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Fox Business Interview: Ockham CEO on General Electric

This morning, Ockham CEO Christian Ward was interviewed by Fox Business Network’s Charles Payne about the plight of General Electric (GE).  As everyone has noticed in the last few months the GE stock has come under increased pressure as GE Capital is subject of much speculation these days.  Christian was asked to give a little bit of clarity on where GE might be headed from here.  In case you missed it, we have transcribed the interview here:

Payne: Where does GE go from here? I’m joined by Christian Ward of Ockham Research. Give us the depth of the crisis at GE.

Ward: Good morning, Charles. The depths are, unfortunately, very unknown. We looked at the letter that came in yesterday from GE management, as we saw the stock fall to decade lows. And unfortunately they used the word, in the very opening sentence, that this is largely because of speculation.  For all the investors out there, what else are we really left with? GE Capital continues to be somewhat of a black box. It has been built upon a black box mentality. It is not part of a bank holding company where you are actually going to get some insight into what is actually going on in the books. 

I think the depths of the crisis are hard to pin down, its absolutely a crisis of confidence and management is talking about that.  But realistically, management is a very large reason as to why we have arrived at this crisis.

Payne: Well that’s a fantastic point you make. What can be done to restore investor confidence if A) we don’t believe in management and B) we don’t know what the problem is?

Ward: Well, first off, it’s a very tough road. With the way the market is right now, you’re not necessarily going to be able to sell off any of these assets that are at GE Capital. GE as a company, we want to be very clear, there are some great business lines; they may be struggling like every other industrial company with many different business lines. However, GE Capital is a real concern here. If GE Capital is a problem, they have to try and fix that first.

A lot of people are talking about management changes. They’re talking about perhaps splitting off GE Capital. Unfortunately who is going to buy GE Capital? If they’re going to be brought to the table to buy GE capital, there is a great deal of trouble in terms of really knowing exactly what you have. It definitely hearkens back to the Ken Lewis-Bank of America and Merrill Lynch deal; if you’re asked to sit in a room and buy something that may not be worth acquiring…

Payne: Speaking of Ken Lewis, they have gone to the government twice now. Will the government have to come to the rescue in this situation?

Ward: Unfortunately, I do see that as a very real possibility.  First, I don’t think you’ll see a management change.  The sarcastic or even cynical investors will look at this and recognize the CEO is very close with the current administration. It’s very unlikely you’ll see, if there is to be a government landing pad that is presented for GE, it’s very likely that that landing pad will be done with the current management in place. So if the government steps in, and we would say, if mark to market rules are suspended, it’s very possible that you’re going to see GE access TARP funds for GE Capital’s purposes, and have to become a little bit more transparent. But I think it would be very odd to see that before mark to market is suspended.

Payne: Christian, we only have one second left. What is your firm’s take on GE stock now?  What are you telling clients right now, in just one second?

Ward: We actually give this what we call “The Sticky Note of Doom” on our system.  We think it is Undervalued, but be very careful until this gets worked out.

Payne: Thanks Christian, congratulations with your firm, doing very well. 


From Forbes: February 11, 2009

The iTunes Financial Adviser

Christian Ward 02.11.09, 10:45 AM ET

 If anything is clear from the current financial crisis, it is that financial advisers need to become adaptive. Servicing investors’ financial wealth solely using a monthly statement will not suffice much longer. Clients deserve and demand a more interactive experience. Hand holding becomes archaic when information is everywhere.

So how should a financial adviser go about empowering their client base while maintaining a key position in each client’s investing value chain? The answer lies in the adviser recognizing that there is a new way to do business and that their own clients are driving this change.

Perhaps a look at digital music can be informative. While seemingly disruptive to music labels and software providers upon its launch, Apple’s iTunes quickly became the most dominant music outlet by allowing customers to have an interactive “dialogue” with their media and media providers on their own terms. Customers said things like, “I don’t want the whole CD,” and “I want to try a song before I buy it.” They also said, “Don’t tell me how great something is unless I ask, and don’t push products on me. Give me great access to my media from anywhere and give me human contact when I want answers fast.”

The success of Apple and iTunes is that they heard these demands and answered them. The iTunes model empowers each client by putting the best tools and information at their fingertips, while leaving the door open to additional services many don’t even realize exist. In return, iTunes has the most loyal client base in the highly aggressive world of online music and software distribution. (Remember, we are discussing items with a $0.99 price point.)

