Archive for the ‘ Articles ’ Category

Life Partners Holdings, Inc. Company and Stock Analysis

Company Info and Market Share

Life Partners Holdings (LPHI:NASDAQ) is the parent company of Life Partners, Inc. The company is responsible for facilitating viatical and life settlements contracts. LPHI is an agent for institutions and wealthy investors who purchase individual life insurance policies at a discount and become beneficiaries upon maturing of these policies.

According to the company’s Annual Report, the life settlements market is a $7.3 billion market and the company has about 7% market share in it. They have gone up from a 6% market share to 7% market share in just one year.

Also, the company saw an increase of 8% and 8.2% approx. In its Net Income and Earnings per Share respectively.

What is life settlement? Life settlement is sale or transfer of an insurance policy in lieu of cash. The beneficiary then is the life settlement company – the new owner of the policy. The money paid to the original policy holder is usually higher than the surrender value of the insurance policy.

I have performed research on the topic and following are some of the basic points about life settlements that I’d like to share here today:

  1. Proceeds are Taxable – Should always consult a tax advisor prior to selling the policy
  2. Almost any type of life insurance policy is acceptable – Universal, whole, term, Keynes, Survivorship, etc
  3. The process can be anywhere between 2 to 6 weeks long
  4. Eligibility : Anyone 65 or over, a policy with a face amount of $50,000 or more and an assignable policy or a policy outside of the contestable period.

Given the economic times, an increase in Net Income, Earnings per Share and Market Share makes LPHI a very viable investment. I personally believe that LPHI is a good investment because the credit restraints do not affect the life settlements market as much. Investors are looking to diversify their portfolio and are actively seeking alternative investment strategies. I will perform an intrinsic value calculation to see if this assumption holds true.

Calculating Intrinsic Value of Stock To Determine Fair Value

LPHI’s stock price as of March 1, 2010 was $20.95.

I performed my intrinsic value calculation using the following steps:

    • Calculate growth rate (g) in Earnings per Share from 2002 (the company went public in 2000 but EPS were negligible and P/E ratio was negative the first two years, so I am beginning my calculation starting year 2002):  The growth rate came up to be 25.77% but given the recent economic crisis, I will take a conservative approach and use 15% as the growth value for future predictions.
    • Calculate average Price to Earnings: P/E ratio is calculated by dividing the stock price with the EPS for a particular period. After obtaining numbers from the 10K for 2002-2009 and dividing it by 8 to get an average, I got a figure of 27. Over the years the company has experienced declines in its P/E ratio and for that fact I will use a smaller figure of 18 to balance things out.
    • Calculating future share value: Calculating the value of the stock 10 years from now. This is done by:
      EPSx({1+g)^10}xAvg. P/E Ratio=$1.98 (1.15^10)x18= $144.18 approx.
    • Add Projected Dividend Payout to Future Share Value. After Having calculated projected EPS for 10 years ($1.98, EPS from last year,  multiplied by 15% growth rate every year), we multiply the sum by average dividend payout ratio of 15% (Even though the calculation gave me a figure of approx. 27%, I am using 15% as one year in between the dividend payout was close to 90% whereas it was between 11 and 23% at other times. ). Total sum was $39.947 and multiplying that by 15%, we get a figure of $6 approx. Adding that to the future share value we get $150.18.
    • Now we divide the number obtained in the previous step by the expected returns.
      The stock has shown a growth of 16.75% in the stock price over the past 8 years. We will use 11% as a standard expected return for this particular investment to maintain somewhat of a conservative approach..
    • The intrinsic value obtained after the above calculation is: $150.18/(1.11^10)=$52.90 approx. Comparing this figure to the stock price of $20.22 on NASDAQ at close of day on May 28,2010, it can be concluded that LPHI is a viable investment.

(Please Note, these are my personal calculations and conclusions, I do not assume any responsibility for the changes in stock price or any losses incurred upon taking my advice.)


Question Most Asked in 2010: Should I Buy Bank of America Stocks?

