nice move today, page-7

Thanks for the compliment Insomniac.

My litany of sectors to avoid should have a second litany of things to avoid – like high debt, low ROE (ROCE or ROIC if you prefer), growth via acquisition (but with some exceptions), share dilutions, fully valued and over valued SPs, et cetera. Warren Buffet avoided companies where management harped on EBITDA, as the SGH presentation does, because, I assume, this had a high correlation with either stupidity or dishonesty. Mark Twain, who was a hopeless investor, added to the litany by writing, "October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February."

I have recently trawled for stocks with TGA-like metrics, and the ones that were collected in my large-mesh net included mining-services providers like MND, LYL and FWD, which for sectorial-apprehension reasons requires me to investigate deeper – something I should do in coming weeks. If the mining services sector is severely thrashed by Mr Market, then some of these companies would be worth a punt at lower SPs.

Irrespective of how one values stocks, the matter of future performance is there, either patently or latently. The subjectivity of TGA's EPS growth explains why different investors derive different guesstimated fair-values for TGA shares. Current brokers' consensus has TGA's EPS and dividends flattening for the next three years, whereas I am more optimistic. The current SP of circa $1.90 would be about right if one thinks TGA will not grow EPS (and hence dividends), whereas different growth trajectories (all less than the past five years) easily justify prices up to say $2.50. We will have to wait for cues from management to get a fix on TGA's EPS trajectory.

From my optimistic perspective, bad news will prove the brokers to be correct, and hence the current sub-$2 price to be about right. The good news will be that TGA stays on its historical trajectory, and hence my dampened-down EPS trajectories are wrong. The middle path (for me) is that my dampened-down EPS growth is correct. The upside seems more likely than the downside, but the flow of time will expose the reality.

On WOW as a comparison, although I have not used dividend yields to value a company, they form a large role in my process of selecting candidates, and for firms like TGA and WOW, dividend expectations (note that word) can be used in a rule-of-thumb way. A return of 5% seems fairly normal for solid, bordering on stolid, stocks like WOW. If you expected 5% dividend yield from WOW, this roughly equates to the current SP, and likewise for TGA. However, for the next pair of dividends (interim and final), I am on fairly safe ground with WOW, because brokers' consensus and my view concur, but for TGA the brokers think its EPS and dividend will flatten, and I do not. If I divide what I expect TGA's dividend to be (11.5 cents) by 5%, then I get $2.30.

The foregoing brings us back to what we individually expect TGA's EPS and dividends to be in future - a very subjective matter.