One of the weird quirks that is necessarily associated with being a successful value investor is that attractive entry points are nearly always caused by the aftermath of a stock reporting some business conditions or adverse event that render it unfashionable. In other words, the “value” you find is almost always a direct result of concluding that the rest of the investor community is over-weighing the effects some business impairment will have on the firm’s long-term earnings and valuation.
During the past few years, Wal-Mart ran into the gravitational pull of large numbers as it struggled to grow its revenues that hover near the half a trillion mark (the high water point was $485 trillion in 2014).
The prospect of low earnings growth pushed the price of Wal-Mart’s stock down low into the $50s in 2014 and 2015. Meanwhile, earnings were about $4.50. This meant that, for most of 2015, … Read the rest of this article!
In after hours trading today, Nike stock has fallen nearly 5% to the $52 range. It is my opinion that this makes Nike stock one of the ten most attractive investment candidates right now with a constant-currency P/E ratio of only 22 and a reported P/E ratio of 24. Usually, there aren’t many large-cap companies that can be fairly described as cheap when they trade at that kind of price to earnings valuation level, but the strength of Nike’s balance sheet coupled with its very impressive revenue growth continue to make it an exception.
I thought the earnings report was excellent. In a constant currency basis, sales grew by 10% (7% when adjusted for the strength of the U.S. dollar translation.) This is a company that is actually still doing things the old fashioned way to deliver shareholder returns–it is selling more and more of its product each year. It’s … Read the rest of this article!
Yesterday afternoon, Thomson Reuters announced that it was repurchasing 6.5 million shares of stock in privately arranged transactions as part of its efforts to repurchase approximately 37 million shares through May 2017. As part of the disclosure, Thomson Reuters noted that the privately arranged transactions will occur at prices that are discounted from the quoted market value. You might wonder: Why would these transactions occur below market value rather at market value?
The short answer: It is all about liquidity.
If someone wants to sell 6 million shares of Thomson Reuters on September 26th, the creation of a single sell order would flood the market and drag down the price of the stock immediately. Any sale would have to be spaced out over months (sometimes even years) so that you don’t compete against yourself in the marketplace.
What Thomas Reuters the corporation is doing here is … Read the rest of this article!
If I had to name a stock that shares the most characteristics in common with the Johnson & Johnson of the late 2000s, I would point to Philip Morris International (PM) right now. It has become disfavored the past four years because it has struggled to grow revenues and this struggle has been exaggerated by the strength of the U.S. dollar (remember, Philip Morris International generates 100% of its profits outside the United States so that a strong U.S. dollar will artificially lower earnings while a weak U.S. dollar will artificially raise earnings. And by artificially, I mean that the earnings shifts due to currency fluctuations are illusory unless it is part of a fundamental shift in the equilibrium of exchange rates between the dollar and everything else.)
This struggle to grow earnings has put pressure on the amount of dividend growth that Philip Morris International shareholders have been able … Read the rest of this article!
I haven’t yet written about the cross-selling scandal at Wells Fargo because I suspect there are more relevant facts that will come out, and I want to analyze them before I publicly share my opinion on the surprising business development. But I do want to use the Wells Fargo news to tackle an ancillary question: “Why would a conservatively managed bank feel pressure to goose earnings?”
The best way to answer that question is through example by looking at the story of M&T Bank (MTB).
If someone asked me to build a portfolio of 50 “buy and hold” forever investments where each of the 50 spots had the lowest possible risk of bankruptcy or permanent capital impairment, M&T Bank would make the list.
It has an absurdly strong balance sheet that could weather 5x as many defaults as it experienced during the recession years of 2008, 2009, and 2010. The … Read the rest of this article!