Bumps ahead?

Given the turmoil in the Middle East and the earthquake in Japan, many market observers expected the market to have a bigger pullback.  Instead, the market appears to be resilient to any "Black Swan" event.  Instead, many keen market observers are beginning to put up the warning flags that big risks are ahead for investors. 

For example, HSBC is cutting its growth targets and increasing inflation targets.  The key area of concern is the large increase in commodity prices; never in history has there been this large of an increase in commodity prices following a protraction.  The high commodity prices will lead to higher input prices and higher prices will begin to erode the confidence of both firms and households.  HSBC sees the scenario play out this way with oil prices: higher oil prices will lead to a reduction in disposable income which will lead to a decrease in capital spending which will lead to a decrease in imports which will lead to a decrease in world trade.  In other words, there will be a redistribution of wealth from high spending economies (i.e. the U.S. and Europe) to the high saving economies (i.e. developing economies).

As commodity prices continue to rise, Federal Reserve Governor James Bullard is calling for the Federal Reserve to draw up an exit plan of QE2.  His rationale is the economy is doing alright, thus QE2 is no longer needed.  Market observers are unsure of the impact of withdrawing QE2 will have on the global equity and commodity markets.  Both of these markets have been benefactors of the low interest rates and cheap dollar that QE2 has produced.

While many investors are unsure of what the true effect of no longer having QE2 will be on the markets, two key investors are not investing in the dollar or U.S. Treasuries.  The two key investors are Warren Buffett and Bill Gross.  When asked about investing in U.S. Treasuries, Mr. Buffett responded by saying that in five-, ten-, or twenty-years down the line, the dollar's purchasing power will be eroded by the monetary policy being currently pursued.  As a result, Mr. Buffett has begun to move out of U.S. fixed income assets.  The assets remaining in his portfolio have short duration (i.e. short maturity).  The price of short duration securities are less impacted by an increase in interest rates that long duration securities.  Increasing inflationary expectations will increase interest rates, thus negatively impact the price of bonds.  Bill Gross, the other key investor, has sold off all Treasuries in the portfolios he manages.

So, where does that leave investors? 

To be perfectly honest, I do not believe there is a safe place for an investor to be.  As a result, I would be hesitant to hold the US dollar and would prefer to be long the Euro and other emerging market currencies for the long-term  The dollar is facing uncertainty as the leadership in Washington do not seem to want to tackle both old and new problems head on.  Continued overspending will lead to more borrowing, and force the dollar to continue a downward trend.  In the long-term, commodities will contine to rally.  As a result, there will be increased investment in emerging economies.  This will cause those currencies to continue appreciating against the dollar.  Central bankers in those economies will need to react and will begin to increase interest rates.  This will be a positive for the currencies of emerging economies, but will be a negative to the dollar.

As a result of a declining currency, average U.S. investors will need to hedge their investments.  As I have stated before on this blog, I would begin to invest in high-quality U.S. stocks with strong franchises and high developing market exposure.  First, companies with strong franchises will be able to pass on higher costs to consumers.  Second, companies with strong developing market expsoure will benefit from a weaker dollar.  Since the products of these companies will priced in dollars, products sold by U.S. based companies will look cheaper as a result of the weak dollar, thus increasing demand.  In addition, when the non-US dollar sales are converted back into U.S. dollars, these sales will be worth more as it will take more U.S. dollars to purchase these other currencies.  The net impact on these companies should be higher sales and profit, in addition to higher cash flow.  Higher cash flow will enable these companies to increase dividends and repurchase shares. 

As a sidenote, look for companies that will have the ability to grow dividends at a higher compounded rate than inflation.  In this case, investors will increase their purchasing power.

Reading List - March 28, 2011

New tech bubble?

Many Wall St. observers are worried that the recent wave of interest by Wall St. into social media websites is going to spell doom for the industry.  Although there are some similarities to the tech bubble of the late 1990's, there are several differences.  First, tech companies in the late 1990's often did not have a business model.  The social media websites of today often have growing revenues and viewed as actual real, growing businesses.  Second, the pool of capital that is chasing these social media websites is much larger.  As a result, the fall will be quicker if in fact a "social media bubble" is forming.

The risk in the industry right now is there are so many players placing bets on such a small amount of companies.  Facebook is clearly the biggest and most recognizable, but others such as Groupon and Zynga continue to have capital poured into them.  As a result, private equity firms, investment banks, and hedge funds are investing in losers or simply paying too much. 

