Value - What We're Reading - StockBuz2024-03-28T08:32:34Zhttp://stockbuz.ning.com/articles/feed/category/ValueThe Run In Small Caps. Will It Continue In 2017http://stockbuz.ning.com/articles/the-run-in-small-caps-will-it-continue-in-20172016-12-23T15:36:41.000Z2016-12-23T15:36:41.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><div class="copy last-child">
<p><span class="font-size-3"><a href="https://www.roycefunds.com/insights/editorial/images/Frank-Gannon_1a.jpg" target="_blank"><img src="https://www.roycefunds.com/insights/editorial/images/Frank-Gannon_1a.jpg?width=300" style="padding: 10px;" class="align-left" width="300" /></a></span></p>
<p><span class="font-size-2">The stock market went on quite a tear in the 3+ weeks immediately following the election, with the month of November especially beneficial for small-cap stocks.</span></p>
<p><span class="font-size-2">Before delving into what it all might mean for small-cap investors, here's a quick rundown to help contextualize just how dynamic a month it was:</span></p>
<div class="bullet-list" style="margin-left: 2em;">
<ol class="bullet-list last-child">
<li style="font-size: 15px;"><span class="font-size-2">This was the best November in the history of the Russell 2000 Index. featuring its highest monthly return since October 2011 when small-caps were just emerging from a precipitous decline.</span></li>
<li style="font-size: 15px;"><span class="font-size-2">The performance spread between small-cap and large-cap was the widest in 14 years (since April 2002). The Russell 2000 gained 11.2% for the month versus respective gains of 3.9% and 3.7% for the large-cap Russell 1000 and S&P 500 Indexes.</span></li>
<li style="font-size: 15px;"><span class="font-size-2">Small-cap value enjoyed a good year's worth of results in one month! During November, the Russell 2000 Value advanced 13.3% compared to 9.0% for the Russell 2000 Growth.</span></li>
<li style="font-size: 15px;" class="last-child"><span class="font-size-2">Small-cap value earned an even bigger advantage quarter-to-date, thanks to better performance during the mini-correction earlier in the quarter. From 9/30/16-11/30/16, small-cap value was up 9.6% versus a gain of 2.2% for small-cap growth.</span></li>
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<p><span class="font-size-2"><strong class="last-child">What drove small-cap value?<br class="last-child" /></strong> The strength of small-cap value has come from cyclical (and diverse) sectors including Financials, Industrials, Consumer Discretionary, Energy, and Materials.</span></p>
<p><span class="font-size-2">Financials benefited from a steepening yield curve that should help to boost bank profits, while optimism about accelerating economic growth helped Industrials and many Materials stocks. The U.S. consumer has ratcheted up spending, and rebounding commodity prices helped both Energy and, again, Materials.</span></p>
<p><span class="font-size-2"><strong>Small-Cap Cyclical Sectors Lead in November</strong></span><br class="last-child" />
<span class="font-size-2">Russell 2000 Sector Returns November 2016 and QTD</span></p>
<p><span class="font-size-2"><img alt="Small-Cap Cyclical Sectors Lead in November" src="https://www.roycefunds.com/insights/editorial/2016/12/Images/sectors-1116-4QTD.png" class="last-child" height="356" width="632" /></span></p>
<p><span class="font-size-2"><sup>1</sup><em class="last-child">Real Estate, formerly part of Financials, became a separate GICS sector on 8/31/16. </em></span></p>
<p><span class="font-size-2"><strong>What does this mean for small-cap investors?</strong></span><br class="last-child" />
<span class="font-size-2">To be sure, this is all welcome news, especially for small-cap active managers with a cyclical tilt.</span></p>
<p><span class="font-size-2">After such a remarkable run, it’s also understandable to ask, perhaps with a bit of trepidation, where small-caps go from here. We are contrarians, after all.</span></p>
<a href="https://www.roycefunds.com/insights/2016/11/what-does-a-post-trump-market-mean-for-investors"><span class="font-size-2"><img src="https://www.roycefunds.com/insights/2016/02/images/Charlie-Dreifus_141_2.jpg" /></span></a>
<h3><span class="font-size-2">What Does a Post-Trump Market Mean for Investors?</span></h3>
<p><span class="font-size-2">First, the current rally has exacerbated an already pronounced shift from growth to value while also solidifying a move from large-cap to small-cap.</span></p>
