Long lost Clarice

Okies everyone.. I'm back to create a new post again!
Well, as wat ArchPinky has said.. that I'm missing.. says who?
I'm still around on this planet okay.. somewhere in the central, slogging 5 days 8 hours a week. then goes back home to fold my invitation cards. haha~
erm.. luckily only inviting 30 tables of guests. Can't imagine those who had 100 tables of guests. They would have called in the whole factory of workers to help out with the folding job. :P
We should meet up soon really.. cos' time to give me your ang pows. Bleah~

Using Buffett's Geiger Counter

Motley Fool
Using Buffett's Geiger Counter
Friday October 13, 3:32 pm ET
By Emil Lee

In 1956, Warren Buffett started a small hedge fund and, over the next decade, trounced the market with a 930% cumulative return, compared to the Dow Jones' 165% return. Keep in mind, this is after fees. Buffett's return, before fees, was 1,600%.

How was Buffett able to achieve such stellar returns? Charlie Munger once said that he and Warren made their first hundred million or so by running their Geiger counter over everything. By turning over enough rocks, they eventually found hidden treasures lying there for the taking.

The $60 wallet
After reading Buffett's shareholder letters from those early days, I see that Munger wasn't lying. For example, one of Buffett's largest holdings in the late '50s and early '60s was a company called Sanborn Maps, which eventually became a whopping 35% of Buffet's fund. Amazingly, Sanborn Maps had a securities portfolio worth $65 per share, but the stock sold at $45 per share. The mapping business, although declining, was still profitable, and it had a positive intrinsic value. Buffett was able to buy up enough stock to gain control of the company and liquidate the securities portfolio, giving him a fabulous return. In essence, Buffett bought a wallet with $100 in it for $60, and not only got to keep the money, but also sell the wallet.

Although rare, there are bound to be similar opportunities out of the thousands of companies trading on the stock markets. I believe that continually turning over stones will eventually lead to hidden treasures. I plan on looking at five companies a day at least, or roughly 1,300 companies a year (assuming roughly 260 business days a year), and I'll write about some of the more interesting companies I stumble across. If only 13, or 1%, of these companies are worth investing in, then as Ben Graham says, satisfactory investment results can be achieved.

Although I'm not making any buy or sell recommendations on any of the following, I hope to identify companies worth doing further research on. Here are two to consider:

Tarragon (Nasdaq: TARR - News):When insiders own 48% of a company and are buying fistfuls of shares, I usually sit up and take notice. Tarragon's insiders began buying shares at $16 per share, far higher than the stock's recent $11 price tag. Why the downturn? To the general public, Tarragon has three strikes against it: It's a homebuilder, it focuses on condos, and it operates in Florida -- the most crash-prone state in the U.S. So why have insiders been buying up shares?
Tarragon's market cap of $316 million is about equal to its $287 million book value. Book value, or assets minus liabilities, is an accounting approximation of a company's liquidation value. When a company trades near book value, as homebuilders often do, investors are either saying that the present value of the company's future free cash flow are worthless, or that the company's intrinsic (or true) value is less than the company's book (or accounting) value.

However, Tarragon not only has a profitable homebuilding division, but also owns investment properties with decent returns. Tarragon has been divesting its real estate holdings and earning substantial investment gains in the process. In fiscal 2005, this investment property division earned $54 million in net operating income. If the homebuilding division can continue to stay profitable (Tarragon's total net income was $28 million in the first half of 2006) and not take any huge losses on its land holdings, then Tarragon's future free cash flows are worth something, and Tarragon's stock could skyrocket. Clearly, management thinks that Tarragon's value is substantially more than its current stock price, and this is definitely a company worth researching further. Although it carries a substantial amount of debt, the company was able to extend its debt payment terms, which should buy it time to sell off more real estate and increase the company's intrinsic value.

