If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
It is time for reflection and meditation. The DOW has dropped from 12810 on April 29 2011 to today’s 10902. My portfolio has given up all the gains this year and then some. There are again talking heads on TV asserting the second dip. And again I believe there are a lot of low hanging fruits in the stock market.
There are a lot of things going for me now. My capital position is stronger with ample liquidity. I am gaining more man power and I got a small raise back in April. It is about the same time last year I wrote the piece “It is time!” And I am almost seeing the same things repeating themselves now.
Last year this time, I bought my second condo. If I waited longer, I might get a better deal. But the deal I did make is a good deal which is accretive to my earnings immediately. And I bought stocks at good prices with good dividend yield. For the first 6 months of 2011, I saw my cash income from rentals and dividend increased more than 50%.
Maybe I am the anomaly. And I believe many of you who were reading are anomalies too. We are holding up well while the world around us collapsing in slow motion. Last night, a friend asked me what the Greek Default would impact us. I thought hard then and I thought hard now. But still, my answer would be and should be “I don’t know”. Maybe it will cause EU to break up. Maybe EURO will drop in value. That might hurt US export. But it is unlikely it will hurt US in a big way. But the “unknown” danger caused more damage than the obvious risk.
Enough! I am not buying or selling based on my macro view. In the last few weeks, I have bought several stocks. And the low market provided yet another opportunity.
General Dynamics (GD) is a defense contractor with a forwarding p/e of 7.56. If there is one thing United States won’t outsource, it is defense equipment manufacturing. If there is one thing United States enjoys a compelling advantage over other nations, it is the defense industry. And among all the defense contractors, GD has the lowest debt to asset ratio. GD has a track record of allocating its capital rationally. The strong headwind towards the industry is the potential tens of billions of defense budgeting cut. And we don’t know how much. But GD has a reputation of controlling its costs, a substantial civil revenue base and a growing 3.25% dividend yield. I am buying the best company in the best industry at a very low price. I bought 300 shares at $58.37 a share.
It is the time again to reflect and meditate. Take a deep breath and keep charging forward. We may realize there are more anomalies than we expect.
Monday, September 12, 2011
Sunday, April 3, 2011
MSFT and CSCO
If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
I bought 400 shares of MSFT at $27.36 on Feb 10, 2011 and 600 shares of CSCO at $18.92 next day. I paid $7.95 for each transaction. Both were darlings of the Internet bubble era and are falling angles now no one likes.
Let me talk about MSFT first. It surprised me that it always falls on good news. For the second quarter, it increased its revenue, operating income and EPS by 15%, 20% and 28% comparing to the same quarter last year. On the date of earning release, it dropped. On Feb 10, 2011, it announced that one of the dominant cellphone handset producers which owns about 29% of the world market, would use its smart-phone operating system going forward. It fell harder.
Using the number presented by Tilson fund, it has $3.68 net cash per share sitting on its balance sheet. It reduces outstanding share count by 8% a year. And stripping off its net cash, it is trading for 10.1x trailing 12 month earning and 9.3x forward 12 month earning. And over the last five years, its revenue grew from $44B in 2006 to $62B and its cash dividend grew from $.35 per share per year to $.52 per share per year. That is 9% and 11% spanning over the deepest recession my generation ever experienced.
It is not as sexy as Apple but it is growing with a healthy net margin indicating a strong moat. Its success in consumer goods shows in Xbox, Kinect and the most recent smart-phone operating system customer sign up.
It faces many challenges. But it simply dominates in most markets it chooses to compete. It may not compete well with Google on search. But search is only a tiny slice of its revenue and profit anyway. It has the treasured AAA balance sheet and it has massive resources to compete in the market it’s chosen. And it takes advantage of this by issuing debt at ultra low interest rate environments. I will add to my holdings if it drops another 15% to 20%.
CSCO
CSCO has a smaller market cap, thinner margin and more debt on its balance sheet. It has similar amount of cash and investments on its balance sheet. Apparently it faces more competition, is less profitable than MSFT, and doesn’t pay a cash dividend which is supposed to change in the near future.
It has $4.37 net cash and stripping off its net cash from its current share price $18.92, it sells for 11.02x trailing 12 month EPS and 9.83x forward EPS. It has 70% overall Ethernet switching market and more than 50% share of overall routing market. However, it is not as dominate as MSFT is in the software market.
CSCO met consensus on its revenue while missed on margin in its recent earning release. The market is unforgiving by pushing down its share price by more than 15%. And over the last five years, its revenue grew from $28B in 2006 to $40B and its EPS grew from $.91 per share per year to $1.33 per share per year. That is 10% and 9% spanning over the deepest recession my generation ever experienced. It reduces 1.7% share count annually since 2006. Most analysts believe in a 10% top line growth going forward. I will add to my position if the price drops another 20% to 25%.
1. Why I created this blog?
2. How am I going to operate this blog?
I bought 400 shares of MSFT at $27.36 on Feb 10, 2011 and 600 shares of CSCO at $18.92 next day. I paid $7.95 for each transaction. Both were darlings of the Internet bubble era and are falling angles now no one likes.
Let me talk about MSFT first. It surprised me that it always falls on good news. For the second quarter, it increased its revenue, operating income and EPS by 15%, 20% and 28% comparing to the same quarter last year. On the date of earning release, it dropped. On Feb 10, 2011, it announced that one of the dominant cellphone handset producers which owns about 29% of the world market, would use its smart-phone operating system going forward. It fell harder.
Using the number presented by Tilson fund, it has $3.68 net cash per share sitting on its balance sheet. It reduces outstanding share count by 8% a year. And stripping off its net cash, it is trading for 10.1x trailing 12 month earning and 9.3x forward 12 month earning. And over the last five years, its revenue grew from $44B in 2006 to $62B and its cash dividend grew from $.35 per share per year to $.52 per share per year. That is 9% and 11% spanning over the deepest recession my generation ever experienced.
It is not as sexy as Apple but it is growing with a healthy net margin indicating a strong moat. Its success in consumer goods shows in Xbox, Kinect and the most recent smart-phone operating system customer sign up.
It faces many challenges. But it simply dominates in most markets it chooses to compete. It may not compete well with Google on search. But search is only a tiny slice of its revenue and profit anyway. It has the treasured AAA balance sheet and it has massive resources to compete in the market it’s chosen. And it takes advantage of this by issuing debt at ultra low interest rate environments. I will add to my holdings if it drops another 15% to 20%.
CSCO
CSCO has a smaller market cap, thinner margin and more debt on its balance sheet. It has similar amount of cash and investments on its balance sheet. Apparently it faces more competition, is less profitable than MSFT, and doesn’t pay a cash dividend which is supposed to change in the near future.
It has $4.37 net cash and stripping off its net cash from its current share price $18.92, it sells for 11.02x trailing 12 month EPS and 9.83x forward EPS. It has 70% overall Ethernet switching market and more than 50% share of overall routing market. However, it is not as dominate as MSFT is in the software market.
CSCO met consensus on its revenue while missed on margin in its recent earning release. The market is unforgiving by pushing down its share price by more than 15%. And over the last five years, its revenue grew from $28B in 2006 to $40B and its EPS grew from $.91 per share per year to $1.33 per share per year. That is 10% and 9% spanning over the deepest recession my generation ever experienced. It reduces 1.7% share count annually since 2006. Most analysts believe in a 10% top line growth going forward. I will add to my position if the price drops another 20% to 25%.
Subscribe to:
Posts (Atom)
