patrick.net

E-Man, Pkennedy

Here is a must own stock and a short summary why for your benefit. I have distributed this communication to all my close friends and family so it is after careful consideration.

Investment case, Transocean

•Price driven by news not fundamentals, eventually fundamentals will prevail.

•And boy what fundamentals, 36B in assets, vs 16B in liabilities, a book value of 20B. Your shares are more than free as the assets generate 3B in after tax earnings and 5B+ in operating cash flow. All this for about 15.5B. Earnings are going to be softer, no doubt. It is on a down-cycle, but long term, nothing’s changed. The BV is support for current price, very little downside from here.

•RIG will have no blame or liabilities against them. In fact, insurance covers their physical lost completely (I think there is a 200M+ gain). A few liability contingency from the lost lives will cost the company, but this is hardly material.

•Rig is international and drills all over the world. The domestic drillers will have a challenging ride over the next year. However, RIG only does 10%-15% of its total offshore drilling in the Gulf of Mexico. Thus financially, RIG is in great shape vs. the domestic drillers. If nothing else, long international drillers and short domestic drillers for guaranteed profits although I don't think that is necessary.

•Deepwater drilling is an incredibly lucrative business, which is much more effective and profitable than coastal and mainland drilling. There are only four companies in the entire world that can play in this market.

* eventually the ban would be lifted as the industry employs too many people with broad impact and too much money at stake. Chevron is desparate to have this ban lifted which is a testament that deepwater drilling is inevitable.

I don't know when shares will go to pre BP level, but it will. Buy with confidence. Surest bet in quite awhile

without more detail, I am sure it is the most dangerous area within Richmond (iron trianagle or close to it), that's why the yield is so great and no family in their decent mind would live in a 8-plex in Richmond. The best areas in Richmond is in fact point richmond by the bay and Hilltop Richmond, a little up North past San Pablo. I think is more more commonly referred to as county club vista. Homes up there rent for about 2000-2500 a month, for around 280K-350K.

High yield = high risk. If the yield is so good, why are they trying to unload it. You'll be dealing with applicants and tenants that is generally regarded as the worst there is.

Ok I'm going to bite. But let us know if anything goes horribly wrong on this one :) Obviously we're not holding you responsible, but just in case we miss it! I missed out on the other two you advised on!

I've had a couple of conversations regarding oil with a friend who practices law in texas and deals with oil quite often and he said that he had met up with some people from Petrobras, and that Petrobras company culture has sure come a long ways and now acts and behaves much more like one of the big players. He seemed to think that their business mentality had shifted more towards one of the big oil companies from a "brazil/government owned/smaller player" company.

I'm not sure where they stand right now. My wife in Brazilian and her father is a banker there and he has loved that stock for quite a few years. So it's a stock I've been thinking of getting into at some point. Anyways, if you're ever looking at Petrobras add those two "points" to your consideration!

Thanks for the tip. I've put in a buy order as well! If this were to ever pop like those solar companies you recommended, I owe you dinner.

Ok I'm in at $47.00. I read a couple little legal arguments on this thing and what is covered and what isn't, it looks like all the quipment, a 700M clean up fund and insurance on the personnel lost. The only thing not covered was lost profits from not operating this site for the next 3 years @ 550M, but on the flip side they have the contract to do the relief wells, so that might counter this a bit.

BOYS
have you heard of EMAIL? Please take these discussions private.
You are HIJACKING this thread about a specific property.

Sometimes things need to be hijacked.

@ pkennedy
this whole thing smells like a PUMP-and-DUMP scheme... lolz!

@permanent_marker
Perhaps you should read all of sf_aces comments first. He's one of the only ones that backs up his comments with actually data, and presents the math and logic behind it. vs "It's going down 75% by next year! gut feeling! saw it on fox news! must be true!"

@e-man
The only counter argument for Rig I've seen is "BP is waiting until they have this thing capped, to prevent PR issues, once it's done they're going to try and sue everyone under the sun"

I figure this is a better (longer) term investment than anything I would have picked on my own :P

http://www.reddit.com/r/IAmA/comments/cszc0/iama_gulf_of_mexico_drilling_engineer_ama/

Take it with a grain of salt, but interesting none the less. An interesting Q&A from a driller in another company.

Ok I have a most likely simple question.

What is the difference between RIG and RIGN.VX. VX is the swiss exchange, but why are they so divergent? And the swiss version only appears to have started sometime in june?

