Analyst Errors Overstate LinkedIn's Valuation By Over 30% [View article]
"It's supposed to be illegal now for analysts to pull this scam "
Let's not get into that. There is only one regulator that can possibly protect you, and the good news is that it's easy to get access to this regulator and spur him into aggressive action any time you wish. You see him every day when you look in the mirror. That's it. He's the only one. All the others are pretenders who sit around collect a GS-something salary and marking time till retirement.
What resource does this super-regulator have? It's fully operational all the time and located between said regulator's ears.
Case in point: LNKD has a PE of near 1000 and a PS of around 20 this morning, and the MS report, based on insanely high growth assumptions, targeted only 9.5% above yesterday's closing price. Anyone who consults the regulator in the mirror, and assuming the regulator's brain is functioning, would be barred from going long LKND regardless of what a sell-side analyst says. That's enough. If that sort of regulatory protection isn't sufficient for a particular investor, they ought not be in the stock market.
Let's stop pointing fingers at others and start taking responsibility for our own investment decisions.
Analyst Errors Overstate LinkedIn's Valuation By Over 30% [View article]
We can agree to disagree about DCF, but here's another bear angle. Suppose MS's numbers were such that you felt comfortable with their target price. Yesterday, LNKD closed at 105 and is up a bit this morning. Let's work with 105. They target 115, a 9.5% gain. That does not sound like such a great reward since that 9.5% projection hinges on some stupendous and probably insane growth-rate assumptions and that the current Price/Sales exceeds 20 (P/S is a useful supplement to P/E, which for LNKD, most already recognize as ridiculous.)
I don't mind going out on a limb. I do it all the time; heck, I once ran a junk-bond fund now have a stocks-under-$3 newsletter. So I'm very comfortable with risk. But It'll be a cold day in hell before I take on the kind of risks baked into LNKD if all I can project is a 9.5% gain. If I'm going to expose myself to disaster, at least i want to be able to look forward to a proper reward if things turn out well.
Given that the stock looks like a "Sell" even if the target price published by MS is sound, I have to assume that the analysts are not really bullish on MS (hopefully for their sakes, there are no circa-1999-2001 "piece of sh**" e-mails floating around the MS server). This has all the look of a target price that was raised just to stay ahead of the market price, and if the momentum crowd pushes LNKD higher, they'll have to plug new numbers into the DCF and up the target again. Or perhaps not the analysts -- again, they may not have even looked at it; it may have been outsourced.
Analyst Errors Overstate LinkedIn's Valuation By Over 30% [View article]
Wow, this is a great puzzle to start the morning. I downloaded their report and your model.
I see what MS is doing. It's basic textbook stuff. They are discounting the value of the enterprise as a whole back to the present, and then dividing by the number of fully diluted shares. I also see what you're doing. You aren't discounting the enterprise. You aim at the per-share number every step of the way. And because you are using different frameworks, it is clear there must be different answers.
So what is the correct framework? Who the heck knows? I don't think the creators of DCF can answer that because it's a theoretical framework that doesn't truly work in the day-to-day real world and on that basis, I can't argue with the textbook/MS approach. But the point you raise is a valid one as well.
I think the problem here is what I said above. DCF is an artificial thing that's great for giving finance students a core understanding of how to boil things down to here-and-now valuations but as it moves away from the classroom into the real world, problems mount. Most deal with forecast-ability. I have absolutely zero faith in any of the year-by-year projections. And I hate a framework where so much depends on a terminal value which applies a wild-guess growth rate on top of a cash flow forecast for 2020. You add to the conundrum by throwing in a valid theoretical question of how/when you convert from enterprise to per-share analysis.
By the way, don't be harsh on the analyst for not returning your call. I recall MS making a huge fuss over its introduction of the Model Ware framework (mentioned in the reports disclalimer sections). My guess is the analyst has no discretion to do the DCF any way other than the way it's been done. And from what I've been hearing about the sell side, I'm guessing the analyst didn't do and may not even have seen the DCF analysis in the report. My understanding is that is that a lot of this work is now being outsourced. I have no idea if MS does that, but I do notice that the report lists six individuals only two of which also list phone numbers and e-mail addresses. Six is a lot even by standards of the lush research budgets of the 1990s. I'm guessing the other four names may not even be full-time MS employees (outsource?).
MLPs To Capitalize On Energy Trends [View article]
"News/macro: If brokers have to come to these sites to drum up business they must have run out of real customers. Argue that point."
