G. Stocks

12/02/07 Stock Portfolio

2007-12-02T14:23:00.000-08:00

Well hello all my avid readers! It's been a while since my last post, but I promise I've been very busy with my investment portfolio.

Here's the quick summary:

STOCK	% Gain/Loss	% Portfolio
GRMN	76.06%	14.73%
STP	72.60%	13.44%
IBM	19.46%	10.54%
BUD	224.10%	10.32%
MLAB	16.73%	7.46%
JNJ	24.02%	6.91%
MMM	272.93%	5.81%
SJT	15.22%	5.14%
LH	-3.90%	4.53%
APOG	-4.22%	4.29%
DEO	127.67%	3.64%
INTC	117.20%	3.38%
EEB	-0.34%	3.10%
BTJ	8.71%	2.56%
RISKY FUND	-4.68%	2.35%
MRK	17.00%	1.82%

You'll notice a few things here since my last post. I was forced to sell QSII becuase it hit a loss point. IBM has had a significant change in gain/loss because I decided to sell a good portion of my earlier purchases in the company. Gateway (GTW) is gone, it was bought out (I still ended up with a slight loss on my stock purchase there).

Garmin has gone down since I last posted but primarily because I picked up some more of it, which averaged down my return on my first investment. Other then a scary bidding war with Tom Tom over a map company, Garmin has continued to be a really good company to own.

My best purchase since my last entry was in STP (Suntech Power). They are a solar power company based in China that I've been very pleased with. I took an interest in solar power as a play in the heightened environmentally sensitive world we now live in (It's nice to think Al Gore has helped make me some money). I researched quite a few different solar companies (actually took a quick 25% profit in a first solar investment) but in the end decided STP had the best balance sheet and stock price for my investment.

I've added to my MLAB holdings as is my investment strategy when a stock hits a 10% gain from my initial purchase (the same was also done with STP).

I've been slowly adding APOG to my portfolio, as it's continued to drop. I see an excellent company, with an excellent balance sheet, that for whatever reason is being ignored by the industry. I always treat those as opportunities.

For some diversity, I added EEB, an ETF which tracks BRIC (Brazil, Russia, India, China) companies.

I also couldn't stop myself from purchasing some Bolt Technology (BTJ). I've been tracking it for quite a while and the price of the stuck relative to it's earnings and growth was just too much for me.

I'll be honest, I tend to let Bob do the majority of the work :) A lot of my recent purchases have been stocks that he has screened on his web site. I add them to an excel spreadsheet and then watch for dips. MLAB, APOG, BTJ are all companies I discovered from Bob.

I also started a "RISKY FUND", I have a tendency to only buy good sound companies. This is my experiment at some speculative investing. I'll continue to keep this as a small position in my portfolio.

09/02/07 Stock Portfolio

2007-09-02T10:18:00.000-07:00

Here's a summary of my current stock portfolio. Some stocks such as BUD, INTC, and MMM I've been carrying around for a quite a while now which is why the appreciations are so high (my dad got me into investing back when I was in high school). IBM is a stock I've purchased through my employee purchase program so have been slowly adding to it since 2001. I got a bit "lucky" on that one in that it tanked when I first started and has been coming up ever since (all me of course :)

STOCK	% Gain/Loss	% Portfolio
IBM	141.98%	14.39%
GRMN	101.32%	14.25%
BUD	203.19%	12.91%
QSII	-4.06%	9.98%
JNJ	10.98%	8.39%
MMM	300.49%	8.34%
MLAB	6.83%	6.91%
LH	2.70%	6.47%
SJT	2.17%	6.32%
DEO	82.74%	4.50%
INTC	114.45%	4.47%
MRK	-1.11%	2.06%
GTW	-4.17%	0.99%

Stock Strategy

2007-09-02T09:46:00.000-07:00

I've discussed a lot of the things I look for when purchasing a company, but I've never really discussed my decision making process when purchasing and selling a stock. Mostly this is because I tend to make it up as I go along :)

I've been trying to develop a strategy that allows room for a stock to appreciate without interruption from me, but at the same time which allows me to avoid the "bubble" affect and take some gains when a stock reaches a peak and begins to come down.

