I screwed up a little today and I'm mad at myself for it. Being that the purpose of this blog s to track my notes and my growth, it's important that I publish my mistakes in order to keep myself accountable. I got overly emotional about a sell and short sell and the bottomline is that although I feel that I have done the due diligence in terms of research, I didn't do the last leg of the process and I didn't apply the rules of investment to my buying process.
The result was me losing an additional 100 bucks. Not a big deal and with a little dicipline, it will be made back quickly, but it's the principle that is the matter. I didn't finish the process and as a result, I got emotional and couldn't hang.
So with Visa, the opening day price was 63 and the high range is near 90. And I shorted at 68!!? Pretty stupid. Although Visa should be around 44, the reality is that I'm in the middle ground where I can lose a significant chunk or make a significant chunk. The bottomline is that I didn't have my buying rationale all thought before I made the purchase.
So let's remind ourselves what makes a good investment.
1 - after solid research (check and double check)
2 - with proper safety of investment (dammit)
3 - and with potential of an adequete return (maybe it will hit 200... maybe)
I didn't do my due diligence and I should have been more patient. The bottomline is that I would feel a lot better shorting around 85 and buying around 45. So until one of two scenarios appears, I should sit pretty on the V.
Showing posts with label V. Show all posts
Showing posts with label V. Show all posts
Wednesday, July 16, 2008
V (VISA): A Entry about punishment
This entry is about punishment. Over punishment in an overly emotional market, under punishment of certain stocks because of their honeymoon period and self punishment in the form of admitting that I didn't do enough research before making a purchase.
Today's lesson is a crucial one. I made the mistake on buying on weak research and all I got was the fluff that the pumpers have been vomiting out. Thank the good Lord that I caught myself early enough. Though Visa's stock has declined around 20% from the highs it hit after its March IPO, it has held up overall very well in the most bloody of markets.
After investing in at 73 and 68, I have finally gotten around did the real research I should have before even considering buying. Based of Visa's 10k they reported Net Income for the following years as:
2005 = $360,445,000
2006 = $454,561,000
2007 = $(1,076,095,000) LOSS
Before we freak out, the 2007 loss was due to litigation charges brought on by the American Express 2.5 Billion dollar lawsuit. Note that Visa is not done with their litigation charges as Discover just laid the 3 billion dollar lawsuit on today. FYI, part of the IPO money was set aside for future payouts. For now lets just take the litigation charges out of the equation so we can value the stock based on an ideal scenario.
To do this I took the litigation costs out of the 2007 Consolidated Statement of Operations and this gives Visa an operating income of $1,203,335,000. Assuming a 35% Income Tax (2005 had 40.18%, 2006 had 34.82%), we get a net income = $817,847,800. So that brings the 3 year view to:
2005 = $360,445,000
2006 = $454,561,000
2007 = $817,847,800 (sans litigation loss)
Divide Net Income in 2007 by 446,000,000 IPO Shares Outstanding and you get 1.834 EPS.
If we go by MasterCard P/E of 25 and your Visa per share value should be $45.85 (This is determined by multiplying the MA P/E of 25 by the adjusted EPS of 1.834). At the current price of 68ish the Visa P/E should be approximately 38ish. That is 40% higher than Master Card.
THIS IS ALL WITHOUT FACTORING IN THE LITIGATION LOSSES!!!
So although the boards (mostly idiots) say that without the charges, Visa had a Net Income increase from 06-07 of 80% (Actually, it's more like "More people will use Credit Cards. Buy now before it hits 200")... wait, I have something to say. Let's go to Google finance and pull the basic numbers and take a look at them to address the futures earnings growth of Visa.
