Beware the "yield trap".

Understandably, income investors study dividend yields quite closely. After all, a share on a dividend yield of 5% will pay out twice as much as a share rated on a more miserly yield of 2.5%.

Some investors look at historic yields; some at forecast (or "prospective") yields. It's not a deal-breaker either way, although personally I prefer forecast yields.

But here's the kicker: either way, those yields can be unexploded mines, lurking for the unwary. Looking at yield on its own, in short, can quickly introduce you -- painfully -- to the meaning of the term "yield trap".

Siren call

The yield trap is simply explained. You buy a share, attracted by the high yield. But the dividend is then cut, or cancelled -- leaving you without the anticipated income. Worse, unsupported by the payout, the share price usually falls as well, leaving you also nursing a capital loss.

Let's see it in action.

Company A pays out 9 pence a share, with shares changing hands for 100 pence per share. So the dividend yield -- which is the dividend per share, divided by the share price, and multiplied by a hundred to turn it into a percentage -- is 9%.

But that 9 pence is unsustainable. Company A then halves its dividend, slashing investors' income. What happens to the yield? If the share drops to -- say -- 80 pence, the historic yield the becomes 5.6%. The "yield on cost" figure, of course, is 4.5%.

Dividend cover

How, then, should investors spot potential yield traps? The most obvious reason for slashing the dividend is that the business simply hasn't got the money to pay it.

The business's earnings, in short, aren't large enough to support a distribution to shareholders at historic levels.

Put another way, actual earnings per share aren't sufficiently when large compared to the anticipated dividend per share.

Which is where the notion of 'dividend cover' comes in: earnings per share divided by dividend per share.

Interpret with care

Now, dividend cover shouldn't be followed blindly. 

• Some businesses -- such as utilities, for instance -- can quite happily operate with lower levels of dividend cover than more cyclical businesses. 
• Other businesses -- such as REITs -- must pay out a fixed proportion of earnings as dividends, so again a low level of dividend cover is the norm.
• Still other businesses have very high levels of dividend cover, because they are growing -- and therefore retaining earnings for future investment -- rather than paying them out as dividends.

But as a broad brush generalisation, 

• a ratio of close to one is definitely the danger zone. 
• A ratio much bigger than two indicates a certain parsimony. 
• Personally speaking, a ratio of 1.5-2.5 is usually what I'm looking for.

5 Shares At Risk Of A Dividend Cut

Danger signs

The table below highlights five shares with dividend cover well into the danger zone that I've mentioned. They're all big names, and -- given their yields -- are popular with income investors. And in each case, I've shown the last full year's earnings per share and dividend, yield and dividend cover.

There are shares with lower levels of dividend cover, to be sure -- but they tend to be REITs, or other special cases. The five highlighted have fewer extenuating circumstances, and seem to me to be more in danger of reducing their payout.

Company	Forecast yield %	Full-year earnings per share	Dividend	Dividend cover
Standard Life (LSE: SL)	6.6%	13p	13.8p	0.9
United Utilities (LSE: UU)	5.3%	35.3p	32.1p	1.1
Hargreaves Lansdown (LSE: HL)	4.7%	20.3p	18.9p	1.1
Admiral (LSE: ADM)	7.7%	81.9p	75.6p	1.1
Aviva (LSE: AV)	10.1%	5.8p	26p	0.2

So should holders of these shares be worried? There isn't sadly, a clear-cut answer -- a fact that highlights the importance of looking at the underlying data quite carefully, and considering the full set of circumstances.

Reading the runes

Standard Life, for instance, seems clear-cut, on both a historic and forecast basis: by my reckoning, the dividend is genuinely sailing close to the wind.

But Hargreaves Lansdown and Admiral, though, complicate matters by distinguishing between an ordinary dividend and a more discretionary extra 'special' dividend. But either way, a cut is a cut, and both firms have a level of dividend cover just above one, implying that there's very little margin of safety.

United Utilities may surprise you, depending on which stock screener you use. I've gone back to the annual accounts, and used the underlying earnings per share of 35.3p, described by the company as "providing a more representative view of business performance" -- implying the level of dividend cover that I've shown. Plug the statutory basic earnings per share of 45.7p into the calculation, though, and the dividend cover is a healthier 1.4.