I strictly follow the -10% rule. That is, if a stock depreciates 10% from my initial purchase price, I immediately sell it all. I recently posted a question to Bob on bobsadviceforstocks.com. Bob is one of my favorite stock bloggers and follows a very strict buy and sell system. My question to Bob can be found here. The main thing I take from this is that Bob has a system, and he sticks to it. There's no gut feeling, no emotion, nothing that is used except his system. It makes investing for him simple (other then picking the right stock of course :). I still see myself as a bit young and foolish, so I just can't bring myself to follow this type of strict strategy (although I know deep down it's the best thing), but I do at least need some rules!

G. Stock Investment Strategy

Always sell a stock if it depreciates by 10% or more.
Never buy a stock at a peak, I feel like it raises to much risk that I'll end up hitting my -10% sell point if I do.
Try and always buy into a stock in a valley (may seem obvious by previous one but not necessarily)
Once a stock appreciates by 100%,200%,300%..., sell half of holdings if it depreciates to 85%, 185%, 285%...
Sell all of a stock if it appreciates to 100%,200%,300%..., and then proceeds to drop to 50%, 100%, 150%...
Never buy stock from a company which is not making money (see exception next)
Carry one speculative stock (bio-tech, green energy, ... ). This is the "lottery" ticket as Bob Kramer likes to call it and I believe every good portfolio should have one. This should not exceed more then 1/10 of the portfolio though.
Be Patient! Unless a stock seems stagnant, or is no longer a good selection based on homework, be willing to sit on a good stock and wait for it to appreciate.

Profit Taking!

2007-08-31T18:31:00.001-07:00

Well then, it's been a heck of a month. I haven't been as good with the blog as I'd like but I have been busy :) So lets dig into what's been going on in G. world from a sales point of view.

Sales

Garmin (GRMN)

I went with a new strategy I'm developing for runaway stocks. For those that don't remember, I purchased Garmin in two batches. One with a price point of $46.84 and another at $51.04. Garmin had an amazing run up to $105.85. Even I, an avid Garmin fan, felt that price was too high. I decided to implement my 12% rule which stated I would sell half of my holdings in Garmin if it dropped 12% from it's peak. This quickly occurred in the following days and I ended up selling half of my portfolio at $92.32, taking a 97% profit. Garmin of course is back up around $101 right now but I'm happy with the sale. Garmin with my two purchases, became my largest portfolio holding. Having it double, made it astronomical in relation to the rest of my holdings.
I distinctly remember the dot com bust and have always followed a strategy where I do no selling as my stocks appreciate, but which make sure some profit taking is done if a decline starts to come. Garmin is still an amazing company and I plan to leave my last half in there for the long haul (i.e. it's going to get a lot more swing room before I even think of selling).

Armor Holdings (AH)

I purchased armor holdings back in September of 2006 as a play on the current administrations war strategy. Overall it seemed to be going well with a good rise in stock price. Armor holdings was purchased by BAE systems. It was purchased for $88 a share, which compared to my $52.72 purchase price gave me a nice clean 64% return on my money. I had mixed feeling on this takeover, the return on investment was nice but I had high hopes for this company and was kind of ticked off the sale came at such a time that I'll be paying short term gains on the sale. Oh well, can't complain about a 64% return over the course of 11 months.

Hartford Financial Services (HIG)

I've never actually blogged about HIG but I had a small stake in it from an 8/17/2004 purchase. I purchased it at $60.62, sold it at $86.65. It had a great run up to $106 at one point but ended up coming back down. I didn't have a whole lot of feelings either way with this company so decided to sell into a rally one day. With dividends, I got a 52% return on my money with this one.

Well there you have it, my sales over the last month. The market has been very volatile but overall I've been really happy with my portfolio. The next post of course will be what I did with all of my new found money!

Johnson and Johnson (JNJ)

2007-08-01T20:22:00.000-07:00

As mentioned in my previous post, the recent market movements have gotten under my skin a bit. I decided it was time to diversify a bit and put my money in what I consider a safer company.

G, what does this company do?

From google finance:

Johnson & Johnson is engaged in the research and development, manufacture and sale of a range of products in the healthcare field. Johnson & Johnson has more than 250 operating companies. The Company operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics. Sales of the Company's two largest products, RISPERDAL/RISPERDAL CONSTA and PROCRIT/EPREX, accounted for approximately 8% and 6% of Johnson & Johnson's total revenues, respectively, during the year ended December 31, 2006. In May 2006, ETHICON, Inc., a Johnson & Johnson company, acquired Vascular Control Systems, Inc., which is focused on developing medical devices to treat fibroids and to control bleeding in obstetric and gynecologic applications. On December 20, 2006, the Company completed the acquisition of the Consumer Healthcare business of Pfizer Inc. In February 2007, the Company completed the acquisition of Conor Medsystems, Inc.

