Saturday, September 13, 2014

Cipla: Too Far, Too Fast?

Cipla is available OTC in U.S. under the symbol CPLFY.  But it is lightly, if ever traded.  There is no way I would dabble with Cipla OTC's in U.S., so be sure to keep that in mind - this article has little relevance unless you are able to buy and sell stocks listed on the Bombay or National Stock Exchange in India.

I don't often write about Indian stocks, particularly those not listed on U.S. exchanges, because quantitative and fundamentals based information is rarely appreciated or used in the Indian market, where the typical non-institutional investor is driven more by technical positions and trends, which are areas where I add no value. I decided to write about Cipla today, because the technical position and trends for Cipla are hot. And I feel it has run as far as it ought to run.  But something tells me it could run further before a material decline - perhaps to as high as Rs 701.

Tuesday, September 9, 2014

Boeing: Buy Weakness, Sell Strength?

As I trawled through various companies, Boeing caught my attention.  Now I am not long Boeing, and nor am I likely to be long Boeing anytime soon.  But that does not change the fact that it presents an interesting upcoming trading opportunity.

What is to like about Boeing is simple.  It has been weak in comparison to the market off late.  A bit more weakness could be bought, and subsequent strength sold.  If the stock drops to near $115 it would be far more interesting, and this is possible given the weak recent technical position displayed by the stock.  But even at $128, Boeing quality with above market return potential makes the stock worth a closer look.

42 Good Companies: Do They Trade At A Good Price?

This is a list of 42 "good" companies. In this post I contemplate whether they trade at a "good" price!
The first column notes the economic sector of operation for the company. I like this field. If a person is clever enough (I'm not) to figure out where the economy is in the context of the economic cycle, they have reasonable odds of improving and timing their stock selections. You can have a look at how Fidelity reads sectors and the economic cycle here. You can also have a look at the sector weightages recommended by Ned Davis and S&P Capital IQ here.

Sunday, August 31, 2014

India: The Economic Cycle Turns & The Sensex Bull Rages Onwards

August is now behind us. The Sensex closed July up 1.89%, and built-up the quarter-to-date gain for the two months ended 8/31/14 to 4.82%.  The Sensex bull rages onwards.
Last year at about this time (8/21/13) the Sensex languished at 17,906. A year on, it trades at 26,638, up almost 48.8%. We have had a great run, and the market as always has predicted a turn in the economic cycle well ahead of the turn.
In August 13, we knew that GDP growth in June 13 languished at 4.4%. That was the fifth quarter of sub 5% growth in a row. And yet the market commenced a strong rally. A sixth, seventh, and eighth quarter of subdued sub 5% growth were recorded in subsequent quarters, and the market rallied through the depressing growth data. And now, in August 14, we finally have a GDP growth print of 5.7% for the June 14 quarter, which suggests that the economy is beginning to accelerate, just as the market had predicted.

Thursday, August 21, 2014

Home Depot: Expensive, But Not Overly So Relative to Market

I have been looking at Home Depot (HD).  Look at how it has run these past few days.  Indeed, look at how it has run over the longer-term too.  On April 1, 2009 the stock closed at $25.  Last night it closed at $90.75.  That provides an annualized return of 27.08%.  And that is not all for the company has paid a big bunch of dividends over the years.  The past five years have been spectacular, but even looking at just over ten and fifteen years annualized return (excluding returns) is a satisfying experience: the stock delivered an annualized return of 11.65% since 4/1/2004, and 7.19% since 4/1/1999.  That is plenty better than the market and the result is even more impressive when we look at total return (including dividends).

Normally after well over normal long and short-term returns, I get very skeptical about future performance.

Tuesday, August 19, 2014

IBM Comes With a "Yes, WOW" rating: Well Valued with 23% Upside

I am looking at the Dow Tech Titans at present.  I have looked at Microsoft (MSFT), Intel (INTC), and Cisco (CSCO) on several occasions in the recent past: the most recent look is linked to the company name.  Since I last looked at them, they have risen significantly: Microsoft and Intel have gone from being “Yes, Wow” stocks, to simple “Yes” stocks.  Cisco still remains a “Yes, Wow” stock.  But it is IBM (IBM) that comes with a “Yes, WOW” factor.

