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Thursday, November 15, 2012

Who believes Jim Cramer?

I really like Jim. He is also great on TV and I respect him for that. I have and sometimes watch his show because it's one of the only real in depth stock shows on cable. I will take anyone seriously who has results and a great track record with a proven investing strategy. I don't think he has this though. I'm skeptical of his actual record before the show even. copy and paste below link into browser.

slate.com

Companies I wish were public

Some companies I wish were public so I could get a good look at them.

Turbo Tap
What a product.
http://www.turbotap.com/

Berkley
anybody who's fished has probably bought Trilene line or one of their products.
http://www.berkley-fishing.com/

Bluegreen Corp. (BXG) Undervalued?

Bluegreen Corp. (BXG) undervalued?Bluegreen has two segments. Bluegreen Resorts segment acquires, develops, and markets vacation ownership interests in its resorts. The Bluegreen Communities segment acquires, develops, and subdivides property & markets residential home sites to retail customers who seek to build a home in a residential setting.

The company has steadily grown shareholder equity year over year for the last 10 years and net profit margins are the best in 10 years as well but the stock has never sported great valuations and hasn't been loved.

Crunching the numbers A very brief analysis
Using an earnings discount model, the fair value of the company per share is $19. As of March 15 2007 it trades at $11. This is assuming a base earnings per share of $1.24 and 5% earnings growth for the next five years, 3% thereafter. Compared to an opportunity cost of another investment vehicle with a 10% return this seems pretty conservative considering a risk free 10 year gov bond is about 5%.

The question is. Can they deliver? I don't have a lot of confidence in the stability of earnings and operations, but they are worth keeping an eye on.
-author doesn't own Bluegreen Corp.

About

About Stock Pursuit

My name is Mark and I have been investing in stocks since 2001. I hold a B.A. in History from the University of North Carolina at Charlotte. I am also a member of the American Association of Individual Investors.

I favor a contrarian value investing approach in stocks with an emphasis on fundamentals and also technical analysis. I don't shy away from small and micro-cap stocks aka penny stocks because often Benjamin Graham cigar-butts aka Net-Net's which are typically small companies present some of the greatest values.

Stock Pursuit is read by many professionals in the money management industry. This blog is very unique not only because it is one of the top blogs on the internet for deep asset value stocks but also because I cover many other things including momentum trading, technical analysis, stock market and economic commentary.

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YP Corp YPNT Livedeal LIVE

It publishes yellow pages through www.Yellow-Page.Net, www.YP.Net, and www.YP.Com. I listened to their 1st quarter 07' conference call and didn't hear any big troubles. I need to do some more homework on how the business works and potential setbacks from competitors. It seems solid as businesses need Internet presence and YP provides that. Their most recent balance sheet for the end of December had Total Assets of 26,316 against Total Liabilities of only 3,087, 2934 of that Accounts Payable and no long-term debt. This balance sheet seems better than a lot of stalwart S&P 500's. They are seeing more customers the CEO says from the telemarketing campaign and have a new partnership with web.com. This company is off the radar of the big institutions with a tiny market cap.

Brief Analysis
They were profitable in the first quarter of 07' with $.01 eps. Actually an increase from last year. Reuters shows estimates for full year 07' of .07 eps and 08" up to .15 eps. A free cash flow model would be the best to find the intrinsic value of the business but assuming a very conservative full year 07' eps of .03 cents per share and 08's eps of $.06. It would be worthwhile to hold the shares in 08 with a pe of 13.16 and a eps yield of 7.5 at a share price of .79 a share.
If eps continues to grow in the future the stock is a bargain at under a $1. I don't see the company encountering any troubles in the near future. Over the next year or two the worst thing that could happen is they continue to deliver so so and the stock goes no where. I don't invest in stocks. I invest in businesses by buying shares of stock. This company is worth watching.
I don't own any shares of YP Corporation at the time of this writing.

