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IF
TLK
MXF
AA
XTO
ARF
most of these have come from recommendations from people on
www.valueforum.com
Particularly bullish on TLK (which is up 4% already) and MXF.
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Let's see if I can redeem myself for Kane after doing a crappy job on XTO and offer some useful thoughts.
First, why MXF? It's a closed end fund that's not rated very high by Morningstar. Like many closed end funds it trades at a discount which could be good/bad depending upon when you get in. It's expense ratio isn't cheap, but isn't horrible. If you want exposure to the mexican market isn't there an index fund available? That way you don't have to deal with discounts, mgmt fees and potentially bad mgmt decisions.
Moving on to AA. Before starting, all I know about Alcoa is that aluminum production is energy price dependant. So I would expect their earnings to be down. Looking at
their recent results doesn't really support or deny that theory. Current PE is 19.6, but earnings this year are flat. Revenues have been roughly flat for five years, thought they actually declined for two years and have rebounded about 15% the last two. What's their real trend line? Return on equity is blahh (9.4%).
According to MSN, free cash flow the last five years is negative, but that's with two super heavy investment years three and five years ago. The last two years total $1.2B, while reported earnings were $2.2B. This is suspicious, either MSN's database has it wrong or poorly interpreted, or their earnings aren't very high quality. So let's look at their 2004 10k to get a feel for the business.
Interestly enough, the 10k mentions they own 8 dams and supply 25% of their own power, buying the rest under long term contracts. That seems to help keep their costs in line. They report their sales numbers have been impacted by regular acquisitions and restructurings. If they have spun off or sold some subsidaries that would explain why sales have been treading water.
Looking at the cash flow statement, it appears to match up well with profits. I.e. operating cash flow minus capital expenditures is slightly higher than profits in 2002, way higher in 2003, and slightly lower in 2004. So I'd regard their earnings as pretty 'clean'.
The balance sheet is okay. Lots of goodwill from acqusitions, lots of AR and inventory, but $457M in cash too. Most of their debt is long term. They have some prefered stock as well.
Overall I don't see any big problems with Alcoa, but I also don't see any reason to buy it. It just seems like a big, decent company at a price that's not super cheap or super expensive. I have to go to breakfast, so that's my "two minute" analysis, which is hopefully at least four times better than my thirty second analysis.
The next step would normally be to model the growth of their core businesses and review all their acquisitions/restructuring to try to understand what's really happening. It would take some time to do this, it's a big complicated business so you have to invest a good amount of time to understand it. This is one reason as a individual investor I like to stick to small cap companies. It's also a place where a good analyst (as much as I hate to admit it) has value. I would never invest on their recommendation, but I would read their report carefully and use it as a jumping off place.
I.e I'd read the annual reports myself to ensure I don't find something that contradicts the analyst's opinion, and then estimate it's value myself so I don't fall victim to any bias the analyst has. I.e. an analyst might find AA a good buy at a 19 PE because he's required to only compare it against other metals companies, but in your broader universe of stocks you might find much better opportunities. The guys at valueforum probably don't have any limitations, but that still doesn't mean their valuation perspectives are necessarily the same as yours.