G, where did you find this company?

I've owned the company for quite a few years but only from my poor college days. My dad recommended back in those days and it's had a good solid rate of return.

G, why do you like this company?

It makes me feel safe! It's averaged 12% return over the past 10 years, it has an excellent return on investment, it makes a ton of money, it's very well diversified in both product and geography, it's sitting near a 52 week low, and no matter what, people will always need what it produces!

G, give me the details.

The growth numbers are not as exciting as GRMN or QSII but they make billions of dollars more!

G, what did it cost you?

I bought at $61.82 on 7/24/2007.

Time for a Safe One

2007-07-22T20:29:00.000-07:00

As I review my portfolio, and sit through a day like Friday I remind myself that small growth companies offer a lot of potential, but also carry more risk. I can't complain up to this point. I'm currently sitting at a 60% return on Garmin, a 63% return on Armor Holdings and I'm off to a quick 8% return on my recent purchase of QSII. The rest of my portfolio has been on the upswing as well (IBM has had a great run recently). The point is though that a lot of my stock picks have been in small fast growing companies. The key to surviving the stock downturns (and yes there will be one eventually), is to have a balanced portfolio. My one "safe" stock I purchased on this blog, SJT, with it's ~8% yearly dividend has had a nice 10% return so far and has done exactly what I expected of it (slight stock price gain with excellent dividend return).

With that said, instead of making a second investment into QSII when it hits a 10% return (as I did with Garmin), I will instead put this money into a safer, large cap company with a strong history of earnings and profit. Currently on the list are JNJ, MSFT, GE, MMM, or BA. I'm definitely leaning towards JNJ. It's in a stock price valley, is well diversified in product and in location, and it has an excellent history of solid growth with a steady 12% average rate of return. Stay tuned for the G. pick.

Another thing I've been battling with is whether to sell a part of my purchases and take some profits. Two things keep me from doing this, thinking about all those people that sold Microsoft the first time it doubled in price way back in it's beginning, and paying short term taxes on those gains. For now I'm going to simply sit on them but I will be keeping a close eye on the market.

Quality Systems Incorporated (QSII)

2007-07-02T19:40:00.000-07:00

Ever walked into your dentists office and had the receptionist spend 5 minutes clicking away at the computer, patiently waiting for some archaic dos based database retrieval program to pull up your records? Or better yet, ever had the receptionist pull out an old folder from when you first started coming, overflowing with old x-rays and your address and telephone numbers from when you were two? The same can also be true when visiting your old family doctor. I've always felt there's a good business to be had in the dentist/doctor office software business, especially as a lot of these business's start actively moving to better electronic systems to try and improve cost. QSII provides this exact software. I've put my updated spreadsheet here with QSII numbers. Lets do the G. questions!

G, what does this company do?

From google finance:

Quality Systems, Inc. develops and markets healthcare information systems that automate certain aspects of medical and dental practices, networks of practices, such as physician hospital organizations (PHOs) and management service organizations (MSOs), ambulatory care centers, community health centers, and medical and dental schools. The Company is consisted of the QSI Division and a wholly owned subsidiary, NextGen Healthcare Information Systems, Inc. (NextGen Division). The QSI Division focuses on developing, marketing and supporting software suites sold to dental and certain niche medical practices. In addition, it supports a number of medical clients that utilize the QSI Division's UNIX-based medical practice management software product. The NextGen Division focuses on developing and marketing products and services for medical practices.

G, where did you find this company?

I found this company while browsing a "double it's price" in 5 years column on cnn finance.

G, why do you like this company?

It reminds me a lot of Garmin (my first favorite stock). It's a fairly small company with room to grow. It's consitently growing revenue and sales each year, and it's a business area I've always felt has a lot of potential.

G, give me the details.

Look over the numbers in the spreadsheet, I'll review in my next post.

G, what did it cost you?

I bought at $37.53 on 6/26/2007.

Sometimes it's All About the Dividend

2007-02-25T19:18:00.000-08:00

All right, I couldn't just sit on the rest of that tax refund so I decided on a "safe" investment. The company is called SAN JUAN BASIN ROYAL (SJT). Basically it's a gas and oil trust that owns a large stake in some very lucrative land in New Mexico. I like this company for three reasons, it has a steady simple to understand revenue stream, it's currently paying an 8% dividend yield, and it's stock price is currently in a nice valley.

