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      « June 2005 | Main | August 2005 »

      July 29, 2005

      The Thick Of Earnings Season

      Second quarter earnings announcements are now coming hourly, if not by the minute. No real surprises so far, though I'm still digesting what's been released.

      Once everything calms down, I expect to make another addition or two to the CG portfolio.

      So let's hang in there. And remember -- patience is a virture.

      July 27, 2005

      Good News, Good News And (Maybe) Great News

      The news that GM plans on ending its "employee discounts for everybody" promotion on August 1 is good news. It signals the company has been successful in clearing out inventory, making way for the new 2006 models designed under the leadership of Vice Chairman Bob Lutz.

      The news that GM will utilize a "no-haggle" pricing strategy and reduced prices for the 2006 models is also good news. It indicates the company is serious about confronting the higher sticker prices its models have carried compared to the competition. The key here is can GM/Lutz reduce prices for 2006 models without doing away with many standard features consumers value. (Not to mention whether or not consumers find the new Lutz models appealing in the first place.)

      GM's North American car and truck business lost money in the first half of this year. GMAC and the International car and truck business have done well, and look to continue performing favorably for the foreseeable future. If management could somehow demonstrate to Wall Street that the North American business would consistently break even, the stock price should soar.

      And that would be great news for shareholders. No maybe about it.

      July 26, 2005

      Powering Down On Korea Electric Power, Part 2

      I wrote on June 20 that I sold 25% of my position in Korea Electric Power (KEP/NYSE). I sold another 25% yesterday because the shares have risen even more, benefiting from the recent yuan revaluation.

      KEP remains a major position in my portfolio, but I've gotten approximately my entire original investment out. That may strike some as too conservative. I think it's a practice that's served me well over time.

      FYI for new readers: I mentioned KEP in this site's first posting, along with MCI (MCIP/NASDAQ) and Audiovox (VOXX/NASDAQ), providing a sampling of the types of stocks to be found here. I've made it a practice to update visitors of my activity with these companies.

      July 25, 2005

      Give That Man A Blue Ribbon

      On second thought, make it a Coors Light or Molson.

      Not Even Close

      This site focuses on specific stock selection and not big, "top down" business topics. Still, The Wall Street Journal's coverage of the yuan revaluation is THE best out there anywhere. Print. Broadcast. Web. No one else comes close.

      Building The Portfolio, Slowly But Surely

      For value investors, the past few months (and even longer) have not seen an abundance of stocks available at attractive prices.

      The biggest evidence of this fact consists of the several major value-oriented mutual funds that are closed to new investors.

      A smaller piece of evidence is our portfolio currently having only 7 holdings.

      We will eventually have somewhere around 20-25 positions -- which would be a fully invested portfolio in my view.

      I'm cautiously optimistic about finding more opportunities in the coming weeks and months. I've pinpointed a few specific companies I'd like to own. But only if they can be bought at the right price.

      I also remain optimistic about each of our current holdings. While owning 7 stocks is too few to judge as a group, I do like the way the CG portfolio is shaping up. We own companies in a variety of industries, including automotive (GM), beverages (Molson Coors), broadcasting (DirecTV), financial services (Nikko Cordial), office equipment (Imagistics International), private equity/LBO/venture capital (3i Group) and property & casualty insurance (Fairfax Financial).

      The next few portfolio additions will most likely be companies in some of those same industries, as well as new industry categories.

      Remember, I own every stock mentioned on this site . . . so if you follow my moves and I benefit, you benefit. If you buy a stock I view favorably and it turns out to be a loser, well, I feel your pain.

      Dow Jones Ends International Ties With CNBC: Crazy Like A FOX?

      By now you have heard the announcement that Dow Jones is ceding its 50% ownership stakes in CNBC Asia and CNBC Europe to NBC Universal. The announcement added that the company will continue its existing licensing arrangement with CNBC in the US. This agreement is for Dow Jones to provide "content" for the channel.

      But for how long?

      I don't know the details or if there's a contract that Dow Jones is fulfilling. It doesn't make sense to buy their way out at this time, if so, because appearing on CNBC is a form of promotion for The Wall Street Journal and Barron's.

