May 6, 2007

It's a Sunday night and I have a few minutes. I sold 1/2 of those May SPY 150 calls on Friday for ~$2.10 each. Still have 1/2 left. False fears = good buying opportunity. The options expire in less than two weeks, so I've already made a profit even if the market tanks (which it won't).

Now, I'm going to make an argument. Something I've been thinking about for a while, and I made up my mind after listening to the LF conference call this past week. LF is in the midst of a great turnaround. No questions asked. They are going to reign the educational toy market soon.....very soon. Apple needs to buy Leapfrog. Let's talk why.

1. Apple has the cash. Apple has ~$12 billion in cash. Leapfrog's market cap is ~$700 million. Allow for a 40% premium, and Apple would pay $1 billion for Leapfrog. Hardly a drop in the bucket.

2. They're neighbors. Apple is based in Cupertino, California. Leapfrog is based in Emeryville, California. Everybody is in the SF Bay area.

3. Leapfrog is attractive. Let's say I'm wrong and Leapfrog is not in the middle of a solid turnaround. Then, forget it, deal is off. But, let's say Apple's execs meet with Leapfrog and get a hands-on glimpse of the future products. If the products have potential, then by all means, go for it. Leapfrog and Apple both have great name recognition, but for different purposes. Leapfrog makes educational toys, and it appears that market is wide open for a dominant player. Apple could take Leapfrog's products, maybe put their 2 cents in, and make better products or market them differently.

4. The Apple Store is a family retail outlet. Everytime I go into the Apple store (Sagemore and Towson), families with young children are shopping. Those kids generally hover around the eMac kids area and play the games. A few more quality educational children's products would make sense.

5. Jeffrey Katz (CEO of Leapfrog) could be somebody Steve Jobs respects. Jeffrey went to MIT and obtained degrees in aeronautics and astronautics. He managed airlines. He blogs. He founded (and sold) Orbitz. He's not a bean counter, pencil pusher, "yes man" or anything of that sort.

6. Economics. Let's say that Apple believes Leapfrog is solid and is on the turnaround. In Apple's FY 2008 and in my view, Apple's revenues would be increased by nearly $1 billion and EPS by more than $1 per share by the acquisition.

7. Leapfrog is expanding internationally, and Apple is already there. Apple has name and logo recognition worldwide. People love its products, from computers to iPods to software to accessories, and growth continues. Leapfrog's products would be accepted readily internationally with Apple's name.

8. Leapfrog products are for young children and elementary educators. Apple would attract customers from a very young age. As long as Apple maintains quality, repeat customers for all products would be a given.

Just a thought.....and one final thought......France has a new conservative, capitalist president....elected tonight. The world looks brighter from my perspective. Hopefully, tonight's result foreshadows the U.S. 2008 election......



May 1, 2007

Quick update....bought some May SPY 150 calls this morning for $0.75 each.....looked completely on sale. We'll see, but right now it would only take a little more than a 1% increase to break even.



April 29, 2007

Best intentions, but a lack of time to keep up with this blog "full-time". I have three full-time careers: husband, father and tv weather. That being said, I'm going to do monthly updates....so not exactly a blog. I see plenty of them online, and one good one I really like is Valueplays. Check it out regularly for good market and stock-specific commentary. Here's my April update....

Market has completely recovered and then some since late February/early March. When I was reading and watching reports from that time frame....everybody had a different reason for the selloff/correction - China, subprime mortgages, technicals, weak dollar, Rosie O'Donnell. Seriously, I could tell since there was no real problem, recovery should be quick. At the time, I went mega-bullish with whatever cash I could find, buying March, April and December SPY calls out-of-the-money. How'd it go? March calls finished just above break-even, April calls (146s and 147s) were absolutely dynomite, and December calls are up. April is over tomorrow, and it looks to be the largest up month in years.

