This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Talking to Management, Part 3: The Competition

On a competitive basis, who has the most to lose in the present environment?

Some executives won't name names, but they might be able to point out what characteristics the worst-positioned competitors don't have. In commodity businesses, the executive could point at those with bad cost structures. In businesses where value comes from customization, the executive could say, "To be a real player, you can't just sell product, you must be able to assess the needs of the client, advise him, sell the product, install it and provide continuing service, leading to ancillary product sales."

As commodity prices move down, the recent acquirers and developers of high-cost capacity fare the worst. With life insurance today, scale is becoming more and more of an advantage. Smaller players without a clear niche focus are likely to be the losers; that's one reason I don't get tempted to buy most of the smaller life insurance companies that trade below book value. Given their fixed expenses and lack of profitability, they deserve to trade at a discount to book.

Key Points:

  • Asking what the competition is missing lets management open its brag bag.
  • The answer had better impress and be a critical aspect of the business.
  • Trash-talking of rivals is a red flag of hubris.

Editor's note: We're pleased to present David Merkel's five-part series on questions to ask the management of a public company. Click here for Part 4, questions on pricing and products.
At the time of publication, Merkel and/or his fund was long Valero, though positions may change at any time.

David J. Merkel, CFA, FSA, is a senior investment analyst at Hovde Capital responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. Previously, he managed corporate bonds for Dwight Asset Management. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Merkel cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email.

Analyst Certification: All of the views expressed in the report accurately reflect the personal views of the research analyst about any and all of the subject securities or issuers. No part of the compensation of the research analyst named herein was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the research analyst in this report.

Merkel is employed by Hovde Capital Advisors LLC (the "firm"), a registered investment advisor with its principal office located in Washington, D.C. The Firm and/or its affiliates have or may have a long or short position or holding in the securities, options on securities, or other related investments of the issuers mentioned herein.
3 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
GS $189.86 1.10%
VLO $60.81 3.10%
AAPL $113.86 0.50%
FB $90.77 -0.26%
GOOG $633.09 0.43%

Markets

Chart of I:DJI
DOW 16,595.37 -47.64 -0.29%
S&P 500 1,984.72 -4.15 -0.21%
NASDAQ 4,820.1020 -8.2230 -0.17%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs