Week 12 Performance - Up 3.65%

Performance to Date (since inception Nov 3rd)
(Nov 3rd - Dow closed 10522, S&P closed 1219, NASDAQ 2169)
Broader market gain: 3.7% Dow, 5.3% S&P, 6.2% NASDAQ
LIVEROCKET gain: 21.65%

Performance Year to Date - Up 11.07%
(Dec 30th close- 10717 Dow, 1248 S&P, 2205 NASDAQ. LIVEROCKET VALUE $109,015)
Broader market gain: 1.77% Dow, 2.88% S&P, 4.49% NASDAQ
LIVEROCKET gain: 11.07%

Stock Performance Overview
Stock Growth >40% 2 out of 19
Stock Growth >30% 2 out of 19
Stock growth >20% 0 out of 19
Stock Growth >10% 5 out of 19
Stock Growth 5%~10% 3 out of 19
Stock growth 0%~5% 4 out of 19
Stock growth <0% 3 out of 19

Week 12 Performance
Broader market gain: 2.25% Dow, 1.82% S&P, 2.49% NASDAQ
LIVEROCKET gain: 3.65%
Stocks up for week: 6 out of 8

Weekly Performance Overview
LIVEROCKET beat Dow/S&P: 9 out of 12 weeks
Dow/S&P beat LIVEROCKET: 2 out of 12 weeks
LIVEROCKET tied Dow/S&P: 1 out of 12 weeks

Individual Investor Performance
If you invested in these stocks and got in and out when I said, then you would have:
Generated >10%+ Returns in 12 weeks 47% OF THE TIME
Generated >20%+ Returns in 12 weeks 21% OF THE TIME
Made money 84% OF THE TIME

WEEK IN REVIEW
Do you see the trend? NASDAQ is growing faster than the Dow and S&P. Pundits are saying tech is back. It’s true, and half of our stocks are tech stocks, so we are positioned nicely.

We also got caught out by the volatility. Sadly, GILD had a down day and we were stopped out, only to miss out on a 10% gain as it rose up furiously this week. Additionally, we bought into Sandisk only to see it crash. I believe in SNDK, but the combination pulled our results down a good 2% for the weekk.

(Note: OPP = Original Purchase Price)
Gilead (GILD): OPP 50, Friday close 59.74. Up 5% for the week. Erases last weeks drop and adds. Sadly, we hit our $56 stop limit on Monday – right before it shot up. We locked in a solid 12%, but I like GILD and wish we hadn’t had to sell.

Marvell Technology (MRVL): OPP 49, Friday close 70.64 Up 15% for the week. Up 44% since purchase. Marvell is benefiting from Broadcom’s stellar results which most people expect to mirror Marvell’s. I think circumstantial evidence will prove them correct. Marvell’s key customers are announcing higher than expected sales volumes (Seagate and Apple). Technically speaking, not only did MRVL rise 5% over its previous 52 week high, it hit $73 before backing off and on 3X average volumes.

JLG Industries (JLG): OPP 38, Friday close 53.9. Up 8% for the week. Up 42% since purchase. JLG is enjoying the glow of Caterpiller’s great results. In case you missed it, Caterpiller announced much more robust sales than expected and predicted upside. JLG is both a competitor and a purchaser of some Cat assets. JLG also hit a new 52 week high.

Joy Global (JOYG): OPP 37.17, Friday close 49.78. Up 12% this week. Up 34% since purchase. And it set a new 52 week high.McDermott (MDR): OPP 42.7, Friday close 51. Up 3% for the week. Up 19.3% since purchase. Midweek MDR hit a new high of $54 before easing up. They dropped 3% today on high volumes. I don’t know if the drop today is just a slight pullback from the dizzying jump this week or if this is more. A drop on a strong day in the market is counter activity that I don’t like to see. I will watch and tighten the stop.

Akamai (AKAM): OPP 19.98, Friday close 22.4. Down 1.5% for the week. It was up to $23 today before pulling back. Up 12.6% since purchase. It keeps toying with $23 before easing up. If you chart AKAM against the NASDAQ for the last 6 months, you see that it is moving independently of the broader market. We are still 10 days away from earnings release, but there is definite resistance here.

Seagate (STX): OPP 20.1, Friday close 26.12. Up 4% this week. Up 30% since purchase. I am starting to sense some weakening here. We may get out soon.

