My Financial Analysis of Stocks

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These are my Financial Analysis on stocks using Value and Growth Investing methods, particularly Buffettology. These methods typically require the Intelligent Investor to buy and hold the stock for 10 years or more. For those that are Day Trading or are buying and selling stocks within a year's time frame, this method will NOT work for you. Any information is solely for educational purposes, not for trading purposes or advice.

We use Google Spreadsheet to do our analysis because it is capable of delivering the stock price in real-time. The calculations in our analysis changes in real-time as the stock price changes every 20 minutes.

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Exchanged AT&T (T) for Time Warner (TWX) and Dumped Hilton Worldwide (HLT)

posted Sep 1, 2017, 4:34 PM by Intelligent Investor   [ updated Sep 1, 2017, 4:36 PM ]

I exchanged AT&T (T) for Time Warner (TWX). Their merger currently gives TWX a 6% premium. AT&T is offering $107/share for TWX. Time Warner is currently priced at $101/share.

Time Warner's (TWX) Current Price = $101/share
AT&T (T) Offer = $107/share

$107/$101 = 1.06
(1.06 - 1) x 100% = 6%

I like AT&T. I think AT&T will be around forever. But we could sure use a 6% gain. We sold all of our AT&T holdings and bought Time Warner (TWX).

Hilton Worldwide's (HLT) Forward P/E Ratio is currently at 35 which is expensive. We see other things we like better.

HLT Forward P/E Ratio = 35

Disclosure: We own shares in Time Warner (TWX) and no longer own shares in Hilton Worldwide (HLT)

My Stock Holdings 2017

posted Aug 28, 2017, 6:46 PM by Intelligent Investor

Hilton Worldwide Holdings (HLT) split into 3 companies. So we now own the following 3 Hilton companies:

1) Hilton Worldwide Holdings (HLT)
2) Hilton Grand Vacations (HGV)
3) Park Hotels and Resorts (PK)

The crown jewel of this split is Hilton Grand Vacations (HGV).

Berkshire Hathaway added Synchrony Financial (SYF) and Barron's Magazine had a favorable article right after Berkshire added it to their portfolio. Thus, we didn't do research on this stock purchase. We just trusted the professional opinion of others.

Repurchased Apple After Warren Buffett Confirms He Purchased it

posted Jun 5, 2017, 12:35 PM by Intelligent Investor

As a rule-of-thumb, if an investment has a Return on Equity (ROE) of greater than 30%, it means the company has a Durable Competitive Advantage.

Apple's Return on Equity (ROE) is at a staggering 34%. In the book Buffettology*, the ROE is the anticipated compounding growth rate of a company's earnings for the next 10 years. The last time Warren Buffett invested in a company with an ROE of greater than 30% was in 1994 when he purchase Coca-Cola (KO). Coca-Cola turned out to be one of Buffett's most lucrative investment.

I should have seen this coming.

I've always thought that Apple was a technology company and Warren Buffett has always advised against investing in technology companies because of the amount of money that they spend on Research and Development. Technology companies spend so much money on Research and Development that they are unable to significantly grow their Shareholder's Equity. Shareholder's Equity is also called Total Equity.

However, Apple seems to be an exception to this rule. They have the lowest Research and Development to Gross Profit Ratio when compared to other Technology companies. And their Shareholders' Equity (also called Total Equity) is at $119 Billion for the year 2015. This means Apple is able to grow their Shareholders' Equity because of their low Research and Development to Gross Profit Ratio. In other words, when compared to their Gross Profit, the money they spend on Research and Development is small, and thus, the company can save more money. The more money they save, the bigger their bank account grows. The bigger their bank account grows, the bigger their Shareholders' Equity will grow. As Apple's Shareholders' Equity grows, the value of the company will also grow.

