Feb 25, 2015

2015 US GDP Analysis

The Bureau of Economic Analysis has announced that 4th Quarter 2014 Real GDP numbers continued to grow in positive fashion with an estimated increase of 2.6% after a Q3 (2014) increase of 5%. The Bureau emphasized that this 4th Quarter increase is merely an “estimate” based on extensive but incomplete data with a updated estimate expected on February 27, 2015. The BEA announced that the slowdown in GDP growth from Q3 to Q4 in 2014 was partly attributed to an uptick in imports vs. exports, a reduction in government spending and a downtick in nonresidential fixed investments. The chart below shows the growth in Real GDP over a 5 year period.

Real US GDP Growth: 2008-2013

As stated above, although Q4 saw positive growth, the percent change from Q3 to Q4, 2014 was a decline of 2.4%. The graph below shows the quarterly percent change from F.Y. 2007 through 2014.

Real GDP Percent change from preceding period

*All data and info was obtained from the U.S. Department Of Commerce’s Bureau of Economic Development and can be obtained at: http://www.bea.gov

Apr 3, 2013

1st Quarter Index Comparison.

  This is merely a comparison of how the Dow Jones Basic Material Index has compared against the other three big U.S. composite indices. As seen in the first stock chart below, the Dow Jones US Basic Material Index is actually posting a slight loss during the 1st Quarter of 2013. This compares with an 8.7% gain for the DOW, a 5% gain for the NASDAQ, and a 7.3% gain for the S&P500. Over the coming weeks we’ll look into the factors that may be causing the Basic Material Index to lag behind the other major indices, but it is interesting to note how closely resembled the NASDAQ until Mid-March, 2013.

  Since mid-March, the index has lost about 7 points (roughly 2.5% of its value). This sudden decrease has essentially wiped out nearly all the gains from the mid-February crash, where it climbed from 272 (Feb 25th) to 289 (March 15) - a 6.4% gain. The end of March saw the index close at 282.92 – roughly 3.2 points off its Jan 2nd close (a 1.1% decline). In addition, its April 2nd close of 276 constitutes a further drop of 2.5% from March 28th and may indicate some weaknesses within the Sector.

1st Quarter Basic Materials

1st Quarter Dow Jones Industrial

1st Quarter NASDAQ

1st Quarter S&P500




Mar 23, 2013

Plum Creek Timber, Inc. Stock Analysis (PCL)

  Plum Creek Timber Co. Inc, a timber and forestry company headquartered in Seattle, WA specializes in products ranging from longs and lumber, to plywood and medium density fireboard. They also spend quite a bit of resources on conversation and environmental education, as well as land leasing and hunting programs. 

  Plum Creek is a company that simply owns a lot of land suitable for growing timber and wood products. From a Capital Expenditure perspective, Plum Creek Timber currently accounts for$3.85 billion in assets with nearly 90% of that being attributed to “Other Assets,” a.k.a, Land. This is from a company with a total Net Income of $203 million that paid out $272 million in dividends.

  Despite this, their stock has been on the incline closing at $50.48 on 3/22/13 – up from $45.40 on Jan 2nd –an 11.2% YTD growth.

  When we look at their financials, we calculated a CAPM growth of 5.2% with a WACC of 5.5%. We calculated an FCFF of $443 million, with a long term growth rate that is -5.6%. Their growth rate is negative because of the fact that their dividend payout was higher than their Net Income numbers. Their last dividend was $0.42 with a dividend yield of 3.33. As of this posting, we valued their stock price to be approximately $69.55 which means it is about 38% undervalued according to our calculations.  We certainly don’t expect a 38% growth anytime in the near future; however, based on their financials, we do believe that this stock has room to for growth.  We are bullish on PCL, and in addition to their dividend yield, we believe that this is a good stock to take a look at.Their other keys financial are below:

  • EPS: 1.25 
  • Beta: 1.05 
  • Trailing P/E : 40.38 
  • Forward P/E : 30.05 
  • Price / Sales: 6.08 
  • Price / Book: 6.65 
  • Profit Margin: 15.16% 
  • Operating Margin: 20.99% 
  • ROA: 4.06% ROE: 16.33%
  Overall, their financials look ok, but they certainly need to bolster their Net Income numbers, however their profit and operating margins are strong as are the P/E numbers. Their EPS is not strong mainly because their revenues have not been strong the last couple of years. However, as the economy recovers, and if housing starts increase, this could be a stock to watch in the coming months. Experts have downgraded them to a hold, but now may be the time to jump in.

  Plum Creek Timber Co. Inc YTD stock and volume chart is below:

Plum Creek Stock and Volume Chart
All data taken from 10K reports and public domain data.

