Warren Buffet - Fool's 10 top things to take away from Warren's letter to Investors

Fool.com has posted an interesting article on the 10 most important parts of Warren's recent Letter to Investors. A good outlook as to the US economy and its many parts by the World's best Investor.

http://www.fool.com/investing/general/2011/02/28/the-10-most-important-parts-of-warren-buffetts-let.aspx?source=ihpsitth0000001

The Sage of Omaha Speaks...!

Warren Buffet has USD 38 Billion ready to be deployed and is looking for a major acquisition. In his words : " Our elephant gun has been loaded, and my trigger finger is itchy."

Read more on the Msian Insider : http://www.themalaysianinsider.com/business/article/warren-buffett-says-on-the-hunt-for-deals/

Follow up on MEGB 3

A summary of MEGB's coverage by Research Houses after the 4Q2010 results.

There are 4 research reports on MEGB's corporate website which can be found here. Also further news reported on the Edge but reproduced here in the Msian Chronicle.

Generally, all positive:

Kenanaga - TP: RM3.73
Alliance Research - TP: RM2.60 (trading buy)
CIMB - TP: RM 4.48
DBS - TP: RM 4.50 (12 months)

Also, it can be seen that there are catalysts for it to go up:

1) Final Dividend to be paid out end of next week.
2) Buyback activites to be sometime in June 2011.
3) General growth in its number of campuses and student population.

Interestingly, the CIMB report states that the transfer of the CEO's shares to his wife was due to - asset planning. This is vague and could be down to tax reasons or could it be he really is going to personally buy more shares of MEGB?

To be honest, it's quite a relief to read all these positive reports and there's something here for me to come back to read to understand why I took the plunge into MEGB in the first place. I was pretty worried. Its much harder to buy on a stock which has been battered and there's still a general fear among people about it!

Well... at it's current prices it's trading at 6.7 time PE for 2011 (forecasted) so I think that's way too cheap.. so I'm Long MEGB!

Full Disclosure: Yes, I do own shares in MEGB.

Keep Calm and Carry on.

Markets are crazy? Nothing better than this WW2 British Propaganda Poster to help you keep calm. If you've got a stop loss strategy, go ahead but if the company you have in your hands is a fundamentally sound company, there's nothing to worry! It will go up in the long run!

So, keep calm and carry on.

MEGB's Q4 2010's Report

Nothing amazing with a slight decrease in the quarter but an overall increase in net profit Year on Year (Y-o-Y) of 4.89%. The reason for this seems to be added expenditure on student related costs, advertisements and staff salary.

Full statement found here on Bursa.

So what do I think, ie: what's good and bad? And well, I'm not very sure of?

Good

1. High Cash Reserves which can be a good sign if used well- Potential for dividends or a Buyback? Cash reserves has increased by RM 91 million along with cashflow. MEGB should be able to withstand a selloff by its foreign investors if it wants to but there is no mention of this concern at all. There is only mention that it may employ its positive cashflow for further expansion plans.

2. Growth is there - Student numbers grew from 17.6k to 18.4k. PTPTN concerns will not affect existing students. Expenditure has gone into new campuses - Five new campuses being constructed around Malaysia with the Bandar Baru Bangi Campus being able to enjoy its full fledged university status and award degrees in medical, nursing and allied-healtcare courses.

3. Dividends - Nothing has been said about dividends not going to be paid out and CIMB's research report seems to be positive on dividends of REIT-like levels - 8%+ at the current price levels. That's like FD interest rates on steroids!

Bad

1. Debt has increased Y-on-Y. Borrowings increased two times from roughly 14 million to 35 million. Interesting, deferred tax liabilities as doubles as well and I am not sure what to make of that.

2. MEGB seems to accept there may be a drop in PTPTN funding for its future students. This is a major concern with 90-95% of its students are funded by them. It will have to look at other ways to fund its students and this explains the aggressive expense in advertisments and marketing. With its high margins, it still has some pricing power and it can pursue overseas students within Asia.

3. Maybe I'm reading too much into the statement but the Outlook doesn't sound that great - "the Directors remain confident of achieving satisfactory performance for the financial year 2011". (page 14 of the statement, emphasis is mine) That's not enough! How about an excellent performance?

Unknown?

