Analzying a stock

The following is from a commenter at Seeking Alpha in analyzing CSC.

I have similar info from various source, so they're not useful for me. The only comments are:

1. If  you trade CSC short term, most metrics are fundamental and will not be useful.

2. I'm still looking for a good site on Insider's info. The author provides a site that I will take a look.


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albersdg Comments (52)

 

Value Line has a 3 to 5 year target price of $50 to $60 for CSC.
It recently hit a new high at $50.50. Since then it has been trading (putiing in a top?) between $48 and $49. Book value is $21.

Over the last year, on the way up, CSC gapped up at $25, $31, and $45.

Yahoo shows a PEG of 2.52

Intuit Stock Evaluator tool employing the Warren Buffet methodology places the Intinsic Value at $-441.05.

Guru Focus calculates a Altman Z-Score of 2.54 which places CSC in the fisacal GREY area and calculates a fair value of $49.73.

Barrons Stockgrader gives CSC a grade of 38.4 SELL
In four (4) major categories CSC receives a B- in Growth, B in Value, D in Profitability, and B+ in Cash Flow.

Of 24 subcategories that roll up into the four major categories, CSC receives a score of F in seven (7):
1. Marker Growth Long Term
2. Growth Potential
3. P/E Analysis
4. Capital Utilization
5. Relative Margins
6. Return on Equity
7. Cash Flow Growth

And a score of D in four (4) other subcategries
1. Market Growth Short Term
2. Asset Utilizatioin
3. Operating Margins
4. Quality of Revenues

NASDAQ shows a consensus 1 year target price of $46
NASDAQ Guru Analysis employing eight (8) guru analysis awards highest score of 54 (out of a 100) and a low score of 0.
Guru's (and scores) cited are:
1. Peter Lynch . . . 0
2. Benjamin Graham . . . 14
3. Momentum Strategy Investor Validea . . . 29
4. James O'Shaughnessy . . . 50
5. Motley Fool . . . 35
6. David Dreman . . . 36
7. Martin Zweig . . . 54
8. Kenneth Fisher . . . 30

According to Insider Cow, Dodge & Cox, a deep value mutual fund, that took a position in CSC about a year ago, sold its entire position in Feb or March 2013.

Also according to Insider Cow, corporate executives decline to BUY and seem to immediately SELL all or most of any stock award.

Way more downside risk than upside potential.

I held CSC stock.
Sold at $46 several weeks ago.
Have no position.
Do not intend to take a positioin until it corrects and closes the gaps up.

Aging global population

The aging of the global population is due to the proliferation of baby boomers after WW2.

With respect, my view on the global demographics is quite different from most. Judge it for yourself.

·         India will suffer from the population explosion despite the abundance of younger citizens.

They will eat up all the limited food and consume most of its limited natural resources. They will run out of water in 100 years which is also controlled by China as more water will be directed it to the north of Tibet. There are too many problems that cannot be resolved easily. There is no bright future for India. I wish I were wrong as a poor India would affect the rest of the world.

They classify themselves literate if they can write their name in any language compared to 1,500 Chinese characters. Chinese has nine years of compulsory education. These statistics are just being manipulated. Source: Ted Talk.

The brain drain is alarming as the most privileged / educated do not want to wait for India’s infrastructure, its economy and its governance to be fixed.  

I hope rich countries like the U.S. will not take too many doctors / nurses from poor countries like India as we’re doing now. This is the worse disservice to a poor country. We deprive thousands from medical care for each doctor we import. Why do we send our doctors to help the poor while we take their doctors? It just does not make sense. There should be more foreign aids specially allocated for medical training to poor countries.

Just compare the sub way system and the number of high-rises in India to any Tier 3 city in China. The top Indian city just built its sub way recently in 2011 while Hong Kong is developed as a modern metropolitan. As of 2012, more than half of India’s population lives in less than $2.50 a day (the UN definition of poverty is $2.50 / day).

India has to understand its problems first before they can fix them. It has to fight inefficiency, corruption (partly due to inefficiency) and protectionism (to improve quality and encourage foreign investment). Copying the China’s model is a good idea. China’s model is to create specific economical zones close to a port with the essential infrastructure for that area. You need to build infrastructure like highway, electricity… for that area first. It should target its products first to the foreign market and then include the home market.

The 2011 Indian Kolkata airport has limited road access while the 1980 Hong Kong airport is supported by extensive suspension bridge. Without the road access support, any airport would not be world-class as demonstrated by all major airports in the world. Documentaries on both projects are available from Netflix.

Some told me it could be the old family controls India's economy and they do not want changes. I argue the opposite is true. Expensive projects usually allow the corrupt rich and the local governments to steal money from public projects.

·         China still has plenty of cheap labor.