Mar 22, 2013

Stock Analysis of Kaiser Aluminum Corp. (KALU)

  Kaiser Aluminum (kaiseraluminum.com) is a supplier of aluminum products to various markets, such as Aerospace and Defense, Automotive, General Engineering and Custom Industrial. Founded in 1946, Kaiser made their mark in the aluminum industry after purchasing three plants from the U.S. Government and eventually growing it to their current number of twelve facilities in North America, and sales facilities in Paris and Beijing. They currently specialize in the production of semi-fabricated specialty aluminum products.
Headquartered in Foothill Ranch, CA, USA, Kaiser Aluminum currently has a full-time staff of 2600 employees and is led by Chairman and CEO, Mr. Jack A. Hockema.

  Kaiser Aluminum is the typical stock that has seen its ups and downs during the recession, but is now essentially trading at the same level they were in August, 2007. Despite this, they still have a way to go before regaining pre-2008 market crash strength with market analysts forecasting a growth of between 7% and 12% in F.Y. 2013.

  Kaiser is currently trading on the NASDAQ platform under the KALU ticker. Their March 21 close was $63.78 with a market cap of $1.22 Billion and an EPS of 4.45. Their other main financial stats are listed below:

  • BETA: 1.19 52 
  • Week High / Low $65.18 / $45.65 
  • Enterprise Value $1.25B 
  • Trailing P/E 14.33 
  • Forward P/E 13.60 
  • PEG Ratio 1.04 
  • Price/Book 1.14 
  • Price/Sales 0.92
  Using a Capital Asset Pricing Model we re-evaluated the stock to try to determine if it is currently trading at the correct market value or if it’s under or overvalued. From our analysis of Kaiser’s recent financial data we determined the following:
Their Free Cash Flow to the Firm is slightly above $87 million.
This is with an EBIT of $16.7 million on revenues of $1.36 billion.
Their CAPEX from 2011 to 2012 was a gain of nearly $250 million.
Their depreciation write off was $36 million.
Their WACC was 8.8%
Their calculated growth is 6.25% for five years with a 3% growth there after.

  We used a risk free rate of 0.83% (Treasury bond rate), with a market rate premium of 8.25% and a yearly growth expected to be 10.5% for F.Y. 2013.

  With this data in mind, we believe that KALU should be trading at $71.97 – approximately 13% undervalued from its March 21st close.
Thus, we believe that this is a stock worth looking closer at. It has potential growth for this year, the price we estimate is in the midrange of various other analysts’ opinions, and it’s a decent income stock with a 1.88 dividend yield on $0.30 per share.

  The YTD price and volume chart is below:

Price and Volume of KALU

  We see the increasing global demand for aircraft frames and assemblies as a main factor in Kaiser’s growth, as well as a recovering market for high-end automobile sales worldwide. In addition, the current rebound as aluminum as a commodity is starting to have a positive effect on many aluminum companies – Kaiser should be able to profit from this growing commodity.

Mar 17, 2013

Evaluation of Southern Copper Corporation (SCCO)

   The Basic Material stock that we looked at this week is Southern Copper Corp: southerncoppercorp.com (NYSE:SCCO). Southern Copper Corp is a company that produces copper, silver and zinc, among other metallic materials. Their operations are mainly in Central and South America with smelting and refining operations in Mexico and Peru, and exploration activities in Argentina, Chile and Ecuador. The bulk of their mining operations are in Peru with open-pit copper excavation operations in Mexico.

  They are currently traded on the NYSE with a recent closing price of $36.74. Their 52 week range is from 27.72–42.03. They have a $31 Billion Market Cap with a Beta of 1.59. Their other indicators are as follows: 
  • Enterprise Value: 32.69B 
  • EPS: 2.28 P/E 16.11 
  • PEG ratio: 0.82 
  • Price/Sales: 4.70 
  • Price/Book: 6.57 
  • ROA: 23.21% 
  • ROE: 44.0% 
  • Current Ratio: 5.00 
  • Book Value to Share: 5.64 

  We re-evaluated their current stock price using a typical CAPM model. From our analysis, we calculated the following via their 2012 & 2011 10k Reports: 
  • Free Cash Flow to the Firm (FCFF) at $1.7B 
  • Weighted Average Cost of Capital at 8.4% 
  • Their Growth Rate at 12% for five years with a long term growth rate after at 3%. 

  We used at risk free rate of 0.83% (5 Year Treasury Bond), a market premium of 5%, and long tem sustainable growth at 3%. 

  From our calculated data and other published data, we calculated at share price of $34.07. SCCO closed last at (03.15.13) at $36.74 ~ technically 7% undervalued, but we believe their share price is fairly valued. Other analysts expect growth of around 17% this year and just over 3% next year. 

