Ask me for a financial analysis of any stock

[skiracer]

Well, I wouldn't say NJR has doubled.... looking at the chart, it went from a low of around low 30's right after the housing crisis to a high 45, perhaps a 50% increase.

I can't really say much about the movement in the price of any stock except for this. The market price can fluctuate wildly as people's emotions and feelings change. Fear had caused the prices of many stocks to unjustly drop during the housing crisis. With 20/20 hindsight, we see that there are businesses that were minimally affected by the the crisis, although their stock price had been a roller coaster ride.

Intrinsic value however, is something that changes very slowly. The problem with looking at intrinsic value is that it is not readily available like market value. Intrinsic value is also different for everyone. The intrinsic value for a company depends on what you feel is a reasonable rate of return.

Let's say there's a company that earns 3 dollars per year consistently for the past 50 years. How much should you buy it for? Given that you can put 100 in some type of bank account to earn 3 dollars per year in interest, there's no reason why you should buy this company for more than 100 dollars. If you were to pay 100, then it means you are happy receiving a 3% return. For someone who wants a 20% return, they cannot purchase this business for more than $15. In such a scenario, $15 would be the intrinsic value of the company. The market price would be what he is able to purchase it at. In the event that the market value is lower than the intrinsic value, you can be confident making a purchase knowing that you will be receiving a good rate of return.

I always like a good conversation supported by factual evidence. But what I don't agree on with your arguement is that you are seldom going to find "market value" lower than "intrinsic value". Also what you want as far as return is something that is conjured up in your own mind and what you think you should or must get as a return on your money. Buying and holding because of what you think are fundamentally sound financials are never going to work in that respect because the markets perform according to the mentality of the money being brought into them with respect to the people behind that money. Also the sentiment of the economy has much more to do determining the trend of the markets in general than the true value of any specific stock at any given time.
I'm not advising against buy and hold over the very long term with stocks paying significant dividends, and there are a number of them available, but unless you can specifically make the determination of market trend, either up or down, then relying on the fundamental aspects of any stock only results in what has happened to Ernie's trade in NTES. A great company with a great product line and fundamentals but caught in the abyss of market sentiment.
Probably 75% of the available stocks in the stock universe follow the market regardless of what their fundaments suggest they should be doing. In a strong market and economy where the trend is definitely up you could throw a dart at any number of stocks and see them appreciate only because that is the direction of the market and a very high percentage of those stocks will follow the market trend. And in a bad economy and market, like we are experiencing today, it's one step forward and two steps backward, but over the longer haul the line is heading down regardless of their fundamentals or whatever their return may be. Dividends can counter balance that to some degree but they will not counterbalance price action relative to market trend and sentiment.
We have been thru this numerous times here over the past 5 or 6 years and I am still convinced that you cannot rely on the fundamental aspects of any stock in any given market environment. Strong fundamentals and ROI are always meaningful but determining market trend and following it are more important in my opinion. Trading over a short period of time according to the market trend and the technical aspects of any stock and having a specific strategy and plan will produce much better results than relying strictly on the fundamentals and ROI.
I also think that locking yourself into any specific strategy only inhibits your opportunities and the percentage of them available to you. Relying on only one or two indicators or fundamentals takes away numerous opportunities that have nothing to do with whether or not the stock is fundamentally sound in some specific area.

[meteoraln]

How about NYB and HOV two of favorite stocks of this board.

NYB - I really shouldn't be doing this one... it's a bank and I can't analyze it well. This is how banks work. We deposit money into the bank, the bank lends out money, and in return, receives a securitized mortgage. This securitized mortgage then shows up as an asset on the balance sheet, I'm guessing the Net Loans line in msn. So the problem is.... I don't know what% of this number represent loans in default. And if a loan is in default, I don't know how much of the money can be recovered when the house is sold, and whatever related fees are paid for. Since I can't do this, I can't figure out what the assets total really is, meaning I have no idea what the shareholder equity total is. Bank of America has engaged in the practice of not foreclosing homes that have defaulted loans. By not kicking out the tenants, BAC does not have to pay property taxes, and does not have to write a loss on the loan.... yet. This can be very helpful to them if they have more houses than they can sell. Maybe they're waiting out the housing crisis before selling... who knows...

Anyway.... with all that said, Google finance didn't have the statements so I had to go to msn. Assuming the numbers on the statements are accurate, there's a 500m jump in debt for 2008, which is probably bailout money. There is also significan dilution of the stock, from 323m to 435m shares outstanding from 2008 to 2010. The bailout money probably wasn't enough capital. There's a 716m spike in change in working capital for 2010, need to look at the 10K for that one. Earnings have been increasing, largely due to a reduction in interest expense. This can't last forever since interest rates are basically 0 right now.

HOV - I see red everywhere... losing money the past 4 years, shareholder equity has dipped into negative. Total assets keeps dropping, especially inventory. I don't know if this is due to writing down inventory or slowing of production. I have no idea how they will pay off their debt, since they don't have enough cash flow. This company is currently insolvent if liquidation occurs, meaning the common stock will be worth zero.

