From a distance, EZEN has numbers that can knock your socks off. According to the data at Morningstar.com, Ezenia has a trailing 12 month ROA of 30% and an ROE of 69%. It also has an operating margin of 28.5% and a P/E ratio of 9.5. The balance sheet has no long term debt and about a quarter of the market cap is cash. With a market cap of only $40 million, the company could be an undiscovered gem and may have lots of potential to grow.

Among the risks the company lists in its filings is “dependence on major customers.” The 10Q fails to quantify this risk but it does state:

“Phoenix Technologies is a global leader in the development, design, and support of software products that define, identify, and restore digital devices based on the x.86 microprocessor architecture. . . . The majority of the Company’s revenue comes from Core System Software (“CSS”), the evolution of BIOS (“Basic Input-Output System”), for PCs, servers and embedded devices, where Phoenix has established global market share leadership.”

Phoenix’s customers include a familiar roster of tech companies: Dell, HP, IBM, Lenovo, Samsung, Sony, Sharp, Motorola, and others. PC manufacturers typically install Phoenix’s software at the manufacturing stage.

To be fair, Syneron’s machines don’t use lasers alone, but electro-optical synergy [ELOS] technology, which is a combo of electrical and optical energy that supposedly can do wonders when put together. For those who want to learn more, see the company’s 20-F where it does a decent job of explaining the technology in understandable language.

Maybe the coolest thing about Syneron’s technology is its profitability. Gross margins are about 85% and net margins are around 44%. There aren’t too many companies out there that can put 44 cents from each dollar of sales into their pockets, after paying for all costs. Fat margins have helped ELOS win a balance sheet with no debt and $137 million in cash. The company’s market cap is $564 million.

The balance sheet carries no long term debt (although check out lease obligations) and $108 million in cash. There’s no dividend, but the company might be using its cash to fund growth.

With a market cap of $1.37 billion, PSUN has room to grow. Abercrombie & Fitch (ANF) has a market cap of around $5 billion, as does American Eagle (AEOS).

WWAG is an equipment auction company with offices in Arizona and the United Arab Emirates. The company holds auctions for construction, industrial, and transportation equipment on a consignment basis.

In 2005 management claims to have had over 65% of the market for all industrial equipment auction sales in Dubai. 2005 WWAG auctions covered $110 million of equipment in 5 large Dubai auctions and 4 online auctions, up from approximately $98 million in 2004. Management has expressed its opinion that the market for their services will continue to grow at a healthy pace.

The filing reads:

For starters, TKC seems phenomenally profitable. According to the stats on Yahoo Finance (our source for all the numbers in this post), the company has an operating margin of 28.57% and a net margin of 22.56%. Return on assets is 17.25% and return on equity 34.10%. Wow.

Even after Wednesday's jump, Turkcell’s multiples are just not high. The company has a trailing P/E of 9.64 and a forward P/E of 7.60. Enterprise Value to EBITDA is only 4.77 and price/sales is 2.03. If you know of another opportunity to buy such high profitability at such low multiples, please email us!

A. This is a highly speculative company which one day may be worthless.

B. We have only a superficial understanding of the company’s drugs.

Security strikes us as a growth sector, but we don’t have any particular insight into the company’s products. We will note though, that ACTI customers include British Telecom, BankOne, Visa, ABN Amro, Hewlett-Packard, and even the US Department of Defense.

What caught our eye at ACTI was its balance sheet and insider buying. At March 31, 2006 the company reported current assets of $155 million, almost all in the form of cash and short term investments. ActivIdentity has no long term debt and only $27 million in total liabilities. The price to book ratio is 1.13 which is particularly interesting because company assets are highly liquid. ACTI’s market cap of $196 million represents an approximate 53% premium to current assets net of all liabilities.

Examples include: Microsoft (MSFT), Intel (INTC), Wal-Mart (WMT), Pfizer (PFE), Johnson & Johnson (JNJ), and Home Depot (HD). These are among the best run companies on the planet and while none are dirt cheap and all certainly face multiple challenges, it’s hard to argue that any are overpriced.

