I have a new article posted at SeekingAlpha.com. If interested, Check it out:
Zillow Valuation Does Not Reflect Near-Term Reality
If you are a member of Seeking Alpha- please add me to your list of people you follow.
I have a new article posted at SeekingAlpha.com. If interested, Check it out:
Zillow Valuation Does Not Reflect Near-Term Reality
If you are a member of Seeking Alpha- please add me to your list of people you follow.
It struck me as kind of odd when I read the article about the National Coalition president Mouaz al-Khatib quitting due to frustration. I pulled these quotes from a great summary of the event:
He said his resignation means he can now “work with freedom that is not available inside the official institutions.”
He also blamed world powers for providing what he deemed insufficient support for the rebel cause, and complained that many “international and regional parties” have insisted on pushing the opposition toward dialogue with the regime.
Really? Sounds like this Syrian Rebel group must be a bureaucratic mess from the sounds of it. Too many special interests perhaps? And he is complaining about pressure for diplomacy with the Assad regime? Please tell us more – all we hear is saber rattling from all the third parties.
After looking this further – I think Mr al-Khatib ‘is pursuing other opportunities’ – he got fired. Sounds like he wasn’t following the rules put down by all the foreign countries behind this revolution. And who was waiting in the wings to take the reins? Would you believe a US educated Texas businessman born in Syria but has lived in the US since 1980? Ghassan Hitto has replaced al-Khatib. He was elected Prime Minister on March 18th, and on the 23rd Mouaz al-Khatib ‘quit’. Hitto’s primary qualifications?
Hitto’s profile has recently risen to prominence via a series of public service and fundraising initiatives, such as the Walk for Children of Syria Day.
This article gives a great summary of Mr Hitto’s backgrount – http://rt.com/news/syrian-opposition-prime-minister-458/. This was the most qualified candidate? Sounds like its not what you know, but who you know. Interestingly, the rebels are rejecting the appointment of Hitto, further highlighting the oddity of this situation. Hopefully the rebels will provide us some information on who was behind Hitto’s miraculous rise to power.
It will be interesting to find out who is pulling the strings behind all this – I long for the day where we will get some investigative journalism into this worldwide political involvement with what in theory is a civil war.
Check out this article on these ‘Hackers’ who just got 3 years of prison and is to pay $73,000 in restitution:
http://www.wired.com/threatlevel/2013/03/att-hacker-gets-3-years/
This was not a hack – Andrew Aurernheimer and his colleague stumbled across a huge security whole that AT&T exposed. It is unbelievable that a company the size of AT&T would expose this information.
Here is the ‘hack’ that was perpetrated – he noticed that if you take an AT&T URL and increment the querystring variable, you can pull another users information. For instance, lets say you log into your AT&T account, and you see a URL like ‘http://www.att.com/default.aspx?ICCID=1234 which shows your profile information. Then if you go to your browser URL, and change the URL to http://www.att.com/default.aspx?ICCID=1235, you see someone else’s profile information – that is a hack? Then you spend 15 minutes writing a script which loops through and generates urls with the ICCID incremented, and parse the webpage information into a database.
Ethical? Probably not. But if you want to expose AT&T as treating customer information carelessly you could be considered a whistle blower. These guys did not profit off this information – they sent the data to the editors of a popular website (Gawker.com) to embarrass AT&T. Arguably, if you tried to sue AT&T for breach custodial conduct of your information, their lawyers would probably argue there were no damages since no harm was done to you.
However the federal government is able to get a 3 year conviction. Oh.. coincidentally…. Andrew Aurernheimer is an internet activist in the vein of Aaron Schwarz – http://en.wikipedia.org/wiki/Andrew_Auernheimer.
The government crackdown on behalf of corporate America continues. As a commenter states in the article comments: “In America, if you want your rights protected, you had best incorporate first.”.
Check out my latest article at Seeking Alpha:
3 Reasons Coinstar May Surprise On The Upside
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Esterline Technologies (ESL) has always been an interesting company to me – a collection of 10 plus semi-autonomous companies focused on aerospace and defense. Since their first quarter earnings report was released on February 28th, the stock has outperformed the S&P 500 (up 5.5% VS 2.5% for the S&P 500), which caused me to dig a little deeper into the earnings report to see if I could find a reason.
First, here is an overview of some key metrics for Esterline over the last few years:
Annual revenue growth is still positive, at a relatively healthy 8.9%. While the revenue growth is slowing faster than I would prefer, at this point I will chalk it up to macro factors rather than to management issues. However this will be a metric to watch closely in future earnings releases.
Trailing 12 month after tax margin has been relatively flat (barring the exception of the impairment charge Racal Acoustics Defense in third quarter 2012), so no big concerns there. However Inventories were up 5% from recent quarters – this is somewhat cautionary as it could indicate future write-downs impacting margins.
