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  • IT news
    IT news, Июль, 28

    Argus maintains its Buy rating on Danaher Corporation (NYSE: DHR), saying the company is set to deliver continued mid-single-digit core sales growth, which, along with acquisitions and margin expansion, has the potential to drive double-digit earnings growth over time.

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  • IT news
  • IT news
    IT news, Июль, 6

    Steven and Mitchell Rales are hoping they will be able to repeat history following this week’s spinoff of Fortive Group (NYSE: FTV) from Danaher Corporation (NYSE: DHR). The brothers have built Danaher into a $43-billion-success story by taking an aggressive approach to M&A. Danaher has…
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  • IT news
    IT news, Июль, 7

    Summary Premium for niche technology, promise of Nanotech, good balance sheet and expected top line stability may be misplaced. Strong dollar, poor leading indicators, muted end markets and overly ambitious expectations are concerning. With high leverage in the model, deteriorating fundamentals can put estimates as well as rich trading multiple at risk.

    FEI Company (FEIC) stock, not far off from all time high and trading at more than 13-14 times EV/ EBITDA, is priced like an early cycle play for a company catering to a highly cyclical semiconductor equipment market and research spending driven scientific equipment market. The enthusiasm, somewhat driven by exposure to Nanotech and sub 16 nanometer related spending at the customer's level, seems misplaced for the current times, even though one can argue that the management is managing the ship tightly with a well capitalized balance sheet and research & development spending, which is a major revenue driver for the company, is usually stable during uncertain times.

    But fundamentals suggest that this 'safety trade' may not be as safe after all. Before Cloud, Nanotech was hot and FEI was being positioned as one of the premier plays on the trend, which may partly be the reason for this relatively rich valuation and strong performance of the last few years. Indeed, Bulls like to position the company as 'cyclical semi equipment play' during upturns and safe 'lab equipment play' during downturns, but rather than focusing on 'the play', looking at the growth prospects, near term business momentum and valuation, caution is warranted.

    What is the risk?

    Even if one goes along with the bullish thesis, an adjustment of trading multiple may be warranted, probably 8-9 times EV/EBITDA compared to 13-14 at present, but an even more reasonable adjustment may be to assign a trading multiple reserved for a mid-single digit growing international equipment company with low double digit operating margins, while adjusting earnings estimates for a more realistic market environment and numbers for any financial one-offs like low tax rate. Currently, the stock seems to be priced more like other U.S. based scientific/ industrial equipment plays.


    EV/ EBITDA (trailing 12m)

    Rev. growth 2015 E

    Rev. growth 2016

    P/E trailing

    P/E 2016































    Potential catalysts

    No doubt, the company is a well-respected leader in the niche advanced microscopes market with great technology and potential acquisition is always a risk to any Short thesis, especially with extremely favorable credit markets, but looking at the fundamentals, the following factors seem to pose significant risk

    Extremely ambitious expectationsGeographic make-up and challenges related to thatEnd market weaknessesExpectations seem ambitious

    The expectations are for flattish revenue growth for the current year, not far from the company's guidance of organic revenue growth of 4-7%, offset by the negative currency impact of 5%.

    Too ambitious for second half comeback?



    2015 E

    First Half




    Second Half




    Growth H/H




    * Author's calculation. Only for academic purpose, actuals may vary significantly.

    * Please use own assumptions in the calculation for better understanding

    But if we look at the first half revenues above, which includes the mid point of guided second quarter revenues that are expected to decline approximately 4% from the second quarter of last year, and calculate the second half revenue growth required to deliver on the expected numbers, the order seems pretty tall, as the sheet above shows.

    Similarly, on the earnings front, EPS is expected around $3.40-3.70 per share, which will be a growth of approximately $1 per share over last year and 60-70 cents per share, if one excludes the restructuring and related charges of $18.5 million in 2014. This will be expecting approximately 25-35% EPS growth on a flat revenue growth.

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  • IT news
    IT news, Июнь, 26

    Summary Successful investing requires an optimistic perspective. Pessimism often causes investors to miss out on great opportunities. However, optimism must be rational and realistic. Optimism works best with a long-term perspective and a disciplined assessment of valuation.

    I believe that one of the most important attributes that a successful investor must possess is optimism. Any serious student of financial history would recognize and acknowledge that economically speaking, things are good much more often than they are bad. In the general sense, common stocks have risen far more often than they have fallen. That is not to say that bad times never come, because they most assuredly do. However, even during bad times optimism has served investors better than pessimism. The rational optimist recognizes that bad times are only temporary, and better times are sure to follow.