And finally, there's Aviva, where the opposite problem applies. On a statutory basis, the earnings per share of 5.8p delivers a disturbing level of dividend cover of 0.2. Throw in the company's own preferred definition of earnings per share, and a healthier level of earnings of 53.8p emerges, giving a dividend cover of almost 2.

Spend Less Than You Earn

Spend Less Than You Earn And Invest The Difference.


Now, too many people these days always complain about not having enough money for saving and investment... you know, your neighbour, your work colleagues, family members, and so on.  But funnily enough, somehow these people always have the means to buy that new car, travel on that exotic holiday and 
purchase that latest computer gadget.

But spending  your cash on such short-term luxuries isn’t going to help you create life-changing wealth from the stock market. Indeed, if you’re really serious about becoming a stock-market millionaire, then you have to make a serious commitment to your spending. In particular, you’ll need:



• to calculate what you can realistically afford to invest each month, allowing for unexpected bills and emergencies;
• to be willing to trim your current expenditure, remembering that every penny saved is a penny earned — and that such savings can also be invested over time and can count towards your million; 
• to be disciplined enough to fund your investment contributions by automatic direct debit, so you’re not tempted to blow your surplus cash, and; 
• to commit to those regular payments over a long-term timeframe — so there’s no cutting corners and/or giving up when the markets undergo a bad patch.


If you can adopt this necessary spending mindset, then you really could be on your way to building a sizeable share portfolio.




Ten Steps To Making A Million In The Market

This strategy is very safe for selected high quality stocks. Margin of Safety Principle

The downside risk is protected through ONLY buying when the price is low or fairly priced.  


Therefore, when the price is trending downwards and when it is obviously below intrinsic value, do not harm your portfolio by selling to "protect your gains" or "to minimise your loss."  


Instead, you should be brave and courageous (this can be very difficult for those not properly wired)  to add more to your portfolio through dollar cost averaging or phasing in your new purchases.  This strategy is very safe for selected high quality stocks as long as you are confident and know your valuation.  It has the same effect of averaging down the cost of your purchase price. 


 However, unlike selling your shares to do so, buying more below intrinsic value ensures that your money will always be invested to capture the long term returns offered by the business of the selected stock.

Talam for Dummies

Received this in my email.   Peruse this and form your own opinion.

Talam for Dummies

Nathaniel Tan 11:40AM Jul 7, 2012

COMMENT “Confusing” probably describes most of our initial attempts to get to the bottom of what the deal was between Talam Corporation and Selangor.

With a little diligence, clear thinking and attention to detail however, most mysteries can be unravelled and articulated efficiently.

This article attempts to explain in easy to understand terms the background and context of this issue, how Selangor recovered the debt owed to it by Talam, and how this debt recovery differs from the bailouts we have seen at the federal level.

In the beginning

The story begins in the late eighties and early nineties, with an engineer and project manager who worked in Selangor state subsidiary PKNS - one Chan Ah Chye.

This man later goes on to form Talam Corporation, and before long - possibly due to close connections with the ruling elite in Selangor, then headed by BN menteri besar Muhammad Muhammad Taib - becomes a major player in the Selangor property and development scene.

Over time, an extremely large amount of state land is alienated to Talam, who basically gets it for free. A strong imagination is not required to speculate in whose pockets any resulting profit eventually ends up.

Talam’s modus operandi seems to be to pledge this land to the bank in exchange for huge loans, which they then use to finance their development and profit making projects. In essence, since they got the land free, they have successfully achieved money for nothing (it is uncertain as to whether “chicks for free” were involved).

The ‘wise’ businessmen of that era believed in the dictum of never using your own money when you can use someone else’s. This heavy lending continued to characterise Talam’s business approach, and their loans consistently kept getting bigger and bigger.

Tumbling down

Of course, no student of recent economic trends is unfamiliar with the concept of a bursting bubble.

