Saturday, March 31, 2012

Competition Demystified: Chapter 13

The author of the excellent book for beginners, Value Investing: From Graham to Buffett..., is back, this time with a book about how to understand and analyze competitive advantages. Investors interested in better understanding what gives a company a competitive advantage must give this book a read.

Friday, March 30, 2012

Amazon: Steady Growth

Amazon (AMZN) is the world's largest online retailer, with annual sales of $48 billion in 2011. The company is seen as taking share away from traditional retailers, and in so doing it has grown revenue at a rate of about 35% per year for the last three years, suggesting it may be a good long-term buy.

Thursday, March 29, 2012

Value Investing With Currency Risk

To get the most out of the possibilities offered by value investing, investors should be prepared to buy outside of their home countries. For example, the natural disaster in Japan last year likely caused the prices of some securities to fall undeservedly from the viewpoint of the long-term investor. (Today, some areas of Europe may be in the same position due to less natural disasters.) But a major concern of international investors is currency risk. Long-term value investors situated in developed countries, however, shouldn't worry about it.

Wednesday, March 28, 2012

Equitable Group: Earnings Over Cash

When companies make investment decisions with their capital, such decisions should be based on the cash flows the investment is expected to return. Because cash flows are volatile, earnings calculations are a useful way of measuring how successful such investments have been. Unfortunately, this creates a management incentive to invest in a manner that maximizes earnings rather than cash flow, which does a disservice to shareholders.

Consider Equitable Group (ETC), a mortgage lender to single families and commercial interests.

Tuesday, March 27, 2012

GameStop: The Long AND Short

Is there a more polarizing stock than GameStop (GME) right now? The short interest in this company is almost 50% of the company's float! At the same time, the company's strong cash flow relative to its price makes it attractive to a number of value investors. So who's right?
Read more...

Sunday, March 25, 2012

Competition Demystified: Chapter 12

The author of the excellent book for beginners, Value Investing: From Graham to Buffett..., is back, this time with a book about how to understand and analyze competitive advantages. Investors interested in better understanding what gives a company a competitive advantage must give this book a read.

Saturday, March 24, 2012

Competition Demystified: Chapter 11

The author of the excellent book for beginners, Value Investing: From Graham to Buffett..., is back, this time with a book about how to understand and analyze competitive advantages. Investors interested in better understanding what gives a company a competitive advantage must give this book a read.

Friday, March 23, 2012

R&D With Or Without Earnings?

When companies spend money on capital expenditures (as opposed to spending on operating expenses such as marketing, salaries, repairs etc.), these amounts are ignored on the income statement. In other words, these capital investments are not subtracted from revenue to come up with the company's net profit, since these expenditures represent investments which may generate revenue (or losses) in the future. For understandable reasons, however, research and development (R&D) is classified as an expense under GAAP, even though the benefits (if any) of such R&D will occur in the future. How should the prudent investor treat such expenditures in determining a company's earnings power?

Thursday, March 22, 2012

Alpha Tech's Price Goes Pro

Since the time when Alpha Pro Tech was discussed on this site as a potential value investment about a year ago, its market cap has fluctuated between $20 million and $35 million, offering excellent opportunities for value investors to earn an outstanding rate of return. Downside protection was also strong, as the company was a profitable net-net for most of this period! As such, Alpha Pro Tech becomes the latest stock to join this site's Value In Action page.

Wednesday, March 21, 2012

More Wonkiness At Manhattan Bridge

Yesterday, Manhattan Bridge Capital (LOAN), previously discussed on this site because of the massive discount at which it trades to its equity, came out with its 10-K. You may recall that this is the company that issued 1 million shares (when it only had 3.3 million outstanding) to its CEO and controlling shareholder. It would appear that the company's shareholder-unfriendly activities may be continuing.

Tuesday, March 20, 2012

Overconfidently Anchoring

Noting that positive (negative) earnings surprises tend to be followed by more positive (negative) earnings surprises, economist Dr. Hersh Shefrin makes the point that this occurs because the investor/analyst tends to be overconfident, and furthermore fails to fully incorporate new information (i.e. he is "anchored" to his previous opinion).

Monday, March 19, 2012

The Apparently Contradictory Buffett

As Warren Buffett has become more public with his political views, he has been the target of an increasing number of attacks. Some of the arguments against Buffett's proposals are intelligent, but these don't appear to be the ones that get the most airtime. Instead, the most common response from those who oppose Buffett's minimum tax on the wealthy argues that Buffett is a hypocrite for saying one thing, but behaving in an apparently contradictory matter. The argument goes something like this:

"If Buffett thinks taxes should be higher, why doesn't he just pay more and leave the rest of us alone?"

But are Buffett's actions really contradictory/hypocritical?

Sunday, March 18, 2012

Competition Demystified: Chapter 10

The author of the excellent book for beginners, Value Investing: From Graham to Buffett..., is back, this time with a book about how to understand and analyze competitive advantages. Investors interested in better understanding what gives a company a competitive advantage must give this book a read.

Saturday, March 17, 2012

Competition Demystified: Chapter 9

The author of the excellent book for beginners, Value Investing: From Graham to Buffett..., is back, this time with a book about how to understand and analyze competitive advantages. Investors interested in better understanding what gives a company a competitive advantage must give this book a read.

Friday, March 16, 2012

PMC Commercial Cheap and Receiving Overtures?

Recently, two apparent value stocks were discussed on this site for their looming catalysts, New Frontier Media and Paulson Capital. Add another one to the list; yesterday, in releasing its fourth quarter results, PMC Commercial Trust stated that it has "received certain inquiries expressing a preliminary interest in potential strategic transactions."

