I wanted to title this post FairTax and Medical Costs, but thought I would refrain from setting off another firestorm!
Anyway, a friend of mine, who is President of a medical devices company sent me the following article. I would say that the author is fairly well respected.
Read it and pause to think about how the FairTax (or any other alternate method to Withholding) could benefit the healthcare system:
http://www.hoover.org/publications/digest/3459466.html (Note: I just linked the first link that came up using Google.)
When government intervenes, and one of its main ways to do so is by manipulating the tax code, bad things often happen. And as we've seen previously on 2outof4, easy money (when the payor does not have to consider the cost) leads to higher prices.
The idea of a combination medical savings account and high deductible/big ticket insurance plan seems like an intelligent answer to me.
-2outof4
Wednesday, July 29, 2009
Stock Interest List Update
2Q earnings season has been an interesting one so far. More companies than usual have exceeded analysts' earnings expectations, but that has not necessarily led to soaring share prices. They soared before the earnings reports in many cases and estimates had been reduced significantly across most companies and industries! Overall, I am still pessimistic on the consumer and the economy in general, but as always, think there are some interesting individual stock ideas out there.
I'm sorry I never put ANN on the Buy Interest List. At 2x EV/EBITDA the market was suggesting death, but it had a fair amount of net cash and a saveable brand. Add in a Goldman Sachs upgrade and it has been off to the races. Hopefully, we find more like it, and you offer up some possibilities!
SPTN - reported its 1Q09 last night. I don't think anything surprising came out of the call, but the stock was off almost 15% today, making it about flat from when it first went on the Buy Interest List. The company said that the next 12 to 18 months would be tough for the customer base (remember, Michigan grocery stores) and that the comparable store sales figure for the year would be down in the low single digit range.
Meanwhile trailing twelve month (TTM) return on invested capital was solid and Free Cash Flow (FCF) generation improved year-over-year. For 4.6x Enterprise Value to EBITDA (EV/EBITDA) and 8.0x earnings, I think Michigan going further into the toilet seems discounted into the share price. SPTN will remain on the Buy Interest List.
PETS - reported its 1Q09 on Monday and surprisingly it seemed to work through its inventory issue at the end of the year, as the Company said they would. Operating margin increased and cash flow improved.
Despite the model having no sustainable advantage and there existing several websites that have better prices on the same goods, PETS has maintained its P&L. New order growth dropped from double digit growth the last three quarters to 5% growth this quarter, but reorder growth remained pretty constant in the low teens.
I will give it one more quarter, but PETS is becoming a prime candidate for removal from the Short Interest List.
One more note, it does look as though 20% of the shares outstanding are shorted, which is fairly high, and can often make shorting painful if the fundamentals of the Company's business are still positive. A high percentage short can often lead to painful "short squeezes", when the people who are short have to buy shares (adding to the rise in price) because they no longer want to be short the stock.
-2outof4
I'm sorry I never put ANN on the Buy Interest List. At 2x EV/EBITDA the market was suggesting death, but it had a fair amount of net cash and a saveable brand. Add in a Goldman Sachs upgrade and it has been off to the races. Hopefully, we find more like it, and you offer up some possibilities!
SPTN - reported its 1Q09 last night. I don't think anything surprising came out of the call, but the stock was off almost 15% today, making it about flat from when it first went on the Buy Interest List. The company said that the next 12 to 18 months would be tough for the customer base (remember, Michigan grocery stores) and that the comparable store sales figure for the year would be down in the low single digit range.
Meanwhile trailing twelve month (TTM) return on invested capital was solid and Free Cash Flow (FCF) generation improved year-over-year. For 4.6x Enterprise Value to EBITDA (EV/EBITDA) and 8.0x earnings, I think Michigan going further into the toilet seems discounted into the share price. SPTN will remain on the Buy Interest List.
PETS - reported its 1Q09 on Monday and surprisingly it seemed to work through its inventory issue at the end of the year, as the Company said they would. Operating margin increased and cash flow improved.