<p><span class="font-size-2">The post-election environment has also seen a dramatic rotation away from safety—bonds and defensive stocks most notably. Investors have shown increased confidence in the potential for accelerated economic growth and a likely policy shift from monetary to fiscal—chiefly in the form of tax cuts and projected spending increases on infrastructure and defense.</span></p>
<p><span class="font-size-2">How much of this is accurate and how much has already been priced in remain to be seen. Certainly, we see these as the critical questions to be answered going forward.</span></p>
<p><span class="font-size-2">It is not uncommon for major events (political or otherwise) to create outsized, short-term swings that manage to correct themselves as the future becomes clearer. We would not be at all surprised to see a correction over the next few months.</span></p>
<p><span class="font-size-2">After all, one result of the uptick is that many stocks now sport very high valuations based on these great expectations.</span></p>
<p><span class="font-size-2">As always, we think certain fundamentals will continue to matter as the interest rate environment (and with it the economy as a whole) returns to a more historically normal (and, in this instance, possibly inflationary) pattern.</span></p>
<p><span class="font-size-2">From our perspective as small-cap specialists, we see the key fundamentals going forward as earnings, profitability, the ability to self-fund, and valuations that we believe do not fully reflect these positive attributes.</span></p>
<p><span class="font-size-2">We view small-cap value's leadership as <a href="https://www.roycefunds.com/insights/editorial/2016/11/is-the-current-small-cap-cyle-different-than-large-cap.aspx">still comparably new</a> and that the cycle will remain favorable for both small-cap value and <a href="https://www.roycefunds.com/insights/2016/10/undiscovered-connection-between-value-led-periods-and-active-management.aspx" class="last-child">active approaches to the asset class</a>.</span></p>
<p><span class="font-size-2">Stay tuned…</span></p>
<p><span class="font-size-2">Courtesy of <a href="https://www.roycefunds.com/insights/editorial/2016/12/small-caps-enjoy-their-best-november" target="_blank">Royce Funds</a></span></p>
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</div>Are Profit Margins Sustainable: RBChttp://stockbuz.ning.com/articles/are-profit-margins-sustainable-rbc2014-10-30T21:59:06.000Z2014-10-30T21:59:06.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1290921?profile=original"><img class="align-left" src="http://storage.ning.com/topology/rest/1.0/file/get/1290921?profile=original" width="422"></a>Stock markets have enjoyed a banner half-decade, forcefully reclaiming the ground lost to the financial crisis, and then some. This vigorous performance has occurred thanks, above all else, to two key enablers: surging earnings and recovering valuations. On the surface, there is nothing especially questionable about either. Earnings naturally rise as economies grow, and valuations recover as risk aversion fades.</p>
<p>However, a closer examination reveals a significant vulnerability within this cozy equation. Corporate earnings growth has been, in a sense, too good – persistently outpacing both revenues and the economy. This has driven profit margins to multi-decade highs.</p>
<p>Worryingly, profit margins have long been assumed to be mean-reverting, arguing that these juicy gains may eventually have to reverse. Such a scenario would necessitate an eye-watering one-third decline in the S&P 500. With stakes as big as these, a clear sense of the downside risk is imperative. This report evaluates the seriousness of the threat by seeking to understand the forces that have propelled profit margins higher, and their likely direction in the future. In so doing, we find that a large number of previously favorable profit-margin enablers are on the cusp of reversing, including the advantages of low borrowing costs, deleveraging, soft wage growth and deferred capital investment. The decline in these drivers suggests that profit margins could suffer.</p>
<p>Fortunately, there are a number of under-appreciated structural forces that continue to support high (and in some cases, even rising) profit margins, including globalization, automation and a compositional shift toward higher-margin sectors.</p>
