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Stuff Stocks Still Too Expensive
Vitaliy Katsenelson Contrarian Edge —
... as mine workers. Earnings need not be normalized so severely since the products that Mine Safety sells are replaced much more frequently than those of Caterpillar or Toll Brothers. This does not mean that I’m running out to buy Mine Safety since demand for these products decline during a global recession, even though past sales will not compete with future sales to the same degree [though I’d love to buy it a lower price]. Vitaliy N. Katsenelson, CFA, is director of research at Investment Management Associates in Denver, Colo., and he teaches a graduate investment class at the ...
AmEx as a Bank Holding Company (BHC)
The Big Picture —
... Vitaliy N. Katsenelson, CFA, is director of research at Investment Management Associates in Denver, Colo., and he teaches a graduate investment class at the University of Colorado at Denver. He is the author of “ ...
Chinese Government: Worse than BLS
The Big Picture —
... Vitaliy N. Katsenelson, CFA, is director of research at Investment Management Associates in Denver, Colo., and he teaches a graduate investment class at the University of Colorado at Denver. He is the author of ...
Bail Out Capitalism, Not The Big Three
Vitaliy Katsenelson Contrarian Edge —
... go bankrupt and thereby creating an economy full of zombie-like, semi-dead companies. Capitalism is what needs a bailout. Though we often don’t appreciate it, capitalism is what made this country great. It allows for the fit to succeed by allowing the unfit to fail. Let’s bail capitalism out by letting the Big Three face their fates and not allowing them to become leeches on the backs of the U.S. taxpayer and our economy. Vitaliy N. Katsenelson, CFA, is director of research at Investment Management Associates in Denver, Colo., and he teaches a graduate investment class at the ...
Russia Wrestles With Ruble Collapse
Vitaliy Katsenelson Contrarian Edge —
... took their money and ran. I called my childhood friends in Russia last month and advised them to move their ruble denominated savings out of ruble into dollars and/or euros (either should be better than the ruble), preferably also taking their savings out of Russian banks and either transferring into big European banks or just putting them into a safety deposit box. Yes, unfortunately, I believe the Russian ruble will collapse. Vitaliy N. Katsenelson, CFA, is director of research at Investment Management Associates in Denver, Colo., and he teaches a graduate investment class ...
Investing Books For The Stockings
Vitaliy Katsenelson Contrarian Edge —
... cheap and there are so many risks lurking from so many directions that semi normal working hours are not enough. I bring my laptop home, read The Wall Street Journal at the dinner table, and my work life starts pushing out my personal life. This book made me realize that no professional success is worth regretting 20 years down the road that you didn’t spend enough time with your kids. Unfortunately, Buffett has that regret. Vitaliy N. Katsenelson, CFA, is director of research at Investment Management Associates in Denver, Colo., and he teaches a graduate investment class ...
Exxon Apostasy
Vitaliy Katsenelson Contrarian Edge —
... and getting oil out of the ground up 40% from 2003. These two factors cancel out each other. Another point on valuation: XOM’s capital expenditures exceeds it depreciation expense thus on free cash flows – a true determinate of company’s worth, is lower than net income by about 30%. For the simplicity of the analysis, I used P/E with unadjusted E, but you really need to adjust your E down to reflect lower free cash flows. Vitaliy N. Katsenelson, CFA, is director of research at Investment Management Associates in Denver, and he teaches a graduate investment class at the ...
Dear Mr. Ex-KGB
The Big Picture —
Vitaliy N. Katsenelson, CFA, is director of research at Investment Management Associates in Denver, Colo., and he teaches a graduate investment class at the University of Colorado at Denver. He is the author of “ ...
Super Value In Groceries
Vitaliy Katsenelson Contrarian Edge —
... (opening and remodeling stores) are semi-discretionary–they can be postponed or modified. In fact on the Jan. 7 conference call, management announced it will cut capital expenditures and free cash flows in 2009 should be around $850 million (remember this is the company that has a market capitalization of $3.5 billion). It will be able to pay off maturing debt from free cash flows. Debt does not lead to death for this company. Vitaliy N. Katsenelson, CFA, is director of research at Investment Management Associates in Denver, Colo., and he teaches a graduate investment class ...
