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

Summary
  • 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?

Summary
  • 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

Summary
  • 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

Summary
  • 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.

Wednesday, April 9, 2014

Value Hidden In Plain Sight: Apple Is Too Cheap


The growth estimate implied by the current market price of 5.3% is ridiculously low. If Apple grows at a long-term rate of 8%, in-line with nominal global growth expectations, we have growth alpha of 2.7%. And an investor buying at present levels can expect a long-term return of 13.18%.  On the other hand, broad markets are priced to deliver negative alpha or 0.44% to 0.74%.

Pfizer: It Never Rains, It Pours

Summary
  • Pfizer has been beaten up these past two days. It was cheap before, now it is cheaper. The stock maybe of interest to value investors.
  • The company offers a dividend yield of 3.2% and the dividend can grow at a long term rate of 5% to 6%. This might be of interest to income investors.
  • The patent cliff is behind. What matters is what lies ahead. The pipeline of 7 drugs in registration and 20 in Phase III suggests that the game is not over.
I'm taking a look at Pfizer (PFE) today, because the stock has been beaten down over the past few days.

Wal-Mart Is Cheap, The Market Is Not

Wal-Mart scores high on value. It scores high on quality in comparison to its industry of operation, with lower but acceptable scores in comparison to the whole market or its sector of operation. The score for momentum is positive in comparison to its industry of operation, and acceptable in comparison to the whole market and its sector of operation. However, Wal-Mart scores very poorly on growth, regardless of how we look at it - the key indicators for growth at whole market, sector or industry level are all abysmal.

Monday, April 7, 2014

Amazon: Are We There Yet?

I spent part of January and February looking at Amazon (AMZN), Facebook, Google, and Tesla - all interesting growth companies. Expensive markets provide an excellent opportunity to see where the performance is amongst growth stocks. The aim of these posts was to review the companies at a very top level through identification of past trends, and extrapolate those trends into the future, based upon potential for expansion of their key markets. A secondary aim was to establish potential price points to re-visit the stock buy decision. Since that time, I have done my homework, and would be happy to own stock in these companies at the right price. This is a very personal decision, so each investor needs to do their due diligence.

Friday, April 4, 2014

A Few Good Reasons To Sell India

The first reason to sell India is that the easy money has been made.  While the market is trading at all time nominal highs, it remains a way below real highs.  But for further gains, we have to see the economic cycle turn and corporate balance sheets strengthen.  We also need confidence in policy expectations.

The second reason to sell is that in all likelihood the pre-election rally is behind us.  Elections do begin on April 7th.  And now it is time for fear.  Will a Third Front rise?

The third reason to sell is questioning the competence of the expected winners once their manifesto is published.  I hear rising noise from the political illiterates questioning the impeccable policy of Raghuram Rajan.  Any move to displace or constrain him post election, would have a heavy cost in terms of foreign investor confidence, the Rupee value, and of course inflation expectations.

And finally, will the expected winners continue progressive opening of Indian markets?  If they circle around in their insecurity and close markets, there will be a huge price to pay.  Again, the price will be measured in terms of loss of investor confidence.  And this will lead to Rupee weakness which will feed through to inflation as the cost of imports rises.  And of course all of the recent progress on the fiscal and current account deficit will be undone.  Current rumblings suggest that we might see disappointment with the manifesto once it is published.

It is not time to panic, but it is time to be cautious.  I will book profits to return to allocation.

And I will be inclined to buy into a spike in long-duration government securities (to about 9.2% or about one standard deviation above the six year average), or a substantial decline in equity markets.

Thursday, April 3, 2014

General Electric - Profit From Alpha Through Beta Contraction

Several years ago, I used to admire General Electric (GE) for its industrial business. However, I disliked its media business segment and was not keen on GE Capital either. So I steered clear of General Electric. In 2009, when General Electric bought Vivendi's (OTCPK:VIVEF) stake in NBC Universal, and agreed to sell a controlling stake to Comcast (CMCSA), I was pleased. The sale concluded in February 2011, and I bought into General Electric during August and September 2011, adding to my position in February 2012. When General Electric sold its remaining 49% stake in 2013, I added further positions. As far as GE Capital is concerned, like most major industrials (examples Caterpillar (CAT) or Deere (DE)), a financing arm is more or less a necessity. The part of GE Capital offends that me is its consumer facing business, and it is clear that the company is rapidly shrinking this business. Along with the recently reported spin-off of Synchrony, it is clear that the consumer business is considered non-core by General Electric. Thus, I am now wondering whether it is worth adding further positions.

