the right direction to building that legacy.
Friday, October 6, 2006
Inforte (NASDAQ: INFT) - $3.98
Inforte (NASDAQ: INFT) is currently trading at $3.98/share, which is awfully close to it's 52-week low of $3.68.
Inforte provides business consulting, strategy, and analytics services and their web site is http://www.inforte.com/. This company went public back in 2000 at $32 per share and then went up as high as $80 or so back in the Internet craze days.
The company then traded in the $6-$7 range and then crept back up to $13 in 2002-2003. I know this because back at Stetson when I was in the Roland George Investment Program, this was my pick that I discovered and had to present to the program's other students and board of directors to purchase. I cited their profitability, lack of debt, etc. and the fund picked up 40,000 shares or so around $7-$7.25 and then sold out about a year later at $13.
I also suggested Stamps.com (NASDAQ: STMP) at $3.50 in the same presentation, but that pick was rejected. STMP hit $30+ earlier this year. Too bad I didn't buy any of that one myself.
Anyway, here is Inforte's deal, in my opinion.
The company's business prospects and revenue have slowed, but they have been improving their newly developed customer analyltics line. Analytics is basically using data to track business trends and help make better decisions. Inforte is moving in this direction and has had some success. However, while this is all good, I do not believe this is the factor that will lead them to do well. Although, I do believe that they will improve their revenue and profitability, but we will not see that for 9-12 months.
A going private or acquisition transaction would be a more likely event that would return greater value to the shareholders, and I see that happening in the $7-$8 range. Perhaps as high as $12, but I think $7-$8 is more realistic.
Here is why
1. The company has $2.52/share in cash and $0 debt. The cash alone is about 65% of their stock value. Additionally, the interest on the cash alone will be sufficient to generate postive cash flow for the company. even in the event they do suffer a loss (which is possible for the subsequent quarters). The additional cash should help build this cash stash and make for even a more attractive valuation at $4.
2. The company is trading at 1.1 tim
es sales (a buyout would likely yield at least a 2.0-2.5 times sales valuation, meaning basically double the stock price)
3. The company is trading at 0.88 times book value. This is also attractive. Basically, right now, the book value alonesuggests that the company is worth at least $4.50 per share. Basically, meaning, if you purchase for $4 it is worth at least $4.50 on paper.
4. Institutional purchasing is up since the last quarter, with over 650,000 shares being purchased, or about 5% of the total shares outstanding.
5. The company has put aside about $5M for a stock re-purchase that has already been authorized. The company has said they will wait for the right time to play this card and repurchase shares on the open market. In the past, they got badly burned buying shares back on the open market, so they are more cautious this time around. However, when the time comes, we may very likely see an additional 800,000-1.2M shares, or about 10% of the shares outstanding, repurchased on the open market.
I think this is a great buy now and should be accumulated at any price under $4.50 - at least, that is what I plan to do. This should be an easy 50%-100% gain within the next 12-18 months.
Inforte provides business consulting, strategy, and analytics services and their web site is http://www.inforte.com/. This company went public back in 2000 at $32 per share and then went up as high as $80 or so back in the Internet craze days.
The company then traded in the $6-$7 range and then crept back up to $13 in 2002-2003. I know this because back at Stetson when I was in the Roland George Investment Program, this was my pick that I discovered and had to present to the program's other students and board of directors to purchase. I cited their profitability, lack of debt, etc. and the fund picked up 40,000 shares or so around $7-$7.25 and then sold out about a year later at $13.
I also suggested Stamps.com (NASDAQ: STMP) at $3.50 in the same presentation, but that pick was rejected. STMP hit $30+ earlier this year. Too bad I didn't buy any of that one myself.
Anyway, here is Inforte's deal, in my opinion.
The company's business prospects and revenue have slowed, but they have been improving their newly developed customer analyltics line. Analytics is basically using data to track business trends and help make better decisions. Inforte is moving in this direction and has had some success. However, while this is all good, I do not believe this is the factor that will lead them to do well. Although, I do believe that they will improve their revenue and profitability, but we will not see that for 9-12 months.
A going private or acquisition transaction would be a more likely event that would return greater value to the shareholders, and I see that happening in the $7-$8 range. Perhaps as high as $12, but I think $7-$8 is more realistic.
Here is why
1. The company has $2.52/share in cash and $0 debt. The cash alone is about 65% of their stock value. Additionally, the interest on the cash alone will be sufficient to generate postive cash flow for the company. even in the event they do suffer a loss (which is possible for the subsequent quarters). The additional cash should help build this cash stash and make for even a more attractive valuation at $4.
2. The company is trading at 1.1 tim
es sales (a buyout would likely yield at least a 2.0-2.5 times sales valuation, meaning basically double the stock price)
3. The company is trading at 0.88 times book value. This is also attractive. Basically, right now, the book value alonesuggests that the company is worth at least $4.50 per share. Basically, meaning, if you purchase for $4 it is worth at least $4.50 on paper.
4. Institutional purchasing is up since the last quarter, with over 650,000 shares being purchased, or about 5% of the total shares outstanding.
5. The company has put aside about $5M for a stock re-purchase that has already been authorized. The company has said they will wait for the right time to play this card and repurchase shares on the open market. In the past, they got badly burned buying shares back on the open market, so they are more cautious this time around. However, when the time comes, we may very likely see an additional 800,000-1.2M shares, or about 10% of the shares outstanding, repurchased on the open market.
I think this is a great buy now and should be accumulated at any price under $4.50 - at least, that is what I plan to do. This should be an easy 50%-100% gain within the next 12-18 months.
Thursday, October 5, 2006
Seaboard Corp. (AMEX: SEB) - $1,290
First, before you pass out, remember the price of the stock has nothing to do with how cheap or expensive it is. Besides, I think this is a $1,500 by the end of 2006 and a $2,000+ by the end of 2008.