The financial collapse of the late nineties brings Talam’s debt-ridden house of cards crashing down. An overgearing of loans and inability to service them halts various half-completed projects, rendering them idle, half-built ruins.

Incredibly however, this does not prevent Talam and their political patrons from altering their basic modus operandi.

In 2001, under BN menteri besar Khir Toyo (right), three parcels of land are alienated by Selangor to Talam via their subsidiary Maxisegar Sdn Bhd, who undertakes to construct Unisel’s campus at an estimated cost of RM750 million.

It will probably come as no surprise that Talam failed to complete this project. By September 2006, the company had been classified as an affected company under Practice Note 17 (PN 17), indicating dire financial straits.

New sheriff in town

In 2008, when Khalid Ibrahim assumes the menteri besar’s post, he inherits a situation in which Talam owes the state and its subsidiaries (among other creditors), a great deal of money.

Urban legend has it that when Talam was called in to explain why they have never endeavoured to pay their debts, the sheepish reply given was, “No one ever asked us to.”

Thankfully for the citizens of Selangor, there was a new sheriff in town.

Corporate finance is not only an area of expertise for Khalid (left) - it is a passion. With great gusto, he set out to solve this problem, and recover that which was owed by Talam to the people of Selangor.

The problem was undoubtedly challenging, but after some work and careful strategising, a plan was set into motion.

The end goal was simple: to leverage the assets still held by Talam to repay the debt Talam owed to the Selangor and its state subsidiaries.

The technical nitty-gritty

Making this happen was a technically complicated process that required considerable financial acumen.

The summary is this: firstly, the debts that were owed by Talam to Selangor state subsidiaries were properly booked and accounted for - something that, very suspiciously, had not been done before. Once these debts were acknowledged by all parties, the debts were consolidated and transferred to one state subsidiary - Menteri Besar Incorporated (MBI), which was then responsible for collecting the debts from Talam in the form of land and cash.

The rest of this section explains how this was done. It is a boring and complex explanation, but I list it here for the record and for those interested.

Talam owed RM392 million in debt to three Selangor state subsidiaries: KHSB, PIYSB, and PNSB. After acknowledging and booking these debts, the next step was to have another state subsidiary, Selangor Industrial Corporation (SIC), purchase these debts from the other three companies.

A loan from CIMB Bank of RM 392 million was given to SIC to complete this purchase. In November 2009, the state exco and legislative assembly both approve a grant of RM392 million to MBI, who then use the funds to purchase the original consolidated debt from SIC. SIC then uses those funds to pay off their CIMB loan.

The end result is as simple as the transaction itself is complex - without any major or excessive transactional expenses, Talam now owes the same amount of money to just one state subsidiary, instead of the original three.

Restructuring and successful collection

It is important to note that at no point are funds transferred from taxpayer monies to Talam. Funds have instead only been transferred from one pocket of the state to another.

This differs wildly from federal bailouts of corporations like Indah Water Konsortium, MAS, or the Putra/Star LRT, where taxpayer money was injected directly into companies that had probably lost untold amounts via mismanagement, corruption and plundering.

The transfers in the Talam debt restructuring allowed for a structure in which there is a clear acknowledgement and accounting for the RM392 million owed by Talam, and a single company for them to pay it to.

The story does not end there.

Another extremely important milestone in this tale is that MBI has in fact already succeeded in recovering all RM392 million in debt owed by Talam.

For those who would like to keep score, this recovery came in two forms.

RM340.88 million was recovered via acquisition of land and assets: 1,322 acres of land in Bukit Beruntung worth RM150.28 million, 2,264 acres of land in Bestari Jaya worth RM105.3 million, 400 acres of land in Ulu Yam and 60% equity in Ulu Yam Golf & Country Resort worth RM22.2 million, 134 acres of land in Danau Putra worth RM52.1 million and five office units in Menara Pandan worth RM11.1 million.

The remaining RM51.12 million was collected in cash: RM12 million from sales of land in Puncak Jalil, RM5 million in cash assignments from EON, RM7.68 million in payments by Unisel for earthworks, RM9.04 million from the sale of 25.94 acres of land in Bukit Beruntung, and RM17.4 million from sales of 218 acres of land in Bestari Jaya.