My main goal is to get the nice 8% return via the dividend, if the stock price also goes up I'll take it as a bonus.

I'm a sissy...sort of

2007-02-14T19:58:00.000-08:00

I'm a bit worried about a stock market correction so I opted to simply gamble $500 of my tax return on Gateway and stash the rest away in a money market. I purchased Gateway (GTW) for $1.92 a share. I kind of feel like I'm in Vegas with this stock.

In other news, Garmin (GRMN) posted amazing results today which pushed the stock up 8%. This of course made me a very happy camper. Lets just hope it retains these gains! My other stock I reviewed on here, Armor Holdings (AH), has been rocking as well. A few more of these investments and it's time to retire! (just kidding...) It's usually about now that the stock market craters.

Refund Time

2007-02-11T15:45:00.000-08:00

Well I did my taxes today and good ole uncle Sam is going to give me a little of my hard earned money back. What's a boy to do....buy more stock of course! Today I've narrowed my search down to 5 companies. My original intent was to plant the money in something safe since I have quite a bit of my current portfolio in things I consider somewhat high risk. As is usually the case though, I strayed a bit from my original intent. Here's what I have so far.

Gateway (GTW - $1.94)
My first computer was a Gateway. Back in the days when it was about even with Dell and Compaq. Since then it's gone one way in the stock market, and Dell has gone in the other direction. This is definetly my riskiest choice. It's currently trading at $1.94. It still has 6% of the PC market and I think Vista will drive it's 1st quarter revenue up. The CEO has indicated that we'll see more expense cuts this quarter. This would most likely be a short term investment, attempting to make some quick money.

DELL ($23.72)
This is yet another attempt at capitalizing on the new Vista operating system. Dell has also been hit hard recently in the stock market due to poor performance in recent quarters (we all know I like to buy when good companies are low). Michael Dell has taken the company back over and I've always been impressed with his style. I think we're going to see a resurgence in DELL here soon.

Microsoft (MSFT - $28.97)
Ok, so you're probably seeing a pattern here. Vista is here, and it's going to drive revenue growth. Microsoft stock has been pretty flat the last 5 years so I feel like it it's time. The new internet explorer rocks and the xbox360 sales have been great. The zune hasn't gotten the best reviews but I'm sure Microsoft will get it right eventually (they usually do). I think Microsoft is just a really good company overall, a very safe investment.

General Electric (GE - $35.53)
GE is just one of those stalwarts. It continuously makes money and is a very well run company. The stock has had a little hit lately and it's got a really solid dividend. Overall, it just seems like a good safe investment.

3M (MMM - $74.54)
I've owned 3M since the mid 90's and have made a very nice chunk of change on the company. It's another great company like GE that makes a lot of money, and has a great dividend. It's tough to really go wrong with a company like this. It's also been hit recently in stock price which is always a good time to buy!

I'll think on this a little more and let you know which one I decide on. I've recorded todays prices for each of these stocks in this blog so we can look back some day and see if I "chose wisely".

Knock Knock Knock

2007-01-09T18:17:00.000-08:00

Son of a Bitch! Guess I didn't knock hard enough in my previous post about Garmin so as I post this I'm knocking the crap out of my coffee table. I've seen my 14% return widdle down to 7% within the last week with Garmin. Merrill Lynch downgraded Garmin to neutral today. Merrill stated increased competition is going to impact Garmins performance and that the stellar sales they're expected to report for the fourth quarter are already included in the stock price.
Although I agree that competition is increasing, and that margins are going to shrink, I don't agree that Garmin is not going to continue to grow like it has. The GPS market is simply exploding right now. All companies in this business are posed to benefit. Garmin has positioned itself to be the leader. As I've mentioned before, it's volatile stock and this is to be expected. It's just a bit painful. If it drops much more, I may be tempted to buy some more :)

On a positive note, Armor Holdings went up 5.5% today (see previous post on that one). IBM (which I haven't posted about, but own quite a bit of stock in) also has been on a tear recently as well. This is why you never put all of your money in one stock. A balanced portfolio helps level things out.

Armor Holdings

2006-12-29T18:33:00.000-08:00

I first read about Armor Holdings in SmartMoney magazine. I read the magazine on a monthly basis and mark stocks within it that interest me. I'd heard multiple times on the news the complaints about Humvee armor problems in Iraq. One of Armor Holdings main business's is upgrading the armor on Humvee vehicles. Seemed like a pretty logical buy to me. Lets go through the questions.

G, what does this company do?

