One of our readers asked about three stocks that have not been covered by BloggingStocks, or at least not that I can remember during my tenure. After reviewing the three it is understandable why not, although they are fair size companies. Philips being a large cap stock valued around $47 billion while the other two would be mid-caps valued between $2 and $5 billion.
My review of these companies is on the superficial side from the perspective that they are not very familiar to me and they are not in industries that I would consider investing in at this time. From that perspective I have high-lighted a few of the metrics that stand out to me and why.
The first was Cree Inc. (NASDAQ: CREE) a maker of blue, green, and near-ultraviolet LEDs -- made from silicon carbide (SiC) and gallium nitride (GaN) that are used by companies in products such as dashboard lights, market tickers, and video screens.
Highlights: On the positive side Cree has no debt and earns a healthy 14% profit margin. Unfortunately the downside seems to be all too clear. Cree has negative growth this past year of 7%, when many tech companies have seen significant growth to the plus side. That cannot support the very high current P/E ratio of 44, along with below average ROE, ROA and ROIC. There is no dividend and there is high volatility with a beta over 2.8. Except for option plays insiders have been selling. Investors can find better opportunities elsewhere.
The second company is Koninklijke Philips Electronics (NYSE: PHG) as the name implies makes consumer electronics, including TVs, VCRs, DVD players, and fax machines. But it also makes light bulbs (#1 worldwide), electric shavers (#1) and other personal care appliances, picture tubes, medical systems, and silicon systems solutions.
Highlights: Philips seems to have much more to offer starting with a below average P/S of 1.29 and a P/B of 1.61 accompanied by a fair dividend yield of 1.7%, about the market average. Unfortunately, it has even larger negative growth of 67%. If one were to look at that number without looking at the overall market you might think we were already in a recession, but alas Philips seems to be having one all by themselves. That said, someone likes it because the stock is only 10% off it's 52-week high. For me, that makes me want to invest even less, not more, and with a P/E of 40 I think I would take a pass on this one, too.
The third company was LDK Solar Company Ltd (NYSE: LDK) The company, via subsidiary Jiangxi LDK Solar, turns polysilicon into multicrystalline wafers, which are used in the construction of solar cells and solar modules.
Highlights: LDK is the most intriguing of the three stocks but must be placed in the totally speculative investment category. According to AOL Money & Finance, most of the company's revenues come from Chinese buyers and the founder Xiaofeng Peng owns about 72% of LDK. This is a relatively new company in a hot market with no appreciable data worth considering. I have no idea what the future holds for investors speculating in this company but whatever that future is it would not include me under any circumstance.
Well, so much for these three stocks. Hopefully the next inquiry I get will be for something more rewarding.
To find potential opportunities and verify my track record, read Chasing Value or Serious Money.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm.
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Reader Comments (Page 1 of 1)
10-30-2007 @ 1:01PM
BhhStudios said...
I figure since I am the reader that brought these up I may as well comment here.
First thanks Sheldon for bringing these up. Right now these three are being hit but I feel they are all going to be good stocks in the future. I see these as LONG and see a great entry point right now.
Lets throw out LDK at the moment since they were hit with a storm of badness and until it clears its pure gamble (one that I am still in since I got in the first days of the IPO)
However, CREE looks so good to me while the numbers right now may not. Instead of typing everything out I will just provide a link to my blog (May not be safe for work)
http://tickersntits.blogspot.com/2007/10/no-not-like-native-americans.html
Now on to Philips. LED is the lighting of the future, but until that point compact fluorescents are the transition, Like MiniDisk before MP3's. And I see Philips as the major supplier of CFLs. By 2012 you wont be able to buy "regular" incandescent light bulbs in Australia and Canada. Philips already has a huge foot in that door and its not closing anytime soon.
I know its Sheldon's job to make people money and stay relatively safe so it does not surprise me these companies do not look that great to him. You gotta look into that crystal ball to see the payoff in these.
Good luck to everyone and Sheldon I still love ya :P
10-30-2007 @ 1:18PM
Sheldon L said...
Bhh,
Perhaps you should explain why you think Phillips will outperform competitors in what is a market with very shallow moats, if any?
These will all be commodity businesses. However, if you want to make a contrarian play and think this is the low, making a good entry point - more power to you - but it's still speculation to me.
Thanks for followng my posts.
10-30-2007 @ 2:09PM
BhhStudios said...
Sheldon,
I agree its speculating, but I don't see that being a bad thing here. Just like I didn't see it being a bad thing when I bought Apple at 7.50 ;) I see it as not investing in what a company is right now but what It will be at in the future. (Hopefully anyone reading knows not to have speculative stocks take up much of one portfolio.)
I believe that Philips will outshine the competitors when it comes to selling CFL's because all the CFL's I see at the Home Depots and Grocery stores are all Philips. when you walk into any home depot here in Canada 8 out of 10 CFL is a Philips. All the soccer moms at the grocery store who are slowly becoming more green with their reusable bags all have Philips Marathon "Twistys".
Lets jump back to Cree for a second. When most people think of a LED flashlight they picture one of those keychain lights that you squeeze and struggle to see your door lock. Until you see/use a modern Cree LED flashlight you can't understand how blindingly bright they can be.
Surefire (the fancy flishlights you see on all CSI's and you see the military using) will be switching to CREE for all their LED flashlights: http://flashlightnews.org/story528.shtml
Law enforcement, and the military will all be switching over to LEDs based on the savings on batteries and replacement bulbs alone, the fact that if you drop your light you are not going to shatter the bulb.
This all sounds very geeky and I agree you shouldn't invest based of what you are reading here, but do some research for yourself and you will see that Cree is the leader of the pack when it comes to LEDs weather it be Home, Industrial, or flashlights. It is undeniable that LEDs are going to be a major lighting source in the future.
I suggest if anyone has not experienced a modern Compact Fluorescent or a Cree Xlamp LED that you make it a priority. No longer do CFLs make it feel like you are sitting in a hospital or LEDs not providing enough light to read. These two technologies have come so far in the past few years its easy to see how they are the future.
(Sheldon, sorry this is all over the place)