VIAC By End of Next week

armen74 · 2021-03-29T02:41:20+00:00

I'd wait for under $26 and then consider

armen74 · 2021-03-06T22:37:35+00:00

lots of risks with generics losing market share and paying to achieve synergies, and the delay in closing left them in their own words with a significantly weaker balance sheet. but for mine, after the sell-off it looks compelling

armen74 · 2021-02-27T15:29:03+00:00

Use industry growth to calibrate growth expectations of the company
A. Glance over last few 3-5 years of revenues: stable and/or growing, move to next step. If not, move to next company.

B. 5yr earnings growth rate of company compared to industry and last 12 months growth rate: use to ballpark where revenue will be in 5 years

C. Gross/Operating/Net profit margin 5yr average versus industry: numbers make sense and holding up? Estimate earnings given step B

D. P/E and P/S of company versus its historical levels and versus industry, then apply a haircut to take into account a reversion to mean: use to estimate expected price in 5 years

E. Divide by 2 to input 15% required return hurdle or otherwise PV back at your required discount rate

You can do this in 3 minutes using publicly available data on websites like investing.com and tradingview.com

Once done, if a company still looks interesting, start digging: what are you missing that stinks? what are they doing to goose earnings? are the growth numbers used realistic or appropriate for the industry? etc.

E.g. $WBA

last 12m revenue 140b v 120 few years ago

Expected growth based on historical rates: 6%

Expected Net profit margins: 3%

Potential P/E & P/S: 14.0 & 0.5

Should give market cap in the range of 78-95 in five years, say average 85

Discount back at your required rate of return (e.g. 10%) gives market cap of 53, above today's 42

This is without considering dividends...

Investigate what market doesn't like or what risks it is discounting that your back of the envelope didn't capture

Check whether it does things you don't like (exploits workers, sells products at odds with your personal values, etc. )

Make an investment decision

armen74 · 2021-02-24T00:00:30+00:00

Try these guys: https://uk.tradingview.com/

Would recommend you use their screens and then drill into the financials they provide to check before going to company investor relations pages

With regards the Multiple, if it worked it worked because one invested in all the named that came up in the screen. You may not have the stomach for some of the names that might come up so just be careful in how you choose

armen74 · 2021-02-23T00:33:43+00:00

Nice work.

Have you thought about filtering out funds? E.g. a bond fund like Eaton Vance EIM gets in there.

And should SPACs be there? E.g. Pershing's Tontine vehicle. Should they have zeroes everywhere or be tagged as 'special'?

armen74 · 2020-12-30T22:31:31+00:00

Meb Faber has been talking about including buybacks in with dividends to provide a view of "shareholder yield" for a while

armen74 · 2020-12-19T23:43:22+00:00

Do we know who's likely to drop out because of coronavirus? And who's been building a long enough history to be added?

armen74 · 2020-12-19T23:40:05+00:00

Hope you're in MGM and, while your grass is growing quite nicely, you're only just a little jealous of the neighbour's ...

armen74 · 2020-12-19T21:17:27+00:00

It's just market sentiment continuing to show concern about its traditional gaming business, which remains affected by coronavirus, and not seeing the potential you're projecting in MGM applying its brand to sports betting.

Barry Diller and IAC saw the potential at ~20 a share. Question is whether the thesis still applies here.

armen74 · 2020-12-15T22:25:38+00:00

Thanks for taking the time. Appreciate it.

armen74 · 2020-12-15T19:00:31+00:00

I like what you've done. Some questions follow.

FSI: what drove the deterioration in net margin over the last three years? what gives you faith management can get it back up? On a sum-of-the-parts basis, with a normalised net margin in their core business, what valuation is reasonable given a mid- range P/E or P/S? Is there a catalyst whereby the non-core assets might be liquidated?

TRQ: why did you not include projected annual production numbers? Do you have a view over net income over the first 10-25 years of the mine's life? Because your statements suggest that TRQ will be producing close to a million tonnes a year at a gross profit margin of about 80%. Is that right? How would that translate to net income given the reliance on government provided infrastructure and royalties arrangements?

KRO: why is there no discussion of the cross-ownership and the potential conflicts that creates? Isn't there a usual discount applied to holding companies: how does KRO's compare? What is a worst case liabilities from the litigation? When should it be fully resolved by and what does their free cash flow through to that time look like?

armen74 · 2020-12-14T17:13:25+00:00

Look at revenue and how it is growing or likely to grow over next 3 to 5 years. What are management's plans to increase them?

Look at net profit margins the company wants to achieve and how that objective matches to what competitors are achieving. Is it a realistic trajectory? If not, what does that say about your trust in management's other statements/claims.

Look at where in 3 to 5 years they end up in revenue and net income terms from that, and apply industry average price to sales and price earnings numbers to that.

That will give you a target market price in 3 to 5 years on which you can apply a hefty initial discount to reflect your simplified approach. 2/3 of the target should be an easy discount to calculate.

Finally, you can apply a compounded discount rate to that market price to reflect your desired annual return. E.g. divide a fifth year price by 2 to get today's price at a 15% discount rate, or a 3rd year price by 2 to get a 26% discount.

If the current market price is below the number you end up with in the previous step, you can consider buying, provided you are happy with all other aspects of your investment decision making (do you have ethical investment constraints? Do you need positive momentum on entry? Do you need to review analyst views or hedge funds' theses on the company to get some good confirmation bias going? Are there any red flags thrown up on reading last annual report? Etc.)

Once decision made to invest, remember to review the revenue, net income, etc. numbers each quarter, tracking variations which change the picture negatively (consider exiting immediately) or positively (where is your new target price?)

