Showing posts sorted by relevance for query life cycle of successful growth company. Sort by date Show all posts
Showing posts sorted by relevance for query life cycle of successful growth company. Sort by date Show all posts

Thursday, 29 December 2011

Using stock types, help you pinpoint where a company is in the corporate life cycle.

Savvy investors know about the corporate life cycle:

  • Companies in their startup phase lose money.
  • If they're successful, though, they enter a rapid growth period, where sales - and eventually profits - shoot upward. 
  • Then, alas, comes the point when the company has exhausted all of the easy growth opportunities.  The low-hanging fruit has been picked.  The company enters a mature phase in which sales maybe growing, but at a much slower rate than before.
  • Finally, in a company's dotage, it's all management can do to grow the company at all.  The company's either in stagnation or outright decline.  


Using stock types, help you pinpoint where a company is in the life cycle.

Life Cycle of A Successful Company


Let's look at semiconductors.
What is the key difference between chipmakers Intel INTC and National Semiconductor NSM?
Or between Broadcom BRCM and Rambus RMBS?


One of the babies of the industry is Rambus, a company that makes devices to speed up computer processing.  The company's sales have grown rapidly, though inconsistently.  Earnings have been spottier.  Rambus has actually lost money over the past 5 years in aggregate.  It is a great example of a speculative - growth company.

Moving up the maturity scale a notch, we find Broadcom, a company about 10 times the size of tiny Rambus.  The company specializes in chips that enable broadband data communication.  Broadcom's sales have grown  rapidly, and although it has had one money-losing year over the past five years ending in 1999, it's generally increased its earnings in line with sales.  That's the sign of an aggressive-growth company:  one that has managed to increase both sales and profits at a rapid clip.

Now we come to companies like industry leader Intel.  Not too long ago, Intel landed in the aggressive-growth group along with firms like Broadcom, but because of slowing growth, Intel has mellowed into a classic-growth company.  Despite the snags of late, Intel has a record of good sales growth and consistently positive earnings.  That's the mark of a classic-growth firm.  Don't expect them to grow sales by double digits every year, but do expect them to generate solid profits - and maybe even pay out a good dividend.  

Even more mature than Intel is Texas Instruments TXN.  The company was busy restructuring itself in the late 1990s and has been shrinking as a result.  The company's trailing three-year sales growth at the end of 1999 was negative, and earnings have bounced all over the place.  Texas Instruments merits a slow-growth tag because of its rather unspectacular record.

The trials at Texas Instruments, however, are nothing like those at chipmaker National Semiconductor.  The company's sales and cash flows have fallen, and the firm has lost money as a result.  The situation is bad enough to land National Semiconductor in the distressed stock type - the nether-zone in which we place firms with a history of serious operating problems.  These are typically companies that have run into growth problems, either because the market is saturated or because competitors have the upper hand.

Friday, 27 November 2009

Business and Dividend Life Cycles

Business life cycles are most influenced by access to resources and capital. 


A company's success and development are also affected by a host of outside factors - competition from companies in the same industry, economic conditions, even changing consumer preferences.


There are 6 phases in a company's development that influence its dividend policy:


1. The Start-Up Phase:   In the start-up phase, someone invest cash for stock in the business to develop products, hire employees, pay for equipment, and rent space.  It is not unusual for a company to raise seed money from professional investors and enter the start-up phase with a hundred or more employees.  A small company needs to plow all profits back into growing and perfecting its business model to survive.


2.  The Early Growth Phase:  If the company launch is successful, it will enter the early growth phase.  As the demand for its products and services increases, sales and profits increase.  The company will need to reinvest all cash flow and profit to achieve competitive scale.


3.  The Late Stage Growth Phase:  In the late stage growth phase, the company continues to grow and may begin to pay a small dividend, usually 10 to 15% of earnings.  This is a clear signal to investors that the company has reached a level of stability in profits and cash flow necessary to support a dividend.


4.  The Expansion Phase:  If the company is well run, it will enter the expansion phase.  Its rate of growth may slow as competitors take some of the company's market share.  Companies at this stage generally increase their dividend payout ratio to approximately 30 to 40% of earnings.


5.  The Maturity Phase:  Companies can continue to expand even as they reach their maturity phase, but their growth rate usually slows measurably.   Well-run mature companies can continue to be a competitive force in their respective industries for decades or even several generations.  Many of the companies in this group are mature companies, a few over a century old.  It is during this stage that companies tend to increase their dividend payout ratios to 50 to 60% of earnings, which provides investors with generous dividend income.


6.  The Decline Phase:  In the later stages, many companies fail to innovate - to keep their competitive advantage.  These companies will enter the decline phase, and unless they reinvent themselves, they will eventually cease to exist.  In this phase, as sales and profits decline, they will eventually reduce or eliminate their dividend payouts. 


Beware of attempting to buy or hold the stock of a company in the final stages of its business life cycle.




Business and Dividend Life Cycles
Start Up
Growth Rate 20%
Dividend Payout Ratio 0%

Early Growth
Growth Rate 30%
Dividend Payout Ratio 0%


Late Stage Growth
Growth Rate 35%
Dividend Payout Ratio 15%


Expansion
Growth Rate 25%
Dividend Payout Ratio 30%


Maturity
Growth Rate 20%
Dividend Payout Ratio 55%


Decline
Growth Rate < 5% and declining
Dividend Payout Ratio < 20%


AT&T is a great example of a company currently in decline, possibly on its way to extinction. 

Beware of attempting to buy or hold the stock of a company in the final stages of its business life cycle.

At one time, AT&T was the most widely held stock in America.  The company paid its first dividend in 1893 and became known as the widows and orphans stock because it was such a consistent source of dividend payments for investors.  AT&T's history dates back to 1875.  The company's founder, Alexander Graham Bell, invented the telphone and together with several investors started the American Telephone and Telegraph Corporation.  As a telephone company, AT&T was so successful it achieved regulated monopoly status.  In 1984, the US Department of Justice broke the AT&T monopoly into eight companies:  seven regional operating "Bells" and AT&T.

For most of its history, AT&T had been largely insulated from market pressures and competitive forces.  After the break up, smaller and leaner communication companies stole AT&T's market share, first through price competition and later by becoming product innovators.  For the new AT&T to successfully compete in an unregulated environment, it would require a drastic change in corporate culture.  Over the past few years, operations and profits have continued to decline, and AT&T is now struggling to survive. 

AT&T's story of dominance and decline highlights the constant need for you to follow up your initial purchase analysis with a routine review to see if the companies you hold are performing as expected. 

  • Each time you decide to continue to hold a stock, you are in fact making a new buying decision. 
  • Understanding the business life cycle outlined above will enable you to identify companies that are about to emerge as great dividend payers, as well as help you to spot the mature companies headed down the road to extinction.

Saturday, 14 October 2017

GROWTH STOCK APPROACH

Every investor would like to select a list of securities that will do better than the average over period of years.

A growth stock may be defined as one which has done this in the past and is expected to do so in the future.

[A company with an ordinary record cannot be called a growth company or a "growth stock" merely because its proponent expects it to do better than the average in the future.  It is just a "promising company."]

