Ending the week with a moonshot (SPDV)

Thanks to the recent decision by SpaceDev (SPDV.OB -- get free real time quote from ADVFN) to merge (really acquire) the private Starsys, I've decided to up my position on SPDV with the money I cleared up by selling Cendant this morning.

Just for the record, Cendant was a bit of a loss. Had bought Cendant at $20.38 back in May, and sold today at $17.63. So that's about a 15% loss, which is a shame but certainly something you have to accept now and then. My real regret is that I held it for such a short time, because I continue to believe the CD is undervalued -- but after their decision to break the company up I have lost interest in holding Cendant. Enough said about that, if you want my full sell rationale you can see it in my prior writeup earlier this week.

I wrote about SpaceDev in some length last month, and pretty much everything I said then I still believe. What has changed is that SpaceDev, in acquiring Starsys, has dramatically increased their potential revenue stream and become a much more significant and capable space company. Here are a few quotes from SpaceDev President and CFO Richard Slansky at a PIPES conference presentation earlier this week, around the time the merger was announced:

"Number one, it diversifies our revenue. Number two, it brings us to a much higher level of core capability ... there's a lot of vertical integration that goes on.

"We deal with a lot of the same companies and customers. SpaceDev right now is about a 50 person company, we're going to end up closer to a 200 person company.

"And the revenues are going to scale up as well -- Starsys in the first six months of this year did about $11 million in revenue, we did less than four. So you can see it's a smaller company sort of acquiring a larger company."

He went on to say that this increased size of the company should help significantly in enabling them to get additional government and other contracts.

For those who haven't read up on this at all, the basic thrust is that SpaceDev's strengths are in microsatellites and propulsion systems, and Starsys' strengths are in mechanical systems and drivers. One of the things you hear every time someone mentions Starsys is that they designed a lot of the key maneuvering components for the Mars rover program ... components that have been proven by the extremely long life of those rovers. The fact that SpaceDev's products, like the microsatellite CHiPsat currently in orbit, also continue to be productive well beyond their expected lifespans should tell you something about the quality of engineering at both of these companies. I expect them to be a good match culturally as well as financially.

The fact that SpaceDev is still traded over the counter means that they aren't getting all that much attention for this huge development ... and while it's certainly a risk to grow this big this fast and they will likely have some integration hiccups, I think this significantly reduces overall risk for SpaceDev shareholders. They now have another proven business division beyond satellites and propulsion, which were their core competencies, and they have a division with a much larger revenue stream than they had previously enjoyed.

As far as I can see, it's up in the air whether or not this will be immediately accretive to earnings because I don't think anyone outside the room knows whether Starsys will bring in net income right away, but it will certainly dramatically increase their cashflow and their ability to handle larger and more complex projects and contracts. SpaceDev has earned the benefit of the doubt from me to this point, too, as in recent years they've proven to be excellent at financial management and stewardship of investor dollars as they have finally begun to achieve steady operating profits.

There is certainly some significant risk here -- among other problems, the conventional wisdom is that acquiring companies generally go down in price while the acquired company shoots up -- but in this case, Starsys was private and pretty debt-ridden, and SpaceDev looks like it should be able to do much of this transaction with stock and still make it extremely accretive at least on a revenue basis given Starsys' much higher revenue numbers. It's also certainly possible that SpaceDev has bitten off more than they can chew, but even though they'll be quadrupling the size of their workforce I'm not worried about that -- Starsys will be a division within SpaceDev, and they'll be bringing along management with them who certainly know the business.

SpaceDev should still be considered to be a very, very long term investment -- I certainly plan to hold for many years and see how this story plays out, but this merger caused me to rethink my investment and decide that I'd like to commit a little more money to this moonshot right now instead of later.

