Annual Checkup -- GOL

I have to stop my brief exercise at going through these in alphabetical order, because Gol Linhas Aereas Inteligentes (GOL -- click to register for free RT streaming quote) is on an absolute tear today. Again. GOL is the most profitable public airline in the world, to my knowledge, and it is revolutionizing South American travel with it's low cost model -- borrowed liberally from the giants like Southwest, JetBlue, Ryanair, etc. I bought my first position at a split adjusted $24, and my only regret is that it has climbed so quickly -- I was hoping to get a little dip for my next buy, and am still waiting. Trading at a PE in the mid-20s, GOL is fairly expensive for a Brazilian stock -- but it's growing at well over 50% a year and still building out with massive plane orders in place, and they're just starting to tap into debt financing. Big news lately is that GOL is partnering to bring it's model to Mexico -- thankfully at a relatively small risk, since that low cost market will be much more competitive with established providers already flying -- and that GOL is continuing to expand it's footprint step by step across the South American continent. They added routes to Bolivia several months ago ... then Paraguay, Uruguay, and Argentina were announced in just the last month. Longer writeups on why I love GOL and their management and why I bought and want to buy more are here, here, and here. I'm holding and looking for another entry point soon.

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

Delivered by FeedBurner

Annual Checkup -- CHS

I was certainly late to the Chico's (CHS -- click to register for free RT streaming quote) party, but sometimes even when you miss the cutting of the cake the party can be great fun. Chico's is one of a number of stocks in my portfolio that I bought with some trepidation because of their elevated PE ratios (see GOOG, ISRG for a few other examples), but I generally accept the fact that you sometimes have to pay handsomely for great management and excellent growth. At some point in the next few years Chico's will have saturated its core market, but their other concepts Soma and White House/Black Market are just getting started ... and I have faith in this management that they'll be able to continue building these brands. With great performance in terms of same store sales growth and industry-leading (industry-crushing, really) margins, I would never bet against Chico's success ... and maybe they'll surprise us by making something big of their investment in Lucy in the next year or two, or buying some other small chain to which they can apply their merchandising and management expertise. Demographics certainly favor them, with the Baby Boomers wanting to look young and be comfortable in the signature Chico's style and the next big generation, the Millennials, coming close to entering their White House/Black Market years. I thought I was paying pretty handsomely for Chico's when I bought it back in August at about $35, but sometimes paying handsomely is worth it for a top notch product.

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

Delivered by FeedBurner

Annual Checkup -- CCEL

I opened my initial position in Cryo-Cell International (CCEL -- click to register for free RT streaming quote) back in mid-November at $3.89, so my shares are a bit depressed at the moment. My full rationale for investing in this private cord-blood stem cell bank is in my recent writeups here and here, but I think 2006 could end up being a very big year for this investment. All of CCEL's competitors have seen a very recent boost in price due to the new Stem Cell Therapeutic and Research Act signed by the President earlier this week that appropriates $300 million for research and infrastructure for umbilical cord stem cells, but CCEL didn't see nearly the same appreciation as most of them. CCEL has the most modern banking facility and one of the largest, if not the largest, client base, and should benefit from the higher profile of stem cell banking as well as the increased awareness of the amazing things that stem cells may possibly be able to do (cure diabetes, etc.) -- even if they don't actually receive any direct governmental funding, which is certainly possible as well. CCEL is launching a new service in 2006 that will further differentiate their offerings -- they will begin banking placental stem cells as well, using a patented and exclusively licensed process, which should help them stand out for expectant parents. Finally, 2006 marks the year that CCEL aims to finish its financial turnaround and re-list on one of the major exchanges, which may boost the shares as well. With the price a bit low here, I'll definitely consider filling out my position early in the year.

