Price The Market Part 14
Glen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Hi, my name is Glen Bradford and this is my journey pricing the S&P500. I'm 15% complete.
75. Disney (NYSE: DIS) is fairly valued. Target: $30-$40. I'm glad they hiked their dividend. I can't say that just because a company hikes its dividend it is a buy. It's worth noting that companies with dividends tend to fall faster during periods of crisis. I prefer a dividend increase to a stock buy back in cases where the stock is fairly valued, much like Disney is. Some bloggers put price targets on Disney as high as $50. The 'buy what you know' mantra is surely a cause of overconfidence these days it appears.
76. The Washington Post (NYSE: WPO) fell off a cliff during the crisis and never recovered and appears to have put in a floor at $300 and a top at $440. Their $2.35 dividend paid quarterly is juicy, but what I want is stock price appreciation. I'm not a fan of Kaplan's industry: "For Profit Education," but I love newspapers and television. The Education Business is responsible for a little under half of their EBITA. Based on industry average multiples the company excluding their education business is worth around $323/share. I figure that the Education side is worth half of what it used to be going forward. Target: $400-$450.
77. Whirlpool Corporation (NYSE: WHR) was one of my competitors back when I worked in GE Bottom Mount Refrigeration as a Product Quality Engineer. I'm not surprised to see their stock take such a beating with my mostly negative outlook on the next two years of home prices that lack price appreciation and my negative outlook on China. In the last three years you could have paid anywhere between $25 and $100 to buy this stock. If you look at their historical trends of EBITDA and FCF, I'd say that they are growing their business but aren't making more doing it. Of course, not growing their business would be worse. I would set their target at $40-$60 except their book value adds on another $11 after you subtract out intangibles. Target: $51-$61.
78. Wyndham Worldwide (NYSE: WYN) is close to setting new all-time highs. This could have been a 10-bagger if you would have bought it in the trenches of 2009 and held till today. Not bad, not bad. Sure, their earnings went off a cliff but operationally they were fine in 2008. Given their forecasted growth they look fairly priced to me. I'd argue that if they set new all time highs they'd likely go for a short run before falling back to present prices. Target: $30-$35.
79. Wynn Resorts (NASDAQ: WYNN) is another company that would have been a 10-bagger if you would have bought in 2009 and sold a few months ago. Price and timing is everything. I think that you should take your profits. China is slowing and the valuation of Wynn Resorts is too rich. I see Macau mostly as a way to launder money over on that side of the world. As China slows down, I see less laundry in Macau's near future. Target: $55-$75.
I want to close this article with a note. My target prices represent valuations regarding what I believe the company is actually worth. If the company starts trading higher than my valuations, I'd look at them as a potential short candidate after reviewing the fundamentals. The fundamentals of short candidates must be breaking down. It makes no sense to go short names that are overvalued with improving fundamentals because markets are not efficient and prices can and will go against you for extended periods of time. Don't believe me? Look at Whitney Tilson's Netflix calls. The guy is completely right both times but has terrible timing.
In regards to stocks that are priced lower than my targets --- these are potential candidates to open long positions in. Also note that there are various rules in the markets that force people to sell at lower prices: fear, margin, mutual fund $5 laws, listing and delisting standards, etc. Thus, just because a stock is undervalued does not mean that it will go up. Don't act like it's not possible to buy something that is the most undervalued opportunity in the world only to see it become more undervalued.
Bottom line, your assessment of valuation is useless unless you understand timing is everything. Not only that but timing without proper understanding of valuation is worthless as well. It doesn't matter if you're right or how right you think you are or what you could, should, or would have done. It only matters if you make money.
Glen has no positions in any of the companies mentioned.