This stock has had quite a run up over the years. 10 years ago, it was $246/share. It has been to around $1,800+ three times since July, 2005. It recently then fell down to $1,130, before rallying back to $1,469 and then back to $1,190 just a week ago. It is now trading at $1,290 and today traded as high as $1,334.95. It is key to note how the $1,190 bottom out is higher than $1,130, at least from a short term standpoint. Back in May, 2006, when the stock was trading around $1,600 or so, I read an article that cited this stock as cheap, even at those levels. I think what we are seeing here is some inventory turnover in the stock, and once complete, I foresee it breaking the $1,800 resistance line and moving up from there.
The company is primarily engaged in food processing and transportation and is a fairly large company with over 10,000 employees. http://www.seaboardcorp.com/, their web site, has more information.
The company was recently featured in Forbes as a company that showed significant activity of the major owners & company buying back stock on the open market. There are only 1.26M shares total outstanding and only 349,000 or so publicly available. The bulk of the shares are controlled by the founding family. The small number of shares out there create some volatility and really limit the supply of stock available. This is key, because as buying comes in, it eats away at what is available. Institutions purchased about 100,000 shares over the past quarter.
The company's price to earnings ratio is 6.3, they have $320/share of cash in the bank, and boast a 26.7% return on equity. The latter is a very strong number for a company with a 6.3 P/E. Consider Coca Cola (NYSE: KO) with a 30% ROE and a P/E of 21. True, not exactly apples to apples, but this might work better for a competitive comparison.
Smithfield Foods (NYSE: SFD) has a forward P/E of about 11.85 and a current P/E of 20.3. SEB, remember, has a 6.3 current P/E, boasts a 16.7% gross margin (vs. 10.8% for SFD) and operating margin of 11% vs 4% for SFD. Comparisons to Tyson Foods, Hormel, ConAgra, Danone, and others show that the ratios for SEB are strongly undervalued.
Part of the reason why is that SEB keeps a pretty closed lid when it comes to investor relations. No monster press releases or campaigns, which is a good thing for now as it provides an opportunity to accumulate. Eventually, though, the word will get out and we should see this stock receive a valuation a little more in line with its peers, although maybe slightly cheaper.
The company also settled an EPA allegation and the same publication also had an article about the strength of the pork market, which will benefit SEB tremendously (see www.porkmag.com/porkalert/latestalert.htm).
Some calculations I have run show this company has an intrinsic value of $4,200, but that may be a bit aggressive, at least for the next couple of years. However, it could possibly get there in the next 5-7.
There is a small dividend, but not a large yield (0.20%), but I expect this to grow as well as their earnings grow, but we'll see...because of the ownership structure, this may not be the case.
The company also trades at less than 1.5x book value, and I believe this is cheap considering their debt structure. They carry some, but are not heavily leveraged. Their strong cash flow will also help the company pocket $20-$30 per share of cash each year in most years to come.
All and all, for the long term, this is probably a safe place to put your money that over a course of several years, should grow nicely and has a very strong chance of outperforming its peers and perhaps the overall market in general.
This stock has had quite a run up over the years. 10 years ago, it was $246/share. It has been to around $1,800+ three times since July, 2005. It recently then fell down to $1,130, before rallying back to $1,469 and then back to $1,190 just a week ago. It is now trading at $1,290 and today traded as high as $1,334.95. It is key to note how the $1,190 bottom out is higher than $1,130, at least from a short term standpoint. Back in May, 2006, when the stock was trading around $1,600 or so, I read an article that cited this stock as cheap, even at those levels. I think what we are seeing here is some inventory turnover in the stock, and once complete, I foresee it breaking the $1,800 resistance line and moving up from there.
The company is primarily engaged in food processing and transportation and is a fairly large company with over 10,000 employees. http://www.seaboardcorp.com/, their web site, has more information.
The company was recently featured in Forbes as a company that showed significant activity of the major owners & company buying back stock on the open market. There are only 1.26M shares total outstanding and only 349,000 or so publicly available. The bulk of the shares are controlled by the founding family. The small number of shares out there create some volatility and really limit the supply of stock available. This is key, because as buying comes in, it eats away at what is available. Institutions purchased about 100,000 shares over the past quarter.
The company's price to earnings ratio is 6.3, they have $320/share of cash in the bank, and boast a 26.7% return on equity. The latter is a very strong number for a company with a 6.3 P/E. Consider Coca Cola (NYSE: KO) with a 30% ROE and a P/E of 21. True, not exactly apples to apples, but this might work better for a competitive comparison.
Smithfield Foods (NYSE: SFD) has a forward P/E of about 11.85 and a current P/E of 20.3. SEB, remember, has a 6.3 current P/E, boasts a 16.7% gross margin (vs. 10.8% for SFD) and operating margin of 11% vs 4% for SFD. Comparisons to Tyson Foods, Hormel, ConAgra, Danone, and others show that the ratios for SEB are strongly undervalued.
Part of the reason why is that SEB keeps a pretty closed lid when it comes to investor relations. No monster press releases or campaigns, which is a good thing for now as it provides an opportunity to accumulate. Eventually, though, the word will get out and we should see this stock receive a valuation a little more in line with its peers, although maybe slightly cheaper.
The company also settled an EPA allegation and the same publication also had an article about the strength of the pork market, which will benefit SEB tremendously (see www.porkmag.com/porkalert/latestalert.htm).
Some calculations I have run show this company has an intrinsic value of $4,200, but that may be a bit aggressive, at least for the next couple of years. However, it could possibly get there in the next 5-7.
There is a small dividend, but not a large yield (0.20%), but I expect this to grow as well as their earnings grow, but we'll see...because of the ownership structure, this may not be the case.
The company also trades at less than 1.5x book value, and I believe this is cheap considering their debt structure. They carry some, but are not heavily leveraged. Their strong cash flow will also help the company pocket $20-$30 per share of cash each year in most years to come.
All and all, for the long term, this is probably a safe place to put your money that over a course of several years, should grow nicely and has a very strong chance of outperforming its peers and perhaps the overall market in general.
