Universal Travel Group (UTVG) To Present at China Investment Forum in NYC

It has been a wild week for Universal Travel Group. It reached a new 52-week high of $3.60 a share, and has since settled down to around $2.25 a share, which is still 30% higher than it was on April 1, 2007. This appears to be the new bottom as the stock has hovered around this price the past two days with the bid ask spread between $2.23 and $2.30. At the current price it appears this stock can still be had a good price given its current growth and the fact the company is currently valued at 2006 EPS of $.08 per share. This was stated in an earlier post, but it is worth stating again; the company is forecasting earnings per share of $.19 in 2007, which at the current multiple of 28 this stock would be valued at $5.32, which is approximately a 136% increase. The company just completed its Speedy Dragon air cargo acquisition, which if you read the 8-K and financials including proforma financials for 2006 this company would have added an additional $898,674 in net income or approx. $.03 cents per share. Just that additional $.03 cents per share represents the potential for a 37% increase in share price if the company was revalued at the current multiple based on the 2006 EPS of $.08 cents plus the $03 cents from the acquisition.

This brings us to the latest positive news. The company is presenting at the China Investment Forum in NYC on April 24 at 11 a.m. This forum will be attended by portfolio managers and analysts. The company will present their business strategy and outlook, which for those of you that have read the 10-K and performed research on the company already know appears to be very bright. The reason this is important is two fold: (1) - it has the potential to increase the investment communities awareness of the company to the point that it translates into portfolio managers taking large long positions on the company, which undoubtedly would push the stock higher in the near term, and (2) - it should also create positive buzz about the company that will generate interest of main street investors, which if translates into further interested buying will push the stock higher.

This brings us to the risks and decisions that all current and near term future shareholders will face. There will no doubt be profit taking with another run up in the stock, which is hard to pass up, but it only makes sense if you think the stock will climb and then fall again much like this week. This would allow you to either take some cash off the table or invest your gains back into the stock at a lower price and increase your holdings and magnify your long-term gains. However, the risk exist that the stock will not fall back down to very attractive levels between $2.25 and $2.35 a share, and you will have limited your upside if the stock keeps climbing. Long-term this company will be a winner, because they have sound fundamentals and operate in a very high growth market, which has the 2008 Olympics and World Fair on the horizon, which should add significantly to earnings.

The company's presentation at the forum can be viewed over the web. The link below will take you the site broadcasting the webcast:

Listen to Webcast

Investor Village - UTVG Message Board

Official Press Release



Reminder: We are in no way recommending the purchase or sale of these stocks. This article is intended for education purposes only. Trading should be based on your own understanding of market conditions, price patterns and risk; our information is designed to contribute to your understanding.

Best Buy Inc. (BBY)

On Friday April 13, 2007 Best Buy, Inc. (BBY) was upgraded by Standard and Poors from four stars (buy) to five stars (STRONG BUY). They have placed a 12-month price target on the stock of $63. The stock closed on Thursday April 12, 2007 at $46.86. What caught our attention about the upgrade was that Standard and Poors upgraded Best Buy based on the current undervaluation of the company, which they have stated is approx. 31%. When you read the Standard and Poors report and the latest 10-Q you begin to see strengths in this company that its competitors do not have. The following are highlights from the Standard and Poors report:

Investment Rationale
“We continue to have confidence in Best Buy’s ability to execute on its growth strategy. In addition to capitalizing on the strength of the current consumer electronics product cycle, we believe BBY is positioned to grow its market share through initiatives such as the Best Buy for Business, Geek Squad, and Magnolia store within-a-store offerings. Combined with BBY’s customer focus, we think these initiatives will enable BBY to continue to differentiate itself in a competitive marketplace. Trading at under 15x out FY-08 estimate, a modest discount to historical averages and peers, the shares are extremely attractive, in our view.”

“Risks to our recommendation and target price include a sharp decline in the economic climate and consumer confidence, and the risk that BBY will be unable to successfully execute its strategic objectives and meet market expectations for sales growth and profitability.”