<p>Grab a cup of coffee (maybe two), sit back and read the full <a href="http://media.rbcgam.com/pdf/economic-compass/rbc-gam-economic-compass-profit-margins-201409.pdf" target="_blank">RBC PDF here.</a></p></div>Countries Which Are Overvalued or Undervaluedhttp://stockbuz.ning.com/articles/countries-which-are-overvalued-or-undervalued2014-08-25T18:02:32.000Z2014-08-25T18:02:32.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p>Ask 10 different money managers what metric they use to determine if a stock (or particular market) is overvalued, and you'll more than likely receive 10 different responses. Of course buying at "the bottom" is easier said than done, as we all know so I submit to you this perspective.</p>
<blockquote>
<p><a href="http://www.telegraph.co.uk/finance/personalfinance/investing/10881855/Revealed-The-worlds-cheapest-stock-markets.html" target="_blank" rel="nofollow">Kyle Caldwell</a>, personal finance reporter at the Daily Telegraph, determined whether stock markets were <a title="CAPE: European Value Stocks Still Cheap Relative To Growth" href="http://www.valuewalk.com/2014/06/cape-european-value-stocks-still-cheap-relative-to-growth/">undervalued</a> or <a title="John Rogers: Fundamental risks in the BRIC countries" href="http://www.valuewalk.com/2014/07/john-rogers-ariel-letters/">overvalued</a>. Caldwell used three <a title="Value Investing & The Stock Market: A Look At 1814-2014" href="http://www.valuewalk.com/2014/08/value-investing-stock-market-look-1814-2014/">measures</a>: price to earnings (P/E), cyclically adjusted price to earnings ratio (CAPE) and price to book (P/B). His analysis included 34 countries, both developed and emerging and compared current measures to historical averages.</p>
<p>The CAPE adjusts for cyclical variations and takes a longer term view than the P/E considering the earnings average over the last 10 years instead of the 12 month average. Its premise is that eventually earnings will move back to their long term trend. Price to book divides the current value per share over the equity value shown in the company’s balance sheet. The latter includes the value of buildings, intangible assets and other assets if they were to be liquidated. Price to book helps analysts adjust for any distortion caused by companies overstating earnings.</p>
<p>Some of these countries are undervalued because of political or financial unrest including Turkey, Russia and Greece.</p>
</blockquote>
<p>Does that make them a bad investment here? You be the judge. Beauty is in the eye of the beholder and "cheap" depends on your appetite for downside risk (or if you're dollar cost averaging).</p>
<blockquote>
<p>By all three measures, the <a title="S&P 500 One Of The Most Expensive Indixes In The World: SocGen" href="http://www.valuewalk.com/2013/11/sp-500-could-correct-by-9-in-2015-by-12-in-2016/">U.S.</a> is expensive. This is likely due to indices such as the Dow Jones Industrials and the <a title="S&P 500 Overvalued By Nearly Any Metric: Goldman" href="http://www.valuewalk.com/2014/01/sp-500-overvalued-goldman/">S&P 500</a> reaching record highs and consistent performance after the 2008 financial crisis. Josh Wright, Bloomberg economist and Brian Barnier, strategist at ValueAdvisors, LLC agrees in a <a href="http://www.bloombergbriefs.com/" target="_blank" rel="nofollow">Bloomberg Briefs</a> report, that the current <a title="Who’s Afraid of Robert Shiller’s CAPE Ratio?" href="http://www.valuewalk.com/2014/08/whos-afraid-shillers-cape-ratio/">CAPE</a> level of 26.2 is high relative to its long term median and its long term average. While it is still below peak levels reached during the 2000 dotcom bubble, it is <a title="How to Value Invest in an Expensive Market" href="http://www.valuewalk.com/2014/05/invest-expensive-market/">concerning</a>.</p>
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<p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1290904?profile=original"><img class="align-left" src="http://storage.ning.com/topology/rest/1.0/file/get/1290862?profile=RESIZE_1024x1024" width="750"></a></p></div>Einhorn On Momo Stocks, Bonds, Miners, AAPL And Morehttp://stockbuz.ning.com/articles/einhorn-on-momo-stocks-bonds-miners-aapl-and-more2014-05-31T21:36:46.000Z2014-05-31T21:36:46.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><h1><span class="font-size-3"><a target="_blank" href="http://ts3.mm.bing.net/th?&id=HN.608023376202893503&w=300&h=300&c=0&pid=1.9&rs=0&p=0"><img class="align-left" src="http://ts3.mm.bing.net/th?&id=HN.608023376202893503&w=300&h=300&c=0&pid=1.9&rs=0&p=0" /></a>David Einhorn’s Comments at the Greenlight Re (GLRE) Investor Day on May 20th 2014</span></h1>
<p></p>
<ul>
<li>Bernanke was predictable, but the new chairwoman is less predictable.</li>
