It has been suggested that Ford should acquire Tesla (see this). Backdrop: Tesla is at a Critical Point Right Now If Tesla were profitable and flowing cash in, this would not even be possibility. Sure, it would be much more attractive acquisition as a profitable company, but it would also be much more expensive. Business… [Read More]
Large Cap Value Stocks
Large cap value stocks are often well established companies that may be temporarily undervalued. This can happen due to a business specific reason or due to cyclical nature of the industry. If you want security of extensive coverage, possible dividend, sufficient liquidity and the opportunity to invest for capital appreciation, you should consider large capitalization companies that may be undervalued. Our large cap stocks have market caps above $13 billion
Undervalued Opportunities are Scarce among Large Cap Stocks
This is an unfortunate consequence of being widely followed by Wall Street analysts. Since there are so many eyes on these stocks, and since these stocks are heavily invested in by indexes and funds following these indexes, the likelihood of finding stocks that are inefficiently prices is very low. As a result, many of the classic value investing principles come up short for large cap stocks, and the value investor has to dig deep to find investment ideas.
When the Tide Goes Out ...
You are better off looking for entire sectors that may be undervalued or temporarily distressed, and then considering buying some selected names from these sectors. The easiest way to do this is to look for cyclical stocks that may for one reason or other may be in the middle of a down cycle. This calls for taking a contrarian investing position to the rest of the market. While this sounds simple enough, the skill lies in picking the best of the bunch of stocks scrapping the bottom. The key criteria here is no longer profitability and growth (there may be some of this, but most likely not much). The key criteria becomes market economics and market position, which is a different ball game that most investors are not equipped to analyze well.
The So Called Warren Buffett School of Value Investing
You may have heard this repeated often in the media:
"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. "
The quote is attributed to Warren Buffett.
Classic value investing looks for wonderful prices first. Quality of the company is a secondary consideration. However, once you are limited to investing in large cap companies, as Warren Buffett is, finding ANY company at wonderful prices becomes very difficult. The large cap market is very efficient.
As a result, Buffett had to embrace paying up for some investments and then find ways to improve his odds because the margin of safety in the investment no longer existed. This is where the idea of a sustainable competitive advantage, or a moat, came into being. The calculation is that even if I am paying more now, the investment is very likely to pay off as the sustainable competitive advantage, if maintained, gives the business a long runway to grow its earnings over time without much of competitive threat.
This is another way to value invest in large cap stocks. If you choose to do this, be prepared for long holding periods and strong correlation to the larger economy (as large caps tend to set the economic trends)
Seagate Technology PLC (Stock: STX) is a US based company specializing in hard disk drives and storage solutions. They compete in markets such as ‘client compute’ which includes desktop and mobile computing, ‘client non compute’ that includes storage systems for other electronic devices such as gaming console system and digital home theaters etc. and ‘enterprise… [Read More]
Bed Bath & Beyond has been expanding. In 2012, it purchased Linen Holdings and Cost Plus World Markets. It estimated 41 new store openings in the fiscal year 2012. Still the stock (BBBY) today can be purchased at 13 times multiple, which is in the low range of the historical multiple its shares have commanded…. [Read More]
The Euro crisis hit Spain hard and Spanish bank stocks have understandably suffered. Now that the EU economy appears to have stabilized a bit, you may wonder if this is the right time to buy SAN or other Spanish banks. The Pain in Spain Spain followed a story line similar to United States. Cheap credit… [Read More]
Freeport-McMoran Copper and Gold Inc (FCX) explores and mines mineral resources, primarily Copper, Gold and Molybdenum. Recently, the company has made moves to enter the energy market by acquiring Plains Exploration and Production Company and McMoran Exploration Company for $20 B combined, which gives it access to high quality US Oil and Natural Gas reserves…. [Read More]
Before you worry that Autonomy sucked the wind out of HP’s sails, remember, HP does not even know where the ship is going. My recommendation? Keep avoiding the stock.
Credit crisis, mortgage meltdown, irresponsible risk taking and leverage, record bonuses and bailouts. Fast forward to today, and we have JPM with their “we were stupid” moment. We all know what the problem is. Or do we? The large bonuses give the traders every incentive to load up on leverage and risk. Most of the… [Read More]