1. The CEO transferred shares to his wife recently -12 % of his 22% ownership of MEGB shares. (Personal opinion/speculation) This has caused some concern but my first thought was maybe for tax reasons. One to keep an eye on. Filing can be found here.

2. Foreign funds still have shares to dispose off if they are looking to totally wipe out their holdings of MEGB. This sell-off may cause a further drop in its price.

3. Litigation - There's a few cases against MEGB and this will need an eye on them as well. Currently being a lawyer, I should look further into this!

Going forward, I've increased my stake in MEGB but I will be cautious and have a keen eye on the actual student intake going forward with PTPTN loans possibly being tightened up and perhaps, some 'on the ground' research maybe is in order.

At its current price of 1.80+, I think there's still good upside to it but I may not agree with Target Prices of RM3.00+ so quickly. This is a defensive stock which is oversold. Remember, that at the time of its listing, there was alot of momentum going into Education stocks so its valuations was off at that time.

'Till then I'm slightly bullish on MEGB's propects and it's still an opportunity to dip into IMHO. What do you think?

Disclosure : I recently acquired more shares in MEGB, taking a bigger position on it. As for the contents of my post, please check my disclaimers section above. Please do your own research and come to your own conclusions and/or seek professional advice before making any investment decision.

Quick Comment : Markets down - Time to catch this flight?

A very quick one. AirAsia has been a stock I have been eyeing - Great management, a Business I understand, slightly high debt and I believe it can keep growing. (think LCCT 2 and more routes)

So, yesterday, it dropped 17 cents because of rising oil prices due to the crisis in Libya. Is it time to catch this flight or is there further downside on oil?

I say wait. The middle east unrest story is still unfolding but this is a great time to get ready to pull the trigger on certain purchases.

This is one crisis that may be a great opportunity but the problem is no one can really tell how far it can get. So, for now, I shall wait and see.

Further reads :

http://www.theedgemalaysia.com/business/182084-us-stocks-investors-crowd-wall-st-exits-on-libyan-unrest.html - Seems to indicate a further drop in markets?

http://www.fool.com/investing/general/2011/02/22/staring-trouble-in-the-face.aspx - S&P valuations are at the very least historic averages so be more selective in your picks.

Biotech Stocks - Investing in the Foundation of the Biotech Revolution

A follow up to why Biotech stocks are the next big thing. Now, let's look at what to look at specifically to narrow down our searches - Specialised Proteins and Gene Sequencing. They are the foundations of the already on the March- Biotech Revolution.

Looks abit like a roller coaster, no?( image credit: dreamtime)

Specialised Proteins
Recently, I asked an ex-housemate of mine who is a Biotech Grad for his opinion on an stock idea involving Biotech - Specialised Proteins. There is a US company that produces the specialised proteins and blood components to everything from hospitals to research facilities around the world. The company fundamentals are sounds and margins are fantastic. The name of the company? Techne.

So, with that I asked him about specialised proteins. This is what he had to say:

" protein studies is a huge area in biotech. next to genomics study, protein study is the natural ascension of where researchers will go to. In fact it is one of the major driving component for why pharmaceutical companies are losing to biotech companies. Big pharma companies are now changing their business models diverting their R&D towards protein development rather than drug development. "

He explained further about how drugs today are basically chemicals to react with your protein to give the desired effect on your body. Of course, everyone knows how drugs normally come with side effects like aspirin can cause gastric and cough syrup makes your drowsy (or high!). So, what we are basically taking about is - Smart Drugs.

The most brilliant thing about this stock idea is that it is not actually choosing a drug/compound that may get approval and finally marketed but we are dealing with the building blocks of such drugs.

Gene-Sequencing Devices

He then bounced back an idea on something he's selling (as his job) and believes in to do with Biotech - gene sequencing equipment.

In fact, he named the stock - Ilumina (ILM). (Check it on the Fool and Yahoo Finance) A stock that has already risen nearly 400% in the last 3 years and the stock valuations are out of whack - PE of 68! Yet, it is still a highly recommended stock and is followed closely by Wallstreet.

So what's so great about Ilumina? Well, before you can create a 'smart drug' - you need to know what you want to target/create. The devices which Ilumina sell - gene sequencers will/are the new microscopes and I am told that these are way ahead of their competitors yet there is still market to grow in Asia.

