MSFT - Microsoft

Once a while, I make an exception to discuss an elephant stock in my leopard portfolio.

I am not a big fan of MSFT products. Browser I use FireFox, Search I use google, investment research I use Yahoo. MSFT don't have user-friendly or innovative products but they are diligent follower with great judgement - though never invented boat, they remarkably don't miss the boat . Here are the examples:

1. GUI - Apple brought GUI to PC first(Lisa), MSFT copied it to Windows1.0/2.0, and later evolved to a flagship product line.

2. Server - Late 80's, Unix was growing fast, its concept in networking, multi-threading, was thought to be the future of the industry. MSFT rolled out low-priced Windows NT 3.5, and Unix brotherhoods were defeated (Sun, IBM, NCR, DEC, etc).

3. Browser - Revolutionary product - Netscape (originated from Mosaic) was defeated by a pre-bundled Internet Explorer.

This list could go on, but my point is - MSFT is an experienced fighter and magic survivor. They don't necessarily have the best product, but very competitive.

Get back to the fundamental, its income are contributed by 3 product lines - Client (i.e. windows XP), Server (i.e.Win/SQL/Exchange Server), and Office. Income growth rate of both Client and office are at 3-5%, and server at 10-15%. Not surprisingly, almost all other products lose money - including Business solutions, MSN, Mobile, Entertainment (X360).

Given its Vista and Office 12 release schedule in next 12 months, MSFT's income from 3 major product lines are quite safe with potential higher growth. In the meantime, many money losing business are narrowing the gap. Better yet, with 11% decline on Friday, and closed at $24.15, its P/E < 20, EV/EBITDA < 12.

Risk:
1. Could google's web-based office application, Linux etc threat Microsoft - and ultimately brings damage to its bottom line? Certainly possible, but low-probability risk in 2-3 year time frame.

2. Another concern is its 60,000 employees - a large troop and recruiting more. On plus side, (just my observation): their recruiting process works fine, at least hired a few friends of mine - very talented individuals in the past few years - (if you're reading it, yes, I am referring to everyone of you!).

In my opinion, this stock, right now, is ideal for conservative investors who look for 8% - 12% annual return with less volatility in the next 18 - 24 months. Though I won't add into my blog portfolio, as it doesn't fit leopard criteria.

Stock Review - April 2006

Here is the performance review of my five stock picks during
March 2006.

Pick date Price at pick Price (Apr28) % change MVK 4-Mar 49.51 54.42 9.92% ISSC 5-Mar 14.09 15.82 12.28% NTE 11-Mar 21.35 22.58 7.26% SIMG 24-Mar 10.42 10.20 -2.11% PSUN 25-Mar 22.15 23.30 5.19% 6.84%
For the same time period, 4 major index / ETF's performances are: 1-Mar Current % change DJI .DJI 11021 11,345.00 2.94% Nasdaq100 QQQQ 41.1 41.85 1.82% S&P500 SPY 128.23 131.47 2.53% Russell2000 IWM 73.9 76.20 3.11% Note: Second time in a row, ISSC has a disappointing quarterly results, however made it through via a smooth conference call. Though all my picks are meant to be kept in the portfolio for at least 6 months (as I am not an active trader), caution shall be exercised to this stock at this point. Maintain bullish on MVK, and think it is another buying opportunity at this point, after a 10% drop in the last week. Both NTE and PSUN are still very attractively priced, and both have more chances/room to go up than down. SIMG presents some uncertainty in short term. Also, my April's pick ANF was picked at $58.43, and closed on Apr28 at $60.73, has 3.9% return so far.

ANF - Abercrombie & Fitch

Abercromibie & Fitch, a speciality retailer that sells causal apparel, has a total of 4 brands, and each target a defined customer base varied by age (14 to 35), and location (west to east coast).

It successfully rolled out 2 new brands (Hollister in 2000, Ruchl in 2004), and maintains an average 20% revenue growth in the last 6 years. In conjuction with the high growth, it maintains an operating margin at around 19%. It has over 450million cash, with neglectable debt. Furthermore, in 2005, the company spent $103 million to repurchase the stock, and spent $52 million to pay the dividend.

A&F has one of hottest casual apprael brands in US. Its 4 brands - A&F, abercrombie, Hollister and Ruchl, each successfully targets a different age and culture(between east and west coast) group. Its ROE, operating margin, 5-year growth rate are all very competitive (ranked above average) within Apparel sector, however, as closed at 58.43 on 4/21, its P/E is at 16, lower than average with the sector. (comparsion made among AEOS, GPS, LTD, CHS).

The stock is currently priced as if there is no future earning growth. I don't see the rationale behind, especially to such a stock that had proven growth history, and still maintains a strong collection of brand portfolios. I will include this stock in my portfolio, and set 6-month target price at $70, 20% premium to current price.

You may also find this article that discussed same stock helpful.

COBR - Can Nav One 4500 Help?

Cobra - a manufacturer of navigation/communication product. It first caught my eyes by its stunning financial figures: P/E=6, P/B= 0.97. Is it super-cheap?