Sunday, September 17, 2006
Oil & Gas Prices - What Next?
Recently, I have seen quite a few articles about the return of gas prices to $1.15-$1.25 per gallon based on the price of oil falling down to $15/bbl. There is certainly some merit to this, as oil prices are well off their highs of $78.40/bbl. and are now at around $63/bbl. Of course, I find this recent media frenzy suggesting rock bottom oil and gas prices odd considering 4-6 weeks ago, the articles being circulated suggested $100-$150 per barrel oil price by the end of 2006. What is further curious is that in any given week, you can find various articles - some hyping $100/bbl. oil and others hyping $10/bbl. oil. Barring an editorial error in which they put the decimal point in the wrong place, we have very different takes of what is going to happen.
As for me, I think it is more likely to see higher oil prices than lower in the coming years and we could very likely hit $80-$100 per barrel prices within the next 3-5 years. I would say that is more likely rather than $15/bbl. Granted, I am know energy expert or oil economics guru, but here is my two cents for what it's worth.
First, it is important to recognize that the price of oil is driven by the traders on the commodities exchanges. It is not controlled by the government, the military, OPEC, the oil companies, or anyone else with the exception of the traders. Certainly, the traders use information available to them and the signs provided by these groups, but it is the traders that trade up or trade down the prices of the contracts for delivery.
With this being said, all of the articles I have been reading on why oil prices will decline to as low as $15/bbl. are all driven by complex market dynamics and technical analysis theories. While there is certainly merit to this line of thought, and again I am no expert, it really seems as those that are theorizing $15/bbl. oil are grasping at straws. I call to mind Achem's Razor from the movie CONTACT: "All things being equal, the most simple explanation is probably the correct explanation."
For instance, on article discussed a complex, esoteric relationship between the hisorical price of oil, dating back to the early 1900s, expressed in 2006 dollars and drew a relationship between this benchmark and the price of a gram of gold. While I would not want to compete with the author's experience and knowledge in this arena, even if he is correct, I would have to venture to say the realities in the marketplace suggest higher priced oil rather than lower priced.
1. Global Consumption is Growing
The world is using a great deal of oil and that amount grows each year. While some statistics show that the rate of growth is slowing, every year, the world uses more oil. Even though production is high and inventories are rising, we are still using more and more oil. Basic economics: anything that is getting used more each day and there is only so much available will have upward pressure on prices. Additionally, should prices fall too low, it will actually encourage additional consumption and remove the focus from alternative energy sources. While we are still many, many years away from effectively reducing global dependence on oil, if there is no economic reason to do so, nothing will change and oil will be the primary source of energy. Since we are not really 'running out of oil' as there are a great deal of proven reserves in the world - some tapped, some not - if oil prices remain 'cheap' the world will be further encouraged to rely on oil. Again, supply and demand - demand grows,supply gets reduced, prices will go up.
2. China & India
This is likely the largest variable playing into the equation. Even when communist Russia was at its peak, its consumption does not even come close to rivaling that of China or India. Plus, Russia is a big producer of oil - China and India are not. Both of these countries are experiencing rapid industrial growth and even if their rate of growth slows, the oil consumption by each will continue to rise significantly. This variable is brand new and has never been a part of the marketplace before. Additionally, right now, the USA consumes roughly twice more oil than India and China combined on a daily basis. Take into the consideration that combined population of India and China are 8 times larger than the USA and it would not be surprising to see the ultimate daily need of these two countries be 2-6 times that of USA daily consumption. Additionally, the USA is showing no signs of reducing its dependence on oil and the populations of India and China are growing significantly faster than that of the USA. India and China have also been actively working together purchasing the majority of oil interests and securing contracts with large oil companies & government agencies in Nigeria, Sudan, and Iran. This was further represented by China's failed takeover of Unocal, a US company that was purchased by Chevron. Long story short, never before in the history of oil prices have these two countries been in the mix before and they will put substantial pressure on the oil market. Plus, neither of these nations has significant reserves or production capacity of their own.
3. High Prices = More Exploration
As mentioned before, the world is not 'running out of oil.' Well, in a sense it is, but it's not like we have pumped the last drop out of the earth. There are still huge reserves of oil left in the world. We know where it is - it is just that some is easier to get to than others. If prices are high, then it encourages additional exploration and of course provides oil companies the means to extract oil from the more difficult places. For instance, if oil is at $70/bbl. and it costs $40/bbl. to extract it from a location at the bottom of the ocean, then they will do so. However, if the cost is the same and the price of oil is at $20/bbl., well, then it's just not economically viable. It has been the high oil prices that have made possible the exploration and future extraction of the oil from the new find in the Gulf of Mexico. If prices drop too low, new exploration and extractions will slow down, causing upward pressure on the prices.
4. Lightning Does Not Strike Twice
Oil prices were at record lows in 1999 - close to $10-$15 per barrel. Nobody was watching back then and it allowed savvy investors and the oil companies to enormously profit as they purchased contracts for future barrels of oil for next to nothing compared to today's prices. This time around, the world is watching. Should the prices start to quickly fall, investors and other buyers probably will not wait for the drop to $15/bbl., but will start buying quickly helping to support the prices. We might see $40-$45 per barrel, but not $15, as the buying will rush in far before that price level.
5. OPEC Production Cuts
OPEC has already said it will cut production if prices fall too fast. This is not a move out of pure greed, but it is more of an effort to provide some consistency and stability to the oil market. Economies are fragile and cannot take volatile rises or declines in prices of any goods. As much as auto drivers might want to see $1/gallon gasoline again, to happen so rapidly is not just healthy for the overall domestic and global economy. OPEC knows this and obviously has been pushing its members to peak production capacity. If prices fall too low and OPEC maintains peak production capacity, then its members might as well just pump out barrels of water or sand rather than oil. If prices fall too much further, we will see production cuts - besides, if there is plenty of inventory on the market and demand is slowing, I guess the world does not need to be at peak capacity, right?
