GE @ $14
New York, BizBlog100@blogspot.com
GE has jumped sharply as the current yield has returned to 2.9%, (assuming a $.40 12-mo forward rate) almost in line with peer monsters Exxon 2.5% and Wal-Mart at 2.2%. Of course, GE’s investment profile is in many ways not comparable to petroleum or retail industry leaders. For many, the apt comparison is a nationwide bank.
GE has bank-like debt of $525 billion; more than Wells Fargo, less than Bank America and Citibank---about the same as JP Morgan. But, unlike the banks, GE primarily finances its own products and controls the collateral. The GE portfolio is at risk for the general decline in corporate creditworthiness. But the Company has been little touched by the securitization aspects of the financial markets and is a beneficiary of federal commercial paper guarantees while avoiding TARP regulation.
Management projects GE Capital profits at $2-3 billion, down from double that level in earlier years. The wonder is not that the dog sings badly…
GE’s financing activities are en enormous strength, expanding the profitability of core technologies by retaining the financing profit (like owning real estate) and also competing effectively for allied service contracts. I like the stock long term as a company that will grow. In the meantime, the 2.9% dividend provides some protection.
BizProf100
end
Thursday, May 7, 2009
Fit To Own
NYT @ $ 5
New York, BizBlog100@blogspot.com
I added a starter position in New York Times (NYT), on the theory that the relentless criticism by the New York Post is both right and wrong. The depiction of a one-time preening queen, now local harlot, has zing to it.
The announced consolidation of certain weekday features is maybe a welcome sign that the Company is sincere is pursuing cost discipline. While probably not a root cause of recession, I have long thought the lifestyle sections and ads were indulgent. The weekly real estate broker catalogs were/are a particularly egregious waste of fiber.
Management is trying to apply financial discipline to the newsroom salaries, while also making demands on print union employees to share the sacrifice.
But the union is not the problem. NYT earns a 45-50% gross profit, ample margin to maintain production and distribution cost structure.
The earnings problem stems from a 25% decline in print advertising and 1% circulation loss. Another negative was the absolute decline in electronic revenue, despite higher profits from pay per click programs. And the sales problem is especially severe in Boston. Go figure.
Apparently the Company is giving no guidance about future revenue goals, albeit confirming that 2Q09 sales are still slow. But advertising will assuredly recover, possibly for this year’s Christmas (comparisons are easy; remember $140 oil?)
Reports from Seattle, San Francisco and especially Chicago have conditioned investors to discount newspaper stocks. Fair enough! But NYT is hovering at a historic low and New York is not Seattle. Debt, at about $1 billion, compares favorably to the $11 billion loaded on Tribune Company. The New York Times has brand power and a vibrant local and professional constituency.
I am amused to calculate that Yahoo has a market equity value of $20 billion, or 3X revenue. NYT’s ABOUT.com has revenue annualizing just above $100 mill. This implies that the electronic component of NYT might be valued at half the total value of NYT ---which makes the Company a very low priced business.
Family control is protected by 2-class voting structure. While this likely suppresses the prospect of a hostile campaign, it does not address the needs and fears of the now dividend-less Sulzberger clan.
This is a straw hats in winter type of investment. Newspaper advertising will assuredly recover. But, even if the Post is correct and Pinch is punched out, a strategic valuation will be well in excess of the current sub-$700 million market cap.
BizProf100
end
New York, BizBlog100@blogspot.com
I added a starter position in New York Times (NYT), on the theory that the relentless criticism by the New York Post is both right and wrong. The depiction of a one-time preening queen, now local harlot, has zing to it.
The announced consolidation of certain weekday features is maybe a welcome sign that the Company is sincere is pursuing cost discipline. While probably not a root cause of recession, I have long thought the lifestyle sections and ads were indulgent. The weekly real estate broker catalogs were/are a particularly egregious waste of fiber.
Management is trying to apply financial discipline to the newsroom salaries, while also making demands on print union employees to share the sacrifice.
But the union is not the problem. NYT earns a 45-50% gross profit, ample margin to maintain production and distribution cost structure.
The earnings problem stems from a 25% decline in print advertising and 1% circulation loss. Another negative was the absolute decline in electronic revenue, despite higher profits from pay per click programs. And the sales problem is especially severe in Boston. Go figure.
Apparently the Company is giving no guidance about future revenue goals, albeit confirming that 2Q09 sales are still slow. But advertising will assuredly recover, possibly for this year’s Christmas (comparisons are easy; remember $140 oil?)
