My five current stocks are up an aggregate of 11%, so if I started with 20k per stock, I would go with a bit over 22k per stock in the new tranche. While fout of the stocks are up, DLB is actually up because of their special dividend, so they would get sold early with NSU.
| 8/15/12 Stocks | Start | Current | Dividend | Pct Gain | R3K Gain |
| DLB | $34.43 | $33.45 | $4.00 | 8.8% | 18.0% |
| $13.98 | $18.74 | $0.00 | 34.0% | 18.0% | |
| $30.19 | $34.55 | $0.69 | 16.7% | 18.0% | |
| NSU | $3.62 | $2.95 | $0.12 | -15.1% | 18.0% |
| $19.96 | $22.07 | $0.00 | 10.5% | 18.0% | |
| Totals | 11.0% | 18.0% |
Now, I had a pretty thorough process to pick my stocks in May and I plan to do something similar. Let me first throw out some stocks that I am considering. Note many of these I already own. As long as it qualifies as an MFI stock, I feel it is eligible for the tranche. I am not trying to get all "new" stocks.
Pretty wide variety of stocks here. I tried to look for a retailer, but could not find one I liked. I did get a pharmaceutical (ABT) as well as a couple refiners (CVI and WNR). Over the next few days I will try to analyze each one. To shorten my analysis, I have pulled in what I have already said about several stocks on the list.
CF Industries
I wrote about this fertilizer in early May. Here is what I wrote:
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.
Seagate
STX - I think the obituary has been written on this company many times. While in some cases, technology does come along and render a company or industry obsolete (think Yellow Pages or Record Stores); many times the effect is greatly exaggerated (think GME, which has almost doubled from lows in 2012 or HR Block, which is also up hugely). Seagate of course makes disk drives. Computer sales are down and even the ones happening, there is a move to solid state drives (they are very snappy). But to the good, people still will need computers. One or two competitors have dropped out. And STX is much more than disk drive. In the past nine months, the amount of storage they have shipped has increased 33%. Now I know it is cheaper and disk drive are holding more, but this does not sound like an industry on it's deathbed. Also, they are a player in the SSD market and have options with 500 gb and one TB storage. Those undoubtedly have higher margins than hard drives. Let us look at a few financials, now that we have cast doubt on the rumors of STX going the way of the do-do bird.
Operating income for the year ending 6/30/12 was a nudge over $3b. That is most excellent. 2011 was 822m. I think you average the two as you had floods in Thailand cause a real shortage of hard drives and call it $1.9b. 2010 was 1.86b. Now this is a company with a $15b market cap. So operating income of $2b+ is pretty decent. In the past three quarters they have made $2.3b in operating income. So perhaps that $3b in 2012 is the more real run rate. Per my math, they have about $2b of excess cash. Toss in a 3.7% dividend and I am wondering why I did not jump on this stock in February when it was $34 instead of $41. Hmmm, I will say I am getting a list of stocks I think I will be pleased with. STX will certainly make the next cut.
Kulicke and Soffa Industries
KLIC - I think these guys are at the top for a reason. When I did the math, I frankly could not believe it. This is a company with a market cap of $872m and by my math they have almost $500 in excess cash. What does that mean? That means they could theoretically pay a $5 dividend per share and still have the same earnings stream going forward. They make the equipment to allow companies to make semi conductors. Over the past three years, their operating income has gone from 150m to 182m. Did I mention their market cap was only 872m and they have 500m of excess cash. Think about it, if you had $1b, you could (theoretically buy all their stock)... say $13 a share. You could immediately pay yourself a $5 per share dividend. Now you are only $8 per share out of pocket. Over the past three years they have average $2 per share in income. That is a 25% return per year on your $8. Pretty good, no? But we do not have to pay that premium, as small time investors, we can buy as much as we want for $11.39 a share. Then we wait for the big guys to figure it out. Now I know it is not that simple. There is a reason for the discount. They are only expected to earn 77 cents this year and 1.45 nect year. There is a cycle in CapEx spending. But when that spending starts to ramp back up, you would be sitting in proverbial catbird seat.
Changyou.com
CYOU - This is a Beijing online gaming company. They are owned in part by Sohu, who I am pretty darned confident is a legitimate company. I will check a few of the facts, but I think CYOU will pass the smell test. Hmm, having a little trouble pulling from Fidelity. Let us look at Yahoo. Revenues have grown sharply in past two years, from 354m to 623m. As you might expect, online gaming is a high margin business. Certainly you can get economies of scale. Their margins have interestingly declined in past three years from 63% to 56%. Still very good. The increase has come from Cost of Revenue increases (33m to 104m), not sure if this is advertising? Having to pay for servers etc? Also their research costs have increased. I get that as you always have to be developing new games and new versions. I calculate they have $350m of excess cash versus a $1.5b market cap (big company). They made about $15m in interest income, feels about right for 500m in cash. They did pay a special $3.80 dividend. That is a lot of cash, so I think we can be confident this is a legit company. They just announced 1st quarter figures, $1.45 per share. All I can say is wow. This is a stock under $30. They increased revenues 2% quarter over quarter and 30% year over year. It looks like they are saying Q2 will be pretty steady state with 1st quarter. These guys are just a cash machine. That is why I get an earnings yield of 26% (essentially inverse of P/E ratio with excess cash stripped out, which makes it a p/e around 4). I guess the concern (beside being a Chinese company) is the Moat. New games can come. But there is a learning curve on new games. You have friends and teams on games you know and love. I played a baseball online game for many years and enjoyed camaraderie... never looked at replacement games. I think I have to rank high as well. Maybe I will end up buying 5 Chinese stocks... (doubt it).
As I review my write ups of these four companies, I do not believe much has changed. Here are a few quick additional thoughts:
CF - Looking at their investor day write-up, an interesting point is that 70% of their cost structure is the price of natural gas. That is a lot of leverage. Right now NG is $3.57 in the US, so that gives CF a strong competitive advantage over fertilizer coming from other countries. Since I bought them in May, analyst estimates have decreased 4 to 5% for 2013 and 2014. Not sure if that is higher energy costs or lower fertilizer prices or something else. But still, they are looking at $22 to $25 per share in earnings over next two years. For a company that has $600m more in cash than debt, that makes them very cheap. CF will definitely be on my short list.
STX - since I wrote them up in early May, Jim Chanos has hinted he is shorting hard disc manufacturers. I guess the real question is with downturn in PC market, are there enough alternatives for them to make up lost $? I will say they are coming up with some neat products. I also note that cloud computing does require significnat investment in data storage. Finally, SSD are becoming more popular and I suspect they have a higher margin than hard drives. I think they will make the next round, though I am nervous being contrary to Chanos.
KLIC - as you can read above, I think KLIC really has a chance to explode. They are a clear takeover target, they have a ton of cash and if they implement a dividend I think the stock goes higher and finally, I think that CapEX spending will start to pick up again. I do own a lot of them (also in discretionary), so I will think a bit about diversification. Estimates have come a bit in past 60 days. But if they make $1.45 in 2014, the stock should trade 50% higher. Again, they make next round. It may be a difficult decision in August.
CYOU - This is an up and down stock. They dropped from 31.70 to 27.70 very quickly two weeks ago. They have largely bounced back. When I look over their financials, I just drool. A $30 stock, trading at under 5x forward earnings with a strong balance sheet. This stock could double and still be cheapish.
More to come!
Posts
No comments:
Post a Comment