Value stocks

[Julia]

Hi Julie, all financials took a hit recently i.e. MBL, BNB, AFG, MFS etc

You didnt buy at the MFS peak right?

MFS - Earnings and Dividends Forecast (cents per share)
2007 2008 2009 2010
EPS 53.1 45.3 55.4 63.3
DPS 28.0 30.0 33.0 38.0

AFG - Earnings and Dividends Forecast (cents per share)
2007 2008 2009 2010
EPS 63.9 78.6 92.7 106.2
DPS 44.0 44.0 46.5 52.0

MBL - Earnings and Dividends Forecast (cents per share)
2007 2008 2009 2010
EPS 569.8 662.9 651.9 717.6
DPS 315.0 364.0 374.5 402.5

BNB - Earnings and Dividends Forecast (cents per share)
2006 2007 2008 2009
EPS 115.4 164.9 189.3 206.2
DPS 36.0 51.0 59.3 65.2

thx

MS

Hello Michael

All the above mean little to me if my capital isn't growing. Yes, I did OK with MFS for a while but not any more. So I simply prefer to swap it for something which is showing much better growth. Not exactly rocket science!

 

[michael_selway]

Hi Michael,

I currently cannot value EQN. It is just too complex at the moment and the risk factor makes it unstable. IF they do start to produce what they are supposed too and with their uranium stocks, I could see them adding another 70-80% to their stock value over the next 2-3 years. That to me, is a GREAT return! Until they do get mining underway and everything goes to plan, I cant place a valuation on it. A bit of risk, but some great medium term gains.

Oh ok, actually i posted wrong data above, below is the correct one

EQN - Earnings and Dividends Forecast (cents per share)
2006 2007 2008 2009
EPS -6.8 -6.3 45.1 128.5
DPS 0.0 0.0 0.0 30.9

What kind of risks do you see them having mainly?

thx

MS

 

[michael_selway]

Hello Michael

All the above mean little to me if my capital isn't growing. Yes, I did OK with MFS for a while but not any more. So I simply prefer to swap it for something which is showing much better growth. Not exactly rocket science!

Hi Julia, do you still have AFG then ?

thx

MS

 

[Julia]

Hi Julia, do you still have AFG then ?

thx

MS

No.

 

[Buffettology]

Oh ok, actually i posted wrong data above, below is the correct one

EQN - Earnings and Dividends Forecast (cents per share)
2006 2007 2008 2009
EPS -6.8 -6.3 45.1 128.5
DPS 0.0 0.0 0.0 30.9

What kind of risks do you see them having mainly?

thx

MS

Construction delays, capital cost blowouts, operating cost pressures and sovereign issues are the ones that come to mind, along with changes in spot prices from now, to the time mining actually gets underway. Risks in the Chinese economy for example, with their reporting of economic indicators potentially bogus, would have dramatic ramifications on spot prices of copper! I have read many reports argueing why NOT to take long-term positions on copper.

That being said, I read that Lumwana is being produced on a fixed cost, fixed time contract. So that does mitigate some risk.

Yeh, I noticed you posted the wrong data, though EPS growth is constantly being revalued.

 

[wbooo]

jAMES HARDIE IS RELIANT ON THE BUILDING INDUSTRY WHICH IS HEADED DOWN, bol HAS 80% DEBT/EQUITY, 70M DEBT PAYABLE THIS FINANCIAL YEAR WITH ONLY 66M RECEIVABLES AND 9M IN BANK. aLSO HASN'T BEEN AROUND LONG ENOUGH TO KNOW WHETHER IT CAN SURVIVE A RECESSION.

 

[Gar]

jAMES HARDIE IS RELIANT ON THE BUILDING INDUSTRY WHICH IS HEADED DOWN, bol HAS 80% DEBT/EQUITY, 70M DEBT PAYABLE THIS FINANCIAL YEAR WITH ONLY 66M RECEIVABLES AND 9M IN BANK. aLSO HASN'T BEEN AROUND LONG ENOUGH TO KNOW WHETHER IT CAN SURVIVE A RECESSION.

I dont know how you managed to type that entire post without realizing the caps was on

 

[Buffettology]

jAMES HARDIE IS RELIANT ON THE BUILDING INDUSTRY WHICH IS HEADED DOWN, bol HAS 80% DEBT/EQUITY, 70M DEBT PAYABLE THIS FINANCIAL YEAR WITH ONLY 66M RECEIVABLES AND 9M IN BANK. aLSO HASN'T BEEN AROUND LONG ENOUGH TO KNOW WHETHER IT CAN SURVIVE A RECESSION.

