Monday, December 3, 2012

Kids know best #2: Mattel

Daddys and daughters. One of those two is hopeless in the gaze of the other. So for my daughters birthday she wanted a new doll. Not any doll, an American Girl doll. I happen to think Disney's business model takes lessons from the Branch Davidians and Jamestown to keep their following loyal. I found another business very similar. American Girl. $100 for the doll. Extra $20 to get the doll's hair done. Another $10 for a "facial" for the doll. There was a line at the "makeover counter" to do this. I did not see anyone get the facial. I might have started reading the book of "Revelations" for other signs of the apocalypse if I had. So I need to know who is making this killing? Mattel. The makers of Barbie. Diversification has been long coming. I looked at the financials. Great. Steady income growth and a modest P/E ratio. Plus the look my daughter gave when she walked away with her doll. The author bought shares at $37.15.

Thursday, November 29, 2012

Kids know best: Fedex

Recently I opened a stock market account for each of my kids. Might as well start teaching them early, right? I asked my son what he wanted to buy first. "Fedex". I asked why? "I like the stores." We recently spent time there faxing, printing, and producing publications. He bought a combination lock with his own money. I guess it was a high point. So I took a look at Fedex. A dead stock for the past two years, there is much to like. Over the last two years earnings have been growing at a 30% rate as the company cut costs, shifted services, and most importantly benefited from the recovering economy. The brand is intact. The potential federal cuts to the postal service and the long term increasing use of online retail purchases all bode well for delivery services like Fedex. expects a 5% increase in net operating income YOY this quarter. Considering the current p/e ratio of 13.9, it is underpriced to the S&P 500 p/e of 17. I like the reliability of FDX earnings, so the p/e seems low. Overall, I think my boy made a good choice. I will follow him. Will buy FDX JAN 14 $87.5 calls at $11.30 and sell FDX JAN 14 $90 calls at 9.95. Spread of $1.35 with a upside of $1.15.

Friday, September 14, 2012

Facebook: A value investment?

Not quite. But the pessimism is over done. The valuation of sub $50B given the potential ad revenue (mobile and desktop) is too cynical for a platform with 500m active users. What turned the table for me is the hope and promise of the new Facebook Exchange. This tool sells real time data on user interest and then sells the add spots related to that subject. "Facebook is doing a better job than Google Inc. (GOOG) in getting Web surfers to click on advertising based on browsing history, according to some partners using Facebook Exchange. Facebook Exchange, or FBX, generates as much as four times the return on ad dollars than other real-time bidding systems, said Triggit Inc., which makes software tools to help Facebook deliver the ads. Another partner, AdRoll, said advertisers used to getting $10 for every $1 they spend are making $16 for every dollar spent on FBX." If Facebook is able to garner even part of the promise of this enhancement of the platform, the valuation will skyrocket from here. Unfortunately, based on the authors personal 'user experience' with Facebook, this investment is still a opportunitistic trade on the markets enthusiasm for high potential concepts rather than an intended long term holding. The author has already initiated a position in Facebook at $21.90.

Wednesday, September 12, 2012

Picky about homebuliders: Buy Ryland

Ryland avoided the worst of the housing crisis due to geographic diversity in it's land portfolio, and selective development. Since then Ryland Homes has waited for turnaround in the market.
Now Ryland has communities being built in desirable areas and thus should expect high demand during a turnaround.
Ryland has 36.7% debt to value ratio, and $300m cash on the balance sheet. There has been a 40% increase in orders in the 2nd Quarter of 2012 with a positive outlook for the future. The company expects to be solidly profitable through the end of this year and into 2013. The author is long RYL at $29.24.

More on Vietnam

A recent arrest of one of the top bankers in Vietnam is identified as the catalyst of recent swoon in the price of VNM. "Then came news of the arrest of two noteworthy Vietnamese banking scions, headlines that dealt a blow to investor confidence in the country's banking system. What is ironic is that Vietnam is a former French colony and it is the French that have a term for these kind of unforeseen events. 'Force majeure,' or act of God, is arguably not an exaggeration when comes to the impact recent events in Vietnam have had on VNM. The arrest of tycoon Nguyen Duc Kien, one of the founders of the Asia Commercial Bank, has struck fear in the hearts of investors that previously had not been shy about embracing VNM or Vietnamese equities." Read more: Yet the banking sector remains strong. "What is lost amid all the negativity now surrounding Vietnamese financials is that the country's banks had $575 million in excess cash as of mid-April." Thus the banks are very well capitalized and there has been no major economic policy changes. The author is still very optimistic on Vietnam and looks at this as a great entry point for Vietnam.

