Finance Puzzle

Blog has moved

2008-10-25T18:24:00.001-05:00

I have moved my blog, please visit my blog at

www.financepuzzle.com

NVDA - Post 1 of a Financial Research Project

2008-05-07T19:20:00.014-05:00

So the current leader of the financial bloggers stock picking contest is Smarty with 100% allocation to Nvidia Corp. (NVDA). In the first two (2) day of this competition, the stock was up more than 9% from the close of April 2008. With that kind of action, I decided to write a financial analysis review of the company.

To start the first post, I would like to provide an overview to NVDA using some of the tools I have shared in my posts:

Company Overview, taken from latest 10-k filings:
NVIDIA Corporation is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit, or the GPU. Our products are designed to generate realistic, interactive graphics on consumer and professional computing devices. We serve the entertainment and consumer market with our GeForce products, the professional design and visualization market with our Quadro products, and the high-performance computing market with our Tesla products. We have four major product-line operating segments: the GPU Business, the professional solutions business, or PSB, the media and communications processor, or MCP, business, and the consumer products business, or CPB. We were incorporated in California in April 1993 and reincorporated in Delaware in April 1998. Our headquarter facilities are in Santa Clara, California.

Stock Performance:
Despite rising+ 9% in the first few days of May for the competition, NVDA is down-40% from the start of the year. When looking at the 5-year performance, any long-term shareholder would be happy with a total return of 436%, annualizing at 32%. Another positive stock performance metric for NVDA is achieving this growth when the S&P 500 returned an annualized rate of 3.5%, creating a 9.3x over the broad market index.

5-year Income Statement Trends:

Looking at this chart, it doesn’t get any better than this…All of the metrics are increasing with a 5-year compounded annual growth rate of 22.4% on sales and 80.9% on net income.

Value Scorecard:

Aside from the sales and net income metrics, NVDA isn’t as exciting on the rest of the metrics for my value scorecard. By looking at the growth metrics above, this stock falls into the growth category. The price to book seems rich at 5.9x but with no debt and a FCF yield of 7.4%, not that bad…. I will compare these metrics to the competitor set to provide a benchmark.

This completes the first posting of the NVDA financial research project. Please subscribe or stay tuned for these remaining posts to complete this analysis.

Post 2: Detailed Income Statement Review

Post 3: Detailed Balance Sheet Review

Post 4: Cash Flow Statement Review

Post 5: Ratios and Competitor analysis

Post 6: Insiders & Major Holders review

Post 7: Valuation: A Discounted Cash Flow Approach

If you would like me to add any additional sections, please feel free to email me or comment below.

Author Disclosure: At the time of this posting, the author does not own/short any NVDA stock.

Sources: Company website, Edgar database, Yahoo Finance, Morningstar.com

Great Deal Oppty - Local Yard Sales

2008-05-03T13:00:00.000-05:00

"One person's trash is another person's treasure"

As spring and the warmer weather approaches the Northeast region of the United States, it brings a great opportunity to find great deals in the local yard sales. I am not sure about you, but every weekend I come across homemade signs advertising the next yard sale in the neighborhood. When I see these signs, I see $$$

I always try to take the time and see what is being offered in each local yard sale. Not only are these venues to practice my negotiation skills but the sales also serve as profit potential visits. Just recently I came across a yard sale towards the end of the afternoon ~3pm....As I approached this multi-family event, I can instantly read their expressions that they were tired of sitting around trying to sell their "garbage". I was able to grab a few items that I deemed valuable for a unbeatable price....."Free"

That is right, FREE....The families involved were at a desperation point in their yard sale experience by trying to just get rid of their stuff. Within 3 hours of obtaining these free goods, I had them posted on EBAY. My auctions have just ended with a profit of $45 for about 2 total hours of work...I will deposit this into my savings account.

If you are interested in finding great deals at yard sales, here are my major tips:

1. Before you visit a yard sale, know your market....I would strongly suggest that you capture data on a few focus areas (i.e. sporting goods, books, clothing, etc)...Visit EBAY and see what items have a great track records of selling and for approximately how much.

2. Time your entry appropriately....If you are looking to capture the few quality items that sometimes appear at yard sales, plan to go early. If you are looking to try and pick up items at a deep discount, wait until the later afternoon to visit.

3. Go in with a negotiation strategy....Don't get caught up in the moment of trying to strike a deal. Know your limits (a.k.a. "walk away price") for items and stick to it. There is nothing more frustrating that buying some items from a yard sale and taking a loss on the transaction.

4. Shipping costs are not a profit oppty....Some ebay sellers try and capture additional profit by increasing the shipping costs needed to send the item. I am not a fan of this at all and would recommend that you try and estimate as close as possible for these expenses. Savvy buyers look into these costs and if they seem unusually high for the item you are selling, it deters them from bidding.

5. Track your progress and document any lessons learned....This step is critical if you want to try and make these visits as profitable as possible in the future. Learn from your mistakes and adjust your strategy as you enter each transaction.

If you have any other tips for successful yard sale transactions, please feel free to comment.

May Contest Kickoff

2008-05-01T09:03:00.001-05:00

So the contest has officially been kicked off. We have a total of 6 contestants this month with selections ranging across multiple financial instruments. I wish all of the financial bloggers luck and will update the score sheet periodically.

If you are an interested blogger that would like to participate in next month’s contest, please email me and I will include you on the list. I will identify the prize for the next contest sometime in the middle of the month.

Financial Bloggers Stock picking Contest

2008-04-27T09:36:00.011-05:00

Attention all Financial Bloggers:

I enjoy reading all of the personal finance and investing blogs on the web and would like to create a mechanism to capture the best investing ideas that are being published on a daily basis. I would like to invite you to a stock picking/investing contest. This is a simple contest in which all interested bloggers will compete against each other for the highest percentage return on a monthly basis. Along with the bragging rights, the winner will receive a prize for their superior results.

Rules:
- You have a mock portfolio of $10,000 at the start of the month.
- Provide me an email of how you would like to invest those funds for the month
- You will not be able to change your initial investment allocation throughout the month.
- To kick this off, I would like to maintain this to US stocks/bonds/ETF's/mutual finds/options
- This will be a transaction free contest
- The blogger with the highest percentage gain at the close of the month is deemed the winner.
- Each month will start with a new $10,000 portfolio, no gains/losses will carryover to the next month
- The winner will receive a prize to be identified at the start of the month
- If you are interested in playing, I would just request a link to FinancePuzzle.com

I know this is late in the month, but I would like to start this contest on 5.1.2008. If you are interested, please submit your model portfolio to me by the end of day 4.30.2008. I will create each portfolio as of closing prices on April 30th and will post all submissions on my site.

The prize for this month will be a free copy of "The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns" by John Bogle.

Please feel free to email me if you have any questions....

Let's see who is the best investor across our personal finance / investing blogging community.

Updated: Here is the link to tracking the portfolios for the stock picking contest. Also can be found under my quick links section. Stock Picking Contest

Did I mention I hate being “Nickel & Dimed”

2008-04-26T16:07:00.006-05:00

In this electronic age, it is easy to be “Nicked & Dimed” by all of the institutions that you conduct business with; credit card companies, banks and other financial institutions, etc…With so many companies having access to your account information, I suggest you get in the habit of reviewing in detail one account per month. This due diligence will ensure that you are not letting valuable dollars negatively impact your net worth without you knowing about it.

My recent experience is almost embarrassing to mention, but I will do this in hopes of saving the same mistake for my readers. The culprit is the E-Z Pass company. Here is a brief description from their website about the services the company provides:

“E-ZPass is a remarkable toll collection technology that makes traveling more convenient, helps you save money through discount plans offered by many toll facilities, and helps reduce traffic congestion for everyone.

Conventional toll collection methods require you to deposit coins, tickets, and tokens at toll plazas. This challenges highway capacity because the number of vehicles that can be processed at toll plazas is limited.

With E-ZPass’ electronic toll collection (ETC) technology, account information on an electronic tag installed in your car is read by a receiving antenna at the toll plaza. The toll is electronically deducted from your prepaid toll account. Not only does E-ZPass make toll collection more convenient for you, it helps achieve a number of benefits for everyone.

E-ZPass offers you a number of different benefits:
· saves you money through automatic discount programs on many E-ZPass facilities.
· can process 250 to 300 percent more vehicles per lane, thus reducing toll plaza delays and traffic congestion.
· helps to reduce congestion and reduce auto emissions.
· helps reduce fuel consumption.”

With so many benefits and living in the NJ area, how could I say no. To date, I have been an E-Z Pass customer for about 6 years or so. From the very beginning, I have provided my credit card information so that I can fund my prepaid account. Once my prepaid account drops to a minimal level, the company processes an automatic charge to bring up my prepaid balance.

Along with providing my credit card info, I decided to signup for a local discount program in which I would receive discounted tolls for the PA/NJ/NY bridges. This was a great way to save some additional cash. The great thing about EZ Pass, when I moved out of the area, I was still able to use the EZ Pass technology in my new area. I was aware and accepted the $1/month fee the company charges each customer for the above benefits.

Little did I know that I was paying an additional $8.50 for an inactive fee for the PA/NJ/NY bridge plan that I originally signed up for….So when I changed by my address to about 400 miles away, the company didn’t feel the need to change any of my discounted plans. I take full responsibility for not remembering to delete this plan, but as I am going through the history the amounts of these extra fees over the last year these charges are really adding up. I would like to personally thank the company for looking out for their customers. (sarcasm)

Please take this advice and make sure you double-check all of your charges. I know it is easy to let a few months pass you by and have everything on auto-pilot, but the effort that you put into this exercise will pay significant dividends in your long-term financial health.

Sources:
E-Z Pass company website

ROWer Example – Woodword Governer (WGOV)

2008-04-21T19:52:00.002-05:00

On the MadMoney show, you will often hear the term “ROWer” associated with a company that is being discussed. ROW stands for Rest of World and provides us an easy way to diversify in the company with exposure to many parts or the world, not just dependent on the US for business. You will hear Jim say “The US is just not where the action is, the whole world is growing…..and leaving the US behind.”

Some folks have emailed me asking where can they find the info to determine the ROW piece of the business…It is actually pretty easy…Let’s take Woodword Governer as an example:

Step 1: Go to the SEC website to get the latest 10-K (annual report) for the company. Here is the link….

Step 2. Look for the “Segment Information” section in the report, Note 19 or starting on page 52 for WGOV.

Step 3. Find the Net Sales data by geographical region by year and calculate the % to total for each geography listed. Here is what it should look like…

Confirming the message in the show, WGOV is a great ROWer play with over 40% of the sales coming from regions outside the US. WGOV also highlights that the ROW section of the business is growing at a faster clip than the US segment, continuing to support Jim’s arguments.

Please feel free to email me letting me know which other items I should include on the education corner section of the blog.

Where is Garmin taking us now???

2008-04-14T17:15:00.014-05:00

Getting my GPS device stolen caused me to look a little deeper into the Garmin (GRMN) business model. Looking at the Garmin inventory days of supply metric, it is directing me to slower sales growth going forward.

In the past 5 years, GRMN's stock price (Exhibit 1) has provided a nice return for long-term investors from the late 2003 period. More recently, GRMN's stock price has been on a decline being driven by significant competitive issues, difficulty maintain prices, and erosion of gross margins (Reference Exhibit 2)

Exhibit 1.

Exhibit 2.

What I find interesting in my analysis is the relationship between sales growth vs. prior year and the inventory on hand to support future anticipated sales growth. As you look at these metrics on the chart (Exhibit 3), you will see the following:

- Solid growth story with strong quarterly sales growth vs. prior year amounts, with the last reported quarter as the highest growth of 99.1% vs. py (blue line)

- Reduction in Inventory on Hand (aka Days of Supply) to the lowest levels in GRMN's history to 66.3 days (red line)

Exhibit 3.

These metrics with what the company has publicly stated in the annual report of:

"We operate with a customer-oriented approach and seek to maintain sufficient inventory to meet customer demand. Because we desire to respond quickly to our customers and minimize order fulfillment time, our inventory levels are generally substantial enough to meet most demand"

supports my conclusion that this navigation device company will lead us to slower sales growth in the future quarters.

Disclosure: Author does not own any shares of Garmin (GRMN)

Sources:

Yahoo Finance

Company website

Dividend Investing Article

2008-04-06T19:02:00.003-05:00

As I was going through my daily finance briefings across the web, I came across a great article on dividend investing by "The Motley Fool". If you are new to investing or interested in executing a dividend investing strategy, this is a great read for the long-term focus investors.

After I complete my initial goal of implementing a CD Bond Ladder from my FinancePuzzle savings account, I will look to develop a dividend paying portfolio with single company stocks or some ETFs.

I hope you enjoy the link.

Garmin GPS devices, a "hot" commodity

2008-03-29T16:08:00.005-05:00

So I have to say that I am disappointed because the Garmin (GRMN) GPS system that I received as a gift was just stolen. The device was left in the center compartment of our car but and it was still managed to end up in the hands of someone else. Looking back, I never got in the habit of taking the mount off my windshield, advertising that I used a GPS or a satellite radio.

As I research how many devices have been stolen, I am learning that thefts of GPS devices are on the rise and now I belong to this club. Here are some web articles that I came across:

Boston.com Article

Post-Gazette Article

As mentioned in the Boston.com article, I am struggling with the decision of buying another portable GPS device...I have to admit that I really enjoyed have GPS for the three months, but I am not sure if I want to deal with the hassle of constantly hiding or removing the device from my vehicle....With the prices ranging from $100-$500 and up, I see that as a car payment. My initial inclination is that I should save this amount for the purchase of my next car, which I will pay to have a factory installed GPS system...

This experience/post is inspiring a stock research post on Garmin (GRMN).

Author Disclosure: I do not own any shares of Garmin Ltd.

Inventory Builds at Under Armour, a sign of future growth or potential write-offs?

2008-03-27T22:44:00.006-05:00

Inventory DOS (Days of Supply) is a commonly used indicator in the retail industry often anticipating future sales increases for the firm. Under Armour, Inc. (UA), designs, develops, markets, and distributes performance apparel, footwear, and accessories for men, women, and youth primarily in the United States and Canada.

When looking at the historical inventory supply of UA, you will notice that this trend has recently been increasing in the last few quarters, from 121 days at March 30^th, 2007 filing to 171 days at December 31^st, 2007. This 41% increase in inventory is not uncommon to UA, seeing that they experienced similar increases last year. But what is puzzling is that, this recent build is lasting longer then the previous year, us a "seasonality" claim to explain the movement. Below is the seasonality excerpt from the UA SEC filing:

"Historically, we have recognized approximately 70% to 75% of our income from operations in the last two quarters of the year, driven by increased sales volume of our products during the fall selling season, reflecting our historical strength in fall sports, and the seasonality of our higher priced ColdGear® line. Approximately 61% and 62% of our net revenues were generated during the last two quarters of 2006 and 2005, respectively. The level of our working capital reflects the seasonality and growth in our business. We generally expect inventory, accounts payable and accrued expenses to be higher in the second and third quarters in preparation for the fall selling season. Nonetheless, the high percentage of income from operations and net revenues in the second half of the year may have been in part due to our significant growth in net revenues."

