Saturday, April 22, 2006

Yawn to eBay

"Yawn. Let's look at Google." That is what the market said to eBay this week.

35% revenue growth is pretty good by most standards but when your standards are as high as eBay's it is mundane.

So eBay's trailing PE is down to 45 - almost unimaginable in the heady days of late 2004 when the trailing PE was well above 100.

I feel like someone up there is trying to teach me something about diversifying my portfolio. First Vodafone plummeted after I averaged down on it and now eBay. Aaaagh. I need to learn lessons the hard way and the value of diversity is starting to sink in.

Anyway here is eBay's year on year revenue growth for the last 5 quarters:

36 40 37 42 35

So this quarter's growth rate is only just below 2005 Q1. And the share price is the same. And the revenue is 35% higher. At some point eBay is going to become a real bargain. I think it is now but I said that at $44.

I am not alone. When eBay was at $46 a few months ago I remember Jim Cramer saying "buy eBay below $45." He is mute about it now!

I recently commented that I would be willing to bet a lot of money that eBay would trade outside the $35 to 45 range before the end of the summer.

Well it has - just not at the end I was expecting. During normal hours yesterday the price ticked below $35. Not a good day.

The market will do what it wants to eBay. At some point the share price will start keeping pace with the earnings growth and then I will be smiling.


Wednesday, April 19, 2006

Peabody Profit Warnings

I sense that Grogory Boyce, CEO of Peabody Energy (BTU) is trying to tell us something:

"Peabody is capturing higher prices on expanded volumes and delivering record financial results"

“Our operations are positioned to deliver even stronger second half performance"

“The global market fundamentals for coal continue to strengthen”

And it goes on. This is a profit warning of the most positive kind.

You won't find many 10Qs more bullish than BTUs latest earnings release. EPS is up 150%, net income is up 150% etc.

The curious thing about their results is that nearly all the income growth is due to the rising coal price. Is guess this is the norm for commodities companies but it begs the question of whether the coal price can keep rising.

BTU present quite a convincing case that it can: low inventory levels worldwide, high oil and gas prices, China's coal imports are growing, the US is building coal-powered generating plants and global steel demand is growing.

My plan is to dispose of my Google shares after their 10Q on Thursday and buy either Vedanta Resources, Dana Petroleum or Peabody.

I will look further into the other two this week but for now BTU looks fantastic.

Thursday, April 13, 2006

Vedanta Resources

It is almost Easter and life has been hectic!

I have had no chance to think about selling GOOG, which is probably a good thing as the SP keeps drifting up.

Vedanta looks a favourite to replace GOOG - It is on a forward PE of about 16 but EPS could grow 80% in 2006. Obviously if aluminium or copper prices plummet then so will the SP but with all the industrial growth in India and China I see no reason why they should.

Dana Resources looks nice as well as its 2005 figures were based on an average oil price of $43. As the price is now nearer $70 Dana should show a very healthy 2006 growth based on the oil price alone. And their trailing PE is only 13!

That is all from me. Happy Easter!

Monday, April 03, 2006

CAL Challenges

"We continue to face significant challenges" said Larry Kellner in the most recent Continental Airlines (CAL) 10Q. Hmmmm. My general policy is to buy fantastic companies at reasonable prices and wait for the market to get excited about the company. But CAL does not qualify as fantastic, just tempting and curious.

I think the most recent Chairman's statement is one of the most important pieces of information about a stock. Here are a couple more.

"We are confident of showing good progress over the next twelve months and delivering value to all stakeholders." So said Anil Agarwal, Chairman of London listed Vedanta Resources plc, a company well worthy of further investigation in my opinion. A nice statement but very conservative. How about:

"We believe that Peabody's successes in 2005 and plans for 2006 mark the early stages of a long period of sustainable growth and ever-improving financial results." Now that is nice! Gregory H. Boyce, CEO of coal miner Peabody Energy is obviously confident about his company's prospects.

So I didn't sell Google and I didn't buy CAL. I think to buy a company like CAL you need to have a definite feeling for the direction of oil prices. I think that if operations in Iraq were to cease then the price of crude would fall but apart from that I have no idea. As operations in Iraq look like continuing for many years I really have no reason to buy CAL. So I won't!

How about Peabody? According to Yahoo!, 16 analysts estimate its growth over the next 5 years to be 50% annualy, giving it a PEG of 0.45. Wow!

What about Vedanta? Analysts estimate that 2007 earnings will be almost double that of 2006. After a recent rise the forward PE is still under 25. Another Wow!

Google is on a much higher PE than these guys but growing slower. So it is bye bye to GOOG and hello to a miner. Better late than never I guess.