Owner: ValuePlays URL:http://valueplays.blogspot.com Join Date: Tue, 13 Mar 2007 15:03:05 -0500 Rating:0 Site Description: A value investing blog that has been featured in The Wall St. Journal, The Street.com and a host of other sites. A Seeking Alpha gold level contributor, I seek to hold a undervalued stocks and wait until their true value is realized. Site statistics:Click here
Ignore The "Noise" 2007-03-12 12:05:00 "If a business does well, the stock eventually follows." Warren Buffett
The past two weeks have been the perfect example of why, as an investor you must ignore the market action as it pertains to your existing portfolio and focus on the reason you bought shares of the companies in it in the first place. I am going to use my favorite and largest holding in the ValuePlays Portfolio, Sears Holdings (SHLD) as an example.
We first have to remember the reasons why we bought Sears:
1- Retail operations improving
2- Increasing cash hoard for Eddie Lampert to invest (this is a large part of the "value" in SHLD, his 16 yr. track record of 28% annual returns)
3- Reducing debt and shares outstanding
4- Growing profits
Now we have to look at the past two weeks and follow the events of them. We will then see why we were wise to ignore those events and then what that did for us. Feb 26th saw the S&P (.INX) begin what would end up being a 5.2% decline over the next two weeks (it should be...
Read more:Ignore
, Noise
More Great Value Blogs 2007-03-11 15:38:00 Here are couple more of my favorite sites. Both of these are littered with the wisdom of Buffet. It is my belief that you cannot read enough Buffet because it is necessary to reinforce the tenants of value investing and calm yourself during turbulent times like the past two weeks. If you are a regular Value
Plays reader I would suggest checking out these sites as the sentiment I express is echoed here.
Fat Pitch Financials
Fat Pitch Financials is a value investing and personal finance blog.
George seeks to invest with a wide margin of safety in companies that have wide moats (i.e., sustainable competitive advantages). This is very similar to Warren Buffett's style of investing. We both try to wait for so called "fat pitches".
While he waits for these fat pitches, he also researches arbitrage and special situation opportunities that provide individual investors an edge in short term opportunities. These include going private transactions, odd-lot tender offers, spin-offs,...
[[ Read more:Blogs
, Great
Eddie Lampert's Annual Letter- SHLD 2007-03-10 12:44:00 Last weekend I listed what I thought were the notable comments from Warren's letter to the Berkshire Hathaway shareholders. Since I have entrusted the largest portion of my personal portfolio to EddieLampert
at Sears Holdings, I ought to post the important "notables" from his.
Retail Operations
"Lands’ End had a record year in profitability in its traditional business (i.e., catalog, online, and inlet stores). In addition, we saw a significant improvement in the profit performance of Lands’ End merchandise in our Sears stores. With a new leadership team and a more integrated approach to working across Sears Holdings, the business is moving in the right direction. Our customers are embracing the opportunity to buy Lands’ End quality merchandise in our stores, on the phone, and on the Internet, and we are working hard to make Lands’ End available across more of the chain."
If anyone has seen the Land's End "store in a store" concept in Sears, it is a real winner. I am fast Read more:Annual
, Eddie Lampert
, Letter
Ethanol- Debunking A Few Myths 2007-03-08 12:10:00 Since President Bush is in Brazil this week to talk about ethanol, I though it would be appropriate to present portions of a paper by Vinod Khosla, a venture capitalist who, for those who do not know him was a internet pioneer and a founder of Sun Microsytems. You can view a bio of him here. Kholsa is himself investing millions of his own dollars building ethanol plants. The paper here, is very long and detailed. I am going to present the most topically relevant items based on what the media usually presents.