Being told that this inventory build is due to the seasonality, when comparing it to a competitor, Nike (NKE), you will see that UA is not managing the inventory as tightly as NKE. [Exhibit 1]

This growing variance is also the main contributor to the difference in the total cash cycle between the two firms. [Exhibit 2]

In comparison to one of its competitors, this inventory build is slightly concerning and I would tread carefully with these UA shares…

Disclosure: Author does not own any shares of UA of NKE.

The "ARG" term defined

2008-03-22T12:15:00.001-05:00

As you hear vocalized by Jim Cramer on "Mad Money", you are looking for stocks that have accelerating revenue growth, or better known as ARG. As the name implies, the revenue growth rate will continue to improve vs. the prior period resulting in a sales growth chart that looks like a hockey stick.

To illustrate ARG, I would like to introduce you to Nutrisystems Inc. (NTRI)

NutriSystem, Inc. provides weight management and fitness products and services in the United States. Its weight management program consists of a pre-packaged food program and counseling.

Exhibit 1.

In Exhibit 2, you will find two lines

- Red Line denotes revenue % growth vs. prior year

- Blue Line denotes stock price

During Q3 2004, NTRI reported a 57% increase vs. PY. In the next quarter, the company followed up with an 88% increase vs. PY starting the acceleration phase lasting for 6 quarters. If you were to purchase the stock when the firm published results on March 30th, 2005 at a price of $10.10 per share, you would be sitting on a stock valued at $71.25 or a 605% increase. To put this into context, an initial $10,000 would have been worth $70,544 today.

Exhibit 2.

Please keep in mind, companies have 90 days to file annual results and 45 days to file quarterly results.

One last note….. Please keep in mind if there is any seasonality to the company’s revenue:

- If seasonality exists calculate revenue growth vs. prior year.
- If no seasonality exists, calculate vs. prior quarter.

In terms of NTRI, weight loss and dieting are centered on New Years resolutions of individuals. If you were to chart the revenue growth rate vs. prior quarter (refer Exhibit 3.) you might have missed this mad money opportunity.

Exhibit 3.

Bank of America signup fee

2008-03-13T23:51:00.000-05:00

If you are in need for a new checking account, check out this Bank of America offer for $75 for all new, personal checking accounts. To receive your $75, apply online or go to your nearest banking center. Use offer code AOU260308, and open a personal checking account before May 31, 2008. The minimum deposit to open the account is $100 and the $75 bonus will be deposited within 90 days. Here is the link

Similar to the ING Account, I have decided to open a new account and capture the $75 bonus. I will include this in my blog savings account once I notice the deposit in my account.

Updates to my savings accounts

2008-03-11T17:48:00.001-05:00

So since I lasted posted, I have updated my blog saving account for the following transactions:

#1. Coupon Savings of $11.10: The majority of this savings came from an online coupon code that I found visiting CouponCabin.com for approximately a 10% discount on ordering contacts from 1-800-Contacts. Great site and easy to use, I will add this to my list of Coupon sites….

#2. 2007 Tax Impact on Interest and Earnings: After seeing my tax refund drop due to these earnings and interest, it is only fair to include the tax impact to my account.

#3. I have earned $9.58 in February 2008 in advertising revenue from this blog.

#4. Finally, including the February 2008 Interest earned from ING of $0.89. This amount went down because I will not report my CD ladder – rung #1 interest until it is fully earned

Don't get in the habit of giving interest-free loans, update your W-4

2008-03-07T18:50:00.003-05:00

Just finalizing my family's 2007 Federal and State tax returns using my TurboTax software, I realized I was due a refund, accepting the fact that I lost the opportunity to collect interest throughout the year on my overpayment. If you find yourself collecting a refund this year, take the time and analyze your W-4. To complete this analysis, you should be prepared to forecast your salary and the deductions that you expect in the coming year, most tax software packages have this featured built in….By updating your W-4, you will create additional savings $'s depending on the amount. I would open a new savings account to help you manage this process, prefer to use the ING Direct account.

Here are some calculations that show you how much you savings you can create:

Assumptions:
- Assumes deposit at the end of the month, to link with your pay cycle
- Interest is earned at the end of the month, using 4% per annum
- Pay your tax bill at the end of March in the following year

For a refund of $1,200, you will earn $35
For a refund of $2,400, you will earn $69
For a refund of $3,600, you will earn $104

Here is a copy of my calculations

Another small step to your future financial success and take the few minutes to update your W-4.

Savings Tip - Student Discount

2008-03-01T23:46:00.005-05:00

Just recently becoming a student again, it provides me access into capturing additional discounts from many merchants. You should not hesitate to flex your student status and ask if there are any student discounts when shopping. This can provide you savings in the range of 5% to 25% depending on the purchase...

Just recently, I purchased the OS X Leopard software from the Apple store and was pleased to capture a 10% discount by flashing my student id. I saved $12.99 on this purchase and I will deposit this amount into my savings account.

If you are aware of some other locations that give you a generous student discount, please feel free to comment...

CD Ladder - Rung #1

2008-02-24T17:03:00.007-05:00

So by including my blog revenue of $202.72 into my savings account, that brings the balance to $611.24. So by surpassing this milestone, I have decided to start a CD Ladder to take my savings strategy to a different level..

Simply, a CD Ladder is a series of CD's that are setup with the same term and same amount that will expire on a frequent basis for future cash needs. Here is a link that lays out a great example.

So I have decided to open up a 6 month CD from ING with an annual percentage yield of 3.65%. Hopefully I can save/earn another $500 in a few months to create the second rung on this CD Ladder.

PEG - What is it and how do I calculate it?

2008-02-18T18:23:00.002-05:00

In an effort to continue to assist investors with their homework, I will publish posts for education purposes.

Occasionally on the show "Mad Money" hosted by Jim Cramer, you will hear about the "PEG Ratio". The PEG stands for Price to Earnings to Growth Rate Ratio....

Let's walk through the below as an example:

Current Price per Share = $20.00

Current Earnings per share on a twelve month basis = $1.20

So, the PE ratio is equal to 16 or $20 divided by $1.20

Next, you want to find the expected next year earnings growth rate. You can find this in the Yahoo Finance website under the analyst estimates section....Here is a link to the analyst estimates page for Given Imaging Analysts Estimates.

For this example, let's assume that the earnings growth rate is expected to be 10%.

Therefore, the PEG ratio is equal to 1.6x or 16(P/E ratio) divided by 10 (earnings growth rate)....

So how to use it.....PEG is a widely used indicator of a stock's potential value. It is favored by many over the price/earnings ratio because it also accounts for growth. Similar to the P/E ratio, a lower PEG means that the stock is more undervalued. A rule of thumb for the show is for a stock to have a PEG lower than 2.

Feel free to email me questions or any other topics you would like me to write about....Enjoy and happy investing

Duh!.....Rookie Mistake

2008-02-14T19:56:00.004-05:00

As a follow-up to my last post for purchasing Turbo Tax Premier 2007 on Ebay, I realized that I made a rookie mistake. I actually had bids on two on-going Ebay auctions for the software and ended up winning both. I was so excited to capture the savings on the software that I failed to go back and delete my previous bid on a seperate listing.....

And no, I am normally not that bad when it comes to purchasing items online. In the last few weeks, I have been unsuccessful in winning any auctions for this software, always losing at the last moment. That is why I was submitting bids on multiple listings, hoping to win one.....

So with that said, I would rather just sell the extra copy of software to one of my readers at a discounted price, including shipping....So here is the deal if you are interested...

To the first person that sends me an email stating that they would like to purchase my extra copy, they will have 2 days to submit a paypal payment to etstockideas@gmail.com for the amount of $45, I will send you one newly sealed version of Turbo Tax Premier 2007. I will not charge you any shipping, $45 is the total price...

If I don't receive any interest by the end of Feb 2008, I will list this software on Ebay...

It is that time of year again...Tax Time

2008-02-10T16:27:00.001-05:00

So it is that time of year for me to organize all of my tax info and prepare for the enjoyable process of completing my personal tax forms with the use of Turbo Tax, my software of choice. As a finance professional, I have completing my taxes for the last 7 years or so. I have also helped some of my family members in their quest to meet the April 15th deadline.

Normally, I would drive to the local Best Buy store to pickup the CD version of TurboTax Premier. Entering this year, I have noticed that the software (Federal + State) is retailing around $74. Even though this charge is tax deductable in the tax preparation fees, I decided to try and find the best available deals for the software.

Reading up on some of my favorite blogs for some market research, MyMoneyBlog posts a link to receive a 25% discount for the TurboTax Online product. Click this link if you are interested:

Link to Turbo Tax Online Discount

Doing this for as long as I have, I have grown accustomed to installing the software and having it readily available in the future, if needed. So understanding my preferences, I go to Amazon.com and here are the latest deals:

But I like to take my potential savings a step further, I have been reviewing some of the closed auctions on Ebay and noticed that you can probably close a deal for around $50 which includes shipping....So I should have my software any day now and will also deposit $11.55 into my blog savings account (difference from my Ebay price and Amazon price).

Author Disclosure: I do not own shares of any company mentioned in the above article.

Carnival of Personal Finance #136

2008-02-03T16:22:00.000-05:00

FinancePuzzle.com was just recently included in the Carnival of Personal Finance #136. This latest carnival is great and filled with many useful links to personal finance blogs. I would like to thank the Green Panda Treehouse for the great work and clever rhyming...

Carnival Link

Best Coupon Sites - Web Article

2008-01-20T12:42:00.000-05:00

How timely......I was catching up on my daily finance reading and came across this article "Where to find coupons online" on Yahoo Finance by Marshall Loeb. This is a great list to support my previous coupon post. I will utilize these sites for future savings.

In summary, he mentions the best online coupon sites are:

CouponMountain.com

Lease vs. Buy: Cable Modem Payback analysis

2008-01-19T19:05:00.000-05:00

I try and make a habit of auditing a random bill once a month to ensure I am not being nickle and dimed. Picking out the Comcast cable bill just recently, I see that I am leasing a cable Internet modem at $3 per month or $36 for a full year.

The cable modem that I am using is the Motorola SURFBoard SB5101. I have been using this cable modem now for about 24 months since I moved into my new place. Looking at it, the technology doesn't seem to be that much different than the one I used about 4 years ago.

I scanned the Internet for some prices on this Motorola cable modem to use in my lease vs. buy analysis.

BizRate search results, click here

My initial Ebay search results show the total price ranging from $15.00 to ~ $65.00

So with the price range from $20 to $80, depending on condition and shipping, here is my simple payback analysis:

Purchase Price / Payback in months
$20 / 6.7 mos
$40 / 13.3 mos
$60 / 20.0 mos
$80 / 26.7 mos

Even if I were to buy a new modem when I moved into this place, I would be looking at owning a "free and clear" device in the next month or so....

With that, I am off on a fishing exhibition at Ebay for a cable modem. Any recommendations on which one works best would be greatly appreciated!

Personal Finance Tip: Coupon Savings

2008-01-13T20:03:00.000-05:00

Don't overlook the power of coupons....I was sitting in the book store the other day and reading a few money saving tips from some of the latest money saving books. The majority of the books included at least a few pages or so dedicated to coupons. After thinking through some of my recent purchases, these savings can really add up.

It doesn't take that long to find savings in every deal and I am not just referring to clipping grocery coupons out of the Sunday paper, it is also about using the coupons you get in the mail and online codes.

My coupon savings in the last few weeks total $32.10 from 4 retailers, some of the savings coming from the doubling of manufacturer's coupons at the grocery store. I will deposit these savings in my blog account and will continue to clip those coupons.

In the future, I am going to try and call some customer service lines of the products I use often to see if they will send you some coupons in the mail. Also, I have been trying to research some websites that provide online coupons, but I can't seem to get through all of them...Can anyone refer some of the better websites?

Save an additional 10% by planning your future purchases

2007-12-28T15:04:00.001-05:00

A great way to turn those unwanted gift cards into cash is to turn to Ebay, as mentioned in previous posts. On the flip side, if planning your purchases appropriately, you can create some additional retail savings for yourself.

At the time of this post, Ebay had over 17,000 auctions for gift cards ranging across almost every major retailer. Here are the retailers with the most activity:

450 auctions for Lowe’s
292 auctions for Home Depot
292 auctions for Itunes
289 auctions for Best Buy

These auctions are also across many price ranges, currently the highest value auction listed is for a $2500 Neiman Marcus Gift Certificate.

In seeing how much of a discount you can purchase these gift cards for, I searched some of the recently completed auctions for Best Buy. Picking a sample size of 30 completed auctions, here are the metrics:

# of auctions: 30
$ value of gift cards: $4,691.95
$ value of winning bids w/ shipping: $4,225.70
# of auctions that had free shipping: 18 (60%)
% final price to gift card value: 90.8%
Min % of gift card value: 75.0%
Max % of gift card value: 104%

So if still are saving up for that $1,000 flat panel TV at Best Buy, get in sooner by creating an Ebay id and starting bidding. You should expect to save an additional $100.

Here are some tips to be successful:

For Buyers

- Due Diligence: Make sure you read all of the feedback from the seller to ensure a valid gift card

- Don't Overbid: do not bid more than 91% of the gift card value.

- Be Patient: There are plenty of fish in this sea and hold out for the best deal. It shouldn't take too long to secure a significant amount of gift card value

For Sellers

- Don’t try and increase your final price by including a shipping charge. You will create animosity from prospective buyers. You will have better success by absorbing the 0.41 cost of a stamp.

Here is a link to the data sample for this post.

Author disclosure: I do not own any shares of Ebay or Best Buy

Traditional 401K vs. Roth 401K

2007-12-22T13:54:00.000-05:00

As the new year approaches, my employer has updated their benefits package to include the option of contributing to a Roth 401K. Ever since I have been working, I have always contributed pre-tax dollars in the Traditional 401K to take advantage of (i) starting to save early and (ii) of the healthy company match.

Since I have been contributing to my 401k, I never felt the need to start a Roth IRA. With that said, I never took the time to understand the benefits of the Roth. So with this available option, I need to ensure I am making the right choice for the long-term....

So here is what I have learned so far, using a simple analysis that I have created to help me understand the differences...

Assumptions:
Initial Contribution of $1000
Assuming 7% growth for 30 years
Effective Tax of 28%
Withdrawal rate of 10% after year 30

Traditional 401k Results:
After 30 years at 7%, the balance would be $7,612
At the same tax rate of 28%, you will receive post-tax amounts of $5,481

Roth 401k Results:
After 30 years at 7%, the balance would be $5,418 with no tax liability.

