Posts Tagged price
When Average Earnings Are Not Representative
Posted by Tetyana Matychak in Business on September 3rd, 2010
For various reasons, value investors are encouraged to use an average of several years worth of earnings as an estimate of a company’s earnings power. But when a company grows quickly (e.g. through the acquisition of a competitor), average earnings are no longer representative of earnings power. In such cases, other methods of estimating a company’s earnings may be more useful.
Consider Canam Group (CAM), a company that has gone on a buying spree in the last year or so. As competitors have been shutting down units to conserve cash, Canam has been strategically purchasing competitor plants at attractive prices. As many industries are currently at overcapacity, the benefits of these acquisitions won’t be seen for years. But the costs of these acquisitions (i.e. the cash used to finance the purchases) are seen immediately. How does one value the fact that future earnings will be higher than past earnings?
One method applicable to manufacturing companies is based on a company’s historical return on its fixed assets. If similar assets to the company’s current assets have been purchased, the company may be expected to generate the same type of returns on those fixed assets that it generated over the last business cycle. Of course, this exercise only results in a starting point for estimating future earnings. Adjustments may have to be made based on the age of the assets acquired, their quality, and a whole slew of other factors (e.g. geography).
When times are good, companies will often fall over themselves in bidding wars to acquire potential targets or business units. Value investors realize, however, that the best time for companies to acquire such assets is when business conditions are poor (financing in general is hard to come by, there is overcapacity in many industries, and sellers are desperate to raise cash), due to the great price discounts that are available. Read the rest of this entry »
4 Investment Ideas That Provide Income
Posted by Tetyana Matychak in Investing on July 1st, 2010
As of this moment, the S&P/TSX Composite index is down 384.58 point or -3.27% year to date. The S&P 500 is down 67.32 or -6.04% year to date. That is your market update. When the global economic outlook appears uncertain and on the brink of another recession, equity markets reflect this reality in terms of greater than normal volatility. In markets like these, what we should be looking for are non-correlated assets and managers that have demonstrated the expertise to preserve capital during uncertain times like today.
In addition, one should also be focusing their efforts on receiving some form of income while the economic climate sorts itself. The following 4 ideas should hopefully accomplish both those goals. While we cant speak to the best/worst time to buy/sell particular securities, as that depends on one’s personal circumstances, the approach we usually take, especially with closed end funds, is to purchase them when they are trading at the steeper than normal discount to their Net Asset Value (NAV). The only other thing we would like to add is that you should do you own due diligence.
Trident Performance Corp.
This closed end fund is managed by CI Investments. Its investment objective is to provide tax-efficient risk-adjusted long term rates of return by obtaining exposure to a Global Macroeconomic Portfolio, advised by Trident Investment Management. Co-Founded in 1998, by Nandu Narayanan, Trident Investment Management seeks to exploit macroeconomic trends to generate attractive risk-adjusted rates of return with low or negative correlation to traditional ‘long’ investments. This is exactly what Mr. Narayanan did during the financial crisis, when the CI Global Opportunities Fund recorded positive performance of 109% in 2007 and 42.6% in 2008. Since inception in March 1995, the fund has averaged 19.69% as of the end of May 31, 2010. Read the rest of this entry »
Deflation Comes To Europe
Posted by Tetyana Matychak in Budget, Favourites on June 11th, 2010
Many economists regard deflation as more dangerous than inflation, as it encourages consumers to delay purchases as they wait for a lower price tomorrow. When consumers put off buying in anticipation of lower prices it creates a downward spiral of lower demand followed by lower production.
Deflation harms debtors as well. Countries like Greece have to pay back the money they borrowed with money that will be more expensive next year. Paying down debt with cheaper money slows economic growth. Japan has struggled with deflation for the last two decades, as growth in Japan faltered.
A sign that deflation is near comes from countries like Ireland and Spain that saw prices fall in May. Inflation was below 1 percent in five other euro zone countries.
There are four causes of deflation:
Decrease in the money supply
Increase in demand for money
Increase in supply of goods
Decrease in demand for goods Read the rest of this entry »
Wal-Mart to slash grocery prices
Posted by Tetyana Matychak in Trading Markets on March 23rd, 2010
Wal-Mart Stores Inc will cut food prices and mount a new ad campaign over the next six weeks, a threat to other U.S. grocers that sent an industry shares index down more than 2 percent on Friday.
A Morgan Stanley analyst first reported the world’s largest retailer’s plan, calling it a major setback for other U.S. grocers, and the company confirmed the promotions in an email.
“While this helps address Walmart’s traffic woes, we view this as a major setback for the grocery stocks, which have been rallying on hopes of a return to more rational pricing,” Morgan Stanley analyst Mark Wiltamuth wrote in a note on Friday.
The Standard & Poor’s Food Retail Sub-Industry Index closed down 2.2 percent.
Walmart has used aggressive pricing in grocery and other units to bring shoppers into its stores. The grocery business is particularly pressured by such pricing, as its profit margins are already low. Read the rest of this entry »
Housing: Time to Pull the Plug on Government Support
Posted by Tetyana Matychak in Budget, Favourites on March 22nd, 2010
America’s housing market implosion was the epicenter of the Great Recession. It’s hardly surprising that the federal government directed enormous resources at the market. Besides bailing out vulnerable banks, the federal government nationalized mortgage behemoths Fannie Mae and Freddie Mac, opened the lending spigot at the Federal Housing Administration (FHA), passed a first-time home buyers’ tax credit, and established a mortgage modification program for troubled homeowners. The Federal Reserve embarked on a $1.25 trillion purchase of mortgage-backed securities in an effort to engineer lower mortgage rates.
