Fat Yield: Winthrop Realty Trust (FUR),LTC Properties (LTC),TC Pipelines, LP (TCLP),One Liberty Properties, Inc. (OLP),ProLogis (PLD)

Winthrop Realty Trust, Inc. (FUR)
3.5% div yield. A REIT that has grown nicely over recent years. Owns office buildings around the country.

LTC Properties, Inc. (LTC)
6% div yield. 12 times eps. A healthcare real estate investment trust (REIT) that invests primarily in long-term care and other healthcare related properties through mortgage loans, property lease transactions and other investments.

TC Pipelines, LP (TCLP)
6% div yield. dividend has 3% growth rate over last 5 years. Stock trades at $40 up from $15 in 2000. "TC PipeLines, LP is a United States growth-oriented Master Limited Partnership (MLP). It was formed by TransCanada PipeLines Limited to acquire, own and actively participate in the management of United States based natural gas pipelines and related assets."1


One Liberty Properties, Inc. (OLP)
6% div yield. Nice steady, slowly rising dividend going back at least 10 years. "One Liberty Properties, Inc. (One Liberty Properties) is a self-administered and self-managed real estate investment Trust (REIT). The Company acquires, owns and manages a geographically diversified portfolio of retail, industrial, office, health and fitness, and other properties, a substantial portion of which are under long-term leases."2

ProLogis (PLD)
about 3% div yield, 3% growth past 5 years. "ProLogis is a self-administered and self-managed real estate investment trust that operates a global network of real estate properties, primarily industrial distribution properties. It manages its business by utilizing the ProLogis Operating System, an organizational structure and service delivery system, which when combined with its international network, enables ProLogis to meet customers' distribution space needs on a global basis. The Company is organized into three business segments: property operations, fund management and CDFS business."3

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Netflix Undervalued: Netflix vs Blockbuster

With Blockbusters attempt to compete with Netflix in the online movie rentals they may be seen as a legitimate competitor to Netflix, however, the obvious differences in the companies gives Netflix the advantage. Blockbuster's new total access plan where customers can exchange and rent movies in the stores seems like a good idea for the company with thousands of costly stores and employees but the average store only stocks about 6,000 movies compared to 10 times that online. It simply costs more to operate a brick and mortar like Blockbuster. If there are price wars I'm picking Netflix who has years of experience building up their online company vs. Blockbuster burdened by fixed costs. Netflix just had a hiccup with revenue and earnings probably because of Blockbuster but longer-term they have this market over Blockbuster and Movie Gallery. It's not smart to predict to far, say 5+ years in a world of rapidly changing technology however. Who knows what will happen with Tivo and the future home entertainment networks.

Netflix as of May 10th 2007 is trading for $21.91 per share. Fear and market sell offs that drive down stock prices but don't effect long-term prospects are some of the best buying opportunities. Netflix is currently selling for about 6 times free cash. Five year average net margins of 3% compared to Blockbusters -8%.
If Netflix can grow free cash flow to 354.31 in five years the stock currently is undervalued using a discounted cash flow model.
354.31 / (1+10%)raised to 5 years= net present value of cash flow 214, below its current 220.


disclosure: author doesn't own any shares of Netflix

Dearborn Bancorp DEAR

This Michigan based Bank holding company Dearborn Bancorp, Inc. (DEAR) on the Nasdaq offers a range of financial products and services mostly to commercial small and mid sized business. They just purchased Fidelity Financial Corporation in Michigan for $70.5 million in cash and will be taking their name. It was interesting to see how management is very candid in the annual report about how their name has limited them in their success so this new name and acquisition if all goes well should be a great achievement for the company which just reached total assets of $1 billion after the purchase. They have grown extremely fast to get there opening in 94' with $7 mil.

I was really impressed with managements discussion and honesty. I was curious about them not paying a cash dividend and they addressed that by saying they are still in a growth mode. They have payed stock dividends. They missed earnings guidance which I see as no big deal considering they can keep up the growth long-term. Earnings growth over the last 5 years has been at 25%. The stock has been hated over the last year now trading at around $15 a share a three year low. Some companies only say they are shareholder oriented but Dearborn means it. Management has just said shares are undervalued and are buying back up to 400,000 of the Company's common shares.

John Demmer, the Company's chairman, announced the Board's action. He added, "Given our Company's unusually strong capital position and the conditions in the market for the stock of all Michigan banking organizations, our board determined that this stock repurchase plan may be a prudent use of our ample resources that serves the best interests of all of our shareholders."