Monday, August 18, 2014

Visa: Great Opportunity to Capture Growth Alpha

I had looked at Visa (V) during mid-April when the stock was getting beaten up following an earnings report that the markets did not appreciate. It fell as low as $198.56 by 4/25/14. And since then it has recovered somewhat to $210.19.
In my view Visa remains amongst the best opportunities to capture long-term growth alpha. For those with a short-term investment time horizon, the stock is not without risk.

Friday, August 15, 2014

Verizon: Alpha Rich With Low Market Risk

Value Line research awards Verizon top marks for safety, timeliness and financial strength. You can download their report here. They set their 2017-2019 price target range at $70 to $85.

Value Line awards Verizon a safety rank of 1. This means that the total risk of the stock relative to the approximately 1,700 other stocks covered by them in The Value Line Investment Survey®, is low.
They award the stock a timeliness rank of 1. This means that the probable price performance of the stock relative to the approximately 1,700 other stocks covered by The Value Line Investment Survey® during the next six to twelve months can be expected to be favorable.
They also assign the stock a top financial strength rating of A++. Value Line classifies 1,700 companies' Financial Strength ratings from A++ to C, in nine steps. The lowest grade is reserved for companies experiencing serious financial difficulty. Balance sheet leverage, business risk, the level and direction of profits, cash flow, earned returns, cash, corporate size, and stock price, all contribute to a company's relative position on the scale. The amount of cash on hand, net of debt, is also an important consideration.
The technical rank for Verizon was 3, which implies that the technical prospects are no better or worse than the broad market. The stock was downgraded to 3 from 1 on July 25, 2014. For now, it remains at the top end of the "3" band. And I believe the weakening technicals have presented an interesting buy opportunity for long-term investors.
With Verizon, we are looking at a company with low risk and high financial strength, with an expectation of out-performance over the coming six to twelve months, with a slight recent deterioration in the technical condition.

Wednesday, August 13, 2014

Transocean And The Hunt For Hidden Needles In A Giant Haystack

Transocean (NYSE:RIG) reported earnings a short while ago. They delivered a healthy sized beat on both revenue and earnings. The market yawned.
Goldman Sachs has a sell rating and a price target for Transocean of $29. Deutsche Bank has a sell rating and a price target of $27. And even Jefferies, who probably have the best thought out, deep, and insightful coverage of the offshore drilling industry, have a price target of $41. Given that Deutsche Bank nailed the peak with a downgrade in February 2013, it is quite understandable that investors are fearful of downside risks - after all a 31% downside to their price target is no small sneeze.
I can accept the short-term downside risks implied by the recently lowered price targets, but in my view the sell rating does not do justice to informing investors of the considerable long-term gain potential.

Tuesday, August 12, 2014

Wal-Mart: Low On Market Risk & High On Alpha

With Wal-Mart we are looking at a company with low risk and high financial strength, with an expectation of inline performance over the coming six to twelve months, with a slight recent deterioration in the technical condition.
Wal-Mart is priced at a level which indicates a long-term (three-year) return potential of 18.3%, which as a result of low beta, delivers over 12% of potential Alpha over three years.

Sunday, August 10, 2014

Disney: Great Company, Not So Great Price

I like Disney the company and think it is a great pick for the consumer discretionary sector for long-term investors. However, in my view it is not well priced at present. I will keep the stock on my radar to see whether it dips enough to offer an opportunity to create alpha in the coming months.

Tuesday, August 5, 2014

Update: Smith & Wesson For The Value Hunter

In a recent post, I had suggested that $14.50 to $15 was the fair value for Smith & Wesson. Fair value is the level at which there is zero alpha: it is the level at which a long-term investor's return expectation of 12.50% would be satisfied, with 12.5% representing the risk adjusted return required by investors for selecting Smith & Wesson versus the market. The stock is now trading at $12.27. And I intend to go long Monday at open. Here is why.
The stock is now cheap. It offers alpha of about 18% to fair value of $14.50, after which a long-term return expectation of 12.5% can be expected.