Valassis (NYSE: VCI - News):About half of Valassis' sales come from free-standing inserts, which are advertisement booklets placed into weekend newspapers. Another 30% of sales are from neighborhood-targeted ads such as posters and samples delivered with newspapers, and 10% of sales are from run of press, or ads printed directly onto newspapers.
Surprisingly, Valassis' sales growth has managed to hold up despite deteriorating newspaper sales. Valassis' free-standing insert business has a decent economic moat because of the long-term contracts involved; aggressive pricing by the only major competitor, News America, a subsidiary of News Corp. (NYSE: NWS - News); the need to leverage purchasing power; and the large expenditures required to build a distribution system.

As a result, Valassis operates in a duopoly, and the business has extremely high returns on capital and throws off extremely healthy free cash flows. In fiscal 2005, sales increased 8%, and the company earned $158 million in operating income and $95 million in net income. The balance sheet is also healthy, with $100 million in net debt. Although the first half of 2006 has been pressured by aggressive pricing by News America, Valassis' $850 million market cap and 11 price-to-earnings ratio are both extremely low for a company of this quality. Investors can expect anywhere from an 8%-11% free cash flow yield from investing in Valassis, with the possibility of further growth.

Of course, as with all cheap stocks, there's a catch. Valassis recently agreed to buy Advo (NYSE: AD - News), a direct marketer, at a hefty premium. After agreeing to the deal, Valassis moved to terminate the agreement based on allegations that Advo used faulty accounting. If the courts decide in Valassis' favor, then the company's stock should see a nice bump upward. If not, then Valassis will be forced to pay an expensive price for a company it doesn't want, which would erode shareholder value. Meanwhile, Valassis has sued News America in a $1.5 billion lawsuit, alleging monopolistic practices, which is sort of "free call option" on Valassis being awarded a significant amount of money.

Although the Advo deal introduces a certain amount of risk, Valassis' stock is cheap enough that it might be undervalued even if the Advo deal goes through, so I'd also put this in the "do more work" pile.

Well, that's it for today. Stay tuned for additional stock ideas.

Fool contributor Emil Lee is an analyst and a disciple of value investing. He doesn't own shares in any of the companies mentioned above. The Motley Fool has a disclosure policy. Emil appreciates comments, concerns, and complaints.

Some people updates

Andy Tham is leaving our account next week. He will be sadly missed. We will get the usual suspect together for a porky farewell.

Wah Sam is leaving HP after 4 years and 4 months as they have not made him a fulltime staff after all these years. He will be on vacation next week.

Clarice prmoised to catch up but never did.... she doesn't love me anymore... :-(

Dow Hits 3rd Straight Record Close

AP
Dow Hits 3rd Straight Record Close
Friday October 6, 12:37 am ET By Ellen Simon, AP Business Writer

Dow Hits Third Record Close on Strong Retail Sales and Lower Unemployment Claims
NEW YORK (AP) -- Wall Street rose modestly Thursday, nudging the Dow Jones industrial average to its third straight record high close as investors welcomed upbeat retail sales and jobless claims figures.

The Dow closed at 11,866.69, surpassing the record of 11,850.61 set Wednesday. The blue chip index traded up to 11,870.06, which stands as its trading high.

Rising oil prices didn't smother investors' good mood.

"Considering the distance we've come over the last three months and certainly the last three days, it's interesting we could have a data point like oil's climb and not have the market backup much," said Arthur Hogan, chief market analyst at Jefferies & Co. "It's certainly a scenario where the longer term prospects for the market are looking more positive."

Stocks pulled back briefly after Charles Plosser, the newly installed president of the Federal Reserve Bank of Philadelphia, signaled that further Fed interest rate hikes may be in the best interests of the economy's long-term performance.

The Dow rose 16.08, or 0.14 percent. The blue chips have gained 196.34 over the past three sessions; on Tuesday, the index shattered closing and trading highs that had stood since Jan. 24, 2000, toward the end of the dot-com boom.

Broader stock indicators were also higher Thursday. The S&P 500 index rose 3.00, or 0.22 percent, to 1,353.22, and the Nasdaq composite index rose 15.39, or 0.67 percent, to 2,306.34.

Advancing issues led decliners by roughly 2 to 1 on the New York Stock Exchange.

