Monthly Archives: August, 2014

Our Secret in Value Investing is no More

August 30th, 2014 Posted by Stocks Portfolio No Comment yet

Stock prices change every day. You may find a certain stock that is cheap to buy today and then the following day the price goes up. So basically, it’s important to monitor the changes to get yourself aware of the opportunities. So what we have here? Today, We will give you the second released of our actively following list of stocks. If you wish to read the first one, please click here. Here’s our list.

Rank:

Orange means to reduce the portfolio holding, Green means to buy, and No Color means to hold. Sym: Company symbol

Name:

Complete name of the company

Type:

Evergreen is companies we will hold for more than 5 years; Woody is similar to Evergreen but that we will not reduce our holdings even when the company stock is fully priced; Deciduous is stocks that we will hold for 2 to 5 years; and Monocarpic is stocks that we will hold for less than 2 years (most likely around 1 year).

Rank Sym Name Type
1 BIDU Baidu Inc (ADR) Woody
2 FB Facebook Inc Woody
3 AMZN Amazon.com, Inc. Woody
4 GOOGL Google Inc Woody
5 GOOG Google Inc Woody
6 AAPL Apple Inc. Woody
7 CHL China Mobile Ltd. (ADR) Evergreen
8 PG The Procter & Gamble Company Evergreen
9 KO The Coca-Cola Company Evergreen
10 WMT Wal-Mart Stores, Inc. Evergreen
11 MRK Merck & Co., Inc. Evergreen
12 MBUU Malibu Boats Inc Deciduous
13 KING King Digital Entertainment PLC Deciduous
14 KORS Michael Kors Holdings Ltd Deciduous
15 PCLN Priceline Group Inc Deciduous
16 MNST Monster Beverage Corp Deciduous
17 LULU Lululemon Athletica inc. Deciduous
18 SB Safe Bulkers, Inc. Deciduous
19 LOPE Grand Canyon Education… Deciduous
20 TCEHY TENCENT HOLDINGS ADR Deciduous
21 OSTK Overstock.com, Inc. Deciduous
22 CTSH Cognizant Tech Solutions Corp Deciduous
23 FCX Freeport-McMoRan Inc Deciduous
24 CYOU Changyou.Com Ltd (ADR) Deciduous
25 FHCO The Female Health Company Deciduous
26 USNA USANA Health Sciences Inc Deciduous
27 JOY Joy Global Inc. Monocarpic
28 IDCC InterDigital, Inc. Monocarpic
29 CLF Cliffs Natural Resources Inc Monocarpic
30 INFY Infosys Ltd ADR Monocarpic
31 BHP BHP Billiton Limited… Monocarpic
32 VALE Vale SA (ADR) Monocarpic
33 NUS Nu Skin Enterprises Inc Monocarpic
34 COH Coach Inc Monocarpic
35 ESI ITT Educational Service Inc Monocarpic

The question you should ask is how did we come up with this list and what does it mean?

We researched dozens of public companies.  We compared and dissected the companies we believed to be undervalued. Over time our list of companies became overwhelmingly difficult for us to keep updating. We decided that with our limited resources we had to give up following the companies we like when it is clearly no longer undervalued or that changes in the company now made it unattractive for us to invest. Out of the pool of our favorite list of companies, we think these companies will give us the best bang for our time and resources.

Woody are perennial trees that take years to grow completely.  Like the companies in our category, we believe it will be a rather long time for them to mature.  Our aim is to increase our stake over time provided that the financial conditions of the company remain sound and that the management team remains stable.  Baidu, Facebook, Amazon, Google, and Apple continue to surprise us in terms of their ability to grow.  They are competitors in many areas.  The fundamentals of the companies are sound.  These companies are big enough to sustain any sudden temporary shock in the financial market.

Let’s say if there is an adverse investing environment in the stock market these companies stock prices will fall and we will see losses in our portfolio similar to many other stocks.  Our position is to invest using the principal of the margin of safety giving us around a 50% buffer before the drop in prices from these begin to create a serious problem for us. This group is designed to provide us with the returns we need in a normal market condition. Hopefully, the returns on these growing giants will be above average.

We are rather cautious about investing.  We always think the next big event will create a devastating blow on the market and our portfolio value.  Our Evergreen category consists of big stable, long live companies which consistently provide for a fair and stable return.  These companies stock prices tend to move in a narrow range and mostly independent of the market.  We think that when there is a crisis we hope to sell off some of these companies which at that time would hold its value far better than most stocks so that we have funds to buy more of the bargains typically found in a market sell-off. That is the plan and these are the companies we are counting on.

