Wednesday, May 24, 2006

Cash is king

How I wish I had a mountain of cash to plow into this market. There are bargains everywhere I look. Here are some of them:

GOOG - $375. Google's last earnings release blew away market expectations but after a brief rally the market decided it was still bored of GOOG. I think GOOG can do $10 per share this year so that puts it on a 2006 PE of 37.5. That is a high multiple but when you think that GOOG's revenue growth is still in the high double figures it obviously deserves a premium rating. GOOG keeps gaining search market share in a growing market environment. When it start tweaking its other products to generate revenue the sky is the limit.

EBAY - $30. At the start of the year I never dreamt that eBay could dip this far. But it has, mainly as part of a general sell-off of internet stocks. So it is now on a 2006 PE of 30 and revenue is still growing at 35%. If you consider the protective moat eBay has around its business you have a screaming buy. I already have bought my full quota of eBay and more - unfortunately when it was over $40. But it really does seem to have bottomed out now. I have been calling eBay a buy all the way down from $46 and I still think that long term I am right. But at $30 eBay is a five star, A++++ buy.

Verisign - $21.50. For about five minutes in April I actually was in the black on my VRSN shares. Then the earnings release came out and the market decided that it was rather boring. So a month later VRSN is back hobbling around $21. Analysts struggle with VRSN because it has its fingers in too many pies. But just look at the figures: EPS of $1 in 2006. $3 a share in cash. Subtracting the cash gives it a 2006 PE of 18 - about the same as the growth rate. $1 billion share buy back just announced. That is almost one fifth of the market cap! VRSN is an investment of the highest quality. I already have some but at these prices I would like more.

There are three bargains without even trying. What about Intel? What about Microsoft? What about ARM holdings? What about CSR? What about Dana Petroleum? I really could have a shopping spree in this market!

Thursday, May 18, 2006

33% down for no good reason

This is the situation the eBay share price is in for this year.

Obviously there are some reasons - fears of slowing growth and increased competition being the main ones. But eBay at $29.50? Wow! I never thought I would see that day.

It is frustrating watching the NASDAQ from a distance of about 3000 miles. What really is going on with eBay? Who is selling so much of it and why?

I am glad I am in no hurry to sell my shares as the current price is a terrible one. But on a 2006 PE of under 30 and with a growth rate of 35% this has to look like good value now? Especially with the defensive moat eBay has around its business.

I think to hold volatile shares like eBay you need to be healthily detached from the share price and very patient.

I try to be both those things. Perhaps I will come back to the stock market after the World Cup!

Friday, May 12, 2006

Dana Petroleum

Earlier this week I bought my first oil stock - Dana Petroleum (DNX.)

What is there not to like about DNX? Sometimes an investing decision seems so easy you almost feel guilty for taking it.

So here is what I liked:

1) Very clear reporting about future growth plans
2) Strategy should result in profits doubling by the end of 2007
3) Trailing PE of only 15!
4) London listed - preferable to me that a US stock in a weakening dollar environment.
5) 2005 results are based on a crude price of $42
6) Reasonable chance of share price transforming discoveries

My only explanation for the low share price is that most brokers refuse to believe that oil is going to stay at current levels. They obviously thing that crude will be back to $30 by the end of 2007 and have modified their forecasts accordingly.

If you believe that oil will stay above $60 in the medium term then DNX is a fantastic buy.

EPS in 2005 was 80p. That was based on 20000 barrels per day at an average price of $42. By the end of 2007 DNX should be producing 40000 boepd. And the average crude price by then? Well if it is $50 then DNX will be fine. And if it is $80? That sounds like quadruple profits to me.

My time is up but DNX looks fantastic.

Saturday, May 06, 2006

The cower of three

Now it is personal. At first eBay's downward drift this year looked like a general disenchantment with the Internet sector. But after an underwhelming Q1 earnings release and then a disappointing analyst day the market really is down on eBay.

I have some advice for Meg Whitman: stop going on about the power of three. I don't believe there is anything magical about owning three companies. And what about Doesn't that make it four? Such mystical talk does not inspire investors.

Another piece of advice: drop the adverts. I noticed recently that when you search for items, the results page has a banner ad. at the top. This is wrong wrong wrong. Hopefully it is just a temporary experiment. It is no good spending millions on sponsored adverts on Google to draw customers to your site and then putting adverts on your own site to draw them away. Everything eBay does should be about enhancing the buying / selling experience and banner ads indicate a lack of focus / desperation by the management.

Oh, and Jim Cramer thinks it going to $30. Thanks Jim. I'm sure anyone who filled up the truck on your recommendation when it went below $45 is really pleased.

The eBay share price has taught me an important lesson about diversity. However good eBay looked you have to accept that you could be wrong and spread your portfolio around some of the other great opportunities. If there were only a handful of interesting companies around then a case could be made for only owning a couple. But as there are hundreds of decent opportunities it makes sense to hedge a bit.

eBay will recover... eventually.

Wednesday, May 03, 2006

CSR Beat Again

I thought this blog needed a bit of colour - so there we all are on Anglesey last weekend.

Anyway, CSR did the business again yesterday. To continue the theme of CEO statements, here is what John Scarisbrick has to say: "This buoyant marketplace and our increasing visibility of our customers' development programmes make us confident of delivering a strong financial performance for 2006."

Revenue grew over 100% quarter on quarter, and the forecast revenue growth for the next quarter was 90%.

The market liked it anyway and the SP jumped 16%.

CSR demonstrates the concept of buying into a market with a tailwind behind it. Bluetooth is experiencing massive growth at the moment, CSR is the market leader and the share price was cheap.

When I bought CSR in December the SP was at 900p, the growth rate was at 50% and the forward PE was about 15. With those sort of figures no wonder I described it as a screaming buy. With the 2006 PE still under 25 it is still a decent buy today.

Having said that, I have been learning some lessons about diversity recently and so sold half my holding to capture the 50% profit.

The cash will go into a commodity stock of some description but for now well done CSR!