Value Investing

jamesmith

当时惘然 发表于 2012-9-15 10:54 PM
不喜欢它，除了是因为烟草的缘故，
还有其他的原因，比如说PEG就太差... ...

PEG ratio is better used on growth company with little or no dividend.
that said, I do agree current 18.18 P/E for PM is high.

水明善

jamesmith 发表于 2012-9-19 11:53 AM
Let's talk about Yahoo. It is a interesting company with large stakes in Alibaba and Yahoo Japan. In ...

Alibaba's business is not so transparent, from both financial and legal perspectives.
The future of Yahoo is too uncertain.
This is the era that the winner gets all, so we may focus more on winners or potential winners only.

jamesmith

水明善 发表于 2012-9-19 11:09 AM
Alibaba's business is not so transparent, from both financial and legal perspectives.
The future  ...

I totally agree, especially in Technology field, it's always winner takes all.
I took a look at yahoo because I was wondering about Yahoo's valuation and its Alibaba stakes.

May I ask what companies you are looking at?
I wanted to talk about banks, WFC, JPM and BAC. Buffett had position in all three. I am still looking at details of their business...hmm, maybe I can post their numbers and have a discussion? :)

WFC


JPM


BAC

水明善

That's a great idea!
Considering about Buffet's huge holding of WFC, I suppose he be smart:-)
JPM's some businesses are too complicated to understand.
BAC was a mess...
We may look at LinkedIn too, this is an understandable business and a strong leader in its industry.
The first question can be: which industry or which market leader is the focus for our discussion?
The trend of current world is to be more mobile, any chance there?

jamesmith

水明善 发表于 2012-9-20 08:12 AM
That's a great idea!
Considering about Buffet's huge holding of WFC, I suppose he be smart:-)
JP ...

Buffett actually have position in all three. Berkshire has huge position in WFC. Buffett bought JPM in his personal account. and Buffett has $5 billion preferred share of BAC that pays 6% dividend annually and he got warrants (similar to option) to buy 700,000,000 common shares of BAC at $7.143 that expires at year 2021.

I actually like LinkedIn and start to use it seriously, because companies really goes to LinkedIn and hire! I haven't looked at its stock yet. Talking about social network...I started a position in FB when they announced buyback (http://hutong9.net/forum.php?mod=viewthread&tid=185575), The unlock of shares at end of year still concerns me though...  (http://hutong9.net/forum.php?mod ... p;page=1#pid1892863)

For mobile computing, we can look at device, software and parts. Other than the obvious Google, Apple, Amazon; I like LSI :)

jamesmith

How much will you pay for this company?

In last 10 years revenue increased 13.6% annually
Last 5 years, revenue increased 9.5% annually
2010 to 2011 revenue increased 11.5%

In last 10 years net income increase 20% annually
Lst 5 years net income increase about 10% annually
2010 to 2011 net income increased 11.5%

In last 10 years EPS increased 20% annually
Last 5 years EPS increased 11% annually
2010 to 2011 EPS increased 12.4%

In last 10 years dividend increased 30% annually
Last 5 years dividend increased 16% annually
2010 to 2011 dividend increased 15.3%

Has 0 debt.

EPS for 2011 is $2.62
Dividend for 2011 is $1.2
Return on Equity is 34.6%
Return on Asset is 20.35%
Profit Margin is 4.25%

水明善

jamesmith 发表于 2012-9-24 12:18 PM
Buffett actually have position in all three. Berkshire has huge position in WFC. Buffett bought JP ...

Just read this article about FB: http://seekingalpha.com/article/ ... -value-of-the-space

Today FB is hitting the ground, maybe caused by comments from Barron.
I have some positions of FB too.

LNKD is a very difficult stock for me to do valuation, the history is too short. I tried to make comparison between LNKD and FB and had less confidence about the uniqueness of LNKD, is it so diffcult to have a professional website for job search and head hunting? FB is different, the user base is too big to be switched away. And the market in China will be open to FB sooner or later...so the potential is huge.

I believe BAC is on the right road, JPM CEO is a very capable guy, but WFC is a more consistantly conservative bank which I have more trust.

I will look at some other stocks you mentioned in the mobile field. Thanks for your sharing.

jamesmith

水明善 发表于 2012-9-24 12:12 PM
Just read this article about FB: http://seekingalpha.com/article/884241-facebook-worth-15-seems-a- ...