The Herculean efforts may be understandable. But they were a mistake in the early months of the downturn—and now stand as a public policy blunder in the early months of a recovery. That’s a harsh judgment, but it’s way past the time for ending taxpayer support of the housing market.
These policies are geared toward propping up home prices, the definition of a perverse public policy. Artificially holding prices at above-market levels harms new potential buyers, from young adults starting their own households to immigrants putting down stakes in the American Dream. The subsidies wrongly delay the inevitable home market price adjustment to excess supply in many markets across the country. Read the rest of this entry »
Americans are regaining their lost wealth
Posted by Tetyana Matychak in Trading Markets on March 19th, 2010
Americans are recovering their shrunken wealth – gradually. Household net worth rose last quarter, mainly because the healing economy boosted stock portfolios. But the gain was slight. And it was less than in the previous two quarters.
The Federal Reserve said Thursday that net worth rose 1.3 percent in the fourth quarter to $54.2 trillion. It marked the third straight quarter of gains. But economists say consumers would need a stronger and more prolonged increase in their wealth to persuade them to ratchet up spending.
Net worth had risen by a more robust 4.5 percent in the second quarter of 2009 and an even faster 5.5 percent in the third quarter. Net worth is the value of assets such as homes, checking accounts and investments minus debts like mortgages and credit cards.
Even with the gain, Americans’ net worth would have to rise an additional 21 percent just to get back to its pre-recession peak of $65.9 trillion. That illustrates Americans’ vast loss of wealth from the worst downturn since the 1930s. Read the rest of this entry »
Retail gasoline prices match 2010 high
Posted by Tetyana Matychak in Budget on March 10th, 2010
Motorists are well down the road to higher pump prices as warmer weather and the driving season approaches.
Average retail gasoline prices, continuing a surge that started last month, have now matched their 2010 high on the way to prices that many analysts believe will top $3 per gallon this spring.
The nationwide average retail gasoline price rose 0.6 cents Monday to $2.753 per gallon, virtually identical to the high water mark of $2.7583 reached on Jan. 14, according to auto club AAA, Wright Express and Oil Price Information Service.
Prices have risen 9.2 cents in the last month and are now 80.6 cents higher than levels of a year ago.
The Energy Information Administration, which is among those predicting $3 gallon gas this spring, will release figures on nationwide retail gasoline prices later Monday. Read the rest of this entry »
Low Rates Needed for ‘Some Time’
Posted by Tetyana Matychak in Banks on March 9th, 2010
Federal Reserve Bank of Chicago President Charles Evans said low interest rates are likely to be needed “for some time” as high unemployment lingers and inflation stays below his goal.
“With the unemployment rate at 9.7 percent and inflation significantly under my benchmark for price stability, there is no conflict between our policy goals,” Evans said in the text of a speech in Arlington, Virginia. Weakness in the job market, including long-term unemployment, means that “This accommodation will likely be appropriate for some time.”
Fed Chairman Ben S. Bernanke said last month the U.S. economy is in a “nascent” recovery that still requires low interest rates to encourage demand by consumers and businesses once federal stimulus fades. At the same time, policy makers are winding down emergency programs and laying plans for an eventual reduction of the Fed’s balance sheet to prevent an increase in inflation as the economy recovers.
The U.S. unemployment rate held at 9.7 percent in February and payrolls dropped 36,000, less than forecast, a sign that the labor market may be stabilizing after a recession that has eliminated 8.4 million jobs. The economy expanded at a 5.9 percent annual pace in the fourth quarter, the fastest rate in six years, the Commerce Department reported last month. Read the rest of this entry »
For Landlords, the Numbers Are Starting to Look Better
Posted by Tetyana Matychak in Investing on March 5th, 2010
Home prices are falling, rents are tumbling, and apartment vacancies are rising. So why are thousands of small investors becoming landlords?
Because real-estate prices have fallen much faster than rents, the math of buying a rental has actually improved substantially in most parts of the country. Money invested in an apartment complex today typically generates annual returns of 7% to 8% right off the bat, up from less than 6% at the peak of the housing bubble in 2006.
If your property appreciates in value or rents rise, you could end up with double-digit annualized returns when you sell it. But higher returns usually come with higher risks. If you overpay for a rental property or you buy in the wrong market at the wrong time, you can lose a lot of money.
In general, landlords should pick communities where real-estate prices and rents appear to have nearly bottomed out, and jobs are stabilizing. Some of the best deals are in places like Fort Worth, Texas, or Columbus, Ohio, where prices never went wild. Markets like Las Vegas and Phoenix, both plagued by overbuilding, and Detroit, hurt by auto-industry woes, still look dicey.
But other markets like San Francisco or Chicago can still be attractive for landlords who find the right neighborhoods. Fred Bertucci, 50 years old, has been investing in small apartment properties in the Chicago suburbs since 1990. In August, he and his business partner, Kevin Moriarty, 54, bought a six-unit apartment house out of foreclosure for $280,000. It brings in about $25,000 per year in net operating income, he says, or about a 9% yield on the dollars invested. That’s up from roughly a 5% yield several years ago when prices were higher, he says. Read the rest of this entry »
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Consumer Spending in U.S. Rises More Than Forecast
30 August 2010
Monetary Policy Gets No Respect
19 July 2010
Stocks May Surprise By Year-End
5 July 2010
Is A Global Reserve Currency A Necessity?
28 June 2010
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