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Investing in Later - Thoughts on Fishing

Recs

12

May 17, 2009 – Comments (6) | RELATED TICKERS: AMZN , ATVI , SBUX

The Hype
Over the past several months, I continue to read article after article about why now is the best time to put money to work in the markets.

While I happen to agree that the over the longer term, the best place for your hard won investment dollars is in the markets, I also don't believe that the information gleaned from investing television shows like Fast Money and Mad Money  will ever make the average investor a penny.

How many good investing ideas have you gotten from Neil Cavuto, Maria Bartiromo, Erin Burnett, or Larry Kudlow? Granted they all have a great screen presence, but collectively they seem to know less about investing than a hog knows about the hereafter!

The Need
For example, over the past couple of weeks, I have been keeping an extremely informal track of stocks that have been recommended by the financial press, as "today" or "now" or "immediate" or "must have", investment stocks.

But what intrigued me was not one investment television show or investment website that recommended buying these stocks "at once", explained the need for urgency.

Not only did they not explain the need for urgency, none of them even attempted to hazard a guess as to what they thought a fair value for any of the stocks might be.

In other words, all of these places say buy this stock now because their wizards said so. The next thing that happens is all of the wizards head for the can, leaving the average investor standing there with his hand in his pants and his mind in Arkansas.

And all the while those hard won investment dollars are becoming fewer and fewer.

Investment Consideration
So I thought I would present a few of the most recommended "immediate purchase" stocks.

But instead of asking yourself what investing in these stocks "now" will do for your portfolio, I thought it might be more interesting for you to ask yourself two simple questions. The first one is why this stock? and the second one is why this stock now?

Disclaimer

I do not currently own any the stocks mentioned here. My investment thoughts accompany each stock reviewed. As I have said in the past, I am not now, nor have I ever, worked in the financial services industry.

Titanium Metals Corporation
Financial information contained in this report is based on the company's latest Form 10-K filing for fiscal year ending December 31, 2008, as filed with the SEC on February 26, 2009.

Titanium Metals Corporation (NYSE: TIE)  is one of the world's leading producers of titanium melted and mill products, and according to the company they are the only titanium producer with major facilities in both the United States and Europe, the world's principal markets for the material.

Titanium is used in many products, commercial and military aircraft, cars and trucks, chemical processes, oil and gas processes, sporting goods, and power generation equipment.

The company has been around since 1950, incorporating in 1955.

Investment Thoughts
Based on a five (5) year hold, I have the company on my watch list with a Reasonable Value Estimate of $14.66, a Buy Target of $7.33, a First Sell Target of $14.30, and a Close Target of $15.48.

It should go without saying that I am impressed that at the end of fiscal 2008, the company had no Debt, just as I was all in favor of the $0.34 per share annual Dividend, and while it isn't quite where I would like it, Free Cash Flow at $1.11 is acceptable.

A recent close of $7.67 puts the trailing twelve month PE at about 7.5 as well as making the Price to Tangible Book 1.3, and the Price to Free Cash Flow 6.9, all of which are positive attributes.

Yet I am not interested in buying at this time because I believe the current run up in the markets is not sustainable. As a result, I think the price will move lower over the coming months.

Accordingly, I have adjusted our Buy Target from $7.33 to $3.95.

Titanium Metals Corporation Worksheet


Starbucks Corporation
Financial information contained in this report is based on the company's latest Form 10-K filing for fiscal year ending September 28, 2008, as filed with the SEC on November 24, 2008.

Starbucks Corporation (Nasdaq: SBUX)  was formed in 1985 and today, according to the company, is the world’s leading roaster and retailer of specialty coffee.
 
The stated company objective is to establish Starbucks as one of the most recognized and respected brands in the world. To achieve this goal, the company plans to continue disciplined expansion of its retail operations, to grow its specialty operations and to selectively pursue other opportunities by introducing new products and developing new channels of distribution.

Investment Thoughts
While I think expansion can be a tremendous driver for future growth, I think if the management of Starbucks continues down this path, the company will find itself in bankruptcy court next to Chrysler LLC with General Motors Corporation (NYSE: GM) following soon.

In short, I am not impressed with management. I do not believe that management had the faintest idea that the economy was going to fall off of a cliff. Nor do I believe that management, having now watched the economy fall of a cliff, has the faintest understanding of what has happened, or what to do next.

Based on a five (5) year hold, I have the company on my watch list with a Reasonable Value Estimate of $17.53, a Buy Target of $8.76, a First Sell Target of $17.09, and a Close Target of $18.50.

I am curious just how management will be able to continue the company's strategy of expansion of its retail operations given an anemic Free Cash Flow of $0.90, Debt of $1.70, and Earnings of $1.12.

To me, it makes better sense for management to shelve expansion plans, and use the $0.42 Dividend to reduce Debt, which would then allow management to increase company cash on hand.

Because I view management as generally slow to react to the changes in its markets, I believe that a much lower Buy Target is in order, and have lowered mine from $8.76 to $3.37.

Starbucks Corporation Worksheet


Activisionc Blizzard, Inc.
Financial information contained in this report is based on the company's latest Form 10-K filing  for fiscal year ending December 31, 2008, as filed with the SEC on February 27, 2009.

It is noted that on July 9, 2008, a business combination by and among Activision, Inc., Sego Merger Corporation, a wholly-owned subsidiary of Activision, Inc., Vivendi S.A., VGAC LLC, a wholly-owned subsidiary of Vivendi and Vivendi Games, Inc., a wholly-owned subsidiary of VGAC was consummated. As a result of the consummation of the Business Combination, Activision, Inc. was renamed Activision Blizzard, Inc.

Activision Blizzard, Inc. (Nasdaq: ATVI)  a worldwide pure-play online, personal computer, console, and hand-held game publisher.

