A common phrase in the stock market is "buy on rumors, sell on news." Typically, this revolves around speculation on items such as a company takeover or earning results. In short, in the near-term, the price runs up on the expectation of the rumors and then once the rumor comes true, the price weakens and declines.
National Bank of Greece (NYSE: NBG) reported 1Q 2007 earnings at 10:00am on Tuesday, May 30. The rapidly expanding bank reported net income of EUR381 versus EUR250 from the same period a year ago. Analysts were expecting EUR360 of income. NBG, which are actually the American Depository Receipts for the capital stock that trades on the Athens Stock Exchange, closed at a 52-week high of $12.10 on Tuesday, May 29, one day before the earnings announcement.
Today, NBG is trading down 1.6% to $11.90 and traded as low as $11.75 on the stellar earnings report. NBG met analyst expectations for revenue, exceeded net income projections by nearly 6%, and cited strong growth in its core business and even stronger growth in its recently acquired divisions in Turkey and Eastern Europe.
So, with all of these positive, upbeat earnings report, why is the stock down nearly 2% rather than up strong?
The answer is that the market was unofficially expecting earnings to be stellar and exceed the official expectations. The rumor is that National Bank of Greece knocked the cover off the ball, which they did, but not enough. They brought the runs in, but only hit a 500 foot home run when the masses were hoping for a 600 foot bomb. Hence, a moderate sell off on average volume – the selling on the actual news of the earnings announcement has arrived. This almost predictable selling after the pre-earnings run up presents a buying opportunity on this news selling.
For long-term holders of National Bank of Greece, the future still looks bright. The company is trading at about 10.5 times projected 2008 earnings, which is slightly less than its peers. However, its peers are not showing the growth rates or the aggressive acquisition strategy like Greece's largest bank. Current price to book value of over 3.2 is a little steep, but the company has merited the temporary valuation with their growth and focus on expansion.
I forecast that NBG still has 25%-30% upside over the next 12 months, which would price the NYSE traded ADRs at around $15.00-$15.60. I am raising my slash-and-burn, get me in at a 45-degree angle price from $11 to $12 – meaning that anything under $12 is a buy. In the short term, we may see some more selling pressure, especially next week after the ex-dividend date of June 1, 2007. NBG will be paying out EUR1 per share which is about $0.27 per ADR adjusted for the Euro to Dollar exchange rate and that each ADR represents one-fifth of a full share of NBG.
I am also partial to the possibility that a larger international bank may come in and scoop up this fast growing bank – but a mere 10% at best. The management of National Bank of Greece, if anything, that getting acquired by a larger bank is not on their agenda. However, everyone has a price and within the next 12 months, if a buy out were to happen, we would see a price tag of $17-$19 for each ADR. The buy-out scenario is unlikely, but everyone has a price and it provides additional upside potential to this bank.
Wednesday, May 30, 2007
Friday, May 25, 2007
What to Buy? New Stock Picks from INFT Winnings
1. SEB - More at $2,230
2. ASHG - More at $236
3. WNC - More at $14.10
4. SCMR - Buy at $3.68
5. GNCI - Buy at $9.05
6. TGIS - Buy at $11.00
For anyone that actively and soundly invests (or even speculates) to build wealth has heard in passing: "The stock market is just like gambling." Initially, it is easy to defensively respond to statements with some resentment, but the reality is, there are many similarities. Anything can happen, as we can see. Unexpected buyouts, miracle turnarounds, indictments of fraud coming out of nowhere – and those all play into the gambling game of the stock market. Conversely, some sports gamblers or casino gamblers will actually claim that they can research the field and find hidden value the same way that investors claim they can do the same.
I have found, however, that what separates an investor from a gambler – whether it be the stock market or a sports game – is that the investor not only makes educated decisions with sound rationale, but also has an above average success rate in coming out on top (whether it be finding a winner, cutting losers before they become total wipe outs, etc.). More importantly, the investor will take the proceeds from a win and then promptly re-invest in another position, rather than spending the money. Sports and financial 'gamblers' alike will brag about their wins, take all of the money from the wins and spend it. Short and simple, no wealth is built as all gains are disbursed out and losses, which do happen, way hard on the total performance.
My point is that I consider myself an investor and on the heels of the $4.25 buy out offer on Inforte (NASDAQ: INFT), I am taking my gains and re-investing. With the markets at all time highs, everything seems expensive, and it is hard to find value. I hate to sound fearful or bearish, but the comments from Alan Greenspan about a strong chance of us hitting recession, the recent housing data announcement making an interest rate cut unlikely, and seeing margin debt rise to levels higher than just before the 2001 market down-turn have me a little concerned about lofty valuations. Regardless, rather than sacrificing my gains to consumerism, here is the hand I will be playing next.
First, oldies but goodies.