By empowering consumers and clients to interact with information and products on their own, iTunes created a bridge between old concepts and new demands. The sheer volume of shoppers on iTunes that desired a better alternative was almost unimaginable, and today’s financial crisis and resulting crisis of confidence have created a similar volume of investors seeking a better financial advisory model. We are entering the age of the iTunes investor–enabled, interactive and informed.

Of course tracks from the Rolling Stones are not Dow stocks and ETFs will never be as original as Bob Dylan, but financial advisers must recognize that personal tastes are at the heart of any purchase or investment. Despite the best of intentions, an adviser cannot choose the music on a client’s iPod better than he can choose it himself.

Now I recognize that you may say, “My clients aren’t that sophisticated,” or “Picking music isn’t like picking stocks and funds.” To you, I offer two observations. First, there are more than 10 million songs on iTunes, and there have been over 6 billion downloads as of January 2009. Searching, sampling, reviewing, purchasing and installing these songs and applications from such a massive library has remarkable similarities to investments. Second, if your clients weren’t that sophisticated before October of 2008, they are learning that sophistication right now and searching for the tools to help them achieve that knowledge.

The iTunes investor has two options. Build the knowledge base necessary to go it alone, or work with a trusted adviser who will help him build that knowledge base. Either way, he is going to build his own knowledge base. The question is whether a financial adviser will be involved.

Einstein said, “Information is not knowledge.” Professional advisers know that this statement carries particular weight in their business. As information overload (or TMI in texting parlance) cuts into interaction with every client, it becomes increasingly important to help clients slice through information to get to what is necessary. The same way iTunes can whittle down 10 million song choices in three clicks, so too must a financial adviser. That is where you earn loyalty and provide value for your clients.

Investment advisers need to share their knowledge base with their clients. Advisers must cite and direct clients to informational tools that they respect and utilize so that a dialogue can be achieved. This will allow for more efficient communication for both of you by broadening the base of knowledge.

You must empower them to watch their portfolios and news pertinent to those holdings and be available when things don’t go as planned. Just because they will occasionally download a song they don’t like, doesn’t mean they’ll cancel their iTunes subscription. It just means that they may want to try another song from a different artist. They will seek counsel from their trusted ally and idea supplier, their adviser.

ITunes investors will value relationships that keep them enabled and informed. They will rely on those who share knowledge openly with them. They will demand an informed dialogue about their wealth and financial goals.

Keep your clients informed and your clients will keep you.

Christian J. Ward is CEO of Ockham Research, an information, content and financial research firm in Atlanta. Visit for more information.

Ockham CEO Published in Forbes

Ockham on Fox Biz Channel

Ockham CEO Christian Ward was interviewed on Fox Business this morning about Ockham’s StockRazor product for the iPhone.  This innovative deployment of fundamental research is the first app of its kind for the iPhone.  Also discussed, the new development of StockRazor that will track media pundits and gurus on television, so that once Mad Money is over you can check your StockRazor to get detailed research on all of the stocks that Jim Cramer has just talked about.  This new deployment will steer investors away from “sound-byte investing” that is all to common and far too risky in these volatile


 Please take a look at the video and pass it along to any iPhone users you think may be interested


From the Milwaukee Journal Sentinel: Dec. 15, 2008

Harley CEO says he’ll retire in ’09

Harley-Davidson Inc. president and CEO Jim Ziemer said Monday he intends to retire in 2009, ending a 40-year career with the maker of Fat Boy and Softail motorcycles.

Ziemer will remain in his current role until a new chief executive is in place, Harley said in a news release.

The company's board of directors has begun searching for his replacement.

Ziemer, 58, has been CEO since 2005. He led Harley to consecutive annual profits in 2005 and 2006, but this year the company has reduced its 2008 earnings outlook to as little as $3 per share, down about 20% from $3.74 a year earlier.

Brand loyalty runs deep, yet even Harley, the largest U.S. motorcycle manufacturer, hasn't been able to overcome recent economic realities and a dearth in consumer spending.

Harley shares have lost more than 60% of their value this year.

