Much depends on the Google tablet. They’ve had a hard time making money on anything other than search. Android is awesome but not much of a money maker yet. Not sure I’d bet on their first major piece of hardware to make a dent in the iPad.
I like Google, and they print money. Still not sure I’d be buying at the moment.
On DJCO, here is my take: I was very excited when i first looked at the numbers but after gonig through them, the numbers suggests it is a bit overbought. I’m taking a HOLD on this one. My valuation can be broken down as follows:
$20m for the paper biz (which is less than 3xTTM net earnings)
$80-85 for the securities less taxes on unrealized gains.
this comes to $100-105m. If you asign a 5-6xTTM to the biz, you have something closer to $120-125million but that assumes the marketable securities held up during the recent downturn. Following a margin of safety of 20%, the valuation drops accordingly below current market value of +$120m
Issues worth noting
i have put in an extremely conservative valuation on the core biz (the daily). you can easily put it to $40 million
the unrealized securities gains problably have gone down since Mar 31, 2012 say 10% to be conservative due to its heavy concentration.
what are these marketable securities? My guess is its munger influenced so my guessimate is: WFC, JPM, USB, BYD, …who knows maybe IBM or whatever else…its 3 fortune 200 companies + a couple manufacturers so we have a long list to guess.
However, we can take a good guess that these may be financial companies and BYD given the rise in unrealized gains (BYD showed similar gains over the period). Recall, the unrealized gains jumped roughly $21m (from$28million to $49.7) while the cost basis rose roughly $13.5m( from $26.7m to $40.2m) from Sept to March. This implies by loose math that these securities had a gain of 25-40% over the same period…
Conclusion: HOLD due to valuation and fuzziness on the marketable securities and declining prospects on the publishing/daily business.
Realized gains is a good point that I hadn’t considered. I think that even if you take your conservative valuation and mark down value of securities to 84, you’re then paying 117-84= 33 for a business with free cash flows of about 9M a year. Even if we cut that FCF in half ( to model a declining busines) we should make a return of 4.5/33= 13%. We’re using different methods to value the business here, I prefer to look at FCF yield rather than put a multiplier on earnings.
I’m looking to buy a franchise type firm like google apart from the deep value plays like DJCO. My thoughts on google are: it’s a great firm that is really dominant in one area - search advertising. Everything feeds into that. However, I’m not able to forecast whether their business model will stay as good in the future the way it has been in the past. I’ll need to read more about G to understand. I like the firm, but I’m not real comfortable investing in it for that reason, but someone more knowledgeable about the industry could be. (Same goes for Intel). But yeah it does look criminally cheap.
no doubt the daily biz has good cash flow as there is essentially zero capex. the capex is really for their Sustain biz. however, management did guide down profits going forward due to lower foreclosure notices that need to be advertised.
I would be cautious about the marketable securities portfolio using March data as it could have gone down in value.
good luck.
I hesitated buying Siemens due to fears it could drop further and it unsurprisingly has. At some point though I’m probably going in if there’s a macro catalyst, bailout etc…like what happened after Fed began TARP in US. Just not obvious what that macro catalyst is going to be.
the growth prospects are limited, they would be lucky to scratch out anything north of mid single digits…however, there will be multiple expansion if Europe makes it through clean and clear…keep an eye on it…
You know Munger says G has one of the best economic moats in the world. I wonder though why haven’t they invested in it then. Does G really have growth potential? They’re not going anywhere in China or Russia, so we may be seeing G make a transition to being a mature cash-cow type firm from the growth stock they used to be, the way MSFT and Intel made that transition a decade ago.
I been trying to wrap my head around G this past week…yes they have a moat in online search no one at this moment can match (when was the last time you used yahoo, bing, etc)…i also find their innovatives and acquisitions quite wise (youtube, motorola, maps, eye glasses), some will fail no doubt, but that’s life…
the question is, how can they leverage their niche into something bigger via mobile, home entertainment, hardware? I could figure out a way how they can make a lot more money via mobile through android. despite what so many ppl claim that aapl will run all the software in tablets, i disagree. apple will go the same way it did with Macs yearsago when one day nobody is going to fancy paying crazy dollars for a nice piece of hardware and G will be there with their Android…
tablets, fancy mobile phones will go down in value in 10 years time (which doesn’t impact G but helps it)…open architecture is good and closed is bad over time…
i’m still struggling with the valuation but you have to take a “leap of faith” as this is more so a “growth” stock than a value stock where you can sort of map out the earnings over 10 years to some degree of certainty…how much will they make? at this time, all i can say is “more” but how much more i don’t know as of yet…but i just have to find out if more than X…
If you take the FCF route, I don’t think you need to take a leap of faith. It looks very cheap, keeping in mind their 50B cash pile.
it will be a 5% positon if anything at the current moment…problably get in at end of day…
officially a partner with google…8% position
Awesome, I might follow you into the position…although I’m worried GooG could trade sideways for a few yars.
i too am worried about that scenario, however 1) it doesn’t matter what it trades (though ppl i help will question this) in the short-intermediate term 2) focus on the business and the stock will follow…
i don’t like the fact there is no dividend, but you can’t have it all…i figure i get my divs from my share of Santander…
i’m still considering INTC…will see how that pans out…will get more insight over the weekend…
Frank have you ever looked at the healthcare IT sector? I think there’s some strong growth in that area. IT firms tend to have high switching costs I believe and perhaps in the medical arena that could be magnified.
I’m currently looking at QSII and MCK, haven’t thought “deeply” about it though.
Healthcare IT i read about only in newspapers/articles: impression I get right now is that it is extremely difficult to get clients to sign up as the different systems do not “talk to each other” and doctors are relunctant to incur the upfront cost (putting the info into the database) …however, i believe Obama is giving them more incentive…if you dig deeper and find something pretty good, let me know…
at this point anythign to do with IT/tech, I’m sold on google and optimistic on their 5 avenues 1) ads 2) mobile ads (android) 3) hardware (tv, handsets for more ads) 4) glass 5) cloud …not all will make money but i can see how they could…
I’m probably being heretical here to the value investing orthodoxy. But do you think LNKD is somewhat cheap if you look at it on an FCF rather than Net Income basis? The firm is profitable and it has room to grow…people do pay to use it.
Frank you ever looked at Markel? Seems to be similar style of biz as Berkshire or Loews.
yupe looked at Markel…still looking at the moment…
It seems to me that a lot of these insurance/investment firms like Y, BRK, LUK, MKL, L, etc etc have been trading at historically low valuations since the 08 crisis. In terms of book value they’ve rapidly recovered but valuations have not kept up.
But then again, I don’t really know how to value insurance firms…
MKL.
struggling with their valuations but you’re right on the account of historical valuation.
broadly speaking, they’re an excellent firm (compounding bv by 12%)…however, using my math, you will likely earn 7-8% a year on this security over the long haul…i think the company is decent but its not terribly undervalued at the moment…