Quoted from Google Finance...

Armor Holdings, Inc. (Armor Holdings) is a manufacturer and provider of armored military and commercial vehicles, armor kits for the retrofit of military vehicles, protective and security products for military and law enforcement personnel, aircraft armor, aircraft safety products, survivability equipment used by military aviators and other personnel protection technologies. The Company's business consists of three business segments: the Aerospace and Defense Group, which supplies human safety and survival systems to the United States military and aerospace and defense prime contractors; the Products Group, which manufactures and sells a range of equipment to the military and law enforcement communities, and the Mobile Security Division, which manufactures, services, and integrates certified armoring systems into commercial vehicles that are designed to protect against varying degrees of ballistic and blast threats on a global basis.

G, where did you find this company?

As mentioned in the intro of this blog entry, I found them while reading my SmartMoney magazine.

G, why do you like this company?

The company appears to have a product line that is in huge demand. It also happens to be in demand by the largest purchasing power in the world (U.S government). Just browsing the headlines for AH shows a multitude of tens of million dollar contracts between the Army and AH. AH appears to have the potential for huge gains but it really comes down to them executing and delivering the products they've sold. They have had issues with deliveries and production ramp up. I'm keeping a very close watch on this as the current quarter comes to an end.

G, give me the details.

I'm keeping my running company analysis spreadsheet here. It has the last five years of Garmin and AH numbers within it currently. Here's a summary of the AH numbers and my thoughts on them.

Company	Net Sales	Percent Increase in Net Sales
AH (2001)	$197,100,000	0.00%
AH (2002)	$305,117,000	54.80%
AH (2003)	$365,172,000	19.68%
AH (2004)	$979,683,000	168.28%
AH (2005)	$1,636,930,000	67.09%

These numbers aren't as consistent as Garmin (which is something I like to see) but they are very impressive numbers. It shows a very fast growing company that went from 200 million dollars in sales to 1.6 billion dollars in sales within 5 years. Management has continued increasing production and big government contracts continue to pour in so I see no slow down in this growth for the next couple of years.

Company	Net Earnings	Percent Increase in Net Earnings
AH (2001)	14,684,000.00	0
AH (2002)	21,337,000.00	45.31%
AH (2003)	17,006,000.00	-20.30%
AH (2004)	80,577,000.00	373.82%
AH (2005)	132,510,000.00	64.45%

The profit margin obviously isn't is good for AH as it is for Garmin. (~13% vs 35%) so even though they have more sales, their net earnings are significantly lower. AH earnings are also very inconsistent but they still tell the story of a very fast growing company.

There's a lot of speculation that Armor Holdings stock may go big one way or another after president Bush reveals his new Iraq plan. I think that may be true from a short term perspective but in the long run, I think the products provided by AH will continue to be in demand.

G, what did it cost you?

I bought the stock on 9/5/2006 at $53.72 a share. It had a great run initially up to $60 a share (at which point I felt like "The Man" and made sure all of my friend knew about it). The lower profit forecast was then released and all of my gains were lost. Since then the stock has continued to be fairly volatile and as of today (12/29) is trading at 54.85. A very meager 2% return. I continue to hold out hope in this company though.

Money in the Mouth

2006-12-29T18:16:00.000-08:00

I decided to put my money where my mouth was and invested some more in Garmin on 12/12/06. My purchase price was $51.04. That plus my initial investment in Garmin at $46.84 on 11/3/06 has now returned 14% so far (with a dividend included in there). It's current trading price today is $55.66. Not a bad return on an investment that's only a couple of months old...hold on...ok, I just knocked on some wood.

Garmin still fluctuates in stock price a bit too much for my nerves but it's still a fairly small company and stock price fluctuation occurs in small fast growing companies. I've also seen quite a few posts that day traders really like it's upward trend mixed with its volatility which tends to induce even more volatility. Overall though, it's had a very nice upwards trend since it's drop. I'll post an update once Garmin releases it's 2006 annual report.

It's time to continue on to my next investment. I actually purchased this next stock in September of this year but didn't perform a very detailed analysis on the company. Time for that to change!

Give Me Some More Numbers about Garmin!

2006-11-15T17:21:00.000-08:00

Today we're going to review the spreadsheet I commonly create when analyzing a company. A link to the spreadsheet can be found here. It does require a google account but it's currently the best place I've found to store documents like this. This specific spreadsheet is for Garmin. The first page basically includes a summary of numbers which can be gleamed from the annual report. The second page, titled "Calcs" is where I calculate the numbers interesting to me.