Bonds fell as stocks wavered, with the yield on the 10-year Treasury note at 4.61 percent, up from 4.56 percent Thursday. The U.S. dollar was mostly higher against other major currencies. Gold prices rose.

Crude oil futures rose. A barrel of light crude settled at $60.03, up 62 cents in trading on the New York Mercantile Exchange.

The day's economic news was stronger than expected, with retailers such as Target Corp., Nordstrom Inc. and Limited Brands Inc. reporting their same-store sales in September surpassed analysts forecasts. Also, the number of new unemployment claims dropped to its lowest level in 10 weeks.

Still, just where stocks are in their long recovery from their 2002-03 lows remains a topic of debate on Wall Street.

Some traders have questioned the depth of the rally, saying technical markers such as the ratio of advancers to decliners are weaker than they've hoped. And while the Dow has recovered, the S&P 500 still remains more than 11 percent off its all-time high.

Other traders say the market's biggest fears -- high energy prices and additional rate hikes by the Federal Reserve -- are behind it, leaving room for a greater run-up in stock prices.

Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors, said he sees this as a stock market in the more advanced stages of a recovery that has been driven, in large part, by declining energy prices.

In company news, Wyeth fell 28 cents to $50.90 after a Philadelphia jury awarded a woman $1.5 million after finding that the drug company's hormone replacement drug was a factor in her breast cancer. This is the second such case against the company to go to trial; Wyeth won the first.

Wal-Mart Stores Inc. dropped $1.14 to $48.41 after the world's largest retailer reported disappointing September sales. Rival discounter Target Corp. rose $1.05 to $58.68 after it reported a solid sales gain for the month and beat analyst estimates.

Nordstrom Inc. rose 25 cents to $45.44 and Limited Brands Inc. dropped 12 cents to $27.87.

Marriott International Inc., the world's largest hotel company by revenue, said its third-quarter earnings weakened, falling 5.4 percent. But its 33 cents per share net income beat estimates of 30 cents and the stock rose $2.52 to $40.85.

Class A Shares of Berkshire Hathaway Inc., Warren Buffett's investment company, crossed $100,000 a share for the first time Thursday, before retreating slightly. The shares closed up $1,301.00 at $99,000.

The Russell 2000 index of smaller companies rose 9.61, or 1.31 percent, to 743.08.
Consolidated volume on the New York Stock Exchange was 2.73 billion shares, compared with 2.99 billion Wednesday.

Overseas, Japan's Nikkei stock average surged, rising 2.28 percent as investors welcomed Thursday's advance on Wall Street. Britain's FTSE 100 rose 0.64 percent, Germany's DAX index gained 0.48 percent, and France's CAC-40 increased 0.61 percent.

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

Foolish Fundamentals: Return on Invested Capital

Motley Fool
Foolish Fundamentals: Return on Invested Capital
Friday September 29, 11:06 am ET
By Motley Fool Staff


Return on invested capital, or ROIC, is one of the most fundamental financial metrics. But despite its importance, it does not receive the same kind of press coverage as earnings per share (EPS), return on equity (ROE), and the price-to-earnings ratio (P/E). One reason it gets neglected is probably the fact that you cannot obtain ROIC straight out of financial statements. Nevertheless, the concept is fundamental in measuring how much value a company creates.

So what exactly is ROIC? It is defined as the cash rate of return on capital that a company has invested. It is the true metric to measure the cash-on-cash yield of a company and how effectively it allocates capital. And that metric is:

ROIC = net operating profits after taxes / invested capital

Net operating profits after taxes (NOPAT), the numerator, is perhaps the best metric to measure the cash that operating activities generate. It is a better metric than net income because it excludes items such as investment income, goodwill amortization, and interest expense, which are non-operating in nature. NOPAT's focus on operations makes it a better measure than EPS.

For example, in its 2005 fiscal year, Motley Fool Hidden Gems pick Alderwoods Group (Nasdaq: AWGI) had a net income of $41.2 million. Obviously, Alderwoods' net income is not fully representative of the profitability of its operations. Once adjusted to reflect operating activities, Alderwoods' NOPAT amounted to $46.6 million.

