AXP (American Express): Don't Leave Your Portfolio Without It

To begin with, I love my AMEX card. I love the rewards, I love the customer service and I use it every chance I get.

So let's take a look at the stock. Right now it's at a five-year low and although the credit market is not looking so hot right now, all I see is a great opportunity. It is currently trading at a P/E of 12.5 and historic low average is at around 16.

Plus, this 150-year-old blue chip is wholly shareholder-friendly, distributing the majority of the capital it generates to shareholders via repurchases and dividends. Since 1994, 71% of capital generated has been returned to shareholders via repurchases and dividends. Last year, the total was an impressive 88%. That's all money back to us.

Buffet bought his 12% of the company a long time ago but I doubt he's the least bit concerned about whether AXP is going to continue to make money and grow at a blazing 12% rate. Here's the kicker, Visa lost a $1 Billion last year and the Market Cap is trading at $90B, MasterCard made a $1 Billion and it's market cap is $38.11 B. AMEX MADE $4 BILLION LAST YEAR and it's Market Cap is ONLY $49 Billion! If you can't see the value there, you're blind.

Oh did I mention their cash on hand around 20 Billion?

What's there to be fearful about with American Express? The company is a money making machine. The richest people in the world use American Express, which means a) that they spend the most money, and b) that they rarely default, AXP has the lowest default rate among credit card lenders. That's due to the fact that they only issue cards to people with good credit histories. The service is unbeatable which is why any reputable company takes them, and has all of its employess run expenses through them. AXP is a goldmine, the earnings barely slipped last quarter and if anything, they did incredibly well relative to any other bank.

The last points of interest that I dug up is that CEO Ken Chenault won't earn his options unless the company hits some impressive performance targets. The bottomline is, he has a lot of incentive to kick some major ass because he won't get bailed out. He has to earn it. Imagine how much harder pro athletes would play if they were under the same system.

When the economy recovers and cardholders dust off their wallets, AXP has a great shot at charging back to the top.

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An additional update - June 26, 2008:

American Express will be receiving 4 billion from Visa and Mastercard over the next 3 years from anti-trust settlements. It's a year's worth of money for free. The bottomline is American Express now has some padding and protection for the next few years to help them get through the near term pain.



Notes:
In Portfolio: Of course
Duration: Forever
Lakers: We'll be back next year.

UA (Under Armour): I MUST PROTECT THIS HOUSE!!!

On one of the newsletters I subscribe to, Under Armour was recommended. Now there have been an increasing about of testosterone fortified / supplemented ads of muscle bound men screaming at the top of their lungs about how they have to protect their house that I assume they all live in... together? hmmm... OK, OK... I actually know what they are talking about (I know my sports). Which is why I was drawn to this in the first place.

So let's apply some rationale around this.

With athletic companies, you really have to treat them like technology companies operating within the athletic space. You have shoes that feature technology that cushion landings, enhance an athlete's ability to make quick movements, and even clothes that wick the sweat right off your skin so that you aren't bogged down by your own sweat. It's pretty cool what goes into athletic gear today and you can easily get geeked up over it. Technology like Nike Air and Dry Fit technology and Adidas Torsion control and throwing it way back... Reebok Hexalite and Converse React Juice and Hexalite technology all fit the bill. So what does Under Armour have... well... nothing really.

And that is what essentially bothers me. There really isn't a moat to protect it. It's a company who's only real product is their underwear product which wicks away moisture, releases heat and fits skin tight due to it's amazingly high spandex percentage. My only concern is... is it enough? They are now trying to get into other verticals including shoes and other athletic gear however, the product is second rate. So frankly, if there is a moat created by their brand, it's a moat that is very shallow and not very wide. Other companies already have the ability and technology to create a similar product.

The other side of the story is... Could this be the next And1? Like, can it do for cross training what And1 did with basketball. Essentially building a brand around subpar products and a lot of attitude? Quite possibly so.

With that being said. As Mr Buffet say, you want to be very, very selective to what you buy. Frankly, I just can't bring myself to pull the trigger on this one. Just like those manly men in the Under Armour ads say: I MUST PROTECT THIS HOUSE!!!