Go ahead, count it - it's all there.

Facts trump hype - again

How can we summarise this? For more than a decade under BN, one corporation owed the state hundreds of millions of ringgits.

Within a year or two of taking over, Khalid managed to collect on these debts, instantly increasing the amount of money available to spend on welfare programmes throughout Selangor.

Scandal?

Yes, it’s a scandal that Talam was allowed to get the free lunch it did under BN, and it’s a scandal it took this long for to create the change in government that succeeded in cleaning up the mess.

It would be insulting to suggest that this article is titled specifically in the hopes that Chua Tee Yong (left) would take the time to carefully peruse the facts within. Nevertheless, perhaps he may find the exercise beneficial in his longer term efforts to maintain what little credibility he has left.

Said credibility is shrinking at about the same rate at which he is reducing the amount of money claimed to be ‘misused’ by Selangor - from RM1 billion, to RM260 million, to RM42 million. Before long, he may have to measure in sen instead.

Perhaps Chua fancies himself a Rafizi Ramli. What he fails to understand however, is that Rafizi’s exposes are not just all about ‘glamorous’ press conferences and big numbers. Behind every expose is a ton of hard work and solid research.

Behind Chua appears only to be blind ambition that extends far beyond ability, and a shameful mainstream media that think that hype can overturn facts.

See this video and form your own opinion on the Talam issue. 

Also read:

'PERMANENTLY DEAD' : Guan Eng-Soi Lek debate shows complete public apathy for BN

Written by  Moaz Nair, Malaysia Chronicle

How to Value a Company in 3 Easy Steps

Valuing a Business:
How much is a business worth?
Don't care about the 'asset value' or 'owner's equity' of the business.
We look at the present value of its net free cash flows (FCF) plus present value of its "horizon value".

LPI

Announcement Date	Financial Year	Quarter Number	Financial Quarter	Revenue (RM,000)	Profit Before Tax (RM,000)	Net Profit (RM,000)	Earning Per Share (Cent)	Dividend (Cent)	NTA (RM)
09/07/2012	31/12/2012	2	30/06/2012	265,029	54,531	40,431	18.35	15.00	5.300
09/04/2012	31/12/2012	1	31/03/2012	246,061	37,821	31,477	14.29	0.00	5.070
09/01/2012	31/12/2011	4	31/12/2011	239,323	51,999	39,334	17.85	50.00	5.360
06/10/2011	31/12/2011	3	30/09/2011	236,385	55,948	45,116	20.48	0.00	4.880
07/07/2011	31/12/2011	2	30/06/2011	213,889	41,971	31,418	14.26	25.00	5.210
07/04/2011	31/12/2011	1	31/03/2011	213,412	50,135	38,626	17.54	0.00	5.015

ttm-EPS 70.97 sen
LFY Div  75 sen

Price (7.9.2012)  RM 13.72
PE   19.3x
DY  5.47%

Financial Yr Qtr  EPS(Cent,) ttm-EPS (Cents)
31/12/2012 2 18.35 70.97
31/12/2012 1 14.29 66.88
31/12/2011 4 17.85 70.13
31/12/2011 3 20.48 69.05
31/12/2011 2 14.26
31/12/2011 1 17.54
31/12/2010 4 16.77

SELL THE LOSERS, LET THE WINNERS RUN.

Losers refer NOT to those stocks with the depressed prices but to those whose revenues and earnings aren't capable of growing adequately. 

Weed out these losers and reinvest the cash into other stocks with better revenues and earnings potential for higher returns.

Political Debate: Chua Soi Lek versus Lim Guan Eng

To choose either tyranny or liberty?
This is your choice.

Related:
Lim Guan Eng vs Chua Soi Lek Debate Videos

Debate 2.0 – Guan Eng vs Soi Lek – The Beautiful Goals

'PERMANENTLY DEAD' : Guan Eng-Soi Lek debate shows complete public apathy for BN  Written by  Moaz Nair, Malaysia Chronicle

Warren Buffett on Teaching Kids Finance

Related:

Warren Buffett Secret Millionaires Club (videos)

Warren Buffett My Investment Style Hasn't Changed - Fox Business- 2-22-2010

Warren Buffett on Dateline (10/1/2009)

Warren Buffett on Pepsi

Warren Buffett: "I have been a Compulsive Saver all my life."

