Tuesday, January 27, 2009

Ben Graham & The Almighty Dividend

Ben Graham quotes in his book The Intelligent Investor that...  

One of the most persuasive tests of high quality is an uninterrupted record of dividend payments going back over many years. We think that a record of continuous dividend payments for the last 20 years or more is an important plus factor in the company's quality rating. Indeed the defensive investor might be justified in limiting his purchases to those meeting this test.

Certainly with all the major indices in the tank, dividend yields should be greater. This is true but keep in mind that just because a stock pays a dividend does not mean it is a good buy or good investment. However paying a dividend is just another tool and perhaps a very good tool in finding a suitable stock investment.

Where should one start, well their are many financial sites on the web that have this information. A couple  of the easy places to start are Google Finance(GOOG) and Yahoo Finance (YHOO), both have excellent sites for quick and  easy reference. 

Also over at the DividendGrowthInvestor who covers the  subject  of dividend investing, offers a wealth of information.

Graham used the dividend as just one of several criteria for picking stocks.  Why was this? To show that a company was sharing some of the earnings with the stock holders. So often company's will reinvest the earnings back  into the business. In some cases this makes sense, but quite often not.

.....We have  always heard that  "Cash Is King"..... So give me that Dividend Payment Please.

Gates Finds Value For His Foundation And His Personal Portfolio

The former Richest man in the world Bill Gates is now spending much of his time helping his wife Melinda Gates run the worlds largest foundation "The Bill & Melinda Gates Foundation". Along with running the foundation Bill also has his own Investment company known as Cascade Investments, which is a diversified investment company that has holdings in many different fields. Its interesting to note that Gates Holdings in the "Foundation" and "Cascade" are not what you would think of the software king. Most of his holdings are broad based including pharmaceutical, energy, transportation, consumer beverage, building materials and insurance companies. In his personal account which is Cascade Investments he holds an eclectic group, but much more concentrated than the Foundations portfolio. The three largest holdings between the two portfolios are Berkshire Hathaway(BRKA,BRKB), Canadian National Railway(CNI), and Republic Services(RSG). He also has a sizable stakes in Fomento Economico(FMX) which is the Latin American Coke(KO) and beverage company, and Gruppo Televisa(TV) which is a Latin American media company. He also just recently upped his position in Otter Tail(OTTR) an electric company with a diverse portfolio within itself.

Sunday, January 25, 2009

Billionaire Eddie Lamperts Sears Has More Ideas In-store!

I have written several articles over the past several months on Sears Holdings(SHLD) and the man at the helm Mr. Eddie Lampert. Sears as many of you already know is a large American retailer that has been a part of our landscape for over a century. Mr Lampert has been running the show their for the last few years. Shortly after Lampert took over running the company the stock price ran up like a rocket ship, he was hailed as a hero, but since the bad turn in the economy, he has been given a lot of flack. Many critics have said that Lampert and Sears are washed up and that WalMart(WMT) and Target(TGT) are the retailers with a future. I think not, Lampert is taking this opportunity to try new ideas .....

Does the Internet play a role? 

Will Eddie leverage his Real Estate holdings in Sears for new concepts?

Will he sell some of Sears other brand names through other distribution channels ? After all he is the biggest shareholder in AutoZone(AZO) and AutoNation(AN)

Cash In The Coffers & NO Debt!

While scouting for prospective stocks, keep in mind that companies that have plenty of cash on hand with very little or NO debt have a much better chance of weathering the economic slow down. 
These seven diverse companies listed below seem to have this in common: plenty of cash, none or 
very little debt and management has a stake in the business. Most of these stocks are trading at a
 third to a half of their fifty-two week high. 

AVX Corp. (AVX) - A leading Worldwide Manufacturer and Supplier of Electronic
 Components. Its products are used in electronic devices to store, filter, and regulate electric energy.