MA (Mastercard) 248.86
Mkt Cap: 32.35B
Shares: 130.01M
52Wk High: 320.30
52Wk Low: 120.0
P/E: 25.40
F P/E: 26.46
Inst. Own: 69%
AXP (American Express) 37.02
Mkt Cap: 43B
Shares: 1.16B
52Wk High: 65.89
52Wk Low: 35.55
P/E: 11.15
F P/E: 17.67
Inst. Own: 81%
V (Visa) 68.42
Mkt Cap: 74.16B
Shares: 1.08B
52Wk High: 89.84
52Wk Low: 55.00
P/E -
F P/E -
Inst. Own: 7%
Look at the P/E and Forward P/Es of the companies... Visa doesn't have anything due to the loss but if you look at MA and AXP, the Forward P/E is higher than the Current P/E. That means that people are expecting the companies to make less than they did last year. So to say that Visa will likely keep on growing at that rate is very unlikely. AXP CEO Ken Chenault confirmed two weeks ago when he said that the business wasn't as healthy as he thought it was. Let's also not forget that the world economy is experiencing some purse tightening ergo, less transactions overall in the short term.
If you didn't already notice, I added one more statistic, Institutions that own the stock and MA is at a respectable 69% and AXP is at a whopping 81%. If Visa is really that hot, why do only 7% of the institutions own it? A better question is, what percent of the 7% of the institutions got it at the $44 dollar initial offering price.
I don't mind this stock. I bought it initially because I'm a big believer in investing in what you use. And frankly, it's comforting to know that pretty much everyone around you uses plastic, likely Visa, to do their shopping. But the bottomline is, you have to be good about your investments and according to The Intelligent Investor, an investment is a purchase made:
1) after thorough analysis
2) safety of principal investment
3) with the strong potential of adequate return
1 and 3 (3 is actually dependent on 2) are ok but frankly, I'm not so sure about the principal investment part. Every other stock out there has been punished beyond fairness but this one has not and frankly, that bothers me. The honeymoon period is wearing thin and people, myself included, have and will start sobering up about this one. I think this is a buy but not at these prices.
I'll wait for it to be properly punished first before I take a look back into it, but for now, I'm the one who has to eat it.
Good hunting.
Today's lesson is a crucial one. I made the mistake on buying on weak research and all I got was the fluff that the pumpers have been vomiting out. Thank the good Lord that I caught myself early enough. Though Visa's stock has declined around 20% from the highs it hit after its March IPO, it has held up overall very well in the most bloody of markets.
After investing in at 73 and 68, I have finally gotten around did the real research I should have before even considering buying. Based of Visa's 10k they reported Net Income for the following years as:
2005 = $360,445,000
2006 = $454,561,000
2007 = $(1,076,095,000) LOSS
Before we freak out, the 2007 loss was due to litigation charges brought on by the American Express 2.5 Billion dollar lawsuit. Note that Visa is not done with their litigation charges as Discover just laid the 3 billion dollar lawsuit on today. FYI, part of the IPO money was set aside for future payouts. For now lets just take the litigation charges out of the equation so we can value the stock based on an ideal scenario.
To do this I took the litigation costs out of the 2007 Consolidated Statement of Operations and this gives Visa an operating income of $1,203,335,000. Assuming a 35% Income Tax (2005 had 40.18%, 2006 had 34.82%), we get a net income = $817,847,800. So that brings the 3 year view to:
2005 = $360,445,000
2006 = $454,561,000
2007 = $817,847,800 (sans litigation loss)
Divide Net Income in 2007 by 446,000,000 IPO Shares Outstanding and you get 1.834 EPS.
If we go by MasterCard P/E of 25 and your Visa per share value should be $45.85 (This is determined by multiplying the MA P/E of 25 by the adjusted EPS of 1.834). At the current price of 68ish the Visa P/E should be approximately 38ish. That is 40% higher than Master Card.
THIS IS ALL WITHOUT FACTORING IN THE LITIGATION LOSSES!!!
So although the boards (mostly idiots) say that without the charges, Visa had a Net Income increase from 06-07 of 80% (Actually, it's more like "More people will use Credit Cards. Buy now before it hits 200")... wait, I have something to say. Let's go to Google finance and pull the basic numbers and take a look at them to address the futures earnings growth of Visa.