Warren Buffett: "We will Always operate with Lots of Cash."

Warren Buffett on Gambling

Warren Buffett on Bubbles and Excess Leverage

http://www.youtube.com/watch?v=X37cv_Q0jnY&list=UUeC5fFyQB62lnEPlDMWCoXw&index=4&feature=plcp

Warren Buffett - How to Increase Your Income by 50%

Wise Words from Warren Buffett: Durable Competitive Advantage

Buffett's best tip for personal finance

Warren Buffett - The Business That Will be Around for 200 Years

Warren Buffett - What is Franchise Value?

Warren Buffet - The World's Best Product

Warren Buffett - Best Hedge Against Inflation

Warren Buffett - Avoid Bad Businesses

Warren Buffett - The Philosophy of Berkshire Hathaway

Warren Buffett - The Board of Directors Have Different Interests than the Shareholders

Warren Buffett - You Must Embarrass the Board Members

Warren Buffett - Absurd CEO Salaries and How Should a CEO Be Compensated?

Warren Buffett - The Most Important Part of a Business

Warren Buffett - The Stock Market Casino

The Warren Buffett Way, Second Edition Robert G. Hagstrom

How to pick Multi-Baggers

"To achieve satisfactory investment results is easier than most people realise; to achieve superior results is harder than it looks."
- Benjamin Graham

Here are the key lessons from a study:
■Bad businesses can never create a multi-bagger, though they can create transitory multi-baggers during short phases when the conditions are good.
■Bad managements with good businesses are likely to create only transitory gainers.
■Overpriced shares have no chance of becoming multi-baggers ever.

So the only way one can hope to find lasting multi-baggers is by buying into great businesses run by good managements purchased at huge margin of safety.



Why some multi-baggers destroy wealth eventually
Having said that, it is not that one could get rich for ever by buying multi-baggers. The study says there are two types of multi-baggers: 

• Enduring multi-baggers and 
• Transitory multi-baggers.

Enduring multi-baggers are those companies whose wealth creation is long-lasting and correction from the peak valuation is limited.

• In fact, they continue to exist as multi-baggers even after the correction.
• The enduring multi-bagging companies are typically few and difficult to be spotted, and 
• most of the time they appear to be expensive at the time of buying because of the lack of faith in their longevity and size of growth.

Transitory multi-baggers, on the contrary, are easier to be spotted but they always end up giving nasty end results.

• Corrections are typically almost 100 per cent. 
• Cyclicals broadly come under this category. 
• The tragedy with this class of companies is that if you cannot sell in time, nothing is left in your hand.
• But as correction is inevitable, market as a whole is left high and dry with a bad experience. 
• These companies are plenty and easy to be found, and they attract a lot of crowd.

The result reveals that most of the multi-baggers were transitory in nature during this period and they threw back all the wealth that had been created on their journey upwards.




What is the winning strategy?
"Stocks are simple. All you do is buy shares in a great business - with managers of the highest integrity and ability - for less than the business is intrinsically worth. Then you own those shares forever."
- Warren Buffet


In essence, weak managements will lead only to transitory gainers whereas good managements can shine only if business performance helps.


As per Warren Buffet: "With a few exceptions, when management with a reputation for brilliance tackles a business with a reputation for poor fundamentals, it is the reputation of the business that remains intact."


So it boils down to the fact that for the making of enduring multi-baggers, a good business with a good management is necessary.





Price/value:


"Have the purchase price be so attractive that even a mediocre sale gives attractive returns."
- Warren Buffet


One factor, which is absolutely important for making a multi-bagger, is gross under-valuation or huge margin of safety in price at the time of purchase.