Despite the model having no sustainable advantage and there existing several websites that have better prices on the same goods, PETS has maintained its P&L. New order growth dropped from double digit growth the last three quarters to 5% growth this quarter, but reorder growth remained pretty constant in the low teens.
I will give it one more quarter, but PETS is becoming a prime candidate for removal from the Short Interest List.
One more note, it does look as though 20% of the shares outstanding are shorted, which is fairly high, and can often make shorting painful if the fundamentals of the Company's business are still positive. A high percentage short can often lead to painful "short squeezes", when the people who are short have to buy shares (adding to the rise in price) because they no longer want to be short the stock.
-2outof4
Sunday, July 26, 2009
Seems Fairer to Me
Rarely does one read something and think that if we as a country follow the plan outlined that life really could change for the better and for everyone.
I am grateful to have been alerted to this book, 'The FairTax Book: Saying Goodbye to the Income Tax and the IRS' by Neal Boortz and Congressman John Linder:
http://www.amazon.com/FairTax-Book-Neal-Boortz/dp/0060875410/ref=sr_1_1?ie=UTF8&qid=1248633491&sr=8-1
The book is simply a must read for every American, supporter of personal freedom, denouncer of inefficient bureaucracy and loather of political manipulation and special interest power. Read this book and you will have a new view on how we as a people are taxed and controlled.
The authors did a good job of keeping the book easy to understand and quick to read, just like the FairTax Bill they support before congress (HR 25 before the House). I literally could not put the book down.
Prior to reading this book my general view on taxation was that I would gladly "pay my share" to support the government that takes up for the underprivileged and supplies the goods and services that private enterprise never would (parks, clean drinking water, etc.). Upon reflection though, and the book provides a great brief history of our withholding tax system, our current system and how every one of us who pays tax is manipulated by that system is abominable.
Simply put I do not believe that our current withholding system is the best revenue collection mechanism for our country. It has the unintended consequence of increasing the price of American goods and making those goods and services less competitive with lower tax nations. The current system breeds inefficiency everywhere. There are trillions held offshore just to avoid tax. There are further billions spent on avoiding paying tax. Yet for those of us who do actually pay into the system, the government can increase the rate whenever they cannot figure out how to efficiently solve for the monetary requirement of our ever-growing government programs. It is not fair and our current system is not "progressive". It progressively taxes the middle class more!
The guys on the high end can hide their money. The withholding system hurts people like me, people who are in the middle class and end up paying the difference in what the government needs and what the high end people can afford to avoid and the low end people do not provide.
This post does not need to be a place to rehash all the mechanisms of the FairTax. Here are a couple of good sites in terms of background and explanation: www.fairtax.org and http://en.wikipedia.org/wiki/FairTax. I would prefer 2outof 4 to be a discussion and question forum to hash out the positives and negatives of the FairTax.
In short though, the FairTax repeals all Federal payroll, income, social security, medicare, dividend, capital gains, interest, and inheritance tax. It replaces these taxes (which are mostly withheld from gross earned income in your paycheck) with a consumption tax of 23% on all goods and services at the retail level. The proponents contend that the FairTax will be "revenue neutral" for the government. However the book suggests that 15 of the last 16 quarters (at the time of writing) would have produced more revenue under the FairTax than under the current system.
There is also a monthly "prebate" paid to each household based on national poverty line standards in order for every household to pay for its basic necessities without paying the 23% tax. So this eliminates the argument that this is a regressive tax.
No tax on labor or capital should lead to businesses relocating factories to America. As a positive externality of this kind of relocation of capital back to our shores, proponents of the FairTax suggest GDP will double in 15 years. That implies the tax base will also grow.
It is difficult to succinctly say what I want to say about the FairTax. From 2outof4's perspective, the point that speaks most loudly is that with the FairTax comes the repeal of the "political class's" ability to control mine and your hard earned income.
The FairTax is fair. It does not try to pick winners and losers among industries. The way government can pick winners and losers is through the current banal tax code by various incentives and breaks. I believe in fair playing field and letting the best enterprise win. Our current tax code panders to people who know how to manipulate the system and the code.