There are big risks for the company like competition, economic weakness in Southeast Michigan and a flat yield curve.

Company Delivers But the Stocks Don't?

Walmart and Coca-cola have performed nicely over the last several years but the stocks haven't. Walmart's revenues and profits have increased greatly since 2000 with earnings per share increasing from $1.25 to $2.72 but the share price hasn't reflected it. Coca-cola has grown earnings at a decent rate and the shares are flat. This rattles me in a way although I realize stock prices aren't efficient and even in many cases sensible especially in the short-term. It means that the expectations investors had for these companies I suppose didn't live up to what was expected. The stocks were somewhat overvalued but not that overvalued.

Walmart hasn't done a perfect job of allocating capital. They pumped a lot into marketing without any huge improvements in higher priced product mix like Target. Walmart has its niche as low prices only compared to Targets more diverse offering of higher priced items. Walmarts position and model should serve it well though and certainly has in the past.

This questions my ideologies. Warren Buffett and many great investors have said if a company does well the stock eventually follows. Some people think management is responsible for the stock price by giving returns to shareholders like at Disney and that Home Depot's ceo was responsible for HD's poor share price performance and complained. What more can management like Walmart's, Home Depot's and Coke's do than grow shareholder equity and earnings while maintaining its competitive position? In general isn't this why business value and investors stockholder equity grow? Does a great company's share price in traded capital markets have to rise over time or is it all dependent on psychology? It seems the investors desire to own a company via its stock is unpredictable and therefore so is the stock price EVEN WHEN THE FUNDAMENTALS ARE TAKEN INTO ACCOUNT. Psychology makes the markets inefficient and are responsible for investing being almost as much art as science. One of the most common defenses of the market being ineffecient is that a company trades because of earnings and earnings growth discounted for the future. I think examples like this might debunk that explanation.

Best Buy

Why buy Best Buy. First of all its the leader in its industry. Circuit City just made the genius decision to fire its highest paid, best floor staff to cut costs. Radio Shack brick and mortars are less than half the size. Destroying the competition isn't a good enough reason to invest. The company is operated well and has consistent rising earnings per share and good cash flow and even pays a dividend. The company is customer oriented. They just announced that 200 Apple in-stores will be implemented. This is a sleep at night stock in my opinion because of their competitive advantage and likely stable future prospects. I'm not sure in 15 years how the internet will factor though.

None of this matters though unless the shares are undervalued. The company can fetch a premium stock price and can grow EPS at 15% year over year. Its currently selling for about 17 times earnings at $47. I think at a PE in the low teens it may be undervalued this year. It could become more attractive in a market sell off or recession which would be a good time to pick up shares.

Update on Caribou Coffee (CBOU)

There is good and bad for Caribou. More bad but a little hope I feel. 1st quarter same store sales fell 1% while first-quarter sales where up 10 percent to $61.5 million.The company said other sales, which consist of sales to commercial customers, licensees, mail order and Internet sales, grew 39 percent to $3.7 million from $2.7 million a year ago. If I was a shareholder I wouldn't want to see anymore red. I think its better off to get profitable and grow slowly than to open stores like crazy and hope for the best. I guess this is why they are getting help from Tom Zosel Assoc. See link below. Heck, even stay out of Starbucks way if you have to and focus on the better segments like bean sales for awhile. I wonder where these analysts come up with the price target of 8 for Caribou. Price targets are useless in my opinion. Earnings guidance isn't even a science. Anyway, I might pay a little more than liquidation value right now for CBOU assuming they ever make money again.

Tom Zosel Associates Helps Caribou Coffee Model Its Supply Chain Network to Tap Logistics Efficiencies

http://biz.yahoo.com/bw/070409/20070409005041.html?.v=1

Apparently they blamed the weather for impacting comps. I think its unaccountable when companies blame the weather for not getting it done.
It's going to be awhile until the company shows any hope of being worth investing in. Disclosure:author has no position in CBOU

Screen For Deep Value

I was looking for companies selling for less than what they are worth with a zach's stock screen recently. I need about a week and 5 people to look deeper unfortunately because I couldn't find a company in this screen that didn't get me interested. Interested that it was maybe undervalued that is. A lot of financials were found with the low price to book and lack of debt to equity filter but not all. What it mostly found was small companies in pretty good to great financial shape with growth potential that are maybe sold off for no good reason. The low market cap is important because its harder to find great large-caps on sale generally. Looking for smaller companies with growth compares to Bass fishing where nobody else is fishing. You might get better results casting where nobody else has looked. You have to scavenge the bottom of the lake for that 20 pound lunker large-mouth. In this case they are maybe lunker 40 baggers.
A couple banks looked like they could be good long-term investments or takeover targets. Access Nat. Bank ANCX , American River Bankshares AMRB. This retailer United Retail Group Inc. (URGI)may be cheap considering their customers fashion tastes don't change and they keep good brand loyalty. This scares me about clothing companies though even the best. I haven't looked at all of these companies instead focused on a lot with high ROI and low price/cash flow. some that caught my eye...

