The Wax Ink Portfolio

When reasonable people come together and make reasonable decisions, much can be achieved.

That was our belief when we formed Wax Ink, and that is our belief today.

Through all of the highs and lows that are investing, we have tried to show accredited investors that a portfolio that buys great companies at great prices, and then holds those great companies for extended periods of time, will yield superior returns when compared to a portfolio in which the holdings are continuously changed.

As an accredited investor, we invite you to follow the Wax Ink Portfolio as we continue our journey through the world of passive blue collar investing.

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Wax Ink is comprised of individual investors, NOT licensed or registered with ANY government agency. Please obtain the advice of a registered investment professional BEFORE considering any information obtained from this site.

Monsanto - A Wax Ink Worksheet

Monsanto Company, along with its subsidiaries, is a leading global provider of agricultural products for farmers. Their seeds, biotechnology trait products, and herbicides provide farmers with solutions that improve productivity, reduce the costs of farming, and produce better foods for consumers and better feed for animals.

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Value Thoughts - Sanderson Farms, Inc.

Sanderson Farms, Inc. (Nasdaq: SAFM), incorporated in Mississippi in 1955, is a fully-integrated poultry processing company engaged in the production, processing, marketing and distribution of fresh and frozen chicken products.

The company sells ice pack, chill pack, bulk pack and frozen chicken, in whole, cut-up and boneless form, primarily under the Sanderson Farms® brand name to retailers, distributors, and casual dining operators principally in the southeastern, southwestern, northeastern and western United States, and to United States based customers who resell frozen chicken into export markets.

During its fiscal year ended October 31, 2010 the company processed 405.0 million chickens, or approximately 2.57 billion dressed pounds.

Basis

Financial information presented herein, is based on the company's most recent SEC Form 10-K filing for year ending October 31, 2010, as filed with the Securities and Exchange Commission on December 14, 2010.

Short-Term Investment Valuation

The stock closed recently at $40.34, with First Resistance at $44.50, a 10% increase from the recent close, and Second Resistance at $44.86, an 11% increase from the recent close. Should the stock price breakout above second resistance, the next resistance level is $49.47, a 23% increase from the recent close.

The stock should find Support at $38.177, a 5% decline from the recent close.

Earnings Growth Valuation

Earnings growth valuations are based on the spread between year over year earnings growth and the current PE.

In the case of Sanderson Farms, Inc., the company had a year over year earnings growth of 53%, ending FY10 with earnings of $8.45 per share.

With a trailing twelve month PE currently at 5, the spread between earnings growth and the PE is 11.4, meaning that for an investor focusing on earnings growth, the stock should be trading at $136.47, a $96.13 increase from a recent close.

Fundamental Investment Valuation

Liquidity: The company ended FY10 with a Current Ratio of 3.23, a Quick Ratio of 1.55, a Cash Ratio of 0.69, and a Cash Conversion Cycle of 42 days. In addition, with Goodwill and Intangibles comprising 0.0% of Total Assets, and the company ended the year with a Book Value of $29.22 and a Tangible Book Value of $29.22.

Profitability: FY10 found the company with a Gross Margin of 18%, an Operating Margin of 13.5%, a Net Operation Margin After Taxes (NOPAT) of 9.7%, a Return On Invested Capital (ROIC) of 28%, and an Effective Tax rate of 35%.

Debt: The company ended FY10 with Total Debt of $65.2 million, a year over year decrease of 43%. Additionally, the company paid an average annual Interest Rate 4.14%, a year over year decrease of 4.3%, had a Debt to Cash Ratio of 0.89, and a Debt to Equity Ratio of 0.10.

Cash Flow: The company's FY10 Operating Cash Flow was $10.58 per share, a year over year increase of 19%. The company also ended FY10 with Free Cash Flow of $3.39 per share, a year over year decrease of 52%.

Dividends: During FY10 the company paid a $0.63 per share dividend, a 9% year over year decline.

Fundamental Valuation: Based on our review of the company's latest annual financial information we think a Reasonable Value Estimate for the company is in the $67-$72 range. To download a free copy of our Raw Value worksheet for this company, please click here.

Value Thoughts

Considering a Recent Close of $40.34, an estimated Merger and Acquisition payback of 3.5 years (assuming EBITDA remains the same), and year over year earnings growth of 53%, we think on a fundamental investment basis, the stock is currently UNDER PRICED, and a candidate for additional research for the Wax Ink Portfolio..

Wax

Disclaimer

We have no position in Sanderson Farms, Inc., and no plans to initiate a position in the next 5 business days. Additionally, we have received no compensation to write about a specific stock, sector, or theme.

The Downgrading of Americans

Yesterday evening, the S&P credit rating service downgraded the debt of the United States from AAA to AA+.

The financial websites have gone ballastic, blaming the rating agency for playing politics. Many websites are reminding visitors that S&P missed the entire housing bubble, that there was a mistake in the company's rating data, and on and on.

The government's response has been accusatory. CNN and Fox News are attempting to find any evidence they can about who knew what when. Rupert Murdock is probably at this very moment hacked into Blackberry's across the country.

The Republicans are blaming the Democrats and the Democrats are blaming the Republicans. It is complete and utter stupidity!

The simple fact is that the credit rating of the United States was not downgraded yesterday, the American people were downgraded.

It is the American people that for decades have simply bent over, stuck their collective rear ends in the air, and ask the politicians for more.

We, ALL of the eligible voters in America, we, have allowed every bit of what is happening to happen.

We have allowed government to spend us into the poor house. We have allowed government to "borrow" all of the money from the Social Security Trust Fund. We have allowed governent, to do the things they have done, and we have gladly accepted it all.

Now that the demise of Uncle Sam has begun, the politicians are jumping up and down blaming one another, the cost of money will probably increase, any economic recovery will probably come to a halt, and the American voter will remain completely uninterested in the process.

Oh!, we American's will bitch, since Americans' view being able to bitch as a fundamental right. But that is all we will do, bitch, because we simply will not put for the effort to hold government accountable.

And so it will continue, until eventually...America is no more.

Wax

Value Thoughts - Lawson Products, Inc.

Lawson Products, Inc. (Nasdaq: LAWS), is a North American distributor of products and services to the industrial, commercial, institutional, and governmental maintenance, repair and operations marketplace.

The company also manufactures and distributes production and specialized component parts to the original equipment marketplace including the aerospace, off-road equipment, military, and oil and gas exploration industries.

During 2010, the company discontinued operations of two of its subsidiaries, Assembly Component Systems, Inc. (ACS) and Rutland Tool & Supply Company (Rutland).

The company was incorporated in Illinois in 1952, and re-incorporated in Delaware in 1982.

Basis

Financial information presented herein, is based on the company's most recent SEC Form 10-K filing for year ending December 31, 2010, as filed with the Securities and Exchange Commission on February 17, 2011.

Short-Term Investment Valuation

The stock closed recently at $18.67, with First Resistance at $19.51, a 4% increase from the recent close, and Second Resistance at $21.51, 15% increase from the recent close. Should the stock price push through Second Resistance, the next point of resistance is $27.21, a 46% increase from the recent close.

