Ashwin Bhagavatula

Three Reasons to Invest in Hansen Natural

Before I respond any further, I think a full disclosure is in order, to provide some context: I am 100% invested in HANS. Also, I don't own anything else, including bonds.

Marc:
Thanks for the welcome, and appreciate your view points. I have no strong proclivity towards having a highly focused portfolio at the expense of diversification, but it so happens that my investing philosophy precludes owning a large number of companies. I need to be able to understand a business, be able to price it, and make sure it is trading below that appraisal price at the time of my purchase. I have a morbid fear of going anywhere near a business that doesn't meet all three of those criteria.

And it so happens that in the small universe of businesses that I understand and can price (numbering about 25), only one is trading at a price that I like. For sure, risks abound, as with any company ('poortorich' highlighted a couple of risks pertinent to HANS in his comment above). My personal feeling is that the recession still has some steam left in it, so stocks may see another drop yet. Perhaps as much as 30% in Hansen's case. But unless I am convinced that the core business is suffering, I don't concern myself too much with the going price on any given day.

THofler:
The beverage business is not incredibly complicated. For instance, a typical 16 year-old has a better shot at comprehending Hansen's 10k report versus that of American Express. Moreover, people are creatures of habit, so if they have consumed about three billion cans of Hansen's energy drinks in the past three years, I am loath to think that this is a fleeting phenomenon. Will this ever be as big as Coca Cola? I am willing to stick my neck out and confidently say no. But do I need it to be as big as Coke to make money? No, again.

Ricard:
True, now that I think about it, Apple has had to cut prices on at least some models. I stand corrected. Although, most of those discounts happen to be offered for products that are on their last legs in the product life cycle, as newer models are introduced. But still, I have to agree with your assessment that pricing power is a somewhat tricky metric to be measured, and my treatment of that in the above article is somewhat informal.

4 Reasons for VMware Not to Fear Microsoft

David,

Sure, no one is writing off VMWare yet. Most people agree that it will continue to be the leader of the pack in the virtualization space for at least a few years.

That said, I am not sure if it is a good buy at the current price ($80.5 on Jan 4, 2008), even though it has fallen close to 35% from its peak. Its traling 12-month P/E is about a 100, and it is hard to argue that there is a lot of upside left. Not many companies with $30 billion market-caps go for those P/Es (and sustain them over 2-3 years).

Consider this: The most optimistic estimates have VMWare growing earnings at about 70% in FY08, and 50% in FY09. At a stock price of $100, VMWare in Jan-2010 will be commanding a P/E of 50, when presumably the competition would have gotten at least some of their game together.

My gut says that 50 P/E is about the limit that VMWare will hit over the next 2-3 years. Unless, of course, they can continue to grow 70% a few years into the future, which I strongly doubt.