Earnings per share and Net Income Analysis (10-K)

Like any other bank, Bank of America experienced a decline in its Net Income in 2008. Reported Net income for 2007 for the bank was $14,928 million and in 2008 it was $4008 million. This is one of the biggest declines in the history of banking. In 2009 however, it seems like the bank’s position improved. Even though the Net Income did not go up to almost $15 billion or any where close to it like in 2007, it did increase from $4008 million to about $6276 million. A lot of the improvement can be attributed to acquiring Merrill Lynch and become the world’s largest wealth management company.

Earnings per share reported as of December 2009 were -$0.29 down from $0.54. In 2007 EPS reported were $3.29. Some Analysts at Wall Street still hold a Buy position on the stock while some claim it to be the worst stock of 2010.


There are mixed reviews and buy/sell recommendations for Bank of America Stock. Horacio Marquez, a contributing editor at Money Morning, back in 2008 recommended buying BAC stock but after the bank revealed some troubled assets, which were initially not released in the press, the stock saw a major decline. Since then the bank has seen significant improvements but the stock is still well under the recommended entry price.

Jim Woods, a financial journalist who has monitored the economy and stocks for two decades also recommends buying Bank of America Stocks. He mentions in his article “Five Reasons to Buy Bank of America Stock” that analysts favor BAC and that the bank’s conditions in all units is improving are among other reasons to purchase the stock.

On the contrary, Christopher Barker,  a Motley Fool contributor, says that Bank of America may be one of the worst stock of 2010 and states credit risk and Federal Reserve’s plan of acquiring $1.25 trillion of mortgage-backed securities as two of the many reasons for the recommendation.

My Take on the Subject

The US economy, or for that matter the global economy, will not be back to a 100% or as good as it was pre-recession right away as some might like to think. But, we have seen a little growth since last year. I have been reading articles and have been following the financial markets.

Even though the economic times aren’t at its best, I see potential, in particular Bank of America for this report. I would invest in Bank of America with the assumption that it is experiencing growth this quarter and is expected to grow more by the September quarter.

(I do not hold any interest in Bank of America and my recommendations are solely my conclusions and based on my research and therefore assume no responsibility for any damages or losses incurred by anyone who acts upon my advice.)

A brief look at Goldman Sach’s 10-K and Stock Intrinsic Value


Goldman Sach’s does not need much introduction. Goldman is one of the leading investment banking, securities and investment management firm. The clients to the firm are large corporations, financial institutions, government and high net worth individuals.

Primary Products and Services for Goldman:

    • Merger and Acquisitions Advisory
    • Equity and Debt Underwriting
    • Financial restructuring advisory
    • Commodities and commodity derivatives
    • Currencies and currency derivatives
    • Mortgage related Securities
    • Securities, futures and options
    • Equity securities and derivatives
    • Investment Advisory
    • Financial Planning
    • Management of Merchant Banking Funds
    • Prime bokerage
    • Financing services
    • Securities Lending

Earnings per share and Net Income Analysis

After experiencing a huge decline in the Net Income aspect of the cash flow statement in 2008, Goldman Sachs saw a 476% increase in it. From a figure of $2,322 million in November 2008, the banks’ Net Income in December 2009 was $13,385 million which signifies big achievements and that after the economic turmoil, the bank is back to being the top firm on wall street.

Earnings per share reported as of December 2009 were $23.74 compared to $4.67 the year before and $26.34 the year before that. Even though the EPS is not back up to where it was 2 years prior, it has shown a significant growth given that it dropped by 83% going from 2007 in to 2008.

According to David Ellis’ article on, the shares for Goldman plunged 21% since the first revelation of fraudulent activities carried out inside of the bank. 9% decline was as recent as April 30.

The Analysts at Wall Street still hold a Buy position on the stock.

Let us take a look at the intrinsic value of the stock and analyze the fair purchase price.

