Thursday, May 31, 2012

The Magic Commtouch?

As discussed at ShadowStock, Commtouch (CTCH) has all the makings of a stock trading at a discount to its intrinsic value. The company trades for $65 million despite net cash of $22 million and net earnings of $16 million over just the last four years, resulting in an average ROE of about 20% over this period. Commtouch remains profitable, having earned another $1.2 million in its latest quarter.

Wednesday, May 30, 2012

Value Fail: Blonder Tongue

When I buy a company trading at a discount to its net current assets, I don't expect operational miracles; obviously, the company is trading at a discount for a reason. But ideally, a company is that not earning a decent return on its capital does not continue to invest and try to grow. In that respect, Blonder Tongue has become an investment of nightmarish proportions, forcing me to sell all my shares at a loss.

Tuesday, May 29, 2012

Xerox On Lexmark: Ahead Of The Pack, But Not Us

Both Xerox and Lexmark have been discussed on this site as potential value investments, and their stocks continue to languish. Investors looking to learn more about either or both companies should take a look at Xerox's latest conference call.

Monday, May 28, 2012

The Little Book That Builds Wealth: Chapter 14

Morningstar's equity research director authored this book on identifying companies with competitive advantages. Dorsey separates competitive advantages into four categories, providing a framework for understanding how wide a moat a company really has. The book is full of examples of companies Dorsey believes have moats, and the reasons why their moats are likely to last - or not!

Sunday, May 27, 2012

The Little Book That Builds Wealth: Chapter 13

Morningstar's equity research director authored this book on identifying companies with competitive advantages. Dorsey separates competitive advantages into four categories, providing a framework for understanding how wide a moat a company really has. The book is full of examples of companies Dorsey believes have moats, and the reasons why their moats are likely to last - or not!

Saturday, May 26, 2012

The Little Book That Builds Wealth: Chapter 12

Morningstar's equity research director authored this book on identifying companies with competitive advantages. Dorsey separates competitive advantages into four categories, providing a framework for understanding how wide a moat a company really has. The book is full of examples of companies Dorsey believes have moats, and the reasons why their moats are likely to last - or not!

Friday, May 25, 2012

Governing Appropriately

In a previous post, the potential pitfalls of investing in companies with poor corporate governance structures were discussed. But how can an investor protect himself? There are two basic ways. First of all, the investor can become knowledgeable about what makes for good corporate governance, and then study up on each company in which he is interested in order to make sure it follows practices in accordance with sound corporate governance. The second method is to take advantage of the information published by the companies that specialize in rating and reporting on the governance practices of public companies.

Thursday, May 24, 2012

Running Into A Duckwall

About a year ago, Duckwall-ALCO (DUCK) was discussed on this site as a high-risk, turn-around situation. Since then, the company's value has stabilized while it's price has fallen some 30%. As a result, it trades at a 50% discount to its net current assets and is therefore much more compelling from a value standpoint.

Wednesday, May 23, 2012

Mailbag: Transat A.T.

The idea that airlines make for lousy investments has been broached a number of times on this site. But what about a tour operator that trades for far less than its cash balance? Transat AT (TRZ) will be of interest to many value investors, thanks to its $190 million market cap versus its cash balance of $640 million. In addition, the company has more than $75 million (after write-downs) in ABCP! Furthermore, the company is generally profitable and free cash flow positive (though last year was an exception).

Tuesday, May 22, 2012

Paulson's Earnings Surprised Somebody

Paulson Capital has been brought up a few times on this site because of how cheaply it has traded relative to its current assets. Last week, shareholders were rewarded. Immediately following the company's earnings announcement, shares almost doubled; as a result, this company becomes the latest stock to move from the Stock Ideas to the Value In Action page.

This result re-enforces a number of lessons value investors should already know:

Monday, May 21, 2012

National Presto Continues To Fall

National Presto Industries (NPK) now trades with a P/E under 10, having dropped 50% of its share price in just the last year and a bit! Instead of discussing the company further, I'll point you to someone who has already done so at GuruFocus, but come back here when you're done because there are a couple of issues with that article that I want to dissect.

Done reading it? Okay good!

