Lets get down to Business

Hello Everyone, 

In our endeavour to come up with quality product, and at the same time educate ourselves about the business world, we are pleased to come up with two products. Hope our readers like them, and their feedback is always appreciated to help us develop and improve onto the same as we move ahead. 

Without wasting much of your time and ours, here are the two new products : 

1) Spin Off Report :

    This is supposed to be a summary of, and a detailed analysis on selected companies on a list of select companies to be released every Saturday night EST.Historically Spin-off has been a area that has been ignored by a lot of the big funds, and our own experience suggests one can find a lot of good investing opportunities in this space. 

2) Business Economics :

    This is a once in a month publication looking at the Economics of businesses. For example the Hotel Business, QSR (Quick Service Restaurant) Business, Exhibition ( Theatre Business) etc. A detailed analysis of the Total Market Size, Market Growth prospects, players & competition. 

We would like your feedback, about our first Spin Off Report this Saturday.

Thanks a lot for your patience. 

ValueeInvestor Team

WE ARE BACK!

It has been some time we posted anything, but we are back and back with a promise to keep our readers posted and updated with investment ideas, poems and what is happening at our end. 

But before you listen to what we have to say, I think it makes all the more sense to see what happened to what we said . 

Here is a list of ideas we talked about : 

1) Gold 

3) IBM Puts at 190

4) JP Morgan 

5) BF Investment

6) Crude Oil

Our analysis and results do speak for themselves, and we are not going to blow our own horn.Again as a reminder, do not expect us to come out with writings when we think it does not change significantly at the margin, and none of the articles can be construed as an advice to buy/sell. We take no responsibility for the same. 

We hope to have atleast one article a month. 

Happy Reading, and Welcome back. 

ValueeInvestor Team 

Nobody Gets Fired for Buying from IBM

As the old adage goes, and so does our trading idea (or ex-ante for now). One of the most talked about thing lately has been Mr.Buffets $10 B investment in IBM, and IBM’s 5 year plan of $20/share operating EPS till 2015.Nonetheless,before we delve ourselves into what the idea is all about, its important for us to understand the facts and the suggested commitment.

IBM: 

Ibm 21

So what is that is offered by IBM ?

a) IBM closed 14th Feb’12 at 192.22.
b) It trades just 2 dollars shy of its 52 week high, and a PE of 14.72.
c) EPS has grown compounded by around 17 % approx over the past 7 years.
d) Plans to have $20/share Operating EPS by 2015 ( if history is any guide, they probably will achieve that target )

Here is where you can find historical comparison of IBM technicals over time.

That said, we are not fortune tellers here, and we are neither trying to predict what tomorrow would look to be. We are here to look at investments (or trading decisions), based on informed, and intelligent analysis.

Without further wait lets just move onto the present trading idea, and see how at times inefficiencies in the marketplace can help investors capitalize on information and knowledge. Fear is the friend of an intelligent investor, and optimism his worst enemy.

a) The idea is for the fixed income part of the portfolio
b) 2 year  BBB rated bonds yield less than 3 %  ( That comes along with a lot of risk itself , credit as well as interest rate risk)
c) We think options with Strike ranging from 180-200 on IBM spread out ( or just 190, which is the focus of the analysis here) offers a really attractive return for the amount of money at risk.

Now lets see how it works, and what are the assumptions implicit within the argument for the trade. Assume we select 190 as the strike price for options expiring in 2014, and get paid a premium of around 25. For the same, as we are risk averse we would like to have our accounts fully funded for the maximum net money which we shall ever be required to put which is around ($165). What are the things we can expect after two years ?

Scenario 1 : Options get exercised , and you are made to buy the options at a strike price of 190 two years from now. Even on a conservative basis, if EPS grows by 10 percent, you would be holding one of the blue chip stocks at a PE of around 12 ( at a price of  $190),  not bad when the lowest it dropped to was around 9 during the financial crisis, so very much limited downside. Even at this price you are still up around $ 25 to the actual money you had to put down 2 years ago.

Your buffer is 165, anything below that eats into capital for a dollar to dollar loss, that said 165 which would your actual cost relates into a PE of 10.5 and not 12 mentioned above, which was the PE at 190 two years from now considering EPS grew compounded at 10 percent. Historic  average PE of IBM starting from 1985 is around 15.74.

Scenario 2: Options do not get exercised, in this case you get a return of approx 7.3 percent compounded over a period of 2 years.

As a Fixed Income investor, I think for the risks, the rewards offered by this transaction makes more sense as compared to even High Yield debt, and any other debt investment.

If you have any questions feel free to write us back at info@valueeinvestor.com

Ibm Technical Historic Valueeinvestor