It seems only logical that the intelligent investor should concentrate upon the selection of growth stocks.

It is mere statistical chore to identify companies that have "outperformed the averages" in the past.

However, investing successfully in them is more complicated.



Two Catches of Growth Stock Investing

Two catches to watch out for in growth investing.

1.  The common stocks with good records and apparently good prospects sell at correspondingly high prices. 

  • The investor may be right in his judgement of their prospects and still not fare particularly well, merely because he has paid in full (and perhaps overpaid) for the expected prosperity.

2.  His judgement as to the future may prove wrong. 

  • Unusually rapid growth cannot keep up forever; when a company has already registered a brilliant expansion, its very increase in size makes a repetition of its achievement very difficult.  
  • At some point the growth curve flattens out, and in many cases it turns downward.



Naturally, the purchase at a time when popular growth stocks were most favoured and active in the market would have had disastrous consequences.

  • They were too obvious a choice.  
  • Their future was already being paid for in the price.  
  • Popular growth stocks may have failed to continue their progress and have even reported downright disappointing results.



How can your investment into growth stocks be protected?

Presumably, it is the function of intelligent investment to overcome these hazards by the exercise of sound judgement and skillful selection.

This is the natural and appropriate endeavour for the enterprising investor.

Benjamin Graham regrets that he has little concrete guidance to offer the enterprising investor in this field.

The exercise of specialized foresight, the weighing of future probabilities and possibilities are not to be learned out of books - nor can they be aided much by suggested rules and techniques.

Elaborate study of the life cycle of industries and discussing a number of "symptoms of decay"; by noticing of which the alert investor may escape out of a once expanding industry before it is too late.

These suggested techniques require more ability and application than most investors can bring to bear on the problem.

[It is debatable whether once an industry has turned downward, it will never recover and that all securities within it must be permanently avoided.]



More guidance on Growth Stock Investing

The stock of a growing company, if purchasable at a suitable price, is obviously preferable to others.

No matter how enthusiastic the investor may feel about the prospects of a particular company, however, he should set a limit upon the price that he is willing to pay for such prospects.
  • Such a rule would result at times in the missing of an unusually good opportunity. 
  • More often, it would mean the investor's saving himself from "going overboard" on an issue that looked especially good to him and everyone else and consequently was selling much too high.




An illustration of investing in growth stocks

Two highly successful enterprises and both were considered to have excellent prospects of long-term growth.  Both were priced at 22 times that year's earnings.  The average price of Company A in 1939 was 62 and the price of company B in 1939 was 42.  The ordinary investor was as likely to buy one issue as the other.

Company A 's earnings had risen from $2.9 per share in 1939 to $10.90 per share in 1947.  Its price was equivalent to 150 or much more than double its 1939 average.  In the same years, the profits of Company B had moved up from $1.89 to $2.13, in spite of the record prosperity of 1947 and its price had fallen from 42 to 29.


                       Company A        Company B               Company C
                       1939    1947       1939   1947               1939    1947

Price               62         150         42       29                        6      26
Earnings        2.9         10.9      1.89    2.13                  0.13     3.14
P/E                 22                        22


The choice between the attractive issue that turns out well and the one that does poorly is by no means easy to make in the growth-stock field.


At the same time, it might be interesting to add a third pharmaceutical Company C which was by no means well regarded in 1939 - for its average price was only 6 (as against 28 in 1929) and it paid no dividend.  On its past record it could not qualify at all as a growth issue.  Yet in 1947 its earnings were $3.14 per share as against only 13 cents in 1939, and its April price in 1948 had risen to 26 - a much better percentage gain than CompanyA's.

The best opportunity in the field of drug stocks turned out to be where it was least expected - an all too frequent happening.


Inferences from the above illustration for investing in Growth Stocks

  • Superior results may be obtained in this field if the choices are competently made.
  • Even with careful selection, some of the individual issues may fare relatively poorly.  Some may actually decline and others may have only slight advances
  • Thus for good results in the growth stock field there is need not only for skillful analysis but for ample diversification as well.




Summary on investing in Growth Stocks


  1. The enterprising investor may properly buy growth stocks.
  2. He should beware of paying excessively for them.  He might well limit the price by some practical rule.
  3. A growth stock program will not be automatically successful; its outcome will depend on the foresight and judgement of the investor or his advisors rather than on any  clear-cut methods of analysis.




Wednesday, 18 December 2024

Companies that have STEEPER S-curve cycle of growth with LONGEVITY will also trade at .HIGHER valuations










Savvy investors know about the corporate life cycle: 

  • start-up, 
  • rapid growth phase, 
  • mature growth phase, 
  • stagnation or outright decline.

Companies in their startup phase lose money.

If they're successful, though, they enter a rapid growth period, where sales - and eventually profits - shoot upward.

Then, alas, comes the point when the company has exhausted all of the easy growth opportunities. The low-hanging fruit has been picked. The company enters a mature phase in which sales maybe growing, but at a much slower rate than before.

Finally, in a company's dotage, it's all management can do to grow the company at all. The company's either in stagnation or outright decline.

Best time to invest is during its explosive growth phase or the mature slower growth phase of a successful company. Emphasis: growth phase.


S-curve cycle of growth

Every business goes through the S-curve cycle of growth: 

  • infancy (low growth), 
  • expansion (rapid growth) and 
  • maturity (slow growth).

Different businesses have a different S-curve shape and longevity.

Some S-curves will be steeper (stronger rates of growth) than others due to major innovation (e.g. Nvidia) that drives rapid adoption and demand across multiple market segments (market size).

Some S-curves will have greater longevity, that is, sustained high growth (expansion phase) for a longer period of time (e.g Amazon, Apple, Facebook) for a longer period of time because of, intellectual property protection or strong network effects. These have enduring competitive advantage.

Companies that have steeper S-curve with longevity will also trade at higher valuations.

Saturday, 4 September 2010

T Rowe Price

Ten great investors

2. T Rowe Price

Job description
Until his retirement in the late Sixties, Price was the head of the investment firm he founded, T Rowe Price Associates. The firm still exists today and operates out of Baltimore, Maryland, USA.

Investment style
Cyclical investor in long-term growth companies, buying at the bottom of the business cycle and selling at the top. In later life, Price switched to a more value-driven style, investing in steady-growth, oil and gold stocks.

Profile
Price was a strong-willed and egotistical man. He never deviated from the daily agenda he set himself, nor from his decisions about when to buy and sell stocks. He demanded the same zeal and discipline from his employees. This unforgiving work ethic turned his firm into one of the largest asset managers of his day.
Price was very much an entrepreneur rather than a manager. He liked to start a fund, establish it and then move on to launch another one. Some of his most famous funds are still running today: T Rowe Price Growth Stock, New Horizons and New Era. His favourite companies, such as Avon Products and Black and Decker, actually became known as 'T Rowe Price stocks'.

But he sold the business to his associates when he saw that the prices of this group of companies were reaching absurd levels in the late Sixties. He himself changed to a more cautious and diversified approach, buying bonds and stocks from the energy and commodity sectors. The 1973-4 bear market proved the wisdom of this decision. His family portfolios soared, while those of his old firm collapsed.

