Is TYC a buy??

**buyorsell** Sun Jan 15, 2006 4:15 pm

Is TYC a buy??
Blastor, TYCO dropped a lot last Friday due to split information. I am wondering whether it is a good buying opportunity here. Two reasons:

1) Normally, spin off business and parent company will have big chance to outperform market .

2) Lots of Gurus bought TYC during the past few months.

Thanks.

**blast_investor** Sun Jan 15, 2006 5:35 pm

Hi buyorsell,

I like this stock TYC ( Tyco ). The market reacted very negatively to latest split up news.

But the fact is that the split up is good for the company. After split up, the different business will be in different companies so that Wall Street may value the stocks higher than current multiples.

The stock Tyco had Scandals before, and recently it has earning dissapointment. But this stock has fairly cheap valuation. It trades at price to free cash flow around 10, that is fairly cheap considering the company is such big cap. Of course, the growth is not there in this stock, but the valuation of this stock is not in growth stocks group either. This is more of value stock rather than a growth stock.

Recent insider buying also indicates bullishness from TYC insiders.

**buyorsell** Mon Jan 16, 2006 12:31 pm

More questions
Blast, two more questions for this company.

1) When you say Price/Free Cash flow ratio is 10. Do you use your own model to get that or refer to some institutional report?

2) You recommend Gurufocus before. However, most transaction data they collected are shown quarterly although they keep updating information on homepage.How can I get the first hand buy/sell/hold information of those gurus.

**blast_investor** Mon Jan 16, 2006 1:19 pm

On your first question:
I am referring the normalized free cash flow reported by TYC.

TYC reported its CAPEX and depreciation in split up conference call, you can listen to that and read its supplementary material.

On you second question, I do not know that much about Guru information or how to track that.

Most mutual funds or private funds would report their holding quarterly in their SEC report. I believe that is the reason that Gurufocus transaction is quarterly based.

Typically gurus such as Warren Buffet does not want outsiders know their transactions. At one point Warren Buffet applied to US government to get exception not to report his holding due to his unique value approach. US government denied his application.

**blast_investor** Mon Jan 16, 2006 1:26 pm

Having said above positive things on TYC, I personally myself would not invest into a stock like TYC.

The reason for that is below:

TYC is cheap relative to S&P500 and it could trade above current valuation.

However, TYC management is pretty non-impressive. This TYC continues to dissapoint in earning and I do not see how that can change after split up.

On key metrics of return on asset, TYC only has 5.5%.

My approach actually is similar to what Joel Greenblatt has. For a stock at 10x PE or price to free cashflow, the upside is going to come from growth and growth is mainly obtained from high return on asset. PE at 10 or price to free cash flow at 10 is very awkward valuation point, it is cheap for most value investors, but it is not dirt cheap enough to attract deep value investors such as me. At this valuation level, growth is still very important for a stock pick.

In that sense, there are much better large cap stocks out there with high return on asset, for example, GPS or AZO.

Statistically, the chance of high growth coming from high return on asset stocks is much higher than that of stocks with low return on asset stocks.

**blast_investor** Sat Feb 04, 2006 1:27 pm

Just a note here, TYC is Warren Buffet stock:
http://www.gurufocus.com/holdings.php?GuruName=Warren+Buffett&p=0

**blast_investor** Sat Feb 04, 2006 1:32 pm

Typically, it is no brainer to go along with Warren Buffet on a stock, especially when the entry price is close.

On the other hand, Warren Buffet is very long term oriented, even 1 year holding would be short term in his time frame. Therefore, do not expect fast buck on his picks.

Warren already stated that he already lowered his expected return, he is going to be happy with 10% annual return. This has to be considered when we look at Warren Buffet stocks.

**teenvestor2** Sat Feb 04, 2006 3:41 pm

I wouldn't totally agree with Warren Buffett being so long term orineted - see Trade Like Warren Buffett...

-Mike

**blast_investor** Sat Feb 04, 2006 4:03 pm

Warren seems to have 2 types of stocks, one type is very long term oriented, possibly in the decades. Those are like Coke Cola.

Some of his picks are much shorter time frame oriented. He sold many in a year or even shorter.

But we do not know his time frame in particular pick, or his target price. He won't disclose that information.

teenvestor wrote: I wouldn't totally agree with Warren Buffett being so long term orineted - see Trade Like Warren Buffett...

-Mike

**dahhuilaudavid** Fri Feb 17, 2006 1:27 pm

At $25.00, Tyco has:

1. Current Price/book ratio = 1.6; which is the 2nd lowest price/book ratio in the last 10 years.

2. Significant long-term debt reduction. From $38.2b (2001) to $10.6b (2005).

3. Holdings of superinvestors: Wallace Weitz [Weitz Value fund (5.53% of fund) (4th largest holding)]; Bill Miller [Legg Mason Value Prim (5.21% of fund) (4th largest holding]; Warren Buffett; Brian Rogers; Bill Nygren

Tyco will at least generate decent return.

All the best,
Dah Hui Lau (David)
http://dahhuilaudavid.blogspot.com/