Company name Helmerich & Payne, Inc.
Stock ticker HP
Live stock price [stckqut]HP[/stckqut]
P/E compared to competitors Good

MANAGEMENT EXECUTION

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

ANALYSIS

Confident Investor Rating Good
Target stock price (TWCA growth scenario) $79.26
Target stock price (averages with growth) $120.12
Target stock price (averages with no growth) $112.69
Target stock price (manual assumptions) $62.44

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

Helmerich & Payne, Inc. is primarily engaged in contract drilling of oil and gases wells for others. The Company's contract drilling business consists of three segments: U.S. Land drilling, Offshore drilling and International Land drilling. . Its United States land drilling is conducted primarily in Oklahoma, California, Texas, Wyoming, Colorado, Louisiana, Mississippi, Pennsylvania, Utah, Arkansas, New Mexico, Alabama, Montana, North Dakota and West Virginia. Offshore drilling operations are conducted in the Gulf of Mexico, and offshore of California, Trinidad and Equatorial Guinea. The Company's International Land segment operated in six international locations during the fiscal year ended September 30, 2011 (the fiscal 2011), which included Ecuador, Colombia, Argentina, Mexico, Tunisia and Bahrain. The Company is also engaged in the ownership, development and operation of commercial real estate and the research and development of rotary steerable technology.

 

Confident Investor comments: At this price and at this time, I think that a Confident Investor can confidently invest in this stock.

 

Company name HMS Holdings Corp.
Stock ticker HMSY
Live stock price [stckqut]HMSY[/stckqut]
P/E compared to competitors Fair

MANAGEMENT EXECUTION

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

ANALYSIS

Confident Investor Rating Good
Target stock price (TWCA growth scenario) $42.97
Target stock price (averages with growth) $56.38
Target stock price (averages with no growth) $36.22
Target stock price (manual assumptions) $42.58

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

HMS Holdings Corp. (HMS) provides cost containment services to Government and private healthcare payers and sponsors. The Company's services ensure that healthcare claims are paid correctly, through its program integrity services, and by the responsible party, through its coordination of benefits services. Its clients are state Medicaid agencies, the Centers for Medicare & Medicaid Services (CMS), Medicaid and Medicare managed care plans, Government and private employers, Pharmacy Benefit Managers, or PBMs, child support agencies, the Veterans Health Administration (VHA), commercial plans, and other healthcare payers. As of December 31, 2011, HMS served 43 state Medicaid agencies and the District of Columbia, and 137 Medicaid managed care plans under 66 contracts. In December 2011, the Company acquired HDI Holdings, Inc. and its operating subsidiary, HealthDataInsights, Inc. (HDI).

 

Confident Investor comments: At this price and at this time, I think that a Confident Investor can confidently invest in this stock.

 

Company name Herbalife Ltd.
Stock ticker HLF
Live stock price [stckqut]HLF[/stckqut]
P/E compared to competitors Good

MANAGEMENT EXECUTION

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

ANALYSIS

Confident Investor Rating Good
Target stock price (TWCA growth scenario) $81.21
Target stock price (averages with growth) $95.15
Target stock price (averages with no growth) $60.96
Target stock price (manual assumptions) $73.98

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

Herbalife Ltd. is a global network marketing company that sells weight management, nutritional supplements, energy, sports and fitness products and personal care products through a network of approximately 2.7 million independent distributors, except in China, where the Company sells its products through retail stores. The Company is a network marketing company that sells a range of weight management products, nutritional supplements and personal care products. As of December 31, 2011, the Company sold products in 79 countries throughout the world. Herbalife's products are grouped in four principal categories: weight management, targeted nutrition, energy, sports and fitness and Outer Nutrition, along with literature and promotional items. The Company's generates revenue from its six regions: North America, Mexico, South and Central America; EMEA, which consists of Europe, the Middle East and Africa, Asia Pacific (excluding China), and China.

 

Confident Investor comments: At this price and at this time, I think that a Confident Investor can confidently invest in this stock.

 

Company name Google Inc
Stock ticker GOOG
Live stock price [stckqut]GOOG[/stckqut]
P/E compared to competitors Fair

MANAGEMENT EXECUTION

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

ANALYSIS

Confident Investor Rating Good
Target stock price (TWCA growth scenario) $1150.69
Target stock price (averages with growth) $1631.06
Target stock price (averages with no growth) $1268.25
Target stock price (manual assumptions) $1054.11

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

Google Inc. (Google) is a global technology company focused on improving the ways people connect with information. The Company generates revenue primarily by delivering online advertising. As of December 31, 2011, the Company's business was focused on areas, such as search, advertising, operating systems and platforms, and enterprise. Businesses use its AdWords program to promote their products and services with targeted advertising. In addition, the third parties that comprise the Google Network use its AdSense program to deliver relevant advertisements that generate revenue. In June 2011, it launched Google+. In September 2011, the Company acquired Zagat. In May 2012, Google acquired Motorola Mobility Holdings, Inc. As of January 2012, over 90 million people had joined Google+. In April 2011, the Company acquired PushLife. On July 31, 2012, it acquired marketing start-up Wildfire. In September 2012, it acquired VirusTotal and Nik Software.