My reading of The FairTax Book is that not only will we become more efficient and productive as a society we will all be able to build wealth faster under the FairTax. We will all keep more of our pay checks and then not be taxed on the growth of any of those dollars put toward investments.
Greater employment, more money, less power in the hands of special interests and politicians. What more can we ask for from our tax code?
I've prattled on enough here, but open it up to you for questions and comments. I also ask that you explore the FairTax further, as I will. I know that one of the fears of such radical change is the possible unintended consequences of the FairTax. Let's hear what some of those might be, and see if we can find a way to deal with them.
Please read this book. I believe that the politician or party that decides to take the FairTax to the next level will be the leaders of a potentially great American Revolution - a real revolution. Regardless, getting out from under the oppression of the current withholding system is a necessity for continued prosperity!
-2outof4
I am grateful to have been alerted to this book, 'The FairTax Book: Saying Goodbye to the Income Tax and the IRS' by Neal Boortz and Congressman John Linder:
http://www.amazon.com/FairTax-Book-Neal-Boortz/dp/0060875410/ref=sr_1_1?ie=UTF8&qid=1248633491&sr=8-1
The book is simply a must read for every American, supporter of personal freedom, denouncer of inefficient bureaucracy and loather of political manipulation and special interest power. Read this book and you will have a new view on how we as a people are taxed and controlled.
The authors did a good job of keeping the book easy to understand and quick to read, just like the FairTax Bill they support before congress (HR 25 before the House). I literally could not put the book down.
Prior to reading this book my general view on taxation was that I would gladly "pay my share" to support the government that takes up for the underprivileged and supplies the goods and services that private enterprise never would (parks, clean drinking water, etc.). Upon reflection though, and the book provides a great brief history of our withholding tax system, our current system and how every one of us who pays tax is manipulated by that system is abominable.
Simply put I do not believe that our current withholding system is the best revenue collection mechanism for our country. It has the unintended consequence of increasing the price of American goods and making those goods and services less competitive with lower tax nations. The current system breeds inefficiency everywhere. There are trillions held offshore just to avoid tax. There are further billions spent on avoiding paying tax. Yet for those of us who do actually pay into the system, the government can increase the rate whenever they cannot figure out how to efficiently solve for the monetary requirement of our ever-growing government programs. It is not fair and our current system is not "progressive". It progressively taxes the middle class more!
The guys on the high end can hide their money. The withholding system hurts people like me, people who are in the middle class and end up paying the difference in what the government needs and what the high end people can afford to avoid and the low end people do not provide.
This post does not need to be a place to rehash all the mechanisms of the FairTax. Here are a couple of good sites in terms of background and explanation: www.fairtax.org and http://en.wikipedia.org/wiki/FairTax. I would prefer 2outof 4 to be a discussion and question forum to hash out the positives and negatives of the FairTax.
In short though, the FairTax repeals all Federal payroll, income, social security, medicare, dividend, capital gains, interest, and inheritance tax. It replaces these taxes (which are mostly withheld from gross earned income in your paycheck) with a consumption tax of 23% on all goods and services at the retail level. The proponents contend that the FairTax will be "revenue neutral" for the government. However the book suggests that 15 of the last 16 quarters (at the time of writing) would have produced more revenue under the FairTax than under the current system.
There is also a monthly "prebate" paid to each household based on national poverty line standards in order for every household to pay for its basic necessities without paying the 23% tax. So this eliminates the argument that this is a regressive tax.
No tax on labor or capital should lead to businesses relocating factories to America. As a positive externality of this kind of relocation of capital back to our shores, proponents of the FairTax suggest GDP will double in 15 years. That implies the tax base will also grow.
It is difficult to succinctly say what I want to say about the FairTax. From 2outof4's perspective, the point that speaks most loudly is that with the FairTax comes the repeal of the "political class's" ability to control mine and your hard earned income.
The FairTax is fair. It does not try to pick winners and losers among industries. The way government can pick winners and losers is through the current banal tax code by various incentives and breaks. I believe in fair playing field and letting the best enterprise win. Our current tax code panders to people who know how to manipulate the system and the code.