Korn Ferry  (KFY) Since its founding in 1969, Korn/Ferry 
International has been the executive recruitment industry’s leader and innovator, and today, has evolved as the world’s premier provider of executive talent management solutions.

K-Swiss (KSWS)Since 1966, K-SWISS has represented innovation, quality, performance and style. Its signature K-SWISS "CLASSIC," the first leather tennis shoe, made its debut at Wimbledon in 1966, and more than 40 years
 later, is still a style staple both on and off the court. Today, K-SWISS' premium sports heritage has 
expanded from tennis footwear, to also lifestyle, running, training, nautical, and free-running
 footwear that stands up to the performance demands of world-class athletes and trendsetters alike. 

Landec Corp. (LNDC)Landec Corporation and its subsidiaries design, develop, manufacture, and sell temperature-activated and other specialty polymer products for food and agricultural
 applications. In addition, outside of food and ag, the Company will selectively work with industry leaders as licensed partners. The Company's strategy is to identify commercially attractive 
business opportunities and to seek market share through the application of its proprietary, enabling Intelimer® technology.

Sigma Designs (SIGM) Sigma Designs develops and markets high-performance, highly-integrated System-on-a-Chip (SoC) semiconductors for the following key markets:
  • IPTV Set-top Boxes
  • Blu-ray Players/Recorders
  • HDTVs
  • Digital Media Adapters
  • Portable Media Players
  • UWB (Ultra-Wideband) Connectivity Products
 Thor Industries is the world's largest manufacturer of
 recreation vehicles and a major builder of commercial buses, and has
 been driving for excellence since its founding in 1980. 

 designs, manufactures, sells, and services advanced test systems and solutions for the semiconductor industry. Building upon our proud heritage—the roots of Hewlett-Packard Company and the strengths of Agilent Technologies—we work closely with our customers to help lower their cost of test and improve their overall competitiveness.

   Company       Cash       Debt       Insiders       P/E       Price

AVX Corp.        600m       0              72%           12        $ 8.85
Korn Ferry         202m       0             10%              7        $9.62
K-Swiss             291m       9.4m       21%           10       $10.01
Landec Corp.   61m          0             14%            12        $ 5.45
Sigma Design  132m       0              19%              6        $11.37
Thor Industries  178M       0               46%           11        $11.73
Verigy Ltd.         340m       0               17%           17         $8.33

*Famed Value Investor Martin Whitman who is a veteran stock picker with a long, distinguished history as a control investor. He is Co-Chief Investment Officer of Third Avenue Management and has successfully identified value in securities for more than 50 years. Currently Mr. Whitman holds large stakes in AVX Corp. and K-Swiss. He is the second largest holder in both companies

*Author suggests futher research before investing.
 Author is currently long  KFY, KSWS, and THO

Wednesday, January 21, 2009

Billionaires Buffett & Gates Up Stakes In RailRoad & Waste

Again the Oracle of Omaha, Warren Buffet bought Burlington Northern Santa Fe Corp. (BNI) bringing his total share count to over 74 million and giving him the largest stake with 22% of company . Prices ranged between $61.65-$$63.43.While fellow billionaire buddy Bill Gate's Cascade Investments ups its stake in Republic Services (RSG) bringing the total to over 39 million shares and 10 1/2% ownership. Prices ranged between $22.97-$25.43. Cascade Investments which is gate's Investment arm also has large stake in Canadian National Railway Company (CNI).

Author is currently long BNI

Tuesday, January 13, 2009

The Dhandho Investor Buys Into ZINC!