My May options expiring are: LF 10 calls, ADTN 22.5 calls and WSM 35 calls. LF and WSM~ breakeven, while ADTN is well in the money. LF reports on May 3, and I expect more bad/awful/disgusting numbers....but so does the market. Here is one company that, with all the bad news priced in, will see a rapid acceleration in stock price if they get their act together and begin increasing revenue and showing profits. You know I believe in the company's management to get this done. My portfolio includes LF long positions, as well as calls for later in 2007 and leaps for Jan 2009. ADTN is a good company in Huntsville, Alabama, which will benefit from increasing business. There's still plenty of bad news priced in ADTN, and I might buy more calls for later in 2007. I'll probably sell my ADTN calls this week or next week. Finally, I'm holding onto WSM calls until expiration Friday. I bought these cheap "out of the money" in Feb or March after the speculation died down they were getting bought out. I think it'll happen, hopefully before mid-May.

My long positions are all doing well. AAPL reported stellar numbers and, this time, the stock went up. It now sits ~100. CHR is still the subject of a hostile takeover and the price has steadily climbed into the low-mid 9s. I'm confident that CHR will get bought out, just not at that price. I'll be patient. LF, I firmly believe, will be over 20 by mid-late 2007, if not sooner.

Now comes market conditions. As Ken Fisher has stated countless times, false fears are bullish. I could go on and on about the weak dollar or trade deficits or personal savings or housing bubbles or tinkerbell, but I believe those are irrelevant right now. There are two articles which really got my attention in the past month. The first dealt with the record short interest in the stock market of April, 2007. With my beliefs, this is a purely bullish sign. There are still plenty of bears/disbelievers/fear mongers in the market. That's fine by me...plenty of room to move up.

The second article which drew my attention is the cover article of April 30th's Barrons entitled 'Buckle Up'. In this article, professional money managers were polled about where they thought the Dow, S&P and Nasdaq were heading by the end of 2007. Here's the funny thing. As of Friday's close, the Dow stood at 13120.94 and the average BULLISH year-end forecast is 13,122. That's 1.06 more points. Heck, that'll happen by 9:35am tomorrow.....Same deals with the S&P (1516) and Nasdaq (2579). Bears' forecast: Dow 11,562; S&P 1327; and Nasdaq 2193. I'm not a rocket scientist, chartist, Nobel prize-winning chemist or poet, but I do know that I am completely happy with these. As soon as these (cough, cough) bulls (cough, cough) and bears realize that the market is doing just fine and moving along without them, expect more great moves up. In early January, I emailed a friend and forecasted an S&P 500 year end of ~1750. I'm still sticking with it, as a ~17% gain from right now is entirely possible.

I'll be back by the end of the month and we'll see where we are. Too many positives being ignored right now, emphasis is on the negatives. I'll see you at S&P 1525 or more by late May.

email Brooks



March 3, 2007

Wow, what a really, really weird week in the world of equities, huh? Correction finally came, or is it a bear market as some would believe? I'm not going to fall into that trap. Looks like a correction at best. Too many people were calling for it (some have been calling for it since Oct/Nov of 2006). Of course, some people are saying it's a bear market beginning, but as Ken Fisher would say, "It's a bull in drag." My small, humble opinion is that some of this past week was manipulation at its finest. How could the entire market be manipulated? Heavy ETF buying or selling, heavy index buying or selling, or heavy Dow component buying or selling. I think we saw an epic sell-off this week in the ETFs and indices, nothing else. But then some people panicked and it got "ugly". Enough about this past week, except that I've been able to buy more SPY calls (some March/April and more December) and bought more LF calls (actually, LF leaps).

So, what's going to happen in the near term? Who knows, but if history means anything, I think we're headed back up at a fair clip. Many news articles mentioned this was the worst S&P week since July, 2002. Hmmmm, July, 2002, still had a couple of months left to go in a horrendous bear market, and even then the S&P went up for 3 or 4 weeks! We're nowhere near a bear market (my opinion), so I think we're going to rise nicely this spring, but it might not begin until mid-week. One or two more days to 'spook' the markets, maybe.

My three long positions (AAPL, LF and CHR) all took hits this week, but I feel extremely positive about all three. AAPL is on the verge of investors realizing that they are a true large-cap growth company. Mac computer sales are on fire. iPod sales are still on fire. iTunes sells songs, tv shows, movies, music videos 24/7/365 worldwide. iPhone is going to be huge. Gotta love Tim Cook, Apple COO, when he mentioned this week the reason why so many people don't pay for their cell phones is because that's what their worth! Let's see....video, touch-screen iPod, cell phone (and a freaking cool one at that), camera, email, internet....wow. Big time. Steve Jobs will be fine with the whole options thing, and along with that, investors will recognize Apple for what it is. I'm glad I've been in for a while.

