Sunday, September 26, 2004

Housing market - are we on the moon yet ?

In the current environment, I would not dare to buy most of the homebuilder stocks. If I had time and energy ( I don't), I would be shorting a few of them.

That said, once the inevitable slowdown shows up with rising interest rates, we should see a few of the smaller players getting acquired.

Most of the smaller players are very expensive too right now, but here is a very short watchlist.

  • Dominion Homes (DHOM) : A builder concentrating on Ohio, Kentucky etc, where home prices have not gone through the roof. Could be very attractive for larger players who don't have a presence in these states. I own a few and will be buying more in $19-22 range.
  • Champion Enterprises (CHB): This manufactured homes seller is slightly expensive right now. I own a few bought at a much lower price (55% current price) and waiting patiently for another buying opportunity. One of its competitors, Clayton Homes, is now owned by Berkshire Hathaway.

Saturday, September 25, 2004

IBM's partners.

IBM takes a while ( a long while! ) to decide, but does end up acquiring a good number of its long-time partners. Must be a most painful dating for the smaller partner!

Such partners acquired number in the hundreds over the last decade and is set to continue, since innovation most often comes from these small/nimble players.

A few on my watchlist (that also have been mentioned before as targets, but under different categories ) -

  • Manugistics (MANU) : This is one area where IBM could do with some help. And ofcourse, Manugistics is in a very bad shape, so this should be very attractive to them.
  • Mobius (MOBI): Was mentioned in Business Week recently. I listed it under my Document Management targets a while ago. IBM has been buying small content-management companies over the last few months and this could be the big one to complete its spree. Should help it compete with Documentum, now part of EMC
  • Perficient (PRFT): This small player is very close to IBM, and will definitely end up in IBM's arms. It is just a question of when.
  • Insignia (INSG) : These guys have a very useful/unique product for device management. While IBM is the most likely one to buy it, it could also end up with one of the wireless partners, Motorola or Texas Instruments.
  • PeopleSoft (PSFT): Peoplesoft announced recently that it is taking its partnership with IBM to the next level. Will IBM be the white knight rescuing it from bad boy Larry ?

I own all the above. Manugistics and Perficient are still attractive at current prices. Insignia is highly speculative. Mobius and PeopleSoft are fairly valued, but IBM would surely be willing to pay a premium even at these levels.

Wednesday, September 22, 2004

Without admitting any wrongdoing ?

It is funny how all the mutual fund cases are being settled without doing real justice. Most of these fund companies are paying fees that don't even come close to the actual amount they stole from ordinary investors. In addition, some of that compensation is in the form of providing investor education services - what was that again ? It is like asking a convict to handle the Sunday sermon!

Not enough is being done to go after individuals who obviously benefited, directly or indirectly. These guys should see solitary confinement for a few years without their Maybachs.

It is odd that someone can get 25 years for stealing a slice of pizza (under California's notorious 3-strikes law), but these soulless corporate thieves go scot-free.

Similarly, some of these criminals get to have an outsized influence on the electoral system by way of political donations, but a small-time felon in Florida is barred from voting.

Apologies for this preachy post, but I just had to get it out. Next time you invest, you vote, you buy that yacht, take some time and think if your happiness has come from outright robbery. Looks like all these sleazy fund executives and CEOs never had time to muse!

A weak and hungry Microsoft

Nothing that Microsoft (MSFT) is doing seems to effect its stock of late. While the dividend hike and one-time payout is a great way of rewarding investors, that hasn't yet helped people owning its shares.
Product delays and Linux are hurting it and today its CFO announced that Microsoft is looking at big (but not so big) acquisitions. So the guessing game starts all over again.

I have written on this topic in the past, so I will take my chances and pick only one candidate that I think is the best fit.

The chosen one ? Bearing Point (BE). Microsoft has very little presence in the consulting/services business. An active consulting wing should help Microsoft get close to customers and also generate more free cash and business. Bearing Point looks cheap too at its current price. I have been buying in small lots in the past, and will be buying more.

Even if Microsoft does not target it, Bearing Point is still a great buy for the likes of HP and IBM. So it is a definite buy.

Sunday, September 19, 2004

It is all about content.

I promised in an earlier post to write about possible picks in the content sector. Content here refers to video/dvd and to a lesser extent audio.

