Use access key #2 to skip to page content.

June 2007

Recs

1

Vindicated on Apollo? Not yet.

June 29, 2007 – Comments (0)

Apollo (APOL, the education firm) has been a drag on my score for a while. Right now the stock is up about 12% - I've had a bunch of nice big jumps lately! Plus I hold the stock in real life. I'm glad ... but cautious.  [more]

Recs

0

Gurufocus: 4 gurus have put Capital One in their wallets

June 28, 2007 – Comments (0)

As of the end of March, 2007, and the end of December, 2006, four gurus have bought Capital One: Ruane Cuniff, David Dreman, John Keeley, and Robert Olstein. Cuniff and Dreman have doubled down, in fact, and the stock has been going mostly sideways since then. I say it's time to consider jumping in.  [more]

Recs

1

Paychex

June 28, 2007 – Comments (0)

Paychex reported earnings that matched analyst consensus. the stock dropped 2% after hours, for whatever reason. As I said in my pitch, this is one of my favorite stocks. When I started out in investing, I stuck with mutual funds, but I did search the holdings of SRI funds like Domini, Parnassus, and Pax for stocks that didn't overlap with what I had. PAYX was in the Domini index, but wasn't in Neuberger Berman or Parnassus Equity Income. I wish I'd bought some a bit earlier on.  [more]

Recs

1

Defensive stocks

June 27, 2007 – Comments (0)

Morningstar runs a video series, where Pat Dorsey or someone else gives you tidbits from their premium research. The latest is on stocks that would do well in a weakening economy: http://video.morningstar.com/video/videoreport.asp?vp=consumerslowdown&cat=stock&ticker=&acg=v&pgid=wwhome1a  [more]

Recs

0

Catching the bottom on Western Union

June 27, 2007 – Comments (0)

Like I said earlier, CAPS is not money management. You can't really average down in CAPS. In the real world, I go by Bill Miller's motto: lowest average cost wins.  [more]

Recs

4

CAPS is not money management

June 25, 2007 – Comments (0)

As I'm sure we're all aware, CAPS is not a money-management contest. It's a stock-picking contest. Right now, Fuel Tech is down 6%; the previous session, it was also down 6%, but that was before a pretty significant run-up, announcing that they were partnering with Itochu, which has a large Chinese sales force. The entire market is down right now, apparently on subprime-related worries (thanks for nothing, Bear Stearns).  [more]

Recs

1

A letter to Calvert

June 24, 2007 – Comments (0)

Dear Calvert Funds,

Your commitment to socially responsible investing is laudable. However, all your funds have above average expenses. This is bad, because expenses eat significantly into returns over time.

The most egregious case is Calvert Income (CFICX). This is a hidden gem in the bond world. Greg Habeeb, the manager, has performed superbly - 8.00% annualized over 10 years, which is 1st percentile. The 3-year record, 4.62% annualized, is less spectacular, but still 11th percentile.

However, the asset base is just under $5.7 billion. And yet, shareholders are socked with a 1.20% expense ratio, plus a 3.75% front load. 1.20% would be on the high side for a stock fund, and there are indeed several top-notch SRI stock and balanced funds that charge less than 1.0% for their services.

To add insult to injury, Calvert Income is not even socially screened. To Calvert's credit, Calvert Social Bond has an asset base just under $600m, and charges 1.13%, but that is still far too high for a bond fund. Parnassus Fixed Income, which has also performed very well, charges only .75% on an asset base of $71m, 8.5 times smaller than Calvert Social Bond.

Arguably, overcharging investors for service is not socially responsible. Please bring the fees down.
A quote from Morningstar's stewardship page: "Calvert Income is far too expensive. At 1.20%, it's pricier than 85% of its front-load rivals. That's especially disappointing given the fund's explosive asset growth in recent years; it has swelled to $4.1 billion, more than triple the size of its average competitor. As such, the fund gets no credit for this section."
  [more]

Recs

2

Starbucks! (and additional comment on Fuel Tech)

June 21, 2007 – Comments (0)

Starbucks is down 3% today after the CFO indicated that they might fall at the lower end of their targeted range of earnings for the year. I say it's time to buy! Yes, their sales in the US will slow, as customers stop drinking the fancy stuff and stick to the regular espressos. However, they still have good premium coffee, and significant brand loyalty. Additionally, their capacity for overseas expansion is very significant. Wealth in the world is increasing, and people have more money to buy coffee. My dad, born in a very small town in Malaysia, recently bought a $2k espresso machine (he has few other extravagances, though). People will switch to premium coffee.  [more]

Recs

1

Tuesday Morning

June 20, 2007 – Comments (2)

