DGI For The DIY

[TomK]

(01-04-2014, 11:45 PM)EricL Wrote: Doubled my IBM position on Thursday with new money I had available in the account.

Love the long term prospects of the company and feel the stock is at an attractive price here.

I've been trying to understand IBM better for a while now. Can you expand on why you love its long-term prospects? It has essentially turned itself into an IT, software, and consulting business, right? So where is the moat and margin in that? Except possibly for scale, I just don't understand what IBM's market advantage is anymore. And I've heard several people say that EPS growth is largely due to the buyback and not revenue growth. So, I would love to hear the bull case for IBM from someone who has looked into it more.

Thanks!

[EricL]

I feel IBM is a core holding in my portfolio and based on its track record over the last twenty years it looks like a bargain to me at current levels. Revenue growth has slowed recently but between stock buybacks and growing higher margin parts of the business the earnings are projected to grow 10% per year over the next 5 years. With a current PE of just 11, I think its a great value.

Here are the historical growth rates over a few periods (numbers from fastgraphs).
20YR EPS = 20.2%
20YR DG = 9.0%

15YR EPS = 11.2%
15YR DG = 15.7%

10YR EPS = 13.9%
10YR DG = 19.2%

5YR EPS = 15.1%
5YR DG = 17.2%

With earnings expected to grow at 10% going forward and dividends likely to as well, I think the stock will do fine over the long run.

[ronn38]

I agree with the above assessment of IBM as a business, and am long in the company.

But on a more speculative note, I believe when they get Watson sorted out- it will be the beginning of 21st century computing.

And I think their power8 chip could give Intel's Xeon processors a run for their money.

Ronn

[EricL]

My 2013 recap has been posted on Seeking Alpha.

http://seekingalpha.com/article/1946771-...2013-recap

[EricL]

Made a trade today.

Sold out of my GPC position for a 21% gain.

Bought GME at $38.49.

GPC appears moderately overvalued according to FAST Graphs with a 19.9 PE vs. a 10 year average PE of 16.6.

GME recently announced a 20% increase to the dividend, which boosted the payout to $1.32 and a yield of 3.4%. The company is trading at a PE of just 11.6, has zero debt, and $650M in cash with a market cap of just $4.45B. Also generates significant cash flow and has authorized a stock buyback worth about 10% of the market cap.

Analysts project earnings to increase by greater than 10% annually over the next 5 years, which is great considering its current low valuation.

[Dividend Watcher]

Eric, that sounds like an interesting company. It's been around for quite a while but it was never on my radar. I guess because, as an old fart, I automatically dismissed any gaming company.

What do you think their secret is that didn't cause them to implode like many other game retailers?

[rnsmth]

I took a quick look at GME. Not interested. Too many questions that need answers.

[EricL]

(03-12-2014, 06:46 PM)Dividend Watcher Wrote: Eric, that sounds like an interesting company. It's been around for quite a while but it was never on my radar. I guess because, as an old fart, I automatically dismissed any gaming company.

What do you think their secret is that didn't cause them to implode like many other game retailers?

I don't know what their secret sauce is other than the trade in program good for cash towards new games/systems. Obviously the market has been doubting them for some time as its been a volatile stock despite earnings and cash flow growing at a steady clip for the last decade.

   

The share count has been cut by about 30% since 2010 and is projected to be cut further with current buyback program. They generate huge cash flows and with no debt can return that to shareholders, which they are doing with the recent established dividend and further buybacks.

I would call this as much a capital gains play as a long term buy and hold play. The stock is roughly 50% off of its 52 week high and yields 3.4%. Trading at a PE under 12, I think there is some safety and potential for upside.

I guess stocks like this are what makes a market as there are plenty of investors who don't like it.

[Jason]

I haven't played video games since I majored in Madden 93 back in college. I was wondering if you feel like gamestop's business model will be around in ten years. I feel like gaming will shift to online subscriptions but maybe they are in that market as well. This could be the replacement for Hasbro that I have been looking for.

[EricL]

(03-13-2014, 08:42 AM)Jason Wrote: I haven't played video games since I majored in Madden 93 back in college. I was wondering if you feel like gamestop's business model will be around in ten years. I feel like gaming will shift to online subscriptions but maybe they are in that market as well. This could be the replacement for Hasbro that I have been looking for.

That's been the fear and a cloud hanging over GME. So far the fear has been mostly unfounded and gamers prefer to have the physical game so they can trade with others and resell it when done with it.

Its still a concern going forward and how the company positions itself in the market will be important.

As of its most recent sales update, digital and mobile sales were about 10% of revenues ($300M of $3B).

Next earnings release is March 27.