AI
Thursday, July 15, 2010 10:38:54 PM
LLEN - If 12.4 were the multiple for well-executed, high growth, and well communicated stocks, then my net worth would be 4 times what it is today. I'm sure the same would be true for you and for the rest of the members here.
The bottom line, however, is that that kind of valuation is not the norm for a china hybrid. Will it become the norm? I certainly think so, and am invested that way. But that takes time. And if 12.4 does become the norm, then there are plenty of stocks that will return twice as much as LLEN. Take CCME for example. Put a 12.4 multiple on a CCME 2011 EPS estimate and what do you get? You get a $31 stock.
In an environment where you only have a finite amount of money to invest, you have to judge the cheapness or expensiveness of a given stock based on the prices of similar companies. All I'm saying is that LLEN currently sells at an extremely large premium to its peers. While I think LLEN's valuation is highly attractive using traditional metrics, I don't think that the *relative* difference in valuation is justified, nor do I think that the difference is sustainable. At current prices, PUDA is estimated to generate twice as much income per dollar invested as LLEN. If estimates hold, then the two will likely converge towards each other in terms of valuation. Put simply, in a bull market, PUDA's valuation will likely rise to move closer to that of LLEN, and in a bear market, LLEN's valuation will likely sag to move closer to that of PUDA.
So if I have to put money in chinese coal, there is no question where to put it.
As for being short, I'm not short LLEN, nor am I bashing the stock. Of course, I do think it will retrace to 8.00 if the market continues to sour, but that's just because it's already retraced three times. And have no fear: if it does retrace, I will gladly be there buying it. I assume that everyone else here will too. And we'll probably all have to compete with Whitney T and the big pockets at T-Squared lol.
I'm just being honest in terms of the bargains that are available right now. PUDA is more of a bargain for a value investor. How can anyone disagree?
Think about the matter this way. Assume that you have to buy LLEN or PUDA. There are two catches. First, you can't sell your stake to someone else and capitalize on momentum or the "greater fool" concept. Second, whatever earnings the two companies generate over the next ten years, you get those earnings in your pocket as a dividend. Would you rather pay 7.50 for PUDA's 2011 projected earnings of 2.31? Or would you rather pay 10.30 for LLEN's projected earnings of say 1.80, assuming a beat?
There would have to be some reason in terms of projected earnings growth for a value investor to rationally choose LLEN, and I don't see what that reason is. When I look at P/E's, PUDA comes out on top. When I look at projected growth rates, PUDA comes out on top. When I do a DCF on current coal reserves, PUDA comes out on top. When I do a DCF on future coal reserves, PUDA comes out on top.
If I'm missing something, then please share. If I'm not missing something, then I'm sorry: I'm just not going to pay $10 for LLEN when I can pay $7.50 for PUDA. And if you truly want to pound the table that $20 is where LLEN "should" trade at in the current environment, then no problem, I'll gladly sell it to you for that price
The bottom line, however, is that that kind of valuation is not the norm for a china hybrid. Will it become the norm? I certainly think so, and am invested that way. But that takes time. And if 12.4 does become the norm, then there are plenty of stocks that will return twice as much as LLEN. Take CCME for example. Put a 12.4 multiple on a CCME 2011 EPS estimate and what do you get? You get a $31 stock.
In an environment where you only have a finite amount of money to invest, you have to judge the cheapness or expensiveness of a given stock based on the prices of similar companies. All I'm saying is that LLEN currently sells at an extremely large premium to its peers. While I think LLEN's valuation is highly attractive using traditional metrics, I don't think that the *relative* difference in valuation is justified, nor do I think that the difference is sustainable. At current prices, PUDA is estimated to generate twice as much income per dollar invested as LLEN. If estimates hold, then the two will likely converge towards each other in terms of valuation. Put simply, in a bull market, PUDA's valuation will likely rise to move closer to that of LLEN, and in a bear market, LLEN's valuation will likely sag to move closer to that of PUDA.
So if I have to put money in chinese coal, there is no question where to put it.
As for being short, I'm not short LLEN, nor am I bashing the stock. Of course, I do think it will retrace to 8.00 if the market continues to sour, but that's just because it's already retraced three times. And have no fear: if it does retrace, I will gladly be there buying it. I assume that everyone else here will too. And we'll probably all have to compete with Whitney T and the big pockets at T-Squared lol.
I'm just being honest in terms of the bargains that are available right now. PUDA is more of a bargain for a value investor. How can anyone disagree?
Think about the matter this way. Assume that you have to buy LLEN or PUDA. There are two catches. First, you can't sell your stake to someone else and capitalize on momentum or the "greater fool" concept. Second, whatever earnings the two companies generate over the next ten years, you get those earnings in your pocket as a dividend. Would you rather pay 7.50 for PUDA's 2011 projected earnings of 2.31? Or would you rather pay 10.30 for LLEN's projected earnings of say 1.80, assuming a beat?
There would have to be some reason in terms of projected earnings growth for a value investor to rationally choose LLEN, and I don't see what that reason is. When I look at P/E's, PUDA comes out on top. When I look at projected growth rates, PUDA comes out on top. When I do a DCF on current coal reserves, PUDA comes out on top. When I do a DCF on future coal reserves, PUDA comes out on top.
If I'm missing something, then please share. If I'm not missing something, then I'm sorry: I'm just not going to pay $10 for LLEN when I can pay $7.50 for PUDA. And if you truly want to pound the table that $20 is where LLEN "should" trade at in the current environment, then no problem, I'll gladly sell it to you for that price
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