Mixed Tape Masterpiece

Live to Work

2009-03-03T18:49:00.003-06:00

"Today was just a day fading into another, and that...can't be what life is for." - Amy Hit the Atmosphere by Counting Crows.

Do you ever feel like that? Like your days are fading together and there has to be more to life than getting up every morning and trading your life energy for a paycheck? I'm sure everyone does. I just wanted to point out how well this song articulated that feeling. Thanks for reading.

New Blog - Updated Daily

2009-02-25T23:56:00.002-06:00

I'm no longer maintaining this blog and haven't for some time. If you do end up here - check out my new blog, which I've been updating daily for the last couple months: The Personal Finance Playbook

COP

2008-12-18T10:54:00.002-06:00

It's been a depressing time to read (or write) about all things stock market. Even after an impressive surge off its lows, the S&P 500 is down around 38%. Some stocks have been beaten down twice as much. Professional investors everywhere are looking foolish. Bill Miller of Legg Mason, for example, once beat the S&P for fifteen consecutive years. He lost enough in the last two to wipe out all those gains. Other famous value investors, hedge fund managers, and wall streeters have languished amongst the turmoil. Like Twain, reports of the stock market's demise, my friends, have been greatly exaggerated. The stock market will, at some point, rise again.

I've seen proclamations that value investing is dead, as the wild swings of the market have been a playground for day traders and momentum investors. The more things change, the more they stay the same, I guess. People are always trying to prove that Warren Buffet and his methods are no longer viable, or that he was lucky, or that they've finally out smarted him. Regardless, bargains seem to abound. The S&P is trading at about 12 times earnings, down from the 40 it was trading at in 2000. Usually that would mean stocks are cheap (or that people are projecting that earnings are going to fall). One case of seemingly ridiculously low earnings is ConocoPhillips (COP).

COP is trading at a paltry 4.36 times earnings. There are logical reasons for this: oil prices keep falling, to what I feel are ridiculously low levels. Demand has fallen to the point that production is slowing in an effort to prop up prices. Oil was too expensive at $120 a barrell and is too cheap now at $40. Based on the low price of oil, many of COPs reserves are valued lower (at market). Further, profits are likely to fall along with falling demand and prices. The inverse of this is that COP, the company (as opposed to the stock), can now acquire oil at these bargain basement prices. I feel they can do this with confidence that prices will rise in the future.

COP is trading at just 0.86 times it's book value. In theory, that means that if you liquidated COP and paid out the value of the share price in dollars, you'd still have $0.14 per share left over. (This is based on accounting figures from yahoofinance - you should only rely on numbers from edgar, their annual reports, or direct communications from the sec)

As a bonus to being cheap, COP also pays a dividend, currently 1.88 per share, or 3.5%. According to Buffet, dividends are a vital consideration because historically about 50% of the markets gains have come in the form of dividends. Because COP earned more than $12 per share last year, there does not seem to be any concern that their dividend is on the chopping block.

I actually got into this stock at $45/share and am estimating its fair value at between $75-$100 per share, depending on the future price of oil. I will look to sell somewhere in that range, preferably sometime within the next 5 years. It's current market price is $53.39, and you could have gotten in as low as $41.27. That $12 gain from then to now (about one month) would have been about a 33% gain on your money (if my math is correct)...that's something that would make any value or momentum investor very happy. My advice to you is to load up on COP - Warren Buffet was doing that very thing at between $60 and $70, meaning he probably perceives fair value at $120+. He typically buys stocks to hold them a very long time, and COP now comprises a top five holding of Berkshire Hathaway, in terms of size. Consider following his lead. He's still the smartest person in the room when it comes to finance and investing.

Obama Wins!

2008-11-04T22:40:00.002-06:00

People are in front of laptops everywhere, furiously typing out keys to publish their feelings regarding the election. I am relieved. Barack Obama, in my opinion, is the right man for the job.

Buy Financials

2008-08-02T10:52:00.002-05:00

The pundits go back and forth. Sure, they admit, financials are cheap...but what if things just keep getting worse? The fact of the matter is, things truly might get worse. Stagflation has gripped the market. It won't crash into a full blown recession, and it refuses to gain any discernable ground. The S&P sits at 1260.31, in August of 2000 it was at 1517.68. Where do we go from here? Is America's Roman Empire over? Perhaps, but I say buy financials while they're down.