Tuesday, April 1, 2014

India: The Month That Was - March 2014

March Performance
What a glorious month it has been! The Sensex closed at 22,386, up 5.99% for the month, only to be outdone by the NIFTY which closed at 6,704, up 6.81% for the month. Both the large cap indices were beaten by mid cap indices: the S&P BSE Midcap closed at 7,083, up 8.96% for the month and the CNX Midcap closed at 8,612.45, up 10.34% for the month. And U.S. dollar investors did even better because the rupee closed the month at Rs 60.10 to $1, compared with $62.07 to $1 at the end of February.
Risk aversion is relegated to the back seat. 

The Hunt For Hidden Value: Gilead Gilded In Gold

Why Gilead?

Companies return value in many ways. Firstly, they can pay a dividend. This has utility and worth to investors. It can be consumed or reinvested by the recipient, and in many ways, it shifts the risk of bad capital allocation from the company to the investor. Dividends are also relatively easy to value. 


The Dogs Barked Loud And Won: First Quarter 2014

Summary
  • The Dogs of the Dow strategy has a powerful long-term performance track record for total return.
  • Since the strategy is focused on dividends, it should be considered by income investors.
  • Given the low beta of the strategy, and the outperformance on the total return, this strategy creates considerable long-term alpha.
  • I test the Yield Weighted Dogs & Equal Weighted Adjusted for Value Dogs to determine whether they out-perform the traditional Equal Weighted Dogs.
During the first quarter, the Dogs won beating out both the Dow and the S&P 500.

Wednesday, March 26, 2014

Value Hidden In Plain Sight: Top Dow Stocks - Cisco

Summary
  • Cisco trades at a fraction of its all time high. History tells us it was mis-priced then, is it mis-priced now?
  • We look at Cisco the company, as opposed to its price action, and consider whether it is a good company, trading at a fair price.
  • We consider Cisco's value to determine whether it is currently priced to deliver alpha. It is.
 Read More
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Monday, March 24, 2014

Oilfield Services Overview: Alpha Absent At Schlumberger

In this post, I will present some information on Schlumberger (SLB), Halliburton (HAL), Weatherford (WFT), Baker Hughes (BHI), and National Oilwell (NOV). And then present the value case for Schlumberger in this post.
These are all sound companies, but do they, in my view, represent good value? My personal energy positions are presently focused on Shell (RDS.A) (RDS.B), BP (BP), and Transocean (RIG), and shall stay that way since they satisfy my unique income, growth and beta tolerance targets. Schlumberger and National Oilwell remain on my radar as sometime, if ever, opportunities; but in my view, the two stocks in particular, and the oilfield services industry in general, is not priced to deliver the kind of long-term return a buy and hold style investor should target.

Sunday, March 23, 2014

The Semi-Conductor Space - Part 2: Focus Intel

At present, I am long Intel, and follow Qualcomm. I own Intel because I like to receive a fairly substantial part of my return through dividends: that makes me responsible for allocation of my capital, and so reduces the risk of bad capital allocation by the company. I like Qualcomm too and am often perplexed as to why I don't own it. The reason is simple: I can't possibly own every stock I like.

Why look at Intel now?

Friday, March 21, 2014

The Drillers Take It All - Part 3: Focus Transocean

Summary
  • In recent times, stocks in the offshore drilling segment have been punished by markets on account of a soft industry outlook.
  • Transocean is trading at a price near the low-end of analyst estimates.
  • The extrapolation of near-term expectations into a long-term outlook has led to potential alpha of 305 basis points for Transocean.
  • Transocean is priced to deliver strong long-term returns through a combination of alpha and beta-driven gains.
  • A rise in beta is on the cards on account of an anticipated change in capital structure, and the asset mix vis-a-vis competitors.
Why look at Transocean (RIG) now?

The Semi-Conductor Space - Part 1: Focus Qualcomm

Summary
  • We look at companies, and try to see how they are perceived by different stock selection styles adopted by market participants.
  • We look at companies, and try to see how they are perceived by different capital allocation styles adopted by market participants.
  • We look for good companies at a good price. That is companies priced at a level which offers an opportunity to capture potential alpha.
Why look at Qualcomm now?

