In the most recent edition of Barron's, fund manager Scott Black touted shares of Cal-Maine Foods (NASDAQ: CALM), the country's largest egg producer, as a stock worth buying. The company generates a return on equity of over 30%, and Black said that at just over 5x earnings, the stock is extraordinarily cheap. When the market revalues Cal-Maine at "just eight times [next year's estimated] earnings, you've got a $38.50 stock." Shares of CALM, which closed Friday at $22.90, were up to $24.86 by Wednesday morning.

I'm familiar with Cal-Maine, having been introduced to the company more than a year ago when it was the focus of a presentation at the Boston College Investment Club. Last summer, I spoke with the company's CFO, Tim Dawson, who gave me a much better understanding of the egg business. Though I came away convinced that Cal-Maine is in very capable hands, I believed then -- as I still do now -- that the stock is not a buy. Here's why.

It's been "shock and awe" for the financial system over the past few months. Even seemingly invincible companies like GE (NYSE: GE) and Goldman Sachs (NYSE: GS) have not been immune. As a result, there has been a tremendous deflation of equity values across the globe.

Unfortunately, the game has also changed for your business. It's much more difficult to get debt or equity financing, and it may even be impossible, at least for now. Customers are having difficulties paying invoices. And, as for finding new customers, this is particularly tough.

So, in light of everything, what is the value of your business? Well, keep in mind that, for the most part, the value of a business is dependent on its cash flow. So long as this remains strong and long-lasting, you are likely to weather the storm. If anything, you could be in a nice position to capitalize on the situation, such as by buying companies, hiring employees and in making new investments.

But this is the rare exception. In fact, even some of the growth darlings are having issues. For example, the data service, VCExperts.com, has recently launched a new offering – called the Valuation Ticker – that provides valuations of venture-backed companies. Essentially, the system compares private companies to public indexes, such as the NASDAQ and S&P 500. Here's a look at a sample, with valuations over the last ten months:

• Facebook: $12.4B (12/31/2007), $6.9B (10/31/08) -- 44%
• Slide: $545.2M (12/31/07), $376.6M (10/31/08) -- 31%
• Yardbarker: $18.1M (03/03/2008), $14.2M (10/31/08) -- 22%
• Going: $21.9M (5/07/08), $15.2M (10/31/08) -- 31%

Like just about all other private equity firms, Blackstone Group LP (NYSE: BX) reported a horrible Q3, with losses of $502.5 million, or $0.44 per share. However, the firm was fairly optimistic on the overall value of its sprawling portfolio of companies. That is, the writedown was only about 7%.

As a result, some investors were naturally skeptical – and the stock price of Blackstone continued to slide.

Well, this week, the CEO of Blackstone, Stephen Schwarzman, opined on the matter at a Merrill Lynch investor conference. Basically, he was mostly rosy and thinks there are good valuations in the marketplace. But, paradoxically, he said the Blackstone equity portfolio is in good shape.

And, in general, he has a point. If you take a look at the history of private equity, the best investment periods are in tough times (such as the early 1990s and 2001).

Shares of VMware Inc. (NYSE: VMW) are headed lower today following a downgrade from Merrill Lynch. The brokerage firm cut its rating on the equity from Buy to Neutral due to valuation concerns; VMW has added more than 60% since its October 21 earnings report. Merrill maintains a $31 price target on VMware, which represents a premium of just 1.4% to the stock's closing price on Tuesday.

It's shaping up to be a rough week for VMW. Yesterday, the tech stock sat out a broad-based rally in the equities market, and slumped to a daily loss of nearly 4% as word hit the Street that Intel (NASDAQ: INTC) chopped its VMware stake in half. Specifically, Intel unloaded about 4.75 million of the 9.5 million VMW shares it purchased in July 2007. According to a regulatory filing, half a million shares each were sold to Cisco Systems (NASDAQ: CSCO) and EMC Corp. (NYSE: EMC) -- the latter of which already owns a majority stake in VMW.

With VMW shedding nearly 6% out of the gate this morning, it seems likely that the shares will add on to their year-to-date slump of more than 64%. The stock continues to find resistance from its 10-week and 20-week moving averages, and a reversal of optimism among option traders could accelerate the equity's decline. During the past 10 days, investors on the International Securities Exchange have bought to open nearly two times more calls than puts on VMW.

Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.

Merrill Lynch analyst Guy Moszkowski had some harsh words this morning for Goldman Sachs Group (NYSE: GS). Rather than a fourth-quarter profit of $2.98 per share, the analyst now expects Goldman to lose 49 cents per share during the quarter. If his prediction comes to pass, it will mark the bank holding company's first-ever quarterly loss as a public company.

While Moszkowski razored his price target on GS from $159 to $100, he maintained his Neutral opinion on the stock. The new target represents a premium of 8.1% to the stock's closing price last Friday. The analyst cites the "stressed" equities market as the primary driver behind his dramatically reduced outlook on Goldman.

In a note to clients, Moszkowski explained that Morgan Stanley's (NYSE: MS) business mix should allow it to weather the choppy market conditions better than Goldman. He trimmed his fourth-quarter earnings forecast on Morgan as well -- dropping his estimate from 72 to 36 cents per share -- but considers the stock a Buy.

The analyst stated, "We still think GS remains in many ways at the forefront of the capital markets industry, but if it can't consistently produce a premium return on equity, it's not going to be able to continue to have the premium valuation multiple that it has enjoyed." As of last Friday's close, Goldman's forward price-to-earnings ratio of 7.63 dwarfed Morgan's ratio of 4.03.

In today's session, MS is up about 5%, compared to Goldman's gain of about 1.2%.

Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.

On October 3, the shares of Apple Inc. (NASDAQ: AAPL) dropped below the $100 mark for the first time since May 2007. In fact, the stock dropped last Friday to a new 52-week low of $85, representing a 19-month nadir for the iPhone parent. Today, this price plunge served as the catalyst for a valuation-based upgrade from Bernstein.

In a note to clients, Bernstein boosted its rating on AAPL from Market Perform to Outperform, and said that its "longer-term growth story remains intact." Analyst A.M. Sacconaghi added, "Investors appear to be valuing Apple on an earnings multiple, rather than on cash flow, which fundamentally undervalues the company given the huge deferred revenue growth associated with the iPhone."

Specifically, the brokerage firm estimates that the iPhone itself could add between $2.25 and $3.40 per share to cash flow above earnings in fiscal 2009.

However, following the stock's recent free-fall down the charts, Bernstein was forced to trim its price target on AAPL from $175 to $135. Credit Suisse followed suit, slashing its price target on the equity from $200 to $135. Despite today's gain of about 7% amid a massive rally in U.S. stocks, Apple shares could be vulnerable to more price-target cuts during the near term. Thomson Financial pegs the average 12-month price target at $176.33, a lofty premium of 82% to Friday's close at $96.80.

Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.

Let's say you want to sell or buy a business. Or, suppose you want to gift a piece of your business to your family. Maybe you want to raise capital?

Well, you'll need to determine the value of your business.

So, to get some perspective on the topic, I spoke to Scott Gabehart. He has valued over 700 businesses since 1991 and has written several books on the topic, such as The Business Valuation Book (with CD-ROM).

According to him, there are several approaches to getting a valuation:

Do-It-Yourself: Yes, the valuation process can be extremely complex. But Gabehart has an easy system that will provide a rough estimate.

First, you will need to calculate your company's adjusted cash flow (ACF). This is:

Net income
+ Your salary
+ Your perks (personal travel, discretionary expenses)
+ Depreciation
+ Interest expense

After all, it's common for owners to use their business to pay for personal expenses. Thus, it's important to factor our certain items (for example, depreciation is a non-cash expense).

Large-company stock prices have tumbled 13% in three months. Small-company stocks have done worse. The ratio of share prices to company earnings ("P/E") is the lowest it has been in more than a decade. But is it low enough to make the broad market cheap?

That depends on how you measure. Over the past 135 years, stocks have carried an average P/E of 15.1, based on trailing 12-month earnings. (I'm using data provided on the websites of Yale economist Robert Schiller and Standard & Poor's.) As of the close of trading Thursday, the S&P 500 index, which more or less tracks the stock performance of America's 500 largest companies, had a P/E ratio of 16.6. Viewed like that, stocks look a smidgen pricier than average.