<li>It has been 5 yrs into the recovery. Corporate profits have increased a lot and continue to grow. Current earnings expectations are high at a double-digit growth rate. Q1 numbers are showing the economy growing at  ~1%.</li>
<li>The fund is fully invested at 114% long and 66% short. It has increased its net long book from 35 to 50%.</li>
<li>Largest longs are Alpha Bank, Apple, gold, Marvel, Micron, and Oil States International.</li>
<li>Longs are cash-rich tech companies and businesses benefiting from structural changes. Shorts include secular decliners, momentum stocks, and iron ore related companies. Macro overlay due to monetary policy and unresolved imbalances.</li>
<li>Divergence between stock and bond markets?  Bond market is saying that economy is slowing down and yields have come down. Yields are not down because of deflation – we are not in deflation as commodity prices have been up. Equity markets are ignoring any slowdown because of the excuse that slowdown was related to bad weather. GLRE is pretty agnostic to how the market turns out.</li>
<li>Credit spreads very tight? Europe has not resolved its issues. Countries can’t roll their debt in a crisis. This is a structural weakness. France’s spreads have not widened. French bonds are mispriced relative to Italian and Greek bonds. They have hedges in France.</li>
<li>Thoughts on momentum stocks? Momentum stocks can go down a lot. They didn’t short these on their way up. If the price drops by 50% it doesn’t make the stock price half silly. It is still silly. Tech sector was 30% of the market in the bubble of 2000. Money can rotate out of these momentum stocks and go into other parts of the market. In that case the entire market may not go down.</li>
<li>Why not buy a cheap reinsurance company to grow GLRE? Have discussed acquisitions internally. They liquidated a position in Aspen and it was bought out 3 days after they sold. They sold because premiums grew quite a bit.</li>
<li>What does he think of the Hedge Fund and Reinsurance model after 10 years of GLRE? Big picture reasons still remain for the model to exist. Asset strategy and underwriting strategy support each other and one doesn’t have to stretch on either side to get decent returns. Now the new model can get a rating from AM Best.</li>
<li>How does he look at gold as a fundamental value investor? He thinks of gold as an alternative currency.</li>
<li>Why Gold miners ETF GDX or individual companies? They chose an index of companies. Individual companies have big question on reserves, nationalization risk – evaluating these is not their strength. Analyzing coal companies has similar issues and a mine can collapse. They change their position between Gold commodity and GDX. They have double-digit exposure to gold.</li>
<li>Short iron ore position? They have been short since summer 2012. Iron ore companies invested aggressively thru downturn, enormous capex and they thought this will create excess supply.  They thought that demand from China was unsustainable and even if China grew iron ore, there will be surplus capacity.</li>
<li>AAPL capital management and operations? When they started investing in Apple, capital management was poor but not important because cash was not large. Cash grew and stock went down so cash became bigger % of market cap so capital management was more relevant. AAPL operations: big question is if margins will go down dramatically especially if the next new great phone is not from Apple? Probably not.  When Motorola had the best phone it got big multiples. Then Nokia had the best phones – it got big multiples. Then Blackberry had high multiples. AAPL has iOS, people have music on iTunes, people have pictures and lot of info in the cloud. You want to keep your stuff the same way. Next new phone cant be just 10% better for you to switch to the new phone and that creates a moat for Apple. They also have sales, which are recurring like apps, which is a very high margin business.</li>
</ul>
<p>Courtesy of <a href="https://www.santangelsreview.com/2014/05/23/david-einhorns-comments-at-the-greenlight-re-glre-investor-day-on-may-20th-2014/" target="_blank">Santanglesreview</a></p>
<p></p>
</div>Barclays Names BMW As Leadership Over TSLA Multipleshttp://stockbuz.ning.com/articles/barclays-names-bmw-as-leadership-over-tsla-multiples2014-05-08T14:09:17.000Z2014-05-08T14:09:17.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><blockquote>
<p><a target="_blank" href="http://ify.valuewalk.com/wp-content/uploads/2014/05/Tesla-versus-BMW-i8.png"><img class="align-right" src="http://ify.valuewalk.com/wp-content/uploads/2014/05/Tesla-versus-BMW-i8.png?width=280" width="280" /></a>We think BMW have positioned themselves as tech leaders to out-rival premium peers such as Tesla, and investors will increasingly be willing to credit this leadership with higher multiples.”</p>