Much has been said about the energy balance of ethanol:
Kholsa answers:
"Energy balance is not even the right question to answer. It is not the energy balance of ethanol that matters but the energy balance of ethanol relative to the energy balance of gasoline. Dr Wang at Argonne National Labs has built one of the most rigorous and transparent public models for energy balance calculations. His results indicate that corn ethanol has almost twice the energy balance compared to... Read more:Debunking
, Myths
AIG's Insurance Business: Not Really Improving 2007-03-07 11:54:00 "AIG reported solid increases in income in 2006. Our results for 2006 were lead by our General Insurance business". AIG President and CEO Martin J. Sullivan (no relation) 3/1/2007
I make it a point to talk to my friends about the businesses they work in. This is not an effort to get "inside" information about a company, but to learn more about the businesses they are in and the challenges and opportunities they face. Last summer several friends of mine who practice personal injury law (worker's compensation and auto) were lamenting that AIG just "stopped settling cases." Now, had this been one person in one office in one state, I would have brushed it off as being associated only with him and not indicative of AIG business practices. But, when you have different lawyers in different states whose businesses are unrelated to each other saying the same thing, one has too wonder. I made a mental note about it and did not think too much about it after that. Recently, I was talking... Read more:Business
The New Gap CEO- A Lampert University Grad...Please? 2007-03-06 11:09:00 Having mention Gap (GPS) as a possible investment in a previous post , we must revisit the most recent conference call to see if any of the goals we set for it are being met.
Gap earnings call highlights (at least the ones that matter to me)
-2006 Earnings down and 2007 does not look much better- No surprise
-Closing Forth & Towne. Given the sales, productivity levels, and the traffic momentum we had seen to date, they felt that the probability of achieving an acceptable return on investment from a full rollout of the brand was too low. As a result, they will close 19 Forth & Towne stores by the end of June, 2007.
- Converting Old Navy outlet stores to Old Navy stores. Given the change in competitive environment, there is no longer a clear distinction between the two businesses. They expect to convert the 45 outlet stores by October of this year. This decision has no impact on Gap Outlet and Banana Republic factory stores.
- In addition to gaining cost...
[[ This Read more:Lampert
, Please
, University
McBux? 2007-03-05 11:37:00 From the "timing is everything" department:
1/17 - SBUX shares stand at the high price for 2007 at $36.29 a share
1/22 - ValuePlays first post hits claiming SBUX is overpriced - Why Price Matters. A Case Study
2/8 - Did SBUX CEO Donald Really Say That? Is posted questioning the direction the company is going. It is widely distributed inThe Wall St. Journal, The Stockmasters.com, Seeking Alpha, ValueInvesting News and others
2/8 - SBUX shares close at $33.42 down 9.2% from their highs
2/14 - Founder and Chairman Howard Schultz pens memo to CEO Donald echoing sentiment in ValuePlays post of 2/8
2/23 - Memo becomes public and is reported on CNBC
2/26 - SBUX follow up piece Vindication Thy Name Is Howard Schultz runs in ValuePlays
2/26 - SBUX shares close at $30.75 down 15.2% from high level
2/27 - StarbucksGossip. com picks up 2/26 ValuePlays post
2/28 - Boston..
The Berkshire Letter: A Value Investors Instruction Manual 2007-03-04 14:38:00 Here is Warren's annual missive. This is the value investing instruction manual. A word of warning: Be careful about relying on the media to frame his comments for you. Quite often in the past they have taken snip-its that sound good on TV but when you read them again in the context they were written, do not necessarily convey the same sentiment.
Berkshire
Hathaway Annual Letter
(you need Adobe Reader to view it)
Some commentary that is relative to recent news events:
Real Estate:
"The slowdown in residential real estate activity stems in part from the weakened lending practices of recent years. The “optional” contracts and “teaser” rates that have been popular have allowed borrowers to make payments in the early years of their mortgages that fall far short of covering normal interest costs.