Here's a brief breakdown of what I track and the values for Garmin in 2005.

Return on Equity (ROE) - 26.89%

Simply put, return on equity is a percentage which represents the amount of money the company made in the current year vs the stockholder equity a company has. Stockholder equity is the amount of money the company made selling stock and all earnings it has retained for re-investment in itself. For example, if a company has 10 billion dollars in stockholder equity and made 1 billion in net earnings, it would have a ROE of 10% (Net Earnings / Stockholder Equity).

This number can be used by an investor to understand how well management is using the resources provided by the shareholder to make money.

Retention Rate - 82.65%

Retention rate is a percentage which informs you of how much of net earnings are being put back into the company versus paid out as dividends to the stock owners. This percentage tends to decrease as a company slows down it's growth rate and pays more money back to it's shareholders.

Reinvestment Rate - 22.23%

Reinvestment rate is equal to the return on equity multiplied by the retention rate. It is used by analysts to calculate a companies growth potential. To increase it a company either needs to plow more of its net earnings back into itself (implying more growth) or by increasing net earnings to the point where it increases ROE.

Return on Assets - 22.85%

Return on assets is simply net earnings divided by total assets. It's similar to ROE but it doesn't include outstanding liabilities (money the company owes) in it's calculation. The difference between return on assets and return on equity can give you a quick feel for how much the company has in liabilities.

Operating Profit Margin - 32.90%

Operating profit margin is equal to the operating profits divided by the total sales. Operating profit is just net earnings before you take off taxes. This number tells an investor how profitable a company's products are to create and sell.

Net Profit Margin - 29.30%

Net profit margin is simply the net earnings divided by total revenue. Total revenue includes money made from sales and other income (investments and dollar fluctuations). This basically shows the bottom line on how much a company makes after it pays all of it's bills.

Percent Increase in Sales - 34.78%

A comparison of how much sales increased from the previous year. Obviously another very good way to gauge company growth.

Percent Increase in Net Earnings - 51.30%

A comparison of how much net earnings increased from the previous year. Please see previous blog post for reference on why this number is so high relative to the percent increase in sales.

Once again, all of these numbers are stellar! The three quarters reported for 2006 so far have shown the same growth numbers.

Good to see the fools have my same feelings about garmin as well :)

Garmin - First Look at the Numbers

2006-11-09T19:11:00.000-08:00

So now that everyone knows the basics about looking at a financial statement (HINT: see previous blog if this is not you), lets talk about the numbers for Garmin. For reference, here is the link to their annual report (page 63 is what we're referring to)

Net Sales

Lets look at the net sales for Garmin from 2001 - 2005. For analysis purposes we'll start sales at 2001. Here's the summary:

Company	Net Sales	Percent Increase in Net Sales
GRMN (2001)	369,119,000	0.00%
GRMN (2002)	465,144,000	26.01%
GRMN (2003)	572,989,000	23.19%
GRMN (2004)	762,549,000	33.08%
GRMN (2005)	1,027,773,000	34.78%

Note that the calculation for the increase percentage is simply the following:
((Current Year - Previous Year) / Previous Year)

Those numbers impress me. A company that can sustain that type of growth rate over that period of time is doing an excellent job at increasing sales each year. It's difficult to say how long the company can continue to sustain this type of sales growth. Obviously it has to stop at some time (and that's usually where you'll see the stock price start to level out). So far 2006 is looking good and I think they can continue at least through 2007. There is still a lot of room for growth in this area.

Net Earnings

Now lets look at the net earnings for Garmin from 2001 - 2005.

Company	Net Earnings	Percent Increase in Net Earnings
GRMN (2001)	113,448,000	0.00%
GRMN (2002)	142,797,000	25.87%
GRMN (2003)	178,634,000	25.10%
GRMN (2004)	205,700,000	15.15%
GRMN (2005)	311,219,000	51.30%

The first question that comes to my head when I look at these numbers is what the hell happened in 2004? One obvious thing is that the other income section was negative for 2004 (Lost 15 million dollars). Page 59 of the 2004 annual report explains that the majority of this other income loss was due to foreign currency exchange losses. This type of thing tends to happen with currency rate movements but still isn't something you want to see a company consistently reporting.