Cheap labor will be minor but education will be important as they need to move up to the next level of industrialization with higher-value products.  China is already there and India is not there.

China has its own problems, and plenty of them, but the demographics is not the major one. Gender imbalance, pollution and corruption are many among others.

Click this link http://bit.ly/ybAnoW   to compare India and China.

·         Russia and Brazil still thrive on commodities and oil as long as global economy grows. Russians fit my Coconut Theory. They become lazier (and more intoxicated with Vodka J) as the economy continually grows from its wealth of natural resources including oil. As long as the global economy is humming, there are demands for these resources, and vice versa.

·         Africa and some S. American countries. 

The explosive population will bring miseries to their worlds. There will be more wars for food and the life expectancies are already lowered. The citizens will migrate legally and illegally to richer countries like the U.S. for a better living. If the farming technology to produce more food with less farm land did not improve drastically over the last 50 years, the world's supply of food now would not meet the demand. As 2012 closes, there are higher food prices due to the floods and droughts all over the world, it will continually be rougher for the poor countries that cannot afford to pay for it.

·         The U.S.

In 2023, the U.S. may look like Japan is today as most developed countries whose populations shrunk to below zero growth. However, the U.S.'s black and Hispanics have a higher fertility rate and the U.S. has more immigrants than the nations of the world combined. The U.S. will have its different problems / advantages as below.

The U.S. welcomes immigrants (as opposed to Japan). Most qualified Indians are welcome and so are Chinese (who come for economic reasons, to escape from pollutions, or because of corruption prosecutions).

In the U.S., today's minorities (black and Hispanics) will become the majority. If you look at the high school dropout rate (40% dropout vs. 25% for all), social welfare recipient percent, prisoner percent, etc., we do not have a bright future. There will be more political leaders from these groups as we usually vote for politicians that belong to the same race as ours. These are facts and it might be offensive to you if you're black or Hispanic. 

When we do not have jobs for everyone, a large population is a big burden. We have recent college graduates begging for any job for years, lines for the unemployment and welfare offices are getting busier. Why we encourage illegal aliens to come here for jobs and welfare is beyond my comprehension. Buying votes would cause us.

When our middle class is growing and the economy is improving, it would mean more iPads sold for Apple, and we   would start another housing boom. It does not happen now, but hopefully better times are coming soon.

The brightest future for us is agriculture and its demand from many countries grows by leaps and bounds. The other is American culture, like movies and music since English is, and will be, the most popular language. The recent discoveries in gas and oil trapped and the methods to extract them are very promising. It could lead us to be a major energy exporter in the next 50 years.

Starting in 2012, the baby boomers are retiring (those who were born after the WW2). Hence, we will have about 20 years of increased entitlements considering the average life expectancy of about 82 years.

·         Japan.

Japan does not have a lot of natural resources, and the educated citizen is their most important resource. Japan will suffer the most due to the aging population. However, most of us will still drive a car from a Japanese company, play video game from Wii or Playstation… Its competitors (now Korea and later China) will share their market. Japan will continue its lost decades to another decade.

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My e-book Debunk the Myths of Investing could save you a lot of money in investing.
  http://ebtonypow.blogspot.com/2012/12/special-debunk-myths-of-buffett.html

Sample portfolio for the book.
  http://stockportfolios.blogspot.com/2013/03/welcome.html

(c) 2013 Tony Pow

Disclaimer. I'm not responsible for your actions in your investment. Treat this as educational information and past performance does not guarantee future performance.

Educational portfolios

I have Portfolios for my book.

Click here  or click the following link

http://stockportfolios.blogspot.com/2013/03/welcome.html

First Solar

First Solar was recommended in this SeekingAlpha article. I have a lot of doubts in this company. Some of my fellow commentators could be hedge fund managers or retail investors holding a lot of this stock. Their arguments of investing in this stock do not make a lot of sense. Even it has potential appreciation as stated in the article and the comments, it is too risky by many fundamental metrics. The company is losing a lot of money and the outlook of solar industry is cloudy.

This stock has been recommended by many well-known subscription services. Most followers lost money. My advice: Analyze the company with an open mind on any recommendation and understand the hidden agenda of the writer.

Here are my negatives on this company:

1.       They cannot compete with Chinese companies if the protectionism is lifted. Some companies in Europe produce better products. Hence, they depend on local sales and tax rebates.

2.       Solar is still expensive if oil is below $100 in most regions of the USA.

3.       Shale oil and gas could make solar here infeasible. The time for shale energy is 5 years from now (3-2013) if they can solve the environmental problem and set up the pipelines.

4.       How many previous losers (there is a lot) on this stock will return? More importantly, how many investors find its potential appreciation attractive?