Russia Wrestles With Ruble Collapse
Vitaliy Katsenelson Contrarian Edge —
... took their money and ran. I called my childhood friends in Russia last month and advised them to move their ruble denominated savings out of ruble into dollars and/or euros (either should be better than the ruble), preferably also taking their savings out of Russian banks and either transferring into big European banks or just putting them into a safety deposit box. Yes, unfortunately, I believe the Russian ruble will collapse. Vitaliy N. Katsenelson, CFA, is director of research at Investment Management Associates in Denver, Colo., and he teaches a graduate investment class ...
Jeremy Siegel is brilliant, uplifting and just plain wrong!
Vitaliy Katsenelson Contrarian Edge —
S&P 500 earnings topped out at about $84 a share in June 2007, while corporate profit margins were 44% above their average since 1980. At the time, these numbers were inflated by global bubbles in real-estate, commodities, liquidity, and growth expectations–a lot of global bubbles. Since 2007, most of the bubbles deflated, stocks plunged, profit margins reverted to their mean (i.e. declined from above to below average), which in turn caused earnings to collapse. S&P 500 earnings estimates for 2008 were revised down to $28–a 67% drop from the highs. Suddenly, investors found that at 20-plus times earnings, ...
The Next Great Bubble?
The Big Picture —
Vitaliy N. Katsenelson, CFA, is director of research at Investment Management Associates in Denver, Colo., and he teaches a graduate investment class at the University of Colorado at Denver. He is the author of “ ...
How Rising Stocks Lift the Economy
Vitaliy Katsenelson Contrarian Edge —
We often talk about how developments in the economy will impact the stock market, but we rarely discuss the other side of the relationship: how the market impacts the real economy. It does, and the current run-up in stocks is very positive for the economy. Here’s are three reasons why: 1. Banks can loan Financial stocks have doubled from their lows. This is great news for banks — they were able to capitalize on higher stock prices and issued $85 billion of new common equity in one month. Some of the newly issued equity will go to pay back TARP money from the government; some will allow banks to boost their ...
Microsoft’s best week in quite a while
Vitaliy Katsenelson Contrarian Edge —
Call it the wishful thinking of the guy who owns Microsoft (MSFT) stock, but the news flow from the company this week was excellent: MSFT did something very uncharacteristic. It did not push back the release of Windows 7, which will be released on Oct. 22. (Editor’s note: Microsoft publishes MSN Money.) Bing is excellent. I played with it for a couple of days, and it’s an “un-Microsoft-like” search engine. It is very good. Type for instance “ flight from NYC to Denver “, and it will tell you that fares are predicted to rise in the next 30 days. Click on the green arrow and it will tell you ...
Beating a Dead Horse
Vitaliy Katsenelson Contrarian Edge —
I know, I may sound like I’m beating a dead horse how much printer cartridge can one spill over China? – but I have a very high burden of proof to overcome. Let me demonstrate it by this analogy: Let’s rewind 20 years. It is 1989 and I am writing that the Japanese economy is on the verge of severe decline. I’m facing a lot of skepticism. Most people are calling me crazy and throwing heavy objects at me. After all, the Japanese are on top of the world. Their economy has been a consistent grower for decades, with a rate of growth that trumps that of the US and Europe. Japan has the manufacturing thing nailed ...
The Conclusion: Beating a Dead Horse (to Death)
Vitaliy Katsenelson Contrarian Edge —
My “Beating the Dead Horse” article ended with a very insightful conclusion “Need I say more?”. I received a dozen emails that said – you DO need to say more. So here I am saying more: What do we take out of this? The Chinese ascent over last decade has lowered the degree of separation between China and the global economy. What happens in China doesn’t stay in China (not anymore); it spills over to the rest of the world. Today, Chinese economic growth is the force pushing the global economy. The quality of this growth, however, is low as it is predicated on massive (forced) lending and thus ...
