Monday, October 31, 2011

Coast Distribution On The Cheap

Sales of RVs and boats fell off a cliff during the recession, causing investor to leave many companies in that industry for dead. But while those companies which had too much debt have gone or will go under, the pessimism in this industry provides some opportunities for value investors. For example, consider The Coast Distribution System (CRV), a wholesaler of RV and boat parts and accessories.

Sunday, October 30, 2011

Quality of Earnings: Chapter 8

Investors rely heavily on the financials that companies release. But managements have significant leeway when it comes to creating its results. In this book, Thornton O'Glove tells investors how to judge the quality of a company's earnings, in order to both protect against fraud and find value.

Saturday, October 29, 2011

Quality of Earnings: Chapter 7

Investors rely heavily on the financials that companies release. But managements have significant leeway when it comes to creating its results. In this book, Thornton O'Glove tells investors how to judge the quality of a company's earnings, in order to both protect against fraud and find value.

Friday, October 28, 2011

No Final Answers Here!

I now receive a ton of requests for my specific valuations and "buy" prices for particular stocks. Because I have declined to divulge such information, I have received many questions as to why I'm not willing to share such info. As such, I thought it best to share my thoughts on the subject with a post.

Thursday, October 27, 2011

Gannett Cash Flow Offers Opportunity

Gannett owns newspapers (such as USA today) and tv stations, mostly in the US. These industries are much hated by investors today, as revenues are generally in decline; advertising dollars are migrating online as circulation and viewership of traditional media continues to decline. But for value investors, this negativity can create an opportunity.

Wednesday, October 26, 2011

The Rise Of Parlux

When the market goes down, correlations seem to increase, pushing the prices of even good businesses down. While this provides opportunities to the value investor, it also tests his patience; even companies that are doing well can get hammered in the market! Bucking this trend of late has been Parlux, which recently saw several thousand shares trade within striking distance of its net current asset value. As such, Parlux is the latest stock to join this site's Value In Action page, providing some lessons in the process:

Tuesday, October 25, 2011

Shorting The Green

I don't short stocks, but every once in a while I am tempted to do so. For those of you value investors who do short, you may want to consider Green Mountain Coffee Roasters (GMCR) as a potential candidate. In a recent presentation, David Einhorn discusses some of the features that make this a great short candidate: a high price, a lack of free cash flow, some serious accounting questions, frequent capital raises (despite accounting profitability), and some interviews of former employees suggesting a lack of transparency. The slides can be found here.

Unfortunately, the stock has already fallen quite a bit since the presentation came out last week. However, the company's P/E of 70 remains at rather elevated levels.

Disclosure: No position

Monday, October 24, 2011

Aastra Dials Up Cash Flows

Considering its financial position, Aastra Technologies (AAH) is an extremely volatile stock. The stock traded above $40 in 2007, below $8 in 2008, above $36 in 2010, and has now come all the way back down to $13 in 2011. One might expect this kind of stock price volatility for a heavily-levered company with a highly-oscillating profit profile. But Aastra is neither of these; it carries negligible debt along with a ton of cash, and has remained profitable throughout the recession of recent years. As such, these excessive price swings in the shares of Aastra are offering investors an excellent opportunity to buy into a good business at a great price.

Sunday, October 23, 2011

Quality of Earnings: Chapter 6

Investors rely heavily on the financials that companies release. But managements have significant leeway when it comes to creating its results. In this book, Thornton O'Glove tells investors how to judge the quality of a company's earnings, in order to both protect against fraud and find value.

Saturday, October 22, 2011

Quality of Earnings: Chapter 5

Investors rely heavily on the financials that companies release. But managements have significant leeway when it comes to creating its results. In this book, Thornton O'Glove tells investors how to judge the quality of a company's earnings, in order to both protect against fraud and find value.

Friday, October 21, 2011

Be Independent

Almost exactly three years ago, Washington Mutual basically declared bankruptcy, resulting in shareholders losing pretty much their entire investments. A day before the bank went down, here's what analyst recommendations looked like

Thursday, October 20, 2011

China Spin

It's incredible how the same set of data can be spun in completely different ways, depending on the writer's bias.

Wednesday, October 19, 2011

Acme Hums Along

One stock that has held up remarkably well through this recent period of market volatility is Acme United, which has been previously discussed on this site as a value idea.

Recently, the company's CEO granted an interview to Smallcaps.us, which can be heard here or read here, for those interested.

The company's earnings are out in two days. A big move up (down) could represent a selling (buying) opportunity!

Tuesday, October 18, 2011

Short Memories And Temporary Conditions

While there are many who believe market prices accurately reflect all available information, value investors believe there are many instances where market prices can be way out of line with reality. In our society, financial memory appears to be extremely short, causing speculators to fall prey to the same situations over and over. Recent happenings in the rare earths market illustrate this phenomenon very well.

Monday, October 17, 2011

Gaming Partners Cashes In

Value investors love companies with lots of cash. At the very least, a net cash position protects a company from going under when times are tough. And during good times, the cash can be doled out to shareholders. But whether a cash distribution (or buyback) will actually occur is worthy of investigation before the investor actually takes a position, for many companies have no interest in actually returning cash to shareholders.

Consider Gaming Partners International (GPIC), a manufacturer and distributor of gaming chips and other casino-related supplies.

Sunday, October 16, 2011

Quality of Earnings: Chapter 4

Investors rely heavily on the financials that companies release. But managements have significant leeway when it comes to creating its results. In this book, Thornton O'Glove tells investors how to judge the quality of a company's earnings, in order to both protect against fraud and find value.