Back in early November I  wrote a post on Horsehead Holdings Corp.(ZINC) .  Horsehead is  the largest zinc producer in the United States and the leading manufacturer of value-added zinc products including zinc oxide and zinc powder. Zinc has many uses such as a protective coating to various fabricated products, it is found in  tire and rubber products, chemicals, ceramics, plastics, paints, lubricating oils, and pharmaceuticals it is also used in brake linings for automobiles.
      Since my last post on Horsehead, I noticed that Mohnish Pabrai alias The Dhandho Investor has taken a stake in ZINC.  Pabrai has made a name for himself over the last few years returning Warren Buffett SIZE returns. Pabrai by the way is a former IT guy turned money manager. Pabrai usually has 10 to 15 stocks at a time in the portfolio. I thought it was interesting that Pabrai bought into one of the stocks I followed, usually its me following the Gurus. However I'm sure Pabrai saw the same things that I did in this company. First off the company has $80mil in cash which equates to $2.28 a share. They have virtually no debt with a debt-to-equity ratio of "0". Their also trading at nearly 50% book value, which is currently at $7.93 a share. It also looks like 125,000 plus investors over at the Motley Fool have picked up on this one as well.  The company  looks as if its staying ahead of the economic downturn by running a rather tight ship. In December Horsehead  announced that it is taking aggressive steps to reduce operating costs including idling its recycling facilities for the last week of 2008 , reducing its salaried workforce, and revising the construction strategy for its new South Carolina facility. Horsehead expects that these reductions will result in annualized savings of approximately $2 million. A few more points I would like to mention that this is a cyclical stock, and with the current economic conditions it could stay depressed for a while. Also forward looking earnings (2009) are projected at an average loss of 62 cents a share. So while the short term outlook does not look rosy valueinvestors and pabrai himself are looking for the low-risk, high-uncertainty businesses.

  "Low risk and high uncertainty is a wonderful combination. It leads to severely depressed prices for businesses - especially in the pari-mutuel system- based stock market. Dhandho entrepreneurs first focus on minimizing downside risk. Low-risk situations, by definition, have low downsides. The high uncertainty can be dealt with by conservatively handicapping the range of possible outcomes. You end with the classic Dhandho tag line: Heads, I win tails, I don't loose much!"   -Mohnish Pabrai.  

 The 52 week week high was $18.31 and the 52 week low was $2.26, which as I mentioned earlier is the cash it has on hand. Currently ZINC is trading at $4.25 with a NCAV of $4.45.
*Author is neither long nor short.  

Relevent Articles

Sunday, January 11, 2009

Roundtable Experts You Decide

This weeks Barron's has an article on whats in store for our economy. Barron's went all out by bringing in 10 experts to talk about whats in store for the next few years. The Roundtable discussion did not sound to optimistic  for the future, unless you are a stockpicker or trader. Their predictions range from $2000 oz. gold, inflation,a collapse in the U.S. Dollar and a new low in the stock market. So much for reading the newspaper. There are some smart people on the panel, but can they really see the future any better than you and I, Heck No! What are the answers then? Could Gold go to $2000 oz., well sure it can, but keep in mind it is a commodity, a commodity that is more admired for looks. Read more from the Roundtable Experts. You decide.

Saturday, January 10, 2009

Edward Jones Your Neighborhood Investing Place

In the face of adversity these Old line dedicated brokers are still serving up stocks and bonds the old fashioned way, one customer at a time. Whenever their is a downturn in the market theirs a downturn in the brokerage industry, and it seems that times are really not any different than before, with the likes of  Lehman Brothers going under and Bear Stearns and Merrill Lynch being taken over. However the brokers at Edward Jones seem to have a lot of tenacity. Most of the brokers operate in ones local neighborhood. The 12,000- broker force has added nearly a 1000 brokers this bear market and plans on upping that figure by 2012.

Thursday, January 8, 2009

Eddie Lampert Pulls A Coup d'etat Over Other Retailers!

It looks like Eddie and his
Sears Holding(SHLD) company are showing some adversity in front of other retailers and the economic down turn. Lampert has been criticised over the last year for NOT selling off real estate and NOT plowing gobs of cash back into its retail operations. It seems that the public and Wall Street just don't get it. While the ones that have followed his career path take a different view. Of course only time will tell if things will work out, Sears (SHLD) saw its shares rally as much as 23% Thursday as the owner of Sears and Kmart gave a surprisingly strong profit forecast. The rosier outlook follows Kmart's improved performance through the holidays . It seems while the industry leader WalMart(WMT) enjoyed a good year Sears continued to be sold off, however since its November low it has almost doubled from $26.80. while closing today near $50.00 per share.

