Tag Archives: stock

France is downgraded

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I have forecasted this a few months ago that France will be downgraded eventually. Last weekend, it happened where S&P downgraded France with other 9 EU countries. Interesting, the market did not crash! Today, Asia dropped a little, but Europe stock still shows some strength.

To me, it shows market has predicted this long time and prepared for it. Also market has prepared for the EU to go even worse in the future. On the contrary, if EU does not go worse, the rebound will be tremendous.

It is time to end of short position, and hold the cash for now… March! let’s wait to see.

ZT: The 4 Questions to Ask Before Buying a Stock

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In your recent article you wrote:

“Intrinsic value is a guess. Buying is the belief. You don’t need to use a lot of math to prove exactly what something is worth. You just need to present a convincing case for buying it.” Interesting observation. I’ve seen a few YouTube vids with Bill Ackman in them. The interviewers have sometimes pressed him for what he thinks a stock is worth. He never gives a numerical answer. I get the distinct impression that he never has a definite intrinsic value X

when he buys a stock; only that a stock is “clearly undervalued” at a current price. As Ben Graham would say: you don’t have to know a man’s weight to know that he is fat.

 

I think there are really 4 questions you answer before buying any stock:

  • Is it safe?
  • Is it a great business?
  • Am I getting a great price?
  • Can I hold this stock for as long as it takes?

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On World Wresting Entertainment

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Tihs US stock caught my eyes due to its extremely high dividend at 10% per year in last 2-3 years. It is very unusual even a few analysts are recommending this stock due to the dividend ratio. WWE has low debt, stable cash flow. but its dividend payout ratio is at 192% for 2010! This is definitely not a growing stock to own. The EPS will be around 0.65 per year. I believe the management is in difficult grow the business, but stretching to maintain the dividend payout.

Anyway, I do not like the business of wresting, so this stock is not in my watch list.

Market sentiment

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Market sentiment is extremely bullish, and it almost reaches 10 years high and exceed 2007. This is the signal of market top. I’d be very careful on the stock I am holding. They are in profit, and I will need to protect such profit, and wait for market correct to load more.

ZT: Beginners’ Guide to Financial Statements

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Originally from SEC.GOV…

The Basics

If you can read a nutrition label or a baseball box score, you can learn to read basic financial statements. If you can follow a recipe or apply for a loan, you can learn basic accounting. The basics aren’t difficult and they aren’t rocket science.

This brochure is designed to help you gain a basic understanding of how to read financial statements. Just as a CPR class teaches you how to perform the basics of cardiac pulmonary resuscitation, this brochure will explain how to read the basic parts of a financial statement. It will not train you to be an accountant (just as a CPR course will not make you a cardiac doctor), but it should give you the confidence to be able to look at a set of financial statements and make sense of them.

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ZT: How to invest: Research and Valuation Process

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Originally from “old school value”, all the credits belong to original author.

Here is the process I follow which is rooted in the Graham and Dodd approach:

Search

I usually scan for ideas reading print media such as the Wall Street Journal, Barrons, and websites such as Google Finance and blogs looking at 52-wk lows lists looking for headlines that just spell “bad news” and articles that may lead to ideas with catalysts, event driven ideas and sometimes macro-event driven ideas.

I’ll use screens if I don’t find anything in the headlines. If something peeks my interest a bit, I’ll try to gather more news and get an idea as to what is happening with the company, look at historical highlights, pull some efficiency, liquidity ratios and some basic numbers to look for consistency and I’ll think about the risks to the current situation a company is in and decide if I could potentially profit off the situation.

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Purchased old school valuation spreadsheet

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I have been following old school value website for more than a year to study his valuation approach for company. It is really solid way to improve personal confidence in investment.

Moving to 2011, I also invested USD 107 (promotion price) in purchasing his valuation toolkit (the spreadsheet) to help myself study US stocks more quickly.

In the last a few days, I have been spending roughly 1-2 hours per counter to calculate the intrinsic value. Honestly, it is not easy and error-prone. Hopefully the spreadsheet from old-school-value will help.

Keep very close eye on LMT

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For following reasons, I am keeping very close eye on lockheed martin (NYSE:LMT).

  • The largest manufacture in US defense industry
  • Price close to 52 week low (67.68 reached on Dec 3 2010)
  • Price has been consolidating around 70 for 4 months
  • LMT has been re-purchasing his stock from open market consistently in 2010, repurchasing 3.6 million shares at a cost of $268 million in the quarter (avg 74 per share) and 19.8 million shares at a cost of $1.6 billion for the year-to-date period (avg 80 per share)
  • Risk will be low if entering price is below than 70, because the lowest price in Mar 2009 was 57.3, and the dividend payout has been increased from 57c/quarter (Q1 09) to 75c/quater (Q4 10), so just based on dividend payout, the equivalent price@crisis now should be around 75.
  • Compare with all his industry peers (GD, UTX etc.), the PE is the lowest.
  • Debt is relatively, cash rich (2.7 billion), and steady cash flow
  • New F35 jet flight will trigger tremendous incomes in the coming 10 years
  • Valuation based on DCF is 128 (wikiwealth), or 124 (valuecruncher).
  • My own valuation: 78.4 is a fair value
    • 15% discounted DCF: IV=91.52 (40%)
    • 30% discount (margin of safety): IV= 95.7*0.7=67 (40%)
      • 20% ROI, discounted EPS: IV=59.28 (20%)
      • 16% ROI, discounted EPS: IV=83.2 (30%)
      • 12% ROI, discounted EPS: IV=118.18 (50%)
    • 52 week high low: IV=75.48 (20%)

It will be safe to load at current price, and prepare to fire very soon.