There are many, way too many, articles lately on Seeking Alpha that have absolutely nothing worthwhile to say written by people who seem utterly unqualified to say anything worthwhile. But this is not one of them. Did you read/understand his bio? As an analyst-portfolio manager, and one who uses his real name, this is exactly the kind of author we need here.
If you disagree with his points, as you do, that's fair. You can argue your view, as you do elsewhere in your comment.
One point I'd have made that's omitted here are the tax rules that apply to partnerships, the mundane (the fact that so many MLPs send K-1s so darn late that it's almost impossible for one who owns these to avoid asking IRS for an filing extension) and the substantive (trading can produce strange tax consequences).
But I think the entire SA community would benefit if readers, even those who disagree with the points of view that are expressed, recognize and acknowledge the difference between legitimate analysis (what you see here) and nonsense (what we see too much of elsewhere).
The E-Book Saga Offers Amazon No Reprieve [View article]
I know, Paulo, to be careful about getting sucked into the abyss of a debate with you, but I can't resist one last point, which will help you more effectively run the company once you succeed in the proxy fight I presume you'll wage to unseat Bezos.
1. Company X introduces a product. 2. On day one, it's market share is 100% 3. It's market share remains 100% on day two and on until compeition arrives, which it inevitably does. 4. Once competition arrives, Company X's market share drops to X-Y, Y representing the market share of rivals. 5. Y grows. 5a. Y might eventually overtake X, or 5b. Y might more or less equal X, or 5c. Y might stabilize at a level well above zero but still substantially smaller than X, or 5d. Y might stabilize at a trivial level, or 5e. Y might shrink back to zero.
5e almost never happens. 5d sometimes happens. 5a, 5b and 5d happen all the time.
So far, it looks like the e-book scenario is 5c. Yikes! how horrible. Indict Jeff Bezos. Accept an insanity plea. Strap that margin-hating idiot in a straight-jacket and toss him for life into a padded room. AMZN shareholders . . . unite now to make Paulo Santos, who knows how to calculate margins, CEO. Protect your shares. Do it now!!!!!!
OK Paulo, you should appreciate me. I've just given you for free the sort of management consulting analysis and public relations support for which many investors pay millions. You owe me! Oh wait, a bit of personal finance. Cover your short. You can make a heck of a lo more money as AMZN CEO than you can on a short trade. Remember, it;s not just salary. You get bonuses too.
The E-Book Saga Offers Amazon No Reprieve [View article]
"This decision is not going to change where the books are sold, regarding Apple's ecosystem or even Google's (GOOG) Android - where competition with Amazon.com isn't as advanced. The fact that Apple was in on the scheme shows that Apple had no problem in pushing for somewhat higher prices, and in terms of market share there's no reason it can't compete at lower prices (though it might be less willing to entertain low margins, preferring to let price-sensitive buyers go temporarily towards Amazon)."
I know I'm going to regret jumping into this, but . . .
Frankly, I have no clue what the heck you're trying to say in that paragraph. Apple is not a major player in e-book sales as far as one can tell. Market share data is sketchy, but the NY Times yesterday cited publishers (who ought to know) to the effect that Apple's share is about 15%. As to ecosystem, Amazon and Barnes & Noble are the key ecosystems although B&N's strength is brick-and-mortar; on-lime, it has just 25%. So AMZN is dominant.
Not sure where Google gets into the act. It distributes tons of free old out-of-copyright horribly formatted books which bring it zero in revenue. Aside from that, Google's only relevance is the Android platform, but that doesn't make Google relevant in terms of book sales. Android device users read e-books sold by Amazon or B&N using their Kindle or Nook apps. Ditto iPad -- lots of people use it for e-reading, again with content sold by AMZN or B&N on Kindle or Nook apps.
As to the future, who knows. Frankly, though, you couldn't pay me to order a book from Apple's iBook store. It takes so agonizingly long for iCrap . . . ooops, iTunes, to download a 3 minute song, I wouldn't dare imagine how long I might have to wait to download a novel, or a MOBI-type collection, and heaven forbid the download fails. One time, I just gave up on a song that didn't download because I couldn't negotiate iCrap's customer service maze. With Amazon, on the other hand, it never took me more than 30 seconds to get a human on the phone, one who is typically able to solve problems (few as they are) with ease.
By the way, Paulo, since Jeff Bezos is such a complete and utter failure as a manager given that he is too stupid to understand that his margins are low, have you considered waging a proxy fight with the aim of installing yourself as CEO (i know you're short, but heck, surely you can go long one share in order to get in on the meetings). It's really unfair of you to continue to deny Amazon shareholders the privilege of booting out that loser Bezos and replacing that moron with you and your merchandising expertise. :-)
Best Buy Update: Thank You, Wall Street [View article]
"When the CEO jumps off a failing company without the usual 'family reason' bullshit, you know the company is deeper crap than most realize."