Neutral at the same tax rate pre and post retirement.
Advantage Trad. 401k when you assume your tax rate in retirement will be lower.
Advantage Roth 401k when you assume your tax rate in retirement will be higher.

In summary, one of the most critical assumptions is your tax bracket differential now vs. retirement. To provide you some more data for your analysis, here are the historical income tax rates in the US.

After looking at the variability of the tax rates among other assumptions about potential career success or not, I am not going to try and guess and put all of my funds in one type of account. I am deciding to employ a hedged strategy and will plan on having both a Traditional and a Roth 401k. I will need to assess what percentage of my retirement accounts I would like in each account, but my initial reaction is a 50/50 split.

Here are some additional website and articles that have helped me in this analysis:
Fidelity.com
Dinkytown.com
Fool Article

Hopefully this simple analysis helps you in your financial quest. Please feel free to comment if you feel I am missing some significant advantages and disadvantages between the two.

Author Disclosure: I am not a Certified Financial Planner. Please read the disclaimer and consult your financial advisor.

Merger Arb oppty with Penn National Gaming

2007-12-13T19:35:00.000-05:00

If you are interested in side stepping some of the recent market volatility with a short-term merger arbitrage strategy, why don't you roll the dice with the pending merger transaction of Penn National Gaming Inc (PENN)....

The recent shareholder approval on December 12th, 2007 provides on more step closer to closing the deal.

On June 15, 2007, Fortress Investment Group LLC and Centerbridge Partners, L.P made a merger offer to PENN. Under terms of the deal, if the acquisition is complete by June 15, 2008, shareholders will receive $67 per share. If it closes after June 15, the price will increase by about 1.5 cents per day.

If you are unfamiliar with this strategy, please read my first merger arb post with MRK/RNAI for some background.

Here is the 1 year chart on PENN, currently trading at $59.65 per share at the December 12, 2007 close.

Details of the trade:

Purchase 419 shares of PENN for $25,003 including $10 in commissions. At $67 per share, this trade will provide you a gross return of 12.3% with your money working for about 6 months.

Closing Date Annual Percentage Rate Scenarios

May 15th, 2008: 27.8%
June 15th, 2008: 23.2%
July 15th, 2008: 21.2% includes 30 days of 0.0149 per share

(based on a 350-day calendar)

Author Disclosure: I do not own any shares of PENN or FIG. This strategy is highlighted for entertainment purposes for my mock short-term portfolio.

Sources:
Company website
SEC Edgar website
Yahoo Finance

Personal Finance Tip - Sell your extra stuff on-line

2007-11-17T18:31:00.000-05:00

“One person’s trash is another person’s treasure”…..

I am not calling your extra stuff trash, but I do think that keeping everything you own forever is a little excessive. A great way that I like to create extra dollars for my savings account is to sell my stuff online. This may seem somewhat obvious to many folks, but it does take some discipline and energy to follow through.

As each day goes by, it gets easier and easier to sell your stuff through the internet. I prefer to use sites such as Ebay and Craigslist because of their large number of users. I have just recently purchased a new digital camera online and decided to sell our old one. Nothing was wrong with the camera, I just decided to upgrade. It was one of the first generation Sony digital cameras, about 4 years old, but still worked great.

After listing the camera online, I was able to find multiple buyers that created a competitive bidding situation. After my auction timeline ended, I was able to sell the camera at a price of $86 plus shipping.

These sites also offer great savings opportunities for any holiday shopping that you need to do. I will deposit my auction proceeds in my personal savings account generated by this blog.

Author disclosure: I do not own any shares of Ebay.

Amazon.com Sales Detail

2007-10-27T14:37:00.000-05:00

As I read through the latest 10-Q submission from Amazon (AMZN) representing the 3rd Quarter of 2007 results, the company's sales story is exhibiting accelerating revenue growth.

Summary Points:

- Sales split by region continues to be 55% for North America and 45% for International, consistent with previous reports.

- Electronics and Other General Media segment driving the North America growth

- Media segment leading the International region

I will walk you through the 4 charts below that summarize the sales highlights of Amazon.com(AMZN)

The first chart is a simple quarterly revenue chart by geographical region breakout for the last 8 quarters from Q3 2005 to Q3 2007. In the selected time period, the North America segment consistently is about 55% of the total business. Total revenue growth percentage from prior year averages ~33%.

Exhibit #1. Sales by Region

Exhibit #2 details out the North America region by business segment revenue. The media segment is ~ 60% of the total region with the larger of the prior year % growth coming from the Electronics and Other General Media segment.

Exhibit #2. North America sales by segment

Chart #3 details out the International region by business segment revenue. The media segment is a larger portion at ~70% of the total region. The media segment also provides the largest part of the prior year growth story.

Exhibit #3. International sales by segment

The final picture is a table that highlights the Prior Year revenue growth in $'s. I have highlighted the max number in each column. All in all, a fairly diversified revenue growth story between geographical regions and business segments.

Exhibit #4. Revenue Growth $'s vs. previous year

Disclosure: Author does not own any shares of Amazon (AMZN). This blog is a member of Amazon's associates program. Feel free to search Amazon.com via the search box on FinancePuzzle

Sources:

SEC Online for 10-Q's and 10-K's

Carnival of Personal Finance #122

2007-10-22T10:16:00.000-05:00

FinancePuzzle.com was just recently included in the Carnival of Personal Finance #122. This latest carnival is great and filled with over 75 useful links to personal finance blogs. I would like to thank the Mighty Bargain Hunter for the great work and clever rhyming...

Carnival Link

Personal Finance Tip: Cable company savings

2007-10-13T20:00:00.000-05:00

This personal finance money tip on Cable company savings was inspired by the posting at mymoneyblog.com

After reading mymoneyblog.com, I thought this was a great opportunity for me to shrink down my current cable bill. I was able to execute this savings in a relatively quick time.

Here are my suggestions on what to do:

1. Research what the current competitive offers are
2. Call your cable company and ask for the account management department
3. Highlight how long you have been a customer and positive account standing
4. Note the current competitor offerings and ask if there are available savings that can be applied to your account.

I was able to save approximately $40 per month for the next 12 months. I will deposit my monthly savings into my personal finance tracking portfolio.

Thank You Mymoneyblog.com for the great advice.

Trump (TRMP), worth the short-term gamble….

2007-10-08T20:58:00.000-05:00

Looking at the community sentiment of Yahoo Finance, I find Trump Entertainment Resorts Inc. on the “Bullish” section of the list. This intrigued me, similar to some of the excitement surrounding a craps game offered in the casinos…

After doing some of my homework, it appears that TRMP is worth a short-term bet, if your portfolio can handle the volatility that comes with it...

Summary:
- Cheap but risky valuation
- Financial Fundamentals will not provide you much security
- Larger short interest in the wake of sale rumors
- Morgan Stanley providing some institutional support

Trump Entertainment Resorts, Inc. (TRMP) engages in the ownership and operation of casino hotel properties in the United States. It offers gaming, casino resort, and entertainment services. As of December 31, 2006, the company operated three casino hotel properties comprising Trump Taj Mahal Casino Resort, Trump Plaza Hotel and Casino, and Trump Marina Hotel Casino in Atlantic City, New Jersey.

Revenues declined from $1.4 Billion in 1997 to $1.0 Billion in 2006, a –3.4% annual growth rate over the 9 year period. Declining slot revenue for slot parlors in Pennsylvania and New York are contributing to the short-term sales decline. TRMP is currently trading at 0.3x Price/Sales multiple compared to an industry average of 3.5x.

During the last 9 years, TRMP has always reported a net income loss, not including any extraordinary or discontinued operation items. Although, TRMP has provided positive operating income in all of the 9 years, a metric that provides me some comfort of the firm operating in a leveraged environment. With the latest debt balance at $1.57 Billion (as of Q2 07), there will always be that liquidity question….

Here are some metrics from the industry average, from the Morningstar website:

Price to Sales: 3.5x
Price to Book: 4.1x
Price to Cash Flow: 17.4

Here are the market cap valuations for TRMP if it were to trade, or be sold, at half those levels:

P/S: $1.6 Billion representing a 533% gain
P/B: $0.7 Billion, a 177% gain
P/CF: $0.6 Billion, a 121% gain

With the short interest at 6.9 million shares, Morgan Stanley owning 5.9 million shares, and a “sale of the company” rumor…..TRMP will provide your portfolio with alpha with a little bit of a wild ride….

Author Disclosure: I do not currently own shares of TRMP.

Sources:
Company website
Yahoo Finance
SEC Online
Morningstar.com

Smart Money Magazine pays for itself

2007-09-22T11:39:00.001-05:00

In the October 2007 issue of Smart Money, ING Direct is offering a $25 account opening bonus with the Orange Savings Account. The Orange Savings account is 4.5% variable APY with no fees and no minimums.

To capture this account opening bonus, here is the fine print:

- Sign up by October 31st, 2007
- Include the reference code from the Smart Money magazine advertisement
- Send initial deposit, no minimum
- Only available to new accounts with a new customer as a primary owner
- $25 Bonus starts earning interest upon account opening
- $25 Bonus is unavailable for withdrawal for 30 days
- One Bonus per household

After reading all the details, this is an easy way to make $25. So I opened an account with an initial $25 deposit. After 30 days, my initial $25 deposit will be $52.19 and available for withdrawal. A great return in 30 days....

If you are interested in opening an account and would like to support my blog, email me to send you a referral email.

Here is the link to the ING Direct website

Disclosure: Author does not own any ING securities.

Home Depot / Lowe’s Pair Trade beats S&P performance

2007-09-17T19:54:00.000-05:00

That was a perfect up and down for the duration of the HD/LOW pair trade….about 10 days. To provide you a background, here is my first post on the Home Depot (HD) and Lowe’s (LOW) pair trade that I initiated as of the close on August 31st.

As my first post highlights, the target price ratio for the pair was 0.873 (LOW/HD). On September 10th, the pair closed at a ratio of 0.880; HD at $33.81 and LOW at $29.76, resulting in a 3.6% return after commissions in 10 days. On an APR basis, this trade results in a 131% return, not too bad.

Over the same period, the S&P 500 performed at a –1.5% loss from 1,473.99 to 1,451.70, therefore the pair trade provides alpha on an net basis (after commissions and taxes).

Final Trade details

Opening Trades:
Sell Short 261 shares of HD at 9,999
Buy 322 shares of LOW at 10,001

Closing Trades:
Buy to Cover 261 shares of HD for 8,824
Sell 322 shares of LOW for 9,583

Total Profit, gross $756
Commissions of ($40)
Profit, net of commissions $716

I have attached an updated version of the price ratio chart through September 14th, 2007.

I will continue to look for additional opportunities to initiate this trade again….

Please leave a comment or email me if you have executed this trade successfully.

Author disclosure: I am neither long nor short HD or LOW

Personal Finance Tip: Avoid the retail stores for cell phone accessories

2007-09-10T19:30:00.000-05:00

Capture significant savings from buying cell-phone accessories on-line rather than the retail stores.

Just recently, I had to accelerate my decision on which phone to upgrade to on my existing wireless plan with Verizon. My existing contract was up for renewal and I was in the process of selecting a phone I wanted to buy with my “new in every two promotional plan”, a $100 savings on your next phone with Verizon. In the due diligence period, my phone decided to go for a swim with my dog in the local pond ….It wasn’t my dog’s fault, she just wanted to retrieve her prized tennis ball in the water and I forgot the phone was in my pocket.

The next day, I traveled to the local Verizon store to select the LG VX8700 that I have been eyeing up for about a month or so. (I will save you the details on the “runaround” I received from some Verizon local and on-line stores).

Phone Price:
Retail Price $209.99
Less: Promotional Discount: ($100.00)
Plus: Taxes 5.50
Less: Mail-in Rebate: ($50.00)
Net Price equals $65.49

As in all purchases, the sales rep asked to “up-sell” me with the purchase of some accessories for my new phone, specifically a car charger for $30. I was shocked to hear that a car charger costs this much…so I decided to pass on this “great” offer to do some comparative shopping. As you might expect, I ended up saving 49% when I purchased the car charger from Amazon.com

Prices for the LG VX Car Charger:

In-Store at time of purchase with my phone: $31.49 ($29.99 plus 5% tax)

On-Line Verizon store: $26.76 ($29.99 – 4.99 online discount plus 5% tax) 15% savings from Verizon retail store

Amazon.com: $15.97 ($9.99 plus $5.98 in shipping and handling) 49% savings from Verizon retail store

Next, I am in the market for a Bluetooth enabled hands-free set, since my new phone only accepts that format. Email me if you have a recommendation?

To my surprise, it appears cell phones are magnetically attracted to water…If you find yourself in the situation (this is the 3rd time this happened to me), here is a link with tips on saving a wet phone….link

September Performance is not that bad....

2007-09-05T18:34:00.001-05:00

Don't believe everything you hear...Going into Labor Day weekend, all I heard was the "September is the worst month for the US equity markets". With so much noise in the system, I needed to check the facts for myself.

Summary of Findings for the S&P 500 from 1951-2007

-The facts do show that September ranks as the worst performing month when you average over the last 56 years,
- Out of the 56 years, August was the worst performing month with 12 out of the 56 years (21.4%)
- When ranking the monthly performance spread (Max Performance less Min Performance), October is the most volatile month with a spread of 3,807 basis points

Below are a few reference charts that provide support some of the data:

Exhibit 1. S&P 500 Monthly Performance Spreads

Exhibit 2. S&P 500 Monthly Performance

Exhibit 3. DOW 30 Monthly Performance

Exhibit 4. Nasdaq 100 Performance

Don't believe everything you hear...check the facts for yourself.

HD/LOW Pair Trade

2007-09-02T23:37:00.000-05:00

As the blood runs in the streets for the housing market, the current Home Depot (HD)/ Lowe's (LOW) pair trade offers your portfolio a hedged opportunity.

Before I get into the details, Exhibit 1. is a company overview comparison chart.

Exhibit 1.

I would also like to include the latest analyst price targets for both companies, Exhibit 2. sourced from Yahoo Finance.

Exhibit 2.

The current stock price ratio for LOW/HD is 0.811 ($31.06/$38.31)

The current mean analyst price ratio target is 0.873 ($37.31/42.73)

In Exhibit 3, I have plotted the LOW/HD stock price ratio on a line chart. You will see that this ratio was just recently at the mean analyst price targets of 0.871, but has dropped to the 20-day average.

Exhibit 3.

In my opinion, I feel this is a good opportunity to enter in a pair trade up to the pair ratio reaches the mean analyst price target of 0.873 ratio.

Here are the details of the paper trade:

Buy 322 shares of LOW at $31.06 = 10,001

Sell Short 261 shares of HD at $38.31 = 9,999

This is a cash neutral hedge with the cash outflow on the LOW purchase and the inflow on the HD short sale.

If this trade is successful, it will provide a +4.1% return after commissions. I will calculate the annual percent rate when I exit the trade.

Disclosure: Author is neither long nor short HD or LOW.

