Glen Doth Know

Q:

By:jkosinsky


Date: 08/27/08

Comment continued:
NDAQ one time annual reduction of P/E from sale of LSE.
Please reply.
JK

A:

Hey jkosinsky,

I looked into it. NDAQ is one of those stocks that's difficult to look into because when you search the ticker, it loads up bunches and bunches of trivial information that I really could care less about, such as who is ringing the opening bell, etc. I try to keep very little tabs on this one. Here's an article that I think refers to what you were pointing out: http://seekingalpha.com/article/26885-nasdaq-triples-earnings-on-one-time-charge-eps-in-line

Alright. I looked at it. There was a huge increase in the EPS. Yeah, looks like you're right. The good news is that it doesn't change my opinion on the company. It looks like a lot of the sites I reference quickly like http://investing.businessweek.com/ take out these one-time issues so that their data is more linear too. Good Catch. If you look at the picture for this article, you're right. That clears it up for me. Thanks!

Verdict: The PE ratio really is 8.47. This PE ratio includes a one time huge EPS that deflates what the PE ratio actually should be in my opinion. A realistic PE for this type of growing company to me equates 4x the last EPS to the price, resulting in a PE of 17.01. That said, it's still a bargain.

Glen

Labels: NDAQ

http://www.stockpickr.com/members/problog/868/

Mr. Bradford,

Sorry to say, this is a very disappointing aritcle. What is the connection between taxes and decreasing the number of shares outstanding? Is this a new strategy of Mr. Buffett? You fail to make the connection.

Other points - Why are earnings going to "rocket"? How does any of this related to Mr. Buffett's investing strategy?

You sound like a used car salesman.
By:skipolinger@comcast.net
Date: 08/19/08
test


Good Day skipolinger@comcast.net

I try to write my articles as concise as possible and omitted a few details that you brought into question.

Q1: You asked for the connection between taxes and decreasing the number of shares outstanding.

Answer1:

When a company achieves a positive net income (makes money), there are many ways to utilize this money that benefit the shareholders. Generally, this made money first is categorized under shareholders’ equity. The company can use this money to improve it’s facilities and make general repairs, expand into other locations, purchase other companies, pay dividends, or buy-back stock. It is my understanding that Warren would have it that the company will make the decisions that in their minds benefit the shareholders the most. In the case of Terex, the current construction dilemma doesn’t warrant a lot of investment in purchasing more production equipment. Also, paying a dividend involves a double taxation. The income is first taxed at the corporate level and then is taxed when the investor receives the dividend. When the company buys stock back (reducing the number of outstanding shares), this net income only gets taxed once. I don’t believe paying less taxes is a new strategy of Mr. Buffet. He achieves this through several measures, such as avoiding trading companies and buying them with the intent of owning them. This avoids lots of transaction costs and taxes.

Q2: You asked why earnings are going to rocket.

Answer2:

I play my cards with good management. It’s my opinion that good management tends to make good decisions. With companies deciding to buyback stock at lower price levels when their company isn’t being pulled to expand, I can see them also making favorable decisions when business is booming.

Hope this helps.

Glen Bradford

Hey,

I have hurc as a buy up till $68.17 and KCI a buy up to $44.76.

I'm not going to tell you to buy or sell anything, but I'll tell you what I do. I put my money where I think the best returns are.. and then I diversify as much as possible in those ideas. I don't follow INTC or STX. I only buy stocks that I think are undervalued for their growth by 100%.

Not bad so far,
Glen

-----Original Message-----
From: PAURIC SHEVLIN
Sent: Friday, August 22, 2008 3:29 PM
To: Glen
Subject: Question regarding HURC and KCI

Hi Glen,

How highly do you rate both the aboved named stocks? I am just inquiring as I hold stock on both INTC and STX and was thinking of selling them to buy both the above stocks on your recommendation, would I be wise to do this as I rate your opinion highly.

Regards,
Pauric

A commonsense viewpoint to picking companies that are highly undervalued in a complex and globalizing economy

Allow me to start out by illustrating that I’m paying my college tuition with proceeds from the stock market. In fact, I’m making more in the stock market than I do as an Engineer, and I’m only investing 40K. Below you will find my current holdings and my reasoning behind holding each one, but first, what do they have in common? They all have historically exhibited huge growth potential and show little to no signs of stopping. They are all priced ridiculously cheap for this potential. The stock market is a huge grocery store, and if you see 59 inch plasma TVs on sale for $5, it only makes sense to purchase a few… right?