Page 62 also explains that an additional 47 million dollars was spent on an expansion of the Kansas facility. Removing that 47 million dollar expansion from the total costs and expenses would move the net earnings increase for 2004 to 41.46% and reduce the 2005 earnings increase to 23.16%. Kind of amazing what a facility expansion can do to your company. The point is re-iterated in the 2005 statement on page 74 of the 2005 report where they state "Capital expenditures in 2005 totaled $27.1 million, a decrease of $51.0 million from fiscal 2004". Spending less on facility expansion in 2005 greatly improved the net earnings for that year. When you look at the big picture of net earnings over these 5 years you can't help but be impresses (hence the reason from 2002-2006 garmin stock has risen 447% vs the S&P500 return of 20%).

A Random Tidbit

When earning numbers are released, one of the key motivations that moves a stock either up or down is how well the new numbers relate to it's previous numbers. For example, how does the Net Earnings for this quarter/year compare to the same number from the previous quarter/year. At times, this number comparison by the market can be a very emotional knee jerk type reaction. A smart investor could use the somewhat emotional reaction from the market to move a stock based on this number to their advantage.

Companies are going to have tough quarters. Deals don't get closed, supply problems impact delivery, ... whatever it is, it's going to happen, and the company's stock will most likely be punished for it. As long as it's a good company, and whatever caused the earnings miss has been corrected, you can almost guarantee that the companies next earning number will be much higher then the previously reported one. A great example of this can be seen if you go and look at Garmin stock history after it's 2004 earnings report vs it's stock history after the 2005 earnings report. As we proved above, the net earnings can be explained by looking a bit deeper into the financial reports but that didn't stop the market from punishing the stock after 2004 and rewarding them after the 2005 report. Sure would have been nice to buy the stock around March of 2005.

Fundamentals of a Financial Statement

2006-11-04T07:49:00.000-08:00

Financial statements from companies can seem very intimidating at times. I have a theory that some companies do that simply to keep us small investors from seeing the big picture. Wonder if I could write a program that evaluated companies based on the simplicity of their annual report...I'm only half joking there.

Anyway, let’s start with some basics. Companies release quarterly reports, which basically report a subset of information found in the Annual Report. We're just going to focus on the Annual Report today. Within the annual report, you find three main sections:

Statement of earnings(aka Income Statement): Presents the companies business results for the year. It shows how much product they sold, how much it cost them to do it, and the bottom line on how much they made for the year.
Statement of financial position (aka Balance Sheet): Lists what the company has for assets and what they owe to other people.
Statement of cash flows: Measures the flow of cash into and out of the company

Annual reports are not just about the numbers. A lot of times there's a lot of good information from the companies leadership in which they summarize the year and give some good vision on what they see ahead. These of course are always going to paint pretty rosy messages but there's a lot then can be read between the lines.

Lets use the 2005 Garmin report for our example. There are lots of numbers in this document but page 63 is the best place to start.

The key numbers I always like to look at initially are the Net Sales, Costs of Goods, Total Operating Expenses, and Net Earnings.

Net Sales: Total amount of money the company received selling it's product.

Costs of Goods: How much it cost the company to manufacture the product

Raw Material
Salaries
Other production costs.

Total Operating Expenses: Other costs which are broken into two broad categories

Advertising and other administrative type costs.
Research and Development.

Net Earnings: This is the bottom line, after all costs and taxes, this tells you how much money the company made for the year.

Other things to note are the Other Income, Income Tax Provision, and Operating Income fields. Other Income is income received (or lost) through company investments and other miscellaneous endeavors. Income Tax Provision is just what the company had to pay in taxes for the year. Operating Income is just the amount the company made before factoring in Other Income and Taxes. The Garmin financial statement actually gives you these numbers for the current year and the previous 4 years (making it even easier to do comparison).

With just these numbers, you as an investor, can begin to get a feeling for a company. Are the Net Sales going up each year? How much is the Cost of Goods going up in relation to Net Sales? Is the margin between the two increasing or decreasing. A decreasing margin can imply many things, from an increase in cost of raw material to stiffer competition. How about the Total Operating Expenses, are those increasing/decreasing at the same rate as the Net Sales? The efficiency of a company becomes very important as it grows. And of course, the Net Earnings, are they consistently going up each year? What's the percentage increase from year to year? Always be careful when analyzing Net Earnings. A common move by large companies is to increase Net Earnings by reducing Operating Expenses, and not necessarily increasing sales. This of course is still good for the investor, but can mislead some into thinking the company is growing more then they really are. Also, a reduction in Operating Expenses sometimes comes by reducing R&D efforts which may help the current quarter, but have detrimental impacts to the future.