</blockquote>
<p>Tesla Motors Inc showed the world that there is demand for a high quality, low energy vehicle, and now it has to face the <a href="http://www.valuewalk.com/2014/04/tesla-model-s-x-demand/">consequences of its actions</a>. The San Francisco-based company said its mass market car Gen III will require a third production line, and deliveries are <a href="http://www.valuewalk.com/2014/02/tesla-motors-inc-tsla-gen-iii-2017-launch/" target="_blank">expected to start</a> in 2017. Tesla Motors Inc (<a href="http://www.valuewalk.com/stock-data/?stock_symbol=NASDAQ:TSLA" class="ticker" target="_blank">NASDAQ:TSLA</a>) said the Gen III car will have a base price of $35,000, but total ASP including options would run to <a href="http://www.valuewalk.com/2014/02/tesla-motors-inc-tsla-gen-iii-model-e-cost/" target="_blank">$45,000-$50,000</a>.  <em><span style="color: #ccffcc;">(just thinking out loud: could it be investors don't care for a discounted car price?  When you go from luxury to discount retailer, what's the reaction?  Add to the the negative cash flow from due to the cost of the third plant)</span></em></p>
<p>BMW is building something different from what Tesla Motors Inc (<a href="http://www.valuewalk.com/stock-data/?stock_symbol=NASDAQ:TSLA" class="ticker" target="_blank">TSLA</a>) is offering, and the changes its making to the manufacturing side of the business may be more revolutionary than the actual design of the i8. The use of lightweight materials in particular makes the future of the Tesla brand less than guaranteed.</p>
<p>The <a href="http://www.valuewalk.com/2014/04/bmw-boosts-i3-electric-car-production/">i3 serves a different market</a>, and it’s been performing appreciably in its own right. Bayerische Motoren Werke AG (FRA:BMW) isn’t going to beat Tesla Motors Inc with a compact, however. The i8 is the German company’s key to a future ahead of the Californian auto company, and analysts reckon it will push the firm ahead of Elon Musk’s brainchild.</p>
<p>Full story @ <a href="http://www.valuewalk.com/2014/05/tesla-motors-inc-model-s-vs-bmw-i8/" target="_blank">Valuewalk</a></p>
<p>Full disclosure short TSLA via LEAPS</p>
</div>Bitchin' Like Maudehttp://stockbuz.ning.com/articles/bitchin-like-maude2014-03-11T23:33:31.000Z2014-03-11T23:33:31.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1290407?profile=original"><img class="align-left" style="padding: 5px;" src="http://storage.ning.com/topology/rest/1.0/file/get/1290407?profile=RESIZE_180x180" width="83"></a>I've been moving recently; hence no posts, charts, etc. More exactly my son wished to get his own place (yay!) and with my lease expiring, I eyed a different unit with a much larger living area, kitchen and bedroom. I've always wanted a loft and here was my opportunity. The timing couldn't be more perfect with cool weather cooperating. What was not perfect was the service of uHaul ($UHAL) when it came to accessing a storage area, or that of Time Warner Cable ($TWC) who (of course) assured me I'd have live service. It's not rocket science guys. We're not asking you to solve world hunger nor come up with a cure for Cancer. Merely have the codes entered into the computer so one can access their storage unti and check the friggin' cable lines like a good little boy. Your apologies are worthless. Please allow me to raise an eyebrow and tell you off with a scathing rant that'll make your eyes water and give you nightmares for years in your little, crappy office with a space heater and shitty desk fan; then apologize later and blame it on my meds. </p>
<p>I'm getting too old for this crap and I certainly should know better than to have faith in service that actually delivers. I'd short them both to infinity and hire lobbyists to help me destroy them in Congress............if I had Buffett's money.</p>
<p>Needless to say I've missed several days of charting and trades, I'm sore in places I forget existed and as my daughter put it "<em>Mom, you're crankier than Maude on the rag". </em></p>
<p>Why don't they deliver on their promises? Call Centers follow up to see if you <em>wish</em> a reservation. Why don't they call to see if the service if <em>working?</em> Why, oh why don't they have a service that can pack everything (and unpack) for me outside of Beverly Hills? Maybe I'm learning why some elderly (like Maude) are so cranky. Because people suck. Next time they can carry me out feet first. </p></div>