Thursday, March 20, 2014

The Drillers Take It All - Part 2: Focus Seadrill

Summary
  • In recent times, stocks in the offshore drilling segment have been punished by markets on account of a soft industry outlook.
  • Seadrill is trading at a price near the low-end of analyst estimates.
  • The extrapolation of near-term expectations into a long-term outlook has led to potential alpha of 213 basis points for Seadrill.
  • Seadrill is priced to deliver strong long-term returns through a combination of alpha and beta-driven gains.
Why look at Seadrill (SDRL) now?

Wednesday, March 19, 2014

The Drillers Take It All - Part 1: Focus Ensco

Summary
  • In recent times stocks in the offshore drilling segment have been punished by markets on account of a soft industry outlook.
  • Ensco is trading at a price near the low end of analyst estimates.
  • The extrapolation of near term expectations into a long-term outlook has led to potential alpha of 194 basis points for Ensco.
  • Ensco is priced to deliver strong long-term returns through a combination of alpha and beta driven gains.
I use the Alpha Omega Mathematica [AOM] model to analyze the behavior of market participants, and as a tool to facilitate stock selection.
Read More

Tuesday, March 18, 2014

Value Hidden In Plain Sight: Chevron

Why look at Chevron (CVX) now?
Firstly, Chevron is a mega cap stock. This gives it a defensive character, which appeals to me when I perceive the markets are expensive. Secondly, the stock has a low beta. This adds to the defensive characteristics and protects downside during weak markets. Thirdly, the stock delivers a yield of 3.5%, which is a significant premium to the market yield. What more, the time for the annual dividend hike fast approaches: a hike to $1.1 per quarter will take the yield to 3.85%. 

Friday, March 14, 2014

Still Some Long-Term Alpha Available At Microsoft

A couple of years ago, I had written some code to facilitate stock selection. You can read about the build-out of that system here. Recently, some of the output of that model is being published at BTFD.tv, and you can see a list of the top and bottom 20, for large, mid, and small cap stocks here. You can view additional information for any specific stock here. Any stock selection software or screener is at best a start point. I see Microsoft (MSFT) on the top 20 large cap list. I like Microsoft and so I decided to run through some numbers to see what long-term return potential the stock might offer.

Thursday, March 13, 2014

The AOM System

A long, long, time ago, I wrote up code to help facilitate stock selection.  Well it really wasn't long ago, it was as recent as 2012.  

It all started with Jack Barnes, a twitter acquaintance, sending me a file that scored several key ratio's for one stock against another.  Today, Jack is an old friend, as well as someone I don't know from Adam.  Well he's a friend, and since he is pushing towards the start of his sixth decade, he is old.  And I know him well, but only in the virtual world.  Since nothing seems real in the world anymore, I suppose that is okay.

Anyway, we called it Alpha Omega Mathematica (AOM).  And today, we publish AOM rankings at GetAOM.  We also publish stock specific quotes together with AOM scores.

I thought I'd run a note documenting the agony of the build-out of the system so that you understand broadly how it works.

Wednesday, March 12, 2014

Exxon Mobil And The Buffett Benchmark

Why look at Exxon Mobil (XOM) now?
Firstly, Exxon is a mega cap stock. This gives it a defensive character, which appeals to me when I perceive the markets are expensive. Secondly, the stock has a low beta. This adds to the defensive characteristics and protects downside during weak markets. Thirdly, the stock delivers a yield of 2.7%, which is a premium to the market yield. This too adds defensive characteristics to the stock. Fourthly, I believe that we are now either in, or fast approaching the late or mature phase stage of the economic expansion. As I mentioned in a recent post, during such periods, the energy sector has displayed a historic tendency towards outperformance. Finally, Exxon as recently priced, includes potential alpha.

Tuesday, March 11, 2014

Seeking Alpha, Beta And The Economic Cycle

Summary
  • The market has run up. And as can be expected some high beta names have performed quite well while low beta names have underperformed.
  • Several of the high beta names are priced to deliver negative alpha. The negative alpha will offset beta driven gains going ahead.
  • On the other hand, several low beta names are priced to deliver alpha. The lower than market returns associated with low beta will be offset by high alpha going ahead.
  • This review which seeks out sector alpha is limited to the Dow simply to reduce the size of the universe of stocks.