"YP Corp. is America's Local Online Yellow Pages(tm) and offers businesses a simple and affordable way of creating a web presence and marketing their products and services to local audiences online. The Company offers an Internet Advertising Package, which provides advertisers preferred placement in yellow page search results and their own Mini Webpage(tm) where they can provide potential customers with details about their products and services.

About Web.com

Web.com, Inc. (NasdaqGM:WWWW - News), is a leading destination for the simplest, yet most powerful solutions for websites and web services. Web.com offers do-it-yourself and professional website design, website hosting, e-commerce, web marketing and email. Since 1995, Web.com has been helping individuals and small businesses leverage the power of the Internet to build a web presence. More than 4 million websites have been built using Web.com's proprietary tools, services and patented technology. For more information on the company, please visit http://www.web.com or call 1-800-WEB-HOST."

-source, Yahoo! Yahoo.com, http://biz.yahoo.com/pz/070222/113995.html

Waiting For Something Good at Caribou Coffee CBOU

I believe Caribou does a couple things better than Starbucks. Starbucks is the juggernaut of coffee shops. There are Starbucks across from Starbucks at street corners. Caribou is # 2 right now in the industry second to Starbucks and has slim to no chance of ever being #1. Caribou has more traditional espresso beverages (even though SB tries to use fancy Italian) like calling a macchiato a macchiato not a latte like SBux.

Caribou has been profitable on the bottom line before but not for long. Whether the aggressive new CEO's plans will take market share from Starbucks remains to be seen. Recent same store sales were negative, decreasing 1%. I like what Caribou is doing with the brand getting it out there with General Mills with a snack bar and I believe selling beans(which is one of the most profitable items by the way) in stores finally. Caribou actually may have a sort of competitive niche over Starbucks in that their beans are typically a lighter roast than Starbucks. Lighter coffee's actually have slightly more caffeine(roasting takes some out), more acidity and a different flavor which can be sweeter compared to Starbucks darker roasts. A consumer report in 2004 ranked Caribou's light Colombia #1 among 42 Colombian gourmet coffees. I believe in that same report Dunkin Donut's arabicas had higher ratings than Starbucks.

Opening many more unprofitable Caribou stores is scary for the company maybe even Krispy Cream scary but their other segments seem great like the recently announced Coke bottled cold coffee beverages that are to be sold in stores next year. The same product as Starbucks. I feel Caribou does some things much better than Starbucks, from my experience working at Caribou and seeing and hearing things from Starbucks customers. Caribou aggressively focuses on customer service, including remembering customer names and drinks to get repeat business. Some Caribou customers are looking for a certain atmosphere that is different than a Starbucks or the Starbucks imitators. I think Caribou's Alaskan lodge atmosphere accomplishes this.
Caribou like any smart fast food or quick serve company uses computer screens that display the upcoming orders as opposed to yelling or writing down orders which has more room for errors and is less systematic. Starbucks doesn't use this technology. Many Caribou's have recently upgraded to the espresso machine tech that has been in Starbucks.

I have mixed feelings about Caribou and their ability to become profitable consistently year over year. I think buying shares before a proven growth strategy and business plan with solid cash flows & earnings is purely speculation. If things improve buying below intrinsic value could be lucrative. Buying Starbucks below intrinsic value is an almost sure 2 bagger.

There are some positives for Caribou along with finally getting the brand out in stores and the coming bottled iced coffee drinks with Coke. I like what I'm seeing from Caribou and I hope same store sales stay positive and other segments keep improving and something trickles down to the bottom line consistently then I will maybe take a position if they're at a cheap price.

Related
Caribou Coffee CBOU Needs To Go Back To The Drawing Board
Update on Caribou Coffee CBOU
Starbucks SBUX New Appointment Doesn't Mean They Will Print Money

full disclosure: I don't own any Caribou Coffee,Starbucks or Coca-Cola shares as of this writing.

Who's Looking Out for Shareholders?