Take Bank of America (BAC). 9 months ago, BAC was riding high, at $50+ per share, and paying a healthy 5% dividend yield. Enter the liquidity crisis, which one month ago rendered the big bank at a paltry $18 per share. It's dividend remained unmoved at 2.56 per share (which at its high was a robust 14% yield). Stock pundits screamed that BAC would cut its dividend to raise capital. Some guaranteed it. BAC didn't. They didn't last quarter when everyone claimed they would. They didn't cut it in the most recent quarter, when it was predicted again. CEO Ken Lewis says they have no plans to do so. BAC currently sits at 33.33 per share, still paying 2.56 per share (7.8%).

I can't guarantee that they won't cut that dividend in the future, but they haven't cut it yet. If you can get in at around $30/share, and be guaranteed that return around 8%, you have a healthy investment. Plus, the stock price is eventually going to return to its normal levels, and its normal yield. Maybe not today, maybe not tomorrow, but someday. Buy it while it's down and feel like a big dog a few years from now. Philip Fisher once said that his favorite holding period for a stock was forever. If you buy the right one, that's good advice.

Not all financials are created equal. But besides banks, like Wells Fargo, Wachovia, and BAC, investment banks are also looking attractive. Lehman Brothers is risky to touch, but if it doesn't go under you could make a big profit there. Goldman Sachs is the gold standard, Morgan Stanley and JP Morgan are attractively priced. Do your homework, pick the best financial you can find - and buy it!

Dick's Sporting Goods (DKS)

2007-12-11T13:24:00.000-06:00

Sorry for those of you eagerly awaiting each and every post, I was forced to take a very brief hiatus for lawschool papers and finals.

I reread books. Not because I like to, but because I don't have anything new to read and put books in the bathroom so I have something. Because of this, I have read the Intelligent Investor by Benjamin Graham 3 times, 1984 4 times, The Catcher in the Rye about 10 times, etc., etc. I am currently rereading Peter Lynch's book, Beating the Street. Not cover to cover, but selected passages. I am not recommending this book as an investment resource. It's not really that great for that, in my opinion. There are better options out there (drop me a line if you want to know my opinion). It gives some insight into stock picking, but more than anything he recounts his career. It's more for fans of investing, if there are such things, and I think there are (I'm sort of one of them, which is why I maintain this blog for fun).

Anyway, I wanted to share a couple of stats he gives, because they are the type that make people excited about stocks. I know of more impressive stats, but I didn't just read them yesterday. These stats are from Chapter 8 concerning the retail sector. I didn't check them, but I am confident someone did:

"An investment of $10,000.00 made in 1986 in each of four popular retail enterprises - Home Depot, the Limited, the Gap, and Wal-Mart Stores - and held for five years was worth more than $500,000.00 at the end of 1991." There are a lot more stats that tout retail as a potential moneymaker, bigger ones even, but I am going to stop with this one, because I think it is impressive enough.

Which caused me to stop and try to think of a stock that had a lot of potential for growth in the retail sector. I came up with Dick's Sporting Goods. I am not going to compare it's fundamentals to it's competitors, like I often do. I will say that I think they have more potential for growth than many other retail companies. They also started in the midwest, like so many companies that grow well. I like their forward outlook, and I like their finished product. If we go into a recession, retail will likely plummet, and I think that might be a good time to jump into the stock for the long term to catch some of its growth. Give it a shot. Hopefully in five years some guy will write a book saying that if you had invested 10k in Dick's during the 2008 recession, your investment would be worth 60k when you sold in 2012. Let's hope you bought the stock.

Update

2007-10-24T23:16:00.000-05:00

After last night's post, I got up this morning and saw this article:

http://money.cnn.com/2007/10/24/news/economy/builders_forecast/index.htm?postversion=2007102414

Thought I would share. These fellows don't think it's time to buy homebuilders yet.

Homebuilders: CTX, DHI, LEN, PHM

2007-10-23T23:24:00.000-05:00

Talk about a depressed market. Housing glut, credit crunch, burst bubble...call it what you will, the real estate market is in disarray after the meltdown that has both affected and threatened the entire economy. This being the case, I thought I would take a look at some of the Homebuilders stocks - a whole group that has been totally rocked.

