Press Release: S&P Upgrades Corp Credit Rating of Flextronics

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The following is a press release from Standard & Poor's: 
 
     -- Global electronic manufacturing services (EMS) provider Flextronics 
International Ltd. has improved its mix of end-markets with higher growth and 
higher margins than the corporate average. 
     -- We are raising our corporate credit rating on Flextronics to 'BBB-' 
from 'BB+ and revising the outlook on the company to stable from positive. 
     -- We are raising the issue-level rating on its senior unsecured debt to 
'BBB-' from 'BB+' and withdrawing the recovery ratings on the debt since 
recovery analysis is not applicable for investment-grade companies, per our 
criteria. 
     -- The stable outlook reflects our expectation that Flextronics is likely 
to deliver stable operating performance and maintain a financial profile 
consistent with its rating. 
 
SAN FRANCISCO (Standard & Poor's) May 20, 2015--Standard & Poor's Ratings 
Services today said it raised its corporate credit rating on Singapore-based 
Flextronics International Ltd. to 'BBB-' from 'BB+' and revised the outlook on 
the company to stable from positive. 
 
At the same time, we raised our issue-level rating on the company's senior 
unsecured debt to 'BBB-' from 'BB+'. We also withdrew our recovery ratings on 
all outstanding senior unsecured debt. 
 
"The upgrade reflects Flextronics' improving mix of faster-growing, more 
profitable end-markets, and our expectation that the company intends to 
maintain a financial profile consistent with its investment-grade rating," 
said Standard & Poor's credit analyst Christian Frank. 
 
"The ratings reflect the company's solid market position and leverage in the 
high-1x area as of March 31, 2015, as well as the volatility of the EMS 
sector," he added. 
 
The stable outlook reflects our expectation that Flextronics' leading market 
position and improving mix of end-markets will allow it to deliver consistent 
operating performance, and that it will maintain a financial profile in line 
with its investment-grade rating. 
 
We could lower the rating if Flextronics loses a key customer, or if it 
pursues more aggressive mergers and acquisitions or shareholder return 
objectives, such that leverage increases to above 3x on a sustained basis. 
 
In our view, an upgrade is unlikely during the next 24 months due to the 
company's customer concentration and its competitive and volatile industry 
conditions.

Press Release: S & P Downgrades Navios Maritime

The following is a press release from Standard & Poor's: 
 
     -- On May 15, 2015, we have downgraded Navios Logistics' parent, shipping 
company Navios Maritime Holdings, and assigned a negative outlook on it. 
     -- Delays in new convoys deliveries and low volumes have weakened Navios 
Logistics' leverage metrics. 
     -- We have revised our outlook on Navios Logistics to negative from 
stable and affirmed our 'B+' ratings on the company. 
     -- The negative outlook reflects the one on the parent and Navios 
Logistics' higher debt, both of which could trigger a downgrade in the next 
12-18 months. 
 
SAO PAULO (Standard & Poor's) May 19, 2015--Standard & Poor's Ratings Services 
revised its outlook on Navios South American Logistics (Navios Logistics) to 
negative from stable. At the same time, we affirmed our 'B+' corporate credit 
and issue-level ratings on the company. 
 
The outlook revision reflects the company's higher leverage metrics due to 
lower-than-expected EBITDA generation amid weakening volumes and an aggressive 
investment program. The negative outlook on Navios also mirrors the outlook on 
its parent company because we believe the group's credit quality ultimately 
limits the one on the subsidiary. 
 
We continue to consider Navios Logistics as a "strategically important" 
subsidiary of Navios Maritime Holdings Inc. (Navios Holdings; B+/Negative/--). 
The subsidiary plays a key role in the group's strategy to diversify revenues 
and take advantages of existing growth opportunities in South America due to 
the still undeveloped shipping industry. 
 
The ratings on Navios Logistics continue to reflect its efficient operations 
despite its small scale, thanks to long-term contracts that somewhat protects 
the company against the volatility in volumes and prices inherent to the 
logistics industry in the Hidrovia River system. The company's efforts to 
expand its scale and diversification of services have pushed up debt in recent 
years.  Leverage metrics should remain weak until Navios Logistics completes 
the expansion of its port terminal in Uruguay.

Dorian LPG – Opportunity Rising

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Source: Dorian LPG

Demand for LPG (liquid petroleum gas) and its derivative products is growing vigorously, for use as an alternative fuel source, petro-chemical feedstock, heating and cooking, especially in the developing world where people are burning wood, coal and scraps to cook in their homes, causing devastating pulmonary illnesses. – See more at: stockviews.com where I’ll be contributing more equity research under a new banner, Blue Meridian Research

Safe Bulkers: The Unrisen Tide

CEO

CEO Polys Hajioannou. Image: ShippingHerald.com

Safe Bulkers is a Greece-based dry-bulk shipping company, that is well managed, but suffering under the weight of a sector whose collective efforts to manage the order book have been non-existent. There must be a concerted effort to view the big data available and venture, as a cohort, to be more cautious about ordering more vessels than demand requires and then continually refinancing to pay for it all through supply-glut troughs. That was along sentence but rhetorically speaks to the tedium that is the dry-bulk retail investor’s life.
That said, some companies do find ways to run more efficiently and Safe Bulkers is one of the better firms at accomplishing this, along with Navios Maritime.
Should you add Safe Bulkers to your watch list? I think so. You can read my full take here on Seeking Alpha and click on over to their latest conference call to see what the CEO, Polys Hajioannou has to say about the future of the company.