My guess is that listing on one of the exchanges could now be coming sooner rather than later, perhaps by the end of next year when the combined company can really show a track record of significant earnings and business growth. And while the downside of that will probably be increased volatility and increased tracking of our little hidden company (right now you can see that this merger news hardly moved the stock at all -- huge news, and the stock moves less than ten percent), the upside of increased capitalization and exposure and liquidity should dramatically outshine that downside. I'd rather have all of my shares in hand before they reach the exchange and before the good news about this acquisition really reaches the stock, but I think I'm at the point now where I will stop buying and just watch my investment. I bought my first position in February at $1.80, and the second position this morning, October 28 at $1.60.

Keep up with One Guy's Investments, Free Subscription
Enter your email address:

Delivered by FeedBurner

Ouch! (FORM and WFR)

I suppose it's not the most elegant phrase, but today's glance at my portfolio makes me feel as though I'm really getting pantsed.

Now, those of us who are investing for the long term with a multi-year horizon should love days like this -- as Warren Buffett says, we should want to watch our stocks go down to the depths. After all, in general we're buyers, not sellers -- we should want to watch a sea of red while we're in our investing years, and a sea of green as we approach our divesting years. But investor psychology doesn't work that way, and I'm not wired any differently than anyone else.

So it's hard to watch the companies you own go through some troubles, even if they are (hopefully) relatively minor. Netease (NTES) and Shanda (SNDA) both fell a bit today thanks, I expect, to Baidu's problems -- good thing I didn't ever get too interested in that one, though I'd still buy it at the IPO price of $20 if anyone offered. I did even note today that, as usual, my morning investment was a great contrary indicator for the stock's performance for the rest of the day, as Intuitive Surgical (ISRG) has continued to fall another percent or two since my purchase. So I try not to care about these short-term blips, but I certainly do notice.

Two in particular are of note today -- MEMC Electronic Materials (WFR) and Formfactor (FORM). It seems to be a coincidence that these two are in the semiconductor industry and are both moving down at the moment -- the big guys in the industry like AMAT, INTC, and TXN are all down, too, but just by a hair or two. WFR and FORM have fallen significantly, and for specific reasons.

WFR's earnings report was a little disapointing the other day. I came away from it feeling reasonably well because the forward guidance and their expectations for sales and margins were better than I or the analysts were expecting -- good news. But they also announced that they were being forced to restate earnings for earlier in the year due to a tax problem. Nothing serious, in my opinion, though it does make them look a little silly. The operating earnings for this quarter were a little bit light, too, but again -- pretty close to expectations, and nothing I would normally worry about.

It seems to me as though people are overreacting to this restatement of 1Q and 2Q earnings -- I have not heard any evidence that this is a result of accounting shenanigans, which often is a reason to sell, or of any other malfeasance. The company's explanation, that they received some new opinions from experts and decided they needed to revise their tax deductions for those quarters on a complex transaction, seems perfectly valid to me even as it is unfortunate. The impact on earnings, having to revise the per share number down by 8 cents for this year, does not seem all that bad. I've always believed that we should price stocks based on expected earnings, which in this case look like they might be significantly improved from this year even if you include that 8 cents -- this is not a high-flying growth superstar that ought to move more than 10% on news like this, in my opinion. The forward PE is still 12, give them some slack.

The good news, beyond the solid projected numbers going forward (both significant sales growth, which is not a surprise given the rampups of capacity in the semi industry, and, significantly, margin improvement due to better pricing), is that they are also getting some pretty good business with the solar folks. I hadn't expected MEMC to sell polysilicon or wafer products to the solar power industry, but they have begun to, and in pretty significant volumes. The need for polysilicon in the solar power industry is one of the things driving prices higher overall for this material, and I'm glad to see that it may also help WFR to expand it's product line and diversify it's earnings a bit if we do see another semiconductor downturn in the coming years. And the bottom line? I'll take minor restatements or slight earnings misses and raised guidance over hitting the numbers and lowering guidance. It's all about what these companies and stocks are going to do for us over the coming years, not what they've done for us this quarter.

