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US marketing information company: Acxiom (OTC: ACXM)October 7, 2008: The insiders see a lot to dislike here also and are selling in mass, with twelve selling a totally of 303,000. Growth is horrid, with five year annual revenue growth at 8%, while its competitors grew at 68%. Over that time, earnings have fallen 24% annually while its competitors have grown 69%. ROE has been 8% over that time, compared to 21% for its peers. Operating margin is 5%, one fifth that of its competitors. Meanwhile, the company is overvalued, with the price trading at 33 times book (quadruple that of its peers) and 60 times earnings (almost triple that of its peers). Only when compared to cash flow is it cheap at five times, compared to 24 times for its peers.
US natural gas and oil company: Constellation Energy Partners (NYSE: CEP)
January 13, 2010. Constellation Energy Partners (CEP) is a limited liability company that acquires, develops and serves natural gas and oil properties and related assets. What do I like about Constellation Energy Partners (CEP)? Despite poor natural gas prices, the company has been profitable since 2003, so you know they are doing something right. Yet, the institutional investors haven't discovered them yet, with only 18% owned by institutional investors. Since 2007, while revenues have doubled, the stock price has fallen from $50 to $4. This is likely because it no longer pays a dividend. In fact, it is now undervalued by any measure, including relative to its historical ranges. Book value is $22 per share, so you are able to buy five times as much in assets for only $4. Its Price to Earnings ratio is one sixth that of its peers (5x compared to 30x). It is also selling for only 70% of cash flow, compared to 1100% for its peers. I opine that the elimination of the dividend is the reason for this. It does not look like a company going out of business, from any perspective. Revenues have grown 54% annually over the past five years while net income has not changed, despite the decline in natural gas prices and property values. Return on equity has beaten its competitors 4% to 6%. Operating margins are double that of its peers, 16% compared to 7%.
China Natural Gas (NASDAQ: CHNG) and Cherniere Energy (Amex: LNG)
July 23, 2007 Let's compare these two companies, our proposed long, Chinese Natural Gas which sells on the NASDAQ market and may be represented either by CHNG or CHNG.OB. The short is Cheniere Energy (Amex: LNG). Although insider data on CHNG is unavailable, they are buying LNG, which is not something we would desire in a short. Institutional interest in LNG of 91% is way too high and has little room to go up. If they start selling because natural gas price optimism wains, it will pull the stock down.
As for valuation, both have Price/Book ratios that are above their peers, but LNG's is 45 while CHNGs is only 5. P/E ratio for LNG is negative, while CHNG's 17 is a bit below their peers' 22.
In conclusion, CHNG is better run, profitable, and growing
while still being about 1/8th the price of LNG. However,
beware that both can be very volatile, as I made 20% on CHNG just last
week alone. So, if you are risk averse, take only 2/3rds of a portion
of CHNG. But, for most people putting no more than 5% in any one stock,
I recommend a full holding of CHNG and 2/3rds of a short on LNG.
US health care insurance plan company: Humana (NYSE: HUM)
December 21, 2009. There is a lot of uncertainty over the health care plan, even in the Senate. I was watching Meet the Nation today and Senators got another 400 page amendment yesterday and are hoping to vote on Thursday. There is no way they can read and understand what they are voting on. It looks like the Democrats have 60 votes necessary to pass their bill. From what I have heard and read, this bill will likely end up good for the rich doctors, lawyers, and insurance companies and bad for the common person. (What's new?) The Democrats and health insurance companies are tightly linked financially, so they will be sure to work for each other. Getting rid of the public option is a case in point. For information on how the Senate health care bill will affect insurers like Humana, click here. Usually, when fear and uncertainty prevail, it is a good time to buy. Thus, purchasing health care stocks may be timely. In fact, Humana is a great company selling at below average prices compared the health insurance market as well as compared to its own historical averages. Its price to tangible book ratio is one third that of its peers (2x verses 7x), its price is six times cash flow instead of eight times for its peers, and its price to earnings ratio is half that of its peers (7x vs. 13x). Meanwhile, over the past five years, it has grown faster than its peers, 19% versus 17% in revenues and 22% versus 10% in earnings. In fact, it has been profitable for a decade, so it has a long record of winning in the marketplace. Whichever way health care goes, Humana should land on its feet. Some negatives are that insiders are selling and operating margins are lower than its competitors at 5% compared to 8%.
US alcohol production and marketing company: Constellation Brands (NYSE: STZ)STZ is an international alcohol production and marketing company which includes Inglenook as one of their products. Alcohol tends to be a refuge for disheartened people in an economic downturn, but the public doesn't seem to have turned to STZ, and revenues have slid a bit. Likewise, I don't think investors will find this stock intoxicating. The balance sheet is diluted with debt which stands at 89% of real assets. Profits are on the dry side, with operating margins of 1% compared to 11% for its peers and the company losing money. The real book value of the company is a negative $7.80. If you are looking for revenue growth, STZ will leave you thirsty, as over the past 5 years, sales have grown 3%, compared to 34% for its peers. If you want to see the half of the glass that is full, you would see that over the last year, sales have not fallen as much either (3% compared to 24%). Earnings have inverted from a positive $1.03 five years ago to a negative $1.38 last year. Only by looking at cash flow does STZ look tasty (6x compared to 9x for its peers).
US Retailer: Macy's (NYSE: M)January 31, 2010. The company's performance has been poor, with operating margin at -19%, compared to 5% for its peers and net margin of -21%. Considering ROE reinforces this perception with Macy's being -2% compared to 19% for its competitors. Earnings growth is poor while revenue growth is average. The balance sheet is weak with a 46% debt to asset ratio. While the company is underperforming, it is overvalued, historically and absolutely. Although the Price to Cash Flow ratio is below that of its peers (6x versus 21x), the Price to Earnings ratio is negative and the Price is a bewildering 114 times Tangible Book Value, versus four times for its peers. Meanwhile, institutional interest is higher than average at 93%, and opinion cannot become much more bullish than this. At the same time, insiders are selling the stock and as discussed above, they have good reason to.
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|"A good manager is a man who isn't worried about his own career but rather the careers of those who work for him... Don't worry about yourself! Take care of those who work for you and you'll float to greatness on their achievements."---HSM Burns||Copyright Laurent J. LaBrie 2004-2006