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So which securities would you say are (at this time) "value traps"?


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I don't know that there is much "value" in this trap, but how about Level 3 Communications?

 

Yes, a trap for shareholders, but not noteholders who are getting a pretty penny in interest.  In fact, in a couple of years, Fairfax would have recouped their cost from interest alone.  If LVTL defaults, then they get a chuck of that $10-12B fibre pipeline. 

 

So yes, equity holders...value trap...bond holders...good investment.  Cheers!

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DELL, RIMM, LVLT

 

3 stocks FFH owns. Care to elaborate?

 

I'm not the one you asked, but I'll make a quick analysis of the three. 

 

- LVLT...FFH owns the notes, so they will make their money back one way or another.

- RIMM...I think it will get taken out...MSFT should spend the money and buy it (more patents)...cash flows are good, but tough business and getting tougher for them.

- DELL...I don't own it and not going to buy it, but they are betting on Michael Dell's overhaul of the business, as well as the cash flows generated.

 

Cheers! 

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I still get all of their catalogues every year, but I know of hardly anyone else who still does.  Either they revamp the model completely...which hasn't worked in several attempts...or they dis-assemble the pieces, reinvest the cash, and keep the core business in a scaled down model.  They have to do something, because nothing else is remotely working!  Cheers! 

 

Sears still publishes a physical paper catalog?  Seriously, I had no idea. I haven't seen one of those since I was a kid in the early to mid 80's probably. I was born in 1972 and wouldn't think to shop at Sears either online or off for anything.  One exception is that my wife will go there to look at the Land's End clothes sometimes, but that is about it. I agree that it is a dying brand.  To me Kenmore just means some other company's appliances re-badged to say Kenmore.  Why not just buy the Whirlpool or whoever really makes it?

 

--Eric

 

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DELL, RIMM, LVLT

 

3 stocks FFH owns. Care to elaborate?

 

LVLT - people in the LVLT thread think the company's pipeline is worth over $25 billion. I think their potential value would be as a takeover candidate. Nobody seems to want to buy the company for $10 billion (which would include around $7 billion in debt). I'm not convinced someone is going to wait a couple years, and then buy it for $25 billion. Otherwise, it seems like nearly every time they announce a new deal (even after all the money they've spent on building their pipeline), they still end up spending more than what they make when adding new clients.

 

RIMM - it's cheap on a price to earnings basis, and the company is in very good financial shape, but I think there's a good chance their earnings will come down.  The next couple years. I think someone like MSFT will buy them at some point, but not sure at what price.

 

DELL - I've disliked this company for years, and the stock is cheap on current earnings and cash, but I don't have much confidence in their future. They are in basically a commoditized business, and I think their margins will continue to get squeezed.

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I still get all of their catalogues every year, but I know of hardly anyone else who still does.  Either they revamp the model completely...which hasn't worked in several attempts...or they dis-assemble the pieces, reinvest the cash, and keep the core business in a scaled down model.  They have to do something, because nothing else is remotely working!  Cheers! 

 

Sears still publishes a physical paper catalog?  Seriously, I had no idea. I haven't seen one of those since I was a kid in the early to mid 80's probably. I was born in 1972 and wouldn't think to shop at Sears either online or off for anything.  One exception is that my wife will go there to look at the Land's End clothes sometimes, but that is about it. I agree that it is a dying brand.  To me Kenmore just means some other company's appliances re-badged to say Kenmore.  Why not just buy the Whirlpool or whoever really makes it?

 

--Eric

 

 

Yup!  I've been getting the old Sears Christmas Catalog every year for the last 20 years!  And before that my parents used to get it.  I only occasionally order anything from the catalogs, but they probably cost a pretty penny to publish, as they are pretty thick.  They also send out smaller 50-60 page seasonal catalogs. 

 

This should really all be eliminated now and moved online.  They should just send out a reminder with the weekly flyers that the new catalog is online or something.  Stuff like this should have been done a long time ago.  I'm sure there are tens of millions in other annual costs savings they could easily find.  Cheers! 

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Guest misterstockwell

RIMM has nothing for MSFT, while NOK is now joined at the hip to Mister Softee. The only reason for a RIMM takeover by MSFT rumor is hope.

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I still get all of their catalogues every year, but I know of hardly anyone else who still does.  Either they revamp the model completely...which hasn't worked in several attempts...or they dis-assemble the pieces, reinvest the cash, and keep the core business in a scaled down model.  They have to do something, because nothing else is remotely working!  Cheers! 

