One of the stocks I own in my portfolio is Macau (in China) casino operator Melco PBL Entertainment (MPEL). In a previous post I lamented my losses on it but believed it still had some good upside in the medium to long term. Well it had a nice run up this week ahead of its first quarter earnings report, thanks a positive review in Barron's magazine which labelled the stock the "The Best Bet in Macau". Here some excerpts from the article and my comments on them.

"Crown Macau started slowly, but it's gaining share in a hotly contested arket. More recently, however, Melco's hand has improved. It's found ways to grab more customers, and has a huge new casino on tap. The Chinese government is now limiting new competition, aiding all the local houses. Meanwhile, shares of the Las Vegas Sands and Wynn are getting pounded by fears about a weak U.S. economy."

As MPEL is a pure play on the Macau casino sector it is benefiting from recent local restrictions on issuing new casino licences and lack of exposure to the fragile US economy. Longer term with the regions growth potential, this stock could double in price if earning projections are met and its new casino opening (City of Dreams in '09) meets expectations. The surrounding area and potential visitor pool for Macau is three billion people (China, India, Japan, Korea etc) and so even getting a few percentage points of market share can translate into huge revenues.

"Melco didn't get off to a fast start. It opened Crown Macau in a remote corner called Taipa Island, where it snagged just 1% of the market, unlike the stellar performances of the local Wynn or Sands resorts. But Ho (CEO of MPEL) quickly boosted his numbers by striking a controversial deal with A-Max Holdings, a company that represents 10 junket operators that are paid commissions to bring in high rollers, or VIPs. To qualify for VIP status, a gambler must plunk down at least HK$1 million ($128,000) at the tables per visit." Thanks to the A-Max deal, Crown Macau's market share is now 18%. The VIP segment "is still growing rapidly," says Ho. "There's a lot of wealth being created in China," he notes. For the newly wealthy, the first two travel destinations are Hong Kong and Macau. "The market won't grow 50% forever, because Macau and China will say it's too much. But 30% growth is more manageable," adds Ho.

What the Analysts are saying:

Bargain hunters have begun to take note with the shares up 30% in the last month). "This is a very interesting story, and one worth beginning to start revisiting," says Philip Ehrmann, an Asia specialist and long-term Macau skeptic at Jupiter Asset Management in London. Others say that Melco's stock, which has risen from a low of 8.2 to 13 recently, could top its recent high of $19, about a 50% gain, and even go well beyond that in the next few years.

"He's bringing new blood with a product strategy that's very different from Legacy Macau, including six-star properties with non-gaming amenities and plans for mass-market visitation," says Deutsche Bank analyst Bill Lerner. In the next few days, Melco PBL will report its first-quarter numbers. Ho won't discuss those, but does outline the investment case: "This is a play on Asia and specifically the Chinese consumer. We have minimal exposure to a U.S. recession. Will we continue to grow? Yes."

Joe Fath, the gaming analyst at T. Rowe Price, thinks that Melco will post Ebitda of $70 million for the first quarter, putting it well on its way to beating estimates of $100 million to $150 million for the full year. Analysts, on average, think Melco will earn 19 cents a share for '08, 65 cents in '09, and 95 cents in 2010. That puts the stock's valuation at a nosebleed 68 times earnings for the current year, but just 20 times '09. "In three years, you should get a double on this stock," says Fath. Not a bad bet.

The fundamentals of this stock could be better (Forward PE = 18, PEG = 6) but the potential looks very promising. If you want a good, albeit risky, play for the medium to long term then this is your stock.

The full article can be found at Barrons.

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Google blew away negative market sentiment to handily beat analyst expectations. The shares were up over 10% in late market trading, boding for a strong open on Friday. As I mentioned in a previous post, I had bought Google last year near its peak at $700 and saw it fall to $400 a month ago. Not a nice feeling, but I held on as I believed in the long term story of this company. My perseverance is starting to pay off.