Long-term returns
Price published a sample family portfolio to show how he had turned $1,000 invested in 1934 into $271,201 by the end of 1972 - a compound return of about 15.4% over 39 years.

Biggest success
Price's sample portfolio contained many striking successes. Among the most remarkable was pharmaceuticals firm Merck, bought for the equivalent of 37.5 cents in 1940 and still held 32 years later at $89.13 - a compound growth rate of about 18.6%, even without any reinvestment of dividends.

Method and guidelines
Like people, companies pass through three phases in their life cycle:
  1. Growth
  2. Maturity
  3. Decadence
Look for companies in the earliest identifiable phase of growth. This growth is of two kinds:
  1. Cyclical - growth in unit volumes of sales and in net earnings, which peaks at progressively higher levels at the top of each succeeding business cycle. These stocks are ideal for investors looking for capital gains during the recovery stage of the business cycle
  2. Stable - growth in unit volumes and in net earnings, which persists through the downturn in the business cycle. These stocks are suitable for investors who need relatively stable income.
Concentrate on industry leaders. These can usually be identified by their competitive advantages, including:
  • Outstanding management
  • Leading-edge research and development
  • Patents, licences and other legally enforceable product rights
  • Relative protection from government regulation
  • Low labour costs, but good labour relations
These advantages usually go hand-in-hand with
  • A strong balance sheet
  • A high return on capital (at least 10%)
  • High profit margins
  • Consistently above-average earnings growth.
If these financial ratios are improving, that is often a good indicator that the company is still in its growth phase.

The best time to consider buying is when growth stocks are out of fashion. As a group, their P/E ratio will have fallen to roughly the same level as the market. Consider buying when the P/E is about 33% higher than the lowest point it has reached at the bottom of the last few cycles. Continue buying ('scaling in') until the price starts to rise strongly above this initial level.

The time to start selling is when the stock is 30% above your upper buying price limit. Sell off your stock gradually ('scale out') as the price continues to advance. (Price himself sold 10% every time the price rose 10%. Smaller investors may need to think in terms of selling 25-33% on each 20% advance.)

Also consider selling if
  • You can be reasonably certain the bull market has peaked
  • The company appears to be entering its mature phase
  • The company reports bad news
  • The stock price collapses on widespread selling.
Key sayings
"Even the amateur investor who lacks training and time to devote to managing his investments can be reasonably successful by selecting the best-managed companies in fertile fields for growth, buying their shares and retaining them until it becomes obvious that they no longer meet the definition of a growth stock."

"'Growth stocks' can be defined as shares in business enterprises that have demonstrated favourable underlying long-term growth in earnings and that, after careful research study, give indications of continued secular growth in future...Secular growth extends through several business cycles, with earnings reaching new high levels at the peak of each subsequent major business cycle..."

Further information
Start with John Train's profile in The Money Masters (1980). For Price's own views, see the extract 'Picking 'Growth' Stocks' in The Investor's Anthology, edited by Charles Ellis.

http://www.incademy.com/courses/Ten-great-investors/T-Rowe-Price/2/1040/10002

Thursday, 29 December 2011

So which Stock Type do you wish to add to your portfolio?

To highlight fundamental differences between companies, examine each company's historical record, growth rates, cash flows and other financial data.

Based on these fundamental differences, assign it to one of eight groups.  These stock types are:

  1. Speculative Growth
  2. Aggressive Growth
  3. Classic Growth
  4. Slow Growth
  5. High Yield
  6. Cyclicals
  7. Hard Assets
  8. Distressed.
These stock types address the question:   What kind of company is this?




Life Cycle of A Successful Company




Here is a quick overview of these very different companies.


Speculative Growth:  Yahoo YHOO.  The premier Internet portal has become one of the giants of the online world in 1999, with an audience in the tens of millions.  It has become consistently profitable, unlike most of its online brethren, but its track record is still so short that it is definitely risky.


Aggressive Growth:  Starbucks SBUX.   The coffee chain has grown like gangbusters while also showing a healthy profit, the two most important characteristics of an aggressive growth stock.


Classic Growth:  McDonalds MCD.  the fast-food giant is a stereotypical classic growth stock:  A well-known name with an established track record.  It's growing steadily, but not as fast as speculative growth or aggressive growth companies. 


Slow Growth:  Procter & Gamble PG.  The consumer-products giant is a good example of this type; its growth is slower than that of even classic-growth companies, but it makes up for this lack of growth with high profitability.


High Yield:  Philip Morris MO.  The food and tobacco giant's stock was hammered in 1999, but the company still gives back much of its enormous cash flow to shareholders in the form of a hefty dividend.  


Cyclicals:  United Technologies UTX.  This industrial conglomerate is a great example of a cyclical stock.  Its business - aerospace equipment, air conditioners, and elevators - are highly sensitive to the performance of the general economy.


Hard Assets:  Barrick Gold ABX.  This company is one of the most consistently profitable gold-mining stocks, but it also illustrates many of the charcteristics unique to companies that sell hard assets such as minerals or oil.


Distressed:  Silicon Graphics SGI.  This maker of computer workstations and server systems was once a hot technology stock, but it has suffered through a lot of problems since the mid-1990s and has seen its stock price tank.

Wednesday, 18 December 2024

Creating new S-curves - developing new engines of growth - ideally before the current cycle of growth reaches maturity.

Every business goes through the S-curve cycle of growth: 

  • infancy (low growth), 
  • expansion (rapid growth) and 
  • maturity (slow growth).


No matter how successful the product is, growth must slow at some point (maturity phase), due to a number of reasons:

  • increased competition, 
  • market saturation, 
  • technology disruption, 
  • regulatory changes and 
  • changing consumer preferences.


VALUE CREATION OR DESTRUCTION:  MANAGEMENT'S ROLE

Ultimately, whether a company remains VALUE CREATIVE OR DESTRUSTIVE, depends on how well management understand this inevitability, its mindset and how successful it is in creating new S-curves - developing new engines of growth - ideally before the current cycle of growth reaches maturity.

New S-curves could include 

  • tapping into new selling channels and geographies for the existing products, or 
  • it could be expansion into a related business - for instance, starting a new product line and going upstream or downstream, or 
  • diversification into something entirely different and unrelated.

In short, the S-curve is dynamic over the company's life, that is, the company should continuously reinvent, reinvest and create new S-curves to start new growth cycles. 

We see real-life examples of how this is done every day.



Companies starting new S-curves to start new growth cycles:

QL started Family Mart

YTL Power entered a new S-curve selling power to Singapore and enters the AI related sector.

Padini started Brands' Outlets.

Scientex growing its manufacturing business organically and through acquisitions and entering the property development sector business successfully.

KGB supplying its products to many industries and to many countries.

Facebook promoting Metaverse (but unsuccessfully).

Microsoft branching into cloud computing and AI.

Amazon continues to reinvent itself, selling books initially, and now selling almost everything. (Many new S-curves)



Of course, growth comes with a price too. 

Some growths can be good and some can be very bad for the companies.

