Anybody ever looked into WTM?
I the last 5 years their shares outstanding has gone down 25%!
its the best way for them to make money at the moment…
Oh how I wish I had bought it last year! Right now I am too chicken, also have enough insurers in my portfolio (BRK = 25%, and L.)
I’d still rather buy WTM than Fairfax or LUK. I do like MKL, hmmm.
I will save the mini-Buffett purchases after BRK hits its intrinsic value and I can sell it. Should happen any minute now. I’ve been waiting since 2009.
What’s your selling point for BRK? I bought it at PB=1…will sell if PB=1.5.
All insurance looks cheap today L, MKL, WTM…I am long Loews but I may sell L if I find better opportunities. I’m thinking the way to play these insurance is long dated calls on a basket of these.
Why do you like WTM over Fairfax/LUK? Just looking to get some insight into diffs between these firms.
i would pick up some FFH if it drops below a certain level…its getting there…i been watching that damm thing for over 2 years…but i have been cautioned…
palantir, why do you like L again? you think their underlying businesses are any good?
Basically, it’s more of an asset play of sum of parts > whole. Combined with the fact that their BV growth has been very very strong…with knowledgeable team at the helm. So not so much a bullish call on the underlying businesses themselves.
i sense a lot of near term pain for my recent INTC purchases…
palantir, have you checked out corner of berkshire and fairfax? some investment ideas from your fellow value peeps…
Just signed up…looks interesting.
its better for us as there are more investing discussion…i just posted one on INTC…its so funny cause i just spent an hour reading opinions on INTC and there is this thinkning along the lines of the PCs going into extinction and how aaple is the company to buy right now to capitalize on this trend…
I’m probably going to do some major DD this weekend on NSR. Looks like a fast grower with monopoly .
Frank, initiated any new positions? I am now a partner with Red Hat Inc @ $48.37…let’s see how it goes…sticky business with high switching costs.
In December, I added to my positions in TEVA ($39), AIG ($34-$35), INTC (~$19.50), JPM ($38ish, could be November though), and Fairfax ($355-$360).
There was an article in Barrons if you didn’t see it on Red Hat talking about their nice FCF:
Feature | SATURDAY, DECEMBER 22, 2012 Four Stocks Gushing Free Cash Flow
Earnings growth for U.S. companies is becoming scarcer. One way for stock investors to find more of it—along with promising stocks—is to identify companies whose true earnings power is temporarily obscured by accounting quirks.
Wall Street analysts predict that earnings during the current quarter will rise just 3% from a year ago. Less than three months ago, they said 10%. The slowdown makes sense. Revenues have all but stalled, rising just 1% last quarter, and profit margins already are near all-time highs, so easy opportunities for earnings growth through cost-cutting are gone.
To find hidden potential for higher earnings, compare earnings with another measure of prosperity called free cash flow. That’s the real money companies pocket each quarter after their spending. Earnings, on the other hand, are a repackaging of the numbers to reflect how much companies would make if, among other things, their costs always corresponded neatly with the resulting revenues in the same time periods (what accountants call the “matching principle”).
Over long time periods free cash flow and earnings should tell similar stories, but in the short run they can vary sharply for a long list of reasons, and investors should watch these differences. Research by University of California, Berkeley accounting professor Richard Sloan and others has shown that, when a company’s earnings greatly exceed its free cash flow, it’s more likely than not to produce disappointing earnings growth and stock returns. But when free cash flow greatly exceeds earnings, it could be a promising sign.
Consider Apple (ticker: AAPL). A customer who shows up at one of its stores and pays cash for a phone may consider the transaction over in 15 minutes. But until 2009, regulators considered that the start of a multi-year relationship, whereby Apple promised to supply not just a phone but also continuing software enhancements. So the company could book phone sales only gradually. Then the rule changed, and Apple’s fiscal 2009 revenue, originally reported as $5.7 billion, was restated as $8.2 billion. Apple would have made just as much money without the accounting change, but investors watching earnings wouldn’t have seen it as quickly.