Seaboard Corporation (AMEX: SEB)
Seaboard has had an amazing run the past several months, doubling from its Fall, 2006 lows. Back then, this one was a no-brainer, but now take a little more resolve. Seaboard has seen strong growth in its containerized cargo shipping division the past couple of years and there is no doubt that this sector has been hot. Seaboard continues to make strong capital investments in this unit and continues to maintain the efficacy of its other business lines. Off nearly 18% from its all-time high, I felt this was a good entry point to add to my position. At the close of trading on May 24, 2007, Seaboard was trading at less than 11x trailing earnings, 2.1x book value, and at less than 1.9x forward 12 months book value. An owner-friendly investment that retains much of their cash flow to fund their 20% return on equity business. I added to my position at $2,235 and I have a price target of $2,700-$2,900 per share.
Ash Grove Cement (Pink Sheets: ASHG)
Yes, this company trades on the Pink Sheets, which I know nobody really likes, but they are the 5th largest cement company in the USA and the largest American owned cement company in the country. Ash Grove Cement has committed $190M to increase capacity in its Arkansas cement plant by 70% and $250M to build only the 2nd cement plant in the state of Nevada. Ash Grove will also commit another $60M or so in 2007 to expand their cement capacity. I feel strongly that being the largest American owned cement plant will be critical in the future as cement demand increases not only domestically, but worldwide. With the growth of cement internationally expected to outpace growth in the USA over the coming years, I believe many of the international players will invest in foreign production and capacity. Of course, I would, too, but this puts the largest American player in a good position, and with the capacity, to become a more important supplier to meet the USA's substantial domestic need. Granted, I am not the cement company expert, but I do believe that the domestic vs. foreign demand issue has been somewhat overlooked. I first started my position in the Summer, 2005 at $160 per share and since then, have seen the stock rise $47% and seen the annual dividend increase by 10%. Going back further, the stock has done even better in terms of raising the dividend and providing appreciation to its owners. With the spread at $235 x $269, I have an order in to buy at $236. However, with the stock so thinly traded, I am not expecting a quick fill. Historically, I have watched the spread widen around dividend time – next ex-date is June 6, 2007 – and do expect offer price to come down post-dividend. Unfortunately, I have found on this one that if you want in, sometimes you just have to buy at the ask. It's no fun, but historically, I am glad I have done so. I do believe that upside exists to the $300-$320 range, but especially since the company does not announce financial results and is so thinly traded, patience is certainly a virtue.
Wabash National (NYSE: WNC)
One of my losers thus far, but there is value here. It will likely take several months for Wabash to see results show up in the stock price, but I believe it will happen. The stock is likely trading towards the lower end of its range and should be buoyed by the company's buy back program and some big purchases by 14% holder and heralded value/contrarian/cyclical investor, Tontine Capital Partners. The limited downside from here inclines me to add more to my position - but I will wait a little longer as the stock is up 2.8% today to $14.58 in relatively light volume. I have a target of $19-$23 and I expect Wabash to hit that in the next 12-18 months as the market for their products turns around in late 2007/early 2008, they show stronger margins in the face of growth due to their new ERP system, and see the nearly 4M shares short be forced to cover. In the meantime, this might be a long ride as the general sentiment about the industry is overwhelming negative.
New finds include:
Sycamore Networks (NASDAQ: SCMR)
This has been a storied stock its entire life on the NASDAQ. Unfortunately, it has not been a good story for most investors. The company makes networking hardware and equipment, which certainly is not very exciting and has much negativity surrounding it. Sycamore is currently delinquent in its SEC filings due to the notorious options back-dating situation. Such scandal is never a good thing from the appearance of things, but will have no cash impacts on their books. Sycamore currently has about $915M in cash, or about $3.28 per share. That is about 90% of their current market cap of just over $1B. More importantly, Sycamore has shown signs of life and reported a nearly 100% increase in sales, primarily due to an acquisition. I like the cash protecting from downside risk, signs of sales growth, and one of their core products serving the MSO/Cable companies, especially as it pertains to the new digital voice/digital phone service that runs over your cable infrastructure. Comcast, Charter, Cablevision, and Time Warner have all reported strong growth in the digital telephony arena and will need hardware to handle the traffic. Granted, Sycamore competes in a competitive landscape with companies like Cisco in the mix, but I am in at $3.68 with a price target of $4.75-$5.75 in the next 9-12 months – perhaps on an acquisition.
Gencor Industries, Inc. (OTC BB: GNCI)
A small manufacturer of construction equipment and machinery, particularly that serves the highway-construction industry. Gencor also makes equipment that has exposure to the environmental control and synthetic fuel arenas. Gencor is a partner in a joint-venture and receives royalty payments, albeit not material, but growing, for production of synthetic fuels. Gencor is trading near its 52-week low as it enters the historically slower 3rd and 4th quarters. The company is small with only $73M in sales. Gencor has no debt, $52M of cash and cash equivalents, which is about 60% of its market cap, and EV/EBITDA is 1.7. Compare the latter ratio to competitors, such as Astec Industries and its 10.8 EV/EBITDA, and there appears to be some value. Individual investor Lloyd Miller III has bought 72,500 shares since March 22, 2007 and now owns nearly 907,000 shares, which is roughly 10% of the company. A strange ownership structure with Class B shares, small float, and thinly traded status makes it hard to determine where this one could go. $9.05 is a good entry point and I think that Gencor should be trading closer to $16-$18, but its market dynamics may not allow that.