Wednesday, January 7, 2009

Graham + Greenblatt = The GG Formula

Here are a few stocks that meet some of the characteristics that Ben Graham and Joel Greenblatt might consider, I call it the GG Formula. What is the GG Formula, simply put it is taking both stock picking methods and merging the two. While Graham used book value in his equation the GG Formula does not. I took a different approach by emphasizing Greenblatts Return On Capital(ROC) or Return On Assets(ROA). This may seem odd but I wanted to see how this experiment turned out. I think whether one is using Grahams method or Greenblatts you can still pick winners. One thing that they both emphasize is to buy a basket or handful of stocks, which I think is extremely important for the passive investor. Listed below are a few stocks from different industries that made the GG cut.

mkt/cap p/e roa roe debt earn.yeild

Airvana (AIRV) $390m 4.2 38% 69% 0% 23%

Dawson (DWSN) $156m 4.6 16% 21% 0% 23%

Garmin (GRMN) $4.5b 5.5 28% 38% 0% 18.5%

Nutrisystem $477m 8.4 33% 47% 0% 12%

Forest Labs $7.9b 8 21% 26% 0% 12%

*What is also interesting is that many of these scanning techniques will sometime overlap
*Author is currently long $NTRI.

Saturday, January 3, 2009

A Stock Candidate That Walter Schloss Might Like!

I'm sure many value oriented investors by now are familiar with Mr. Walter Schloss, but for those who are not I will give a quick Bio. Walter started out as a runner on Wall Street back in the 1930's, later he went to work for Benjamin Graham in the Graham-Newman Partnership. By the mid 1950's Schloss left Graham to start his own investment company/partnership. He operated his firm in much the same way as Graham and that other famous student/employee of Graham's Wa
rren Buffet. Over the next 48 years Schloss averaged 15.3% compounded returns .

He had no connections or access to useful information. Practically no one in Wall Street knows him and he is not fed any ideas. He looks up the numbers in the manuals and sends for the annual reports, and that's about it. Adam Smiths Supermoney (1972)

Warren Buffett- famously dubbed Schloss a "superinvestor" is still picking unloved stocks.

Stockmanmarc- Real Pure Value Player

The market will always offer up some undervalued certain securities, but the best time to look for them is when there's panic and fear on Wall Street, Schloss often said. Buffett often quotes the same. Great minds think alike.

Schloss like to used the KISS method.

  • Stocks with little or NO debt.
  • Stocks with a track record or long history.
  • Stocks selling NEAR or BELOW Book Value.
  • Stocks/Companies with management in place and owing a substantial amout.
  • And Don't loose money.

Here is a company listed below that Schloss or any value investor might take a look at:

Thor Industries (THO) was founded in 1980 and have grown to be the largest manufacturer of Recreation Vehicles (“RVs”) and a major manufacturer of commercial buses in North America. Their market share in the travel trailer and fifth wheel segment of the industry (towables), is approximately 30%. In the motorized segment of the industry they have a market share of approximately 16%. Their market share in small and mid-size buses is approximately 37%. Thor also manufactures and sells 40-foot buses at their facility in Southern California designed for that product as well as their existing 30-foot and 35-foot buses.They rely on internally generated cash flows from operations to finance their growth although they may borrow to make an acquisition if they believe the incremental cash flows will provide for rapid payback. They have invested significant capital to modernize, improve and expand their plant facilities and expended $14,815 for that purpose in fiscal year 2008. Currently Thor Industries (THO) trades slightly above book value, while sporting a very low price to sales multiple of .32. Thor has zero debt and management has very valued interest. Management has maintained a very steady free cash flow for the last ten years, however it has tapered off over the last year but has maintained positive.

