Value Investing News - Stock Analysis - Comments

JNJ

Stellathomas — Wed, 29 Oct 2008 22:56:33 -0400

JNJ has an enormously diverse revenue stream consisting of market leading products in all three of its business segments. Unfortunately, given the sheer size of the company’s top-line, JNJ also possesses several declining or struggling products.
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Stellathomas

Drug Rehabs

good info :)

patlozano — Sat, 04 Oct 2008 11:32:33 -0400

Great articles with excellent information

Interesting

forex — Fri, 29 Aug 2008 15:20:43 -0400

The housing market is so volatile that it is interesting to see what some companies are doing to make themselves look good.

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Have fun learning Forex Trading online with BabyPips.com!

Good News For Income Investors

sanserve — Wed, 06 Aug 2008 12:06:19 -0400

Good News For Income Investors

Looking for good news in today's markets is like searching for the proverbial needle in a haystack. Needless to say, practically all investment grade equities and nearly all closed end funds that specialize in providing regular recurring monthly income have been reduced in market value by this prolonged correction. The quake has spread in all directions from its financial epicenter, and the mounting doom and gloom has taken its toll on even the most rational investment decision makers. Try to keep in mind that the purpose of income investing is the income that your portfolio produces not an increase in the securities' market values---

So here's the good news (and for anyone with a 40% or higher income asset allocation, or an income portfolio being used for living expenses), it really is very good news. Base income levels, from the beginning of the stock market correction in June '07 until mid-July '08, have barely changed at all. In fact, they have probably risen in properly asset allocated portfolios. I have examined the regular recurring monthly income distributed by 56 taxable income CEFs and 61 tax-free income CEFs, and the conclusions are pretty remarkable.

In spite of the fact that the vast majority of my favorite monthly income producers are lower in market value than I would like, the amount of income they are distributing to shareholders has not moved lower meaningfully--- even though the Federal Reserve has reduced interest rates by approximately 60% during the past twelve months. Here are the numbers: (1) 48% of the taxable-income CEFs are distributing precisely the same amount per share as they did a year ago. Fourteen issues have increased their payouts and fifteen have reduced them.

The net result is a decrease of just fourteen cents (2.5% of the total monthly payout). The average current yield on the portfolio, as of mid July '07, is 9.86% without considering any capital gains distributions. Additionally, the group is selling at market prices that reflect an average discount of nearly 11% from NAV. Is that special or what? The bonds, preferred stocks, government securities are priced 11% below their current market values.

(2) The numbers are similar with regard to the 61 tax-free income CEFs: 46% have not altered their payout over the past twelve months; eighteen have reduced their payout slightly, and 15 have increased the monthly dole. The net difference for the group over the past year is less than one cent, or a percentage change of two-tenths of one percent. Remarkable. This group is selling at an average discount from NAV of 9.1% and has a current tax-free yield of 5.51%.

(3) Of 117 individual issues, about half have produced stable income. The others have accounted for a total payout reduction of less than 15 cents--- a measly 1.7%. Why is this amount of little consequence? Two reasons really.

First of all, a properly asset-allocated income portfolio does not disburse all of the base income it receives, so there is income available to reinvest in more shares of income producing securities. This process assures a growing cash flow to calm your fear of rising prices. The other reason is a bit more hypothetical. The Fed has lowered rates significantly, a process that normally produces higher prices for income securities. Eventually, those lower interest rates (even if global pressures convince politicians to take back some of the reductions) should produce higher prices (i.e., profit taking opportunities) in these securities.

Admittedly, even if your asset allocation has been fine tuned for years, lower portfolio market values in this area make stock market valuation shrinkage feel even worse. But the value of stable cash flow becomes painfully clear for investors who misguidedly depend on capital gains for their spending money. Properly asset allocated portfolios contain enough base income generators to pay the bills. The purpose of capital gains is to produce proportionately more base income generators.

The purpose of this email is simply to bring some needed sunlight into an investment environment that is far gloomier than I think it needs to be. If you want the details, you'll have to request them personally.

Steve Selengut
http://www.sancoservices.com
http://www.kiawahgolfinvestmentseminars.com/
Professional Portfolio Management since 1979
Author of: "The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read", and "A Millionaire's Secret Investment Strategy"

Kimberly-Clark Corporation

budlab — Tue, 29 Jul 2008 23:44:18 -0400

Kimberly-Clark Corporation is a global health and hygiene company. The Company is engaged in the manufacturing and marketing of a range of health and hygiene products around the world. The segments of the Company include Personal Care; Consumer Tissue; K-C Professional & Other; and Health Care. During the year ended December 31, 2007, the Company acquired the remaining 50% interest in its Indonesian subsidiary, P.T.

Kimberly-Clark, KMB has a (5-year annual average) net income growth rate of 2.29 . What competitive advantages does it have? Brand, Technology, Cost of Production, Distribution Network? Are possible advantages sustainable? Does KMB have a solid mix of Product, Pricing Power, Placement, and Promotions? When buying companies or common stocks, look for understandable first-class businesses, with enduring competitive advantages, accompanied by first-class managements.

KMB has a current market price is 57.46 Using an assumed growth rate of 6 percent, the estimated Intrinsic Value is 87.11 per share from ValuePro.net, and this may or may not indicate a bargain of 30 dollars. Is it a possible Value Trap? If the growth assumptions used in estimating the Intrinsic Value are accurate and sustainable, this may or may not indicate a price-to-value ratio of .66 , and a possible margin of safety of 34 percent.