Naturally, there are few defaults when virtually nothing is required of a borrower. As a cynic has said, “A rolling loan gathers no loss.” But payments not made add to principal Read more:Instruction
, Instruction Manual
, Investors
, Value
Home Depot (HD) Investors Conference...... Yawn 2007-03-03 13:32:00 Talk about anti-climatic. A great number of people (yours truly included) were hoping to have some clarity on the fate of the Supply business during the investors conference on Wednesday. What we got was more of nothing. There wasn't anything said that was already alluded to during their earnings call last month. So, what do we think about the possible fate of HD Supply? The integration of Supply is going forward. HD expects their contribution of sales to go from 13% to 15% next year and unlike the retail operations, actually post earnings increases. This is good news for those of us who do not want it's sale as it increasingly makes the unit more valuable to management. Time is also on our side as the more time and money spent on the ongoing integration, the more unlikely a sale is. This is because the more integrated supply becomes into the overall HD operations, the more expensive it then become to unwind. Well, what should we do then?
Easy..... nothing. We wait until we get Read more:Depot
, Home Depot
, Investors
ValuePlays Most Read Posts For February 2007-03-02 13:01:00 The following were the most read posts on the site in February
1- The ValuePlays
Portfolio
2- Total Return Yield- A Measure Of Value
3- Memo To Dow CEO Liveras- Please Do Not Sell Out
4- Vindication: Thy Name Is Howard Schultz
5- ValuePlays Enhanced Features Subscription
We are staring to catch on out there in the "blog sphere". At least I think so? Daily traffic to ValuePlays surged 640% the past 30 days, subscriptions jumped 260% and posts are beginning to pop up in different media. I guess that means that even if we have not officially "caught on", at least we are on the right track? Share the wealth and spread the word, email articles to your friends, encourage them to sign up for the email or Rss feeds to get free daily updates or, if you are getting the Enhanced Features subscription that is only $6.99 a month and like it, write me and tell me why (or suggest how I can make it better).
Other notables:
- I have added an email link on the main page. Feel free to...
Read more:Read Posts
Bunker Hill - A Lesson For Investors 2007-03-01 12:40:00 "Don't fire until you see the whites of their eyes" William Prescott, an American officer, at the Battle of Bunker
Hill
The Battle of Bunker Hill took place on June 17, 1775, as part of the Siege of Boston during the American Revolutionary War. By the time the battle had started, 1,400 colonists faced 2,600 British regulars.The result was a Pyrrhic victory for the British, who suffered more than 1000 casualties compared to only about 450 Colonists. It is considered by some to be the bloodiest battle of the war. Being outnumbered almost 2 to 1, William Prescott knew his troops could not afford to miss their targets if they were to have any chance at winning, thus the famous order was given. He knew the closer the British troops came to the colonists, the better his musket troops potential for hitting them was. Their muskets were not very accurate to begin with and as the distance increased from a target what little accuracy they did have decreased. Despite how badly his troops...
Read more:Investors
Links for 2007-02-28 [Digg] 2007-03-01 07:00:00
Blog Roll — Afternoon Edition
Todd Sullivan, who writes a blog called Value Plays, can’t believe that Starbucks CEO Jim Donald asserted that McDonald’s move into premium coffee would spur more people to also buy Starbucks coffee. “On its face the statement does make sense, but when you take a step back and think about it, you have to wonder, […]
Read more:Digg
400 Points? No Big Deal........ 2007-02-27 22:10:00 Everybody just relax...... A 3.4% decline is nothing . It all started when Alan Greenspan , who I can only assume was well into a bottle of Makers Mark and is rapidly become the most irritating former public official since Jimmy Carter incoherently mumbled something on a conference call about the current conditions in the US leading us into a recession, despite all economic indicators to the contrary. Then, the Chinese market dropped 9% overnight and set off a scare. These events would be unnerving to me except when you consider the Chinese market had been UP 13% the previous week and Greenspan, to be honest kids, doesn't have the best track record in my eyes. Look at his reign, he was too slow to get a grip on the bubble of 1999- 2000 (by raising rates behind, not ahead of it) that lead to it "popping" rather than "deflating" and then he was asleep at the wheel on the back end to ease rates and lead us like General Custard into the recession that followed. Personally I am a huge... Read more:Big Deal
, Points
Memo to DOW CEO Liveras: Please Do Not Sell Out 2007-02-27 12:13:00 Having wrote twice in the past about Dow being undervalued, (read them here and here) it was no surprise Sunday when I read about the possible Dow buyout offer. It was only a matter of time before Dow came into savvy investors cross hairs. I have been trumpeting the fact that Dow's current share price ($44) is way too low and it would seem others are finally noticing.