Investing Like It's 1999 (click here)

Is the market undervalued? oversold?

Many Wall St. traders expected the market to have gained too much steam recently, and predicting a sell off in the 7-10% range.  Instead, with all of the turmoil in Arab world and earthquake in Japan, the markets have sold off less than 5%.  In addition, several key investors like Bill Miller have stated the market is undervalued whether it be against the past, or against factors like inflation.  Inflation is the key as policymakers look to curb inflation, and debate the merits of programs like QE3.  Excerpt:

We are no longer in an environment where confirmation of the sustainability of economic recovery reduces risk premiums and generates a revaluation of cheaply priced assets,” Barclays told clients. “Instead, asset prices are closer to fair value and stronger growth is now accompanied by signs of higher inflation and an increased probability of policy tightening.

Indeed, those final two words are likely to be key as the market looks for gains in a modestly steadying economy. The real bet, then, may not be on whether growth has reached a plateau but whether stocks can keep rolling once the Federal Reserve ends its easing program and takes off the training wheels. The market has never been the beneficiary of such monetary largesse before, so cutting the cord could be a shock greater than any of the global storms that have come along.

Stocks Are Cheap, Right? (click here)

Paulson's Legendary Parties

In the depths of the recession, John Paulson was criticized for his lavish parties.  It appears the "legend" of these parties now appear on NBC's 30 Rock...

'30 Rock' and Paulson's Big (Fictional) Party (click here)

Reading List - March 21, 2011

AT&T Announcement

On Monday, it was announced AT&T would like to acquire T-Mobile.  Deutsche Telecom, current owners of T-Mobile, want to exit the U.S. market.  This deal will continue to receive scrutiny going forward, and will continue to receive attention regarding the issues of financing and the anti-trust ramifications.  Expect more posts in the future.  Below is an article from DealBook that I think does a good job highlighting the deal and deal's total costs.

AT&T's Full Cost for Getting T-Mobile (click here)

I try to be slighly contrarian in my thinking, so articles like the one below perk my interest.  The article is about the bridge loan JPMorgan is providing to AT&T, as the loan is the large single takeover loan ever provided by one bank.  Key reasons why JPMorgan decided to go it alone include: 1) excess reserves, short-term loans; 2) dominating the replacement of the bridge loan as AT&T will need to repay the loan with proceeds from a debt or equity issuance; 3) flight to safety as AT&T is too big to fail; 4) indication of a credit bubble.

In my opinion, all of the articles above seem very credible and make very good sense from JPMorgan's viewpoint.  By being involved in an oligopoly, AT&T is a very safe company and JPMorgan will be able to earn a higher rate of return on large amount of excess cash than it currently is.  Furthermore, as the economy and credit markets continue to improve, JPMorgan is trying to get the "swagger" back and show it is now the "big dog" on Wall St. 

How to Think About JPMorgan's $20 Billion AT&T Loan (click here)

Fed Stress Tests

On Friday, it was announced that several large U.S. banks passed stress tests.  Big banks included JPMorgan, Goldman Sachs, and U.S. Bank to name a few.  As a result of these stress tests, these banks can begin to pay dividends and re-engage in share repurchase programs.  In my opinion, the outcomes of these stress tests are both good and bad. 

On the good side, it is great these banks can begin to start paying dividends again.  Going into the financial crisis, banks like Bank of America were dividend darlings.  When the crisis broke, dividends were greatly reduced or suspended entirely.  Allowing banks pay higher dividends should be a positive for the sector, as more institutional and retail money should flow to take advantage of the higher yields.

On the bad side, I am weary of the share repurchase program.  These programs often do not work and deplete capital.  Going into the financial crisis, most banks engaged in share repurchase.  Banks continued to repurchase shares at the peak, and only then issue shares at the trough.  Not a good use of shareholder capital!  Share repurchase programs often depleted owner's equity and cash the banks need to act as a cushion during the crisis.  I just hope bank's are more prudent in all areas during this next cycle.

Thumbs up to dividends, thumbs down to share repurchase programs!