RIG today +$0.81, Day's Range: 44.30 - 46.30
RIGN.VX today -$2.65, Day's Range: 46.54 - 48.59

Volume is incredibly low, but they both share the same news, at least on yahoo. Indices includes ^DJUSEN, which means it's oil and gas related. What am I missing?

You were waiting for $42? Could have told me that :) I have no idea where this is going, it looks semi positive. They have earnings shortly which should be interesting, because there will be a couple of floating numbers as far as I can tell. Losses due to not having this rig online, obviously the spill, hurricane season coming up, and Diamond, I believe the 2nd biggest rig owner has suspended dividends and is hoarding cash in hopes that little guys will be pushed out of the gulf due to new regulations and cost of doing business there. If they're buying, I'm wondering what RIG will do.

I figured this looked like a good buy, as SF ace pointed out (who then went suddenly quiet!) but I picked up a large position here. I told my wife later I had picked it up and she said what do they do? I said they have offshore rigs, like the one that blew up in the gulf. "Oh ok, but not THAT company, right?" :)

This can't miss property was bought at the courthouse steps for $406,100 by Alvernaz Partners LLC (on June 10, according to PS). Still listed for $499k with 53 days on the market.
PS - OTF beat you with his BP play.

@EBGuy

I dont trust BP. While it's probably a buy, the potential of litigation will go on for decades. And the possibility of something bad happening still, seems very high!

Good buy on BP though! It did recover very nicely! I thought for sure it was going to sit low for awhile!

Pkennedy, sorry for the silence, hope you understand it can get busy for awhile and I have frequent Patrick less. In any case, rig is a fundamental play which means th value will be realize over time when the news are quiet. No news is good news. Buy discounted bv is a good floor and rarely fail, especially on assets that generae roi. Stay patient. If you invest so much as to be uncomfortable, you are holding too much.

I agree, I shouldn't have used the term pop. I figure it's going to be a pretty stable increase over the next year +- a year, which keeps this money "safe" from me investing in something I've found myself :) Ok I'm not that bad. But it's nice to have someone to bounce ideas off who isn't Realtor motivated in me buying.

When I said large position, it is large, but overall not a huge % wise of overall investments. I'm not that concerned about it, because of the 30% margin that is built into this stock, it'll eventually recover.

I'm in computer engineering, so analyzing things until their dead is what I do by nature! Unfortunately I have to learn to do less analyzing of stocks to find values! Right now everything I look at looks fairly valued. I'm trying to learn from you guys on how to cut out the crap to stick with the principals.

Nice looking place.

Maybe this was already posted somewhere, but I thought this was interesting.

Milpitas beating out other Silicon Valley cities such as San Jose, Santa Clara & Sunnyvale.

Best places for the rich and single

We're not saying you're a gold digger. But you could follow the money to these 25 affluent cities, where singles are abundant.

http://money.cnn.com/galleries/2010/moneymag/1007/gallery.best_places_rich_single.moneymag/6.html

Nice call on RIG! Didn't have time to put in my due diligence... sigh... still may go in on a dip.

Seems to be a decent miss on earnings.

Although, not too bad, considering the circumstances.

It's pretty neutral. Lots of one time charge, both ways. Missed on top line, which was important but expected and signal weaker earnings next quarter, due to lower day rates and stacking rigs from GOM drilling ban.

The bottom line is it is severly undervalued based on BV and earnings. This is a gem in one year. Cash dividends of 3.19 will be confirmed soon. once Macondo is behind them, it will become an institution favorite again.

Yeah I reread a few things, it looks like they were almost dead on. The accidental payment + insurance payout brought things within about 1% of estimates.

I like the stock. I was almost hoping they would hold onto that cash to buy out some rigs like DO is planning on doing. I'm going to hold this position. It would be nice if it stays above what I bought it for too, that will keep my wife happy :) Fundamentals are irrelevant to her!

Dividend will come out after the tax laws change though, oh well. It'll be worth a couple of thousand anyways.

E-Man,

(me and partners) got burned selling BAC puts in 2008 when it went from 50 - 5 dollars in short time. A certain individual made 100x the bet. From that perspective, BAC is something I haven't look carefully into for anti sentimental reasons. I've learned something from that so we'll never be in that position again.

In any case, I always felt that GS is the moneymaker in the high net worth industry and has all the top talents and specialized high margin service and JPM has the best suite of banking service. I'll also stay away from C in the meantime as it seem like the US treasury is selling them around 4 something. This industry is pretty tough to understand even for me. Unlike RIG, you know book value is pretty close to market value and allow for some known difference, book value for BAC is a lot trickier.