Deciduous is the main stable return producer.  These are some of the most admired lists of companies.  They are well run and produces consistent returns for shareholders.  These companies have one more quality lacking for us to categorize them as Woody or Evergreen.  This is the bulk of the companies we focus on. We like these companies so much because they give us minimal stress while we invest.  It is a carefree feeling typically for a few years.  We expect the stock prices of these companies to go up substantially in the 2nd thru the 5th year.  We normally sell when the price is right on these.

Last is the Monocarpic group of companies. These companies are either going out of favor with the market or just coming back from the dark side.  We view these as substantially undervalued.  Typically they are the good guys stuck with bad companies, not always the case.  When investors don’t like a company they tend to sell the whole industry and some even get out of the sector.  The extreme is getting out of the country altogether.  We don’t have enough firepower in terms of mental resources to consider so many variables so we resort to keeping it simple and looking at one company at a time.

We tend to make a lot of money with these companies.  Sometimes we get into very difficult situations with a few of these.  These are the sleep goblins stealing much of our sleepless nights.  We sometimes hate to work on these because on two occasions we look like stupid idiots.  These are some of the more challenging work in value investing.  These days how quick you are at getting the data and how accurately you implement an action plan determines the degree of success.  This is also a put-off point but we need the money so it is a matter of adding 5 percent to our portfolio.  It is a matter of choice — no choice really.

If we have more funds we might not do these things.  Alright, we might still do it. Most of these are just plain simply outcasts, abandoned and unloved companies. Sometimes they are really sick companies but time heals all wounds and we have been counting on this.  The condition usually takes less than or a little over a year to recover.  Most of our sickly companies have recovered but some died and took a part of us with them (financially).

Thanks for reading,

Peter

Actively Following List of Stocks We Keep an Eye

August 13th, 2014 Posted by Stock to Watch No Comment yet

Today, I would like to present to you the list of stocks that we are actively following. Further, we keep an eye to every company and our team works hand in hand to effectively monitor the changes. As we all know, change is the only constant thing in this world.

Before I introduce to you the list, let us have first the legends.

Rank:

  • Orange means to reduce the portfolio holding,
  • Green means to buy, and
  • No color means to hold.

Symbol: Company symbol

Name: Complete name of the company

Type:

  • Evergreen is companies we will hold for more than 5 years
  • Woody is similar to Evergreen but that we will not reduce our holdings even when the company stock is fully priced 
  • Deciduous is stocks that we will hold for 2 to 5 years
  • Monocarpic is stocks that we will hold for less than 2 years (most likely around 1 year).

The table below presents the list of companies that we keep an eye.

Rank Symbol Name Type
1 BIDU Baidu Inc (ADR) Woody
2 FB Facebook Inc Woody
3 AMZN Amazon.com, Inc. Woody
4 GOOG Google Inc Woody
5 GOOGL Google Inc Woody
6 AAPL Apple Inc. Woody
7 CHL China Mobile Ltd. (ADR) Evergreen
8 PG The Procter & Gamble Company Evergreen
9 KO The Coca-Cola Company Evergreen
10 WMT Wal-Mart Stores, Inc. Evergreen
11 MRK Merck & Co., Inc. Evergreen
12 KING King Digital Entertainment PLC Deciduous
13 KORS Michael Kors Holdings…
14 PCLN Priceline Group Inc Deciduous
15 LULU Lululemon Athletica inc.
16 BA The Boeing Company Deciduous
17 MNST Monster Beverage Corp Deciduous
18 OSTK Overstock.com, Inc.
20 CYOU Changyou.Com Ltd (ADR) Deciduous
22 VALE Vale SA (ADR) Deciduous
23 FHCO The Female Health Company Deciduous
25 MSTR MicroStrategy Incorporated Deciduous
19 LOPE Grand Canyon Education Inc Monocarpic
21 SB Safe Bulkers, Inc. Monocarpic
24 JOY Joy Global Inc. Monocarpic
27 FCX Freeport-McMoRan Inc Monocarpic
29 BHP BHP Billiton Limited Monocarpic
30 COH Coach Inc Monocarpic
31 BNNY Annies Inc Monocarpic
32 ESI ITT Educational Services Inc Monocarpic

Thank you for reading.

The Female Health Company (VERU) Ran by Women for Women

August 11th, 2014 Posted by Company Research Report No Comment yet

The Female Health Company (VERU) company research.