Formfactor may be another story, and this is something we'll have to keep our eyes on. I still like the company's product line and leadership position in the semi testing industry, but they had some significant bad news today -- though not as bad as it may have first looked. FORM has been in a patent dispute with Phicom for a long time in both the US and South Korea, and they have recently won several disputes and had their patents validated. Today the Korean court ruled in favor of Phicom for two of the four patents in question, which apparently does not impact the other two patents or any of their US patents (some of which are also in dispute, again with Phicom).

I am not a patent attorney, nor an engineer. My concern is that I know how critical the unique nature of Formfactor's microspring technology and their other testing advancements are to their continued perch at the top of this particular food chain. The company has issued a press release on this and is trying to explain why it is not particularly critical, at least in the short term. You can see from a daily chart this the market accepted that explanation to some degree -- they very briefly sold down on the breaking news by about 20%, but that was for just a few minutes and they remain, for now, down about 5% on the news. That seems fair, and this is certainly something we'll have to watch.

So some bad news across the board on the nasty declining day in the market, but nothing that I would consider a reason to sell any of my holdings (except Cendant, which I should have sold when I first made that decision a couple days ago ... it keeps trickling down and now I'm just being stubborn hoping for a fairer price to sell)

One of these days I'll be selling Cendant and choosing something else to take it's place in my portfolio -- at this point, I'm thinking it will probably be one of my existing holdings. Exelisis (EXEL) is looking solid and should have some clinical trial news out in the next few weeks, with much more to come in the months to follow. SpaceDev (SPDV) just came to a merger agreement with Starsys that I think might be really big -- they're getting closer to their goal of becoming large enough to list on the exchange, which I think would be huge news, and, more importantly, this opens up a wider door to them in the space industry with a much broader array of products and capabilities. Or perhaps I'll settle on something completely new that's still percolating in the back of my mind ... I'll let you know.

Keep up with One Guy's Investments, Free Subscription
Enter your email address:

Delivered by FeedBurner

Still Surging -- bought more ISRG

I've decided to build out my position in Intuitive Surgical (ISRG get free real time quote from ADVFN) by a little bit this morning, bought some more at $89.71.

There is certainly some risk that I am succumbing to irrational exuberance here, as ISRG is certainly not a cheap company at this point -- but it wasn't cheap when it was at $40 in the Spring or at $70 a few weeks ago for my first purchase, either (my initial writeup on ISRG with my first purchase is here). Sometimes companies with this growth potential never look cheap. I was hoping for a weaker quarter and a pullback, but after seeing this earnings release and reading up some more on the company my best guess is that we're not going to see one of those for a while. I am reserving the right to make another buy if they have a tough quarter or some temporary bad news, but at this point I don't expect it.

There are a few things I like about this that I haven't noted in any of my earlier postings on ISRG over the past couple of weeks. Of course they are growing extremely rapidly, but it is important to look at the way they are growing.

They're starting to sell more overseas, which is a major and almost untapped market, and they are getting higher than expected growth on the revenue streams that we expect will be more stable -- training, service, and tools and accessories. Their success in selling more machines this quarter (30) than expected really bumped the earnings number up, but it is the fact that the installed base is now over 350 that will really drive earnings moving forward. The more machines there are out there and the more doctors there are trained, the more surgeries will be done and the more recurring revenue ISRG will see. And the more difficult it will be for any competitors to gain a foothold.

The success this year in placing more and more machines in hospitals should mean great success on the bottom line for years down the road -- and of course, the more doctors there are who get trained on these and like them and the more patients who prefer these easier-recovery surgeries, the more demand for Da Vincis.

And that doesn't even approach the real reason Intuitive Surgical might become dramatically larger in the years to come -- which is that they are only really making a dent in a few specialized surgical areas, with a very strong position in urological surgeries. If they can add on that to do more gynecological procedures and further expand their repertoire around the body in all the places where a less invasive laparoscopic robot could improve results, the market size grows dramatically and no hospital will be able to get by with only one Da Vinci.

