Kratisto Investing

P/E is irrelevant to me. I use cash flow, EV/EBIT...

2012-02-08T13:13:37.882-05:00

P/E is irrelevant to me.
I use cash flow, EV/EBITDA and very rarely EV/Rev or P/Bk.

Thank you for pointing out the typo.

Like the article, but you state BD has a hefty val...

2012-02-08T13:12:08.967-05:00

Like the article, but you state BD has a hefty valuation, how are you figuring this when it looks like the current and next year p/e is lower than other competitors in the field. Another question is who are you referring to when you say "two many healthcare businesses with compelling franchises and 20% or greater undervaluation". Thanks

Depends on the buyer. For a company like BTU or AC...

2012-01-18T15:35:02.814-05:00

Depends on the buyer. For a company like BTU or ACI it wouldn't be much of a problem, as those reserves would be just part of a much larger whole.

Will definitely impact the premium they get, though.

I have some CLD. It hasn't done much since th...

2012-01-18T15:33:26.918-05:00

I have some CLD. It hasn't done much since the RIO spinoff, maybe at least in part because of this administration's opposition to coal. Having only 10 yrs reserves left may put a crimp in its attractiveness to a larger buyer, I would think.

2012-01-05T00:01:53.942-05:00

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2012-01-04T13:23:38.182-05:00

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Lee, Thanks a bunch. Yeah, it was supposed to be...

2011-11-17T13:23:34.315-05:00

Lee,

Thanks a bunch. Yeah, it was supposed to be HPQ.

I'll make sure to get my editor to make the correction.

ss

Hi, Stephen Simpson. Always appreciated your insi...

2011-11-17T13:20:38.791-05:00

Hi, Stephen Simpson.

Always appreciated your insightful articles. Btw, a quick question for you. In the 2011 Nov. 14th article; "Computer Sciences – Uncertain Value With Certain Problems", you wrote "IBM acquiring EDS". Was it supposed to HPQ not IBM?

Thanks and Best Regards.

The biggest problem w/ Provenge is that it doesn&#...

2011-11-04T13:31:57.456-04:00

The biggest problem w/ Provenge is that it doesn't shrink tumors and a lot of docs don't trust the survival data because of that.

Could Pfizer's marketing resources fix that? Maybe. I certainly think a Big Pharma should be able to produce Provenge at a better internal cost.

Pursuing that idea, what do you think of Pfizer (o...

2011-11-04T13:29:15.845-04:00

Pursuing that idea, what do you think of Pfizer (or somebody else) buying Dendron? Would DNDN's assets (not necessarily just Provenge but perhaps even the manufacturing process or the underlying technology behind it) be worth a lot more to someone with more financial resources or marketing clout? I have no inkling myself but there has been some speculation.

@PI - That's true, but that's also why I ...

2011-11-02T19:03:54.810-04:00

@PI -
That's true, but that's also why I was pushing the "companies w/ approved drugs" angle a little harder.

Pfizer has tried the buying compounds route over t...

2011-11-02T18:34:54.469-04:00

Pfizer has tried the buying compounds route over the years. A few years back they paid a huge sum for Esperion, a small biotech which had a drug that raised HDL cholesterol. That drug was going to be the "successor" to Lipitor, but something went wrong, the drug had bad side effects or something and Pfizer ended up flushing the whole thing down the tubes.

Drug development is a risky strategy but so is trying to buy other companies with candidates. After all, every other big pharma company is out there looking for the same candidates. There just isn't a foolproof strategy here so perhaps the best choice is to remain flexible, if possible.

Wow ... Dracket. I almost forgot about that one! Y...

2011-10-20T20:05:07.198-04:00

Wow ... Dracket. I almost forgot about that one! Yeah, I got into the business just as that wave of spin-offs and sales was mostly ending (DePuy, Zimmer, Guidant, etc.). So, it feels a little odd to me to see a company going the other route.

But then, I think Covidien is talking about doing something similar w/ its drug business - while ENDP went out and bought a device business!

All in all, I think ABT is going to rue this unless they really internally believe that Humira is in trouble and the rest of the pipeline is junk.

I have to agree about the spinoffs. It was kind o...

2011-10-20T18:32:45.392-04:00

I have to agree about the spinoffs. It was kind of a fad in the 90s for big pharma companies to spin off or sell "low growth" businesses so they could focus on branded drugs. For example, Bristol Myers Squibb sold their Dracket consumer products division and spun off Zimmer Othropedics. These companies helped to smooth the bumps for BMY but without them, cash flow got lumpy when their branded drugs lost patent exclusivity.

ABT seems to be going the opposite way, spinning off the branded drugs and keeping the lower-growth steady-eddie businesses. Maybe they feels generics and devices are the future and branded drugs will become a much tougher business due to healthcare "reform". But I tend to agree with you, having these multiple business lines would seem to make for a steady, predictable, albeit perhaps at times slower, growing company.

Rob - Don't feel too bad. I was a sell-side ...