A Test Where the Banks Had the Questions and Answers (click here)
With Fed Consent, Banks Raise Dividends and Buy Back Stock (click here)

Citi - reverse stock split and dividend re-instatment

Many investors feel Citi (C) is a buy, but there are still many issues at the bank.  Monday's announcement of a reverse stock-split and re-instatment of the dividend are more symbolic gestures.  Citi announced that there will be a 10-for-1 reverse stock split.  In other words, for every 10 shares of C that an investor owns, they will now own one share.  I would like to elaborate more on the reverse stock split.

In a normal environment, a firm wants to have a stock-split if they expect the firm's shares to continue to peform well.  This is predicated on the belief there is a "sweet spot" for the share price.  The "sweet spot" varies, as I have heard all sorts of ranges.  I believe a safe assumption of the "sweet spot" is a range of $20 per share to $100 per share.  So, if shares rise to $110, management will often have a 2-for-1 stock split.  The idea behind this is that investors like to own shares when they trade at certain prices.  Shares of companies like Google or Apple that trade in the hundreds of dollars may be "too expensive" for investors.

What does the reverse stock split signal to the markets?  When a company has a reverse stock split, it is essentially is a signal to management the firm is not confident the firm can return to the bottom edge of the "sweet spot" on market conditions alone.  Management "engineers" this sweet spot using a reverse stock split.  As a result, researchers have found companies that undergo reverse stock splits often lag the market.

Citigroup Plans Dividend and Reverse Stock Split (click here)
Reverse Stock Splits Don't Bode Well (click here)

One interesting sidenote is the reverse stock split should reduce volatility for Citi shares.  The key reason behind this is that traders often make money on trading low priced shares like Citi in two ways.  The first way is through the spread, and the second way is through rebates. 

Let me illustrate.  For example, I'm a trader who owns 1 million shares of Citi.  The bid is $4.50 and the ask is $4.51.  I continuously buy and sell shares making money "on the spread," or the $0.01 difference between the bid and ask price.  In the case of 1 million shares, total profit is $10,000.  As the article states, it is not always as easy as this.  Because I'm acting as a market maker and providing liquidity in this situation, most U.S. exchanges will reward me for this through what's called a "rebate."  Typically, it is 15 mils, or 0.15 of 1 penny.  If I trade those million shares, I can earn up to $1,500 per day by providing liquidity.  So, as a trader, I can make money on both the spread and providing liquidity.

Why is Citi so suitable for this trade.  According to Tradeworx Founder Manoj Narang,

“Suitability” comes from low price and high volume. Low price is desirable because rebates are done on a PER SHARE basis, rather than on a percent-of-price basis. Thus, stocks with low price have a very high rebate as a percentage of their volatility (i.e. very high reward:risk ratio).

Citigroup exemplified both of these characteristics—extremely high share volume and extremely low price—in a way no other stock does. This was really a one-time anomaly created by the financial crisis, so it is not likely to be replicated in the future.

Trading in Citi is a Whole Sub-Industry (click here)
High Frequecy Trading: Can Any Stock Replace Citigroup (click here)

Warren Buffett Watch

On Japan...Warren Buffett believes that Japan is still a "buy."  Rare, one-time events like the earthquake and tsunami that struck Japan only create buying opportunities.
Why Buffett Thinks Japan is a Buy (click here)

Goldman Repayment...Because Goldman Sachs passed the Fed's stress tests, Goldman Sachs will repurchase the $5 billion preferred stock investment, at 10% per year, from Mr. Buffett.  In all of Berkshire's history, this has to be one of the most lucrative deals.  In his annual letter to shareholder's, Mr. Buffett made reference to the fact he will not be happy when Goldman wants to repurchase the preferred shares.  In addition, Mr. Buffett holds warrants to buy $5 billion of Goldman shares at $115 until 2013.  As the article states, this would net a profit for Berkshire of about $2 billion.
Warren Buffett Gets an Unwanted Call from Goldman Sachs (click here)

On Future Deals...In the market Monday, the market was partially up due to the comments made by Mr. Buffett that he is still on the lookout for acquisitions.  The acquisition of Lubrizol earlier this month depleted approximately $9 billion of cash from Berkshire Hathaway.  Any new deal will likely be smaller as Berkshire will need to raise additional capital for any larger deals.  Key reasons is Mr. Buffett does not like issuing equity (as he feels Berskhire is trading below its intrinsic value) and prefers to keep approximately $20 billion of cash on balance sheet.  He addressed both of these issues in his most recent letter to shareholders.
Warren Buffett Still on the Lookout for Deals (click here)

25 Guys to Avoid on Wall St.

No comment...