Dow Chemical will be the latest and largest firm to get a leveraged buyout offer claims an unsourced report. In the next few weeks, Dow will get a takeover bid worth up to $54 billion from a consortium of private-equity firms, the report said. Over the weekend, there were several reports of an imminent private-equity bid for Texas utility TXU valued at around $44 billion.
It said the buyout team is "likely" to be composed of Kohlberg Kravis & Roberts, Blackstone Group and Carlyle Group. They intend to break up Dow Chemical into smaller companies, the report said. An offer is expected to come in at $60 a share,...
Read more:Not Sell
, Please
Vindication.... Thy Name Is Howard Schultz 2007-02-26 11:01:00 On Feb. 8th ValuePlays subscribers read the following at the end of the post Did SBUX's CEO Donald Really Say That?: " The hard core Starbuck's customer who garners much of their self worth from carrying that cup with the barely exposed green logo around will never abandon them, no matter how much they are forced to pay for their "vente soy non fat half caff white chocolate mocha latte with an extra pump". However, the casual customer will and appears to be. I look at my wife and I (it is always a good idea when investing to look at yourself. No matter how unique you think you are, there are lots of people who think and act very similar to you). She was once a daily visitor for Mr.Donald and SBUX. Now, she runs a very successful law practice, has 3 children at home under 4 and a very tight schedule. She no longer has the 15 - 20 minutes it takes to park, go inside and get a cup of coffee at Starbuck's. Instead, she has discovered that the cappuccino from the Christmas prese Read more:Howard
, Howard Schultz
, Schultz
, Vindication
Total Return Yield - A Measure Of Value 2007-02-23 11:00:00 In order to help me determine the value of a purchase I use something I call the TotalReturnYield
(TRY). It simply tells me what I am getting in return from the company for my purchase price. For me, it is a gauge of value, the higher the rate, the more I am getting for each dollar I invest. I do not know if this is used under another name by anyone else but it is working for me.
Currently, the common measurement of this metric is what is called the Earnings Yield (EY). It is simple to determine and is just the reverse of the PE ratio. Rather than dividing the price by the earnings, to get the EY we divide the earning by the price. That tells us the return in earnings for each dollar we invest. An example: We purchase a stock for $10 that earns $1 a year. The PE ration is 10 ($10 /$1), that means we are paying ten times the earnings per share for each share. The EY is 10% ($1/ $10). It tell us that for each dollar we pay, this stock will return 10% to us in earnings. This is a...
Read more:Measure
, Value
Guess Who Is Reading ValuePlays? 2007-02-22 12:00:00 It looks like those of you who read the blog regularly are in good company. It was brought to my attention yesterday that none other than those at the WS Journal have been keeping tabs on ValuePlays
.
February 8, 2007, 1:03 pm Blog Roll — Afternoon Edition Posted by David Gaffen
Todd Sullivan, who writes a blog called Value Plays, can’t believe that Starbucks CEO Jim Donald asserted that McDonald’s move into premium coffee would spur more people to also buy Starbucks coffee. “On its face the statement does make sense, but when you take a step back and think about it, you have to wonder, especially when you consider: Consumer Reports recently compared coffees and came up with an interesting result. According to its tasters, Starbucks coffee was outdone by McDonald’s premium-coffee offering,” he writes.