Shareholder wealth in a company is destroyed with failure to find new S-curve.

With no growth or business in decline, value of company shrinks (contracting PE x lower EPS); value is destroyed.

There are many companies in Bursa Malaysia in this category. 

Wednesday, 26 September 2012

The First Secret of Small-Cap Investing: DEMAND PROOF OF MANAGERIAL EXCELLENCE

Great businesses are made, not born. And the secret to making a great business is having solid leadership in place — a management team that can drive a company on the route to sustainable excellence.
As with any stock investment, it’s imperative to establish that a small company’s leaders are more than competent — they have the skill and expertise to deliver profits to shareholders. Although there are many ways to determine whether a company’s management team is up to the task, a few factors rise to the top.
First, a company should have an operating history of at least three years. For companies that have recently gone public, this period could include years before its initial offering. There should have been no jarring changes of management during the company’s recent past as well. A company’s management can’t be evaluated without evidence, so the team responsible for the success of the venture to date must still be in place in order to make judgments.
Second, a company must be profitable to be considered for investment. The promise of future profits is not sufficient. Nor is it enough for a company to have recently turned the corner and posted positive earnings for the first time in its history. If a company has been able to deliver several recent years of profitability, management has passed the most important test of its skills.
But it’s not enough that a business’s management is merely competent. Our third suggestion is that stock investors strive for excellence — seek companies that meet or surpass the performance measures of their peers and competitors.
Fourth, the strength and consistency of historical growth is certainly area where investors can discern the hand of management in building a business poised for long-term future success.
Fifth, the trend and level of a company‘s pretax profit margins is perhaps the single most important comparative factor. Successful, quality companies can be identified by the margins they eke out on each dollar of revenue. Higher margins than competitors are almost always a sign of management expertise. Relatively stable annual margins are demanded of all companies. Growing margins are a positive.
To be sure, smaller companies may be in the phase of building their business, investing now to support greater success in the future, so the analysis of margins when compared with more established competitors should keep this possibility in mind.
A company’s return on equity should be reviewed carefully, but this measure not be less useful as a quality consideration for newer-stage businesses. Smaller companies can earn higher returns on initial equity, but these levels are not sustainable. Caution must again be exercised when comparing small businesses with established enterprises. Finally, any company included in a growth stock portfolio must have identifiable drivers of future growth. Tailwinds should be stronger than headwinds. No business can coast to success on the coattails of its past success, so management must be able to present a viable vision for how it intends to grow the business in the years ahead.

Thursday, 12 July 2012

Any price - and therefore P/E - movements that is not related to the company's earnings is transient.

The stock market is governed by a diverse set of influences.  And just as the sea is, it is predictable over the long term but not over the short term.

Probably the most widely watched reason for the long-term fluctuations of the price and P/E is the rise and fall of the stock market itself.  This can be a function of the economy's volatility.  The economy is battered by the rise and fall of interest rates, by inflation, and by a variety of factors that drive consumer confidence or buying power up or down.  Actual changes in the economy itself will cause longer-term changes in the market and the prices of its individual stocks.  Speculation about such changes has a shorter-term effect.

In the shorter term, there are the ripples and wavelets.  Every little utterance of a government official or company offer, insider buying or selling (which may or may not mean anything), rumour, gossip, and just about anything else can influence the whims of those on the street.  Many people will use these stories to try to make or break a market in the stock.

Over the life of a company, its fair P/E - the "normal" relationship between a company's earnings and its stock's price - is relatively constant.  It does tend to decline slowly as the company's earnings growth declines, which happens with all successful companies.  For all practical purposes, however, that relationship is remarkably stable.  And for that reason, it's also remarkably predictable.

When a company's earnings continue to grow, so will its stock price.  Conversely, when earnings flatten or go down, the price will follow.

The little fluctuations in the P/E ration above and below that constant (fair) value are not so predictable because they are all caused by investor perception and opinion.  Think of them as the winds that blow across the surface of the sea.

The broader moves above and below the norm are the undulations that are typically caused by the continuous rising and falling of analysts' expectations.  When a company first emerges into its explosive growth period, the analysts expect earnings to continue to skyrocket.  Earnings growth estimates in the 50% range or more are not uncommon.

As the company continues to meet these expectations, investor confidence booms along with it, and more investors pay a higher and higher price for the stock.  The P/E rises as a meteor right along with the price.  The faster the growth, the higher the P/E.  This does nothing to alter the value of the "reasonable or fair" P/E multiple.  It just means that investor confidence has risen well above that norm and that there will eventually be an adjustment.

Sure enough, one fine day when the analysts' consensus called for growth of 45%, the company turns in a "disappointing" earnings growth of only 38%.  The analysts start wringing their hands because the company has not met their expectations, and some fund manger sells.  Next, all of the lemmings on Wall Street follow suit.  And not long thereafter you get a call from your broker telling you that you've had a nice ride, you've made a lot of money on the stock, and it's time to take your profit and get out.  In the meantime, the broker has made a commission on your purchase and is hoping to make it on your sale as well.

After a while, after the price and the P/E have plummeted and then sat there for a while, some analyst wakes up to the fact that a 34% earning growth rate is still pretty darn good and jumps back in.   Soon the cycle is reversed.  The market starts showing the company some respect again.  And you get a call from your broker.

Of course, as a smart intelligent investor you didn't sell it in the first place!  Because you were watching the fine earnings growth all along, you knew better than to sell.  And you chose the opportunity to buy some more.  In the meantime, your brokers'; clients who were not so savvy has taken their profits (and, had paid the taxes on them, by the way) and are now wishing that they had stayed in with you.  By the time their broker called them again, the price had already climbed past the point where it made good sense for them to jump in again.

It is best to assume that any price - and therefore P/E - movements that is not related to the company's earnings is transient.  If the stories - not the numbers - cause the price to move, the change won't last.  What goes up will come down, and what goes down will come up.,  You have to be concerned only when the sales, pretax profits, or earnings cause the change, and then only if you find that the performance decay is related to a major long-term problem that is beyond the management's ability to resolve.

Remember also that a sizable segment of Wall Street doesn't make its money investing as you do; it makes its money on the "ocean motion."  Buy or sell, it makes little difference to them what you do.  They make their money either way.  But it sure makes a big difference to you!

Thursday, 29 December 2011

Stock Types

Microsoft MSFT and Microtest MTST.  They are both technology companies.  Both have "micro" in their names. But that's where the similarities end.

Microsoft is the most successful company of the 1990s with a market value of $450 billion at the end of 1999.

Microtest is a struggling produce of hand-held scanners, is worth a piddling $30 million.

These are two technology companies, two very different stocks.

Inside any sector - whether it is technology or utilities - you will find companies as different as Microsoft and Microtest.

To highlight fundamental differences between companies, examine each company's historical record, growth rates, cash flows and other financial data.

Based on these fundamental differences, assign it to one of eight groups.  These stock types are:

  1. Speculative Growth
  2. Aggressive Growth
  3. Classic Growth
  4. Slow Growth
  5. High Yield
  6. Cyclicals
  7. Hard Assets
  8. Distressed.