Hard to say what "most" people realize. BBY has some fans, but many are onto the fact that the company has been in a downward spiral for a while although I'm not sure the author is among them. News flash for the author: consumer electronics retailing IS changing at least as much and perhaps faster than people think, and even in terms of retail as we know it, BBY is doing an increasingly bad job (apparently having gotten arrogant and complacent after Circuit City vanished). Regardless of how it came about, this company badly needs a management shakeup . . . perhaps beyond the CEO.
Dividend Investors Need To Protect Their Portfolios From Interest Rate Risk [View article]
I think you throw the phrase "high yield" around too cavalierly. MLPs and REITs are very distinct investment categories for reasons well beyond yield (actually, many REIT yields today are moderate at best).
Typically, the phrase high yield refers to regular companies whose stocks have yields well above equity norms, usually because of concerns about dividend security. Like junk bonds, in a sense, these are actually the least interest sensitive areas. They'll trade, for better or worse, on changes in credit quality (junk bonds) or dividend security (high-yield equities) and if anything, the sort of economic strength that would likely push interest rates higher could put companies like these on better fundamental footing. Indeed, asset inflation might be just the sort of medicine some seriously ill and deeply depressed mortgage REITs might need to give them a chance at righting themselves.
Apart from bonds/stocks influenced by credit/fundamental quality, you also have to consider interest on interest. In bonds, when rates are expected to rise, the play is to go for shorter duration (higher coupon) bonds, and be willing, often, to pay premiums that will decay over time, as these present better opportunities to reinvest at escalating rates. Unfortunately, the mathematical concept of duration never formally migrated or adapted to the world of equities. But while dividend-growth stocks might seem best for rising rates under an "all else being equal" strategy, the outcome might change if one were to factor in returns on reinvested dividends.
Not sure why the SA editors limit linking. But also, be careful as you submit; I've found the submission interface to be erratic with links; sometimes they vanish during the process. Now, I double check each one before signing off on the final draft.
Nice to see that you're not a black box, although I think it would be preferable to link to or discuss your methodology in SA articles so as to avoid the black-box appearance. I note, though, that the Simon report to which you link does look like its geared for general industrial companies. For example, while the adjustments you make to EPS are all well and good, for REITs, you shouldn't be using EPS even as a starting point. You should be presenting and making your adjustments to FFO, or at least offering an explanation as to why you prefer to not do this given that it is well accepted that FFO rather than EPS is the more appropriate entry point into the economic performance of REITs.
Can you explain the way you determine your ratings. Right now, all you're doing is stating conclusions based on what appears to be a "black box" model. Hence no Seeking Alpha reader has any reason to consider it. I'm particularly concerned by the lone exception, your remarks on Simon. I have no love for that REIT, but the comments you made lead me to wonder if you are trying to shoe-horn REITs into a model that was designed for industrial companies, which would be a very serious problem given the prominence of REIT ETFs in your avoid lists.
Yes, it is suspended while they grapple with problems relating to the way Sprint executes its business model. Share buybacks do tend to occur in spurts, as opposed to dividends which are typically steadier.
"I just don't see how Radio Shack can really compete against the internet when even RSH's larger competitors are in trouble. But I could very well be wrong."
Yeah . . . and to add to the industry angst, it looks like Best Buy will, actually, be moving toward smaller footprints. Don't know if they'll go as far as RSH, but it does seem that CE retailing five years from now may look a lot different from today.
Double Standard For Corporate Blowups [View article]
Double Standard For Corporate Blowups [View article]
Not at all. This is a terrific area and I've has a lot more successes here.
Analyst Errors Overstate LinkedIn's Valuation By Over 30% [View article]
Let's not get into that. There is only one regulator that can possibly protect you, and the good news is that it's easy to get access to this regulator and spur him into aggressive action any time you wish. You see him every day when you look in the mirror. That's it. He's the only one. All the others are pretenders who sit around collect a GS-something salary and marking time till retirement.
What resource does this super-regulator have? It's fully operational all the time and located between said regulator's ears.
Case in point: LNKD has a PE of near 1000 and a PS of around 20 this morning, and the MS report, based on insanely high growth assumptions, targeted only 9.5% above yesterday's closing price. Anyone who consults the regulator in the mirror, and assuming the regulator's brain is functioning, would be barred from going long LKND regardless of what a sell-side analyst says. That's enough. If that sort of regulatory protection isn't sufficient for a particular investor, they ought not be in the stock market.
