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.