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Updated: 4 hours 58 min ago

Bubble Brain -- And Why It's OK To Sell Early

29 Sep ’14

“We as a firm are always going to buy too soon and sell too soon. And I’m very at peace with that.” –Seth Klarman, Baupost Group

When JP Morgan was asked how he had become so rich he replied, “I sold too early.” – JP Morgan, famous financier

“The riskiest moment is when you’re right. That’s when you’re in the most trouble, because you tend to overstay the good decisions.” – Peter Bernstein, legendary investor

“Make a rule: Whenever an investment doubles in price, find out who has the most negative view of it and give this devil’s advocate a full hearing.” – Jason Zweig, author of Your Money and Your Brain

“I made my money by selling too soon.” – Bernard Baruch, financier and investor

“Be fearful when others are greedy, and greedy when others are fearful." – Warren Buffett, legendary investor

Even though sage value investors espouse the

Can Pfizer Grow Without A Big Acquisition?

29 Sep ’14

Like many of its peers with aging drug pipelines, Pfizer (NYSE: PFE) has been aggressively acquiring growth over the last few years and bid $118 billion for AstraZeneca (NYSE: AZN) in May. With the deal likely off the table, investors need to evaluate whether Pfizer can grow without a big acquisition. Growth in its existing portfolio, combined with stronger profitability and fundamentals give the company the resources to provide a good total return even without a major acquisition.

Will the company chase a deal?

AstraZeneca reported promising early results for its combination of MEDI4736 and tremelimumab for the treatment of lung cancer over the weekend. Safety data reported efficacy for 18 of the 24 patients in the study and the company said the tolerability profile was encouraging. Five of the 18 patients experienced tumor shrinkage as well.

AstraZeneca is likely off the table now for Pfizer after the initial $118

Where Nike Is Experiencing Growth

29 Sep ’14

Nike Inc. (NYSE:NKE) reported an excellent first quarter for fiscal 2015, beating earnings estimates by 24%. Nike is experiencing growth in specific product categories such as football, running, and the women's business. Nike is also experiencing growth in certain regions. Nike has momentum on its side, so I think that the company's continued efforts are bullish for the stock over the long-term.

Growth in Product Categories

Global football revenue increased at a strong double-digit pace in Q1. Nike had the leading footwear market share in the nine largest football markets throughout the world. Since football players of all levels have a need for quality, functional equipment, Nike has responded to their needs. From football cleats, socks, duffel bags, gloves, Fuelbands, apparel, and of course footballs, Nike has numerous products for both football players and fans. Since football fans have attachments to specific teams, Nike offers team-specific apparel that satisfies that

October Numbers Should Keep Forex Markets Volatile

29 Sep ’14

Each month we begins with a flurry of reports which may test the current trading assumptions. Currently traders believe the USD is king once again. US economic growth is outpacing that in Europe and Japan as the USD continues to be favored versus those currencies. The massive QE in the US is on a glide to be eliminated by the Fed. In Europe the ECB is struggling to find programs which will increase the money supply in a fashion that does not frighten the Germans, who have veto privileges over the ECB actions. Unfortunately for the ECB, its actions are hindered by political as well as economic considerations.

On Thursday we get the results of the ECB's deliberations on interest rates, which will be followed with the Draghi press conference. With interest rates already at zero and a negative charge for money parked in the central bank, how many

Utility Equity Research In The 21st Century Part 1: Regulatory Environment, ROIC, WACC, Hurdle Rate

29 Sep ’14

There are new factors to consider when comparing utility companies and researching utilities is different now from ever before. This is the first part of a two part series on new techniques available for utility investors to further hone their research skills.

In years past, investors relied on dividend yield, dividend growth, earnings per share, price to earnings ratios, price to earnings growth ratios, and earnings growth rates. However, with the new complexities of the sector and the innovative tools available on the Internet, investors need to expand their research horizons.

These additional fundamental comparisons are available from several sources, including,, even If not readily available, the formulas are easy enough to replicate on a simple spreadsheet. However, some of the newer research comparisons may not be as cut and dry as historical fundamental numbers.

