Monday, August 18, 2014

High Yield Reads - 8/18/14

Summary of recent stories of interest, sometimes enduring, to investors:

The Wide Moat Dividend portfolio (model portfolio)  is designed to produce income and total returns, not drama. But there has been fair amount of the latter. There are only three stocks in there currently - Coke, IBM and GlaxoSmithKline, but they've managed to generate some interesting news

  • Stephen Lamacraft of Woodford  Funds provided a useful way to look at GSK's reengineering:

GlaxoSmithKline is currently a very unpopular stock – as contrarian investors, this is one of the reasons we like it, because its unpopularity is reflected in a very low valuation. To put this into context, Bayer recently acquired Merck’s consumer healthcare business for 7x sales. If you were to put Glaxo’s consumer healthcare business (it recently put its consumer healthcare assets into a joint venture with Novartis) on the same multiple, it would be broadly equivalent to half of Glaxo’s market capitalisation. 
By combining the potential valuation of the consumer healthcare division with the potential valuation of a world-class vaccines business and VIIV, a leader in HIV treatment, you get the current market value. As such you get a portfolio of existing pharmaceutical products and a strong pipeline of new drugs, in our view – for free! It’s worth mentioning that this division is no minnow with a potential valuation of £33bn, some 50% of the current market cap. 
Now, we are not suggesting that a corporate bidder is going to pay that sort of money for Glaxo’s consumer healthcare business any time soon – it’s just an interesting way of looking at the valuation opportunity that exists in the stock currently. The recent earnings disappointment has fuelled the market’s desire to focus on the short-term but, in doing so, it is ignoring a very interesting long-term story. Indeed, we are increasingly positive on that long-term investment case.

  • Continuing on the "significant amount of bad news already reflected in today's price", Barron's thinks the worst may be over at IBM.
  • Interview with Lou Ann Lofton on how Warren Buffett Invests Like a Girl. "With Buffett, he doesn’t care what Wall Street’s doing. He’s not going to be suckered into that. He buys what he knows, for the long-term, and manages risk as best he can. All of these things will help people make money—that’s what it’s all about."

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