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52-week range: $2.47 (Mar. 12, 2009) - $14.20 (Sep. 29, 2008)

 

China Security & Surveillance Technology, Inc. (CSST) manufactures, distributes, installs, and services surveillance and safety products and systems in mainland China. The Company’s customers include governmental entities [customs agencies, courts, public security bureaus, prisons, schools, museums, sports arenas, libraries, airports, hotels, real estate, banks, mines, railways, supermarkets, and entertainment venues. CSST operates primarily in five segments: Installation, Manufacturing, Distribution, Software, and Services.

 

CSR completed a secondary offering of 4.1 million shares in late August at $6.25 /share generating $25.35 million net to the company. That added to the $89.5 million in cash held as of June 30, 2009.

 

Only two American analysts currently have estimates on this company. They are extremely bullish with 2009 – 2010 expectation s of $1.62 and $1.88 respectively. This assumes huge growth in second half earnings this year which would reverse a drop in year-over-year earnings from the first half when they posted $0.17 versus $0.29.

 

Here are their actual historical per share numbers since their 2006 IPO as reported by Value Line:

 

Year	Sales	C/F	EPS	B/V	Avg. P/E
2006	3.36	0.76	0.85	2.82	7.6x
2007	5.65	0.74	0.68	4.70	26.4x
2008	8.70	0.86	0.72	6.19	19.7x

 

The lack of per share growth in cash flow and earnings while the sales grew dramatically was the result of the share count expanding from 31.83 million in 2006 to 42.51 million in 2007 and 49.14 million by year-end 2008. The secondary offerings were anti-dilutive to book value as they took place above existing B/V levels.

 

If the analysts are correct in looking for $1.62 in 2009 earnings then the P/E is now < 4.4x this year’s expectation. That is extraordinarily cheap, especially for a Chinese company.

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BusinessWeek’s Oct. 5, 2009 issue notes that long-term government bonds returned over 26% in 2008 due to the stock market’s crash and investors’ flight to safety. 

In the first 8 months of 2009 these same long-term treasuries lost 11.5% (on a total return basis). 

As treasuries zoomed higher in 2008 investors put only $32 billion of new money into fixed-income funds. 

After seeing the big gains for 2008, stupid investors poured $210 billion of new money into fixed-income funds during the first 8 months of 2009- just in time to lock in big losses. Not only did they lose, but they missed a 50% move up in equities. 

Some lessons are never learned.

52-week range: $16.24 (Mar. 9, 2009) - $37.67 (Jun. 19, 2009)

Dividend = $0.06 quarterly = 0.95% current yield

 

Black Box Corporation provides ‘Comprehensive Communications 
& Infrastructure Solutions’ to businesses in North America, Europe and elsewhere. The company provides voice solutions, premise cabling, and other data-related services and products, as well as offers technical support for its solutions that include consultation, site surveys, design and engineering, project management, single-site and multi-site installations, remote monitoring, and certification and maintenance of voice, data, and integrated communication solutions. It sells its products and services through catalog, Internet Web site, and voice and data services offices. The company serves small organizations, corporations, and institutions. As of March 31, 2009, it served approximately 175,000 clients in 141 countries worldwide. The company was founded in 1973 and is headquartered in Lawrence, Pennsylvania.

 

The overall stock market went up dramatically from the March 2009 bottom. BBOX shares followed with a move from $16.24 to $37.67 between March 9^th and June 19^th. Their fiscal Q1 report seemed disappointing at first blush with GAAP earnings of $0.44 versus $0.73 and the shares slid to close yesterday at $25.15. Read the company’s detailed report, however, and you learn that Q1 EPS were $0.71 versus $0.72 on a continuing operations [non-GAAP] basis.

 

Zacks’ and the overall consensus estimates from others are now at $2.84 /share for FY 2009 and $3.12 /share for FY 2010 (FYs end March 31 of the following year). That makes the projected P/Es < 8.9x this year’s and 8.1x next year’s expectations. Compare those multiples with their historical levels to see just how cheap these shares are right now.

 

Here are the per share numbers from continuing operations as reported byValue Line:

 

FY	Sales	C/F	EPS	Div.	B/V	Avg. P/E
2004	31.76	2.44	1.94	0.23	29.13	21.9x
2005	41.02	2.92	2.13	0.24	30.76	19.9x
2006	57.99	3.32	2.00	0.24	34.22	20.9x
2007	58.05	3.25	2.22	0.24	36.55	16.8x
2008	57.02	3.77	2.59	0.24	36.93	10.8x

 

Every measurable data point is higher now than previously yet the share price is not reflecting the gains in sales, C/F, B/V or earnings.

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Most retail option investors are buyers, rather than sellers, and the majority of these buyers prefer short-term expirations as opposed to longer-term options. This squares with Americans’ lust for instant gratification. Who wants to wait months or years for results when you might be able to profit quickly? 

LEAP’s are the same as other options but their expiration dates are further out in the future. Not every company has LEAP options available. Some LEAPs now have expiration dates that may extend as far out as January 2012. 

When you sell a LEAP option you will receive more in per-share option premium than you would if you sold a shorter-term option. If you sell LEAP puts that reduces your risk by lowering your net purchase price on an absolute basis (should you be ‘put’ the shares) and it increases your potential gain (over short-term put sales) because your maximum profit in either case is the money you receive when you sell the option. If the options expire worthless you keep the premium received and your obligation to buy disappears. 