Perhaps the outperformance of the stock after the earnings release can be attributed to the new markets Esterline is exploring. With the slowing defense spending, Esterline has announced they have some opportunities in high-speed rail, nuclear power, and gaming initiatives. This must be the catalyst for growth that investors are anticipating, though it seems awfully early to be pricing these opportunities into the stock.
Note what this recent price increase has done to the stocks earnings yield. When I compare Esterline to another defense related company of approximately the same size, Flir Systems, Inc (FLIR), you notice the valuation for Esterline is not as attractive as it once was:
While Flir is not a pure comp to Esterline, this chart does indicate that much of the good news is priced into Esterline.
Conclusion
This quarters earnings report does have reasons for optimism, but I believe the stock may be over anticipating future catalysts for growth. Given the unanticipated US Government sequester (admittedly unanticipated by management), keep an eye on the annual revenue growth. Also keep an eye on the new market opportunities mentioned. Due to Esterline distributed organizational structure, they may be able to move quickly to gain traction. But I would need to see more proof first.
To see the full first quarter earnings report, click here.
A few months ago I joined Amazon Prime, so for $75 it give me free 2 day shipping on most items. The thing that amazes me the most is how much that it has increased my spending on Amazon- or conversely how much it has shifted me from buying stuff from brick and mortar stores. It is cutting probably almost half of my purchases from Home Improvement stores, drugstores, etc. It is so much more efficient than driving to the store, finding the item in the store (or having to go to a different store) and then getting home and realizing I forgot something..
This article got me wondering further about where all the worlds low skilled labor would make a living in the coming years:
http://www.businessinsider.com/50-percent-unemployment-robot-economy-2013-1
And back to Amazon for a moment – even they are working to automate as much as possible:
http://www.businessweek.com/articles/2012-11-30/amazons-robotic-future-a-work-in-progress
I realize that for hundreds of years people have had this worry about technological advancements, but I am hard pressed to think of a low skilled job sector that is not faced with competition from automation. So for young, low skilled, or under educated people, where do they get their start? I have to think retail jobs and even warehouse jobs are or will be on the decline, and for low skilled manufacturing you are competing with the rest of the world.
Here is a chart I put together from data from the Bureau of Labor Statistics of historical unemployment by age group:
Is it a coincidence that the unemployment rate gap for those under 24 has increased in the last few years? And this appears to be a global phenonenom – Spains youth unemployment rate is over 50%:
http://www.bbc.co.uk/news/business-21180371
So maybe we are in the early stagest of an economic evolution – or revolution. It will be interesting to watch Spain and the rest of the eurozone deal with this unemployment problem, because we will likely be dealing with the same problems soon.
I recently had an article published on SeekingAlpha.com with my read on Nordstrom’s Fourth Quarter Earnings. Check out the article at
http://seekingalpha.com/article/1225391-what-i-liked-about-nordstrom-s-q4-earnings
I was reading an interesting post at www.whowhatwhy.com regarding Barrett Brown – another internet ‘hacktivist’ in the mold of Aaron Schwartz. Brown has been in custody since September 12th, 2012, on ‘charges of threatening a federal officer’. Interestingly, according to this post, what the government was really after was to shut down his site which was designed to collect user contributed information to connect the dots behind the Stratford emails leaked by Wikileaks.
Anyway, the paragraph that particularly caught my attention was this:
With much ado in recent days about Chinese cyber espionage, the government is using this new “Yellow Peril” as an opportunity to mount a full court press against the ability of any group to maneuver on the Internet in ways that might threaten corporate and state interests.
So it got me wondering about that – so I did a little googling on this whole Chinese cyber espionage stuff we have been hearing so much about. It turns out the driver of all this news is a report released by the Mandiant Corporation. First off – where do you suppose Mandiant Corporation is headquartered – yep – Alexandria, Virginia. A little suprising that a big independant security firm serving Fortune 100 clients wouldnt be located in Manhattan, or Silicon Valley – but maybe its just a coincidence.. I also wondered what the motive would be for a security firm to make a big splash about calling out the Chinese for hacking. Wouldnt it be in the best interest of security to lay low and gather as much information about them before tipping them off that you are on to them? Maybe it is just a publicity move, but it fits in nicely with the administration’s (and Congress’s) efforts to clamp down on internet freedom in the name of national security.
Finally, this article on comparing Mandiant to Blackwater had a couple interesting points:
The report, embraced by stakeholders in both government and industry, represented a notable alignment of interests in Washington: The Obama administration has pressed for new evidence of Chinese hacking that it can leverage in diplomatic talks — without revealing secrets about its own hacking investigations — and Mandiant makes headlines with its sensational revelations.
and
Mandiant’s staff is stocked with retired intelligence and law enforcement agents who specialize in computer forensics and promise their clients confidentiality and control over the investigation. In turn, they get unfettered access to the crime scene and resources to fix the problem (Mandiant won’t say exactly how much it charges, but it’s estimated to average around $400 an hour).