My reading of The FairTax Book is that not only will we become more efficient and productive as a society we will all be able to build wealth faster under the FairTax. We will all keep more of our pay checks and then not be taxed on the growth of any of those dollars put toward investments.
Greater employment, more money, less power in the hands of special interests and politicians. What more can we ask for from our tax code?
I've prattled on enough here, but open it up to you for questions and comments. I also ask that you explore the FairTax further, as I will. I know that one of the fears of such radical change is the possible unintended consequences of the FairTax. Let's hear what some of those might be, and see if we can find a way to deal with them.
Please read this book. I believe that the politician or party that decides to take the FairTax to the next level will be the leaders of a potentially great American Revolution - a real revolution. Regardless, getting out from under the oppression of the current withholding system is a necessity for continued prosperity!
-2outof4
Friday, July 17, 2009
Thin Margin for Error in the Senate
Common sense seems to have prevailed this time:
http://www.nytimes.com/2009/07/17/business/17union.html?_r=1&partner=rss&emc=rss
Enjoy the weekend!
-2outof4
http://www.nytimes.com/2009/07/17/business/17union.html?_r=1&partner=rss&emc=rss
Enjoy the weekend!
-2outof4
Sunday, July 12, 2009
More Net-Nets
A couple of months ago I posted regarding the value investing concept of a net-net (http://2outof4.blogspot.com/2009/03/net-nets-and-more.html). The Company that I highlighted in the post turned out to have been an interesting candidate for further work. So I wanted to throw out a couple of more this afternoon.
By definition these investments are very speculative and I would not put them on the Interest List per se, but that does not mean they should not be on your personal interest list.
The first one comes from a future Hedge Fund manager based in the Pacific Northwest. It is a leveraged play on the price of gas. TravelCenters of America LLC (ticker: TA) operates travel centers primarily along America's highways.
Not only are TA's current assets less total liabilities plus 35% of Plant, Property, and Equipment (PPE) equal to 59% more than TA's current market value, but its net cash (Cash less Total Debt) is almost doubt the current market value. What does that all mean? - either inventory is overpriced or the value of TA's property is overstated on the balance sheet. However, the Company only keeps three days worth of fuel product on balance sheet and its hard to believe the real estate has no value.
There may be some legacy issues with corporate structure as well. However, as my friend in the Northwest posits, if TA experiences a tick up in its fuel margins and can earn even half a percent of net income margin, this stock is significantly undervalued. At half a percent on last year's sales total, the Company would be trading at 1x earnings!
Does anyone out there have any insight as to why TA has traded so low and looks like such a potential bargain?
Imation Corporation (ticker: IMN) is a little easier to understand why it is priced for bankruptcy. Its main businesses are involved in deadly price competition in dying markets. However, there may still be value in IMN with current assets less total liabilities amounting to $395 million compared to market value of $293 million or 35% more.
If one ignores IMN's Flash business and Electronic Products business, and just focus on the magnetic tape business and CD business, one calculates a normalized PE ([Enterprise Value divided by sales]divided by a net income margin of 2%) of 5.7x. Yes, these businesses are declining but still necessary and IMN has effectively consolidated the category into leading global market shares. The Flash business is priced as competitively as DRAM and therefore I attribute no value to it. So, if IMN can turnaround Electronic Products and generate a profit there, that business is all upside.
At its current valuation, the market is predicting bankruptcy and I'm not convinced that is a given!
-2outof4
By definition these investments are very speculative and I would not put them on the Interest List per se, but that does not mean they should not be on your personal interest list.
The first one comes from a future Hedge Fund manager based in the Pacific Northwest. It is a leveraged play on the price of gas. TravelCenters of America LLC (ticker: TA) operates travel centers primarily along America's highways.
Not only are TA's current assets less total liabilities plus 35% of Plant, Property, and Equipment (PPE) equal to 59% more than TA's current market value, but its net cash (Cash less Total Debt) is almost doubt the current market value. What does that all mean? - either inventory is overpriced or the value of TA's property is overstated on the balance sheet. However, the Company only keeps three days worth of fuel product on balance sheet and its hard to believe the real estate has no value.