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

Delivered by FeedBurner

Annual Checkup -- BRKB

For the very good and very reassuring reason that there hasn't been anything important to say, I haven't written anything this year about my investment in Berkshire Hathaway (BRKB -- click to register for free RT streaming quote). Right now my holdings in Warren Buffett's holding company are roughly at the break-even point -- down one or two percent from my purchase back in March. I have no intention of ever selling my BRK shares -- I expect that the company will continue to be a large and steadying presence in my otherwise pretty volatile portfolio. I do think that the shares are likely to advance in the coming couple of years as utility deregulation gives Buffett more opportunity to leverage his investment in Mid-American Energy and his bets agains the US dollar yield some fruit (I'm just guessing that the dollar will decline further in the next couple years , but I could easily be wrong). BRK took a bit of a hit in the Katrina aftermath, but while they do have many liabilities to pay out in the Gulf they also will profit from the rebuilding through their several construction materials and prefab housing companies. I expect the worst thing that could happen to BRK would be Buffett's retirement or demise, but I think the value of the company's holdings (now carried on the books at a small fraction of their true value) will win out over time, and anything bad that happens to Buffett might be a good buying opportunity if we believe in the rest of his management team and his (top secret) succession plan. I'm certainly not going to sell, but I won't watch my BRK shares that closely this year either.

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

Delivered by FeedBurner

Annual Checkup -- DWA

I'm still confident in the long-term future of Dreamworks Animation (DWA), though my average price of $35.49 means my holdings are still significantly underwater. I've written here and there about this company's prospects, and, while I think 2006's film slate is a little light and this year may remain a good buying opportunitiy, it's possible that their two "no-name" films this year will succeed beyond our wildest dreams ... and the return of the Shrek franchise should be a big boost in 2007. The most important recent change was the addition of Lewis Coleman to the management team -- he's reputedly a tough guy and a solid Hollywood manager that should be able to introduce a little of the business discipline that Jeffrey Katzenberg lacks. I like that Katzenberg should be able to focus more on the creative, and that there will be someone in the management suite who understands both the Street and the studios.

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

Delivered by FeedBurner

Annual Checkup -- EXEL

As I just wrote about Exelixis (EXEL) a few days ago, I don't have a lot new to add. I'm showing a small gain with my holdings right now, as my average purchase price is $8.13, but that won't necessarily last through the year. I expect a lot of volatility in the next couple of years from EXEL as their three current lead compounds of interest move into and through pivotal phase II trials beginning this first quarter of 2006. Hopefully their continuing efforts to build licensing income streams will help to offset the volatility and high costs that accompany the FDA approval process, but the returns might be spectacular if one or two of their cancer compounds actually makes it as a widely accepted drug in the next four or five years. This continues to be a long-term hold, wait and see what happens kind of stock for me.

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

Delivered by FeedBurner

Annual Checkup -- AKAM

I haven't written very much about my holdings in Akamai (AKAM) since I opened my position early this year. It has been a great performer of late, and my shares that were purchased at an average cost of $14.26 are up very nicely, thanks very much. But I think the growth continues from here, and Akamai is valued pretty fairly at a forward PE of about 30 using what I think are pretty conservative estimates. Akamai makes web traffic more reliable and fast, especially for those who host bandwidth-intensive operations -- think itunes, streaming video and audio, or downloaded software. As large files traverse the web with more and more regularity and ecommerce demands require more predictably reliable and fast delivery, Akamai will be the one proven provider of this service. Their acquisition of their main rival, Speedera, has lowered their margins temporarily but increased their sales presence significantly, and I think more dramatic growth is possible in the next few years. Google is a possible threat if they can put their network toward similar use, but that doesn't seem to be their focus and Akamai already has a huge and recurring customer base -- more likely, in my feeble mind, is a Google acquisition of Akamai (admittedly, that would have made more sense a few months ago when Akamai was a $2 billion company instead of $3 billion ... but GOOG definitely has the cash if they want to make an offer).

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

Delivered by FeedBurner

Annual Review Time!

Over the next two weeks or so, as we usher out the old year and ring in the fresh new 2006, I'm going to do a full review of all the stocks in my portfolio.