Personal Finance Money Tip – Reward Programs

2007-08-26T10:52:00.000-05:00

Reward Programs can offer unconvential savings opportunities. In my short experience with these programs over the last few years, I came away with these three major points to help earn extra income from the initiatives:

#1 – The best program currently available is the American Express Rewards Program, but there are some unique attributes to other programs

#2 - Not all reward programs are created equal

#3 – Make sure you do your due diligence when redeeming your points

I currently only belong to 9 reward programs ranging from the frequent travel programs from airlines, hotels, rental cars to the credit card programs such as American Express. In my short experience with these programs, I found that the AMEX Membership rewards program is the biggest and best one available. With the AMEX rewards program, you can redeem your points across travel, hotel and merchandise awards.

Continental OnePass Program wins the award for magazine and newspaper subscriptions, with over 40 subscriptions available. If you don’t travel enough to earn awards for a ticket at 25,000 miles, a magazine subscription might be a nice way to utilize those stagnant miles. For just 1,600 OnePass miles, you can earn a year subscription to BusinessWeek, a savings of $252 from the newsstand price.

When redeeming awards, make sure you shop across all of your available programs to ensure that you are maximizing your points because many of these programs might offer the same rewards at different exchange rates. Here are a few examples:

Wall Street Journal Subscription
1,200 United.com points for a 13-week subscription or ~ 60 issues. Equivalent to 20pts/issue
3,300 Continental One Pass Program points for 230 issues. Equivalent to 14.3 pts/issue

$25 BananaRepublic Gift Card
2,800 StarwoodHotels SPG.com pts for $25 gift card 112pts/$1 dollar
2,500 AMEX membership rewards pts for $25 gift card. 100pts/$1 dollar

$100 BananaRepublic Gift Card
9,500 StarwoodHotels SPG.com pts for $100 gift card: 95pts/$1 dollar
10,000 AMEX membership rewards pts for $100 gift card. 100pts/$1 dollar

There are also ways to convert your points to cash or cash equivalents. The best option for me to convert my points to cash is with the AMEX rewards program

$100 Cash or Cash Equivalent
20,000 AMEX membership rewards pts for $100 gift card. 200pts/$1 dollar
Or
Redeem 10,000 AMEX pts for a $100 Banana Republic Gift Card and then give the gift card as a gift. With AMEX, there are a significant amount of vendors that provide gift cards through this program such as: Crate & Barrel, Barnes & Noble, Dell Computers, Home Depot, etc….

Also, when signing up for these programs, please make sure you read the all of the fine print details. Most programs only keep your points as long as you are an active member, which means different things to each program. There are options on many of the airline reward programs to transfer or buy additional points, which usually come with a significant transaction charge.

In summary, enroll in as many rewards programs that you can manage. Try to earn multiple rewards on the same purchase (i.e. buy your airline ticket with your American Express card). Try to find creating ways to convert your points to cash.

If you have any other reward programs savings, please feel free to comment or email me.

Here are the links to the reward programs that I use:

American Express
US Airways
Continental
United
SPG.com
Marriott

Author Disclosure: I do not own any stock of the companies mentioned in this article.

NTRI Covered Call Final Results – Post 3 of 3

2007-08-23T20:32:00.000-05:00

As anticipated from my second post in this trilogy, my NTRI Covered Call strategy resulted in 30% loss protection strategy against a buy and hold approach.

Just in case, here are the first two links for the entire NTRI Covered Call Trilogy

Post 1
Post 2

On August 17th, NTRI closing stock price was $49.61. This represents a –22.2% decline vs. the stock price before the earnings release, the day I initiated the NTRI covered call strategy. If you were to execute this trade, you would have minimized your loss by 30%.

Buy and Hold Strategy
Buy 500 shares on July 24th, 2007 at $63.78/share
Value of holdings at close of day on August 17th was $24,805
Total Loss of -$7,095 or –22.2%

Covered Call Strategy
Buy 500 shares on July 24th, 2007 at $63.78/share
Sell 5 Aug 07 Call Options at $4.25 each
Adjusted Basis for Call Option Premium incl. Commission costs of $59.59/share
Value of holdings at close of day on August 17th was $24,805
Total Loss of -$4,990 or –15.6% from original purchase

If you have been successful with this strategy, please email me ....

Disclosure: Author does not own any securities, NTRI equity or options, mentioned in this article.

The 5th "C" in diamond shopping with Blue Nile (NILE)

2007-08-12T19:12:00.000-05:00

If you ever went diamond shopping, I am sure you are well aware of the four "C's"; Carat, Clarity, Color, and Cut.....When shopping for diamond stocks, I would like to introduce a 5th "C" ...Comparative.

If you are in the market for a diamond stock, this is one of the few times where the little blue box (TIF) might be a better buy than Blue Nile (NILE).

Just recently, I had an opportunity to listen to the 2nd Quarter earnings call from Blue Nile (NILE) . With all of the good news out of NILE and looking at the stock performance over the last year (Exhibit #1), I was intrigued to see how this stock stacked up against Tiffany (TIF), the name of all diamond names.

Exhibit #1. 1-year Stock Chart

Market Cap as of 8.10.2007

NILE - $1.35 Billion

TIF - $6.11 Billion

TIF/NILE Ratio of 4.5x

Annual Sales & Income from 2003 - 2006

Referencing Exhibit #2, you will see that NILE revenue is approximately 9.5% of TIF revenue in 2006, improving from 7.6% in 2003. On an Net Income perspective, 2006 for NILE was 5.2% of TIF's income. Please note that the 2003 Net Income for NILE included a significant tax net operating losses carry forward.

Exhibit #2 - Annual Sales & Income

Quarterly Sales Growth

This is where the NILE diamond really shines....NILE's quarterly revenue growth averages a 2.36 multiple over TIF's revenue growth in the last 14 quarters. Some of this is due to the smaller revenue size of NILE, but investors have welcomed the significant growth. Please note that Q2 2007 are the latest TIF analyst estimates.

I hope this article has helped investors put the recent stock appreciation of NILE in perspective.

This article brought to you by FinancePuzzle.com

Disclosure: Author does not own any shares of TIF or NILE.

Introduction of FinancePuzzle.com

2007-08-04T17:39:00.000-05:00

Readers, I would like to introduce some changes to my blog.

When I started ET Stock Ideas on Blogger.com during October of 2006, my initial goal was to start providing my personal investment philosophy and research to the investment community on a free blogging platform. During the last 10 months or so, I have received several positive comments regarding my content and insights, supporting my decision to take the next step with my blog.

I am changing the name of my blog, ETStockIdeas to:

FinancePuzzle.com
Connecting the pieces together...

With FinancePuzzle.com, I will expand my posting to include topics across the personal finance spectrum: Personal Finance, Investing, Retirement, etc...

All of my postings can now be found on www.FinancePuzzle.com.

For anyone who has created a link, please update your links.

Thank You,
Elias
Editor of FinancePuzzle.com

NTRI Covered Call Opportunity – Post 2 of 3

2007-07-27T16:12:00.000-05:00

I initiated my NutriSystems, Inc (NTRI) covered call strategy on July 24th, 2007, before the company announced Q2 2007 earnings. This post is Post 2 of 3 regarding this trade. Part 1, which was posted on July 18th, described the setup of this short-term opportunity for existing long-term shareholders of NTRI, here is the link…. The earnings release was not well accepted by the Street, setting up a potential 670 incremental basis point gain* for the long-term shareholder.

After the bell on 7.24.07, NTRI announced their earnings for Q2 2007. Here is the link to the press release...link

Please note this strategy was highlighted for the long-term shareholders of NTRI, a group I am not a part of because of my value selection criteria.

Paper Trade Details:
- Long-term shareholder currently owning 500 shares valued at $31,890 ($63.78/share) at the close of 7.24.07
- Sell 5 August 07 call options with a 65 strike price for $2,125 ($4.25/share as of 7.24.07)
- $2,125 represents a 6.7% gain*.

Why did I choose the 65 November calls?
In the research that I published during my first post, I am using the 18-day % gain/(loss) from the last three reported quarters of an expected stock price gain of 1.3%. This results in a potential share price of $64.64 (1.3% above 63.78) at the date of option expiration on August 17th. I then take the next highest strike price of $65 to determine which strike price to sell, because I am trying to avoid the option be exercised. This trade does run the risk if the shares trade at the 18-day max levels, but most options buyers will wait to the last couple days to expiration to execute.

On August 17th, I will post the final part of this trilogy when the final results are in…

* Does not includes fees and taxes

Disclosure: Author does not own any securities, NTRI equity or options, mentioned in this article.

Book Review: The Little Book of Common Sense Investing by John C. Bogle

2007-07-23T22:04:00.000-05:00

As I receive a few inquiries a month on my finance blog regarding how I research companies, what books do I read, etc..I would like to introduce a new section to my finance blog, Book Reviews.

For my 1st book review, I picked up “The Little Book of Common Sense Investing” by John C. Bogle.

John C. Bogle is founder of the Vanguard Group, Inc., and President of its Bogle Financial Markets Research Center. In 1999, awarded one of the four “Investment Giants” of the twentieth century by Fortune Magazine.

“The Little Book of Common Sense Investing” provides a good introduction to basic finance principle for someone new to the financial markets or investing. The book is focused around one winning simple strategy: owning the entire stock market through a market index fund, and then do nothing. Mr Bogle uses a three-way approach to support this main strategy:
- Uses simple and logical arithmetic to illustrate the magic of compounding with a low cost structure, ideally in an index fund. Provides data that a total market index fund with a low expense ratio is superior over the long –term against mutual funds, professional money managers, exchange-traded funds, and active traders.
- Provides surveys and quotes from many of the most experienced, most successful investors in the US to agree with the successful strategy of indexing. Each chapter ends with a section called “Don’t take my word for it” Some of the investors include, but not limited to are: Warren Buffet, David Swenson, Jack Meyer, Paul Samuelson
- Provides a dataset of facts and figures around all of the costs involved when you trade often, supporting one of my favorite Warren Buffett quotes “For investors as a whole, returns decrease as motion increases.”

My biggest takeaway from this book is to truly understand the net return of all my trades against the index. Going forward, I will change my performance benchmark calculation to a net return of each trade and/or strategy against the S&P 500.

Please email me letting me know if this book review was helpful.

The Nutrisystems, Inc. covered call “schnitzel”

2007-07-13T18:51:00.000-05:00

With the upcoming NTRI Q2 2007 earnings announcement on July 24th, there might be an opportunity to capture some call option premium dollars if you are long the stock.

3 reasons to consider writing a covered call on the pre-announcement date of July 24th, 2007:

- Although revenue growth is still positive and strong, it is on a downward slope
- NTRI option premium are rich driven by the historical volatility
- Analysts are getting better at forecasting this growth company, providing a smaller opportunity of significant upward revisions.

I have followed NTRI for a year and a half now and I am in kicking myself for missing this exploding stock. If you read one of my older posts, you will see that this stock does not fit my in with my value selection criteria. But with that said, I do see an upcoming opportunity to capture an option premium for all of the faithful longs.

If you are not familiar with NTRI, here is a link to my previous post on the background of the company….

Here is an updated chart of what the stock has done since my last post….

Exhibit 1.

Also, here is a chart that I have created plotting the historical quarterly revenue % growth vs. stock price. This is a great picture highlighting the accelerating revenue growth that you wish all of your stocks can achieve. In Q4 2005, revenue growth vs. prior year story peaked at 784% with the latest quarter (Q1 2007) coming in at 62%.

Exhibit 2.

In Exhibit 3, you will see that the analysts are expecting the growth to continue to drop to a level of 10-15% during 2008

Exhibit 3 .

From here, I wanted to see the reaction of the stock during these earnings announcements and will there be any opportunity to place an option bet to capture some value. There will be 18 trading days from the close of July 24th (earnings date) and when the August 08 contracts expire. Here are the last 11 earnings announcements and the performance.

Exhibit 4.1 – Dataset

Over the entire dataset of eleven 8-K earnings announcements, the stock has traded an average of +13%, with a max of +19% and a minimum of –0.1%. But before “backing up the truck” to buy call options to maximize profits, look at the last three quarterly results:

18 Day average of +1.3%, with a maximum of +6.8% and a minimum of –3.3%.

Exhibit 4.2 – Graph of results

To me, this range provides small opportunity to buy any calls or puts. But knowing the historical volatility of the stock, a long holder of NTRI might want to consider a covered call option strategy to capture some additional value by selling a call 5-10% above the July 23rd close price before the earnings announcement.

I will revisit this trade on July 23rd and provide you some a "mock" trade that I would put into place for my fake portfolio.

Author disclosure: I do not own any shares of NTRI

Sources:

SEC Online
Yahoo Finance
Morningstar.com

Company website

The crux with the Crox valuation

2007-07-04T13:15:00.000-05:00

Can someone please help me justify why any investor would be buying Crox, Inc. (CROX) at these price levels?

Some financial facts:
- Price to Sales multiples of 9.4x on 2006 sales and 4.7x on 2007 sales
- Price to Earnings multiples of 51.6x on 2006 income and 25.8x on 2007 income
- Cumulative Net Income from 2003-2006 equal to $78.3 million; resulting in a cumulative Free Cash Flow from 2003 to 2006 to $(2.6) million..putting a significant amount of faith in the management with the re-investment.

After completing my initial analysis on this stock, I am hesitant to issue a "Sell" rating because of the following
#1. Significant amount of shorts that may cause a short squeeze
#2. A Consistent "Buy" recommendation from Jim Cramer and his following
#3. A recent stock split (historically stock splits have provided favorable returns to equity owners one year post split)....

Therefore, I am putting this as a "Hold" waiting for the first sign to short sell, specifically missing the Q2 sales estimate...

With a market cap of $3.3 Billion, CROX has experienced a recent decline in their share price since the stock split on June 15th.

Figure 1. Stock Performance

Don't get me wrong, CROX deserves some credit with the growth rates that the company has achieved to date. I just don't think there is enough gas in the tank to meet future analyst growth targets. Here is a chart showing Sales and Income growth rates by quarter.

Figure 2. Sales and Income Growth Rates.

With the above initial valuation metrics that I have provided, I also completed a discounted cash flow model on the stock to see what it would take to justify today's $3.32 Billion price tag.

Summary or Assumptions to justify valuation:
- Forecast Time Period: 2007 - 2013 (7 years)
- Using the Analyst sales forecast to 2008, then growing sales at the following rates: 2009 @ 25% declining to 5% in 2013
- Net Income Margin of 18%, consistent with analysts

- Free Cash Flow % to Net Income of 25% in 2007 growing to 110% in 2013

- WACC of 12% and a Terminal Rate of 5%

Significant Risks:

- Annual sales growth profile from 2007-2013 in the face of competition and keeping the brand fresh

- Risk of CROX net income margin erosion due to new licensing agreements for Warner Bros. and Looney Tunes characters

- 5% Terminal Rate staring in 2014

Figure 3. CROX DCF model

Disclosure: Author does not own or is short CROX at the time of publication.