25 Guys to Avoid on Wall St. (click here)

Company Analysis - General Mills (GIS)

Firm overview

According to the Form 10-K, General Mills is, “…a leading global manufacturer and marketer of branded consumer foods sold through retail stores…a leading supplier of branded and unbranded products to the foodservice and commercial baking industries.”  Major product categories include ready-to-eat cereals, refrigerated yogurt, ready-to-serve soup, frozen dough products, and a wide variety of organic products.  Key brands include Cheerios, Wheaties, Lucky Charms, Yoplait, Pillsbury, Betty Crocker, Nature Valley, and Progresso.

Growth strategy

Strategy

The firm strives to come up with new food ideas and brand them uniquely, so ensuring brand identity is important.  Per the Form 10-K, there are four key parts to the growth strategy:

1.       Low digit annual growth in net sales

2.       Mid single-digit annual growth in total segment operating profit

3.       High single-digit annual growth in EPS

4.       Improvements in return on average total capital

To achieve these goals, GIS intends to adapt to demographic changes in the U.S. economy, in addition to expanding product lines in emerging economies with a growing middle class.  For example, in the U.S., GIS is targeting the baby boomer generation and rising number of Hispanics.  To target baby boomers, GIS is focused on emphasizing the health benefits of foods it produces, in addition to offering healthier products.  To target Hispanics, GIS is increasing advertising; the firm is the leading advertiser in the Hispanic media.

GIS is also targeting emerging economies with growing middle class populations by introducing products and creating marketing materials that suit these local populations.  One key growth area is China.  To target the Chinese consumer, GIS is focusing on ice cream through the Haagen-Dazs brand, frozen foods through the Wanchai Ferry brand, and snacks like Bugles and Twix.  For example, GIS has focused on building the Haagen-Dazs brand by creating ice cream shops that are experiences.  Local consumers can order anything from a simple scoop of ice cream to an elaborate dine-in creation.

A final area of strength is the strong relationship with Wal-Mart.  Currently, Wal-Mart represents approximately 20% of all frozen food sales; over 20% of GIS’s sales are through Wal-Mart.  The firm will need to be able to continue to meet Wal-Mart’s price demands; this may decrease margins.  Having this close relationship with Wal-Mart will be important in the future, as Wal-Mart seeks to expand in emerging economies.

Risks

Key risks to the strategy include failure to create products that meet customer’s desires, failure to manage the relationship with Wal-Mart effectively, and future food prices.  Consumer’s tastes are always changing; consumers in the U.S. want healthier alternatives.  This will be a group the company needs to effectively target and keep as the firm continues to grow.  In addition, rising input costs through higher commodity prices might limit the firm’s pricing power.  Higher input prices may lower margins, as the firm may not be able to effectively pass on higher input costs to consumers.

Profitability

From 2006 to 2010, GIS was profitable on all levels.  Total net profit increased from $1.0 billion to $1.5 billion; profit per share increased from $1.34 to $2.32 per share.  Profit per share increased at a greater rate than total net profit due to share repurchase.

Overall, management appears to have effectively managed costs.  The cost of goods sold was approximately 64% of sales in each year other than 2010; cost of goods sold fell to 60% in 2010.  Selling, general, and administrative expense has risen in total from 19% of sales in 2006 to 22% of sales in 2010.  Net profit margin has fluctuated was in the 9%-10% in four of the five years; in 2007, net profit margin was only 7%.

Leverage

Balance sheet metrics

Debt-to-total capital is a good proxy for a firm’s ability to increase debt and service debt.  From 2006 to 2010, GIS’s debt-to-total capital ratio increased from 47% to 53%, peaking at 57%.  The change is attributed to the increase in the total amount of debt, in addition to the decrease in equity from share repurchase.  Total debt increased from $6.0 billion to $6.4 billion, while peaking at $7.0 billion in 2009.  It is important to note these share buybacks may not give a true picture of what a company’s equity is; transactions made at market value mixed with historical entries may lead to negative equity.

Coverage metrics

While looking at traditional leverage metrics is important, analyzing debt coverage metrics in relation to income and cash flow is also important.  From a balance sheet perspective, GIS’s leverage worsened; from a coverage perspective, GIS’s leverage improved or was flat.  This indicates the increase in earnings and free cash flow is greater or equal to the increase indebtedness of the firm.

