Saturday, July 30, 2016

How To Identify Interesting Companies

What kind of companies are we looking for? We use what most people would refer to value investing. This means that we look for companies that have a solid business model with an edge compared to competitors.

The business model needs to be easy to operate and it should have a long term viability. That could mean that the company shows good revenue growth with a decent profit, both revenue and profit should be growing year-to-year and should have done that for many years. We do not invest in companies that don't grow their revenue or that are not profitable.

Another aspect we look at is the amount of long-term debt. We prefer companies with low or ideally no long term debt at all. While at the moment we enjoy a phase of very low interest rates, this can change. The more long-term debt a company has, the bigger the impact will be on profitability once interest rates start to increase. A company with a lot long-term debt will need more time to pay back the principle in order to reduce the interest paid for that debt. Money used to reduce debt is not available elsewhere in the company.

Another factor is whether we understand the business model of the company. We accept that companies are exposed to risk. As long as those risks are either clearly declared by the company or otherwise visible, it's fine as we can then consider those risks as part of our investment decisions.

When we invest in a company we build our position as if the stock exchanges close tomorrow and reopen only 5 to 10 years from now. Apart from exceptional circumstances, we do not intend to sell share prior to that.

One element that is important to us is the share price. As with tangible products like cars, premium products are generally more expensive. In this context "premium" means a company with a sustainable competitive advantage in an easy to understand business model. Price can be measure in different ways, for example price/earnings ratio or price/revenue ratio. By and large we find shares interesting once their price per share have a multiple of less than 10 of the earnings per share. Equally if the price is one dollar or less per dollar of revenue, that could be an indicator bringing shares on our radar screen, too.

There are many other factors that influence our decisions. We'll cover more of them in future blog post. The important lesson is: Don't buy what you don't understand. If a company looks interesting, then observe it for many months if not years. Look at what they are doing as a group within their respective markets. Try to identify risks. Don't be afraid to miss out. If you do miss out, don't worry another opportunity is just around the corner.

Happy investing!

Friday, July 29, 2016

Acquisition of NetSuite by Oracle

Oracle (ORCL) announced the acquisition of NetSuite for USD 9.3 billion. NetSuite is a cloud service provider who entered the market early on.

Larry Ellison, CEO of Oracle, is also a major investor in NetSuite, an early cloud-computing company. Larry Ellison owns 27% of Oracle’s common shares worth about USD 47.6 billion. Ellison and his family directly or indirectly also own about 40% of NetSuite. That share is worth about USD 3.5 billion at acquisition price. To address the conflict of interest, only independent directors of NetSuite negotiated the deal. Also, a majority of the non-Ellison shareholders in NetSuite have to approve the deal. This means there is still a potential of legal action, even if it’s just tire kicking.

For Oracle, this is one element helping them to catch up to others in the market like Salesforce (CRM), Amazon (AMZN) and Microsoft (MSFT). At the beginning of the cloud phenomenon, Larry Ellison dismissed cloud computing as marketing “gibberish”. Now, as late starters they have to buy their way into the market.

Disclosures

  • We have a position in Microsoft.
  • We have no position in any of the other companies mentioned in this post.
  • We have no plans to change our positions in the next 48 hours.

Wednesday, July 27, 2016

Mondelez Q2 Results: A thought

Mondelez reported Q2 results. Revenues are down by 17.7% caused by selling the coffee business, closing the Venezuelan operations and currency exchange effects. Diluted EPS is still up by 16%, from USD 0.25 to USD 0.29.

Mondelez prepares to enter the Chinese market in September 2016. Even though chocolate sales in China have decreased by 3% in 2015, this could be a move that is related to Mondelez' offer to buy Hershey's who acquired a local chocolate maker in 2014. Putting some pressure on a market in which Hershey's have been investing, it might help in the discussions with the trust that owns 80% of the voting rights in Hershey's.

Commentators generally note that Mondelez finds it difficult at the moment to boost the top-line without acquisition. The margins remain under pressure. Irene Rosenfeld, CEO of Mondelez, pointed out that the product categories they operate in are not doing overly well in the current economic conditions.

Disclosures

  • We have a position in Mondelez. We don't have plans to buy or sell shares in the next 48 hours.
  • We have no position in any of the other companies mentioned in this article. We do not have plans to buy shares of those companies in the next 48 hours.

Tuesday, July 26, 2016

Mobileye, Intel and BMW

Mobileye have announced that they will stop the collaboration with Tesla (TSLA) from October 2016 and focus instead on their collaboration with BMW and Intel (INTC) to develop a fully autonomous car by 2016.

This is a set-back for Tesla. Mobileye's technology is a key element for Tesla's autopilot system. We can only speculate if the recent fatal accident of a Tesla Model S, when a crossing vehicle wasn't detected by the autopilot, contributed to Mobileye's decision. Mobileye says that their new chip called "Eye4Q", expected for 2018, will be able to detect vehicles crossing lanes. Mobileye are also collaborating with Volkswagen and General Motors.

This news is another, albeit small, confirmation of BMW's strategy to develop new mobility concepts. With Daimler and Audi they acquired the mapping service Here. With Toyota BMW are collaborating in the area of hydrogen-powered fuel cells. With Mobileye and Intel BMW are collaborating on developing an autonomous car by 2016, most likely a new model under their i-series of cars. In combination this paints a promising picture for BMW: They continue to be willing to take risks to innovate.

We remain optimistic about BMW's future. They are a well-managed company in our view and we like their brand management across BMW, Mini and Rolls-Royce. We believe that they are in a good position to fend off companies like Tesla. This includes Apple (AAPL) and Google (GOOG) who are working on electric and/or autonomous cars as well. BMW have increased their dividend in each year since 2009. In contrast to other companies in the automotive sector, they continued paying a dividend even during the global financial crisis (GFC). Based on estimated earnings for 2016, BMW has a fairly low price tag at 7.75 for the price/earning ratio.

Disclosures

  • We have owned BMW shares for over 10 years and intend to buy more once the downward trend ends that started in early 2015
  • We have owned Toyota shares for over 10 years and have no plans to buy or sell in the next 48 hours
  • We own Apple shares but have no plans to buy or sell in the next 48 hours
  • We have no shares in any of the other companies mentioned in this post and we have no plan to buy in the next 48 hours

Monday, July 25, 2016

About Oparix

Welcome to Optarix, the blog for the enthusiastic investor.

What do we mean by enthusiastic investor? Allow us to explain by describing who this blog is for and who this blog is not for.

This blog is not for you if
  • you are a day trader
  • you want to invest in derivatives like options and futures
  • you want to invest for shorter than 7 years
This blog is for you if
  • your investment time frame is at least 7 to 10 years
  • you are looking for value investments
  • you want to invest in value stocks globally
One important note before we get started: None of the ideas and thoughts we present here are our own individual opinion. We do not offer to sell or buy any securities. You are fully responsible for your investment decisions. We do not assume liability for any of your decisions regardless of whether they were in part based on information we present or not. We strongly suggest that you seek the advise of a professional and authorized or qualified financial advisor before you make any investment decisions. If you are happy with all of this - in essence: you are responsible for your decisions, not us! - then let's get started!