Sources:

Yahoo Finance

SEC Filings

Morningstar.com

Company website

G. Willi Food International - A kosher stock for your portfolio

2007-06-24T15:45:00.000-05:00

Go figure.......As I get back in the blogging game this week, I am slapped with a reality that I was a tad bit slow on this great microcap stock that I started to research last week. As I post my first article back on G. Willi Food International (WILC), the corporate parent announces they are selling a 44.99% stake in their company to Israeli tycoon Arkady Gaydamak. This represents a +30% increase to their closing price on Friday 6/22/07.

Here are my top three reasons why I like WILC:

#1. Emerging Market stock at a decent value with some additional growth opportunities in the US.

#2. Healthy balance sheet, with management currently making strides to continue to improve that by restructuring some of the current debt.

#3. Latest cash balance of $21.7 Million, representing about $2.11 a share or ~25% of the market cap.

Company Profile: G. Willi-Food International is a kosher food importer in Israel. It has contracts with more than 100 food suppliers. Willi-Food's offerings range from canned vegetables and fruits to pickles, canned fish, selected bakery products, lemon juice, dried fruit, nuts, pasta, halva, coffee creamer, snacks, dairy products and cheese. It distributes its products to more than 1,000 customers, including network wholesalers, supermarket chains, and mini-markets.

5 Year Financial Trends: For the 5 year period of 2002 to 2006, WILC has achieved a revenue compounded growth rates of 8.8%, with a 15.4% annual growth last year. Net Income growth has stellar at a CAGR of 33.7%, going from $1.5 million in 2002 to $6.4 million in 2006 .

Stock performance: If you invested $10,000 on Jan 2nd, 2002 in WILC common stock, your portfolio balance would be worth just shy of $60,000, representing a 34.8% annual return. This i s ~7.7x higher than the S&P 500 of 4.5%. These amounts are as of close on Friday and do not account for the recent announcement.

Value scorecard: When you look at my value scorecard for WILC, you will not be overly impressed....The sections that capture my attention, WILC just missed capturing a passing grade on the revenue and income growth metrics (Sect. A and B). More importantly, my top 3 reasons are driving my decision to recommend this stock, that was as of Friday....

Additional blog postings on WILC can be found at the Israel Newsletter blog.

Disclosure: Author does not own any shares of WILC.

Sources:

Company Websites

Yahoo Finance

Morningstar

SEC Online

It has been some time since my last post....

2007-06-23T14:17:00.000-05:00

To all my readers....I apologize since it has been some time since my last post. Just recently, I took a break from managing my portfolio due to someone in my immediate family taking a job with an official NASD dealer. With that comes additional disclosures and requirements on trading.

So with that said, I closed out my entire portfolio and will get back to researching undervalued companies. The only difference will be that I will not own the stock.

I have updated my portfolio summary and it is good to see that the portfolio is tracking better than the S&P 500...

Regards,
ET StockIdeas

The long case for Capital One Financial - COF

2007-02-10T18:44:00.000-05:00

Capital One Financial – Smart Money Recommendation
As I am reading the March 2007 edition of Smart Money, the magazine interviews David Williams, fund manager of Excelsior Value & Restructuring Fund. His fund has doubled over the last 10 years, as he picks his favorite five stocks for the years ahead. They are:

Anadarko (APC)
Capital One Financial (COF)
Centex (CTX)
Devon Energy (DVN)
MetLife (MET)

As I always look to capture a return on my subscription investment, I decided to research and purchase one of the five stocks recommended by David Williams. My selection is Capital One Financial due to the stability of the equity over the last five years with additional appreciation opportunity.

Company Overview:
Capital One Financial Corporation operates as the holding company for the Capital One Bank, which offers various financial services in the United States and Canada. It accepts demand deposits, money market deposits, NOW accounts, and certificates of deposits, as well as offers consumer loans; commercial loans; automobile and other motor vehicle financing, including financing for the purchase of new and used vehicles, as well as refinancing of existing motor vehicle loans. The bank also offers credit card products, as well as small business lending, installment lending, and health care financing. The company invests in various securities, including the U.S. Treasury and other U.S. government agency obligations, collateralized mortgage obligations, mortgage backed securities, and asset backed securities. The company was founded in 1993 and is headquartered in McLean, Virginia.

5 Year Financial Trends Chart:
For the 5 year period of 2002 to 2006(TTM), COF has achieved a revenue compounded growth rates of 12.0%, with annual growth increasing every year of the 5 years. The net income growth has outpaced revenue with a 5 year growth rate of 28.0% with every year in the double digit rate. Resulting in a consistent improvement in the return on sales metric.

Historical Stock Performance:
If you invested $10,000 on Jan 2nd, 2002 in COF common stock, your portfolio balance would be worth $15,358 or an 7.4% annual return, ~2.0x higher than the S&P 500 of 3.7%. The equity has achieved most of the increase in 2003 and 2004, with a –11% performance for 2006. On a 2007 YTD basis, the equity is up 7% as of February 9th, 2007

Value Scorecard:
A very impressive value scorecard for COF, capturing a passing mark on 6 of the 8 indicators. The strongest of the passing grades is within the free cash flow yield section, coming in at 14.9%. Of the 2 failing marks, there is a slight inconsistency with Free Cash Flow and the update long-term debt to book value has been improving every year.

Sensitivity Chart:
My current valuation model is resulting with the common equity of COF to be valued at a market cap of $39.1 Billion or $95.34 per share.
Here are my assumptions:
- In my sales forecast, I am using the analyst consensus for 2007 & 2008 of $17.1B and $18.7B, respectively. 5% growth thereafter.
- WACC of 8.9%
- Perpetuity Rate of 0%
- Free Cash Flow as a % to Sales of 25% , based on historical averages.
- Cash of $5.6B and total debt of $26.7B from the Q3 2006 filing.

Here is the sensitivity chart on annual sales increase per year vs. the perpetuity rate

Author Disclosue: At the time of post, author does not own any COF shares but has the intention of owning shares in a few days.

Sources:
Company website
SEC online for 10-K and 10-Q filings
Yahoo.com Finance website
Smart Money magazine

Chiquita Brands Incorporated – Attractive free cash flow yields but be careful not to slip on the peel….

2007-01-27T21:02:00.000-05:00

I have added Chiquita Brands Incorporated (CQB) to my portfolio on Jan 25th, 2007 at a price of $15.66 per share driven by the risk/reward proposition at these price levels.

Here are the main reasons I like to stock, in order of significance:
- Employing acquisition strategy to diversify product portfolio into high profit margin businesses - Free cash flow yield of 10.8% on a trailing twelve month basis for 2006, and 20.1% in 2005
- Cash per share of $2.46 or 15.5% of current market cap
- Price to Book Value of 0.6 times
- Well recognized brand equity & quality
- Spinach scare puts equity into an oversold position

Keep a close eye on these items that might make you slip on their peel:
- The dividend has just been cut to pay down some of the current debt
- A few legal proceedings involving management and the federal agencies
- Atlanta AG goodwill analysis not yet finalized
- Continued weakness in bananas segment due to EU Regime law of banana imports

Company Overview
Chiquita Brands International, Inc. and its subsidiaries operate as a leading international marketer and distributor of bananas and other fresh produce sold under the “Chiquita” and other brand names in approximately 70 countries and packaged salads sold under the “Fresh Express” brand primarily in the United States. The company also distributes and markets fresh-cut fruit and other branded, value-added fruit products. The company produces approximately 30% of the bananas it markets on its own farms, and purchases the remainder of the bananas, all of the lettuce and substantially all of the other fresh produce from third-party suppliers throughout the world.

5 Year Financial Trends
For the 5 year period of 2002 to 2006(TTM), CQB has achieved a revenue compounded growth rates of 21.5%, with annual growth in double digits for the last 4 years. Net Income growth has not been as consistent as the topline, going from a loss of $(384) million in 2002 to a profit of $23.7 million in 2006 (TTM).

Stock performance
If you invested $10,000 on Jan 2nd, 2002 in CQB common stock, your portfolio balance would be worth $15,946 or an 8.1% annual return, ~2.1x higher than the S&P 500 of 3.8%. The equity has achieved most of the increase in 2002 and 2003, booking a negative return from 2003-2007 YTD.

Value scorecard
CQB has an average value scorecard capturing a passing mark on 4 of the 8 indicators. The strongest of the passing grades is within the free cash flow yield section, coming in at 10.8%. Of the 4 failing marks; Section F. (Liabilities to Book value) and Section B. (Annual Net Income Growth) are the sections that I am slightly concerned with.... I will be monitoring this stock very closely.

Growth Potential
My current valuation model is resulting with the common equity of CQB to be valued at a market cap of $891 Million or $21.56 per share.
Here are my assumptions:
- Sales Forecast with a 2006-2011 CAGR of 5.0%/
- WACC of 6.1%
- Perpetuity Rate of 0%
- Free Cash Flow as a % to Sales of 2%
- Cash of $101.6 Million from Q3 2006
- Total Debt of $978.0 Million

Here is the sensitivity chart on annual sales increase per year vs. the FCF% to NTS

Additional blog postings on CQB can be found at the Value Discipline blog.

Author disclosure: I currently own shares of CQB.

Sources
Company website link
Morningstar.com
Yahoo finance
SEC on-line 10-K and 10-Q reports

Stockpickr Spotlight Portfolio Review: Hidden Values Alert

2007-01-18T18:40:00.000-05:00

As I continue to scan for the next best value investment for my portfolio, I regularly visit the Stockpickr.com site to view what the pro value investors are adding to their portfolios. On my last visit to Stockpickr, the site selected the www.hiddenvaluesalert.com (a value investment newsletter) as a spotlight portfolio. This portfolio is comprised of 10 companies with market caps less than $3 billion that have high return on equity, low debt and consistent earnings and revenue.

In this post, I will provide my completed value scorecard for each of the 10 stocks in the Hidden Values Alert portfolio and highlight the best and worst financial aspects of the equity.

In Summary, here are some of the major highlights of my research:

- 8 out of 10 demonstrate 5 years of positive revenue growth, with Carbo Ceramics (CRR) leading the group in 23.0% CAGR.
- 9 out of 10 demonstrate 5 years of positive net income growth, with Labor Ready (LRW) leading the group in 56.9% CAGR.
- 1 out of 10 passed the 5 years of positive free cash flow growth, with K-Swiss (KSWS) leading the group in 28.0% CAGR. Please note that KSWS did not pass the overall test because of the recent performance of negative FCF growth from 2005-2006 on a TTM basis.
- 0 out of 10 stocks are valued less than 1.5 times their book value.
- 8 out of 10 stocks paid a dividend in 2006.
- 9 out of 10 stocks have a total liabilities balance less than the equity portion of the business
- 0 out of 10 stocks pass the FCF and Earnings yield safety of margin test of 2 times the current 10 year Treasury note.

Here is a picture summarizing the pass/fail results, with the leader in the group boxed out.

1) Timberland – TBL

Company Description: The Timberland Company engages in the design, development, marketing, and distribution of footwear, and apparel and accessories products for men, women, and children. As of December 31, 2005, The Timberland Company operated 21 specialty stores and 57 factory outlet stores in the United States; and 117 specialty stores and shops, and 28 factory outlet stores in Europe and Asia. The company was incorporated in 1933 and is headquartered in Stratham, New Hampshire

Assessment: Out of the 10 stocks, TBL has the weakest scorecard, currently only passing 1 of the 8 sections. TBL has l low liabilities % to equity at 66%. The firm is experiencing some slowdown on a TTM basis, which is resulting in many of the failure marks.

2) MSC Industrial Direct Co. – MSM

Company Description: MSC Industrial Direct Co., Inc., together with its subsidiaries, engages in direct marketing of various industrial products in United States. It distributes a range of stock-keeping units that include cutting tools, measuring instruments, tooling components, fasteners, flat stock, raw materials, abrasives, and machinery hand and power tools; and janitorial, plumbing, material handling, power transmission, and electrical supplies; and other products. The company was founded in 1941 and is headquartered in Mellville, New York.

Assessment: Currently passing 50% of the value scorecard sections, with strong revenue and income growth leading the way. Free cash flow yield is currently at 4.2% in the light of a decline from the full year of 2005.

3) Graco – GGG

Company Description: Graco, Inc. engages in the design, manufacture, and marketing of systems and equipment to move, measure, control, dispense, and spray fluid materials for industrial and commercial applications. The company operates through three segments: Industrial/Automotive Equipment, Contractor Equipment, and Lubrication Equipment. The company sells its products directly to end users, as well as through retail stores, independent distributors, integrators, warehouse distributors, jobbers, manufacturer representatives, and original equipment manufacturers. It has operations in North America, South America, Europe, and Asia. Graco was founded in 1926 and is headquartered in Minneapolis, Minnesota.

Assessment: GGG is the leader of the group demonstrating passing grades on 5 of the 8 value scorecard sections, with income and free cash flow growing faster than sales. For these great marks, GGG provides the highest price/book valuation at 8.6 times.

4) Watsco – WSO

Company Description: Watsco, Inc., along with its subsidiaries, distributes air conditioning, heating, and refrigeration equipment, and related parts and supplies. It operates in two segments, Distribution and Staffing. The company was founded in 1945 and is headquartered in Coconut Grove, Florida

Assessment: Provides positive grades on 4 of the 8 value scorecard sections, with income growing faster than sales. WSO also provides the lowest price/book metrics and highest dividend yield of the 10 stock groups. The major concern I have for GGG is the steady decrease of free cash flow of the last 5 years….

5) Florida Rock Industries – FRK

Company Description: Florida Rock Industries, Inc., a construction materials company, together with its subsidiaries, produces construction aggregates, ready mixed concrete, and concrete block. It operates in three segments: Construction Aggregates, Concrete Products, and Cement and Calcium Products. Its principal markets are the southeastern and mid-Atlantic states in the United States. The company was incorporated in 1945 and is based in Jacksonville, Florida.

Assessment: Provides positive grades on 4 of the 8 value scorecard sections, with a strong argument that it should pass the FCF growth section. Similar to WSO, FRK grows their income faster than sales, showing margin improvement. FRK is also on the lower end of the price/book metrics of the group. No significant concerns with FRK; will complete a second round of diligence in the equity.

6) Carbo Ceramics - CRR

Company Description: CARBO Ceramics, Inc. engages in the production and supply of ceramic proppant for use in the hydraulic fracturing of natural gas and oil wells. It operates in two segments, Proppant, and Fracture and Reservoir Diagnostics. The company’s proppant products are marketed worldwide primarily through pumping service companies that perform hydraulic fracturing for oil and gas companies. CARBO Ceramics was founded in 1987 and is headquartered in Irving, Texas.

Assessment: Provides positive grades on 4 of the 8 value scorecard sections, with the highest 5-year revenue growth rate of the group. The negative free cash flow for the last 2 years is something that should be looked into more closely.