Negatively, First Support for the stock price is currently at $13.41, a 28% decline from the recent close.

The 13-week Relative Strength number is 20, with the stock price trending downward. However, the daily Relative Strength number is near 40 and seems to be indicating a slight upward bounce in the stock price. The upward shift could keep the stock price out of over sold territory for the immediate future.

Quarterly earnings, announced 07/28/2011, were $0.12 per share, an $0.08 decline from the same year over year period.

Earnings Growth Valuation

Earnings growth valuations are based on the spread between year over year earnings growth and the current PE.

In the case of Lawson Products, Inc., the company had year over year earnings growth of 150%, ending FY10 with earnings of $1.18 per share.

With a trailing twelve month PE currently at 16, the spread between earnings growth and the PE is 10, meaning that for an investor focusing strictly on earnings growth, the stock should be trading at $29.22, an $11.25 increase from the recent close.

Fundamental Investment Valuation

Liquidity: The company ended FY10 with a Current Ratio of 2.43, a Quick Ratio of 1.49, a Cash Ratio of 0.73, and a Cash Conversion Cycle of 140 days. In addition, Goodwill and Intangibles comprised slightly less than 12% of Total Assets. When adjusted to compensate for these items, the company's Book Value of $16.81, drops to $13.48.

Profitability: FY10 found the company with a Gross Margin of 63.5%, an Operating Margin of 5.4%, a Net Operation Margin After Taxes (NOPAT) of 3.16%, a Return On Invested Capital (ROIC) of 8.77%, and an Effective Tax rate of 42.5%.

Debt: The company ended FY10 with no Debt.

Cash Flow: The company's FY10 Operating Cash Flow was $1.96 per share, a year over year decrease of 16%. The company also ended FY10 with Free Cash Flow of $0.53 per share, a year over year decrease of 69%.

Dividends: The company paid dividends of $0.26 per share during FY10, a year over year decline of $0.06 per share.

Fundamental Valuation: Based on our review of the company's latest annual financial information we think a Reasonable Value Estimate for the company is in the $34-$40 range.

Our Thoughts

Needless to say, the company is not in one of the glamor industries, and while we agree that selling nuts and bolts may be a bit boring, we also recognize that without nuts and bolts, little, if anything, is going to be manufactured or assembled.

But selling nuts and bolts does have it's perils. In August 2008, the company entered into a Deferred Prosecution Agreement (DPA) with the U.S. Attorney’s Office in connection with representatives of the company improperly providing gifts or awards to purchasing agents through the company’s customer loyalty programs.

Pursuant to the DPA, the company agreed to a $30.0 million penalty. The company paid $10.0 million in 2010, 2009, and 2008 in accordance with this agreement and continues to comply with the terms of the DPA which expires in August 2011.

In addition, during 2009, the company identified that it had shipped a limited number of products in violation of certain state environmental regulations and reported its findings to appropriate regulatory agencies. The company also recalled a limited number of products and is working with state regulators to take appropriate remedial actions to comply with these environmental regulations.

As of December 31, 2010, the company has accrued $0.2 million for penalties and expenses related to environmental matters and at this time, the company cannot determine if any further expenses may be incurred.

Portfolio Thoughts

Considering a Recent Close of $18.67, an estimated Merger and Acquisition payback of 6.7 years (assuming EBITDA remains the same), year over year earnings growth of 150%, year over year free cash flow growth of (69%), and our reasonable value estimate of $34-$40, we believe that on a fundamental investment basis the stock is currently UNDER PRICED, and a candidate for additional research for the Wax Ink Portfolio.

Wax

Disclaimer

We have no position in Lawson Products, Inc. and no plans to initiate a position in the next 5 business days. Additionally, we have received no compensation to write about a specific stock, sector, or theme.

Value Thoughts - Netflix, Inc.

Netflix, Inc. (NYSE: NFLX), according to the company, is the world’s leading Internet subscription service for TV shows and movies with 20 million current subscribers.

Subscribers can instantly watch unlimited TV shows and movies streamed over the Internet to their TVs, computers and mobile devices and, in the United States, subscribers can also receive standard definition DVDs and Blu-ray discs, delivered to their homes.

The company's core strategy is to grow its streaming subscription business within the United States and globally, with a focus on expanding its streaming content, enhancing its user interfaces, and extending its streaming service to even more Internet-connected devices, while staying within the parameters of its operating margin targets.

Basis

Financial information presented herein, is based on the company's most recent SEC Form 10-K filing for year ending December 31, 2010, as filed with the Securities and Exchange Commission on February 18, 2011.

Short-Term Investment Valuation

On the positive side, the stock closed recently at $295.14, with Resistance at $297.35, a 1% increase from the recent close.

On the negative side, First Support can be found at $254.66, a 14% decline from the recent close, with Second Support at $210.68, 29% decline from the recent close. Should the stock break through Second Support, the next support level is $95.33, a 68% decline from the recent close.

The 13-week Relative Strength number is currently 37, with the stock price trending upward. More importantly the daily Relative Strength number is near 76 and it is also trending higher, putting the current stock price well into the overbought category.

Quarterly earnings, currently scheduled for release after the markets close on 7/20/2011, are expected to be $1.11 with the current whisper number at $1.17.

Earnings Growth Valuation

Earnings growth valuations are based on the spread between year over year earnings growth and the current PE.

In the case of Netflix, Inc., the company had a year over year earnings growth of 99%, ending FY10 with earnings of $9.05 per share.

With a trailing twelve month PE currently at 33, the spread between earnings growth and the PE is 3.0, meaning that for an investor focusing strictly on earnings growth, the stock should be trading at $322.66, a $27.52 increase from the recent close.

Fundamental Investment Valuation

Liquidity: The company ended FY10 with a Current Ratio of 1.65, a Quick Ratio of 0.90, a Cash Ratio of 0.90, and a Cash Conversion Cycle of less than 1 day. In addition, Goodwill and Intangibles comprised 18.6% of Total Assets. When adjusted to compensate for these items, the company's Book Value of $5.34, drops to $1.98.

Profitability: FY10 found the company with a Gross Margin of 53%, an Operating Margin of 28%, a Net Operation Margin After Taxes (NOPAT) of 23%, a Return On Invested Capital (ROIC) of 142%, and an Effective Tax rate of 39.9%.

Debt: The company ended FY10 with Total Debt of $236.2 million, a year over year increase of 7%. Additionally, the company paid an average annual Interest Rate 8.30%, a year over year increase of 5.57%. The company had a Debt to Cash Ratio of 0.67, and a Debt to Equity Ratio of 0.81.

Cash Flow: The company's FY10 Operating Cash Flow was $10.11 per share, a year over year increase of 45%. The company also ended FY10 with Free Cash Flow of $7.20 per share, a year over year increase of 148%.

Dividends: During FY10 the company did not pay a dividend.

Fundamental Valuation: Based on our review of the company's latest annual financial information we think a Reasonable Value Estimate for the company is in the $56-$60 range.

Our Thoughts

We think the stock is ridiculously overpriced. What's more, we think that at the current pace the vast majority of individual short-term investors, and those that have recently taken a position in the stock, are going to get smoked, waking up one morning and asking the dog what just happened.

