Thursday, December 29, 2005

Bye Bye 2005

Merry Christmas everyone!

Well 2005 is drawing to a close and it is getting to that time to look back and reflect on a year of investment successes and failures.

Time is short this morning but here are a couple:

Biggest success: Google

I was lucky / clever enough to buy GOOG at under $200 back in February. A few months later it was at $306 and I sold. I then bought in at $316 and watched it zoom up to $420. Not a bad little earner. I recently sold some GOOG to invest in another opportunity but I am still bullish about it and laugh at all the articles about how overvalued it is when actually it is cheaper than Yahoo (based on the forward PE) and growing much faster.

Biggest mistake: Verisign

I managed to avoid catastrophic mistakes in 2005 but buying VRSN after a bad earnings release in July does not look to clever now. Instead of recovering the shares kept falling and are now stuck in the 10% loss range. I should probably sell VRSN but I am not very good at selling at a loss and think it is undervalued and is one good earnings release away from showing a profit so I will hold for now.

Anyway my growth portfolio is showing a 56% gain for the year (%36 if you subtract the effects of contributions in) so 2005 has been a great year by any standards.

More reflections soon.

In the meantime Happy New Year!

Thursday, December 22, 2005


Amvescap (AVZ) is an asset management company. AVZ uses the brands AIM, INVESCO and Atlantic Trust. It operates in around 20 countries in Asia, Europe and North America.

AVZ has a market cap. of £3.5 billion and a yield of 2.3%. Rather worryingly the EPS has decreased year on year in 2004 and 2005 but is forecast to rise 15% in 2006.

A quick look at the latest interim report did not give any clues as to why the EPS has been declining. I did notice that the first thing the chairman talked about was the new CEO rather than the financial results. This is not a good sign. Obviously the board are relying on the new CEO to turn things around and do not want the results in the spotlight. I would rather rely on a fantastic business model and an average CEO than vice versa.

When analysing a company for the first time I find it helpful to ask myself "why should I invest in AVZ and not XXX?" In this case I would compare it with the Royal Bank Of Scotland which is one of my favourite UK blue chips at the moment. AVZ has a forward PE of 18 compared to 9 for RBS. I know AVZ is forecast to grow earnings by 15% next year but is this sustainable? RBS is only forecast to grow earnings by 8% next year but this is compensated for by a yield of over 4%.

Thinking about the wealth management business model I do wonder if the trend is for more people to do it themselves. Certainly the advent of the Internet has meant that information that only used to be available to those with a Bloomberg terminal is now available to everyone and people can manage their finances from the comfort of their own home.

So I do not think there is a tail wind behind this business. In the absence of any WOW factor about AVZ I will move in and search for riper fruit.

Wednesday, December 14, 2005

Alliance Unichem

Zzzzzzzzzzz, uh, what was I doing?

Oh yes looking at Alliance Unichem (AUN.) Suddenly I feel sleepy again.

This was a company I know nothing about until today. Here are the basics:

AUN are a healthcare distributer and retailer.
P/E = 14
Yield = 2.7%
Market Cap. = £2.7 Billion
Growth = 12%
Broker opinion = neutral

This all looked pretty reasonable until I read that AUN is in the process of merging with Boots! Aaagh! Boots is having a difficult time dealing with the increased competition from the supermarkets. The retail environment is tough anyway and Boots seems to have a bit of an identity crises as their shops seem to sell a bit of everything.

Anyway this is supposed to be about AUN. But until the merger either completes or fails Boots will be all the shareholders talk about rather than a growing business with decent fundamentals. It seems like Boots need AUN much more than AUN need Boots.

With all the merger rubbish going on I will give this one a wide berth. I suspect I would have ignored it anyway as I am not sure retail is the place to be at the moment.

Tuesday, December 13, 2005

Alliance & Leicester

The next FTSE 100 company I have taken a quick glance at is Alliance & Leicester (AL.)

AL is a small mortgage bank with a market cap. of only £4 Billion.

One of the first things I notice is that the brokers do not like this one with only one buy recommendation and eight negative ratings. A glance at the earnings forecasts shows why, with AL predicted to earn less in 2005 than 2004, and less in 2006 than 2005. Oh dear.

This is obviously not a growth stock but it does have a nice yield. The net yield is currently about 5.5% and the dividend is set to increase again next year.

With the forward PE at about 12 this bank is more expensive than RBS but without the growth.

I think a key to successful investing for those who do it as a hobby like me is to only spend time on the exciting companies, as analysis time is in such short supply. Therefore I will not be spending any more time on this one. I only have room for one bank in my mortgage portfolio and RBS is growing nicely and is much cheaper. I will leave this one for the yield chasers.

Google running out of buyers?

Yesterday I sold half my Google position, realising a 30% gain on my $316 entry price a few months ago.

Google was only up 0.8% for the day despite being added to the NASDAQ 100 and CSFB increasing its price target. This makes me wonder if all the good news is priced in for now and GOOG can at best tread water until the next earnings release.

Either way this stock has been a great little earner for me this year and I am happy to keep 6 shares in it so I can enjoy any further upside next year.

Monday, December 12, 2005

CSR still screaming buy

Well after a week of reading reports and message boards, CSR is still a screaming buy.

