Joshua Byrini's Market View
Byrini's obeservations should not be considered recommendations, advice or suggestions to buy, sell or hold securities, commodities, commodity contracts, options, futures, warrants, insurance contracts, real estate, gemstones, art work or derivatives, as he is neither a registered securities, commodities or real estate broker, diamond merchant, art dealer, or investment advisor. These observations are for informational purposes only. In other words, you are on your own chief.Friday, October 28, 2005
Four for the Money, with Options Expensed
- Freescale Semi, 18 to 41 FSL
- Power-One, 43 to 91 PWER
- Sun Micro, and 44 to 90 SUNW
- Novell, 53 to 108 NOVL
Thursday, October 27, 2005
A Student's Very Funny Top Ten List on the Abuse of Sweat Equity...
Why I Like Stock Options and Why I Don't Want To Expense Them?
Wandering Thoughts of a Tech Company CEO - In No Logical Order
2. We did put all this stock option expense in the footnotes last year, didn't we? It was on page 96 or something of our annual report. If people don't read our annual statements, what's the point in writing all that stuff anyway? We should just start making a short power-point presentation, stop wasting everyone's time and enhance shareholder value.
3. If the Fed can keep on printing money, why can't we print some lousy options? It doesn't cost the company a dime and it makes the "little" guy excited about the tech industry. It makes indebted-MBA students come to work for us instead of those investment banks in New York. How else would I get them to work for me?
4. I work for free (as I explained in point 1). All year round, I work damn hard to raise the stock price so that all the shareholders can make a ton of money. What's the big deal if I exercise some of my options? What about all the shareholder value I created and didn't even get paid for it?
5. With all this traffic, pollution and crazy-housing prices in California, how do I stop my best researchers and managers from leaving and moving to Nevada (nothing personal against Nevada - just giving an example)? Simple! Just issue loads of options and give them something to think about.
6. It is SOOOO hard to calculate the value of stock options. Even if I did want to expense them, I will have to hire an army of accountants to figure it out. This is just like the Sarbanes-Oxley thing - a big conspiracy by accountants to make money. We already have a hard time figuring out all those reserves - this would be just another pain in the neck.
7. I love gambling (as I said, nothing personal against Nevada) and playing the lottery, but options are way better. I have no idea how much money I am going to make at the end of the year, neither does anyone else. How's that for stakes?
9. Leadership is all about building strong teams and motivating people. How do you build a tightly-knit team? Use stock options. Everybody in my company knows that we sink or swim together. Nothing has, or will work better. I love to hand out stock options to my employees like Halloween candy. What kind of a person would want to call them an expense and spoil the fun?
10. Last but not the least: I remember taking a class in business school where they said that the markets were efficient. People already know that we have stock options and we don't expense them. They still buy our shares - why tell them anything different?
Note: I strongly believe that stock options should be expensed. This is just me having fun, being on the other side.
Tuesday, October 25, 2005
Siting Cash Flow, Barron's has pumped it twice, as a stock that is likely to pop (stating 30% is not unreasonable).
And so, even if you are like Josh, who hates to pay up for stock with sky high price/earnings rations, you might consider looking at the calls, even if the p/e over 250. The Jan 07 calls @30 are up .15 today on a 2.30 position, just as the Jan 07 puts @30 are down .50 on a 3.50 bet.
What can we tell you? I looks like these long island sounds are finding an audience of wise guys, willing to pony up and take a shot. We'd choke it with the longer call. The Jan 07 Calls@35 are .65 cents, and we feel if it works at 30, it will work at 35. There is cashflow, yes, but enough to make the stock "reasonable"?
We're feeling that the answer is "no" now, which makes us look to IBM, with a p/e of 16 and no options expensing overhang problem. It's basically a software company at this point, with many more strong points that this bust out story at CA.
Let's call it a false alarm. Choke CA with the 35 calls and 30 puts.... maybe there is a day's pay there, but we're not expecting much, after a deeper look at its price vs. earnings, however grand the cash looks along side it's peer group. We'd rather not be holding it for a friend on a broad based shake out.
Monday, October 24, 2005
Computer Associates, Emerging from the Fog
Harold Godfrey, writing on the changing guard at the Fed, gives the pump to Computer Associates, which follows the story in Smart Money concerning options expensing. Add his boost to the idea that it will not face a hit to its earnings, and maybe it's something to look watch (it's call options, that is). After all, you couldn't buy this much positive press...(well, maybe).
Godfrey writes: "The Barron's feature, "A Rare Tech Keeper," noted Computer Associates has bounced back nicely from its accounting scandal and the software giant is not generating loads of cash. Its shares rose 0.95, or 3.54%, to close at 27.75.