5.       The company is losing money now.

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My e-book Debunk the Myths of Buffett could save you a lot of money in investing.
  http://ebtonypow.blogspot.com/2012/12/special-debunk-myths-of-buffett.html

Sample portfolio for the book.
  http://stockportfolios.blogspot.com/2013/03/welcome.html

(c) 2013 Tony Pow

Disclaimer. I'm not responsible for your actions in your investment. Treat this as educational information and past performance does not guarantee future performance.

Everything you want to know about P/E but afraid to ask

P/E is the most misunderstood indicator. However, it could be the most useful one.

* Better definition.

P/E should be inverted as E/P, which is termed as Earning Yield. Earning Yield is easy to compare and understand. It takes care of negative earnings for screening stocks and ranking. If you sort P/E in ascending order, your order is wrong with negative earnings but right with E/P.

It is usually compared to a 10-year Treasury bill yield (or 20 or 30 years) or a CD rate. If the stock has 5% and your one-year CD is 1%, then it beats the CD by 4% in absolute number and many times better percentage wise. However, the CD is virtually risk free and the future earning yield is an educated guess and it may not materialize.

* Many ways to predict E/P.

·         Based on last 12 months. Project it to future E/P. It is also called last twelve month E/P.

·         Based on analysts' educated guesses. Guesses may not materialize. From AAII screens based on data for 10 years for expected PEG and historical PEG (cannot find screens for P/Es), the expected usually predicts better than the previous one that is based on last 12 months. This is the one I use most and many investing subscriptions provide this expected P/E.

·         Based on last month or quarter. Latest information could be better for prediction. However, they are not good for seasonal businesses such as retail where most sales are done in the Christmas season.

* Best E/P could not be the best.

Very high E/P could be sign of troubles ahead like lawsuit pending, fraud, etc. You can find companies E/P over 50% and it means two years' profits could equal to the entire cost of the company! I can tell you right away they smell fishy as there is no free lunch in life.

However, from time to time, some bargains exist due to certain conditions or Wall Street is just wrong about the company. You need to find out whether they are bargains or traps. When the E/P is low (sometimes even negative) but it is improving fast, it could mean big profit for you.

During a recession, a good company should not concentrate on sales as it is the most expensive time to market products in particular on new products, but it usually is the least cost to develop products. In this case, there is no alarm even with negative earning. The only alarm is the high burn rate.

* E/P and PEG.
For value investing, E/P is usually used, the higher the better but not extraordinary high as described above. PEG measures the rate of improving E/P. For growth investing, PEG is usually used. Select one that favors the current market conditions whether it is value or growth.

In a secular bull market, growth is usually better than value. Value (opposite to growth) is better in early recovery stage of the market cycle - the best result is selecting top stocks sorted by Value/Timing in descending order.  Value and Timing could be one composite metric classified by some investment newsletters /  subscriptions.

* Fundamental metrics.
E/P is one of the metrics you should use but not exclusively. If the earning yield is high but the % of debt is too, then a good bargain may not be as good as it appears to be.  See next chapter on other metrics.

Some other metrics may not be easily found in the financial statements like the intangible, insider buying, pension obligation, losing market share, customers’ loyalty, etc.

* P/E variations.
There are other P/E variations like Cape. Personally I like to compare its current P/E to the average P/E for the last 5 years and/or compare it to the average of the companies in the same sector.

P/E is more reliable for a group of stocks like SPY instead of individual stock which has too many other metrics to deal with. 

Shiller P/E  is one way to track the current market valuation. It is controversial and its value is easily misinterpreted. Hence, use it as a reference only unless you understand all its issues.

When you compare the total return of an ETF, you need to add the respective dividends of an index to ensure a fair comparison with total returns. Currently, S&P500 is paying about 2% dividend.

You may want to take out the cash per share from the P to have a better indicator. Some cash-rich companies like MSFT and CSCO could have a better P/E than with the cash.

EV/EBITDA is another way to measure the value of a company. This metric has both advantages and disadvantages over P/E. Click the above links for more information which is beyond the scope of this article.

* Garbage in, garbage out.
I do not trust in most financial statements of emerging countries especially the smaller ones.  Watch out for fraudulent data.

Summary.

Again, one metric should not dictate the reason to trade a stock. Most metrics can be manipulated and give different prediction in different market conditions.

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My e-book Debunk the Myths of Buffett could save you a lot of money in investing.
  http://ebtonypow.blogspot.com/2012/12/special-debunk-myths-of-buffett.html

Sample portfolio for the book.
  http://stockportfolios.blogspot.com/2013/03/welcome.html

(c) 2013 Tony Pow

Disclaimer. I'm not responsible for your actions in your investment. Treat this as educational information and past performance does not guarantee future performance.