 Company  Research and Development for the Year 2015 (Millions)  Gross Profit for the Year 2015 (Millions)  Research and Development to Gross Profit Ratio
 Apple  $8,067  $93,626  8.62%
 IBM  $5,247  $40,684  12.90%
 Microsoft  $12,046  $60,542  24.16%
 Google  $12,282  $46,825  26.23%
 Facebook  $4,816  $15,061  31.98%
Table 1: Apple has the lowest Research and Development to Gross Profit Ratio when compared to other technology companies.

We sold Apple some time last year and now we are buying it back.

Mary Buffet, Clark, Buffettology, Chapter 16

Disclosure: We own shares in Apple.

Purchased Hilton Hotels in Anticipation of a 3 for 1 Stock Spin-Off

posted Feb 28, 2017, 2:06 PM by Intelligent Investor   [ updated Mar 1, 2017, 6:12 PM ]

Last December I purchased Hilton Hotels in anticipation of a 3 for 1 stock spin-off. In other words, Hilton Hotels will be splitting into 3 independent companies. The most undervalued part of their business is their timeshare operation, Hilton Grand Vacations.

You have to own the stock by December 15, 2016 to take part in the stock spin-off.

Hilton Hotels split into the following 3 independent companies:
1) Hilton Worldwide Holdings (HLT)
2) Hilton Grand Vacations (HGV)
3) Park Hotels and Resorts (PK)

Hilton Grand Vacation (HGV), which is the crown jewel of Hilton Hotels, is only trading at a P/E Ratio of 12 right after the spin-off. Compare that to Marriott Vacations' (VAC) P/E Ratio of 20, HGV looks like a clear bargain with plenty of upside. HGV's Return on Assets is at around 9% whereas VAC is at around 6%. HGV is getting a much better return on their assets when compared to VAC.

Park Hotels and Resorts (PK) becomes a Real Estate Investment Trust (REIT). It is the parent company of the Waldorf Astoria, an ultra luxury resort and hotel chain. After the split they announced a quarterly dividend of $0.43 cents which come out to $1.72 per year. Using the after split price of $30 per share, that would give us a return of 5.5%. Bonds are currently averaging at around 3.5%. Thus, PK is a good place to park our money while we wait for a great investment to purchase. Once we find a great investment to purchase, we will sell PK in exchange for that great investment.

As for Hilton Worldwide Holdings (HLT), I think it is a decent investment. It isn't great, only decent. I'll just keep it until I find something better.

Warren Buffett's 5 Best Investing Tips

posted Sep 26, 2016, 3:13 PM by Intelligent Investor   [ updated Aug 19, 2017, 4:26 PM ]

1) Don't buy or sell based on the headlines.
2) Don't try to profit from bubbles.
3) Put your emotions aside.
4) Always invest in productive assets.
5) Always invest in America.

Sold Wabco (WBC) to Raise Cash in Case there is a Recession

posted Sep 6, 2016, 3:46 PM by Intelligent Investor   [ updated Sep 7, 2016, 10:22 AM ]

The signs of a recession are getting stronger so I've decided that I needed to raise cash. Out of all the stocks I own, Wabco (WBC) seems to be the weakest link. The stock's volatility is high, the P/E ratio is at 30 which is expensive, and it doesn't pay dividends. On a separate note, Berkshire Hathaway's recent 13F filing shows they've reduced its exposure to Wabco. So I basically just sold Wabco at the around the same price I bought it. I just broke even on this trade. The only lost I had is $40 bucks on trading fees. Oh well, better safe than sorry. The main concern is that if a recession does come, then I'll have some cash to put to work.

Note: Over the long term, I believe Wabco (WBC) will do very well.

Sold Chicago Bridge and Iron

posted Aug 23, 2016, 3:54 PM by Intelligent Investor   [ updated Aug 25, 2016, 9:50 AM ]

Chicago Bridge and Iron (CBI) comprise 2.5% of my overall portfolio. I first bought this stock at around $46/share. I sold it at $34. So, I basically took a 30% loss on this investment. My portfolio took a hit of a 0.75% loss from this investment.