And finally, I like that most of the analysts who cover ISRG -- and there are only a few -- are well behind the growth curve (as we have all been, it's fair to say) and are almost all rating it as "neutral", "hold", or "underperform". That could create pent up demand for the shares as well, and is another risk for waiting to buy -- with ISRG's track record for increasing sales and developing a recurring revenue stream, I have to believe that a few of these analysts (or some others that might decide to open coverage) will have to upgrade ISRG and admit that they've underestimated them. According to the Yahoo Finance tallies, the average target price is still below $70 ... not for long, I imagine.

So I'm not willing to wait for more good news. Have bought some more and we'll see how it plays out, I expect I'll be very happy with my Intuitive Surgical holdings in 2008, and perhaps will have some chances in the interim to add more to my position.

Keep up with One Guy's Investments, Free Subscription
Enter your email address:

Delivered by FeedBurner

Biotech earnings updates -- ISRG, MYGN, VRTX, CVTX

Lots of releases on my biotech companies yesterday and today, some great, some a little bit bad, most just the kind of non-news one often expects from an earnings release from a early stage biotech.

First, Intuitive Surgical -- some might not call this biotech as it's in the medical devices area, but I think of the whole next generation of health care companies as biotech so mabye I'm a bit broader than most. ISRG (get free real time quote from ADVFN) absolutely blew away estimates, again, and took off by 25%, again. In retrospect, of course, I wish I had bought some more yesterday while I was thinking about it ... but I still think my ideas had merit. It's true that their earnings are likely to be lumpy as long as sales of new robots is the major part of their earnings, but it so happened that these last two quarter have been really, really big lumps. My loss, I'll have to think about whether I'm willing to add to my position now at $90 -- this is really a bit of a crap shoot, long term I expect a lot of great growth so I should probably just buy, but short term I can't believe that this won't pull back at some point and give me a better price. We'll see which angel of my nature I follow this time.

Next, Myriad Genetics. They beat the analyst estimates by a bit, which isn't quite as dramatic for them as it is for ISRG since their earnings growth isn't necessarily what everyone's looking for just now -- and it didn't move the share price at all. MYGN's (get free real time quote from ADVFN) earnings from testing services did grow substantially more than predicted, which is great, and I think this part of their business is perhaps a little bit underestimated. But what we're all waiting for are their drugs -- and not even necessarily their top-line drug, the Flurizan for alzheimer's that is their farthest along. The news from that particular drug has been particularly so-so all along, as it is for most Alzheimer's compounds, so it seems likely that actual approval or solid sales would be a good lift for the company. But what we're really waiting on are their early stage drugs -- they show promise, but no news of significance just now so we'll just sit and wait and watch the testing business grow to soak up those drug development costs.

And finally, Vertex and CV Therapeutics.

CV Therapeutics had some surprisingly bad news yesterday in that they need to pull back one of their new drug candidates in Europe for additional research. That definitely hurt the shares, much more than any news about marginally bad losses in the balance sheet. No particular news on ACEON yet, which is what I was hoping to see, just that in their brief selling window before the end of the quarter they didnt' reach the milestones that require royalty payments yet. The real bad news was on ronalizine (Ranexa), which was rejected by European regulators and which will require another trial and resubmission. This sends a message that perhaps this flagship drug will have some trouble and require additional trials in the US as well given the current FDA climate ... so the stock tumbled a bit. CVTX needs Ranexa, but there is no reason that I've seen to suggest that it might not be approved -- hopefully it will just take a little longer, I'll definitely be keeping an eye on this one. According to an AP story, "CV said it plans to conduct one or more additional trials in order to satisfy regulators, but said it does not expect a large or lengthy trial to be necessary."

And Vertex is plugging right along -- they had a big charge this quarter which may have spooked a few folks, but that should have been expected from the retirement of convertible debt. The big news for VRTX (get free real time quote from ADVFN) will be the progress of their clinical trials, and on that front they appear to be on track. The CEO reiterated that they remain on schedule, and that phase 1b for VX-950 is underway and phase II shoudl begin in the fourth quarter, and phase II for VX-702 is fully enrolled. Those are the two real flagships of the pipeline, so good news that there are no announced hiccups just yet. New is going to come hot and heavy from Vertex over the coming year, so I expect lots of volatility -- hopefully much of the news will be good from their trials and reinforce everyone's hopes that VX-950, at least, might reach blockbuster status and be the first actual cure for HCV. After many years of disappointment Vertex really seems to have a few possibly hits on their hands -- let's hope it remains that way.