@eman
Actually it doesn't matter the size of the position, my wife thinks the same way. If I let it sit for 30 years, and got out exactly what I paid today for them, that would be considered a win in her books. :) I'm comfortable with what I have, and over time I might add to it as well. I'm hoping that momentum will keep the stock from losing the $3 on those dividend days! I guess I shouldn't look at dividends at bonus's in that way, I just like the idea of money showing up in my accounts.

@sface
I'm starting to realize I shouldn't be fighting the currents looking for smaller companies to invest in, if JPM is the best, go with the best. If OIL is making money, buy oil. (Or people who do business with them..) I wish I had learned that 10 years ago instead of in the last 2-3 and only implementing this year.. sigh.

So we're sitting at about 10700 on NYSE now. I know SFace said he figured we would grind between 9800-11500 this year, and we're sitting in about the middle. We've had a decent run from 9800 up to 10700 now. Reports have come in, things look about the same, I thought a little worse than last quarter for what I watched. Any predictions on where we might see things going over the next several months? I'm guessing we're going to head up, due to the time of the year, more than anything else. The Sep-Dec run.

As always, I'm always curious so see what information you guys are using for your thoughts. :)

I still think we are rangebound for the rest of 2010. Sell as we top out around 11K and buy around 9800. Sep-Dec is dominated by retail talk, which I suspect would not be good this season.

Do either of you have a good book recommendation on "events" that take place throughout the year that effect stocks?

I seem to always be caught off guard with upcoming results, quarters ending, GDP announcements, fed announcements, etc. There are times when I can see the market ticking up, and I'm wondering what is likely to happen next. I was hoping to have something I could easily reference to say "Next week we'll have the following coming out... "

I found this one, it seems moderately interesting, but I'm wondering if there is a better source, or something online even.

http://www.amazon.com/Stock-Traders-Almanac-2010-Investor/dp/0470422181/ref=wl_it_dp_o?ie=UTF8&coliid=I3QGEZ6RZ4A28Q&colid=2I3XEOTAR767P

No, that is micromanaging. If you read the WSJ daily, you won't miss much on what's going on in business.

Pkennedy and E-man

Here is another recommendation.

Buy VISA around $70 and make it a buy and hold. I don't want to get into the detail behind it other than it is a fantastic buy at that price with fundamental and technical support.

I definitely don't want to get into micro managing, but there have been times I would have been interested in having some "upcoming" knowledge, rather than last minute / 1 day late knowledge. I would rather know we're going to be having a fed discussion next week than finding out the day of, what was said.

Visa? It's 25-30% off but is that enough to offset all the new banking regulations? I'll take it though! Thanks!

Well I tossed in a buy for a few visa shares, but this month has been expensive for me due to my brother in law visiting, so I didn't add as much to my savings account as I normally would have. sbux would make my sister in law super duper happy. I could sell some Rig and purchase more Visa if it hits 70.

Hmm starbucks has been on an upward trend for the last couple of years, any reason you're looking at that one?

Pkennedy, E-Man here is a small cap worth exploring, CCME. It was recommended/forwarded by a colleague in Goldman's HK.

- Explosive Growth
- Clean balance Sheet
- unheard of 45% profit margin and 80% ROE.
- 80% insider and exec salaries are stunningly low.
- looks like a hard to penetrate business

I'm not sure what is going on here other the stock looks extremely undervalued (reverse merger) Let's share some thoughts about this one.

Looks interesting. Advertising can be difficult to get into, but a huge outfit can just bully it's way in, and profits for them can be so massive that the bully aspect is a near $0 cost to them.

Chinese business is completely unknown to me. I haven't ever been over to china to really get a good grasp on their culture over there. In general, I see extremely low profit margins on manufacturing in the sub 2% range, which is just plain scary. Although it goes with their work ethic of working hard. Having known many first generation parents they seem to hold these thoughts of small gains over time will pay off. Then I hear of stories of friends going over there for family dinners and spending like $30,000 on a meal! So I'm not exactly sure how money is distributed over there, and how advertising works.

Since I'm in an advertising based company right now, I have gained some in depth knowledge of this area, and it appears that there are two types of companies out there. Those making very little for their ad space, like $1/1000 viewers and eeking out a decent living off thise! and those corporation who can charge $150/1000 viewers. Not too much in between, and the higher rates seem to go directly to those companies that are known, and to those companies who just "assume" they have to pay this much to get any decent advertising. (Eg Apple, Dove, IBM, etc). While companies like google adwords will pay out like $1/1000 views!