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Lowe’s is the second-largest home-improvement retailer in the world and operates approximately 1,700 warehouse-format stores throughout the United States, Canada, and Mexico. The company’s stores offer products and services for home decorating, maintenance, repair, and remodeling. Lowe’s targets retail do-it-yourself and do-it-for-me customers, as well as commercial business clients.

Lowe’s Companies [NYSE:LOW] announced yesterday that earnings expectations for the fiscal year ahead would be $1.24 - $1.34 versus the Zacks estimates of $1.33/share. Not exactly earth shattering news but the shares sold off late in the day to finish at $21.07. 

It’s no secret that housing related businesses have suffered more than most due to the real estate price declines. Lowe’s EPS peaked at $1.99 in 2006 and will likely bottom at about $1.20 in the FY ending January 31, 2010. 

While nobody knows exactly when housing prices will pick up it seems unlikely that Lowe’s will not have much higher earnings 2 - 3 years from now than they do today. Value Line sees a rebound to $2.05 /share by 2012 – 2014. LOW’s 10-year median P/E looking backwards has been 20x. Value Line is using a 19 multiple in computing their 3 – 5 year estimate for LOW’s share price. Even in the depressed housing/real estate environment of 2008 Lowe’s shares averaged a 15.1 P/E.  Read more…

The single most important thought to take away from the crash of 2008-09 was that you must force yourself to buy when stocks get cheap even if the macro-economic turn is not yet in sight. 

The September 25, 2009 edition of Value Line compared many valuation metrics from the last market peak (July 13, 2007) and the recent market bottom (March 9, 2009) to the same valuation measures from Sep. 16, 2009. Here are some of their published numbers…

The perceived risk and the actual risk are almost always out of step. In early March this year investors were fleeing (what they felt were risky) equities as about ten times earnings to buy ‘safe’ T-bills yielding 0.3%. Ironically, at that time the average yield on all stocks in the Value Line universe was 4%.

They sold bargain-priced shares with high dividends to park their money in ultra-low yielding T-bills and CDs. They were sitting on the sidelines as the market rebounded over 50%. 

At the market peak in 2007 many of these same people were shunning 5% yields to invest in stocks at 19.7x earnings. 

We still haven’t seen clear signs of an economic rebound yet the market has shown one of the best six-month gains in the past century. 

Sir John Templeton said long ago “If you wait to see the light at the end of the tunnel… you’ve already missed the bottom.” 

What should you be doing now?

Almost every metric is at or near its 50-week high multiple and low yield. There are not as many bargains to be had. This is a time for some caution and selectivity. Magazine covers are a contrary indicator and lately major financial publications have been running cover stories on “Is it time to get back in?”  

Caveat emptor.

52-week range: $16.42 (Nov. 21, 2008) - $48.99 (Sep. 19, 2008)

Dividend = $0.14 quarterly = 1.49% current yield

 

Best Buy is the largest specialty retailer of consumer electronics in North America, with about 1,100 stores in the U.S. and Canada. The company sells video and audio equipment, computers, and home appliances. Best Buy operates electronics stores in Canada and China under the names Future Shop and Five Star, respectively, and specialty stores Magnolia Home Theater, Pacific Sales Kitchen and Bath, and Geek Squad in the U.S.

 

 

FY 2008 (ended Feb. 2009) marked the first year-over-year decline in EPS since 1996. Zacks’ FY 2010 - 2011 estimates now are running $2.90 and $3.19 following last year’s $2.88 /share (excluding a $0.48 non-recurring loss). The demise of major competitor, Circuit City, has led to what may be a permanent gain in BBY’s market share.

 

At today’s close of $37.59 Best Buy shares now trade for < 13.7x this year’s and 11.8x next FY’s estimates. Those are a bit lower than the typical historical multiples for BBY.

 

Here are the split-adjusted, per share numbers from continuing operations as reported by Value Line:

 

FY	Sales	C/F	EPS	Div.	B/V	Avg. P/E
2002	43.37	1.93	1.27	Nil	5.65	17.1x
2003	50.41	2.43	1.63	0.27	7.03	18.8x
2004	55.70	2.82	1.91	0.27	9.03	18.6x
2005	63.59	3.29	2.27	0.31	10.84	19.2x
2006	74.76	3.92	2.79	0.36	12.90	18.6x
2007	97.48	4.84	3.12	0.46	10.92	15.1x
2008	108.82	4.84	2.88	0.53	11.22	12.4x

 

Dividends were initiated in 2003 and have been increased in each of the past five years. The 1.49% current yield is competitive with today’s bank CD and short-term treasury rates. It looks very safe with about a 20% payout ratio.

 

Value Line is using a 16 multiple for their 3-5 year projections. Even 14x the current fiscal year estimate of $2.90 would bring these shares to a $40.60 target price by next spring. Standard and Poors has a 12-month goal of $41 while Morningstar sees ‘fair value’ as $52/share.

 

Is a $40 expectation a reasonable number? Best Buy shares have traded above that price during each calendar year since 2003. They exceeded $50 at their peaks in each year 2005-2006-2007 and 2008. They were above $42 in April this year. The yearly lows in 2006 and 2007 were $43.30 and $41.80.

 

A move from $37.59 to the low $40’s would be ok, but not exciting.

Here’s what I see as a better play than simply buying BBY shares.

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