6. We're OK With High Gas Prices
This is a simplistic point as consumer gasoline consumption is not a monster factor on the price of oil. Sure, it factors in, but that is not what is driving the demand. Regardless, there was less complaining about gas pricing in the summer of 2006 when they were higher than summer of 2005 post Hurricane Katrina (when complaining was really bad). Additionally, those in Europe pay $5-$7 per gallon. There is still a great deal of room there.
There are other items that suggest higher oil prices will be the norm, such as government taxes and tariffs (e.g., $15/bbl. oil would be devastating for Alaska at this stage and illustrates the economic principle of market stability), but by and large, the above, in my opinion, represent more logical reasons why the price of oil will continue to be high. Furthermore, any weakness in which the price falls to certain lows will be met by great support. Besides, are we that lucky to see prices fall to $15 and then back to $80? Unlikely. We'll probably remain in the $45-$65 range for a while.
As for me, I think it is more likely to see higher oil prices than lower in the coming years and we could very likely hit $80-$100 per barrel prices within the next 3-5 years. I would say that is more likely rather than $15/bbl. Granted, I am know energy expert or oil economics guru, but here is my two cents for what it's worth.
First, it is important to recognize that the price of oil is driven by the traders on the commodities exchanges. It is not controlled by the government, the military, OPEC, the oil companies, or anyone else with the exception of the traders. Certainly, the traders use information available to them and the signs provided by these groups, but it is the traders that trade up or trade down the prices of the contracts for delivery.
With this being said, all of the articles I have been reading on why oil prices will decline to as low as $15/bbl. are all driven by complex market dynamics and technical analysis theories. While there is certainly merit to this line of thought, and again I am no expert, it really seems as those that are theorizing $15/bbl. oil are grasping at straws. I call to mind Achem's Razor from the movie CONTACT: "All things being equal, the most simple explanation is probably the correct explanation."
For instance, on article discussed a complex, esoteric relationship between the hisorical price of oil, dating back to the early 1900s, expressed in 2006 dollars and drew a relationship between this benchmark and the price of a gram of gold. While I would not want to compete with the author's experience and knowledge in this arena, even if he is correct, I would have to venture to say the realities in the marketplace suggest higher priced oil rather than lower priced.
1. Global Consumption is Growing
The world is using a great deal of oil and that amount grows each year. While some statistics show that the rate of growth is slowing, every year, the world uses more oil. Even though production is high and inventories are rising, we are still using more and more oil. Basic economics: anything that is getting used more each day and there is only so much available will have upward pressure on prices. Additionally, should prices fall too low, it will actually encourage additional consumption and remove the focus from alternative energy sources. While we are still many, many years away from effectively reducing global dependence on oil, if there is no economic reason to do so, nothing will change and oil will be the primary source of energy. Since we are not really 'running out of oil' as there are a great deal of proven reserves in the world - some tapped, some not - if oil prices remain 'cheap' the world will be further encouraged to rely on oil. Again, supply and demand - demand grows,supply gets reduced, prices will go up.
2. China & India
This is likely the largest variable playing into the equation. Even when communist Russia was at its peak, its consumption does not even come close to rivaling that of China or India. Plus, Russia is a big producer of oil - China and India are not. Both of these countries are experiencing rapid industrial growth and even if their rate of growth slows, the oil consumption by each will continue to rise significantly. This variable is brand new and has never been a part of the marketplace before. Additionally, right now, the USA consumes roughly twice more oil than India and China combined on a daily basis. Take into the consideration that combined population of India and China are 8 times larger than the USA and it would not be surprising to see the ultimate daily need of these two countries be 2-6 times that of USA daily consumption. Additionally, the USA is showing no signs of reducing its dependence on oil and the populations of India and China are growing significantly faster than that of the USA. India and China have also been actively working together purchasing the majority of oil interests and securing contracts with large oil companies & government agencies in Nigeria, Sudan, and Iran. This was further represented by China's failed takeover of Unocal, a US company that was purchased by Chevron. Long story short, never before in the history of oil prices have these two countries been in the mix before and they will put substantial pressure on the oil market. Plus, neither of these nations has significant reserves or production capacity of their own.
3. High Prices = More Exploration
As mentioned before, the world is not 'running out of oil.' Well, in a sense it is, but it's not like we have pumped the last drop out of the earth. There are still huge reserves of oil left in the world. We know where it is - it is just that some is easier to get to than others. If prices are high, then it encourages additional exploration and of course provides oil companies the means to extract oil from the more difficult places. For instance, if oil is at $70/bbl. and it costs $40/bbl. to extract it from a location at the bottom of the ocean, then they will do so. However, if the cost is the same and the price of oil is at $20/bbl., well, then it's just not economically viable. It has been the high oil prices that have made possible the exploration and future extraction of the oil from the new find in the Gulf of Mexico. If prices drop too low, new exploration and extractions will slow down, causing upward pressure on the prices.
4. Lightning Does Not Strike Twice
Oil prices were at record lows in 1999 - close to $10-$15 per barrel. Nobody was watching back then and it allowed savvy investors and the oil companies to enormously profit as they purchased contracts for future barrels of oil for next to nothing compared to today's prices. This time around, the world is watching. Should the prices start to quickly fall, investors and other buyers probably will not wait for the drop to $15/bbl., but will start buying quickly helping to support the prices. We might see $40-$45 per barrel, but not $15, as the buying will rush in far before that price level.
5. OPEC Production Cuts
OPEC has already said it will cut production if prices fall too fast. This is not a move out of pure greed, but it is more of an effort to provide some consistency and stability to the oil market. Economies are fragile and cannot take volatile rises or declines in prices of any goods. As much as auto drivers might want to see $1/gallon gasoline again, to happen so rapidly is not just healthy for the overall domestic and global economy. OPEC knows this and obviously has been pushing its members to peak production capacity. If prices fall too low and OPEC maintains peak production capacity, then its members might as well just pump out barrels of water or sand rather than oil. If prices fall too much further, we will see production cuts - besides, if there is plenty of inventory on the market and demand is slowing, I guess the world does not need to be at peak capacity, right?