Thomas Group, Inc. (NASDAQ: TGIS)
Thomas Group is a very reputable consulting firm that has no debt, pays a dividend yield of nearly 4%, and is cash flow positive. Ratios, for the most part, show that Thomas Group is not cheap: 2x sales, 6x book value, 11x levered free cash flow. However, this company has a strong track record of success and its P/E is far lower than its peer companies. Only 3M of its 10.8M shares are in the public float, so the stock has the tendency to be volatile – in either direction, of course. The stock is trading a little under $11.00 which I feel is a good entry point. It recently traded as low as $9 in early May, 2007 and traded there in June, 2006 and August, 2006 – and bounced quickly up each time. We have seen a double-top at around $16 twice in 2006, but could we have the triple bottom at $9? Stock stands to get back to $16 and perhaps higher if they continue to show good numbers, but first will need to break through the $12 resistance. This one is more of a technical play than a fundamentals play, but it is likely not going any lower than $9-$10 and has a very strong chance, with a lot of rationale behind it, to move up to $15-$16. Enter under $11 and price target is $15.
Simplistically, I am looking for value to hedge against the lofty valuations we are currently seeing and I am strengthening my positions in those that the fundamental reasons why I bought in the first place have not changed.
2. ASHG - More at $236
3. WNC - More at $14.10
4. SCMR - Buy at $3.68
5. GNCI - Buy at $9.05
6. TGIS - Buy at $11.00
For anyone that actively and soundly invests (or even speculates) to build wealth has heard in passing: "The stock market is just like gambling." Initially, it is easy to defensively respond to statements with some resentment, but the reality is, there are many similarities. Anything can happen, as we can see. Unexpected buyouts, miracle turnarounds, indictments of fraud coming out of nowhere – and those all play into the gambling game of the stock market. Conversely, some sports gamblers or casino gamblers will actually claim that they can research the field and find hidden value the same way that investors claim they can do the same.
I have found, however, that what separates an investor from a gambler – whether it be the stock market or a sports game – is that the investor not only makes educated decisions with sound rationale, but also has an above average success rate in coming out on top (whether it be finding a winner, cutting losers before they become total wipe outs, etc.). More importantly, the investor will take the proceeds from a win and then promptly re-invest in another position, rather than spending the money. Sports and financial 'gamblers' alike will brag about their wins, take all of the money from the wins and spend it. Short and simple, no wealth is built as all gains are disbursed out and losses, which do happen, way hard on the total performance.
My point is that I consider myself an investor and on the heels of the $4.25 buy out offer on Inforte (NASDAQ: INFT), I am taking my gains and re-investing. With the markets at all time highs, everything seems expensive, and it is hard to find value. I hate to sound fearful or bearish, but the comments from Alan Greenspan about a strong chance of us hitting recession, the recent housing data announcement making an interest rate cut unlikely, and seeing margin debt rise to levels higher than just before the 2001 market down-turn have me a little concerned about lofty valuations. Regardless, rather than sacrificing my gains to consumerism, here is the hand I will be playing next.
First, oldies but goodies.
Seaboard Corporation (AMEX: SEB)
Seaboard has had an amazing run the past several months, doubling from its Fall, 2006 lows. Back then, this one was a no-brainer, but now take a little more resolve. Seaboard has seen strong growth in its containerized cargo shipping division the past couple of years and there is no doubt that this sector has been hot. Seaboard continues to make strong capital investments in this unit and continues to maintain the efficacy of its other business lines. Off nearly 18% from its all-time high, I felt this was a good entry point to add to my position. At the close of trading on May 24, 2007, Seaboard was trading at less than 11x trailing earnings, 2.1x book value, and at less than 1.9x forward 12 months book value. An owner-friendly investment that retains much of their cash flow to fund their 20% return on equity business. I added to my position at $2,235 and I have a price target of $2,700-$2,900 per share.
