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I'd love to hear your thought on Eastman Kodak, especially after earnings and the patent issue.
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Never mind. I just checked out their executive compensation, which has increased dramatically over the past few years while the company has not shown much at all in the way of turning around.

I like their debt situation, and their digital professional printing division seems promising, but I'm not happy about their patent litigation strategy, and their increasingly squeezed margins.

And nothing on their conference call today seemed particularly promising. I think the market might be right about this one. Having said that, watch them totally turn things around now...
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Having said that, watch them totally turn things around now...

Hi ContraBull,

Haha! I totally hear you on that statement.

We see these big drops in price in reaction to an event or earnings miss or something and, if we're mostly bullish (like me) or like the company (often like me), our first reaction is "That's an overreaction and this is now a great buy!"

I'm slowly learning to stomp down on that reaction because when I've been right on it, it's usually caused me to be way too early. The biggest example I have for this is when Nokia announced disappointing earnings back in the spring of 2004 and the shares got hammered. Down something like 30% in a day or two. I jumped all over that, and then had to sit for months as the price continued to drift downward before finally making a turnaround. Lots of red on the portfolio listing for a while. Ended up making money on the investment, but I could have made a lot more if I had been patient and waited for most -- not just the initial -- pessimism had shown up in the price.

This past year I was able to put that lesson to good use. I had bought 2/3 of my targeted position in BP just a couple of weeks before the oil well disaster struck. Rather than jumping right away and buying more, I sat on my hands and waited until the summer before finally getting my last 1/3. That sitting still before purchasing let me buy the shares really cheaply and that 1/3 has made up for the losses of the other 2/3 so I'm at or above break even right now.

While I don't think the MUE way of looking at things is going to let me pick the bottom, it is keeping me from jumping onto every bit of bad news that hurts a stock price. That's why I'm staying out of Best Buy despite the haircut given after the third quarter results were announced in early December. It may help in staying away from "value traps" which Best Buy might be at the moment.

Getting back to Eastman Kodak, as you noted it has a lot of problems, but in this case, I think the market is calling this one correctly. It's had a real hard time ever since film cameras went the way of the dodo (or most of the way there). I can't even run the MUE calculator on it because it reported negative FCF over the past 12 months. In general (I hate saying "never"), I'm going to stay pretty far away from companies that don't even have positive free cash flow.

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Kodak is a perpetual train wreck. They may still have some good engineers, I don't know, but management has showed an amazing lack of vision for decades. Rather than figuring out a viable long-term vision for the company vis-a-vis current and future technologies, they've just scrambled around looking for any cheap fixes they could find to help prop up quarterly earnings.

In addition to having no vision of the future, they've also shown an incredible lack of appreciation for their past. A decade ago, there were voices everywhere saying that vinyl records were dead and buried. Today, they are one of the only segments within the music industry that is actually growing. Vinyl record sales will probably never reach pre-digital levels, but they haven't disappeared and and have actually become a significant source of profit in the digital age. As both a film and digital amateur photographer, I believe we will see a similar scenario play out with film.

Enter Kodak, which seems to have accepted the idea that film is destined for extinction. Recently Kodak decided to cease production of the one product they sell that is far and away the best in the world - Kodachrome. They did this even though they were no longer obligated to support labs to handle the complex processing - an independent lab in Kansas had taken over that job quite a while back. I don't care if they were destined to never make another dime of profit from Kodachrome, even in that case, having a product that's undisputedly superior to any competing product in the world is an invaluable asset for a company trying to find its way back to a leadership position. Kodak chose to toss it in the garbage in favor of their commodity snapshot digital cameras.

Really, at this point you couldn't GIVE me Kodak stock.
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