This will be pretty simplistic, but I'm intending to just review what each stock has done recently, my reasons for holding it, and what I expect to see out of it in the coming year. I'll distill my current thinking on each of my investments into a single paragraph and publish each one as a separate post.

Then, once the list has been slogged through, I'll combine them all together into my order by preference -- I'll rank the stocks that I would most like to invest more in if and when the price or my available funding allow. I'll have some cash to allocate in the first months of the year as I fund our Roth IRAs, so this will help me to have some discipline and consider every holding in my portfolio as I make decisions about putting that money to use.

So, the next couple weeks will be a flurry of very short posts (35 of them, if I do manage to hit every holding as planned), then I'll wrap them all up. I probably won't make any new buys or do any more selling until this is done, though you never really know when an opportunity will crop up that you can't resist.

I'd appreciate any comments you might have along the way. Thanks for reading!

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

Delivered by FeedBurner

Exelixis diversifies

It's starting to appear that Exelixis (EXEL) is going to be the most capable and diversified small biotech company in the country.

News today -- EXEL is now in a pact with Wyeth to develop new drugs for liver and metabolic diseases.

And last week, EXEL entered an agreement with Bristol-Myers, also focused on metabolic disorders -- but this time, with a focus on developing a new class of anti-cholesterol drugs.

All this comes as Exelixis' own drug programs are starting to move through the clinic. EXEL made it's mark years ago as a contract researcher for pharma companies, and everything I've read reassures me that their science is top-notch (I'm not smart enough to evaluate their science myself, but I first learned of EXEL from reading a piece by Charly Travers at the Motley Fool, who I greatly respect, and have read many other pieces on them in the financial press, as well as listening carefully to their conference calls and presentations). I filled out my EXEL position about two months ago, and I'm very pleased with their recent progress.

So not only does EXEL have two new potentially lucrative licensing deals in place, in addition to the several licensing deals they already had and the innovative financing they've done with outside investors, but they're finally going to get to the important stages of determining which of their own compounds might make it through to the market.

I wrote a while back that early November was a key time for EXEL since that was when they released preliminary phase one results on three of their drugs, and indeed it was a significant time. It didn't move the stock all that much because none of the results where shockingly good or bad (as almost no phase one results ever are -- the exception lately has been Vertex's VX-950).

But what we do now know is that their three lead cancer compounds are moving out of phase I and into phase II by the first quarter of next year. As results from those come in over the coming years we'll really start to find out what EXEL's stock might do. In the meantime, the licensing deals they've signed recently will help them to further build up their research capabilities and to increase cash flow to fund these expensive clinical trials.

So no single big announcement from EXEL of late, but the news continues to build and is nicely positive even as Exelixis remains largely under the radar.

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

Delivered by FeedBurner

Reconsidering Faro Technologies (FARO)

I wrote a few weeks ago that I was putting FARO in the doghouse. Well, today I think I'll let him run around the yard a little more -- I've looked into their business a little further, and I'm not as concerned as I was initially over the erosion of their business and their difficulties in providing guidance.

It cannot be denied that Faro Technologies' stock (FARO -- free real time quote from ADVFN) has had a bad twelve months. The company ramped up to very fast growth over the past couple of years and really stalled this year. Earnings during the first half of the year deteriorated significantly from what was expected, and management's stubborn insistence that they could hit their annual targets seems, in retrospect, to have been very unfortunate indeed.

I've spend some time in the last few weeks revisiting my investment in FARO and reconsidering whether or not I still feel comfortable with the company as a long term investment. I found out about FARO from the Motley Fool originally, and they've been following this disappointing year pretty well -- the most recent article of significance was quite negative, with one of the Fools selling on December 1.

So should I hold?

I think so. After carefully reading the conference call transcript from the third quarter, which is when they finally realized they couldn't come close to meeting their guided numbers for this year and would have to guide down next year as well, I have a lot more confidence in the viability of the company as a continuing growth investment for the long term.

