Direct Selling, Cheap Stock, Stock thoughts: CAL, LC, GLO, MPI

Direct Selling

I met a lot of people who are into direct selling. If you are one of them, Anton English has a lot of tips to offer:

http://antonenglish.com/three-things-that-will-have-me-running-for-the-hills/

 

Cheap Stock

What does a cheap stock really mean?

http://www.adventuresincapitalism.com/post/2010/03/15/What-Does-Cheap-Really-Mean.aspx

In my opinion, the above article describes Warren Buffett’s investment style. Warren Buffett looks at the future of business and values it while Ben Graham looks at the history of the business and values it. That is the stark difference between the master and the student.

 

CAL

CAL declared cash dividend of P.25:

http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-3115_CAL.pdf

The reason they declared the cash dividend is “significant revenue growth”. I agree, but at CAL’s earnings per share of P.32, a cash dividend of P.25 means giving away 78% of the earnings.

They should have conserved more cash for the business.

My opinion only.

 

LC

LC is trying to convert their MPSA (mineral production sharing agreement) to FTAA (Financial or Technical Assistance Agreement) within this year.

http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-3126_LC.pdf

This means that their foreign partner may be able to proceed to the development of LC’s mineral claims.

More about LC’s FTAA:

https://fundamentalenthusiast.wordpress.com/2012/10/20/investing-in-lepanto-consolidated-mining-inc/

I wonder how they will circumvent EO79 with regards to FTAA….. We’ll see. 🙂

 

GLO

GLO eyes complete takeover of Bayantel:

http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-3135_GLO.pdf

Of course, why else would they buy Bayantel’s debt? lol

Looking forward for more disclosure. 🙂

 

MPI

As some of you may have noticed, Deutsche is selling a lot of MPI shares. Considering that MPI failed to get the express way project, Deutsche’s valuation model could probably be impaired. Thus, it should be expected that they will sell more of their position in the coming days.

Learning from Mistakes, PH to Sustain 6% growth, Stock thoughts: ACR, LTG, MEG

Learning from Mistakes

Do you often hear these words?

“I should have bought stock X a year ago and I should be enjoying xx% gain now!”

“I should have followed my friend and I could have gained a lot!”

Do not fall into this type of thinking.

Thinking shudda-cudda-wudda will not help you become a better investor.

Look forward. Sharpen your saw even more. 🙂

 

PH to Sustain 6% growth

It is exciting to know that they expect the country to grow 6% until 2016:

http://www.businessmirror.com.ph/index.php/news/top-news/11871-phl-to-sustain-6-growth-adb

 

Learn more about the breakdown of the GDP here:

https://fundamentalenthusiast.wordpress.com/2013/02/13/my-common-sense-approach-in-interpreting-the-gdp/

 

ACR

ACR reminds me of TA. I’ll take note of this. 🙂

Looking for partners to finance 400 MW coal-fired power plant:

http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-2820_ACR.pdf

 

LTG

LTG to declare follow-on offering at 18~20.50:

http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-2832_LTG.pdf

More on LTG:

https://fundamentalenthusiast.wordpress.com/2012/10/28/making-sense-on-tdy-consolidation/

 

MEG

I appreciate MEG’s move to raise funds:

http://www.interaksyon.com/business/59108/megaworld-announces-return-to-overseas-debt-market

A good way to exploit the low interest rates. 🙂

Investment Grade!

Wohoo! Philippines now has an investment grade!

http://www.reuters.com/article/2013/03/27/fitch-upgrades-philippines-to-investment-idUSFit65303520130327

Implication?

Prices of stocks included in the index would increase as these stocks will be bought by foreign fund managers.

Warning:

Don’t get carried away. In my opinion, it would be wise to stay away from stocks that are trading at high PE multiples with minimal growth in earnings in the future.

How would you determine if the stock will have minimal growth in earnings in the future?

Stick to stocks that you understand or understand very well the stocks that you will be investing in.

 

Have a meaningful Holy week! 🙂

Coursera, MVP’s message to Graduates, Stock Thoughts: APM, SGI

Coursera, MVP’s message to Graduates, Stock Thoughts: APM, SGI

Coursera

Last few months, I recommended a course in coursera: “A Beginners Guide to Irrational Behavior”

Believe me, it would not be a waste of time. It also includes how to manage your time well.

Promotional Video here:

http://vimeo.com/channels/guidetoirrationality

Sign-up here:

https://www.coursera.org/course/behavioralecon

 

MVP’s Message to Graduates

Worth the read:

http://www.interaksyon.com/article/57913/mvp-to-class-of-2013-kristel-reminds-that-education-is-a-right-and-blessing-use-it-for-our-people

 

APM

Profiling: Alcorn Gold Resources Corporation:

https://fundamentalenthusiast.wordpress.com/2013/03/26/profiling-alcorn-gold-resources-corporation/

 

SGI

Solid Group, Inc.:

https://fundamentalenthusiast.wordpress.com/2013/03/26/solid-group-inc-pse-sgi-2/

 

My Trade in TA, Stock Thoughts: MMI, TA

My Trade in TA

I sold TA at 2.28 last March 19, just for the sake of trying a simple thesis:

No property dividends to be announced in March 21 ASM will cause panic to most traders.

