Wednesday, December 26, 2012

Chanos Talks Cash Flow

A link to Lawrence C. Strauss interview with Jim Chanos in this week's Barron's. (the following paragraph is from the Barron's article.)
"So, in the past, value investors looked at declining free cash flows and put some discount rate on that. And then they got a value, and then they would say, "Gee, there is the possibility of a call-option value of the business inherent to all its other opportunities. So, if I can buy it at some discount to that present value, I'm in good shape." But we've seen time and time again where the cash flows do not gradually decline. Nor do managements seem very willing to pay out cash flows when they are in a declining business. They often use them to make acquisitions, trying to save the business on a Hail Mary basis. The advent of digitization in lots of businesses also means that the timing gets compressed, meaning that you need to move quickly or you are roadkill on the digital highway. That's true whether you look at companies like Eastman Kodak [ticker: EKDKQ], or Blockbuster, or the newspapers. Value investors have been drawn to these companies like moths to the flame, only to find out that the business has declined a lot faster than they thought and that the valuation cushion proved to be anything but." 

Below are Stockdiagnostics Cash Flow Charts from Equities Research 

Equities Research :  Stockdiagnostics Cash Flow Charts

Stockdiagnostics Downgrades of Stocks with declining Operational Cash Flows.

Stockdiagnostics Charts of Stocks filing Bankruptcy, including Eastman Kodak .

Equities Research remains Bearish these Stocks with Declining Operational Cash Flow:
 Titan Machinery , Automatics Data Processing, Apple Computer, Cubic Corporation, NetFlix, Big Lots,

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