Sandisk (SNDK): OPP 70.02, Friday close $63.4. Down ~7% for the week, almost 10% today alone.
They had a great earnings release: sales up 37%, earnings up 62%, and margins grew 3% from 37% to 40%. And cashflow for 2005 more than doubled.
The market reacted badly to suggestions of pricing weakness and lowered guidance. What is really going on?
Memory Prices Always drop – The question is whether Sandisk is controlling the drop. In 2005, the average sales price (asp) for Flash memory dropped 52% in 2005. Sandisk spooked analysts when they said that they will move to drop prices up to 35% (although probably a lot less) in this quarter.
Driving to higher end – Sandisk is ramping up much more high density flash. Dropping the price on the lowend flushes out inventory and prepares for higher memory. Cell phones, cameras, game boxes, and MP3 players demand much higher memory.
Lower fab costs. Their new 300mm fab is now cheaper to run than the older 200mm lab and that happened 1 quarter earlier than expected. Manufacturing fabs have a certain cost. At the same time, a 300mm wafer is a lot larger than a 200mm wafer and so it produces more chips. The combination means that switching to a 300mm fab makes the per chip fab cost lower. The sooner you can get that plant online, the sooner you can make the gains. The margins improve as you amortize the plant cost over much more production. In effect, the 300mm fab has a much lower fixed cost than the 200mm one and enables greater margin and pricing flexibility. For them to announce that they hit the target 3 months early is a big coup and a testimony to the demand. I am only guessing here, but I would expect them to be using more advanced technologies on the new fab – which makes me think that they are cranking out 1GB+ flash chips.
Moving to systems – Most flash sellers are selling commodity products – flash cards and USB devices. Moving to systems like their own MP3 players reduces revenue erosion and pricing pressure.
Lowball guidance to exceed. This isn’t the first time a company would give softer guidance to exceed expectations.
So I think Sandisk is very much on top of the pricing and most analysts are idiots. Margins will remain quite strong and sales will continue to surge together with earnings. A company growing 50%+ per quarter deserves a much higher P/E than 30.

Grant Prideco (GRP): OPP 49.23, Friday close 49.62. Flat for the week and since purchase. Earnings release is 10 days away and they are susceptible to a lot of oil price fluctuations.

Remove stops

Take off all stops until we clear Sandisk and marvell reports

WFMI Paid Us a Dividend

We were shareholders of record and received a one-time special $4.30 dividend per share pre-split or $2.15 post split.
We owned 136 shares so that means a one-time dividend of $292.4.

I am watching WFMI for a chance to buy back in after we Stopped out at $75.

Portfolio Update and New Stops

Good news: our Friday purchases of SNDK and GRP closed up 3.1% and 3.7% today.
OK news: we sold GILD today after hitting our $56 stop. We sold 200 shares for a net gain of 12%.
I would like to get back into GILD and will watch for interday weakness. If we can't buy any, we will get in again anyway. They have a major HIV drug getting reviewed and it will make them a fortune if it gets approved. I notice that Cramer mentioned this fact on TheStreet.com. In afterhours trading, GILD closed up at $58.

The portfolio is as follows:

Stock Shares Purchase Price Stop Price
MRVL 200 49 (no stop for now)
JLG 263 38 47
JOYG 242 37.17 43
MDR 211 42.74 47.5 (new)
AKAM 603 19.89 22
STX 597 20.1 24
GRP 250 49.23 48 (new)
SNDK 175 70.02 67 (new)
Dividends $19.06
Cash $17,072
Total Value: $118,527

THINGS TO NOTE:
Increasing stop price on MDR. Removed Stop on MRVL. Set Stop price on GRP and SNDK.
If we were stopped out on all stocks (i.e. Godzilla trashed New York), we would lock in $113,600. That is ~$2,350 more than last week. That's a GUARANTEED 14.14% return in just 11 weeks (a 2.34% increase over last week's update on 1/15).

I continue to believe in going long in this market and our cash position is 14% of the total. Much too high.

Texas Instruments - Good news for us

Remember back in the 1990s when companies like Cisco would show 100% growth and the stock would fall? I feel that in many ways we are revisiting those times.

THE QUARTERLY FACTS
Texas Instruments
Sales growth: 14%
Earnings growth 34%
Margin Growth: Gross profit up from 42% to 48%

ONLY POSITIVE NEWS
"Chief Financial Officer Kevin March said fourth-quarter revenue was held back because the company was unable to meet customer demand due to slow delivery and assembly of chip testing equipment." (Source: AP)
Unable to meet demand because of tight inventories. Demand is strong. I like investing in sectors where demand is strong for the products.