Monday, March 10, 2014

Johnson & Johnson: Low Beta, Small Alpha

Johnson & Johnson (JNJ) trades at a multiple of 16.91 times 2013 earnings. At first glance that does not look terribly expensive. And it also trades with a dividend yield of 2.9%, which is a substantial premium to market yields: and that suggests it is cheap.

Sunday, March 9, 2014

Procter & Gamble: Gambling For Alpha

Procter & Gamble (PG) trades at a multiple of 19.35 times year end June-2013 earnings. At first glance that looks expensive. Yet, it also trades with a dividend yield of 3.1%, which is a substantial premium to market yields: and that suggests it is cheap.

Rowan Companies: Prices To Jack Up

I am very bullish on the offshore drilling companies over the coming three to five year horizon. I did an article about Transocean (RIG), which I feel can triple over three to five years. If you run through the comments on the Transocean article, you can see why I expect similar returns for Ensco (ESV). I like Diamond Offshore (DO) too for reasons set out in another recentarticle about offshore drillers. Seadrill (SDRL) also has high return potential and superb fleet quality. The beauty of these four companies is the generous dividend yields on offer. And healthy backlogs suggest that these yields are sustainable for the foreseeable future.
And then there is the fifth. Rowan (RDC), with a market capitalization of just over $4 billion, is best described as a mid-cap offshore driller, with a formidable reputation in the shallow water jack-up market. 

Monday, March 3, 2014

How The Dogs Barked Year-To-Date February 14

I wrote a post entitled Big Dogs, Small Dogs & Spy Dogs in late December. That got me thinking about how people spend much time on stock selection, while neglecting capital allocation and risk measurement, both equally important aspects of return generation in yet another post. Today I am presenting an update on how the dogs barked year-to-date February 2014.

Friday, February 28, 2014

Sensex India: The Month That Was - February 2014

The Sensex closed February at 21,120, up 606 points or 2.96% for the month, underperforming the NIFTY, BSE Midcap & NSE Midcap indices which closed up 3.08%, 3.05% and 3.52% respectively.

Monday, February 24, 2014

Alpha And Undervalued Growth Available At HDFC Bank

Today growth stocks are very fully valued in the U.S. markets. But that is not the case in every market in the world, where there is a wide selection of growth available at a very reasonable price. Today I am looking at HDFC Bank (HDB). And for a change, I do own it, though I own the ordinary shares listed in India, three of which make up one ADS listed in U.S.

Friday, February 21, 2014

There Is Beauty In The Ugly Indian Economy

I have been looking at the ugliness in the Indian economy for the last few years as GDP growth declined from 9.4% in March 2010, to a meager 4.8% in September 2013. And I have noticed a tapering off in interest in the iShares India 50 ETF (INDY).

There Is Beauty In The Ugly Indian Economy - Political Outlook

I have been looking at the ugliness in the Indian economy for the last few years as GDP growth declined from 9.4% in March 2010, to a meagre 4.8% in September 2013. And I have noticed a tapering off in interest in the iShares India 50 ETF (INDY)
Since December 2012, when GDP growth fell below 5%, about 1.3 standard deviations below six year average growth of 6.94%, and 1.6 standard deviations below ten year average growth of 7.8%, I have been watching out for the time when the ugly duckling will grow into a beautiful swan. It has been a long wait.

Tuesday, February 18, 2014

Confronting The Google Growth Multiple

In the recent past I have looked at Tesla (TSLA), Amazon (AMZN), andFacebook (FB), with optimism in the outlook, and pessimism in valuation. I own none of these stocks today, and what I am doing is building a watch-list of interesting names to own, should the opportunity present itself: one day, if ever.
Today I am looking at Google (GOOG). I do not own it, though perhaps one day I will. For those of you who are looking for a view backed by a long position, stop reading now: there is nothing here for you. And for those of you who cannot bear the thought that Google might one day trade below its recent all-time high of over $1,204 for a sustained period of time, look away: this post will likely be too painful for you.