Keep up with One Guy's Investments, Free Subscription
Enter your email address:

Delivered by FeedBurner

What to look for -- ISRG, CVTX, AKAM, etc.

This is my busiest week for earnings announcements from my portfolio companies -- we've already heard from a few of the biggies: GOOG's blockbuster, RYN's solid progress, RADN's spectacular growth and FORM's great news on their new factory, and CD's disappointing earnings and silly split plan. So far, mostly so good.

But today and tomorrow I've got a few companies I'm keeping an eye on. Cendant I have already decided to sell in the near future and I have a little cash sitting idle, so I hope to see something soon that gives me an indication of where I should put that money. Among the companies I already own, we'll see news from CVTX, VRTX, WFR, ISRG, AKAM, MYGN and TASR either today or tomorrow, and several of those are potential new spots for new money.

It has been a crazy market lately, but I can't let that influence me too much. I don't know how to discount Ben Bernanke, or interest rates, or oil prices or the Bush scandals and their effect on the market. I am definitely not going to do a better job than the professionals at analyzing those macro issues, so I won't try. I'm looking for company earnings, and, more importantly for some of these stocks, news about business developments, progress, and projections.

So here's what I'm looking for:

CV Therapeutics (CVTX) -- obviously, earnings don't mean much for these guys just yet. I'll be reading and listening for news about Aceon's progress, and about Regadenosan and Ranexa -- sales for Aceon will give us a good idea of the effectiveness (very early on) of their sales force, and progress toward approval and/or label expansion for the other two is going to really drive CV in the long term. Ranexa is a potential blockbuster, and I have a little theory that the market is ripening for it. Sometime before the end of the year we should have some trial results from Regadenosan, but not necessarily with the earnings.

Vertex Pharma (VRTX) -- I'm not looking for a lot from Vertex's earnings announcement. I'm not aware of any particular news that's expected for release, though it's always interesting to see how their smaller and older drugs are bringing in increasing cash flows. The real news will be if they have anything new to say on their ongoing early-stage trials for 950, 702, and 965, and I'm not sure that they'll have anything new to say yet on those.

Akamai (AKAM) -- for Akamai, it's been steady as she goes lately. They've had a good jump up recently on solid growth and I certainly expect that to continue. With the Speedera acquisition still being digested I'll mostly be looking for customer growth, margin maintenance (the Speedera customers came with lower margins, for the most part), and any other news about how they will continue to grow as a combined company moving forward. They've had some interesting press releases lately about new customer acquisitions, and I've been hearing radio ads from them for the first time, which is interesting. I don't have any particularly strong expectations but expect them to continue to do well. If there is a blip with the integration of Speedera or just a ho-hum release, I'll hope for a "sell on the news" price break for a possible purchase.

Intuitive Surgical (ISRG) -- ISRG has really got me intrigued now. I just bought my first position a little while ago (writeup of that here), and I think this business has the potential to be absolutely spectactular as the installed base grows, patients come to expect and prefer robotically assisted surgery, and ISRG gradually expands the range of surgeries that can be more safely, profitably, or effectively done with their Da Vinci robots. But this has been a wild ride up over the past year, and their earnings should be extremely lumpy due to the fact that they currently get a lot of their revenue from a relatively small number of sales each quarter of these extremely expensive robots. I have to think that one of these quarters (maybe this one, maybe not), they're going to quite naturally report that they only sold half as many machines as they did the quarter before. When that happens, I'd expect a precipitous drop in the stock price and a great opportunity for me to buy more.