It is not that we don't like the company, far from it. We just believe investors are listening to all of the hype and cow paddies that is Wall Street, and once the parade has passed, there simply will be no available shovels for them to use to clean up the mess.

As impressive as 99% year over year earnings growth may be, we simply do not believe such growth is sustainable, making us wonder why investors are willing to pay such an incredible premium to own a stock that currently has more downside than upside.

Portfolio Thoughts

Considering a Recent Close of $295.14, an estimated Merger and Acquisition payback of 26 years (assuming EBITDA remains the same), year over year earnings growth of 99%, year over year free cash flow growth of 148%, and our reasonable value estimate of $56-$60, we believe that on a fundamental investment basis the stock is currently OVER PRICED, and not a candidate for additional research for the Wax Ink Portfolio.

Wax

Disclaimer

We have no position in Netflix, Inc. and no plans to initiate a position in the next 5 business days. Additionally, we have received no compensation to write about a specific stock, sector, or theme.

Value Thoughts - Whole Foods Market, Inc.

Whole Foods Market, Inc. (Nasdaq: WFM) is the world’s leading natural and organic foods supermarket and America’s first national “Certified Organic” grocer whose core mission is devoted to the promotion of organically grown foods, food safety concerns, and the sustainability of the world's entire ecosystem.

The company has one operating segment, natural and organic foods supermarkets, currently operating 299 stores in the United States, Canada, and the United Kingdom. The company is based in Austin, Texas.

Basis

Financial information presented herein, is based on the company's most recent SEC Form 10-K filing for year ending September 26, 2010, as filed with the Securities and Exchange Commission on November 24, 2010.

Short-Term Investment Valuation

The stock closed recently at $61.17, with Resistance at $66.87, a 9% increase from the recent close.

The stock price should find First Support at $60.47, a 1% decline from the recent close, and Second Support at $52.29, a 15% decline from the recent close. Should the stock price break through Second Support, the next level of support is $33.96, a 44% decline from the recent close.

Daily Relative Strength is currently 61, with the stock price nearing an oversold condition.

Earnings Growth Valuation

Earnings growth valuations are based on the spread between year over year earnings growth and the current PE.

In the case of Whole Foods Market, Inc., the company had a year over year earnings growth of 40%, ending FY10 with earnings of $2.99 per share.

With a trailing twelve month PE currently at 20, the spread between earnings growth and the PE is about 2, meaning that for an investor focusing on earnings growth, the stock should be trading near $67.01, a $5.84 increase from a recent close.

Fundamental Investment Valuation

Liquidity: The company ended FY10 with a Current Ratio of 1.55, a Quick Ratio of 0.80, a Cash Ratio of 0.62, and a Cash Conversion Cycle of 0.62 days. In addition, Goodwill and Intangibles comprised 18.4% of Total Assets, and the company ended the year with a Book Value of $13.80 and a Tangible Book Value of $9.53.

Profitability: FY10 found the company with a Gross Margin of 38%, an Operating Margin of 7.5%, a Net Operation Margin After Taxes (NOPAT) of 5.7%, a Return On Invested Capital (ROIC) of 19%, and an Effective Tax rate of 40%.

Debt: The company ended FY10 with Total Debt of $508.7 million, a year over year decrease of 44%. Additionally, the company paid an average annual Interest Rate 6.49%, a year over year increase of 1.5%, and had a Debt to Cash Ratio of 1.1, and a Debt to Equity Ratio of 0.21.

Cash Flow: The company's FY10 Operating Cash Flow was $4.79 per share, a year over year decrease of 6%. The company also ended FY10 with Free Cash Flow of $1.12 per share, a year over year increase of 21%.

Dividends: During FY10 the company paid a $0.05 per share dividend, a 65% year over year decline.

Fundamental Valuation: Based on our review of the company's latest annual financial information we think a Reasonable Value Estimate for the company is in the $40-$44 range.

Value Thoughts

In May of this year the company announced its trading symbol had changed from WFMI to WFM, an event the markets seemed to appreciate. A few weeks later, the company announced it had retired all of its long-term debt, an event we thought was a very big deal. Apparently nobody else did. Sorta boring, huh?

Considering a Recent Close of $61.16, an estimated Merger and Acquisition payback of 15 years (assuming EBITDA remains the same), year over year earnings growth of 40%, as well as year over year free cash flow growth of 21%, we think, on a fundamental investment basis, the stock is currently OVER PRICED, and not a candidate for additional research for the Wax Ink Portfolio..

Wax

Disclaimer

We have no position in Whole Foods Market, Inc., and no plans to initiate a position in the next 5 business days. Additionally, we have received no compensation to write about a specific stock, sector, or theme.

Value Thoughts - Costco Wholesale Corporation

Costco Wholesale Corporation (Nasdaq: COST) operates membership warehouses based on the concept that offering its members low prices on a limited selection of nationally branded and selected private-label products in a wide range of merchandise categories will produce high sales volumes and rapid inventory turnover.

This turnover, when combined with the operating efficiencies achieved by volume purchasing, efficient distribution and reduced handling of merchandise in no-frills, self-service warehouse facilities, enables the company to operate profitably at significantly lower gross margins than traditional wholesalers, mass merchandisers, supermarkets, and supercenters.

The company currently operates 581 warehouses, 425 in the United States and Puerto Rico, 80 in Canada, 22 in the United Kingdom, seven in Korea, six in Taiwan, eight in Japan, one in Australia and 32 in Mexico. The company also operates Costco Online, an electronic commerce web site.

Basis

Financial information presented herein, is based on the company's most recent SEC Form 10-K filing for year ending August 29, 2010, as filed with the Securities and Exchange Commission on October 15, 2010.

Short-Term Investment Valuation

The stock closed recently at $78.30, with first First Resistance at $79.37, a 1% increase from the recent close and Second Resistance at $83.95, a 7% increase from the recent close.

The stock price should find First Support at $70.96, a 9% decline from a recent close, and Second Support at $53.41, a 32% decline from a recent close.

Daily Relative Strength is currently 42, with the stock price continuing to correct from an oversold condition.

Earnings Growth Valuation

Our earnings growth valuations are based on the spread between year over year earnings growth and the current PE.

In the case of Costco Wholesale Corporation, the company had a year over year earnings growth of 30%, ending FY10 with earnings of $4.52 per share.

With a trailing twelve month PE of 17, the spread between earnings growth and the PE is about 1.8, meaning that for an investor focusing on earnings growth, the stock should be trading near $86.25, a $7.95 increase from a recent close.

Fundamental Investment Valuation

Liquidity: The company ended FY10 with a Current Ratio of 1.16, a Quick Ratio of 0.56, a Cash Ratio of 0.47, and a Cash Conversion Cycle of 2.5 days. In addition, Goodwill and Intangibles comprised less than 1% of Total Assets, and the company had a Book Value of $24.28 and a Tangible Book Value of $24.28.

Profitability: For FY10, the company had a Gross Margin of 14%, an Operating Margin of 3.5%, a Net Operation Margin After Taxes (NOPAT) of 2.6%, a Return On Invested Capital (ROIC) of 16%, and an Effective Tax rate of 35.6%.