"I am not worried about Harley-Davidson declaring bankruptcy. They're an iconic firm that has a one-of-a-kind product. But I think buying the company stock right now is way too risky," said analyst Ned Douthat with Ockham Research.

Ziemer is a Milwaukee native who grew up in the neighborhood next to Harley's original factory on the city's west side. He started with the company in 1969 as a freight elevator operator while attending the University of Wisconsin-Milwaukee. Upon earning his bachelor's degree in accounting at UWM, he joined Harley's accounting department, where he spent most of his career.

He was named chief financial officer in 1990, and in 2005 replaced Jeff Bleustein as chief executive.

"Working at Harley-Davidson has been an honor and privilege and has fulfilled a lifelong dream for me," Ziemer said in the news release.

Bleustein, currently the company chairman, added in the release that Ziemer has been a great advocate for the company. The retirement announcement came after the stock market closed Monday, but analysts say it won't rattle Wall Street.

Harley shares closed at $16.20, down 11 cents.

"This isn't meant as a criticism of Jim Ziemer, but I think the investment community is going to be receptive to a change," said George Reis with George V. Reis Investments in Two Rivers.

A company as large as Harley can handle leadership changes, said analyst Craig Kennison with Robert W. Baird & Co.

Credit concerns

Investors could be more worried about other matters, including consumer spending and bad loans that Harley made to motorcycle buyers.

As many as one-third of the loans outstanding from Harley-Davidson Financial Services, the consumer lending arm of Harley, have gone to borrowers with suspect credit history, according to one industry report.

In its most recent fiscal quarter, Harley had $6.3 million in write-downs for loan defaults, according to analysts.

"We don't want to overreact to a few million dollars in loan losses because, in the grand scheme of things, this is a relatively small amount. However if there is anything that we have learned from the misery of the last year, it's that credit crises of this sort take time to fully unwind," said Douthat with Ockham Research.

"It seems that as the consumer spending environment started to slack, Harley-Davidson began offering loans with interest rates as low as 3% or sometimes without making the borrower put money down on purchases. These are not the sort of sales we were hoping to see factored into our ratings methodology," Douthat added.

Harley-Davidson Financial Services has received a $500 million advance to meet its near-term credit needs, including $400 million in notes that matured this week.

Consumer-lending markets have been in turmoil, but for years Harley-Davidson Financial Services has been consistent in balancing "risk and reward" in its loan portfolio, said Harley spokesman Bob Klein.

It's estimated that HDFS will require $1.5 billion for its lending operations for 2009, analyst Robin Farley with UBS Investment Research wrote Monday in a note to clients.


From July 02, 2008

Stock Of The Week

Buying The Real Thing
John Dobosz 07.02.08, 5:20 PM ET

It's an iconic American brand that has been a leader in creating a consumer culture and developing overseas markets for most of its existence, making it in many ways a sugary paragon of the corporate structure in the U.S. that took root in the decades following the Civil War and blossomed throughout the 20th century.

In 1886 in Atlanta, Confederate veteran and druggist John S. Pemberton created a "delicious, exhilarating, refreshing and invigorating" drink with "the valuable tonic and nerve stimulant properties of the coca plant and cola nuts." A year later, Atlanta businessman Asa Candler made what might be considered a shrewd purchase, buying the formula from Pemberton and other shareholders for $2,300.

It grew steadily around the globe through two world wars, and growth went into overdrive as the world became a global village. All of this from what started out as just another syrup and patent medicine with reputed restorative powers derived from the same leaves that yield cocaine.

Coca-Cola went on, of course, to enrich numerous Candlers and Woodruffs, not to mention a guy named Buffett, who bought a bunch of its depressed shares in the wake of the Crash of 1987.

Today, Coca-Cola is a company worth more than $120 billion, with almost $7.5 billion in annual sales. Although your returns may be a bit less than Candler's, now is looking like a great time to put some Coke into your portfolio.
But like many American brands and businesses that once seemed globally dominant and unassailable, Coca-Cola has struggled recently, finding the spectacular sales and profit growth of the last two decades hard to duplicate today. But it's not doing a horrible job, last year turning in 17.7% profit growth on sales growth of 19.7%.