6. We're OK With High Gas Prices
This is a simplistic point as consumer gasoline consumption is not a monster factor on the price of oil. Sure, it factors in, but that is not what is driving the demand. Regardless, there was less complaining about gas pricing in the summer of 2006 when they were higher than summer of 2005 post Hurricane Katrina (when complaining was really bad). Additionally, those in Europe pay $5-$7 per gallon. There is still a great deal of room there.
There are other items that suggest higher oil prices will be the norm, such as government taxes and tariffs (e.g., $15/bbl. oil would be devastating for Alaska at this stage and illustrates the economic principle of market stability), but by and large, the above, in my opinion, represent more logical reasons why the price of oil will continue to be high. Furthermore, any weakness in which the price falls to certain lows will be met by great support. Besides, are we that lucky to see prices fall to $15 and then back to $80? Unlikely. We'll probably remain in the $45-$65 range for a while.
Tuesday, September 12, 2006
National Bank of Greece (NBG) & Portfolio Strategy
I have taken another stock position - National Bank of Greece (NYSE: NBG) - $8.49 as of September 12, 2006.
In a nut shell, this is the largest bank in Greece and just a few short years ago, the company was the official state bank. However, the banking industry in Greece has now been further deregulated and hence, NBG is now a totally for-profit enterprise. At least, that is my understanding of it.
NBG is actually an ADR - American Depository Receipt. An ADR basically is a certificate that gives you the right of ownership and benefits of an underlying unit of common stock in a foreign company. This basically lets NBG trade on the US markets in addition to the Athens Stock Exchange.
Concisely, why do I like NBG?
1. Strong financial growth and highlights - The ROE for 2005 vs 2004 is very attractive.
2. International Expansion - being allowed to now it is not a Greek only bank, NBG has expanded into Serbia and other countries are in the works as many former socialist nations privatize their banking industry. I believe this trend will continue.
3. Well off from it's high of nearly $11 that occured a couple of months ago. While it is up from $2/share in 2003 and is up very recently from $7, it still is off from its highs.
4. Annual Dividend - strong annual dividend and was very strong for 2005. My guess is that some people sold post dividend, but the banks prospects remain strong.
5. Lots of cash - $6.81/share of cash in the bank. Not as attractive as Citigroup that has $125/share of cash in the bank and trades at $49, but still a very strong prospect considering when you buy a share, about 80% of that purchase is cash.
I like the long term prospects of international banks that are just starting to get their feet wet in the marketplace. Yes, NBG has history back close to 150 + years, but I think from an international standpoint, there is much greater avenue for growth and NBG is flexing it's muscle by buying the state bank in Serbia and being the leading contender for a state bank in Romania. NBG has the cash to make this happen and looks to yield long term success from its aggressive actions today. NBG is also not new to this expansion, beating out Citigroup for the purchase of a large bank in Turkey. Merril Lynch also upgraded NBG on Sept. 8. Often times, upgrades by firms are bad news, but typically safer bets when it comes to banks and financial industry (http://www.newratings.com/analyst_news/article_1363810.html).
On other notes today, I got out of a loser, LRT, that I initially got in at $3.27 and sold at $2.71 today. It hurts, but it's key to limit your losses early. Most people don't sell to lock in gains and hold on to losers hoping they will break even. Even if you still feel there is opportunity, you are best to protect your capital, re-allocate, and watch the position and maybe get back in if it starts to run as you expected it to. I took the freed up funds to purchase more NBG and more ASHG, which took a dip today down to $193, off from it's recent high of $210.
I wonder if my daughters know they will soon also be owners of a Greek bank? I plan to accumulate as frequently as I can for myself, my daughters, and retirement as long as it is under $9. I'll re-evaluate then.
In a nut shell, this is the largest bank in Greece and just a few short years ago, the company was the official state bank. However, the banking industry in Greece has now been further deregulated and hence, NBG is now a totally for-profit enterprise. At least, that is my understanding of it.
NBG is actually an ADR - American Depository Receipt. An ADR basically is a certificate that gives you the right of ownership and benefits of an underlying unit of common stock in a foreign company. This basically lets NBG trade on the US markets in addition to the Athens Stock Exchange.
Concisely, why do I like NBG?
1. Strong financial growth and highlights - The ROE for 2005 vs 2004 is very attractive.
2. International Expansion - being allowed to now it is not a Greek only bank, NBG has expanded into Serbia and other countries are in the works as many former socialist nations privatize their banking industry. I believe this trend will continue.
3. Well off from it's high of nearly $11 that occured a couple of months ago. While it is up from $2/share in 2003 and is up very recently from $7, it still is off from its highs.
4. Annual Dividend - strong annual dividend and was very strong for 2005. My guess is that some people sold post dividend, but the banks prospects remain strong.
5. Lots of cash - $6.81/share of cash in the bank. Not as attractive as Citigroup that has $125/share of cash in the bank and trades at $49, but still a very strong prospect considering when you buy a share, about 80% of that purchase is cash.
I like the long term prospects of international banks that are just starting to get their feet wet in the marketplace. Yes, NBG has history back close to 150 + years, but I think from an international standpoint, there is much greater avenue for growth and NBG is flexing it's muscle by buying the state bank in Serbia and being the leading contender for a state bank in Romania. NBG has the cash to make this happen and looks to yield long term success from its aggressive actions today. NBG is also not new to this expansion, beating out Citigroup for the purchase of a large bank in Turkey. Merril Lynch also upgraded NBG on Sept. 8. Often times, upgrades by firms are bad news, but typically safer bets when it comes to banks and financial industry (http://www.newratings.com/analyst_news/article_1363810.html).
