Novice Investing - Sample Portfolio Revisited

Date: Monday 01st 2008f December 2008 04:47:37 PM

Sample Portfolio Revisited - 05/05/2007

By: Hari Wibowo

Our sample stock portfolio consists of three stocks currently, Magna International (MGA), Novell Inc. (NOVL) and OmniVision Technologies (OVTI). While these three are on the black, we had been burnt with other past picks such as Leap Frog Enterprises (LF) and Fresh Delmonte Produce (FDP). We will still have $ 3000 + of cash that we need to invest and no other decent investment in sight. At this occasion, we would like to review our sample portfolio picks briefly and see what is on hold for them.

Magna International Inc. (MGA)
Operational wise, Magna has no significant detour from what we expected from it. The latest move from Magna, however, reveals that it is interested in buying Chrysler unit from Daimler Chrysler (DCX) with price tag rumored to be in the tens of billions. Magna itself is valued at $ 8.65 Billion. Thus, this can be viewed as quite a big acquisition for Magna itself.

Magna faces some tough competitions in the Chrysler bidding, namely private equity group such as Cerberus Capital Management, Blackstone Group, automotive company General Motors Corp. (GM) and billionaire Kirk Kerkorian. The latter had attempted to buy Chrysler decades ago and had been General Motor's largest shareholder last year before selling its stake. While Magna may not be the highest bidder, it has won the approval of union workers such as UAW primarily due to the perceived less job cut done by Magna, compared to other bidders. This is an opportunity for Magna to buy Chrysler at a lesser price. Hopefully, management take advantage of that.

In terms of profit, Yahoo! Finance estimate Magna will make a profit of $ 5.84 per share for the fiscal year ending on December 2007. Last year, Magna earned $ 5.03 per share, well below our estimation of $ 6.47 per share. As a result, share price barely budged for the past twelve months. Luckily we always made an effort to buy stocks at least 50% below fair value. Thus, even when our profit estimation is off, share price is still trading below fair value. With $ 1.4 Billion of positive net cash ($ 12.84 cash per share), Magna is fairly valued at around $ 110.13 per share. We assume that we can get a 6% yield for Magna's stock (P/E = 16.6 for fair value).

Calculation is as follows: Fair value = ($ 5.84 EPS x 16.6 P/E) + $ 12.84 net cash = $ 110.13/ share.

Novell Inc. (NOVL)

We picked Novell Inc. ( NOVL) back in December 2006 after it has collaborated with software titan Microsoft Inc. (MSFT) to distribute its open source software solutions. Without the deal, Novell will play second fiddle to industry leader Red Hat Inc. (RHT). We are still waiting for Novell's collaboration to bear fruit and we are not surprised if earning report is not that good for the next one or two quarters. Meanwhile, Dell Inc. (DELL) has thrown its support to Microsoft-Novell alliance this week, which will help the bottom line for Novell. So far, Novell shares has risen more than 20% from our buying point on December 2006. However, our past analysis on Novell shows that it might rise even more.

OmniVision Tech Inc. (OVTI)

Our final stock portfolio member is OmniVision, which had risen a modest 5.7% since our purchase. Nothing much is going on at this point. At the time, analyst estimate OmniVision to earn $ 1.07 per share. Now, estimate for the coming fiscal year 2007 is down even more at $ 0.87 per share. Next year is even worse at $ 0.41 per share. We hope that this trend does not continue but still, with $ 350 M of positive net cash ($ 6.37 per share), investors has quite a lot of cushion during the downturn.

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 Novell Inc. (NOVL) or any other securities.

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