Enterprising Investor Forum

Following on from our recent post on Sasol, we are now moving to a company in the healthcare Sector.

Johnson & Johnson (JNJ) is engaged in the research and development, manufacturing and sale of a range of products in the healthcare field. Johnson & Johnson has more than 250 operating companies and operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics.

Despite recent performance, especially the slower growth, JNJ still presents the chance to own one of the best blue chip companies in the market and a company that has been shaping the healthcare system for over 120 years. As you are well aware, consolidation has already started in this sector and we are sure that JNJ is going to play an important role in this upcoming restructuring wave and that the robust balance sheet and strong cash flows will mean that they will be in an ideal position to take advantage of the best opportunities that come along.

We feel that JNJ is worth studying as a long-term play for any portfolio. JNJ is a blue chip company that:

• Operates in one of the fastest growing sectors in the global economy.
• Has great balance sheet with a track record of strong performance and healthy dividends.
• Is trading at a very reasonable multiple.
• Presents reduced risk – a conservative play – in current market conditions.
• Will benefit and play and active role in the healthcare sector consolidation.

Please read our disclaimer.

Some of our readers have been asking for us to highlight some interesting companies that they could study in more detail. We plan to start a series of short posts that will give you a quick overview of  some companies we feel are worth looking into.

Sasol (SSL) is an integrated oil and gas company with substantial chemical interests and production facilities in South Africa, Europe, North America and Asia. The group operates commercial scale facilities to produce fuels and chemicals from coal in South Africa and is focused on developing ventures internationally to convert natural gas into clean diesel fuel.

One of the main issues in the increase of oil prices is the actual refining capacity but what is interesting in the case of Sasol, is that the product offer doesn’t need any additional refining capacity. Furthermore, the company is extremely profitable, pays a good dividend and is able to fund growth internally.

Within the context of the current energy crisis, a company like Sasol – with synthetic fuels, natural gas / oil, coal mining and chemicals – is definitely going to be worth studying!

Please read our disclaimer.

As our regular readers know, we are not in the buying mood but we wanted to post this interesting chart of Safety Insurance (SAFT). Despite being a terrible year for the markets, it seems that SAFT hasn’t done too bad…we have written about this company in the past, hence the update.

In the following graph, we compare the one year performance vs. the total market (using the VTI etf) and small caps (using the VBR etf) as benchmarks.

As you can see, SAFT has massively over performed both benchmarks and has quietly continued with  business. In a nutshell, it’s a small regional insurance company with no debt, a steady dividend yield (above 4%), price close to book value and all in all, a relatively conservative stock.

Some of our post on SAFT:

• Our initial post on SAFT: here

• One of our updates: here

• Entering the market: here

Has anyone been keeping track of DLBs performance? Here is a chart comparing it to the total market (using the Vanguard Total Martket ETF – VTI) and to a mid cap growth benchmark (using the Mid Cap 400 ETF – IJK) for the past 2 year performance:

It looks like they have been holding up pretty well! Despite a lot of people questioning the long-term moat that Dolby has and stressing that their position will weaken due to the number of new competitors entering the market, we continue to believe that this company knows how to innovate, manage their business and continue to growth profitably.  Furthermore, over 50% of the company is still owned by founder and chairman Ray Dolby and our readers know that we love this kind of businesses.

In case you are not familiar with it,  Dolby Laboratories is one of the leading providers of audio entertainment technology to both the private and professional consumer segments… their is a very high chance that you use their products or technology every day without even knowing it.

Recently, one of the main points commentators are holding against DLB is blu-ray’s slow progress and other options surrounding HD but we feel that this is only one part of the puzzle and an that DLBs patents, products and technologies are still a huge assets.

Moreover, despite that fact that most players in this industry continue to have issues with intellectual property enforcement, DLB track record will mean that they will be at the forefront of finding new solutions and ways to continuously evolve and renew themselves in these ever changing markets.

Take a look at them and see what you think – definitely a company to have on your watch list!

Please read our disclaimer.