There may be some legacy issues with corporate structure as well. However, as my friend in the Northwest posits, if TA experiences a tick up in its fuel margins and can earn even half a percent of net income margin, this stock is significantly undervalued. At half a percent on last year's sales total, the Company would be trading at 1x earnings!
Does anyone out there have any insight as to why TA has traded so low and looks like such a potential bargain?
Imation Corporation (ticker: IMN) is a little easier to understand why it is priced for bankruptcy. Its main businesses are involved in deadly price competition in dying markets. However, there may still be value in IMN with current assets less total liabilities amounting to $395 million compared to market value of $293 million or 35% more.
If one ignores IMN's Flash business and Electronic Products business, and just focus on the magnetic tape business and CD business, one calculates a normalized PE ([Enterprise Value divided by sales]divided by a net income margin of 2%) of 5.7x. Yes, these businesses are declining but still necessary and IMN has effectively consolidated the category into leading global market shares. The Flash business is priced as competitively as DRAM and therefore I attribute no value to it. So, if IMN can turnaround Electronic Products and generate a profit there, that business is all upside.
At its current valuation, the market is predicting bankruptcy and I'm not convinced that is a given!
-2outof4
Regulation in Commodities Trading Markets
A big question recently has centered around the limiting of "speculators" on commodities trading. Essentially, the question is whether the Commodity Futures Trading Commission (CFTC) should put position limits on "non-commercial" (those not using futures to protect actual positions in the underlying commodity) entities speculating on various energy prices through the Futures market.
This is a Bloomberg article explaining the questions facing the CFTC Chairman and Congress this week:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ayPFPSDPLyTw
I understand the argument that so-called speculation drives up prices of a commodity (oil) that we all desperately depend on and that the common man is indeed affected by the increase in price of oil, so therefore the speculation should be limited.
However, the thing I found interesting from this article in Barron's over the weekend was that it suggests Commodity Index Traders (CITs) somehow skirted the designation of "non-commercial" and the author suggests these players are where the excess volume is coming from because they are essentially "buy only funds". Although I did not find a great definition of CIT, I assume these are the buyers of contracts that make up things like the USO (ETF advertised to mimic the price movement of oil) and UNG (ETF advertised to mimic the price movement of natural gas). Thus "Buy Only" because products like the aforementioned ETF's have only been growing in size.
http://online.barrons.com/article/SB124727509296426335.html#mod=BOL_hps_mag
My conclusion is that although I see that these funds are likely responsible for some of the move up in commodity prices at certain times, I would not want to limit your's or my access to such products. There are very real reasons that we would want to have direct exposure to oil or nat gas rather than doing so by investments in individual oil and nat gas related companies. It seems like our government resources would be better used in areas where markets will not sort things out.
At the end of the day $147 a barrel of oil last summer was likely excessive, but did the market correct to something closer to fair value? The answer is yes. And don't speculation and speculative bubbles provide you with tomorrow's next big opportunity? The effort at futures market regulation comes off as simple political posturing and a waste of resources.
Thanks to another local victim of graduate school summer internship programs for sending me the original Bloomie article
-2outof4
This is a Bloomberg article explaining the questions facing the CFTC Chairman and Congress this week:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ayPFPSDPLyTw
I understand the argument that so-called speculation drives up prices of a commodity (oil) that we all desperately depend on and that the common man is indeed affected by the increase in price of oil, so therefore the speculation should be limited.
However, the thing I found interesting from this article in Barron's over the weekend was that it suggests Commodity Index Traders (CITs) somehow skirted the designation of "non-commercial" and the author suggests these players are where the excess volume is coming from because they are essentially "buy only funds". Although I did not find a great definition of CIT, I assume these are the buyers of contracts that make up things like the USO (ETF advertised to mimic the price movement of oil) and UNG (ETF advertised to mimic the price movement of natural gas). Thus "Buy Only" because products like the aforementioned ETF's have only been growing in size.
http://online.barrons.com/article/SB124727509296426335.html#mod=BOL_hps_mag
My conclusion is that although I see that these funds are likely responsible for some of the move up in commodity prices at certain times, I would not want to limit your's or my access to such products. There are very real reasons that we would want to have direct exposure to oil or nat gas rather than doing so by investments in individual oil and nat gas related companies. It seems like our government resources would be better used in areas where markets will not sort things out.