    Consequently, the rational optimist sees the future opportunity that bad times provide and behaves accordingly by investing aggressively. In contrast, the more emotionally-driven pessimist sees only risk, which all too often provokes them to flee their investments and suffer unnecessary losses as a result. A paper loss is most often temporary, and only becomes real if you take it. This is especially true when the underlying fundamentals of the business support a higher valuation. When this is true, I contend there are only two rational choices. Hold onto your intrinsically more valuable assets recognizing that they will recover or if you have the wherewithal, aggressively add to your holdings and exploit other people's folly.

    Although my educational background is in economics and finance, I also completed a minor in psychology. How people behave and think has always been a fascination to me. However, I was more interested in finance, especially investing, which is why I made it my career. Nevertheless, my interest in psychology led me to interesting observations about how people think and behave. Many times in my life I have encountered people that possess mountains of wonderful blessings to be thankful for, but who also have a thimble full of problems or life issues. Invariably, or at least all too often, they will turn their backs on their mountains of blessings and obsess on the fewer problems they have.

    Moreover, in my personal experience there is a rather disturbing differentiation between pessimists and optimists that I have personally observed and often encountered. Optimists tend to be happier and usually kinder when dealing with others. In contrast, pessimists tend to be gloomy and often meaner when dealing with others. If you don't believe me, try presenting an optimistic article, as I often have, and see the responses you get.

    As a case in point on July 25, 2010, shortly after the Great Recession had ended, I posted an article titled "S&P 500: The Optimists Argument" and I opened it with the following:

    "The American Dream

    I believe we live in the greatest country in the world. Furthermore, I believe our country has the long-term track record to back up those beliefs. Therefore, I am very frustrated by the perma-pessimists, doom and gloomers and naysayers who are quick to write our country and its future prosperity off.

    To be sure, we are facing many severe economic challenges and problems. On the other hand, this is nothing new, as we have faced similar and even greater challenges many times in the past. Yet through it all, thanks mostly to our diverse and courageous people, we have not only persevered, we have prospered and grown as well.

    The American people have a legacy of optimism regarding the future which is more commonly known as "the American dream." This optimistic viewpoint has served as a beacon to the rest of the world leading many to immigrate into our great country in order to participate in our great social experiment based on free enterprise.

    Winston Churchill is credited with a quote that I believe sums up my point succinctly: "A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty." Yes, as I already stated, we are facing many difficulties, however, I remain confident that our people and our economy will rise to the challenge and, as a result, new opportunities will emerge out of these crises.

    There are numerous pundits, including the majority of mainstream media that seem to take great glee in writing frightening stories with extremely negative headlines that I believe serve no real purpose other than shaking people's confidence in our economy and their future."

    It's important to consider that those words were written in July 2010, more than a year after the Great Recession had ended. Later in this article I will provide a link to the above article and include a few comments from readers that it generated. I believe you will find they support my above statement about the perils of writing a positive article.

    Related Attributes of Successful Investors

    Additional attributes of successful investors that go hand-in-hand with optimism are embracing a long-term view and tempering optimism with realism. Although successful investors have a strong faith in our economic future, they are also smart enough to make realistic assessments about important fundamental metrics such as current valuation.

    Optimism and faith in our future are important and profitable attributes to have, but blind faith can lead to denial, and as such, can be financially dangerous. Similar to fear and greed, denial is an emotional response. In contrast, rational optimism is supported by analysis based on an intelligent assessment of the facts. Even more importantly, rational optimists conduct continuous monitoring and evaluation of their past behaviors and decisions in order to learn as much as they can from the past.

    Friends and Family Call Me a Perpetual Optimist

    All of my life, my closest friends and family have called me the perpetual optimist. In many cases it was meant as a criticism, but in others as a compliment. Personally, I have always considered it a compliment. In truth, I have always felt that my optimistic viewpoint about life and as it pertains to this article, about the economic strength of our country, was a blessing. However, as it specifically relates to investing, my optimistic viewpoint should also lead to profitable transactions. Fortunately for me, that has proven to be the case over the long run. All of my transactions have not been profitable, but on balance, my optimism, my long-term approach and my focus on valuation have served me quite well.