The current price/earnings ratio = 13.5
It's current return on capital = 14.41
Using a debt to equity ratio of 0, Kimberly-Clark shows a current return on equity = 32.2

Some industries have higher ROE because they require no assets, such as consulting firms. Other industries require large infrastructure builds before they generate a penny of profit, such as oil refiners. Generally, capital-intensive businesses have higher barriers to entry, which limit competition. But, high-ROE firms with small asset bases have lower barriers to entry. Thus, such firms face more business risk because competitors can replicate their success without having to obtain much outside funding. Growth benefits investors only when the business in point can invest at incremental returns that are enticing; only when each dollar used to finance the growth creates over a dollar of long-term market value. In the case of a low-return business requiring incremental funds, growth hurts the investor. The wonderful companies sustain a competitive advantage, produce free cash flow, and use debt wisely.

Does Kimberly-Clark make for an intelligent investment or speculation today? Time is said to be the friend of the wonderful company and the enemy of the mediocre one. Before making an investment decision, seek understanding about the company, its products, and its sustainable competitive advantages over competitors. Next, look for able and trustworthy managers who are focused more on value than just growth. Finally ask: Is there a bargain relative to its intrinsic value per share today? Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misapraised. In terms of Opportunity Cost, is KMB the best place to invest our money today? What about growth in Free Cash Flow?

Excerpts, comments, and news items: http://finance.yahoo.com/q/h?s=KMB

As always, I appreciate hearing your views about a company's competitive position and brands.

Bud Labitan
www.frips.com

If you like it so much,

goldstockanalyst — Thu, 10 Jul 2008 08:50:47 -0400

If you like it so much, subscribe to my RSS feed at my blog. I will analyse much more stocks using the same model.

Ok. More coming soon!

goldstockanalyst — Thu, 10 Jul 2008 08:49:17 -0400

Ok. More coming soon!

Short and sweet analysis. I

grammar — Thu, 10 Jul 2008 08:46:48 -0400

Short and sweet analysis. I liked.

WFC

JellyRollCapital — Wed, 11 Jun 2008 07:15:57 -0400

While I like your thinking, I don't believe it's a good idea to blindly agree with anyone that a stock is undervalued.

Re: Catalyst is wall street speak for short term trading, Agreed

George — Thu, 22 May 2008 12:53:56 -0400

Chungst, I like your take on the need for investment catalysts, or really the lack of need. I've never really bought into the notion of finding catalysts for long term investments. However, I've never been able to articulate my distaste for catalysts the way you have.

The key to avoiding value traps is to try to determine if management is honest and to make sure the companies you buy have sustainable competitive advantages that will allow you to wait out Mr. Market's fickle tastes.

Catalyst is wall street speak for short term trading

Chungst — Wed, 21 May 2008 20:24:26 -0400

One of the advantages of youth and being inexperience is that you have a truly open mind to really learn and challenge the established wisdom.

Having worked on wall street (next door to NYSE) and in asset management on the buy side for a number of years, I want to share with you that if you need a catalyst as part of your investment thesis, then you are focused on short term trading.

I recall a story of a US Senator asking Mr. Buffett how does the value gap of a stock shrink over time, and Buffett said there's not set pattern, i.e. hinting there is no catalyst.

Therefore, if you are concerned about a "value trap," then it wasn't a under-valued company to being with. For example, if XYZ stock gives me a 10% earnings yield while the yield on 30-year US treasuries is at 4.5%, then I shouldn't worry about the lack of movement in my stock price. To me, every year, the company is adding 10% of value to its book value (assuming no dividends) if it continues to have an earnings yield of 10%! In this case, there is no trap and thus I don't need a catalyst.

Good luck in your journey in continuing to accumulate investment knowledge.

I think Garmin's P/E is due

xmonkeydr — Mon, 19 May 2008 22:28:38 -0400

I think Garmin's P/E is due to their being a big player in a market that is attracting much bigger players. I love my Garmin handheld for hiking but their software is both expensive (maps) and somewhat user unfriendly. Google maps automatically presents traffic data on my smart phone and such a service from Garmin would require buying both hardware (an XM antenna) and a subscription to XM. To maintain their lead in the vehicle navigation market I think they need to both incorporate automatic updates to their devices and real time traffic data via a cell subscription a la Amazon's Kindle.

Some Counterpoints

MagicDiligence — Mon, 14 Apr 2008 11:54:24 -0400

Hey Mike,

Nice piece. The related transactions are not too bothersome. For many of them the company may be getting a better deal then they could get elsewhere. In any case, it's better than the tons of perquisites (perks) you see with other companies - things like country club memberships, private parties, personal use of aircraft, etc.

The board as well makes sense to me. A CFO of McDonald's would have knowledge of international finance - an important strategy of Best Buy's growth. A chairman of Pepsi's Mexico operations provides them a unique perspective on a market they are entering. These are all good uses of board seats.

Finally, the accounts payable line has been growing roughly in line with revenues. BTW, a high accounts payable line is actually a good thing for retailers - it means they are able to pay suppliers slower (which greatly improves DSO, leading to better cash flow).

Thanks again for a good article.

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Adding fundamental analysis to a winning
value stock strategy.

www.magicdiligence.com

I fixed the description for

George — Fri, 04 Apr 2008 14:51:00 -0400

I fixed the description for you.

A couple Ben Graham

Mark Perkins — Fri, 04 Apr 2008 13:03:30 -0400

A couple Ben Graham net-nets. SED International Holdings and Spherix. Spherix has a pile of cash.

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