Tag Archives: CPST

I See Dead People

Dead people


I hooked up my accelerator pedal in my car to my brake lights. I hit the gas, people behind me stop, and I’m gone. Steven Wright


The Endless Search for Value

I know we have lessons to complete in Quantitative Value, but I also use this blog as a poster board to refer back to when assessing events, thoughts, and ideas.

After spending four hours groping through the Value Line’s 2,000 companies, I don’t find much of interest besides the uglies of Russian and Brazilian stocks, coal, uranium, silver and gold miners.  Most readers here are too refined even to think of investing in such cyclical companies.  What would your Momma say?

I find the relentless buying by insiders in small mining stocks to be interesting while corporate insiders in other companies want cash now and not stock. For example, https://www.canadianinsider.com/node/7?ticker=LYD


 Here is a company just pulled at random from Value-Line:

CPST_VL There is always hope   Value or Death Trap?  Going up the capitalization scale doesn’t help either: CRM The profits will come tomorrow. intc Will the bad news be priced in?

Where is the value 

Fair value on the S&P 500 has three digits

We don’t know when the movie ends, just that it will end badly.

Good Reading






Wow, well said and rare. Doubt if control grid mainstream media will be having this white hat on the air.  Orioles Executive Vice President John Angelos, son of majority owner Peter Angelos:

“Speaking only for myself, I agree with your point that the principle of peaceful, non-violent protest and the observance of the rule of law is of utmost importance in any society. MLK, Gandhi, Mandela, and all great opposition leaders throughout history have always preached this precept. Further, it is critical that in any democracy investigation must be completed and due process must be honored before any government or police members are judged responsible.

That said, my greater source of personal concern, outrage and sympathy beyond this particular case is focused neither upon one night’s property damage nor upon the acts, but is focused rather upon the past four-decade period during which an American political elite have shipped middle class and working class jobs away from Baltimore and cities and towns around the U.S. to third-world dictatorships like China and others.

The outcome plunged tens of millions of good hard-working Americans into economic devastation. Then they followed that action by diminishing every American’s civil rights protections in order to control an unfairly impoverished population living under an ever-declining standard of living and suffering at the butt end of an ever-more militarized and aggressive surveillance state.

The innocent working families of all backgrounds whose lives and dreams have been cut short by excessive violence, surveillance, and other abuses of the Bill of Rights by government pay the true price, an ultimate price, and one that far exceeds the importance of any kids’ game played tonight, or ever, at Camden Yards.

We need to keep in mind people are suffering and dying around the U.S., and while we are thankful no one was injured at Camden Yards, there is a far bigger picture for poor Americans in Baltimore and everywhere who don’t have jobs and are losing economic civil and legal rights, and this makes inconvenience at a ball game irrelevant in light of the needless suffering government is inflicting upon ordinary Americans.”

Part 3: Using Value Line

No gold digging for me, I take diamonds. We may be off the gold standard some day.–Mae West

Part 3: Using Value-Line:

Part 2 was posted http://wp.me/p1PgpH-Bx. Also, Carl, a reader, kindly provided this link on analyzing Value-Line from a blog:http://www.rationalwalk.com/?p=7544

With experience you will come to recognize opportunities that make you tremble with greed or feel like being hit in the face with a flounder http://www.youtube.com/watch?v=IhJQp-q1Y1s. If you don’t know what opportunity is, then expect to do this: http://www.youtube.com/watch?feature=endscreen&NR=1&v=sLB-uMPj27s


Our goal is to find an inkling (first step) of a  compelling investment as we go through Value-Line—typically by industry groups. My methods are three-fold:

Number 1: I seek to categorize and eliminate companies quickly to narrow my search. Your investment process drives your search strategy. I categorize companies as either franchise companies that have profitable growth within barriers to entry (sub-3% of all public companies I estimate) and non-franchise companies or asset-based companies (95% to 98%). Of course, there are gradations within and between the categories.

Buffett would advise that you purchase the investment with the biggest discount to intrinsic value. An asset/non-franchise company–that can be valued with earnings power value cross-checked with replacement value and then you may have a conservative private market transaction as another marker—may be a better investment than a franchise type company depending upon the discount.  Time, however, is against your investment reaching your estimate of intrinsic value because growth is not profitable and without a catalyst like a corporate restructuring, you are dependent upon the market recognizing the value. If you buy a non-franchise type company make an effort to buy at a large discount and know why such a discount might be available—obscure, forgotten, hated, no analyst coverage or some combinations of those aspects. Are you fooling yourself?

With a franchise company I hope to receive the growth for free or for a low price as long as I am confident within reason of what the company will be earning.