Monday, August 4, 2014

The Markets Are Not Cheap, But They're Not Expensive Either

The S&P 500 closed July at 1,930, down 1.51% for the month - with the S&P 500 declining 2% on 7/31/14, all of the damage was done on the last day of the month! The Dow Jones Industrial Average fared slightly worse, closing at 16,826, down 1.56% for the month. Has the market commenced a bear market (20% or more downside from the peak of 1,991), or is this the start of a correction (up to 10% downside from the peak of 1,991)? In my view, I suspect aggressive sellers may find themselves regretting their decision to sell in six months' time.

Friday, August 1, 2014

India Sensex: Buy The Dip, Don't Sell The Rip

A few weeks ago, I slept in a beer-induced slumber. I awoke to find an inanimate me looking down at myself. A long while later, I noticed a fierce looking gentleman standing in the corner of the room. I felt a twinge of fear. And then felt a sense of great peace. I scowled at the apparition and said, "You are late". And Lord Yama, Lord of Death, winked out of existence. I awoke from my dream. Or was it a nightmare? I suppose dream or nightmare is a matter of perspective. And the perspective, as always, is ever so important.
The Sensex closed July at 25,895, up 1.89% for the month. 

Tuesday, July 22, 2014

The Markets Are Expensive, Several Dow Stocks Are Not

The markets are expensive, but several Dow stocks still offer very decent return potential, together with a considerable alpha opportunity.  The column titles marked (1) on this table come from Value Line Research. The rest of the column titles are simple arithmetic.

 Using the mid-point of the Value Line price targets, twenty-three of thirty Dow stocks offer alpha, or excess return as priced. Using the mid-point of the Value Line price targets, the annualized average total return expectation from the 23 stocks offering alpha or excess returns equal weighted is generous at 13.27%.  There are seven stocks offering a total return potential of over 15% using the mid-point of Value Line's target prices.

Friday, June 27, 2014

Goldman Sachs Picks Corning: Would You?

In this post I have a look at Corning (GLW), one of Goldman Sachs' fifteen picks for the present market.
In glass, Corning represents class. It is a good stock, but it is not presently an attractive buy candidate for new capital being deployed. Nonetheless, if owned, it is a good stock to own for the present time. There is price support as a result of the buyback program. There is upside to per-share estimates on account of buybacks. And as time passes and earnings grow, it is likely that the share will grow to be well valued, even cheap at $22.

Thursday, June 26, 2014

Goldman Sachs Picks Avery Dennison: Would You?


  • Avery Dennison was one of 15 stocks appearing on Goldman Sachs recently published buy list.
  • The stock as priced offers negative growth alpha of 132 basis points, which translates to 25% downside to my estimate of fair value.
  • At present investors can expect a total long-term return of 9.77% from the stock.
I conclude by saying that Avery Dennison is far from an attractive buy candidate. In fact, I would go so far as saying it is distinctly unattractive as priced, and is particularly unattractive for the present time.

Goldman Sachs Picks Aetna: Would You?


  • Aetna was one of 15 stocks appearing on Goldman Sachs' recently-published buy list.
  • The stock as priced offers negative growth alpha of 30 basis points, which translates to 6% downside to my estimate of fair value.
  • At present, investors can expect a total long-term return of 10.76% from the stock.
In this post, I have a look at Aetna (AET), one of Goldman Sachs' 15 picks for the present market
I conclude by saying that Aetna is an attractive buy candidate as priced for those comfortable with a risk-adjusted return expectation of 10.25% or lower. It is also an attractive buy for those with conviction that this expensive market shall continue to trade with a bullish bias for a while yet. However, in my view, Aetna is worth keeping an eye on for a decent entry opportunity at $76 or less - at present, it is too pricey for me.

Tuesday, June 24, 2014

Would You Buy Goldman Sachs' Buy List?


  • Goldman Sachs recently pitched fifteen stocks they felt were worth buying in the present environment.
  • The selection displays a strongly pro-cyclical bias with not a single pick from the defensive or energy sectors.
  • They lean away from defensive sectors, instead leaning towards valuation and dividends for the desired defensive characteristics.

Monday, June 23, 2014

Smith & Wesson For The Value Hunter


  • Smith & Wesson was cheap. Following the punishment in the markets on 6/20, it is cheaper still. But is it cheap enough to buy?
  • The stock as priced is close to, but not at my estimated fair range of $14.50 to $15.
  • Once at fair value, investors can expect a total long-term return of near 12.50%.