Debt: For FY10 the company had Total Debt of $2.17 billion, a year over year decrease of 7%. Additionally, the company paid an average annual Interest Rate 5.12%, a year over year increase of 0.43%, had a Debt to Cash Ratio of 0.46, and a Debt to Equity Ratio of 0.50.

Cash Flow: The company's FY10 Operating Cash Flow was $6.60 per share, a year over year decrease of 11%, and its Free Cash Flow was $3.48, a year over year decrease of 43%.

Dividends: During FY10 the company paid a dividend of $0.76 per share, a 13% year over year increase. Based on a recent close of $78.30, the Dividend Yield is 0.97%.

Fundamental Valuation: Based on our review of the company's latest annual financial information we think a Reasonable Value Estimate for the company is in the $50-$52 range.

Value Thoughts

In late April 2011, the company announced that the Board of Directors had authorized a stock repurchase plan of up to $4 billion, and that the plan would expire in April 2015. It should come as no surprise that we are not fans of this plan.

The main reason we are not fans of this plan is because the company has debt that we believe should be eliminated first. While we are aware that the vast majority (about $1.9 billion) of the company's debt is in the form of Senior Notes, half of which are due in March 2012 and half of which are due in March 2017, we simply feel such plans are an unnecessary drain on company cash, and serve no real business purpose.

Instead of a stock repurchase plan, we believe management should consider the shareholders by paying off the company's debt and then dramatically increasing dividends. Once those things are done, then consider a share repurchase plan.

With all of that said, considering a Recent Close of $78.30, an estimated Merger and Acquisition payback of 12 years (assuming EBITDA remains the same), year over year earnings growth of 30%, as well as year over year free cash flow growth of 43%, we think, on a fundamental investment basis, the stock is currently OVER PRICED, and not a candidate for additional research for the Wax Ink Portfolio..

Wax

Disclaimer

We have no position in Costco Wholesale Corporation, and no plans to initiate a position in the next 5 business days. Additionally, we have received no compensation to write about a specific stock, sector, or theme.

Value Thoughts - Insituform Technologies, Inc.

Insituform Technologies, Inc. (NYSE: INSU) is a worldwide provider of proprietary technologies and services for rehabilitating sewer, water, energy and mining piping systems and the corrosion protection of industrial pipelines.

Business activities include research and development, manufacturing, distribution, installation, coating and insulation, cathodic protection and licensing. Its products and services are currently utilized and performed in 70 countries across six continents.

Incorporated in Delaware in 1980, under the name Insituform of North America, Inc. the company's business model has evolved from purely licensing technology and manufacturing materials to performing the entire Insituform® CIPP (cured-in-place pipe) process and other trenchless technologies and rehabilitating and performing corrosion protection services for industrial pipelines in most geographic locations.

As of December 31, 2010 the company held 59 United States patents relating to the Insituform® CIPP process, the last of which will expire in 2027, and had 12 pending United States non-provisional patent applications relating to the Insituform® CIPP process.

In addition, the company has obtained and is pursuing patent protection in its principal foreign markets covering various aspects of the Insituform® CIPP process. As of December 31, 2010, there were 152 issued foreign patents and utility models relating to the Insituform® CIPP processes, and 104 applications pending in foreign jurisdictions.

Basis

Financial information presented herein, is based on the company's most recent SEC Form 10-K filing for year ending December 31, 2010, as filed with the Securities and Exchange Commission on February 28, 2011.

Short-Term Investment Considerations

The stock closed recently at $24.14, with first First Resistance at $25.08, a 4% increase from the recent close and Second Resistance at $25.63, a 6% increase from the recent close. Should the stock price breakthrough second Resistance, it should find a ceiling near $30.00, 24% increase from the recent close.

The stock price should find Support at $18.52, a 23% decline from a recent close.

Relative Strength is currently 40, correcting from an oversold condition. With a ceiling and support at essentially the same levels, we have no short-term interest in this stock at the present time.

Fundamental Investment Considerations

Liquidity: The company ended FY10 with a Current Ratio of 2.69, a Quick Ratio of 1.69, a Cash Ratio of 0.66, and a Cash Conversion Cycle of 13 days. In addition, Goodwill and Intangibles comprised 28% of Total Assets. The company had a Book Value of $15.38 and a Tangible Book Value of $8.90.

Profitability: For FY10, the company had a Gross Margin of 28%, an Operating Margin of 12%, a Net Operation Margin After Taxes (NOPAT) of 9%, a Return On Invested Capital (ROIC) of 21%, and an Effective Tax rate of 27%.

Debt: For FY10 the company had Total Debt of $105 million, a year over year decrease of 10%. Additionally, the company paid an average annual Interest Rate 8.3%, an 1.04% year over year increase, had a Debt to Cash Ratio of 0.91, and a Debt to Equity Ratio of 0.17.

Cash Flow: The company's FY10 Operating Cash Flow was $3.14 per share, a year over year decrease of 52%, and its Free Cash Flow was $2.13, a year over year decrease of 65%.

Dividends: During FY10 the company paid a dividend of $0.01 per share, a 66% year over year decrease. Based on a recent close of $24.14, the Dividend Yiels is 0.04%.

Earnings Growth Valuation

Earnings growth valuations are based on the spread between year over year earnings growth and the current PE.

In the case of Insituform Technologies, Inc., the company had a year over year earnings decline of 50%, ending FY10 with earnings of $2.11 per share.

With a trailing twelve month PE of 11, the spread between earnings growth and the PE is about (4.4), meaning that for an investor focusing on earnings growth, the stock should be trading near $14.87, a $9.27 decrease from a recent close.

Fundamental Valuation

Based on our review of the company's latest annual financial information we think a Reasonable Value Estimate for the company is in the $39-$41 range.

Value Thoughts

Considering a recent close of $24.14, an estimated Merger and Acquisition payback of 8.1 years (assuming EBITDA remains the same), a year over year earnings decline of 50%, as well as a year over year free cash flow decline of 65%, we think the stock is currently UNDER PRICED, and a candidate for additional research for the Wax Ink Portfolio.

Wax

Disclaimer

We have no position in Insituform Technologies, Inc., and no plans to initiate a position in the next 5 business days. Additionally, we have received no compensation to write about a specific stock, sector, or theme.

Value Thoughts - Medtronic, Inc.

Medtronic, Inc. (NYSE: MDT) is a global leader in medical technology that helps to alleviate pain, restore health and extend life for millions of people.

The company was founded in 1949 and incorporated as a Minnesota corporation in 1957. Today the company serves physicians, clinicians and patients in more than 120 countries worldwide and functions in seven operating segments that manufacture and sell device-based medical therapies.

These operating segments are Cardiac Rhythm Disease Management, Spinal, CardioVascular, Neuromodulation, Diabetes, Surgical Technologies, and Physio-Control. The companies primary customers include hospitals, clinics, third party healthcare providers, distributors and other institutions, including governmental healthcare programs and group purchasing organizations.