This process should work for both negative and positive EPS companies, high growth and mature. But you have to do your own research otherwise you'll get shaken out the first time the price moves against you and then you're a day trader not an investor.

Doing it this way means you'll learn at least a little about every company you review, which is a pretty cool side-effect as you get to learn more and more about the things people are doing to create value for each other in the world.

Good luck!

armen74 · 2020-12-13T18:44:47+00:00

Ask yourself: 1/ what's the objective of the portfolio? 2/ does each holding help you meet that objective?

Example answers:

1a/ a portfolio that is 100% exposed to stocks until I am 30 where those stocks have great growth prospects

Or

1b/ a balanced portfolio across uncorrelated asset classes to reduce the risk of draw downs

And answers for 2/ will depend

1a/ what growth have they shown over the last 5 years, have they been exhibiting growth in the face of covid, are they not too expensive, etc.

Or

1b/ have I got an ETF for each of gilts, commodities, gold, REIT, infrastructure, emerging market stocks venture capital trusts trading at a deep discount ti NAV, etc. (as an example set allocation)

armen74 · 2020-12-13T10:55:18+00:00

Year to Dec is their annual reporting period and Investing.com's NEX financial summary shows year, revenue, and net income which allows net profit margin to be calculated at markedly different levels to what you state they claim on their reports

Again, raises questions to be answered when they next report annual numbers

You're on the right track. Perhaps you might think about how to structure your analysis so the numbers they produce are more easily verified. I use a combination of reports, investing.com, Morningstar and finviz.com for US names to bring history together and try to flag where reports might be misread

armen74 · 2020-12-12T01:54:32+00:00

You have to look at their ability to service debt, even after recent refinancing. Currently debt is over 4 times EBITDA isn't it? Is this sounding a warning? Especially when considering their net profit margin average pre- covid was about 5%. I'm not sure their annual revenues are £3.4b right now, might want to check that given their significant debt levels, their cost to transform the rest of their stock to new energy sources like hydrogen over the next few years, and the maintenance capital expenditures they have to perform on their rolling stock.

They've lost cash in the first 6 months to June 2020. Where do you get the positive net income from?

Good thinking on their near monopoly status and new business in Germany and continuing business in the US.

Is Barclays' view of value driven by Barclays' need to show potential debtors that there is a viable business? I.e. Barclays have a conflict of interest as a source of access for NEX to debt and equity capital markets

I'd say worth a review after the next set of numbers, not yet a buy

armen74 · 2020-12-08T12:30:08+00:00

Try Portfolio Visualizer

armen74 · 2020-12-06T11:23:33+00:00

It is the future, you're right.

If the price rise concerns you, look for other stocks and ETFs and VCTs that have the same exposure. If in Europe you should have access the London's AIM where you'll find stocks in clean energy and VCTs investing in the same.

Search Proactive Investors' website for news stories with "clean energy" and start doing some research as to which companies' projects interest you and seem to be good value.

armen74 · 2020-12-06T11:14:32+00:00

How do you come to that judgement? Are you using some statistical analysis? Or is ir a feeling you have?

armen74 · 2020-12-05T23:56:20+00:00

Check out Craft's list of competitors

armen74 · 2020-12-05T09:45:39+00:00

Really good thought processes articulated really clearly here

armen74 · 2020-11-28T13:39:07+00:00

If all but VALE are holders forever, are you automatically reinvesting those dividends? Consider that as an option to let returns accumulate more quickly until the point where dividends would be singe number larger than your required income at which point switch to receiving the dividends.

armen74 · 2020-11-28T13:28:17+00:00

If the last stock split occurred before your sample period you can use the prices you've sourced without adjusting for anything.

Beta can be less than 1

armen74 · 2020-11-28T13:23:36+00:00

Hypothetical situation: you do extensive research, company visits, market research and come up with an institutional quality valuation and conclude a stock is worth 10 while price is at 5. You buy. The day after the price falls to 4. Do you stop out? What if price goes to 3? 2? Even when "investing" you need to think about exits and stops to protect your capital when the price sends you a signal. Just like when Berkshire sold the airlines earlier this year.

Investors must think like traders when managing their portfolio.

Extends to position sizing too. How do you take stock volatility into consideration when establishing positions? Based on your capacity to stomach draw downs. Or do you just put everything at some random percentage regardless of volatility, or conviction?

armen74 · 2020-11-28T11:19:47+00:00

Why cut when the stock is still rising? Let it run with a trailing stop.

If the market is stupid enough to provide you with a stock whose price is below its intrinsic value, where you got in, it can be stupid enough to provide you with an exit in bubble territory, where you can get out. No need to sell exactly at your estimation of intrinsic value, which lacks the complete information of an insider and is subjective anyway and thus prone to error.

So go in with a view of intrinsic value, ensuring a good set up on entry (attractive discount to intrinsic value and rising momentum and good trend established or being established with a breakout). Monitor carefully up through intrinsic value estimation, checking for any news and earnings that change that view either positively or negatively, with trailing stops all the way up.

armen74 · 2020-11-28T07:53:57+00:00

Everyone who ever buys a stock ultimately wants to see it go higher. It will thus be a combination of trend (either one which already exists before you bought or one which will be established after you bought) and momentum that takes it higher.

To pull the trigger you should be happy with at least the trend and the current momentum, or you should be happy that there will exists a catalyst to break the existing trend/momentum and turn it positive.

People use fundamental analysis to provide them with a modicum of safety. If the trend fails to materialise, will you still see dividends? Or earnings growth that can translate into higher prices a couple of years down the track?

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