Return on capital

Return on equity

GIS’s return on common equity improved from 2006 to 2010; return on common equity increased from 14% to 27%.  The firm has higher than average return on common equity.  Return on common equity increased because of improved profitability, improved asset efficiency, and increased leverage.

Return on assets increased from 8% to 11% during that time period.  This was partially driven by increasing efficiencies in working capital.  Day sales in inventories remained flat averaging around 33 days, while day sales in receivables improved from 34 days to 25 days.  This increased efficiency will allow the firm to generate more operating cash flow; the firm can use the higher operating cash flow to increase capital expenditures, increase dividends, or repurchase outstanding shares.  In addition, the firm can increase leverage with the greater ability to cover debt with cash flow.

So, was the increase in leverage effective?  One metric to determine that is the financial leverage index.  A ratio over one indicates the favorable effectives of leverage.  The financial leverage index increased from 1.9 to 2.5; firm’s management has used leverage to effectively increase return on common equity and return on assets.

Return on unlevered tangible net assets

This is a metric Warren Buffett uses to look at companies.  In his most recent letter, Mr. Buffett stated great companies have a return on unlevered tangible net assets of 25% or greater are great businesses; this ratio can exceed 100%.  The firm’s return on unlevered net tangible assets increased from 76% to 202%.  The increase can be attributed to increased debt and reduced equity as result of the firm’s share repurchase strategy, in addition to higher net income.  By Warren Buffett’s standards, GIS is a great company.

Total shareholder return

Dividends

At fiscal year-end 2010, GIS paid $0.96 per share in dividends, or a dividend of approximately 2.8%.  From 2001 through 2004, the firm paid a quarterly dividend of $0.1375 per share, or $0.55 per year.  From 2005 to 2010, the firm started to increase dividends increasing dividends by approximately 11% annually.  With an 11% annual growth rate, the dividend could almost triple from $0.96 to $2.73 by 2020.

Per the Form 10-K, GIS does not have an explicit dividend payout ratio; the firm is seeking to return cash to shareholders.  From 2006 to 2010, based on net income, the dividend payout ratio decreased from 51% to 35%.  A dividend payout ratio of less than 50% is preferable, as a firm’s management has the ability to increase dividends without risk of it being reduced in the near future.  From 2006 to 2010, based on free cash flow, the dividend payout ratio has fluctuated; the free cash flow payout ratio had a low of 34% to a high of 55%.  GIS’s dividend appears to be intact and will grow in the future.

Share repurchase

Per the Form 10-K, GIS intends to reduce total shares outstanding by approximately 2% per year, or 100 million shares in total.  Committing to share repurchase is part of the GIS’s strategy.  Shares were repurchased at a discount when looking at the trailing twelve month price-to-earnings multiple (TTM P/E).  In 2006, the TTM P/E was 19.3 decreasing to 15.1 in 2010.  In addition, the firm increased leverage to repurchase shares.  In each of the years, the ratio of cash spent on share repurchase exceeded or was near 100% of net income and free cash flow.  Additional borrowings were needed to meet the cash shortfall to pay for other items like capital expenditures or dividends.

Valuation

To value GIS, I tried to use both a discount cash flow model, in addition to using P/E multiples.  Each of these were adjusted to reflect the inherent business risk and financial risk in the firm.

Assumptions

To value GIS, I needed to make several assumptions:

1.     Earnings growth will be 8% in 2012 and 10% each year after that.  Per the Form 10-K, GIS hopes for high single digit growth.  An increasing market share in China and other emerging economies should make 10% annual growth a possibility.  I also assume  a 10% growth rate to be the growth rate for terminal cash flows.

2.      GIS has effectively managed the cost structure for several years.  I assumed cost of goods sold would be 63% of sales, in addition to selling, general, & administrative expense as 20% of sales.

3.     GIS has improved working capital management over the past five years.  Management hopes that working capital increases at a lower rate than sales.  Based on this, I used aggressive working capital assumptions.  These include 25 days for day sales in receivables, 33 days for day sales in inventories, and 21 days for day sales in payables.

4.     For dividends payable, I assumed the dividend will grow at 11% per year and total dividends paid will equal the total forecasted number of shares outstanding.  For share repurchase, I assumed the company will repurchase 2% of shares outstanding (per the Form 10-K) at the earnings per share for that year at a 15.9 P/E multiple.