Basis
Financial information presented in this report for Medtronic, Inc., is based on the company’s most recent SEC Form 10-K filing for year ending April 30, 2010, as filed with the Securities and Exchange Commission on June 29, 2010.

Liquidity
Both the company’s Current Ratio at 1.92, and Quick Ratio at 1.39, are below what we consider investment quality, while the company’s Cash Ratio at 0.74, slightly exceeds our investment quality threshold. Additionally, the company’s Goodwill and Intangibles comprise almost 40% of the company’s Total Assets, well above our 15% investment quality threshold.

Profitability
The company’s FY10 Gross Margin was almost 82%, its Operating Margin was almost 33.5%, its Net Margin (NOPAT) was almost 28%, and its Return On Invested Capital was just short of 33%.

The company’s FY10 Effective Tax Rate was almost 22%, while for prior tax years its effective tax rate was 23% for FY08 and 23% for FY09. With an average effective corporate tax rate at between 28%-35%, we think a better understanding of the company’s effective tax results is warranted prior to considering the company for investment.

Debt
The company increased its Total Debt during FY10, from $7.3 billion to $9.5 billion, an almost 30% increase. Not surprisingly, we believe the company’s debt level far exceeds its earnings capability and is gaining little for the additional debt management is adding to the company’s balance sheet.

We simply do not see FY11 earnings being much improved over FY10 earnings even though the company spent $620 million on acquisitions during FY10, not including providing an avenue for an additional spend of $150 million.

We see FY10 acquisition spending much the same as FY09 spending, a year in which the company spent approximately $1.25 billion during on acquisitions that lead to an increase in FY10 Total Debt of 30% and an increase in FY10 Earnings of 6%.

Cash
The company ended FY10 with $1.4 billion in Cash and $2.375 in Marketable Securities, putting available Cash at $3.40 per share. In addition, the company had Operating Cash Flow for FY10 of $5.05 per share, a year over year increase of 2%, generated Free Cash Flow of $3.66 per share, a year over year increase of 2%, and increase their Annual Dividend by 9%, from $0.75 in FY09 to $0.82 in FY10.

Short-Term Investment
The stock closed recently at $40.31, with first First Resistance at $40.66, a 1% increase from the recent close, Second Resistance at $43.33, 7% increase from the recent close, and First Support at $37.07, an 8% decline from a recent close, and Second Support at $30.80, 24% decline from the recent close.

With a Relative Strength Indicator near 40, we assumed the stock would be setting up for a jump in price. However the stock price seems to us to be vacillating, with no real movement up or down. Since we believe there is currently greater downward price volatility, we have no short-term interest in this stock at the present time.

Earnings Growth Investment
Our earnings growth valuations are based on the spread between year over year earnings growth and the current PE.

In the case of Medtronic, Inc., the company had year over year earnings growth of 6%, ending FY10 with earnings of $3.99 per share. With a current PE of 10, the spread between earnings growth and the PE is about 0.6, meaning that for an investor focusing on earnings growth, a current fair value for the stock is about $43.00, a $2.39 increase from a recent close.

Long-Term ( 5 Year Hold) Investment Valuation
Based on our review of the company’s latest annual financial information we think a Reasonable Value Estimate for the company is in the $43-$44 range. Assuming all due diligence was performed prior, we would set a Buy Target at about $26, a First Sell Target at about $51, and a Close Target at about $54.

In addition, based on our assessment of the company financial information that we reviewed, we believe a reasonable financial risk multiplier is 54. Accordingly, for the more risk averse value investor, we think a reasonable Buy Target is in the $14-$16 range.

Final Thoughts
Considering a recent close of $40.31, the financial information that we reviewed, an estimated Merger and Acquisition payback of 9.3 years (assuming EBITDA remains the same), year over year earnings growth of 2%, as well as year over year free cash flow growth of 2%, we think the stock is currently fairly valued, and not a candidate for the Wax Ink Portfolio.


Wax

Disclaimer
We have no position in Medtronic, Inc. and no plans to initiate a position in the next 72 hours. Additionally, we have received no compensation to write about a specific stock, sector, or theme.

Value Thoughts - Aeropostale, Inc.

Aeropostale, Inc. (NYSE: ARO) is a primarily mall-based, specialty retailer of casual apparel and accessories, targeting 14 to 17 year-old young women and men through its Aéropostale stores and 7 to 12 year-old kids through its P.S. from Aéropostale stores.

The Aéropostale brand was established by R.H. Macy and Company, Inc., as a department store private label initiative, in the early 1980’s. Macy’s subsequently opened the first mall-based Aéropostale specialty store in 1987. Over the next decade, Macy’s, and then Federated Department Stores, Inc. (now Macy’s, Inc.), expanded Aéropostale to over 100 stores. In August 1998, Federated sold its specialty store division to Aéropostale management and Bear Stearns Merchant Banking. In May of 2002, Aéropostale management took the company public through an initial public offering and listed its common stock on the New York Stock Exchange.

The company maintains control over its proprietary brands by designing, sourcing, marketing and selling all of its own merchandise and its products can only be purchased in Aéropostale stores and online.The company operates 965 Aéropostale stores and 47 P.S. from Aéropostale stores. In addition, pursuant to a licensing agreement, one of the company's international licensees operated 10 Aéropostale stores in the United Arab Emirates. The company also recently announced a second licensing agreement which will allow the licensee to operated 25 stores in Singapore, Malaysia and Indonesia over the next five years.

Basis
Financial information presented in this report for Aeropostale, Inc., is based on the company's most recent SEC Form 10-K filing for year ending January 31, 2011, as filed with the Securities and Exchange Commission on March 28, 2011.

Short-Term Investment Considerations
The stock closed recently at $21.57, with first Resistance at $24.43, a 13% increase from the recent close, second Resistance at $24.59, 14% increase from the recent close, and final Resistance at $31.31, a 45% increase from a recent close. First Support for the stock settled at $20.50, a 5% decline from the recent close.

Long-Term (5 Year Hold) Investment Considerations
In review of the company's latest annual financial information we note that the Current Ratio at 2.17, and the Cash Ratio at 1.23 were both what we consider investment quality. While close to where we like to see it, the Quick Ratio at 1.23 was not at what we consider investment quality levels. One very bright spot for the company was Return On Invested Capital at 94%. While down from FY10, given the very tough economic conditions retailers have faced over the past several years, we were pleased with this metric. We were also very pleased to see year over year growth in Free Cash Flow of 7%, and year over year earnings growth of 20%.

Earnings Growth Valuation
We are value investors, attempting to determine the value of an entire company based on its most recent audited financial information. As such, we simply refuse to pay for earnings growth and make no inclusion of it in our valuation estimates. However, we have come to realize that many investors focus on earnings growth, basing investment decisions on the spread between year over year earnings growth and the current PE.

In the case of Aeropostale, Inc., the company had year over year earnings growth of 22%, ending FY11 with earnings of $3.06 per share. With a current PE of 7, the spread between earnings growth and the PE is about 3, meaning that for a value investor considering earnings growth, a fair value for the stock is about $31.00, if the stock were purchased at its recent close.

Finanical Statement Valuation
Based on our review of the company's latest annual financial information we think a Reasonable Value Estimate for the company is in the $34-$35 range.