Investing and Not Investing on Ideas

A few weeks back, I sat down with a co-worker and we chatting about our investing principles. I gave my ideas and he shared his perspective that I thought quite interesting. He talked about investing by trends that he believe will be prevalent in the future. One example was Europe with it's expanding economy will be in a situation where people will be more wealthy and as a result, will indulge more. One consequence on that indulgence is that europe will as a country become more obese and as a result, diabetes might become more widespread. As a result, the idea is to invest in stocks that combat diabetes and encourage weight loss.

So let's take it on step further, what not to invest in. Well, gas is going crazy because of the weaker dollar (because of rate drops) and as a result, everyone is being squeezed. People will drive less, go out less and be more picky where to spend their dollars. I think restaurants, travel, gas and luxury commodity will suffer as a result. So the idea is to hold off on the Starbucks, Jamba Juices, Airline companies... you get the idea.

Interesting perspective huh?

LUV (Southwest Airlines): I'm feeling the LUV

I'm buying Southwest Airlines. It's a boring stock but you know what, maybe it's just the right time to put money into solid stocks that are super low for a nice return.

While newsletters are touting high-risk growth stocks, I see Southwest that historically ranges for 15-18 at 11.50 and to tell me that I can get 50% growth with a dividend within 12-18 and a dividend is a no brainer.



Notes:
In Portfolio: Now it is
Duration: I'm in until 17 or 18
Superbowl Pick: I had to bet on a straight up winner without the points... Pats win*

The Death of the ClickWheel = iPod Rebirth

Apple is down... waaay down. Big deal. Buy More. I am.

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So listening to the investor call yesterday the main thing that stood out to me besides the outlook was the growth of iPod sales. As we all know, it's much flatter today than it was in previous years and I guess we can all point to market saturation in the US for that (They say it growing really well ouside the States) . However, one thing was said yesterday that just stuck in my head (paraphrased): "We wanted to establish a new kind of iPod (Touch) in the marketplace."

A light bulb went off in my head and I realized that this is where the growth will be coming from in the future. Let's get serious, if you have a click-wheel iPod, you really don't need another. It would make you think twice about getting one. But I realized just like iPhone (I know this is obvious to all) this is a product that will evolve as time passes. Once the developer kit is released, there will hundreds of applications/games/features that people can download for their iPod touch. Pretty much it'll do waaaay more than what a clickwheel iPod does today. It pretty much does already with web browsing, youTube and email.

The competition pretty much has caught up with Apple in terms of click-wheel clone mp3 players. But they don't hold a candle to the touch in terms of applications and the fact that it will only get better as more apps are created for it by 3rd parties.

Although the click-wheel has been the heart and soul of the iPod empire, leave it to Apple to get rid of convention and come up with something better.

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And if you need additional reasons:

1) mac sales are soaring. We're a little above 5% but is it really
that hard to believe that it could hit 10% marketshare or even 20%?

Fun stat for everyone: Over 60% of college freshman went to school
with a mac.

2) macbook air is actually selling. I saw it yesterday at #2 but it's
at #4... behind 3 other macs on Amazon.

3) the iPhone story is still in it's infancy.

4) Apple is spreading internationally, You gotta love the weak dollar in this situation.



Notes:
In Portfolio: Just bought more!
Duration: Until Steve Jobs dies
Can't Wait: DEEEETROIT Auto Show this weekend!

NFLX (NetFlix): I want to short this badly...

Welcome to 2008. My overall thoughts just like everyone else's is that it will be a choppy year however I truly believe there will be opportunity to profit if we're smart about it. I think there will be a rise after 1st quarter earnings but anything will be erased once gas prices hit four dollars and subprime reminds us that it hasn't completely gone away.

So to bein the new year, I want to short NetFlix. My main reason is Apple is rumored to be delivering HD movie rentals to the door now. Frankly, Apple can do it. It has the infrastructure and the following in place to do it. Also, it's at an all time high with the recent upgrades. I'm sure they haven't accounted for that. If I can, I'm going to short.

Going with the Flow

It's easy to go up but as we all have recently felt, it's been a bloodbath lately. So even though I've done very well this year, the thoughts of paying taxes on my short term gains this year is not very comforting. So with Etrade's announcement of a free Wednesday. I think I'm going to reduce my short term gains for the year by taking some massive losses and rebuying at the lower price. As my homie Tigges says... it's good for the ego.