Author Topic: What are you buying today?  (Read 2195744 times)

constructive

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Re: What are you buying today?
« Reply #130 on: September 24, 2013, 04:44:58 PM »
If you're holding a heavily shorted stock, do you get interest payments if loaned out?

Depends on your broker.

IB splits the lending proceeds with you 50/50, which is much better than other retail brokers.
https://www.interactivebrokers.com/en/index.php?f=shortableStocks&p=stockyield


no_free_lunch

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Re: What are you buying today?
« Reply #131 on: September 24, 2013, 07:00:40 PM »
Quote
I looked at VRX when gio suggested it earlier this year at the $70's. I could not understand it, so I didn't invest. What is your thesis on that?

Sure, but keep in mind that I just invest as a hobby.

Basically it is a story stock.  You have a CEO who is very aggressive and yet very disciplined from a capital allocation perspective.  When he first came in he got rid of all businesses where he did not see a competitive advantage or room to build scale.  He started acquiring companies and lopping operational expenses down aggressively.  He merged with biovail (while maintaining his role as CEO) and as a result now has a 5% tax rate.  With the Bausch & Lomb transaction he bought a company with $700M EBITDA and has plans to "bump" that up to $1.5B with cost-cutting over the next year and a half.  There is also decentralized operations, a focus on avoiding competitive areas, geographical diversity, focus on businesses not subject to government regulations (e.g. the bausch purchase), non-traditional accounting (you need to focus on cash EPS), willingness to walk from deals (they walked from a huge one earlier this year), his compensation agreement, more that I just can't think of right now. 

If you read the outsiders and then start to study this company, it's like you're reading another chapter in the book.  The CEO is not that old either, there could be quite a future ahead.

As for the pesky details of what you are paying, I go out on a limb and trust the cash eps forecasts that management puts out.  You guys are probably trying to figure it out from the traditional statements and I commend you, but I didn't do that.  With their cash EPS they add back amortizations, stock-expenses and one-time costs.  It is a similar concept to owner earnings but probably a bit more aggressive than buffet would like.

Anyways, they are forecasting ~$2.05 for Q4 of this year.  However, the cost-cutting for bausch and lomb, plus other acquisitions will not be done by q4 of this year.  I crudely estimated that with their total announced cost-cuts they will probably be looking at $2.3-$2.4 per quarter by Q4 of next year, that will be their rough run-rate.  So around $9.5 per share cash earnings run rate in 15 months.  So you are getting them for around 11x cash earnings once the cost-cuts are in effect.  That is assuming that they stand still for 2014 and just cost-cut/pay down debt.  I doubt they will do that.  There will be more acquisitions / stock repurchases / a merger but something else will happen.

IV is a tough one.  I think it's more than you are paying now but probably not that much.  Some of the other major pharma companies are around 13-14 times earnings.  I think valeant deserves a bit more, maybe 14x.  I actually think my 14 multiplier is probably too low, should be more like 16-18 given what he has done and the businesses he is in but you also have to consider how lean they run R&D and that their are concerns about organic growth.  For that reason I pull it back to 14 as they will always need acquisitions.  So if they get to $9.5 that is only $133 and that's not for 15 months or so.  So I am buying a dollar a year from now for $.75.  Not a great bargain but not overly expensive either.  My view is that in a year they will be talking about 2015 earnings at $11-12 and the stock could be at $150. 

You really need to get comfortable with the CEO to buy into it.  It's not a huge bargain unless you believe he can continue to work his magic.

muscleman

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Re: What are you buying today?
« Reply #132 on: September 25, 2013, 07:50:49 AM »
Quote
I looked at VRX when gio suggested it earlier this year at the $70's. I could not understand it, so I didn't invest. What is your thesis on that?

Sure, but keep in mind that I just invest as a hobby.

Basically it is a story stock.  You have a CEO who is very aggressive and yet very disciplined from a capital allocation perspective.  When he first came in he got rid of all businesses where he did not see a competitive advantage or room to build scale.  He started acquiring companies and lopping operational expenses down aggressively.  He merged with biovail (while maintaining his role as CEO) and as a result now has a 5% tax rate.  With the Bausch & Lomb transaction he bought a company with $700M EBITDA and has plans to "bump" that up to $1.5B with cost-cutting over the next year and a half.  There is also decentralized operations, a focus on avoiding competitive areas, geographical diversity, focus on businesses not subject to government regulations (e.g. the bausch purchase), non-traditional accounting (you need to focus on cash EPS), willingness to walk from deals (they walked from a huge one earlier this year), his compensation agreement, more that I just can't think of right now. 