Our initial thesis was that the company would have attractive free cash flow, a high quality media library, and a unique business model of producing and acquiring niche content on a tight budget. After some research, all these things seem to be proving true.

The company’s net income looks ugly but operating cash flow is much prettier since charges for the “amortization of films and television programs” are added back. In a recent conference call, CEO Jon Feltheimer stated, “We can keep throwing off 90 to 100 million dollars of consistent free cash flow and still keep building our long tail for the soon-to-come explosion of digital demand without a big film hit or TV show is a model we believe is sustainable.” Taking the mid-point of Feltheimer’s estimate, LGF is priced at about 9.6 times free cash flow.

It will be very difficult for Intel (INTC) to again have the kind of profitability and growth it enjoyed as the standard-bearer of the semiconductor revolution. Competition has grown. The demand for semiconductors has become so large that no one company will be able to dominate whole segments , as Intel [once] did in memory chips and microprocessors. At least five or six companies will be splitting up that silicon pie into more equal slices.

Does this worry sound familiar? Have fears of AMD soured your taste for Intel?

The point of this post is not so much to discuss Apollo Investment Corp. as a potential investment (although it does have a 9.5% yield) but to share some of the investing philosophy AINV discusses in its recent 10K.

What does STU do with all of its profits? A good portion of them are paid out to shareholders as dividends. The yield on the stock is now about 2.5%.

Analysis of the balance sheet is trickier than usual because the company is highly leveraged, but much of the leverage is federally guaranteed. We need to spend more time on it before we get comfortable, but do note a price/book ratio of 2.96.

So here goes:

PCAR is now priced at 11 times trailing earnings and 7.9 times EBITDA. The balance sheet is solid with $2 billion in cash and little debt in the manufacturing division. The dividend yields 1.6%, ignoring any special dividends the company might pay. (Yahoo Finance)

From January 1926 through December 2004 the annualized total return for the S&P 500 was 10.46% per year. The dividend component consists of 41.28% of the return.

41.28% is a much larger number than we would have guessed. If you’re now ready to go yield hunting, consider starting with these names from Jack Hough’s “Not Just Income” screen in Thursday's Wall Street Journal which “makes modest dividend demands while looking for stocks that seem likely to increase in value.” Hough ran the same screen in January and it has since returned 7.4% vs. 1.2% for the S&P 500.

Mohawk CEO Jeffrey Lorberbaum is certainly incentivized to see MHK’s share price grow. He owns close to 20% of the company. He has sold millions of dollars worth of shares this month, although we don’t know whether that was to diversify his holdings or for other reasons.

Peter Lynch, in the book One Up on Wall Street, refers to these companies as "The Stalwarts." Jeremy Siegel, in one of the great investment books of the year, The Future for Investors, calls them "corporate El Dorados." Warren Buffett has long preached the virtues of these types of companies having "economic castles protected by unbreachable moats." (1)

Inspired by this piece, we ran a screen to help us locate potential gems in this sector of the market.

Let’s take a look at why Gannett is such a dog. First, it’s trading at 11.67 times trailing earnings and 11.23 times forward earnings. Danger! Whenever a P/E ratio slips that low, you know the stock is on a slippery slope down to zero. According to analysts, it’s much smarter to buy stocks at 73.47 times trailing earnings — that’s what Google’s P/E ratio is. 77% of analysts covering Google rate the stock either “Strong Buy]]> Tue, 28 Mar 2006 04:34:39 -0500 GroovyStocks GCI), the stock gets a Hold rating. That’s 61% of the bright minds on the Street giving the company a Hold, so you know it’s got to be true.

Let’s take a look at why Gannett is such a dog. First, it’s trading at 11.67 times trailing earnings and 11.23 times forward earnings. Danger! Whenever a P/E ratio slips that low, you know the stock is on a slippery slope down to zero. According to analysts, it’s much smarter to buy stocks at 73.47 times trailing earnings — that’s what Google’s P/E ratio is. 77% of analysts covering Google rate the stock either “Strong Buy
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