Tuesday Morning (TUES) is a former pick. I liked the dividend, and scooped it up around Q3 last year, but its competitive position seems to have deteriorated. I managed to sell at a small profit earlier in the year, but their recent financials reveal pretty bad margin compression (operating margin was .8% vs 5.6% in Q1 of 2006). They had to make larger markdowns to move their goods. The stock is back down (now about $13, and I picked it at this price in the beginning of September 06, and then sold it at about $17, real life and CAPS). I am not interested in buying, because I don't think the dividend is sustainable (unless results improve significantly in the next quarters). If I had some play money, and it hit $10, I might consider. but I don't have play money right now.  [more]

Recs

0

Expedia Part IV

June 20, 2007 – Comments (0)

I can't seem to shut up about Expedia, but S&P and Moodys have downgraded their debt ratings, S&P to junk, Moodys to one above junk (but with the possibility of further downgrade). This will make it more expensive to finance their repurchase program, and it is a pretty good assumption that they will have to take on debt to do so. They're not going to get $3.5 billion by August, not even if every top executive buys a state lottery ticket and wins.  [more]

Recs

0

Exxon Mobil developing new tire compound

June 20, 2007 – Comments (0)

http://www.bloggingstocks.com/2007/06/19/exxon-mobil-to-help-fuel-efficiency-through-tire-compound/ Our friends at Exxon Mobil have announced today that they're developing a compound to create longer-lasting, lighter, and more fuel efficient tires. 

There have been campaigns to pressure Exxon into investing in renewable energy. Exxon, because they don't give a damn, has resisted. I, actually, don't have so much of a problem sticking with their core competency - oil and the compounds derived from it. We could indeed use their expertise in developing fuel efficiency at all points. And even though I boycott Exxon, I would buy the tires (unless a more responsible competitor made a competing version that was equal or better).

My main problem with Exxon stems from their complete lack of responsiveness to environmental concerns, and their funding of groups that are trying to disprove global warming. Additionally, they have stalled for years on paying up for the fines imposed after the Exxon Valdez spill. They claim the damages were excessive, and that the damage really wasn't that bad. That spill was in 1989. I was nine years old. I didn't even hear about it, and I didn't even know what a stock was.  [more]

Recs

0

Expedia part II

June 19, 2007 – Comments (0)

I think this article will work for non-M* subscribers: http://quicktake.morningstar.com/stocknet/san.aspx?id=196750&pgid=pfsnapshotbt  [more]

Recs

0

Expedia

June 19, 2007 – Comments (0)

Expedia (EXPE) offered to buy back up to $3.5b of stock at up to $30 a share. If they managed to get all of it (they won't), that would be 38% of total stock. The managers say they're bullish on EXPE's long-term future. As I previously stated, I like the attitude, and I'm bullish on Expedia, but I'm simply more bullish on other companies.

Recs

0

Bond funds, SRI and not

June 16, 2007 – Comments (0)

As yet, there are no good, proven, cheap, socially screened bond funds. There are good, proven large-cap SRI funds, especially Pax World Balanced and Neuberger Berman Socially Responsive (PAXWX, NBSRX), and they include a good amount of mid caps and international stocks. Pax also keeps around 30% of assets in short-term bonds to moderate the volatility of its growth-leaning equities.

Calvert has good and proven screened and unscreened bond funds. Greg Habeeb has run the funds for some time, and while he is not well-known, he has done very well. He trades quite rapidly, which would be a bad thing, and the expenses are almost egregious, but over the long term he has done well. The ticker for Calvert's screened fund is CSIBX, and CFICX is their unscreened fund. For the former, we may be able to look past the expense ratio, as the fund is smaller and the social screening adds to the cost. However, CFICX is quite large, and there is no excuse at all for the high expense ratio.

Parnassus Fixed Income has also done quite well, but is less proven. It had 75% of assets in cash or cash-equivalents last year. right now, cash is down to 27% of assets, but 11.6% of assets are in 'other', mainly convertibles. turnover is 41%, which is quite a bit less than Parnassus Equity Income at around 100%. It had horrible years in 2000 and 2004 (worse than 95th percentile), but very good or stellar years in between. M* has no analyst report on this one. Expenses are .75%, which is acceptable, and M* rates this as below average risk. If I were looking for a screened bond fund, this is it. In a taxable account, you pony up $2k, in an IRA, $500.


Pax World does run a high-yield fund (PAXHX), as well as a mid-growth fund (PXWGX), but both are frankly poor. Domini has a bond fund (DSBFX), which I'm not impressed with either. There is the CRA Investment fund (CRAIX), which invests in securities that support community development; banks can buy into the fund to increase their Community Reinvestment Act standards. The performance is average to below-average, though.