One thing I've noticed in advertising is that the US is so far ahead of the game compared with any other countries I've been to. My wife is from Brazil, and we've had some of her family/friends come up here and they are just hammered with ads, they don't know how to deal with them! I've seen this is other countries in the middle east as well. The companies over there seem to be working off our ad models from the 1970's because it works for them. The bigger companies who are multinational are hiring locally, so they get the 1970's advertising as well. It works, because the population hasn't learned to tune it out yet. Each year advertising has to ratchet it up a bit more because we get better at tuning out crap. As for my company, we get some our highest click through rates in these 3rd world countries because of this!

- For me, advertising is hard to break into. New players get just absolutely dismal rates, the "known" players are paid a kings ransom.
- Advertising in other countries seems very very dated in most cases, but it works.
- I'm not sure what the chinese media market looks like, and how effective these ads are.
- On a bright note, these guys have ads in several locations, so they could lose one deal without totally going under and/or starting over.

Those are my primary concerns with a company like this.

Here's some good analysis from someone from seeking alpha. Of course they are self serving but the points should be considered carefully.

http://seekingalpha.com/article/205019-china-mediaexpress-china-s-hidden-gem-part-1
http://seekingalpha.com/article/205022-china-mediaexpress-china-s-hidden-gem-part-2

"CCME's management has strong motivation to meet their 60% growth targets over the next 2 years to acquire another 14M shares reward. By then the total outstanding share of the company will be 54.5M, which at today's stock price, gives the company a market cap of $615M. Assuming that management will meet their growth target, with $140M of cash, and expected earning of $90M this year, the forward PE ex-cash is:

Forward PE(ex-cash) = $(615-140)M/$90M = 5.3

With 3 year earnings growth forecast above 35%, the PEG is a mere 5.3/35 = 0.15 with a free cash flow yield well above 27%. FCF yield above 17% is already fantastic for a Chinese stock.

To get to a 17% FCF yield, the forward PE should be 14 or so. 14 x $90M should give CCME a valuation ex-cash of $1.26B. Adding back the cash of 140M, we have $1.4B. With 54.5M shrs outstanding, my real price target would be $25.7/share."

It's about risk vs. reward and I trust my source, this one is a fantastic buy under $10, but I may consider picking up some now. This one reminds me of Focus Media FCMN with different growth path.

I'm just looking at yahoo, they've been in business since late 2007? 2.5 years?

Does that effect anything, when you look at a company?

According to the 10K, the business commenced operation in Nov 2003. In Oct 2007, they entered into a big agreement to be a stategic alliance partner to establish the rights to advertise. That is around the same time, when the private investor took over a shell public company and take it public through a reverse merger. (where the public company got eaten and taken over by the private party)

The second quarter 2010 results was tremendous. http://finance.yahoo.com/news/China-MediaExpress-Holdings-bw-1991280177.html?x=0&.v=1

Ok, I just read the whole article, pretty interesting article and pretty in depth.

The whole TM business seems to have just added complexity to their business while that company offered little to them and seemed to cash out fairly quickly. They appear to be almost out of the picture now, with everyone pulling their money out and just holding warrants?

Based on my experience with advertising, *if* they have a good sales team, the growth prospective looks doable and most likely without being side tracked with a MA. Direct sales offer *HUGE* potential. Doing direct sales for people on shuttles to the airport, etc could definitely offer them some premium advertising.

Aside from the whole deal with TM, I would say it's a pretty good deal. Of course, as this guy states, TM is the cause of the low pricing to start with.

"That is around the same time, when the private investor took over a shell public company and take it public through a reverse merger.
(where the public company got eaten and taken over by the private party)"

Ok this is a little confusing. TM took over a shell public company (A company that has made it onto the stock exchange but does nothing else really(?)) , the public company became the dominant company at this point? Where does CCME fit into this? What did TM do to CCME at this point? What is TM now?

That aspect got a little confusing.

Here's another company I know of that went public the reverse merger route several years ago; the SF Business Times had a pretty good article on reverse mergers that featured them.

This reverse mortgage makes sense, and I was actually asked to help on setting up some shell companies about 10 years ago for this purpose.

How TM fits into this fold is still confusing to me. They get a shell company, a company that is doing business and Tm and blended them together then pulled out. I'm still not sure how much value they added, or what their true purpose was. It seemed they wanted to hold the stock at 11.50 so they could liquidate their position and hold onto warrants for essentially free.