Date: 27 Jan 2007
Price: $21.45
P/E: 4.28
P/B: 1.6
Yield: 2.20%
Debt/Eq: 0.75
Data from Morningstar
Introduction
No prizes for guessing what drew my attention to OMM - look at that P/E ratio! I haven't started to investigate yet, but I have a suspicion that next year's P/E ratio won't look quite as good - but we'll get to that.
Company Description
OMI provides seaborne transportation services with large shipping vessels, primarily of crude oil and petroleum products.
Past 10 years
The company seems to have been formed in 1998, and has grown pretty rapidly in that time. The first 5 years saw the company making a profit, but also a lot of capital expenditure (hence strongly negative free cash flow). The last two or three years have seen a significant increase in the profit (from ~$1.20/share to $5/share) and positive free cash flow. Which all suggests that the company made big efforts to expand over the first few years, and is now starting to see the benefits of that. The book value has increased from $245m to $872m since 1998 - mostly in the past couple of years.
One interesting factor to note is the number of shares in issue, which increased from 49m to 85m leading up to 2004, but has since declined to 63m - suggesting that a share buyback program has been instigated these past two years (this is confirmed by the latest results statement). Which again fits with the theory that the first 5 years were about raising capital and building the company, and now we're starting to see the profits of that. Having said that I'm sure the high oil price has also contributed to the high profits (there are graphs in their presentations showing the correlation in oil price and the earnings they can make).
Pros
Well obviously that P/E ratio marks the company out as being ridiculously cheap - however a glance at the stock history shows that it has always been fairly cheap (5 year average P/E is 8.7, and P/Es of 3-6 are not unusual). The company is profitable, has net leverage of 35%, and is buying back shares like nobody's business. All of these are good things.
Risks
There seems to be some uncertainty about the way to calculate EPS, as I've seen 9 month financial statements saying that the company has made $3.56 in the first 9 months of the year, and yet I've also seen analyst consensus estimates of $3.12 for the year, which seems rather unlikely given that we're expecting at least $0.50 in earnings in the last quarter - giving over $4 EPS for the year, and a P/E of 5.3 rather than a P/E of 7. I suspect this year's EPS numbers are skewed by the sale of four ships (two of which will be leased back). This also suggests an expectation that the business will decline in coming years
Ignoring that, estimates for next year seem to think that 50c a quarter will be fairly typical, and so if ongoing earnings will be only $2 then the current price doesn't look so attractive.
Conclusion
I'm not sure (which equals a no). It certainly doesn't look a bad company, and I'd like to monitor it over the coming months to see what happens when the final results for the year come out, and then once we start to see some results that aren't skewed by the boat sales. If the price falls to 4 times next year's earnings (ie. to $8-$10) then I would really be interested!
Saturday, 27 January 2007
Thursday, 25 January 2007
FUNC: First United
Date: 25 Jan 2007
Price: $21.99
P/E: 10.23
P/B: 1.4
Yield: 3.48%
Debt/Equity: 2.71
Data from Morningstar.com
Introduction
First United Bank first drew my attention as the result of some apparently erroneous information reporting that the dividend yield was a whopping 6.7%. That 'fact' coupled with a fairly low P/E ratio was enough for me to investigate further.
Company Description
It's a bank. I don't like to dwell too much on trivial details like what the company actually does, so that's all you're getting.
Past 10 years
The companies financial history makes very pleasant reading. Earnings have increased every year in the past ten years with one exception (2004 due to a high "non-compensation expense"), and in 2005 earnings were stronger than ever - so that proved to be a temporary blip. EPS doubled during the period from $1 to $2.15. The book value increased from $56.8m to $94m over the period, which is also good to see. Lots of warm fuzzy feelings here.
Pros
Everything about this company looks solid. In my opinion if you're looking for a relatively safe place to put your money then this is it. The return on shareholder's equity is around 12%, which is solid if not spectacular, and the balance sheet, income growth etc all looks very healthy.
Cons
I should first say a brief word about the debt/equity ratio above - particularly having complained so much in my previous post. For banks this number is basically irrelevant. All the customer deposits at the bank are counted as debt, which is of course true, but the banks business is to take on that debt and then use it to make money - so I don't penalize banks for that, and generally try to ignore the gearing or leverage ratios for a bank.