I decided to cover these from sort of a contrarian strategy. The market has been described as bipolar - bad information will send it into an overreactive depression, while good information will send it inexplicably higher. I am not saying that the Homebuilders are necessarily undervalued for the short term, I think it will be some time before this business is as profitable as it once was, and for obvious reasons. It is basic supply and demand. When housing prices were rising at an unprecedented rate, more and more people jumped into the home building business. The faster you could build them, the more money that could be made. This led to oversupply, which in turn led to thousands of houses sitting on the market. My theory is that the market will make an adjustment back in the other direction. The weakest companies will go out of business, while the strongest companies will persevere until there is a greater demand for new housing again. Enough of my editorial, let's look at the stocks.

I am going to compare 4 of the largest homebuilders - Centex (CTX), DR Horton (DHI), Lennar(LEN), and and Pulte (PHM).

P/E and PEG ratios
Centex reported a 644M quarterly loss today. All the companies are losing money. Their houses aren't moving, and prices are falling.

As far as the ratios go, this is a convoluted area because the companies aren't earning at all. They aren't earning and they aren't growing. They are losing money and shrinking. How do you figure a P/E for a company that just went 644M into the red? Hint: You end up with a negative number.

Basically, we can't evaluate these companies on this basis, traditionally one of the most popular for finding undervalued stocks.

Cash and Debt
CTX has 228M in cash vs. 5B in debt (ugh!).
DHI has just under 5M in cash vs. about 5B in debt (even worse).
LEN has 128M in cash and about 3B in debt.
PHM has 74M in cash and about 4B in debt.

Advantage - I don't know if you could say anyone has much of an advantage, but the numbers look a little better for LEN than the others. All of these stocks are going to have to possibly look into selling some of their assets in order to pay their debts. Not a promising outlook.

Dividends
I typically love stocks that pay dividends, and all of these stocks pay pretty decent ones. My question is - why are you paying dividends in your terrible financial state?

Price to Book Value
The stat that really jumps out at me is the Price to Book Value of these companies.

CTX: 0.64
DHI: 0.71
LEN: 0.71
PHM: 0.64

What this means is, all of these stocks are trading below the value of their current assets. That fact makes these companies potentially attractive in the future. If you can buy a dollar for 64 cents, it's usually a good idea. Of course, if the company goes out of business, then you just own a piece of paper.

Conclusion
I don't know when or if these stocks will rebound. I do know that at some point people will start building houses again. Whether it's these companies, or others that replace them, this isn't a sector that is capable of staying down forever. I think these stocks can potentially have value in the future. Now is the time to buy if you can find the right one. I don't think any of these stocks distinguishes itself based on the numbers, but now might be a good time to scoop up an undervalued company if you're willing to hold it for the long term. I'm not going to pretend to be able to predict a bottom. Good luck if you decide to gamble on the homebuilders.

ACE Ltd. (ACE)

2007-10-17T00:28:00.000-05:00

Couple of down days for the stock market. Oil hit almost $88/barrel, and inflation seems to be at the front of everyone's mind. On the bright side, maybe these down days can offer us some good buying opportunities.

I personally like ACE, a reinsurance company. Reinsurance companies are companies that insurance companies buy insurance with in order to cover their largest or riskiest positions. For instance, if you bought 100M (million) worth of life insurance from NY Life, they might turn around and get insurance on you, in case you die before you can pay enough big fat premiums to make it worth it for them. That's the business, here are my thoughts:

I should start by saying that Wall Street isn't crazy about this stock, and there are a lot of people out there that know a lot more than I do, so keep that in mind. Based on what I know and what I think, here's my analysis.

Price
ACE closed at $61.22, down $1.14 on the day. It bounced back and gained a few cents in after hours trading.

Cash and Debt
According to Yahoo! Finance, ACE has 3.54B in total cash and 2.46B in total debt. Insurance companies have to keep a large amount of cash on hand in order to pay out their claims when they guess wrong, so it's not unusual, but I have to say I like any company that has a billion dollars on hand, and plenty of money to pay its debts.

Dividend
ACE pays a dividend of 1.7%. Some people like extra growth - I like dividends. I like to feel like I am getting some guaranteed income with my capital appreciation.