Female Health CompanyFemale Health Company VERU

About Female Health Company (VERU)

The Female Health Company owns rights to the FC2 Female Condom. FC2 is a revolutionary, female-initiated option offering women dual protection against sexually transmitted infections (S.T.I.’s), including HIV/AIDS, and unintended pregnancy. Further, FHCO currently has the only female condom (FC2) which is both approved by FDA and cleared for purchase by WHO. Furthermore, more than 50% of adult HIV/AIDS cases are female, 80% of which are contracted via heterosexual sex. HIV/AIDS is the number one cause of death globally for women 15-44 years old.

Another is, Female Health Company’s main market is currently the public health sector, which distributes FC2 to more than 143 countries worldwide for use in prevention and family planning programs. Likewise, the company’s customer base consists primarily of a small number of customers who purchase large quantities. Due to the receipt and timing of large orders, the Company experiences some quarter to quarter fluctuation in unit sales.

How does the Female Health Company make money?

Female Health Company manufactures markets and sells the FC2 female condom. Its product provides dual protection against unintended pregnancy and sexually transmitted infections, including HIV/AIDS.

Who is running the business and what is their background?

fhco karen

Karen L. King

Ms. Karen L. King serves as President, Chief Executive Officer of the Company, effective January 20, 2014.

Previously, Ms. King served as President of the Biologics and Bio-Solutions businesses of Royal DSM, a global provider of biopharmaceutical manufacturing technology and services, from September 2006 to September 2013.

Ms. King served as Executive Vice President of the Company from May 2006 to September 2006 and as Vice President, Global Development from August 2004 to May 2006, where she was responsible for sales, marketing, and business development.

Prior to August 2004, Ms. King worked at Baxter International since 1981, most recently serving as President of Pulse Nutrition Solutions, Inc., a subsidiary of Baxter that developed a line of nutritional products for consumer use.

 

m greco fhco

Michele Greco
Ms. Michele Greco serves as Chief Financial Officer, Vice President of The Female Health Company. Ms. Greco is a CPA with nearly 30 years of experience in public accounting with Ernst & Young LLP.

From January 2011 to February 2012, Ms. Greco provided consulting services to Systems Research Incorporated as a recruiter of finance professionals.

From March 2009 to January 2011, Ms. Greco was involved in a series of personal business ventures.

From 1994 to March 2009, Ms. Greco served as an audit partner with Ernst & Young LLP. Ms. Greco joined Ernst & Young LLP in 1981.

 

Financial Liquidity

FHC liq
A current asset is 4 times bigger than its current liabilities while quick ratio 2.8.  FHCO has no short-term and long-term debt.

fhccf

Female Health Company Cash Flow From Operating Activities

Operating cash flow of FHCO shows positive results in the past five years from 2009 to 2013 with an average of 7. The company has funds available to retire additional debts and invest new line of business. FHCO’s cash outflow from investing was bigger than cash inflow or they are using the capital to invest in the company. Financing cash flow 2009 to 2013 was also negative; their company is repaying its debts.

Female Health Company Free Cash Flow

fhcfcf

Free cash flow balances were all positive which means that the company is still capable of possible expansion thru investing to other companies. 

The Female Health Company Valuation

In our valuation of equity, we adopt the investment styles which we think applicable to the company. One valuation style is that seeks out undervalued companies whose stock prices are temporarily down, but whose fundamentals are sound in the long run. The philosophy was to buy stocks when prices fall and to sell when the price rises a great deal.

fhcsgr

Using the formula “Sustainable growth rate=ROE x (1- dividend payout ratio)”, it shows that the average SGR of FHCO was 20.71 percent. This is the measure of how fast a company can grow.

FHCO MS

Going forward, the margin of safety shows that the margin of safety was averaging 73 percent. Using a margin of safety, one should buy a stock when it is worth more than its market price. Further, the margin of safety protects the investor from both poor decisions and downturns in the market. The Margin of Safety requires knowing when the buying price is low in absolute terms, rather than merely relative to the market as a whole. This formula is used to identify the difference between company value and price, in other words, it is the difference between the real value of the stock and the market price. The result shows that it passed the 40 percent requirement and therefore, it is a good candidate for a Buy.

Female Health Company Relative Valuation Method

With this valuation method, is to compare the market values of the stock with the fundamentals (earnings, book value, growth multiples, cash, flow, and the metrics) of the stock.

fhcrel

FHCO’s current book value per share was $1.09, with an average of $.77 per share, on the other hand, the price to earnings ratio in the trailing twelve months (ttm) was 11.9% per share and 19.02% average per share. Moreover, the earnings per share at ttm was $.33 and averaging $.34 while the return on equity at ttm was $34.43 and has an average of $ 49.47 per share.