The main negative on this stock is that I'd like to see it even cheaper before buying. If it had a P/E of 8 rather than 10 I'd be jumping at it - as it is, I think it's worth an investment, but won't be getting excited about FUNC.
Conclusion
This stock seems to be pretty unexciting - and that has historically been true of the share price too. Personally I don't mind that, and I'm quite comfortable with investing some of my money in FUNC for the long term, and I'd probably get a low double-digit return (including dividends), which will do me nicely. It's nothing exciting, but I also view it as pretty low risk, and as a first dabble into the US stock market that will do nicely.
Price: $21.99
P/E: 10.23
P/B: 1.4
Yield: 3.48%
Debt/Equity: 2.71
Data from Morningstar.com
Introduction
First United Bank first drew my attention as the result of some apparently erroneous information reporting that the dividend yield was a whopping 6.7%. That 'fact' coupled with a fairly low P/E ratio was enough for me to investigate further.
Company Description
It's a bank. I don't like to dwell too much on trivial details like what the company actually does, so that's all you're getting.
Past 10 years
The companies financial history makes very pleasant reading. Earnings have increased every year in the past ten years with one exception (2004 due to a high "non-compensation expense"), and in 2005 earnings were stronger than ever - so that proved to be a temporary blip. EPS doubled during the period from $1 to $2.15. The book value increased from $56.8m to $94m over the period, which is also good to see. Lots of warm fuzzy feelings here.
Pros
Everything about this company looks solid. In my opinion if you're looking for a relatively safe place to put your money then this is it. The return on shareholder's equity is around 12%, which is solid if not spectacular, and the balance sheet, income growth etc all looks very healthy.
Cons
I should first say a brief word about the debt/equity ratio above - particularly having complained so much in my previous post. For banks this number is basically irrelevant. All the customer deposits at the bank are counted as debt, which is of course true, but the banks business is to take on that debt and then use it to make money - so I don't penalize banks for that, and generally try to ignore the gearing or leverage ratios for a bank.
The main negative on this stock is that I'd like to see it even cheaper before buying. If it had a P/E of 8 rather than 10 I'd be jumping at it - as it is, I think it's worth an investment, but won't be getting excited about FUNC.
Conclusion
This stock seems to be pretty unexciting - and that has historically been true of the share price too. Personally I don't mind that, and I'm quite comfortable with investing some of my money in FUNC for the long term, and I'd probably get a low double-digit return (including dividends), which will do me nicely. It's nothing exciting, but I also view it as pretty low risk, and as a first dabble into the US stock market that will do nicely.
Monday, 22 January 2007
RYI: Ryerson
Current Stats
Date: 22 Jan 2007
Price: $29.76
P/E: 10.3
P/B: 1.2
Yield: 0.7%
Debt/Equity: 1.68
Data from MorningStar.com
Introduction
I pick Ryerson somewhat at random from those stocks on my watchlist, and already I'm having doubts based on the level of debt you see above - but I'll follow through this process so that I get a feel for how I want to analyze stocks.
Company Description
Ryerson is a metal distributor. They act as the middle-man between producers of metals such as aluminium (I'm British, okay...) and buyers who aren't big enough to negotiate directly with the producers.
Past 10-years
The last ten years haven't been great. In 4 of those 10 years (2000-2003) the company made a loss. The company's book value has actually declined from $789m to $639m over that period. Free cash flow has swung between wildly positive and wildly negative over the period, and the sum over all those years is getting on for $100m negative.
Pros
The reasons I was attracted to this stock in the first place were pretty simple - a P/E ratio of around 10 is fairly (but not spectacularly) cheap, and a price to book ratio of 1.2 is unusually cheap these days. I think these numbers were even better a month or so back when the stock first crossed my radar. The argument goes that if a stock is trading close to book value then the book value should place a pretty good floor under the stock price (as in the worst case you could always liquidate the company). The company has also done pretty well over the past 3 years - since 2003 the book value has increased from $382m to $639m, which is pretty spectacular.
Cons
But all of this is pretty quickly shot down by the debt. The whole point of value investing is that you try to minimize the risk. You choose a stock that is so cheap that the market is expecting bad news, and that is financially stable so that it can't actually go bust. In this case, the stock has an unstable earnings history, and is heavily in debt - interest on debt was approximately $50m for the first nine months of this year, and earnings were around $76m (after paying the interest obviously). There's not a whole lot of margin of safety there - particularly when you consider the patchy earnings history.
