Saturday, January 21, 2006

Mavericks don't pay, Geeks do!

This is my first footnote since I started this little blog. Through this medium I will from week to week give you my take on the market. This is the market's take. The Dow was down largely due to disappointing earnings from GE and Citigroup. NASDAQ was terribly wounded due to badluck in Google (GOOG) due to spar with the Dept. Of Justice - broadly tech stocks were disasters - Motorola (MOT) and Intel (INTC) disappointed. Internationally the Oil crunch began again squeezing the markets crisis in Iran and Nigeria were largely responsible as well as terribly cold winter in the Tundras of Russia and South East Asia. In addition to all these, the Nikkei Stock Index (Japanese) crashed largely due to allegations of book fudging at Livedoor ran by maverick CEO, Mr. Horie. The story of Horie is one of maverick, maverick, maverick. That is why that is my new rule for the week.

Thou shall not invest money meant for retirement in companies ran and controlled by mavericks. In short, buy maverick stocks not maverick companies. Okay, confusion? Non. Maverick companies: Google (GOOG), Microsoft (MSFT) and Apple (AAPL). Maverick stocks: Livedoor, Enron and Worldcom. These companies have one thing common: big mouthed, ill educated CEOs that can hardly match their promises round after round yet was able to warm themselves to the media. If you have mad money to play with, you are allowed to invest - but please know when to get out. When the trading columns expand beyond average for two days straight that is the first tell tale sign, when the stock become the darling of even the most bearish wall streeter all you should be seeing is sell, sell, sell! GOOG, MSFT and AAPL have amazing products that we all see and use everyday, they dont need to proove profits to me, I know it! Moreover their CEOs either look geeky or are known smarts- not big mouths. On wall street, remember GEEK pays.

For the coming week, my bets are on three sectors outperfoming the rest: the stocks of UNH and co, the health care managers have been overbeaten, so are the internet stocks. If you are not yet on the GOOG or YHOO train (you can only own one of a kind) this is a unique ops to jump onboard. Lastly, oil will continue to outperform and the best way to edge your bets are either natural gas or coal stocks: FDG/BTU (coal plays) or CHK/ECA are my picks for both hedges. Stay focused, cos this week is gonna be a ride. We will largely be flat however unless we get some really extraordinary news.

Additions**: This week I am buying CVS and HSY for my simulation portfolio. CVS is buying some 700 Albertsons store and it is down today (Monday) so I am taking advantage of the meltdown- I consider CVS a value-growth company with great potential upside. With a relatively low PE multiple to its pure peers like Wallgreen (WAG) and an above par operating margins and quarterly revenue growth of 14% if one uses the rule of thumb that you should trade twice of your revenue growth that means this company is trading 7 points below current fair market PE and 10 points below the next (PE for next year is 17). The new medicare bill and the gale of patent loss that will hit Big Pharma is good news for stores like CVS that make more money from relaxed medicare and generic drugs. Imagine this also - this company just inched up their healthy dividend as they have always done. This company will pass the Warren Buffet Test anyday, its debt-equity ratio is about 30% exactly just where the master is comfortable with. As for me I like what I see. As for Hersheys (HSY) this is a true global growth play, expanding rapidly in S. America I see China with it new affluent middle class consuming more candy and what better growth player will take advantage of this than HSY. Moreover, it is down from its 52 week high after a terrific quarter before the chocolate crazy halloween, this Valentine is another chocolate craze that will add 5% to the company's bottomline and to America's waistline. Don't say I didn't tell you - I simply love HSY one of the best all time managed companies that will rank with MO, JPM and GE anyday for over 75 years on the stock exchange and it is the best of breed where it plays even though you can hardly call this turf a growth business.