MGM was recently bought by Sony after a long race with Time Warner. Time Warner lost but it must be looking at some others now.
Comcast made a hostile bid for Disney a while back, but failed in its attempt. Recently it entered into an agreement to buy 20% of MGM from Sony. But Comcast won't be satisfied with that - I am sure they will be back buying!

Shows just how desperate companies are for pure/valuable content.

Here are all the content players and my take on them.
  • Disney (DIS) : This is greatly undervalued, but as long as the shareholder-unfriendly management/board is in place, don't expect a miracle. If only Eisner had taken less from this money machine and instead rewarded shareholders! This has been a classic trickle up example - take from the shareholders and turn millionaire execs into billionaires. I am still buying at the current price in the hope that the current management will be ousted and the company will be sold for a decent price a few years down the road.
  • Lions Gate Films (LGF): Their decision to take on Fahrenheit 9/11 distribution gave a good deal of publicity. The stock has soared. They have a great library of movies and that makes them a target. Current valuation is high, buy only on a good pullback.
  • 4 Kids Entertainment (KDE) : Owns/licenses a variety of kid/teen culture icons, including a good number of successful Japanese characters. Mints money! Fairly valued and a good buy.
  • Marvel Enterprises (MVL): Owns/licenses thousands of cartoon/movie characters, including Spiderman. Undervalued currently - a good long-term takeover play.
  • Imax (IMAX): A great collection of IMAX movies (as well as IMAX theaters) makes this a good target. Undervalued, with a lot of insider buying. Accumulate at this price.
  • Playboy (PLA) : Has been in a funk for a while, but the stock is undervalued I think. The brand itself, apart from all that great ;-0 content, is one of the most recognized. A takeover is unlikely, but going private is an option ?
Among the above, I own a few of Disney and Imax. I am still buying Imax regularly. Will consider Marvel seriously soon.
Have been buying Playboy for a while now. Sitting back and waiting for its true value to be revealed!

Some real fun!

One of my earlier takeover/value picks was Six Flags (PKS). I have to admit though that the stock went nowhere, but down - a bad ride and not even wild!
Recently someone else showed interest in this - Redskins owner Dan Snyder. He has taken a close to 10% stake and believes the company is undervalued. About time too!
One more person holding a big stake (~10%) may also start showing more interest now - Bill Gates!
Six Flags' problem has been just bad management. Hopefully, some activism will lead to its real value finally being revealed.

On discipline

Apologies for the sober sounding title, but discipline is an important thing to keep in mind if you plan to keep your sanity while dealing with the markets. Here is a list of rules I made for myself and how i fared vis-a-vis compliance.

  • Don't chase a stock, let it come to you. : Even the most hyped up stock will run into bad weather some day resulting in a huge sellout. You can jump in then. The patience required is nerve-wracking, but will teach a few lessons. I would not have made sizable profits in some of my takeover hits if i had not waited for such pullbacks. e.g. J.D. Edwards and Overture, 2 from my list got acquired a few days after their earnings warnings. I had bought both only after those warnings since they seemed expensive before then.
  • Don't trade during work hours. : I have never broken this rule. This is the most important rule if you want to keep your day job!.
  • Don't even look at quotes during work hours : Somewhat harder to follow. I may have broken this a handful of times in the last few years.
  • Don't login to your brokerage account during work hours : Just say NO!
  • Limit your trades to a small window : Don't turn into a day-trader. If you make money, you are just lucky. My trades are limited to between 6:30 AM - 7:30 AM - being on the "left" coast has its advantages.
  • Go for an account type that charges you less for buying during fixed windows and more for selling and market/real-time orders.: I use Sharebuilder and it allows buying on Tuesdays and you cannot decide the time of day or the price and the order has to be made by Monday.
  • Sell when a stock has gone up and you can't explain it : Occasionally a takeover target goes up through the roof with no real news. Take your profit and sit on the money till you find a suitable target.
  • Don't buy based on stock-picking advice in popular magazines : Most ask you to buy at amazing, 52-week high prices. It is a setting for disappointment and a buy-high, sell-low scenario.

Oil and gas in the Rockies

There has been a great amount of M & A activity in the Rockies (CO) oil & gas players over the last couple of years. This, I think, is going to continue, especially if Bush gets re-elected and opens up more areas for drilling. As a "green", I do not support the latter idea, but nevertheless see this as a chance for M&A speculation.