Think is this way - Asia - We have less qualms on playing God and Bioethics in general and the biotech money is flowing this way and there will need these two things - Specialised proteins and gene sequencers.

Downside - Vulnerability to Recessions

However, the downside of investing in these ideas is the heavy exposure to the Research & Development Sector (R&D) which is vulnerable to recessions. Laboratories, Universities and Hospitals will always need such products but the problem with these steady customers? R&D is usually the first area where funding is cut off and there goes the lifeline for these products.

Taking into account how oil prices are increasing, this can very much tip the economy into recession but there is talk that governments around the world wouldn't want that to happen.

Also, I am slightly concerned about both stock valuations where their PE ratios are just crazy! (ILM: 78.52! and Tech - 25.3) On the flipside, are these testimony to the growth potential or are we just the greater fool? (I am inclined to think the former!)

Further reading:

http://seekingalpha.com/article/255770-illumina-a-valuation-from-outer-space?source=dashboard_stocks-sectors (note : seekingalpha is a site for any investor of any skill/knowledge level to exchange their ideas or thoughts so be aware of that and always remember to your own independent research)

http://blogs.forbes.com/matthewherper/2011/02/11/can-a-dna-sequencer-get-fda-approval/?partner=yahootix (more on ILM)

Biotech Stocks - High Growth Opportunity?

Are Biotech stocks one to look out for as Biology is the dominant science of this Century? Read on as I make the argument why it is. (image credit: dreamtime)

Giant Spider makes Web 10 times stronger than Kevlar

For those that don't know Kevlar is what we use to make our bullet proof vests, so in theory these spiders make webs which are 10 times better at stopping a bullet! Amazing. It goes to show how nature may be just as good or even better at producing materials/things we need.

Before we go further into why BIOLOGY is the field of science the next 100 years, let's look at history.

Astronomy has played its role in helping mankind explore the World by helping them navigate the seas and establish new trade routes, followed by Chemistry and Physics paving the way for the Industrial Revolution. Physics gave us flight, refrigeration, electronics..even the Internet!

So, what is the dominant science for this century? Easy, Biology. It all started with the mapping of the human genome in 2003 which has opened the world to new possibilities.

Physicist and Author Freeman Dyson : "Two branches of biology in particular, genetics and neurophysiology, presents us with an abundance of fundamental unsolved problems that new technological tools will enable us to attack."

So, that's where the next big growth market is - Imagine a new treatment for cancer where the healthy cells will actually attack the cancer cells or stemcells which help people who have lost limbs/organs by growing them back!

Well, that's all I can lead you a top-down investment idea. I have to admit I am not a biologist or close.. but I have some links as to fool.com (only the greatest investing website out there IMHO!) with someone who has some idea what he is doing!

(Do note tho' that this may be a high growth industry but these stocks are equally risky and/or volatile because being approved for commercial use, safety and its actual economic viability are obstackes. I plan to look at SGX biotech stocks when I have the time or does anyone have any tips?)

Read on: http://www.fool.com/investing/small-cap/2011/02/17/an-inside-look-at-biotech-investing.aspx for part one

And you can visit his profile to see his performance and why he picks certain stocks and comments to follow - http://caps.fool.com/player/zzlangerhans.aspx

He is described as : "an emergency room physician and Harvard magna cum laude in biochemistry who has been a Howard Hughes research fellow in transgenic mouse models and an NRSA fellow in xenotransplantation. He currently maintains a high rating on CAPS while focusing exclusively on biotechnology companies."

As such, you can be assured at least its within HIS circle of competency! One to watch, I say! His blog is here.

Full Disclosure: Yes, I am a faithful reader of fool.com and also a member of its premium SA service but this is an unsolicited post.

Quick one - The Economist on O&G and Liveability of Cities

The Economist's Intelligence Unit provides its findings after conducting surveys on corporate executives on O&G, urban living, investing in asset intensive industries and Companies and the Future. Read on to see what I think or for the links. (image credit: dreamstime: Jason Smith)

I was sent these links on the Economist's Intelligence Unit where they get business executives to answer a survey and they publish the results and analysis.

Deep Water Ahead? - The Economist's on Oil & Gas in 2011.