There are of course dozens of calculations that can be done to formalize some of the things I mention above but for now we're just focused on fundamentals. Things you do within your head when you first look at a company’s annual report.

These are of course all things I should have done before purchasing Garmin....but my value side just couldn't avoid the deal I got on 11/3. The good part is that so far, it's looking like a pretty good company :)

Geek Toy of the Future

2006-11-03T20:22:00.000-08:00

Lets start this analysis with a company I just recently purchased. Well first lets start with where I got the funds for this new stock. I recently sold off some stock that was ahead (BUD and APCC). One of the more difficult things to do in life is to sell a stock which is going up, but once in a while it's important to actually realize a profit on a stock, especially when you feel it's reaching its upper limits. I was a bit concerned about BUD's 3Q 06 profits report so sold right before them. Turns out I didn't have a whole lot to worry about. But, I'm happy with the sale, the stock has been on a minimal decline since the report. APCC is a stock I bought a couple years ago at around $16. It was up and down for a while and just recently got bought out by another company. The stock hit $30 and I decided it was time to realize some profits there as well.

But alas, I stray from todays topic. Today we are going to look at a company called Garmin (GRMN).

Lets start with the basics...

G, what does this company do?

In a nutshell they produce GPS related devices for consumer, marine, and aviation industries. The company formed in 1989 and currently has a market cap of 10 billion dollars. It's probably best if you just read their website for the details.

G, where did you find this company?

I'm by my very nature, a value investor (sometimes referred to as a cheapskate). I'm always on the look out for good companies that get punished for one reason or another un-fairly by the market. Of course you need to be careful playing this game, a lot of the times the market correctly punishes a company.

I was actually contemplating a gamble on a genetic company (LEXG) when I ran across the headlines for Garmin. A 15% drop in one day, that has value written all over it!

G, why do you like this company?

The company reported a revenue climb of 62% and it's stock price dropped 15%! Yes, I admit it, that's what caught me up initially. I even paid the $15.95 fee in sharebuilder just so I could get in cheap. What kind of ticks me off is I've actually had a garmin GPS for over three years. My dad bought it for me to go geocaching. It's a fun hobby that gets you to a lot of different, neat locations throughout the US (basically people hide containers with little knick knacks in them, they record the coordinates using a GPS, post them to the geocaching web site, another user then downloads those coordinates, finds the container using their GPS, signs a log within the container, and then logs the find up on the geocaching web site). Yes I know that was a terrible sentence. Geocachers then figure out who has the bigger ying yang by comparing who has the most container finds logged up on the web site. I just wish I'd recognized the "coolness" factor of it three years ago. In fact, it's probably a good idea to keep an eye on the company that runs geocaching.com, Groundspeak Inc. Might be some potential there some day.

Every day I turn the corner, I see a new GPS device. In a cell phone, in a new car, in a freaking watch! The possibilities just seem endless. That's another point I always try to make when investing. The product needs to make sense. It needs to be something I see value in, not just something that makes money (take for example one of my best performing stocks, BUD, I think I see a bit to much "sense" in this company at times...).

G, give me the details.

I'll plug financial details in here to show key financial statistics over the last three years (once I stop being lazy).

G, you got any good links about Garmin?

A good blog post with some analysis on Garmin.

I like the idea of a company giving back to it's employees.

G, what did it cost you?

I purchased it for $46.84 on 11/03/2006.

The Beginning

2006-11-03T19:58:00.000-08:00

I've always been a frugal boy. I was the one who saved the lawn mowing money, the birthday money, the returnable money, just about any money I could get my hands on. The guy who would always bring the money back to his parents when they gave him some money to go out and have fun with. I'm 27 years old now and have had money invested in the stock market for 12 years. My dad initially picked my stocks for me. He started me with companies like BUD, 3M (MMM), Intel (INTC), and Johnson and Johnson (JNJ). All companies that have made me a good amount of money over the years.

I'm a high tech employee working in Austin Texas. I own a house (well I guess technically the bank own most of it), I invest 10% of my salary into my 401k plan, and try to get excess money after that into the stock market. I currently use sharebuilder for my stock transactions. I'm for the most part, a long term stock trader so the once a week purchase program that sharebuilder has works out well for me (the $4 fee).

Over the past couple of years I've been doing some of my own investing with a fair amount of success. I'd like to use this blog to record my analysis of some companies I currently own and companies I'm contemplating buying. Feedback from others would of course be appreciated.