Update May10, WFMI

Most of you know I haven't yet bought anything for a long time. I have a long watchlist, and none of them appears to be a value play for the last 3 months.

Today, one of my all time favorites - Whole Foods (WFMI) jumps out. It suddenly went down over 10%, currently about $40.50. I just quickly checked out the triggers - lower profit due to new store openings, and potential difficult in getting approval of merging with Wild Oats Market.

Both are non-critical news to me. I am in. If it continues to go down, I will take more. For those who share the same sentiments that the overall market picture is not too bright, you can pair this purchase with QID (Ultrashort QQQ), which I did.

A quick notes

Just a quick note to say hello to my regular readers, it has been a month since my last post. My wife and I went on a 10 days trip to Europe, including Berlin, Prague and Vienna, for our 6th wedding anniversary. It is good to be away for a while. We enjoyed it very much.

The market couldn't be stronger - quite opposite to my prediction. I am still holding whatever I have a month ago. I have no plan to buy any domestic equity at this level. The only thing I may consider is some Mutual Funds specializing in Japan market. Will let you know.

Jake, way to go.

Has been a while since my last post. Quite immediately after my 2 recent trades (Sell ASFI and PALM), both stock had a strong ride - up about 30% - 40% in 2 months. My bad. I had a solid analysis (see here and here), bought at a low price, and set a reasonable target price ($18 for PALM, $40 for ASFI), but changed the mind and sold way too early with little profit.

I hope you had followed my analysis but not the execution, this time. :-)

Where was I recently? I was in Michigan last week, as my son Jake attended an 3-week intensive physical therapy program there. Jake is 4 year and half old, special needs child, with a diagnosis called Dandy Walker Variant, a rare disease that affect cerebellum development. As a result, he has global delays in all areas including physical, speech and learning.

Jake is a hard working boy, and we are fortunate to have Izabela (the best therapiest I ever met) to work with Jake. During the training, Bela repeatedly pushed Jake's limit, Jake cried a lot, endured the intensive exercises, but never gave up. It all paid off, when Jake made his first independent step in the end. We are thrillllled and so proud of him.

My wife and I will be on vacation in Europe next week. As for the market, I maintain the previous judgement - cautious and have a small equity position.

A quick Portfolio Review

A quick review starts from recent trading activities - I sold the remaining 1/3 RICK at $9.75 (bought at $6.6) , sold ASFI at $34.70 (bought at $32.30), and sold ESLR at $10.00 (bought at $7.7) recently, and here is my current holdings:

Holdings:
Large Cap (>10B): COP
Small Cap (<100m): MMG, UTK, DAGM
Medium Cap (anything in between): OVTI, NTE, SCSS
Others: QID

Regarding PALM, it had an amazing ride, and I clearly missed the boat. The recent rumor that Nokia considers buying PALM drives the price too high, and way above my comfort zone. I mentioned in my previous post, that PALM is an ideal M&A target, maybe Nokia management read my analysis :-).

So, I sold quite significant porportion of the portfolio, what's next? To be honest, I don't know. My current plan is to hold cash and wait until the market direction is clear. I will take some time to screen some stock candidates this weekend. Always good to be prepared.

I still like RICK and ASFI. They remain my top candidates, and I will try to buy them back once the market weakness settles.

The Fall

I was, for the moment at 3pm yesterday, looking at the index board (our office has these electronic board hanging on the wall), and witnessed the 200 points fall in a matter of seconds. I do agree with this article that it may be caused by a system glitch. However, the Fall is real for the trading day...

No intention to do "I said/warned so...", but on the record, In my recent portfolio review post, I did say

QID: If you haven't yet felt the weakness in the market, you shall take a look again. A simple advice to follow - when you buy a stock now, consider buying QID in half dollar value, a hedge against the market weakness, if you believe the market is turning weak. (QID double short QQQ)

Our portfolio was hit hard today too, with a number of stocks declined over 5%. Fortunately, as mentioned early this year, I strictly follow 50% equity / 50% cash balanced portfolio. And my equity portfolio is 25% hedged by QID (let me know if any one needs further elaboration on this), which minimize the damage to the overall assets.

For the short term, my market overall prediction discussed in 2007 outlook post is validated. Furthermore, I think this may not be it. I am not recommending panic sale - but in my opinion, Wendesday is certainly too early to jump back in even though you may already identify some bargain opportunities.