And after listening to a good interview with Simon Raab, the CEO, that the Fool released as a podcast a few weeks ago, I remain pretty confident that the CEO has the best interests of shareholders at heart and has learned his lesson about the provision of guidance (ie -- don't give guidance if you don't have to, and if you must, guide conservatively).

So what were FARO's problems this year, and why do I feel confident going forward?

The problems were several -- but I think there were two major ones that led to the problems with guidance.

First, the company failed to predict very well the way that their much broader product mix would sell this year. They now have three major sales vehicles in the Faro Arm and Gage, the Laser Tracker, and the Laser Scanner (that last one being the major contribution of their purchase of IQvolution). Management was a bit surprised by the mix of sales that went to the lower-margin products like the Gage and the Laser Tracker this year, and they were also caught flat footed by sharply lower European sales and the fact that seasonal patterns in their sales didn't follow the usual back-loaded trend this year (at least, not in the third quarter).

And second, the company had significant problems with inventory management and timely order fulfillment.

The problems with product mix are not going to work themselves out -- and it's arguable that it's even a problem, as long as management acts a little more conservatively in the future. I definitely got a strong sense from Raab that the sales underperformance was unacceptable, however, and they're really refocusing their European sales force to get those sales back in line.

The problems with fulfillment and inventory are going to be worked out, or at least they are being worked on significantly. The Singapore headquarters for Asian sales is now opening and should be able to much better serve their fastest growing markets, which will help them to manage their fulfillment better. And FARO has spent the last several months implementing a new inventory management solution that they believe will solve their problems.

Much of my assessment is personal. I am disappointed that the growth reached this "hiccup" point this year, especially since my average cost for my FARO holdings is around $27 and is well under water.

But I remain quite impressed with the management team and their resolve to fix the problems that surfaced this year and to be much more conservative in promising future growth.

And as importantly, I don't think that we can ascribe FARO's recent problems to a saturation of the marketplace. I think this computer aided measuring and manufacturing area is still ripe for dramatic growth over the very long term -- while automation is certainly no new thing in the world of manufacturing, this kind of computerized and precisely automated measurement and control is still very much underutlized. FARO believes they have only reached a small piece of the market, and I'm inclined to agree with them.

There are certainly still plenty of risks out there for FARO.

I could be wrong about management, and Raab might be angling for a way out. I don't think so, and even after his controversial sales this year he is still by far the major owner, but it's certainly a risk.

FARO's competition might catch up and take leadership from them while the business is still relatively in its infancy. FARO is fighting to hold its patents and keep its customers, but I can't tell from here whether or not they'll succeed.

Stock price wise, the Hidden Gems newsletter service at the Fool might recommend selling FARO (or maybe they already have, I don't know) -- I imagine that might significantly impact the stock price in the short term, at least.

FARO might be further from turning around its sales and inventory issues than I think they are, and another tough year would be hard to take.

And finally, FARO has a very diversified base of customers but they are also quite focused on a few specific sectors -- heavy manufacturing, aerospace, and automotive manufacturing make up a large part of their customer base. They might continue to be able to drive sales to these industries even if they hit hard times because of the ROI argument that FARO can make for their products (they're still selling well to GM right now, according to Raab), but there's certainly a risk in their reliance on these cyclical industries.

I've decided to accept those risks for now and hold my FARO stock -- I think in a few years they'll be much stronger than they appear right now. I'll let you know if I change my mind.

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

Delivered by FeedBurner

Tax Loss Selling (DWRI)

Well, I hope I learned the lessons from my cautionary tale regarding Design Within Reach (DWRI -- free real time quote from ADVFN), because it turns out it makes sense for me to clear the DWRI from my portfolio before the end of the year and take the tax loss.

I won't retype my whole experience with this modern furniture retailer -- suffice to say that I like the product, bought a small position early this year because I was enthusiastic about their expansion plans and the quality of the products, and watched as it became one of the bigger investing mistakes in my portfolio.