Business Summary
… “Some 40% of Best Buy stores have been converted or opened with the customer-centric operating model, and BBY is committed to scaling BBY customer-centricity across the organization…”

… “We believe BBY has about five years of organic growth potential from its core business.”

“In FY 96 BBY’s operating margin was 1.3%, trailing the Computer and Electronics Retail Sub-industry average margin of 3.9%. In FY 06, BBY generated operating margins of 5.3%, above the sub-industry average margin of 4.7%. As a basis for further comparison, Circuit City…,BBY’s closet peer, generated an operating margin of 4.4% in FY 96, declining to 1.2% in FY 06.”

“BBY is targeting an operating margin of 7% in FY 08, a goal that we consider achievable.”

“EPS grew at a five-year CAGR of 22.1% from FY 01 FY 06…We expect BBY to generate EPS growth of 10% to 15% over the next five years.”

“For the five years ended FY 06, BBY posted a five-year CAGR in sales of 15.2%, surpassing the Computer and Electronics Retail Sub-industry average CAGR of 9.2%.

“BBY’s FY 06 return on invested capital (ROIC) was 18.7%, well above the ROIC for the Computer and Electronics Retail Sub-industry (16.7%) and the Consumer Discretionary Sector (5.3%). Driving BBY’s better relative performance were superior gross margins, a reduction in the cost of new store openings, and improved sales productivity at new stores. Going forward, we expect BBY to continue to generate ROICs that above the sub-industry and sector averages.”

Sub-Industry Outlook
“We think a healthy consumer electronics cycle, including hot products such as advanced TVs, MP3 players, and digital imaging products, will fuel sales growth in 2007. With our expectations for continued declines in average selling prices for advanced televisions, we think these products are becoming more affordable to average consumers.”

“At this point in the cycle, we see declines in average selling prices, which we think are hurting manufactures, but is helping drive demand and benefiting retail sales.”

At Smart Trades we looked at historical PE Ratios for the past 10-years and noted the following:

10-Year Average High PE Ratio 28.5
10-Year Average Low PE Ratio 11.4

The Company is currently trading at about 16.6x earnings (TTM).

Standard and Poors is projecting the following EPS numbers for 2007 and 2008:

2007 EPS Estimate $2.79

Current PE Ratio of 16.6 equals price of $46.13
10-Year Low PE Ratio equals price of $31.80
10-Year High PE Ratio equals price of $79.51
Standard and Poors PE Projection of 20 equals price of $55.80

2008 EPS Estimate $3.17

Current PE Ratio of 16.6 equals price of $52.62
10-Year Low PE Ratio equals price of $36.13
10-Year High PE Ratio equals price of $90.34
Standard and Poors PE Projection of 20 equals price of $63.40


Information on the Best Buy Customer Centricity Operating Model

Article Highlights
Centricity is also yielding financial results. The 67 segmented stores converted last year outperformed the rest of the chain, producing comp-store gains during the fourth quarter of 8.4% compared to 2.3% at other stores. And, gross profit rate was higher due to a more profitable merchandise mix, according to Anderson.

Customer Centricity - Best Buy Article

Another BBY Centricity Article

Letter to Shareholders

After studying the information in the most current 10-Q along with reading the Standard and Poors report it appears that Best Buy is currently trading at very attractive prices, when consideration is given for its financial results, which outperform every competitor, and its future growth prospects. When you read about the customer-centric operating model it appears this will yield solid returns for Best Buy.

Disclosures:
- Currently do not own shares of Best Buy
- No other relationship with the company.