      Still, I can't help but wonder if the new FOX Business Channel (scheduled to launch in March 2006) is somehow factoring into Dow Jones' thinking.

      Yes, I understand that Dow Jones is ending its international partnership with CNBC. And that it's concentrating on the recent MarketWatch purchase and the coming launch of the new Saturday Journal edition.

      But if I were them, I'd eventually want the freedom of having my people appearing regularly (read: daily) on any business channel Roger Ailes oversees. He's the reason FOX News has been trashing CNN and MSNBC in the ratings, and I bet he'll be doing the same to CNBC in the US soon enough. CNBC has never regained the credibility it lost from shamelessly cheering on the tech boom. Heck, if you had a dollar for every time someone has derided it as "bubblevision" you could start your own channel.

      So Dow Jones getting its folks on the FOX Business Channel would be a winner strictly from a business point of view. The fact that Dow Jones' editorial views are more aligned with FOX than NBC would be icing on the cake.

      And let's look at this from FOX's perspective. If you were launching a 24-hour business channel, you would be sensible to have a major outside entity helping you provide content. There can't be that many blond bombshell money managers to interview, after all (though we probably shouldn't sell Rupert Murdoch short in that quest).

      FOX will surely continue working with Forbes, further utilizing Steve Forbes and his roster of editors and journalists in programming the new channel.

      Would that be enough?

      Probably not. Especially when you consider that the world's signature business publications are The Wall Street Journal and the Financial Times. The Journal is bigger in the US, so it's the better fit with an American business channel. Yet, barring that, having the FT provide content for you is nothing to sneeze at.

      And, hey, here's a crazy thought. Murdoch owns loads of newspapers. But he doesn't own a world-class business publication. Pearson, the education publisher that owns the FT, has been rumored for some time to be considering selling the paper. Would Murdoch buy it? He could with the idea of increasing its profitability (some analysts think Pearson isn't getting everything out of the paper it should) and also teaming it with his new business channel.

      That's not a prediction. And, besides, in a way I'd hate to see it happen. Murdoch has a reputation for dumbing-down the newspapers he buys (see the Times of London). I'm not crazy about the FT increasingly reading like it's pandering to the EU crowd in Brussels, but it's an intelligent publication. And that can be corrected without it being dumbed down.

      Dow Jones. CNBC. The FOX Business Channel. Pearson. The Financial Times. And let's not forget Bloomberg Television. It will be interesting to see how this all plays out.

      Japan: "Sleepier Way To Play China"

      Readers of this site know I think it makes sense to have a portion of a value investment portfolio in Japanese stocks. And that I think, in addition to being cheap, many Japanese companies offer a back door play on China.

      You have to scroll down in Derek DeCloet's column in The Globe and Mail to see this point made -- he refers to Japan as a "sleepier way to play China." But read the entire column. It's good stuff. And it's timely with all the talk about the modest revaluing of the yuan.

      DeCloet quotes a money manager saying something I've heard for several years -- that the stock exchanges in Shanghai and Shenzen list companies that are mostly garbage. About 90% are controlled by Chinese government insiders, corporate governance is lousy, and the accounting cannot be trusted. Any respectable Chinese firm lists on the Hong Kong and/or New York exchanges.

      That's when the column, wisely, points readers in the direction of Japan.

      In addition to all the other reasons to hold a few Japanese stocks in your portfolio, there's this: the Land of the Rising Sun stands to benefit if and when the Chinese really let the yuan loose.

      July 21, 2005

      Buying DirecTV Group

      I bought shares of The DirecTV Group (DTV/NYSE) yesterday (Wednesday, 7/20). It's the biggest satellite operator and the second-biggest multi-channel video provider in the US. I think the company qualifies as undervalued. Even though at first glance it may not appear that way.

      I say that because DirecTV has been trading at roughly 2.92 times book value and 1.73 times sales. That price/sales ratio isn't bad, but I almost never buy a stock that's trading at nearly 3 times book. The reason I am this time is because DirecTV's "stated" book value is not representative of the company's true value.