From a user's perspective, LinkedIn and Facebook are very different.
Facebook is much more social...people post random things, pictures or just chit chat, it evolves around people's daily lives.
I haven't see any of my friends post random things on LinkedIn....in fact, I have friends that got jobs in Amazon through LinkedIn.
It used to be that many of my friends are on Facebook, and a small portion of them have LinkedIn account also. Slowly, more and more of them opened LinkedIn account and updated their resume on LinkedIn.
That said, I haven't looked at any of its quarter or annual reports yet...

Agreed, WFC is definitely the most stable one out of the three, and it is the most "pure" bank. While JPM gives me a feeling of hedge fund -_-!  But there's no doubt that JPM's CEO is very capable.

jamesmith

jamesmith 发表于 2012-9-24 11:55 AM
How much will you pay for this company?

In last 10 years revenue increased 13.6% annually

The company is CHRW.



share price dropped from high $70s to below $60. Since CHRW is a logistic and transportation company, the pressure from global economic slowdown is hurting it. If we look at its numbers, what is hurting it is the question on its future growth capabilities and profit margin.
I believe there's no question about the companies competitiveness, the problem remains on macro economy. Unless you believe economy slowdown will last for a long very long time, otherwise when macro economy improves so should CHRW's margin.

Also CHRW is paying a decent dividend. It definitely showed its ability to profit through the bad and good years. The price drop is good news to us value investors. I believe it is in value area now.

jamesmith

jamesmith 发表于 2012-9-24 02:50 PM
The company is CHRW.

The problem is growth and profit margin



In 2012 Q2:  profit margin decreased to 3.877%, Revenue growth slowed to 1.8%, Net income growth slowed down to 3.2%, EPS growth slowed down to 6%. This is the reason for price drop, because these kinds of growth doesn't support the 21.52 P/E CHRW currently has.
Current P/E is a little below 2008 level, thus I believe this is a chance to start building a position in CHRW.
One thing to pay attention to is payout ratio increasing. This will increase at a slower speed when growth starts to pick up and company needs to allocate more cash to expand business.

Weekly chart of CHRW

jamesmith

What is intrinsic value?

It is the price that you think a rational and well-informed buyer would be willing to pay for the entire company.

It is the amount of cash that you expect if the company liquidated itself and distributed the proceeds to shareholders.

Or it is the present value of the amount of cash that you expect the company to generate over time, doscounted back to the present. That’s it.

And those are all really just different ways of saying  the same thing. An intrinsic value is not a point. It changes over time and it is typically a range of values. Our goal is to try to come up with a reasable value bon what rational people would be willing to pay.  –  Keith Trauner of Goodhaven

jamesmith

Arbitrage Example

What does Buffett do when he can't find good values for long term holding? Arbitrage! The type of Arbitrage Buffett does is Merger & Acquisitions, and Liquidation.

I have found a good example from Whopper Investment (http://www.whopperinvestments.com/cagles-cagaq-update#more-1785).
The company is CAGAQ (Cagle's, Inc) is filling for Chapter 11 bankrupcy.
Last trading date is September 20th, price is $3.02.
Here's Cagle's June Report: http://www.kccllc.net/documents/ ... 731000000000002.pdf
In June's report, shareholder equity is $26.112 million with 4.62 million shares outstanding, that gives $5.652 equity per share. Of course, not all of that will go to shareholders.

cagles-disclosure-statement-plan-as-exhibit.pdf (299.9 KB, 下载次数: 20)

2012-9-24 10:54 PM 上传

点击文件名下载附件

This is the chapter 11 document, go to the end and look at Exhibit B for Liquidation Analysis. OK...you are so lazy...I will post it for those don't want to look at it... -_-!


This liquidation analysis shows Proceeds Available for Distribution to Equity of $15,011,551.
We know that Cagle's has 4,616,202 shares, that gives us $3.2519268 per share. If anyone bought it at $3.02, that's a $0.232 gain, or 7.68% in a relatively short time. Pretty good when interest rates are historically low.

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Support Value Investor

jamesmith

hmm, looks like CHRW is buying growth. C.H. Robinson to buy logistics rival Phoenix for $635 million. http://in.reuters.com/article/20 ... INBRE88O0IH20120925

rightonmoney

I got a question:

We need the fundamental Info of the company before we estimate the value.

As the accounting principal is Mark To Market, how can we get the real fundamental info and truly believe this is real?

