Important Updates for Investors
Carla Pasternak's Premiere Issue of High-Yield International Just
Released
Income expert Carla Pasternak's debut issue of High-Yield
International covers a Taiwanese manufacturer yielding 9.5%... a
rare Mexican monopoly yielding 13.4%... and other top-performing
investments yielding up to 19.0%.
Government's Biofuel Timetable Could Spell +15,900% Growth
+15,900% growth might seem far-fetched... but it's not. In fact, it
is mandated by law. And I've identified the ONLY stock positioned to
capture this growth.
The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
investors. This massive spending, combined with movement out of U.S.
Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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Unlock One
of the Secrets to +2,000% Returns |
Published:
July 7, 2008
Apple (Nasdaq: AAPL), Celgene
(Nasdaq: CELG), Hansen Natural (Nasdaq: HANS) and Immucor
(Nasdaq: BLUD).
What do they all have in common?
Believe it or not, each of these companies has delivered
eye-popping share price gains of
+2,000% or more during the past decade -- turning even modest
shareholders into millionaires several times over. All four
companies, not coincidentally, also
have been adept at converting sales into profits, boasting
superior operating margins of 20% or even higher.
As you might expect, these high-margin,
fast-growing companies can trade at some fairly large multiples. But that shouldn't discourage a disciplined value investor.
Many companies carry lofty (and expanding) margins, yet still
trade below their fair value.
The ABC's of Margins
First things first. Let's review the
basics.
Margins gauge profitability: After raw
materials, worker salaries and other expenses are deducted,
margin measures the percentage of sales dollars that fall to the bottom
line. Out of every dollar coming in
the door, margin's how much the company can keep. By analyzing
these results, investors can compare profitability at companies
without heeding their size. You'll find these three types of margins:
Gross Margin = (Gross Profits/Revenues). Every
product or service has direct costs. A
pizzeria must buy dough, cheese, sauce and toppings. If you subtract the cost of goods sold
-- sometimes abbreviated as COGS --
from total sales, you're left with gross profit. Gross margin
is simply that figure expressed as a percentage of revenue.
Operating Margin = (Operating Income/Revenues).
In addition to COGS, businesses have other expenses to keep running.
These include salaries and advertising. Most of
these overhead costs fall under the umbrella of "selling,
general & administrative," or SG&A. To determine operating
income, start with gross profits and then subtract SG&A
expenses, as well as research and depreciation. Divide
the result by revenues to calculate operating margin.
Net Profit Margin = (Net Income/Revenues). Net
income is the final, "bottom-line" profit after taxes
and one-time gains and charges are accounted for. Net margin
measures total earnings as a percentage of revenues.
More Cash in the Bank
To understand the importance of these margins firsthand, just take a quick
look at the two companies below.
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Company
"A" |
Company
"B" |
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Annual Sales |
$9.8B |
$9.8B |
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Annual Operating Income |
$791M |
$2,371M |
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Operating Margin |
8% |
24% |
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On
the surface, these two firms start with identical revenues, $9.8 billion.
That's where the similarities
end. The first company banks just $790 million in earnings after
operating expenses; the second turns out a
profit three times that size.
It goes without saying that earnings growth is a major driver of
stock prices. And consider this, for Company "A" to increase its
earnings by $1, it must find a way to boost its revenues by
nearly $12. By contrast, Company "B" can accomplish the same
goal with an increase of just $4.
Or from another perspective, for every new dollar of
incremental revenue flowing into the two companies, the first
will see less than a dime filter through to the bottom line. The second will
see almost a quarter.
What are Margins Telling Us?
It's generally not a good idea to
compare the margins of two firms operating in different
industries. The most instructive comparisons are those made
among close competitors. That way, it's possible to evaluate the
efficiency of a firm's managerial team with all the other
background noise removed.
But looking to see how a company's margins stack up alongside
industry norms is just the first step. There's a story behind
any number....
Important Note: In the remainder of this article,
Half-Priced Stocks
editor Nathan Slaughter lists 10 high-margin companies, some of
which operate with margins as high as 59.8%. Additionally, he
profiles two of his favorites, one of which has the potential to
appreciate as much
as +75%.
However, in order to view the remainder of this article, you'll
need to subscribe to our premium investing newsletter --
Half-Priced Stocks. After you subscribe, you'll
receive immediate access to this full article, as well as our
monthly
Half-Priced Stocks newsletter and a host of
additional premium content. Please visit one of the following
links to continue.
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Nathan Slaughter
Editor
Half-Priced Stocks, The ETF Authority
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in-depth guidance on today's leading value opportunities, plus educational guidance, please subscribe to
Nathan Slaughter's premium value investing newsletter --
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Stocks |
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