Saturday, November 24, 2007

ING makes a good move

My favorite broker, Sharebuilder, is being acquired by ING. Sharebuilder wasn't public, and its growth over the last few years has mostly gone unnoticed.

With its features directed at long-term investors, Sharebuilder is the perfect vehicle for betting on growth or takeover targets. I had mentioned it in a couple of very early posts, one on investing discipline and the other on the eternal question of beating the market. I have influenced at least a dozen people to sign up with Sharebuilder. Despite its steady growth one concern that occasionally surfaced was a lack of a prominent financial house backing it. That is now solved. Who better than ING to ensure Sharebuilder remains committed to small investors. ING showed the way with its high-interest accounts even as other banks were fleecing customers. Hopefully, ING would be able to bring investing costs at Sharebuilder further down.

There are still ways in which Sharebuilder can improve in terms of its offerings. For example, there is no way right now to request automatic dividend reinvestment for particular stocks instead of for the whole account (Schwab allows it). In addition, there is no graphical display of performance of a portfolio against some index (FolioFN has such a feature). But more importantly, none of the brokerages seem to get gain & loss calculations or tax optimization right, even when some of these are handled via an external service. I would rather have somebody like Cake Financial handle it for all brokerages. Hopefully, they can handle such simple and regular events like splits, spinoffs, renaming and dividend/capital distribution right!

Wednesday, November 21, 2007

Hit #183 (Pharmion)

Pharmion (PHRM), a pharmaceutical company with focus on cancer, is being acquired by its larger partner Celgene (CELG) for $2.9 billion. The part cash / part stock offer comes to $72/share, a gain of 299% over my average cost of $18.06 when I bought shares a bit more than a year ago.

I intend to hold onto the Celgene shares that I get in this deal. Celgene has the potential to grow substantially, and the presence of recent insider buying is encouraging. Despite its size Celgene could itself be a target down the road.

I had bought Pharmion shares in my self-managed IRA portfolio. Some of you have asked me for a larger list of what I hold in that account. I will publish the list of major holdings in that portfolio soon.

For those interested in trivia - among Pharmion's important products is Thalidomide, sold under Thalomid. Yes, it is the same Thalidomide, which happens to be effective in some cancers. The rationale behind the name Thalomid can be read in one of the books I had mentioned in an earlier post - Inside the FDA.

Another player to watch is Millenium (MLNM). Though more likely to be a buyer at this moment, it could also turn into prey. I would like to see more insider buying or a much better valuation before adding to my existing small position.

Previous hit - Business Objects (#182)

Monday, November 19, 2007

It is time to buy

Back in February I had written that it was time to panic! Ten months later it feels like the whole nation has heeded that call. Even permanent optimists like BusinessWeek, Economist and Money magazines have turned into bearers of gloom and doom this week.

For contrarians, this is the time to start buying. As with buying anything where the value is set by others, one should be prepared to buy at better prices, but many sectors, from financials to retail have bargains now for long-term investors. Stocks of companies like Citigroup, Moody's, Starbucks, Lowe's, Zions Bancorp are trading as if we are headed for a depression. While it is possible that we are about to see 1929 all over again, odds are that we are seeing a market overreaction at the extremes. The chances of a depression are real, and definitely a bit higher than what one would have guessed a couple of years ago, but the worst we will see is a prolonged (2-3 years), hard recession. For long-term value investors that should just be noise.

One sector where there is still too much optimism is tech. So, I would wait before buying big, though many like Symantec and SAP do appear attractive.

There probably are bargains even among home builders and lenders, but I find it hard to separate the good from the bad.

One thing is certain - buying a house now is recommended only for those who like to play Russian roulette! It was bad at the peak, and it is no better now.

Another area where pessimism may have reached a turning point is the outlook for the U.S Dollar. Will it start moving up soon ?

Thursday, November 01, 2007

Hit #182 (Business Objects)

The long rumored takeover of Business Objects (BOBJ) finally materialized a few weeks ago. The buyer, SAP, is paying around $6.8 billion in cash. The offer, of around $59.25/share, makes for a 170% gain over my average cost of $21.94. The eventual dollar amount paid may vary slightly based on the euro/dollar exchange rate - the offer is set at 42 euros. I had first bought some shares in 2004, and bought a few more again last year when the stock cratered following dismal earnings.

I had mentioned Business Objects in a few prior posts, most notably when Hyperion (Hit #150) was acquired by Oracle and even earlier while listing potential targets for Oracle.

In spite of my guessing SAP as a buyer in that post on Hyperion, this still comes as somewhat of a surprise. SAP is having trouble dealing with an aggressive Oracle, and this costly acquisition with its attendant integration risks will not help. For very long-term buy-and-holders SAP now represents an opportunity assuming this buyout will turn out to be a positive move a few years from now. A more sensible buy for SAP would have been BEA (BEAS) since its own attempt (NetWeaver) to get into application servers has failed.

With this buyout, the only major pure business intelligence software provider left single is Cognos (COGN). IBM is the most likely buyer. Cognos may still get a premium, but I like my stocks really cheap and hence won't be buying now.

A smaller reporting software/service company that will also be a target is Actuate (ACTU). The stock has more than tripled since my buy, but I will be holding onto the shares forever.

A startup to watch in this sector is Tableau Software. A public offering may be in its near future. As a user I was impressed by their charting/visualization features as well as ease of use (drag and drop). The company will be a great target for a larger player.

Proceeding to application and retail software, Oracle's offer, and its timing in particular, was surprising. It is a shame that BEA even bothered to respond (with a higher demand, but still), when in fact it could set its house in order and command a much higher price a few years down the road. Folks at BEA seem to have given up!

Among retail/supply-chain software vendors, Manhattan Associates (MANH) looks very attractive at is current price, with insider buying to support it further. The company will be taken out, hopefully at a much higher price. Retalix (RTLX) and newly public DemandTec (DMAN) are also worth watching, and buying in small numbers.

Previous hit - Navteq (#181)