ASI
CLDN-this company has delivered. Literally and figuratively.
OPMR
AMCP
CLMS

Characteristics of the Screen

# OF COMPANIES: 39

Market Cap (millions)<= 400
Price/Book <= 3
Price/Cash Flow <= 20
PEG Ratio <= 1
Current ROE (TTM) >= 10
Current Ratio >= .8



AMCP
AMRB
ANCX
ASI
BBSI
CACH
CBON
CLDN
CPE
CPII
CPSS
CVCO
DEIX
DELTA FINANCIAL
EPEX
GEHL
GIFI
IBCA
ICTG
LCUT
MBWM
MESA
MIG
MRLN
NAVR
NNBR
OPMR
PROS
RADN
SAIA
SNIC
TBSI
TTMI
UDRL
UPFC
URGI
VTNC
XJT
XPRT LECG CORP -found them before actually

Thoughts on Valuation part 1

I've read a lot of methods of valuation for public companies. One striking consistency I've seen recently even among professional writers is comparing U.S. companies PE ratio, forward or trailing to the S&P 500 or the market.

I don't think PE is the greatest ratio for determining value. I don't think any ratio alone can find the intrinsic value of a company but it can be useful to get a ballbark idea in some cases. Having said that it would seem more usefull to compare the companies PE or price to free cash flow, EV to fcf/ebit etc. to another company in its same industry. This company competes next to it unlike the overall market with thousands of different companies with different
products,services,accounting,growth prospects and so forth.

Maybe they are making the case that the S&P 500 could be your opportunity cost so why invest in this company with its current valuation when you can buy the market for cheaper through a fund or etf. An investor should always consider opportunity cost but I don't see the logic in this comparison because the US economy and Large-Cap stocks have very different prospects and barriers than say one single company. Say the company has a pe of 10 and the market is 20. Who knows what the market is going to do. The FED may not even know. Say the company grows at 2% a year and the market 15. This has to be taken into account as well. The companies ability to compete and maintain revenues among many other measures seems more important than a simple valuation ratio comparison to the overall market or index. In fact, it seems out of place.

Slumping Soft Drinks Coca Cola KO & Hansen Natural HANS

If there was an alternative/ energy drink etf this might present a good opportunity for some returns. But for a "know something investor" why buy into an etf when you can pick the best individual companies in it? As John Maynard Keynes said, "to carry ones eggs in a great number of baskets without having time or opportunity to discover how many have holes in the bottom is the surest way of increasing risk and loss."

"Beverage Digest reported that the total sales volume of soft drinks in the United States fell 0.6 percent in 2006, following a 0.2 percent decline in 2005. The industry sold 10.16 billion cases of soft drinks in 2006, down from 10.22 billion in 2005(reuters.com)."The carbonated soft drink industry has moved from roughly 3 percent growth in the 1990s to modest declines in the last two years," Beverage Digest reported, saying the estimate included energy drinks, a very fast-growing segment."

I see Coca-Cola KO with the largest market share in softdrinks and a flat share price over the last 10 years and Pepsi PEP not a true drink play as it is the largest producer of salty snacks. I wonder if these types of companies are going to grow as fast as these new energy, coffee, healthy drink companies are? Supposedly people are looking for healthier and more invigorating drinks and foods for that matter, so one should find these companies and see if there is any hidden value. If the others are valued the same as Hansen Natural Corp. (HANS) then it may not be strikingly obvious. Hansen sports huge multiples but has great returns on equity with little to no debt. Hansen has had its time and this all could be just a fad. I haven't found any other independent companies but they are probably the same. Valuation isn't easy and is far from precise because you can't see into the future. Was Google overvalued at $150? It looked like it to me then. The big guys will probably have the only leading energy drinks next to RedBull in a few years because they're big and they can. Capitalism at its essence.




1. http://today.reuters.com/news/articleinvesting.aspx?type=comktNews&storyid=URI:2007-03-08T194514Z_01_N08161106_RTRIDST_0_BEVERAGEDIGEST-UPDATE-3.XML&rpc=11

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/