Assuming all due diligence was performed prior, we would set a Buy Target in the $20-$21 range, a First Sell Target in the $40-$41 range, and a Close Target in the $42-$43 range.

Based on our assessment of the company financial information that we reviewed, we believe a reasonable financial risk multiplier is 78. Accordingly, for the more risk averse value investor, we would set a Buy Target in the $16-$17 range.

Considering a recent close of $21.57, an estimated Merger and Acquisition payback of 4 years (assuming EBITDA remains the same), and Free Cash Flow of $2.61, we think the stock is currently undervalued, and a candidate for additional research for the Wax Ink Portfolio.

Wax

Disclaimer
We have no position in Aeropostale, Inc. and no plans to initiate a position in the next 5 business days. Additionally, we have received no compensation to write about a specific stock, sector, or theme.

Value Thoughts - Kraft Foods

Kraft Foods, Inc. (NYSE: KFT) is the world’s second largest food company. The company manufactures and markets packaged food products, including biscuits, confectionery, beverages, cheese, convenient meals and various packaged grocery products, selling to consumers in 170 countries. The company has operations in 75 countries, employing approximately 127,000 people, and operating 223 manufacturing and processing facilities.

Because the company is a holding company, their principal source of funds is from their subsidiaries, none of which are currently limited by long-term debt or other agreements in their ability to pay cash dividends or make other distributions with respect to their common stock.

Basis
Financial information presented in this report for Kraft Foods, Inc., is based on the company's most recent SEC Form 10-K filing for year ending December 31, 2010, as filed with the Securities and Exchange Commission on February 28, 2011.

Short-Term Investment
The stock closed recently at $33.85, with first Resistance at $34.00, a 0% increase from the recent close, first Support at $32.05, a 5% decline from the recent close, and second Support at $31.14, an 8% decline from the recent close. Should the stock price fall through second support, the next support level is currently $27.49, 19% decline from a recent close.

Long-Term (5 Year Hold) Investment
In review of the company's latest annual financial information we note that the Current Ratio at 1.04, the Quick Ratio at 0.58, and the Cash Ratio at 0.16, were all well short of what we consider investment quality. We also note that Total Debt at 4 times EBITDA and 2 times Net Fixed Assets, and Goodwill and Intangibles making up 67% of the company's Total Assets are additional metrics that were well below what we consider investment quality.

On the positive side, Return On Invested Capital at 21%, Free Cash Flow at $2.05 per share, an 18% year over year increase, and year over year Earnings Growth of 14% all exceeded our investment quality metrics.

Earnings Growth
We are value investors, attempting to determine the value of an entire company based on its most recent audited financial information. As such, we simply refuse to pay for earnings growth and make no inclusion of it in our valuation estimates.

However, we realize that many investors focus on earnings growth, basing investment decisions on the spread between year over year earnings growth and the current PE.

In the case of Kraft Foods, Inc., the company had year over year earnings growth of 14%, ending FY10 with earnings of $2.38 per share. With a current PE of 14, the spread between earnings growth and the PE is about 1, meaning that for a value investor considering earnings growth, a fair value for the stock is about $36.00, if the stock were purchased at its recent close.

Valuations
Based on our review of the company's latest annual financial information we think a Reasonable Value Estimate for the company is in the $28-$29 range.

Assuming all due diligence was performed prior, we would set a Buy Target in the $17 range, a First Sell Target in the $34 range, and a Close Target in the $35-$36 range.

Based on our assessment of the company financial information that we reviewed, we believe a reasonable financial risk multiplier is 72. Accordingly, for the more risk averse value investor, we would set a Buy Target in the $12-$13 range.

Considering a recent close of $33.85, an estimated Merger and Acquisition payback of 12 years (assuming EBITDA remains the same), and Free Cash Flow of $2.05, we think the stock is currently fairly valued, and a not a candidate for additional research for the Wax Ink Portfolio.

Wax

Disclaimer
We have no position in Kraft Foods, Inc. and no plans to initiate a position in the next 5 business days. Additionally, we have received no compensation to write about a specific stock, sector, or theme.

Value Thoughts - USA Mobility, Inc.

USA Mobility, Inc. (Nasdaq: USMO) is a provider of wireless communications solutions to the healthcare, government, large enterprise and emergency response markets.

As a single-source provider, the company’s strategy is to focus on the business-to-business marketplace and to offer wireless connectivity solutions. The company operates nationwide networks for both one-way paging and advanced two-way messaging services. In addition, the company offers mobile voice and data services through third party providers, including BlackBerry® devices and global positioning system (“GPS”) location applications.

The company’s product offerings include customized wireless connectivity systems for healthcare, government and other campus environments. USA Mobility also offers M2M (“machine to machine”) telemetry solutions for numerous applications that include asset tracking, utility meter reading and other remote device monitoring applications on a national scale.

Basis
Financial information presented in this report for USA Mobility, Inc., is based on the company's most recent SEC Form 10-K filing for year ending December 31, 2010, as filed with the Securities and Exchange Commission on February 24, 2011.

Short-Term Investment
The stock closed recently at $15.45, with first Resistance at $15.90, a 3% increase from the recent close, second Resistance at $19.21, a 24% increase from the recent close, first Support at $14.64, a 5% decline from the recent close and second Support at $12.10, a 22% decline from the recent close.

Even though the stock price is trending upward, there does not appear to be any near term price breakout on the horizon, making a short-term investment impractical at this time.

Long-Term (5 Year Hold) Investment
In review of the company's latest annual financial information we note that the Current Ratio at 4.48, the Quick Ratio at 4.28, and the Cash Ratio at 3.74, were all what we consider investment quality.

In addition, Debt to EBITDA at 0.01, and a Cash Conversion Cycle of 13 days, were well within our investment quality parameters. Additional bright spots were ROIC at 131% and Free Cash Flow at $3.25. Although year over year free cash flow declined from $3.97, or about 18%, at this time we do not see the decline as the beginning of trend.

We also note that the company ended FY10 with Debt of $0.03 per share, and paid an annual dividend of $1.96 per share.

Earnings Growth
We are value investors, attempting to determine the value of an entire company based on its most recent audited financial information. As such, we simply refuse to pay for earnings growth and make no inclusion of it in our valuation estimates.

However, we realize that many investors care a great deal about earnings growth and base their investment decisions on the spread between year over year earnings growth and the current PE.

In the case of USA Mobility, Inc., the company had year over year earnings growth of (7%), ending FY11 with earnings of $4.52 per share. With a current PE of 3, the spread between earnings growth and the PE is about (2), meaning that for a value investor considering earnings growth, a fair value for the stock is about $6.50.

Valuations
Based on our review of the company's latest annual financial information we think a Reasonable Value Estimate for the company is in the $48-$50 range.

Assuming all due diligence was performed prior, we would set a Buy Target in the $29-$30 range, a First Sell Target in the $56-$57 range, and a Close Target in the $60-$62 range.

Based on our assessment of the company financial information that we reviewed, we believe a reasonable financial risk multiplier is 78. Accordingly, for the more risk averse value investor, we would set a Buy Target in the $22 to $23 range.

