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Another take on PSX with regard to Buffett's stock selection criteria as in the following table ...
Here we have info from the most recent 5 years of Annual financials :-
· Gross Profit at 14.8% way below >40% target. This is supported by EBITDA/Revenue margin of only 4.3%, which isn't great.
· SGA/Gross Profit only 7%, well below <30% requirement, so Salaries and company 'Running Expenses' not excessive.
· Interest Expense/EBIT only 4.4%, well below <15%, so company's debt not seriously reducing Revenue. However, debt cost to company has been creeping up slightly over recent years. Something to keep an eye on.
· Net Earnings/Revenue very low at 2.9% bearing in mind target of >20%. This is something of a surprise to see Buffett buying these shares with such a low Bottom Line return, which also doesn't do much to add to Retained Income on the Balance Sheet. This 2.9% is not surprising seeing as how much Revenue has been consumed prior to EBITDA.
· ROE of 22.1% is only slightly below >25%, but it has been improving over recent years, so it's a positive.
· Equity Bond of $291 with current share price at a 72% discount at $79.25c. Maybe this was one of the attractive features for Buffett to buy into PSX ?
So, from a business performance point of view, has PSX performed in line with what Buffett looks for ? It may be Ok in terms of lack of debt, ROE and discount to Equity Bond, but one has to wonder with regard to the very low percentage of Top Line Revenue that has reached the company's Bottom Line.
PSX appears to have found price support at ~$75. It's next resistance level is somewhere around $85.
Should be interesting to see if it goes through $85 and also goes past ~$93.
OT- John I appreciate the RSI chart that does seem interesting. I agree that understanding what happened in the 70s is crucial to understanding the money flow between physical and financial assets. The Russell makes me nervous and I'm half considering selling my microcaps and just holding puts and cash. Even Buffett got killed in the 70s - it's really a question of whether you want to trade it or weather it. Looking at the 100 year Brent gets me excited - some of the great fortunes of our time will be made in commodities.
While I look at the Schiller PE as a loose measure one had to be uber careful using earnings as the operating metric. Earnings can be inflated through leverage and balance sheet tactics (a practice the tbook usually unveils) but those methods aren't sustainable. Because of reflexivity/ groupthink Fortune 500 CEOs tend to employ these tactics in synchrony (waah, his bonus is bigger than mine) producing systemic distortions of SPE. This is one reason there were lots of low/ reasonable PEs before the crash of 29. I recently read somewhere that MB said "one should view blue chip stated PEs with caution" or something to that effect, so I feel like I have some external corroboration. For some reason WSJ keeps saying the TTM SPE is 17 whereas I could have sworn I read an article saying it was 27.
Been thinking about investments specifically the last 20 years. I remember Wall Street Week and Sir John Templeton. In the early 80's he was quoted as saying DOW 10,000 by the year 2000. That was totally unbelievable but it happened.
I used the above S&P calculator to see just what the compounded return was for the S&P from 1985 - 2000 vs @ 2000 - 2015.
I was quite surprised by the results ( you do the calculations). I still use a lot of the same fundamental valuation screens for my Buys and focus on buying good companies at an undervalued price and holding forever.
I guess those that only started investing in 2000 may feel a bit skeptical about the buy and hold strategy. I too would be with the compounded returns from 2000-2015..
I am not too sure why the compounded rates of return were/are so low (maybe it is the time period you look at) but the 2008/2009 crash and/or the internet bubble crash of 2001 may have been part of the story.
I started investing in the late 70's and pretty much added money every year in the 80's through 1990. I watched Wall Street Week and had a large holding in John Templeton's fund. In fact, I used his top 10 holdings as my individual stock picks during that 20 year period from 1980-2000. Many of those buys did very good.
Some say Templeton was better than George Soros, Peter Lynch and Warren Buffet combined.
My takeaway is you have to keep everything in perspective. I still think the U.S. market is the best market in the world ti invest in and will be for the foreseeable future.