    The Proof Is In the Pudding

    To be crystal clear, the primary thesis behind this series of articles is that optimism is an important attribute for successful investing. A secondary thesis behind this series of articles is that successful investing implies taking a long-term view when investing in common stocks. By long term, I am referring to investing in and owning a business for a minimum of a normal business cycle of 3-5 years, but preferably longer. As Ben Graham so eloquently put it, "in the short run the market is a voting machine, but in the long run it's a weighing machine."

    In conjunction with my primary and secondary thesis referenced above, is the importance of monitoring and evaluating past decisions, because only then can one determine whether or not optimism is justified. As I was contemplating this, it occurred to me that I have been publishing articles on financial blogs such as Seeking Alpha since June 11, 2009. Therefore, that timeframe of almost exactly 6 years qualifies under my definition of long-term stated above. My, how time flies when you're having fun!

    Consequently, this provided a venue that would allow me to monitor and evaluate the validity of my optimism and long-term view. Thanks to the convenience and calculating power provided by F.A.S.T. Graphs I could offer my loyal readers a rather comprehensive perspective of how my work and positive attitude has panned out. Therefore, what follows is a wide ranging look back at my first year's worth of offerings where I presented fairly valued research candidates for readers to consider. In this Part 1, I will cover my recommendations through the end of 2009. In Part 2, I will complete the analysis with a review of recommendations made through June of 2010.

    A couple of caveats about this exercise are in order. What I am presenting here is a factual performance calculation based on the closing price of each company one day prior to the article's publication. However, since F.A.S.T. Graphs only reports monthly closing prices on the historical graphs, my calculations will be close but not perfectly accurate. In other words, my starting calculation will be presented on the last trading day of the month prior to or directly after the date the article was published. This gets me within two weeks of when the article was originally presented. However, these calculations are precise enough for the reader to receive a general perspective of the outcome of my recommended research candidates.

    Importantly, I only present articles where I covered a single company in my first year of writing. However, I also include a few examples where I wrote about the S&P 500 index as a proxy for the market. These articles are especially interesting because they highlight the pushback I received from strong reactions of readers that held a more pessimistic view of the market and our economy. On these S&P 500 index articles specifically, I will include a few comments that answer the question posed in the title of this article. In short, what has a pessimistic view of our market and economy cost them? The answer is vividly revealed by the S&P 500 articles and performance calculations below.

    At this point it's important for me to interject that this is not an exercise meant to brag about how smart I have been. As I previously stated, not all of my research candidate recommendations were profitable. I have included the good, the bad and the ugly. On the other hand, I believe this exercise supports the importance of optimism as it pertains to investing in common stocks. On balance, and as you will soon see, my optimistic recommendations worked out pretty well.

    To be fair, I will also add that I did not own all of these recommended research candidates, but I did own most of them. Furthermore, these calculations do not include specific times where I sold. In other words, this is not a precise presentation of portfolio performance; instead, it is simply reviewing the record produced by the individual research candidates based on the publication date of articles. Readers of these articles were free to either ignore, buy and/or sell any of these offerings based on their own needs or views.

    On the other hand, I do feel that readers of my work deserve to see what my research recommendations could have produced had they acted upon them. For the reader's convenience, the heading on each offering provides a link to the original article. But most importantly, I believe this exercise offers important lessons about the importance of only investing when fair valuation is manifest. The importance of valuation, over all other reasons, is why I offer this rather extensive review and look back at my work.

    As the reader reviews the following, I ask that they keep in mind that each of these articles was published in the years just after the Great Recession. This is important because it was clearly a time of rampant pessimism on many people's part.

    On each research candidate published in an article I will present two identical graphs. The first graph will be without the calculations applied because they cover up portions of the graph. I'm doing this because I want the reader to be able to clearly see valuation represented by the earnings and price relationship, as well as all the metrics produced in the FAST FACTS boxes to the right.

    My first article on Rockwell Collins published June 11, 2009

    The first article I ever published was on Rockwell Collins (NYSE:COL), a high-quality semi-cyclical dividend growth stock in the aerospace and defense industry. Even though earnings had weakened during the recession, I felt the valuation represented a compelling opportunity. Clearly this offering has worked out over the long run. However, short-term volatility between when I originally wrote the article and today should be recognized. Additionally, current high valuation has contributed to the results and should not go unnoticed.