At around $51.50, shares are down about 21.5% from their high of $65.59 on Jan. 10, and trade at prices about 3.5% lower than they did 12 months ago. Coca-Cola pays an annual dividend of $1.52 per share, for a yield of 2.9%.
Value investors are starting to like the look of Coke as a good investment, especially after the recent market sell-off and the ascension of Muhtar Kent to the post of chief executive officer this week.
"In our opinion, Coke has been attractive on a cash flow and revenue basis for some time now, but overall market movement has dragged it down," says Ned Douthat, editor of the Enterprising Investor's Guide and vice president of Atlanta-based Ockham Research.

Douthat likes to look at stocks the way Benjamin Graham did, comparing the price to what it's worth and buying if the price is lower with a sufficient "margin of safety." He doesn't use intrinsic value, though, preferring to focus on multiples of sales and free cash flow and where they rank compared with historical ranges.

Coke currently sells for 3.93 times sales and 14.25 times free cash flow. Its price-sales ratio ranged between 3.65 and 5.16 last year, and price-cash flow swung between 14.8 and 20.9, making Coke look exceptionally cheap on a cash-flow basis. Douthat figures that Coke is undervalued by at least 17% and could gain even more in price when the market turns.

"While the margin of safety at 17% is not the most attractive of stocks we follow by any means, we see significant appreciation potential for KO and have a price target of about $70 for one to two years from now," Douthat says.

He looks for international sales to continue to drive overall revenue higher and to reinvigorate profits. "Coke has diversified product lines that include water, hydration, soda, even coffee, and as of last quarter about half of their revenue came from international sales," he says. "The stock may get a nice boost from the Beijing Olympics, since Coke has been and continues to be a major sponsor of the games and should sell a lot of drinks to hot tourists."

Douthat's father, Marsh Douthat, the founder of Ockham Research, passed away last October after a battle with amyotrophic lateral sclerosis. In January 2005, Marsh Douthat appeared in an article on recommending Coke when it was around $37, adjusted for dividends. (See "Ben Graham Special: Merck With A Coke Chaser.")
It was a good call. Coke went on to gain 75% over the next three years.


From Wall Street Journal: April 3, 2008

When Is the Cable 'Buy' Set to Come? Soon, Perhaps, as Values Of Firms Like Comcast Begin to Look Attractive

April 3, 2008; Page C1

It may be time to get back into cable stocks.After a yearlong selloff that clobbered the share prices of cable companies, a number of analysts now say that investors overreacted to the threat posed to cable providers by telephone-company competitors.

And recent positive results from Cablevision Systems Corp. suggest that cable companies may be well-positioned to compete against the new entrants, which offer television services and Internet connections.

That means investors have the chance to pick up stocks such as Comcast Corp., Time Warner Cable Inc. and Cablevision on the cheap.

"We recommend purchasing the stocks at current prices," said Chris Marangi, an analyst at Gabelli & Co., which owns shares of Comcast, Time Warner Cable and Cablevision. "The stocks present compelling values."

While cable stocks lately have bounced from bottoms hit earlier this year, they still are trading at 10-year lows along several key metrics. Comcast, for instance, at its current share price of about $20, is trading at a ratio of enterprise value to earnings before interest, taxes, depreciation and amortization of six. That is nearly half the ratio at which cable stocks have traded in the past decade, said Sanford C. Bernstein & Co. analyst Craig Moffett. And on a price-to-sales and price-to-cash-flow basis, shares are also near 10-year lows, said Ned Doughat, an analyst at Ockham Research LLC.

Big changes in sentiment aren't new to the cable sector, which over the years has been pummeled by worries about the threat of satellite-TV competition or the heavy capital investment needed to upgrade cable systems.

"Cable stocks can be a frenetic investment, and there is a component of investor fear that can quickly come to the surface when people work themselves up over some issues," said Tom Russo, portfolio manager at Gardner, Russo & Gardner, which owns Comcast shares.

Recently, the threat posed by Verizon Communications Inc.'s Fiber Optic Service television and Internet service has investors in a lather. Verizon surprised many observers in the past couple of years by aggressively rolling out the service and signing up one million TV subscribers as of January.

The technology, which includes super-fast Internet connections, has received rave reviews, and Verizon plans to spend about $23 billion on the service -- intensifying a rivalry with cable companies, which already had begun offering phone services.
Late last year, Comcast, the biggest cable operator by subscribers, was forced to lower its estimate for how many new customers it would add in 2007, and executives acknowledged that Verizon was taking some of their subscribers.
But cable bulls argue that there isn't any reason to panic. For starters, while generating massive amounts of attention, phone-company expansions are limited by geography.

