What price to buy Macdonald and Proter and Gamble?
PG has a free cash flow of $12 B and cash of $13 B and long term debt of $38 B. The current price is $104 and market cap is $258 B. Only if the share price falls to 1/4 of the current price, that is $25, can it be a very good buy. Because the market cap will be $60 B and the free cash flow is 1/5 of the share price.
MCD has a market cap of $124B and a share price of $167. Free cash flow is only $5 B and the cash is $1B and it has a long term debt of $52B. Only if the market cap falls to $20B can it be a good buy. Wow, that will means its share price will drop to $30.
Wow, will this materialise? I do not know, but if it does not, the share price will likely see-saw for the next 10 years until it increased its cash flow.
US stocks are not a good place to put our money in. Where to put our funds?
Bonds. Interest rate are at a record low now. If there is a bank or big company default on its debt, interest rate will shoot right up and then bond prices will collapses, if I am not wrong.
Options and futures are too dangerous even for the professional investors.
Foreign currencies are also not safe.
If you have $1 Billion to invest, where will you put your funds into?
Fixed deposit? I really has no idea. Maybe after my dream I know where to invest the funds.
Thursday, March 26, 2020
US stocks and Sg stocks
I think it is a Long Long way to the bottom of the stock market (2-3 years) as many US companies like MacDonald, 3M, Johnson and Johnson, Coco-cola and Apple have poor balance sheet. What do I mean by this?
For example, Macdonald has a market cap US$110B, PE of 18 and a dividend of $5 for a share price of $148, giving it a dividend yield of 3%. Furthermore 0.12% of the shares are owned by insiders and 68% by institutions. These are bad signs. To top it off, analysts are recommending people to buy at a score of 2.1 (1- strong buy -5 sell). Over the years, cash has reduced from $2.5B to $0.8B and long term debt has increased from $29B to $34B.
Is this a one-off story of a great company falling from grace? No. Because stocks like coco-cola and Johnson and Johnson paint a similar story. I was shocked to learn of this fact. Could Warren Buffet be wrong on coco-cola stock or is Peter Lynch wrong on this analysis? I guess Peter Lynch is right and Warren could be right because he bought the shares at a low price so it does not hurt him if the share price falls. Even the stock like Apple has a Long term liabilities of $114 B and cash of $67 B. In Singapore there are a large number of shares whereby the cash per share is more than the share price and the balance sheet is much stronger and the dividend yield is 5%-8%. US stocks usually has less cash than Long term debt. This is a horrible position to be in now.
Moreover, the interest rate is now dancing near zero. There is nowhere to go but up only. At this point in time, people are not talking about the US banks health. Rather, they are more concerned about the health crisis of the COvid-19 virus. It is a matter of time, there will be a credit crisis and then companies will start going belly up and waves of debts defaulting will impact the banks. Perhaps Fifth third bank and Huntington banks will go to 50 cents in this once in a lifetime opportunity. Maybe I am dreaming.
Anyway, even if this crisis is not here, US companies are highly overvalued and Singapore stocks are undervalued. The tables could be turned onced the tide has turned. Let us see what will happen next. I will choose to be with the financially strong rather than with the weak.
For example, Macdonald has a market cap US$110B, PE of 18 and a dividend of $5 for a share price of $148, giving it a dividend yield of 3%. Furthermore 0.12% of the shares are owned by insiders and 68% by institutions. These are bad signs. To top it off, analysts are recommending people to buy at a score of 2.1 (1- strong buy -5 sell). Over the years, cash has reduced from $2.5B to $0.8B and long term debt has increased from $29B to $34B.
Is this a one-off story of a great company falling from grace? No. Because stocks like coco-cola and Johnson and Johnson paint a similar story. I was shocked to learn of this fact. Could Warren Buffet be wrong on coco-cola stock or is Peter Lynch wrong on this analysis? I guess Peter Lynch is right and Warren could be right because he bought the shares at a low price so it does not hurt him if the share price falls. Even the stock like Apple has a Long term liabilities of $114 B and cash of $67 B. In Singapore there are a large number of shares whereby the cash per share is more than the share price and the balance sheet is much stronger and the dividend yield is 5%-8%. US stocks usually has less cash than Long term debt. This is a horrible position to be in now.
Moreover, the interest rate is now dancing near zero. There is nowhere to go but up only. At this point in time, people are not talking about the US banks health. Rather, they are more concerned about the health crisis of the COvid-19 virus. It is a matter of time, there will be a credit crisis and then companies will start going belly up and waves of debts defaulting will impact the banks. Perhaps Fifth third bank and Huntington banks will go to 50 cents in this once in a lifetime opportunity. Maybe I am dreaming.
Anyway, even if this crisis is not here, US companies are highly overvalued and Singapore stocks are undervalued. The tables could be turned onced the tide has turned. Let us see what will happen next. I will choose to be with the financially strong rather than with the weak.
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