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Tuesday, September 25, 2007

One Equals Two

Perter Lynch, one of the greatest investors of our time and manager of the famous Magellan mutual fund, identified several types of homerun stocks. One of the type he likes is when a company owns majority stake in another fast growing company yet that company itself hasn't seen too much growth in stock price. Here is one that we and some other people discovered recently.

VMware, Inc. (VMW) is probably one of the most successful IPO recently. The virtual server software maker which was priced at $29 at IPO saw its stock jumped 100% to almost $58 on first day and continued to climb and is now trading at $83 per share. Waiting until the stock to fall? Well you may have to wait for quite a while. And is it still a good time to invest? Well hard to say especially with the P/E ratio of 220.69.

No it's not VMware that you want to invest at this point. EMC(EMC) the parent company of VMware owns 90% of stake of VMware with a more manageable P/E of 34.15. Speaking of market cap EMC at this point has $43.38 billion while VMware is not that far behind with market cap of $31.82 billion. And although stock price of EMC has grown almost 100% from $12 last year to $20 today, the potential of its business plus ownership in VMware makes it a still very attractive buy.

Monday, September 17, 2007

Organic Eating

Still looking for huge chunk of meat or beautiful fruit without any bug bite? Ever wondering how there can be endless meat and so many nice looking fruit while the prices are so low?

Back in the old days when famers are without the modern agriculture techniques, the production of crops depend on weather and luck. When bugs or virus invade farms or ranches, a year worth of effort may be wiped out in matter of days. Today with pesticides, artificial fertilizers and hormones, not only pest attacks are limited the growth time of farm produce or livestock becomes shorter and shorter. Moreover the size of the produces become larger as well. All these seem perfect for the farmers and consumers. However when you think of it more carefully what you are eating is not just food but also possible left-over harmful chemicals.

So now it's back to the old days again. And this time people gives it a hip name - organic food. Basically organic foods are those that were grown without pesticides, artificial fertilizer, human waste or growth hormones. The food may not be as big or as good looking yet it's more healthy. Which is why now-a-days in the supermarket you have the choice of milk or organic milk, broccoli or organic broccoli and chicken or free-range chicken.

With more and more people spending more money for less poisoness organic food, this may be a perfect time also to look at these "organic" company stocks:
  • The Hain Celestial Group, Inc. (HAIN): the company owns several brands of organic products ranging from grocery, beverage and even snacks. The stock has gained 100% from $15 in second quarter of 2004 to $29.77 today.
  • Whole Foods Market Inc. (WFMI): the grocery chain sells organic grocery and even prepared food. Since reaching the peak in January 2006 the stock has been on the slide and is now back to the $42.65, the same price in 2004.
  • General Mills (GIS): the company with $19 billion in market cap makes organic products such as soupts, granola bars and cereals. The stock was a safe play as it has been rising steadily for the past 20 years and is now traind at $57.8 or P/E of 18.19.
  • Dean Foods Co. (DF): the company owns several organic dairy brand such as Horizon Organic, Rachel's Organic and The Organic Cow. The stock is now trading at 52 weeks low of $25.61 with P/E ratio of 14.92 only.

Monday, September 10, 2007

Facing Tight Budget

No I'm not talking about the Bush Administration because there are probably tons of pro working on the national budget issue. And no this post is not about Fed Chief Bernanke since I believe Mr. Bernanke himself is smart enough to handle the challenging economy.

I'm talking about you and me - fellow American Citizens. First is the skyrocketting gasoline price now at $3 per gallon. Then there is the ballooning home price which drives up the home ownership cost. This follows with expieration of teaser rate of those adjustable mortgage which cut into a big portion of the monthly family budget. Combine with the increasing cost of many goods due to the high oil price and we are facing with such a difficult management that even Mr. Bush and Mr. Bernanke would have headache, not to mention the slow growing salary.

So what does all these have to do with this blog? The so called Smart Stock Investment. Aren't we suppose to mention some stock symbols? Well, here we go. So speaking of tight budget on families what's the first store that comes to your mind? Macys? (you got to be kidding) Sears? or even Wal-Mart? No the store I want to talk about here is selling even cheaper stuff.

So ever heard of the Dollar Store? or 99c Only Store? If you have never been to any of these stores basically what these stores offer are everything for a dollar. Yes, everything from milk, snacks, cleaners, knife to book, photo frame and cloths. Basically you are looking at a mini Wal-Mart, except everything only cost a dollar or less.

When you see the stock price of these company it is not at a huge discount though. And when the economy tank during from 2001 after the dot bomb, stock such as Family Dollar Store (FDO) actually went up 100% from $20 in 2001 to $40 in 2004 and then it started to go south again, just as the economy is hot again.

So now that the family budget is tight again, look for the following stocks to do well:
  • Family Dollar Store (FDO): the company has 6,400 stores in 44 states and the stock has just rose back from 52 weeks low of $24.23 in August and is now trading at $28.54.
  • Dollar Tree Stores Inc. (DLTR): the company operates 3,334 stores in 48 states. Although the stock is trading near its 52 weeks high at $41.82 per share, its aggressive stock buyback shows the management team is bullish about the outlook of the discount shop.
  • 99c Only Store(NDN): the company has most of its stores in California and are significantly smaller than the other two with 251 stores in 4 states. Although the stock price is less than the other two at $10.49, its P/E ratio is three times more than the other two so is considered more expensive.

Monday, September 3, 2007

Las Vegas in Asia

During the long weekend I went to the entertainment capital of the world - Las Vegas. This metropolis stood in the middle of no where in the hot desert yet attracts millions of visitors every year. Visitors around the world come not only to gamble but also to enjoy fine dinings, luxury hotels and world-class shows.

At the other end of Pacific Ocean, a tiny land of 11 square miles or less than one tenth of the size of Las Vegas (132 square miles), Macau is in the path to become the entertainment capital or the Las Vegas in Asia and actually has surpassed Vegas last year as the world's largest gambling center. Soon Cotai Strip of Macau could be as popular as the Las Vegas strip as Las Vegas Sands Corporation(LVS) opens the luxurious Venetian Macau Resort at the end of August.

Other major players in the Cotai Strip includes STDM owned by Hong Kong billionair Stanley Ho as well as other Las Vegas entertainment giant MGM Mirage (MGM), and Wynn Resort (WYNN). Another Hong Kong based company which plans to build casinos in Macau is Melco PBL Entertainment LTd. (MPEL) .

So in short to ride on the Macau Gambling wave, you want to invest in the following stocks: