As 2005 comes to an end, investors celebrate the coming new year and bring new expectation with it. As investors, we try to sell our losing investment before the year ends and sell our winning investments after the new year. This is to receive the benefit of early tax deduction and deferring our tax liability. Either way, after selling your investment, you have some spare cash to invest. Therefore, you would need some idea on where to invest your money.

Scouring the 52 week low is normally a good place to start. Tax loss selling has made many stocks to make the list. This is great for us, small investor. Barring any fundamental news, cheap stocks that get cheaper will be a good investment candidate. Turnaround investors look for stocks that are touching 52 week low and starts researching them. Many of them bounces, providing investors with outstanding return. Examples for this year include: ATI Technologies Inc. (ATYT, up 39% from the low), Seagate Technology (STX, up 29% from the low), Omnivision Technologies (OVTI, up 68.8% from the low) and even Maxtor Corp. (MXO, up 45% from the low before being acquired). Maxtor is now trading 120% above its 52 week low.

While stocks touching new 52 week low, do not always bounce, this is a good place to start your research. Therefore, your prey for 2006 should at least include companies that has recently touched 52 week low. These are several ideas to get you started for 2006.

Pier One Imports Inc. (PIR). The retail stores specializing on furniture and other decorative accessories, are experiencing customer defection this year. Same store sales has been declining and there is little indication that it will change. Warren Buffett used to own a piece of this company. He has since cut back on his stake late this year. It has recently fallen to $ 8.90 per share from the 52 week high of $ 19.98, a 55 % hair cut.

Shanda Interactive Entertainment (SNDA). For overseas exposure, especially China, Shanda should be on your watch list. It provides online gaming to the Chinese community, especially Massively Multiplayer Online Role Playing Games (MMORPG). Don\’t let the word scare you. It is basically an online gaming portal where it lets gamers fight/play with other gamers. A good way to foster customer\’s loyalty is through the interaction with other individuals. Online Gaming provides Shanda with that opportunity. It has fallen to $ 15.00 from its 52 week high of $ 45.40, a 67% hair cut. The appealing thing about Shanda is its strong balance sheet (more cash than long-term debt) and the potential growth of its market. Furthermore, the company is profitable. Those cash pile will continue to grow if that happens.

Navistar International Corp. (NAV). This company makes and distributes commercial trucks and busses. Competitors include Paccar, Volvo and the like. It is sporting a forward P/E of 6 and decent balance sheet. If it can maintain a 0% growth in profits, the stock price won\’t trade at $ 28.80 for very long.

Verizon Communications Inc. (VZ). The largest baby bells of all are having a decent year on the profit line. However, concerns about competitions and high debt load, has reduced its stock price for year 2005. It is currently trading at $ 30.27 per share with dividend yield of 5.30%. Currently, dividend is about half of its annual profit, which is considered safe. If Verizon can repeat its profit performance, the dividend for 2006 will be safe. However, it currently has a high debt load of $ 34.3 Billion. The company has tried to reduce its debt using its cash flow from operations. On Dec 31st 2002, long term debt stood at $ 44.8 Billion. Therefore, balance sheet has actually improved while stock price goes nowhere.

Fresh Del Monte Produce Inc. (FDP). The makers and distributors of fresh fruit produce is not having a good year. Pricing weakness, combined with the higher than expected cost, has decimated its stock price. Recently, management has reportedly hire JP Morgan to run an auction for the company. It can be sold to as high as $ 1.8 Billion according to TheDeal.com. This translates into $ 30.70 per share. FDP recently trade at $ 23.64 per share. If the deal goes through next year, you have the potential of a 29.9% return. However, the fact that management is exploring the buyout, indicates that business aren\’t so good at this company. If the deal doesn\’t go through, stock price may see further depreciation.

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Writen By : Hari Wibowo

Tags: annual report, portfolio, stock

To be honest, it doesn\’t matter what type of stocks we invest in. Common stock with small capitalization (defined as having market capitalization of $ 500 Million or less) and big capitalization (market capitalization of $ 5 Billion or more) can give you outsized returns provided that you bought it under fair value. But if you were only given one choice, which one would you prefer?

Small cap common stock historically returned a higher rate of return than its big cap counterpart. All household names that you are familiar with were a small cap stock. Microsoft, Dell, IBM, Johnson

Tags: annual report, portfolio, stock

A lot of investors may wonder if they should have invested in stocks or bonds or both. Both investment vehicles have their own merit in the investment world. However, the best investment choice depends on your investment horizon and your risk tolerance.

Bond is a certificate of debt issued by governments or corporations which will be repaid later at maturity. Bond investors get steady stream of interest while the principal will be paid at maturity. Currently, the ten year treasury bond yield 4.48 %. This guarantees investors that held the bond to maturity, an annual 4.48 % return on investment assuming a default risk of 0. Since treasury bond is backed by the United States government, it is safe to say that the default risk is nil. Treasury bond price fluctuates daily. But the potential capital gain from the price change is fairly minimal. As of Tuesday December 6th 2005, the 10 year treasury bond is priced at around par value of $ 100. Therefore, the investors\’ main return on investment is through the interest payment of the bond.

When investing in common stock, investors may be rewarded with either dividend payment or capital appreciation or both. Mainly, investors are aiming for capital appreciation profit when they invest in stocks. Historically, stock market indices has returned 10.5% since world war II. Stock investors may be exposed to a lot of risk due to the price volatility. When the company is doing poorly, investors may lose half or all of his principal. Bond investors do not have this problem if the debt issuer still survives.

In my opinion, investors are well served investing in stocks if they will not use the savings for more than five years. The reason is simple. Common stock gives a much larger return than bond. Investing in bond merely get you even with inflation. Some common stock can even give you that kind of return from dividend alone. If stock investors properly calculated the fair value of the common stock, the short-term volatility of stock will not matter. In the long run, stock will be traded close to their fair value.

There is no need for investors with five year investing horizon to avoid common stocks. While investing in treasury bond is theoretically safe, its return barely match inflation. In other words, investing in treasury bond will not make us richer.

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Writen By : Hari Wibowo

Tags: annual report, portfolio, stock

As the year comes to an end, you will see plenty of websites offering stock guidance for 2006 and what you should expect for years to come. This guide can be had for free if you buy this or subscribe on that or sign up for newsletters. This is just marketing gimmick. Sure, they have their use. But they want to get you back by offering you a set of stock guide every year. You only need one stock guide for your entire lifetime and I will give it to you for free. Well, your time is not free so that is what you need to read this guide.

2006 will be similar to any other years. In fact, it doesn\’t matter what year you are in. You can be in 1921, or 2105 and it will bring the same thing to investor. Therefore, stop reading \’Stock Guide from 2007\’ one year from now. You just have to read this once.

2006 will bring out the best to undervalued investment and companies having stellar balance sheet. It doesn\’t matter what economic condition we are in, these stocks will give you outstanding return. Now, these stocks will not give you the best return ala Taser ( up 2040 % in 2003) or Travelzoo ( up 1070% in 2004), but it also will not give you Taser-like loss ( down 80.6 % in 2005) or Travelzoo ( down 75.3 % in 2005)

After all, Warren Buffet becomes rich by getting a return in excess of 20 % annually for a long time. His stock holding does not move up 1000% in one year and move down 80 % in another. Yet, he is doing fine, more than fine. Slow and steady wins the race and apparently it has been time-tested by some of the best investors in the world.

Yep, so your 2006 guide is to find undervalued investments and invest in them. You think oil price will go up in 2006? Then, whip out your calculator, determine the fair value of any Chevrons or Exxons of the world and compare it with the current stock price. Be sure to look at the balance sheet too. Having a positive net cash will ensure that the company you picked will survive one year from now at the very least.

How do you determine the fair value of a stock? Quite simply, you compare it with the prevailing interest rate and add a risk premium to arrive at fair value. For example, if current interest rate is yielding 4.5 %, the fair value of a common stock is when it yields around 7.5 %. This implies a Price Earning Ratio of 13.3

Anything else you need to know? Nope. Your only guide for year 2006 and beyond is to find undervalued investment. It has stood the test of time.