Do you have any insights on why UAN is hitting new lows other than market madness?
I thought I was lucky to get into that one below $8.00, now it's $5.76! I understand high yield, MLPs and energy is getting sold off, but hopefully this one is throwing the baby out with the bathwater. Any reason to expect a disappointing distribution for Q4 2015? I'm hoping they pit out more than 35 cents, which makes the annualized yield above 20%.
I saw a chart before last week that the average stock was down 30+% from the highs. That means 35-40% now. But the algos keeps selling. The moves down are now too fast driven by a horrid SEC. Small investors will go away.
I have seen modestly higher E levels putting SPX near 14. With bonds at 2%, that is cheap.
Yardeni last weekend had consensus near 126-127. That gives PE just below 15x. Judging history, that may come down 10% more. It used to be 150 btw. The decline is about 10% more than usual and presto stocks go down.
The yardeni data is interesting. I will post link. BUT PEs have been pretty steady since 2000 with exception of 2009. P/S however has been declining for mid and small cap S&P indices - not exactly real small caps as still quite large. So stocks rallied furiously (obviously not as much as large caps over whole period) with revenues keeping pace and PEs only modestly expanding. These record margins we keep hearing about have to be the absorber and they are. SPX500 earnings are at peak margins. Mid and small cap margins are off 1 full percentage point over last decade or so. On mid to high single digit margins, that is not small.
Page 40 has interesting splits on margins that go a long way to explaining stock moves and economy. I must say midcap industrials hitting peak margins now surprised me given weakness of recovery. Large cap industrials obviously hit by industrial recession just starting and strong dollar. And pharma price gouging and HMO Obamacare gouging are nowhere to be seen.
BTW this is my usual PE site and it just updated. PEs actually look higher than last week meaning a big drop occurred in forward estimates from Birinyi.
OT "some of the great fortunes of our time will be made in commodities"
Hmmm ... I wonder. It could be a case as to which commodities will contribute to those fortunes.
One wonders if previously much used but finite commodities such as oil will feature as strongly as they have in the past. Apart from their finite aspect, it's also getting harder to find oil deposits that are relatively cheap to extract, as one find in Saudi Arabia.
Then there's also the pollution risk of oil either when extracted or when transported. Seems to me the "world" is getting somewhat fed up with the negative side effects of fossil fuels.
As a result we've seen far more effort, research, investment, etc.., in renewable energies.
Now sun and wind cannot provide the 24 hour/per day RELIABLE base loads that industrial countries need. As a result a lot of work and research has gone into forms of storage capability to store that solar energy when the sun goes down, but there's still a long way to go before that storage capacity becomes large enough to supplement a country's overall base load. But sun and wind, etc ..., can add to a country's power grid, especially for ordinary households, and especially where solar panels on roofs or wind can add to a country's electricity grid and give the house owner a credit on his electricity account.
But that BASE LOAD needs to come from a reliable, ongoing, reasonably non-polluting source of ADEQUATE power. IMO that can only be Nuclear Power. Some will holler out about safety and impending tragedy, etc.. as we saw in Russia and Japan. Well, France has been getting over 70% of its base electricity supply from its own developed, designed and built nuclear power stations for many years ... without any problems.
And that most recent tragedy in Japan was primarily caused by the fact that when the Tsunami wave hit the coast of Japan it swamped and cut off the generators that were supposed to kick in and remove the radioactive stored rods. Had those generators been positioned in a more sensible situation there would not have been the problem because the rods would have been lifted and therefore no melt down.
Apart from the current sources of renewable energies such as sun, wind, tidal which can be there at times and not be there at other times, I would like to propose another source of ongoing energy which is there 365/24/7 and which doesn't disappear behind a cloud or dissipate when the wind dies down .... ---> OCEAN CURRENTS.
In those parts of the world where ocean currents move alongside coastlines, they can be tapped into and their ongoing energy supply used to turn something. Because when you turn something you can generate alternating current ... i.e. your electricity supply.