Year of Golden Pig, RICK and Jae

2007, year of Golden Pig, which symbolizes good luck and wealth, occurs once every 60 years. I wish you a happy new year. (comes later, last Saturday was the new year eve)

First, let me review one of my recent transactions. I sold PALM (Palm) after Apple announces its iPhone entry into smartphone market, and bought ASFI (Asta Funding) as one of my picks in my Year 2007 Outlook Series.

Both had a strong ride after the transactions, are up about 15% and 12% respectively. I currently reconsider buying PALM (surprise, I usually let it go, and rarely do that), as I felt my previous analysis remains true. I also find a similar mind that presents the thinking process well here. Note: not in a rush to buy, I will wait for some pull back. Stay tuned.

I sold another 1/3 RICK at $10.98, with about 90% profit (bought at $5.8 two months ago, when Gus asked my opinion about RICK, weeks after I first recommended it at $6.5). Wish all the RICK holders enjoy this ride. I still think highly of the company, which demonstrates a very strong management team, and steady growth. (They know the industry well, and know what they are doing). If the price drops 15 - 20%, I will load up again, if it continues to go up, I am still a happy RICK shareholder :-).

Speak of RICK, I have to mention my friend Jaewoo, not because he enjoys night club (he does), or he first introduces RICK to me (he did that too), but, as a colon cancer patient, he is currently fighting for his life in the hospital. Please join me to prayer for him.

A quick portfolio overview

A quite volatile day on my portfolio.

Both NTE and MMG are down over 5%, while RICK, ASFI, DAGM and OVTI are up over 5% today. This is the beauty of diversity, despite 2 disappointments, my portoflio hold well in an otherwise pretty weak market today.

Let us take a moment to review all my stocks in my investment portfolio, and some recent transactions.

Holdings:
Large Cap (>10B): COP
Small Cap (<100m): MMG, RICK, UTK, DAGM
Medium Cap (anything in between): ASFI, OVTI, NTE, SCSS, ESLR
Others: QID

Recent Transactions:
Sold: INTC (Intel) at $21.20, PALM at $13.75
Bought: OVTI at at $12.20, ASFI at $32.20, ESLR at $7.70, MMG at $2.95.

PALM was sold cheap, and right after my sale, it had quite a ride (currently closed at $15.50). That was a mistake. Otherwise, 3 buys (except MMG) look pretty good so far, I will hold them for a while.

RICK: becomes the star, and is the largest holding in my portfolio. a long term hold.

QID: If you haven't yet felt the weakness in the market, you shall take a look again. A simple advice to follow - when you buy a stock now, consider buying QID in half dollar value, a hedge against the market weakness, if you believe the market is turning weak. (QID double short QQQ)

NTE: It is a value player, but I felt it could go lower from here. Be patient, let us pick this one at dirty cheap price.

MMG: I am more interested in this speclative player now. I will add more if it dares to drop close to $2.

Sold PALM, Bought ASFI

I just recommended PALM a few weeks ago, and my regular blog readers know that I usually will buy in and stay put for at least a few months. So why I am selling now?

It is because of Apple. If you haven't watched Steve Jobs's keynotes 2007 about iPhone, go ahead and watch it. I noticed there are quite a handful of doubts on iPhone out there, I don't. iPhone has all the features that most users want and other phone doesn't provide, and I couldn't convince myself that iPhone won't prevail. With the iPhone release in June, I see some uncertainty in PALM, even though its price is very low. Please note I am not recommending Apple, it is without doubt a great company, but the stock price is high as well.

I sold PALM with a 3% loss. As I recommded last time, ASFI is moving up slowly, and I bought ASFI at $32.20 today.

I didn't update the site often this month. Tell you the truth, I just don't see many stocks that excite me now, which is also influenced by my not-so-positive view on the market as a whole.

Outlook 2007 - Part III - Debt Collection (ASFI)

Today, I will discuss my second investment idea for 2007 - Financial Industry / Debt Sector.

US consumers are generally under financial presure, and this plays a defensive hand if my overall economy prediction above turns to be true in 2007.

The backdrop of this idea is US, the country as a whole, as well as its citizens will be facing unprecedented financial pressure. You can find some details from my early post.