Ash Grove Cement (Pink Sheets: ASHG)
Yes, this company trades on the Pink Sheets, which I know nobody really likes, but they are the 5th largest cement company in the USA and the largest American owned cement company in the country. Ash Grove Cement has committed $190M to increase capacity in its Arkansas cement plant by 70% and $250M to build only the 2nd cement plant in the state of Nevada. Ash Grove will also commit another $60M or so in 2007 to expand their cement capacity. I feel strongly that being the largest American owned cement plant will be critical in the future as cement demand increases not only domestically, but worldwide. With the growth of cement internationally expected to outpace growth in the USA over the coming years, I believe many of the international players will invest in foreign production and capacity. Of course, I would, too, but this puts the largest American player in a good position, and with the capacity, to become a more important supplier to meet the USA's substantial domestic need. Granted, I am not the cement company expert, but I do believe that the domestic vs. foreign demand issue has been somewhat overlooked. I first started my position in the Summer, 2005 at $160 per share and since then, have seen the stock rise $47% and seen the annual dividend increase by 10%. Going back further, the stock has done even better in terms of raising the dividend and providing appreciation to its owners. With the spread at $235 x $269, I have an order in to buy at $236. However, with the stock so thinly traded, I am not expecting a quick fill. Historically, I have watched the spread widen around dividend time – next ex-date is June 6, 2007 – and do expect offer price to come down post-dividend. Unfortunately, I have found on this one that if you want in, sometimes you just have to buy at the ask. It's no fun, but historically, I am glad I have done so. I do believe that upside exists to the $300-$320 range, but especially since the company does not announce financial results and is so thinly traded, patience is certainly a virtue.
Wabash National (NYSE: WNC)
One of my losers thus far, but there is value here. It will likely take several months for Wabash to see results show up in the stock price, but I believe it will happen. The stock is likely trading towards the lower end of its range and should be buoyed by the company's buy back program and some big purchases by 14% holder and heralded value/contrarian/cyclical investor, Tontine Capital Partners. The limited downside from here inclines me to add more to my position - but I will wait a little longer as the stock is up 2.8% today to $14.58 in relatively light volume. I have a target of $19-$23 and I expect Wabash to hit that in the next 12-18 months as the market for their products turns around in late 2007/early 2008, they show stronger margins in the face of growth due to their new ERP system, and see the nearly 4M shares short be forced to cover. In the meantime, this might be a long ride as the general sentiment about the industry is overwhelming negative.
New finds include:
Sycamore Networks (NASDAQ: SCMR)
This has been a storied stock its entire life on the NASDAQ. Unfortunately, it has not been a good story for most investors. The company makes networking hardware and equipment, which certainly is not very exciting and has much negativity surrounding it. Sycamore is currently delinquent in its SEC filings due to the notorious options back-dating situation. Such scandal is never a good thing from the appearance of things, but will have no cash impacts on their books. Sycamore currently has about $915M in cash, or about $3.28 per share. That is about 90% of their current market cap of just over $1B. More importantly, Sycamore has shown signs of life and reported a nearly 100% increase in sales, primarily due to an acquisition. I like the cash protecting from downside risk, signs of sales growth, and one of their core products serving the MSO/Cable companies, especially as it pertains to the new digital voice/digital phone service that runs over your cable infrastructure. Comcast, Charter, Cablevision, and Time Warner have all reported strong growth in the digital telephony arena and will need hardware to handle the traffic. Granted, Sycamore competes in a competitive landscape with companies like Cisco in the mix, but I am in at $3.68 with a price target of $4.75-$5.75 in the next 9-12 months – perhaps on an acquisition.
Gencor Industries, Inc. (OTC BB: GNCI)
A small manufacturer of construction equipment and machinery, particularly that serves the highway-construction industry. Gencor also makes equipment that has exposure to the environmental control and synthetic fuel arenas. Gencor is a partner in a joint-venture and receives royalty payments, albeit not material, but growing, for production of synthetic fuels. Gencor is trading near its 52-week low as it enters the historically slower 3rd and 4th quarters. The company is small with only $73M in sales. Gencor has no debt, $52M of cash and cash equivalents, which is about 60% of its market cap, and EV/EBITDA is 1.7. Compare the latter ratio to competitors, such as Astec Industries and its 10.8 EV/EBITDA, and there appears to be some value. Individual investor Lloyd Miller III has bought 72,500 shares since March 22, 2007 and now owns nearly 907,000 shares, which is roughly 10% of the company. A strange ownership structure with Class B shares, small float, and thinly traded status makes it hard to determine where this one could go. $9.05 is a good entry point and I think that Gencor should be trading closer to $16-$18, but its market dynamics may not allow that.
Thomas Group, Inc. (NASDAQ: TGIS)
Thomas Group is a very reputable consulting firm that has no debt, pays a dividend yield of nearly 4%, and is cash flow positive. Ratios, for the most part, show that Thomas Group is not cheap: 2x sales, 6x book value, 11x levered free cash flow. However, this company has a strong track record of success and its P/E is far lower than its peer companies. Only 3M of its 10.8M shares are in the public float, so the stock has the tendency to be volatile – in either direction, of course. The stock is trading a little under $11.00 which I feel is a good entry point. It recently traded as low as $9 in early May, 2007 and traded there in June, 2006 and August, 2006 – and bounced quickly up each time. We have seen a double-top at around $16 twice in 2006, but could we have the triple bottom at $9? Stock stands to get back to $16 and perhaps higher if they continue to show good numbers, but first will need to break through the $12 resistance. This one is more of a technical play than a fundamentals play, but it is likely not going any lower than $9-$10 and has a very strong chance, with a lot of rationale behind it, to move up to $15-$16. Enter under $11 and price target is $15.