Here are what some of the early news reports and analysts are saying

- Internet search leader Google Inc. posted a first-quarter profit that soundly beat Wall Street's estimates, driven by strong global sales. Excluding one-time charges, Google said it earned $1.54 billion, or $4.84 per share, beating estimates of analysts polled by Thomson Financial, who typically exclude one-time items from their estimates, of $4.52 cents per share. [WSJ]

- Our ongoing innovation in search, ads, and apps helped drive healthy growth globally across our product lines, yielding another strong quarter," Google Chief Executive Eric Schmidt said in a prepared release.

- "It's a good time to be a Google bull. The boys delivered. They posted very strong results and the opportunities for Google remain tremendous internationally," said Colin Gillis, an analyst with Canaccord Adams. "The thing about Google is it's very direct marketing focused. They deliver a clear return on spend to the clients. It shows that as long as the virtuous spread is intact, advertisers will be allocating Google spend to the Google platforms." [CNBC]

- International revenue was $2.65 billion, or 51 percent of total revenue. The lower dollar helped drive interntational revenue growth. Google generated cash flow of $1.78 billion in the first quarter, up from $1.69 billion in the fourth quarter. [Seeking Alpha]

- ``They're trying to improve their service for customers,'' Paul Meeks, equity research director at Charleston, South Carolina-based L.R. Burtschy.``When you're doing right by your customers, in the long term that's a good thing.'' [Bloomberg]

Google's outlook also remained relatively bullish so hopefully the share price will continue to appreciate. A good end to the day. What are your thoughts - should I hold on or sell?

See more at CNN and TheStreet.com

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Well, here it is, the first post of a regular monthly feature on my (US) investment portfolio. I have investments in the other countries I have lived in, but my main focus is on building up my US portfolio and so that's what this series of posts is focused on. I'll talk about my international portfolio in the near future. So without further ado here is my current portfolio and a quick discussion on some of the stocks I have it in it.
I have used the Yahoo stock widget so prices will be up-to date.

Here's a quick review of stocks currently in my portfolio and why I hold them:

Melco PBL (MPEL) - In a previous post, I talked in detail about this stock. Suffice to say I am still well down on my initial investment (bought when the stock was $20), but believe in the long term growth prospects for Macau and its gambling industry. This is my "speculative" stock of the portfolio.

Brocade (BRCD) - Brocade provides the software, hardware, services and support for enterprise storage needs.The amount of data being transferred online and in corporate environments is driving the growth and demand in storage needs. I bought this as a play on this trend, but am yet to see the return thanks to the market downturn and hit on technology stocks in particular.

Accenture (ACN) - I actually got the stock in this company when I used to work for them. Has ended being a great investment, having tripled over the 6 years I have held it. I like the growth prospects for this company so will hold on for a while longer.

Powershares (PPA) - This is an ETF covering the Aerospace and Defense industries. I bought this a year ago as a defensive play (no pun intended) and thought the ongoing war spending and aviation boom will be good for this ETF. Unfortunately the stock performance has been flat to date and I will review next month if I want to keep this stock any longer.

Google (GOOG) - I wrote in a previous post about the reasons behind my purchasing this stock. Since then the stock, like the rest of the market, has really tanked. I am down almost 50% on Google, but I still like this stock for the long term. Especially now that the Microsoft/Yahoo merger may be in jeopardy, which would have been the only really competitive threat in the search and context online marketing space.

Visa (V) - I bought a small allocation of this stock just after the IPO for about $64. So far it is holding steady. This is one stock I will hold for the next 5-10 yrs, and look to add to my position if the right buying opportunity presents itself.

VGTSX (not in the widget above) - This is the Vanguard International Total stock index fund. This index fund has a low expense ratio and provides good exposure to a number of foreign markets. I invest about $200 in it every month

Goals/Future Choices:

The overall value of my US stock portfolio is about $20,000. Not a huge sum, but enough that I need to have a general plan with where I want to go. My target is to diversify and get the portfolio to $50,000 by the end of the year, through additional investments and capital growth. Unlike a lot of the doomsayers out there I think the next few months will provide a great opportunity to buy stocks in some world class companies at bargain basement prices.