The only alarm bell was a chunk of director selling last Tuesday, but this apparently is a regular quarterly feature as the directors diversify their portfolios and make the most of the high share price. After all Bill Gates sells millions of Microsoft shares every day but that does not mean that he does not believe in his company.

I know that when you get excited about a company it is easy to look on every piece of bad news with rose tinted glasses. But there really is very little bad news in the case of CSR! Their market is growing at a huge rate and CSR is the market leader.

I guess the important thing is to work out why the share price is so low. ARM, which is growing at a slower rate, is granted a much higher forward P/E (25 compared to 13.) Maybe investors are not sure if Q3 was a one off rather than indicitive of things to come. Maybe they are worried about competition from TI and Broadcom. Maybe they don't like the seasonality and unpredictibility of the revenue streams. Maybe they are worried that Bluetooth chips will become a commodity. These are all valid concerns and for this reason this company will have to go in my growth portfolio as I consider too aggressive a choice for my mortgage portfolio. However I think there is significant scope for upside over the next 12 months, with anything up to a 100% increase being possible. The downside possibilities are much less likely, making this a company I must own a chunk of.

Unfortunately that means I have to sell something in my growth portfolio. The casualty will be half my Google holding. Google has done superbly already and reducing my holding will give some much needed diversity to this Internet heavy portfolio.

The CSR share price has been drifting down over the last week so I will sell Google at an opportune moment this week and then buy into CSR once the temporary share price decay finishes.

Tuesday, December 06, 2005

A screaming buy

It is not often that I find a UK company that screams out to me "BUY" but I think I did just that yesterday.

The company in question is CSR - the world's leading provider of Bluetooth integrated circuits. Bluetooth is the technology that allows wireless headsets for mobile phones and a multitude of other applications. It is a massive growth area along with WiFi, the larger range radio technology which is used for wireless networks.

CSR reported a blowout quarter on November 2nd, with revenues up 109% year on year and I do not think the market has fully digested just how fast CSR are growing.

I estimage CSR can earn 70 pence a share next year (yes this is converted from the dollar amounts reported in the earnings releases, unlike most financial websites!) That puts CSR on a forward PE of 13 - crazy for a company growing at these rates.

I do not see the growth of Bluetooth slowing down any time soon as it is being used in more and more cars, domestic appliances and consumer gadgets all the time. I recently bought a Bluetooth dongle for my PC for about £10 which allows me to transfer photos, videos and contact cards from my phone to my PC. Previously when I changed mobile phone I had to write down all my contacts but this time I just transferred them by Bluetooth onto my PC and then onto my new phone. I would not buy a phone that does not have Bluetooth.

Reading through the latest report I have not had any alarm bells go off. CSR have plenty of cash in the bank, little debt and are cash flow positive.

The share price has already more than doubled since August and that is probably partly why it is not considered cheap. However it looks very cheap to me and after a bit more due diligence I will be plunging in.

Monday, December 05, 2005

3I Group

My approach to investing is very random, researching new companies based on whims and fancy.

In an attempt to be a bit more systematic I have resolved to briefly research every FTSE 100 company by June 30 2006. That is roughly one every working day with some room for days off.

Doing so will help me manage my mortgage portofio, which needs to be invested in these sort of companies.

So here goes. Firstly... 3I group.

3I group is a private equity and venture capital fund. It mostly invests in communications, health, software, electronics, semi-conductors and petroleum.

3I releases a great set of results on Nov 10th with has caused the share price to rise over 10%. The stock is still fairly cheap, with a PE of about 11. This is based on the last full year results (March 2005.) The PE based on the last six months is more like 5.

3I looks like a well managed, growing company. However I do not generally invest in these type of companies as they are effectively making the investment decisions for you and you are purely investing in strength of the management. I prefer to make my own mistakes so I can learn from them and therefore will not be investing in 3I.

Saturday, December 03, 2005

Cut by a fallen knife

When will I learn? For the third time this year I have come unstuck trying to catch a falling knife. First it was eBay, then Verisign and now Vodafone.

I even stated on this blog that I would wait for at least two weeks after a poorly received earnings release before buying into the stock. But did I listen to my own advice? No - instead I plunged in after a couple of days. Now Vodafone has fallen a further 5% with no sign of changing direction. Ooops!

I still think Vodafone will be fine in the long term but if I had waited a couple of weeks before averaging down I could have done so much better.

I think the problem is I get used to a stock having a certain valuation. So I got used to Vodafone being worth more than 140p. When the share price slumped to below 130p I assumed it must be a bargain. Of course Vodafone could prove to be a bargain at 123p but just because it was at 150p doesn't mean it will get back there any time soon.

What was weird about Friday was that Vodafone announced that they had cancelled 750 million shares that they had previously bought back and stored in a treasury. This was over 1% of their float! But the market was more concerned about a downgrade by CSFB and Vodafone fell over 2% on heavy volume.

Vodafone's forward PE is now about 11 so I think downside is limited from here. Maybe I should buy some more? Maybe not!

Vodafone will be fine long term. I just need to batten down the hatches and wait for it to return to popularity. But waiting is so boring...