Remove special charges for things like bad loan write-downs from the past year's earnings, and the result is a more alluring P/E of 14.9. Whether that's a fairer number or not is a matter of opinion. But if we were able to apply the same tactic to 135 years of corporate accounting, we'd surely end up with a lower historical P/E, too. That suggests again that stocks are pricier than average, but not worrisomely so.

I had the chance to talk with four different British portfolio managers this past Friday, review the 2007 year and discuss the outlook for 2008. Funny, the four conversations ended up circling back to Apple (NASDAQ: AAPL). Two of the managers mentioned my article for BloggingStocks from November 24. I wrote that the this could be the last time to buy the shares under $175. The stock closed at a new 52-week closing high on Friday at $194.30, almost $20 higher than the November 24 price. Yet, with all this action and performance, recently and all year, the stock is still a buy.

My friends the Brits are very bullish on Apple, and are aware of the price targets out there by the various analysts, including mine at $225. These four managers, by the way, manage $16 billion in the U.S. markets collectively. One has done the "internal modeling," and has a $290-$300 price target by year end 2008, and another has a $375 price target by mid-year 2009. All managers have sworn to me that they drank nothing harder than English tea during our conversations!!

Friday's news that the Israeli generic drug maker Teva Pharmaceutical Industries Ltd. (NASDAQ: TEVA), has received tentative approval from U.S. health regulators to market its generic version of GlaxoSmithKline Plc's (NYSE: GSK) Requip (Ropinirole HCl) tablets is just more proof that for investors, generics are the way to go. The tablets treat idiopathic Parkinson's disease and primary restless leg syndrome. The brand product had annual sales of approximately $455 million in the United States.

The bigger fundamental question has to do with the future of "big pharma"? Certainly companies like Merck and Co. (NYSE: MRK) and GlaxoSmithKline aren't going away anytime soon. The question is over the long run, with drug's continuously coming off patent, where is the growth going to come from? Generic makers like Teva (the world's largest generic firm) keep waiting for drugs to come off-patent, get approval to market a generic version, and immediately take significant market share away from the big pharma company. (Check out Zack Miller's analysis of this and other generic trends.) According to a report published by PriceWaterhouseCooper, by 2020 the pharmaceutical market is anticipated to more than double to US$1.3 trillion, but with weak pipelines, and soaring R&D costs, as well as higher legal costs, the big-pharma industry is at a crossroads.

Until we hear of a real long-term growth plan for big pharma, it seems like the best way to play the surging growth in he pharmaceutical market is to buy the generics.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer owns stock and is long TEVA. He has no position in any other stock mentioned as of 12/2/07.

Today marks the first time that Google (NASDAQ: GOOG) has touched upon the magical market capitalization figure of $200 billion. This is the company that will be the centerpiece of every MBA class 20 years from now, if not sooner. We have never seen anything like this before in the annals of the American stock market, nor anywhere else in the world. The stunning achievements of this 9-year-old company pale in comparison to where it is going to be in 3 years, 5 years and 10 years. Yes, the stock is still a buy -- actually a strong buy.

Traditional analysts and investors have attempted to put traditional barriers on Google when analyzing it. Can't do that, not going to work. Why? Because the world in which Google competes and dominates is so evergreen, that trying to put traditional growth numbers to the industry is nearly impossible. Google doesn't sell a physical hard product that requires delivery, set-up and training (although a Google phone is on the horizon). It operates in a virtual world -- and that's why many analysts and investors have tried to "temper" expectations. Temper is a fancy word for they haven't understood the story, have missed the story, and this is why it could become the first trillion dollar market-cap company.

Apple (NASDAQ: AAPL) is an extraordinary company that has rebounded with tremendous might over the past couple years. Apple's innovative genius is stretching to newer markets every year, starting with the iPod revolutionizing the MP3 player market, and more recently into the laptop market. Apple's Macbook and Macbook Pro laptop offerings are wildly popular amongst the entire U.S. consumer market for their ease of use, stylish appearance, and convenient size. Apple's computer segment is most likely going to continue growing, and many expect the company to launch an upgraded desktop computer within a few months. Oh, and we can't forget the iPhone, Apple's latest and greatest product offering that had a very successful launch about a month ago.