 

Forget Gentrification – Try A Market Solution

I love Megan McArdle, the BloombergView writer who feeds my Libertarian beast. Megan wrote a comprehensive piece about the awful problems surrounding the awful-sounding, Gentrification, detailing the legal and social warlords who who summon forces against what some perceive as the holiest of grails in the forming of an egalitarian society, a housing policy that all can be happy with. It will never work, of course, and why it won’t is thoughtfully detailed by Ms. McArdle. I’d like to offer an alternative perspective.

Rather than trying to move the housing to the better neighborhoods; why don’t we work harder to move the things that make a community better, into the denser neighborhoods. Given the cost and scale of zoning, courts, property, construction and then moving people in waves, the very idea registers in my Average Joe brain as kind of, well, stupid, not because we don’t want to improve the lives of working stiffs but because the the whole relocation concept is proved time and again by the Chinese to be both impractical and unproductive. And in our society, with the glacial manner in which governments move, you have to add in, inefficient.

You can’t change hearts with legislation, much as the government-as-Bob-the-Builder crowd would like to believe. About two years ago, CNBC’s Michelle Caruso-Cabrera appeared on MSNBC’s “Morning Joe’, discussing a variety of economic news de jeur, market conditions, yada yada. They discussed inadequate food options in fast-food restaurants, the type that tend to prosper in poor neighborhoods. Joe’s sighing side-kick, Mika Brzezinski , said she was “looking forward” to legislation that would force fast-food chains to include healthier items on their menus. Just what we need—the state telling private companies what they must serve the proletariat. Gag, ack, cringe, shiver, socialism.

As they went to commercial, Ms. Caruso-Cabrera pointed out that people have freedom of choice. As they faded to the spot we could hear Ms. Brzezinski remind Ms. Caruso-Cabrera that people live in ‘food deserts’ and don’t have the options that her caring government could impose. Enter Wendell Pierce.

A few days later, actor Wendell Pierce was interviewed by CNBC’s Andrew Ross-Sorkin about his new venture. Wendell Pierce appeared with his business partner, Troy Henry of Sterling Farms, to discuss their plans to bring fresh grocery stores to downtrodden neighborhoods in and around New Orleans. Well, lookey here, a market-based solution to the gentrification issue. Don’t move the neighbors; make their lives better.

wendell pierce

Wendell Pierce image: Foodista.com Click for CNBC interview

I’m sure Meg McArdle could explore the economic dynamics of this much better than I can but my Average Joe brain sees this as a simple, innovative, practical and efficient way to fix a problem. If you can’t move people from a food desert, build an oasis. The local builder makes money, the community has opportunities for employment, the adjacent businesses (delivery, trades, coffee shops) all prosper as the neighborhood betters itself. Each of Mr. Pierce’s stores would employ about fifty people, who will spend money in their community. It’s kind of how free markets work.

I also think, to add the corporate POV, that larger companies, those such as Whole Foods, Krogers, Lowes, etc, could build ‘right-sized’ versions of their enterprises that fit the scale of the neighborhood. This eliminates the notion of displacing people to build a massive shopping center. This would be a much better use of venture capital, and the brains behind it, than making the next overvalued app that will be replaced in a few years anyway and fund real community projects that foster a sense of ownership, vitality and dignity. I didn’t ‘invent’ as Rocky Balboa would say, this idea; I’m just reiterating it.

Problem is, this kind of small-scale, gradual improvement doesn’t make a big enough splash in the press to satiate activists. Better to pound fists on pop-up pulpits at press conferences, held to call out those highfalutin hipsters and greedy gentry (hey, it’s National Alliteration Day). To be fair, it also doesn’t sound like enough of an ROI for VC firms who have to keep multi-million dollar war chests in hand in case some litigious couple files suit—and surely there are bigger returns to be had with the next disruptive platform.

So it’s left to the smaller operators to risk their capital and Lord bless those who do. I wish I had the cash to participate.

Sweeping cultural and legislative changes are impractical and only serve the self-serving. It’s the little things; the grocer, the hatter, the ethnic restaurant, the hardware store and the butcher, who change neighborhoods. It’s the lady who sweeps her small parcel of cracked concrete, every day. It’s not scatter-housing, reverse gentrification, dis-aggregating dense neighborhoods or any other convoluted idea. Whadya say, Meg?

