Sunday, July 15, 2007

Four pillars of Tech

Kramer classifies these four companies as the four pillars of tech. According to him these are the standard bearers for the first decade of the 21st century. It is anyone's guess if their dominance will last till the next decade - most likely it wont if we look at tech wonders from the nineties - Intel, Microsoft, Cisco, Dell and Yahoo!

Here are the four companies:
RIMM - blackberry a must for corp execs.
AAPL - iphone and ipod. iphone is getting to be a competitor to blackberry in the longer term.
GOOG - 'nugh said. Goog is planning a free google cell phone with its own apps. Going against apple? May be.
AMZN - virtual warehouse, S3 and EC2 services.

AMZN - market cap of 30 billion and free cash flow of 500 million - ratio 60
GOOG - market cap of 172 billion and free cash flow of 1.8 billion - ratio 95
AAPL - market cap of 120 billion and free cash flow of 3.9 billion - ratio 31
RIMM - market cap of 40 billion and free cash flow of 480 million - ratio 83

Let us take another swap by looking at stock dilution at each of the companies.

AMZN - has remained flat in the last few years probably because of buy backs.
GOOG -should be 6-7% range or higher
AAPL - about 2.5% dilution per year
RIMM - no dilution in last year - most likely because of buy backs.

Berkshire (BRKA/BRKB) on the other hand throws off cash better than most companies in America. Its price to cash flow ratio is less than ten making it a bargain compared to any of these tech stalwarts. Moreover, the stable of businesses that are part of Berkshire are likely to remain solid and kicking long after today's tech titans make way for another round of upstarts in the next decade.

Saturday, July 14, 2007

A case for power

PWER - better known as PowerOne is a California based company that specializes in building AC and DC power conversion systems. The stock has seen a high of about 100 during 2000 and has fallen to about 4 at the current time. The implosion in the market caused by bust played a big part in this plunge.

The company has not been run properly for the larger part either. The company's acquisitions havent really panned out atleast not yet. This caused a sudden plunge in company's stock price from $5.5 to $3.5. Although the stock has recovered somewhat, the stock hasnt recovered fully yet.

However, there are signs that the company is finally on track to recovery. Several factors should help the company.

1. The power market is on the rebound with imprving semiconductor business.
2. The server farms in the US are expanding, so much so that the total power consumed by server farms outstrip the power consumed by all TVs in US homes. Minimizing such power usage is critical is containing operational expenditure of running large data centers.

The company believes it will be profitable in the final quarter of 2007. If so, it would be first such event in the past several years. Sustained profitability can boost the company stock significantly above the current levels.

Even if the company is not profitable, I estimate the lower end of the price to be about $5 for the company's assets. A lot is riding on current earning announcement and a prediction to return to profitability can turbo charge the stock. Another lackluster announcement can present a significant buying opportunity.

Also on a positive note, insiders have been buying at $3.69 levels though in small quantities.

P.S: Please be sure to check the disclaimer of this blog.