Regulatory Environment

Since all "regulated" utilities offer a trade-off between sustaining a

After Recent Pullback, Chevron's Dividend Growth Offers 20%+ Upside Potential

29 Sep ’14

Chevron (NYSE:CVX) is the second-largest energy company in the United States and has an impressive history of dividend growth. The shares currently yield 3.5% and make Chevron an attractive investment for income-seeking investors. This article will calculate a fair value estimate for Chevron shares using a Gordon Growth Model and then compare the company's current valuation relative to its historic averages. It will also compare Chevron to its peers to determine whether its shares offer better value than those of other mega-cap energy corporations.

Investors seeking an attractive entry point to invest in Chevron would be wise to consider the recent 10% sell-off in the shares, caused mainly by weakness in the price of crude oil:

(click to enlarge)

As an integrated energy company with operations around the world, Chevron is heavily impacted by resource prices. Therefore, it is difficult to accurately predict the firm's future earnings growth potential. However,

Facebook Is Accelerating Its E-Commerce Plans

29 Sep ’14

My May article discussed Facebook's (NASDAQ:FB) massive potential as an e-commerce platform. Less than two months later, Facebook revealed it was testing a 'Buy' button that will allow people to buy products directly from News Feed and Facebook Pages.

Re/code has officially confirmed that Stripe will help Facebook become a mobile e-commerce player. Stripe's digital payments technology will power Facebook's 'Buy' button initiative.


Facebook's partnership with Stripe started last year. Facebook asked Stripe to help it with its experimental 'Autofill with Facebook' - which allowed mobile users to auto-fill payment details when they shop online. The 'Buy' button is a more ambitious program.

Retailers can now use Facebook's News Feed and Pages to sell products and services directly within Facebook's mobile app. Current advertising clients should now benefit more from Facebook's transformation into a full-fledged e-commerce site. Instead of just paying for advertising eyeballs, corporations now

Why Shake Shack's IPO Should Be As Popular As Its Burgers

29 Sep ’14

Customers are used to lining up for Shake Shack, the New York City-based burger and shake chain of fast casual restaurants. Soon investors will also probably want to join the queue to take a bite of the chain when it launches its upcoming initial public offering.

Rumors have valued Shake Shack as high as $1 billion, which represents 50 times the company's projected earnings of about $20 million this year. On the one hand it seems unbelievable that a small, regional restaurant chain could be valued at that level. But not so much when compared to El Pollo Loco Holdings Inc. (NASDAQ:LOCO), which raised $123 million in July and now trades at about 60 times projected 2014 earnings, and Zoe's Kitchen Inc. (ZOES), which held an IPO in April and now enjoys an forecasted 2014 P/E ratio of 400+.

Shake Shack certainly has the right combination of factors that suggest

The New Commodity Kings: How The Commodity Markets Have Changed This Year

29 Sep ’14

In what was most likely a response to the Great Depression, the US Congress passed the Glass-Steagall Act of 1932 and the 1933 Banking Act to separate commercial and investment banking along with other market regulations. The focus of the laws was to limit commercial bank securities activities and affiliations within commercial banks and security firms. As a result, banks could lend money to or finance those involved in commodity businesses, but they could not trade commodities for customers or for their own account.

Commodity firms or trading houses dominated the raw material markets. US-based companies like J. Aron, Cargill, Philipp Brothers and others financed, transported and traded commodities around the globe. It was a very profitable business for those merchants; in 1980 four of the ten highest-paid executives in the US worked for Philipp Brothers.

The repeal of Glass-Steagall

Over the course of the 1980s and 90s, loopholes in

Joyeux Noel For Target?

29 Sep ’14

Nat King Cole might croon to "Tarjay": 'Darling, je vous aime beaucoup, je ne sais pas what to do,' just as investors are wondering whether Target (NYSE:TGT) can regain its je ne sais quoi.

Here's our problem: We've made no secret that we believe retailers will flourish this holiday season and generally would be buyers of retail stocks right now, but Target lost its mojo last year in the wake of the card data breach and what consumers and critics said was a loss of cachet as a destination for affordable fashion originals.