      DirecTV closed yesterday at $15.50 and has a market cap of approximately $26.8 billion. Its 52-week high of $18.25 was reached last October. The company has been signing up new customers at an impressive pace, yet the share price has lagged. Why?

      The 2 reasons DirecTV gets a fuzzy reception on Wall Street:

      First, the way DirecTV signs up new customers gives the impression that the company will not produce meaningful free cash flow. Each time DirecTV signs up a new customer, it subsidizes much of their equipment. This means the income statement for that one customer will show a net loss for that first year. But in the second year (and every year thereafter) the company will no longer be subsidizing this customer -- and will show significant free cash flow from him or her.

      The "problem" is that DirecTV is signing up new customers so fast, and growing the entire business, that all of these new customers mask the free cash flow. Management is correctly taking the long view and continuing to acquire new customers because it understands they represent potentially huge future economic returns. Of course, this model demands that once a customer signs up, they remain a customer after the first year. This appears to be happening.

      Eventually DirecTV's rapid growth will slow. It must. At that point the company's free cash flow will "suddenly" appear and be noticed by Wall Street analysts.

      The second reason DirecTV's shares have lagged is that General Motors owns one of the largest stakes in the company. (DirecTV used to be Hughes Electronics, formerly owned by GM.) General Motors has been selling its DirecTV stock -- it dumped over 57 million shares on the market in the first quarter alone. With GM still holding in excess of another 215 million shares (as of 3/31/05) ready to be sold, investors have resisted buying DirecTV stock in the face of this headwind.

      What will clear up the DirecTV picture for investors?

      The stock price has been hampered by what I think are short-term factors. Over the next 3 to 5 years, I'm confident the stock offers significant price appreciation due to the following:

      • DirecTV's free cash flow is ultimately recognized by Wall Street and fully valued by the marketplace.
      • GM eventually completes the unwinding of its massive stake and ends the fears of it depressing DirecTV's stock price.
      • DirecTV has a rock-solid balance sheet with virtually zero net debt.
      • DirecTV has excellent management -- the company is controlled by News Corporation, which has a proven track record in running satellite companies.

      As always, I could be wrong about DirecTV and you should do your own research before buying stock in this company.

      July 20, 2005

      Online Advertising And Supporting This Site

      I've never posted anything about online advertising or ways of supporting this site.

      This is because the value of CG can only be judged by the performance of the stock picks reported on here -- and it's too early to measure that.

      But Monday's "Real Time" column (subscription required) on on the general subject of web ads and this article on Google's Adsense program linked on MaoXian's site yesterday have gotten me thinking a lot about advertising and support for this site.

      As you can see, I'm running Google ads. I've had no expectation of them one way or another since this site is so new.

      I plan on looking into paid advertising options such as Blogads, but suspect the newness of this site may make it ineligible. My hunch is also that Blogads are intended for blogs with much higher readerships than stock market ones -- political blogs such as Roger L. Simon or Andrew Sullivan. I have seen them on Trader Mike's site but can't remember offhand seeing them on the other investing blogs I frequent. (For those who don't know, Google ads only result in revenue when someone actually clicks on the advertisement. I would get revenue from Blogads by an advertiser paying to have their ad on my site.)

      Anyway, I'm having fun writing this site and hope you're finding it worthwhile. I'm gratified that its been getting more and more hits over time. And I'm honored that several industry pros have emailed me with their good words and wishes.

      In the meantime, if you want to support CG consider doing the following:

      1. Keep visiting -- my hunch is there will be more stocks qualifying as value investments in the near future, so make sure you're around for the action.
      2. Tell a friend -- if you're among those profiting from the investment ideas mentioned here, refer this site to 2 or 3 colleagues today.

      And thanks again for stopping by.


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        • All information posted on this web site has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Under no circumstances is this an offer to sell or a solicitation to buy securities discussed on this site. Past performance is no guarantee of future success. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. CONTROLLED, its editor and/or related parties have positions in companies discussed. All data, information and opinions are subject to change without notice.