Price to Book Value (PBV)
Benny Graham likes stocks with a price to book less than 1.5. ACE meets this threshold, coming in at 1.35.

PEG
ACE has a PEG of 0.63! That's incredibly low. I think it's so low that it implies that people on wall street know something we don't. The stock has a P/E ratio around 8. That's right, the stock is selling for just 8 times it's earnings. Someone buy this entire company. I don't know what's not to like about this company...

Competition
ACE has two main competitors, and both are bigger companies. One of the companies is private, and the publicly traded company is AIG. AIG is the giant in this market. This could be why the street doesn't like ACE more, maybe they think that AIG can push them out. I don't know.

AIG has a PEG of 0.8 (entire sector undervalued), has a PBV of 1.65 (just above Ben Graham's rule), and has about 176B in debt vs. about 92B in cash. Clearly, based on fundamentals, ACE kicks their butt. That being said, AIG has a much larger share of this market.

Negatives
The main negative may be that this stock is over owned by institutional investors. 89.4% of the companies shares are held by institutions. Some part of that is because the stock is part of the S&P 500. Anyway, if the big investment banking houses sour on this stock and start to unload it, it will move down, and quickly.

Conclusion
I think the stock is undervalued. I don't know what it should be valued at. I think part of the reason it's a little undervalued is because there are so many sexy stocks in sectors that are more fun. I don't think this is a good day trader, but if you want to get into one for quite a while, this could be a good one.

CO Rockies are in the WS - I hope they win it. Keep the championship with the NL. I bought Regina Spektor's newer cd. Good stuff.

Updates

2007-10-15T00:21:00.001-05:00

Google

I sold my share of Google (GOOG) at the beginning of last week for $600.00. It closed on Friday for $637.39 and went to $638.00 in after hours trading. That shows how much I know. I was so eager to take some gains that I ignored the fact that Google is still an attractive stock. I sold it the same day analysts were busy upgrading it's 52 week price target to $750.00. Some analyst speculate that it could hit $900.00 in the next two years. Online advertising is the new newspaper business. The market isn't even close to being tapped out.

Here are a couple of things I don't like about Google long term. I admit that I'm grasping at straws here, but hear me out. Google is reportedly interested in branching out into the cell phone business. This worries me because it's risky. There are already companies out there that do this well. The word on the street is that they are extremely unimpressed with the software used in cell phones and think they can do better. Why not just focus on the online advertising business - it's growing growing growing...I don't think we're close to the peak of online advertising. My other concern is the other companies out there doing the exact same thing - why don't they wrestle some market share away from Google? Yahoo ads have more views than Google, they just aren't as profitable because they are a poorly run business - what happens when they clean up their act. Just some thoughts. I sold the stock way to soon, I know that. But part of me thinks Google will struggle at some point b/w now and $900.00. We'll see.

Mylan (MYL)

About two weeks ago, Mylan acquired Merck's generic drugs unit. In doing so, they suspended their dividend, and their PEG went from 0.77 to 1.44. That pissed me off and seemed to be a poor business decision. That being said, they are a long ways from their 52 week high and fairly close to their 52 week low. I'm staying in to see what happens. I wouldn't buy more until we see what direction they go in. Wall Street didn't seem to like this acquisition. We'll see if all those investment banks know more than the brass at Mylan.

Walt Jocketty

The Cardinals fired the best executive in franchise history. Good one dipshits. That's like selling Google for $600.00.

Battle of the Banks: BAC, WB, and JPM

2007-09-28T22:49:00.000-05:00

I own 9 shares of Bank of America (BAC), and today I got paid my 3rd quarter dividend. I've been wondering for awhile now whether I own the right bank. I have a hunch I don't. Let's take a look. There are a lot of bank stocks out there, big and small. I decided to compare three big ones: BAC, Wachovia (WB), and JP Morgan (JPM).

Closing Prices
BAC closed at $50.27, WB closed at $50.15, and JPM closed at $45.82.

Advantage: None - just letting you know where they're livin'.

Cash and Debt
I should start by pointing out that all of the companies have plenty of cash on hand to pay their current liabilities (debts due in the next 12 mos.). That's really all that matters, but we're going to look at the cash on hand vs. total liabilities, just because I want to.