Shortly, Apple's financials for the quarter are going to hit the wires. Like many Wall Street analysts, I believe Apple will probably deliver an above-guidance/consensus earnings and revenues figure.

Anyone who reads my content knows that I'm a strong believer that trading and investing require different mind-sets. People interested in making a trade on the long side in Apple probably will make out well through earnings, but I'm not planning on getting long the stock simply because I think a consensus-slashing earnings report is already widely-expected on the street, and therefore priced in.

After saying all this, I still have a guilty confession: I don't think Apple is going to be a good purchase for long-term investors who believe that this growth can go on forever or that the current valuation on the stock is justified. While I would never short the stock because shorting only on value is a losing proposition, I think investors need to be aware of the risks in this seemingly effortless investment.

See also:
Brian White: Apple sees new 52-week price target of $175 and up
Brian White: Apple up 14% since iPhone launch
Georges Yared: Apple outlook: Why AAPL is on its way to $200
Peter Cohan: 7 Wonders of the Investment World

I love value investing. But in markets like today's, it becomes increasingly difficult to find undervalued stocks with attractive characteristics, and secular growth plays start to take my interest because, in a momentum market, moves are much more predictable.

But, like I mentioned in a post earlier this week, my mindset is entirely different when trading these names than it is when making long-term value investments. I tend to look at most of the trading companies merely as stocks, not as companies, because in the short term, that's all they are to the market -- names with a sector, news, and short term earnings figures.

People who read analyst or investment bank reports on a regular basis constantly see discounted cash flow models that seem to flow and create logical valuation. But I don't really see too much value in this form of DCF -- I tend to believe that making precise estimations of future growth in cash flows to be extraordinarily difficult. In fact, analysts struggle to hit estimates for growth even in shorter term quarter-quarter or year-year comparisons.

In addition, the entire issue of choosing a discount rate is always very subjective in my opinion. Some argue that the "cost of capital" should be calculated using academic models (beta, etc.) while others believe that the cost of capital is merely what could be earned investing the capital in something similar. So, for example, a risky stock's cost of capital using the second model might be 15% while a conservative stock might be 9%, because investors would demand a higher return from a riskier stock. I tend to believe the second case makes more sense, but I believe neither methodology makes perfect sense.

So, the long-awaited iPhone is finally out, meaning us bloggers can get back to writing about other things. No, probably not, as there seems to be more iPhone news than ever, combined with a slow holiday week with little else is going on.

So I'd like to take this opportunity to discuss Apple Inc's (NASDAQ: AAPL) valuation. Specifically I would like to reflect on a comment I received from a commentor named "George" from a previous post I wrote about the iPhone. In the post, I brought up some doubts about the phone, including price and the network it runs on.

Erik,

Your comments are both expected (from you), doomsaying and non-illuminating, all at the same time. It seems that you prepared for your column today by reading everyone elses thoughts on the value of Apple's stock, the sheer bravado of Apple to dare to come out with such a product that couldn't possibly work on a network that is clearly last tier annd their continued lack of success in the enterprise.

I think if I want an uninformed opinion on what Apple, the company or Apple stock is going to do maybe I should ask the other Buscemi...Steve

According to the Wall Street Journal (subscription required), more than half of this year's IPOs have been for companies that are unprofitable, the largest percentage in 7 years: since when the dotcom bubble burst. The piece points out that the unprofitable IPOs are more diverse than they were then, and investors are looking to companies that at least have a shot at being profitable at some point in the near future.

While there may be reasons to be worried about the optimistic climate on Wall Street, the recent run of unprofitable IPOs probably isn't one of them. Even though the companies may not currently be profitable, investors are at least examining them for sign of improving fundamentals. This isn't a case of pie in the sky optimism, with investors paying huge sums for companies with no revenues or hope of profitability.

The continued strength in private equity may indicate that markets have more room to run: Buyout firms are seeing value in many different industries.

So while it might be tempted to see a rise in unprofitable IPOs as a sign of the apocalypse, I think that would be an over-reaction.