Saturday, February 27, 2010

Apple - where style and technology meet

There has been a change in the line up for my growth stock comparison.

Out goes Oracle as I have already covered it and will buy into it this year. In comes Valeant Pharmaceuticals. I was alerted to the potential of Valeant a few days ago and so far I like what I see.

Anyway first up is Apple.

The Apple share price has increased in eight years from $10 to over $200. That is pretty spectacular but does not mean that the fun is now over.

Here are the basics:

Market Cap: $185 Billion
Dividend Yield: 0%
Cash: $40 Billion
2010 PE: 17
Predicted Growth Rate: 20% annual

So Apple is enormous, has a huge stash of cash, is growing and still has a reasonable valuation.

The Apple brand is rated as the 20th most recognised in the world and there is a large core of Apple fanatics who would never buy a Windows device as a matter of principle.

What about risks? Consumers are a fickle bunch and if someone else manages to produce something stylish and useful who is to say that they won't desert the iPod and iPhone in droves for the new fad? Some would but the fact that only Apple devices have iTunes and it is a bit of a hassle to export all your music to MP3 many (including me) would not consider that a nice option.

I have mentioned before that controlling the hardware and the software of its MacBooks and iMacs gives Apple a huge advantage over Microsoft which can only produce the software and hope that the oems make the hardware appealing.

One more thought: Apple has over $40 per share in cash. If you adjust the share price accordingly the forward PE reduces to 15.

So here are the results (out of 10 where higher is better)

Growth Potential: 7
Risk: 6
Valuation: 8

This gives Apple a score of 21 out of 30.

Next up: Intuitive Surgical

Wednesday, February 24, 2010

The Battle of the Best

I am part way through converting my growth portfolio from bargains to quality. Out went British Airways and CSR and in came Google. The timing of the Google purchase was not good as they have since declined over 10% but when you are buying to keep for the next ten years that does not matter so much.

Next step is to ditch Dana Petroleum and some remains of British Banks to buy into an American Beauty.

There are four possibilities. They all have fantastic global growth prospects, high to outrageous returns on invested capital and more cash than they know what to do with. Let's line them up:

1. Apple

Everyone knows how well Apple has been doing in the last five years or so. The question is can it maintain the momentum. If so then the current forward PE of under 20 is not expensive.

2. Amazon

Amazon is perhaps the most successful of the dot com boom companies. One recent survey had it as the 43rd biggest global brand which is quite something for a pure website. Recent financial reports have had analysts drooling into their coffee but the forward PE of 30 is not cheap.

3. Oracle

I have spoken about Oracle before. With increasing margins, share buybacks, dividends and a strong competitive position it is the sort of company Warren Buffet would love if he understood technology. Perhaps the safest choice of the four.

4. Intuitive Surgical

ISRG is the joker in the pack. It will never make the top 100 brands but as long as it stays number one in the field of robotic surgery its future is extremely bright. The fact that every robot sold leads to a long stream of earnings from the disposable operation equipment gives it wonderful financial prospects. With a forward PE of over 30 and 2009 sales of "only" $1 Billion ISRG is the one that could become a "10 - bagger" in the next twenty years or so.

I will post on each company separately in the near future.

Let the battle begin!

Friday, February 19, 2010

Income Investing

Time for a heads up. I am still alive and investing though yet to get control of my early morning blogging time.

With interest rates on saving accounts being truly pathetic at the moment surely now is a good time for people to start investing in defensive stocks purely for the yield? It is, but it won't happen as for most people the stock market is a dangerous wilderness best left to the professionals.

For myself I am building an income portfolio that will one day pay for a family holiday every year. It would struggle to pay for a monthly fish supper at the moment but investing is for the patient!

Anyway the idea is to build up a portfolio of 10 diversified stocks and let the dividends build up in the account rather than re-invest them like I normally do.

As normal real life proved to be rather messy and at present my RBS holdings are showing a huge loss and not likely to yield anything for a while. On the other hand my Barclays shares, luckily bought in the first half of last year, are showing a huge profit and have started yielding. Other holdings like Tesco, BP and British Land are doing fine and throwing off nice dividends.

One British company I have yet to invest in is GlaxoSmithKline. However having briefly looked at its latest report I think I will soon be a part owner of this pharmaceutical giant. It has an enormous diversity of products, 10% earnings yield and a 5% dividend yield coupled with single digit sales growth and a CEO focussed on costs and productivity.

As a final icing on the cake it pays dividends quarterly. This means that if you built up a portfolio split evenly between GSK, BP and British Land you would get a 5% yield, some diversification and a dividend on every month of the year. What is not to like?

As much as I like investing I have to admit that only long term savings should be invested, even if you stick to defensive companies like the 3 above. So for now I will have to stomach getting about half of one percent interest on our savings and just enjoy BP and the like paying for our monthly fish supper!