At the end of the day $147 a barrel of oil last summer was likely excessive, but did the market correct to something closer to fair value? The answer is yes. And don't speculation and speculative bubbles provide you with tomorrow's next big opportunity? The effort at futures market regulation comes off as simple political posturing and a waste of resources.
Thanks to another local victim of graduate school summer internship programs for sending me the original Bloomie article
-2outof4
Stock Interest List Update
In this time of flux and lack of clarity in the directional pull of the stock market 2outof4 asks more than ever for its readers to offer up their ideas for the Stock Interest List. Surely reader interaction can provide more interesting ideas and dialogue than one man alone. You are encouraged to speak up and let your ideas be tested!
The following idea is interesting to me because Wall Street does not seem to follow the Company. Despite a couple of large mutual funds having greater than 10% positions in the firm, the eponymous CEO does not seem to have more than a 0.76% stake in the Company. So besides being a small cap, I'm at a loss as to why the Company is so under followed. Any information is welcome, as always.
The Cato Corporation (ticker: CTR) is a 1,330 store retailer of value-oriented (2outof4's kind of clothier) women's apparel under the storefronts "Cato" and "It's Fashion". The stores are located in 32 states and from the geographies that I am familiar with it seems like the stores are located near "smaller" cities and near interstate highways. Although, it does look like there is a sizable presence near Dallas and Houston http://www.catofashions.com/locator_results.cfm?state=TX&type=Cato. I may have to rely on the inlaws for some more field research!
In my view the sales growth, same store sales growth an store growth have been reasonable over time, but at a much lower pace the last couple of years. So I do not have a strong sense of what the growth plan looks like, but one service I have access to suggests FY10 sales estimates (whose estimates, I have no idea) of over $880 million from $845.7 million in FY08.
Clearly, it is not growth that attracts me to this Company/Stock. However, the returns on invested capital by CTR are in excess of 50%. Average net income margin for the last 10 years, adjusted for the two best years is 4.9% and there is a ton of cash on the balance sheet, which CTR can either use to grow or return to shareholders.
When one constructs a price to earnings ratio (P/E) using Enterprise Value (market cap plus net debt) divided by sales (EV/S) as the numerator and 10 year average Net Income Margin as the denominator, one calculates a trailing twelve month (TTM) P/E of just 8.0x (0.39/0.049). That seems reasonable for a business that should theoretically benefit for consumers looking for bargains.
At 5.6x trailing twelve month's EV/EBITDA there is also quite a high margin of safety in place because of CTR's strong cash generation. I can apply the average 10 year free cash flow (FCF) as a starting point to a discounted cash flow model, apply zero growth and a 12% weighted average cost of capital (WACC) and still have slight upside to today’s share price. By the way, plugging in last year's FCF to the same model gives one 30% upside to today's share price.
So what is the catch? Is the stock just under followed and therefore undervalued in today's market or is there something that we do not know about that makes CTR reasonably valued. I do not have the answers. But based on prior operating performance, the fact the retailer serves a need in today's economy, and attractive valuation characteristics and cash flow, CTR is added to the Long Interest List. A thorough reading of past SEC filings is my suggested way of understanding wher ethe Company has been and where it wants to go in the future.
As always, thoughts and comments are welcome.
-2outof4
The following idea is interesting to me because Wall Street does not seem to follow the Company. Despite a couple of large mutual funds having greater than 10% positions in the firm, the eponymous CEO does not seem to have more than a 0.76% stake in the Company. So besides being a small cap, I'm at a loss as to why the Company is so under followed. Any information is welcome, as always.
The Cato Corporation (ticker: CTR) is a 1,330 store retailer of value-oriented (2outof4's kind of clothier) women's apparel under the storefronts "Cato" and "It's Fashion". The stores are located in 32 states and from the geographies that I am familiar with it seems like the stores are located near "smaller" cities and near interstate highways. Although, it does look like there is a sizable presence near Dallas and Houston http://www.catofashions.com/locator_results.cfm?state=TX&type=Cato. I may have to rely on the inlaws for some more field research!
