This week’s hot stock has almost been written off by many market pundits. As commonly happens, media coverage tends to overreact to bad news, and those reactions can begin to drown out any positive news.
The Large Cap Value style ranks second out of the 12 styles for the first quarter of 2015 and receives our Neutral rating. The Large Cap Value style as a whole outperformed the Russell 3000 in 2014
Can Satya Nadella reboot an empire?
Why have market dips been so shallow of late? (Plus a Barron’s feature)
What is Microsoft trying to buy for $2 billion?
The vast majority of evidence suggests that P/E ratios are an unreliable way to measure the true value of stocks.
MSFT currently earns our Neutral rating, but if new CEO Satya Nadella can halt the company’s declining return on invested capital (ROIC), the stock’s valuation is cheap enough to make it intriguing.
Sometimes, a great company can actually be a risky stock when it gets significantly overvalued.
Apple cannot have pricing power and market share at the same time. No one can for an extended period of time. The problem with AAPL is that it is priced for the company to achieve market share penetration and growth at high prices. The reality is that the quality of Apple products versus competitors is declining. Prices will have to come down just to maintain market share.
There are too many competitors out there for CRM to grow revenue and expand margins simultaneously to the extent that the market valuation already implies. Too much downside risk is in this stock.
Netflix (NFLX) is in the Danger Zone this week. The DVD subscription and streaming video service has changed the way people watch movies and TV shows. However, its current valuation is out of touch with reasonable expectations for future cash flows and profitability.
The stock has been beat up since its much-hyped IPO in 2011, but even after losing 61% of its value the stock is still too expensive. ZNGA is competing in an immature market where the barriers to entry are almost nonexistent and brand loyalty is a foreign concept.
The “value” in Apple is an illusion. Astute investors need to look at Apple through the lens of what is a reasonable ROIC in the future.
Most companies hold some cash—or cash equivalents in the form of investments—above this required amount. Companies hold excess cash in order to cushion against economic downturns, prepare for acquisitions, or any number of other reasons. Sometimes, past profits pile up on balance sheets and are a form of excess cash. Excess cash is not needed for the operations of a company. It is removed from our calculation of invested capital.
For debt investors, which GAAP was primarily designed for, write-downs are analytically helpful. They provide a more accurate assessment of the liquidation value of a company’s assets. For equity investors, on the other hand, write-downs are not helpful because they distort the return on invested capital (ROIC) of a company.
This report identifies the “best” ETFs and mutual funds based on the quality of their holdings and their costs. As detailed in “Low-Cost Funds Dupe Investors”, there are few funds that have both good holdings and low costs. While there are lots of cheap funds, there are very few with high-quality holdings.
Converting GAAP data into economic earnings should be part of every investor’s diligence process. Performing detailed analysis of footnotes and the MD&A is part of fulfilling fiduciary responsibilities.
Finding the best ETFs is an increasingly difficult task in a world with so many to choose from.
This article provides some empirical evidence behind my putting Apple (AAPL) in the Danger Zone last week because its return on invested capital (ROIC) is outrageously high. That fact underscores why valuing this company or any other with the expectation that such a high ROIC was sustainable would be a mistake.
Too many investors are looking at AAPL through the rear view mirror and assume that its sky-high profits and return on invested capital (ROIC) are sustainable. As I detail in my CNBC interview, Apple is not cheap and investors should not underestimate the impact of losing Steve Jobs.
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