Current Sentiment
Based the current research there appears to be a very strong case for rating Best Buy as a Strong Buy. We do think there are risks associated with the stock such as declines consumer confidence, especially if a prolonged downturn in the housing market leaves consumers feeling less affluent. From 2000 to 2006 the housing marked boomed and consumer confidence was very high as homeowners had access to equity for home improvements, such as high end entertainment systems. Although this risk is obviously present, it appears somewhat mitigated by the fact that Best Buy is the market leader in this segment, and should continue to see high future growth as it continues to migrate into higher end products. (Its 2007 acquisition of Pacific Sales in California was continued movement into the high end.) – The company’s most recent 10-Q details this acquisition.

Reminder: We are in no way recommending the purchase or sale of these stocks. This article is intended for education purposes only. Trading should be based on your own understanding of market conditions, price patterns and risk; our information is designed to contribute to your understanding.

Universal Travel Group (UTVG.OB) - UPDATE

On April 1, 2007 Smarttrades did a report on Universal Travel Group, and its future prospects. We feel the company has huge potential and operates in a high growth sector...Chinese Domestic Travel, and with the 2008 Olympics and the World Fair coming up domestic travel in China should continue to increase. The company will be releasing Q1-07 earnings later this month, and it is expected to be positive, and if the market responds as you would expect then the company's stock should continue to climb. The stock was up nearly 16% today closing at $2.05 up from a $1.74 when Smarttrades first covered the company.

There are obviously risk factors associated with this stock as it trades for less than $5.00 and has far less liquidity than other stocks, however, as previously reported the company is in the black and expects $.19 cents per share earnings in 2007 up from $.08 cents per share in 2006.

See original in-depth analysis here...UTVG Original Analysis

We welcome all reader comments and hope that everybody can learn from each other. Please post your comments to this update.

Cambrex Issues $14 Special Cash Dividend

The Associated Press is reporting the following:

Friday April 6, 12:14 pm ET
Cambrex Issues $14 Special Cash Dividend to Shareholders, Discontinues Quarterly Dividends

EAST RUTHERFORD, N.J. (AP) -- Cambrex Corp., which makes products and services used by life sciences companies, said Friday its board of directors approved a one-time special cash dividend of $14 per share to shareholders.

Cambrex will finance the dividend -- worth $400 million -- with a $300 million cash payment from proceeds of the sale of its bioproducts and biopharma business units and $100 million in borrowings. Cambrex said it entered into a new five-year $200 million credit facility on Friday with commercial bank group JP Morgan Chase Bank.

The dividend is payable May 3 to shareholders on record as of April 20.
Separately, the company's board said it will no longer issue quarterly dividend payments. Cambrex will now allocate cash to support its growth plans. The company last paid a regular quarterly dividend of 3 cents per share on Feb. 16.

Cambrex Yahoo Quote

Mr. Buffett Courts Railways

Warren Buffett is up to his old tricks again. This time he is eyeing railroads. Many wonder why would you want to invest in such an antiquated industry. Their is nothing sexy about owning railroads, when you can own the likes of Google, Yahoo, Ebay, and many other high flying tech companies. However, their is something very attractive about owning railroads that Mr. Buffett I am sure is very aware of. It is called high barriers to entry. The odds of you, me, or anybody else creating a start up railway company is Nil. Other factors according the Financial Times,

..."include...solid demand, that has done wonders for pricing, allowing the sector to earn its cost of capital and more for a change. It is far from clear, however, how long that trend can continue. Railroads already carry more than 40 per cent of US freight, well above their post-war trough and a far higher share than in other developed countries Trains are well-suited to carry bulky goods over long distances. At least in the US, that has made them a prime beneficiary of globalisation. They are also more energy-efficient than trucks. That increases their appeal when oil prices are high and should translate into further market share gains once US policymakers get more serious about climate change."

Do we dare doubt the Oracle of Omaha? His history of making contrarian investments pay off in huge returns is unmatched.

For those of you looking to diversify your holdings into other sectors you may want to do some research on this sector. Keep in mind that Mr. Buffett's strategy is long-term. Your real return would probably be produced over a 10-year period, but it may prove to be one huge return.