By the numbers:
  • $178mil cash/NO Debt
  • 29 year company history
  • trading at just above book value
  • insiders hold 46% shares
  • trading at 5 x EV/EBITDA
  • current ratio is 2.3
  • price/sales ratio of .32

* With the current state of the economy Thor could suffer further down side however with their longterm record and a close eye on their bottom line Thor deserves a further look.

* Author is currently long THO

Friday, January 2, 2009

The Banking Landscape Is Under Change

The American Banking landscape is under change. As the financial crisis heated up in 2008 we saw many companies loose billions of dollars and some even go under such as the largest bank failure in U.S. history, the  Washington Mutual Savings Bank. Shall we call it the changing of the guard or the survival of the fittest? It doesn't really matter, for history will decide for us. Today there is a gloomy outlook for the financial industry and the economy, but one thing is for sure the change goes on. With Bank of America (BAC) purchasing the storied Wall Street Brokerage house of Merrill Lynch and Wells Fargo's (WFC) purchase of an old southern regional powerhouse of Wachovia Bank, both will take on bigger rolls. Bank of America will be a much bigger player in the brokerage business as well as a major player in the mortgage business with its purchase of the largest independent mortgage company, Countrywide Financial. Wells Fargo will have an east coast presence now that it owns Wachovia with its many branches throughout the south east. Wells to will even be bigger  in its real estate mortgage business. Then there is PNC Financial (PNC) which was a north eastern regional but suddenly jumped into a new roll as a money center bank with its recent acquisition  of  National City Bank. This gives PNC a larger east coast exposure which will include the the state of Florida who has a huge retirement community. Then their is Bank Branch & Trust (BBT) another North Carolinian bank that has managed to stay out of trouble with its more "Plain Vanilla " bank lending, which it turns out boring can be better after all. We also have another one of Warren Buffett's stocks U.S. Bank (USB) which also has had higher lending standards than some of its competitors. Suntrust has also remained in the mix but paying some what of a price,  by selling some of its Coca Cola (KO) stock, which it has owned since 1919. We can not forget Goldman Sachs(GS) and Morgan Stanley(MS)that were brokerage businesses that have now converted over to chartered banks to escape going under. Citigroup (C) who was once the largest bank might take on a smaller role in the changing of the guard, while JP MorganChases  purchase of Washington Mutual's assets will give them a much larger retail client base.

Where they stand now:
                                        Quote     Yield      PE   MktCap  Revenue           
Bank of America          14.04      9.07       12          70b       87,304b
Branch Bank & Trust  26.66      7.03        9           15b          7894b
Citigroup                       6.96      9.14          -           38b     124,467b
Goldman  Sachs           83.70       2.22      18          33b       53,579b 
JP Morgan Chase        30.71      4.94       15         115b      71,387b
Morgan Stanley           16.44      6.49       14          17b       61,883b
PNC Financial              47.87       5.50       13          17b          6166b
Suntrust                       29.83      7.21         9           11b      10,035b
US Bancorp                  24.57       6.91      12          43b       13,136b
Wells Fargo                   29.65      4.59       15          99b       35,177b

THE PONZ (i) Has Been Replaced by The Madoff

As most investors and non- investors have already heard Bernard Madoff a Wall Street big shot has committed the biggest Ponzi scheme in history or so we know so far. Its estimated that at least $50 billion dollars has gone up in a puff of smoke. His clients ranged from charities to investment companies to many high profile people such as Stephen Spielberg, Kevin Bacon  and his wife Kyra Sedgwick.  

It seems that old Bernie has been robbing Peter to Pay Paul for years. For those that are unfamiliar with a Ponzi Scheme, its an an illegal pyramid scheme in which you are paying out returns to earlier investors with new investors money, instead of paying out in  profits. At first it might look quite legit, although its very much like playing a game of  hot potato, but in this case their are billions of potato's. Here is a client list of some of Bernie's victims which seems to be a growing one.