Friday, June 20, 2014

Microsoft For The Alpha Hunter

In a prior post I looked at Microsoft (MSFT), when it was trading at $37.89, because I saw it as a value opportunity hiding in plain sight. And it was hard to believe that this value would not be recognized. With the price now nearing $41.50, I am looking at whether Microsoft might still be suitable for the alpha hunter.
  • Microsoft remains well valued even after the recent run-up in price.
  • The stock as priced offers at least 53 basis points of growth alpha, which translates to a 15.4% gain potential to my estimate of fair value.
  • Once at fair value, investors can expect a total long-term return of near 10%.

Oracle For The Alpha Hunter

In a prior post, I looked at Oracle (ORCL) when it was trading at $40.81, because I saw it as a decent value opportunity. The price rose, but not by much, and now, as I write this late on 6/19, following an earnings miss, the stock is down over 5% to $40.38 in the after-hours market. In my view the dip in price presents a very decent alpha generation opportunity.
Oracle reported earnings after hours on 6/19/14. Total revenue was up 3% to $11.3 billion, non-GAAP earnings came in at $0.92. Excluding the impact of currency changes in Venezuela, which were not included in the prior guidance, adjusted non-GAAP earnings came in at $0.94. Analysts were expecting earnings of $0.95. It is clear that Oracle missed expectations for earnings and revenue. They committed the cardinal sin of missing earnings expectations by $0.01, and punishment was meted out by the markets.

Intel For The Value Hunter

In a prior post I looked at Intel (INTC), when it was trading at $25.02, because I saw it as a value opportunity hiding in plain sight. And it was hard to believe that this value would not be recognized. With the price now nearing $30, I am looking at whether Intel might still be suitable for the alpha hunter.
I conclude, saying that while Intel remains well valued for the alpha hunter, for those of you who took aggressive over-allocations to Intel when it represented value hidden in plain sight, the time to eliminate those aggressive over-weights and return to allocation is near, if not here. The easy money has been made.

Cisco For The Alpha Hunter

In a prior post I looked at Cisco (CSCO), when it was trading at $21.57, because I saw it as a value opportunity hiding in plain sight. And it was hard to believe that this value would not be recognized. With the price now near $24.50, I am looking at whether Cisco might still be suitable for the alpha hunter.
I conclude that Cisco remains well valued for the alpha hunter.  For those of you who took aggressive over-allocations to Cisco when it represented value hidden in plain sight, it may be well worth holding on a while longer. In my view, only part of the easy money has been made, more remains.

Wednesday, June 18, 2014

Apple For The Alpha Hunter

In a prior post I looked at Apple (AAPL) because I saw it as a value opportunity hiding in plain sight. And it was hard to believe that this value would not be recognized. It was, and so today I am looking at whether Apple might still be suitable for the alpha hunter following the recent run-up in price. 
I conclude that while Apple remains well valued for the alpha hunter, for those of you who took aggressive over-allocations to Apple when it represented value hidden in plain sight, the time to eliminate those aggressive ove-weights and return to allocation is near, if not here.  The easy money has been made.

Thursday, June 12, 2014

Correction 2014: Coming Friday 13th June, 2014?

Tomorrow is Friday the 13th. It is a day that monsters rule. Ghouls, Ghosts, Witches, Vampires, Werewolves, Ogres, Mummys, Goblins, Banshees, Gorgons, and monsters of all sorts shall roam The Street.
And as they roam, perhaps the Dark Pools shall rule, as the Vampire Squid sucks the life out of the humanity in markets, and cause a collapse such as has never been seen before.
It is also a full moon night, and so perhaps this is pre-ordained, and written in the stars.
Or maybe not!
There is consensus that the market is expensive. And perhaps in view of the context of the past six or ten years it is. But in the context of the past twenty-one years, it is not terribly expensive.

