By:
On:
In: Commentary
Tagged: , ,
With: 0 Comments

The big news is the current merger of United [stckqut]uaua[/stckqut] and Continental [stckqut]cal[/stckqut] (yes, I know that there is plenty of other big news such as nuclear non-proliferation, Republican and Democrat politically maneuvering, and the current American Idol contest but I don’t talk about those things on this site).

Those that have listened to my advice in the past know that I do not believe in the wondrous predictions of mergers. Have you ever heard the leaders of the companies involved in mergers declaring,”This is really bad for our company and our shareholders but we are going to do it anyway because it is more fun than just running our own company profitably.” I can’t find anyone saying it but they probably should as it is likely more close to the truth than anything they said in their various public releases.

Read More →

By:
On:
In: Commentary
Tagged:
With: 0 Comments

Greg Sushinsky over at Investopedia had an article discussing the fundamentals of Potash.  I still think that POT [stckqut]POT[/stckqut] is a Good company and a good investment so I stand by my analysis of the numbers on February 15 but Greg has some interesting analysis that is worth reading.

Below is the first part of the article but you can click through here to read the entire opinion.

Potash Corp. (NYSE:POT) of Saskatchewan has seen its stock rise from a close of $104.49 per share to just over $115 per share last week. The fertilizer company’s stock has traded between $63.65 and $126.47 per share in the last 52-weeks. But is the stock a good buy on fundamentals?

A Dust Bubble Scattered?
A quick review of the last couple of years in the agriculture business found a startling commodity bubble in fertilizer. Not so long ago – 2008 in fact – Potash Corp. earned $11 a share for its fiscal year, but earnings fell to $3.25 a share in fiscal 2009. Prices for potash fertilizer had run up from a relatively stable $100 per ton in 2003-2004 to its current price of approximately $580. Potash Corp.’s stock price reflected these changes, as it shot from under $30 a share to the low $200s during the boom.

The Stock’s Fundamentals
The boom price in the $200s saw Potash Corp. trading at a PE of roughly 20. Now the multiple is about 35 times earnings, at over five times book value and an almost punitive dividend.

How about forward earnings? The company is calling for $4 to $5 earnings in 2010, less than the $6 analysts had expected. The forward multiple on this outlook would put the PE at 23 to 28.75, still pricey in a market where historical PEs have gone awry since the spate of negative earnings.

More important, this multiple exceeds the 20 PE multiple Potash Corp. carried at even its fullest earnings. So on the face of it, fundamental investors might want to simply say the stock is overvalued right now at its $115 market price. But things are not so simple.

By:
On:
In: Commentary
With: 0 Comments

I just read a great interview with Doug Kass of Seabreeze Partners.  The interview is on Benzinga.com. I thought the following quote was the most relevant as it completely agrees with my basic investing philosophy as well as the philosophy of my upcoming book.

Q: What is one paradigm that aspiring traders or investors must adhere to or understand in order to find success?

A: There are five basic tenets to investing success that I would give to any trader or investor:

  1. Stop your losses and let your profits run.
  2. Don’t use leverage.
  3. Be diversified.
  4. Always remember that it is better to lose opportunity than lose capital.
  5. Don’t forget #1!

You can read the entire interview here.

By:
On:
In: Commentary
With: 0 Comments

The Wall Street Journal just wrote an article saying that more mutual fund managers are using market timing and stock timing tools to “time” the market. They are doing this to act more nimbly and get into and out of stocks that are moving up and down.

Mutual funds have a problem with this technique that doesn’t affect small investors. Mutual funds have to move much larger sums of money around and therefore can affect the market with their purchases or can incur higher management costs.

From WSJ.com:

Some of these funds have beaten the market in recent years. Ivy Asset
Strategy, for example, gained an annual 14.9% in the five years ending
Nov. 10, compared with less than 1% for the Standard & Poor’s
500-stock index.

Fund companies say investors spooked by the recent market turmoil
are demanding more-flexible products. Many investors have been
frustrated “with investment products that were not able to react to the
environment that we just went through,” says Joel Sauber, head of U.S.
products at Legg Mason. The firm’s new Legg Mason Permal Tactical
Allocation Fund can stash up to 40% in cash.

A study from New York University’s Stern School of Business suggests
market-timing can work for some mutual-fund managers. The best
stock-pickers during economic expansions also show some market-timing
ability in recessions, the study found.

So if the “big guys” are using market timing to improve their performance, why aren’t you?