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.
Saturday, October 21, 2006
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.
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