Are you in heaven or are you in hell, you damned elusive pimpernel? Neither, we think. But the sentence in purgatory is coming to an end, we believe, and a dividend yield north of 3% makes this side of paradise a comfortable exile.

This is what makes us buyers:

  • Rising consumer and business confidence, falling gasoline

Why AT&T Could Be A Better Income Pick Than Verizon

29 Sep ’14

Recently, Bob Ciura wrote an article titled: "Why Is Verizon A Better Pick Than AT&T For Income Investors." The commentary was reasonable and certainly everyone should formulate his or her own assumptions. Bob laid out a case for Verizon (NYSE:VZ) to grow its dividend faster than AT&T (NYSE:T) and thus simultaneously suggested that income investors should naturally prefer Verizon. However, I would contend that such a wide generalization ought to be closely examined. You should always ask the question: "on what terms?"

Before declaring Verizon the "income winner," here's a particularly telling excerpt from the referenced article:

"AT&T increased its dividend by just 2% this year, while Verizon managed to pass along a nearly 4% increase. If Verizon keeps increasing its dividend at twice the growth rate of AT&T, then AT&T's higher current yield will be erased over time."

Now obviously this observation holds true in the very

Why Main Street Fails

29 Sep ’14

I don't need to throw you facts and statistics because you're smart and you already know the punchline. The average investor rarely beats the market and the great majority of mutual funds cannot beat the market. Plopping money into a broad market fund like the Vanguard 500 Index Fund is probably the smartest thing that a "Regular Joe" can do if they don't want to get into dividend growth investing, or if they don't want to intelligently self manage.

Indeed, Warren Buffett lays out the advice very clearly:

What I advise here is essentially identical to certain instructions I've laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife's benefit…My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard's.)

EVs Are Winning, So Is Tesla

29 Sep ’14

In a recent contribution, it has been argued that "EVs winning is not the same as Tesla winning". The author's reasoning can be summarized as follows. First, if EVs won, then traditional carmakers would be forced to compete directly with Tesla (NASDAQ:TSLA). Second, since ICE manufacturers are much more efficient than Tesla, then this would mean the demise of the EV start-up.

There are many problems with this two-fold argument. To begin with, EVs are in effect winning. One way to verify this would be to look at total comparable sales of conventional hybrids manufactured by Toyota (i.e. Prius), Honda (i.e. Insight, Civic and Accord) and Ford (i.e. Escape) versus plug-ins since their first launching to find out whether the latter are lagging behind the former or are ahead of them during their first years of adoption. In Table 1 we see that in seven years and one

A Tale Of 2 Dividend Growth Funds

29 Sep ’14

By Alex Bryan

Expense ratios are one of the best predictors of relative fund performance. This lends support to low-cost index investing. But sometimes it can be beneficial to pay a little more for active management. Vanguard Dividend Appreciation ETF (NYSEARCA:VIG) and Vanguard Dividend Growth (VDIGX) offer an excellent case in point. Both funds target stocks with strong records of dividend growth, but where the exchange-traded fund tracks an index, Vanguard Dividend Growth applies active management to achieve the same goal. Yet despite its higher expense ratio, Vanguard Dividend Growth has outpaced its ETF counterpart by 1.3% annualized since April 2006, when Vanguard launched the ETF (and its associated mutual fund share classes).

Don Kilbride, the manager of Vanguard Dividend Growth, shops for stocks that are trading at reasonable valuations with a history of dividend growth and the capacity to sustain that growth. Vanguard Dividend Appreciation attempts to

Split Expectations For The S&P 500

29 Sep ’14

How many of you recall what we wrote at the beginning of September 2014 about the dynamics of a stock market where investors are shifting their focus from one point in time in the future to another?

What we observe is that at present, investors would appear to be focused on 2014-Q4 in setting today's stock prices, which is a relatively recent development - one that has come about largely as a result of better than expected earnings reported by many companies in the S&P 500 in recent months. Prior to that development, investors had been largely focused on 2015-Q2, which is the period during which many believe the Fed will begin hiking short term interest rates.