[meteoraln]

Meteoraln...I love this thread. It's great to see some fundamental analysis. We have some terrific technical analysts here so this really gives us some reflection. Stick around!

Thanks for the support!!

[meteoraln]

I always like a good conversation supported by factual evidence. But what I don't agree on with your arguement is that you are seldom going to find "market value" lower than "intrinsic value". Also what you want as far as return is something that is conjured up in your own mind and what you think you should or must get as a return on your money. Buying and holding because of what you think are fundamentally sound financials are never going to work in that respect because the markets perform according to the mentality of the money being brought into them with respect to the people behind that money. Also the sentiment of the economy has much more to do determining the trend of the markets in general than the true value of any specific stock at any given time.
I'm not advising against buy and hold over the very long term with stocks paying significant dividends, and there are a number of them available, but unless you can specifically make the determination of market trend, either up or down, then relying on the fundamental aspects of any stock only results in what has happened to Ernie's trade in NTES. A great company with a great product line and fundamentals but caught in the abyss of market sentiment.
Probably 75% of the available stocks in the stock universe follow the market regardless of what their fundaments suggest they should be doing. In a strong market and economy where the trend is definitely up you could throw a dart at any number of stocks and see them appreciate only because that is the direction of the market and a very high percentage of those stocks will follow the market trend. And in a bad economy and market, like we are experiencing today, it's one step forward and two steps backward, but over the longer haul the line is heading down regardless of their fundamentals or whatever their return may be. Dividends can counter balance that to some degree but they will not counterbalance price action relative to market trend and sentiment.
We have been thru this numerous times here over the past 5 or 6 years and I am still convinced that you cannot rely on the fundamental aspects of any stock in any given market environment. Strong fundamentals and ROI are always meaningful but determining market trend and following it are more important in my opinion. Trading over a short period of time according to the market trend and the technical aspects of any stock and having a specific strategy and plan will produce much better results than relying strictly on the fundamentals and ROI.
I also think that locking yourself into any specific strategy only inhibits your opportunities and the percentage of them available to you. Relying on only one or two indicators or fundamentals takes away numerous opportunities that have nothing to do with whether or not the stock is fundamentally sound in some specific area.

You've said many things that are right. It's definitely not easy finding companies where market value is below or even near intrinsic value, providing that you are conservative enough.

There is however, a good way to determine what a "reasonable" rate of return is. The market has averaged between 8%-12% per year historically. Granted that you often hear people make the claim that you can't beat the market (and they're right most of the time) it makes sense that you require that your reasonable rate of return be higher than 12%. I've chosen 15% as that magic number, as have others. Honestly speaking, if you can't beat the market, just buy an index fund and at least you won't do any worse.

The thing is, while market values can fluctuate wildly, they will eventually return near some kind of fair value. Management can always do something to make the market value move closer to intrinsic value.

Imagine a simple company with no earnings or operations, just a bank account with 100 dollars and 1 share of stock. Let's say the price of the stock is 200, which doesn't really make sense since you will have a claim on a bank account containing only 100 dollars. What should the company do? Well, it should issue more stock. If it sells 1 more share at 200 dollars, that money goes into the bank account. There are now 2 shares of outstanding stock, with a 50% claim against a bank account of 300 dollars. Fair value is now 150 per share. Do it a few more times and fair value will come closer to the market value of 200, or the market value will fall due to an increased supply of stock.

Let's take the reverse. The market value is only 50 dollars, but has a claim on 100 dollars. Management could pay a dividend. Buying this stock at 50 and then receiving a dividend of 100 is pretty nice, though an extreme example. This is why I find it important to only get into good companies. The odds are in my favor if the company is building shareholder equity and management is looking out for the shareholder and willing to do these necessary tasks.

I've found only about 4 new companies to trade for this whooooole year. And even after I found them, they couldn't be traded yet because I wanted to wait for price drops. This is definitely not a way of trading if you aren't able to hold a stock for years if necessary.

It would be wrong to say that I don't trade frequently though, I've done about 300 or so trades for the year, mostly shorting options to collect premiums I'm actually pretty impatient myself.

[Gary611]

Mako?

I had a total hip replacement this past Jan. The doctor asked me to take part in a trial with a robotic navigational device assisting him in the procedure. I agreed, asked many questions & found the company was MAKO. I initially got in around 17.00 a share & have bought more at around 24 & will hold this for awhile rather that sell at the usual 15% gain. Could you please do the research on this, I here rumors that this will be a 60 - 75.00 stock by the end of the year.
Thanks from a smooth walking stooge!

[meteoraln]

I had a total hip replacement this past Jan. The doctor asked me to take part in a trial with a robotic navigational device assisting him in the procedure. I agreed, asked many questions & found the company was MAKO. I initially got in around 17.00 a share & have bought more at around 24 & will hold this for awhile rather that sell at the usual 15% gain. Could you please do the research on this, I here rumors that this will be a 60 - 75.00 stock by the end of the year.
Thanks from a smooth walking stooge!

MAKO - I always feel like a Debbie Downer, bringing down people's hypes and hopes. But I do it because I've always been very cautious with my hard earned money, and it bothers me to see others lose their money too.

