MoneyMiser Picks

Amazing what falls in the stock market sometime. What if I told you that two best of breed companies we're offering you a more than 50% discount on what their fair value estimated prices were?

Well we've got such a situation, thanks to the fears being force fed to us about the economy going down the toilet.

They are Garmin and MGM Mirage.

The case for GRMN:

The premiere name in GPS devices. They put competitors like Tom-Tom to shame. And really, who believes those God awful commercials from Tom-Tom actually helps Tom-Tom's bottom line. Forget Tom-Tom, or Sue-Sue, or whatever name you want to double... give-a-give a Garmin. Makes it much simpler to get your idea across.

Garmin won't be dragged into a price war because of the quality of their product. The company also makes money off of selling its GPS technology to cell phone makers.

Then there's the financial side. And boy does Garmin impress. Book value per share has climbed from 78 cents per share in 1998 to $10.83 per share in 2007. And Return on Equity has never dipped below 22% in the past decade. Garmin's ROIC in the past 5 years average is 34.5%, which is more than four times the industry average, and more than three times the S&P 500 average.

With numbers like that, Garmin can't be trading below fair value can it? Oh Mr. Market is having another one of his manic depressions over this GPS giant. Current fair value estimate, given it's current earnings, projected average growth rate, and an average past P/E for 10 years is approximately $116. It's selling at $50 per share as of end of Friday trading, and that's AFTER an $8 per share move from Monday!!! So yes, it's up nearly 20% in a week, but it has a lot more room to grow.

The case for MGM:

Fair value estimates for this stock given it's current earnings, projected average growth rate, and an average past P/E for 10 years is approximately $111. From that level, it should hit a target price of $444 in 10 years, averaging about 15% compounded ROI (minus expenses of investing and taxes).

Then you've got the properties. Macau, the Bellagio, the MGM Grand, and several new international hotels/casinos including a new Middle East venture. This company can thrive when the U.S. market slows down thanks to its international exposure.

Then there's the book value and Return on Equity story. In the past ten years, book value per share has increased from $4.63 per share in 1998 to $20.63 per share as of 2007. In five of the past six years, Return on Equity has been more than 10%, and increased the past five straight years.

MGM's longer track record and success as a public company, makes it a more stable name to invest in than it's bigger competitors Wynn or Harrah's.

Both GRMN and MGM have three key technials in common:

1. Both recently crossed above their 30 day moving average
2. Both of their Stochastic oscillators are surging. MGM above 50, and GRMN crossed above 80.
3. Both MACD divergences are approaching 0. And the trend looks positive.

So I'm buying both for my SLO2 account and my longer term Marketrocracy account.

Other new positions:

Citibank's drop back below $24 per share has me buying in. This is purely for a value TRADE. I predict at least a 15% return within a month.

Pfizer dropped below $20 per share. The last time this happened, Prizer shot up above $22 quickly (like it was injected with Viagra or something... lol). I don't see why it won't do it again. Heck PFE below $20 is a great long term investment for both the dividend, and turnaround potential.

I added more to my Visa position on the dips this past week. I still feel Visa has tremendous long term potential.

Holding on to: WDC, YUM, BHI, INTC, BUD, MSFT, NTRI, CSCO, DNA, VZ, GE, SIRI, TSO.

Selling HUM, AMAT, MO, PM, ESLR, MRK to free up cash to buy GRMN & MGM. Also, because I just don't understand these stocks enough.

Comments: View Comments |  Saturday May 17, 2008