Numbers
A deep look into its finanical statement, its P/E is distorted by a one-time annuity income in 2005, which contributed 10 million out of 13.5million income. After adjustment, its real P/E is around 25. Its low P/B rate is also justified by the company's low EBT margin around 1-2%.

Business
So, is it a dead stock? take a further look into its business - it has the leading market share in the following business:

1. Radar Detector (32 million annual revenue, 50% market share)
2. 2-way radio (34 million annual revenue, 20% market share)
3. Citizen Band Radio (38 million annual renevue, 60% market share)
   

It just entered into the following new markets - GPS/Mobile navigation, and Marine products.

Mobile navigation has great growth potential - estimated from 400m - 1.5b total market share in the coming 2-3 years. The market is dominated by Garmin, Magellan, and Tom-tom. Cobra enters this market with NavOne 4500 - it certainly won't unseat any of its competitors, but worth a shot. check its positive review from CNET.

Risk and Opportunity
Does Nav 4500 have a chance to grab 5% - 10% market share? If it does, that may change the bottomline. It is a speculation that I don't have an answer, however if one chooses to bet, it is backed up by its 3 stable business lines, and lofty book value as if the company has no future.

I don't plan to own this stock in my portfolio right now, but will keep a close eye on it.

Get most rewards from your Credit Card

It is off topic, but a part of financial planning.

I have a Citi Dividend Platinum Select Credit Card, it offers generous cash back (5% on drug store, grocery store and gas station, and 1% everything else). Great card, no annual fees and no complicated tiered structure. Only a little problem now, as its reward is capped at $300 each year - that's the reason I did a quick research today, and find a few other good deals and share with all.

1. Chase Cash Reward Visa Card
- 5% cash rebate on gas, grocery store, and drug store, 1% everything else.
- No annual fee.
- also has $300 cash rebate cap.
(this is almost same deal as Citi Dividend).

2. American Express Blue Cash
- For first $6500 spending, 1% return on everyday purchase, 0.5% on everything else.
- For $6500 - $50000 spending, 5% return on everyday purchase, 1.5% on everything else.

*. Everyday purchse includes: drugstore, supermarket, gas station.

3. If you travel/eat out a lot, American Express Costco is a good choice, it offers 3% cash back for eating out, 2% for travelling (hotel, ticket, car rental), and 1% for others. You need to pay $45 Costco annual fee to get the card for free. Online application via AE website doesn't offer the same deal, I got the form via Costco membership.

3 Security Stocks pick from Dr. Ge

COGT, WBSN and SFNT - 3 security stocks pick from Dr. Ge, and here is the original blog. I like security industry, and I like distressed stocks, a combination of both - It certainly is worth a research. I took a quick look, and posted my comment in Dr. Ge's blog. Interested in 2 of them, I decided to post my thoughts here too, for further follow-ups.

Finance
COGT: Competitive Return on Eqity/Asset rate, and decent profit margin. 300m cash position, no debt. Observe steady revenue growth in the last 3 years. Some concern: about issuing sizeable stocks in the recent 2 years to support heavy capital investments.

WBSN: demonstrated very steady revenue growth in the last 6 years, and kept high profitability and efficiency. High P/E, health cash flow and purchased back stocks in recent 2 years.

SFNT: This company has virtually no profitability, and no organic revenue growth in the last decade. (noted its recent years revenue growth is in conjuction with M&A activities).


Business
COGT: I don't know much about AFIS technology. Believe this business has potential in long run, but doesn't think it has very high entry barrier (maybe it has). How does it face the competition from much larger vendors? - Motorola, NEC, etc. Currently over 50% revenue comes from top 2 customers - DHS and CNE, that could make the stock volatile and speculative.

WBSN: Websense has tough skin, and is a survivor in this industry. It had a wide range of customer bases and product lines. Much less risky.


Among those 3, I think Websense is a safe pick, Cogent could be very rewarding, but bearing some risks in the next 1-2 years (who knows what President Bush will do next?) and stay away from SafeNet.

Stock Review - March 2006

Here is the performance review of my 5-stock picks during March 2006. I will try to review the group performance on a monthly basis.

	Pick date	Price at pick	Price (Mar31)	% change
MVK	4-Mar	49.51	52.99	7.03%
ISSC	5-Mar	14.09	13	-7.74%
NTE	11-Mar	21.35	22.91	8.85%	*
SIMG	24-Mar	10.42	10.31	-1.06%
PSUN	25-Mar	22.15	22.16	0.05%
			Overall:	1.43%

* 8.85% includes the 0.32 dividends that was recorded on March31.

Note:
I continue to be bullish on MVK, and keep my original price target at $66 in 12 month. NTE, with a 8% hefty price lift, overreaches my short-term expectation, and I will keep an cautious eye on it for now. SIMG and PSUN are my latest pick in a week, and yet to be monitored. ISSC's lack of business deal/backlog increasingly concerns me, which re-emphasize a key point that sometimes I overlooked - a perfect finanical picture could only go that far, one have to have a great business to ring the bell. Closely monitor.