MAKO has lost 39m in 2010, 34m in 2009, and 38m in 2008. It basically spends more money on research every year than it receives from revenues. Its shareholder equity keeps going up, but this is only because it keeps issuing more stock. Outstanding shares have gone from 1.87m to 39.95m in 4 years, a crippling dilution. Somehow though, it has a 1.6b market value against its 122m shareholder equity.

It's always possibile for a company that loses money every year to gain in stock price, but you're swimming against a very strong current.

[IIC]

Index Funds...Don't know...If one bot QQQ in 3/00 they'd be down over 50% now...Doug

[Gary611]

MAKO - I always feel like a Debbie Downer, bringing down people's hypes and hopes. But I do it because I've always been very cautious with my hard earned money, and it bothers me to see others lose their money too.

MAKO has lost 39m in 2010, 34m in 2009, and 38m in 2008. It basically spends more money on research every year than it receives from revenues. Its shareholder equity keeps going up, but this is only because it keeps issuing more stock. Outstanding shares have gone from 1.87m to 39.95m in 4 years, a crippling dilution. Somehow though, it has a 1.6b market value against its 122m shareholder equity.

It's always possibile for a company that loses money every year to gain in stock price, but you're swimming against a very strong current.

They are forecasting a large sales surge with the prospect of many worldwide medical centers buying the device for hip procedures. This may lead to profitability very soon; they expanded their sales force, so that is a good sign, eh?

[meteoraln]

They are forecasting a large sales surge with the prospect of many worldwide medical centers buying the device for hip procedures. This may lead to profitability very soon; they expanded their sales force, so that is a good sign, eh?

I think that you like this company because you have a personal experience with them. I remember when I first started researching companies. I fell in love with all of the first few that I researched. I guess it's because I put so much work into researching them. But to put things into light, almost every company promises increasing sales. This is something I learned after researching more and more companies.

I suggest that you take caution and wait until the sales to actually happen. Apple was at 129 the day they announced the first iphone. It was around 180 when the first iphone came out. Years later, apple has a 5th iphone and the stock is still increasing. Do not worry about getting into a company late. If it is going to do well, then it will do well. Don't buy promises, buy results.

[wooish]

Meteoraln

What do you think about AMZN? I think they're overvalued but don't know why the PPS reached this high. They're currently trading at 52wk high at 246.71 with P/E at 106. I had shorted this pig a couple of times but always ended up losing. And now I want to short it again. When the big players pull the rug, this thing will fall like NFLX.

[meteoraln]

Meteoraln

What do you think about AMZN? I think they're overvalued but don't know why the PPS reached this high. They're currently trading at 52wk high at 246.71 with P/E at 106. I had shorted this pig a couple of times but always ended up losing. And now I want to short it again. When the big players pull the rug, this thing will fall like NFLX.

AMZN - This is a classic example of a wonderful company but a terrible stock. Amazon has an incredible business model. People pay up front for inventory that AMZN never has to hold. This is reflected by AMZN's 34B revenues vs 1.5B accounts receivables and 3B inventory in 2010. I think a portion of the 1.5B receivables are attributed to AMZN's credit card. A business model like this shields AMZN from the risk of buyers that don't pay and the risk of inventory becoming obsolete.

It has low capital expenditures and relatively small debt compared to its operating cash flow. One very very good thing to note is that it is not squandering shareholder equity like NFLX. AMZN's stock is overpriced, and it is very good to see that it is not repurchasing stock like NFLX. We see outstanding shares increasing and no attempt to control it, which is actually good in this case.

I've discovered the hard way that shorting is just too difficult. I wanted to short AMZN at 100, then at 150, then at 180, and again at 200. Luckily, I resisted the temptation every time. It's easier to short a company that is actually bad and showing losses. AMZN is not a bad company, just an overpriced stock. There's no telling when it will drop. I'd guess that if all states force AMZN to collect sales tax, it would be a catalyst.

[Deaddog]

Give us a rundown on Mr Markets holdings.
AAP, AGP, CIB, NTES, PRGO, SRCL, TQNT, TRCR, UNH, VIT.

[Gary611]

I see you live in NYC, if you ever have a need, I suggest the Hospital for Special Surgery on 71st Street. They are ranked #1 for orthopedics; btw MAKO was just rated as the #1 fastest growing companyin North America on Deloitte's 2011 Technology Fast 500(TM). Attributes Revenue Growth to a Company Culture Focused on Innovations in Robotic Technology for Orthopedics. To invest in companies like the great Peter Finch, might not be a bad idea, worked for him!

[Gary611]

waiting on apple ?

................

I suggest that you take caution and wait until the sales to actually happen. Apple was at 129 the day they announced the first iphone. It was around 180 when the first iphone came out. Years later, apple has a 5th iphone and the stock is still increasing. Do not worry about getting into a company late. If it is going to do well, then it will do well. Don't buy promises, buy results.

$129 then or $300 now, MAKO is no APPL, but it is a rising play & I like my entry points on this one, thanks for your research on this.

[wooish]

Meteor

What do you think about BRKR and AAU? Thanks.