Computer Associates has made peace with authorities over its account scandal, adopted the most conservative accounting practices in the industry and over the past 18 months replaced every member of upper management.
The company generates impressive amounts of cash year in and year out, producing more than $1 billion in operating cash flow in each of the last eight years. It has used the cash to buy back stock, increase the dividends and examining promising new markets."
Some accomplished investors who have been buying the stock lately believe it could climb 30% in the next 18 months.
Sunday, October 23, 2005
The debate whether to force companies to show them as an expense was very much a rage. We even got roped into the debate twices, writing letters to the WSJ, responding to CPA's who honestly questioned or denied that outsized option paydays left the investor with a short end of the stick. But now the debate is over, and companies have to come clean.
Eric Savitz puts investors on notice about companies who are likely to take a hit as investors get used to the new views (and funds that hold them in big ways, from highest hit to lowest risk:
Sibel at 101% hit to earnings
Novall
BEA Systems
Red Hat Software
Mercury Interactive
Informatica
RSA Security
Internet Security Sys
Quest Software
BMC Software
Tibco
Symantec
VeriSign
Business Object
Hyperion Solutions
Adobe
Check Point Software
McAfee
Cognos
SAP
Oracle
Computer Assocates
Microsoft-- at 0% impact to earnings
Saturday, October 22, 2005
Cashflow.
Sunday, October 16, 2005
Smart Money's Gulf Picks...
Friday, October 14, 2005
RMF is primarily made from various closed end funds that trade at a deep discount to their net asset values (NAVs). Moreover, they are selected for paying a higher than US Treasury yields, diversified holdings (in asset classes, credit quality, sector, country), and experienced, professional management.
Stock selections were made based on PEG valuations, S&P Ratings, Price to Cash flows and other value investor tools.
Country index funds are selected based on country reports we've run across, ranking nations for economic and currency stabliity. With country indexes we look for good bets on stable growth with much less relative political risk, and risk of corruption.
And so, by clicking on RMF and bookmarking us, you can track our portfolio of portfolios.
Wednesday, October 12, 2005
4.4% - Altria Group 4.0% - Anheuser-Busch Companies
3.9% - British American Tobacco
3.7% - Constellation Brands
3.4% - Diageo PLC
3.4% - International Game Technology
3.3% - L-3 Communications Holdings
3.1% - Shuffle Master Inc.
2.8% - United Technologies Corp.
2.8% - Imperial Tobacco Group
Have you ever seen such a dirty portfolio? Well, that's because you are looking at the top ten holdings of "the vice fund", which is a registered no load mutual fund operating from Dallas, TX, sybol "VICEX".
The fund is ranked 56th by Lipper, out of 750+, and has done swimmingly this past year (21%, stomping more market indexes). It has large positions in Gaming, Tobacco, Booze and Defense, for sectors Josh will not be looking to lay down shorts. Click here for a list of it's holdings as of, June (a little dated).
25.18% - Gaming
23.49% - Defense
21.86% - Alcohol
15.85% - Tobacco
13.62% - Other
We feel it's a good list of companies to start sniffing out some Callops, if you are not morally bound to avoid these types of enterprises. You'll find the stocks in the "other" bin are interestings inclusions, such as a pool company, Harley Davision motorcycles, Electronic Arts, Guitar Centers, Playboy, and something called Rick's Cabaret International.
All fine proxies for the lost hours American's "spend" not doing homework, or designing useful things in their garages for Ron Popeil to sell in three easy payments.Nonetheless, it sure seems like a good place to park some duckets, and just "set it, and forget it", until the war is over, and everyone in the world swears off drinking, smoking and gambling (and the the radical islarmrists have their way).
It even has our favorite "Dirty Dog," CG, Lowe's Carolina Group, makers of the ubiquitous stinky Newport brand. . We glombed it when the yield was 8, after an exhaustive Yahoo stock screen for highest yields (the yield monger's favorite, aka, "yield whore"). Now the yield has cheapened, as yield mongers have bid up the shares to a yield of 4 to 5%.
Of course there are other places looks for profits from vice, such as the missing gaming plays, including Hilton, and various online gaming companies, such as new issues, Empire Online Ltd. (EOL.LN), and PLC (SBT.LN), and PartyGaming PLC's (PRTY.LN), which recently hit the london market with an IPO that ended 4% up on the offer. But not beats the Vice Fund for a one stop shop.
COO, 70 and 75 calls today
We see no end to the need to change eye color, as global media company strain for shocking new content (ok, enough, they make surgical devices too).