Yahoo Industry Research - Railroads

Entering Earnings Season

The first quarter of 2007 has closed which means only one thing...Its Earnings Season. The auditors are or will be performing the SAS 100 reviews and companies will be gearing up to release first quarter numbers. That also means Mr. Market may turn to his old manic ways of over reacting to both good and bad news, which means for those of us who don't let Mr. Market dictate our decisions we may just be able to profit from his manic behavior. The website TradingMarkets.com has detailed 7 stocks you need to know for Wednesday:

Alcoa (NYSE:AA - News) beat earnings on Tuesday afternoon with $0.79 EPS over an expected $0.77 EPS. AA's PowerRating is 5.

Acergy (NasdaqGS:ACGY - News) announces earnings Wednesday before the open; watch for $0.33 EPS. ACGY's PowerRating is 5.

When Jos. A. Bank (NasdaqGS:JOSB - News) reports quarterly earnings before the bell Wednesday, look for $1.25 EPS. JOSB's PowerRating is 6.

Analysts are watching for Progressive (NYSE:PGR - News) to announce $0.46 EPS before the open on Wednesday. PGR's PowerRating is 4.

Genentech (NYSE:DNA - News), Research In Motion (NasdaqGS:RIMM - News) and Ruby

Tuesday (NYSE:RI - News) all announce earnings after the bell on Wednesday; watch for heightened price action and volume ahead of the close. DNA's PowerRating is 6, RIMM's PowerRating is 4 and RI's PowerRating is 7.

TradingMarkets has also identified the following trading ideas for today:

Bullish
5+ Consecutive Down Days: These are stocks that have closed down for five or more consecutive days and are trading above their 200-day moving average. Our research shows that stocks trading above their 200-day moving average that close down for five or more days have shown positive returns, on average, 1-day, 2-days and 1-week later. Historically, these stocks have provided traders with a significant edge.

LSI Logic (NYSE:LSI - News). LSI's PowerRating is 7.

Vanda Pharmaceuticals (NasdaqGM:VNDA - News). VNDA's PowerRating is 8.

2-Period RSI Below 2: These are stocks that have a 2-period RSI reading below 2 and are trading above their 200-day moving average. Our research shows that stocks trading above their 200-day moving with a 2-period RSI reading below 2 have shown positive returns, on average, 1-day, 2-days and 1-week later. Historically, these stocks have provided traders with a significant edge.

United Industrial (NYSE:UIC - News) & Life Time Fitness (NYSE:LTM - News). UIC's PowerRating is 7, and LTM's PowerRating is 6.

Stocks Down 10% or More: These are stocks that have lost 10% or more over the past five days and are trading above their 200-day moving average. Our research shows that stocks trading above their 200-day moving average that have lost 10% or more over the past five days have shown positive returns, on average, 1-day, 2-days and 1-week later. Historically, these stocks have provided traders with a significant edge.

Radvision (NasdaqGS:RVSN - News). RVSN's PowerRating is 7.

Bearish
5+ Consecutive Up Days: These are stocks that have closed up for five or more consecutive days and are trading below their 200-day moving average. Our research shows that stocks trading below their 200-day moving average that close up for five or more days have shown negative returns, on average, 1-week later. Historically, these stocks have provided traders with a significant edge. Historically, these stocks have provided traders with a significant edge.

Pfizer (NYSE:PFE - News). PFE's PowerRating is 4.

2-Period RSI Above 98: These are stocks that have a 2-period RSI reading above 98 and are trading below their 200-day moving average. Our research shows that stocks trading below their 200-day moving with a 2-period RSI reading above 98 have shown negative returns, on average, 1-day and 1-week later. Historically, these stocks have provided traders with a significant edge.

Molina Healthcare (NYSE:MOH - News). MOH's PowerRating is 3.


At SmartTrades we are still bullish on Mama.Com (Mama), and Universal Travel Group (UTVG.OB). With positive results expected an investor should be able to expect nice appreciation in the stock value...barring some unforseen Mr. Market manic attack.




