Cardboard
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Posts posted by Cardboard
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While I am getting quite interested in these big tech stocks with very attractive P/E's once you back out the cash, this take-over is just a warning sign that this cash is not yours.
All these companies: MSFT, GOOG, AAPL, DELL, CSCO and others appear to be retaining cash in such amounts because they are worried about their existing business and want big hoards of cash handy to buy the latest technology (without Street questioning or restriction) if they miss the boat. I can't come up with any better explanation since they all generate large free cash flows giving them full access to very attractive credit terms.
So it is a double edge sword. It gives you protection for survival and as an asset, but there is quite a chance that the Street will discount this asset to $0 if the behaviour remain as such. P/E and PEG are then likely better valuation tools since no one will take them over (very unlikely) to realize that cash value. They are still priced very low for such powerful and profitable firms.
Cardboard
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http://tech.fortune.cnn.com/2011/05/12/is-apples-share-price-being-manipulated/
I thought this article to be interesting for those of you who own stock options. Of course it is unfair and maybe that someday someone will do something to eliminate it.
However, in the meantime, it is probably information that is worth knowing so you can find ways to avoid being screwed by these guys.
Cardboard
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"http://finance.fortune.cnn.com/2011/05/04/silver-canary-in-the-commodity-coalmine/"
Although, pulp has not skyrocketed like silver, it is hard to argue that it isn't part of the same commodity trend and this is starting to get me worried.
Fibrek is the last "major" position that I hold in my portfolio where profits are directly related to a commodity. The main interest was the repayment of debt over time and improvements in their business accruing to intrinsic value per share. However, these guys remain a high cost producer despite the improvements and time will not be on their side if pulp corrects rapidly. I have had similar fears last Summer/Fall and the way to go was to sit tight. Don't know if it is right this time.
A potential restructuring or asset sale remains, but so far there has been no indication.
It feels like cutting in half or fully might be the way to go following the stock's appreciation. On top of that, they may well screw up again with the coming quarterly announcement. What do you guys think?
Cardboard
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I think that this election is a very positive outcome for Canada for two reasons.
1- Gridlock is fine for a while, but you can't have it permanently. Something needs to get done eventually and it can only be accomplished with a majority. If Harper and Co. do bad things with their majority you can rest assured that they will be kicked out in 4 years. They have their chance now, so we will see.
2- The Bloc is dead. This is hugely positive for our country. Even its chief Duceppe was not elected in his own riding and then resigned. There is still a chance that some of these .... will join the PQ in Quebec and try to push the sovereign idea once again, but I think that Quebecers have had it. The Bloc lost in part because of that push.
For those of you that believe that Harper will move to the far Right with a majority, I think that your fears are unfounded. Many seats won in the Toronto area were key to get a majority. These could turn Left in no time in 4 years (NDP merging with Liberals is a possibility) and the message from Quebec is that they are more supportive of Left type policies. So IMO, he will be gravitating toward the middle.
Cardboard
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Is there going to be somebody thanking George W. Bush for initiating the effort in Afghanistan and Pakistan that eventually led to this conclusion?
I don't want to take anything away from Obama and he diserves praise, but no where near as much as American personel working hard in the dark. IMO, they are the true heroes making huge sacrifices.
It is a great day for the world. Please let's leave aside politics.
Cardboard
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I noticed this very low R&D amount when I looked at their latest quarter. At 2.4% of sales this is definitely low. For comparison, RIMM is at 6.8%. Quite amazing to see what they are achieving with so little.
At the same time, it shows how little it would take to find the next big idea or the guy in his garage thing. It is a good thing to see them not blowing away big dollars on unproductive R&D, but I am wondering how long they will be able to deliver as such.
Cardboard
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This oil/commodities trade has lasted long enough IMO. It is hard to predict the future, but when the major topic on CNBC has become gold, silver, oil, copper and pork bellies then you know that we are close to the end of a major bull market. It may still last a while, but forget about a decade.
Oil at well over $100 a barrel is a major tax on the global economy. The Chinese also keep on raising interest rates to fight inflation. At some point, they will hit a brick wall like all economies having tried to orchestrate a "soft" landing. When this happens, commodities will come down the hardest. That is not to say that we will no longer need oil and other commodities, but that the froth will certainly come out.
Once that happens, Canada will look pretty ugly along with its real estate bubble. Australia will be in the same camp. Currently, you can buy a small villa in Florida or in just about any State you like for the price of a bungalow or cottage with no land in cold Toronto or Montreal. Makes sense to you? I actually think that homes in Canada on a per square basis (livable inside/outside) have never been this expensive in the U.S. at the height of their bubble. The newly built houses that I have seen in most large U.S. cities in the suburbs were large, beautiful and on a nice piece of land. Very well laid out communities, close to whatever you needed. What you get up here for the same money these days is a joke.