Fools do not invest in companies for their ability to generate investment income but, rather, for the profitability of their core operations.

The simplified formula to calculate NOPAT is:

NOPAT = operating income [which is earnings before interest and taxes] x (1 statutory tax rate)

Invested capital, the denominator, represents all of the cash that debtholders and shareholders have invested in the company. Invested capital can be calculated by subtracting cash and equivalents and non-interest-bearing current liabilities (NIBCLs) from total assets. Cash is subtracted because it does not yet represent operating assets. NIBCLs -- which include accounts payable, income tax payable, accrued liabilities, and others -- are subtracted from capital because they bear absolutely no cost (are interest-free).

Note that to calculate ROIC, we use the average invested capital for the period. For Alderwoods, invested capital for its fiscal 2005 was $1,360 million.

So, here's how to calculate invested capital.

Start with:

+ Total assets

Subtract:

- Cash, short-term investments, and long-term investments (excluding investments in strategic alliances)
- NIBCLs

So with a NOPAT of $46.6 million and an invested capital number of $1,360 million, the ROIC for Alderwoods is thus calculated to be 3.4%.

You can measure this ROIC against the company's weighted average cost of capital (WACC). Without the WACC, ROIC is not very useful, since the WACC represents the minimum rate of return (adjusted for risk) that a company must earn to create value for shareholders and debtholders. When the ROIC is greater than the WACC, it means that the firm creates value; otherwise, it destroys value. The difference between the ROIC and WACC is called the ROIC-WACC spread and is expressed as a percentage.

So what does all this mean for investors? For starters, Fools are better off tracking ROIC-WACC spreads than they are following EPS, net income, or ROE, since studies have shown that stock prices are highly correlated to ROIC-WACC spreads. Value creation is the key, and simply looking at EPS or net income does not indicate whether a company creates value. Furthermore, high sales growth can be harmful when new capital is being invested in value-destroying projects, yet EPS, net income, and growth do not tell how much capital was required to generate those numbers. Thus there is a fundamental flaw inherent in using these traditional metrics.

ROIC can also be used to understand why stocks trade at different multiples, whether we are talking about P/E, enterprise value/invested capital (EV/IC), or price-to-book value (P/B). The P/E ratio is not only a function of growth, but also of ROIC.

Generally speaking, companies with higher ROICs are more valuable. It is important for Fools to understand, however, that it is not only the level of ROIC that matters, but also the trend. A declining ROIC may be an advanced indicator signaling that a company is having a hard time dealing with competition. On the other hand, an increasing ROIC may indicate that a company is outdistancing its competitors or that it is being more efficient at deploying capital. In all, ROIC is a valuable tool to assess the quality of a company.

Alderwoods Group is a Motley Fool Hidden Gems recommendation.

Shruti Basavaraj, Adrian Rush, and Katrina Chan contributed to this article, which was originally written by Andrew Chan. Neither Shruti, Adrian, nor Katrina own shares of any company mentioned. The Motley Fool has a full disclosure policy.

Information regarding changes to options exercises

From: TD AMERITRADE
Subject: Information regarding changes to options exercises

Date: 10/3/2006

Dear Valued Client,

Beginning October 2006, the Options Clearing Corporation (OCC) will
implement a change to reduce the automatic exercise threshold for
equity options. The current threshold of $0.25 will be set at $0.05
for expiring options that are automatically exercised by the OCC.
The threshold for index options will remain at $0.01.

This means that if you had an options position in company ABC and the
underlying stock closed at least 5 cents above or below the strike
price of your option (depending on if it is a call or put) on the Friday
before expiration, your contracts would automatically exercise. The
resulting stock position from the exercise would appear in your account
the following Monday.

This is an industry change and will only affect the way your options are
exercised at the time of expiration. To opt out of the automatic
exercise,
call a Client Services representative prior to expiration.

If you have questions, please e-mail us after you have logged on to your
account or call a Client Services representative.