VSEC: VSE Corp. was an entirely undiscovered company up till about 2 weeks ago. Then trading volumes doubled for around 10 straight days and have finally settled off. This leads me to believe that there is a fund out there that believes it’s a huge bargain. The reason the company is at a discount is due to free cash flow issues on their financial statements, but when it’s the US Government footing the bills… I feel like this metric is 100% useless.

SIGM: Sigma Designs, Inc. is your basic case of a company having strong fundamentals and growing so fast that it had to readjust its most recent forecast for less growth due to product changes. After the revision, they then upped their forecast and are back on track. Fortunately, the stock plummeted and offers a great opportunity to buy in until their price readjusts.

HURC: Hurco Companies, Inc. is one of those companies that really has no reason to be priced as cheaply as it is. It’s hugely predictable and it’s enormously profitable and growing fast.

EBIX: Ebix, Inc. is insurance for your portfolio. They currently develop software for the insurance industry and are expanding to the medical industry.
MIDD: Middleby Corp. supports all your favorite meals by supplying the equipment used to prepare them. It could also support your portfolio if you’re looking for a home run. If you’re looking for base hits, you might have realized that you’re reading the wrong article.

LXU: LSB Industries Inc. is a top notch climate control and chemical products company. I’m going to go ahead and assume that it’s in the bargain bin cause of the mortgage crisis that is sweeping America. Just cause they’re not building homes doesn’t mean that the air conditioning doesn’t need replacement. It’s feeling hot. So is this opportunity.

AOB: American Oriental Bioengineering, Inc. greatly enhances your position in china and pharmaceuticals. It already has a huge client base and is growing rapidly. Their stock continues to suffer. Fortunately, in the long run the stock price is guided mostly by its earnings per share and not irrational speculative fears and concerns.

WAB: Wabtec Corporation makes train air brakes. This one is the least undervalued of any of my picks but I feel that the high speed rail industry is still only in its early growth stages. Wabtec is in prime position to take advantage of this.

XIN: Xinyuan Real Estate Co., Ltd. Is the most undervalued growth company I have ever seen. Trading at $5 is totally unreasonable. They just IPOed and had to pay off their preferred shareholders and incurred a onetime net loss. Otherwise, they are growing somewhere around 78%-400% a year depending on whose opinion you’re reading. Not only that, but over 60% of the company is owned by its employees. They are also only doing real estate in Tier II communities, which have yet to be inflated in value, unlike the Tier I.

TEX: Terex Corp. manufactures cranes and industrial construction equipment. When the mortgage melt down occurred, it took this one’s stock price down with it, even though the profitability remained strong and continues to grow. It makes sense to lower the valuations on companies that have incomes that are impacted by a downturn, but Terex has yet to be fazed.

ANDE: The Andersons, Inc. is a fundamentally strong agriculture and transportation company that has the opportunity to grow at even a faster rate than it has previously. That said, I have no real gut feeling on the whole global food shortage ‘crisis,’ but it only makes sense that as populations increase and land stays at about the same, this type of business looks good to me.

NDAQ: NASDAQ OMX Group, Inc. has acquired a few exchanges and integrated many new companies into its trading platform. It’s growing ridiculously fast and is priced like it’s never going to see the sun. Long term, I see trading in the marketplace ceasing to exist and it becoming mostly electronic and at the same time trading costs coming down. Right now, this is a great play.

KTII: K-Tron International, Inc. is a material handling and equipment systems company for various international companies. They have good upper management and global exposure and have been growing faster than the market currently has them priced for.

KCI: Kinetic Concepts, Inc. is a medical technology company that is highly profitable and growing very fast. Recently they acquired LifeCell, a company that had been growing YOY at 100%+ and KCI should continue growing at at least 30%, but is priced like it’s not going to grow. Get in on this opportunity before the earnings are revised and don’t include the transaction costs of acquiring great companies like LifeCell.

EZPW: EZCORP, Inc. is my play on the mortgage crisis. When people need cash advances they go to the payday loan shops and EZCorp is willing to provide these individuals solutions to meet their short term cash needs. It’s going to be providing its investors with their long term cash needs through continued growth and is valued in the market like it’s not. I’m thinking about getting a cash advance to buy this company.

CTSH: Cognizant Technology Solutions Corp. is your one stop shop for outsourcing technology services throughout the developed countries. Once they win over their customers, they continue to gain revenue through supporting their applications. There’s nothing but growth here and again, it’s another stock that is priced way below its growth potential.

Anyway, that’s the trick. Finding companies that are going to grow rapidly and are priced like they aren’t and then diversifying amongst them. It’s easier to hit home runs if you get more than just one shot. That’s my stock market as a super market philosophy and there are all sorts of people telling you differently. I own all these stocks at the present time.