Some of the pointers to under-valued stocks are one or more of the following:
■Low price in relation to asset value
■Low price in relation to earnings and cash flows
■Sustained purchase by insiders
■A significant decline in stock prices
■Small market capitalisation with growth


Also, the best time to get a huge margin of safety is when:
■Business conditions are unfavorable and near-term prospects look poor.
■When low prices of stocks reflect the current pessimism either in a particular stock or in the market as a whole.
■When a large company's performance is hit and the pessimism is fully reflected in the price.


Low P/E and P/B works because:
■The reinvested earnings are substantial in relation to the price paid. The effect of large earnings addition year after year keeps adding to the intrinsic strength of the stock and, hence, can't be ignored by the market for long.
■The bull market is typically very generous to low-priced issues and thus will raise the typical bargain issue to at least a reasonable level.
■There could be chances of smaller companies with high earnings being taken over by larger ones as a part of diversification programme.


http://myinvestingnotes.blogspot.it/2009/09/how-to-pick-multi-baggers.html

My 18 points guide to Successfully compounding your money in Stocks

1. Be a good stock picker.  
2. Think as a business owner.
3. Always look at value rather than the price.  Do the homework.
4. Buy and hold is alright for selected stocks.
5. Compounding is your friend, get this to work the magic for you.
6. Mr. Market is there to be taken advantage of.  Do not be the sucker instead.  BFS;STS.
7. Always buy a lot when the price is low.  Doing so locks in a higher potential return and minimise the potential loss.  But then, if you have confidence in your stock picking, you would have picked a winner - it is only how much return it will deliver over time.
8. Never buy when the stock is overpriced.  Not observing this rule will result in loss in your investing.  This strategy is critical as it protects against loss.
9. It is alright to buy when the selected stock is at a fair price.
10. Phasing in or dollar cost averaging is safe for such stocks during a downtrend, unless the the price is still obviously too high.
11. Do not time the market for such or any stocks.   Timing can increase returns and similarly harms the returns from your investment. It is impossible to predict the short term volatility of the stock, therefore, it is better to bet on the long-term business prospect of the company which is more predictable. 
12. By keeping to the above strategy, the returns will be delivered through the growth of the company's business. 
13. So, when do you sell the stock?  Almost never, as long as the fundamentals remain sound and the future prospects intact.    
14. The downside risk is protected through only buying when the price is low or fairly priced.  Therefore, when the price is trending downwards and when it is obviously below intrinsic value, do not harm your portfolio by selling to "protect your gains" or "to minimise your loss."  Instead, you should be brave and courageous (this can be very difficult for those not properly wired)  to add more to your portfolio through dollar cost averaging or phasing in your new purchases.  This strategy is very safe for selected high quality stocks as long as you are confident and know your valuation.  It has the same effect of averaging down the cost of your purchase price.  However, unlike selling your shares to do so, buying more below intrinsic value ensures that your money will always be invested to capture the long term returns offered by the business of the selected stock.
15. Tactical dynamic asset allocation or rebalancing based on valuation can be employed but this sounds easier than is practical, except in extreme market situations.  Tactical dynamic asset allocation or rebalancing involves selling at the right price and buying at the right price based on valuation.  Assuming you can get your buying and your selling correct 80% of the time;, to get both of them right for a profitable transaction is only slightly better than chance (80% x 80% = 64%).  Except for the extremes of the market, for most (perhaps, almost all of the time), for such stocks, it is better to stay invested (buy, hold, accumulate more) for the long haul.
16. Sell urgently when the company business fundamental has deteriorated irreversibly. (Reminder:  Transmile)
17. You may also wish to sell  should the growth of the company has obviously slowed and you can reinvest into another company with greater growth potential of similar quality.  However, unlike point 14, you can do so leisurely.
18. In conclusion, a critical key to successful investing is in your stock picking ability.  To be able to do so, you will need to acquire the following skills:

• To formulate an investing philosophy and strategy suitable for your investing time horizon, risk tolerance profile and investment objectives.
• The knowledge to value the business of the company.  
• The discipline to always focus on value.
• The willingness to do your homework diligently.
• A good grasp of behavioural finance to understand your internal and external responses to the price fluctuations of the stock in the stock market.
• A good rational thinking regarding the risks (dangers) and rewards (opportunities) generated by the price fluctuations of the stock in the stock market.