World economies grew in the 80's and 90's, but commodities did nothing despite growing demand. Nowadays, the assumption is that commodities must go up in sync with global growth. I assume that supply and technologies will once again change the current mentality at some point.
Cardboard
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Sanjeev,
Very disappointing indeed that they have so little in terms of robot help or other backup system to cool the plant down.
What I also find truly disappointing is that no one in that company apparently spent anytime looking at the potential impact of a tsunami on that plant sitting by the ocean. A big wave basically flooded the diesel generators used to provide backup electricity. Risk analysis should have highlighted that easily and the solution is not that complicated (relocate diesel generators, provide water tight enclosure, look at other systems that could stop functioning with flooding, etc.)
The tsunami hitting Thailand and other countries was on December 26, 2004!!! The warning signs were all there for a long time and no one took preventative action. It is probably no better in most countries.
Cardboard
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I am no habs fan at all! I cheer when they lose. But honestly, Chara is a complete idiot and should be suspended before he does it to someone else.
I have never seen him on the replay hesitating to complete his check. If you have a brain, you are playing a game and you realize that you are about to almost kill someone (slamming the head of someone into a post at full speed would qualify!), you should have a reflex to stand back. He went all the way...
The fact that he was not threathened (hard to argue at his size), that he is a professional hockey player (should know where dangers are on the ice rink) and that he completed his check with no signs of "Oh no!" make him suitable for a criminal trial IMO.
Cardboard
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I agree with Al on them buying whole businesses. The past indicates failure. A more recent one or Ridley which they own 71% has not been a stellar success either. They also seem to get in trouble whenever they start to own a large percentage of something or when they average down significantly. Think Canwest, Abitibi and others.
My opinion, for whatever it is worth, Hamblin Watsa should start being more "activist" towards their investments. That is where the low hanging fruit is. While they won't change what is going on at J&J or at other mega cap, they should have significant influence at smaller companies such as Fibrek, Level 3, The Brick and others to obtain the best value. If they had gone public on Canwest and tried to force them to sell the Australian business when everything was not lost it may have saved the company and their investment.
This laissez faire approach is not working with low quality businesses (cyclical or in secular decline, weak management teams, etc.) These businesses became cheap for a reason. They need a very good kick in the ass IMO. Give them more capital or invest in them and they will simply keep doing their old thing.
Cardboard
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I recall someone on this board working for Cascades. Who is it?
I still cannot believe the comments made by Cote to Le Journal les Affaires. Making toilet paper and facials with recycled pulp? Our job is to make pulp, not to find an end market for it. Cascades has spent 100's of millions to do that. Then you have Kimberly Clark and P&G competing there. It is a very competitive market with low margins. I have seen what these plants look like, they are high capital items and ultra modern.
We cannot afford to invest a dime in that venture. Having them as a client... fantastic. I have no problem at all selling recycled pulp to P&G or another. Owning these plants, marketing, sales team, etc. no way!
Cardboard
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Once again I need to do my homework but, didn't we have a discussion last quarter about production being shuffled from Q3 to Q2, adjustments in inventories and the like? Another one time in Q4?
In any case, making any kind of acquisition after the near death experience is a no no. The CEO needs to hear that loud and clear. You sell the company/parts of it or you figure a way to make more with what you got. The former CEO tried to prove himself with a big acquisition or with a business that they did not understand fully and see what happened.
Until debt is paid in full, that the pension shows over-funded status and that we have a large pile of cash left, acquisitions are a no no. And I want our biggest shareholder to sign off on it.
Cardboard
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I have not looked at the details yet, but I assume that RBK is a disaster once again explaining the weak Q4 results.
Now they want to blow cash on acquisitions to fight with a Cascades in recycled tissue.... WTF! If that is the best idea that these guys can come up with then they need to be removed. Prem & Co. please help us!
Cardboard
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Just got my IPhone 4 today and it is awesome! From something like a Razor to one of these devices you can imagine the change...
I think this will work perfectly for my needs and will reduce my stress level to rush to go get some information from my stationary PC.
I just wish I had paid a little higher and bought that thing in late August or at a time when I was considering buying roughly 1 year calls on Apple. Looking back, it was quite a value play considering the growth, cash on hand, mid teens P/E (not adjusted for cash). Einhorn made a good call. Amazingly, it still looks similar today since they have grown so much and it may well continue.