 

Sears still publishes a physical paper catalog?  Seriously, I had no idea. I haven't seen one of those since I was a kid in the early to mid 80's probably. I was born in 1972 and wouldn't think to shop at Sears either online or off for anything.  One exception is that my wife will go there to look at the Land's End clothes sometimes, but that is about it. I agree that it is a dying brand.  To me Kenmore just means some other company's appliances re-badged to say Kenmore.  Why not just buy the Whirlpool or whoever really makes it?

 

--Eric

 

 

Yup!  I've been getting the old Sears Christmas Catalog every year for the last 20 years!  And before that my parents used to get it.  I only occasionally order anything from the catalogs, but they probably cost a pretty penny to publish, as they are pretty thick.  They also send out smaller 50-60 page seasonal catalogs. 

 

This should really all be eliminated now and moved online.  They should just send out a reminder with the weekly flyers that the new catalog is online or something.  Stuff like this should have been done a long time ago.  I'm sure there are tens of millions in other annual costs savings they could easily find.  Cheers! 

 

 

 

I can't believe the catalog still comes out either.  I remember anxiously awaiting it to see what we kids could ask for at the holidays.  They used to have every toy made and all the cool things.  It was better than going to Toys R Us in terms of browsing.  Now the only time we go to Sears is to look at an appliance or if my wife needs to return something to Lands End.

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DELL, RIMM, LVLT

 

3 stocks FFH owns. Care to elaborate?

 

I'm not the one you asked, but I'll make a quick analysis of the three. 

 

- LVLT...FFH owns the notes, so they will make their money back one way or another.

- RIMM...I think it will get taken out...MSFT should spend the money and buy it (more patents)...cash flows are good, but tough business and getting tougher for them.

- DELL...I don't own it and not going to buy it, but they are betting on Michael Dell's overhaul of the business, as well as the cash flows generated.

 

Cheers! 

 

Sanj, while you're reading minds, care to delve into what Chou's thinking is with having a large stake in SHLD?

 

Thanks.

-M

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This thread will be an interesting read in one year. If you skip the analysis and just glance at the financials the whole tech industry looks cheap:

 

Using figures from the last 10-Qs and last year's GAAP earnings:

 

HPQ - -$1.8B net cash and investments, $8.8B

DELL - $8.5B net cash and investments, $2.6B

CSCO - $28B net cash and investments, $7.8B

RIMM - $2.4B net cash and investments, $3.4B

AAPL - $67B net cash and investments, $14B

 

 

$546B combined market cap to $36.6B last year's earnings plus $108B net cash and investments. Value traps, or just crazy undervalued?

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As per Rkbabang comments; I dont see any value in the Kenmore brand whatsoever.  I used to work for a sub of GE Appliances that made Kenmore Appliances.  Recently bought a Kenmore washer and dryer made by Samsung. 

 

Coincidentally, when I worked for GE I visited a GE Capital branch that built PCs for:  HP, Compaq (at the time) IBM, and a couple of other no more brands.  The truly bizarre part of all this was that it was done in the same rooms, side by side.  That was quite a few years ago.  I imagine GE is doing the same thing somewhere in Asia now for Apple, Gateway, Dell, and others.

 

re:RIMM:  I dont see it as a value trap, yet.  A value trap would be a company that continually promises and under delivers.  RIMM has very clearly articulated their present issues, and is sitting on a mountain of cash, and is being scared into action.  Whether or not this company will deliver going forward is open for argument.  I happen to think they will.   

 

I like RabbbitsRich comment:  come back to this thread in a year or two and see what the mobility/laptop space looks like.  Obviously AAPL is the elephant in the room right now but things change very, very quickly.

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This thread will be an interesting read in one year. If you skip the analysis and just glance at the financials the whole tech industry looks cheap:

 

Using figures from the last 10-Qs and last year's GAAP earnings:

 

HPQ - -$1.8B net cash and investments, $8.8B

DELL - $8.5B net cash and investments, $2.6B

CSCO - $28B net cash and investments, $7.8B

RIMM - $2.4B net cash and investments, $3.4B

AAPL - $67B net cash and investments, $14B

 

 

$546B combined market cap to $36.6B last year's earnings plus $108B net cash and investments. Value traps, or just crazy undervalued?