So, a security company located in inside the Washington DC beltway, stuffed with former intelligence agents, partnering with Fortune 100 clients. Nothing suspicious here…
All I ask is that the next time a story comes out regarding cyber crime, see if it parallels the ‘War on Terror’ storyline. And watch to see what additional restrictions on civil liberties are proposed to protect us from these new ‘terrible threats’.
Amazon is a tough stock for a value investor like me to own – it has always been overvalued. Yet it has been a great stock for years – up over 10 times over 10 years. It currently is a $270 stock, with a negative 12 months earnings. Compare that to Google – $800 stock with $32 in annual earnings, or even a Costco – a $100 stock with $4 in trailing 12 month earnings.
I decided to run some comparisons of Amazon with Costco – somewhat similar retail presence, leaders in their field, and likely to thrive in the new internet-centric economy. First, take a look at this earnings yield comparison:
It doesnt alarm me that their earnings yield has gone negative – Amazon has always been running on tight margins, investing in growth. They are pumping lots of money into new distribution centers in many states to allow for quicker and cheaper shipping to more destinations. However the 18 month trend of shrinking yield – caused largely by the stock price runup, has me a little worried – and when compared to a solid company like Costco, they have a lot of ground to make up.
The other chart that bothers me a little more is the revenue growth chart:
Revenue growth has been shrinking – perhaps the new distribution centers will help, but you have to wonder if the glory days of Amazon’s growth is behind it. The market certainly doesn’t think so – during this time Amazon has quadrupled:
As much as I like Amazon the company and its future prospects, at this point I think I can find better long term value in the stock market. Its tough to bet against this stock – its always proven doubters wrong, but maybe this time its time to get out.
So how would you feel about a stock that pays out a 10% dividend, has the income to cover its dividend, and is a leader in its industry? In a time of 2% 10 year T-Bills, you would guess this is too good to be true. Its not too good to be true – the stock is R.R. Donnelly & Sons (RRD). The one catch: even though its a leader in its industry – its industry is in the slowly melting printed advertising materials. I just started watching this this stock in the last few weeks. I have been wavering back and forth on it, trying to figure out if its a gold mine or a value trap. Here is a breakdown of the analysis I have done:
RRD has two lines of business – Products and Services. According to the companies last quarterly filing, the Company’s product offerings primarily consist of magazines, catalogs, retail inserts, books, directories, direct mail, financial print, forms, labels, statement printing, commercial print, office products and print management. The company’s service offerings primarily consist of logistics, premedia, EDGARrelated and XBRL financial services and certain business outsourcing services.
OK, so the service offerings sound kind of interesting – maybe the future of the company. But look – the shrinking products business is 7 times bigger than the growing services business:
Can the company survive long enough to build the service business? Will the print business shrink faster or slower in the future? The company has made a number of interesting acquisitions in the last two years, in both the product and services business:
On September 6, 2012, the Company acquired Express Postal Options International (“XPO”), a provider of international outbound mailing services to pharmaceutical, e-commerce, financial services, information technology, catalog, direct mail and other businesses.
On August 14, 2012, the Company acquired EDGAR Online, a leading provider of disclosure management services, financial data and enterprise risk analytics software and solutions.
On November 21, 2011, the Company acquired StratusGroup, Inc. (“Stratus”), a full service manufacturer of custom pressure sensitive label and paperboard packaging products for health and beauty, food, beverage and other segments.
On September 6, 2011, the Company acquired Genesis Packaging & Design Inc. (“Genesis”), a full service provider of custom packaging, including designing, printing, die cutting, finishing and assembling.
On August 16, 2011, the Company acquired LibreDigital, Inc. (“LibreDigital”), a leading provider of digital content distribution, ereading software, content conversion, data analytics and business intelligence services.
On August 15, 2011, the Company acquired Sequence Personal LLC (“Sequence”), a provider of proprietary software that enables readers to select relevant content to be digitally produced as specialized publications.
On June 21, 2011, the Company acquired Helium, Inc. (“Helium”), an online community offering publishers, catalogers and other customers stock and custom content, as well as a comprehensive range of editorial solutions, in which the Company previously held an equity
Are any of these acquisitions going to be a catalyst for future growth? Edgar Online is an interesting one to me, the others I am not familiar with.
The other big elephant in the room is debt. RR Donnelly has a lot of debt – giving it little wiggle room if things go bad. Check out these numbers from the latest quarterly report:
Thats a Debt Equity ration of 3 to 1, with a big pension liability to boot. Not for the faint of heart – thats about as high as they get.
The latest earnings for RR Donnelly come out on Feb. 26th. I am going to take a look at that before I make any decision on whether to include this in my portfolio. I will be looking closely at the revenue numbers, and if they look reasonably promising, I will likely initiate a small position. It seems reasonable that this stock has a place in a diversified portfolio, as long as you know things could get bad fast if there are any setbacks.