Reports from Seattle, San Francisco and especially Chicago have conditioned investors to discount newspaper stocks. Fair enough! But NYT is hovering at a historic low and New York is not Seattle. Debt, at about $1 billion, compares favorably to the $11 billion loaded on Tribune Company. The New York Times has brand power and a vibrant local and professional constituency.
I am amused to calculate that Yahoo has a market equity value of $20 billion, or 3X revenue. NYT’s ABOUT.com has revenue annualizing just above $100 mill. This implies that the electronic component of NYT might be valued at half the total value of NYT ---which makes the Company a very low priced business.
Family control is protected by 2-class voting structure. While this likely suppresses the prospect of a hostile campaign, it does not address the needs and fears of the now dividend-less Sulzberger clan.
This is a straw hats in winter type of investment. Newspaper advertising will assuredly recover. But, even if the Post is correct and Pinch is punched out, a strategic valuation will be well in excess of the current sub-$700 million market cap.
BizProf100
end
Thursday, April 23, 2009
A 2Q Philosophy
DJI @ 7,840
Flowers First!
New York, BizBlog100@blogspot.com Roubini remains a doom monger, thank heavens! At least someone besides Glen Beck is not basking in the satisfaction of the April shower of gains. In particular, consumer durables (F, GT) rebounded from 20-year lows as the government made it clear that auto spending will be stimulated. Even better, Goldman Sachs echoed my comment that Ford is a beneficiary of GM’s demise. Our credit card position advanced, while the software positions posted mild gains enhanced by a happy turn in JAVA, as Sun was bought by Oracle.
I remain fully invested, retaining only a 10% margin cushion. I do have some short losses to liquidate if the market dips. But the DJI remains 40% below 12-month peak and I remain convinced this is a historic time to accumulate select equities.
The market can continue to rise until the recovery, defined by industrial production, is evident. Based on projected auto build, this cannot happen until the fourth quarter. Once the fact of a statistical recovery is evident, the market path will be determined by the character of the recovery, which will be defined by employment trends. If the business recovery is marked solely by productivity gains, corporate valuations will suffer. If, on the other hand, there is any consensus or even whiff of a broader prosperity, valuations can expand.
There are enormous risks investing risks today. For this reason, I prefer owning large, market leading companies. I avoid the financial sector, accepting only AXP and DFS, each of whom now has the good fortune to borrow at a government rate but otherwise minimum encumbrance.
In the meantime, I see Ford and Goodyear as important strategic assets. Whatever the future shape of credit, currency and commodities, their market share and brand equity will remain central to any national or global industrial strategy. Ford’s share of the domestic light truck market is likely to pop from its current 22% (GM and Chrysler, hereto at 20% at 12% look like dead men walking). The current stock prices are far below company and business norms, based on both profit and deal prospects. IU also notice that Toyota stock price is strong.
I added technology, buying Intel and holding GE through short term loss. The chance to add a premier growth company at a 3.7% yield (more than double its lesser competitors) is compelling. My idea is that when consumer driven investments stall, tech stocks will pick up momentum. Ten years ago INTC had $26 billion revenues; today sales are $38 billion. If the company is able to return to earlier margin levels, earnings growth will be spectacular. INTC may be hostage to the PC market --- but that’s not all bad as the TV merges with the PC.
I also added a starter position in New York Times (NYT), on the theory that the relentless criticism of the New York Post is both right and wrong. The depiction of a one-time preening queen, now local harlot, has zing to it. But the forecasted demise as part of the nationwide newspaper decline misunderstands the real value of the Times and also ignores cyclical nature of advertising. Tribune Company had $11 billion debt at bankruptcy; NYT less than $1 billion. This is a straw hats in winter type of investment. But, even if the Post is correct, and Pinch is punched, a strategic valuation will be well in excess of the current sub-$700 million market cap.
end
Wednesday, February 25, 2009
Ford Motor Added
F- $2
A Better Idea
New York, BizBlog100@blogspot.com The tasks confronting Ford management are awesome. Their current product mix is overwhelmingly heavy vehicles and they are fully exposed to consumer retrenchment. Current unit volumes are so low that it is difficult to absorb engineering and tooling costs. But I don’t think their survival is at issue.
I have seen F successfully restructure and resuscitate. In the 1980’s, the Company turned Europe from loss to big profit. The same happened domestically in the 1990’s, powered by Ford’s leadership position in SUV and light truck.