The payout ratio of Large-cap companies earnings to its shareholders has decreased consistently over the decades since the 1930's where there was avg 80% payout. Decades ago it was not uncommon for companies to sport huge dividend yields. There has been a slight increase in dividend payouts in the past few years I speculate because of changes in tax laws toward individuals. It is no surprise to me that during the 1990's dividends did little for investor returns.

What I'm concerned about is the possibility of an epidemic of loosely issued stock options grants at companies that destroy shareholder value. Some major large-cap tech companies during the tech bubble were destroying shareholder value by issuing millions upon millions of stock options then having to repurchase those shares with cash that could have been payed to shareholders in the form of dividends or buybacks that actually benefited the investor. Instead they were buying back so EPS would grow at the rate the street was looking for. It harms shareholders to dilute the shares. Would you rather have a 50% cut of a companies profits or a diluted 48%? Is this trend of decreasing dividends and options going to continue and what are the implications to investors? What is happening to the cash? are they just doing more buybacks of options grants in recent years?

And also why don't these companies issue shares instead of options? I don't understand the obsession with options. Just give me the shares. Everybody needs to quit speculating.

Inefficient Markets

From watching the recent news about all the volatility and seeing so many uneducated short-termists in the US markets I believe the markets may be less efficient now than before the internet revolution. This is opposite of the what efficient market theory tries to prove. Efficient market theory an accepted idea in some academia states that with the availability of free information to people who purchase and sell stocks that stocks are priced efficiently. This is bullshit. As many have proven, notably Warren Buffett,“I’d be a bum on the street with a tin cup if the markets were always efficient,”said Buffett.

Before the internet it was harder for the average Jane's to get their hands on up to date info like the professionals about companies financial info. Frankly fewer people were investing as trade commissions were far greater than they are today. My thesis is, even though more info is available markets are less efficient and people recognize intrinsic value less often. So what I'm hypothesizing now is it seems the markets are way less efficient now with available info and access to online brokerages with millions of people who don't know what their doing in regards to the real value of the companies they are trading and speculating. They have little to no education in investing and certainly contribute to over-inflated pricing as happens in any bubble. Is it possible that the bubble's and crashes will be exaggerated by this individual investor with access to brokerage services? It is interesting to see what has happened and will happen in an industry that used to be dominated by an elite few and now encompasses more of the population. I believe that a contrarian strategy of investing in the markets is even more applicable today because of the internet and the popular "following the herd" mentality.

Wednesday, November 14, 2012

Investing Isn't Gambling

I'd like to lay to rest the idea that investing in companies through stock markets is "gambling" or speculation. The reason to invest money in any investment vehicle is to get a return on ones investment. You can do this at any bank with a savings account, money market or certificate of deposit but the returns aren't as high as stocks, bonds, owning a business or real estate

Savings accounts should be FDIC insured so ones risk is extremely minimal in loosing all of ones funds. Government savings bonds are backed by the US government and are a little riskier as interest rates can fluctuate with long term bonds but have little risk in loosing ones principle. The problem with these prior mentioned investments is that the return you get on the initial investment is basically slim to none with inflation factored in.
So where can one look to get huge returns on investment? There is owning or starting a private company, investing in property/owning property, investing in companies through stock markets, high yield bonds like junk bonds or company bonds. As far as

I know the only vehicles that have unlimited return potential are owning a company and investing in companies through the stock market. Are these gambling? If gambling is defined as the voluntary risking of a sum of money on the outcome of a game or other event then no. Companies are not a game or event. Investing in a bond has risk but taking risk is not gambling. While trying to decipher the two I just had an epiphany of one of the best explanations I have read on the matter by Warren Buffett who proves that with the approach of investing in companies by exploiting price and value large returns have been made CONSISTENTLY and evidence shown in this link. loads slowly.
Buffetts essay

http://www1.gsb.columbia.edu/valueinvesting/research/public_archives/DOC032.PDF

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