LF had an interesting week. It reported Q4 and overall 2006, completely and utterly a financial failure. However, as I've learned, it's not about the past but future. Well, as long as expectations aren't high. LF's been in the cellar for a while, so anybody who wanted out got out. Leapfrog reported Thursday evening, and the conference call was quite informative, matter-of-fact and transparent. LF management knows what lies ahead, but already has blazed a trail. The future of LF looks quite bright to me, especially once 2008 comes. Of course, investments rise early, so I added some 2009 LF leaps late on Friday. I might add more in the next few weeks if the price looks good. This week's action on LF wasn't as bad as it has been in the past, leading me to believe the worst is behind them for the time being. As long as Leapfrog management continues to be transparent, keeps to their gameplan and innovates, LF should rise steadily throughout 2007 and into 2008. If they do just a bit better than forecast, watch out above.

CHR is in the midst of a turnaround (just received an upgraded credit rating from S&P, now A-) and, after being buyout speculation earlier in 2007, is in the midst of a 'hostile takeover' right now. Share prices have appreciated to the mid-8s from my entry ~$5.50 - $6.00 last summer. I see tremendous upside to CHR with their credit upgrade; they actually grew business in 2006 with a lower credit rating and improved profitability. I think the buyout offer on the table will be upped and agreed upon soon.

February 27, 2007

What an interesting last 24 hours with DOW, huh? The Sunday Express (U.K.) published a story that several private equity firms were set to make an offer of ~$60 per share for Dow Chemical. After opening up ~$47 per share, it fell down to ~$45 per share towards close. There's no doubt DOW is valued so low per share, and is worth much more. The question is.....would an offer of $60 per share be taken seriously by DOW's board? It'll be interesting to watch.

Alan Greenspan scared everybody saying something about the U.S. heading into a recession. Fear runs rampant.

AAPL's Apple TV is now going to be shipped in mid-March rather than late February. It'll be interesting to see if this has much of an impact in the stock. During Jobs' Macworld keynote, the stock actually fell when he introduced Apple TV (before the iPhone). Both products are revolutionary.

February 25, 2007

My Investment Blog. Don't really know what I'm trying to accomplish, except put some ideas out there. Be critical if you want, or make an idea of your own. I've "accumulated regret" plenty since beginning investing, but keep playing the game. My grandfather was Dean of the Business School at Samford University in Alabama for a while, and he got me interested. I love hard data, I love research, I love acting on research. Investing seems natural. Also, I'm only in stocks....bonds, mutual funds, etfs, etc. don't interest me right now.

Here goes. Current long holdings are only 3.

AAPL - Apple, Inc. - Largest holding. Up plenty, as I've owned it for years and keep accumulating AAPL.

LF - Leapfrog Enterprises - Up ~33%. My wife has had LF in her IRA for a few years (purchase was ~$12 or $13). In the summer of 2006, I bought for our general account when it dropped into the $7s after earnings. Solid name brand, new competent management (in my opinion) and a turnaround happening. I like this company's prospects and will accumulate more long positions and/or call options when appropriate.

CHR - Converium Re - Up ~48%. Bought in spring/summer of 2006. Simliar story to LF, damaged company with new competent management in midst of a turnaround. Plenty of buyout speculation and even one offer on the table (but turned down by CHR board). Good for them.

Both LF and CHR have earnings reports this week (CHR Feb 28, LF Mar 1). Should be interesting.

Current option holdings are all calls. I have calls for AAPL and LF, as well as ADBE, ADTN, BPOP, COF, DOW, FNF, GR, KG, NWL, PRE, RLand TKR. In terms of adding long positions, right now I'm looking at DOW, GR, PRE and RL.

I also own SPY leaps for December 2007 and December 2008. My current belief is that we're in the midst of an accelerating bull market, but there's plenty of bears to keep it honest. If everybody were a bull, then I'd know to start having some put options!

Til next time.

email Brooks