Charlie Kirk outlines some of his plans for this afternoon, and it involves finding a few stocks that look like they should be headed lower. Read more:Guess
, Reading
Home Depot - Do I Owe Blake An Apology? 2007-02-21 11:45:00 It appears I may have been a bit to rash with Mr. Frank Blake, the new CEO at HD. After reading the transcript from today's conference call it appears that he may not be the shareholder patsy I initially thought he was. This turn of events also has me now looking much closer at shares of HD. Let's get to the call before we run out buy any though. In it Blake said of the very supply business that only last week the rumor mill had on the block to be sold:
"The business exceeded expectations for the year, despite softness in the residential construction market. It also clearly gained market share in the fourth quarter and throughout the entire year.
Why then would we even consider selling Supply? We are past, present, and future, a retail business. To get the most value for Home Depot
as a whole we would need, I believe, to integrate Supply with our retail business. While that integration effort might not be a complete hairball, it is sufficiently difficult to warrant...
[[ Read more:Apology
, Home Depot
The Big Cat Looks Good- Almost 2007-02-20 11:13:00 I was running various stock screens on Saturday morning and no matter how tight I made the screen conditions based on my stated parameters, one name kept showing up, Caterpillar. Once that happens, as I have said in previous posts, you are then obligated to take a closer look. I also want to say one of the screens produced 58 companies, 53 of which have stocks prices that are up for the past 52 weeks. I really like those odds.When you think of construction sites and of the machines you see at them what comes to mind? Me too, Caterpillar. Investing in construction of either homes, roads, cities, or anything else that involves big heavy stuff being moved begins and ends with Caterpillar. That gives it a durable competitive advantage which is something I have mention in conjunction with Cat in a previous post.
Let's look at some Cat numbers to see how well it stacks up against what we are looking for: The following are total amounts followed by (annual averages)
5 yr. earnings...
Read more:Almost
, Looks
Coca Cola: Why Bother? 2007-02-16 11:57:00 I was looking for something to relax and read today so I picked up a copy of the CocaCola earnings call transcript from 2/14. As I was reading through it I got to a line that stopped me cold. CFO Gary Fayard said "EPS growth was 9%.... at the top end of our long term earning targets". Just to drive the point home he reiterated "Our benchmark for success is high single digit eps growth". Not to be outdone, CEO Neville Idsell claimed "Our strategies are working." Way to push it boys, 9%, let's back off that throttle just a bit, we are burning up here. It needs to be noted that the 9% includes a 2% gain from stock buy backs. Yet more proof that buy backs help earnings per share but, that means operations only delivered a 7% earnings gain. To repeat Idsell "Our strategies are working."
It does give me a certain amount of comfort though. I now know that if my children ever bring home a report card filled with C's on it and are completely satisfied, they are then qualified to run a $11 Read more:Coca Cola
What To Look For 2007-02-15 11:13:00 In the past month I had had more than a few email conversations with readers who want to know what to look for before they buy a stock. Rather than keep saying the same thing to you individually, I will try to put it down here. Please continue to email me your investment ideas though, I do so enjoy the process. I need you to remember my mantra "successful investing does not need to be difficult". Here is where I start:
How far back to I look into a company's financials? Easy, as long as current management has been there. If the new CEO and his team have been there 2 years, who cares what the previous guy did 5 years ago? The new guy is making the decisions, what is done is done. The only reason to look back is to get an idea of the future and of what the priorities and strategies are. The guy that is gone cannot effect that, why look at what he did? In the same vein, I tend to avoid companies with new CEO's for that very reason, I have no idea what they are going to do. In full...
The Value Plays Portfolio 2007-02-05 11:50:00 I have talked about quite a few stocks here and have been asked by readers, "do you own all these stocks"? Well, no. I have put together an "Official ValuePlaysPortfolio
" so you can track my suggestions and in turn, measure my results against others and the market as a whole. Just so everyone understands what the following chart means and how I am going to measure the results, here are the ground rules:
1- The "buy price" is the price the day my post hits that says "buy". Even though I write the blog the day before it is published in most cases, in order to make every recommendation verifiable, it will be tracked from the date on the blog. Even though I have owned several of these picks for years, I cannot prove this to you so the date of the blog will now be the "buy price". For stocks we advise you avoid, we will track those by the price per share the day I recommend you avoid them.
