Comments on: Where to Look in 2007 http://joecit.com/2007/01/09/where-to-look-in-2007/ Thoughts and advice on successful investing Sun, 06 Jul 2008 02:42:05 +0000 http://wordpress.org/?v=2.0.5 by: Ant Man http://joecit.com/2007/01/09/where-to-look-in-2007/#comment-4716 Thu, 12 Jul 2007 12:29:36 +0000 http://joecit.com/2007/01/09/where-to-look-in-2007/#comment-4716 Joe, Just curious if you happened to catch the article on the front page of today's WSJ. In sum, CEO John Mackey was using the online alias "rahodeb" on investing blogs, such as Yahoo's, in order to trumpet his company's success. Met by questionable bloggers he argued that Whole Foods would be an $800+ stock (after splits) in the next 10 years. Pump & Dump??? Furthermore, he said Whole Foods would never buy OATS at the current price, at the time $8, and then earlier this year agreed at a purchase price near $18.50 per share. Needless to say, the FTC is now attempting to sue, claiming the acquisition would dramatically reduce competition and they are holding "Rahodeb's" words against him. Joe,
Just curious if you happened to catch the article on the front page of today’s WSJ. In sum, CEO John Mackey was using the online alias “rahodeb” on investing blogs, such as Yahoo’s, in order to trumpet his company’s success. Met by questionable bloggers he argued that Whole Foods would be an $800+ stock (after splits) in the next 10 years. Pump & Dump???
Furthermore, he said Whole Foods would never buy OATS at the current price, at the time $8, and then earlier this year agreed at a purchase price near $18.50 per share. Needless to say, the FTC is now attempting to sue, claiming the acquisition would dramatically reduce competition and they are holding “Rahodeb’s” words against him.

]]> by: Joe http://joecit.com/2007/01/09/where-to-look-in-2007/#comment-223 Sun, 11 Mar 2007 17:47:45 +0000 http://joecit.com/2007/01/09/where-to-look-in-2007/#comment-223 Hey Joshua, Nice comment. Just to quickly answer your question #2: The company should be valued using a discounted cash flow method. Project the cash flows of the company into the future using an estimated growth rate and discount them to the present to arrive at an intrinsic value of the company today. The accuracy will obviously depend on your inputs, but this is the method any professional would use. For a decent explanation of DCF, check out the Wikipedia entry, http://en.wikipedia.org/wiki/Discounted_cash_flow -Joe Hey Joshua,

Nice comment. Just to quickly answer your question #2:

The company should be valued using a discounted cash flow method. Project the cash flows of the company into the future using an estimated growth rate and discount them to the present to arrive at an intrinsic value of the company today. The accuracy will obviously depend on your inputs, but this is the method any professional would use.

For a decent explanation of DCF, check out the Wikipedia entry, http://en.wikipedia.org/wiki/Discounted_cash_flow

-Joe

]]> by: Joshua http://joecit.com/2007/01/09/where-to-look-in-2007/#comment-220 Sat, 10 Mar 2007 07:09:21 +0000 http://joecit.com/2007/01/09/where-to-look-in-2007/#comment-220 Whole Foods Market - Incredible Company After reading John Mackey's blog "Conscious Capitalism: Creating a New Paradigm for Business" (http://www.wholefoods.com/blogs/jm/archives/2006/11/conscious_capit.html) I realized Whole Foods was being captained by a truly spectacular CEO with qualities very similar to Warren Buffett and Toyota (The book Toyota Way by Jeffrey Liker is a great read.) Why does Mackey share qualities smiliar to these two great business legions? 1. John Mackey's net worth is completely aligned with the shareholders. (Mackey still holds 1.1M shares) 2. He's CEO pay is $1 dollar without stock options 3. He works only because he wants to, like Buffett, he tap dances to work. 4. Like Toyota, whole foods market is a stakeholder's company. Meaning the company is aligned with customers, employees, suppliers and shareholders in a network that creates a long term outlook on performance; unlike a company that is aligned with its executives (obscene salary), and unlike a company that is aligned with its short term shareholders (people who buy a ticker, not a business.) 5. Like Joe says, because of their extreme customer friendliness; they create a competitive advantage that is not seen in other grocers. 6. If you listen to the webcasts Mackey will tell analyst that they want long term investors, people who will hold on the stock for ten years and not worry about the ups and downs. 7. Mackey doesn't release future expectations because he feels this isn't possible. 8. When Whole Foods bought Oats, they did not buy it because of "synergies" although this is expected. They bought it because they saw a great time to buy a distressed competitor in markets they were not in. Now, there are two things I wonder about, which keeps me from purchasing stock. 1. How much of a competitive advantage does their friendliness give them? Is it enough to be a franchise? Is it possible that organic food groceries become a commodity? 2. How to you properly value the company? Reason number 1 does not keep me from buying Whole Foods, because even if I had all the assets and liabilities that whole foods does without the name or great people - I couldn't do anything. Even if I had an extra 500M war chest, I couldn't do anything. The reasons why I don't buy whole foods, is because I don't know how to value companies and I'm not going to buy a company I can't value. Whole Foods Market - Incredible Company

After reading John Mackey’s blog “Conscious Capitalism: Creating a New Paradigm for Business” (http://www.wholefoods.com/blogs/jm/archives/2006/11/conscious_capit.html)
I realized Whole Foods was being captained by a truly spectacular CEO with qualities very similar to Warren Buffett and Toyota (The book Toyota Way by Jeffrey Liker is a great read.) Why does Mackey share qualities smiliar to these two great business legions?