Simplistically, I am looking for value to hedge against the lofty valuations we are currently seeing and I am strengthening my positions in those that the fundamental reasons why I bought in the first place have not changed.
Monday, May 14, 2007
INFT - Bought Out at $4.25; Another Notch on the Belt
This morning, it was announced that Inforte (NASDAQ: INFT) will sell out to Business & Decision Group for $4.25 in cash. The transaction is expected to closer within 90 days.
I honestly think the price for this acquisition is too low, considering that INFT has $2.55/share in the bank in cash, no debt, and is cash flow positive. I thought we would see something closer to the $5.50 range.
Regardless, rack up another win for me - and any loyal Terence followers. The key to the success in this investment was 'averaging down', which is typically not a suggested strategy. I originally bought at $4.02 and continued to buy more during its demise down to as low as $3.11.
I do believe this is somewhat of an act of desperation by management and likely a move in the best interest of the shareholders. We saw INFT close down Provantis in December 2006, a company they invested in and watched go to zero. Recently, an 8-K was filed regarding the termination of a person's employment and the subsequent payout of $1M+ and 66,000+ shares of stock. This originated from INFT acquiring an analytics business and the resulting deal via an earn out that should have happened. For whatever reason, it did not end well.
INFT runs a solid business, but they have not been able to yield significant shareholder value. Long term, this one has been a big loser - going public and trading as high as $80 per share back in early 2001. Of course, they were also somewhat victimized by the bad timing of the Internet bubble collapse, but they were never really ever to get back on their feet, even with all of that cash in the bank. They also paid out nearly $20M in cash in 2005 via a special dividend, so at one point, they had even more.
I think B&D Group saw this weakness and offered a price that was likely a lowball offer, but an effective offer considering INFT's situation in the marketplace, management inability to turn things around from a shareholder value perspective, and the recent events that were starting to take their toll on the INFT balance sheet. Reports about the acquisition also indicate that INFT's cash balance declined by more than $2M from Dec 31, 2006 to present - not a good sign for INFT.
I believe the 1Q 2007 report will be less than positive and feature some elements that may have stood to drive the price on INFT further down - perhaps under $3. If that is the case, the announcement of this acquisition is good timing as whatever is in the 10-Q, regardless of how bad, will have minimal impact on the stock price. INFT will likely trade in the $4.10-$4.15 range and get closer to $4.25 as the final acquisition date draws near.
So, INFT comes to an end and although management was not able to do anything to make INFT a home-run investment, I must give them credit for swallowing their pride (30%+ is owned by the management/founders) and recognizing that the timing of this announcement is critical to maintaining shareholder value considering the further risk to the stock price. It likely was not an easy decision and a gut-wrenching one for them, but despite the problems INFT has had, they took the high-road in this case.
Sometimes, it is just time to move on and as bad as INFT has been for many investors over the years, it was good for me, especially since I averaged down from my initial purchase. As mentioned previously, averaging down is typically not a good strategy, but to me made sense in this case, as the cheaper INFT got, the more compelling its value proposition was.
To succeed in investing, you often have to stick to your guns, despite it being very difficult. It was downright hearbreaking to watchin INFT continue to falter, regardless of how low I thought I bought it. I continued to think - if it was a good buy at $3.75, it is a better buy at $3.50. The fundamental reason why I bought (strong cash value, low price to book, immient take over target, etc.) never changed. It did weaken some and did not become as attractive as they filed their 10-K annual report for 2006 and some developments indicated those propsects may have gotten weaker, but nevertheless, I hung in there and came out with a win.
Not a home run - not a huge win - I wish I would have bought SEB with my INFT money, but you never went broke taking a profit and my upward climb continues.
I honestly think the price for this acquisition is too low, considering that INFT has $2.55/share in the bank in cash, no debt, and is cash flow positive. I thought we would see something closer to the $5.50 range.
Regardless, rack up another win for me - and any loyal Terence followers. The key to the success in this investment was 'averaging down', which is typically not a suggested strategy. I originally bought at $4.02 and continued to buy more during its demise down to as low as $3.11.
I do believe this is somewhat of an act of desperation by management and likely a move in the best interest of the shareholders. We saw INFT close down Provantis in December 2006, a company they invested in and watched go to zero. Recently, an 8-K was filed regarding the termination of a person's employment and the subsequent payout of $1M+ and 66,000+ shares of stock. This originated from INFT acquiring an analytics business and the resulting deal via an earn out that should have happened. For whatever reason, it did not end well.
INFT runs a solid business, but they have not been able to yield significant shareholder value. Long term, this one has been a big loser - going public and trading as high as $80 per share back in early 2001. Of course, they were also somewhat victimized by the bad timing of the Internet bubble collapse, but they were never really ever to get back on their feet, even with all of that cash in the bank. They also paid out nearly $20M in cash in 2005 via a special dividend, so at one point, they had even more.