Saturday, October 15, 2011

Quality of Earnings: Chapter 3

Investors rely heavily on the financials that companies release. But managements have significant leeway when it comes to creating its results. In this book, Thornton O'Glove tells investors how to judge the quality of a company's earnings, in order to both protect against fraud and find value.

Friday, October 14, 2011

Betting On Long-Term Growth

Investors with huge amounts of assets under management (e.g. pension funds, sovereign wealth funds etc.) are buying US government debt at an astonishing rate. As a result, the annual return one can expect on a US 10-year Treasury is only around 2%! Keeping in mind that the US central bank attempts to keep inflation between 1% and 3%, the level of this fairly long-term issue appears rather unsustainable.

Thursday, October 13, 2011

Perceptron's Perception

Perceptron (PRCP) sells measurement and inspection products that are used by a range of customers from car manufacturers to plumbers. This is a profitable company with a ton of cash (relative to its market cap) and no debt, making it a stock with strong value potential.

Wednesday, October 12, 2011

Markets Affect The Business

There is an implicit assumption in value investing that market values or changes in market values do not affect business values. This is not entirely true. This occurs not only from a macroeconomic perspective (e.g. some economists believe wealth effects in the market lead to changes in business conditions), but also from a microeconomic perspective. For example, a bank whose price is falling may lose the confidence of lenders with whom it transacts on a frequent basis. This can and has led to deterioration in a bank's value as a result of its price movements.

Banks are not the only example. Market volatility can indeed affect business value. Nowhere is this more clear than in the currency market.

Tuesday, October 11, 2011

From The Mailbag: Evaluating Management-Friendliness

I have recently received a few questions on the order of "How can I tell if management is shareholder friendly? Can you tell me if management at company X passes the smell test?"

The second question is far too difficult for me to answer, for several reasons. First, we all have different standards of just how friendly a manager has to be. Second, "friendliness" can be measured using many different criteria; preferences among investors will vary not only as to which criteria should weigh the most heavily in coming to an overall conclusion, but also as to which criteria should be used at all. Finally, differences of opinion regarding management friendliness will arise between investors even if shown the exact same data; an action one investor may deem friendly may be viewed as unfriendly by another (e.g. a restricted share issue).

As such, rather than state my opinion of company X, it is probably more useful for you (and less time-consuming for me) to discuss what information may be relevant in allowing you to answer the second question for yourself, using your own investment criteria, objectives and opinions.

Monday, October 10, 2011

Universal Volatility

A couple of interesting events have taken place at Universal Security Instruments since they were last discussed on this site as a potential "buy" opportunity.

Sunday, October 9, 2011

Quality of Earnings: Chapter 2

Investors rely heavily on the financials that companies release. But managements have significant leeway when it comes to creating its results. In this book, Thornton O'Glove tells investors how to judge the quality of a company's earnings, in order to both protect against fraud and find value.

Saturday, October 8, 2011

Quality of Earnings: Chapter 1

Investors rely heavily on the financials that companies release. But managements have significant leeway when it comes to creating its results. In this book, Thornton O'Glove tells investors how to judge the quality of a company's earnings, in order to both protect against fraud and find value.

Friday, October 7, 2011

Karsan Value Funds: 2011 Q3 Results

Karsan Value Funds (KVF) is a value-oriented fund, as described here. Due to securities regulations, the fund is not open to the public at this time. Should that change in the future, there will be an announcement on this site.

Thursday, October 6, 2011

Two Million Jobs likely Created In September!

The US private sector likely created approximately two million jobs in the month of September. That appears to be in stark contrast to the paltry number the government will appear to report tomorrow. That's because the media outlets omit the word "net" when they report the latest job numbers. While everyone focuses on the "net" jobs figure, the Bureau of Labor and Statistics (BLS) also issues far-less-followed reports detailing total jobs created and destroyed.

Wednesday, October 5, 2011

Mr. Market Hammers PetMed

PetMed Express (PETS) is an online and over-the-phone retailer of pet medications. Its returns on capital have been strong for over a decade. During the recent market turmoil, however, the stock has taken a dive; the stock is now down over 60% in the last year.

Tuesday, October 4, 2011

Average Earnings Can Be Useless

For various reasons, value investors are encouraged to use an average of several years worth of earnings as an estimate of a company's earnings power. But when a company grows quickly (e.g. through the acquisition of a competitor), average earnings are no longer representative of earnings power. In such cases, other methods of estimating a company's earnings may be more useful.

Monday, October 3, 2011

Versant's Persistency

Versant trades for just $33 million, despite no debt and a cash balance of $23 million. With this kind of profile, one would expect to find a company losing a whole lot of money. But this is not the case: Versant has remained profitable every year throughout this downturn!

Sunday, October 2, 2011

A Short History Of Financial Euphoria: Chapter 8

While there is no doubt that free enterprise gives rise to recurrent episodes of speculation, the features that are common to these episodes are rarely analyzed, according to the author of A Short History of Financial Euphoria, John Kenneth Galbraith. This book from 1990 offers perspectives on bubbles that are still useful today. By paying attention to the signs, "there is a chance - a slim chance, to be sure, given the sweeping power of financial euphoria - that otherwise vulnerable individuals will be warned."

Saturday, October 1, 2011

A Short History Of Financial Euphoria: Chapter 7

While there is no doubt that free enterprise gives rise to recurrent episodes of speculation, the features that are common to these episodes are rarely analyzed, according to the author of A Short History of Financial Euphoria, John Kenneth Galbraith. This book from 1990 offers perspectives on bubbles that are still useful today. By paying attention to the signs, "there is a chance - a slim chance, to be sure, given the sweeping power of financial euphoria - that otherwise vulnerable individuals will be warned."

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