First Call's Sell Sheet
(LVLT)
(NWACQ)
Tuesday, October 11, 2005
Bird Flu Plays...
Gilead (GILD) invented Tamiflu, the popular antiviral drug, but licensed it to Roche Holding Ltd. in 1996 (RHHBY).
Between 2001 and 2004, Tamiflu's annual sales were $200 million, which earned Gilead royalties of between 7% and 11%.
But fear of the Avian flu and a possible pandemic has prompted 30 governments, including that of the U.S., to stockpile the drug.
Gilead has launched a legal battle to wrest control of Tamiflu from Roche. If it's successful, that would be a major coup: Citigroup's Werber projects Tamiflu's sales will reach $850 million in 2005.
It will come back to you
Peg
It will come back to you
Then the shutter falls
You see it all in 3-D
It's your favorite foreign movie"
PEG begins with Ben Graham's favorite measure, the P/E Ratio, which let's you disregard stock price and focus on what counts, the relative value of a company's shares based on its average earnings. And if it's good enough for Ben Graham, it's just fine for Josh. Ben Graham is the reason the world is off gold standard (however pissed off Steve Forbes remains about it), he taught Warren Buffett how to invest, and is basically to investing what Louis Armstrong is to popular music. So, we'll start with P/E, no matter what the four letter traders say.
Add an earnings growth factor (no, it's not available at Vitamins.com), which allows you to rank stocks with low P/Es in light of their average annual earnings growth, and presto. Now you've got a place to start looking for stocks selling for at a discount to their growth prospects. They are not necessarily unloved, or beaten down, or ignored; but maybe they are not noticed by the wall street machine yet. After all, you can be the best hockey player in Canada; but who knows it if the NHL scouts never show up on you pond.
It's a good method, as the best laid plans of mice and men go, and a hell of a lot easier when S & P does sorts out the market of stocks for you.
So here is where we begin, a sorting of securities by S and P based on their attractive PEG ratios and these criteria:
Criteria:
- EPS Gwth. (Proj. Next Yr vs. This Yr): Greater than or Equal to 25%,
- P/E (Next Year - Est.): Greater than or Equal to 10,
- EPS Growth (Proj. 5 Yr): Less than or Equal to 25%,
- EPS Gwth. (Proj. This Yr vs. Last Yr): Greater than or Equal to 25%,
- PEG Ratio: Less than or Equal to 1
PARL
GOOD
HTRN
VIP
NNBR
BELM
XTO
BOO
RRA
TMI
CSE
ICTG
PENN
GW
CDIS
The bolded symbols are "strong buys".
And so we have a place to start looking for undervalued calls, which can put us in a position to catch some run up. All this to say what?
Well, so far, we like the Russian cellphone play in VIP for a few reasons. First, it has a low low price to cash flow of just 8, leading the field (or trailing it).
Next, it's actual PEG is low too, tied with PARL, the luxury odor maker growing leaps and bounds through sales at specialty retailers. And finally, it has calls, and LEAPS (the long kind), out to 07, which offers us a cheap way to get a slice of their pie. Here are a few "out of the money" positions to watch in Jan 06 and Jan 07, for your edification:| -VIPAZ | Jan 06 43.3750 | 2.10 | 0.00 | 1.85 | 2.05 | 0 | 2,285 |
| -VIPAI | Jan 06 45.0000 | 1.45 | -0.10 | 1.30 | 1.50 | 100 | 3,417 |
| -OWYAI | Jan 07 45.0000 | 5.70 | -0.10 | 5.40 | 5.90 | 10 |
What's the frequency Kennith?
VIP also puts us on to the scent of other cell phone companies around the world, in similar circumstances (extracting large chuncks of cash from blabber mouths the world over, who would soon part with their shoes than give up Cell service, wherever they are). A quick look at their Peer group of ADRs, showing companies trading on the exchanges, with similar market caps, revenues, net margins, and Ben's P/E. Here are a few with P/Es close to VIP's at 17, and Net Margins close to VIP's 19 that seem to be doing as well doing the same kind of thing:
TSP (Brazil)
CN (China)
CHT (China)
CHA (China)
SCM (Switzerland)
TMX (Mexico)
TLS
PHI (Phillippines)
CTC (Chile)
SNGNY (Singapore)
Monday, October 10, 2005
Deregulation of the energy markets, gulf security, energy prices, and interest rates made utilities a great place to pull out some run up; but now the sector has become bloated, as valuations soared 15% this past year. Now, it's a complex and difficult area to place good bets. The situation is summed up well today by interviewers for the WSJ, Ian McDonald and ES Browning:
"The sector's fall after last Monday's peak was triggered by worries about all three of the legs that have supported utilities for the past two years -- low bond yields, high prices in the unregulated part of the power market, and high demand for power in a booming economy.