But that might not happen for a year or more -- and I'm not sure how patient I want to be with a stock that has this kind of growth. If they've already doubled again before the next time they have a bad earnings report, a dip wouldn't be so helpful. So I'll be looking at their earnings release carefully and gauging the market's reaction. If they're still plugging along but maybe didn't grow as fast as they have in the past and the market overreacts, I'll be very tempted to buy more. The two keys with ISRG remain the new installations, and the revenue growth from sales and service -- which is closely tied to the number of installed machines and trained doctors and the number of surgeries performed. It's the potential lumpiness of the new installation numbers that I'm hoping will give us a new buying opportunity.

And finally, MEMC Electronic Materials (WFR) -- WFR has been up and down a bit over the last month or so -- I wrote up some musings recently -- but I expect solid earnings from them this time around, if not spectacular surprises. The semiconductor industry, according to the releases from Intel, FORM and, today, Texas Instruments, among others, is doing just fine. The major problems at TI seemed to stem from problems underestimating demand, and volume of semiconductor production still seems to be growing quite well. I'll be looking and listening to see how WFR sees the market moving over the coming year, and to see whether the capacity constraints that TI and Intel and many of the other manufacturers have complained about recent are causing WFR to have any problems moving their inventory.

Those are the main ones I'm looking at today and tomorrow -- I can't imagine buying more Taser right now even if the price does seem quite reasonable. I'll hold my little portion that has shrunk precipitously, but only because I believe in the long term potential of the product. Management has me a bit turned off, which is always a red light, and the SEC investigation worries me.

And later this week, we'll have a chance to hear from Patrick Byrne again on the Overstock (OSTK) conference call -- that's always fun, and I really do think Overstock will again take off some day once their IT problems and the short-sellers lawsuit are put behind them. Maybe this week? That's probably a bit optimistic, but I'm looking for a great holiday quarter from them.

Keep up with One Guy's Investments, Free Subscription
Enter your email address:

Delivered by FeedBurner

Radyne's still got it!

Boy, from a sleepy little stock to a small cap superstar that shoots up with earnings announcements -- life is fun for folks who follow Radyne (RADN -- get free real time quote from ADVFN). Great earnings release this afternoon.

I could just republish virtually the whole writeup I did when Radyne last released earnings in August, it all holds true the same as it did that day ... but you might as well just go back and read the original -- the Xicom acquisition is now looking even more brilliant, and free cash flow is allowing them to pay off some of that debt and start building a cash position again.

I'm as pleased as I can be about these numbers -- growth if you back out the Xicom numbers is great, and growth if you include the Xicom numbers is spectacular. Even so, as we shoot past $12 in after hours trading (you never know if that will stick, but it's fun to see), I see a company that is still very much out of the limelight and undercovered by Wall Street, in a growth industry, and with a recent acquisition that they're just starting to leverage into dramatic growth.

Radyne was a steal over the winter, and now it's just a good deal and an undervalued growth company. I will continue to sit and hold these shares with a smile on my face.

Shares came back to earth a little bit after the last earnings bump up, but I think people might start to really believe in the growth that's possible for RADN in the coming few years (and who knows, maybe the 2009 deadline for HDTV will really stick and the networks will sink some more money into HD equipment -- stranger things have happened!).

Going forward, I'm planning to try to ignore this little rocket and hope to look back in a couple years to see it at $25. My primary concern in August was the fact that RADN was no longer debt-free, but it certainly looks like they borrowed money for some very, very good reasons. I'm going to have to come up with something new to worry about, which seems unlikely as long as this management team keeps hitting it out of the park -- so I guess I'll have to fall back on an old favorite, insider holdings. Radyne is heavily insider-held, which I think is usually great for a small, growing stock like this because management is really working for our best interests. So I guess I'll just hold off and start worrying if and when management starts dumping shares and heading for the exits, which seems unlikely.