Here is a list of players in the Rockies area -

  • Patina Oil & Gas (POG) : This Denver based company is a very stable, financially sound company. It pays a dividend too! The stock is fairly valued and hence a buy now may not result in a premium when the buyout occurs. But I have no doubt that a few companies out there are eyeing it. Will try to pick some if and when there is a pullback - chasing a stock is bad!
  • Whiting Petroleum (WLL): Another Denver based player. Substantial insider buying recently at market prices - that makes it a good buy though the stock is not cheap. Definitely a buyout within a couple of years.
  • Petroleum Development (PETD) : A richly valued stock with no support from insiders right now. Based in Virginia, but has assets in the Rockies. Wait for a big discount before buying.
  • Anadarko Petroleum (APC) : Very richly valued, no insider buying. Risky buy right now. But again a very juicy target at lower prices.
  • TransMontaigne (TMG) : A Denver based oil-services provider that has publicly announced that it is looking at strategic alternatives, usually implying a sale. Trading close to book value and has some insider buying.

From the above list, I own a few of TransMontaigne, and will be buying at current prices. I do plan to buy Patina and Whiting at lower than current prices, when I have some cash at my disposal.

Tuesday, September 14, 2004

Hit #23

The long drawn out process of MGM's sale is finally done. It agreed to be bought by Sony for $12/share. This has been a painful wait. I bought most of my MGM shares at around $11.50/share, so this represents a premium of around 4%.

If you take into consideration the one-time dividend payout that MGM made recently, of $7/share my percent profit goes upto 60%.

In addition, over the last 4/5 months the constant back and forth between MGM, Sony and Time Warner provided a few short-time trading opportunities and I made some small change twice.

I will have another post following this on other content companies that are likely to be acquired in the next couple of years. Just a few months ago, Disney (DIS) got a hostile bid from Comcast. Having failed in that attempt, Comcast has now entered into a deal with Sony to buy upto 20% of MGM. I still think Comcast will make another attempt to buy Disney at a later point when Disney has a more shareholder-friendly management/board.

Thursday, September 09, 2004

EBookers for sale!

Ebookers Plc (EBKR) today announced that it is talking to prospective buyers. Doesn't come as a surprise - I have mentioned Ebookers before in a couple of posts. I do own a few shares.
So, who could be interested ? I think it is either Interactive Corp. (IACI) or Cendant (CD). Both have indicated publicly that they are looking to make small to medium buys.
These buyers may also be looking at other targets - Priceline (PCLN) and (LMIN) both look very attractive. I don't own these 2, but will consider buying them soon.

Oracle wins!

Oracle won the anti-trust battle today. It is a good day for the software industry and especially, i hope, for customers.
Will this open the floodgates for more mergers ? I sure hope so.
It will be interesting to see if PeopleSoft gets a helping hand from a white knight.

As mentioned in one of my very early posts, PeopleSoft was among my first 2 or 3 takeover hits. Never looked back after that.

QRS Inc - the final word.

I am still recovering from the shock over the number of offers that QRS received. QRS Inc (QRSI) finally announced that it is going with an offer from Inovis, a privately held company. The price is $7/share, which now stands at a good 41% premium over my original buy price of $4.95/share. Wish all takeovers had such happy endings!

Hit #22

I have been waiting for close to a year now for this turnaround story to turn into a takeover play, but it paid off handsomely - Intercept (ICPT) was acquired today by Fidelity National Financial for $18.9/share, representing a 8.3% premium over yesterday's price, but a very satisfying 91% premium over my average purchase price of $9.9/share. The deal itself is extra sweet due to the large cash component involved.

Other players in this sector, payment processing, look attractive too. Here is a quick look at the rest -

  • Bisys Group (BSG) : Still attractive at the current price (around $14/share). Definitely a takeover target. I own a few bought at a slightly lower price.
  • Total System Services (TSS): Fairly priced. I don't own any, but will add if i see significant insider buying.
  • Transaction Systems Architects (TSAI): Again fairly priced, and worth buying on a lower price with accompanying insider buying. I don't own any.
  • Fiserv (FISV): Expensive at current price. Will buy only at a big discount.
  • First Data Corp (FDC): Too big to be a takeover target, but looks undervalued. I own a few and still adding.