I bought back TA shares today at 2.18 generating me 2% gain net of fees. It was exciting and I confirmed time and time again that trading is NOT compatible with my personality.

Special thanks to spyfrat, my sugar trader friend, and my friend who traded with me in TA. They helped me in determining the exits and entry points. 🙂

 

MMI

“Rumor” has it that MMI will serve as a backdoor vehicle of Lucio Co’s Union Energy:

http://www.philstar.com/business/2013/03/22/922474/lucio-co-firm-acquires-majority-stake-mariwasa

Take note that Union Energy will build a biomass plant in Nueva Ecija.

 

TA

See the CEO’s buying:

http://www.pse.com.ph/resource/corpt/2013/TA_23B_03222013.pdf

An insider selling his/her shares would mean a lot (i.e. he/she needs cash to pay off expenses, he/she is happy for the gains, or negative news about the stock)

An insider buying would basically mean that the stock is cheap.

None that was disclosed this week impaired TA’s valuation. My opinion only.

Stock Dividend, Stock Thoughts: MMI, VLL

Stock Dividend

When is a company declaring stock dividend attractive?

In my opinion, if the company declared was undervalued in term of assets (trading below book) and in term of earnings power (PE multiples).

More on valuations:

https://fundamentalenthusiast.wordpress.com/2013/03/21/making-sense-on-simple-valuation-methods/

 

MMI

Looks like the rumors are true:

Lucio Co bought 85% of MMI:

http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-2402_MMI.pdf

Tender offer by Lucio Co’s Invescap Incorporated:

http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-2415_MMI.pdf

 

VLL

Record earnings and revenues:

http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-2400_VLL.pdf

but short in cash?

Company to raise more cash from debt:

http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-2361_VLL.pdf

since credit is abundant, everything should be fine. 🙂

Making Sense on Simple Valuation Methods

I categorized valuation methods in a going concern and liquidation concern. The valuation method that I use for companies that will continue doing business (going concern) is a simple Price to Earnings Ratios (PE ratio) multiples while for companies that will not continue doing business in the future is the book value (BV) of the company.

Price to Earnings Ratios (PER) is computed by dividing price by earnings per share. The PER computed will be used as a multiple to determine the intrinsic value of the company that is in a going concern (will continue doing business).

Example:

Valuing Company A that has the following information:

EPS = 0.40

PE ratio multiple (PER) = 10

Computation:

EPS x PER = Intrinsic Value

0.40 x 10 = P4.00

Based on the above calculation, Company A has an intrinsic value of P4.00. Company A will be undervalued if the company is priced by the market substantially below P4.00.

The multiple to be used in the calculation of the intrinsic value is determined by:

  1. Relative to other companies in the similar industry – Obtain the average PER of the companies in the industry.
  2. Desired hurdle rate or return on investment – the inverse of the PER is your desired return on investment. Should you use a PE ratio of 10x, your desired return on your investment is 10% (1/10). Should you use a PE ratio of 20x, then your desired return on your investment is 5% (1/20).

There are many advantages and disadvantages in this valuation and one of it is if the market will not recognize the PER multiple you used in your valuation. I often use a PER multiple of 10x or a PER multiple in the most comparable company of the company I am trying to value. I do not average the PER for the obvious reason that averaging the PER will neglect the fundamentals of the companies that served as a reference of the PER.

Bruce Greenwald, a respected authority in value investing, considers multiplying EPS by PER multiple to determine the intrinsic value as a laughable valuation method. He uses discounted cash flows (DCF) in valuing a company.

DCF is indeed the most logical method in valuing a company. However, forecasting cash flows is hard for most companies and relying on DCF method will put an investor at risk of using faulty free cash flows assumptions (not to mention, time consuming). I only used DCF method in valuing Meralco since free cash flows can be easily estimated with reasonable certainty.

A company that is perceived not to continue doing business (liquidation concern) generally have an intrinsic value equal its book value. A conservative liquidating concern companies are those that has a market value less than the net working capital (current assets less current liabilities). Investments like these are called net-nets.

Buying companies solely for the reason that is below book or at low PER is not a good investment strategy. Buying undervalued companies but with incompetent management and poor business model will leave the investor stuck in a value trap. A value trap is a company trading at “undervalued” levels but has no foreseeable catalyst to unlock the value. A company should be purchased after considering future business developments and its corresponding impact on its earnings and cash flows.