WHY THIS MATTERS
1. Improving margins at semi companies: I said it before - margins are increasing at semiconductor companies. We saw it at Seagate, we're seeing it at TXN.
2. Confirms Book-to-bill expectations: demand is outstripping supply. This is the best place to be for investors in semiconductor companies.
3. TXN's loss could be MARVELL's (MRVL) gain - MRVL and TXN products do not really overlap. But concerns over ability to meet demand can drives customers to look at other sources.
4. MRVL Sales - I expect MRVL will exceed sales, earnings, and margin expectations.

IMMEDIATE TERM
It is hard to predict. Semi stocks might actually go down out of misplaced fears that business is bad because TXN 'disappointed'. If so, that is a major buy opportunity. I expect MRVL to go up another $5 over the next month.

Huge apologies on comments!

I just figured out why I am not seeing any comments show up - apparently I have to approve them!
So sorry if you added a comment or asked me a question and I did not respond.
Feel free to re-ask or re-submit!

I really want to enable dialogue between all of us!

Our 2006 Investment Themes

For the foreseeable future, our investment choices will follow a few basic themes:
International (esp. currency)
High Tech
Health
Energy

INTERNATIONAL
The difference between 2005 and 2006 will b ethe value of the dollar. Developing economies like Vietnam, China (yes, still considered a developing economy), Brazil, Russia, etc will continue to march forward. After rising in 2005, however, the dollar is going to drop.
There are many reasons for this, but I'm looking at basic fundamentals of interest rates. The tightening monetary policy is ending with the halt in interest rate increases. The US moved interest rates higher an dfaster than other countries in 2005, and I believe that that is a major reason for an actual increase in the dollar value. That ends in 2006, however, as other countries' interest rates will converge.
Let's same I'm right and the dollar drops 10%. That really means that oil jumps 10% as will other imports. It also makes overseas investments 10% more valuable in dollar terms.
How to capitalize: Raw materials like oil could drop in price even if the dollar falls because other factors can affect supply/demand. Instead, go for a solid overseas fund.
Which regions to target: I like Eastern Europe, Vietnam, & Turkey. Western Europe is migrating jobs to Eastern Europe. Vietnam is growing ~8% annually and is much less tapped than China. Turkey will benefit from the flow of oil from the Caspian, from closing in on EU admission, and from evolving manufacturing. Other region slike Brazil and Russia are really raw material plays - Brazilian steel, Russian oil, and so on. I am not interested in a commodity play, so I would ignore.

HIGH TECH
It's back. As mentioned last month, IT spending at the high end and consumer spending at the low end are driving a boom. Seagate's report last week highlighted this. Seagate has 40% of the hard drive market; hard drives are used in servers, PCs, DVRs, Video game boxes, and iPods. Again - high end and low end. My point is that hard drives are a commodity product found across the spectrum of technology and, as such, are an excellent indicator of this sector. And business is booming: sales surged and, more importantly, so did margins.
This seems to contradict other high tech releases. Motorola and Intel reported earnings that disappointed Wall Street. (I had reviewed Motorola 12/12 and again 1/15 and voted thumbs down.) Intel is losing in a zero-sum game with AMD fighting. Texas Instruments reports tomorrow and is more broad based than Intel (PCs) and Motorola (cell phones).
I think the successful companies will be smaller and more in tune with the internet hardware side of life. Smaller companies with upside growth (like MRVL) tend to attract the best and brightest, further feeding their growth.
How to capitalize: Focus on who benefits from TV and music downloads. We chose MRVL and STX because they operate in both high and low end. We chose Sandisk because they are serving multiple large, growing, high volume consumer markets (digital phones, cameras, and game boxes). And AKAM for the downloading volume.
Given the cyclical nature of these businesses, we won't be here long - maybe a year if all works out.

