PLT - Plantronics

It was a tough week, Nasdaq and Dow went down 1.8% and 2% respectively, but if you followed my advice - AET, it went up 1.6% (opened on Monday at $39.6, closed on Friday at $40.25), and beats index by 3.5% in a week. Isn't it great?

Do you see more and more people use wireless headset on the street, in the office or at home? It is not only cool, but also a productivity tool (free your both hands), and healthy tool (reduce the cellar phone radiation). If you haven't got one, go get one, and very likely, you will get Plantronics - PLT.

Plantronics specializes in various types of headset system, for bluetooth mobile, cordless phone, etc. It also manufactures speciality communication equipment for hearing-impaired people. It has a brilliant marketing team (remember the astronaut in the commerical?), and design team (attractive products).

An average 30% revenue and 45% incoming growth in the last 2 years, however its stock stays flat at around $38 during the same time period, until early May this year, it plunges from $38 to $22 in 2 weeks. Closed at $22.05 on last Friday, its P/E = 13.2, PEG=0/7, P/B = 2.3. Comparingit with LOGI, its main competitor, you will see what a value stock it is.

So why the drop? In the last quarter, though its revenue continues to grow fast, its profit margin drops significantly. No wonder, check out amazon.com, its product provides deep discount (40% - 50%, it is a competitive business). But the other reason (which is ignored) is Plantronics just purchased Altec Lansing last year, and still in the process of merging operation. By the way, this $160+ million deal makes good sense to me. Altec Lansing makes decent audio equipment, and is a profitable business ($15million profit last year), and complements well with existing business.

The other catch is that its new product direction is to combine both its communication and entertaining business - one handset for both phone and MP3. Isn't that great? one headset switching from music to phone calls seamlessly. The best part is the company is priced as if it has no tomorrow. Very rarely you will find a great product and brand with a cheap stock price, and I think this is one.

AET - Aetna

Aetna, a health care industry company, operates in 3 segments.

1. Health Care segment consists of health and dental plan.
2. Group insurance segment offers life, disability, and long term care insurance products.
3. Large case pension segment manages a variety of retirement products.

Closed at $39.61 on 5/12, AET has a market cap of 22.5B. With P/E = 14, P/B= 2.15, It is competitively valued among healthcare plan sector (comparison made among AET, UNH, WLP). Since 2003, the company had a proven growth record (an average 13% revenue growth and 30% income growth).

AET also has an aggressive share repurchase program, purchased back over $1.6B shares in 2005, and had over 1B authorized repurchase plan for 2006. It is worth noting that the company purchased back over $150M in 1Q2006 at an average price around $53. With over an equivalent of $15B cash in reserve, we shall expect Aetna buy back stocks more, which will further make its various ratios stand out (i.e. P/E). (note: don't get too excited about its cash postion, this company also has a significant long-term liability, I couldn't figure out what it is for, if you happen to know, please share with me)

The company delivered a better-than-expected 1Q2006 result, while the stock price plunges over 20% from $46 to $37. What went wrong? According to some after-sought analysis, the plunge is contributed to the fears that its underwriting margin has the potential collapse risk based on the discussion during the conference call.

What is underwriting margin? – an oversimplified explanation is that medical cost rises faster than pricing. O.K. I have no expertise to figure out whether the fear is well founded or not, however, the subject itself is very complicated that I suspect how this issue could be possibly clarified and well understood in a 1-hour conference call. In my opinion, it is a classical example of speculative overreaction.

As if the above reasoning is not strong enough, 2 AET officers purchased over $1M AET shares from May2 - May9 price ranged from $37 to $40.

Why I mention this stock today? Last week is a tough week, everything going down. I have no idea which direction the market is heading to, however, I think it is not a bad idea to play some defensive hand – and AET is certainly one of the good choices.

My 6-month price target is $46, over 15% premium to current price. AET will be added into my leopard strategy portfolio.

Starter kit for new investor

One of my friends showed me a website that claims to "discover micro-cap stocks and help you make over 50% profit in short term", and ask me whether it is a good approach to start learning and buying individual stocks.

While I don't know what is the best approach to learn equity investment, I do know the above approach doesn't work.

Here are my thoughts for new investor who wants to learn equity investment.

Financial Skills
Know how to read 3 major finance statements(Income, Balance and Cash Flow) and annual reports - it is much more important than analyst's report. One will find most of the term definitions in Investopedia, a good online financial dictionary.


Learn from great investors
Best way to formulate your own strategy is to understand other successful investor's strategy first. I learnt a lot from other successful investors and highly recommend following 3 books:

a. The Intelligent Investor by Ben Graham. Graham is often referred as "Father of Value Investing", and credited by Warren Buffet as the second most influential person in his life after his father.

b. One up on wall street by Peter Lynch. Lynch was a successful fund manager in charge of Fidelity Magellan Fund from 1977 to 1990, with an average return of 29% a year. The book is written for new investors - easy to read and key points are laid out very clearly.

c. Common stock and uncommon profits by Philip Fisher. A succesful advisor and professor - he provides in-depth analysis on how to measure and discover a company's value in the Book.


Get updated
Get updated of the latest financial news, industry trends. CNBC and Bloomberg online TV provides all day long program, and some online financial portals provides most updated information. Just name a few:
http://finance.yahoo.com/
http://www.marketwatch.com/