A Blog for those posters from the SVNT message board on Yahoo! who share a special camaraderie and mutual respect for each and their investment ideas, and who would like to extend that positive experience into other profitable opportunities in the future.
Others should feel free to make comments that add information, ask questions, or otherwise clarify topics discussed here. I can't say that I won't moderate such comments, but only in egregious cases (insulting, spamming, etc.)
Tuesday, November 16, 2010
So, Dear Readers, What Are Some of YOUR Ideas?
Leave a comment with a short story for your favorite name.
Doesn't have to be a Biotech; Doesn't have to be a Microcap; Doesn't have to have a High FCF Yielder; Doesn't have to be a Turnaround
Bob, I have built a big position in CSCO since the drop in price based upon their conference call. There is no better CEO in the country in terms of a technical company. Chambers has been the best CEO of a technical company for as long as I can remember. He has consistently under promised and over achieved. He did not do that in the last quarter and probably will have one more rough quarter.
However, by an measure PE, price to book, price to sales, etc, clearly CSCO is underpriced by at least 25%. Taking into consideration that they will begin paying a dividend next summer coupled with a better technical spending environment by companies should lead to a 25% increase in share price by next summer.
I am willing to wait and bet on Chambers and CSCO vast product line. They have also been very good at integrating acquisitions into their fold. Probably no one has be better than ORCL but CSCO has be pretty good. I used to invest solely in technical companies in the 80's and I think now is the time to invest again in technical companies. I believe CSCO is the most undervalued tech out there particularly at less than $20/share. I have 15% of my portfolio invested in CSCO all of which has been purchased since the conference call.
Interesting Michael. the question that I have is this: how do you value CSCO?
I actually looked at this question earlier today. The market cap is about 108 billion. I used the "Free Cash Flow" from the last 4 reported quarters as my measurement of "value."
I define FCF as Cash From Operations" less "Capital Spending." The result is the amount of cash that can be diverted to shareholders after the company reinvests in its business (capital Spending) and in working capital (i.e. recievables, payables, inventories, etc.).
I calculate the ratio of the FCF to the Market Cap as what I call the "Free Cash Flow Yield" and I compare it from one company to another. Of course, the yield from a company like CSCO is much more certain than the yield from a company such as, for example, Las Vegas Sands (LVS).
The conclusion is that an investor should be willing to accept a lower 'FCF Yield" from CSCO than from "LVS" because the LVS cash flow is less certain than that of CSCO.
I found that the CSCO "FCF Yield" was about 8.5%. That's pretty good, in my view. I actually rtraded in CSCO today: I sold the November 19 puts this morning for 6 cents. They expire on Friday. If I get the stock put to me I can handle owning it at $19 if it dips below there, as I expect such a dip to be temporary. Otherwise, I keep the 6 cent option premium and it pays for a nice dinner out on Friday!
FCF is a great financial measure since it is a much better indicator than earnings yield. Your FCF yield indicates to me that CSCO could easily afford a 2% dividend yield; however, they will probably start in the 1% range.
In answer to your question, I value the company based upon the industry it is in, the book value, forward growth rates, dividend yield and intangibles such as management. These are the types of indicators that I value as an investor. I still look at PE for which CSCO has between an 10-11 PE for a company that has historically grown at double digit rates in terms of sales. The future growth rate may only be in the high single digits but with the start of a dividend for a company that generates as much cash as they do, it is clearly undervalued. You can apply a multiple to the earning or the cash flow per share and come up easily with $25/share.
I agree with the similarities of MSFT and CSCO in regards to cash flow measures. MSFT does not IMHO has the growth record of CSCO. I am really looking at buying MSFT for the first time in many years as a value play. I do not like Balmer nor do I like MSFT products; however, there is no doubt that the Linux/Open Office movement has been much slower to develop and eat at the MSFT market share. It is a good value play but I would like to see it retreat a bit before purchasing.
Bob,
ReplyDeleteI have built a big position in CSCO since the drop in price based upon their conference call. There is no better CEO in the country in terms of a technical company. Chambers has been the best CEO of a technical company for as long as I can remember. He has consistently under promised and over achieved. He did not do that in the last quarter and probably will have one more rough quarter.
However, by an measure PE, price to book, price to sales, etc, clearly CSCO is underpriced by at least 25%. Taking into consideration that they will begin paying a dividend next summer coupled with a better technical spending environment by companies should lead to a 25% increase in share price by next summer.
I am willing to wait and bet on Chambers and CSCO vast product line. They have also been very good at integrating acquisitions into their fold. Probably no one has be better than ORCL but CSCO has be pretty good. I used to invest solely in technical companies in the 80's and I think now is the time to invest again in technical companies. I believe CSCO is the most undervalued tech out there particularly at less than $20/share. I have 15% of my portfolio invested in CSCO all of which has been purchased since the conference call.
Interesting Michael. the question that I have is this: how do you value CSCO?
ReplyDeleteI actually looked at this question earlier today. The market cap is about 108 billion. I used the "Free Cash Flow" from the last 4 reported quarters as my measurement of "value."
I define FCF as Cash From Operations" less "Capital Spending." The result is the amount of cash that can be diverted to shareholders after the company reinvests in its business (capital Spending) and in working capital (i.e. recievables, payables, inventories, etc.).
I calculate the ratio of the FCF to the Market Cap as what I call the "Free Cash Flow Yield" and I compare it from one company to another. Of course, the yield from a company like CSCO is much more certain than the yield from a company such as, for example, Las Vegas Sands (LVS).
The conclusion is that an investor should be willing to accept a lower 'FCF Yield" from CSCO than from "LVS" because the LVS cash flow is less certain than that of CSCO.
I found that the CSCO "FCF Yield" was about 8.5%. That's pretty good, in my view. I actually rtraded in CSCO today: I sold the November 19 puts this morning for 6 cents. They expire on Friday. If I get the stock put to me I can handle owning it at $19 if it dips below there, as I expect such a dip to be temporary. Otherwise, I keep the 6 cent option premium and it pays for a nice dinner out on Friday!
Jay Hains/aa
Jay,
ReplyDeleteFCF is a great financial measure since it is a much better indicator than earnings yield. Your FCF yield indicates to me that CSCO could easily afford a 2% dividend yield; however, they will probably start in the 1% range.
In answer to your question, I value the company based upon the industry it is in, the book value, forward growth rates, dividend yield and intangibles such as management. These are the types of indicators that I value as an investor. I still look at PE for which CSCO has between an 10-11 PE for a company that has historically grown at double digit rates in terms of sales. The future growth rate may only be in the high single digits but with the start of a dividend for a company that generates as much cash as they do, it is clearly undervalued. You can apply a multiple to the earning or the cash flow per share and come up easily with $25/share.
There is no doubt that it is a cheap stock.
ReplyDeleteHowever, I would prefer a stock that at least shows some signs of not going down/underperforming all the time.
Most of what we have said about CSCO (with the exception of management, I'm no Ballmer fan), could be said about MSFT.
Jay
I agree with the similarities of MSFT and CSCO in regards to cash flow measures. MSFT does not IMHO has the growth record of CSCO. I am really looking at buying MSFT for the first time in many years as a value play. I do not like Balmer nor do I like MSFT products; however, there is no doubt that the Linux/Open Office movement has been much slower to develop and eat at the MSFT market share. It is a good value play but I would like to see it retreat a bit before purchasing.
ReplyDeletesoftware companies in delhi providing end to end software solutions. As a software development company based out of India,
ReplyDelete