Also, remember not to look too much into debt/equity.

Look more about net profit for the year, in relation to growth and debt.

If debt to equity is 100%, but debt is 50mil and profit 20mil (with some great growth expected), then you really have no worry.

 

[Rainmaker2000]

Buffettology, would you mind enlightening us as to how you do your stock valuation cause I'm just trying to find the Buffet aspect of it.......first of all, you seem very fond of someting like a price target which does not seem very Buffet after all..but more like a young financial planner I used to play tennis with who lost his clients money, for example, Select Harvests is worth $5.80 according to you but Just Group, another of my favourites, is still good value ironically at about $5.30.....don't I feel like a fu**en As**ole since recently I sold JST and bought SHV..hehehe...ofcourse I justified the call on JST being valued on a PE of about 20 at what may well be a cyclical high, while the valuation of SHV was valued at a PE of round 10 at what appears to be a cyclical low........how the hell does one value SHV at $5.80 which equates to a PE of bout 8 and a dividend yeild, wait for it, of round 11%........furthermore, on an asset level, SHV has more tangible assets than JST which likes a bit of debt and is very exposed to interest rates and consumer spending

 

[brilliantmichael]

Hi Rainmaker. From the looks of your post you sound a little bothered that you sold out of an issue that rose, and bought into one that fell. Speaking with the buffettologist's hat on, I'd just like to put out a few reminders for us about that:

• Buffett never cares about where the share price goes in the near term.
• While MrB may take advantage of price movements, he doesn't make his strategy depend on it (i.e. he always has a "Plan B" to stick out any short term fluctuations)
• SHV (I would assume) is a 'general' play, in that it's a semi-long term holding. Whether it goes down or not in the next few months shouldn't really matter.
• If you're really (and I mean seriously really!) convinced you bought into value, you shouldn't be letting MrMarket dictate whether you've made a good decision or not. A decision is good or bad depending on whether the business is good or not for the amount you paid for it (whether SHV fits the bill is another debate)

I don't believe even the so called "Buffett method" is infallible (or entirely encapsulated in the more well-known books, and there are some aspects of Buffett's so called advice that I would have some questions about related to small investors), and don't wish to be seen as a "Buffett-cultist" (in Charlie Munger's words), but it is still the best method around i.m.o. for investors not wanting to grow itchy trigger fingers.

JST is a great issue too (great financials), and a good medium term pick i.m.o. (only medium since I don't think the business has much "moat" against other stores). For the right price it would be attractive. Why did you sell out of it though? It's going pretty well atm and would certainly be worth keeping as long as the business is maintaining its momentum.

SHV however has a guaranteed annuity stream from its established MIS's, and a large crop in the midst of production (drought effects notwithstanding). Which is better among either is a bit hard to say, but a.t.m. JST is overpriced in my opinion, and SHV just possesses a more compelling case a.t.m. due to its price/cash flows.

 

[Rainmaker2000]

Thanks for your post BrilliantMichael........I'm afraid my sense of humour didn't translate......I'm very happy to exit JST at this time no matter how high the price goes.....I've held JST since the day after it floated when everybody thought it would tank and was happy to realise such a gain with it being slightly overvalued and sentiment well and truly turned and me needed gains to offset my losses in starting a retail business..........I'm as thrilled to own SHV as Just in 2004 and after doing many hours of research may yet load up heavily.......Just on Buffet, I'm very much a fan of his record, but when it comes to theory, I prefer the guys Buffet learnt from, Benjamin Graham and Phillip Fisher.....with Fisher's growth method being my principle influence....I just love the market and especially the theory

 

[Buffettology]

My method of stock valuation is based loosly on Buffettology. I also adapted my own touch on it as MrB valuation is first based on 10 year historical figures. In Australia, many companies (JST) for example have not been around that long and many stocks have not performed well over that entire timeframe, so based on current prices, and historical 10 year average ROE, you cannot depict a good indicator of future growth IMHO. This is why I look at past ROE, as well as future expected growth.

I look at the industry, the company specifically (including branding), the management, cash flow, debt levels, ROE, growth in EPS, share buy backs if they are in effect and then calculate my valuation. Its usually done by taking equity per share, expected growth in that equity over the next several years and the number of years, convert that into a future value. Then, using a return of 15% required, and the same time frame, I convert it back into a present value (realising most companies trade upto 2 times fair value). Of course not fool proof, but nothing is.