HEALTH
Health is always a good sector and more so because of the aging boomers and the way healthcare weathers changes in the business cycle. (Keep in mind that we are in year 4 of the cycle, that this has been a fairly tepid cycle, and that we are nearing the slower part of the cycle.) But Health has multiple sectors.
1. Lifestyle - Exercising and eating better are the secrets to wellness. I am still waiting for a gym that targets older folks. In the meantime, WFMI has a strong handle as the portal to healthy food. I would love to invest in some of its vendors - especially Niman Ranch. Travel is another one. I would like to find a travel company that focuses on older people.
2. Medicines - If you can't focus on prevention, focus on treatments. Drug firms with treatments for age related illnesses (Alzheimers, ocular and bone treatments, blood pressure, etc) will benefit greatly. Also companies that develop new techniques or products for surgery, especially heart surgery (stent manufacturers, pacemakers, vascular surgery, etc). Otherwise, I would avoid the standard drug companies (see next).
3. Generic drugs - Generic firms are growing by leaps and bounds. two major issues here: first, the US subsidizes drug development through higher prices and, second, very few new drugs have really emerged in recent years. The first is going to be changed as states move to lower costs. California, for example, recently voted on price negotiations with drug companies. While drug companies focus so much lobbying on the Fed, they seemed to have ignored the states. Buying through Mexico and Canada will surge as well. And so will generic drug companies. Drug cost containment will happen, and it will hurt the major drug companies. TEVA and ESRX strike me as being at the right place, but I will need to do more checking around.
The dirty secret of drug companies is that they have exhausted most avenues of new drugs. They are busy tweaking existing drugs and getting them re-patented. Sure beats working, eh. Most major drugs are coming off patent soon. Expect intense lobbying for additional congressional patent protection. This worked for Disney which got copywrites extended to 100 years. It won't work this time. I see consolidation and snapping up of smaller firms with one or two products.
The companies doing the real development are biotech firms performing genetic research. That is where the growth will come, but not for years. Genentech was bought out because of this avenue to growth.
4. Cosmetic surgery - At the moment cosmetic surgery is very individual specific. Could a chain of cosmetic surgery outlets emerge? Sure, for certain basic surgeries. Going forward, the way to take advantage is with drugs and treatments. I am looking for the right companies in this space.
5. Infotech - Hospitals are one of the least digitized industries in the US. It is all paper based. CERN is a leader in the trend to bring hospitals into the digital information age.
6. Housing - Where will aging boomers live? For those with special health needs, high end communities as provided by SRZ. I think a different trend will emerge, building on the migration to Arizona and Nevada and Florida. Communities will grow in Mexico. After all, housing is incredibly cheaper and medicine is a 1 or 2 hour flight away. I would like to find a company specializing in setting up these communities because I know that they are already popping up.
7. Waste disposal - Add more old people to rising health concerns, and you get more medical waste. SRCL is the largest waste disposal company, and they are global.
Quite a lot of niches, and many of these solutions translate nicely to other countries.
How to capitalize: We had CERN and we have GILD. I need to look closely for a few more firms.

ENERGY
As with healthcare, there are several areas at play here
1. Oil - I predicted last week that it would rise because of Iran, and I was right. (A real leader would stand up and say: we need to lower dependence on oil and that will be painful in the short term but economically and morally correct. John McCain said much of that this weekend and he is running for 2008 Presidential campaign.)
Oil will continue to rise as both the dollar sinks and nervousness grows. Can we do an embargo on Iran? Iran can not weather an oil embargo and neither can we. But an embargo exluding oil could succeed without impacting oil supplies. Uncertainty drives oil prices, and that uncertainty is growing, not receding.
2. Natural gas and coal and Nuclear energy - Watch them rise ever higher.
3. Storage and shipping - Demand is growing for more and more infrastructure.
4. Alternative energy - The time has come. Rising oil prices are definitely making solar and wind more attractive. But these technologies are getting cheaper in their own right. While the return is not quite there, the interest is high and governments will be expected to offer tax incentives. DESC and ENER look more attractive than ever before, but I am looking for others as well.
How to Capitalize: I don't like oil and other commodities. I prefer the equipment companies that service them because they are less susceptible to spot price fluctuations the way pure oil plays are.
We have MDR - a uranium, coal, and petroleum play in one. We have JOYG, a coal and mineral extraction play. We have added GRP for oil drilling equipment. We also have JLG for construction especially of platforms. I am watching JLG for signs of weakness because I don't know how much leg they still have and we have already achieved 31% on them in 11 weeks.
We do not have alternative energy.
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We are not sufficiently taking advantage of international growth or healthcare.
We have ourselves sufficiently covered in technology.
We are sufficiently protected from the volatility of oil while taking advantage of its ongoing growth. We need to take advantage of alternative energy.
We are not sufficiently immersed in healthcare.

We are also ignoring housing.