 

 

RIMM might be a value trap here but not sure. AAPL is not a vlaue trap but I don't find it attractive enough  risk/reward equation there. I think HPQ and CSCO are not value trap for sure and both are good risk/reward scenario. HPQ looks cheaper than CSCO even though CSCO might have bit higher moat. Over all HPQ looks better risk/reward scenario priced around $31.

 

DELL is up there in middle somewhere. They are cheap and might do very good but I don't have firm opinion on them.

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To me the question isn't just what's a value trap, but if so can I make money on it?  SHLD seems like it will either hover around where it is or take off if Lampert finally decides to break it up or sell off the pieces.  So I think it has some optionality.  I doubt he'll run it into the ground, he's just too smart to do that.  He's been delaying the decision to sell it off into pieces because he doesn't want to put so many people out of work.  But at least in the letters he writes he does talk about putting the emphasis on mygofer and other initiatives, not the retail store itself.  Now how much of his writings translate into reality I don't know. 

 

On the other hand I've never heard Lampert say that he wanted to make this his BRK.  In fact I do remember an interview where he reportedly said he would sell SHLD one day.  Buffett closed up shop at his hedge fund and told his partners that BRK was his new vehicle.  Until Lampert does that I don't anyone should think that he wants to run this as anything other than a retailer.

 

So back to the making money bit.  I think if he doesn't do anything, in the meantime I can sell options on the insane volatility and make pretty nice annualized returns.  Plus I can get the upside with less downside by doing what Ericopoly suggested in an earlier thread (selling 1 put and buying 2 calls 2013) since heavily shorted stocks like this do tend to have options mispricings.  Just because something is a value trap doesn't mean you can't make an investment out of it.  If Eddie does finally monetize the real estate (which fairholme once estimated to be 100+ a share conservatively) I think the stock could certainly move up..  In the meantime I don't think it's going to 0.  The main risks imho are that he can't hold his shares because his ESL clients bail, and he's forced to liquidate, or that he takes it private at a low price and screws all other shareholders..  In the meantime I'm happy to earn some hefty premiums..  (oh, and lend out my shares to the shorts which also give me some hefty premiums...)

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DELL - I've disliked this company for years, and the stock is cheap on current earnings and cash, but I don't have much confidence in their future. They are in basically a commoditized business, and I think their margins will continue to get squeezed.

 

Margins are actually moving up and they are giving up the low margin part of the business progressively. That's what the market doesn't like because of the revenue part but profitability is increasing very quickly.

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Coincidently the Sears 2011 "Christmas Wish Book" just landed on my doorstep about two hours ago - all 875 pages of it.

 

Yeah, that's pretty funny!  I got my card from Sears today saying that my Xmas catalog is ready for pickup at my nearest catalog store.

 

Sanj, while you're reading minds, care to delve into what Chou's thinking is with having a large stake in SHLD?

 

Francis is a very positive person when it comes to people.  He's a firm believer that someone smart doesn't suddenly become stupid.  He also makes bets on ethical managers, as long as the price gives him a margin of safety as well.  Francis will also hold the stock for a very long time if he believes in the manager and the investment.

 

With Sears, it is cheap relative to the underlying assets and cash flows.  I would presume to believe that Francis thinks Eddie will monetize those assets and redistribute those cash flows rationally.  If that occurs, then the investment would pay off.  Cheers!

 

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Nokia?

It looks cheap now but its market share is diving due to Android and Apple and perhaps their deal with Microsoft will never turn things around considering Microsofts dismal performance in the phone market.

 

Also, Japan?

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Sanj, I would also suggest, without knowing him remotely as well as you, that Francis does his analysis and sticks to his Graham style of investing no matter what.  He works on statistical premise when he buys a stock and assumes a certain number wont work out. 

 

He also assumes that he cannot know which stocks will rebound ahead of time.  His style is close to that used by Walter Schloss.  He has infinite patience.  In fact, if you ask him for advice as a friend did at the meeting this year, he will suggest that if you have done a good analysis up front you just need to be patient. 

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HPQ holders, and RIMM detractors will appreciate this. 

 

http://www.financialpost.com/opinion/business-insider/TouchPad+Best+wants+Hewlett+Packard+take+them+back/5267939/story.html

 

Makes RIMM look pretty good in this space, relatively speaking. 

 

I have two HP laptops but both cost well under $500.00 - I cant imagine the profits are too good from these products right now.

 

 

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