Free cash flow to equity (FCFE) valuation

I hope to earn 15% each year in my portfolio, thus the base discount rate I use is 15%.  I adjust the 15% for business risk and financial risk.  According to this model, I believe GIS has 85% the business risk as the average firm, but 110% the financial risk as the average firm.  Thus, the discount rate is 14.03%.

Risk unadjusted discount rate	15.00%
	x
Business risk factor	0.85
	x
Financial risk factor	1.10
	=
Risk adjusted discount rate	14.03%

Given the assumptions stated above, the intrinsic value of GIS is $43.87 per share.  At market close on March 14, GIS closed at $36.92 per share, or 18.82% below the intrinsic value of the company.

In addition, I calculated the risk adjusted margin of safety for GIS.  The risk unadjusted margin of safety for any company in my portfolio is 30%.  After adjusting for risk and future earnings and dividends, the risk adjusted margin of safety for GIS is 15.90%.  The company is trading at a deeper value than the amount it is trading below intrinsic value.

Initial required rate of return	30.00%
	-
Earnings growth	10.00%
	-
Dividend yield	3.00%
	=
Risk unadjusted margin of safety	17.00%
	x
Business risk factor	0.85
	x
Financial risk factor	1.10
	=
Risk adjusted margin of safety	15.90%

Price-to-equity valuation

I also want to calculate GIS value based on a P/E multiple.  Similar to the FCFE valuation, I want to first calculate a “fair value P/E” in addition to a “buy P/E” and a “sell P/E.”  In a historical context, a firm like GIS with 10% annual earnings growth should have a P/E of 14.5.  Since GIS has a 3.0% dividend yield, the fair value P/E of GIS is 17.5.  After one adjusts for the business and financial risks, the buy P/E for GIS is 15.63 and sell P/E is 20.47.

	Given	P/E adjustments
Earnings growth	10%	14.50
		+
Dividend yield	3%	3.0
Basic P/E		17.50
		x
Business risk factor	0.85	1.15
		x
Financial risk factor	1.10	0.90
		x
Earnings predictability factor	1.00	1.00
		=
Fair value P/E		18.11		Fair value P/E		18.11
		/				x
Risk adjusted margin of safety	15.90%	115.90%		Fundamental return	13.00%	113.00%
		=				=
Buy P/E		15.63		Sell P/E		20.47

 

I forecast EPS for GIS to be $2.54 in FY 2011.  Given the March 14 closing price of $36.92, the forward P/E is 14.54.  This P/E is below the buy P/E signaling to investors that given the risk characteristics and potential earnings power, GIS is trading at a discount to intrinsic value.

Conclusion

I would rate GIS as a BUY for the following reasons:

1.      GIS is one of the leading brands in each of the categories it serves.  It would be hard for a consumer to shop in any grocery store and not find the key brands like Cheerios, Wheaties, or Pillsbury.  This strong brand recognition allows GIS to pass on price increases to customers.  In other words, the firm has high pricing power and an “economic moat” around the business.

2.     GIS has operations effectively under control.  Regarding costs, the largest part of the cost structure includes input costs (i.e. cost of goods sold) that are highly volatile and affected by commodity costs.  The consistent margins indicate GIS can pass on higher costs to consumers.  Also, GIS has increased working capital efficiency over the five-year period analyzed.  GIS will need to continue to maintain current operating efficiency to generate cash to help pay for capital expenditures, dividends, and share repurchase.

3.     The one negative for GIS is the balance sheet.  With a credit rating near the bottom of investment grade credit, the firm needs to stay focused on maintaining that rating to ensure easy access to credit markets. In addition, the aggressive share repurchase strategy has meant the firm has increased leverage to fund it.  Although the firm has improved operating efficiency, dividend increases and aggressive share repurchase strategy means the firm will need to continue to access debt markets, and possibly increase total debt into the near future.

4.     The most important factor is GIS is trading at a value below its intrinsic value.  According the FCFE model, GIS is trading at approximately 18.8% below intrinsic value, which is greater than the risk adjusted margin of safety.  According the P/E model, the buy P/E is below the current market P/E signaling the stock is undervalued.

This information is for educational purposes only, and the opinions expressed do not constitute a recommendation to buy or sell. Author may have a position in the companies discussed, subject to change at any time. Information on this website obtained from reliable sources, but there is no guarantee of accuracy. Please consult your financial advisor before making investment decisions. Past performance is not indicative of future success.