Values out there
Anyone seeing names they like after the recent market swoon? Three names I like are Herman Miller, MSC Industrial, and Sysco. The first two have priced in a mild recession so unless it gets really ugly, are good purchases. I have price targets of roughly $40 and $45 respectively. I have not done as much work on SYY so I am not pounding the table but am warming up to the idea. It is a food wholesaler to restaurants so it is getting squeezed by soft consumer spending and food inflation. Between efforts to restructure its distribution system and a better environment to take share from weaker competitors, I think it has room for upside surprise. Havent put a price target on it yet. I have recently bought MSM and MLHR but have nto yet pulled the trigger on SYY. Thoughts and ideas are welcomed.
posted by Odoacer at
1:41 PM
6 Comments:
My favorite is "unless it gets really ugly".
Too late it's really ugly.
Value????? A little 15% correction off the peak and you think there is alot of value out there? The market is still extremely overvalued at just shy of 18x trailing EPS for the S&P 500 and 15x trailing earnings for the dow jones - still above even the median and mean multiples for the markets over the last 80, 50, 25, and 15 years.
Stocks are not a buy. Stocks are a sell. The US is operating at peak profit margins right now!!! That means these multiples are articially low. If we use normalized margins the S&P 500 is trading at 24x to 28x depending on how much you want to shave off current corporate profit margins. Considering taxes are going to skyrocket in only 2 years and cap gains & dividend taxes are going back to 30% + in 3 years I would say you should probably discount this in the multiple as well.
Vs. gold the Dow is still buys 13.5 oz of gold in comparison to 1oz to 2oz at the end of every stock sell off / gold blow off in the last 200 years.
My friends, stocks are not cheap until they have been cut by another 35% to 40% bringing the multiples below 10x and dow to gold ratio to 1.5x.
Here's my predictions: Gold is going to $4500-$5000, oil is going to $200-$250, s&p is going to 800, dow jones in going to 6500, silver is going to $150 to $175 and the 10yr bond year is a all time great short right now.
Value, come on man. What are you looking for value at an expensive price????
The breadth of the market is horrible. Things are getting crushed with companies that I follow. The indices are a hard nut to crack. They are holding up well.
Silver, is that what you tell your PM's when they ask you for a pick? I would love to see that. I can short away the market if I cam concerned about the direction of the market. If you think the market is falling 40%, then give me a name that will only fall 20% and so I can pocket the difference.
toppe, i do make broad reports like the market is a short - like the report i just wrote on about how we should be secularly short retail my findings in my trip last week to china that inflation will be 8% to 14% for chinese textiles to the US....do you think that the combination of weak volume demand from us consumers that should drive expense de-leverage and the lack of pricing power that retailers have in recessions combined with rising price environment is a good thing?
You guys need to understand that i like individual stories, i cover over 20 stocks here. However, since i work at a place that likely has 40x the assets and analysts that any of your firms has - we are given specific names to cover since we have so many analysts. I know all my stories and like thinking about broad markets, geoeconomics, and history instead of doing work on another stock when i can just grab the model and 20years of historical notes on almost any name i am interested in.
Anyways, point is that stocks in general still have a ways to go. THere is unquestionably some value, but there also is these things called index funds that have gained in popularity - not sure if you have heard of these things, Barclays and Vanguard are big proponents of these products. The way index funds work is that when people sell b/c they can't handle the volatility anymore, don't want to lose anymore, need to sell assets to recapitalize to meet assets / equity ratios, they sell down the index which in turn sells every stock in the index.
So, unless you are looking at firms that are under $100m - which i do not b/c we can't buy anything under $150m, then it will be subject to a sell off of index funds. Since I think equities and financial assets in general are still grossly overvalued in relationship to real assets and the average man's wage income, i think that stocks in general will come down, which should bring most all names down. Long rates are going up my friends, that means multiples are still coming down, and margins are at all time high peak on ttm basis - remember anytime after peak margins the 5yr cagr in the US for EPS growth was -1%. I can send you the work i did on this if your interested.
So, sales are weak in the US, margins have nowhere to go but down, leverage / margin is still near the peak levels, and inflation is coming - i prefer to own foreign stocks rather than US stocks.
I will tell you an undervalued asset my friends - THE ENTIRE NATIO OF CAMBODIA. That is the best bull market in the world right now.
For a very idiosyncratic story to appease you nuts, i would say you guys should buy ELY. We own 15% and can't buy anymore - we are the biggest shareholder on public record so i can talk about this with you.
Great cost cutting story, can add 55c to 65c in earnings power even if organic top line is down -5% due to internal cost cutting opportunities. I think its normalized earnings power is about $1.50 and that it should get there by 2009. Premium brand with premium IP portfolio and best R7D team probably trades at a slight premium say 15x. 15x %1.50 = $23 stock vs. $17 price currently.
Best part is the free call option embedded in the story. ELY has an injunction filed to have Titleist stop selling Pro V1 golf balls - it was found that Titleist violated ELY's patents with the ball and is now being figured out how much to pay ELY.
I have a really good source that told me $1 per ball going forward and 10% of all historical revenues.
$1/ball x 50m balls sold annually worldwide - taxes = $30m/60m shares = $.50 in earnings power x 20x multiple = $10 per share. Plus, 10% times $2bn in historical Pro V1 revs = $120m in aftertax earnings = $2 per share.
Best case scenario = $35 stock (+100% return)
Worst Case Scenario = $1 in annual earnings power at 15x = $15 stock.
So less than 20% downside and 100% upside in a turnaround cost cutting story with a free call option and since 50% of revs are from intl you are hedged against the dollar.
How does that sound?
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