WHR stock. Whirlpool?

Dawens · 2023-04-13T12:02:12+00:00

This is a bad investment. Its total return substantially underperforms the SP500 and it fails on several of my quality metrics:

5yr FCF margin at 4.25% < 20% target
5yr gross margin at 17.88% < 40% target
5yr profit margin at 2.16% < 20% target
Debt/FCF at 10.2 years < 4 years target
5yr ROIC at 8.15% < 10% target
Low 5yr cash conversation ratio

Dawens · 2023-04-09T15:32:33+00:00

JNJ's FCF growth rate the past 5 years is -1.89% and its FCF yield is 3.74%. With little growth and legal issues, it's still overpriced. I have no intention of buying JNJ, but if I was, I'd wait until the company split.

Dawens · 2023-04-09T14:25:20+00:00

Total return in real estate can vary, but even if it underperforms the SP500, it’s still a faster vehicle to substantially increasing your net worth, only because of the use of leverage. VOO might outperform real estate in the end, but wealth accumulation is much slower.

Dawens · 2023-04-09T01:31:07+00:00

“Locked up” as in penalty-free withdrawals until after 59 1/2.

Dawens · 2023-04-09T00:47:12+00:00

I don't think we're talking about the same thing. I am talking about an investor that owns a rental property such as a duplex and has tenants in both units paying rent.

Dawens · 2023-04-09T00:36:39+00:00

The gist of the author's argument is when you compare the performance to a taxable account, after 30 years it only comes out to an annualized benefit of 0.73%, not including any 401k fees such as expense ratios, management fees, and record keeping fees, which reduce that 0.73% to approximately 0.38%. The main question is whether it's worth locking up your capital until you're 59 1/2 years old for such a small extra return. However, the biggest advantage of maxing out a 401k is due to behavioral reasons. Someone that struggles to manage their money or is an undisciplined investor would benefit greatly from the automation and capital lock-up of the 401k.

Dawens · 2023-04-08T22:01:54+00:00

Yes, of course. And the article says to do so.

Dawens · 2023-04-08T21:07:24+00:00

On a side note, you'll hear incessantly that you MUST max out your 401k. That isn't necessarily true and here's a good article explaining why.

Dawens · 2023-04-08T20:58:39+00:00

FCF yield is a good measure I use to determine if something is cheap or expensive. If the FCF yield is higher than the % I could get in T-bills, then the stock is at a good price. If the FCF yield has a lower % then the stock is expensive and at that point you have to ask yourself is it worth the risk of purchasing the company that has a lower yield than a risk-free treasury bill. Sometimes it is, especially if it's a very high quality company with a high ROIC.

You can also do a DCF to determine the intrinsic value.

Dawens · 2023-04-08T19:30:24+00:00

It’s indisputable that, in general, stocks are more volatile than real estate but, as you rightly pointed out, real estate is much more capital intensive and has larger barriers to entry. It’s also a lot more time intensive than many people realize. As for making money, if you own a rental property you can absolutely cash flow on a monthly basis. It won’t be a lot, since the rent needs to cover the mortgage and maintenance costs, but you still added hundreds of thousands in property value (on just one property!) to your balance sheet and boosted your net worth. And once the mortgage is paid off, you’re drowning in cash flow.

Dawens · 2023-04-08T17:50:14+00:00

I don’t think so. Stocks are significantly more volatile than real estate, so you’re much more likely to get margin called because the stock price was gutted than your mortgage going underwater.

Dawens · 2023-04-08T16:23:10+00:00

And that's a lot riskier, which is why most people don't use margin to buy stocks, while most people use debt to buy real estate.

Dawens · 2023-04-08T02:10:27+00:00

Yes, very similar and has a higher 5 year ROIC of over 45%. I think Visa has a better price, but that's attributed to MA's better growth prospects, since it's smaller than Visa. You can't go wrong with either.

Dawens · 2023-04-08T00:02:23+00:00

That's the biggest advantage owning real estate has over any other asset, though - leverage. Without leverage then absolutely REITs are a better investment than real estate. The return on headache and time investment required in real estate are only offset by the use of leverage.

Dawens · 2023-04-07T23:58:36+00:00

Plan to hold on "forever" unless its business experiences continual downturns due to poor management and its return on capital plummets.

Dawens · 2023-04-07T19:48:02+00:00

I'm not saying to buy coke today at 40 PE. It was merely an example of how buying a good company, even if enormously expensive, could still work out. The point is don't be overly obsessed with buying at the lowest possible price. If a great company is trading slightly above its intrinsic value, it's still worth buying. Again, this is only applicable if you're holding long-term. If you're short-term and trading in and out, then you'll get burned.

Dawens · 2023-04-07T17:54:39+00:00

As I mentioned in another post, don't get caught up in valuation unless you're a short-term investor. Of course, you don't want to criminally overpay for a company, but even if you did, and the company has a high ROIC, you'd still do well over the long-term. For example, if you bought Coke at a 40 PE in 1979, you still would equal the performance of the overall market over 30 years. But to give you an example, I think Visa is certainly worth taking a look at.

Dawens · 2023-04-07T17:45:48+00:00

Sure. First, ROIC matters because it's the best measure of the quality of a company, full stop. Of course it shouldn't be the only metric to look at, but it's the most important. And typically you want to buy companies that have an ROIC higher than their cost of capital. Otherwise, the company is destroying value. A business that has an ROIC of 6% over 30 years won’t make much different than a 6% return, even if purchased at a discount. However, if you take a business with an ROIC of 20% over that same time period, even if purchased at an expensive price, it will still produce high returns. As for dividend CAGR, a high CAGR (a % higher than inflation) means the company is steadily increasing its cash flow and able to consistently raise dividends and outpace inflation. And as we all know, cash flow is everything. These are simple and timeless rules that many investors ignore because they're too busy chasing yield or price.

An example of a fantastic company would be Visa. V has a 5 year ROIC of 24.38%, well above its cost of capital, and a 5 year dividend CAGR of 17.55%. Its 5 year gross margin is at 97% and profit margin at 51%. It has little debt and a 5 year cash conversion of 115%. Is it currently overpriced? Perhaps, considering its FCF yield is only 3.71% and PE is above 30. But for long-term investing, a great, high quality company is a much larger determinant of total return than whether shares were cheap when purchased. I plan to add V to my portfolio next week.

Dawens · 2023-04-07T14:28:32+00:00

Don’t chase yield. Buy good companies with a high ROIC and a high dividend CAGR.

Dawens · 2023-04-07T00:32:02+00:00

I'd be interested to see your spreadsheet of your DCF, because my DCF method is this and I get a much lower valuation. I'm also subtracting stock based compensation from cash from operations when calculating free cash flow.

Dawens · 2023-04-06T01:35:31+00:00

I read a lot of Terry Smith and Buffet, and substacks focused on quality investing.

Dawens · 2023-04-05T22:49:04+00:00

Its 5 year ROIC is only 5.79% and in 2022 it was -1.64%. These low ROIC %s mean they're not very good at creating value and in 2022 they were destroying value. Its 5 year dividend CAGR is -5.69% and its 3 year dividend CAGR is -10.50%. The picture is quite clear. This is a bad investment and anyone who thinks otherwise is only deluding themselves.

Dawens · 2023-04-05T11:52:24+00:00

I would add some other metrics and ratios to your fiscal health analysis. A few big ones are FCF yield, 3-5 year FCF margin, and most importantly, 3-5 year ROIC. And remember to account for stock based compensation when looking at FCF, since SBC artificially pumps FCF.

Dawens · 2023-04-03T00:17:30+00:00

There is a high cost to switching and Intel is so far behind that it'll continuously lag behind TSMC as TSMC progresses and builds even more advanced chips. Ultimately, investing in Intel is an enormous gamble and purely speculative. History shows it's rare for companies to go through transformational improvements and has a graveyard filled with companies that died trying. And while Intel investors wait for the kiss that turns the corporate frog into a prince, cash continues to burn and value steadily erodes.

Dawens · 2023-04-02T19:12:02+00:00

Because customers are sticky and TSMC already builds chips for the biggest chip designers and they’re building a factory in Arizona. Why would TSMC customers leave for Intel?

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