As I said, I'm willing to be flexible in my SRI investments. Bonds don't give you much of a voice in the company's operations. I'm more comfortable with unscreened bond funds. Harbor Bond, a low-expense clone of Pimco Total Return, is very good (HABDX and PTTRX). Harbor also has a clone of Pimco's TIPS fund, and the ticker is HARRX. HABDX's ER is .57%, below average, and for bond funds, expenses are far more important that stock funds, because they eat a big chunk of your returns.

I also like Dodge and Cox Income (DODIX), which charges .44%; Dodge and Cox is a good firm. Vanguard practically runs their bond index funds for free. Loomis Sayles Bond (LSBRX) is an excellent multi-sector bond fund; it is a bit volatile, and it does charge 1%, but it is top-notch. I wouldn't buy a high yield bond fund now, but Northeast's fund (NTHEX) is an M* pick. 

I'm intrigued by many of Metropolitan West's offerings. M* rates Total Return (MWTRX) as an analyst pick, and many of their managers came over from PIMCO. PTTRX is too big to select bonds individually, so Bill Gross makes money with macro calls (which can go wrong: he expected the Fed to cut rates this year, and PTTRX is not doing so good right now). MWTRX is small enough to do that, and they select bonds based on value quite well. 

Metro West AlphaTrak 500 uses the same tactic that PIMCO does in its enhanced index fund: gain exposure to the S&P 500 by buying futures, and invest the rest of the fund in short term bonds; if you can make more money there than the cost of the futures, you win. This is true most, but not all, of the time, and it does throw off a lot of ordinary income, so a long-term investor would want to put this in an IRA. 

I'm quite impressed with Metro West.  [more]

Recs

0

Comments on Expedia - going private?

June 16, 2007 – Comments (0)

Yesterday, Expedia was up as much as 8% at one point, on rumors that it was going private. The company said no, that's not true, and the shares closed the day up only 3%. Nonetheless, EXPE is near it's all-time high.

Eric Savitz posted this analysis by Scott Devitt of Barron's at Seeking Alpha:http://internet.seekingalpha.com/article/38494
Discussions around Liberty Media’s (LINTA) 22% ownership stake in Expedia “have been ongoing for years.”Last quarter, Liberty management discussed TripAdvisor as a separate business from Expedia and for the first time ever segmented TripAdvisor as a separate entity in its earnings release, accounting for 6.7% of revenueExpedia also discussed the new “media” business in detail on its call and has done several small media tuck-in acquisitions in the past several monthsTripAdvisor, he says, is worth somewhere between $900 million - $1.5 billion “and receives nothing close to this in terms of implied valuation within Expedia.”Devitt says Liberty could be paid for its stake in EXPE with the TripAdvisor ownership stake and cash (tax mitigation) or EXPE could spin out TripAdvisor as a separate public company allowing Liberty to either maintain its ownership of EXPE as a private company or even allow Liberty to be a source of funding in a private transactionHe says EXPE is “statistically cheap,” at 13.6x estimated 2008 unlevered free cash flow; he says the returns to a private investor in a going private scenario would yield north of a 6% FCF yield before any headcount reductions or leverage benefit.

I suppose I wouldn't complain if someone bought Expedia out. I've heard it said that buyouts aren't good for long term investors, because they take the company away from you, and you can't let its value compound year after year. For example, if someone took Mr Softee private while it was a small cap, and kept it private, Bill Gates would probably not be the world's richest man.

Sumit Desai, the M* analyst covering Expedia, is fairly bullish. He says hotels will always need 3rd party distribution, because they really really need to fill their rooms (high fixed cost). Customers paying Expedia for the rooms before Expedia pays the hotel creates float, just like with an insurance company. The hotel industry is cyclical, but Expedia is not, because in the down cycle, hotels will probably give Expedia better terms. And he feels that Expedia has much room to expand internationally.

I agree, but I'm also not sure I see Expedia turning into a long-term compounding machine like Mr Softee or (urk) Wal-Mart. I don't know how solid their position is among airlines - discount carriers, for example, have preferred to advertise from their own websites. Airlines in general are not very profitable and aren't giving Expedia very good terms.

I may sell once I'm eligible for long-term gains. I might be throwing money away, but there are other compounding machines out there. Graco (GGG), Carmax (KMX), and Compass Minerals (CMP) have basically no organized opposition. You might consider Home Depot to compete with Fastenal (FAST), but I think HD doesn't really compete that hard in Fastenal's niche, and that businesses will continue to get their fasteners from Fastenal. 

Given Imaging is a little riskier, but it does have significant tax breaks, its products may be gaining significant traction, and its main competitor's product is inferior. Darwin is riskier (and moatless, right now), and could face competition from other, larger insurers, but I think it could come to dominate the niche of professional insurance (e.g. malpractice). Foxhollow is riskier still, but its devices have a lot of promise, and Merck is partnering with them.

