Year End Report On The Companies I Wrote Articles On And An Illustration Of How Far I Have Come Since February

Year To Date Performance

Below is a chart on the performance of the companies I have written articles on this year and how they have done since I published my original articles on them.

I still trust my analysis of all the companies I have evaluated this year but at least in the short term it looks like I was very wrong about Chiquita as it has gained 40% since I published my article on them.  For the long term perspective I am still very bearish about them unless they have massively eliminated debt.  I generally do not keep tabs on the companies I wrote bearish articles on so Chiquita may have improved its operations since that time.

Also in the short term, it looks like I let the fear of the unknown about L.B. Fosters potential liability claim problems steer me away from a good investment as it has gained 32% since I wrote my bullish article about them.

Bullish and bearish results ended up being pretty comparable due to Chiquita’s big gain.  Excluding Chiquita from the bearish results and they performed much worse than my bullish articles.

Results below are excluding STRT and BOBS since I just bought both of them.  All results in this post are after fees.

Overall the companies I bought for the portfolios I manage have done very well as I was up 26.20%, including the 66% portion of Dole that I sold to lock in gains in the summer, and excluding Strattec and Brazil Fast Food since I just opened those positions.  The bullish results are only including gains from the time I published my articles to yesterday, which obviously does not include the big spike in Dole during the summer.

For my personal portfolio I only gained approximately 12% in 2012 because of my foolish past buys which I have documented many times on this blog before.  Because of the previous companies I owned, I missed out completely on Dole until after the company had already dropped back to Earth from its previous highs.

Lesson here kids is to know more than what you think you need to know before buying stock in companies so you don’t have the last two years of average results that I have had due to my lack of knowledge.  I would not change buying any of those companies because it helped me learn much faster than I would have by just continuing to read books, but instead of prematurely jumping into buying stock in companies after reading a couple books, I would have set up a portfolio online with fake money to track and learn from my performance.

After getting rid of the last trash companies that I probably should have never bought, and companies that I would have not bought into with what I know now, my personal portfolio whose current structure can be seen here, is up 16.19% still excluding STRT and BOBS.  Quite a bit worse than the other portfolios I manage due to missing out on Dole’s big gains.  Most of that 16.19% gain is from Main Street Capital which is the only company I still own from before doing the amount of research I am doing now and which is up 52.57% since I bought into them.

Going into the new year, now that I have my personal portfolio without any trash companies in it, I think that as I continue to gain knowledge and refine my craft that I will be able to perform as well in 2013, as I did in 2012 with the portfolios I managed to a gain of 26.20%.

An Illustration of How Far I Have Come Since February

Below is my first unedited attempt at an analysis write up that I did in either March or April after truly dedicating myself to becoming a value investor in February.

Vodafone Group PLC, ADR, (VOD) info

All information taken from Morningstar.com, Vodafone’s website, fool.com, or Vodafone’s most recent annual financial report.

Overview:

With 343 million proportional customers (total customers multiplied by its ownership interest), including its 45% stake in Verizon Wireless, Vodafone is the second-largest wireless phone company in the world behind China Mobile. It is also the largest carrier in terms of the number of countries served. Vodafone has majority or joint control in 22 countries and minority or partnership interests in more than 150 total countries. The firm’s objective is to be the communications leader across a connected world. They have four major markets that they break their financials into: Europe, Africa Middle East and Asia Pacific or AMAP, India, and the United States through a partnership with Verizon.

Pros:

1. Huge company operating in more than 150 countries making them more diversified and able to withstand drops in revenues and profits coming from a single region or country.
2. Generates huge free cash flows of at least $8.25 Billion in each of the last 8 financial years. Free cach flow or FCF is basically the money thats left over after expenses, dividends, payments, etc that the Vodafone can use as it pleases. Generally VOD uses their FCF to increase their dividends, buyback their own stock, acquire other companies, or pay down debt.
3. Current dividend yield of 6.97%, the average company in the S&P 500 has a yield of around 2%. Pays a semiannual dividend in June and November of each year. Also receiving a special dividend from Verizon, $1 billion of which will go to paying down Vodafone debt, $3.5 Billion will go to pay a special dividend to Vodafone shareholders in January or February of 2012.
4. FCF/Sales ratio over 16% each year since the 2002 financial year. Anything over 5% means they are generating huge amounts of cash.
5. Interest coverage ratio of 23.4, anything over 1.5 is good. Interest coverage ratio is how many times they can cover the payments of interest on their debt.
6. Payout ratio of around 50% for the dividend meaning the dividend should be safe for the foreseeable future.
7. Raising their dividend an average of 7% per year for the next 3 years.
8. Lower debt/equity than their industy competitors.
9. Growing a lot in Asia, Middle East, India, and parts of Africa. Also still a lot of room to grow in those areas as they are relatively new to them, especially India.
10. Paying down debt with FCF.
11. Gross margin, net margin, and EBT margin all over 17% which is very good.
12. Still a lot of room to grow their revenue through people upgrading to smartphones and paying for data packages which they make more money off of then regular phones.
13. Executive pay is linked to how well the company does, and they encourage their executives and directors to own company stock.

Cons:

1. Still a lot of debt even though they are paying it down, around $40 Billion

2. Most of Western Europe except Germany, are having huge economic problems which has led to lower sales an profits in those areas.

3. The fear or actuality of another global recession would hurt their sales and profits.

4. Problems at Verizon which VOD owns 45% of would hurt future payments from Verizon to VOD.

5. Most of their revenue is generated in Europe where as above, there are big financial problems.

6. Since they are in so many countries they have to deal with many regulations and sometimes even lawsuits from other goverments or companies in those countries.

Final Thoughts:

Overall I feel very good about Vodafone’s prospects to be a great investment for the long term. We are buying them when they are valued at a very good price, especially compared to their competitors. They have huge growth potential in India, a country that has over 1.3 billion people, as they have only penetrated that market by around 10%. They are paying down debt, upping their dividends and receiving a special dividend from Verizon. Even if their share price doesn’t go up over the next few years, which I believe it will by quite a bit, then we are still covered by the near 7% dividend that they are going to keep growing at least 7% a year for the next 3 years. Also, with their huge FCF they can maybe pay down debt faster, acquire other companies to keep growing, pay more dividends, or buyback their stock.

 As always if there are any questions let me know. I believe we will all do well with this stock in our portfolios over the long term.

Here is the link to my most recent article on BOBS.  The contrast is kind of startling and exciting at the same time.  I had not looked at this Vodafone write up until recently probably since I wrote it and was very excited to see how far I have come in only 10 months and I cannot wait to see how much better I will get with years more of practice and learning.