Number 2: Note which companies you want to research in more detail; prioritize your efforts by urgency. What questions do you need answers for? Avoid reading the Value-Line comments and timeliness ratings because you wish to reach your own conclusions. Your goal is where to fish deeper not jump to a conclusion to buy or sell. Remember that steady sales, return on capital, strong balance sheets over a long period of time (eight to ten years plus) is EVIDENCE of not PROOF of a franchise/competitive advantage. The Value-Line is a first sweep.  The importance of using a Value-Line as a research tool is its simplicity and long history (Pepsi had 15 years of data) on one page.

Number 3: Gain a sense of the industry economics and overall prices being paid for various businesses. Which industries have poor, normal, great economics—steady sales growth, high and consistent ROIC, ROA, ROE, cash rich balance sheets? Is there anything unusual like very high or low profit margins, etc. Look for the unusual like high cash or debt levels. What seems to be the prices paid for various businesses? Look at prices after you have estimated the value of the business. What may strike you is how much investors are willing to over pay for weak companies. Graham considers this the major error investors make—overpaying at the top of a market for poorly performing (operationally/financially) companies. A money manager once joked that the secret to always outperforming an index was simple. Buy every company in the index except for the airlines.

Value-Line will report on each company about four times a year, so if you form the habit of going through the Value-Line tear sheets each week or every few weeks depending upon your interests, you will easily sort through companies quickly because you will remember your previous thoughts on each company. It takes practice but have good habits (Buffett’s talk to students on habits) http://www.youtube.com/watch?v=14SK4CX_KYY

Let’s take an easy Tear Sheet, Capstone Turbine (CPST) here:http://www.yousendit.com/download/M3BueEVha0RWRC9FdzhUQw. (If link is gone then material is in Value Vault; ask for key) First, look at return on total capital (like a Doctor taking your pulse—focus on one key variable first). There is NMF or not meaningful. This company is profitless for almost a decade (PASS!). Sales are minimal, slow and erratic. No cash flow. How is the company surviving? Negative retained earnings. The management is eating into past capital (note book value per share declining steadily) raised and constantly shares are being issued as share count rises from 85 to 260 million shares. The company has no net debt, but the business seems dormant or in the land of the living dead. This is an immediate no interest (unless for short selling). File in the circular file. Time spent—15 seconds.

For fun, look how the company has been valued in the past as prices have ranged 3-xs to 5-xs from high to low price while this asset-based (microturbines) company clearly has no competitive advantage yet trades every two years at 5 times book value and 8 times sales while bleeding cash. Sales growth is meaningless. And the market is efficient? Investors love a lottery ticket.

IF there was any hidden value there might be large NOLs (Net Operating Losses to shield or reduce future taxes if profits are made in the future), but without future profits even that is a pipe dream.  Next time, I would glance for 1/10th of a second at the company, then flip the page or scroll down the computer screen.

In Part 4, next post: I will go immediately into Balchem, Pepsi, and Miller Industries. I penciled in the Balchem’s 2011 numbers from their most recent (FY 2011) press release. Tear Sheets are available from Part 2 here:http://wp.me/p1PgpH-Bx

Thanks for your patience.

Part 2: Using Value-Line Case Study-Balchem (BCPC)

Reach of Federal Power is Questioned (Obama Care)

It’s “the old Jack Benny thing,” Justice Scalia said, invoking the joke where a robber holds up the famously stingy comedian and says, “‘Your money or your life,’ and, you know, he says, ‘I’m thinking, I’m thinking,'” Justice Scalia said. “It’s funny, because there is no choice.”

BalChem (BCPC)

Initial post on using Value-Line:http://wp.me/p1PgpH-Bc

Then I posed a case study of a Value-Line with the market prices and name removed here:

The company in the case study is Balchem: https://rcpt.yousendit.com/1439168384/30543fcee251a06356192fe6d4de2c7f

Take a few minutes to review the Value-Line to determine if your perceptions of your initial analysis changed. Ask if the company is worth studying further. There is no correct answer; it depends upon your investment philosophy.

Part 3 will be my discussion of Balchem using the Value-Line posted tonight or early tomorrow. In the spirit of full disclosure, I have owned Balchem (BCPC) back in 1996 – 1999 (before the 10x rise in price!) so take my words with an antidote. I bought on the basis of book value, made money, but I had no clue back then of what was a good or bad business. I was buying on the basis of cheap metrics. You can make money but still make a mistake. Ignorance was my blinder.

Below are a few more Value-Lines which I will discuss in the next post (part 3)




Imagine sorting through a huge pile of mail. You need to discard companies that are of no interest. Value-Line publishes updates on each company about 4 times a year, so you will become more adept sorting companies the more times you review Value-Line. At first, the process will be time-consuming, but you will learn more about companies, valuations and market perceptions.