1. John Mackey’s net worth is completely aligned with the shareholders. (Mackey still holds 1.1M shares)
2. He’s CEO pay is $1 dollar without stock options
3. He works only because he wants to, like Buffett, he tap dances to work.
4. Like Toyota, whole foods market is a stakeholder’s company. Meaning the company is aligned with customers, employees, suppliers and shareholders in a network that creates a long term outlook on performance; unlike a company that is aligned with its executives (obscene salary), and unlike a company that is aligned with its short term shareholders (people who buy a ticker, not a business.)
5. Like Joe says, because of their extreme customer friendliness; they create a competitive advantage that is not seen in other grocers.
6. If you listen to the webcasts Mackey will tell analyst that they want long term investors, people who will hold on the stock for ten years and not worry about the ups and downs.
7. Mackey doesn’t release future expectations because he feels this isn’t possible.
8. When Whole Foods bought Oats, they did not buy it because of “synergies” although this is expected. They bought it because they saw a great time to buy a distressed competitor in markets they were not in.

Now, there are two things I wonder about, which keeps me from purchasing stock.
1. How much of a competitive advantage does their friendliness give them? Is it enough to be a franchise? Is it possible that organic food groceries become a commodity?
2. How to you properly value the company?

Reason number 1 does not keep me from buying Whole Foods, because even if I had all the assets and liabilities that whole foods does without the name or great people - I couldn’t do anything. Even if I had an extra 500M war chest, I couldn’t do anything. The reasons why I don’t buy whole foods, is because I don’t know how to value companies and I’m not going to buy a company I can’t value.

]]> by: Bruce http://joecit.com/2007/01/09/where-to-look-in-2007/#comment-101 Sun, 14 Jan 2007 21:46:02 +0000 http://joecit.com/2007/01/09/where-to-look-in-2007/#comment-101 I live in Dallas and have watched Whole Foods since the 80s and believe in this company. Remember this stock just split so it will have to go just a little bit more before I can get in. Good article. If you have any other good stocks let me know. I love aapl which I have been in since 2 years ago should have been into it long because I am a graphic artist and use a mac. Also love rimm which I got into several years ago. I live in Dallas and have watched Whole Foods since the 80s and believe in this company. Remember this stock just split so it will have to go just a little bit more before I can get in. Good article. If you have any other good stocks let me know. I love aapl which I have been in since 2 years ago should have been into it long because I am a graphic artist and use a mac. Also love rimm which I got into several years ago.

]]> by: Dave http://joecit.com/2007/01/09/where-to-look-in-2007/#comment-84 Wed, 10 Jan 2007 21:15:18 +0000 http://joecit.com/2007/01/09/where-to-look-in-2007/#comment-84 First Whole Foods. Their stock has really plunged and you could buy them now for the cheapest price in 2 years. Not too bad. PE is still high by P/CF is a reasonable 14. Still I prefer Walmart at P/CF =10. WMT has a higher ROE. WMT should perform better in a recession than WF since people will buy cheaper things. My wife calls them Whole Paycheck. You might not see a recession ahead or even care to guess but I am very bearish on the economy. Maybe that is because I live in LA where the craziness is more manifest. Which leads me to homebuilders. The low PEs of 3-6 don't really mean that investors are down on the homebuilders. Earnings are dropping by 70% in some cases so forward PEs are more like 10-12. Still fairly low but who knows what comes next. The popular opinion is still that we are at the bottom on the housing cycle which I think is rediculous. I think it has hardly started. I am waiting until it is widely accepted that we are in a recession and people are really worrying that some builders will go bankrupt. When all of that is priced in I will feel that there is a margin of safety. One needs to study the last two housing crashes in 1991 and 1980 to underdstand this one. To be conservative, assume that it will be worse than both of them. I think when people look at the past, they really just look at the stock prices. They see 1991 as a time when these stocked trippled in a year and want to get in on that again. Greed is more dominant than fear right now. These stocks are priced for a quick recovery not a prolonged slump. They don't remember US Homes which went bankrupt. I will email you a report by Merrill Lynch on those bankruptcies, the last time around. Try to price homebuilders with P/Book and look to buy them below book value and only when you understand their liquidity situation and also their off balance sheet situation. For example look at TOA's recent problem with their joint venture. First Whole Foods. Their stock has really plunged and you could buy them now for the cheapest price in 2 years. Not too bad. PE is still high by P/CF is a reasonable 14. Still I prefer Walmart at P/CF =10. WMT has a higher ROE. WMT should perform better in a recession than WF since people will buy cheaper things. My wife calls them Whole Paycheck. You might not see a recession ahead or even care to guess but I am very bearish on the economy. Maybe that is because I live in LA where the craziness is more manifest.

Which leads me to homebuilders. The low PEs of 3-6 don’t really mean that investors are down on the homebuilders. Earnings are dropping by 70% in some cases so forward PEs are more like 10-12. Still fairly low but who knows what comes next. The popular opinion is still that we are at the bottom on the housing cycle which I think is rediculous. I think it has hardly started. I am waiting until it is widely accepted that we are in a recession and people are really worrying that some builders will go bankrupt. When all of that is priced in I will feel that there is a margin of safety. One needs to study the last two housing crashes in 1991 and 1980 to underdstand this one. To be conservative, assume that it will be worse than both of them. I think when people look at the past, they really just look at the stock prices. They see 1991 as a time when these stocked trippled in a year and want to get in on that again. Greed is more dominant than fear right now. These stocks are priced for a quick recovery not a prolonged slump. They don’t remember US Homes which went bankrupt. I will email you a report by Merrill Lynch on those bankruptcies, the last time around. Try to price homebuilders with P/Book and look to buy them below book value and only when you understand their liquidity situation and also their off balance sheet situation. For example look at TOA’s recent problem with their joint venture.

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