Time to invest in Hot Growth? – Part 2 Thursday, September 13, 2007
Posted by ei-forum in US Traded Stocks.1 comment so far
As promised, today we continue going through the Business Week Hot Growth top 100 list by tackling N*51 to 100.
First of all, here are some links:
Like yesterday, the first thing we tried to do was see if any of these companies was trading at an acceptable P/E Ratio and therefore excluded all candidates that were over 10. These are the companies that made the shortlist:
As you can see, the list is much shorter than yesterday. Does anything stand out? Well, we do have two companies that are both linked to the offshore marine sector: GLF and TDW… however, what caught our attention was that Mohnish Pabrai has a position in USAP (link).
As our readers know, Mr. Pabrai is an exceptional investor who focuses on making big bets on companies that have a lot of upward potential BUT minimum downside, as he says: “Head I win; tales, I don’t lose much!”. Bottom line, if Pabrai invested in this company, we feel that it definitely justifies a closer look!
Please read our Disclaimer.
Time to invest in Hot Growth? – Part 1 Wednesday, September 12, 2007
Posted by ei-forum in US Traded Stocks.add a comment
In an effort to clean out our desks, we recently came across the June 4th 2007 issue of Business Week. The cover story was Hot Growth: the 100 best small companies to watch! Here is the link to the original article: link.
Now, despite the fact that we usually shy away of the typical ‘hot growth’ stocks, we thought that it would be interesting to review this list in light of what has happen since publication and try to highlight if we can find a possible list of ‘Value Hot Growth’ propositions. We have decided to review the top 100 in two separate groups: N*1 to 50 and N*51 to 100 and as you have probably figured out by the title, we will split this post in two parts – you will be able to read Part 2 tomorrow.
The first thing we tried to do was see if any of these companies was trading at an acceptable P/E Ratio and therefore excluded all candidates that were over 10. These are the companies that made the shortlist:
- Heelys (HLYS): 5.06
- Mannatech (MTEX): 6.65
- Grey Wolf (GW): 6.97
- Unit (UNT): 7.71
- Pioneer Drilling (PDC): 8.12
- Eagle Materials (EXP): 9.72
Well, the first thing that stands out is that the lowest P/E stock is Heelys which already held the N*1 positioning in the Business Week ranking… but let’s drill down a bit more. Looking at the PEG Ratio and current Book Value, we have decided to take Pioneer Drilling and Eagle Material off of our short list for the following reasons:
- PDC has a PEG Ratio of 6.09 and this is a bit ‘rich’ for our liking.
- EXP is trading at 3.18 Price to Book and we feel the other candidates offer a better margin of safety.
All these companies are very interesting and all of them offer a valid investment thesis but for the sake of this post, we want to look at them from a different angle. What strikes us in the remaining list is that two of the companies (Grey Wolf and Unit) engage in contract oil and natural gas business and we understand this better than the sports design and retail (HLYS) and wellness (MTEX) sectors.
We feel that Mr. Market is overlooking the longterm potential of these companies and especially in the case of Grey Wolf, it seems very willing to overlook small domestic producers. With both these companies, the fundamentals speak for themselves and despite short term decrease in demand and natural gas prices: longterm need remains.
Please read our Disclaimer.
When Genius Failed, R. Lowenstein Tuesday, September 11, 2007
Posted by ei-forum in Book Reviews.add a comment
As the book cover states, this is the tale of the rise and fall of Long-Term Capital Management (LTCM) and how one small bank created a trillion-dollar hole. Lowenstein details how the financial and academic ‘experts‘ that ran the fund nearly managed to collapse the world’s entire financial system.
The story is both fascinating and alarming. This hedge fund was being run, not only by some of Wall Street’s Superstars but also by a former Vice-Chairman of the Federal Reserve and two economic Noble prize winners. It should serve as a reminder to even the best investors that arrogance and greed do not offer a sustainable longterm proposition.
John Meriwether and his Partners were indeed arbitrage specialists and had perfected the risk-management strategies of their hedge fund. From March 1994 (when LTCM started trading) the fund showed a ROI of over 40% per year in the first four years of operation! The issue was that to keep producing this kind of performance, their bets had to involve bigger and bigger positions, more leverage and therefore more risk. Due to the success and the fact that everyone wanted a piece of the action, they became even more convinced that they were completely invincible and lenders did not hesitate to keep on funding them as the results where there….
However, once markets turned against them, LTCM had no chance to get out in time. They lost close to 2 billion dollars in one month alone! Furthermore, due to all the leverage, derivatives and other complex financial hedges, the fall of LTCM also meant that banks, governments and institution worldwide where in the midst of this imminent financial disaster. Ultimately, the Fed had to step in and lead a bailout….
Enjoy!
Market Expert: Financial Advisor! Monday, September 10, 2007
Posted by ei-forum in Investing Humor.add a comment
Next Monday, we will continue to look at Dilbert’s new Financial Advisor!
Conservative Play: = 20% Potential Friday, September 7, 2007
Posted by ei-forum in US Traded Stocks.add a comment
Let’s see if you can figure out what company we are talking about:
- Warren Buffet has a long lasting relationship with this company. He manged to take a position in times when the markets where shying away from this company and has managed to reap extraordinary gains from his investment.
- The company is recognized an an American icon, has strong fundamentals and is a 5 start pick amongst the world’s leading investors.
- On average, they are trading at an 18% discount to fair value (28% depending on the assumptions).
- Few business men would ever consider leaving home without it….