Intrinsic Value Calculation

    • Calculate growth rate (g) in Earnings per Share from 1999 ): Growth rate calculation revealed an 18.1% average growth rate over the years. To maintain somewhat of a conservative approach, I will be using an average of 10% for calculation.
    • Calculate average Price to Earnings: P/E ratio is calculated by dividing the stock price with the EPS for a particular period. After obtaining numbers from the 10K for 2000-2009 the average obtained was a number of 12.87.
    • Calculating future share value: Calculating the value of the stock 10 years from now. This is done by:
      EPS (2009)x({1+g)^10}xAvg. P/E Ratio=$23.74 (1.1^10)x12.87= $792.48 approx.
    • Now we divide the number obtained in the previous step by a discount rate of 12% discounted for 10 years.
    • The intrinsic value obtained after the above calculation is: $792.48/(1.12^10)=$255.16. Comparing this figure to the stock price of $142.49 on the New York Stock Exchange as I write, it can be concluded that Goldman Sachs is a viable investment.

But, given the fact the Goldman’s legal troubles are going up everyday and the bank is facing some very serious charges, it won’t be a surprise that the stock price falls even though the fair value is higher than the current stock price.

(Please Note, these are my personal calculations and conclusions, I do not assume any responsibility for the changes in stock price or any losses incurred upon taking my advice.)

10-K Analysis

I am going to be performing 10-K Analysis and calculate intrinsic values for certain firms that I have on my list to learn more about them and to determine if they are a viable investment or not.

Life Settlements – Ethical or Not?

A recent article in the Wall Street Journal talks about how a lawyer in Rhode Island is advertising and giving out $2000 in cash to policy holders who are terminally ill. In return, he is asking to be the beneficiary on their life insurance policies.

There have been many arguments for and against the investment. Some believe that it is a viable investment and is ethical while there are people who argue the believers. For those of you who would like to know what a life settlements investment is in a nutshell, please see my earlier post by clicking here. (Please note that I am in no way arguing for or against the investment; it is something I researched on as part of my internship at Quantum Financial Advisors in Washington, DC.)

Joseph A. Caramadre, the lawyer mentioned in the article, is known in the state of Rhode Island for his philanthropic endeavors. According to his lawyer and the article, Caramadre has given out $2000 anyway to people who have refused his offer of taking over their life insurance policies.

Relatives of the insured in question have looked down upon and filed lawsuits against life settlements investors. Insurance companies have filed lawsuits against the legality of these investments (please see the article in WSJ for more) making the rules surrounding these investments stricter. But, it really comes down to individual perception on the ethical aspect of these investments.

What are your thoughts?


The opinions expressed by the Smith Student Bloggers are theirs alone and do not reflect the opinions of the Robert H. Smith School of Business or the University of Maryland or any employee thereof. The Smith School is not responsible for the accuracy of any of the information supplied by the Student Bloggers.

My 2010 Predictions

Happy New Year’s Eve to everybody!

There have been many forecasts made about the year 2010 such as Russian academic Igor Paranin predicting the end of United States or Global economy getting worse.

I thought of ending this year with a few of my own predictions:

  • I completely disagree with Igor Paranin. Yes, the United States has not been performing as it has in the past but it takes more than just a recession to disintegrate such a powerful nation
  • The US economy would not see much growth in the first quarter but come second quarter there would be slow but steady growth
  • Economic growth of about 4% (Global Economy) with China being the major contender (Given) at about 9-10%
  • Stock market seeing a constant upward movement
  • Rise in the number of small businesses
  • Credit would still be hard to come by. I believe that getting credit would not be easier anyway. Although not impossible to get but with recent sub-prime transactions (main reason why America is where it is right now) it would continue being hard to get credit
  • And last but the most important one for me is the job market. Being a recent college graduate I know how tough it is out there. I believe there would be a positive trend in the job market. More jobs would be available for more people.

Let’s see how accurate I am. Only time will tell.

Happy New Year to everyone and their families!  May the new year bring prosperity to all 🙂