By 2010, Verizon expects that FiOS will be able to reach 18 million households -- about 15% of the overall U.S. market at that point -- noted Mr. Moffett. AT&T Inc.'s less technically ambitious U-Verse -- which had its share of technical issues and has received some negative reviews in regard to quality of service -- could reach 30 million households, or 25% of the U.S. market.
Verizon hasn't disclosed how much of its territory it plans to reach beyond 2010. But its territory, primarily the Northeast, overlaps with 34% of Comcast's areas and 43% of Time Warner's, and AT&T's U-Verse will overlap with 30% and 42% of each respective cable company's neighborhoods, noted Gabelli's Mr. Marangi. The only public operator heavily exposed is Cablevision, where the overlap with Verizon eventually will reach 90%.

Cablevision's fourth-quarter results, released in February, offered investors some good news, showing that the cable firm added TV subscribers ahead of analyst expectations -- even though it faces competition from FiOS in 25% of the households it serves. Still, Cablevision stock has fallen about 16% during the past month amid reports the company is considering acquiring -- either on its own or with others -- concert promoter AEG, the Sundance Channel and the Long Island, N.Y., Newsday newspaper.
Cable executives argue that cable providers are getting the better of the phone companies in the contest for customers. For every video customer cable operators lose, they are signing up several phone customers -- and profit margins on the phone customers are higher than they are in the video business. Massive and rising programming costs -- the fees distributors pay for the channels they carry -- make video the lowest-margin segment of the TV-Internet-phone triple play.

Comcast, for instance, has a profit margin of 55% in video but 70% in phone and 80% for broadband, estimates Bernstein's Mr. Moffett. The picture is grimmer for Verizon, given its lack of scale. Because the company has so few TV customers, it hasn't negotiated the kinds of favorable programming deals its cable rivals have. Its profit margins in video are just 25%, according to Mr. Moffett's estimates. Its phone margins are about the same as Comcast's.

Of the three big public cable companies, Comcast might be the best bet for a stock upswing. Under pressure from dissident shareholders, the company recently reinstated a dividend for the first time in nearly a decade and announced the acceleration of a $7 billion share-repurchase program. And it said it was putting a lid on capital spending this year. Capital spending will drop to 18% of revenue in 2008, according to Comcast's forecasts, as compared with 20% in 2007.

Time Warner Cable -- trading at an enterprise value to Ebitda of 5.9, according to Sanford C. Bernstein -- also looks cheap compared with the broader market. But Time Warner Inc., which has an 84% stake, is expected to spin off the cable arm in coming months, which could bring a flood of new Time Warner Cable stock onto the market, possibly depressing the price.
Write to Vishesh Kumar at [email protected]


From Wall Street Journal online:

Blog Roll — Get In, or Out?

Posted By David Gaffen On April 24, 2008 @ 3:30 pm In Blog Roll | No Comments

Analysts at Ockham Research sound a similar tone to many in the market today with their most recent blog post. “The market correction has exposed many undervalued stocks that have fallen out of favor unjustly,” they write. “Valuations have returned to a more justifiable level, as they were unsustainably high for the better part of the last two years. Sentiment dropped very rapidly as fear gripped the market early this year, but our sentiment indicators are starting to noticeably change direction for the positive.”

James Picerno, meanwhile, tries to walk a tightrope in analysing the economic data today that has put a spring in investors’ steps. “Based on other economic variables we track, it still looks like the economy’s suffering,” he writes. “Today’s update on new home sales, for instance, reveals the lowest level in 16 years. But recession isn’t our biggest worry, at least not yet.”

Roger Nusbaum says some of the interference in China’s market from its government gives him pause, even though shares have retreated of late. “The government’s involvement on both sides belies the relative newness of stock market investing for the country. It seems to me that with newness comes the potential for mistakes,” he writes. “Mistakes of this sort don’t necessarily make China any more or less an attractive destination but I do believe creates a visibility for bigger booms and busts to continue into the future.”

Blogs We’re Reading:
• Ockham Research
• Capital Spectator
• Random Roger
• Bill Rempel
• Condor Options
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