Debunk the myths of Buffett

1             Debunk the myths

Buffett is one of the premier investors in our generation. Some of his practices are not applicable for today's market.

Most of the money earned was for himself and not for the stock holders of Berkshire in the last three years. SPY offers greater diversity and less volatility for the last three years. If Buffett is such a hero in picking stocks, then those who beats S&P is a better investor hero. There are many investors who beat S&P 500 by a wider margin. We need to constantly scrutinize who we listen to.

Performance Comparison

 As of 1/15/2013, trailing 3-Year Return.

BRKA	S&P 500
12%	11%

Beating the S&P 500 by a small percent as a primer investor is just mediocre.

Actually BRKA have lagged the S&P 500 a few years ago, it has recently been improving.

Why Buffett’s current mediocre performance is important.

Many have been utterly convinced by the many books written on his achievements. Are his strategies still relevant?
When Peter Lynch (managing the Magellan Fund, 5/1977 to 5/1990) lost his golden touch and he quitted the job, I got my money out! Most investors did not even experiencing several years of poor returns. The result is many years of mediocre return. Hence, his mediocre performance in last three years matters and it could be the canary to future performance.

Many of his teachings are still relevant and they are described in many books. The following practices are to be debunked. I just want to seek the truth. It appears dumb on my part to argue with success but read this with an open mind.

Debunk the Myths

·        'Never sell.'
The “Buy and Hold” strategy has been dead since 2000. Most books and comments that praise this strategy are based on data from before 2000. It may come back in the future like a secular bull market that I predict in 2017 (Chapter 36).

Buffett made big money in KO for the first 10 years of his ownership, but not much in the next 10 years. If he cashed in after 10 years of ownership and then bought another stock with similar performance, he would have made far, far more.

I prefer to turn my portfolio to reflect the current market conditions and companies' fundamentals that could have changed since the last time I reviewed them. Buffett’s ownership in Washington Post was good then, but it could be too risky now if their paper does not take measures in stopping the losing battle of paper publishing.

12

Market fundamentals perpetually change! There were ten well-known department stores ten years ago mentioned on a TV show, and only Macy’s survived - most others were acquired or bankrupted. I read an outdated book by a very famous author. A very good portion of his recommended stocks have not survived. However, most made great profits in the year after his recommendation.

·        'Only buy the company whose products he understands.'
He must have missed a lot of great companies like Apple as he does not use any of Apple’s products. It is better to try to understand their products and their profit potentials, and make your decisions accordingly. He should depend more on his resources and his many analysts who should have diverse disciplines.

·        'Rule #1. Do not lose money. Rule #2. Do not forget rule #1.'
If every stock bought is risk-free, the return cannot be that good like buying Treasury Bills that have no loss in theory. However, holding them until maturity loses buying power due to inflation. Nothing risked and nothing gained.

However, by comparing the ratio of return / risk, evaluate whether the risk is justified for the return. If there are equal chances to lose 50% and gain more than 100%, then it is worth it to buy the stock. It is not a science, but probability theory and common sense are decent tools. In the long term it usually works. In addition, one's personal risk tolerance determines the investment methods.

·        'Margin of safety'.
There will be not too many stocks to buy if everyone treats margin of safety as the first priority. It may work for Buffett before as few followed his ‘margin of safety’. This is the herd mentality (or Chapter 90) I wrote. However, it should work again if less folks are truly concerned about the margin of safety.

Let me illustrate an example of my applying the right strategy to appropriate market conditions. As of 1/2013, the market favors value stocks and cash waiting for opportunities to buy. Assuming that there is no W-shape recession, the next phase of the market cycle should be gaining momentum and growth with no regard for a margin of safety.

·        'Think of Stocks as a Business'

As an owner of many stocks, I do not have to run my portfolio, like a holding company. I do not fire employees, do not have legal obligations, do not make day-to-day decisions, etc. I can sell the stock with a click of the button with no emotional and no legal liabilities attached. Do you really think your ideas on how to run the company will influence the management’s decisions?

Running a business is very different from investing in a company. Do not be confused! Investors’ only objective is to make a profit with least risk.

An optimal portfolio of 30 differentiated stocks, where is the time to simultaneously run 30 companies responsibly?

·        Buffett’s portfolio is not diversified enough. However, the portfolio under the insurance company might. When he trades, he pays extra due to the huge volume. Day traders will take advantage of Uncle Warren.

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My e-book Debunk the Myths of Buffett could save you a lot of money in investing.
  http://ebtonypow.blogspot.com/2012/12/special-debunk-myths-of-buffett.html

Sample portfolio for the book.
  http://stockportfolios.blogspot.com/2013/03/welcome.html

(c) 2013 Tony Pow

Disclaimer. I'm no responsible for your actions in your investment. Treat this as educational information and past performance does not guarantee future performance.