In my view the sales growth, same store sales growth an store growth have been reasonable over time, but at a much lower pace the last couple of years. So I do not have a strong sense of what the growth plan looks like, but one service I have access to suggests FY10 sales estimates (whose estimates, I have no idea) of over $880 million from $845.7 million in FY08.
Clearly, it is not growth that attracts me to this Company/Stock. However, the returns on invested capital by CTR are in excess of 50%. Average net income margin for the last 10 years, adjusted for the two best years is 4.9% and there is a ton of cash on the balance sheet, which CTR can either use to grow or return to shareholders.
When one constructs a price to earnings ratio (P/E) using Enterprise Value (market cap plus net debt) divided by sales (EV/S) as the numerator and 10 year average Net Income Margin as the denominator, one calculates a trailing twelve month (TTM) P/E of just 8.0x (0.39/0.049). That seems reasonable for a business that should theoretically benefit for consumers looking for bargains.
At 5.6x trailing twelve month's EV/EBITDA there is also quite a high margin of safety in place because of CTR's strong cash generation. I can apply the average 10 year free cash flow (FCF) as a starting point to a discounted cash flow model, apply zero growth and a 12% weighted average cost of capital (WACC) and still have slight upside to today’s share price. By the way, plugging in last year's FCF to the same model gives one 30% upside to today's share price.
So what is the catch? Is the stock just under followed and therefore undervalued in today's market or is there something that we do not know about that makes CTR reasonably valued. I do not have the answers. But based on prior operating performance, the fact the retailer serves a need in today's economy, and attractive valuation characteristics and cash flow, CTR is added to the Long Interest List. A thorough reading of past SEC filings is my suggested way of understanding wher ethe Company has been and where it wants to go in the future.
As always, thoughts and comments are welcome.
-2outof4
Saturday, July 11, 2009
Stock Interest List Update
TSCO - preannounced positive earnings guidance on Wednesday for 2Q09. The Company suggested its earnings per share (EPS) would come in at $1.48-$1.50 for the quarter versus consensus of $1.28.
In its press release TSCO CEO, Jim Wright, mentioned that gross margins expanded during the quarter net of advertising because of a program to discontinue TV advertising and focus on more direct marketing campaigns. He also said TSCO was able to increase comparable store transactions by 460 basis points during the quarter.
That transaction increase came as no surprise to myself nor my inlaws, who did some field research for me, on the ground in Texas and Indy. TSCO makes a good ball cap too!
TSCO's stock price has risen 27.60% since the original posting compared to the S&P 500 increase of 1.21%. The Company still appears interesting based on its forecasted and steady growth rate, my store checks on feed sales, and cash generation possibilities. However, I am a bit concerned regarding the current lower margin of safety, and as a result TSCO is being removed from the Long Interest List.
-2outof4
In its press release TSCO CEO, Jim Wright, mentioned that gross margins expanded during the quarter net of advertising because of a program to discontinue TV advertising and focus on more direct marketing campaigns. He also said TSCO was able to increase comparable store transactions by 460 basis points during the quarter.
That transaction increase came as no surprise to myself nor my inlaws, who did some field research for me, on the ground in Texas and Indy. TSCO makes a good ball cap too!
TSCO's stock price has risen 27.60% since the original posting compared to the S&P 500 increase of 1.21%. The Company still appears interesting based on its forecasted and steady growth rate, my store checks on feed sales, and cash generation possibilities. However, I am a bit concerned regarding the current lower margin of safety, and as a result TSCO is being removed from the Long Interest List.
-2outof4
Book List Change and Even a Movie Rec
Happy July! The East Coast's weather has been mild so far and made for perfect reading conditions, whether on a beach chair or by the pool.
For my birthday this year I received both of President Obama's books. I wanted a better understanding of the man in charge.
The second book, Audacity of Hope http://www.amazon.com/s/ref=nb_ss_gw_0_11?url=search-alias%3Daps&field-keywords=adacity+of+hope&sprefix=adacity+of+, is as I expected, the book more focused on the President's policy views. This is the book I started and just completed.