Keep up with One Guy's Investments, Free Subscription
Enter your email address:

Delivered by FeedBurner

Selling Silly Cendant Someday (CD)

Well, now it looks as though I'll need to sell my shares of Cendant (CD -- get free real time quote from ADVFN) before too long. I wish I had been peeled to the computer when the announcement came across as I might have sold early on today, before the news-related selloff, but since I didn't catch that I'll just hold on for a little while and see if it either a) recovers so I can get a better price; or b) I find a great deal somewhere else that I need to sell to take advantage of.

But Cendant has now definitely moved to the top of my sell list.

Why? This silly breakup of the company. Similar things have happened over and over, and I guess I shouldn't be surprised, but I'm getting sick of watching corporations spend all their time and money building up a conglomerate to create "synergy", only to realize that in order to get the share price up and their stock options vested they need to then break up their carefully constructed collussus to create "value." Lex reported on this today, among many others.

How does anyone benefit from this, aside from the myriad investment bankers who made money with both the buying and the selling?

The problem for me, beyond what I consider the shenanigans of the build/breakup cycle on Wall Street, is that now I'm left holding a stock that is going to break into four. I have what is for me quite a small position in Cendant and I've just been waiting for their businesses to continue turning around and for the market to realize the value of their brands. That means if I hold until this breakup, which thankfully won't be until next Summer, I'll end up with four different tiny odd-lot holdings that don't particularly interest me as individual investments.

I liked the Cendant portfolio, but I don't want personally to invest in Avis as a stand alone company, or in Howard Johnson's -- the reason for me to own Cendant was to have a stake in a diverse array of hospitality and real estate businesses that was, on the whole, undervalued. And the real kicker, and the reason I'll be selling as soon as I find a good opportunity, is that I don't want to have to sell four different stocks next summer to clear this part of my portfolio -- the commission from selling CD is irritating enough, paying four times the commission would be just stupid. I expect we'll see lots of individual investors gnashing their teeth over this, as they did over Interactive Corp's breakup and spinoff of Expedia, or Liberty Media's spinoff of it's international operations, or the Viacom fiasco. Enough, already.

So sometimes, in my opinion, the whole is more than the sum of the parts. I don't want all these tiny little parts cluttering up my portfolio ... so please, Mr. Market, convince someone that this breakup will be good for shareholder value so I can get a better price soon.

Keep up with One Guy's Investments, Free Subscription
Enter your email address:

Delivered by FeedBurner

Google Fever

OK, so I suppose it's time to post on Google again, now that they have returned to the good 'ol tradition of clobbering analyst's estimates and risen to yet a new nosebleed level.

I bought my position in Google over the winter and spring and am now holding with an average price of just under $200. I have an outsize position in GOOG (get free real time quote from ADVFN), so I'm not interested in adding any more at this point -- but I wouldn't argue with those who say that it's reasonable to buy even at today's levels above $340.

The problem, of course, is that it's impossible to gauge not only Google's growth rate, but their potential for new innovations and the growth of their market. Google is not only growing very fast in it's core search market, but even as that market itself grows it is continuing to take market share from Yahoo and the other smaller players. How can you reasonably expect to be able to project Google's growth? Will it continue to be 700% year over year? Probably not, but I certainly expect them to be able to grow earnings dramatically enough to justify their PE of 100 or so.

My thesis for holding Google as a core holding going forward remains the same as when I wrote them up after their last ("disappointing") earnings release: they are dominating their industry of internet advertising and search, which leads through the network effect to yet more success, and their founders and management are continuing to push for the development of new ideas -- not only through the hiring of thousands of new engineers and programmers this year alone, but through the development of a true culture of innovation that might make Google Labs this generation's Xerox PARC (though hopefully Google will take more corporate advantage of that innovation than Xerox did).

I would be a little bit surprised if they used their cash hoard to pick up a minority stake in AOL as it is widely expected they're considering, since that is very atypical of their acquisition philosophy until this point -- but I can see how it might make good short-term sense to protect a significant part of their market. I don't plan to buy or sell based on any AOL news.

Keep up with One Guy's Investments, Free Subscription
Enter your email address:

Delivered by FeedBurner