2011-10-11T20:56:38.800-04:00

Rob -

Don't feel too bad. I was a sell-side analyst for quite a while, and I think I could probably count the number of portfolio managers who really understood ILMN on my fingers and toes and have a few digits left over...

As for TECH ... If TECH fails, then I don't know what a stable, enduring business ought to look like. The biggest risk with TECH is buying it too expensively; the stock does trade in a valuation range and buying at the high end of the range will mean a long wait to see real returns.

But, if you're intending to hold TECH for the long term, I don't think you have much to worry about.

I broke my rule when I purchased ILMN. I only in v...

2011-10-11T20:22:58.379-04:00

I broke my rule when I purchased ILMN. I only in vest in stocks I know something about. I realized my portfolio needed exposure to some type of biotech stocks and now that I've taken a haircut on ILMN. Should I expect to take the same type of haircut on TECH or the supply end of biotech fallout?

Concerned Biotech Newbie

Those are good questions. I haven't heard mu...

2011-10-11T10:29:25.337-04:00

Those are good questions.

I haven't heard much on benchtop sequencing yet. When I talk to people they say "yeah, it's great technology", but when I ask them if they're buying I here a lot of "well ... we're evaluating it".

I think the rise of core labs may be stunting the benchtop market, but you're on to something with the fee-for-service idea. I could see a lot of smaller institutions (who don't have the resources for core labs) going that route.

The industry may well be transitioning as well, fr...

2011-10-11T10:21:15.245-04:00

The industry may well be transitioning as well, from the large very expensive sequencers to the less expensive benchtop models such as Ion Torrent from LIFE and Illumina's Miseq. Strained budgets favor budget instruments. What I'll also be curious to see is if the strain on large government centers favors the emergence of fee for sequencing companies like Complete Genomics (GNOM). Per sequence prices for GNOM have recently been dropping faster than customer growth, but may well be reaching a point where research centers reevaluate the the 'do it themselves or buy' decision.

Yeah, I see your point. I think I was trying to pl...

2011-09-29T20:58:21.820-04:00

Yeah, I see your point. I think I was trying to play devil's advocate and I wasn't really clear about what I actually thought about it.

I think for most cases and most companies, dividends are vastly preferable. In this particular case, I can understand why Buffett did what he did.

Sure, but in spots it sounded like you were consid...

2011-09-29T20:56:09.790-04:00

Sure, but in spots it sounded like you were considering "jumping ship"; apparently not.

In further thinking about the question, "Why buyback, why now?" it occurs to me there could be another reason for it. As you say, Buffett apparently can't find a better use for BRK cash in an overvalued market. But, holding cash for long periods hasn't necessarily been a problem for him previously. He's stated that he held quite a bit from 2003-2008 when he considered the market overvalued and put it to work when prices began dropping. So why does it seem to be burning holes in his pocket now? Possibly he suspects or knows that between the EU crisis and the US's fiscal problems, there's gonna be a whole lot of money printing going on. If real yields are low now, they may be about to get a whole lot lower and stay that way for a protracted period. I'm not suggesting hyperinflation, but Japan has lived with negative real yields for the better part of two decades. The fact that Buffett now has decided to engage in an activity he previously shunned suggests to me he may see something like that in the future.

@ PI - I think you've been reading my stuff f...

2011-09-29T10:05:49.341-04:00

@ PI -
I think you've been reading my stuff for a long time, and that means you probably know I agree with you completely here.

I'm a big fan of dividends; buybacks are tools of promotion and psychological manipulation. Dividends are cash money.

To me, dividends are a better use of spare cash th...

2011-09-29T10:01:51.011-04:00

To me, dividends are a better use of spare cash than buybacks. Most buybacks are done at poor prices - remember GE did a big buyback in 2008 in the $30 range just months before its share price collapsed and it had to sell preferred shares to Buffett to obtain needed cash. Buy high and sell low is bad investing. Buybacks are often dictated more by a company's need to "show the flag" than any real belief of market undervaluation.

If Buffett doesn't want to institute regular dividends, he can always declare a special dividend to return cash to the owners. But if he'd rather do a buyback, fine, I won't criticize him, after all, it's mostly HIS company. I don't have to own his stock, and I don't. I do like dividends because, thanks to the current tax treatment that puts them on the same level as LT cap gains, it is a way of seeing a return on investment without having to sell shares. A dividend rewards the shareholder that holds on, the buyback rewards one that leaves. But, what the heck, we should all be Free to Choose.

Nice. Good quote! Especially for the short-dated s...

2011-08-06T21:03:17.060-04:00

Nice. Good quote! Especially for the short-dated stuff.

I think it was Jim Grant who referred to Treasurie...

2011-08-06T20:59:17.708-04:00

I think it was Jim Grant who referred to Treasuries in the current environment as "return-free risk."

Thanks. And not only that, but how much of that a...

2011-08-04T16:59:19.658-04:00

Thanks.
And not only that, but how much of that academic funding is just a govt subsidy.