Chicago Bridge and Iron (CBI):
Portfolio Allocation: 2.5% = 0.025
Loss: 30% = 0.30
Total Loss = 0.025 x 0.30 = 0.0075
0.0075 x 100% = 0.75%

I sold it because I saw better values and less risk with other stocks such as AT&T (T), Goldman and Sachs (GS), Phillips 66 (PSX), and Qualcomm (QCOM). And I just got tired of waiting for the price to rebound to $46/share. In addition, Warren Buffett exited his position in CBI. The problem with CBI is that the price of oil is directly correlated with the company's ability to make money. Oil prices are still falling at this time which means there is a lot of risk here.

As a note to others:

When investing in a risky stock DO NOT invest no more than 5% of your portfolio in that stock. The riskier the investments, the less weight or allocation you should have of that investment in your portfolio.

For example:

Wabco (WBC) is a risky investment, so it only comprises 5% of my portfolio.

Chicago Bridge and Iron (CBI) is a riskier investment than WBC, so it only comprises 2.5% of my portfolio.

Viacom (VIAB), another very risky investment, only comprises 2% of my portfolio.

5 Things to Keep in Mind for Entrepreneurs

posted Mar 17, 2016, 12:04 PM by Intelligent Investor   [ updated Mar 18, 2016, 9:54 AM ]

Interesting article from Mark Cuban.

Morningstar's 5-Star Stock Picks 2015

posted Mar 6, 2016, 3:23 PM by Intelligent Investor   [ updated Mar 10, 2016, 1:54 PM ]

View My Financial Analysis: Morningstar 2015

I analyzed Morningstar's 5-star stock pick last year and I have come to the conclusion that many of Morningstar's 5-star stock picks aren't any good. Most of them are highly risky stocks. For the year 2015 I analyzed some of these stock picks using Warren Buffett's methodology (Buffettology). And the results are most of these stock picks just came out really bad. There are a few good investment ideas, but they are just good, not excellent.

Whiting Petroleum (WLL) has an erratic 10 Year Earnings History and so does Southwestern Energy (SWN). Goodrich Petroleum (GDP) hasn't had any earnings for several years. California Resources (CRC) doesn't even have a 10 Year Earnings History, they've only been traded publicly for 3 years.

According to Warren Buffett a company's 10 Year Earnings History is a very important aspect to look at. If the company's 10 Year Earnings History is erratic, what will the earnings for the next 10 years look like? 10 years into the future, there is a high probability that their earnings will be erratic too.

Think about this analogy, let's say you were in High School and you had a friend that got bad grades throughout his whole life. What are the chances that he will change and become a "straight A" student for his senior year, go to college, get a PhD and win the Nobel Peace Prize? Probably never. You are what you are. Your past will dictate what your future will be.

Companies are also like high school students. Some companies are just not good at what they do. Their 10 Year Earnings History will dictate what the future earnings will be. If the company loses money every time there is a recession, what will happen to the price of their stock? What will happen to the company itself? Will they still be in business? Or will they go bankrupt.

When analyzing a stock, the first thing we look at is the company's 10 Year Earnings History. Think of it as their work record or their high school transcript. As Intelligent Investors, we are only interested in companies with a solid work record, or a high school transcript that says this student is a "straight A" student, they will do well 10 years into the future. If the company's 10 Year Earnings history is erratic or just show losses year after year, look no further and put your money elsewhere.

As an example, look at Southwestern Energy's (SWN) 10 Year Earnings history. They have had a couple of years of earnings losses. When the Earnings History looks like that, we just avoid this stock altogether.

Southwestern Energy 10 Year Earnings History.

We are only interested in companies that make money year after year. Even if there was a recession and their earnings take a small dip, it's okay. What we don't want is a company that had an earnings loss even if it was just for 1 year.

IBM may have Bottomed at $117/share

posted Mar 4, 2016, 8:33 PM by Intelligent Investor   [ updated Mar 10, 2016, 6:39 PM ]

IBM stock may have bottomed at $117/share a few weeks ago, the stock is now trading at around $135/share. IBM was just upgraded by Morgan Stanley from a Hold to a Buy on February 18, 2016. Even if the upgrade was weak, it represents confidence in the company by a major investment firm.