Reminder: We are in no way recommending the purchase or sale of these stocks. This article is intended for education purposes only. Trading should be based on your own understanding of market conditions, price patterns and risk; our information is designed to contribute to your understanding.

Universal Travel Group (UTVG.OB)

The Chinese travel industry is on fire, and with the Olympics in 2008 and the World Fair in 2010…the time to scour the markets for smart trades is now. Dominica Today has reported… “Chinese domestic tourism is boosting, and is the largest of its kind in the world. The number of domestic tourists in China reached 1.1 billion in 2004, generating a total income of 471.1 billion Yuan (US$58.3 billion), rising 27 percent and 37 percent year on year.”

It is with that in mind that by serendipitous circumstances I stumbled upon Universal Travel Group (UTVG.OB). The company is positioned to capitalize on the exploding Chinese travel industry. Currently, UTVG books about 429,000 domestic airline flights along with tens of thousands of hotel rooms and leisure tours each year through its eight company-owned reservation office locations, 78 franchised locations and high volume call center facility.

The company reported gross revenues of $10,013,788 in 2006; up from $2,761,703 in 2005 (263% increase). Net income rose from $1,377,484 in 2005 to $2,558,478 in 2006 (100% increase). Net income as a percentage of sales declined from 52.6% of revenue in 2005 to 47.2% of revenue in 2006. Absent a non-cash charge for stock option expense of $950,040 the company’s net income would have been $3.5 million or $.11 cents per share versus $.08 cents for the year ended December 31, 2006.

UTVG currently has no long-term debt and requires minimal capital expenditures to remain competitive, thus dropping more dollars to the bottom line. The company also generated cash of $1.4 million from operations.

2007 Company Projections

The company’s 2007 projections are impressive and should the company meet these projections you could be looking at a potential 138% return over the next year. Here is how this breaks down:

Current Stock Price (3-30-07) $1.74
2006 EPS $ .08
PE Ratio (TTM) 21

2007 Net Income Projection $6.56 million
EPS Expectation $ .19

If the company began selling at expected earnings based on the current multiple it would be $4.13 per share…a 138% increase from the current price.

Whether the company will meet these targets remain to be seen, but the company is operating in a very high growth market where such returns are very possible.

Related Links:

Press Release - 2007 Earnings

Yahoo Finance - UTVG

Countrywide Financial Corporation CFC:NYSE

The sub-prime mortgage disasters continue to be exposed for being high stakes high flying gamblers on folks with poor credit. The mess is further complicated by high priced areas such as California causing a priced-out panic over the past three to four years. This priced-out panic caused a huge rush of unqualified and uneducated would be buyers to run down to their local mortgage shop hoping to qualify and get in before it was too late. I can attest first hand about this panic. I lived in Orange County, California from 2001 to 2005, and believe me when I say the only word to describe it is “Hysteria.” You had Realtors feeding the frenzy with their talk of a real estate market that had no limits to how high it could go, and more than friendly mortgage brokers ready to hand you an exotic mortgage with exotic terms that on the surface appeared to be a God-Send, but was the devil in sheep’s clothing. These exotic mortgages such as the interest-only and negative amortization loans have been a huge disservice to folks who did not understand they were literally entering into a trap that eventually would engulf them in misery.

Now that the mess of the past five years is coming undone and many companies are being led to the slaughter such as New Century and Accredited Home Lenders this may be the perfect time to scour the sector for companies with strong operating histories and balance sheets that can weather the storms of this cyclical industry.

This brings us to Countrywide Financial. The company has been operating since 1959 and has weathered every housing downturn since that time. While history is no exact predictor of the future there appears to be the real possibility that Countrywide may be oversold and undervalued in respect to the strength the company possesses and its ability to emerge from this chaotic mess stronger with fewer competitors as the high flyers started over the past five years fade away into financial oblivion.