I think B&D Group saw this weakness and offered a price that was likely a lowball offer, but an effective offer considering INFT's situation in the marketplace, management inability to turn things around from a shareholder value perspective, and the recent events that were starting to take their toll on the INFT balance sheet. Reports about the acquisition also indicate that INFT's cash balance declined by more than $2M from Dec 31, 2006 to present - not a good sign for INFT.
I believe the 1Q 2007 report will be less than positive and feature some elements that may have stood to drive the price on INFT further down - perhaps under $3. If that is the case, the announcement of this acquisition is good timing as whatever is in the 10-Q, regardless of how bad, will have minimal impact on the stock price. INFT will likely trade in the $4.10-$4.15 range and get closer to $4.25 as the final acquisition date draws near.
So, INFT comes to an end and although management was not able to do anything to make INFT a home-run investment, I must give them credit for swallowing their pride (30%+ is owned by the management/founders) and recognizing that the timing of this announcement is critical to maintaining shareholder value considering the further risk to the stock price. It likely was not an easy decision and a gut-wrenching one for them, but despite the problems INFT has had, they took the high-road in this case.
Sometimes, it is just time to move on and as bad as INFT has been for many investors over the years, it was good for me, especially since I averaged down from my initial purchase. As mentioned previously, averaging down is typically not a good strategy, but to me made sense in this case, as the cheaper INFT got, the more compelling its value proposition was.
To succeed in investing, you often have to stick to your guns, despite it being very difficult. It was downright hearbreaking to watchin INFT continue to falter, regardless of how low I thought I bought it. I continued to think - if it was a good buy at $3.75, it is a better buy at $3.50. The fundamental reason why I bought (strong cash value, low price to book, immient take over target, etc.) never changed. It did weaken some and did not become as attractive as they filed their 10-K annual report for 2006 and some developments indicated those propsects may have gotten weaker, but nevertheless, I hung in there and came out with a win.
Not a home run - not a huge win - I wish I would have bought SEB with my INFT money, but you never went broke taking a profit and my upward climb continues.
Wednesday, May 2, 2007
Earnings Season Continues - Seaboard Corporation (AMEX: SEB)
Today, after the markets closed, Seaboard Corporation (AMEX: SEB) released earnings for 1Q 2007 and declared a dividend of $0.75 per share.
In short, SEB posted revenue of $729.1M vs $635.5M compared to 1Q 2006. SEB earned $39.13 per share in 1Q 2007 compared to $40.86 one year ago for the same period - a 4.2% decline in EPS.
SEB's earnings were not 'stellar' but very strong to say the least. For many stocks, it would be seen as a 'bad' sign. Sales up, margins down, and net income down. As an owner, I certainly do not like making less than I did last year, but I recognize some years are better than other and as long as I can increase the fundamental value of my company, I am feeling pretty good about the prospects of the company.
Seaboard produced over $50M in cash from operations from the quarter (up $4M+ from the same period in 2006), added another $50M in shareholders' equity, and added another $40.48 per share to its book value (SEB now 2.55x book value vs 2.7x book value). I like this because it makes SEB cheaper. It is somewhat mixed feelings, but in some ways, I would prefer the stock price of SEB to stay flat and have the book value continue to grow so at some point, I can pick up shares for say 2.2x (or less) of book value. Now, that likely will not happen, but it can with a stock like SEB, especially with how they produce shareholders' equity on an recurring basis.
SEB was able to enhance its book value and shareholders' equity, despite seeing a reduction in cash and marketable securities - I really like seeing that from a long term prospect. SEB spent a great deal of money in capital expenditures in 1Q 2007. The 10-Q report with the SEC outlines them all.
The ones I thought were the most important:
1. Biodiesel Plant
There is big talk about the need for biodiesel and SEB has the perfect environment to produce the stuff. SEB is completing the project sometime in 2007. Apparently, they already have buyers lined up for the stuff, but I am unsure how much it can actually produce in revenue and profit. Regardless, biodiesel is a hot topic and glad SEB is expanding their revenue stream this way.
2. Investments in Marine Transportation
Dry bulk shipping and marine transportation will continue to be strong, it seems. Of 1Q 2007 CapEx, 61% was spent on Marine Transportation and for the rest of 2007, the same line of business will get 41.4% of the $156.5M slated to be spent. The expenditures seem to be related to outright purchasing of vessels they already have chartered and to purchase additional vessels, containers, and port expansion. All of these are very bullish indicators for this line of business which continues to show very strong growth and demand.
SEB also continues to invest in its other core businesses to maintain the success enjoyed by them through the years.
I am glad to be an owner and continue to look for a good entry point where the stock price allows a desirable entry point.
In short, SEB posted revenue of $729.1M vs $635.5M compared to 1Q 2006. SEB earned $39.13 per share in 1Q 2007 compared to $40.86 one year ago for the same period - a 4.2% decline in EPS.