The continued accumulation of cash and the market P/E make me think that the downside remains minimal.
Cardboard
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Thank you guys for all the answers. I really appreciate it.
First of all, I will not buy a Windows 7 powered system. These guys have always, always put on the market untested products full of bugs. I hear that Windows 7 is a little better (I still guess it takes a couple hundred patches!) which I have not installed yet. Anyway, I did swear enough at Microsoft already for a life time.
So it leaves Google vs Apple. Sanjeev's testimony is pretty powerful since he uses it for the same purpose as I will. Then there are my friends who love to use Face Time and some other Apple apps. If I buy a Droid, I will always find some compatibility issues with their apps.
So I think I will go for the IPhone 4. And if I find that I miss something, I can simply sell the phone and buy a Droid which are a little cheaper while keeping the same 3 year plan with my wireless carrier.
Cardboard
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I know it is not an investment related topic or maybe it will turn into a nice discussion and show Apple's competitive advantage or not. I still would like if possible to tap into this board's knowledge and experience on the topic. The phone will be used mainly for phone calls, surfing investment sites (getting quotes/news), search on Google, e-mail.
I am in the market for a smart phone more oriented towards Internet surfing than e-mail hence why I am not mentioning the Blackberry. Prices appear to be very similar except that going the IPhone route locks me in for 3 years.
I think it now gets down mainly to the choice between 2 operating systems vs the quality and capability of the phone itself. Most of my friends have the IPhone which makes them nuts about Apple. They won't look at anything else. I personally think that Google is quite a powerhouse in software development so it can't be too bad either.
Reading .pdf is also quite important for me since most Canadian annual reports are in that format and there is some dispute between Apple and Adobe. I don't plan to read through them on the small screen, but it may be useful to search for a small piece of data once in a while so I want to be at least able to open them. I got mixed information on the possibility to open them on the IPhone.
What do you guys think?
Cardboard
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Hi Al,
Yes, I sold all my remaining Fairfax shares in early 2010. It is a nice grower selling at book value as you said, but 15% may be a little agressive IMO. The bigger problem is that I see very little chance of multiple expansion until they start making money on the underwriting side and when is that going to be?
So I kind of look at it as a very well managed fund with the potential for multiple expansion once the cycle turns. But, due to their size, I figure that I can do better picking my own stocks. I can buy into very small companies where you always seem to be able to find amazing values. Maybe that I am over confident, but historically it has worked out.
If Fairfax had remained U.S. listed and still offered options, I would have likely created a synthetic long (buy a call and sell a put of same duration and strike) whenever the stock became quite undervalued or bought a relatively deep in the money call. That is what I do with big companies so that my price to value ratio on capital employed remains similar to the price to value ratio of small caps where I am long the equity.
However, if at some point I decide to slow down investing myself, Fairfax will certainly be in my top 10 choices of companies/funds to manage my capital.
Cardboard
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CRVP presented by Harry Long is very cheap. The company could be debt free in 3 years with no growth. Earnings would also move from $0.10 to $0.17 and the stock trades at $0.85. Nothing fancy about what they do, but the math is there.
HYD in Toronto. I have held this thing for a long time, but things are now in place with a big rebound in energy services. It trades for less than net-net. It could be a 2 or 3$ stock or more when contracts roll in. They do a big % of international work now while they did none 5 years ago.
LVLT is controversial, but there is no debate that data transfer is growing exponentially. I see people showing such interest for computers, Facebook, You Tube and hand held devices nowadays that it is mind boggling. It was considered nerds stuff just a few years ago and now everyone is a nerd! As their pipelines get filled, free cash flow will appear and the stock will look very cheap.
Cardboard
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While I was very worried about the economy last Summer and early Fall thinking that most of the recovery was mostly restocking of very depleted inventories during 2008/2009, I threw that thesis in the garbage can around October. There is clearly improvement in the economy and S&P earnings are terrific. I lost a lot hedging my portfolio last year.
Risks are there: commodity prices, interest rates, geopolitical, sovereign debt, slowdown in emerging markets, etc. but, IMO the market remains fairly priced. More importantly, I think that some companies remain absurdly cheap. They are not as cheap as in early 09, but considering the improvements in their earnings due to the better economy they are much less risky and still offer large upside.
So I am gravitating towards what Sanjeev has said. Just find good, bargain priced companies, keep watching the story carefully and sit on them until the price is right and turn off the TV. If things become too expensive in the marketplace, your portfolio will simply turn to cash as your holdings become liquidated due to valuation. This will be a natural hedge. And if unfortunately your cheap stocks get cheaper due to a market meltdown, then hold on to them, buy some more if you have cash or sell them to buy cheaper things being offered. I have tried many things and this seems like the best and easiest way to go. You simply can't eliminate the impact of market volatility on your portfolio. It is tough to bear and accept at times, but it is just how it is.
