I had to comment…

February 27, 2007

I wasn’t planning on commenting but I guess I need to. What a day. I can’t say a correction is suprising, but one of this magnitude is. The names that look interesting today are the

  1. M&A (à la Lazard) Advisory firms, and some brokerages.
  2. Utility and electricity companies ( à la AES, Aqua America)
  3. Nothing related to retail investors, such as mutual funds and online brokers, such as T. Rowe Price and OptionsXpress. (<– This only applies if there is another leg to this downturn)
  4. I’m buying shares in companies who did well last May, such as VF Corp.

Let’s see what happens tommorow.

I own shares in OXPS, AES, VFC 


Festival of Stocks

February 19, 2007

Welcome to the Festival of Stocks! For those who don’t know, the festival of stocks is hosted on a different blog each week, and any blogger on stocks, bonds, REIT’s, the stock market, or any related topic can share their favorite article. Much thanks to George from Fat Pitch Financials for his work on keeping this Festival going.

Bill Trent at Stock Market Beat is puzzled by Expeditors International’s recent earnings when compared with recently released trade data.

Asif at the SINletter writes about Nautilus’s short squeeze losing steam, and adds his thoughts of their 2006 results and recent conference call.

Travis Johnson, over at One Guy’s Investments, shares his thoughts on the future of Lionsgate now that their blood-and-guts filled movies will be on your iPod.

Joe Caterisano shares his opinion on how individuals can make money in the stock market over at his blog, help with everything.

Bryan C. Fleming shares some useful information on how to open an online savings account.

George from Fat Pitch Financials discusses some of Warren Buffet’s recent trades and the lessons we can learn from them.

“Super Saver” over at My Wealth Builder reflects on some recent stock transactions and his plans for them moving foward.

Inelegant Investor wants to know “Who’s Jove Partners, and what might they do with Lifetime Brands?”

Self Investors has a great post on profiting from the Advanced Energy Initiative.

You Heard It Here First, Part II

February 19, 2007

Barron’s agrees with the Stock Geek, again.

Here’s What I know

February 14, 2007
  • I know robots are here to stay. Exchanges are using them to cut costs and improve efficiency, doctors are using them to do surgery (isrg). They’re even cleaning our floors for us and picking up bombs in Iraq, but by iRobot’s (irbt) stock performance you couldn’t tell. Who makes the robots that make cars? We all know that people are leaving the assembly line…
  • I know that goods are moving around the world, to every corner of every market. UPS (ups) should benefit from this, as should Expeditor’s Int’l (expd). This story isn’t going away any time soon, the growth in emerging market’s and increased outsourcing/offshoring will mean that every thing from gold to oil to Dell computers are being shipped overseas as we speak.
  • I know that the global investment market is strong, both for professional’s and “retail” investors. Look at FactSet (fds) to see the strength in the investment bank (not to mention Goldman Sachs (gs)). Did anyone see the strength in Schwab (schw) recently?
  • Emerging markets show no sign of slowing. Look for those who supply both what the citizens of these markets need and want. For the former, look at AES (aes), who supplies power in 26 countries. For the latter, look at NII (nihd), which is Nextel International, a major cell phone provider in Latin America. Also Turkcell (tkc) is a good play on the growth in the middle east.
  • Internet valuations are more than twice the market’s across the board. I think the best buy’s are the niche players who control their markets. Look no further than Blue Nile (nile) for online jewelry, Bankrate (rate) for online mortgages, The Knot (knot) for weddings, and CNET (cnet) for tech news. I think that they’re the best positioned to benefit from ads moving online, not Yahoo! or Google. The Cisco’s of the world might be good too, but I don’t understand the business enough. Online brokerages, such as OptionsXpress (oxps) also benefit from the growth in broadband.
  • Companies are outsourcing everything but core competencies. Paychex (payx) and ADP (adp) are best positioned to benefit from the outsourcing of HR, and Cognizant (ctsh) and Accenture (acn) should win the IT war.

That’s it for now. Stay tuned for “Here’s What I Don’t Know.”  Any other themes you’re looking at? Tell me in the comments!

Full disclosure: I own shares in AES and OXPS. 

What’s the Market Missing?

February 10, 2007

That’s the question we, as small individual investors, always need to ask ourselves when we evaluate a stock. It is my belief that to be a successful investor, we need to do two things

a) Identify “good companies

b) Identify those which are priced wrongly.

I’ll use two examples from previous posts to illustrate this.

Yellow Roadway (yrcw): First step was indentifying it as a “good” company- I saw that even though the company floundered in the last slowdown, over periods of 5 and 10 years they grew very quickly (20% for 5 years, 11% for 10 years). Another thing I noticed was that their operating margin was higher than any other point in the last ten years, even higher than during the last growth-spurt of the US economy. Thats part a, step one, the numerical analysis. Part a, step two is the qualitative analysis. I looked into managements efforts to broaden their offerings to customers by acquirering competitors. They now have perform everything a customer can ask them, any truckload size, length of trip, time to delivery, etc. They also expanded into mainland China, which is growing far faster than the US. I am also encouraged by their move into the non-asset based logistics market through the acquisition of Meridian IQ. Non-asset based companies have higher margins and lower risks than asset based companies, such as Yellow Roadway (look at Expeditors International , expd,for an example) . After doing this research, I was encouraged by their efforts into margin protection during the next slowdown, and into growth oppurtunities via china, meridian.

Now we had to figure out if this was a good time to get in the stock. Yellow Roadway was down 40% from its 2005 peak, due to fears of higher interests rates and an imminent economic slowdown. Both of these factors are definitely concerning. I just thought that all bad news was priced into the stock . The stock, at around 5x cash flow, was trading at a deep discount to its historical average and competitors. In fact, JB Hunt (jbht) was trading at twice the cf multiple of YRCW. There was no reason not to buy at least a partial position of YRCW, with plans to add more when the stock was hit on economic-slowdown fears.

Circle is suggested entry point

Paychex: Part a) Is this a good company? Absolutely. Great, consistent returns over 10, 5, 3, and 1 year periods (rev. growth of 18, 14, 15, 16 per year, respectively). They perform critical services for clients, such as HR outsourcing, payroll, filing neccesary paperwork, managing funds… These definitely are not commodity services, companies, whether they are 3 people or 3,000, only will give this work to trusted, established companies. Paychex has the largest client base in the country, and a retention rate. They are expanding overseas and have goals to growth EPS over 15% over the forseeable future. Since they have such a diverse client base, a slowdown in employment growth wouldn’t significantly hurt them, nothing close to the impact it would have on a Administaff or Manpower. I have confidence that this business will grow and flourish in the future.

So does the market. And thats the problem. The stock trades at 25x cash flow and 30x earnings, which are both significantly higher than competitor ADP. The discount may be warranted, I just don’t know enough about the business to be sure that I’m buying a great company at a great price. Having just one of those two factors isn’t enough, we need both.

Warner Music-Why I’m Mixed

February 8, 2007

As you probably know, Warner Music reported another bad quarter this morning. Even though part of the decline was due to tough comparisons, a revenue-down-14% and income-down-75% way below expectations type of quarter. However, they were the only major music company to gain market share over the past year- a sign that the company is doing better than the industry. There were two other bright spots a) Japan–sales up 70% YoY and b) digital, up 45% YoY to 11% of sales.

I don’t see much happening with this company untill 3Q- when we know for sure about whether or not a merger with EMI is happening. Also the company stated that its a back-end loaded year in terms of releases.