It is a well written easy read that brings out the President's struggle between the negatives of big government and his personal values and desire to bring up the less fortunate and discriminated against. Far more open than one would imagine regarding the political machine and the luck involved in his epic rise to the US Senate, one definitely comes away with a certain level of respect for the President.
I find it refreshing that we have a record of how the man thought and his ideals before being able to judge him on the successes or failures in the country's highest office.
As one might imagine, you can already see that in his first term he has kowtowed to certain interests, as he did in his ascendancy to US Senator, that likely gnaw at him. He wants the Unions to make concessions in the name of free market capitalism, but sadly cannot escape the Unions' political influence. Similarly, although he condemns the subsidies and support of Big Oil in the book, it is interesting to see how readily the Administration crumbled to Big Coal in the latest climate policy.
There are many incidences, like the above, throughout the book where you can stop and judge President Obama and determine for yourself whether he has stayed true to his prior path. Although I have learned that this type of accountability and asking someone to be responsible for all of his/her own actions is not always the best course of action on the home front, it is fascinating to be able to do it with such a public figure through his personally penned manifesto.
I highly recommend reading 'Audacity of Hope' (a phrase from Reverend Jeremiah Wright) in order to gain further understanding of your President's point of view on a myriad of current and future hot policy topics.
As the title of this post suggests, I have more than just a Book List change. I want to throw out a movie and wine recommendation as well.
It just so happens that I enjoyed both together last night.
The wine is called 'The Big Red Fox' (Syrah) from New Jersey's finest, Unionville Vineyard.
The film is 'Taken'. Who knew that Liam Neeson made such a badass action/spy hero? Not only does this movie have action to rival the Bourne and Mission: Impossible series, its plot development, twists and turns make you think a bit as well.
Two thumbs up and worth the Netflix rental!
-2outof4
For my birthday this year I received both of President Obama's books. I wanted a better understanding of the man in charge.
The second book, Audacity of Hope http://www.amazon.com/s/ref=nb_ss_gw_0_11?url=search-alias%3Daps&field-keywords=adacity+of+hope&sprefix=adacity+of+, is as I expected, the book more focused on the President's policy views. This is the book I started and just completed.
It is a well written easy read that brings out the President's struggle between the negatives of big government and his personal values and desire to bring up the less fortunate and discriminated against. Far more open than one would imagine regarding the political machine and the luck involved in his epic rise to the US Senate, one definitely comes away with a certain level of respect for the President.
I find it refreshing that we have a record of how the man thought and his ideals before being able to judge him on the successes or failures in the country's highest office.
As one might imagine, you can already see that in his first term he has kowtowed to certain interests, as he did in his ascendancy to US Senator, that likely gnaw at him. He wants the Unions to make concessions in the name of free market capitalism, but sadly cannot escape the Unions' political influence. Similarly, although he condemns the subsidies and support of Big Oil in the book, it is interesting to see how readily the Administration crumbled to Big Coal in the latest climate policy.
There are many incidences, like the above, throughout the book where you can stop and judge President Obama and determine for yourself whether he has stayed true to his prior path. Although I have learned that this type of accountability and asking someone to be responsible for all of his/her own actions is not always the best course of action on the home front, it is fascinating to be able to do it with such a public figure through his personally penned manifesto.
I highly recommend reading 'Audacity of Hope' (a phrase from Reverend Jeremiah Wright) in order to gain further understanding of your President's point of view on a myriad of current and future hot policy topics.
As the title of this post suggests, I have more than just a Book List change. I want to throw out a movie and wine recommendation as well.
It just so happens that I enjoyed both together last night.
The wine is called 'The Big Red Fox' (Syrah) from New Jersey's finest, Unionville Vineyard.
The film is 'Taken'. Who knew that Liam Neeson made such a badass action/spy hero? Not only does this movie have action to rival the Bourne and Mission: Impossible series, its plot development, twists and turns make you think a bit as well.
Two thumbs up and worth the Netflix rental!
-2outof4
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