Maybe a Pine Tree

Ahknaten Gets a Makeover - LPL and SKM

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There are times when it's necessary to modify a strategy; this was one of those times. Although I like the portfolio I had made, in a competition such as this, it's necessary to concentrate more on known stocks, momentum plays, earnings picks and stocks that I like. At times I'll increase the size of the picks and at other times I'll need to sell as I diversify away some holdings. If I sell, it doesn't necessarily mean I dislike a stock, as I'll try to switch from stock to stock in an effort to capture some alpha and momentum. The strategy might work.

To start off, I made two large bets on LG Philips LCD Co. Ltd. (LPL) and SK Telecom Co. (SKM).

Recently, LPL announced earnings and there are a few things I'd like to note:

1. LPL had their best quarterly profit since 2004. Sales rose 43%.
2. LPL is building a new facility so they can build bigger TV sets.
3. Next year, the 2008 Beijing games will take place. That should increase sales for the South Korean company.
4. LPL has a low forward PE of 9.6; low price/book of 2.5 and some high sales growth. Although the margins look weak, this could be a potential turnaround story.
5. I dislike this method, but if one takes the industry average PE of 17 and multiplies it by the estimated earnings next year of $2.59, then that gives a target price of $44. I'm not that optimistic, but it's a nice number to look at.

As for SKM, here are a few things to note:

1. SKM has a rather low PE and nice margins.
2. When I create a DCF valuation model, I get a price target of $27. That is below the current price of $32. It's quite possible that I'll sell some of this stock, but I'll ride a bit more of the momentum that it has enjoyed.
3. KTC might be a better pick, and it's one that I had mentioned in a Forbes article entitled "Seven Buy-And-Hold Stock Stars". SKM has higher operating and gross margins than KTC though.

Since both stocks were purchased with such a large % holding, I will need to sell these as time goes on, as I pursue some other short term opportunities.