7) K-Swiss - KSWS

Company Description: K•Swiss, Inc. engages in the design, development, and marketing of athletic footwear for sport, fitness activities, and casual wear in the United States and internationally. The company offers its products under the brand names ‘K•Swiss’ and ‘Royal Elastics’. It also markets apparels and accessories, including skirts, shorts, tops, polo’s, dresses, and warm-ups for men and women, as well as T-shirts, caps, socks, and bags. The company sells its products directly and through independent sales representatives to specialty athletic footwear stores, pro shops, sporting good stores, and department stores, as well as through its Web site. K•Swiss, Inc. was founded in 1966 and is headquartered in Westlake Village, California.

Assessment: KSWS passes 3 of the 8 sections, with the highest 5 year free cash flow growth rate and the lowest liabilities to book value of the group. The equity just recently failed the sales and the FCF growth rate sections on a TTM basis, while still providing a better FCF yield than the 10-year T-note. I will be adding KSWS to my second round of due diligence list.

8) Labor Ready - LRW

Company Description: Labor Ready, Inc. and its wholly-owned subsidiaries provide temporary employees for lifting, hauling, cleaning, assembling, digging, painting, and other types of manual or unskilled work. As of December 30, 2005, it had put approximately 600,000 people to work. The company serves small and mid-sized businesses in the construction, transportation, warehousing, hospitality, landscaping, light manufacturing, retail, wholesale, facilities, and sanitation industries. Labor Ready operates in the United States, Puerto Rico, Canada, and the United Kingdom. The company was incorporated in 1985 and is headquartered in Tacoma, Washington.

Assessment: LRW provides one of the strongest value scorecards of the group. Even though it only passes 3 of the 8 sections, of the 5 sections that are negative grades, most of them are on the cusp. The best thing that I like about LRW is the FCF yield at 8.9%, the highest in the group… This is the section that I favor most. Needless to say, I am adding LRW to my second round of diligence list.

9) Forward Air - FWRD

Company Description: Forward Air Corporation and its subsidiaries provide surface transportation and related logistics services to the deferred air freight market in North America. Its shipment consists of a pallet-load of freight, including electronics, telecommunications equipment, machine parts, trade show exhibit materials, or medical equipment. The company also offers a range of logistics services, including truck brokerage; dedicated fleets; warehousing; customs brokerage; and shipment consolidation and handling. As of February 27, 2006, Forward Air operated through a network of 81 terminals located on or near airports in the United States and Canada. It operates regional hubs in Atlanta, Dallas/Ft. Worth, Kansas City, Los Angeles, New Orleans, Newburgh, Orlando, and San Francisco. The company offers its services to air freight forwarders, integrated air cargo carriers, and passenger and cargo airlines. Forward Air was founded in 1981 and is headquartered in Greeneville, Tennessee.

Assessment: Provides positive grades on 4 of the 8 value scorecard sections, with income growing faster than sales. FWRD is on the lower end of the group in the liabilities to book metric. FWRD is trading on the high end for the group in the price to book valuation metric.

10) JB Hunt Transport Services - JBHT

Company Description: J.B. Hunt Transport Services, Inc., through its subsidiaries, provides transportation services in North America. It transports forest and paper products, building materials, general merchandise, food and beverages, chemicals, and automotive parts. It operates in three segments: Full Truck-Load Dry-Van (JBT), Intermodal (JBI), and Dedicated Contract Services (DCS). The company was founded by Johnnie Bryan Hunt in 1961 and is headquartered in Lowell, Arkansas.

Assessment: Provides positive grades on 3 of the 8 value scorecard sections, with income growing faster than sales. Some concerning areas are the –84% drop in free cash flow from 2005 and the significant increase in liabilities to book value….

Disclosure: Author does not currently own any of the stocks mentioned in this post.

Sources:
Stockpickr.com website
Morningstar.com website
Yahoo Finance website

Williamette Valley Vineyard, Inc. (WVVI) rating a hold until more grapes can be found…..

2007-01-09T21:55:00.000-05:00

My two main reasons for rating this microcap vineyard a hold is as follows:

#1. Waiting for more production to come on-line
Here is an excerpt from the 2006 Q3 10-Q filed with the SEC “Demand for Willamette Valley Vineyards Pinot Noir and Pinot Gris continues to exceed available inventories.”

#2 Waiting for the market reaction to cool off driven from the announcement that the CEO sold 10% of his stake in the company.
Throughout December 2006, Founder and CEO James Bernau sold 65,570 shares at an average price of $7.02 representing approximately 10% of his outstanding shares. After the transaction, Mr. Bernau owns 618,176 shares or 12.9% of all outstanding stock.

Company Overview
Willamette Valley Vineyards, Inc. engages in the ownership and operation of vineyards and a winery in Oregon; and production and sale of wines. It produces and sells wine under the names of Pinot Noir, Chardonnay, Pinot Gris, and Riesling and Oregon Blossom types of wines. The company markets and sells its wines through a combination of direct sales at the winery; directly and indirectly through its shareholders; self-distribution to local restaurants and retail outlets in Oregon; directly through mailing lists; and through distributors and wine brokers. Willamette Valley Vineyards was founded by Jim Bernau in 1983 and is headquartered in Turner, Oregon.

5 Year Financial Trends
For the 5 year period of 2002 to 2006(TTM), WVVI has achieved compounded growth rates of 19.5% on revenue and a 69.1% on income, this is the type of growth and leveraging that any investor is happy to see. As mentioned earlier, the topline growth has slowed down in the last 2 quarters because of supply constraints. As noted in the 10-Q from the 3rd quarter of 2006, “Management continues to develop both short and long term wine grape and wine supplies to address this demand. This year's harvest aided our effort by producing higher quality and volumes, approximately 20% more than expected in tonnage.”

Stock performance
If you invested $10,000 on Jan 2nd, 2002 in WVVI common stock, your portfolio balance would be worth $34,763 or a 23.1% annual return, ~6.7x higher than the S&P 500 of 3.5%. WVVI has appreciated 36% in 2006 and is down (6)% in 2007 YTD through Jan 9th, mainly due to the negative reaction of the James Bernau selling 10% of his stake at $7.02 a share.

Value scorecard
WVVI has as average value scorecard capturing a passing mark on 3 of the 8 indicators. Of the 5 failing marks, Section D (Price to Book Value) needs to be adjusted for the higher current value of the vineyard & land that WVVI currently owns; improving my valuation model by $3.0 million. Company currently does not pay a dividend.

Growth Potential
My current valuation model is resulting with the common equity of WVVI to be valued at a market cap of $28.4 Million or $5.94 per share.

Here are my assumptions:

- Sales Forecast with a 2006-2011 CAGR of 5.9% in the following per year, showing an annual incremental growth rate of 3% per year.

2006 FY $15.1 Million, 10% vs. PY
2007 $15.1 Million, 0% vs. PY
2008 $15.5 Million, 3% vs. PY
2009 $16.5 Million, 6% vs. PY
2010 $17.9 Million, 9% vs. PY
2011 $20.1 Million, 12% vs. PY

- WACC of 12.5%
- Perpetuity Rate of 3%
- Free Cash Flow as a % to Sales of 15%
- Cash of $2.4 Million from Q3 2006 Long-Term Debt of 2.1 Million
- Increased asset value of vineyard land from $769K to $3.8 Million for real estate appreciation of 180 acres for property owned.

Here is the sensitivity chart on annual increase per year vs. the FCF% to NTS

Author disclosure: I currently do not own any shares of WVVI.

Sources
Company website link
Oregon vineyard website
Yahoo finance
SEC on-line 10-K and 10-Q reports

Portfolio Update - PKX

2007-01-07T15:46:00.000-05:00

Portfolio Update: Sold Posco (PKX) shares after my stop-loss was triggered at $80.00 per share on 01.03.2007

Well that was a sprint to my price target for Posco….

from the Posco blog entry on November 11th my price target was $82.16 (November 2nd closing price of $71.20 x 1.154 = $82.16. Once my price target was hit on 12.14.2006, I put in a stop loss of 3% on that price. The price continued to increase from there to a 52-week high of $86.16 on 12.18.2006.

As a lesson learned, I should have adjusted my stop-loss upward so that I could have locked in additional gains as the price continued to move upwards. I will make sure I incorporate this into any future trades.

Overall summary of trade:
Bought @ 73.73 on 11.07.2006 (S&P value of 1,382.84)
Sold @ 80.00 on 01.03.2007 (S&P value of 1,416.60)
Actual return of 8.5% or 3.5 multiple over the S&P 500 gain of 2.4%

In addition to my summarizing my open portfolio positions on my blog, here is a link of my overall porfolio summary.

Portfolio Summary

2007-01-06T20:10:00.000-05:00

2006-12-31T16:43:00.002-05:00

I would like to welcome you to FinancePuzzle.com

Hi, my name is Elias and I am the editor of FinancePuzzle blog. This blog is dedicated to capturing my financial thoughts as I progress towards my personal goals and hopefully help my readers along the way. Blog postings will include many areas of finance from basic money saving tips to advanced trading ideas and anything else finance related.

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Merck/Sirna Merger Arb results in 8.4% APR

2006-12-30T15:03:00.000-05:00

As you may previously recall, I entered into a merger arbitrage trade position for my short-term mock portfolio with Merck (MRK) and Sirna Therapeutics. Here is the link to the original post... MergerArb#1.

On Friday December 29th, 2006 Merck & Co., Inc. announced that it has successfully completed the acquisition of Sirna Therapeutics, Inc. in a cash transaction which closed in the fourth quarter of 2006. This date was 3 days later than my projected bull case.

Trade results in a profit after commissions of $125 or 8.4% APR.

Disclosure: This strategy is highlighted for entertainment purposes for my mock short-term portfolio.

Hershey - This milk chocolate will melt in your hand

2006-12-27T14:12:00.000-05:00

On December 27th, 2006, I have shorted Hershey (HSY) at $50.60 per share. This is the first stock that I have decided to short which is mainly driving by the following:

- Canada plant shutdown with a material product recall

- Lowered guidance twice in the last 6 months

- Poor financial trends with increasing debt position to buyback shares

- Lowering advertising budget from 4.0% in 2002 to an estimated 2.5% in 2006

- Future risk of goodwill/intangible impairments with any additional decreases in revenue

Company Background:
The Hershey Company engages in the manufacture, distribution and sale of confectionery, snack, refreshment, and grocery products in the United States and internationally. It principally offers confectionery and snack products in the form of bar goods, bagged items, and boxed items; refreshment products in the form of gum and mints; and grocery products in the form of baking ingredients, chocolate drink mixes, peanut butter, and beverages. The company sells its products primarily to wholesale distributors, chain grocery stores, mass merchandisers, chain drug stores, vending companies, wholesale clubs, convenience stores, and concessionaires through sales representatives, food brokers, and retail sales merchandisers. It also offers chocolate products in Brazil under the brand name 'HERSHEY'S'. The company was founded by Milton S. Hershey in 1894. The Hershey Company is based in Hershey, Pennsylvania.

5 Year Financial Trends
Nothing exciting when looking at the 5 year financial trends chart for HSY. The revenue line is growing at a rate of 3.7% from 2002-2006 and net income is growing at 7.4% within the same period. The recent guidance from the company is pegging top line growth at ~2.4%. Core business is declining partially offset by the new product lanches. Hershey has been experiencing some gross profit erosion due to product mix and raw materials increases. The management has been able to offset these expenses with reductions in the SG&A areas of the business, potentially cutting too much of the advertising expenses.

Stock performance
Investing $10,000 in HSY at the end of 2001 would be worth approximately $16,400 today (12.26.2006). This represents a 10.4% annual rate of return, 2.4x higher than the S&P 500 benchmark of 4.3%. The stock has captured the majority of the gains in 2003 and 2004, with marginal declines from 2005 through Dec 2006.

Value scorecard
My value scorecard highlights the balance sheet concerns that are supporting my short decision:

- Increasing debt position over the last 5 years from $880 Million or 64% of book value in 2002 to $2.3 Billion or 275% of book value as of Q3 2006. $190 Million or 15% of the $1.3 Billion in long-term debt is due in 2007.
- The current market cap of $11.7 Billion is approximately 12.6 multiple from the book value of $830.3 Million as of Q3 2006.
- The current ratio has been steadily decreasing over the last 5 years from 2.3x in 2002 to 1.0x in Q3 2006
- Goodwill and Intangibles assets account for 76% of the book value. If sales performance declines, there is a potential exposure of additional asset impairment charges.

Growth Potential
When deriving a price target for HSY, using a straigh P/E multiple calculation might not truly reflect some of the liquidity risks that are currently in the stock. HSY has been increasing debt to buyback shares to improve the reported EPS results. For my price target, I am using the dicsounted cash flow method resulting in an enterprise value of $9.5 Billion or $40.94 per share. Here are my assumptions:

- Revenue annual growth of 3.5% to $5.7 Billion in 2010 (consistent with management long-term rates and analyst consensus)
- Free Cash Flow as a % to Revenue of 15%. HSY has averaged approximately 9.4% from 2002-2006.
- Weighted Average Cost of Capital of 10%
- Terminal Growth Rate of 4%
- Q3 2006 Net Debt of $2.2 Billion

Understanding that my price objective is based on a few assumptions, I have provided a two-way sensitivity analysis on FCF % to sales vs. terminal growth rate to provide some additional safety.

Disclosure: Author is short Hershey (HSY) stock

Sources
Company website
SEC online for 10-K and 10-Q reports
Yahoo Finance

Disclaimer

2006-12-26T11:14:00.000-05:00

Disclaimer: The content contained in this blog represents the opinions of FinancePuzzle.com. FinancePuzzle.com may hold either long or short positions in the securities discussed in this blog. This commentary in no way constitutes investment advice. It is intended solely for the entertainment of the reader. Be sure to consult an investment professional before acting on any information that is contained in this blog. FinancePuzzle.com is a blog from a personal investor with no certification/liscening to provide investment advice. FinancePuzzle.com's past results are not necessarily indicative of future performance.

Merck/Sirna acquisition provides merger arbitrage opportunity

2006-12-15T19:53:00.000-05:00

Here is a merger arbitrage opportunity for my short-term portfolio. The players are Merck & Co. (MRK) and Sirna Therapeutics Inc. (RNAI)

The reason I am entering into this short-term trade for my are as follows:
- Successful completion of anti-trust filings
- Very minimal risk in not obtaining RNAI shareholder approval
- Annouced closing date range of late December 2006 to early January 2007 provides nice short-term window.

On December 14th, 2006 Merck and Sirna announced that the federal regulatory antitrust waiting period has expired for Merck's $1.1 billion acquisition of Sirna. The Hart-Scott-Rodino anti-trust waiting period is one of the major hurdles that an acquisition most overcome to close successfully. As this deal passes this hurdle, I see only one other major hurdle, Sirna (RNAI) shareholder approval.