BAC owes just under 550B, and currently has just under 363B in cash. WB owes about 192B and has 80.77B in cash. JPM owes 432.5B and has 653.66B in cash. I know they would have no reason to pay it off right away, but I like that JPM could pay all it's debts if it had to for some reason. However, all you have to pay off is your current liabilities, and they all have plenty of cash to do that.

Advantage: JPM

Dividend
Both BAC and WB pay a 5.10% dividend. JPM pays a 3.30% dividend.

Advantage: BAC and WB

Price to Book Value
Book value is the shareholders equity in the company on the balance sheet. Price is the market price of that equity. In Benjamin Graham's famous book, The Intelligent Investor, he advises that a defensive investor should look for a company with a price to book value no greater than 1.5. This is difficult to find. Many modern companies have very high price to book value ratios. Bank stocks do, however, do pretty well. An updated version of the book provides commentary that concedes that this statistic has changed a little bit in modern finance, and that maybe some higher threshhold should be used. (This commentary was not written by Graham.)

BAC has a Price/Book Value (P/BV) of 1.69, WB has a P/BV of 1.39, and WB has a P/BV of 1.32. Both WB and JPM meet Graham's threshhold test, while BAC fails by a slim margin.

Advantage: JPM

PEG ratio
PEG is the the price to earnings ratio of the stock divided by the projected growth rate. So, if a stock had a P/E ratio of 10, and projected growth of 10%, it would have a PEG of 1.00, which would be quite low (if the other fundamentals are in order - BUY it!). Jim Cramer, host of the show Mad Money, gives a guideline in his book Mad Money, that any stock with a PEG of 2.00 or higher is overpriced and should be sold. This could also be said as - any stock trading at two times earnings (Earnings is stock-speak for profits). With that in mind, let's look at the banks.

BAC has a PEG of 1.40, WB has a PEG of 1.20, and JPM has a PEG of 1.05.

Advangtage: JPM

Conclusion
I would like to think that the stock I own is better than something out there...but out of these three, it is probably the worst. I did it, I own the worst bank stock. I am stubbornly going to hold onto it because I don't want to pay the 10 bucks it would cost to sell it and buy another. I'm kidding, we'll see what happens.

In other news, MYL closed at 15.96 down from yesterdays weekly high of 16.24. Still, if you bought it when I recommended it at 14.05, you're doing okay (13.5% in one month). I'm still holding out to sell it at $17.50. Stick with me, we'll get there.

The Cards are discussing trading both Anthony Reyes and Chris Duncan. I'm okay with trading Duncan, but I would hate to see those guys sell so low on Anthony Reyes. I half ass want them to trade all the veterans (Edmonds, Rolen) except Pujols and get set to make a run in 2009. Nah, I like for them to be good every year. Peace.

MYL - Mylan Laboratories Update

2007-08-20T19:47:00.001-05:00

I just want to take this opportunity to boast while I have the chance (before the DOW crashes to less than 10k, as I heard one fellow say today). If you had bought Mylan on Thursday, August 16, when I picked it at 14.05, you would have gained nearly 11% as the stock closed at 15.58 today, just two business days later. Further, I think the stock is STILL a buy, with a PEG of just 0.71. I think this stock is still going to go higher. I would unload it when it hits 17.50 or so, just because you'll be closing in on 25%, and if you won't take your gains at 25%, your being greedy...especially considering that the stock has already gained 11%, a pretty decent gain in its own right.

I will be breaking down JPM next time I have a chance. I know all the pros are shorting financials right now, but we'll see how the fundamentals look and go from there.

In other news, the Cards beat the Cubbies today, keeping themselves in the hunt for the division title. Ankiel went yard.

Google vs. Yahoo!

2007-08-19T02:18:00.000-05:00

One share of Google costs just over $500.00 (as of Friday's close). I thought I would try to compare Google and Yahoo! to see which is the most expensive based on the conclusion of Friday's trading. Now, I don't contend to be the first person to compare these two stocks...they are companies in almost the exact same business...but this is an up to date comparison of the two stocks.

First I would like to say that both companies make their money on internet advertising. It's impossible to predict how the world will change, but as of right now, I think most people would say that internet advertising is a growing business. Google and Yahoo! are by no means alone in this business, Microsoft is in the fray with MSN, and several other companies are in the mix as well, but Google and Yahoo! have by far the largest market share.