On other notes today, I got out of a loser, LRT, that I initially got in at $3.27 and sold at $2.71 today. It hurts, but it's key to limit your losses early. Most people don't sell to lock in gains and hold on to losers hoping they will break even. Even if you still feel there is opportunity, you are best to protect your capital, re-allocate, and watch the position and maybe get back in if it starts to run as you expected it to. I took the freed up funds to purchase more NBG and more ASHG, which took a dip today down to $193, off from it's recent high of $210.
I wonder if my daughters know they will soon also be owners of a Greek bank? I plan to accumulate as frequently as I can for myself, my daughters, and retirement as long as it is under $9. I'll re-evaluate then.
Wednesday, September 6, 2006
ASTE - New Stock Pick - $24.71
Astec Industries, Inc. engages in the manufacture and marketing of road building equipment in the United States and internationally. It operates in four divisions: Asphalt, Aggregate and Mining, Mobile Asphalt Paving, and Underground.
I actually first started watching this one around $22 and initially jumped in at $23.50. But, I did not do my service to humanity and I did not post immediately as the burning bush told me to buy. But, that was like 2-3 trading days ago. Today, the stock closed at $24.71, up 5.15% on above average volume (330,000 shares vs. 3 month average of 231,000). A stock moving up on above average volume is a good thing...it typically indicates that there is more buying than selling.
This stock originally caught my attention when I noticed that on August 3, 2006, Tontine Capital Partners, which is run by Jeffrey Gendell, showed up on the insider transaction list. I know that name likely means nothing to you, but he is a tremendously successful investor and specializes in value investing. In short, he likes to buy companies when they appear to be grossly undervalued, at least in his opinion. And, at least for the positions he is required to report (owning more than 10% he has had tremendous success.
Mutual funds or independent investors typically do not like to buy more than 10% of the shares outstanding. This is because once you own 10% or more of a public company, you are required to report all of your buys and sells. This can get quite annoying and when trying to move large blocks of stock, really gives away your hand. If you own less than 10nd are not an officer or director, you can buy and sell freely without reporting. If you are a mutual fund and own less than 10%, you do have to report your position, but only every 3 months, and you do not have to disclose your individual transactions - just your overall position.
Anyway, the significance of the 10% issue is that Gendell sees a monster opportunity and not only went over the 10% mark, he continues to buy on the open market. He has reported purchases on 8/4, 8/7, 8/11, 8/17, 8/18, 8/31, and 9/1. I also would not be surprised to see that he bought more on 9/4 (today) since you have 2 trading days to report your purchases. Pretty sneaky on his part - as he bought last Thursday, but didn't tell anyone until after the market close today, allowing him to maybe pick up some more without showing his hand right away. In one month, he has bought 374,6000 shares from anywhere from $20.51-$23.58. Additionally, we have seen over 835,000 shares purchased by institutions and mutual funds during the 2nd Quarter of 2006....I am unsure how many of those are the responsibility of Gendell. We'll get a better take as to overall institutional buying come October when the funds report their 3rd Quarter activity.
Long story short.....more buyers than sellers = stock price goes up. And there is some smart money flowing into this stock.
On to the fundamentals. The company engages in the construction industry and is heaviliy involves producing industrial equipment for making, mixing, and working with asphalt cement and environmental remediation and control equipment.Both of these are huge markets and are growing.
Astec operates internationally and their product line is instrumental for the cement industry. The demand for cement is growing like crazy, both domestically and overseas, and ASTE can service both markets. This is further evidenced by the 5th largest cement company in the country and the largest American owned (this has implications), Ash Grove Cement investing over $160M in capital equipment to boost production in an Arkansas cement plant and to build a brand new plant in Nevada. Fortunately for me, Ash Grove Cement trades under the symbol ASHG and I am a long term holder and purchaser of ASHG for myself and my daughters. You can read more about ASHG in a previous blog of mine and in my stock picking group.
Anyway, back to ASTE.
ASTE is also involved in making equipment for emissions control and other environmental remediation processes. This is also a big industry and a big demand is present. There is growing national and international pressure for facilities, especially cement and asphalt facilities, to clean up their act. ASHG, for instance, is involved in many discussions about the high level of mercury emissions from their plants. Typically, ASHG just pays the fines associated with this, but there is growing pressure to address the cause of the problem and not just write checks. This environmental pressure should also play favorably into Astec's performance over the next 12-24 months.
Astec also has several other lines of business - www.astecindustries.com/companies/companies.htm
So, with all this being said, why ASTE? Aren't there other companies that make similar equipment and are in the same industry? Well, of course, but here are the facts.
1. I discussed the Gendell purchasing and track record above. That is certainly an important reason;
2. The financial metrics on this company are very attractive. There is no debt and ASTE trades at less than 1 times sales and less than 2 times book value. These are very attractive valuations. The company's sales and earnings continue to grow - 12% and 21% espectively year over year - and the company has a 14%+ return on equity. For a boring construction company, that is not bad.
3. The recent dip in the company's stock price. ASTE fell from a high of $42.25 in late April, 2006 to $19.95 just 3 months later. The reason? Despite posting 13.4%, 36.7%, and 38.2% gains in sales, net income, and backlog, respectively for the first 6 months 2006 vs. first 6 months 2005, the stock tanked 50%. Why? The company missed earnings estimates posted by the analysts. They were well off....20% less earnings than expected, but due to what the company called "certain negative events occurring at the end of the quarter that were beyond our control."
Overall, I expect demand for their products to be strong, the company to continue to post solid growth numbers for revenue and net income (at least over the next 2 years), and I expect the buying by Gendell to continue for a little while...maybe until the stock gets back to $30. These observations coupled with the apparent buying opportunity created by the stock price losing 50%+ of its value because of 'missing the estimates' should equate to a winner over the next few months and beyond. No promises, of course, but the facts look good.