These stock types address the question:   What kind of company is this?

What about Microsoft and Microtest?

  • Bill Gates' company lands in our aggressive-growth stock type, the home of the fastest-growing companies.
  • Microtest doesn't fare so well.  Because of declining cash flows and negative earnings, it is in the distressed group.  Hawking handheld cable scanners hasn't generated much growth.


Life Cycle of A Successful Company

Friday, 5 April 2019

Hyflux scraps restructuring plan after spats with investors


CORPORATE NEWS
Thursday, 4 Apr 2019


Hyflux’s catastrophic slump has spotlighted the plight of about 34,000 retail investors who were lured by the promise of a 6 percent annual return forever from a company that seemed to have a gold seal of government approval.


SINGAPORE: The embattled Singapore water and power company Hyflux Ltd. has canceled a crucial debt restructuring vote after failing to get a commitment from its would-be savior, throwing one of the country’s highest-profile distressed cases into disarray.

Hyflux’s catastrophic slump has spotlighted the plight of about 34,000 retail investors who were lured by the promise of a 6 percent annual return forever from a company that seemed to have a gold seal of government approval. Their ordeal is now even more uncertain.

The company said in a filing Thursday that it has no confidence that SM Investments Pte, the consortium of Indonesian businessmen that agreed last year to rescue Hyflux in return for a majority stake, is prepared to complete a S$530 million ($392 million) cash infusion plan that forms the core of its survival plan.

Hyflux sought “a final clear and unequivocal written confirmation” from the investor on the proposal that would have enabled voters to make an informed decision, it said.

The investor has declined to provide the company with such written confirmation, and thus repudiated the restructuring agreement, it added.

The breakdown follows public spats over some terms in the Hyflux restructuring plan as the company faces demands from creditors. The case also sparked a rare public protest over the weekend in Singapore.

“The restructuring agreement is therefore terminated and the company intends to take all necessary action in connection with such termination,” Hyflux said.

It now intends to work closely with the key creditor groups and relevant stakeholders to find mutually acceptable bases to pursue alternative opportunities, it said. - Bloomberg

Read more at https://www.thestar.com.my/business/business-news/2019/04/04/hyflux-scraps-restructuring-plan-after-spats-with-investors/#WGR1wsEwbfbfZUGy.99





Background story


Business
Once a star company, Singapore’s Hyflux faces major challenges

Hyflux, one of Singapore’s most successful business stories, has applied for court protection to begin a reorganisation of its business and address its growing pool of debt.


SINGAPORE: It had been another record year for Hyflux, as its founder and group CEO Olivia Lum described in its 2010 annual report.

That was the year when the Singapore-based water treatment specialist saw its market capitalisation peak at an eye-popping S$2.1 billion, while raking up another high in revenue and net profit on the back of rapid growth.

But fast forward eight years, and the homegrown firm sent ripples through Singapore for a very different reason.

On Tuesday (May 22), Hyflux said it had applied to the High Court to begin a court-supervised process of debt and business reorganisation – an announcement that some market observers told Channel NewsAsia “has been a long time coming”.

The company blamed “prolonged weakness” in the local power market for its financial woes, which has led to “short-term liquidity constraints in recent weeks”.

In a separate letter to stakeholders, Ms Lum, who also holds the position of executive chairman, said the decision will provide the space and time to focus on ongoing discussions with strategic investors and among other things, optimise operations.



FROM UPSTART TO ICONIC SUCCESS STORY

Founded in 1989 with S$20,000, Hyflux has since grown from a fledgling three-person start-up into a leading player in water and fluid treatment with worldwide presence employing more than 2,500 people.

Its rise was synonymous with its founder’s rags-to-riches story.

Much has been said about Ms Lum’s challenging early life. Abandoned at birth and later adopted by a widow whom she called "grandmother", Ms Lum, a Malaysian, started work from a very young age to support the family.

She was determined to do well in school and later moved to Singapore, where she graduated from the National University of Singapore and found a job as a chemist at Glaxo Pharmaceuticals.

However, she soon decided to strike it out on her own and founded Hydrochem with “a big dream and youthful idealism” to solve the world’s water problems.

The initial years of entrepreneurship weren’t easy. In various interviews done over the years, Ms Lum shared how she worked 14 hours a day to sell water treatment products and systems by knocking on the doors of factories in Singapore and Malaysia.

The company got its first break in 1992 when it obtained the exclusive rights from a supplier to distribute membranes and membrane filtration plants to industrial customers. This later paved the way for a research and development team in 1999, which aimed to make its own membranes that would set it apart from competitors.

Then came 2001 – the “defining year” when Hyflux, with Hydrochem as its wholly-owned subsidiary, made a splash by becoming the first water treatment company to be listed in Singapore. It also secured its first municipal water treatment project in Singapore to supply and install the process equipment for the country’s first Newater plant in Bedok.

Other key projects that followed included Singapore’s third Newater plant in Seletar and the SingSpring Desalination Plant, the country’s first seawater reverse osmosis desalination plant.

It also began reaching out further beyond the shores of Singapore, with projects in China, India and the Middle East North Africa (MENA) region, which included Oman and Algeria.

In 2011, Ms Lum became the first Singaporean and the first woman to be crowned the Ernst & Young (EY) World Entrepreneur of the Year award.

That year, it also clinched Singapore’s second and largest seawater desalination project, and proposed incorporating an on-site 411 megawatt combined cycle power plant to produce electricity for the desalination plant and power grid.

MULTIPLYING RISKS

But that marked the start of the company’s woes, analysts said.

Touted to be the first in Singapore and Asia, the Tuaspring Integrated Water and Power Project was expected to raise efficiency levels and reduce the cost of desalination. The power plant, which began operations in 2016, also marked Hyflux’s foray into the energy business.

It has, however, been a drag on earnings.

For the full year ended Dec 31, 2017, the integrated water and power plant registered a net loss of S$81.9 million, with wholesale electricity prices clearing at levels that are below fuel costs.

This contributed in a big way to the company’s first annual loss since listing – a loss of S$116.4 million, compared to a restated profit of S$3.8 million for FY2016.

The losing streak continued in the three months to March 31 as Hyflux logged losses of S$22.2 million, widening considerably from a restated loss of S$64,000 a year before. To turn a profit in 2018, a stronger rebound in wholesale electricity prices at a sustained pace will be needed, the company had said.

This strain in the balance sheet and financial covenants coming up may have proven too much.

The water treatment firm has a coupon payment due May 28 on its S$500 million of 6 per cent perpetual securities, which it has said it will not make. It also has S$100 million of 4.25 per cent bonds that will mature in September.

“Hyflux seems to have borrowed too much and the debt is a millstone around your neck when the environment becomes adverse,” said Associate Professor Nitin Pangarkar from the National University of Singapore (NUS) Business School.

While companies with strong balance sheets can survive these downturns, “too much debt can bring down a company”, he warned.

In the case of Hyflux, there was “too much risk” that included the oversupply and deregulation of the local electricity market. “These different sources of risk will tend to multiply.”