Asta Funding (ASFI), a debt collection company with about 1/2 Billion market cap. In essence, its business is to buy consumer bad debt (including credit card, phone bill, utility bill, etc) pennies for a dollar, and via a series of efforts to get money back from the consumers.

Investment Theory:

Highlights
The company experienced steady/organic growth. Revenue went up from US$ 500M in 2004 to US$ 1B in 2006, while maintaing a 30% net profit margin. It maintained a moderate debt (about 100M), which is rarely seen is this capital intensive sector.

Peer Comparison
Superb management efficiency. With a total of 150 employees, a fraction of its peers at ECPG (>900), PRAA (1100) and FCFC (>200), its net income at 45M$ is the highest among the 4, while with the lowest P/E ratio at 10.

Current Price
Closed at $31.7, ASFI is at its 52week low ($28 - 42), with no concrete negative news. I evaluate this stock at $38 - $40, 20% higher than the current price. This stock has a buy now recommendation in this week.

P.S. Since my last post, ConocoPhilips (COP) drops from $74 to $63 with no other obvious reasons than oil price fluctuation. I wasn't fortunate enough to sell at high, and realize the profit. (my cost is $59). However I think here is the good price point to pick up some, if you haven't yet.

Investment Outlook 2007 - Part II - Energy (APA, CHK...)

Let us review a part of my first investment idea for 2007 - energy:

Invest Energy (e.g. Crude Oil), and Precious Metal Sector when price fluctuates.

Before we dig into individual stocks, let's look at the following numbers to get a better understanding about the oil/gas industry. (numbers are quoted from BP Statistic Review of World Energy, a must read if you're interested in energy industry)

World Proven Oil reserve is at 1,200 billion barrels, and the world is consuming around 30 billion barrels annually in recent years. World Proven Gas reserve is at 6,400 Tcf (Trillion Cubic feet), and the world is consuming around 97 Tcf annually. Assuming the world maintains current consumption rate, the current proven oil / gas reserve will be depleted in 40 and 65 years!

Furthermore, oil and Gas is irreversible energy, and at the current energy price, there is no economically viable approach to provide alternative energy. Yes, the number may be conservative (some countries may not report accurate numbers); yes, there are twice amount of unproven oil reserve reported; yes, with future advanced technology, we will find more reserves; BUT you got the point, oil/gas is limited resource and depleting fast.

So, here comes a number of ratios when I evaluate the oil/gas stocks. (I give No.3 a heavy weight as I discussed above)

1. Low Debt Ratio. (i always like financially conservative company, though this is a capital intensive industry).

2. Low Production Costs (lower production costs provide a competitive edge especially when the energy price drops suddenly)

3. Low Enterprise Value / Adjusted Reserve. (in simple term, this ratio indicates, disregard everything else, how much do you pay per barrel for the reserve the company has)

4. Good Hedge Strategy (pay a price to get a contrct with a pre-determined sales price)

I bought ConocoPhilips (COP) 2 months ago, with the recent 20% up, it will soon become a sell candidate (will let you know when i decide to sell). Need a replacement, I use the above 4 criteria to search for oil/gas mid-cap companies, and have the following candidates:

APA, CHK, ECA, EOG and CNQ.

Among them, Apache (APA) and Chesapeake Energy (CHK) are my top candidates. They are in my watch list now, and not in a rush to buy. Energy price could be volatile. Take advantage when the price drops.

Investment Outlook 2007 - Part I

I am mapping out my 2007 investment framework. A long shot, but planning before execution is vital to success, in my opinion.

To begin with, this is not Dow/S&P index prediction for 2007. There are a handful of them, BusinessWeek for example, if you're interested. I have no clue where those indexes will settle in a year. And the truth is, the overall market trend is determined by many dynamic factors that I doubt the value of those fearless forecasts.

So what I am writing here are more specfic and actionable ideas on paticular sectors and some guidelines when choosing stocks.

First of all, let me brief my view on the market. I am overall conservative based on my judgement that the prospect of US economy growth is limited. Economy growth usually comes from either Government or/and Consumer. In our case, with the huge and ever-growing current account deficit, and massive tax cut, US Gov has little ammunition to stimulate the economy. In the meantime, US consumers is infamous for spending more than saving (average 2006 US household saving is about -1%), with the housing market slump in 2006, higher energy and healthcare cost, consumer-driven economy growth is questionable.