In my opinion

Sunday, May 20, 2012

The Little Book That Builds Wealth: Chapter 11

Morningstar's equity research director authored this book on identifying companies with competitive advantages. Dorsey separates competitive advantages into four categories, providing a framework for understanding how wide a moat a company really has. The book is full of examples of companies Dorsey believes have moats, and the reasons why their moats are likely to last - or not!

Saturday, May 19, 2012

The Little Book That Builds Wealth: Chapter 10

Morningstar's equity research director authored this book on identifying companies with competitive advantages. Dorsey separates competitive advantages into four categories, providing a framework for understanding how wide a moat a company really has. The book is full of examples of companies Dorsey believes have moats, and the reasons why their moats are likely to last - or not!

Friday, May 18, 2012

Mainstream vs Real Revenue Risk

The mainstream finance industry defines a company's riskiness by its stock price's volatility. For value investors, there is no such short cut; a company's riskiness is defined by a slew of factors that can affect the business. Previously, we have considered some items that can affect risk on the cost side. Today's post will discuss some items relevant to risk on the revenue side. The vast majority of analysts and investors are so focused on near-term results that they rarely think about these long-term business risks; investors who consider these are poised to generate better returns in the long-term.

Thursday, May 17, 2012

Harbinger, Spectrum Marriage Back In Spotlight

In late 2010, Harbinger Group was discussed on this site as a potential value play because its holdings in Spectrum Brands exceeded its market cap! The discount did converge somewhat in late 2011, but it has now widened to even higher levels; since that article in November of 2010, Spectrum's stock is up almost 20% while Harbinger has been practically flat.

Wednesday, May 16, 2012

Volatility Unrelated To Performance?

The mainstream finance industry equates price volatility with risk and believes the market to be efficient. That is, prices of stocks are fairly priced, and therefore the only way to generate higher returns is by taking more risk (i.e. buying stocks with higher volatilities).

Tuesday, May 15, 2012

Xerox Has Long-Term Value

Xerox (XRX) has a P/E ratio of 7 and a P/OCF ratio under 5. As a result, it trades under book value (!) despite an ROE greater than 10% and operating margins in the high single digits. Before you dismiss this company out of hand as a dinosaur, consider that this is not your father's Xerox. Just as we've recently seen how Dell is no longer the PC company you thought it was (and therefore may be undervalued as well), neither is Xerox the copier/printer maker of yesteryear. Today, Xerox derives the majority of its revenues and profits from the sale of services (business process, IT and document outsourcing).Read more...

Monday, May 14, 2012

Buying IVE For The Long Term

So you "get" value investing. You understand the concept of buying stocks when they are unloved and therefore cheap based on metrics such as P/E and P/B, as you realize that such stocks tend to outperform over time. But you don't have the time to constantly screen and then investigate the latest value ideas. So why not invest in an ETF like the S&P 500 Index Fund (IVE)? Read more...

Sunday, May 13, 2012

The Little Book That Builds Wealth: Chapter 9

Morningstar's equity research director authored this book on identifying companies with competitive advantages. Dorsey separates competitive advantages into four categories, providing a framework for understanding how wide a moat a company really has. The book is full of examples of companies Dorsey believes have moats, and the reasons why their moats are likely to last - or not!

Saturday, May 12, 2012

The Little Book That Builds Wealth: Chapter 8

Morningstar's equity research director authored this book on identifying companies with competitive advantages. Dorsey separates competitive advantages into four categories, providing a framework for understanding how wide a moat a company really has. The book is full of examples of companies Dorsey believes have moats, and the reasons why their moats are likely to last - or not!

Friday, May 11, 2012

Telus Something We WANT To Hear

Dual-class share structures have been discussed on this site as something to be wary of as a shareholder. But in what appears to be a role reversal, one management team recently tried to eliminate its dual-class share structure only to be thwarted by shareholders! The media has portrayed this saga a certain way: Telus Fights For Equality And World Peace (okay, I added the "World Peace" myself).

So you've got the antagonistic, profit-hungry hedge fund from New York ("Why, this stuff's made in NEW YORK CITY???") trying to block a local company's altruistic attempt at improving its corporate governance. But a closer examination of Telus tells us what's really happening.

Thursday, May 10, 2012

Clubbing With Energy

I know at least some of you have an interest in joining the Value Investors Club, because readers have periodically asked for my advice on how to join. I'm not a member, nor have I ever applied, but that doesn't mean I can't help!

Frequent commenter "aagold" informed me that he was accepted into the club yesterday, thanks to this write-up. Potential candidates should check it out (apply online)! Even for those not interested in joining the club, however, the write-up may still offer you a potential buying opportunity for your own portfolio.

Wednesday, May 9, 2012

InfoSonics: More Net-Net Asymmetry

InfoSonics has already shown up on this site on the Value In Action page, but its recent price action (as pointed out by a commenter on this post) demonstrates what it is we value investors love about stocks trading at discounts to their net current asset values.

Tuesday, May 8, 2012

GTSI Rockets Upward

Investors who frequent the value blogosphere will undoubtedly have seen GTSI Corp (GTSI) come up frequently as an undervalued stock. To my knowledge, it was first brought up at Frankly Speaking in 2010 (and subsequently appeared on that site a number of times), then discussed right here as a Stock Idea in May of 2011, subsequently showed up in a paid newsletter a week later, and finally was featured in August (in the first of many) over at Burger King Whopper Investments*.

Yesterday, the stock rocketed up almost 50% on a buyout offer, giving all of these guys something to cheer about.

Monday, May 7, 2012

What Leads To Our Overconfidence

In a previous post, we saw how humans appear to have an overconfidence bias, and how that can play havoc on financial forecast estimations. What is not immediately clear, however, is the increasing role overconfidence plays the more knowledge one acquires. That is, as expertise rises, so does overconfidence, resulting in the fact that the people with the most knowledge are likely to be the most miscalibrated, which can result in detrimental effects.

Sunday, May 6, 2012

The Little Book That Builds Wealth: Chapter 7

Morningstar's equity research director authored this book on identifying companies with competitive advantages. Dorsey separates competitive advantages into four categories, providing a framework for understanding how wide a moat a company really has. The book is full of examples of companies Dorsey believes have moats, and the reasons why their moats are likely to last - or not!

Saturday, May 5, 2012

The Little Book That Builds Wealth: Chapter 6

Morningstar's equity research director authored this book on identifying companies with competitive advantages. Dorsey separates competitive advantages into four categories, providing a framework for understanding how wide a moat a company really has. The book is full of examples of companies Dorsey believes have moats, and the reasons why their moats are likely to last - or not!

Friday, May 4, 2012

Why Are You Underperforming?

Since we know value investing works (e.g. low P/B and low P/E portfolios outperform), why might you, a value investor, be underperforming? In a fascinating series of posts, Greenbackd breaks down a paper that seeks to examine why different types of value investors underperform. For example,

Thursday, May 3, 2012

Oil Services: Up, Up And Away?

Isn't it crazy to avoid investing in oil stocks? After all, don't we all know that energy prices are going up in the long term? As large, developing countries continue to grow, demand for oil is sure to sky-rocket, right? Furthermore, as a non-renewable resource, the world's oil supplies reduce every single day. Unfortunately, these stories don't tell the whole tale, and the reasons for value investors to stay away from investing in commodities like energy have never been stronger.

Wednesday, May 2, 2012

Learning From A Random Outcome

Humans have the ability to learn from their mistakes. In so doing, they can reduce the likelihood of repeating such mistakes, which should theoretically lead to a better existence. Therefore, it should come as no surprise that investors wishing to improve their investing acumen will attempt post-mortems on their investment decisions in order to determine what went right and what went wrong. But as I attempted such a post-mortem on a risky investment that didn't pay off, a commenter made an interesting point:

Tuesday, May 1, 2012

The Reflexivity Of Goodwill

The question of how to treat Goodwill has confounded accountants and investors alike. Clearly, Goodwill has some value in most cases, but exactly how much it's worth is not known, and therefore how much of it should be reflected on the balance sheet is a difficult question to answer. A few years ago, a substantial change was made by the two global accounting authorities on how Goodwill is to be treated. As a result, changes in market prices can actually cause Goodwill writedowns, which can lower earnings and potentially cause further Goodwill writedowns as a result! Investors should be aware of this potential for a virtuous cycle of declining earnings and declining stock prices.

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