Monday, April 27, 2009

Analysts analyze. Xerox has a business to run. I have an IRA to keep secure.

Since stock prices in general are going to be flat for at least a year or so, keep the focus on profitable quarters. The issue on the table is investing for ongoing revenue stream (my IRA). The betting parlor is closed.

If I can start getting a reasonable dividend why exactly should I care about the stock price. In fact, keep the price low and give a nice dividend, the interest rate at the low price will eventually get the stock number to where it's supposed to be.

Consider this:
CitiGroup has an asset class called hybrid perferreds. You may have noticed C+P in my IRA. It has different symbols at different brokerage houses. C+P is what they call it at Schwab. Basically, it's a preferred stock/bond issued at $25 at a fixed 8+ % rate. I'm guessing they did it for some regulatory capital funding requirement.

During the end of days, it was selling at around $5 because the blablabla, the common wisdom among analysts and talking heads, was that CitiGroup was dooooooomed. So the $2+ guaranteed dividend was around a 40% interest on investment. Eventually money decided that it was NOT the end of days. Then Geithner confirmed that Citi wasn't going away. Last time I looked it was selling at around 18. Sooner or later it will be closer to 25. A nice enough number. But compared to a guaranteed revenue stream, I don't really care if it "beats or doesn't beat" analyst's expectations.

Besides, given the recent track record of "analysts," why should I trust anything they say anyway?

From Morningstar:
Lowering Xerox's Fair Value
"After reviewing Xerox's XRX first-quarter results, we are lowering our fair value estimate as the economic malaise begins to take a greater toll on Xerox than we originally envisioned. Total revenue for the quarter fell 18% from the prior year, led by a 30% plunge in equipment sales as corporations of all sizes focus on cost elimination. However, we were pleased to see that Xerox rebounded to a positive 2% operating margin. Cost-cutting measures including head-count reductions are on track, and we expect additional margin expansion as the year progresses."
It could have been written like this:
Given the extraordinary temporary fall off the world economy, it was good to see that Xerox posted a profit in Q1.
Someday, I would love to read this:
As they move away from "lowering head count" to a strategy of investing their surplus human capital in a multiplicity of networked mBS solutions, we expect to see their SG&A get down to about 15%. Which should go a long way to solving their margin problem in this new global business environment.

Since their legal problems are finally behind them, we think Xerox is sooner or later going to own the education space and be number 1 or number 2 in MPS for other global corporations.

No comments:

Post a Comment