I actually first started watching this one around $22 and initially jumped in at $23.50. But, I did not do my service to humanity and I did not post immediately as the burning bush told me to buy. But, that was like 2-3 trading days ago. Today, the stock closed at $24.71, up 5.15% on above average volume (330,000 shares vs. 3 month average of 231,000). A stock moving up on above average volume is a good thing...it typically indicates that there is more buying than selling.
This stock originally caught my attention when I noticed that on August 3, 2006, Tontine Capital Partners, which is run by Jeffrey Gendell, showed up on the insider transaction list. I know that name likely means nothing to you, but he is a tremendously successful investor and specializes in value investing. In short, he likes to buy companies when they appear to be grossly undervalued, at least in his opinion. And, at least for the positions he is required to report (owning more than 10% he has had tremendous success.
Mutual funds or independent investors typically do not like to buy more than 10% of the shares outstanding. This is because once you own 10% or more of a public company, you are required to report all of your buys and sells. This can get quite annoying and when trying to move large blocks of stock, really gives away your hand. If you own less than 10nd are not an officer or director, you can buy and sell freely without reporting. If you are a mutual fund and own less than 10%, you do have to report your position, but only every 3 months, and you do not have to disclose your individual transactions - just your overall position.
Anyway, the significance of the 10% issue is that Gendell sees a monster opportunity and not only went over the 10% mark, he continues to buy on the open market. He has reported purchases on 8/4, 8/7, 8/11, 8/17, 8/18, 8/31, and 9/1. I also would not be surprised to see that he bought more on 9/4 (today) since you have 2 trading days to report your purchases. Pretty sneaky on his part - as he bought last Thursday, but didn't tell anyone until after the market close today, allowing him to maybe pick up some more without showing his hand right away. In one month, he has bought 374,6000 shares from anywhere from $20.51-$23.58. Additionally, we have seen over 835,000 shares purchased by institutions and mutual funds during the 2nd Quarter of 2006....I am unsure how many of those are the responsibility of Gendell. We'll get a better take as to overall institutional buying come October when the funds report their 3rd Quarter activity.
Long story short.....more buyers than sellers = stock price goes up. And there is some smart money flowing into this stock.
On to the fundamentals. The company engages in the construction industry and is heaviliy involves producing industrial equipment for making, mixing, and working with asphalt cement and environmental remediation and control equipment.Both of these are huge markets and are growing.
Astec operates internationally and their product line is instrumental for the cement industry. The demand for cement is growing like crazy, both domestically and overseas, and ASTE can service both markets. This is further evidenced by the 5th largest cement company in the country and the largest American owned (this has implications), Ash Grove Cement investing over $160M in capital equipment to boost production in an Arkansas cement plant and to build a brand new plant in Nevada. Fortunately for me, Ash Grove Cement trades under the symbol ASHG and I am a long term holder and purchaser of ASHG for myself and my daughters. You can read more about ASHG in a previous blog of mine and in my stock picking group.
Anyway, back to ASTE.
ASTE is also involved in making equipment for emissions control and other environmental remediation processes. This is also a big industry and a big demand is present. There is growing national and international pressure for facilities, especially cement and asphalt facilities, to clean up their act. ASHG, for instance, is involved in many discussions about the high level of mercury emissions from their plants. Typically, ASHG just pays the fines associated with this, but there is growing pressure to address the cause of the problem and not just write checks. This environmental pressure should also play favorably into Astec's performance over the next 12-24 months.
Astec also has several other lines of business - www.astecindustries.com/companies/companies.htm
So, with all this being said, why ASTE? Aren't there other companies that make similar equipment and are in the same industry? Well, of course, but here are the facts.
1. I discussed the Gendell purchasing and track record above. That is certainly an important reason;
2. The financial metrics on this company are very attractive. There is no debt and ASTE trades at less than 1 times sales and less than 2 times book value. These are very attractive valuations. The company's sales and earnings continue to grow - 12% and 21% espectively year over year - and the company has a 14%+ return on equity. For a boring construction company, that is not bad.
3. The recent dip in the company's stock price. ASTE fell from a high of $42.25 in late April, 2006 to $19.95 just 3 months later. The reason? Despite posting 13.4%, 36.7%, and 38.2% gains in sales, net income, and backlog, respectively for the first 6 months 2006 vs. first 6 months 2005, the stock tanked 50%. Why? The company missed earnings estimates posted by the analysts. They were well off....20% less earnings than expected, but due to what the company called "certain negative events occurring at the end of the quarter that were beyond our control."
Overall, I expect demand for their products to be strong, the company to continue to post solid growth numbers for revenue and net income (at least over the next 2 years), and I expect the buying by Gendell to continue for a little while...maybe until the stock gets back to $30. These observations coupled with the apparent buying opportunity created by the stock price losing 50%+ of its value because of 'missing the estimates' should equate to a winner over the next few months and beyond. No promises, of course, but the facts look good.
Tuesday, September 5, 2006
Investment Ideas: Merck (NYSE: MRK) vs. Pfizer (NYSE: PFE)
This weekend, there was an article published at MarketWatch.com called "Merck vs. Pfizer", and it was about which was the better investment, MRK or PFE. If you are not familiar with these companies, these are two of the more prominent drug-makers/pharmaceutical companies in the world. MRK is the manufactuer of Vioxx, which has been all over the news because of the lawsuits surrounding deaths related to Vioxx use and MRK's voluntary recall. Pfizer is the maker of Viagra and also makes a lot of over the counter medicines such as Rolaids and Benadryl. Both companies literally have hundreds and hundreds of prescription and non-prescription drugs in their catalog.
Anyway, the point of the article is just what it says...who to invest in if you had to choose between them. In short, both companies are well off their all-time highs and have not performed well in the stock market the past couple of years, despite the growth and strong numbers they have achieved. However, times seem to be changing for both of them and each company seems to be on the rise. PFE is currently trading at $27.96 and MRK at $40.96 (MRK is a Dark Side Stock Pick at $39.65).