The company is defiantly exposed to sub-prime losses, however, its exposure should be limited as its entire loan portfolio is not sub-prime and mortgage originations represent just 47% of the 2006 pre-tax earnings. The company has and is currently diversifying its business in order to avoid earnings gyrations caused by the cyclical housing market.

The company’s five operating segments are: Mortgage Banking, 47% of pretax earnings in 2006 (59% of pretax earnings in 2005), Banking, 32% (25%), Capital Markets, 13% (11%), Insurance, 7% (4%) and Global Operations, 1% (1%). In 2007, the company will likely continue to focus on diversification in an attempt to leverage its core Mortgage Banking business and provide earnings that are less cyclical.

The Standard and Poors is expecting EPS growth of 10% over the next five years. This is obviously not spectacular, but if the company is currently undervalued it could present a real opportunity to achieve an above average return. S&P has also determined the fair value of the company is $35.50. Most companies trade well above this fair value calculation.

As of the close of the trading on Friday, March 23, 2007 the company was trading around 8.6 times earnings (TTM). Current year (fiscal 2007) earnings estimates are $4.22 a share, which currently puts the stock at 8.7 times earnings. Earnings estimates for fiscal year 2008 are projected at 4.87, which puts the stock at a 7.56 times 2008 earnings. The following are PE histories for Countrywide:

Average 10-Year High PE Ratio 12.1
Average 10-Year Low PE Ratio 7.0

Average 5-year High PE Ratio 9.2
Average 5-year Low PE Ratio 5.8

The company’s major competitors are trading at higher PE Ratios such as Bank of America (BAC) at 11.25 earnings, Washington Mutual (WM) at 11.60 and Wells Fargo (WFC) at 14.06. The industry is trading at 10.41 earnings. These are all for the trailing twelve months. These competitors are more diversified financial institutions and may explain why they are trading at higher PE ratios; however, it appears that Countrywide is trading at a discount to its strength and historical PE ratio. If the company were to trade at just 10-times 2008 projected earnings the stock would be priced at $48.70, which would represent a 32% return over the next 12 to 24 months, and that would not include the dividend yield of 1.60% at current share prices.

Now all this talk about the company trading at 10 times 2008 earnings is great, but it means relatively little if the company incurs more than expected loan losses due to its exposure to non-prime mortgage loans. A review of the Company’s most recent 10-k shows that non-prime loan production represented the following as part of total loan production:

2006 8.67% of total loan production or approx. $40.5 million
2005 8.94% of total loan production or approx. $44.6 million
2004 10.85% of total loan production or approx. $39.4 million
2003 4.56% of total loan production or approx. $19.8 million
2002 3.74% of total loan production or approx. $9.4 million


For the past five years total non-prime loans originated equals $153.7 million. The company is also servicing approx. $116.2 million in non-prime mortgage loans, which are currently 19% delinquent with 3.53% of these loans pending foreclosure. As of 12-31-06 the company had common shares outstanding of 585,466,719 with basic earnings per share of $4.42 and diluted of $4.30. So if all of these non-prime loans were to be written off it would only amount to approx. $.46 per share. It is obviously unlikely that all of these non-prime loans would go bad. Sandy Samuels, an executive officer of Countrywide, recently said to the Senate Banking Committee said foreclosure rates on their non-prime loans could reach or exceed 10%. He did emphasize that 90% of the company’s non-prime borrowers will not loose their home. So if we were to establish a range of 10% to 20% it means the EPS hit could be $.05 per share to $.10 per share.

The company also has non-prime exposure in its recourse securitizations. At December 31, 2006 this exposure amounted approx. $401.5 million. Credit losses in 2006 related to these securitizations amounted to $94.8 million.

The following positives with the unpaid principles balances were noted: (1) – 70% of the unpaid principle balances at 12-31-06 had FICO scores above 700 and (2) – 44% of the unpaid principle balances had original loan-to-value ratios (LTV) of 80% or less.


Click to Enlarge






The company has a lower PE and PEG ratio than its industry.