I'll provide another update next month. Let me know your thoughts on my portfolio and stocks you think I should be looking at.


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I am sure you all have read about the new Asian Vegas - Macau. Gaming revenues in Macau, at the southern tip of China, overtook those of the iconic Las Vegas Strip last year, and if the new developments (like the Sands Ventian) succeed, analysts say it will help double that annual income to $13.7 billion by 2010. Ie twice the size of Vegas. The two fastest growing economies in the world - India and China are also within a 3 to 6 hr flight!

Here is a quick recap of the big players in Macau who trade on the US Stock exchanges :

Melco PBL Entertainment (MPEL)
MGM Mirage (MGM)
Wynn Resorts Ltd. (WYNN)

Here the key Risks and upside to investing in the Macau Stocks:

Risks:

- Construction delays, funding problems, infrastructure bottlenecks and the risk of an oversupply of both hotel rooms and baccarat tables could threaten such rosy forecasts for the only place in gambling-mad China where casinos are legal.

- Many of the 20 million visitors who visit the former Portuguese colony each year do not book into a hotel, preferring to gamble to dawn or visit massage parlors.The Macau government and casino operators hope the Cotai Strip will persuade gamblers, mainly from China, to stay a couple of days and spend more money.

- Political risks are always more real in China

- Daily revenue per gaming table in Macau has already dropped to around $12,000 from $22,382 in 2002, when a four-decade monopoly owned by casino mogul Stanley Ho expired and other players, including U.S. operators, were allowed in. However as space becomes limited and development slows down, this should start growing

Upside :

- Analyst forecast doubling of revenue 2010. Ie twice the size of Vegas.

- The two fastest growing economies - India and China within a 3 to 6 hr flight! Asians love to gamble and their incomes are growing. 2008 Olympics should provide a big boost to Macau

- This is the only place in China where gambling is legal! Go to a casino anywhere in the world next time and look around to see who the biggest ethnic group is - Asians!

Here is an interesting comment from the Sands Venetian Billionaire Chairman Sheldon Adelson :

"You think I'm spending 12 billion dollars because I'm a wild-eyed, blue-skied craps shooter," Adelson, the world's 14th-richest man, said of his firm's total investment plans for the Cotai Strip.

"I know what I'm doing. We've already done this in Vegas. There is no question about this," he said in an interview on Monday.


I think in the short term, with all the current credit issues, Macau casino stocks will not do much, but as part of a balanced portfolio - it is worth betting a few dollars given the upside. WYNN and MGM are probably the safest, but have had huge gains. The riskiest, with the biggest upside (assuming successful launch of the City of Dreams project) is Melco PBL.

Roll them dice.....

Disclosure - The author own MPEL shares.

Here is a CNN money article that details the above further :

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Well, Brocade Communications Systems Inc.'s (BRCD) fiscal third-quarter profit did top Wall Street's estimate as the networking equipment maker benefited from the takeover of a big-selling rival, but was still weighed down by heavy acquisition and legal costs. So overall a neutral result. The stock went up nicely along with the market and even got some analyst upgrades.

Management was cautiously optimistic in it's guidance and competitors like Cisco and EMC have also reported and forecast good results.

Learning Tip : Always examine competitors performances when looking at a company. It gives you a good way to compare and assess a company's performance. Also at a sector level, if they are all forecasting good results, it is a signal that further growth in the sector is expected.

I think I will stay with Brocade for a bit longer to see if they can deliver, however will sell if any bad news is reported.

Andy

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Want to tell you a story about my trading history with Brocade Communications (BRCD). This was one the first stocks I bought after moving to the US. It had just announced good results and was trading around $10.50, There were some good articles about it and I saw some positive news stories about it. The fundamentals looked good, solid ratios, analyst buy ratings, no debt and it was in a duopolistic market - the only other major competitor was Cisco.
Yet today the stocks stands at $7. (It was down to $6 a few weeks ago and has had a run up before the earnings announcement today). So why did the stock drop so much, even though I did my homework? Well here are some reasons I think why :

- They had just been through SEC investigation for options backdating. Even though they paid a fine and had new management in place - this should have been a big red flag to me. It only takes one mistake for a company to lose it's reputation but it takes a lot of time for a company to get it back. Institutions probably didn't want to buy it until new management has a better track record.

