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Should we blame fundamental analysis or TMF analysts for this disaster?

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May 09, 2013 – Comments (10) | RELATED TICKERS: STAR , NLY , LIOX

Back in the May of 2010, in the "Wall Street's By List" article, one of the TMF analysts was having lots of fun "bashing" my SFI outperform pick.

Here is what he said:

"Meanwhile, CAPS All-Star dragonLZ cites a mysterious "three-ten method" as indicating that "SFI is a winner." I don't have a clue what a "three-ten" method might be. What I do know is that iStar lost more than $700 million last year, while rival Annaly Capital (NYSE: NLY  ) earned nearly $1.9 billion. (Which of those numbers sounds better to you?)"

 

And not only that. In the same article he also suggested that Lionbridge (LIOX) might be a much better play citing LIOX's good fundamentals:

 

"From where this Fool sits, the stock also looks likely to generate good value for investors at today's price. The company turned a profit in its fiscal first quarter (reported Wednesday). In one fell swoop, Lionbridge crossed over into the black, and now sports trailing-12-month earnings of nearly $1.6 million...

...Put it all together, and what I believe we're looking at here is a company selling for less than 15 times free cash flow (and perhaps even less), while expected to grow at a 20% clip over the next half-decade. To me, Lionbridge sounds like the cat's meow."

 

Well, let's now take a look at how did these 3 stocks perform since May 7, 2010, when this article was published (3 stocks being SFI, the stock that was made-fun-of for its bad fundamentals + 2 stocks that the author of the article suggested as much better plays):

 

 

 

Basically, SFI's return sits at approximately 90%, while NLY's and LIOX's returns are approximately -3% and -40% respectively (S&P500's return during the same time was +40%).

 

Well, Fools, which numbers do you like better now? :)

 

p.s.

At the time the article was written SFI was at $7.00, but when I picked it for my CAPS portfolio was lower yet at $5.71. So the return of my pick is currently at 110% vs. 44% for S&P500...

 

 

 

10 Comments – Post Your Own

#1) On May 09, 2013 at 1:08 PM, dragonLZ (99.25) wrote:

Just now saw my comment to the above mentioned article:

"On May 15, 2010, at 1:47 PM, dragonLZ wrote:

TMFDitty, Thank you for mentioning my name in your article.

And yes, I do think (or should I say my three-ten method thinks) SFI is going to ouperform NLY at least 2:1."

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#2) On May 09, 2013 at 2:16 PM, JaysRage (90.09) wrote:

I don't see the returns on NLY factoring in the 11.8% dividend.  Even at zero, a compounded NLY dividend returned 25%, which is reasonable.   

SFI was a legitimate threat to go bankrupt.   A position in SFI would have been extremely speculative and had a reasonable chance to go to zero.   They are still bleeding money at this point.

Bottom line: Did SFI outperform, compared to NLY?  Yes, but not until the last 5 months.  Would I have put my money there?  No.  

 

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#3) On May 09, 2013 at 2:37 PM, dragonLZ (99.25) wrote:

JaysRage, You make a good point. People who don't like risk definitely should stay away from SFI.

p.s.

Take another look at the chart above. Wouldn't you say that SFI started outperforming NLY from the beginning of 2012.

Also, what if SFI continues to outperform NLY for another year or so?

Also, what if you invested $10,000 in both SFI and NLY when the SFI-NLY-LIOX article was written, and today, 3-years later you looked at your portfolio again and saw your SFI stake being worth $20,000 and NLY's stake worth $12,500 - which number would you like better?

Also, what about LIOX (down 40%), another "fundamentally superior stock to SFI"? Was that also a better play than SFI?

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#4) On May 09, 2013 at 3:05 PM, JaysRage (90.09) wrote:

Since I am adding in the missing 25% returns on NLY, I see outperformance beginning in the past 5 months.    

In addition, considering fundamentals in relationship to stock ticker performance, based on those current charts, I would also consider SFI an excellence short candidate in the near term.   

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#5) On May 09, 2013 at 3:10 PM, dragonLZ (99.25) wrote:

Fair enough, JaysRage.

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#6) On May 09, 2013 at 4:42 PM, awallejr (81.41) wrote:

I actually bought SFI back in 2009  for around 80 Cents but sold it fairly quickly for over $3.  Ah well.  And as for conservative investors NLY chart is actually the better one, flatlined spinning off high yield.

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#7) On May 09, 2013 at 5:28 PM, Cubsfan8107 (< 20) wrote:

Just curious but what exactly is the three-ten method?

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#8) On May 09, 2013 at 10:49 PM, Valyooo (99.54) wrote:

The returns on SFI pale in comparison to the increase of the true value of EXK during the same time period.

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#9) On May 10, 2013 at 1:16 PM, dragonLZ (99.25) wrote:

Cubsfan8107, three-ten method is something I came up with back in 2009. It's a method I thought was a holy grail for finding future multi-baggers. Unfortunately, I found out (just like everyone else does sooner or later) that there is no holy grail when it comes to investing / trading. Having said that, I do still think that three-ten is a pretty good method for picking stocks.

 

Valyooo, I see what you are saying, but I think it's not fair to compare SFI to EXK. EXK is currently at $4.5, which means it's slowly moving from a double incredible value to holy-sh..-I-can't-believe-this incredible value. On the other hand, SFI's hasn't been in the incredible value territory in more than 5 months.

 

 

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#10) On May 10, 2013 at 8:15 PM, Valyooo (99.54) wrote:

Also did you see the article in the wall street journal about how JPM was naked buying all the available shares of SFI?

 

p.s. sorry to derail your thread 

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