There is mention of how ever since the US Gulf Oil Spill in 2010 has led O&G companies to rethink its risk management policies to avoid such a disaster in the future. This may lead more government regulation in the US/the West and it cites that investors may look towards South-East Asia in terms of both supply and demand. Good sign for Petronas and its subsidiaries listed (to be listed) on KLSE?

Also, there is mention of Natural Gas. I have an eye on this one as I think as its prices have been depressed rather lately and when the economy picks up, so will the consumption of it.

Liveanomics - Urban Liveability & Economic Growth.

Some real gems here and I really wish someone out there running Malaysia is reading this! It's all good stuff. Also some takeaway points for the property investors reading here. The main purpose you buy - to live - ie: closest to work. I know, i know, common sense stuff but just in case you get caught up in what the salesperson/property salemen tell you!

Also, the cost of living is an issue so in the Malaysian Context, I say toll travel eats into your earnings and a self-contained development where you don't have to drive too far to get what you need would be nice.

If you're interested, there's also a report on :

Prepare for the Unexpected - Investing in Asset Intensive Industries

Leaders of Change - Companies Prepare for a Stronger Future

The last article seems to imply that companies fear the worse is over and are looking at expansion plans. Good sign. (But also shows how the bigger the company, the harder it may be to execture change.. may sound familiar to those employed in big companies!)Maybe time to look into buy into stocks which perform well when the economy does well yet is pretty inflation-proof?

Some food for thought. 'Till next time!

How to Invest in Stocks in a Nutshell

Let's talk investing in stocks. There are basically 3 ways to play the stock market/invest in equities:

1) Invest with a Fund Manager

2) Buy an ETF

3) Build your own portfolio

Let's discuss each in detail.

1) Invest with a Fund Manager

This is the easiest way to invest money with a fund as it requires the least research/work on your part. All you need to do is research into which fund you think is most suitable with you and whether you trust the management team managing your funds.

However, the downside is that mutual funds usually have large transactions costs both when you purchase and sell the funds. These can cut into your profit margins and dare I say it, further your losses!

Another thing to consider is that dollar cost averaging (ie: depositing a fixed amount monthly) is shown to be not the best of ideas and remember, the agent who sold you the funds is getting is cut monthly! So, your agent may not be giving you advice in your best interests! As such, some general advice is to try and time the market and to invest a lump sum.

Basically, mutual funds give you hassle free investments in equities for a fee!

2) Buy an ETF

ETF stands for Exchange Traded Fund. Imagine a stock and a mutual fund having a baby... they would give birth to an ETF! It trades like a stock making it very liquid so you can buy and sell very easily and the management fee is usually below 1%.

One of the 5 ETFs listed on the BURSA is CIMB X25 Xinhua which is supposed to track the performance of the Chinese stocks. But if you look closer , these are Chinese stocks listed on the Hang Seng and are mainly focused on Banking and Telco Stocks. The bad thing about this is that the key way to play China is to tap into the consumer market and the banks don't really do so. That's why it may not be the best way to play China.

For more, read Tim Hanson's article here : http://www.fool.com/investing/international/2010/10/28/this-is-the-way-to-play-asia.aspx?source=isesitlnk0000001&mrr=0.20

However, the downside is that the ETF may not track as closely as you want it to. So, take a closer look and read the prospectus to see the NAV (net asset value) and whether the stocks making up the ETF fit your investment idea.

3) Build your own portfolio

This is the most time consuming exercise as not only do you need to pick stocks but keep a close eye on them! This will take up your time and it is not as simple as picking a few stocks as you will need to diversify your portfolio to ensure it is not too risky.

I will deal with this in more detail as this topic requires a post in itself!

Last thing, remember, for options 2) and 3) you will need to choose a broker and to save transaction fees, you may want to consider getting an online broker with lower fees. The more trading you do, the most transaction fees you will pay even if its a loss!

So that's investing in stocks in a nutshell!

Image Credit: COINS 6

© Alexey Lisovoy | Dreamstime.com

A Happy Chinese New Year!!

A Happy Chinese New Year to all my readers!

I will be on a short break so bear with me and I will be back with more this mid-Feb! More money making/saving/management tips to come I assure you! Stay Tuned!

'Till then have a prosperous Chinese New Year - May your Ang Pows,Winnings and Investment Dividends be plentiful!

[image credit: Studio Amatiz - http://blog.roodo.com/amatizqueen]