Another reason is that, during an interview on CNBC, Warren Buffett indicated confidence in the company by saying that he doesn't think the company is losing value and "IBM could be worth more money (in a few years)".

So we have 2 big names over the last few weeks exhuming confidence in the company, we may see more in the near future. However, for investors that want the stock to go up immediately after they buy, it would be best to wait for IBM's revenue to stop bleeding. Wait for their earnings announcement and see if IBM's revenue has stayed flat or gone up.

Looking at My Financial Analysis on IBM below,

In the Price Comparison, IBM's Relative Value is $502.59/share. At it's current stock price of $136.30/share, this represents a Relative Gain of 268.74%.

IBM Price Comparison

Also looking at the Summary of Growth Analysis, a price of $136.30/share represents a calculated 10 Year Annual Rate of 21.97%. Whenever the price of IBM shares go down, the 10 Year Annual Rate goes up. So at this point it would be in our best interest if IBM's share price goes down so that we could get a higher 10 Year Annual Rate.

IBM Summary of Growth Analysis

If you take a look at the Rule-of-Thumb Valuations, IBM's stock at $136.30/ share gives us an Equity Bond Theory of 9.99% rate, whereas the 10 Yr Municipal Bond Rate only gives us 3.40%. When you compare these two rates, IBM stock at $136.30/share is the better deal. In addition, the company's True Price/Book value is at 0.79. That means that for every $1 dollar the company's assets are worth, you are only paying $0.79 cents for them. This is like buying a house for $790,000 knowing that there is $1,000,000 million dollars worth of assets hidden in its walls. The True Price/Book value is calculated as Market Capitalization divided by Total Equity (Shareholders' Equity) plus the Treasury Stock.

True Price/Book = Market Capitalization/(Total Equity + Treasury Stock)

Another thing to look at is IBM's Current P/E ratio is at 10.01 which means at $136.30/share, this stock is cheap. As a rule-of-thumb, a stock is cheap when the P/E ratio is less than 15.

IBM Rule-of-Thumb Valuations

When you scroll all the way to the right and look at the Analysis of Financial Statements, the calculations show that IBM has a good chance of surviving its current shortfalls and problems.

On the Technical Analysis side, using the ThinkOrSwim Platform from TDAmeritrade, we see that the Market Sentiment oscillator is heading higher while the price is heading lower. This could mean that sentiment about IBM is changing to the positive side. Also looking at the Forecast Oscillator, there is clustering on February 18, 2016, when IBM hit its 52 week low of $117/share.

IBM Market Sentiment and Forecast Oscillator
Source: ThinkOrSwim by TDAmeritrade

Looking at the 200-Day Bollinger Bands, IBM was below the Lower Band (Red Line) when it hit its 52-week low of $117/share while the MACD Oscillator is rising. It also looks like the price is heading higher to breach the 200-Day Moving Average (Blue Line). The MACD Oscillator also crossed the zero line as the price heads higher. There is also initially a spike in Volume followed by above average Volume the following weeks which could indicate a climax in IBM's sell off.

IBM Technical Analysis
Source: ThinkOrSwim by TDAmeritrade

In summary, I am using a combination of the following events to determine a bottom:
  • 2 big names - Morgan Stanley and Warren Buffett publicly exhumed confidence in IBM
  • My Financial Analysis show that IBM has value
  • The Analysis of Financial Statements show IBM can weather the storm they are in
  • The Technical Analysis show Market sentiment is changing and the sell off in IBM could be reaching a climax.
Thus, IBM may have bottomed out at a 52-week low of $117/share. However, I could be wrong, if their earnings announcement on April 18, 2016 disappoints investors, then we could be in for more selling. At this point, if IBM bottomed out, I could only wish for IBM's stock price to fall further so that I could buy more shares at $117/share. If the sell off in IBM is reaching a climax, I could only wish for IBM to hit a lower 52-week low, much lower than $117/share.

Disclosure: I own IBM shares and plan to purchase more if the price drops.

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