I think not all of the stocks I mentioned are under the point where I'd consider buying today, but I'm confident in all except Foxhollow. I'll have to see how Fox's products do later in the year.  [more]

Recs

0

Wasatch Funds

June 16, 2007 – Comments (1)

Wasatch Heritage Growth (WAHGX) is a mid cap growth fund, according to M*, and also an analyst pick. M* likes mid-caps, because they have room to grow and financial stability. They also wondered, at the beginning of the year, if this could be a year for mid growth, as well as large growth. Lipper actually considers WAHGX to be multi-cap growth, because it holds a number of large caps. Unlike a number of other Wasatch funds, the expenses, at .95%, are below average. The fund has underperformed since inception, but its list of holdings contains a number of companies that I've picked, and that I (well, M*) think are undervalued.

Wasatch is known for small growth investing. And they made an offer to current shareholders in any Wasatch funds: from now to August 15, get into any of these closed funds: Small Cap Value, Small Cap Growth, Core Growth, International Growth.

Of course, I'm intrigued. But I'm not sure I'd jump right in. Small Value and International Growth have very high expenses. Core Growth has average-ish expenses (it's a small-mid cap growth fund). Small Cap Growth looks decently promising. However, if I want a small growth fund, I'd probably buy Bridgeway's fund before I bought this one. Additionally, Wasatch is known for closing funds early. Because they are well-known and decently successful, they attract a lot of assets. Core Growth is at $1.5b, and Small Growth is at $1.2b. That's a fair size, and the portfolios are a bit more on the concentrated side (I think Small Growth has 50 holdings now). That said, turnover is low.

Bottom line, Morningstar recommends Heritage Growth, and says you might as well get in before it closes. I agree with them. But I'm not as interested in their other funds.  [more]

Recs

0

Given Imaging's products may be making headway

June 14, 2007 – Comments (0)

There have been a number of headlines recently about Given's Pillcams being FDA approved for use in the upper esophagus and small bowel; I believe they also got Japanese approval for the latter.  [more]

Recs

0

Parnassus Small Cap buys Foxhollow

June 13, 2007 – Comments (1)

Parnassus is an SRI management firm. Their oldest, eponymous fund is the Parnassus fund, a large growth-oriented fund that has at times looked like a tech fund in disguise, has at times held a lot of cash, and has not performed well. Their best fund, imo, is Parnassus Equity Income. M*'s analyst covering the fund says he's not ready to recommend it yet, but it shows promise. Two of his chief complaints are that Parnassus' managers have at times gone to nearly all-cash, even though they haven't demonstrated the skill to consistently make those kinds of macro calls (very, very few managers have), and that Parnassus' analyst staff is thin and their reliance on interns is too high. Nonetheless, Dodson has shown promise, because PRBLX has performed quite well in the last two years.  [more]

Recs

1

Smartmoney on Checkfree

June 09, 2007 – Comments (0)

Smartmoney has an analysis on Checkfree here:  [more]

Recs

0

Time to buy Marsh & Mac?

June 08, 2007 – Comments (0)

Fairholme (FAIRX), an excellent all-caps fund, has .69% of their portfolio in Marsh. Now, that's not very much at first glance ... but the entire fund only holds twenty four stocks. Yep, 24.  [more]

Recs

0

Artisan Intl Value managers' comments on leverage - opposite tack from M*

June 07, 2007 – Comments (1)

Previously, I posted (link just below) that some M* analysts believe that, since debt is cheaper than equity and interest payments are tax deductivle, and that companies that are strong cash generators, even if they are cyclical, may wish to consider recapitalizing and taking on some debt (not too much):  [more]

Recs

1

Comments on Capitalsource

June 06, 2007 – Comments (0)

Capitalsource (CSE) is a nice little niche REIT. It makes loans to businesses collateralized by real estate. Its lending record has been solid, and though defaults have been rising, their underwriting prowess and their collateral should keep them in good shape.   [more]

Recs

0

Berkshire Hathaway recently bought Conoco Philips

June 06, 2007 – Comments (0)

I just read that Berkshire Hathaway bought Conoco Philips. I assume they bought mid to late last year. Citizens Value, a small but pretty good SRI fund that I own personally, selected COP using a best-in-class approach (whereas most SRI funds pick BP among the oil majors).  [more]

Recs

0

What did I do with my first IRA?

June 05, 2007 – Comments (0)

My legions (or handful) of appreciative fans are no doubt wondering what I did with my first IRA. Well, here's the news.  [more]

Recs

0

"It" products

June 05, 2007 – Comments (0)

When you think of an "it" product like the iPod or the Wii or the Xbox, and you want to "play" the product in investing, the first thought is to buy the maker, like Apple.   [more]

Featured Broker Partners


Advertisement