Looking at the original terms or the acquisition, what shareholder would say no to this transaction...

On October 30th, 2006...Merck agreed to pay $13.00 per share in an all cash transaction for Sirna, that is a 102% premium that Merck ponied-up for this deal. Also, as in most merger stock charts, you will see that the price has been pegged around the $12.90 range since the announcement. This is primarily driven by all of the merger arbitrage trading that Sirna is experiencing, resulting in a higher probability of shareholder approval.

If you are unfamiliar with merger arbitrage, there are many variations. Here is the definition of what my trade is trying to accomplish:
A merger arbitrageur looks at the risk of the merger deal not closing on time or at all. Because of this slight uncertainty the target company's stock will typically sell at a discount to the price that the combined company will have when the merger is closed. Merger arbitrageurs care only about the probability of the deal being approved and how long it will take the deal to close.

Here are the details of the trade:

Purchase 1,933 shares @ 12.93 for $25,003 which includes $10 commissions.
Upon deal closing, this trade will provide a profit of $125.30 or 0.5% profit.
I know this return is not very exciting, but I am in the investing game to capture a slight edge, and this is it.

Depending on how many days it takes for the deal to close, it will impact your Annual Percentage Rate calculation. Here are 3 scenarios

Bull Case - Deal closes on 12/26/2006 yielding an APR of 11.4%
Base Case - Deal closes on 01/05/2007 yielding an APR of 6.0%
Bear Case - Deal closes on 01/15/2007 yielding an APR of 4.0%

Please note, APR calculations are based off of a 250-day calendar.

Disclosure: I am not long RNAI. This strategy is highlighted for entertainment purposes for my mock short-term portfolio.

3 reasons why I am adding ConocoPhillips

2006-12-07T20:38:00.000-05:00

On November 28th, 2006, I have added ConocoPhillips (COP) to my portfolio at $65.17 per share drive by the catalysts listed below:

-Recently announced 50/50 JV relationship with Encana (ECA) adds long term value to COP.

-Management stated focus on improving shareholder value and improving to AA credit rating by (1) debt level reductions, (2) annual dividend increases, and (3) share repurchases

-Strong value scorecard in comparison of the major integrated oil & gas companies, including British Petroleum (BP), Chevron (CVX), and Exxon Mobil (XOM)

Company Background:

ConocoPhillips operates as an integrated energy company worldwide. It operates in six segments: Exploration and Production, Midstream, Refining and Marketing, LUKOIL Investment, Chemicals, and Emerging Businesses. The Exploration and Production segment primarily explores for, produces, and markets crude oil, natural gas, and natural gas liquids. It also mines deposits of oil sands in Canada and upgrades into a synthetic crude oil. The Midstream segment gathers and processes natural gas; and fractionates and markets natural gas liquids primarily in the United States, Canada, and Trinidad. The Refining and Marketing segment purchases, refines, markets, and transports crude oil and petroleum products primarily in the United States, Europe, and Asia. The Chemicals segment manufactures and markets petrochemicals and plastics. The Emerging Businesses segment encompasses the development of new businesses, including new technologies related to natural gas conversion into clean fuels and related products, technology solutions, power generation, and emerging technologies. The company also provides technological solutions in deepwater exploration and production, reservoir management and exploitation, 3D seismic technology, petroleum coke upgrading, and sulfur removal. ConocoPhillips was founded in 1917 and is headquartered in Houston, Texas.

5 Year Financial Trends
COP has a 5-year compounded annual growth rate on revenue of 28.3% growing to $198.5 Billion on a trailing twelve-month basis, with the current analyst consensus coming in at $196.0 for the full year of 2006. From a profitability standpoint, COP achieved $16.0 Billion in the last twelve-months sporting a 35.6% on a 4-year growth rate basis. The current analyst consensus for 2006 net income earnings per share is $10.07.

Stock performance

Over the last 5 years, your original $10,000 investment in COP on January 2nd, 2002 would be worth $26,385 or a 21.3% annual return, ~5x higher than the S&P 500 of 4.1%. On an YTD basis, COP has appreciated 16% through December 6th, 2006 compared against the S&P benchmark of 13.2%.

Value scorecard
COP has a strong value scorecard when comparing against its major competitors in the integrated oil industry, capturing a passing mark on 5 of the 8 indicators. Of the 3 failing marks, COP is right on the edge on each of them. Earnings yield of 14.7% and a price to book of 1.34x with the management focus on improving shareholder value is providing me the appropriate safety of margin and future growth potential.

Growth Potential
To keep this simple and calculate my anticipated share price goal, I will use the current analyst estimates on Earnings per Share for 2007 and 2008 of $9.43 and $8.52, respectively. Applying an industry P/E benchmark range of 9x – 10x, the price range is from $75 to $96.

Sources:
Company website
SEC online for 10-K and 10-Q reports
Yahoo Finance

Cha-Ching – The unwinding of the pair trade

2006-12-01T01:37:00.000-05:00

"I love it when a plan comes together" as Hannibal frequently mentioned on the A-Team….

It only took 2 trading days for my pair trade goal to be met with a 72% annualized return before taxes. Here is the link to my pair-trade setup post:

A Perfect Pair Trade from Down Under

As expected, the price ratio fell within my goal on the ex-dividend date of IAF. Looking at the last 30 days of price ratio, you will notice the significant drop, similar to the previous quarterly dividend payment of IAF. The new price now falls below the 5 and 10 day moving average, along with falling in between the 2nd and 3rd quartile of the last years trading averages.

I was able to capture a net profit of $144 in 2 days, not including taxes. This results in a 72% annual percentage increase on my $25,000 investment, using a 250-day year. My profit before fees was $458 less $(40) for commissions and $(274) for dividend payments. You can improve this return by minimizing you per trade commission rates. I am using E*Trade as the basis. I have been recently informed that Bank of America will not charge you trading fees if you open an account of $25,000 or more, this would improve my return to 92%. Something to think about if you will be active with pair trades.....

If you have any other interesting pair trade setups, please feel free to email me the setups.

A Perfect Pair Trade from Down Under

2006-11-28T20:30:00.000-05:00

Along with my passion around finding those great long-term stock prospects, I enjoy executing various hedge and arbitrage strategies. In this post, I would like to highlight a pair trade opportunity that is too good to pass up.

Before I get started, I would like to level-set for everyone. Pair trades are one of the strategies commonly used by hedge funds. The idea is to buy a stock that is expected to perform well and short another stock in the same industry which is expected to underperform. When selecting this strategy, I prefer to use ETF's and/or stock funds to get this as close to market neutral as possible. I typically perform this strategy to try and capture dividend risk free in a short time frame. As I was scanning to find a stock that is on ex-dividend in the next week or so, I came across IAF.

Aberdeen Australia Equity Fund, Inc. (IAF) operates as a closed-end, nondiversified management investment company. It invests primarily in equity securities, consisting of common stock, preferred stock, and convertible stock of Australian companies. The fund’s investment portfolio comprises various sectors, such as consumer discretionary, consumer staples, energy, financials, industrials, materials, property, telecommunication services, and utilities. Aberdeen Asset Management Limited serves as the investment advisor of the fund. Aberdeen Australia Equity Fund was founded in 1985 and is based in Plainsboro, New Jersey.

Dividend Yield of 9.0% - Very Attractive
Ex-Dividend Date on 11.30.2006
Dividend per share of 0.32 per share paid quarterly

From there, I look for IAF's perfect match, a stock/fund or ETF that is highly correlated with the Australian stock market...As I go to Yahoo Finance and scan the available ETFs, there in the distant awaits EWA. You have to love the new world of exchange traded funds.

iShares MSCI Australia Index (EWA) seeks to provide investment results that correspond generally to the price and yield performance of publicly traded securities in the Australian market, as measured by the MSCI Australia index. The fund uses a representative sampling strategy to try to track the index. The index consists of stocks traded primarily on the Australian Stock Exchange.

The next step is to plot the ratio of the two symbols. I've captured the historical daily close prices adjusted for dividends, for the last year of trading from the Yahoo Finance historical quotes section. Here are some of the key statistics of the pair:

Correlation of IAF / EWA is 89.6%
I prefer to keep this range in the 80-90% range. To mitigate risk, you should elect this number to be closer to 100%, which also impacts the amount of profit that can be captured.

Price Ratio Averages of IAF divided by EWA (adjusted for the upcoming dividend on 11.30.06)
1 year 0.597
10 day 0.605
5 day 0.608

Min 0.558
Median 0.594
Max 0.653

The rationale:
Over the last year, IAF has paid a hefty dividend yield that attracts many shareholders to buy and/or hold through the ex-dividend date. Right after the ex-dividend date, there is a higher amount of selling of IAF relative to its peer EWA. The chart below highlights the price ratio of IAF/EWA through the last 4 dividend dates from IAF.

Here is the daily price ratio for the last year with the ex-dividend dates highlighted in yellow circle.

Zooming in closer, here is the same data for the last month.

As of 11.28.2006, the price ratio is .611. Since the latest price ratio falls between the 3rd and 4th quartiles of the annual range, I will elect to short the ratio. Shorting the ratio entails the following trade:

Portfolio Size: $25,000

Opening Trades:
Purchase 535 shares of EWA at $23.38 per share worth $12,500
Short 856 shares of IAF at $14.60 per share worth $(12,498). I am entering IAF at a pre-dividend price because I will be paying out the dividend of 0.32 per share since I am short the stock.

When I enter these trades, I plan on unwinding the pair trade once the price ratio falls withing the 2nd and 3rd quartile. In this instance, my goal is for a price ratio of .607 or lower. Assuming I exit the trade in 5 days at .607, I get an annual APR of 38.5% on a 250 day basis. When I count in a $9.99 per trade commission fee, I get to a 22.5% return before taxes applied to my short-term capital gains.

Stay tuned for the results of this pair trade........

Disclosure: This strategy is highlighted for entertainment purposes. I am neither long IAF nor short EWA.

Walter Industries doesn't hold much water on a value perspective

2006-11-22T14:27:00.001-05:00

After selecting WLT from one of the email requests to review, I will not be adding Walter Industries (WLT) to my value portfolio mainly because of the high amount of debt in relation to the book value. My value scorecard only shows one passing mark in the dividend section with a yield of approximately 0.4% in 2005. In providing a growth assessment of the firm, WLT curently provides some upside opportunity to the current trading levels with the lowest P/S multiple across the industry comparative. This growth upside does have some risk associated with it driven by the P/S industry benchmark of 1.4x vs. WLT's 0.7x.

Company Overview

Description
Walter Industries, Inc., is a diversified company which operates in seven reportable segments: Mueller, Anvil, U.S. Pipe, Natural Resources, Homebuilding, Financing and Other. Through these operating segments, the Company offers a diversified line of products and services including water infrastructure and flow control products, coal, natural gas, home construction and mortgage financing, furnace and foundry coke and slag fiber. On December 3, 2003, the Company completed the sale of AIMCOR, previously a wholly-owned subsidiary of the Company, to Oxbow Carbon and Minerals LLC. The Company also completed the sale of JW Aluminum, previously a wholly-owned subsidiary of the Company, to Wellspring Capital Management LLC on December 5, 2003. As a result of the above sales, the results highlighted below have not been classified into discontinued operations.

5-Year Financial History

In the 5-year historical picture, Walter Industries had two major divestitures in December 2003 and two major acquisitions in October 2005. The 2002 – 2003 annual revenue and income impact is driven by the divestures. Excluding these one-time impacts, WLT has been showing some nice revenue growth along with going into a profitable position. On a trailing twelve months (TTM), I am anticipating a 78% annual increase in revenue to $3.2 Billion mainly driven by the recent Mueller and Anvil acquisitions completed on October 3rd, 2005. In the past 5 years years, Walter Industries has maintained operating expenses at historical levels in the face of the divestures and acquisition activity.

5-Year Stock Performance

If you had invested $10,000 in WLT stock on January 2nd, 2001, your stock would be worth $63,411 representing a +534% return or 36.0% annually. There were only 2 years that Walter Industries experienced negative price performance in 2002 and 2006 year to date.

Value Assessment Scorecard

I use an 8 criteria selection grid to help me assess potential value in any equity assessment. These 8 criteria are mainly driven from my readings of Benjamin Graham. The security doesn’t have to pass all of the below criteria to be selected for my portfolio, the more the better. Some of the major items that I focus on are Price to Book ratio (Criteria D.) and the earnings and free cash flow yields metrics (Criteria G.).

The value scorecard illustrates WLT’s significant amount of debt compared to the current book value, currently at 3x on the last reported balance sheet as of Q3 2006. WLT’s price to book ratio has been steadily increasing from 2001-2005, with a correction on the TTM basis coming in at 2.8x. Slightly higher than what I am comfortable with. The company does provide FCF yield’s that are higher than the current 10-year note, but not 2x enough to provide me a safety margin in my investments.

Growth Assessment

With my growth reviews of stock, I use a few different valuation techniques to surround my assumptions.
- 5 Year Discounted Cash Flow model with terminal value
- Industry Price to Earnings multiples
- Industry Price to Sales multiples
- Current Price to Earnings sensitivity

From a growth perspective, there is some potential upside to the current market cap value. This is mainly driven by the Price/Sales ratio that I am using from the Morningstar website at 1.4x. If I use a 0.7x price to sales ratio that the stock is currently trading at, the overall growth market cap is 2,089 or 1.2% upside opportunity to the current trading levels.

DCF Model

In my 5 year discounted cash flow model, I am assuming 10% sales growth with net income margin improving to 4.1% and the free cash flow % to revenue of 6.0%, compared to 2.8% and 4.0% on a TTM basis. With a corresponding 5% terminal value and 10% cost of capital, WLT’s value is worth around $2.0 Billion.

Industry P/E and P/S multiples

With the diversified portfolio of Walter Industries, I have elected to capture the Morningstar.com industry benchmarks for Price to Earnings of 15.9x and 1.4x respectively. As previously mentioned, the 1.4x Price to sales benchmark is creating a potential growth opportunity for WLT. When you hold the 0.7x of Price to Sales the current stock is trading at, the potential growth has disappeared.

Current P/E sensitivity

With the Morningstar.com benchmarks, you will notice the Walter Industries is currently trading at 48.7x to earnings per share with the industry trading at 15.9x. I have selected a P/E of 15.0 to capture the market cap sensitivity on project future earnings growth of 10%.

Sources:
Company Website
Edgar Online database
Yahoo Finance Website
Morningstar Website

Google vs. Yahoo

2006-11-16T11:54:00.000-05:00

GOOG vs. YHOO – Main Event
Internet Giants Heavyweight Championship

“Are you ready to rumble?”

It seems everyone I talk to is evaluating the investment decision between Google and Yahoo, mainly driven around the recent Google acquisition of YouTube and the posing questions around will Yahoo look to acquire Facebook. Just quickly looking that the fundamentals at first pass, I will not be adding either GOOG or YHOO to the portfolio base on the current trading levels above book value and P/E multiples based on my value approach to investing. I do want to provide my tale of the tape comparison of the two companies. I will be evaluating the two companies side-by-side on the following sections: Income Statement, Balance Sheet & Cash Flows, and Growth Valuations.

