January 8th, 2010
This is a summary of this week’s show. Listen in at Value Line Observer – Jan 8 2010
Note: This Blog is for Entertainment Purposes Only and should not be relied on. See all our disclosures at www.thevalueguys.com.
Harris ( HRS) is a maker of communication systems for large commercial and government customers. They seem to be on a bit of a winning streak with many years now of improving return on capital and a stable above average margin. My conclusion is that they have come on to several large proprietary niches where they are enjoying strong margins and profits on a product line where they either have an exclusive on the technology, or where they are driving so much productivity at the customer, that price doesn’t matter. In any case, this company appears to be on to something good, and at 7x EBITDA, it looks undervalued.
Technitrol (TNL) caught my eye almost entirely due to the valuation, which appears to be about 1.7x EBITDA. I know that sounds too low, so better examine carefully. But it looks like the company has sold a discontinued business — that is a business whose results are not showing up in the income statement, but has value that is about to be realized. The current Enterprise Value of TNL appears to be about $270 million, and the company appears to generate about $50 million in EBITDA. But once the discontinued operation sells, and the company pays down $200 million in debt, the Enterprise Value will fall to $70 million, with $50 million in EBITDA. Oh yeah, the company makes some kind of magnetic devices that earn only so-so returns on capital. At 1.7 x EBITDA, so what! I’d nibble on this and forget about it.
International Business Machines (IBM) caught my attention because as an enormous company, with over $100 billion in revenue and nearly $200 billion in market capitalization, this hulk manages to still put up over a 30% return on capital, and with some leverage, about a 50% return on equity. This is simply un-heard of for a company this size or age. We think of GE as the big performer from a different era, but IBM got it’s start in a card reading invention from Herman Hollerith in 1884, just seven years after the invention of the light bulb. With over 50% of revenue now software and services that are hard to turn off, and a valuation of just 8x EBITDA, or a 12.5% cash on cash, it’s attractive. It’s doubled off the scary lows of early 2009, but still looks attractive for a long term position.
To hear the show, click a link.
Best,
Val
Tags: Government, Healthcare, HRS, IBM, TNL
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January 8th, 2010
Value Line Observer – Jan 8 2010
This week’s Rant is basically that if you put a large chunk of the productive capacity of the country under the direction of a non-profit organization, you will get lower returns on capital than you would have otherwise, leading to a lower growth in national wealth than you otherwise would have attained. The beauty of this argument is that it is virtually irrefutable.
If the economy grows even one-half of a percent slower, for 30 years, than it would have otherwise due to the divergence of national resources from their highest return use into a use that very well may lead to better social outcomes according to some, but will certainly deliver lower returns, then there is a real cost to be born by future generations in the form of lower wealth per capita. This is the next generation that will have 20% less wealth per capita than they otherwise would have, which means 20% less of everything — housing, transportation, education, recreation, medication. And if those future victims could understand what was happening, they would most certainly be against it — that is if there were anyway for them to find out what was happening.
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January 8th, 2010
Hello Listeners, Val Hughes here. For reasons that are beyond me, I’ve decided to start posting a little summary of the stocks I talk about each week on the show, Value Line Observer with Val Hughes of the Value Guys! I know that’s a long title, but it’s just sort of evolved so bear with me. If you’re not familiar with the show, then who knows how you got here, but go check it out at http://www.thevalueguys.com/.
I put up the first show of 2010 today, and because I made a damn New Year’s Resolution, I decided I had to start doing this at the same time. So, stay tuned. If this goes according to plan, you will see a short summary of my stock picks from each week’s Value Line Investment Survey. Thanks for listening!
Tags: Introduction, val hughes
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January 1st, 2010
Val Hughes has been a host of The Value Line Observer, a top 100 iTunes investment podcast, since 2005. Val is a 25 year Wall Street veteran who has taken on a secret identity and changed his voice in order to bring his candid view on a handful of stocks in each week’s Value Line Investment Survey. See Val’s bio and caveats at www.thevalueguys.com.
Tags: the value guys, val hughes
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