Agreeing, CMC Markets sales trader Oriano Lizza said Hyflux has incurred a mounting debt burden from “over-expansion into additional sectors that (the company) may not be so specialized in”.

In addition, market conditions like the massive overcapacity depressing prices and an influx of natural gas as an alternative energy source certainly did not help Hyflux to sizzle in its energy venture.

With the company having “overcapitalised too rapidly and spread itself too thin in terms of asset allocation”, Mr Lizza said Tuesday’s announcement "has been a long time coming".

For iFast’s senior fixed income analyst Ang Chung Yuh, “the speed at which things went downhill” exceeded his forecasts. He had expected Hyflux to be able to meet its obligations for the next 12 to 18 months.

Mr Ang added that he is also unsure as to why Hyflux opted for a court-driven reorganisation process, instead of first approaching creditors, including bondholders, with a proposal.

“But in any case, if management has crunched the numbers and found that it is impossible for them to come up with the money needed one or two years down the road, we think it is a good thing that management has chosen to bite the bullet now rather than later,” he added.

WHAT ARE ITS OPTIONS?

Analysts agreed that the 30-day moratorium, which kicked in automatically from the date of Hyflux’s application to court, will buy the company some much-needed time.

Mr Lizza thinks the immediate remedies for Hyflux include turning to its investors and shareholders for additional capital injection or speed up the sale of its existing loss-making assets.

“If they are able to shift these assets for cash in the short term, it will give them continued breathing space until they can balance their books.”

Hyflux said in February last year that it is exploring a partial divestment of Tuaspring, and has also been looking at a potential divestment of its Tianjin Dagang desalination plant. Alongside the release of its first-quarter financial report earlier this month, it said that divestment discussions for these two projects are in progress with interested parties.

But now that things have changed, Hyflux will have to play its cards carefully.

“The problem is that investors will be circling these assets in hope of a bargain because they know the situation that Hyflux is in,” said Mr Lizza. “If they sell too little, it won’t get them out of the current situation but if they are unwilling to budge on current prices, they won’t (get) any interest.”

“They are really in a sticky situation,” he added.

Mr Ang reckons a debt restructuring could be a “virtual certainty”.

“In our opinion, to have some chance of restoring Hyflux’s financial health for the long run, the exercise needs to involve a debt-to-equity conversion of a substantial part of the perpetual securities,” he said, adding that the firm had about S$2.4 billion of debt outstanding at end-March if the perpetual securities are taken into account.

“Short of a Government bailout, it is difficult for us to conceive a scenario where a capital injection by external investors could achieve a sustainable capital structure for Hyflux.”

Hyflux on Wednesday morning called for a suspension of trading in all its shares and related securities, which had been halted since Monday and analysts do not rule out the prospect of heavy selling when it resumes trading.

The route ahead for Hyflux will not be an easy one, experts added.

Describing the trading halt and seeking of court protection as “a broad, open admission of its festering business problems”, NUS Assoc Prof Lawrence Loh said: “Hyflux’s ongoing reorganisation move is necessary to ensure that any asset divestments will get the best value for its stakeholders, particularly creditors and shareholders.”

“While there were already market expectations for the troubles at Hyflux, the issue has probably brewed for a time much longer than necessary. Hyflux has probably seen this coming and could have been more expeditious and decisive in its restructuring efforts along the way,” he added.

As Ms Lum had forewarned in the company’s latest annual report, 2018 was going to “be another challenging year”. But with “boldness, entrepreneurial spirit, customer satisfaction focus, and teamwork”, she said she was confident of overcoming the obstacles ahead.

During a 2016 interview with Channel NewsAsia, the award-winning entrepreneur described herself as a “more optimistic person”, and that challenges and uncertainties are the norm for any business.

“I still have the hunger in me,” she said. “Every day, I still look forward to more and more exciting business opportunities and persevere to manage the challenges.”

And with that, all eyes will likely be now on the businesswoman to see if her unique brand of tenacity can reverse the fate of one of Singapore Inc’s most-visible success stories.

Source: CNA/sk
Read more at https://www.channelnewsasia.com/news/business/hyflux-singapore-court-supervision-faces-major-challenges-10260230

Wednesday, 23 June 2010

Investment is like a bet

Investment is like a bet
Tags: Ang Kok Heng | Berjaya Group | Elliott Wave | Forecasted profit | Hedge fund | HF Managers | Investment | Iskandar Development Region | MACD | management | risk management | Stochastic

Written by Commentary by Ang Kok Heng
Monday, 21 June 2010 11:23

There are risks in every investment which will result either in a profit or a loss. In a way, investment is like a bet — heads you win, tails you lose. If we hit it right we make a gain, but if we are wrong we will most likely end up with some losses.

Although investment is different from speculation, which depends more on luck rather than judgement, there is still uncertainty in every investment no matter how careful we are. Everyone will definitely want a good bet which has a higher potential for profit than loss. The job of an investor is to avoid a bad bet.

Before deciding on an investment, most people will consider various aspects of risk so as to avoid choosing a bad bet.


Investors bet on management
Management is one of the most crucial factor investors will look at, especially in emerging markets. Most Malaysian listed companies are run by the owners themselves who set up the business. The fate of the company will depend on the few key persons.

Before the company grows big, this is the way to go. This is unlike multi-national corporations which run on an established system — standard procedures, a clear work flow, internal control, risk management system, clear accountability, etc.

Serious investors who buy based on management is also betting on the management’s ability to continue to deliver what they have in the past. Management is the most crucial attribute of a good stock. Good management will be able to predict potential problems, overcome troubles, identify business opportunities, implement expansion plans, reduce costs, optimise efficiency, etc. Investing in such a company is like having a reliable member of staff who can handle most of the boss’s workload.

There are also other management risks, and we can hope that the strong track record of the past will continue into the future. Hopefully, there will be no change in the senior management, staff will remain highly motivated, there will be no internal squabbling and no resignations en bloc. One of the main challenges of the present management is to groom up the second echelon to take over the baton in order to maintain the growth of the company. Only with an equally capable manager can it be ensured that the growth of the company will not be disrupted.

Another danger of betting on management is the fall in vigour of the key drivers. When the owners become richer, they may not be as “hungry” as before. There are also other factors which may change the drive of the owners, such as health factors, family problems and less eagerness to take risks as age catches up.


Bet on business growth
Investing in a company is betting on the future earnings growth. Certain industries have stable growth — for example, power, telco, utilities, toll concessionaires, gaming and consumer-related businesses.



But there are also many industries which are very cyclical, such as plantation, property, construction and technology. It is the cyclical businesses that require more attention.

When a major up cycle comes, it will benefit all the companies in the sector. However, at a certain point in time, the cycle will turn downwards and earnings will also plunge. Attempting to catch the ups and downs of these cycles is similar to the endeavour of predicting the top and bottom of the market.

The earnings of companies are affected by many factors. Some may be related to raw material prices, foreign exchange rate, changes in government regulations, adoption of new technology, emergence of a major competitor, changes in consumer trend, etc. Whenever such events occur, the company’s profit will surge or plunge, depending whether it benefits or suffers from such changes. Such a swing in earnings can only last for a few quarters before profit stabilises at the so-called “economic profit” again, after the industry players adjust their production capacities.