Tuesday, February 11, 2014

Animal Spirits And The Math Of The Market Multiple

The Price Earnings Ratio is perhaps the most commonly used valuation tool. We all know and love the Price Earnings Ratio (P/E Ratio). But do we know what it means? And do we know what in our opinion it should be? We all know how to calculate it: It is Price Divided by Earnings. But that gives you what it is. It does not tell you what it means. To understand what it means, you must understand the Math of the Multiple. And that will allow you to both understand what it means, and calculate what, in your opinion, it should be.

Sunday, February 9, 2014

Amazon Alpha Assessment

In a recent post, not so long ago, I had said:
"We must also contemplate how leadership quality impacts beta. We know that Amazon is a low-beta stock, despite completely failing to meet earnings growth objectives the past several years. Investors get impatient from time-to-time, but the stock's beta has not risen, mainly on account of CEO Jeff Bezos and the company's perceived leadership and ownership quality. And it retains its valuation because it retains its growth expectations and consequently its growth stock character. I may sound like I don't like Amazon, as it happens, I do like it. I would not buy it here, but neither would I sell it. Why I like it is another long story, best summarized by saying, like Tesla, it is building tomorrow today: it takes time to build the future, they'll get there."
Since the time I wrote, Amazon (AMZN) is down over 10%. So I decided to measure the long-term alpha potential for Amazon for an investor with a long time horizon. 

Tuesday, February 4, 2014

A Facebook Fantasy

I recently did a post valuing Google (GOOG), using rates of returns that would attract "growth at a reasonable price" (GARP) style investors. The view I take is that Google successfully monetized search, and search technology is critical in the virtual world: thus I view Google primarily as a technology company specializing in media, seeking to monetize search or information functionality.
Facebook (FB) as a company or a service has never attracted me. Facebook seeks to monetize a fickle society. I have always believed that social networks are a fad, which will pass once people realize that it is more fun to wander down to the pub, or to have friends over to dinner, than hanging out in the virtual world.

Monday, February 3, 2014

Dividends: How The Dogs Barked This January

I wrote a post entitled Big Dogs, Small Dogs & Spy Dogs in late December. That got me thinking about how people spend much time on stock selection, while neglecting capital allocation and risk measurement, both equally important aspects of return generation in yet another post. Today I am presenting an update on how the dogs barked year-to-date January 2014.

Thursday, January 30, 2014

DuPont: Seeking Alpha Through Beta

In this post, I plan on evaluating whether Du Pont (DD) is a good opportunity to create alpha [α], through beta [β]. When we look at the make-up or components of α, it is clear that the market return, and risk free rates are uncontrolled by investors. It is equally clear that investors cannot influence β. The question is therefore, what does influence β? There is more detail on β below in this post, but in my view the key factors that influence β are business mix, financial leverage, and leadership quality.

Read More

Monday, January 27, 2014

High Quality Technology Is Cheap

The markets may be expensive or not, but high quality technology is cheap, cheap, cheap. Perhaps it shall not remain so forever.
When I speak of high quality, I am looking at companies with strong balance sheets, high return on equity, low beta, a strong brand which helps reduce earnings volatility over the course of an economic cycle, and a decent dividend yield.
In this post I am looking at Apple (AAPL), Microsoft (MSFT), Cisco (CSCO), and Intel (INTC). 

Tryst With Tesla

Tantalizing, Terrific and Terrifying Tesla
Tesla is tantalizing: Just look at this car and tell me you would not love to own it! Click on the photograph to visit the Gallery on Tesla's website.
Tesla is terrific: The Roadster that goes from zero to 60 mph in 3.9 seconds is outdone by the Roadster Sport that does it in 3.7 seconds. This performance comes from a car that doesn't run on gasoline. Click on the screen shot and it will take you to Features & Specs page on Tesla's website.

Tuesday, January 21, 2014

Mispriced Expectations And Price-Value Arbitrage: Ford, GM, And Tata Motors

Do you, like Fama, believe that markets are efficient? Or do you lean towards Shiller's view that markets are inefficient? Or do you believe both? Can it be that the market is both efficient and inefficient? Markets are forward looking. Markets are in a constant state of flux. Markets are chaotic. Are markets are in a constant state of disequilibrium in the journey towards equilibrium? Do inefficient markets tend to efficiency? And if yes, how can we follow the path to efficiency, or the journey to equilibrium? And does what holds true for a market also hold true for a single stock?