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.

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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.

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

  • 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

  • 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

  • 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.
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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?