Let's stop pointing fingers at others and start taking responsibility for our own investment decisions.
Analyst Errors Overstate LinkedIn's Valuation By Over 30% [View article]
I don't mind going out on a limb. I do it all the time; heck, I once ran a junk-bond fund now have a stocks-under-$3 newsletter. So I'm very comfortable with risk. But It'll be a cold day in hell before I take on the kind of risks baked into LNKD if all I can project is a 9.5% gain. If I'm going to expose myself to disaster, at least i want to be able to look forward to a proper reward if things turn out well.
Given that the stock looks like a "Sell" even if the target price published by MS is sound, I have to assume that the analysts are not really bullish on MS (hopefully for their sakes, there are no circa-1999-2001 "piece of sh**" e-mails floating around the MS server). This has all the look of a target price that was raised just to stay ahead of the market price, and if the momentum crowd pushes LNKD higher, they'll have to plug new numbers into the DCF and up the target again. Or perhaps not the analysts -- again, they may not have even looked at it; it may have been outsourced.
Analyst Errors Overstate LinkedIn's Valuation By Over 30% [View article]
I see what MS is doing. It's basic textbook stuff. They are discounting the value of the enterprise as a whole back to the present, and then dividing by the number of fully diluted shares.
I also see what you're doing. You aren't discounting the enterprise. You aim at the per-share number every step of the way. And because you are using different frameworks, it is clear there must be different answers.
So what is the correct framework? Who the heck knows? I don't think the creators of DCF can answer that because it's a theoretical framework that doesn't truly work in the day-to-day real world and on that basis, I can't argue with the textbook/MS approach. But the point you raise is a valid one as well.
I think the problem here is what I said above. DCF is an artificial thing that's great for giving finance students a core understanding of how to boil things down to here-and-now valuations but as it moves away from the classroom into the real world, problems mount. Most deal with forecast-ability. I have absolutely zero faith in any of the year-by-year projections. And I hate a framework where so much depends on a terminal value which applies a wild-guess growth rate on top of a cash flow forecast for 2020. You add to the conundrum by throwing in a valid theoretical question of how/when you convert from enterprise to per-share analysis.
By the way, don't be harsh on the analyst for not returning your call. I recall MS making a huge fuss over its introduction of the Model Ware framework (mentioned in the reports disclalimer sections). My guess is the analyst has no discretion to do the DCF any way other than the way it's been done. And from what I've been hearing about the sell side, I'm guessing the analyst didn't do and may not even have seen the DCF analysis in the report. My understanding is that is that a lot of this work is now being outsourced. I have no idea if MS does that, but I do notice that the report lists six individuals only two of which also list phone numbers and e-mail addresses. Six is a lot even by standards of the lush research budgets of the 1990s. I'm guessing the other four names may not even be full-time MS employees (outsource?).
MLPs To Capitalize On Energy Trends [View article]
There are many, way too many, articles lately on Seeking Alpha that have absolutely nothing worthwhile to say written by people who seem utterly unqualified to say anything worthwhile. But this is not one of them. Did you read/understand his bio? As an analyst-portfolio manager, and one who uses his real name, this is exactly the kind of author we need here.
If you disagree with his points, as you do, that's fair. You can argue your view, as you do elsewhere in your comment.
One point I'd have made that's omitted here are the tax rules that apply to partnerships, the mundane (the fact that so many MLPs send K-1s so darn late that it's almost impossible for one who owns these to avoid asking IRS for an filing extension) and the substantive (trading can produce strange tax consequences).
But I think the entire SA community would benefit if readers, even those who disagree with the points of view that are expressed, recognize and acknowledge the difference between legitimate analysis (what you see here) and nonsense (what we see too much of elsewhere).
The E-Book Saga Offers Amazon No Reprieve [View article]
1. Company X introduces a product.
2. On day one, it's market share is 100%
3. It's market share remains 100% on day two and on until compeition arrives, which it inevitably does.
4. Once competition arrives, Company X's market share drops to X-Y, Y representing the market share of rivals.
5. Y grows.
5a. Y might eventually overtake X, or
5b. Y might more or less equal X, or
5c. Y might stabilize at a level well above zero but still substantially smaller than X, or
5d. Y might stabilize at a trivial level, or
5e. Y might shrink back to zero.
5e almost never happens. 5d sometimes happens. 5a, 5b and 5d happen all the time.