But the danger in focusing on the fourth quarter of 2014 is such that any shift in focus by investors to another future quarter would be associated with either flat or falling stock

The Simple Case For Delta

29 Sep ’14

Delta (NYSE:DAL) has delivered an enormous increase in price over the last 2 years. Any investor that gambled on it has been very handsomely rewarded for putting faith in the company. I must confess, if you ask me two years ago to pick a company that was going to deliver incredible growth, I would not have had Delta anywhere near the top of the list. I had not flown Delta in years because of negative experiences on previous trips. Clearly, many customers were willing to give Delta a shot.

To help investors understand the change in the underlying business, I have prepared a DuPont Analysis to show the changes in the operational metrics over the last few years. Due to Delta having been in a fairly weird financial position, some of the numbers appear heavily skewed. I will explain those as we go. For now, check out Table 1 below:

This Week's Reader-Nominated Outstanding Performance Awards - Alexander J. Poulos And Henry Cheung

29 Sep ’14

Dear readers,

Last week, we asked for reader nominations for our Outstanding Performance award winners, focusing on calls made in the large-cap space (>$10B market caps). Readers picked a bunch of great articles that helped them make money, and we're excited to share two of those nominees as winners. The first idea was a well-timed, well-covered, and well followed up long idea on an industry leader that had faced recent setbacks, and the second idea was a contrarian short idea that played off nicely over a short period. Each award comes with a payment of $2,500 for doing an outstanding job of helping Seeking Alpha readers find alpha.

This week's Outstanding Performance Award winners are:

  1. Alexander J. Poulos for his long idea on Walgreen (NYSE:WAG) published in February 2012. Return to date: +78%
  2. Henry Cheung for his short idea on Las Vegas Sands (NYSE:LVS) and Wynn Resorts (NASDAQ:WYNN) published in

Raise Of Dividend To 18.5% Makes Western Asset Mortgage Look Attractive

29 Sep ’14

Western Asset Mortgage Capital Corp. (NYSE:WMC) is a mortgage REIT. It invests and manages primarily Agency RMBS. However, it has expanded recently into non-Agency RMBS, CMBS, and other ABS. Its goal is to provide attractive risk-adjusted returns to investors over the long term. The September 23, 2014 announcement of an increase in the dividend to $0.70 per share for Q3 2014 should perk up investors interest in WMC. On an annual basis this amounts to a $2.80 per share dividend (or about 18.5% annually). This is one of the highest (if not the highest) dividends in the mortgage REIT arena.

Based on the Q2 2014 earnings results, the $0.70 per share dividend per quarter appears to be sustainable. WMC generated core earnings plus drop income of $40.0 million (or $1.00 per basic and diluted share). This compares to core earnings plus drop income of $15.2 million (or $0.56

Gift From Mr. Market: What To Buy In The Big Oils' 10% Pullback

29 Sep ’14

As Mr. Market is near an all-time high, some investors have been saving cash to take advantage of opportunities in a market crash. A window of opportunity is already upon us. Zooming into the Energy sector, we see a 10% pullback from June 2014 to the present. This is a gift from Mr. Market.

XLE data by YCharts

Because I'm not an ETF investor, I took this opportunity to see which oil companies it may be a good time to buy. As a dividend growth investor, it's as simple as buying safe, high-quality companies on the dip when they're priced at a value.

On the dip, you're using less capital to buy the same number of shares or the same capital to buy more shares, whichever way you want to think about it. The companies in this article are all on sale, rated undervalued by Morningstar with 4 stars.


Q4 Is Here: 5 Storylines To Watch

29 Sep ’14

There are just two trading days left for the market in Q3. On Wednesday, we will enter the final quarter of 2014. It's been a decent year for the market so far, and investors are hoping to finish 2014 with a bang. As we enter the final stretch of the year, here are five storylines to watch.

The S&P 500 pursuit of 20 00:

Last Friday, the S&P 500 closed just below 1,983. With two days left in the quarter, the index is up 1.15% for Q3 so far. Investors that hold the SPDR S&P 500 (NYSEARCA:SPY) have done slightly better as they take advantage of dividends. Up to this point in 2014, the index is up more than 134 points, a rise of 7.28%.

So the fourth quarter will have a very large impact on the year's performance. A correction in the market could leave the S&P 500 with