The table below shows the summary of calculations of FHCO

fhco yield
The growth was 24 percent, while the dividend yield was 7.41 percent. Likewise, the calculated value of appreciation is $1.22 which is the required 40 percent. Further, the computed value dividend was .28 and the computed total value was $ 3.70. The price that the investor is willing to pay was $3.70. Furthermore, the market price of FHCO to date was $ 3.95 per share. Overall, if we compare this to the total value of $ 3.70 per share, it indicates that the stock is trading at undervalued prices.

Conclusion

Overall, it shows that FHCO is financially healthy based on its current resources. Further, the company has sufficient cash flow used for operating activities and high free cash flow. Furthermore, the margin of safety of 73 percent has passed the 40 percent requirement.

CITATION:

http://www.reuters.com/finance/stocks/companyOfficers?symbol=FHCO.O&WTmodLOC=C4-Officers-5
www.google.com/finance?q=NASDAQ%3AFHCO&ei=bC7oU4jWGseskgXM1YDQBA
http://femalehealth.investorroom.com/index.php?s=117

Researched and Written by Rio

Edited by Cris

ITT Educational Services Inc (ESI) Involves in Higher Education Program

August 7th, 2014 Posted by Company Research Report No Comment yet

ITT Educational Services Inc (ITT) Company Research

ITT Educational Services Inc

ITT Educational Services Inc is a provider of post-secondary degree programs in the United States.  Offered master, bachelor and associate degree programs to approximately 73,000 students, which has144 locations (including 141 campuses and three learning sites) in 39 states.

The company offered one or more of its online programs to students who were located in 48 states, helping them to prepare for careers in various fields involving their areas of study.

 

How does ITT Educational Services make money?

ITT Educational Services Corporation, Incorporated is one of the largest for-profit education companies and offers primarily 2-year and some 4-year degrees in a number of subjects. Their revenue is generated from the number of enrolling as they experienced significant growth in students. Part of company’s income derives from Federal financial aid programs.

Who is running the business and what is their background?

Kevin Modany

Kevin Modany

 

Mr. Kevin M. Modany is Chairman of the Board, Chief Executive Officer of ITT Educational Services Inc. He has served as Chairman since February 2008 and as Chief Executive Officer since April 2007. He also served as President from April 2005 to March 2009. From April 2005 through March 2007 he also served as Chief Operating Officer.

Mr. Modany has been a Director of ours since July 2006. Mr. Modany had previous experience in advising other companies on financial and operational matters, and he had involvement in the financial and operational aspects of the company before becoming Chief Executive Officer.

 

Daniel Fitzpatrick

Daniel Fitzpatrick

Mr. Daniel M. Fitzpatrick is Chief Financial Officer, Executive Vice President of ITT Educational Services Inc. He served as Senior Vice President, Chief Financial Officer from June 2005 through March 2009.

ITT Financial Liquidity

esi liq

The average current ratio was 1.35 which means that its current asset was higher by 35% compared to its current liability while quick ratio was also 1.22 averaged.

Debt to equity ratio was averaging  0.98 which means that ESI has minimal leverage.

And solvency ratio was 1.96 averaged in 5 years period which shows that the company was capable of paying its total obligations.

The liquidity of ESI lies in the normal level. The company’s current resources were just sufficient to continue its operation with excess funds for unexpected opportunities.

ITT Asset Management/Efficiency

esi eff

Inventory turnover ratio was 0. as this industry has no record of inventory. Receivable turnover ratio average was 26.99 times per period. This is equivalent to 15 days for its receivable to turn into cash. For some companies, this is the credit term given to their respective customers. The payable turnover ratio has an average of 20.60 times for the company to pay its obligations or 47 days for its suppliers to pay.

Looking at the above data, the company’s current resources, as well as its total asset, is efficient enough in generating sales.

ESI is not highly indebted as calculated in the debt ratio. However, if compared to the owners’ equity it reflected an average of .98, this is because the company has not many capital investments.

ITT Property, Plant & Equipment

esi ppe

Gross investment in PPE average in five years was 340.20. It showed that the company was yearly expanding thru investment in fixed assets. Accumulated depreciation average was 150. It is a cumulative cost allocated to a tangible asset over its useful life. So, the net value of the PPE after deducting its accumulated depreciation was 190.20.

To calculate it using an estimated life of 5 years, the average used life of the said fixed asset was 2.2 years already. And it was still a remaining 2.8 years to use before it is fully depreciated.

ITT Income

esi rev

Revenue was 1015, 1319, 1597, 1500 and 1287 with trailing twelve months of 1108. Shown here, the gross revenue was yearly increasing from 2008 to 2010 but pulled down from 2011 to 2012. Its yearly growth rate was 30, 21,-.06 and -.14 percent.