2- Dividends, splits or spin offs will be treated as a reduction in the purchase price to show...
Moody's - Flunking Out At Lampert U 2007-03-14 11:33:00 "What we've got here.........is a failure to communicate. Some men you just can't reach...." Strother Martin in "Cool Hand Luke"
Yesterday I was doing my reading on Seeking Alpha and came across Chad Brand's blog The Peridot Capitalist and his post pertaining to RadioShack (RSH). Since he was the first to recommend it as far as I know, I will direct you to his site when my posts reference them (got to give credit where it is due). Moody
's investment rating services recently downgraded the debt of The Shack saying:
"Moody's Investor Services downgraded RadioShack Corp.'s long-term senior unsecured rating and short-term commercial paper Monday on lackluster sales and operations. The ratings agency lowered the electronics retailer's senior unsecured rating to "Ba1" from "Baa3." The move means the company's senior unsecured rating is no longer investment grade. Moody's also cut RadioShack's commercial paper rating to "Not Prime" from "Prime-3."
After reading it, the Read more:Lampert
This Panther Is Ready to Pounce 2007-03-15 11:55:00 Owens Corning (OC) held an investors conference on Wednesday, March 7th.. These things are usually a regurgitation of the most recent earnings call and to be honest, rather dull but, there were a couple of important take aways here that have me more enthusiastic about my investment than ever:
Management estimates income from operations in 2007 to be $415 million ($4.02 a share), down from $433 million ($4.20 a share) in 2006 for a 4% decline. Bad news? No. This is based on housing starts consistent with NAHB estimates of 1.56 million (down 14%). It does NOT include additional profits from the St.Gobain joint venture expected to close in mid 2007, nor does it include revenue from the expected sale of the vinyl siding business and it also assumes a hurricane season similar to 2006 (almost non existent) and the effects of the 5% stock buyback recently announced are not considered. In short, this is a painfully conservative estimate which is something I like to see.
Why is it...
[[ Thi Read more:Panther
Dow - Something Brewing? 2007-03-16 12:00:00 Dow has been the subject a quite a few rumors lately:
First, a British newspaper printed a rumor in February that a group lead by KKR and Carlyle were going to make a $60 a share offer for the company. I went on record at the time with my plea to CEO Andrew Liveris to not sell the company. The rumor subsided (did not "go away") and then market was hit with the events of the past two weeks that commanded everybody's attention.
Then, Tuesday on CNBC's "Mad Money" show Jim Cramer (who I beat to the punch on Google ) commented on the rumors admitting he has been waiting since February for DOW and AA to dip after takeover rumors which were printed a British newspaper. While he discouraged speculation on potential buyouts if the fundamentals are not strong, "the fundies for both DOW and AA are pretty good." According to the rumors, Dow could be purchased by private equity firms at $60 a share, a substantial premium from its present rate of $42.94. He noted the company has a 3.5% dividend Read more:Brewing
A Reveiw of Bogle's "Little Book" 2007-03-18 13:53:00 So here is the review. First, so that I do not error, here is the book description from the publisher:
"To learn how to make index investing work for you, there’s no better mentor than legendary mutual fund industry veteran John C. Bogle
. Over the course of his long career, Bogle—founder of the Vanguard Group and creator of the world’s first index mutual fund—has relied primarily on index investing to help Vanguard’s clients build substantial wealth. Now, with The Little Book
of Common Sense Investing, he wants to help you do the same.
Filled with in-depth insights and practical advice, The Little Book of Common Sense Investing will show you how to incorporate this proven investment strategy into your portfolio. It will also change the very way you think about investing. Successful investing is not easy. (It requires discipline and patience.) But it is simple. For it’s all about common sense.
With The Little Book of Common Sense Investing as your guide, you’ll Read more:Reveiw
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