Archive for November, 2005

Washington Post

Sunday, November 20th, 2005

A friend of mine recently did a stock screen on Morning Star looking for value stocks with wide moats. Interestingly, Joe Mansueto , the founder of Morning Star is a huge Warren Buffet fan and the Washington Post is the type of stock Warren Buffet likes (In fact Buffet sits on the board and owns a few shares).

Anyway, he said “Buffett looks for companies that have a “moat” that shields them from competition and allows them to earn high rates of return. The moat is something that creates high barriers to entry for would-be competition.” The Washington Post has this – it’s the most faomous newspaper in its area and does the best political reporting in the country. And no one seems likely to start up a newspaper that competes directly with the Washington Post…

So here’s what my friend had to say about Washington Post stock. As always, we’re not recommending any action other than you doing your own research.

At 750/share this stock seems to be discounted. The stock may be as much as 25% below its intrinsic value. Remember this is a value stock, not a growth stock. It’s PE is 22.3 and PEG is 2.1. The newspaper is a mature business as is its cable division.

While the cable division has been one of the most profitable in the industry, it did lose 90,000 subscriptions due to Katrina. Subscription growth has been slowing anyway (competition from Direct TV has a lot o do with that).

So is there any chance for growth? Yes, there is a chance. The company is taking profits from its mature businesses and investing in Kaplan University online which has seen 23% growth this quarter alone. Still 40% of the company’s income comes from advertising which is somewhat cyclical.

As a whole the company has been seeing revenue growth of 8%/year and its 17% operating margins are quite attractive. This company does not provide guidance or do conference calls with analysts (another thin Buffet likes since management is focusing longer term rather than quarter to quarter).

As always, this is just to get you started. You must do your own research.

Tyco

Wednesday, November 16th, 2005

Tyco’s Chief Executive Ed Breen said on a conference call that “Should the valuation disconnect persist, we are prepared to additional actions to address this,” Breen said.

Tyco has repurchased $300 million of its shares in the fourth quarter ended on Sept. 30 and an additional $200 million since then. It also spent $450 million to repurchase convertible debt securities during the latest quarter.

Tyco trades at around 13 times 2006 earnings (estimated) while the S&P averages around 15. I’ve been holding Tyco for years now, and got in at one of the worst posible times (the late nineties)…

Microsoft

Sunday, November 13th, 2005

Martin T. Sosnoff on Forbes.com writes that he is underweighting Microsoft and considering getting out of the stock altogether. He notes certain poor management decisions including dilution from options, poor choices with dividends, working capital, and investments.

For the fiscal year ended June, Microsoft bought back almost $8 billion in shares, about 3% in its equity base and half its cash flow. All this accomplished was the offsetting of dilution from options. You do what you have to do to keep talented management in place, but it is an incredibly high price to pay and doesn’t go unnoticed.

But he does have one reason for staying in Microsoft: “Gross margins are over 80%. There are no other businesses on this scale with $40 billion in revenue that sport this profile.”

So the question is shoud investors own a stock that seems more inerested in taking care of managemen than investors. Considering that Microsoft shares were down 30% over the past five years ended June, I’m thinking hat this is not a stock for me.

Federal Funds rate raised

Wednesday, November 2nd, 2005

The Washington Post reports that Fed officials unanimously agreed to lift their benchmark federal funds rate to 4 percent from 3.75 percent, for a 12th consecutive hike since June 2004 when the rate was at a four-decade low of 1 percent.

Fed chairman Alan Greenspan and his colleagues on the committee indicated they view the rate as still low enough to stimulate economic activity, and said they would probably keep lifting it at a ”measured” pace, which has come to mean a quarter-percentage point increase at each scheduled committee meeting.

This tells us that the Fed still considers inflation a problem and that the effects of the recent hurricanes are seen as temporary issues as opposed to long term economic setbacks.

Investors took little notice since the biiger news was coming from car manufacturers, and the effect overall should be mild. According to MSN Money Central, banks will raise their prime lending rates, and that will affect credit-card borrowers whose rates float with the prime. Mortgage rates, which have been rising lately, could move higher. Bankrate.com says the national rate on a 30-year fixed-rate mortgage has climbed from 5.25% in early September to 5.76% today.