Archive for the ‘value’ Category

Accuride (ACW), quick notes

Thursday, November 8th, 2012

From the recent conference call:

There is no doubt that we have had a very challenging third quarter and we expected to continue to face headwinds from the commercial truck and other industrial segments over the next two to three quarters. The good news is, there is an underpinning for a fundamental recovery in the commercial vehicle market over the next several years. Manufacturing appears be holding its own with September’s ISM reading providing some reassurance.

The age of fleet is at 6.7 years and it’s at an all-time high going back more than 25 years. Historically, when trucks pass…the five-year and 500,000 mile mark, maintenance costs begin to rise sharply probably. Finally, freight volumes are continuing the trend of modest growth.

Accuride is a rebuilding company, having emerged from bankruptcy a few years ago.

…we are implementing lean manufacturing systems across the organization and are moving the company in the right direction with the goal of bringing all of our facilities up to the same high standards that we have already achieved at Henderson and Erie. I have worked with a consultant who is at Toyota veteran at three different companies and the marks he gives us for Erie and Henderson are the highest marks I have heard from him ever in the last 10 years of working with him.

An analyst clarification about guidance for cash flow:

Kirk Ludtke – CRT Capital Group
I am also looking at the implied fourth quarter guidance and with respect to cash flow it looks like you are looking for cash flow break even in the fourth quarter. Sounding about right?

Gregory Risch – Chief Financial Officer, Vice President
Yes, thatÂ’s right.

CEO comment:

The downturn in the industry which, as some of you who have been in the business much longer than myself, I have been here 20 months, I have got people who have been here 20 to 40 years. They said the downturn we experience in the third quarter is the steepest and most rapid declines they have ever seen their careers here.

Okay, so hopefully I have also been told, when it turns it turns up fast and I experienced that last year. We are much more well positioned to handle an upturn if there is an upturn next year…

Accuride Corporation, together with its subsidiaries, engages in designing, manufacturing, marketing, and supplying commercial vehicle components in North America. The company offers heavy- and medium-duty steel and aluminum wheels, light truck steel wheels, and military wheels; and wheel-end components and assemblies, such as brake drums, disc wheel hubs, spoke wheels, disc brake rotors, and automatic slack adjusters. It also provides truck body and chassis parts comprising bumpers, fuel tanks, battery boxes and toolboxes, front-end cross members, muffler assemblies, and crown assemblies and components, as well as fenders, exhaust components, sun visors, windshield masks, step assemblies, brackets, fuel tank supports, inner-hood panels, door assemblies, dash panel assemblies, and various other components. In addition, the company offers ductile and gray iron casting of transmission and engine-related components, which comprise flywheels, and transmission and engine-related housings and brackets; and ductile and gray iron casting of industrial components, such as flywheels, pump housings, small engine components, and other industrial components. Accuride Corporation markets its products under Accuride, Gunite, Imperial, and Brillion brand names. It serves heavy- and medium-duty truck, and commercial trailer original equipment manufacturers (OEM); and aftermarket suppliers, including OEM dealer networks, wholesale distributors, and aftermarket buying groups. The company was founded in 1986 and is headquartered in Evansville, Indiana.

Market Indicators, Dec. 31 2011

Sunday, January 1st, 2012

There are three well-known ways of valuing the stock market that are based on publicly available information.

Two are based on earnings: 1) The ratio of total stock market capitalization to gross national product (GNP). The market cap. to GNP ratio was popularized by Warren Buffet. 2) A cyclically adjusted PE ratio (typically a 10-year PE ratio). The 10-year PE was popularized by Robert Schiller (but not first proposed by him).

The other ratio is Tobin’s Q, similar to a market price-to-book ratio. It measures the replacement cost of publicaly traded companies.

Taken as a whole, where do these indicators stand?

The total market capitalization of US stocks is approximately 15.5 trillion, as of the last trading day of the year.

The GNP at the end of SEP 30 was 15.4 trillion. In other words, the Buffet ratio ratio is roughly 1. According to Buffet, that is average; he considers a ratio of around .75 to be a good deal. In his 2001 article when the ratio was 1.3, he suggested the market might return 7% annually over ten years (it yielded around 2%).

Schiller publishes the 10-year PE ratio on his Web site. It is currently 21, in comparison to the historic average of 16.4. Again, the market seems to be overvalued, or at least no screaming deal.

Finding values for Tobin’s Q is a bit more complicated. There is a Web site run by Smithers & Co. (an asset manager) that tracks it. According to that source, the market is roughly 33% overvalued (it was 29% overvalued on SEP 30).

What other buy/sell signals are there for the market as a whole? Valuation indicators are bets on mean-reversion. What about betting on the trend? The market is just below its 200-day moving average. Nothing bullish there.

There is one overwhelming bullish economic signal. The yield curve is substantially positive. A difference of more than 65 basis points between the 3-month and 10-year Treasury is bullish. The current spread is 187 basis points. But, that is because the 30-day Treasury yields virtually nothing. This is an economic indicator, rather a stock market indicator per se, although it is histocially correlated with bull markets. It probably stimulates the market because the world’s main investment choices are corporate and sovereign, and sovereign debt is expensive when rates are low.

In summary, we enter the new year with the following picture:

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Market Timing

Monday, December 26th, 2011

Can amateurs time the market? Some simple, non-proprietary indicators that make sense:

The 200-day moving average profits from trends. In this system, the market is trending upward when it crosses its moving average (buy), and falling when it corsses below (sell). The system fails in cyclical markets, i.e where mean-reversion profits. (See Faber and Hulbert)

The multi-year (5 to 10 years) PE ratio is cyclical. It’s a bet on mean-reversion. Logically, it’s a good complement to a trend-following system such as a moving average. (See Hussman and CXO Advisory)

A normal yield curve, in which 10-year Treasuries are more than 65 basis-points higher than 90-day Treasuries is strongly correlated with bull markets. (See Crossing Wall ST and a more recent look). However, the yield curve right now is considered by some to be abnormal, because the government is keeping short-term rates at near 0%. See this interview with bond-expert Van Hoisington for example.

What would happen if you just invested in thirds? Put 1/3 of your portfolio into the market when it’s above the 200-day moving average (thus capturing the profit available due to trending). Invest another third when the market’s long-term PE ratio is at or below average (capturing the profit predictable from mean-reversion). And add the final third based on the yield curve.

Another overall valuation metric is the ratio of total stock market capitalization to GNP or GDP. This could supplement the 10-year PE ratio, or you could break the portfolio into fourths, giving it more of a value-tilt. (See Warren Buffet and Motley Fool)

Where to find the data:

  • Buffet’s ratio. GDP-version: gurufocus.com (it predicts the market is at the high-end of fairly valued, with a likely annual return of 5.1%).
  • A 10-year PE ratio: Schiller and gurufocus.com (currently high, predicting a low return).
  • 200-day moving average for VTI (a total stock market ETF): Yahoo! Finance (currently the market = its moving average).
  • The yield curve: US Treasury …use the 3-month and 10-year columns (currently very bullish, but note concerns about atificially low interest rates right now).

* Day-late update: There is also Tobin’s Q, which is similar to book value. See Smithers, which also mentioned Schiller’s 10-year PE ratio (called “CAPE” for “cyclically adjusted”), and Equities and Tobin’s Q. Tobin’s Q also suggests the market is slightly overvalued.
* Another source of info on Buffet’s and Schiller’s market valuation methods is MyPlanIQ.

Another good article on the current stance of the yield curve:
http://www.capitalspectator.com/archives/2012/01/is_the_yield_cu.html