- Their biggest competitor is Cisco- CSCO (up 5% in the last 7 months). I should have realized that Cisco is a much bigger, better established company. It has better margins and was more diversified! It was as they sat best of breed in the sector and I possibly should have bought this stock instead. I did do my research and that time felt BRCD had better relative growth prospects.

- Seasonal factors! Tech is normally weak during the summer. Brocade is a tech stock! I should have factored this in and waited to buy the stock

- Before and After the positive earnings announcement in Jan (just before I bought the stock), the share price ran up about 30% - so I bought at the peak. I should have waited and had patience.

Anyway, I am still holding the stock as I do believe in the long term it is a good company in a growth sectors (Networking and storage management). I am not selling anytime soon and hopefully their future earnings will improve. If the earnings and forecast are poor - I will probably sell and take the loss! However I will not forget the factors I should consider for my next investment,

Your comments are welcome.

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There has been a lot in the papers recently about VMware. A great article on the IPO and the role of EMC can be found here.

My wife works in the IT industry and she has actually used VMware. She says it is amazing and from what I have seen from a ROI (return on investment) perpspective this technology is great.

I will be watching EMC (who still own 89% or so of the company) and VMware. Becasue EMC is a cheaper entry point (see above article), I will rather buy this company. I'll let you know when I trade it.

Your comments are welcome.

Andy

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Bought 5 shares of Google (GOOG) a few weeks ago @ $US 699.83 - the highest share price at which I have bought any stock. Even though the stock has fallen to around $600, I think the stock is still cheap and a good long term investment.

So why did I buy it?After being in the states for almost 1 year now, I have watched Google's share price continue to appreciate. It is continually in the media (good and bad publicity) and is now a common name worldwide - heck, its even an official word in the English dictionary. So apart from not wanting to miss the ride on one of the hottest global technology companies, here's why I decided to take the plunge :-

- Even at current prices, most analysts are saying the stock has got a long way to run. The consensus target is around $US 750 for this year, and $US 1000 by the end of next year.

- It's PEG ration is 1, this means that's its earnings are growing fast enough to justify its high valuation. It also has a lot of cash for future acquisitions and should be able to whether a slowing US economy better than most other companies due to it's business model and overseas exposure.

- The on-line ad market is a global market that is growing exponentially. Currently on-line advertising makes up about 2-5% of all ad dollars spent worldwide, which means that there is a lot of growth potential. Google is essentially an on-line advertising company driven by it's superior search engine. It is the best positioned to take advantage of the on-line advertising growth given its search engine domination.

- Google is already involved in other areas - Google Maps, Google Applications - however none of these is bringing in much revenue yet, just supporting the advertising model. However, recently they have been talking about launching the G-phone and in final negotiations with some leading US wireless (mobile) telecommunication companies about selling handsets tailored to its new G-phone operating system. This should provide Google with an extensive reach to consumers (70% of people here have a mobile phone) in the U.S. market to sell their advertising. Their objective is to also make applications and services as accessible on cell phones as they are on the Internet. Eventually this model can be rolled out overseas - where the mobile phone coverage/saturation is even higher than America. Australia's has about a 90% mobile phone saturation. Asian countries like Japan and South Korea are even higher. Lots of growth potential.

- I didn't buy a huge amount. My total cost was $3500, which is not a small sum, but not an amount which will bring me to financial ruin if I lose it. So I plan to hold the stock for a long time and hopefully watch the stock go to $US 1000. I will also look to buy more stock - 1 at a time - if more positive news emerges.

- Most importantly I think that the management and employees at Google are smart people. From what I have read, they have a great culture and belief in their company's future. Google reminds me of Microsoft 15 years ago - I missed out on that play, and don't want to be left out this time around.

Some good articles with more details about Googles future are :

1. Wall Street Journal Google Story

2. Google Tops $700 mark

3. AP - Googles Future

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