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Writen By : Hari Wibowo

Tags: annual report, portfolio, stock

Book Value of A Company is defined as the sum of all assets subtracted by the sum of all liabilities/obligations. In other words, this is what shareholders will get if the company is to cease operations immediately. The reality, however, is different from that. Book Value does not always reflect what shareholders will get in the event of liquidation. For example, inventory is stated at full cost (100% value). But, who would want to buy a bunch of Pentium IV chips if the company is not going to exist tomorrow?

Therefore, we cannot rely on book value to find the value of a company during liquidation. The rest of the article will help you conservatively predict the fair value of all the assets when the company stops its operations.

Cash

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In Continuation of an article Don\’t Just Pick Any Dividend, let me follow up with a few signs of company who may initiate dividend cut. Once dividend payment is initiated, management will be less inclined to cut them. Certain circumstances might force them to cut the dividend. Yes, it is embarrassing. But, it may be needed to survive. Business may be slow. Debt payments may be coming due. Whatever it is, dividend cut generally is not a good thing.

Here are several indications that management will cut future dividend:

Huge Loss. When a company is not profitable, dividend cut may be initiated. If the loss occurred for years and no sign of improvement for the foreseeable future, the chance is, dividend will likely be cut.

Negative Net Cash. This means that the company has more long term debt than it has cash. If the firm\’s negative net cash is increasing and getting worse, the dividend cut will follow suit.

Negative Cash Flow From Operations. When the company is draining cash operating its business, there is no reason it should keep the dividend payment. The cash can be used for other purposes such as capital expenditure or investing in long term asset to expand its business.

Long Term Debt coming due. If a big portion of the company\’s long term debt is coming due, it needs to conserve cash. Even if the firm cannot repay it on time, lenders want to see an effort by the company to conserve cash. To please lenders, the company needs to reduce dividend payment and request an extension for the loan.

If a company has one of these signs, they may not cut their dividend anytime soon. But if a company has all these signs, there is a big chance that dividend cut is the next logical stop. What company currently fit this description? General Motors Corporation is one. It has a huge loss of $ 3.81 Billion loss for the first nine months of 2005. Furthermore, its balance sheet is not stellar. It has a huge negative net cash ($ 31 Billion) and cash flow from operation is negative as well. I am not sure when GM\’s long term debt is coming due. If a huge portion of it comes due, dividend cut will be initiated if its business does not turn around.

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Writen By : Hari Wibowo

Tags: annual report, portfolio, stock

If you have money to invest, you might contemplate investing in mutual fund. What is mutual fund? Mutual fund is simply a collection of stocks that are bought using money pooled from various individual investors. Historically, average mutual fund returns 2% less annually than a stock market index.

While the return is less than stellar, there are several advantages of investing in mutual fund. They provide diversification, economies of scale and liquidity. So, the question you want to ask yourself is whether you want to have a smaller return for the advantages mentioned previously.

While two percent difference looks small, it is not pocket change. Investors who set aside $ 1 a day, would have $ 562,000 of savings in fifty years if he invests in stock index fund growing at 10.5% per annum. The same investors would collect \’only\’ $ 271,000 if he invests in average mutual fund that grow at 8.5% per annum.

There are also disadvantages investing in mutual funds. There is a problem on how to choose the \’right\’ mutual fund. If average mutual fund returns 8.5% annually, the below-average fund will give you less than that. Just like picking a stock, you would find some stocks that outperform the average and other stocks that do not perform well.

The next question would be if we investors can do better than stock market index fund of 10.5%? A lot of people believe they can. But, the path ahead is full of obstacles. First, you need to get educated about stocks in general and how to calculate the fair value of a common stock. Next, you need to open a brokerage account to execute your buy and sell order. Finally, you need to keep abreast of new developments. Business comes and goes. Industry rises and falls. Examples of industry that used to dominate are: typewriters, cassette players, sewing machine and traditional camera. If you don\’t read often, you may predict that certain stock has a high fair value even when the entire industry is collapsing.

It all comes down to individual investors. Would they want to learn more and get a few more percentage return each year? Or would they let someone else manage their money? Me, I prefer to learn how to manage my own investment. Sure, it is time consuming. But giving a little bit of your time may give you the potential to double your retirement money in fifty years. The potential is rewarding and someday you might even manage someone else\’s money.

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Writen By : Hari Wibowo

Tags: annual report, portfolio, stock