So far, it looks like the e-book scenario is 5c. Yikes! how horrible. Indict Jeff Bezos. Accept an insanity plea. Strap that margin-hating idiot in a straight-jacket and toss him for life into a padded room. AMZN shareholders . . . unite now to make Paulo Santos, who knows how to calculate margins, CEO. Protect your shares. Do it now!!!!!!
OK Paulo, you should appreciate me. I've just given you for free the sort of management consulting analysis and public relations support for which many investors pay millions. You owe me! Oh wait, a bit of personal finance. Cover your short. You can make a heck of a lo more money as AMZN CEO than you can on a short trade. Remember, it;s not just salary. You get bonuses too.
The E-Book Saga Offers Amazon No Reprieve [View article]
I know I'm going to regret jumping into this, but . . .
Frankly, I have no clue what the heck you're trying to say in that paragraph. Apple is not a major player in e-book sales as far as one can tell. Market share data is sketchy, but the NY Times yesterday cited publishers (who ought to know) to the effect that Apple's share is about 15%. As to ecosystem, Amazon and Barnes & Noble are the key ecosystems although B&N's strength is brick-and-mortar; on-lime, it has just 25%. So AMZN is dominant.
Not sure where Google gets into the act. It distributes tons of free old out-of-copyright horribly formatted books which bring it zero in revenue. Aside from that, Google's only relevance is the Android platform, but that doesn't make Google relevant in terms of book sales. Android device users read e-books sold by Amazon or B&N using their Kindle or Nook apps. Ditto iPad -- lots of people use it for e-reading, again with content sold by AMZN or B&N on Kindle or Nook apps.
As to the future, who knows. Frankly, though, you couldn't pay me to order a book from Apple's iBook store. It takes so agonizingly long for iCrap . . . ooops, iTunes, to download a 3 minute song, I wouldn't dare imagine how long I might have to wait to download a novel, or a MOBI-type collection, and heaven forbid the download fails. One time, I just gave up on a song that didn't download because I couldn't negotiate iCrap's customer service maze. With Amazon, on the other hand, it never took me more than 30 seconds to get a human on the phone, one who is typically able to solve problems (few as they are) with ease.
By the way, Paulo, since Jeff Bezos is such a complete and utter failure as a manager given that he is too stupid to understand that his margins are low, have you considered waging a proxy fight with the aim of installing yourself as CEO (i know you're short, but heck, surely you can go long one share in order to get in on the meetings). It's really unfair of you to continue to deny Amazon shareholders the privilege of booting out that loser Bezos and replacing that moron with you and your merchandising expertise. :-)
Best Buy Update: Thank You, Wall Street [View article]
Hard to say what "most" people realize. BBY has some fans, but many are onto the fact that the company has been in a downward spiral for a while although I'm not sure the author is among them. News flash for the author: consumer electronics retailing IS changing at least as much and perhaps faster than people think, and even in terms of retail as we know it, BBY is doing an increasingly bad job (apparently having gotten arrogant and complacent after Circuit City vanished). Regardless of how it came about, this company badly needs a management shakeup . . . perhaps beyond the CEO.
Dividend Investors Need To Protect Their Portfolios From Interest Rate Risk [View article]
Typically, the phrase high yield refers to regular companies whose stocks have yields well above equity norms, usually because of concerns about dividend security. Like junk bonds, in a sense, these are actually the least interest sensitive areas. They'll trade, for better or worse, on changes in credit quality (junk bonds) or dividend security (high-yield equities) and if anything, the sort of economic strength that would likely push interest rates higher could put companies like these on better fundamental footing. Indeed, asset inflation might be just the sort of medicine some seriously ill and deeply depressed mortgage REITs might need to give them a chance at righting themselves.
Apart from bonds/stocks influenced by credit/fundamental quality, you also have to consider interest on interest. In bonds, when rates are expected to rise, the play is to go for shorter duration (higher coupon) bonds, and be willing, often, to pay premiums that will decay over time, as these present better opportunities to reinvest at escalating rates. Unfortunately, the mathematical concept of duration never formally migrated or adapted to the world of equities. But while dividend-growth stocks might seem best for rising rates under an "all else being equal" strategy, the outcome might change if one were to factor in returns on reinvested dividends.
How To Avoid The Worst ETFs [View article]
How To Avoid The Worst ETFs [View article]
How To Avoid The Worst ETFs [View article]
High-Yield Equity Spotlight: RadioShack [View article]
High-Yield Equity Spotlight: RadioShack [View article]
Yeah . . . and to add to the industry angst, it looks like Best Buy will, actually, be moving toward smaller footprints. Don't know if they'll go as far as RSH, but it does seem that CE retailing five years from now may look a lot different from today.