MA (Mastercard) 248.86
Mkt Cap: 32.35B
Shares: 130.01M
52Wk High: 320.30
52Wk Low: 120.0
P/E: 25.40
F P/E: 26.46
Inst. Own: 69%
AXP (American Express) 37.02
Mkt Cap: 43B
Shares: 1.16B
52Wk High: 65.89
52Wk Low: 35.55
P/E: 11.15
F P/E: 17.67
Inst. Own: 81%
V (Visa) 68.42
Mkt Cap: 74.16B
Shares: 1.08B
52Wk High: 89.84
52Wk Low: 55.00
P/E -
F P/E -
Inst. Own: 7%
Look at the P/E and Forward P/Es of the companies... Visa doesn't have anything due to the loss but if you look at MA and AXP, the Forward P/E is higher than the Current P/E. That means that people are expecting the companies to make less than they did last year. So to say that Visa will likely keep on growing at that rate is very unlikely. AXP CEO Ken Chenault confirmed two weeks ago when he said that the business wasn't as healthy as he thought it was. Let's also not forget that the world economy is experiencing some purse tightening ergo, less transactions overall in the short term.
If you didn't already notice, I added one more statistic, Institutions that own the stock and MA is at a respectable 69% and AXP is at a whopping 81%. If Visa is really that hot, why do only 7% of the institutions own it? A better question is, what percent of the 7% of the institutions got it at the $44 dollar initial offering price.
I don't mind this stock. I bought it initially because I'm a big believer in investing in what you use. And frankly, it's comforting to know that pretty much everyone around you uses plastic, likely Visa, to do their shopping. But the bottomline is, you have to be good about your investments and according to The Intelligent Investor, an investment is a purchase made:
1) after thorough analysis
2) safety of principal investment
3) with the strong potential of adequate return
1 and 3 (3 is actually dependent on 2) are ok but frankly, I'm not so sure about the principal investment part. Every other stock out there has been punished beyond fairness but this one has not and frankly, that bothers me. The honeymoon period is wearing thin and people, myself included, have and will start sobering up about this one. I think this is a buy but not at these prices.
I'll wait for it to be properly punished first before I take a look back into it, but for now, I'm the one who has to eat it.
Good hunting.
Sunday, June 22, 2008
AXP (American Express): Don't Leave Your Portfolio Without It
To begin with, I love my AMEX card. I love the rewards, I love the customer service and I use it every chance I get.
So let's take a look at the stock. Right now it's at a five-year low and although the credit market is not looking so hot right now, all I see is a great opportunity. It is currently trading at a P/E of 12.5 and historic low average is at around 16.
Plus, this 150-year-old blue chip is wholly shareholder-friendly, distributing the majority of the capital it generates to shareholders via repurchases and dividends. Since 1994, 71% of capital generated has been returned to shareholders via repurchases and dividends. Last year, the total was an impressive 88%. That's all money back to us.
Buffet bought his 12% of the company a long time ago but I doubt he's the least bit concerned about whether AXP is going to continue to make money and grow at a blazing 12% rate. Here's the kicker, Visa lost a $1 Billion last year and the Market Cap is trading at $90B, MasterCard made a $1 Billion and it's market cap is $38.11 B. AMEX MADE $4 BILLION LAST YEAR and it's Market Cap is ONLY $49 Billion! If you can't see the value there, you're blind.
Oh did I mention their cash on hand around 20 Billion?
What's there to be fearful about with American Express? The company is a money making machine. The richest people in the world use American Express, which means a) that they spend the most money, and b) that they rarely default, AXP has the lowest default rate among credit card lenders. That's due to the fact that they only issue cards to people with good credit histories. The service is unbeatable which is why any reputable company takes them, and has all of its employess run expenses through them. AXP is a goldmine, the earnings barely slipped last quarter and if anything, they did incredibly well relative to any other bank.
The last points of interest that I dug up is that CEO Ken Chenault won't earn his options unless the company hits some impressive performance targets. The bottomline is, he has a lot of incentive to kick some major ass because he won't get bailed out. He has to earn it. Imagine how much harder pro athletes would play if they were under the same system.
When the economy recovers and cardholders dust off their wallets, AXP has a great shot at charging back to the top.
---
An additional update - June 26, 2008:
American Express will be receiving 4 billion from Visa and Mastercard over the next 3 years from anti-trust settlements. It's a year's worth of money for free. The bottomline is American Express now has some padding and protection for the next few years to help them get through the near term pain.
Notes:
In Portfolio: Of course
Duration: Forever
Lakers: We'll be back next year.
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