If you read the outsiders and then start to study this company, it's like you're reading another chapter in the book.  The CEO is not that old either, there could be quite a future ahead.

As for the pesky details of what you are paying, I go out on a limb and trust the cash eps forecasts that management puts out.  You guys are probably trying to figure it out from the traditional statements and I commend you, but I didn't do that.  With their cash EPS they add back amortizations, stock-expenses and one-time costs.  It is a similar concept to owner earnings but probably a bit more aggressive than buffet would like.

Anyways, they are forecasting ~$2.05 for Q4 of this year.  However, the cost-cutting for bausch and lomb, plus other acquisitions will not be done by q4 of this year.  I crudely estimated that with their total announced cost-cuts they will probably be looking at $2.3-$2.4 per quarter by Q4 of next year, that will be their rough run-rate.  So around $9.5 per share cash earnings run rate in 15 months.  So you are getting them for around 11x cash earnings once the cost-cuts are in effect.  That is assuming that they stand still for 2014 and just cost-cut/pay down debt.  I doubt they will do that.  There will be more acquisitions / stock repurchases / a merger but something else will happen.

IV is a tough one.  I think it's more than you are paying now but probably not that much.  Some of the other major pharma companies are around 13-14 times earnings.  I think valeant deserves a bit more, maybe 14x.  I actually think my 14 multiplier is probably too low, should be more like 16-18 given what he has done and the businesses he is in but you also have to consider how lean they run R&D and that their are concerns about organic growth.  For that reason I pull it back to 14 as they will always need acquisitions.  So if they get to $9.5 that is only $133 and that's not for 15 months or so.  So I am buying a dollar a year from now for $.75.  Not a great bargain but not overly expensive either.  My view is that in a year they will be talking about 2015 earnings at $11-12 and the stock could be at $150. 

You really need to get comfortable with the CEO to buy into it.  It's not a huge bargain unless you believe he can continue to work his magic.

Thanks a lot! I will have to look into it more to get comfortable. I wish I had bought at the $70's. :)
I am muslceman. I have more muscle than brain!

wachtwoord

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Re: What are you buying today?
« Reply #133 on: September 25, 2013, 08:06:30 AM »
If you're holding a heavily shorted stock, do you get interest payments if loaned out?

Depends on your broker.

IB splits the lending proceeds with you 50/50, which is much better than other retail brokers.
https://www.interactivebrokers.com/en/index.php?f=shortableStocks&p=stockyield

I have used this for a couple of years now and it's great. I don't trade a lot and the amount made with this far exceeds the minimum trading fee IB charges.
"Beware of he who would deny you access to information, for in his heart he dreams himself your master"

fareastwarriors

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Re: What are you buying today?
« Reply #134 on: September 30, 2013, 07:03:11 AM »
Anyone adding to their positions today?

Ross812

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Re: What are you buying today?
« Reply #135 on: September 30, 2013, 07:28:06 AM »
Adding a little to MKC
96% Fixed Income CDs, Muni, Corporate Debt - 4% SPX Options

Uccmal

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Re: What are you buying today?
« Reply #136 on: September 30, 2013, 07:39:44 AM »
About 5% to my AIG leaps.  This selloff it turning into a disappointment. 
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Palantir

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Re: What are you buying today?
« Reply #137 on: September 30, 2013, 07:44:38 AM »
Might dip into Red Hat.
My Portfolio: AMZN, PYPL

fareastwarriors

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Re: What are you buying today?
« Reply #138 on: September 30, 2013, 09:21:42 AM »
I was hoping for a bigger drop too. Maybe huge sell-off tomorrow if nothing gets done tonight.

wachtwoord

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Re: What are you buying today?
« Reply #139 on: September 30, 2013, 03:48:19 PM »
Might dip into Red Hat.

On first viewing Red Hat really doesn't look cheap.
"Beware of he who would deny you access to information, for in his heart he dreams himself your master"