Sunday, June 8, 2014

India: Running With The Bulls

I started getting bullish on India during the third quarter of 2013. So much so that I published volume 1 of India Investment Strategy: The Hunt for Hidden Value on October 31st. On 9/30/13, (the date of inception of portfolios presented in the book) the Sensex stood at 19,380. Today it stands at 25,396, up 31%. That is not a bad market timing call, though I say so myself! Truth be told, my market timing is normally terrible, which is why I stick with an asset allocation model: it works far better for me than trying to be clever with market timing.
The question to contemplate now is whether after the spectacular eight-month gains, are there more gains to come? In my view, the market remains a buy the dip, don't sell the rip market. Though there is never any harm in returning to allocation on both dips and rips. Why?

Saturday, May 31, 2014

El Nino And The Soft Drinks Industry

I've been on vacation these past two weeks, and now it's that last leg of the holiday used to recover from the first phase of holidaying. And as I returned home, my phone died on me. This is most annoying. It is also very, very hot. The day I landed back in Delhi, the temperature hit 47⁰ C (that is near 116.6⁰ F).
Just before I left on vacation, El Nino chatter was running high. My first thought was energy and hurricanes: a strong hurricane season normally supports elevated energy prices. In prior El Nino years, we had terrible Ivan during 2004, in 2006 we had the less deadly Helene and Gordon, and in 2009 we had Bill, who was a softy. But as it happens, El Nino suggests odds are for a weak hurricane season - this post at NOAA says as much - they predict a weak Atlantic hurricane season, while highlighting that it takes but one baddie to make a difference. El Nino is believed to cause long and cold winters in Northern Europe (though this does not hold true if it is a strong El Nino year), and a warmer winter in Southern Europe. So we could reasonably expect El Nino to cause elevated gas prices this winter, and this expectation is also supported by the present Russia/Ukraine/Europe situation. I am done with hurricanes and cold weather, so I decided to move on to hot weather - because it is hot, hot, hot, and getting hotter!

Tuesday, May 13, 2014

The Pair Trade: Long Pepsi, Short Coca-Cola

The advantage of the long/short trade is that a smaller level of initial risk capital is at stake, but the risks are higher compared with a long only position. In many ways a pair trader is seeking pure alpha: the trader stands to make money regardless of market direction as long as the company specific assessment is correct.
The best case scenario would be one where the long position rose, while the short position fell. But there is a profitable outcome if the long position rose more than the short position rose, or if the short position falls more than the long position falls. The worst scenario would be one where the long position fell, while the short position rose. And of course there is a loss-making outcome if the long position falls more than the short position falls, or if the short position rises more than the long position rises. So really the primary objective is to be as comfortable as is possible that the long position will outperform the short position.

Saturday, May 10, 2014

India Event Risk Is Elevated & Markets Are Fully Valued: Book Profits!

In recent months I had started doing a monthly post covering Indian markets. There are several U.S. ETF's which cover Indian markets, but the one I tend to focus on is the i-Shares India 50 ETF (INDY), which represents the CNX NIFTY Index: an index from the National Stock Exchange of India covering fifty front-line Indian stocks.
This month I have not had the time to complete a regular post. In my post from March I had said "I guess what I am saying is buy the dip, don't sell the rip; though if you have been in the markets since September last year, it does make sense to book profits and return to allocation.". And I will say it again: this time with a greater sense of urgency.

Friday, May 9, 2014

Too Much Love At Qualcomm?

Qualcomm (QCOM) is priced at $79.50, and is probably among the most sought after stocks in the market today.
It trades at a trailing twelve month PE of 21.26, which is lower than the market cap weighted trailing twelve month PE for the whole market, the technology sector and the communication equipment industry. Its PE on non-GAAP earnings expected for the year ended September 2014, is at 15.35. And its PE based on non-GAAP earnings expected for the year ended September 2014, is at 13.83, which is lower than the market cap weighted forward PE for the whole market, the technology sector and the communication equipment industry. The stock offers a dividend yield of 2.11%, which is a slight discount to the market cap weighted dividend yield of 2.31% for the market, but it is higher than the 2.07% yield for the technology sector and 1.95% yield offered by the communications equipment industry. Little wonder value investors love this stock.