水明善

gross margin trend is very important. According to Buffet or someone who writes something about Buffet, gross margin can't be lower than 40%.

jamesmith

rightonmoney 发表于 2012-9-25 03:53 PM
I got a question:

We need the fundamental Info of the company before we estimate the value.

Hey, sorry for the late reply, I was very busy last week...
I wasn't sure about what you are asking...
By market to market, do you mean if Company A invested into a security S at $10 per share for 10 shares. If market price goes up to $15, market to market value is now $150, where as book value would be $100 (depending on accounting principles used...I am not an expert on this.)
Now if market price of S goes down to $6, market to market value is now $60, where as book value is still $100, but in real market terms, company lost$40 in security S. As an investor in Company A, of course we want to know M to M value of $60, not purchased value of $100. Is that what you mean? Most company use GAAP, and it is market to market.

It is very hard to know everything about a company...by analyzing a company's business, product, competition, profitability and reading its balance sheets, annual letters, investors can get a good understanding of the company and attempt to estimate it's value. After all, these are a company's most direct communications with investors...
As Ben Graham once said: "one need not know the exact weight of a man to know that he is fat."

I think most big companies try to keep their number up to date, because a fake balance sheet data, once found out by investors, will have devastating effect on a company. However annual reports and balance sheets can contain fake data, able to spot them early on will be a extremely valuable ability. By the way, "The Art of Short Selling" is an interesting read :)

Here's another interesting quote on value...
"What is intrinsic value?
It is the price that you think a rational and well-informed buyer would be willing to pay for the entire company.
It is the amount of cash that you expect if the company liquidated itself and distributed the proceeds to shareholders.
Or it is the present value of the amount of cash that you expect the company to generate over time, doscounted back to the present. That’s it.
And those are all really just different ways of saying  the same thing. An intrinsic value is not a point. It changes over time and it is typically a range of values. Our goal is to try to come up with a reasable value bon what rational people would be willing to pay."
–  Keith Trauner of Goodhaven

rightonmoney

jamesmith 发表于 2012-10-3 11:09 AM
Hey, sorry for the late reply, I was very busy last week...
I wasn't sure about what you are aski ...

Thank you so much for your time and the answer.



Mark to Market is the other way around of your answer.

It uses the buying price to calculate the company's book value.

for an instance: if A stock was $10, company bought at $10, the company's book value is $10, even the stock price drop to $1, the company's book value is still $10.

We all know that after 2007 financial crisis, most of the company's stock dropped sharply and after 5 year the stock price still haven't go back to the price of 2007. And some of them might never go back to that price any more. That is the reason why they change accounting principal  - make the book value looks great!

I still remember that last time Obama appointed an auditor to audit Citi Group. In final report,  the auditor said since the principle is tooooo complicated, therefore he can not fully understanding the detail of the book. Then I am affraid the book has been cooked.

jamesmith

水明善 发表于 2012-9-25 04:01 PM
gross margin trend is very important. According to Buffet or someone who writes something about Buff ...

I looked at CHRW a bit more :)
it's business model is quite interesting. From my understanding, they are a "virtual" third party logistic/transportation company. CHRW own a small amount of assets and serve as the middle man between companies that need transportation and companies that provide transportation. Most of CHRW's business is truck transportation, and they don't own trucks. That means they don't have to worry about truck maintenance/upgrade and pay salary to truck drivers.  
so they collect money from people that wants to ship things, paid part of that to trucking companies and collect the differences. This explains why:
For 2011:
Return on Equity is 34.6%
Return on Asset is 20.35%
Profit Margin is 4.25%

They don't require much asset to do business, therefore a relatively high ROE and ROA, however a large part of their revenue is paid to trucking companies, therefore a low Profit Margin. Two things are bad for CHRW:
1) Bad economies will decrease number of shipments and means lower revenue
2) high energy prices. Trucking companies have to paid for gas and this cost will ultimately decrease CHRW's profit margin...

Good thing about small asset company like CHRW is low fixed cost, this helps them to go through bad times very well :)
For example, if I own a restaurant, I have to pay rent, salary, utility bills, these costs are fixed. Then I have to pay for materials to make food. If I have 50% margin on foods, Revenue is good times will be very high so fixed cost have a small effect on my overall margin. However when revenue is low in bad economy, large fixed cost will kill my overall margin, then I have to start firing waitress and chef and find other ways to cut cost... -_-!!!

CHRW doesn't have to hire drivers and maintain those trucks, which is great thing for them  :)