Conclusion
Personally, I won't touch this with a barge pole - due to the debt and the significant risk of future losses. I like to be able to sleep at nights, and with Ryerson I wouldn't feel secure that I wouldn't one day lose all my money.
Date: 22 Jan 2007
Price: $29.76
P/E: 10.3
P/B: 1.2
Yield: 0.7%
Debt/Equity: 1.68
Data from MorningStar.com
Introduction
I pick Ryerson somewhat at random from those stocks on my watchlist, and already I'm having doubts based on the level of debt you see above - but I'll follow through this process so that I get a feel for how I want to analyze stocks.
Company Description
Ryerson is a metal distributor. They act as the middle-man between producers of metals such as aluminium (I'm British, okay...) and buyers who aren't big enough to negotiate directly with the producers.
Past 10-years
The last ten years haven't been great. In 4 of those 10 years (2000-2003) the company made a loss. The company's book value has actually declined from $789m to $639m over that period. Free cash flow has swung between wildly positive and wildly negative over the period, and the sum over all those years is getting on for $100m negative.
Pros
The reasons I was attracted to this stock in the first place were pretty simple - a P/E ratio of around 10 is fairly (but not spectacularly) cheap, and a price to book ratio of 1.2 is unusually cheap these days. I think these numbers were even better a month or so back when the stock first crossed my radar. The argument goes that if a stock is trading close to book value then the book value should place a pretty good floor under the stock price (as in the worst case you could always liquidate the company). The company has also done pretty well over the past 3 years - since 2003 the book value has increased from $382m to $639m, which is pretty spectacular.
Cons
But all of this is pretty quickly shot down by the debt. The whole point of value investing is that you try to minimize the risk. You choose a stock that is so cheap that the market is expecting bad news, and that is financially stable so that it can't actually go bust. In this case, the stock has an unstable earnings history, and is heavily in debt - interest on debt was approximately $50m for the first nine months of this year, and earnings were around $76m (after paying the interest obviously). There's not a whole lot of margin of safety there - particularly when you consider the patchy earnings history.
Conclusion
Personally, I won't touch this with a barge pole - due to the debt and the significant risk of future losses. I like to be able to sleep at nights, and with Ryerson I wouldn't feel secure that I wouldn't one day lose all my money.
Brave New World
Welcome to the inaugural post of my new Value Investing blog. My intention is to use this blog as a repository for my investigations into various US stocks that I might consider for investment.
My background is actually in the UK stockmarket, where I was moderately successful for the first two or three years of my investing career (I say career - I'm not a professional, I do this for fun and to increase my savings). I have been heavily influenced by the writings of TMFPyad (Stephen Bland) on The Motley Fool UK website). You might describe his strategy as deep value, where the letters PYAD stand for
I have not been particularly strict in following these criteria, but this at least gives you some idea of my background. I'd rather buy a dog of a company at a really cheap price than a good company at a mediocre price. And there have been many studies to back up this strategy as more likely to be successful (David Dreman's book: Contrarian Investment Strategies provides ample proof of this).
As I say, my previous experience has been in the UK (where I was moderately successful - generating approximately 19% p.a. compounded return), so the US stock market is a new adventure for me. I'm therefore also expecting this to be a learning experience to some extent - I'm not sure if anyone will read this blog, but if you'd like to journey with me then you'd be more than welcome.
My background is actually in the UK stockmarket, where I was moderately successful for the first two or three years of my investing career (I say career - I'm not a professional, I do this for fun and to increase my savings). I have been heavily influenced by the writings of TMFPyad (Stephen Bland) on The Motley Fool UK website). You might describe his strategy as deep value, where the letters PYAD stand for
- Price (low P/E)
- Yield (high dividend)
- Assets (Price to Tangible Book Value of < 1)
- Debt (or rather - no debt)
I have not been particularly strict in following these criteria, but this at least gives you some idea of my background. I'd rather buy a dog of a company at a really cheap price than a good company at a mediocre price. And there have been many studies to back up this strategy as more likely to be successful (David Dreman's book: Contrarian Investment Strategies provides ample proof of this).
As I say, my previous experience has been in the UK (where I was moderately successful - generating approximately 19% p.a. compounded return), so the US stock market is a new adventure for me. I'm therefore also expecting this to be a learning experience to some extent - I'm not sure if anyone will read this blog, but if you'd like to journey with me then you'd be more than welcome.
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