The article suggests that PFE is a better buy and over the next 2-5 years will give an investor a return of 74%-118% vs. MRK offering 31%-66%.
I have to disagree with this claim. I believe that MRK is the better buy and will return superior returns to PFE over the coming years.
1. MRK has had more law suit problems than PFE and these lawsuit problems have put pressure on the stock. However, MRK's product line is diverse and ultimately, these lawsuits will subside. PFE has had their share of legal problems, of coursem but the MRK ones have been more widely publicized, it seems. This is a downward pressure element that once removed, will allow MRK to move up more quickly than PFE that is essentially through their legal problem phases for the time being.
2. MRK has superior financial ratios across the board. MRK has more revenue per share, more cash per share, a 'cheaper' price to earnings ratio (both current and estimated), a cheaper price to growth ratio, a better debt position, and better return on equity and return on assets (despite MRK having lower operating and profit margins than PFE). MRK also has better year over year (yoy) revenue growth and earnings per share (EPS). In short, every major financial ratio points to MRK being a better 'value buy.' Compare MRK Key Statistics to PFE Key Statistics.
3. The article speaks that PFE has a bigger liquidity or buy out premium meaning that PFE is likely to fetch a higher buying price should they get bought out. I do not think this makes sense either as PFE is over 2 times as large as MRK and typically, the larger firms acquire the smaller firms. I do not believe that a merger of sorts is in the work for either of these companies anytime soon, however, I think MRK would stand to gain more from a buy out vs. PFE.
One thing that is in PFE's favor is the dividend yield. MRK has historically yielded 3.5%-3.7% in dividends to its investors; this is right in line with where it is currently at. PFE, on the other hand, has averaged a 2.1% yield over the same time period and it is currently at a 3.3% yield. So, this may suggest that the stock price would correct or be more likely to rise. The dividend yield is calculated by taking the annual dividend per share and dividing by the stock price. So, if PFE were to return to a 2.1% yield and be paying out the same dividend, the stock price would have to be at $46-$47 per share. Of course, one can argue that MRK has had a longer, stronger history of paying out higher dividends. It also seems that PFE is trying to play catch up in this arena. The dividend payout per quarter per share has grown from $0.11 to $0.24 since 2001, a 118% increase. MRK's has grown from $0.34 to $0.38, an 11% increase. This may also suggest that PFE is growing at a faster rate than MRK and is able to pay out more dividends, but I think this is more of a function of just paying out more of the available income to shareholders rather than representative of faster revenue growth. At some stage, companies mature, and it is in the best interest of the shareholders to distribute more cash out to the shareholders rather than retain it and keep it in the bank to grow.
All in all, both are good stock picks at this stage, I think, and both should do well over the next 12-24 months, barring any form of disaster, which is possible. But, I personally see MRK as a superior buy when compared to PFE.
Anyway, the point of the article is just what it says...who to invest in if you had to choose between them. In short, both companies are well off their all-time highs and have not performed well in the stock market the past couple of years, despite the growth and strong numbers they have achieved. However, times seem to be changing for both of them and each company seems to be on the rise. PFE is currently trading at $27.96 and MRK at $40.96 (MRK is a Dark Side Stock Pick at $39.65).
The article suggests that PFE is a better buy and over the next 2-5 years will give an investor a return of 74%-118% vs. MRK offering 31%-66%.
I have to disagree with this claim. I believe that MRK is the better buy and will return superior returns to PFE over the coming years.
1. MRK has had more law suit problems than PFE and these lawsuit problems have put pressure on the stock. However, MRK's product line is diverse and ultimately, these lawsuits will subside. PFE has had their share of legal problems, of coursem but the MRK ones have been more widely publicized, it seems. This is a downward pressure element that once removed, will allow MRK to move up more quickly than PFE that is essentially through their legal problem phases for the time being.
2. MRK has superior financial ratios across the board. MRK has more revenue per share, more cash per share, a 'cheaper' price to earnings ratio (both current and estimated), a cheaper price to growth ratio, a better debt position, and better return on equity and return on assets (despite MRK having lower operating and profit margins than PFE). MRK also has better year over year (yoy) revenue growth and earnings per share (EPS). In short, every major financial ratio points to MRK being a better 'value buy.' Compare MRK Key Statistics to PFE Key Statistics.
3. The article speaks that PFE has a bigger liquidity or buy out premium meaning that PFE is likely to fetch a higher buying price should they get bought out. I do not think this makes sense either as PFE is over 2 times as large as MRK and typically, the larger firms acquire the smaller firms. I do not believe that a merger of sorts is in the work for either of these companies anytime soon, however, I think MRK would stand to gain more from a buy out vs. PFE.
One thing that is in PFE's favor is the dividend yield. MRK has historically yielded 3.5%-3.7% in dividends to its investors; this is right in line with where it is currently at. PFE, on the other hand, has averaged a 2.1% yield over the same time period and it is currently at a 3.3% yield. So, this may suggest that the stock price would correct or be more likely to rise. The dividend yield is calculated by taking the annual dividend per share and dividing by the stock price. So, if PFE were to return to a 2.1% yield and be paying out the same dividend, the stock price would have to be at $46-$47 per share. Of course, one can argue that MRK has had a longer, stronger history of paying out higher dividends. It also seems that PFE is trying to play catch up in this arena. The dividend payout per quarter per share has grown from $0.11 to $0.24 since 2001, a 118% increase. MRK's has grown from $0.34 to $0.38, an 11% increase. This may also suggest that PFE is growing at a faster rate than MRK and is able to pay out more dividends, but I think this is more of a function of just paying out more of the available income to shareholders rather than representative of faster revenue growth. At some stage, companies mature, and it is in the best interest of the shareholders to distribute more cash out to the shareholders rather than retain it and keep it in the bank to grow.
All in all, both are good stock picks at this stage, I think, and both should do well over the next 12-24 months, barring any form of disaster, which is possible. But, I personally see MRK as a superior buy when compared to PFE.
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