The reasons for DWRI's fall were legion -- management mistakes, competition that was much stronger than I had anticipated, expensive studio rollouts causing cannibalization of their own higher margin catalog business, and rising costs due to the Euro and fuel/shipping increases.

I don't usually like to sell, but am certainly willing to when a company turns out to be something much different than I initially thought. Even after losing faith in this company, I figured (appropriately, so far) that it had fallen as far as it would likely fall, and I had intended to hold the stock in my portfolio to remind myself of the risks of leaping into a stock too quickly. The tax loss I can harvest right now is too appealing, so I'll just have to trust myself to remember.

So the band-aid has been ripped off and the pain is over -- I sold DWRI today, December 21, at $5.95 for a loss of roughly 68%. Phew.

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

Delivered by FeedBurner

Not so Entertaining (LGF, IMAX)

Some of the entertainment stocks in my portfolio have been taking a real pounding lately.

Some of my old standbys are just standing around ... Marvel (MVL -- free real time quote from ADVFN) has been flying under the radar with no recent film news, and I think they'll be stable until news comes out about next year's films (though I also think this is a buying opportunity as we wait for Spiderman III and Xmen III). Dreamworks Animation (DWA -- free real time quote from ADVFN)has also been relatively free of news in recent weeks if you ignore what's been happening with their parent studio -- Wallace and Gromit didn't do as well as I would have liked, but Madagascar certainly evolved into a significant film and I'm looking forward to seeing how management handled the DVD market with this one in light of their Shrek 2 mistakes last winter.

But I've noticed some significant weakness in particular in IMAX (IMAX -- free real time quote from ADVFN) and Lionsgate (LGF), and my positions in both are down in the neighborhood of 25% today.

IMAX had a significant downgrade from an analyst who doesn't see mid-size theaters adding their MPX technology to multiplexes -- that may be true, and it sounds like the analyst did a solid channel check, but I don't see why it's a big concern. At this point in their growth cycle with significant overseas expansion and still very few theaters built in the US they don't have to win over the small operators yet. Small theaters follow the trends and have much less flexibility with capital spending than do their large competitors. If they need IMAX to compete in 10 years, perhaps they'll get it. I'm not worried that they don't yet have an interest.

More importantly, IMAX has had a great holiday season with Polar Express and Harry Potter -- more evidence that their strategy of remastering and releasing Hollywood hits and event movies is working great. As they continue to work out the installation backlog and gain new orders, we'll see these films all bringing in additional sales at very little additional cost. I see long term growth ahead (though it's still plenty risky -- the fancier and cheaper home theaters get and the shorter the time lag for DVD releases, the more the "event movie" and the IMAX experience will have to fight for attention). I filled out my IMAX position a number of weeks ago, and now I'm just sitting and watching.

Lionsgate (LGF-- free real time quote from ADVFN) is another matter -- but on the whole I'm optimistic moving forward. They changed their name (from Lion's Gate to Lionsgate -- WOW!), but more importantly the CEO recently spoke about guidance and about the need to refocus on their core competencies.

Their problems this year were the kind of standard Hollywood problems that this small company is not supposed to have -- they aim to buy and create niche film and other entertainment properties on the cheap, promote them effectively but inexpensively, and make money in the corners of the market where the big studios can't or won't succeed (horror, indie films, etc.). This year they had a few films with bigger budgets and significantly larger promotion budgets (Lord of War, Devil's Rejects, In the Mix), and all three of those films flopped at the box office and may or may not even break even on DVD and cable distribution. In light of this, I think management's assertion that they made a mistake in spending so heavily on these films is a good thing -- they recognize a mistake, they plan not to make it again. And even with those higher profile mistakes, the huge successes of Crash, Diary of a Mad Black Woman, and Saw II (a particularly big hit which I wrote about here) helped them have a decent year. We'll see how they do next year, but this is always going to be a volatile one.

I'm not making any decisions based on any of this stock price movement -- I fully expect both IMAX and LGF to continue to make dramatic moves on short term news, including both successful and unsuccessful film releases.

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

Delivered by FeedBurner