Thursday, May 8, 2014

Alibaba And The Amazon Opportunity

There is much excitement about the Alibaba IPO. And rightly so: it is a wonderful opportunity to invest in the next phase of China's development & the Chinese consumer. But it is not for me. I am hoping that the Alibaba IPO will well create a better entry opportunity for me at Amazon (AMZN). Why?
When Alibaba lists, in all likelihood it will be a hugely popular offering. It will be of sufficient size to make an impact on the markets. And the stock will appeal most to people who have investments in internet growth stocks like Facebook (FB), Google (GOOG), LinkedIn (LNKD) and Twitter (TWTR), and to people who invest in e-commerce companies like Amazon.
As these investors allocate capital to the Alibaba offering, they will reduce holdings in their internet growth and e-commerce portfolios. And as they sell, prices will decline to create attractive entry levels for new investors: perhaps GARP style investors instead of the more aggressive growth investor.

Tuesday, May 6, 2014

Falling By The Wayside

Something odd is happening with prices at Wayside Technology (WSTG). I will let this chart speak for me. We have seen weekly returns of 25.94% during the week commencing 3/24/14, and a weekly return of 9.45% for the week commencing 4/7/14. This compares with an average weekly movement over the past five years of 0.406% (median 0.347%), with a standard deviation of 4.73%. Thus it is clear the bullish moves of 3/24/14 and 4/7/14 are exceptional. Then we had the week commencing 4/14/14 when the weekly return was (15.12%) followed by the week commencing 4/28/14 when the weekly return was (8.14%): these bearish moves were also statistical oddities. A similar bullish move has been seen only twice in the past five years, while a bearish move of that magnitude has been seen only three times over the past five years.

Read More

Sunday, May 4, 2014

Oracle: Capture The Alpha

I am looking at Oracle (ORCL) today as it approaches its all-time highs set in 2000. But this time, with a big difference. In 2000 Oracle reached for the skies backed by momentum. Today it is backed by momentum too. But unlike the past, today Oracle offers great value for value investors, great growth for growth investors, and great quality for those who focus on high quality offerings.

Wednesday, April 23, 2014

Facebook: A PE Of 95 And Cheap At The Price?

  • Facebook is well off it's 52-week high, but momentum remains strong together with growth expectations.
  • The PEG Ratio based on 2014 earnings expectations and five year growth rates of 31.38% suggest the stock is not as expensive as a value investor might believe.
  • At $63 Facebook is fairly priced, and perhaps somewhat cheap, though not as cheap as it might get in a very risk averse market.
I am looking at Facebook (FB) today because it's less expensive than it was a while back when it hit $72.59. I am looking at Facebook because while it is expensive, so is everything else, and investors do love Facebook. And I am looking at Facebook because perhaps, just perhaps, it is not as expensive as I think it is.

Tuesday, April 22, 2014

Amgen Versus Celgene: Value/Growth Face Off

  • Amgen is a wonderful value opportunity begging for attention from value and dividend growth investors.
  • Celgene is a wonderful growth opportunity, which the growth and risk adjusted PE ratios suggest might be cheaper than Amgen.
  • Both stocks offer a considerable alpha opportunity, with Amgen offering the bigger alpha, with a lower probability off alpha recognition.
It is a big week for the Biotechnology industry and having had a look at Gilead, the only mega-cap (market cap > $100 billion) biotech stock recently, I decided to have a quick look at the large cap biotech names. I screened for large-cap biotech stocks where the key quality indicators were better than the average for the industry. And here is what I got.

Caterpillar: No Alpha, But A Possible Beta Contraction Opportunity

  • Caterpillar has outperformed markets over the past month, quarter, half year and year. This signals market conviction in forward expectations.
  • However, the momentum seen also suggests that forward expectations are fully priced. Simply meeting high expectations or even a small beat could disappoint investors.
  • Caterpillar is expensive in comparison with peers in the farm & construction machinery industry and trades at a slight premium to fair value: alpha is absent.
  • Caterpillar's beta shows signs of contracting from 1.40 to 1.22. If this is sustainable, it presents an interesting alpha opportunity.
Caterpillar (CAT) reports earnings on Thursday, 4/24/14. The stock looks very good on value compared with the market or industrial goods sector. But when we view value viewed versus other members of the farm & construction machinery industry, it looks no more than reasonably valued: in fact slightly expensive relative to the industry peer group.