JST is not great value now, as to why I would have a hold recommendation. Though, its still a long-run solid company IMHO and this is why I hold.

So my methods while based on Buffettology and his general principles, are not EXACT!

My trading has been very successful (both short-term and long-term) so think what you may, but to date, my methods have been very very successful and I have well and truly outperformed many other financial analysts at my work!

Hope that young planner you used to play tennis with didnt burn you too!

 

[Buffettology]

Though Rainmaker, you are correct about the huge dividend SHV pays! In my quick glance, I didnt even look at this. It was a very quick valuation. Great dividend right there! Though, that is only a small factor in my investments.

 

[blablabla]

For my first posting on this website I'd like to give a mention in the "Value Stocks" thread to LRF, Linq Resources Fund, because its NTA is well above its SP.

Even after a good rise, yesterday's closing SP of $1.65 was still $0.25 below its NTA as at 28th Sept of $1.90.

Linq has recently switched to weekly reporting of NTA. The NTA as at 5th Oct should be announced on Friday 12th Oct.

Significant holdings in the LRF portfolio include such stellar performers as AGO, CUO, EQI, IGO, OEX, RIV and SDL.

An onmarket share buyback is currently in progress which is helping to push the SP upwards. A recent announcement substantially increased the number of shares planned to be bought back.

There is a small cloud on the horizon in that a hedge fund which is one of the major shareholders is trying to receive preferential treatment, but management seems to have the matter well under control. A shareholders meeting on 22nd Oct should remove the problem.

Anyone know any good reason why the SP of LRF never seems to get close to the NTA?

 

[masterjunko]

For my first posting on this website I'd like to give a mention in the "Value Stocks" thread to LRF, Linq Resources Fund, because its NTA is well above its SP.

Even after a good rise, yesterday's closing SP of $1.65 was still $0.25 below its NTA as at 28th Sept of $1.90.

Linq has recently switched to weekly reporting of NTA. The NTA as at 5th Oct should be announced on Friday 12th Oct.

Significant holdings in the LRF portfolio include such stellar performers as AGO, CUO, EQI, IGO, OEX, RIV and SDL.

An onmarket share buyback is currently in progress which is helping to push the SP upwards. A recent announcement substantially increased the number of shares planned to be bought back.

There is a small cloud on the horizon in that a hedge fund which is one of the major shareholders is trying to receive preferential treatment, but management seems to have the matter well under control. A shareholders meeting on 22nd Oct should remove the problem.

Anyone know any good reason why the SP of LRF never seems to get close to the NTA?

I too have shares in LRF. The share price trades at a discount to its NTA for a reason. And that reason is risk.
LRF invests in small mining companies, so it is quite understandable the risk is considered to be high.
I think the board has handled the unreasonable demand of that particular hedge fund very well.
Good to see the discount between SP and NTA is getting smaller. However don't expect them to meet.

 

[Rainmaker2000]

Buffettology, its good that you look at many important valuation measures......my point, other than livening up the thread is its important that people don't get the impression that stockmarket is an exact science with price targets, and firm valuations.....as you point out, there are many ways of valuing a stock, although I have trouble figuring how SHV is worth 5.80 under any valuation except NTA...which I reckon JST may be negative on currently...hehe......my valuation of SHV would be closer to double its current market price but then I still respect that the price it ended today is indeed the price its 'worth' today......the wonderful thing about the stockmarket is that valuations are subjective but our results or performance is always objective.......great to hear you are doing better than my former tennis buddy who was always sounding me about the dodgy investments he was told to pass on to clients.....queries like: what do you think of MIG.......its not really a tough question to answer is it?

 

[TheRage]

I value BKL around $16.

How did you come to such a valuation?

What IRR did you use for your calculation?

 

[Ken]

RRT has a NTA over $1.00 and is sitting on a yield of 14.5%.

It is trading at 75.5 cents so in theory it reaches its valuation and pays the dividend and your looking at a 40% gains.

 

[prawn_86]

The problem with RRT is that its sells its assets in order to pay its dividends. (i am 90% sure).

I looked at getting into them earlier when their div was coming up, in the anticipation of a sp rise. the rise didnt eventuate and i didnt buy in thankfully

 

[Awesomandy]

The problem with RRT is that its sells its assets in order to pay its dividends. (i am 90% sure).

From what I know of, RRT refinances to pay its dividends. Well, good luck refinancing under the current climate.