I don’t know the product equation that will drive the next cycle; I’m skeptical that Fiesta imports can be a meaningful profit contributor. But I am confident there will be a recovery in volumes --- perhaps even with big cars Americans have always loved!
But the upside is the real prospect of a GM bankruptcy! The opportunity is in light truck market share. F & GM each have about 20% share, Chrysler has about 10%. It is critical to their domestic profitability. I think the prototypical truck buyer will have several reasons to favor F over a “re-structured” GM. I foresee a meaningful shift in market share in the most attractive segment of the auto market (by profit contribution). Each 1% shift in light truck market share represents $1-2 billion in annual sales.
To date, Ford is taking the high road in public comment. But they have clearly differentiated their business strategy from their bailout-seeking competitors. I suspect the dialogue will sharpen considerably as GM’s fortunes become hostage to bureaucracy. And I think it will make a difference.
Disclosure: I drive an Explorer, my second; preceded by a beloved T-Bird.
BizProf100
A Better Idea
New York, BizBlog100@blogspot.com The tasks confronting Ford management are awesome. Their current product mix is overwhelmingly heavy vehicles and they are fully exposed to consumer retrenchment. Current unit volumes are so low that it is difficult to absorb engineering and tooling costs. But I don’t think their survival is at issue.
I have seen F successfully restructure and resuscitate. In the 1980’s, the Company turned Europe from loss to big profit. The same happened domestically in the 1990’s, powered by Ford’s leadership position in SUV and light truck.
I don’t know the product equation that will drive the next cycle; I’m skeptical that Fiesta imports can be a meaningful profit contributor. But I am confident there will be a recovery in volumes --- perhaps even with big cars Americans have always loved!
But the upside is the real prospect of a GM bankruptcy! The opportunity is in light truck market share. F & GM each have about 20% share, Chrysler has about 10%. It is critical to their domestic profitability. I think the prototypical truck buyer will have several reasons to favor F over a “re-structured” GM. I foresee a meaningful shift in market share in the most attractive segment of the auto market (by profit contribution). Each 1% shift in light truck market share represents $1-2 billion in annual sales.
To date, Ford is taking the high road in public comment. But they have clearly differentiated their business strategy from their bailout-seeking competitors. I suspect the dialogue will sharpen considerably as GM’s fortunes become hostage to bureaucracy. And I think it will make a difference.
Disclosure: I drive an Explorer, my second; preceded by a beloved T-Bird.
BizProf100
Goodyear Down 36%
GT- $5
The Wrath of Sol?
New York, BizBlog100@blogspot.com The prospect of an extended production lull, disappointing earnings and a continuing credit watch have caused a 2-month, 36% decline in GT. Imminent bankruptcy at #1 customer GM and the general condition of automotive life in mid-America are other factors.
These fundamentals are reinforced by the reduction in GT investment rating by Sol Ludwig, tire industry sage at Key Bank Investments (and other places before). I don’t know Sol’s reasoning but the foregoing are reasonable explanations, perhaps accentuated by general market conditions.
I remain a GT stockholder because I have seen tire stocks come off the cycle bottom to significant earnings and strategic appeal. Goodyear is a primo name and will prosper, albeit later.
The small reductions in domestic tire capacity in no way offset the overall decline in volume and increased offshore capacity. But, from current levels, industry volume will either get better --- or get a little worse and then get better. The stocks move on production!
A weaker dollar will help, since a majority of GT sales are abroad and a weaker dollar will challenge import pricing. But maybe the greatest benefit of the weaker dollar will be the Semi-Sovereign wealth funds accumulating in Asia. These and related entities are investing extensively in (China, Thailand, Indonesia, Malaysia) in tire capacity. It is inconceivable to me that they will not invest the incremental $2-$3 billion necessary to acquire a brand of Goodyear stature.
Back to Sol. I am not a current client so I have not seen his recent work but I recall earlier opinion changes and the only sure thing we know is that his outlook will brighten within a few months.
BizProf100
The Wrath of Sol?
New York, BizBlog100@blogspot.com The prospect of an extended production lull, disappointing earnings and a continuing credit watch have caused a 2-month, 36% decline in GT. Imminent bankruptcy at #1 customer GM and the general condition of automotive life in mid-America are other factors.
These fundamentals are reinforced by the reduction in GT investment rating by Sol Ludwig, tire industry sage at Key Bank Investments (and other places before). I don’t know Sol’s reasoning but the foregoing are reasonable explanations, perhaps accentuated by general market conditions.