Having said that, market still has plenty of opportunities. Here is a list of summarized points about my investment framework in 2007.

1. Invest Energy (e.g. Crude Oil), and Precious Metal Sector when price fluctuates. Price will continue to be volatile, but will only go up in long term as the imbalance between ever-growing demands and irreversible supply.

2. Invest in Financial Industry / Debt Collection Sector. US consumers are generally under financial presure, and this plays a defensive hand if my overall economy prediction above turns to be true in 2007.

3. Avoid Retail, and short "Apparel Store" sector that targets middle class customers. Similar reasoning as point 2.

4. For similar stocks, Prefer ADR(ownership of shares in a non-US company), or international companies listed in US to US companies. This is based on the not-so-positive view on both US$ and US market.

5. Maintain some cash position. Cash is king, and don't be afraid of holding it. With fluctation, I think the market will present opporutnities during 2007. Can only catch it if you have cash in hand.

In the next a few posts, I will elaborate each strategy in details, and layout actionable ideas I have. When I do this research, I came across a few independent-thinking articles on the similar subjects that provide me good insight. List below for your reading.

Eric Kallen's view on 2007

Bill Cara on Global Markets

Deloitte Global Economic Outlook 2007

Also, I am interested to know what you think of the market in 2007. please share your investment ideas. I will include them in my posts to supplement mine.

RICK, New Year 2007

To a few of you who recently concerned about RICK, I hope you had held tight, and enjoyed +20% ride in the last week. Recommending at $5.8 in my last post, I also bought an extra 1/2 unit, that is 20% profit, not bad for the last week of 2006.

RICK posted a good fiscal 2006 report, with a promising future outlook. In short, this is a company with P/E less than 20, and with exponential growth ahead. There maybe a number of ways to make profit on this stock, I will try to hold RICK for long term - I feel RICK has the potential to become a $100 million market cap stock in a few years - that's 3 times today's market cap!

NYSE/Nasdaq will be closed next Tuesday to mark President Gerald Ford's funeral. Do you know quite a few prominent politicans started their career in Ford's adminstration? Including Alan Greenspan, the greatest Fed Reserve Chairman in 20th century, was Chairman of CEA under Ford. That was Greenspan's first gov post.

So this is a long 4-day weekend to me. In the next 3 days, I will think about my investment strategy for 2007. I am excited about this early planning, and couldn't wait to do so. I will certainly share my thoughts with you. So stay tune.

Last but not the least, to all my blog readers, Our family wishes you a happy new year. Let us have a prospectus 2007, at least a profitable one!

Portfolio Review and a Stock Idea - PNRA

It has been 2 weeks since I wrote the last post. My family spent last weekend in Boston, visited our friends there, a lot of fun and great weather. I had a stock idea sparked from the trip, I will leave it to the end:-)

A quick trading activities review for the last 2 weeks - I sold half NTE, sold remaining 1/3 IGLD, and bought PALM and RICK (Yes, RICK again), and here is my latest portfolio snapshot:

Large Cap: INTC, COP;
Mid Cap: SCSS, NTE, OVTI, PALM;
Small Cap: UTK, RICK, MMG, DGAM;

While I continue to be bearish on the overall market, I feel comfortable with my current portfolio composition, and asset allocation (50% eqity, 50% cash). I continue to recommend SCSS ($17.5) and RICK ($5.8). If you like their business, it is a good price to buy now. My average cost is around $19.5 for SCSS , and $6.2 for RICK. Buy now, you get better price than I am!

I plan to sell OVTI and the remaining NTE soon, if the price is right. I feel if the market turns the trend, they are most vulnerable.

I am also thinking of my investment strategy for 2007 - current take is Energy, Commodity and Non-US market stocks (as a hedge against US$). I will do some research, and write it up later.

Here is the stock pick idea from the Boston trip - PNRA (Panera Bread).

On the way from New York to Boston (4 hour driving), we had lunch at Panera Bread, i was pleasantly surprised. They have bakery and light lunch (soup, sandwich, etc) - nothing fancy, but quality healthy food with good taste, reasonable price ($6-7 per person), and excellent customer services. They beat any other fast food chains, hands down. I didn't know it is a public company at that time, I checked their financials after the Boston trip, currently at $55, fairly priced. Not in a hurry, add it to the watch list, consider when the price is around $50. I will let you know when I buy.