 

Confident Investor comments: At this price and at this time, I think that a Confident Investor can confidently invest in this stock.

 

This isn't a political blog and I don't want to talk politics here very often. Like many Americans though, I have been watching the various political debates in the hopes of understanding the issues better and making an informed voting decision.

One of the comments that has come up lately is the privatization of Social Security. Evidently, Mr. Romney and Mr. Ryan supported this idea when it was proposed by President Bush several years ago. Mr. Obama and Mr. Biden are currently pointing out how terrible life would be if we had pursued such a measure.

I don't follow the logic. Let's assume that this privatization wouldn't have taken place until 5 years ago (1 year left in the Bush administration). It is nearly impossible to understand a program that was never enacted so I am going to make some broad assumptions.

  1. My first assumption is that the federal government would never transition all of the FICA taxes to the private accounts since the government needs this money to pay its current bills.
  2. My second assumption is that a significant portion of the investment would be bonds and not in stocks. Having more money chasing bonds would lower the costs of operating the government. Also, since the "stock market" is too big of a monstrosity to gauge  let's just focus on the S&P 500. It is reasonable that a portion of the privatized investments would be targeted to that group of companies.
  3. My third assumption is that only younger workers would be able to contribute in this manner as they can withstand short-term decreases in the market. These younger workers would keep their money in the fund for 15-20 years before retiring.

The S&P 500 has increased in value about 50% in the last 4 years (it was about 940 on 10/17/2008). I do not believe the the Social Security bank account has increased in value that same amount. It seems that this level of increase would be a good thing for retirees. Granted, that first year of the 5 year window, the index didn't do as well. Since FICA would have been invested at least quarterly, Social Security funds would be significantly ahead as the growth increased over the last 4 years.

Graph of S&P 500 over the last 5 years

Image is from Google Finance 

The criticism assumes that the investment of that much capital wouldn't have affected the stock market itself. I don't believe that this is true. Let's do some simple math that doesn't truly take into consideration any other affects this influx of capital would have on the market.

The S&P 500 companies average P/E for the group is 16.62 and we know that the total market capitalization of the group is 12,880,727,000,000. The earnings for the group would probably not increase significantly with more capital invested in those same companies. We can assume that the market capitalization would increase by the amount of capital invested by the FICA contribution.

For arguments sake, lets say that the law would allow 20% of the FICA contribution to be invested equally in the S&P 500 companies. I realize that this is a bit naive but lets stick with that assumption for now. We can be reasonably confident that the government would never have allowed 100% of the contribution to be privatized (see assumptions above) and 20% seems like a reasonable guess for a law that was never enacted. The following table taken from data supplied by the Social Security Administration shows the FICA tax generated about $3,256B in revenue to the US federal government in the previous 4 years and the first months of this last year.

2008 $674B
2009 $669B
2010 $641B
2011 $669B
2012 $603B (partial year obviously)
Total 5 year $3,256B
20% for S&P 500 investment $651B

Therefore, the price that was paid for the S&P 500 (market capitalization) would be increased by $651,000,000,000 and would now be $13,531,727,500,000.

If earnings in that group are the same as today, this means that the average P/E would be 17.46. This is an increase of about 5% over today's P/E of 16.62.

Eventually this would reach steady state. Workers would start to pull money out of the market as they approached retirement or were in retirement. The natural increase would be about 1% for the average length of time workers would leave money in the account so approximately 20% assuming a 20 year average contribution. However, different from the current status of the accounts, it is possible that this money could be left to heirs where now social security is lost to the federal government. As more wealth was generated by this privatization, the need for 'traditional' social security would ease for workers thus allowing it to be more useful for the disadvantaged, very poor, or disabled.

It is reasonable to assume that this model is far too simplistic. It is likely that other investors (non-SSA based) would feel the S&P 500 stocks were over-priced at these levels and would move some of their investment dollars to non-S&P500 companies. This spill-over effect would also raise the price of those stocks. Basically, the influx of FICA money into the system would cause an inflation of stock prices and investment vehicles. This inflation would be beneficial for many companies as they try to raise capital to grow business - there would be more money available in the system to grow business.

If you believe that the stock market is an instrument for companies to find capital to drive their business (as I believe) then you would assume that this much money chasing equities would make a fantastic boon to business. More companies would have access to capital and more companies would be able to go public to accelerate their growth. More companies that can grow fast means more workers need to be hired.

While most efforts by the government to stimulate the economy and stimulate jobs fail miserably, the privatization of Social Security would likely have been one technique that would have accelerated growth of the US economy like no other vehicle. It also satisfied the Libertarians in all of us as it is not the government doing this work but simply US workers using their cash to save for their retirement.

I realize the issue is far more complicated than I have described. I understand better than most that any investment is fraught with risk. However, US workers driving the growth of the economy by helping US employers seems like a good thing.

Not only would US workers have more financial security if their FICA tax was invested for them rather than the current system but the market would be much larger and it would be an economic boon to companies that look for capital.

So, why is Mr. Obama and Mr. Biden saying that Mr. Romney and Mr. Ryan are wrong for supporting this in the past?