Its operating income was 328, 489, 614, 507 and 233 with ttm of 104. This is the amount after deducting the operating expenses.

Income before and after tax have the same trend, continuously increasing until 2010 but dropped a little in 2011 while 50 percent in 2012. Its yearly growth rate was .48, .25, -.18 and -.55 percent respectively.

The net income was consistent going up in 2008 to 2010 but showed a slight decrease in 2011 and dropped by more than 50 percent in 2012. The company needs to be closely monitored.

ITT Expense

esi exp

The cost of revenue was 384, 450, 538, 553 and 539 with ttm of 500 which is equivalent to 37 percent average of gross revenue. It has the same trend with revenue.

Operating expense was 304, 381, 445, 440 and 515, with of ttm of 503, which is equivalent to 31, 30, 29, 28 and 29 percent respectively of revenue. While another expense the trailing twelve months was 43 or 4 percent of revenue. And total expense was  436, 573, 687, 642 and 609, with trailing twelve months of 546. This represents 49 percent of gross revenue.

Total expenses of the company are quite high especially in the year 2012 which unmatched its revenue. So, the company needs to control its expenses.

ITT Margin

esi marg

Gross margin was .62, .66, .66, .63 and 58, trailing twelve months was .55, this is the percentage result of gross profit over revenue.
Operating margin was 32.3, 37.1, 38.4, 33.8 and 18.1 percent, trailing twelve months was 9.4 which shows a continuous increase from 2008 to 2010 but slightly dropped by 5 percent in 2011 and 17 percent in 2012.

Net profit margin was 20, 23, 23, 21 and 11 percent, with ttm of 17. This is the bottom line of ESI’s business transactions expressed in percentage.

ITT CASH FLOW

esi cf

Operating cash flow from 2008 to 2012 was 173, 301, 559, 388 and 105 ttm was 115. It shows positive results throughout the five years period, although up and downtrend.

Net cash used in investing activities from 2008 to 2012 was 129, -64, -99, -46 and 123. Its trailing twelve months was 133. It shows negative results except in 2008 and 2012 because cash inflows were greater than cash outflows which are mostly investments.

Cash Flow from Financing Activities

Financing cash flows refer to cash received from the issue of debt and equity or paid out as dividends, share repurchases or debt repayments.

Net cash used for financing activities of ESI from 2008 to 2012 was -83, -334, -424, -277 and -211, with trailing twelve months of -245. Its cash inflows include common stock issued, the excess tax benefit from stock and other financing activities while cash outflows include repurchased of common stocks.

Financing cash flow showed a negative balance since its cash outflow transaction was more than its cash received.

Free Cash Flow

esi fcf

Free cash flow from 2008 to 2012 was 137, 273, 526, 357 and 87 which show positive balance throughout the five years period. It indicates that the company has enough funds to continue its operation and expansion.

Based on the overall performance of ESI, the company was able to meet its financial and operational commitments.

Relative Valuation Method for ITT

esi reval

The current book value per share was $5.44, with an average of $5.62 per share, while the price to earnings ratio in the trailing twelve months (ttm) was 5.5% per share and 8.28% average per share. Moreover, the earning per share at ttm was $2.61 and averaging $7.31 while the return on equity at ttm was $36.94 and has an average of $155.6 per share.

Overview, it indicates that ESI has a good measure of profitability it also shows that the company was able to generate a favorable and stable return on the invested capital.

The table below shows the summary of calculations of ESI using this method.

The growth was 5 percent while the dividend yield was 0. The calculated value of appreciation is $15.64. Further, the computed value dividend was 0 and the computed total value was $ 23.46. The price that the investor is willing to pay was $23.46. Furthermore, the market price of ITT/ESI to date was $ 7.82 per share. If we compare this to the total value of $ 23.46 per share, it indicates that the stock is trading at undervalued prices, therefore, it is a “Buy”.

Conclusion:

To sum it all, the results show that ITT/ESI is financially healthy as far as its current resources are concerned in spite of the fact that the stock price is unstable due to issues like low net income and weak cash flow.

Income wise, though it is decreasing lately, the company is still continuously generating income, with fairly controlled expenses which resulted in a fair profit margin. When it comes to generating cash flow, the company has sufficient cash flow used for operating activities and moderate free cash flow.

Furthermore, our investment valuation method shows that ESI is still undervalued.

CITATION:

http://www.ittesi.com/index.php?s=45 
http://www.reuters.com/finance/stocks/officerProfile?symbol=ESI&officerId=618323

Researched and Written by Rio

Edited by Cris

Note:

Research Reports can be found under the company tab.