Moreover, the run-up has caused utility stocks to become pricier in relation to their earnings. The higher stock prices also have pushed down their dividend yields -- the amount of income they produce per dollar invested.
"If something bad happens in the utilities world, you could have a material downside," says John Meara, president of St. Louis money-management firm Argent Capital Management, who has steered clear of the sector. "The risk side of the equation is definitely higher than it was five years ago."
How's your Nat. Gas? What about taking the other side of the bet? If gas comes down, who benefits. YELL! Top trucking outfit should be ready to rumble if fuel drops, and the railroad's jig is up. No yield, so hey, why not the 08 45 calls? They are only 800 per contract, which ties up a lot less than the 40 per share, and gets you a little "safety" on your PGH, the tankers, and the other gifts you may have gotten from those sand rats and their backers in the middle east.
Wood Eye?
There is excess of 3 billion dollars of fallen wood in the states of LA and Mississippi, the result of Katrian. Jim Carlon, writing for the WSJ explains:
"From Texas to Alabama, the storms toppled forests as far as 50 miles inland. As much as 21 billion board feet is down, which by state and federal figures is enough to build one million homes. State officials estimate the market value of the downed timber at about $900 million in Louisiana and $2.4 billion in Mississippi."
As the article points out, GP and WY are the two giants in the sector who are both in a position to process all that dead wood, and who are infact doing so, according to that same article.
Both stocks are down, but last I looked, the Georgia Pacific January 06's at 35 are up a dime (http://finance.yahoo.com/q?s=GPAG.X). The WY's Jan 06s at 70 are up too. http://finance.yahoo.com/q/op?s=WY&m=2006-01
Well, whaddaya know? Going long might be a good bet, but going long and short may be better in a situation where there is a lot of uncertainty (will industry organize itself in time to process the wood before it rots on the ground? Will industry do so in a smooth way, where there will be no bumps, stumps or outsized pullbacks?) Buying a call above the current price, and a put below the current price just might pay in spades.
Keep us posted if you do.
Who will insure the insurers Plato?
Katrina is causing trouble all around, but what better excuse to raise insurance rates for the insurers who insure the insurers, or the Re Insurers? Insurance rates, like real estate rental rates rise as rates rise. So, maybe the story has legs.
S & P likes Aspen, AHL, giving it the full cluster of stars, and wihtout looking too close, it might be a good time to glom some calls, given its price chart. Let us know what you find out if you do.
Moreover, AHL yields a little something 2.90%, while you wait; so it's like a CD's yield with a bet on rising insurance prices. A competitor's insider just laid a lot of his own money on his own stock (ENH), meaning he may know something S and P does not about his company's ablity to "weather" the store, if you will. If you won't, nobody would blame you.
EFR
Senior note, foating paper, closed end funds from the Eaton Vance brand, containing high ranked paper in mostly BB and B credit names. The news here, is an insider buy. Last week, a VP at Eaton plunked 50k on each of these floating rate trusts. They yield 7+ %, in a monthly div., adjusting as rates climb.
After a quick look at the individual paper in these things look... possible. The turnover of notes for the year of each was 100%.
EFT trades at a 4% discount ( -4%) to it's net asset value with names like Quintiles Transnational, MGM Studios, Stone Smurf (shipping), Gen Growth Properties.
EFR trades at -6%, with names like Charter Comm, Michaels Foods, MGM Studios, Six Flags, General Growth Prop., Regal Cinemas.
They employ leverage by issuing a pref. class of stock based on short rates, which does not appear to have an outsized risk associated where rates rise.
The Bollinger bands are split about even at these levels on both these babies, but hey, fair is fair. It beats sweating it out for some Brazilian field goal kicker to split the uprights on Sunday.
Like to see more of these closed end, senior note floating fund-trust adjustable yield machines?
The largest trades at an -8% discount under the Van Kempen brand: VVR. Then there's PPR, which which also trades at -8% to its NAV, under the ING brand, and then PHD, trading at an 8% discount under the Pioneer brand. They yield between 6.9 and 8 percent, and seem to hold the same names in different amounts..
But if you really need the action...
Ya know that Wallgreen's they are building...? Exactly.
Josh likes the dollar store in disguise that's blanketing the nation-- WAG, the poor man's Saks; and there are more and more of them (poor men and WAG stores). No yield, but hey, calls could take you there for a lot less, right?
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