Monday, April 21, 2014

Multi-cap watchlist of High Quality, Value & Growth Stocks

This screener selects stocks with the best value in comparison with industry peers.  I ran the screen to select value leaders at industry level. I could have decided to select the best value available in comparison with the market, but today I am more interested in industry value leadership.  When the markets are in abject terror hunkering down in market value leaders might make sense, but at present, I'd like to believe that stocks in different industries can represent good value with very different ratios.  For instance and oil and gas major with a PE of 10 is not necessarily cheaper than a technology company with a PE of 15: it trades lower simply because it is worth less because the industry requires higher re-investment and commands lower return on equity.

Saturday, April 19, 2014

Tesla: Terrific And Terrible

A few months ago I had a look at Tesla (TSLA) when it was trading at $170. I concluded that Tesla was a terrific company trading at a terrible price. The price is now $198, having traded up as high as $265. So the price is more terrible, perhaps driven by the Gigafactory. Not much has changed since then. Except that I think there is reason to believe that Tesla is not quite as expensive as I think it is!
I had first written some code a couple of years ago, thanks to a Twitter friend called Jack Barnes, which has been significantly improved by Alan Stoll of late. It would help if you read about the build-out of that system here, as that will allow you to appreciate the model output later in this post better. I'll hasten to add that this is a package aimed at generating ideas, it does not intend to, nor does it replace the due diligence we must do as investors. It is a tool which uses quantitative techniques to understand the behavior of different market participants, and then brings that data together so that users can hear the voice of the market through the noise. The AOM system can guide you where to look, but make no mistake about it - it cannot look for you.

Friday, April 18, 2014

American Express And MasterCard Vs. SLM Corporation: Growth Vs. Value Face Off

  • The credit services industry is down 4.7% over the past month, and 5.7% over the past three months. It is up 7.2% over the past six months.
  • Growth has taken a beating in recent times as investor focus has shifted to value in a declining and more volatile market.
  • Because of the recent weakness I screened the credit services industry for quality stocks. I look at American Express, MasterCard and SLM Corporation, all members of the credit services industry.
  • I then compare American Express and MasterCard, both stocks that might be attractive to growth investors, versus SLM Corporation, which might be favored by value investors.  This difference between industry components might seem like an apples to oranges comparison, but sometimes we cannot eat an apple and an orange. And at such times we have to compare an apple with an orange to decide which one we'd like to eat now.

Thursday, April 17, 2014

Visa: An Opportunity To Capture Growth Alpha

  • Visa has a PEG ratio of 1.45, compared with a market PEG of 2.64 and a financial service PEG of 2.51. Visa is cheap on a growth adjusted basis.
  • Visa has a beta of 0.80, compared with a market beta of 1. The P-RAGE Ratio (PEG Multiplied by Beta), which risk-adjusts the PEG Ratio, is attractive at 1.176.
  • The PEG for the credit services industry is 1.45 and beta 1.07. Thus, the P-RAGE Ratio for the credit services industry is 1.55, compared with 1.176 for Visa.
  • Visa offers 6.88% short-term alpha, after which it is priced to deliver a long-term return of 9.1%. On the other hand, the market is priced to deliver negative alpha.

A Look At Opportunities In The Diversified Machinery Industry

  • General Electric reported earnings, which have been well received by the markets. This might suggest a secular tailwind for the industry.
  • I decided to have a look at the diversified machinery industry to see if I could spot opportunity in an industry that might benefit from a secular tailwind.
  • Cummins, Hillenbrand and Powell provide a nice mix of dividend, growth, and value, with decent diversification between large-cap and smaller size in the selection.

Wednesday, April 16, 2014

IBM: P-RAGE Ratio Looking Good

  • IBM's PE Ratio is 13.12 Versus Market Cap Weighted PE for the Industry of 18.39. This suggests the stock is cheap.
  • IBM's Forward PE Ratio is 9.96 Versus Market Cap Weighted Forward PE for the Industry of 15.82. This suggests the stock is cheap.
  • IBM's PEG Ratio is 1.45 Versus Market Cap Weighted PEG Ratio for the Industry of 1.63. This suggests the stock is cheap.
  • IBM has a beta of 0.72 compared with a market beta of 1. The P-RAGE Ratio (PEG Multiplied by Beta) which risk adjusts the PEG Ratio is attractive at 1.0432.
  • Overall the risk reward ratio for IBM is very healthy.

