Rounding Third And Headed For Home

I think I am coming down the home stretch in my analysis here.  Speaking of home stretch, with my being in Europe this is the first time in many years I did not watch the Derby.  Have not even looked to see how it went.  I hope it was exciting.  Went twice in my life, great fun.

Ticker	Rank	Date	Stock Price	Market Cap	Earnings Yield	ROIC	Yahoo Yield	Country
KLIC	1	5/4	11.39	872	44%	111%	0.0%	USA
SIMO	2	5/4	11.45	387	26%	117%	1.4%	Taiwan
LPS	3	5/4	28.09	2,392	13%	265%	1.5%	USA
USNA	4	5/4	56.73	789	14%	171%	0.0%	USA
STX	5	5/4	41.23	15,214	17%	102%	3.2%	Ireland
RGR	6	5/4	51.07	1,011	13%	145%	3.0%	USA
XLS	7	5/4	11.25	2,132	24%	83%	3.8%	USA
NVDA	8	5/4	13.87	8,627	14%	105%	1.1%	USA
EXPR	9	5/4	18.63	1,590	16%	90%	0.0%	USA
SAI	10	5/4	14.91	4,995	15%	98%	3.3%	USA
CA	11	5/4	27.73	12,562	10%	407%	3.7%	USA
AVG	12	5/4	16.83	919	10%	778%	0.0%	Netherlands
CF	13	5/4	184.00	11,702	25%	72%	0.9%	USA
UTHR	14	5/4	65.81	3,447	14%	93%	0.0%	USA

Okay, I have four to go. As a reminder, I think I have six stocks thus far making it to the next round: CPLA, RDA, CYOU, KLIC, STX and NVDA.  They all look attractive (of course they all do when you buy 'em!).

CA - Another stock I own.  Am I better to be blissful and ignorant?  I think not.  Let us see how they stack up.  Hmm, not looking good.  I have to say I am amazed at how many companies have balance sheets near zero (or below) when you back out goodwill.  I am not saying goodwill isn't worth something, it is just not something you can count on when the going gets tough.  CA has 12b in assets, of which $2.7b are the kind I really like, cash.  But $5.8b (a huge sum) are the kind I do not like, goodwill. Liabilities are $6.6b, so doing some mental math, the TBV is a bit below zero.  Everything else looks rock solid.  Very steady eddy with Op income, mid $400m every quarter.  That is the easy trap to fall into, just focusing on the income statement many companies look good.  But a strong balance sheet is the extra kicker I need.  I think what happened is in the "go-go" days of 2005-2007, there were a lot of mergers and acquisitions at substantially over book value.  That caused goodwill to pile up on these firms.  They have been using earnings to pay off the debt, but tangible balance sheets are still weak.  I will hold my CA as it is a hold one year stock, but not buying more. Too bad, so sad. I did like the dividend.

AVG - I knew without looking hard that this was not a US company.  They would never pick AVG for a ticker in the states.  Just like STD was a Spanish bank.  Wow,  these guys have a negative equity without even looking at goodwill (I guess I do not need to go Goodwill Hunting here).  This is probably a great company for a growth investor,  income and revenues increasing nicely.  Good niche, Software security. As a value investor, I just can't go there. Next.

CF - who doesn't like a good fertilizer play?  Actually, I used to own the company they bought, TRA I think (Terra Industries).  Sadly, I did not transfer to CF.  I sold on 2/16/09 for what (at that time) seemed like a nice 30%.  Since 2/16/09, CF has gone from $62 to $184.  Just a triple.  Okay, just winged through Balance Sheet.  They have about $6b of S/H equity with about $2b of GW.  So still $4b of TBV.  And they have $2b of excess cash with about a $12b market cap.  At least we have a stock that we can talk about further.  Let me say, I like this space.  People need to eat.  Farmers need fertilizer.  There are frankly not that many places to go, so there is a bit of pricing power. Also, they are pretty heavy users of energy, and natural gas is cheap, cheap, cheap.  That should help margins.  Looking at the stats above, they are exactly what I would have expected.  CF has one of the highest earnings yields, meaning it is cheap.  But has one of the (relatively) lower ROICs.  This is not really rocket science either as the Fertilizer business strikes me as being a bit capital intensive.  I think this used to be a bigger negative (lower ROICs) but with debt capital being the cheapest in a generation, companies with lower ROEs, but decent EYs can be very attractive.  I am convinced that was one reason Warren Buffet is buying more capital intensive businesses like utilities and Burlington Northern.  Operating income for CF has run just over $3b a year for past two years.  In 2010 it was lower, at $1.4b.  Not sure why has gone up, perhaps they have increased production or else it is possible Fertilizer prices have risen.  But I have to believe that is here to stay.  I know corn prices have gone up a lot in past couple of years.  I think CF is very interesting.  They are covered by 21 analysts who essentially see earnings in the $25 range for next two years.  So not a growth industry, but one that is making money and is not outrageously expensive. They have had $2b of positive cash flow each of past two years as well.

UTHR - okay, I had to have some sort of pharmaceutical on the list.  These guys are trading just a few sheckels below all-time high.  They have a $3.4b market cap.  Do they pass my first screen? Sweet! This is the kind of balance sheet I like.  Essentially no goodwill. over $650m of excess cash versus a $3.4b market cap.  Looking at income, it has really ramped up over three years and interestingly, it has virtually all dropped to operating income.

• Revenue: 916/743/604 (for 12/11/10)
• Op Income: 456/383/183

I guess that is good.  As long as they are putting appropriate amounts into R&D.  Very steady, about 175m per year.  First quarter 2013 was on par, op income around $100m.  They did seem to have a spike in operating expenses.  G&A was 122, versus $368 for all of 2012.  Makes you wonder if that is a higher run rate or whether it was more one-time (like bonuses).  I think I will not have UTHR on my next cut.  Ii am always a little nervous about pharmaceuticals as they can have patent cliffs.  I have tried to see if that is the case for UTHR and what their drug pipeline is, but have not found anything.  If someone has a good reason for them to make the next round, you know where to put your comment... and I mean that in a good way.

So we have CPLA, RDA, CYOU, NVDA, STX, KLIC and CF going to next round, where two may get the axe.  I am considering making STX a dividend stock and having it replace SAI.  That may make the final cut easier.