In his latest opinion piece, Warren Buffett reached out to the public and wrote: “Buy American. I am.”

Here are some of the key points which were published in today’s New York Times:

• The financial world is a mess, … In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary. So … I’ve been buying American stocks.

• Why? … A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors.

• I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

• Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value.

• Equities will almost certainly outperform cash over the next decade, probably by a substantial degree.

Read the whole piece: here.

It’s been a while since we ran one of our screens! In the midst of all this turmoil and our continued posts on looking for Small Cap Value, some of our readers have asked us about interesting opportunities in the S&P.

Needless to say, there are a number of high quality companies trading at extremely distressed prices and don’t forget that you could always avoid having to take a specific bet by simply buying the SPY ETF that tracks the whole S&P500. However, we thought that it could be interesting to look at it a different way and look for one of the less obvious names and ran the following screen:

• S&P Index Membership
• Return on Equity >/= to Industry Average Return on Equity
• Price/Book </= to Industry Average Price to Book
• P/E Ratio </= to Industry Average P/E Ratio
• Income per Employee >/= to Industry Average Income per Employee
• Inventory Turnover >/= Industry Average Inventory Turnover
• Debt to Equity Ratio </= Industry Average Debt to Equity Ratio
• Dividend Payout Latest Fiscal Year >/= Industry Average Dividend Payout Latest Fiscal Year
• Net Profit Margin >/= Industry Average Net Profit Margin

Would you believe that the above screen only gave us one name? That’s it, the only company that came up is:

Total System Services, Inc. (NYSE: TSS).  From the Yahoo! profile page:

• Total System Services, Inc. provides electronic payment processing and related services to financial and nonfinancial institutions. The company’s services include processing consumer, retail, commercial, and government services, as well as stored value and debit cards. It also offers merchant acquiring services to financial institutions and other organizations. In addition, the company provides risk management tools and techniques, such as credit evaluation, fraud detection and prevention, and behavior analysis tools; and revenue enhancement tools and customer retention programs, such as loyalty programs and bonus rewards. It offers its services in the United States, Europe, China, Japan, Mexico, and Canada. The company was founded in 1982 and is based in Columbus, Georgia. Total System Services, Inc. (NYSE:TSS) operates independently of Synovus Financial Corp. as of December 31, 2007.

A quick check shows us that this company is currently rated a ‘BUY’ on the Barron’s stock grader system and that Morning* gives it 4 stars. Does this mean that this is an automatic ‘BUY’? The answer is NO! This simply means that after having filtered through our screen, it appears that other people following this company think that it has good prospects… now it is up to the Enterprising Investor to do his own due diligence to understand if this company is really worth investing in and if it fits into a specific investment strategy.

Enjoy your research and let us know what you think!

Please read our disclaimer.

Well, the Paulson plan is well underway… who are the lucky ones:

• Citi – 25 billion
• JP Morgan – 25 billion
• BOA – 12.5 billion
• Merrill – 12.5 billion
• Goldman – 10 billion
• Morgan Stanley – 10 billion
• …

We have already written about this in the past but we just came across this interesting pdf from the Wall Street Journal:

• excerpt: … Since the late1940s, recessions have lasted an average of 10 months, and stocks have hit bottom an average of three months before the economic downturn ends. The worry now is that, if the world’s financial system doesn’t right itself, a recession could last longer, perhaps even as long as the 16-month slump that ended in 1975…

Go directly to the WSJ article: click here.

Back on June 25th we wrote about how we felt that Mr. Market had overreacted with respect to Quality Systems – read post here. Well, we are happy to report that they beat market estimates and increased the dividend by 20%.

We continue to believe that this is a great company with excellent long-term prospect and can’t wait to see how the rest of the year will play out.

Despite John Thain insisting that the latest round of write-downs was the last, Merrill Lynch is at it again!

They have announced that they would sell a big part of their toxic asset-backed securities and issue new stock to raise another $8.5 billion. When will this end?

Once again, questions are being raised about how many of these brokerages and banks will be around in 24-36 months time…