    (click to enlarge)
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  • IT news
  • IT news
  • IT news
  • IT news
    IT news, Февраль, 22

    Summary Focusing on total return is not appropriate for every investor. If you are a retired investor living off your dividend income, the index may not fulfill your needs even if it outperforms on a total return basis. Total income can be more important than total return to certain investors. The Industrials Sector of the S&P 500 offers retired investors and dividend growth investors a fertile field of research candidates. Bonus: Live earnings and price correlated graph on General Electric.

    The purpose of this series of articles has been to provide the reader with a deeper perspective of what the S&P 500 is really made of. There are many advisors that support index investing over custom portfolio design and management. There are also many individual investors that prefer index investing as well. For the most part, this group of investors is often primarily focused on total return calculations to support their views. However, I for one don't believe that focusing on total return is appropriate for every investor.

    The Fallacy of Investing Based on Total Return

    The problem I see with focusing on total return is that it can be a very tenuous, temporary and even an unreliable calculation. A major component of a total return calculation is stock price movement from point A to point B over a specific period of time. However, this simple calculation of price appreciation is typically conducted without regard to valuation. Therefore, if you are comparing the capital appreciation performance of a given company to, for example, an index like the S&P 500, the company may be undervalued at the time of the calculation, while the index is overvalued, or vice versa.

    Consequently, when the index outperformed, it would be easy to assume that the index was a better investment than the company, and over that specific time frame, you might be correct. However, that assumption could lead you to choose the index over the company at precisely the wrong time. For example, when the index was significantly overvalued and therefore a high risk investment, while the company was undervalued and therefore a low risk investment. Thus, over future time, it would be quite possible that the company would outperform the index on a capital appreciation basis. Past, present and current stock price volatility can be quite irrational over the short run, and worse, change in a heartbeat for better or worse.

    Furthermore, this inconsistency that often exists between the short run and the long run is also quite important. In the short run, stock price movement is most often emotionally charged. People tend to like a stock that is going up in price, and therefore, become attracted to investing in it. In contrast, people tend to dislike a stock when the price is going down, and therefore, avoid investing in it. Ironically, as I previously pointed out, this is more often than not the exact opposite way that truly prudent investors should behave.

    This is especially important for conservative oriented investors such as those in retirement that are positioning themselves for the longer run. In the long run, earnings and cash flows will determine the value of the business and drive its stock price accordingly. Therefore, for investors with a longer-term time horizon, a calculation of a company's historical operating performance is actually more important than its historical price performance. Stock prices are volatile, jumping around minute by minute, but earnings are only reported four times a year. But unfortunately, many investors are guilty of ignoring the more stable and predictable operating performance and take their lead solely from unpredictable price action.

    Then there is the aspect of measuring performance based on your income needs. For example, it is theoretically possible that the S&P 500 index could outperform one of your blue chip dividend growth stocks on a total return basis over a given period of time, while simultaneously underperforming the index on a dividend income basis. In this case, if you are a retired investor living off your dividend income, the index may not fulfill your needs even if it outperforms on a total return basis. The point being that you do not want to have to harvest shares to meet your income requirements.

    In order to illustrate my point, I created the following hypothetical example of comparing investing an equal $1,000,000 in the S&P 500 versus investing the same amount of money into the blue chip dividend paying S&P 500 industrial stock 3M from 12/31/2004 to 12/31/2012 (three years prior to and three years after the Great Recession).

    Now, I want to be perfectly clear, that I would not recommend investing $1,000,000 into a single stock. The point of this exercise is to illustrate, as simply as I possibly can, that there are different aspects of performance that are appropriate for different kinds of investors to consider. Furthermore, in order to be as fair as possible, I chose a stock that offered approximately the same beginning yield (1.8%) as the S&P 500 when the time period began on 12/31/2004.

    The key to this illustration is to evaluate the "Dividends Declared" column for each respective example. In the S&P 500's case you earned approximately $18,000 of dividend income your first year that grows to approximately $21,000 by the end of the third year. But then along comes the Great Recession, and your dividend income steadily drops over the next three years to approximately $15,800. That calculates out to approximately a 25% reduction in income by investing in the S&P 500 over that time frame. Perhaps even more importantly, although the S&P 500 dividend began to grow again, it is just barely above what you were receiving in 2005.

    S&P 500 Index (^SPX) - Total Return and Dividends 12/31/2004 to 12/31/2012

    (click to enlarge)
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