Is it not true, that the really big fortunes from common stocks have been garnered by those 

• who made a substantial commitment in the early years of a company in whose future they had great confidence and 
• who held their original shares unwaveringly while they increased 10-fold or 100-fold or more in value?

The answer is "Yes."  

http://myinvestingnotes.blogspot.it/2010/02/growth-stocks-as-class-has-striking.html
http://myinvestingnotes.blogspot.it/p/keep-investing-simple-and-safe-kiss.html

5 Companies You Can Buy Today

By Morgan Housel
July 6, 2012

There are many ways to value a company. Price to earnings. Price to cash flow. Liquidation value. Price per eyeballs on website. Price to a number I made up (this one never gets old). Price to CEO's ego divided by lobbying activity as a percentage of revenue (this one doesn't get used enough).

Which one is best? They're all limited and reliant on assumptions. No single metric holds everything you need to know.

The metric I'm using today is no different. But it's perhaps the most encompassing, and least susceptible to hidden complexities of a company's financial statements. The more I think about it, the more I feel it's one of the most useful metrics out there.

What is it? Enterprise value over unlevered free cash flow.                                                       

• Enterprise value is market capitalization (share price times shares outstanding) plus total debt and minority interests, minus cash.
• Unlevered cash flow is free cash flow with interest paid on outstanding debt added back in.

The ratio of these two statistics provides a valuation metric that takes into consideration allproviders of capital -- both stockholders and bondholders.

But you invest in common stock, so why should you care about bondholders? Ask Lehman Brothers investors why. When a company earns money, it has to take care of bondholders before you, the common shareholder, get a dime. Focusing solely on profits and equity can be misleading.

Enterprise value provides a more encompassing view. By bringing debt capital into the situation, we see real earnings in relation to the company's entire capital structure. If you owned the entire business, this is the metric you'd naturally gravitate toward.

Using this metric, here are five companies I found that look attractive.

Company	Enterprise Value/Unlevered FCF	5-Year Average	CAPS Rating (out of 5)
Google (Nasdaq: GOOG  )	18.1	35.2	****
Johnson & Johnson(NYSE: JNJ  )	19.8	21.9	*****
Procter & Gamble (NYSE:PG  )	24.6	28.4	*****
UnitedHealth Group(NYSE: UNH  )	6.9	10.2	*****
Colgate-Palmolive (NYSE:CL  )	22.8	24.4	*****

Source: S&P Capital IQ.

Let's say a few words about these companies.

Three years ago, Warren Buffett and Charlie Munger had some flattering words for Google. "Google has a huge new moat. In fact I've probably never seen such a wide moat." Munger said. "I don't know how to take it away from them," Buffett said. "Their moat is filled with sharks!" Munger added.

Here's a good example: After trying to make inroads in the online ad business, Microsoft just wrote down almost the entire value of its 2007 purchase of aQuantive. The Daily Beast summed it up well: "Microsoft's $6.2 Billion Writedown Shows It's Losing War With Google."

I still like Microsoft because it's good at what it does. But advertising and search isn't it. That's Google's turf. And today you can buy Google at literally the lowest price-to-cash-flow ratio ever. Take advantage of that while it lasts.

Johnson & Johnson is one of the best-performing stocks over the last several decades. But it's having a rough go of it lately. Recalls, management blunders, more recalls, competition from generics... and on and on. Yes, growth has slowed. Yes, it might stay slow for a while. But valuation more than compensates for that. The stock currently provides a 3.6% dividend yield, and trades for 12 times next year's earnings -- below the market average. It's a good company at a good price.

Procter & Gamble is a similar story. One of the world's greatest collections of brands has hit a slowdown. That's hit shareholder returns -- P&G shares haven't budged in two years. But most of the company's missteps appear to be tied to poor execution by management. My guess: Within a year or two the company will have a new CEO, and the market will come to appreciate its value anew.

Everything important you need to know about UnitedHealth Group comes down to the Affordable Care Act, also known as Obamacare. Most health insurance companies currently trade at depressed valuations, likely because the market hates uncertainty -- something that still exists even after the Supreme Court ruled Obamacare constitutional.