Let’s first look at the company overview to provide you with a background of the companies.

Round #1 - Income Statement, the clear winner is GOOG. With a commanding lead in all of the selected categories, the most impressive is the 5-year growth rate on revenue. In 2001, GOOG recorded $86MM of revenue compared to $717MM of revenue for YHOO. By the end of 2003, the two companies were almost equivalent in the amount of revenue recorded, with YHOO booking almost 2x of the net income. On a 2006 TTM basis, GOOG is recording approximately 33% more revenue than YHOO with an 800 basis point lead on margin, very impressive in the ability to drop most of the top line gains to the bottom line. To note, there are approximately one-time gains in YHOO’s 2005 financials that is reflecting the 2006 TTM annual growth rate to go negative.

Below you will find the Financial Trend Charts that I typically provide:

GOOG

YHOO

Round #2 - Balance Sheet & Cash Flow, I will rate a tie. GOOG is strong with the current ratio, net current assets, and the low amount of debt but YHOO is lower priced in the market with a better Price/Book and FCF yield. Either firm doesn’t pay a dividend. YHOO does carry some long-term debt on the books. Both firms can cover at least twice the level of the current liabilities, which doesn’t make them a concern for liquidity problems. In early October 2006, GOOG announced the acquisition of YouTube for $1.65 Billion in stock. I am surprised that GOOG decided to complete the acquisition with stock rather than use some of the $10.4 Billion in cash and marketable securities

What will GOOG do will all of that cash being generated???

Round #3 – Growth & Valuation, YHOO currently holds some upside to the current trading levels. I am expecting GOOG to grow twice as fast as YHOO with both firms capturing approximately 30% of FCF to Revenue. Assuming a slightly higher WACC for Yahoo at 11.5% compared to GOOG’s 11.0% and both at 5% terminal value. With the above assumptions, GOOG is currently valuation is highlighting that these growth assumptions, and then some, are already priced into the market.

Sources:
Company websites
Edgar online database
Yahoo Finance
Morningstar
Barchart.com

PKX – POSCO, Inc.

2006-11-11T19:59:00.001-05:00

Portfolio Decision: Added to the portfolio @ 73.73 per share on November 7th, 2006.

Value Assessment: PKX shows stable financial performance with historical free cash flow yield.
Growth Assessment: PKX provides some upside opportunity to the current trading levels with the lowest P/E multiple across the top 5 steel manufacturers.

Company Overview

Description
POSCO engages in the manufacture and sale of various steel products. Its products include hot rolled products are used to manufacture structural steel used in the construction of buildings and bridges, railway rolling stocks, industrial pipes and tanks, and automobile chassis; plates, which are used in shipbuilding, structural steelwork, offshore oil and gas production, power generation, mining, manufacture of earth-moving and mechanical handling equipment, boiler and pressure vessels, and other industrial machinery; and wire rods that are used in the manufacture of wire, nails, bolts, nuts, and welding rods, as well as used in the manufacture of coil springs, tension bars, and tire cords in the automobile industry. The company also provides cold rolled coils and further refined galvanized cold rolled products that are used in the automobile industry to produce car body panels, as well as in household goods, electrical appliances, engineering, and metal goods industries; silicon steel sheets, which are used in the manufacture of power transformers and generators, and rotating machines; and stainless steel products that are used in the chemical, paper mills, aviation, automobile, construction, and food processing industries. The company also produces semifinished products, such as pig iron, billets, blooms, and slabs. It operates primarily in the People’s Republic of China, Asia, Japan, North America, and Europe. The company was founded in 1968 and is based in Seoul, South Korea.

5-Year Financial History

PKX has shown strong sales and income growth over the last five years with revenue and net income compound annual growth rates of 11.7% and 20.9%, respectively. This chart is reflecting that on a Trailing Twelve Months (TTM), PKX will be decreasing in revenue, net income, and return on sales mainly driven by the 2nd half performance of 2005 in the formula. When reviewing PKX’s latest SEC submission, it appears that revenue will be ~25.3 Billion dropping (4)%. Below is the link for the Q3 2006 SEC filing.

http://http//www.sec.gov/Archives/edgar/data/889132/000114554906001455/h00806exv99w1.htm

PKX has been able to improve the net income faster than the sales growth by the increase in the gross profit with keeping the SG&A expenses flat as a % to revenue. The effective tax rate for the company has stay flat throughout the 5 years at ~ 28%.

5-Year Stock Performance

If you had invested $10,000 in PKX stock on January 2nd, 2001, your stock would be worth $40,802, representing a +300% return or 26.4% annually

Value Assessment

I use an 8 criteria selection grid to help me assess potential value in any equity assessment. These 8 criteria are mainly driven from my readings of Benjamin Graham. The security doesn’t have to pass all of the below criteria to be selected for my portfolio, the more the better. Some of the major items that I focus on are Price to Book ratio (Criteria D.) and the earnings and free cash flow yields metrics (Criteria G.).

The value scorecard will show you that PKX is starting to show some annual growth decreases with revenue, net income and free cash flow going through the trailing twelve months. The company has a low Price to Book value, slightly higher in the TTM metric due to winning an anticipated large contract bid. The total liability is under the current book value and the firm pays a nice dividend yield. From a FCF yield, 2002 through 2005, the firm has provided at least 3x the return of the current 10-year bond rates, while slightly forecasting to be under in the TTM metric. I am not weighing the TTM metric too heavily since I am still trying to get comfortable with the quarter-to-quarter forecast.

Growth Assessment

With my growth reviews of stock, I use a few different valuation techniques to surround my assumptions.
- 5 Year Discounted Cash Flow model with terminal value
- Industry Price to Earnings multiples
- Industry Price to Sales multiples
- Current Price to Earnings sensitivity

From a growth perspective, there is some upside to the current market cap.

DCF Model

In the 5 year DCF model, I am assuming (3)% sales growth with no margin or FCF improvement. With a corresponding (3)% terminal value, PKX’s value is worth around $28.1 Billion.

Industry P/E and P/S multiples

I am currently using 4 competitors in the industry multiple comparison section. These competitors are mainly focused on the largest steel manufacturers in the world.

Current P/E sensitivity

In the above industry list, you will notice the Posco is currently trading at 5.8x to earnings per share. Below you will find a sensitivity grid to future earnings growth compared to Price to Earnings metrics.

Sources:

Company Website
Yahoo Finance Website
Barchart.com
Morningstar Website

AAPL – Apple Computers, Inc.

2006-11-05T18:10:00.000-05:00

Portfolio Decision: Will not add
Value Assessment: Earnings yields do not provide enough premium compared to treasury bonds.
Growth Assessment: Current trading levels already account for future growth performance.

Company Overview

Description
Apple Computer, Inc. engages in the design, manufacture, and marketing of personal computers and related software, services, peripherals, and networking solutions worldwide. It also offers a line of portable digital music players, accessories, and services. The company’s products and services include Macintosh line of desktop and notebook computers; iPod digital music player; Xserve G5 server and Xserve RAID storage products; a portfolio of consumer and professional software applications; Mac OS X operating system; iTunes Music Store; and a portfolio of peripherals that support and enhance the Macintosh and iPod product lines. The company also sells various third-party products, including computer printers and printing supplies, storage devices, computer memory, digital camcorders and still cameras, personal digital assistants, iPod accessories, and various other computing products and supplies. In addition, it engages in the online distribution of music, audio books, music videos, short films, and television shows. Further, the company offers products and services for the educational industry, which include eMac, iMac, and iBook; video creation and editing solutions; wireless networking; student information systems; curriculum and professional development solutions; and one-to-one learning solutions. It sells its products primarily to education, creative, consumer, and business markets primarily through online, retail stores, wholesalers, resellers, and cataloguers. As of September 24, 2005, the company operated 116 stores in the United States; and 8 stores in Canada, Japan, and the United Kingdom. Apple Computer was co-founded by Steven P. Jobs in 1976. The company is headquartered in Cupertino, California.

5-Year Financial History

AAPL has shown strong sales and income growth over the last five years with revenue and net income compound annual growth rates of 27.5% and 98.3%, respectively.

AAPL has experience significant annual revenue growth starting from 2004. Gross margins have slightly improved with leveraging across the other operating expenses.

5-Year Stock Performance

If you had invested $10,000 in AAPL stock on 01.02.2001, your stock would be worth $60,052, which representsa +500% return.

Value Assessment
I use an 8 criteria selection grid to help me assess potential value in any equity assessment. These 8 criteria are mainly driven from my readings of Benjamin Graham. The security doesn’t have to pass all of the below criteria to be selected for my portfolio, the more the better. Some of the major items that I focus on are Price to Book ratio (Criteria D.) and the earnings and free cash flow yields metrics (Criteria G.).

The value scorecard will show you that AAPL has passed the 5 years Revenue, Income, and Liabilities as a % to Book Value. Regarding the Free Cash Flow metric (Criteria C), it will highlight a positive rating in the next year, currently only showing growth of the last 4 reported years. I cannot categorize AAPL as a value investment, because it is trading at 6.4x above its book value and it does not provide an adequate risk/reward profile compared to the 10year federal bonds.

Growth Assessment
With my growth reviews of stock, I use a few different valuation techniques to surround my assumptions.
- 5 Year Discounted Cash Flow model with terminal value
- Industry Price to Earnings multiples
- Industry Price to Sales multiples
- Current Price to Earnings sensitivity

From a growth perspective, the current market cap has the future growth priced in with a potential downside.

DCF Model
In the 5 year DCF model, I am assuming 20% sales growth with no margin or FCF improvement. With a 4.0% terminal value, AAPL is worth around $62.6 Billion.

Industry P/E and P/S multiples
I am currently using 5 competitors in the industry multiple comparison section. These competitors are mainly focused on the personal computers industry, one of the major industries that AAPL competes in.

Current P/E sensitivity
In the above industry list, you will notice the AAPL is currently trading at 34.9x to earnings per share. Below you will find a sensitivity grid to future earnings growth compared to Price to Earnings metrics.

Sources:
Company Website
Yahoo Finance Website
Barchart.com
Morningstar Website

NTRI - Nutrisystem Inc

2006-10-31T20:49:00.001-05:00

Nutrisystem current market cap 10x above book value, will not add to the portfolio.

Overall Sorcard:

NTRI currently only passes 1 f the 8 selection criteria to be considered a value investment for my portfolio. I will continue to monitor this equity to see if it improves in other aspects of the scorecard.

Company Background: NutriSystem, Inc. provides weight management system and fitness products and services in the United States. Its weight management program primarily includes a prepackaged food program and counseling. The company’s prepackaged food consists of approximately 130 food items with carbohydrates, proteins, and fats under the brand name ‘NutriSystem’. The company also offers online and telephone counseling and support to customers using its diet counselors. It sells its prepackaged foods to weight loss program participants through the direct channel, QVC, field sales channel, and the case distributor channel. NutriSystem was founded in 1972. The company was formerly known as nutrisystem.com, Inc. and changed its name to Nutri/System, Inc. in 2000. Further, it changed its name to NutriSystem, Inc. in 2003. NutriSystem is headquartered in Horsham, Pennsylvania.

Sales & Income History:

NTRI has shown some impressive sales and income growth over the last 5 years with most of the growth occuring in the last 2 years. Out of the 5 years, 4 of the years have shown positive sales and income growth. 5 yr Revenue and Income CAGR's of 61% and 90% respectively.

5 Year Stock Performance:

Sources:

Company website, Yahoo Finance, Barchart.com

LIZ - Liz Clairborne, Inc.

2006-10-22T09:50:00.000-05:00

Liz Clairborne provides upside potential with 5 year DCF model - adding to portfolio.

Company Background: Liz Claiborne, Inc. engages in the design, marketing, and retail of women's and men's apparel, accessories, and fragrance products worldwide. It offers junior's, men's, and women's sportswear, jeanswear, and activewear; jewelry and cosmetics; bath and body-care products; and accessories, including handbags, wallets, and belts. The company also offers women's and men's outerwear, footwear, and watches; women's intimate apparel, legwear, neckwear, sleepwear/loungewear, swimwear, dresses and suits, bridesmaid dresses, and accessories; men's accessories, shirts, pants, sleepwear/loungewear /underwear, socks, and tailored clothing; and men's and boy's neckwear; children's apparel, legwear and socks, school uniform, shoes, and swimwear. In addition, Liz Claiborne offers table linens, tailored clothing, and window treatments, as well as provides decorative fabrics, blankets and throws, furniture, games and toys, and tabletop products. Additionally, it offers optics, sunglasses, stationery/paper goods, home fragrance, and home storage products. As of December 31, 2005, we operated a total of 338 specialty retail stores, 646 concession stores. Liz Claiborne was founded in 1976 and is based in New York City.

Sales & Revenue Stablitity:

Company shows financial stability over the last 5 years with revenue and income growth rates of 5.8% and 6.4%, respectively. Net Income Margin has been on a slight decline from 2004.

Stock Performance:

5 year stock price chart shows steady growth with nice annual returns.

Yield Summary: Free Cash Flow yields are averaging ~8.4% over the last 5 years, with the current US 10-year note at 4.79%. Company has distributed a dividend in the previous 5 years, with a yield average of 0.9%.

Valuations:

Sources:

Company website, Yahoo Finance, Barchart.com

SAB - Grupo Casa Saba, S.A. de C.V.

2006-10-14T14:34:00.000-05:00

Mexican distributor providing higher cash flow yield than 10-year U.S. treasury bonds.

Company Background: Grupo Casa Saba, S.A. de C.V. operates as a multichannel, multiproduct wholesale distributor in Mexico. It primarily offers pharmaceutical products, health, beauty aids and consumer goods, general merchandise, publications, and office and other products. The company distributes its products through pharmacies, mass merchandisers, retail and convenience stores, supermarkets, and other specialized channels. As of December 31, 2005, it operated a network of 22 distribution centers. Grupo Casa Saba also offers a range of value-added services, including multiple daily deliveries and emergency product replacement services, as well as provides services that include training, conferences, and trade fairs. The company was founded in 1892 and is based in Mexico City, Mexico.

Sales & Revenue Stablitity:

Company shows financial stability over the last 5 years with revenue
and income growth rates of 3% and 8%, respectively.

Stock Performance:

Stock price charts shows steady growth, some risk is involved due
to very low daily trading volumes.

Performance:
2006 YTD (through 10.2.2006) 25.8%
2005 FY -2 .9%
2004 FY 48.1%
2003 FY 10.5%

Yield Summary: Free Cash Flow yields are averaging ~7% over the last 5 years, with the current US 10-year note at 4.79%. Company started to distribute a dividend in 2003, around the 2.5% yield.

Sources:

Company website, Yahoo Finance

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