Related Links

Loan Losses May Be Worst

CFC Not Getting Proper Credit

_____________________________________________

Apollo Investment Corp AINV:NASDAQ

Apollo Investment Corp is similar to American Capital Strategies Ltd (ACAS) that was covered in a prior published post on this website. The Company was founded in 2004 and has a limited operating history. The Company operates much the same way as American Capital Strategies in the sense that they both invest in middle market companies and they fund this investment primarily through debt and stock offerings. Apollo is also a closed-end, non-diversified management investment company that has filed an election to be treated a business development company (BDC) under the Investment Act of 1940. This requires the company to pay out at least 90% of its taxable income in any given year to retain the favorable tax status associated with being a (BDC). As mentioned in an earlier post this is much like the hot to trot Real Estate Investment Trusts of the past 3 to 5 years.

Those investors seeking long-term appreciation with an above average dividend yield should consider both Apollo Investment and American Capital Strategies. At SmartTrades we favor American Capital Strategies over Apollo, however, Apollo has a very attractive dividend yield that for those seeking income should seriously consider.

Company Background

Apollo Investment Corporation (Apollo Investment) is a closed-end, non-diversified management investment company that has filed an election to be treated as a business development company (BDC) under the Investment Company Act of 1940 (the 1940 Act). The Company's investment objective is to generate both current income and capital appreciation through debt and equity investments. It intends to invest primarily in middle-market companies in the form of mezzanine and senior secured loans, as well as by making direct equity investments in such companies. During fiscal year ended March 31, 2006 (fiscal 2006), Apollo Investment invested $1.1 billion across 26 new and 10 existing portfolio companies. Investments sold or prepaid, during fiscal 2006, totaled $452.3 million.

Company Fundamentals

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Standard and Poors is currently rating the stock as a "hold" with a 12-month price target of $23. At current prices this does not leave much room for capital appreciation. The company currently has a forward PE ratio of 11.40 and a PEG ratio of 1.05. This is similar to ACAS which has a forward PE Ratio of 11.40 and a PEG Ratio 1.44. For those seeking a high dividend return both companies have attractive dividend yields between 8% to 10%.


Disclosure
* - Currently do not own shares of Apollo
* - No other relationships with the company

Sentiment
HOLD

Related Links

Apollo Downgraded

Apollo Going to $21

Apollo Offering Growth and Income

Questions
What do participants in this forum think of Apollo? Bullish? Bearish?
Do you like American Capital Strategies more than Apollo?
Any other thoughts on Apollo that would be useful for participants of this forum?

Eagle Materials Inc EXP:NYSE

There has been several sectors and companies that have been literally beaten up by the continuous negative reports that are released regarding the present state of the housing market. These companies range from the sub-prime lenders such as New Century Financial to Home Depot. In the case of New Century it appears there is more than just bad news affecting this stock, but in the case of Home Depot it is primarily related to investor’s lack of confidence in the current housing market. Another embattled company that has very strong fundamentals and the potential for strong long-term PE growth is Eagle Materials, Inc. While a quick short-term profit appears unlikely; in the long-term this company’s fundamentals and history suggest it will prove to be a real long-term winner.


Company Background

Eagle Materials Inc. (EXP) is primarily a holding company. Through its subsidiaries, the Company is engaged in the manufacture of basic building materials, including gypsum wallboard, cement, gypsum and non-gypsum paperboard, and concrete and aggregates. It operates in four business segments: Gypsum Wallboard, Cement, Recycled Paperboard, and Concrete and Aggregates. These operations are conducted in the United States, and include the mining of gypsum, and the manufacture and sale of gypsum wallboard; the mining of limestone, and the manufacture, production, distribution and sale of Portland cement; the manufacture and sale of recycled paperboard to the gypsum wallboard industry and other paperboard converters, and the sale of readymix concrete, and the mining and sale of aggregates (crushed stone, sand and gravel). These products are used primarily in commercial and residential construction, public construction projects, and projects to build, expand and repair roads and highways.