I remain a GT stockholder because I have seen tire stocks come off the cycle bottom to significant earnings and strategic appeal. Goodyear is a primo name and will prosper, albeit later.
The small reductions in domestic tire capacity in no way offset the overall decline in volume and increased offshore capacity. But, from current levels, industry volume will either get better --- or get a little worse and then get better. The stocks move on production!
A weaker dollar will help, since a majority of GT sales are abroad and a weaker dollar will challenge import pricing. But maybe the greatest benefit of the weaker dollar will be the Semi-Sovereign wealth funds accumulating in Asia. These and related entities are investing extensively in (China, Thailand, Indonesia, Malaysia) in tire capacity. It is inconceivable to me that they will not invest the incremental $2-$3 billion necessary to acquire a brand of Goodyear stature.
Back to Sol. I am not a current client so I have not seen his recent work but I recall earlier opinion changes and the only sure thing we know is that his outlook will brighten within a few months.
BizProf100
Wednesday, January 21, 2009
Goodyear Makes Change
GT- $5
Again competing for stupid management award?
GT had $350 million stashed in The Reserve Fund, the institutional quality money fund that startled investors by breaking the buck, meaning the money fund lost principal --- which is not supposed to happen. Actual losses to the Company are modest, perhaps $2 million. But the greater danger is rekindling memories of the bad old days when the Akron headquarters was in the grip of ignorant and ingenuous leaders.
Remember Celeron? This $450 million dollar acquisition of gas pipeline operations not only coincided with a spiking energy market but also stripped out cash at a time of high interest rates for a business about which management knew nothing.
Even better, the Celeron deal included The All-American Pipeline, a harebrained scheme to ship high-sulfur fuel from California to Texas (my snarky remembrance is asking COO Tom Barret if the phrase “coals to Newcastle” meant anything to him).
I certainly remember CEO Bob Mercer telling analysts facts later disproved about clearances, costs and earnings.
Perhaps this time is different; perhaps the shakeup in the financial department sends a message that excellence, not excuses is the standard. Maybe not.
But it doesn’t matter because, like 1984, 2009 is a time to own GT. The usual cycle argument is compelling at the current stage when tire plants are being shut down and oil price is low. With tire sales down 6% in 2008 and a further 1-2% in early 2009, the aftermarket will bottom out this year --- with further gains in 2010 as OEM sales recover.
More generally, GT’s strategic value as a brand marketer far exceeds the nominal market value of $1.4 billion. The appeal of this global asset (premium quality, premium market) will appreciate in the inevitably inflationary economy.
The reward horizon depends on management. In the best case, they will engineer ongoing productivity and marketing improvements, fully leveraging the Company’s $17 billion in sales. Alternately, as in the late 80’s, a catalyst will emerge.
Again competing for stupid management award?
GT had $350 million stashed in The Reserve Fund, the institutional quality money fund that startled investors by breaking the buck, meaning the money fund lost principal --- which is not supposed to happen. Actual losses to the Company are modest, perhaps $2 million. But the greater danger is rekindling memories of the bad old days when the Akron headquarters was in the grip of ignorant and ingenuous leaders.
Remember Celeron? This $450 million dollar acquisition of gas pipeline operations not only coincided with a spiking energy market but also stripped out cash at a time of high interest rates for a business about which management knew nothing.
Even better, the Celeron deal included The All-American Pipeline, a harebrained scheme to ship high-sulfur fuel from California to Texas (my snarky remembrance is asking COO Tom Barret if the phrase “coals to Newcastle” meant anything to him).
I certainly remember CEO Bob Mercer telling analysts facts later disproved about clearances, costs and earnings.
Perhaps this time is different; perhaps the shakeup in the financial department sends a message that excellence, not excuses is the standard. Maybe not.
But it doesn’t matter because, like 1984, 2009 is a time to own GT. The usual cycle argument is compelling at the current stage when tire plants are being shut down and oil price is low. With tire sales down 6% in 2008 and a further 1-2% in early 2009, the aftermarket will bottom out this year --- with further gains in 2010 as OEM sales recover.
More generally, GT’s strategic value as a brand marketer far exceeds the nominal market value of $1.4 billion. The appeal of this global asset (premium quality, premium market) will appreciate in the inevitably inflationary economy.
The reward horizon depends on management. In the best case, they will engineer ongoing productivity and marketing improvements, fully leveraging the Company’s $17 billion in sales. Alternately, as in the late 80’s, a catalyst will emerge.
Subscribe to:
Comments (Atom)