Fascinatin’ Algorithms

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Image: Roblox

There’s a provocative post by finance professor, Noah Smith on BloombergView today regarding the rise of the robo-trading money managers (Wealthfront, Betterment et al). Mr. Smith doesn’t take sides but points out the industry is clearly moving away from active money management and toward passive, algorithmic keepers of our investment and retirement dollars.

The great John C. Bogle must feel vindicated by this trend, though decades ago when he founded Vanguard, an inexpensive index fund, he could not have imagined the digital strategies that are now marching over failing hedge funds and weepy money managers.

The jig is up. We know the excessive, opaquely structured fees of mutual funds have sucked off the gains of investors to averages below the stated returns of the funds. Over time, actual returns for investors are dramatically reduced by these fees. Is it any wonder why so much money is spent on advertising investment funds? The competition for your fees is fierce and every one of them beats some arcane benchmark, at least according to the copy writers. The problem is, as Saint Jack Bogle has been saying for years, “You can’t beat the average when you own the average.”

The rise of companies such as Wealthfront and Betterment is driven by two factors: a mobile-friendly millennial generation that thrives on connected models, and a growing disdain for those highly paid asset managers who often do not make good on their promises, but have facile excuses for keeping you invested with them.

I agree with Mr. Bogle as well as the concept of automated (low cost) investing. The S&P will provide you wonderful returns over the long run. Picking individual stocks is not for the lazy or risk-averse, or those whose who are too busy running their perfect progeny from lacrosse practice to Mandarin classes to bother. If you’re not willing to toss an extra scoop of coffee in the basket and pore over a 120-page 10K you shouldn’t gamble on individual stocks. However, I see a different issue down the road which we can file under, unintended consequences.

“Professor Smith asks, “What will replace active management? What form will the new passive world take?”

I ask, what will people say after this paradigm shift, when those managers remaining after the ‘great fall from grace’ are outperforming the herd by even larger margins? The best of the best, including the likes of Blackstone, Ray Dalio, David Tepper, Cliff Asness and Bill Ackman (Mr. Asness having the distinction of being the only one who is actually funny) will continue to do well and will undoubtedly attract more investments from those who eschew robotic returns.

This tiny legion will grow even more elite, drawing in more money, hiring the brightest stars of beta and creating a situation where the rich get richer, yet again, while the robot minions languish with average returns. As a Libertarian I’m all for it, of course—the whole free market thing. But I can envision an Elizabeth Warren trying to outlaw these beta outlaws, because, ‘it’s not fair’. Progressive crowing may create a cyclical shift back to active management, which would be wrong-headed.

The problem will be trying to prove a negative, to show those invested with passive systems that they should stay there, not despite average returns but because of them. It will be hard to convince those eyeing up the big players that, irrespective of the outsized gains of the Hedge/Quant/Big-Beta cohort, they are better off than they would have been had they left their money in mutual funds or worse, tried to pick and time the market with their own limited information. Average returns may sound, sort of, average, but they are actually very good. What we will need is not a shift away from robotic trading but a change in what we call the returns, so folks just feel better about them. Perhaps something from a gladiator movie, such as, Magnificum Returnas, or something start-up-ish like, Robucks (too Searsy?).

Overheard at a micro-single-malt-scotch-and-sushi bar on the Upper West Side:

“How many Robucks did you earn this quarter?”

“My nine-year-old daughter can speak Mandarin while playing the violin and writing code with her feet.”

“Go screw yourself.”

 

The Timken Company – Gestating the Spin-Off

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Image: The Timken Company

Nine months ago in June of 2014, after a prodding campaign from activist investors, the 100-year old Timken company, reluctantly spun off its steel division, forming two separate, publicly traded companies, (TKR and TMST).

The Timken Company is in the anti-friction business, manufacturing bearings and power transmission components. The steel division makes hi-spec steel tubes and SBQ (special bar quality) steel products for the automotive, aerospace and energy industries. I’ve previously written about the new steel company, TimkenSteel.

I thought about this particular spin-off as a lesson/debate in financial engineering, which, like it or not, is a large facet of our equity markets. You can make your own determination as to its real value for investors after you read the full story here in Seeking Alpha.

Elaine Russell Reolfi / Woman of Steel

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Image: Elaine R-R

I recently interviewed Elaine Russell Reolfi for Women in Business at About.com. She is a worthy addition to this growing gallery of strong women in the arts, sciences and business.

Elaine is VP of Corporate Communications for TimkenSteel, headquartered in Canton, Ohio, US. This is an industry and sector managed mostly by male engineers but to their credit, have accepted Elaine and count on her insight and drive to help grow the business.

Elaine is also deeply involved in the community and charitable organizations, all while being a dedicated professional, a mom to three and a wife to her professor husband. See her full story here.

Feel free to check out the expanding gallery of excellence thru the Image Gallery.