The Proficient Investor

I think I am one of the few investors out here that agrees with Cody Willard over at RealMoney.com.

Microsoft is the dark horse in the running with Vista coming out next year. I think what the general public and other investors don’t realize is institutions and corporations have been ramping up in advance of the release for Vista. Just read the article about IBM rolling out software to make the transition for IT departments seamless. Enterprises have also had an early look at the release of Vista so they can tune their equipment properly which is huge.

I think the MSFT haters just don’t like the idea of Microsoft finally doing something cool. It’s all so much about Apple these days that Microsoft is getting overlooked here. I also agree with Willard that most people are probably judging by past performance at launch. Why is Apple always applauded and Microsoft always hated when new software comes out? Apple is just better at squashing the bad news by burying it deep in their message boards and not letting it out to the public, but I guess that’s easy when you own not only the software, but also the hardware it runs on.

It also reinforces the contrarian investor in me to love hated stocks because the haters are usually wrong.

Doug French over at BloggingStocks.com commented on a story in the New York Times about Wal Mart. With their inabilty to cater it’s designer women’s clothes to their demographic and the addition of Plasma Screen TV’s and other “high end” electronic equipment, French believes this could be a chance for investors to load up on weakness in the stock.

In late October, Wal Mart hit a 52 week high of $52.15 and subsequently took a nose-dive to 46.50. Was the selloff just profit taking or is there something deeper that should be considered?

The real problem with Wal Mart isn’t their offering of high-end electronics and designer clothing. It’s how they treat their employees. Jim Cramer talked about this a few days ago on his Real Money Radio Show. He made a good point. When you are shopping for a $5000.00 television, who are you going to want taking care of you? Some kid who is barely making $10 an hour in the electronics section of Wal Mart or a specialist in a store like Best Buy or Circuit City where they are trained specifically to handle high end merchandise and know the ins and outs of those products. I’ll take the latter, thank you.

The second thing wrong with Wal Mart is their growth. At only 11% growth, the stock is still overvalued here. With the decline in same store sales over the last few months, and December predicting to be flat the stock has nowhere to go but down. I don’t see an upside for several months here. If you do want to buy it on weakness you have a while to wait. Should the holiday season turn out the way they are predicting, I don’t think you buy until it comes down much further, say around $40.00

Wal Mart is too aggressive in price cutting to the point they have nearly put their suppliers out of business.

If you want best of breed retail, buy SHLD here. Sears Holdings trades at only 20 times earnings, yet it has 22% growth. In my book that puts the stock at a buy with a target of $280.00

Wal Mart looks cheap at only $45 but not when you compare it to SHLD. Sears will hit $200 before Wal Mart is back to $60.

Thumbs down on Wal Mart, Two thumbs way up on Sears.

I hate to brag, but when I love it when I’m right.

I mentioned RMKR to you, dear readers at $6 saying it was undervalued and ripe for the picking. Sidoti & Co. LLC came out today and set a $10 target which is easy to figure out. By my calculations actually it’s $10.50.

Here is the magic formula.

Next years earnings - this years earnings / this years earnings * 100 = % of growth.

Now take that growth % and multiply by 2 which is what institutional investors are willing to pay. This gives you what the current P/E ratio should be. Now go back to the summary of the stock. Compare the P/E. If the current P/E is even or below, then the stock is likely a buy in which case you want to go to the fundamentals and management and make sure you like what you see.

Next take that P/E you calculated and multiply by the current EPS (earnings per share) which gives you the price target the stock should be and hence where you should or could sell it at if you buy.

Pretty simple huh?

It’s not too late to get in this stock which could hit that $10 target by year’s end. I try not to look for trades that short but there it is.

The market is throwing a sale on AMD today, currently down .56 to $21.40. Some of this could be profit taking but so what? The underlying stock is good. At 13% growth and trading at only 20 times earnings there is still an upside here of about $6. That’s good for a trade. Should this quarter turn out better than expected, then I think you have a $30 stock on your hands.

Bottom line, back up the truck.

Wal Mart announced today they are going to test offering downloads of movies at 3 different prices. There’s a catch though. If you buy the DVD of “Superman Returns” you get a code redeemable for a download. The download is in 3 different prices. Quoted from the Yahoo article:

The world’s largest retailer said Tuesday that shoppers have the choice of paying $1.97 to download the movie to a portable device, such as Apple’s iPod or Microsoft’s Zune, or paying $2.97 to download it to a laptop or desktop computer. For $3.97, customers can download the movie for both formats.

This is pointless. If I already own the dvd, why would I pay any more money just to have a digital version of the movie for a portable device. You can already download movies and tv shows from iTunes. This is just further proof that Wal Mart is off the mark here. Now, if they offered the download for free then they might be on to something but I guess that’s just wishful thinking.

At least you aren’t buying the stock right?

From A.P:

VEVEY, Switzerland - Nestle SA, the world’s largest foodmaker, may buy baby-food company Gerber Products from Swiss drugmaker Novartis AG for as much as $5 billion, according to a published report.

Novartis is already in negotiations to sell Nestle a medical-nutrition business and Nestle executives are interested in trying to make the acquisition of Gerber Products Co. part of the same deal, according to the Wall Street Journal, which cited people familiar with the matter.