Some analysts and fund managers are good at sensing such opportunities before they come. Hedge fund managers are also good at predicting business cycles by studying demographic and economic data. For long term investors, they may position themselves in a certain sector way ahead of time. For shorter-term investors, timing is crucial, as they do not want to squat on a stock for more than two quarters. In the case of punters, their time frame could even be shorter, perhaps over a month or two.


Bet on forecasted profit
Most fundamental investors rely on the earnings of a listed company to determine its value. A company that makes more profit will attract more investors.

The profit is derived based on orders received, expected revenue, cost of production, operating capacity, bad debts provision, margin, etc. Some profit forecasts are rather simple, but there are also many companies which have diversified into many lines of businesses, where their profit forecasts are more complex.

Investment based purely on forecasted earnings is like a bet placed on the reliability of the profit. It is not uncommon to see listed companies providing earnings guidance to analysts for the coming quarters.

But that is as far as it will go. Analysts who track the quarterly earnings may not be able to predict what will happen in two to three years time. As fundamental investment is a long-term commitment, earnings over the medium to longer term is more important than the quarterly profit. Many a time, analysts make a 180° turn in recommendation after realising that quarterly earnings are off track. By then, the stock price could have fallen substantially.

As such, there is no assurance that investment based purely on forecasted profit will definitely be a successful one.


Bet on a theme play
Some fund managers like to bet on a particular theme. The theme can be in terms of a business sector such as tech, auto, plantation, property, construction, power, water, banks, telco, oil and gas, etc.

The idea behind sectoral theme play is to ride the cyclical upturn in the earnings of these sectors. An improved outlook could be due to a change in business environment, favourable government policies, increased demand, surge in selling price, fall in cost of production, etc.

As cycles come and go, theme play has a finite life. Prices of stocks that were chased up will eventually come down. The bet on theme play relies on the ability to determine how long the cycle will last. The risk of riding a theme play is being caught in the middle of the cycle when prices suddenly fizzle off.

Theme play can also relate to other ideas. Some of which are related to location (for example, a Sarawak play or a play on the Iskandar Development Region), business group (for example, Berjaya Group), business activity (for example, export-oriented or domestic-oriented industry), size of company (for example, big-cap or small-cap stocks), etc. Other themes popular among fund managers include dividend play, defensive play, growth theme, etc.


Bet on specific economic/political event
It is also common for investors to be confronted with economic or political troubles from time to time. There is no single year in which the market does not encounter uncertainties. As uncertainty is part and parcel of the stock market, all of these events require certain forms of judgement as to what to do: sell, buy or hold.

How an economic or a political problem will eventually play out is not an easy guess. Not only are we limited by the required information we need, an understanding the mechanics of the problem is also very challenging. Every problem could be different, and the past pattern may not necessarily be relevant, though it is not uncommon to find analysts and economists using historical experience as a guide.

As the outcome of an economic or a political predicament will depend very much on the interference of the authorities and how the public will respond to those actions, it is very difficult to provide a good prediction. Investors who make a decisive call to buy or to sell are taking a bet on the outcome.

Take, for example, what the outcome of the Greece debt crisis will be. Will it lead to a domino effect causing other southern European economies to collapse? Will it result in eventual disintegration of the European Union? Will it cause further deterioration of Eurodollar? Those who believe the rescue package is sufficient to prevent the contagious debt crisis in Europe will take the recent market selldown to buy. Investors fearing further deterioration of the debt crisis will sell on panic. Only time will tell who is right and who is wrong. Optimists who load fully on stocks now and pessimists who cut all their holdings are taking extreme risks.


Bet on situational play
From time to time, there are some situational themes which will last for a short period. Year end window dressing is an annual affair keeping investors guessing which stocks will be pushed up for the sake of “dressing” so as to provide a better valuation. On the other hand, October always reminds investors of the many mishaps that had happened in the month.The listing of a large initial public offering (IPO) will also attract the attention of investors on similar stocks in the same industry. Some investors may try to bet on the spillover effects from the large IPO.

Following the government’s intention to pare down its investment in quoted GLCs and subsequent proposed privatisation of Pos Malaysia, investors are betting on which is the next to be disposed off.


Bet on chart reading
For technical chartists — using tools like MACD, Stochastic, Elliott Wave, etc — technical readings provide the timing to buy or sell, to enter or exit a position. Technical indicators provide guides as to what to do. Some of them may also indicate the potential profit from a buy signal and at what level to get out.

Even though technical pointers act like the eyes to traders, they cannot guarantee profit for every trade. As such, traders can only bet that what happens in the past will be repeated.

Choosing reliable indicators are crucial for a successful trader. If the trader sincerely believes the technical indicators he is using and the bet is right, profit will be made. If the bet is wrong, then he will have to admit it and get out with some losses. Traders know that every trade is a bet, a calculated bet at least.


Risk and return trade off
Every trade, be it based on technical readings or fundamental reasoning, has a risk. But every trade has its corresponding potential return too. Traders and investors will have to weigh each trade by looking at the risk and return trade off. They have to determine what is the upside potential from a particular purchase and what happens if they are wrong, resulting in possible losses.

In analysing the risk and return trade off, liquidity is important — especially for institutional investors whose positions could be big, as the stocks must be liquid for them to exit if necessary. Fundamental investors have more considerations than stock traders do. Fundamentalists — basically longer-term investors — incorporate risks such as management trustworthiness, corporate governance, business predictability, pricing power, business volatility, business scalability, cashflow sustainability, fluctuation in interest rate, changes in political outlook, shift in government policies, etc.

The fundamental risk of investment encompasses a wide range of uncertainties, some foreseeable but many of which are unexpected. Despite all the various hindrances, investors will still have to bet on each stock based on the best judgement at the point of purchase.


Incorporating probability
Since investment is a game of uncertainty, it is best to incorporate probability in each and every risk-and-reward bet. What we should look for are trades which provide high profit if our forecast comes true. We will never venture into an investment which only yields low return even if we are right.


HF managers
The technique of incorporating probability in every trade is widely used by hedge fund (HF) managers, who are usually misconstrued to be high risk operators. Many HF managers are cautious traders. Each and every position they take is well calculated based on the risk involved and potential profit. To HF managers, every move is a bet. Taking a position in a stock is a risk. Holding longer than the required time frame is a risk.

HF managers screen through much data, and come up with various possible scenarios. Although not all scenarios can be converted into profitable trades, they do provide various trading ideas.

Looking for trading ideas are the challenges facing HF managers. As HF managers are not emotional, they treat each investment as a trade or a bet with the intention of making money. When a trade has served its purpose, it will be closed, regardless of whether it provides a profit or a loss. A bet is initiated when it is deemed profitable, and it is liquidated when it is deemed to be unfavourable.


Risk management
As there are risks in every position taken, risk management is crucial in investment. Good traders know that risk management is very crucial in trading. The survival of traders depends on risk management to protect their capital. They can only survive and remain in the market if their capitals are not entirely wiped off.

