Novice Investing - Profiting From the Bad Guy

Date: Monday 01st 2008f December 2008 03:39:11 PM

Profiting From the Bad Guy - 07/11/2006

By: Novice Investing Staff

When there is no problem, there is no solution. Case in point, when there is no disease, there is no point of visiting your doctor. Thus, while it sounds cruel, doctor wants to be around diseases. That's where they are needed. It works the same way with pharmaceutical companies. When there is no cancer in the horizon, there won't be research around the field of cancer. What's the point? When there is pandemic around the world, this is when money starts pouring into the field of pharmaceuticals and biotechnologies.

Today, as the world is getting more wired, we have threats and treats. The treat is that distance gets shorter, information flows more freely and people can work together half way around the world without having to meet face to face. The threat is that there will more advanced way of delivering computer virus and stolen identity. One area that you can utilize as investors are the antivirus market.

Why? Antivirus will be there as long as virus creators are still abound. Don't count on them hackers to subside anytime soon. Whenever a gate of opportunity happens, they will take advantage of it. Therefore, the future of the antivirus industry will be bright for as long as the internet shall live. This is like a game between police and thief. When the thief goes by route A, the police will try to catch him there. Meanwhile, knowing that the police stands by at route A, the thief will go to route B. As virus creators built a brand new worm, antivirus company will create the antidote of this worm. Thereby, creating an endless revenue stream for the antivirus company.

Having said the appeal of the antivirus economy, let us move on to individual companies that make up the antivirus economy. Let us say that their valuation is close to being attractive at this point. With potentially new improvement in revenue (as more worms are being created), the antivirus economy will grow not according to the growth in PC but rather the growth in internet. As of now, merely 16% of the world population is online, leaving a lot more people to be covered. Let us talk briefly about the two antivirus company that are dominant in this field.

Symantec Corp. It is one of the baddest, biggest company in the field with a $ 15.5 Billion market capitalization. There is threat of Microsoft entering the industry but it has yet to bear any fruit. Therefore, Symantec is still king of the hill at the moment. The maker of the popular Norton antivirus has borne a share of its own bad news lately. A $ 1 Billion tax liability to the IRS from its acquisition of Veritas is one. This accounting problem always scare off potential investors. Will this be another Enron or Worldcom blow up? Furthermore, its CFO Greg Myers, president Gary Bloom, had both resigned in the wake of Veritas Software merger with Symantec Corp. Valuation is quite attractive with $ 2.8 Billion in positive net cash or $ 2.71 per share and $ 1 per share of expected profit. Meanwhile, as we said earlier, this industry is bound to grow with the internet. However, the departure of two top executives at around the same time, makes you wonder if there are skeletons hidden behind the closet. While stock price has moved closed to its 52 week low, we believe that share price will drop even more if there will be some accounting or operational issue. The $ 1 Billion of tax liability also erases almost 35% of its net cash in the balance sheet.

McAfee Inc. is one of the smaller antivirus company. It is more famous with its fire wall applications and McAfee network protection. It currently trades at $ 23 per share or $ 3.7 Billion. Balance sheet is fairly solid with $ 700 Million in positive net cash or $ 4.40 per share. Meanwhile, earning is expected to be $ 1.37 this year. Any key employees defection in recent past? Not really. But, it did fire its chief lawyer, Kent Roberts, for a stock option problem dated in 2000. Both Symantec and McAfee have solid balance sheet, their respective accounting problem and a fairly profitable line of business. But, at this point, McAfee seems to be a less riskier bet despite its smaller size. We are fairly convinced that there will be more problems ahead of Symantec. (Call it gut feeling). Thus, you should wait until things unravel over at Symantec before starting to invest your money. At that point, you can buy Symantec at a much lower price than current share price.

END

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Symantec Corp. (SYMC) or any other securities.

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