September – the worst month for stocks
Vitaliy Katsenelson Contrarian Edge —
October. This is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August, and February. -Mark Twain September 1st is a very strange day for me. In Russia the school year across the whole country started on September 1st. I vividly remember myself as a child on that day throughout my childhood. The sun always shined brighter that day, the cleanliness of my uniform was at the year’s high, it was custom to bring flowers to teachers on that day thus the school smelled like a botanic garden. Every year I promised ...
Five Reasons to Avoid the Gold Rush
The Big Picture —
Vitaliy N. Katsenelson presents the counterpoint for the gold argument:
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The reasons why one should sell the cat, pawn the mother-in-law, and use the proceeds to buy gold are well known: the Fed is printing money faster than you can read this, which will result in inflation; the government is borrowing like a drunken monkey, so the dollar will be devalued; this will debase all currencies, so the only thing that will save you is the shiny metal.
However, here are some arguments why one should think twice before jumping in bed with gold bugs, or at least remain sober while ...
Is American Express (and financial stocks) still cheap?
Vitaliy Katsenelson Contrarian Edge —
Financial stocks had a huge run up from their bottom. Many have doubled and tripled, but are they still cheap? It’s almost impossible to value big financial institutions like Citigroup (C), Bank of America (BAC), or Goldman Sachs (GS) — they’re a lot like hot dogs — you don’t really know what’s inside of them; for the most part, they’re leveraged hedge funds. They may appear to be cheap on a price-to-book basis, but the book is an illusive concept when it comes to financial stocks, especially when leverage, a deteriorating economy, and accounting assumptions may transform the book into a pamphlet in a New ...
5 Reasons to avoid gold rush (updated)
Vitaliy Katsenelson Contrarian Edge —
Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head. - Warren Buffett The reasons why one should sell the cat, pawn the mother-in-law, and use the proceeds to buy gold are well known: the Fed is printing money faster than you can read this, which will result in inflation; the government is borrowing like a drunken monkey, so the dollar will be devalued; this will debase all currencies, so the only thing that will save you is the shiny ...
Will Japan drive our interest rates higher?
Vitaliy Katsenelson Contrarian Edge —
In investing, it’s important to think unconventionally and creatively while at the same time considering risks - no matter how remote or unmanageable they are. I keep thinking: What would drive our interest rates up in the US? China is the obvious culprit as it’s the largest holder of our fine Treasury obligations. If China’s exports to the US don’t recover to the pre-Great Recession level then, considering its large overcapacity and bad-debt problems, it may quite suddenly find itself unable to buy as many of our bonds/bills. Or even worse, it may start selling them. But this scenario is one I’ve discussed ...
In Defense of Capitalism: a True Love Story
Vitaliy Katsenelson Contrarian Edge —
My writing is a byproduct of my investment process, I think through writing. I don’t do movie reviews and don’t watch Michael Moore’s movies. A Denver Post reporter invited me to a private showing of Moore’s latest flick last Monday Capitalism: a Love Story , it stirred up a lot of memories and I recently finished reading Atlas Shrugged which had a great impact on me. A combination of all those things motivated me to write this. In the 1980s, in Soviet Russia, a few times a year, my class walked to a movie theater, where we were shown a documentary. Attendance was mandatory. The documentaries were ...
Books that will help gain sanity in insane market - Part 2
Vitaliy Katsenelson Contrarian Edge —
I originally wrote this list of recommended books last year; recently I updated and added a few more. I hope to keep adding to it every year. It contains six sections: Selling, Think Like an Investor, Behavioral Investing, Economics, Stock Market History, and Books for the Soul. Due to its length, I divided it into two parts. You can read part 1 by clicking here ...
IMS Health is being stolen
Vitaliy Katsenelson Contrarian Edge —
It was announced Thursday that IMS Health was to be stolen from its shareholders for $4 billion or about $22 share; a private equity firm will buy them out. IMS Health should have free cash flows this year over $340 million (the actual number should be higher than $400 million, but is benefited by a $60 million onetime tax benefit). So this company, which has virtually no competition, has barriers to entry impossible for a new entrant to overcome, and a cash printing machine will be sold for about 12 times free cash flows. Over the past year we’ve seen much lower quality companies being sold for much higher ...