In this way, a single-stock portfolio has higher risk than multiple stocks portfolio. A portfolio which diversifies into several stocks is deemed to be prudent. The diversification is not about getting higher returns but about managing the risk.

Position sizing
Diversification requires investors to place a weight on each stock. The weight is the percentage of the portfolio in a single bet. Obviously, higher weightings will be placed on the more attractive bets, and a smaller proportion of the investment will be placed on trades that are less promising.

Some traders initiate each trade with 2% of the portfolio money. If a trade becomes more attractive from the risk-reward perspective, more money will be placed on the bet. Controlling the size of each trade is important and also requires lots of discipline.

Placing a certain amount of portfolio money in a single trade is known as position sizing. It is a good risk management control. Regardless of investment or trading, investors and traders should use the concept of position trading to manage risk.


Ang has 20 years’ experience in research and investment. He is currently the chief investment officer of Phillip Capital Management Sdn Bhd.


This article appeared in The Edge Financial Daily, June 21, 2010.

Thursday, 25 June 2009

Core Tenets in Value Investing

Read this promotional pamplet. It contains all the core tenets of value investing in a single page. Very useful indeed.


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Inside Value will help you:
Build your retirement dreams on a rock-solid foundation
Value is what intelligent investing is all about. You'll get all the tools and advice you need to invest in great value stocks. And along the way you'll gain the discipline, objectivity, and patience of a great value investor.

Watch your investments like a hawk
Our focus on value and free cash flow will help you keep a close eye on the stocks you own. Our live interactive scorecard shows your results throughout the trading day. It makes it easy to track each of your stocks against the S&P 500's return. Our weekly updates will keep you informed and up-to-date on any important developments with your stocks.

Experience new freedom from worryNo matter what the market does, you'll own stocks that are already priced below their value. They'll better hold their prices in bear markets and will soar higher in bull markets. Most of my recommendations are long-term “buy-and-holds,” so you don't need to worry about trading or timing the market. But when it's time to take profits, or if there's another reason to sell, I'll let you know.

Discover your true potential as an investor — Value investing is what intelligent investing is all about. You'll expand your “circle of competence” as a knowledgeable value investor. You'll find that the tools and outlook of a value investor will help you in every investing situation, from choosing new stocks to managing your portfolio to knowing when to sell.
Simplify your life — There's never been an easier way to use all the tools of value investing. We make it easy for you to grab great bargains in companies you'll want to own for the long term.

All told, Inside Value is a total investor information system to help you build real wealth in the fastest, most reliable way possible.


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Your Subscription Includes:

12 Monthly Issues of Inside Value — Each month my team and I will bring you two stock picks that I believe are huge bargains based on their intrinsic value. With each stock we recommend you'll get the results of all our research covering: Business Analysis, Competitive Landscape, Valuation, and Risks. You'll get everything you need to take action — including a buy-below price, intrinsic value per share, and a risk level.

You'll receive your issues delivered in print form via U.S. mail. You can also download the issues online on the day of release, and you'll also receive an e-mail telling you the instant my latest issue is available online.

Each Issue of Inside Value includes these features:

Best Buys Now — These are the best opportunities on our scorecard right now in terms of potential returns and risk, and the Inside Value team determines this list every month based on rigorous Qualitative and Quantitative Analysis.

Scorecard — Where we track all our stock returns against the S&P 500.

Valuable Knowledge — This feature focuses on sharing the skills and insights that will help you become a better value investor.

Annual Review of Stock Performance — You'll get a complete recap of the performance of all our past picks every year.

And Your Subscription also includes:

Live Interactive Stock Scorecard — Our scorecard helps you keep track of how each of our recommendations is performing relative to the S&P 500. It's online and constantly updated throughout the trading day, providing current buy-below prices and intrinsic values for every stock.

Bonus Updates — You'll receive an e-mail update on our stocks each week. We'll also send you updates whenever there is important information you need to know about right away — from buying and selling a stock to our analysis of a development in the news.

Online Discussions with Value Investing Experts — You'll also have the chance to participate in our online Q&A forums where you can ask questions and get specific answers from my team of analysts.

All Back Issues — Every back issue of the newsletter is archived on the site so you can read every recommendation and every company update we've published.

Access to Our Subscriber-Only Website — Where you'll get a wealth of information to make you a more successful investor.

Interviews with the Experts — Where I bring you exclusive interviews with key executives at many of our companies and some expert value investors. You'll meet people such as George Buckley, the new CEO of 3M who also led the turn-around at Brunswick Corp.; Joel Greenblatt, founder of Gotham Capital and author of The Little Book that Beats the Market; Wayne Huyard, president of MCI; and scores of other leaders.

Discounted Cash Flow Calculator — This unique calculator gives a fast and easy way to value a company. You'll be able to decide in a matter of minutes whether it's a great value worth looking into. The calculator makes it simple to find the intrinsic value of the company per share; your margin of safety; and price to value ratio. This tool by itself could help you find great investments or save you from a huge mistake. Make sure you run any major investment through this unique and easy-to-use investment tool. It's only available to Inside Value subscribers at our password-protected website.

FREE Membership in Inside Value Discussion Boards — This online community includes conversations on every stock we've recommended in the history of the service. Where else can you learn about a stock directly from the candid experiences of the company's employees, customers and investors?

Plus:
Don't just make your money back — come out ahead! Here are 9 top stocks ready to rebound in 2009...

2008 was absolutely brutal — and no one was spared. But if history is any guide, the coming months and years will bring an epic market turnaround. And well-positioned investors won't just recoup their losses – they'll rake in incredible profits.

That's precisely why Motley Fool co-founders David and Tom Gardner recently recruited a team of the nation's top equity analysts and went to work...

Get Stocks 2009: The Investor's Guide to the Year Ahead

After hours of exhaustive research and intense number crunching, this cutting-edge team of stock pickers emerged with a list of 9 stocks that will position you perfectly for the coming rebound, including...


Tom's #1 pick... This global entertainment powerhouse absolutely dominates its industry, and Tom confirms it has “thrived through every business cycle imaginable.” That's why he's confident investors who get in right now will see at least 20% annualized returns over the next five years.

An industrial juggernaut averaging 25% gains per year since 1991. Despite worldwide turmoil, this company increased revenues 32% in the latest quarter, and senior analyst Tim Hanson conservatively values the company at twice its current price.

An under-the-radar oil play that dividend expert James Early calls the "best way to hit the mother lode." This company counts international oil giants like Aramco and Petroleos Mexicanos among its top clients, and despite the recent oil sell-off orders keep pouring in. And you can bet that once oil takes off again, this stock won't be far behind.

Today marks a once-in-a-lifetime opportunity to buy tomorrow's headline-making stocks while they're selling at all-time bargains. But you must act now — before the market rebounds and the Wall Street herd drives prices out of reach.

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Low Risk, High Rewards
It is my sincere wish to see you achieve your financial dreams with the power of value investing. Buying value stocks is the surest way to life-changing wealth. And Inside Value is the best source I know to help you do just that. I hope you accept this no-risk offer today.

Sincerely,

Philip Durell
Senior Advisor and Founder, Motley Fool Inside Value

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