Notes about the Company

The company is currently trading around an 11 PE Ratio based on current year estimates of earnings, while the industry average PE ratio is 18, and S&P 500 is 17.

This information would suggest the stock is artificially depressed; however, it is good to keep in mind that the any construction related stock may or may not be artificially depressed, however, Eagle Materials appears to have an above average financial strength, which when the market begins to revalue the company based on fundamentals the stock price should begin to appreciate. See company fundamentals below:

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It can be seen from the above financial ratios that the company is outperforming its industry and the S&P 500 in most categories. This appears to be a very strong indicator that the company in the long-term will provide a very a good return on investment. Once the housing and mortgage woes have subsided the market will begin to search for the strong performers within this sector and it appears that Eagle Materials may have the characteristics the market will seek after.

The company also has a PEG ratio well below 1 at .38, and a current dividend yield of 1.60%.

Disclosures
* - Currently do not own EXP
* - No other relationship with EXP

For those participating in this forum; what are your thoughts on this company? Do you think it will prove to be a good long-term investment? Please share your comments. I am just in the beginning stages of researching this company, but it appears it may be a superb long-term investment (hold at least 24 months).

Current Sentiment = Buy

Related Links

http://eaglematerials.com/

http://finance.yahoo.com/q?s=exp

American Cap Strat Ltd ACAS:NASDAQ

American Capital is within the Misc. Finance Sector and manages a portfolio of middle market companies. American Capital Strategies, Ltd. is the largest business development company (“BDC”) and is the second largest U.S. publicly traded alternative asset manager. The company is regulated as a BDC under the Investment Company Act of 1941, which means the company is required to pay out 90% of its taxable income each year to retain this favorable tax status. This is much like a Real Estate Investment Trust (REIT), which is also required to pay out 90% of its taxable income. For an investor seeking a high yielding dividend stock with an above average capital appreciation outlook; this stock may be the perfect fit for your portfolio.


Company Background - CLICK ON IMAGES TO ENLARGE
American Capital Strategies, Ltd. (American Capital), incorporated in 1986, invests in and sponsors management and employee buyouts, invests in private equity-sponsored buyouts, provides capital directly to early stage and mature private and small public companies, invest in commercial mortgage-backed securities (CMBS) and collateralized debt obligation (CDO) securities, and invest in investment funds managed by the Company. American Capital provides senior debt, mezzanine debt and equity to fund growth, acquisitions and recapitalizations. The Company, through its asset management business, is also a manager of debt and equity investments in private companies. American Capital provides capital directly to private and small public companies for growth, acquisitions or recapitalizations.

The above 10 year history shows this stock is trading well below its 5 and 10 year high and low PE Ratio.

10-year PE Ratio - Average High = 22
10-year PE Ratio - Average Low = 13.5


5-year PE Ratio - Average High = 21.6
5-year PE Ratio - Average Low = 12


As of the close of trading on March 16, 2007 the company was trading at 6.70 (PE Ratio) times 2006 earnings, which were $6.55. Average earnings estimates for 2007 are $3.48, which means the stock is trading around 12 times earnings, which is the average low for the past 5 years. All of the company's major competitors are trading at higher PE ratios. Click on the image below.




The Standard & Poors 12-month price target is $57, which gives this stock an approximate PE Ratio of 16. Given this stock's 10 and 5-year PE history it becomes aparent why S&P has rated this stock as a *****5-Star*****.

As a hypothetical...if you buy into this stock at $44 and it climbs to $57 as projected that would be a 30% annual return plus your 8% dividend yield would come to a 38% 12-month return on your investment. If the stock stagnates and remains around $44 for the next 12 months you would still yield an 8% dividend return, which is higher than all of the online high yield savings accounts, which are currently around 5%.

Disclosures
* Bought Shares on March 19, 2007
* No other relationships with company

Current Sentiment
* Buy


Related Links

Yahoo Stock Quote - ACAS

American Capital Corporate Website

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