Considering a recent close of $15.45, an estimated Merger and Acquisition payback of 2.6 years (assuming EBITDA remains the same), and Free Cash Flow of $3.25, we think the stock is currently under valued, and a candidate for additional research for the Wax Ink Portfolio.

Wax

Disclaimer
We have no position in USA Mobility, Inc. and no plans to initiate a position in the next 5 business days. Additionally, we have received no compensation to write about a specific stock, sector, or theme.

Value Thoughts - Bed Bath and Beyond, Inc.

Bed Bath and Beyond, Inc. (Nasdaq: BBBY) and its subsidiaries, are a chain of retail stores, operating under the names Bed Bath and Beyond, Christmas Tree Shops, Harmon and Harmon Face Values, and buybuy BABY. In addition, the company is a partner in a joint venture which operates two stores in the Mexico City market under the name Home and More.

The company sells a wide assortment of domestics merchandise and home furnishings. Domestics merchandise includes categories such as bed linens and related items, bath items and kitchen textiles. Home furnishings include categories such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings, consumables and certain juvenile products.

The company believes that it is the nation’s largest operator of stores selling predominantly domestics merchandise and home furnishings while offering a breadth and depth of selection in most of its product categories that exceeds what is generally available in department stores or other specialty retail stores.

Basis
Financial information presented in this report for Bed Bath and Beyond, Inc., is based on the company's most recent SEC Form 10-K filing for year ending February 26, 2011, as filed with the Securities and Exchange Commission on April 26, 2011.

Short-Term Investment
The stock closed recently at $56.13, with Resistance at $57.90, a 3% increase from the recent close, First Support at $50.15, an 11% decline from the recent close and Second Support at $45.38, a 19% decline from the recent close. Should the stock price break through Second Support, the next support level is $26.50, a 53% decline from a recent close.

Long-Term (5 Year Hold) Investment
In review of the company's latest annual financial information, we note that the Current Ratio at 3.08 and the Cash Ratio at 1.35, were what we consider investment quality, while the Quick Ratio at 1.35 was slightly below our investment quality target. In addition, Debt to EBITDA at 0.13, Debt to Equity at 0.05, and Free Cash Flow at $3.76, a 22% year over year increase, were also within our investment quality parameters.

Earnings Growth
We are value investors, attempting to determine the value of an entire company based on its most recent audited financial information. As such, we simply refuse to pay for earnings growth and make no inclusion of it in our valuation estimates.

However, we realize that many investors care a great deal about earnings growth and base their investment decisions on the spread between year over year earnings growth and the current PE.

In the case of Bed Bath and Beyond, Inc., the company was had year over year earnings growth of 39%, ending FY11 with earnings of $3.76 per share. With a current PE of 15, the spread between earnings growth and the PE is about 3, meaning that for a value investor considering earnings growth, a fair value for the stock is about $66.

Valuations
Based on our review of the company's latest annual financial information we think a Reasonable Value Estimate for the company is in the $51-$53 range.

Assuming all due diligence was performed prior, we would set a Buy Target in the $31-$33 range, a First Sell Target in the $61-$63 range, and a Close Target in the $65-$66 range.

Based on our assessment of the company's financial information that we reviewed, we believe a reasonable financial risk multiplier is 78. Accordingly, for the more risk averse value investor, we would set a Buy Target in the $25 to $27 range.

Considering a recent close of $56.13, an estimated Merger and Acquisition payback of 9.2 years (assuming EBITDA remains the same), and Free Cash Flow of $3.76, we think the stock is currently fairly valued, and have no interest in adding the company to the Wax Ink Portfolio at this time.

Wax

Disclaimer
We have no position in Bed Bath and Beyond, Inc. and no plans to initiate a position in the next 5 business days. Additionally, we have received no compensation to write about a specific stock, sector, or theme.

Value Thoughts - Landec Corporation

Landec Corporation (Nasdaq: LNDC) and its subsidiaries design, develop, manufacture and sell polymer products for food and agricultural products, medical devices and licensed partner applications that incorporate the company's patented polymer technologies.

The company has two proprietary polymer technology platforms: 1) Intelimer® polymers, and 2) hyaluronan (“HA”) biopolymers.

The company’s HA biopolymers are proprietary because they are formulated for specific customers to meet strict regulatory requirements. The company’s polymer technologies, along with its customer relationships and trade names, are the foundation, and a key differentiating advantage upon which the company has built its business.

The company sells specialty packaged fresh-cut vegetables and whole produce to retailers and club stores, primarily in the United States and Asia through its Apio, Inc. subsidiary, Hyaluronan-based biomaterials through its Lifecore Biomedical, Inc. subsidiary, and Intellicoat® coated seed products through its Landec Ag LLC subsidiary.

Basis
Financial information presented in this report for Landec Corporation, is based on the company's most recent SEC Form 10-K filing for year ending May 30, 2010, as filed with the Securities and Exchange Commission on August 12, 2010.

Short-Term Investment
The stock closed recently at $6.48, with Resistance at $7.08, a 9% increase from the recent close, First Support at $6.16, a 5% decline from the recent close and Second Support at $6.15, a 5% decline from the recent close. Should the stock price break through Second Support, the next support level is $5.30, an 18% decline from a recent close.

Long-Term (5 Year Hold) Investment
In review of the company's latest annual financial information, we note that the Current Ratio, the Quick Ratio, and the Cash Ratio, we all what we consider investment quality. In addition, Debt to EBITDA, and Debt to Equity, were with in our investment quality parameters.

What we found lacking was the company's Free Cash Flow, at ($1.15). As value investors, negative free cash flow is just a huge red flag. Accordingly we checked our FY09 valuation worksheet and found free cash flow of $0.32, meaning a year over year growth in free cash flow of (460%).

Certainly negative free cash flow growth is not always cause for alarm. But it is something the average investor should investigate prior to considering a position in this stock.

Earnings Growth
We are value investors, attempting to determine the value of an entire company based on its most recent audited financial information. As such, we simply refuse to pay for earnings growth and make no inclusion of it in our valuation estimates.

However, we realize that many investors care a great deal about earnings growth and base their investment decisions on the spread between year over year earnings growth and the current PE.

In the case of Landec Corporation, the company was had year over year earnings growth of 13%, ending FY10 with earnings of $0.38 per share. With a current PE of 17, the spread between earnings growth and the PE is a bit less than 1, meaning that for a value investor considering earnings growth, a fair value for the stock is about $7.

Valuations
Based on our review of the company's latest annual financial information we think a Reasonable Value Estimate for the company is in the $13 to $15 range. Assuming all due diligence was performed prior, we would set a Buy Target in the $8 to $9 range, a First Sell Target in the $15-$16 range, and a Close Target in the $17-$19 range.

Based on our assessment of the company's financial information that we reviewed, we believe a reasonable financial risk multiplier is 48. Accordingly, for the more risk averse value investor, we would set a Buy Target in the $4 to $5 range.

Considering a recent close of under $6.50, the potential for growth, an estimated Merger and Acquisition payback of 11.1 years (assuming EBITDA remains the same), and Free Cash Flow of $(1.15), we have no interest in adding the company to the Wax Ink Portfolio at this time.