Sometimes a big difference between free cash flow and earnings can help explain a stock price that otherwise seems nonsensical. For example, Red Hat (RHT) recently traded at 40 times next year’s earnings estimate, which is around triple the price of the typical U.S. company. But it’s more of a subscription-services company than a simple software seller, so the company often collects cash up front for new business but books revenue a little bit at a time. That makes its free cash flow a leading indicator of its earnings, says RBC Capital Markets analyst Matthew Hedberg. The stock goes for 23 times next year’s free cash flow forecast—still pricey, but not quite ludicrous.
FOR THE FOUR COMPANIES LISTED in our table below, a peek at free cash flows makes the ones with higher price/earnings ratios look like good deals and the ones with lower ones look like steals.
Travel booker Expedia (EXPE) collects cash when customers make their plans but makes payments after customers have traveled. That results in earnings that understate the company’s growth and overstate its valuation. At $60, the stock trades at 19 times this year’s earnings forecast of $3.11. But free cash flow is projected to total $3.91 a share this year—and rise above $6 over two years. Raymond James analyst Aaron Kessler, who rates the stock Outperform, says international bookings are growing nicely and Expedia is benefiting from its technology investments. Microsoft (MSFT) sells for 10 times projected earnings for its current fiscal year running through June 2013–and eight times free cash flow. One reason for the low price is that desktop computing, where Microsoft’s programs have long been dominant, is giving way to online programs accessed by cheap, portable devices, where Microsoft is only one of several strong competitors. But that shift isn’t new, and Microsoft’s revenue and earnings are still growing. Its net cash balance, combined with yearly free cash flow, works out to enough money to buy the entire company over the next six or seven years. Shares yield 3.4%.
For a more direct bet on the shift away from desktop computing, look to EMC (EMC), which has “essentially morphed into a cloud-storage holding company,” according to Amit Daryanani, an analyst at RBC. The stock looks like a decent deal at 15 times this year’s projected earnings, but a much better one at less than 12 times free cash flow. One reason for the difference between the two measures is that the actual cash the company is spending on business investments each year is less than the accounting charges it’s taking to its earnings for past investments. That makes free cash flow a better gauge of current results.
Terex (TEX) makes machines that pave roads, lift shipping containers, elevate workers and much else. Its revenue plunged by more than half during the 2009 recession, and earnings turned sharply negative. Today, the company is riding a cautious recovery, while restructuring to reduce its costs and free more cash. Earnings are expected to just top $2 a share this year, making the stock, at $27, seem reasonably priced. But free cash flow in 2012 is pegged at $3.89 a share–and earnings are expected to grow that large in three years’ time. Investors who buy now for the free cash have a good chance of selling at a nice profit later on to those who are watching the earnings.
Interesting, that’s pretty much my analysis as well, NI understates earnings, and paying 20xFCFE for a fast growing firm with customers that have multiyear contracts for mission critical stuff is reasonable IMO.
I’m definitely starting to see your case for Intel, and their buyback is a good vote of confidence. However, I’m struggling with owning one old tech stock and waiting for it to turn around (MSFT), that I will not have the patience to ride anything out with Intel…
on MSFT/INTC…i honestly don’t see much permanent downside risk in either of the stories so if it keeps falling, i’ll keep adding…on the plus side MSFT has its monopoly with their OS/Word etc while INTC has growing avenues in data centres/high performance chips and continuing dominance in the slowing PC space…
one of they key diff i see with MSFT/INTC is INTC might have a slightly higher growth rate if things play out well whereas MSFT has more downside protection overall…also, INTC’s multiple really collapsed this past year whereas MSFT’s multiple has been range bound for a bit longer…
both are pretty easy and safe buys to me…
^ Are you still long GOOG? They are just printing money.
Intel just announced an amazingly good idea. They want to launch their own unbundled cable box that allows users to subscribe to individual channels. Unfortunately the idea died an equally amazing death when Intel realized they had absolutely no leverage over cable channels.
Really too bad. Unbundled cable services need to happen.