Tuesday, April 15, 2014

Coca-Cola: A Buy Despite Growth And Equity Compensation Plan Concerns

  • Coca-Cola closed Monday 10.8% below its 52 week high. It was cheap before, then it was cheaper, today it's less cheap! The stock may be of interest to value investors.
  • The company offers a dividend yield of 3.15% and the dividend can grow at a long-term rate of 7% to 8%. This might be of interest to income investors.
  • Coca-Cola remains cheap on a risk adjusted basis and offers considerable long-term upside despite concerns over growth and the equity compensation plan.
  • In pre-market Coca-Cola rose in response to a well-received earnings report. Will this extend to the days ahead?

Monday, April 14, 2014

Citigroup: High-Risk, High-Reward Turnaround

  • Citigroup was severely wounded by the financial crisis and was rescued by the U.S. government.
  • Much of the repair to the balance sheet is done, but the task remains incomplete. Risks remain elevated.
  • But there is light at the end of the tunnel. After that it’s a matter of realizing their true earnings potential.
  • The stock is attractively priced at a 17% discount to tangible book value.

Sunday, April 13, 2014

JPMorgan: Nibble The Dip?

  • JPMorgan reported results which disappointed investors. However, the results did have a couple of positives for long-term investors.
  • The first positive was the absence of "items" from earnings. It is very bullish if the gap between core earnings and as reported earnings narrows towards the core.
  • The second positive was clarification that the $6.5 billion buyback plan included $1.5 billion to offset employee issuances, thus implying $5 billion shareholder value being returned.
  • A rise in sustainable earnings and adjusted payout ratio is very bullish for a future period when risk aversion levels might decline.

Buy Bank Of America: A Safe Turnaround Story

  • Bank of America was severely wounded by the financial crisis and its acquisition of Merrill Lynch and Countrywide. Their turnaround has progressed nicely.
  • Much of the repair to the balance sheet is done: now it’s a matter of realizing their true earnings potential. Perhaps achievable in the coming five years.
  • Over the coming ten years I expect Bank of America, together with its crisis acquisitions to emerge far more powerful than ever before.
  • The stock is attractively priced - it trades at a 24% discount to book value and a 15% premium to tangible book value.

Saturday, April 12, 2014

Goldman Sachs: The Vampire Squid Strikes Back

I recently read this post on MarketWatch, and remembered the "vampire squid wrapped around the face of humanity" quote from Matt Taibbi. What a change: today we have Goldman Sachs leading the way towards a fairer marketplace for stocks!
Vampire Squid or not, long-term buy and hold style investors at Goldman Sachs have done quite well for themselves, relative to investors at other banks. After all, from amongst JPMorgan, Wells Fargo and Goldman Sachs, Goldman Sachs alone has been able to deliver a positive dividend and buyback yield over the past ten years. The Vampire Squid has outperformed the mere mortals by miles.

Thursday, April 10, 2014

JPMorgan: When To Nibble, When To Bite

The earnings season will begin in earnest on Friday with reports due from JPMorgan (JPM) and Wells Fargo (WFC). This is an interesting time because we always see a price response to earnings expectations in the lead up to earnings, with potential for further volatility on earnings release as expectations adjust based on new information available. When there is a price response, there is an opportunity to benefit from a price/value arbitrage.
In this post I express my perception of JPMorgan's Value, and hopefully leave enough information to allow readers to form their own view on value if they are so inclined.  In short - Nibble $52, Buy $46, Bite $40.

Wells Fargo: A Price To Nibble, A Price To Bite

  • The earnings season is upon us, and Wells Fargo is due to report at 8 a.m. ET on Friday.
  • Prices climb in anticipation of earnings, and adjust to new information after the earnings release.
  • In this post, I set out nibble and bite levels which ought to tempt buy and hold style value investors, should the opportunity arise.
  • The recent developments on Supplementary Leverage Ratios add downside risk as capital needs and earnings potential will be re-assessed.