Thursday, March 15, 2012

Poor Conditions, Sterling Price

Shares of Sterling Construction (STRL) fell 13% yesterday following the announcement of the company's net loss for Q4 and weak guidance for 2012. As a result, while the rest of the market is doing well, shares of Sterling are now near a 7-year low! Consequently, value investors may be interested in going long this builder of highways and other transportation infrastructure.

Wednesday, March 14, 2012

Milling Music

As value investors, we tend to put more emphasis than do others on the balance sheet. But Nate over at Oddball Stocks discovered a potential value investment with no balance sheet! This is because the company requires no capital

Tuesday, March 13, 2012

European Value Investing: Lots of Opportunities

With the macroeconomic turmoil that has sent financial shock waves through Europe, many good companies on the other side of the Atlantic have seen their stocks beaten down. On this site, European stocks are not covered. But investors may notice that American stock markets are at relatively high levels; as such, investors may wish to take profits and apply this capital towards some of Europe's finest value stocks.

Tim Du Toit is here to help investors get started. He is the founder of Eurosharelab, a site dedicated to uncovering European value stocks. He offers newsletters (including a free one) that identify investment ideas on a monthly basis. Recently, I had a chance to ask Tim a few questions about the European market, his investment philosophy and his newsletter:

Monday, March 12, 2012

Takeover Offer At New Frontier Media

Long-time readers of this site will be familiar with New Frontier Media, a company that has been discussed a few times here for both its high cash flow and high cash balance relative to its market cap. Unfortunately, the company has been plagued by some poor-looking capital allocation decisions (perhaps in turn cause by low insider ownership) and high compensation relative to its size. Now, one shareholder has decided to go active, creating a potential catalyst situation.

Sunday, March 11, 2012

Competition Demystified: Chapter 8

The author of the excellent book for beginners, Value Investing: From Graham to Buffett..., is back, this time with a book about how to understand and analyze competitive advantages. Investors interested in better understanding what gives a company a competitive advantage must give this book a read.

Saturday, March 10, 2012

Competition Demystified: Chapter 7

The author of the excellent book for beginners, Value Investing: From Graham to Buffett..., is back, this time with a book about how to understand and analyze competitive advantages. Investors interested in better understanding what gives a company a competitive advantage must give this book a read.

Friday, March 9, 2012

Insiders Own...Or Do They?

Where management has a significant portion of its net worth invested along with shareholders, agency costs are likely to be at a minimum. Shareholders can easily determine how invested management is in a company by looking in the same place that a company's executive compensation can be found. Unfortunately, the use of equity swaps, becoming more common in the financial world, can render the information on management's stake in the company essentially useless.

Thursday, March 8, 2012

Deswell Fell

Last year, Deswell Industries was discussed on this site because of its cheap price relative to historical earnings. Unfortunately, a number of risks were also discussed, and these have continued to plague the company. The good news for potential (as opposed to actual) shareholders, however, is that Mr. Market has continued to lay a beat down on this company, wiping another 40% off the market cap in the last year.

Wednesday, March 7, 2012

TD Ameritrade: When Cash Isn't Cash

A lot of time is spent discussing hidden liabilities (e.g. lease commitments, potentially damaging legal obligations etc.) on this site, as the value investor is always looking to protect his downside. But occasionally, it's also worth discussing assets that really aren't assets, so the investor doesn't assume a company owns something it doesn't. In this case, consider the cash balance of TD Ameritrade (AMTD).

Tuesday, March 6, 2012

A New Rating Agency Model

If you follow the financial news, you probably already know that the ratings agencies have done a poor job of informing investors about risks before market events have made those risks clear. (To their credit, however, the ratings agencies are quite good at telling investors about risks after the market has already made them clear.*)

Furthermore, the business model whereby issuers pay the agencies for their ratings creates conflicts of interest that may be tainting what should otherwise be independent work. But a new rating agency model is upon us, and it puts the ratings in the hands of the people: Wikirating

Monday, March 5, 2012

Net-Net Plus Catalyst: Paulson

Paulson Capital has already been discussed on this site as a potential value opportunity. But while the company remains deep in net-net territory, somewhat of a catalyst is now present, which could entice those of you value investors who have a catalyst bent.

Sunday, March 4, 2012

Competition Demystified: Chapter 6

The author of the excellent book for beginners, Value Investing: From Graham to Buffett..., is back, this time with a book about how to understand and analyze competitive advantages. Investors interested in better understanding what gives a company a competitive advantage must give this book a read.

Saturday, March 3, 2012

Competition Demystified: Chapter 5

The author of the excellent book for beginners, Value Investing: From Graham to Buffett..., is back, this time with a book about how to understand and analyze competitive advantages. Investors interested in better understanding what gives a company a competitive advantage must give this book a read.

Friday, March 2, 2012

Staples For The Long-Term

Wednesday, office products distributor Staples (SPLS) fell by as much as 10% after the company reported its latest quarterly numbers. As a result, Staples now trades with a P/E of around 10 despite recessionary margins (that temporarily lower the "E" in P/E) and an operating history that suggests this company has a strong moat. For long-term investors, Staples may represent a very attractive buying opportunity at its current price, as it is likely to continue to generate strong free cash flow for years to come.
Read more...

Thursday, March 1, 2012

IFON No Longer Cheaper Than An iPhone

Just over a year ago, InfoSonics was discussed on this site as a potential value investment. The stock promptly rose in the ensuing couple of months, but then got absolutely annihilated in the 3rd quarter of last year when double-dip and sovereign default fears reigned over the market. The stock has now bounced back, and while it may still be undervalued, value investors may want to take some off the table in order to pursue today's best opportunities.

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