Cardboard
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What you are missing is the starting point or 1996. At that time, Fairfax was a high flier since it was considered a fast grower that could do no wrong and traded at a high multiple of book value and a high P/E. The story changed quite a bit after that following disastrous under-reserving at two companies that they bought almost at the same time: Crum & Forster and TIG.
I don't think that Watsa could have done anything about the high multiples in 1996 except maybe trying to lower the Street's expectations. However, he could do something about today's multiple by buying back stock or trying to improve the visibility of the company. And this may or may not work at all considering the low multiples currently attached to insurance companies.
I have no position at the moment.
Cardboard
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Dazel,
I guess, it is probably too late already to have a proposal included in the proxy documents. However, if you could locate a willing large holder (portfolio manager) or a group (members of this board via petition) I think that you could get some attention.
You basically inform the media ahead of time (BNN, Globe and Mail and others) that you will raise the long term underperformance issue vs other pulp companies and the fact that management seems unwilling to make big changes to help shareholders, at their annual meeting. You then wait for the Q&A session to introduce yourself or the PM and then make your case. With the media attending (TV is the best), you can be sure that management will be forced to answer some tough questions.
They may or not be receptive. In any case, once the possibility of splitting and/or selling the company is in front of everyone, things tend to happen.
Cardboard
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You have to file this form, attach to your return and then enter the amount on line 405 which will match the amount of foreign tax (the 15%) that was withheld in your brokerage account. There are special cases where the 15% will not be reimbursed entirely, but not for what you are describing.
http://www.cra-arc.gc.ca/E/pbg/tf/t2209/t2209-09e.pdf
Cardboard
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The answer is in the article:
"But the 15-per-cent withholding tax would qualify for a foreign tax credit on your Canadian return. So, for most investors, the net result is that U.S. dividends held in a non-registered account will be taxed at the same rate as interest income. "
Dividends you receive from U.S. corporations will be considered foreign income and as mentioned, taxed at the same rate as interest income. The 15% will be reimbursed to you in full on line 405 or your Federal tax return.
It still remains more advantageous to receive Canadian dividends than U.S. ones due to the tax credit on Canadian dividends. However, sometimes you have to buy some U.S. stocks because they are more attractive. The tax difference on the dividends is a consideration for your overall rate of return calculation, but has never been enough of a factor to detract me from going ahead and buying a U.S. stock.
Cardboard
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Lance2210,
Many of the items you point out sound very similar to the ones I hear all the time up here in Canada. Although, with incomes not rising as fast as housing and individual debt levels climbing higher and higher, eventually something has to break.
This is what happened in the U.S. Many of the people that I saw on "House of cards" were not flippers, but simply unable to afford what they had bought. When their interest rate climbed on the mortgage, they were bk.
In Canada and Australia the system is built differently, it is less private enterprise and more public. So in Canada at least, banks issue mortgages then get them insured by CHMC or Genworth MI Canada. They do verify income and debt ratios, but they have become less and less demanding. Interest rates also don't reset the same way as it happened to many in the States. They will reset on a national scale with the big banks all changing them together.
So I think that the U.S. housing crashed first because it is was more based on a market economy instead of a government driven system. Fear was replaced by greed. Some mortgages were fraudulent and interest rates did reset to much higher levels on some of them. Once you have had a critical mass of defaulters the system unraveled: banks started to tighten for everyone. Although, we should remember that the first signs of default by subprime appeared in late 2005 while the heights of the financial crisis or when liquidity froze was in late 08.
There is definitely a strong sentiment that it can't crash up here, were different. I would argue that with a few changes: higher interest rates or less demand for commodities or simply lower prices that things could change dramatically. Drops in house prices did happen in the past, so we can't assume that we are immune to it because of the system being different than the U.S. or because economic conditions won't change.
Cardboard
MSFT
in General Discussion
Posted
DELL crushes EPS estimates in latest quarter.
http://www.reuters.com/article/2011/05/17/dell-idUSN1721952420110517?feedType=RSS&feedName=companyNews&rpc=43
That is $2.20 annualized vs current average estimate of $1.70. Then you have $4 a share (fully diluted) in net cash.
So you can buy DELL with roughly the same P/E as HPQ while DELL has cash and HPQ has debt and DELL has clearly turned around while the other one is likely to enter a period of disappointing earnings, sales and restructuring charges.
Cardboard