Novartis spokesman John Gilardi said the company had no comment about the “market speculation.” But he said the company has “received numerous offers” for Gerber and has said in the past it wants to focus on its medicines business and that Gerber is not part of this core business.

Nestle spokesman Francois Perroud said the Swiss food company “does not comment on rumors.”

Gerber, based in Fremont, Mich., makes a variety of foods and juices as well as other products for babies and toddlers. It also has a life-insurance unit.

Also Wednesday, Nestle agreed to buy Australia’s Green’s Foods Ltd. for 137 million Australian dollars ($106.8 million) to gain market share in Australia.

The Nestle Purina Petcare unit will pay 90 Australian cents (70 U.S. cents) a share, a 23 percent premium to Green’s closing stock price Nov. 13, the last full day before the company commented on media speculation.

Green’s, which owns the Supercoat brand, will first sell its consumer foods business and its holding in Bestcare to a unit of Guinness Peat Group PLC and CVC Capital Partners in a transaction worth about 42 million Australian dollars ($32.8 million), the company said in a statement.

Nestle shares dipped 0.5 percent to 425.25 Swiss francs ($352.58) in Zurich.

December is shaping up to be possibly dismal in the market. Oil is rising again, the housing market is slowing, the gains we saw so much in November are declining, so what’s an investor to do?

If you are looking to cash in on the holiday season, especially Christmas there are a few tried and true names you can bank on.

SHLD - Sears Holdings is going to 200, now is your chance to get in. Eddie Lampert knows what he is doing here. He’s got a cash positive company and is investing in the right places. You get a pullback on SHLD this week and it’s a winner.

ERTS - Electronic Arts is always a good bet during the holiday season because they make not only the best sports games, but they also have the best racing games this side of the pond. There’s also their online gaming venture called Pogo which is driven completely by advertising and is hugely popular because they give away cash jackpots.

UPS - United Parcel Service is good here even after the run up, especially since it’s pulled back. With so many consumers shopping online, the stuff has to get shipped somehow and UPS is number one when it comes to holiday shipping. Just look at the number of brown trucks up and down your streets each day.

PG - Proctor & Gamble is the best defensive play in a down market like this. PG makes everyday products that everyone needs to use. This is a solid performer that doesn’t fluctuate much but does pay a nice 31 cent dividend so you can’t go wrong there.

That should give you a few ideas and sectors to look into. It’s not a huge list but then again if you are trading more than 5-10 stocks you may as well be a mutual fund.

I agree with Jim Cramer here about Trump (TRMP).

Regardless of the New Jersey shutdown I think the downside to TRMP is limited to maybe a dollar and the upside is easily 4-5 dollars up to $26. In the last two months TRMP has gained 4 points, another 4-5 should be a piece of cake. Buy it on the dip here in the selloff at $20.

Microsoft would love for the Zune media player to be the iPod killer. Unfortunately, teenagers don’t want it. It’s not as “cool” as an iPod. I could care less what teens or even worse, “tweens” think. Tweens are those kids aged 9-12 that make up a large part of the demographic devices like iPods go to.

Tweens are setting the new trends and they get younger every year. 10 they say, is the new teen.

I say hooey. Who cares? Tweens don’t have money. Ipods may be the coolest mp3 players around but when you get down to it, its just a gimmick. Apple will always have the crowd when it comes to the popularity contest. Apple represents the underdog even though it’s market share is insane, and the stock price reflects that. The original “Think different” campaign was not only a stab at the vast majority of PCs out there but was also posing the idea to challenge your thinking, to not be one of the masses. Alas now, they are the masses.

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Call it post-turkey blues, call it market weakness, call it what you like, it’s still a selloff.

So what? Does that mean you cut and run because the price of your stocks is going down? Not at all. You will never come out ahead if you panic.

Most stocks are down. Ford is down, AMD is down, WAG is down, AMTD is down. So where can you like in these kinds of markets? Small and Micro caps. RMKR which I have mentioned here repeatedly is up .07 today. Had you bought it at 6 like I said you would be well in the money. So we get a correction after having a phenomenal november. I mentioned AMD at $20 was a buy a month ago. It’s up almost 2 points. I still like AMD even here. This is a $30 stock and INTC has got nothing on AMD. The new pentium core duo is out, so what. In 6 months you are going to hear some amazing news from AMD regarding it’s motherboard line and graphic processing power, trust me.

I like ZQK here. It’s up 2 in the last two months on low volume. It trades at 24 times next years earnings and should be a $23 stock according to my numbers here. $20 if you want to be conservative. On a pullback like today you have 1 or 2 points down and 6 points up.

Most retailers are going to be good here, Apple I think has had too much of a run up to have much of an upside here. Jim Cramer thinks AAPL hits $100. I think it could but you are in for a wait, probably 4-5 months. Ipods are still “coolest” among teens but I think the ipod is already in the price of the stock. January is typically the best month for apple as it unveils it’s new technology for the coming year at MacWorld. So yeah you could get in here at $90 and probably be good for a few points.

So I think your winning strategy here is to find small cap stocks with growth potential. Remember to look at next years earnings estimates versus where the stock is trading currently. Also if the fundamentals are good, and the stock is down and nothing else has changed, you are looking at profit taking and a chance to get in.