Wednesday, August 29, 2012

Investing in Vietnam

New locations are emerging as investment hot spots, Vietnam is one of these places. "In an interview Wednesday, Søren Skou, head of the container-shipping division of Denmark's A.P. Møller Maersk A/S, said the Chinese market is facing fundamental changes. "It's pretty clear China is losing competitiveness in a number of industries," he said, adding that China is "by far the most important market for what we do." Maersk's customers who ship shoes, toys and other labor-intensive goods are increasingly located in countries like Vietnam and Bangladesh, he added." Vietnam is open for investment through the Vietnam market index (VNM). This author is long VNM at $16.75.

Friday, August 17, 2012

Apple: Too easy

The Apple Iphone 5 is scheduled for introduction on Sept 9. The company, before this new product cycle, is selling at 10x forward earnings and growing at a declining 30% rate. 10%+ of market cap in cash on hand. Too cheap. Bought $650 April 2013 calls Sold $655 April 2013 calls at a net debit of $2.4. Looks simple.

Wednesday, March 14, 2012

Get a piece of the Borg: Buy ACN

When the author was in technology consulting, the premier delivery firm was Anderson Consulting, now called Accenture. The people all looked the same. The delivery tools were always canned and consistent. It was so uniform it was like the Star Trek community called the Borg. And they always delivered. That is right, I started a sentence with 'and'.

I have no idea why one of the largest US government contract technology firms in the US can move their headquarters offshore to Ireland to avoid taxes and have any repercussions. In fact, their revenues have just compounded.

The author is buying ACN at $62.45.

Friday, March 2, 2012

Apple should be $600 / share

Apple is a steamroller. Unstoppable. It should be trading at $600/share right now. Plus the Ipad 3 is coming out and the author sees Ipads becoming an executive "must have".

The author has entered the following position.

Buy Apple Oct $555 Call $47.65
Sell Apple Oct $560 Call $45.30

Let me show you what has made me go crazy about Apple.

Here is the deal, all last year it was making $6B a quarter for a total of $27B revenue (average) / $6B in earnings growing at 40% rate.

Then came the new Iphone 4S last quarter, and then in one quarter it went to $46B revenue / $13B in earnings in one quarter. That blew the hinges off of any previous valuation. Assuming no growth and continued earnings they will make $52B in earnings this year and thus with a $470B market cap sell at less than 10 X earnings. Now think of the fact that they have $80B in cash on the balance sheet and they are selling at 8 X earnings.

If we get into normal valuations of 20 X earnings against 40% growth this is a $1T stock.

All this and the iPhone is still limited to 10% of the population in China because they have only one carrier, like the AT&T deal from two years ago.

This said, the stock has run really far really fast and should plateau for a bit. But it is going up from here.

Monday, January 30, 2012

Regeneron : Great portfolio of molecules

Regeneron has one of the best pipeline of new molecules. Despite the criticism the author believes there is significant upside.

The author has purchased Regeneron (REGN) at $88.24.

Tuesday, January 24, 2012

Ecopetrol: The Petrobras of the future

Ecopetrol is a buy. The Colombian state owned energy company found massive, easily recoverable reserves. The earnings growth rate is tremendous for this company and it can actually increase as more wells come online.

Moreover, Colombia is a much more attractive place to invest than just a few years ago.

"Per capita GDP in Columbia has doubled since 2002, largely due to increased investor confidence in the country’s political stability. Columbia has seen a 90% drop in kidnappings and a 46% decline in murders over the past ten years."

What better pitch for a company is that?

The author bought at $50.50.

Sunday, January 1, 2012

Sherwin Williams: First step of a housing recovery

When home maintenance is done, the first major improvement to the cosmetic appeal is a can of paint. Thus with the bottoming of housing starts and a spike in remodeling permits (see graph below), it may be time to buy a paint company.

Sherwin Williams is the top paint supplier in the US. The sales at their paint stores are growing at a 7.8% rate and margins are expanding. The dividend is stable and should have room for growth with new sales growth.

The author will buy Sherwin Williams at $87/share.

Turkcell is still a buy: Doubling down

Turkcell fundamentals and balance sheet are even better than before, and the price even cheaper. Turkcell has seen significant growth in Central Asia and Eastern Europe. Due to a currency collapse, the Belarus subsidiary has been written down to a negligible value. Growth of profits from smart phones has been increasing on track to bring new growth. All of these items make Turkcell more and more attractive.

The Achillies Heel of TKC is the foreign shareholder versus domestic shareholder power struggle that has been ongoing since TeliaSonara bought a controlling share of the company in 2005. Collateral damage to shareholder occurred in 2011 with the foregoing of the dividend payment due to the inability to agree between the two major shareholder factions.

Who knows when these issues will resolve? But the deep value of Turkcell makes this investment worth the wait. Thus the author is doubling down on the Turkcell investment at $11.78.