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Company name MB Financial, Inc.
Stock ticker MBFI
Live stock price [stckqut]MBFI[/stckqut]
P/E compared to competitors Fair

MANAGEMENT EXECUTION

Employee productivity Poor
Sales growth Poor
EPS growth Good
P/E growth Poor
EBIT growth Good

ANALYSIS

Confident Investor Rating Poor
Target stock price (TWCA growth scenario) $31.14
Target stock price (averages with growth) $44.18
Target stock price (averages with no growth) $41.37
Target stock price (manual assumptions) $20.4

The following company description is from Google Finance: http://www.google.com/finance?q=mbfi

MB Financial, Inc. (MB Financial), is a financial holding company. The Company’s primary market is the Chicago metropolitan area, in which MB Financial operates approximately 87 banking offices through its bank subsidiary, MB Financial Bank, N.A. (MB Financial Bank). Through MB Financial Bank, the Company offers a range of financial services primarily to small and middle market businesses and individuals in the markets that it serves. Its primary lines of business include commercial banking, retail banking and wealth management. As of December 31, 2011, the Company had total assets of $9.8 billion, deposits of $7.6 billion, stockholders’ equity of $1.4 billion, and $3.6 billion of client assets under administration in its Wealth Management Group.

 

Confident Investor comments: At this price and at this time, I do not think that a Confident Investor can confidently invest in this stock.

 

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I recently started a thread of discussion regarding why I avoid companies that are unprofitable. The topic is fairly long so I am breaking it up into several posts. You can see the first posting here.

There are times that you will want to invest in unprofitable companies. However, this has to be done carefully and with a small portion of your investment portfolio, perhaps 10%. For this 10% of your portfolio, you can invest in more speculative offerings.  Some speculative offerings such as high-tech startups or biomedical startups typically have a fairly long run of being unprofitable as they work through their startup issues.

It is essential to analyze these types of companies carefully. You want to fully understand the business. You need to understand why they are still not able to create enough revenue to cover their expenses. Most importantly, you need to see that this gap is getting smaller rather than larger. You need to see that revenue is increasing and the costs of the company are being effectively controlled by excellent management.

Finally, you need to make sure that the future profitability event is from being well-run and not a Hail Mary pass that may not materialize. Counting on FDA approval of a drug when no other country has approved the drug, and it still has several rounds of testing to go, is not a safe strategy. Counting on a corporate takeover of an IT startup so that a large company can take advantage of “really cool technology” is not a safe strategy.

In other words, you need to be extremely cautious and very concerned about a company that is not profitable. It may have a significant path to profitability, but I suggest you are extremely diligent in watching its progress.

This is the last of my current series of posts on the subject of focusing on profitable companies to invest in rather than unprofitable ones. Personally, I stay away from all of the unprofitable companies as there are just too many good companies to watch. I don’t need the complication of trying to find that one company that is about to break out and be successful even though they were not successful in the past.

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Company name Ingram Micro Inc.
Stock ticker IM
Live stock price [stckqut]IM[/stckqut]
P/E compared to competitors Good

MANAGEMENT EXECUTION

Employee productivity Good
Sales growth Poor
EPS growth Good
P/E growth Poor
EBIT growth Poor

ANALYSIS

Confident Investor Rating Fair
Target stock price (TWCA growth scenario) $7.86
Target stock price (averages with growth) $15.78
Target stock price (averages with no growth) $21.55
Target stock price (manual assumptions) $11.62

The following company description is from Google Finance: http://www.google.com/finance?q=im

Ingram Micro Inc. (Ingram Micro) is a global information technology (IT) wholesale distributor, providing sales, marketing and logistics services for the IT industry worldwide. Ingram Micro distributes and markets technology products worldwide from the industry’s computer hardware suppliers, networking equipment suppliers, software publishers, and other suppliers of computer peripherals, consumer electronics (CE), physical security, automatic identification and data capture (AIDC)/point-of-sale (POS) and mobility hardware worldwide. It offers a variety of systems, such as rack, tower and blade servers, desktops, portable personal computers, and personal digital assistants (PDAs). During the year ended December 31, 2011, the Company acquired assets and liabilities of Arete Sistemas S.A. (Arete).

 

Confident Investor comments: I may be a little generous on the $17 target but at this time, I think that a Confident Investor can cautiously invest in this stock as long as the price is correct. Most of the fundamentals of this company are good but there are some concerns.

 

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Company name Fifth Third Bancorp
Stock ticker FITB
Live stock price [stckqut]FITB[/stckqut]
P/E compared to competitors Good

MANAGEMENT EXECUTION

Employee productivity Fair
Sales growth Poor
EPS growth Good
P/E growth Poor
EBIT growth Poor

ANALYSIS

Confident Investor Rating Poor
Target stock price (TWCA growth scenario) $9.87
Target stock price (averages with growth) $13.31
Target stock price (averages with no growth) $14.2
Target stock price (manual assumptions) $10.54

The following company description is from Google Finance: http://www.google.com/finance?q=fitb

Fifth Third Bancorp (the Bancorp) is a diversified financial services company. As of December 31, 2011, the Bancorp had $117 billion in assets, operated 15 affiliates with 1,316 full-service Banking Centers, including 104 Bank Mart locations open seven days a week inside select grocery stores, and 2,425 automated teller machines (ATMs) in 12 states throughout the Midwestern and Southeastern regions of the United States. The Bancorp operates in four business segments: Commercial Banking, Branch Banking, Consumer Lending and Investment Advisors. The Bancorp also has a 49% interest in Vantiv Holding, LLC.

 

Confident Investor comments: Banking is tough to do well in the US in today’s economy. Other banks are better run. At this price and at this time, I do not think that a Confident Investor can confidently invest in this stock.

 

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I recently started a thread of discussion regarding why I avoid companies that are unprofitable. The topic is fairly long so I am breaking it up into several posts. You can see the first posting here.

This is the argument of lost opportunity costs. I understand that an unprofitable company could have an extremely significant increase in stock price as it regains profitability but why risk it? There are good companies to invest in that are well-run. Some of those companies, I list on my Watch List.

If an unprofitable company that obviously does not have excellent management (or it would not be unprofitable) does not make a comeback and continues to hemorrhage money, then your investment could drop significantly.  This is compounded by what you could have made from a well-run company.

Let’s do a quick example. Perhaps you invest in $10,000 in a company that is not currently profitable. Your theory is that the worst is behind the company and they are about to do much better. Your theory is that other investors will be impressed with this increased performance and make the stock price move up.  These two combined theories contradict recent historical reality.

First, the company did not effectively react to events that caused them to become unprofitable. Why do you think that this is the time for them to get their act together and reverse this problem?  What if you are wrong?

Second, the potential investors may not be impressed. What if the investment community wants to sit back and wait to see if the company can continue to be profitable? What if they wait for a quarter or two of continued improvement? It is not unusual for investors to wait 4-6 quarters before they believe that the company has fixed itself.

If one or both of your theories is wrong, your $10,000 investment could easily drop 10% in 6 months. Compare that to a good company that is simply executing like it always has and increases the stock price by 10% per year (or 5% in the same 6 months that you have been waiting). Your lost opportunity cost is not just 10% or $1,000, but is 15% or $1,500 of what it could have done in a well-run company.

If you want to be notified when I post about avoiding unprofitable companies, there are several straightforward ways to do this. You can subscribe to my feed in your news reader. You can also sign up for my weekly newsletter which will give you the articles for the week. Finally, you can subscribe to my Twitter account @ConfidentInvest.