Friday, April 21, 2006

Homes and Chips

Hi everyone.

A few ideas for you to consider. There is more on these on my own blog so I won't duplicate all the content.

Intel (Nasdaq: INTC)
Price: $19.06

I know AMD is eating their breakfast and lunch and dinner. But Intel is getting cheap. On a forward P/E basis, it is trading at the same multiple as the S&P 500. The pain for the stock may not be over, but I think it is worth taking a position at these levels. Perhaps you will get a chance to add to your position at $17 or $18. I won't bore you with the details, but you can read more about my thoughts on this on my blog.

Pulte (NYSE: PHM) and Centex (NYSE: CTX)
Price: $40 and $62)

You probably think I am crazy. But that's OK. As a value investor, I will have to get used to that. What am I thinking? With a looming armageddon in the frothy housing market, why would I recommend shares of a couple of homebuilders? Well, the simple answer is that they are CHEAP, CHEAP, CHEAP. But, surely, there is a reason they are so cheap. After all, the housing bubble will soon burst. Right? Well, I am not so sure. These companies have been around for decades and have been through many ups and downs. They are solid businesses with solid balance sheets and sound management. And did I mention they are CHEAP? Mr. Sheasby may be thinking the markets are efficient and so the shares of these companies are deservedly beaten down. Maybe. But I will side with David Dreman on this one. You can read more about Dreman on my blog so I won't bore you with the contrarian blurb. In short, homebuilders are the cheapest, by P/E, of all the major industry sectors on the market. They deserve a serious look for the long-term investor.

Thursday, April 06, 2006

Hotels, Theme Parks, Casinos and Telecom

Ok Mr. Sparling, that is an excellent point. All those people still have to take a vacation. I presume tourism has declined due to weakness in the US dollar. Although ignoring the strength of our Canadian dollar, the USD actually held up quite well last year and appreciated against the yen and the euro.

In any case, I don't know much about casinos and the hospitality business. I do like your Disney (Nasdaq: DIS) pick though. I am not sure about their theme park business (although Disney has amazing brands - who doesn't recognize Mickey!), but Disney's recent acquisition of Pixar and the arrival of Mr. Jobs changes many things. Not to mention that gem of an asset, ESPN. I used to own Disney many years ago but let go of it because I got tired of Eisner. I don't think the shares are cheap but they are no too expensive either. There should be upside from these levels.

Incidentally, a company in the Entertainment business that I think you should consider taking a look at is CBS (NYSE: CBS). Viacom and CBS recently split up to try and unlock some value for shareholders. But the shares have declined since the IPO. CBS' businesses may be boring (radio?!), but this company is a cash machine. My brother and I have both taken a position at the mid $24 range recently.

Now to telecom. The Alcatel/Lucent "merger" makes a lot of sense for Alcatel and it gives the company access to the lucrative US market. The telecom landscape is changing at a maddening pace. Consolidation may continue. Juniper (Nasdaq: JNPR) for example may find itself in limbo unless it makes a move. Other shares have been on fire. Remember JDS Uniphase (Nasdaq: JDSU)? It has participated in the rally also. Who knows, perhaps my brother and I will finally break even after stubbornly averaging down on our position over the years. The company's management team has quietly transformed and repositioned this company.

How to play all this? I am not sure. But I can tell you what companies I like in this space. Cisco (Nasdaq: CSCO) was a screaming buy below $20 and if it goes there again, I would add to my position. I also really like Corning (NYSE: GLW). Yes the same company that got crushed because it over invested in fiber optics during the bubble. I bought Corning more than a year ago when it became apparent that the company will play a significant role in the growth of the LCD market. Corning is the largest producers of LCD glass. Its fiber optics business is still hurting, I believe, but the rest is firing on all cylinders. The management team has done a good job paying down debt and going back to its roots of innovation. For example, the compay's diesel emissions control technology is not something people think of when you mention Corning. But this technology should contribute to growth substantially in the medium term. The shares are not cheap any longer and trade at a premium to the S&P on a forward P/E basis, but you should watch for any corrections to take a position.

Finally, I like Comcast (Nasdaq: CMCSA). My brother and I have built a position in Comcast over the past year and continue to hold. Cable shares have been under pressure recently as competition from telecom and satellite heats up. The landscape is changing everyday and the companies are encroaching on each others' turfs. Telecom is providing TV while cable is providing telephone service and so on. They all have been investing billions to build up the infrastructure to be able to deliver the "quadruple play" to the cunsumer: TV, wireless, broadband and telephone. Comcast is the largest cable operator and owns my beloved Golf Channel as well as OLN. Not too long ago they made a failed bid for Disney. Clearly part of their strategy is to build the content side of the business so that they can better leverage the pipes they own into people's homes. Meanwhile, the company is generating gobs of cash and buyig back shares. And hopefully they will soon be able to reduce Capex so that Mr. Market will begin to recognize the value in this company. One more thing, at these levels, you are buying the shares at or below the levels Mr. Buffett took his position at in 2004.

So in summary, Disney looks OK to me. You should consider CBS and Comcast also, while keeping an eye on Cisco and Corning.