SEB's earnings were not 'stellar' but very strong to say the least. For many stocks, it would be seen as a 'bad' sign. Sales up, margins down, and net income down. As an owner, I certainly do not like making less than I did last year, but I recognize some years are better than other and as long as I can increase the fundamental value of my company, I am feeling pretty good about the prospects of the company.
Seaboard produced over $50M in cash from operations from the quarter (up $4M+ from the same period in 2006), added another $50M in shareholders' equity, and added another $40.48 per share to its book value (SEB now 2.55x book value vs 2.7x book value). I like this because it makes SEB cheaper. It is somewhat mixed feelings, but in some ways, I would prefer the stock price of SEB to stay flat and have the book value continue to grow so at some point, I can pick up shares for say 2.2x (or less) of book value. Now, that likely will not happen, but it can with a stock like SEB, especially with how they produce shareholders' equity on an recurring basis.
SEB was able to enhance its book value and shareholders' equity, despite seeing a reduction in cash and marketable securities - I really like seeing that from a long term prospect. SEB spent a great deal of money in capital expenditures in 1Q 2007. The 10-Q report with the SEC outlines them all.
The ones I thought were the most important:
1. Biodiesel Plant
There is big talk about the need for biodiesel and SEB has the perfect environment to produce the stuff. SEB is completing the project sometime in 2007. Apparently, they already have buyers lined up for the stuff, but I am unsure how much it can actually produce in revenue and profit. Regardless, biodiesel is a hot topic and glad SEB is expanding their revenue stream this way.
2. Investments in Marine Transportation
Dry bulk shipping and marine transportation will continue to be strong, it seems. Of 1Q 2007 CapEx, 61% was spent on Marine Transportation and for the rest of 2007, the same line of business will get 41.4% of the $156.5M slated to be spent. The expenditures seem to be related to outright purchasing of vessels they already have chartered and to purchase additional vessels, containers, and port expansion. All of these are very bullish indicators for this line of business which continues to show very strong growth and demand.
SEB also continues to invest in its other core businesses to maintain the success enjoyed by them through the years.
I am glad to be an owner and continue to look for a good entry point where the stock price allows a desirable entry point.
Wabash National (NYSE: WNC) - Washed Out on Earnings Report
On Monday after the market close, Wabash National (NYSE: WNC) a maker of truck trailers (and unfortnately one of my holdings) reported earnings for 1Q 2007. Analysts estimated WNC to post EPS of $0.08 per share with the range going from $0.05-$0.13. WNC came in at $0.03 per share.
Although the weakness in their numbers was not unexpected per the general market conditions, the stock price was slammed and dropped over 7% on the heaviest volume since August, 2006 to close at $14.22. Needless to say, I was not a happy camper, but my long-term stance and prospects on the stock has not changed. Granted, it would be nice for it to go up and up everyday, but that is just not reality.
When I first bought WNC back in late 2006, I knew it was going to be several months before WNC could get things back in order. Of course, I was hoping for things to start to show signs of life earlier, at least in the stock price, sooner rather than later, but that has not been the case thus far.
The short-term outlook for WNC and the industry does not look great and it has reflected in the stock price, but after listening to the conference call and reading the 10Q report, I still believe that long term, WNC is a winner. It would just be nice for it to be a winner sooner rather than later, but sometimes, it can take up to a couple of years for things to turn around in the marketplace.
Anyway, here is my take on the situation - both arguments for and against owning WNC.
AGAINST
1. Weak Market
2. Price Pressure from China
FOR
1. WNC Backlog Remains Strong
Despite a weak market, WNC continues to book orders and their back log is about 8% higher than 90 days ago. Backlog is defined as signed, committed orders that have not yet been delivered or invoiced, so they cannot be booked as revenue. WNC continues to build on their backlog and generate increased quote activity. The current market activity has delayed the fulfillment and formal delivery of some of these orders, but WNC and myself are both confident the majority of the backlog will be fulfilled within the next 12 months. WNC has already booked 75% of its 2007 target, so that is a positive prospect.
2. WNC Share Repurchase Program
WNC repurchased an additional 218,600 shares during the 1Q 2007 under their authorized share buy back program. WNC has the ability to repurchase up to $32.8M worth of additional stock in open market or private transactions. I do expect WNC to 100% complete this buy back effort and likely purchase another 2,000,000 (approximately) shares over the course of the plan. WNC has already repurchased over 1.1M shares under the current plan. Short-term, the buying back of the stock likely will not directly have much impact on the stock price, but this is a great way to reward shareholders and I believe in the long-term, this will make to be a good use of corporate funds and should ultimately reward shareholders by reducing the number of shares outstanding.
3. Market Geared to Turnaround in Mid/Late 2007 and 2008
Industry trends show that the market for trailers should start to see double digit growth in 2008 when compared to 2007 in terms of # of units ordered/shipped. I do believe that the transportation, especially when it comes to things like railroads, trucking, etc. should start to turnaround strongly within the next several months. The housing slowdown has been problematic for demand of shipping raw materials and goods, much of it done by truck and rail, so naturally, those industries have seen weakness. However, Warren Buffet has recently become a big believer of infrastructure plays in the USA.