Through Blizzard Entertainment, Inc., they are the leader in terms of subscriber base and revenues generated in the subscription-based massivelymultiplayer online role-playing game ("MMORPG ") category. Blizzard internally develops and publishes PC-based computer games and maintains its proprietary online-game related service, Battle.net.

Through Activision Publishing, Inc., the company is a leading international publisher of interactive software products and peripherals. Activision develops and publishes video games on various consoles, hand-held platforms and the PC platform through internally developed franchises and license agreements.Activision currently offers games that operate on the Sony Computer Entertainment PlayStation 2, Sony PlayStation 3, Nintendo Co. Ltd. Wii, Microsoft Corporation Xbox 360 console systems, the Sony PlayStation Portable, the Nintendo Dual Screen hand-held devices, and the PC.

Investment Thoughts
They had it all, the right mix of game development folks, managers that understood the company's markets, and a market niche other company's would have sold their souls to have. So what did the wizards do? They took all of the parts and pieces of several company's and divisions and merged them into one cohesive company, worth, in my opinion, about a third of what it was worth prior to the consolidation.

In the end, I don't think it is going to matter. The company simply has a business that is almost impenetrable. While of course anything is possible, I simply don't see an economic benefit for other companies attempting to get into this business.

As with the other stocks, I simply don't find an immediate need to purchase this stock. Based on a five year hold, I have the stock on my watch list with a Reasonable Value Estimate of $11.31, a Buy Target of $5.65, a First Sell Target of $11.03, and a Close Target of $11.94.

One of the results of the recent consolidation has been to increase Cost in Excess (Goodwill) by almost 600%, from $0.94 per share to $5.56 per share. I believe that given current worldwide economic conditions, the value of this excess is going to end up Impaired, and that the company will end up adjusting its income to offset these impaired amounts.

Since I further believe the vast majority of investors don't have the faintest idea that this possibility even exists, much less understands what it is, I have adjusted my Buy Target from $5.65 to $4.15.

Activision Blizzard Worksheet


Amazon.com Corporation
Financial information contained in this report is based on the company's latest Form 10-K filing for fiscal year ending December 31, 2008, as filed with the SEC on January 29, 2009.

In my opinion, Amazon.com, Inc. (Nasaq: AMZN)  has done more to revolutionize the Internet than Google, Inc. (Nasdaq: GOOG) will ever do.

The company incorporated in 1994 in the state of Washington and reincorporated in 1996 in the state of Delaware, opened its doors to the World Wide Web in July 1995, completed its initial public offering in May 1997, and according to the company, offers the "Earth’s Biggest Selection."

Investment Thoughts
My only regret is that we passed on adding the company to our portfolio in late 1997 and again in early 1998 because at the time, the company simply didn't make any money.

Today of course, they are an investment media darling, and while I love their website, I think their stock price is extremely over valued.

Based on a five year hold, I have the stock on my watch list with a Reasonable Value Estimate of $37.22, a Buy Target of $18.66, a First Sell Target of $36.38, and a Close Target of $39.39.

The stock closed recently at $73.31, which exceeds the 29% annual earnings growth factor the analysts are calling for making the company's PEG ratio 1.44. In addition, that recent close also places the company's trailing twelve month PE ratio at about 41 times earnings.

All of this begs the question why would anyone want to invest in Amazon.com stock at these levels? Has anyone investing in this company considered what will happen should the company miss earnings estimates?

And yet the average daily volume for the stock is just above 9 million shares and I have heard repeatedly over the past month or so that now is the time to buy Amazon.com.

Excuse me when I say hooey. The only folks putting money into the stock of this company are the brain dead, the toothless, and the folks that forget to pull up their Depends.

Nobody in their right mind should even consider an investment in Amazon.com at these levels unless their understanding of investing is to buy high and sell low.

Amazon.com Worksheet


And in the End

Well there you have it. Four stocks that the wizards are saying you need to buy today, this instant, now. The only thing the wizards failed to tell you is why you need to buy these stocks now and how they know that "now" is the right time.

Hopefully a wizard that can explain economic demand will come forward and enlighten the world. But I sorta doubt it.

Wax

6 Comments – Post Your Own

#1) On May 17, 2009 at 9:54 PM, soycapital (< 20) wrote:

Great post, really like TIE and have in on my watchlist also. Would like to see others in this sector!

 

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#2) On May 18, 2009 at 4:27 AM, portefeuille (99.61) wrote:

... but collectively they seem to know less about investing than a hog knows about the hereafter!

What does a non-hog "know about the hereafter"?

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#3) On May 18, 2009 at 12:40 PM, BigFatBEAR (29.14) wrote:

Great post! Always good to hear some in-depth analysis following the nonsense that's seen on TV. A rec for you, sir.

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#4) On May 18, 2009 at 7:45 PM, wax (97.03) wrote:

Thanx BFB...I appreciate the thought.

Wax

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#5) On May 21, 2009 at 8:41 AM, dwot (42.85) wrote:

What a difference in what we read...

I mostly read blogs these days and where I live we do not get any major news papers.  I also get read news via the internet.  

Interesting that on a flight last week I read a copy of the Globe and Mail and my impression after reading it was that if this is what people are reading no wonder the market is rallying.

Great look at the stocks. I had a brief look at Starbucks as I was telling a friend to sell that one for sure about a year and half ago.  Its earnings sure fell off a cliff.  And if you look at what they are doing to keep cash strapped customers, well, there is only a small margin in their reduced price products.

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#6) On May 21, 2009 at 6:51 PM, UKIAHED (35.74) wrote:

Nice write-up - I agree with your findings!  I'll be adding TIE to my research and watch list on the hope of a drop over the summer.  Keep up the great posts - REC and FAV from me.

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