How does it stack up against competitors? Well, here are some numbers:
- 37.97% Return on Equity vs. an industry average of 20.13%
- Current P/E Ratio of 15 vs. an historic average of 25 and an industry average of 16.80
- Debt to Equity Ration of 6.18 vs. an industry average of 9.46
Have you guessed what company we are talking about? Yes, it’s American Express (AXP).
Markets always tend to punish this stock in uncertain times but they always manage to navigate through the storms they encounter. Furthermore, despite changing higher transaction fees to merchants, they manage to keep a firm hold on the market due to the fact that their card holders keep on spending more than the others.
Regardless of short term fluctuations, we find it difficult to believe that patient investors will not be rewarded for holding this stock in their portfolios (currently trading at 57,75 USD).
Can you imagine leaving home without it?
Please read our Disclaimer.
Screenig for Best-in-Class Thursday, September 6, 2007
Posted by ei-forum in Screening Criteria.2 comments
Sometimes, we like to try and highlight strong players in a specific industry and not only search for interesting companies across the board. In order to do this – again, using MSN Money Deluxe Stock Screener – we ran a simple search using criteria against the respective industry average.
We screened for:
- Return on Equity >/= to Industry Average Return on Equity
- Price/Book </= to Industry Average Price to Book
- P/E Ratio </= to Industry Average P/E Ratio
- Income per Employee >/= to Industry Average Income per Employee
- Inventory Turnover >/= Industry Average Inventory Turnover
- Debt to Equity Ratio </= Industry Average Debt to Equity Ratio
- Dividend Payout Latest Fiscal Year >/= Industry Average Dividend Payout Latest Fiscal Year
- Net Profit Margin >/= Industry Average Net Profit Margin
And finally, we checked if any company that met these criteria was being punished by the markets:
- Previous Day’s Closing Price ‘Near’ 52-Week Low
To further refine the screen, you can focus on Small, Medium or Large Caps, you can look only at a specific index like the s&P500 or any other angle you wish to explore.
What we found interesting was that one of the companies that companies that come out in the Top 5 was Precision Drilling Trust (PDS). We have been following this company for quite some time and even wrote about it back in June (to read our post please click: here).
Our outlook remains positive, they are paying a very generous dividend and as soon as conditions will become colder, we will see the share price gaining ground once again.
Liar’s Poker Explained Wednesday, September 5, 2007
Posted by ei-forum in Miscellaneous.add a comment
If you are interested in the investing world and have read some of the books or stories on the late 80s on Wall Street, you will have come across Liar’s Poker (also the title of the book written by Michael Lewis about his experience as a bond salesman at Salomon during this period).
Most people know that this is a game played on the Street but don’t really know what it is. Despite the name, it has nothing to do with Poker, as in, the card game. Apparently, people started to play this in bars to test their bluffing and mental computing skills. However, bond traders took to it as they believed that it has a lot in common with trading: you have to be rational, controlled, quick to calculate odds and stick to your strategy.
So this it how to play: a minimum of 2 or maximum of 10 people sit around and hold a single dollar bill without showing it to the other players. Ideally, each player ‘pools’ a bill and then they are randomly distributed to all the participants. The game revolves around the 8-digit serial number on the bill.
Players get a chance to ‘make a bid’ or ‘challenge the bid of another player’ and the objective is to make the highest bid for a number without it exceeding the total of times the ‘number’ is present in the serial numbers of the dollar bills held by all the players.
For example:
- the first player may ‘bid’ three 5s (this means he thinks there are at least three 5s present in all the serial numbers)
- the next player can either ‘bid’ a higher number at that level, say, three 6s, he can ‘bid’ a higher level of any number, say four 3s, or challenge the first players ‘bid’ thereby assuming there aren’t three 5s across the table.
- if your ‘bid’ is successful you win one dollar from every player but if unsuccessful you lose a dollar to all the others.
- the game ends when the ‘bid’ escalates to a level where all players agree to challenge a single player.
We hope this sheds some light on one of Wall Street’s favorite games!
Screening for Investment Ideas Tuesday, September 4, 2007
Posted by ei-forum in Screening Criteria.2 comments
As part of our series on screening ideas, we though that we would focus this post on trying to identify some investment ideas. We used the MSN Money Deluxe Stock Screener but you can run this with pretty much any program.
For the purpose of this post, we started by looking for the New 52-Week Lows on the NYSE. Here are the top 7:
- CorpBanca (BCA)
- Barclays (BCS)
- Chesapeake Corp (CSK)
- Capital Senior Living Corp (CSU)
- Dillard’s Inc (DDS)
- Fidelity National Financial Inc (FNF)
- Gottschalks Inc (GOT)
We then wanted to see if any of these candidates were trading close to their Book Value, say screen for equal or under 1,3:
- Gottschalks Inc (GOT)
- Dillard’s Inc (DDS)
- Chesapeake Corp (CSK)
- Fidelity National Financial Inc (FNF)
Now let’s see which company is trading at a P/E ratio which is under the respective industry average:
And what about adding a Debt to Equity Ratio under 1? Both stock still come up. So we’ll add a minimum Return of Equity of 10%…. and the finalist is:
- Fidelity National Financial Inc (FNF)
Does this mean that you should rush out and buy this stock? No, of course not but this could be a starting point to see if you should investigate further and maybe consider taking a position. We would recommend having a looks at recent news and then recent annual reports if the stock still interests you.
Enjoy your research!
Market Expert: Reincarnation Fund! Monday, September 3, 2007
Posted by ei-forum in Investing Humor.1 comment so far
Next Monday, we will start to look at Dilbert’s new Financial Advisor!
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