4. WNC Customers Responding Positively to Price Changes
Although pricing is a big concern, especially with cost of commodities and raw materials going up and pressure from China manufacturing, WNC has not faced much push back. In fact, WNC has actually raised prices to customers, and it has not scared many customers off. Of course, at some point, things get too expensive, but it appears WNC is leveraging their strong tradition in the USA and placing more emphasis on higher-margin projects and items.
5. WNC - $1M Delayed Charge Impact to Earnings
There was a note of a $1M charge taken by WNC in 1Q 2007 related to some clean up from late 2006. Adding that figure back into earnings and eliminating the extraordinary blizzard event that shut down production for several days, WNC would have been right inline, or at least very close, with analyst expectations.
Anyway, despite the above, the reality is at this stage, both myself and Gendell are not looking like the brightest investors around, but WNC is going to take some more time to materialize. This one is going to need another 12-18 months, but we will see upside earnings surprise and when that happens, especially with the huge amount of shares short that will need to be covered, $23-$28 is going to happen.
Although the weakness in their numbers was not unexpected per the general market conditions, the stock price was slammed and dropped over 7% on the heaviest volume since August, 2006 to close at $14.22. Needless to say, I was not a happy camper, but my long-term stance and prospects on the stock has not changed. Granted, it would be nice for it to go up and up everyday, but that is just not reality.
When I first bought WNC back in late 2006, I knew it was going to be several months before WNC could get things back in order. Of course, I was hoping for things to start to show signs of life earlier, at least in the stock price, sooner rather than later, but that has not been the case thus far.
The short-term outlook for WNC and the industry does not look great and it has reflected in the stock price, but after listening to the conference call and reading the 10Q report, I still believe that long term, WNC is a winner. It would just be nice for it to be a winner sooner rather than later, but sometimes, it can take up to a couple of years for things to turn around in the marketplace.
Anyway, here is my take on the situation - both arguments for and against owning WNC.
AGAINST
1. Weak Market
2. Price Pressure from China
FOR
1. WNC Backlog Remains Strong
Despite a weak market, WNC continues to book orders and their back log is about 8% higher than 90 days ago. Backlog is defined as signed, committed orders that have not yet been delivered or invoiced, so they cannot be booked as revenue. WNC continues to build on their backlog and generate increased quote activity. The current market activity has delayed the fulfillment and formal delivery of some of these orders, but WNC and myself are both confident the majority of the backlog will be fulfilled within the next 12 months. WNC has already booked 75% of its 2007 target, so that is a positive prospect.
2. WNC Share Repurchase Program
WNC repurchased an additional 218,600 shares during the 1Q 2007 under their authorized share buy back program. WNC has the ability to repurchase up to $32.8M worth of additional stock in open market or private transactions. I do expect WNC to 100% complete this buy back effort and likely purchase another 2,000,000 (approximately) shares over the course of the plan. WNC has already repurchased over 1.1M shares under the current plan. Short-term, the buying back of the stock likely will not directly have much impact on the stock price, but this is a great way to reward shareholders and I believe in the long-term, this will make to be a good use of corporate funds and should ultimately reward shareholders by reducing the number of shares outstanding.
3. Market Geared to Turnaround in Mid/Late 2007 and 2008
Industry trends show that the market for trailers should start to see double digit growth in 2008 when compared to 2007 in terms of # of units ordered/shipped. I do believe that the transportation, especially when it comes to things like railroads, trucking, etc. should start to turnaround strongly within the next several months. The housing slowdown has been problematic for demand of shipping raw materials and goods, much of it done by truck and rail, so naturally, those industries have seen weakness. However, Warren Buffet has recently become a big believer of infrastructure plays in the USA.
4. WNC Customers Responding Positively to Price Changes
Although pricing is a big concern, especially with cost of commodities and raw materials going up and pressure from China manufacturing, WNC has not faced much push back. In fact, WNC has actually raised prices to customers, and it has not scared many customers off. Of course, at some point, things get too expensive, but it appears WNC is leveraging their strong tradition in the USA and placing more emphasis on higher-margin projects and items.
5. WNC - $1M Delayed Charge Impact to Earnings
There was a note of a $1M charge taken by WNC in 1Q 2007 related to some clean up from late 2006. Adding that figure back into earnings and eliminating the extraordinary blizzard event that shut down production for several days, WNC would have been right inline, or at least very close, with analyst expectations.
Anyway, despite the above, the reality is at this stage, both myself and Gendell are not looking like the brightest investors around, but WNC is going to take some more time to materialize. This one is going to need another 12-18 months, but we will see upside earnings surprise and when that happens, especially with the huge amount of shares short that will need to be covered, $23-$28 is going to happen.
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