Wax

Disclaimer
We have no position in Landec Corporation at this time, and have received no compensation to write about a specific stock, sector, or theme.

Goodyear Tire and Rubber - Look Mom, No Rails

I like Warren Buffett. I think he is a very shrewd investor and an uncommonly astute business person. Do I think he is the be all end all when it comes to investing? Sorry, no.

What irritates me is his blatant self-promotion. Sure everyone in business has to promote what they do, but when they do so by leaving stuff out, well, it just grates on me.

From the Berkshire Hathaway 2010 Shareholder Letter..."Both of us are enthusiastic [Mr. Buffett and Mr. Munger] about BNSF’s future because railroads have major cost and environmental advantages over trucking, their main competitor. Last year BNSF moved each ton of freight it carried a record 500 miles on a single gallon of diesel fuel. That’s three times more fuel-efficient than trucking is, which means our railroad owns an important advantage in operating costs. Concurrently, our country gains because of reduced greenhouse emissions and a much smaller need for imported oil. When traffic travels by rail, society benefits."

What Mr. Buffett failed to mention is that Berkshire Hathaway owns a trucking company, McLane, which Berkshire purchased from Wal-Mart Stores, Inc. (NYSE: WMT). This, at least to me, sort of skews the relevance of Berkshire wanting to be a "green" company that benefits society. Raspberries to you Mr. B!!

In the end, the stuff that Mr. Buffett moves on his new train set, can't walk to it's final destination. To get there requires a truck, a big truck, usually one with 18 wheels, which made me realize that I don't see trains broken down on the side of the railroad track, but I often see trucks broken down on the side of the road, and most of the time the reason they are there is because one of those 18 tires has become what the truckers call...an alligator.

What surprised me as I started poking around for information to use in this article was that one of the leading roadside service companies in the world, was a company that I used to hear about regularly growing up, The Goodyear Tire and Rubber Company, (NYSE: GT). Curious, I thought, why not?

Basis

Financial information presented in this report for The Goodyear Tire and Rubber Company, is based on the company's most recent SEC Form 10-K filing for year ending December 31, 2010, as filed with the Securities and Exchange Commission on February 10, 2011.

What They Do

The company is an Ohio corporation organized in 1898, and today is one of the world's leading manufacturers of tires, engaging in operations in most regions of the world. The company develops, manufactures, markets and distributes tires for most applications. The company also manufactures and markets rubber-related chemicals for various applications, manufacturing its products in 56 facilities in 22 countries, including the United States.

Goodyear has marketing operations in almost every country in the world, employing approximately 72,000 world-wide full-time and temporary associates. In addition, the company is also one of the world’s largest operators of commercial truck service and tire retreading centers operating approximately 1,500 tire and auto service center outlets where their products are sold at retail and where they provide automotive repair and other services.

Short-Term Investment

The stock closed recently at $14.82, with Resistance at $15.45, a 4% increase from the recent close, First Support at $13.35, a 10% decline from the recent close, and Second Support at $11.54, a 22% decline from the recent close. Should the stock price fall beyond second support, the next support level is the 52 week low of $9.10, a 39% decline from its recent price.

The stock price has been trending upward since bouncing off of its December lows, recently running through days of slightly higher highs and slightly higher lows, events that may bode well for the longer-term investor along with the short-term investor.

While we are not short-term investors, it just seems to us that there isn't any reason to put take a short-term position with more immediate downside risk, 10%, than upside reward, 4%. As a result, we are not currently interested in a short-term position.

Long-Term (5 Year Hold) Investment

With Debt at more than three times EBITDA, we were not really to excited as we began our cursory review of the company's financial metrics, only to end up...pleasantly surprised.

The company's Current Ratio at 1.5, Quick Ratio at 0.9, and Cash Ratio at 0.4, while not what we consider investment quality, were not really too bad.

Additional bright spots we noticed was the company's Inventory Turnover at just shy of 5 times a year, and that the company's Receivables were actually collected before their bills were paid, with Receivables outstanding an average of 53 days and Payables outstanding an average of 77 days.

Things like this lead us to conclude that management understands the needs of the company's customers as well as what is happening in the economies the company serves.

While the company generated Free Cash Flow during FY10 of $3.97 per share, a 26% year over year increase, net Debt also increased year over year by almost 5%, a potential trend that we would like to see reversed going forward.

Overall, we felt that the company's financial statements were in fairly decent shape.

Growth

We are value investors, attempting to determine the value of an entire company based on its most recent audited financial information. As such, we simply refuse to pay for earnings growth and make no inclusion of it in our valuation estimates.

However, we realize that many investors care a great deal about earnings growth and base their investment decisions on the spread between year over year earnings growth and the current PE.

In the case of Goodyear, the company was able to grow year over year earnings by 56%, ending FY10 with earnings of $3.66 per share. With a current PE of 4, the spread between earnings growth and the PE is 14, meaning that when for a growth investor, fair value for the stock is about $51.

Valuation

Based on our review of the company's latest annual financial information, we think a Reasonable Value Estimate for the company is between $27-$30 per share, and based on that valuation have set an initial Buy Target at $16.50, an initial First Sell Target at $32, and an initial Close Target at $34.

Considering a recent close of under $15, the potential for growth, an estimated Merger and Acquisition payback of less than 5 years (assuming EBITDA remains the same), and Free Cash Flow of almost $4, we believe taking a position at this time is prudent, and have added the company to the Wax Ink Portfolio.

Final Thoughts

Okay so Mr. Buffett is touting his genius at his purchase of Burlington Northern Santa Fe. Obviously, based on the information in his shareholder letter, it was a very prudent move and simply reinforces why he is such a formidable investor. But with that said, what about the rest of us, what about the little folks, the investors with a few extra dollars to invest, what do we do?

Perhaps for us, we should practice something I believe Mr. Buffett has done all his investing life. Perhaps we should spend more time seeing what isn't there.

Instead of becoming enamored with the money Berkshire made in FY10 thanks to their train set purchase, we should ask ourselves simply, does that make sense?, our maybe we should ask how does it end?, or what comes next?, or something along those lines.

In the case of the Berkshire letter to shareholders, whether intentioned or not, it made me feel as if trucks that haul freight were simply not going to be needed in the future because trains would be doing the job so much more efficiently. What a load!(pun intended)

Sure rail can move the most amount of freight per gallon of fuel used, but it simply can't finish. I don't think I have ever seen a train unloading items at a Target or a Wal-Mart store, and I know trains don't deliver supplies to my local grocery store. But miracle of miracles, the shelves still manage to get restocked! How can that be with no train tracks?

It's questions like those that many of us as small time equity investors simply fail to ask ourselves, and because we don't, we miss out on what may become great longer-term investments.

So Mr. Buffett enjoy being able to blow the horn of your new engines as they pass through America, you certainly earned the right. As for me, I think I'll just stick to investing in companies that complete the job your trains can only begin.

Wax

Disclaimer

We have a long-term position in The Goodyear Tire and Rubber Company. We have received no compensation to write about a specific stock, sector, or theme.