Obviously we can't value one stock over another based on economic factors because they are in the same sector, and do almost the exact same business.

Based on past performance, there has been a lot of question as to how much more Google can grow. The stock is, after all, at $500.00. But it also looked expensive at $200.00, at $300.00, and so on. It has consistently just gone up. Google is currently trading at 40.63 earnings. Of course, it doesn't matter what Google is worth today, but what it will be worth going forward. Google has a forward P/E of 25.63. Its PEG is less than one (0.96)! Because companies are valued based on their expected growth, this is the most important statistic. Of course, analyst could upgrade or downgrade the stock, which would raise or lower it's value.

Amazingly, Google has about 18.5B in total assets versus about 1.5B in debt! Interesting however, is Google's cash flow statement, which seems to say that although Google brought in about 3.5B in operating activities, and another 3.0B in financing activities, but they seem to have lost about 6B in investments if I am reading their page correctly. This isn't particularly alarming, just because the company seems to have such a high net worth.

Yahoo! closed at $23.54 (Friday again). That's quite a difference in the price of shares, isn't it? Despite it's inexpensive seeming share price, Yahoo! does not look to be in nearly as good of shape as Google. Yahoo! has a forward P/E ration of 41.30 and a PEG of 2.24. As a general rule, anything over 2 should usually be sold. This alone tells us that Yahoo! is considerably more expensive than Google. Yahoo! has about 11.5B in total assets, versus about 2B in debt.

So let's get this straight, Yahoo! is worth less, has more debt, and is more expensive in comparison to it's forward looking estimates? Looks like Google wins this battle outright.

MYL - Mylan Laboratories

2007-08-18T19:53:00.000-05:00

I have been following a lot of stocks lately, so I thought I would do a post that I thought was primed for some action last Thursday, Mylan Laboratories.

At one (random) point during intraday trading on Thursday, Mylan was at 14.05, and I thought of it as a buy. Why? Well, first of all, Mylan's PEG was an incredibly low 0.67. For perspective, a stock that has a PEG over 2.00 is considered expensive, and institutional investors won't buy it. PEG, by the way, is the stocks price to earnings ration (P/E) divided by the stocks growth rate. A PEG under one usually indicates a cheap stock. During the sell off that occurred on Thursday, there were probably a lot of cheap stocks out there, but this one really jumped out at me.

Of course, I think anyone that knows more than I do would say that you cannot buy a stock based on PEG alone. So let's take a look at the company to see if it has real value.

Mylan makes money by making generic brand pharmaceuticals. Taking a long view, I think that the demand for these (cheap!) drugs will grow as the baby boomer generation continues to age. In the short term, I think the stock will go up because it is available at a cheap price.

What affects performance in Mylan's sector (healthcare)? Aside from the above mentioned obvious maxim concerning the baby boomer generation, I would have to say not much. An economist would say that health care is relatively inelastic, meaning that people will continue to purchase it despite changes in economic factors or the business cycle.

To reaffirm that the stock is cheap, I looked at two other major pharmaceutical companies as well: Merck and Pfizer, both of which are also included in the S&P 500, as is Mylan. Merck had a not so bad PEG of 1.53, while Pfizer had a lofty PEG of 2.56 (as of friday's close).

Now, before we can buy the stock we also have to look at it's balance sheet and cash flow statement. Their balance sheet demonstrates that they have total assets of 4.2B, and total liabilities of 2.6B. So the company is solvent (always a good start). The company also has 700M in current liabilities (debt they have to pay this year). To find out whether this will be a problem, we have to check the companies cash flow statement. This shows that the company has a total cash flow of 1.1B. The company can pay it's debts and is currently making money.

Further the company has a 5 year average dividend of 0.7%...which is being bumped by the dividend they paid this year of 1.7%. This is a company that is raising it's annual dividend, usually a good sign for investors.

Overall, I would rate this company a big fat BUY. Of course, I have no idea what the market will do, or whether we're at a bottom...I don't know much. I did win my fantasy football league last year, but I don't know how much credibility that gives me as a stock picker.

In other news, the Cards dropped a heartbreaker to the Cubs today. The loss put them 4 games back whereas a win would have narrowed the margin to 2 games. They really know how to break my heart.

Good luck if anyone out there decides to buy Mylan.