But what are the two most likely outcomes here? One is that Obamacare remains law, in which case insurers will face a raft of costly new rules, but also a flood of new customers essentially mandated to buy their product. The other is that Obamacare is repealed -- likely under a Romney administration -- in which case those costly new rules would go away. Neither outcome seems particularly bad for insurers.

Past performance is no guarantee of future returns, but I can't help but point out how successful Colgate-Palmolive has been over the last 30 years. The toothpaste and soap company has produced average returns of nearly 17% a year since 1980, compared with 11% for the broader market. That's the power of two forces: A strong brand, and simple products that aren't pushed to extinction by new technology. Combine that with a pretty reasonable valuation, and Colgate-Palmolive should be a great company to own for years to come.

http://www.fool.com/investing/general/2012/07/06/5-companies-you-can-buy-today.aspx

The largest banking corruption scandal in history - The Libor Banking Scandal

Published on 4 Jul 2012 by 2012sprint

Watch this video to understand the largest banking corruption scandal in history. These large banks have stolen money from every single human on the planet. Not one person was left out. Not even YOU! Now that it is exposed there is no going back. We will ALL support the "NO MORE BAILOUT" mantra...

This one will not go away. It was not planned to go away like other "banking scandals". This one will build and build and build until it is known by every man, woman and child on the planet. This is the exposure that will END the bad guys reign.

I've said it over and over: Timing, timing, timing.

The evil vampire banksters have been stabbed in the heart with various stakes in the past few months but this one is by far the largest. (note: the last one will be made of SILVER so be ready for it!)

http://www.roadtoroota.com/public/570.cfm?awt_l=Hj.JM&awt_m=3aquxoPW7V4C85B

Know this: All is going as planned for the Good Guys.

May the Road you choose be the Right Road.

Bix Weir
www.RoadtoRoota.com
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VIDEO:"Viewpoint" host Eliot Spitzer, Matt Taibbi, Rolling Stone contributing editor, and Dennis Kelleher, president and CEO of Better Markets, analyze the Libor interest rate--rigging scandal engulfing the banking industry.

Barclays CEO Bob Diamond recently resigned after the bank was fined $453 million for its part in the scandal, which involved manipulating the London Interbank Offered Rate (Libor), a key global benchmark for interest rates, by essentially "faking their credit scores," according to Taibbi. And as Taibbi explains, Barclays couldn't have acted alone.

"It can't just be Barclays and the Royal Bank of Scotland. In fact, it can't even be four banks or even five banks," he says. "Really, in the end it's probably going to come out that it's going to be all of them ... involved in this. And that's what's critical for people to understand: that this is a cartel-style corruption."

Kelleher argues that the Libor scandal is proof that the financial industry "is corrupt and rotten to its core." "The same executives [using] the same business model that crashed the entire financial system in '08 are still running these banks," he says.

'The mob learned from Wall Street': Eliot Spitzer on the 'cartel-style corruption' behind Libor scam
July 3, 2012
http://current.com/shows/viewpoint/videos/the-mob-learned-from-wall-street-el...

The Biggest Financial Scam In World History
http://www.infowars.com/the-biggest-financial-scam-in-world-history/

Barclays Brawl: 'Elite manipulated market, UK laws only give slap on wrist'
http://www.youtube.com/watch?v=mSWUowKuSzI

Keiser Technique for financial criminals
http://www.youtube.com/watch?v=tcbtHeQSrmw&list=UUpwvZwUam-
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Some norwegian links:
http://e24.no/boers-og-finans/jeg-elsker-barclays/20250028
http://e24.no/boers-og-finans/barclays-hevder-bank-of-england-oppmuntret-til-...
http://e24.no/moody-s-nedgraderer-barclays/20250282
http://www.dn.no/forsiden/utenriks/article2429409.ece
http://www.dn.no/forsiden/borsMarked/article2429806.ece
http://www.dagbladet.no/2012/07/05/kultur/religion/vatikanet/paven/cern/22432...