  We believe that this growth is a fair estimate, assuming their South American exploration operations come to fruition and that the commodity market for silver and precious metals remains high. 

  The main reason why we highlighted this equity is because of their dividend payouts. SCCO paid out over $3.1 Billion in dividends on only $2 Billion of Net Income and $6.7 Billion on revenue with 845 million shares outstanding. Their annual dividend rate is 0.96 with a yield of 2.6% and a payout ratio of 163%. 

  SCCO, in our opinion, is an outstanding equity for anyone interested in adding a stock to an income portfolio. 
 Their recent stock performance is below:
SCCO YTD Stock Performance

Mar 16, 2013

1st Quarter Index Recalculated.

  We believe that the Dow Jones US Basic Materials Index (DJUSBM) is still slightly overvalued for the first quarter of this year based on our latest analysis, which currently stands at 289.15

  The iShares IYM index fund (the main fund that follows the DJUSBM index) currently gives a dividend of yield of 1.94% - however with the latest stock buybacks of the time period the modified yield to increased to 2.94%. Analysts estimate the index to grow at approximately 8.5% for the next 5 years after which, the earnings and dividends is expected to grow at about 3.22% ( a rate set by the Treasury Bond Rate, a good predictor of long term growth). We then used a market risk premium of 4% and arrived at a Cost of Equity at 7.22%

  Thus the current modified dividends = 2.94% of the current index value of 289.15 = 8.50

  We can then put them into the yearly dividend table as follows:

Stock Graph for B.M.Index


  We estimated the terminal value of year 6 as:
 Expected Dividends, Year 6 = (12.04)(1.0322) = $12.47 

  Thus the Terminal Value of the index =
 12.47/(0.0722-0.0322) = $311.75 

  The Present Value of the Terminal Value = $220.00

  Therefore, the value of the index can be calculated as:
 220 + 8.49 + 8.50 + 8.50 + 8.51 + 8.52 = 262.52 

  Based upon this analysis, the calculated value of 262.52 is approximately 10% less than the stated index value of 289.15, making the entire index slightly overvalued.

   This is mainly due to the fact that the index has suffered from lower than normal interest rates and yield rates. We would not recommend selling any equities in this sector and are, in fact, bullish on the sector as a whole. As seen in the graph below, there have been significant gains in this sector since the mid-February selloff and is now seemingly correlated with the S&P 500. The chart below illustrated the recovery since mid February.


Dow Jones Basic Material Index(DJUSBM) 2.1.13 to 3.15.13
Dow Jones Basic Material Index(DJUSBM)

*All data obtained from multiple public domain sources.

Mar 14, 2013

First Quarter Basic Materials Outlook.

  The Dow Jones U.S. Basic Materials Index (DJUSBM) has been on a bit of a bumpy ride for the first quarter of 2013, predicated, in part, to its 3.2% drop back on February 20th. All in all, the DJUSBM has seen a virtual break even in it’s YTD, essentially erasing all the Feb.20th - 25th losses, as well as all the gains it generated from Jan. 4th through Feb. 14th.

  As of March 13, 2013, the index stands at 286.62. The YTD mean for the sector is 288.09 with the median at 288.0. The yearly high and low are 293.02 and 271.78 respectively with a range of 24.24 (8.1% range and a standard error of 0.733).

  The Sector is underperforming the S&P500 which has seen a YTD increase of approximately 6.2%, thus far. The S&P500 has seen a yearly high and low of 1556.22 and 1457.15 respectively with a range of 99.07 (6.8% range).

   However, since the DJUSBM’s February 25th close of 271.78, the index has seen an increase of approximately 5.5% and now appears to be in correlation with the S&P500. The chart below shows the daily closing index values with the S&P500 scale on the left and the DJUSBM scale on the right. The lower chart shows the daily volume of shares traded : S&P500 (INDEXSP:.INX) and DJUSBM: INDEXDJX:DJUSBM.

S&P500 and Basic Materials Index Comparison
(All data from various public domain sources)


S&P500 and Basic Materials Volume Comparison
(No volume data between Jan 14-18:  All data from various public domain sources)


One of the main contributing factors to the mid-February decline was the announcement that Basic Materials sector giant BHP Billiton Limited (ADR) (NYSE:BHP) is under U.S. investigation for possible fraud at the Beijing Olympics in 2008. BHP has seen a dramatic decline from $80.46 on Feb. 15th to value of around $72.50 as of March 14th. This is a nearly 11% decline on a stock that represents a $116.4 Billion market cap on the sector. Although the overall trend line is down for Basic Materials, there are some shining stars in the sector, with companies like Syngenta AG (SYT), Monsonto Company (MON), Praxair (PX) and Mosaic Co. (MOS) among many others, with positive net gains for the first quarter of 2013.