Across the Bosphorus for some Rigó Janci, Turkish Delight! , and maybe a little Blackberries for the side.

While the market digests Fannie Mae and Freddie Mac, I decided to do a little shopping yesterday. Nokia has popped up on my value screen over and over again, but with the iPhone 3G launch yesterday, I decided to stay on the side instead and let the marketing engine hype of Apple take over. I still need to play around with some of the N-series phones to see how they stack up.

Almost half of the Ten Grand Chicago portfolio consists of “discretionary” stocks (NutriSystem, Harley Davidson, and Herman Miller) and almost all US based companies, it was time to diversify things a bit while also picking up some good quality companies.

I’m not talking about the BRIC’s which get more than their fair share of the market press, but the Eastern European plays in Turkey and Hungary, and one play up in the Great White North (Canada).

Buy number 1: TurkCell Iletisim Hizmetleri A.S.(TKC) Turkcell first came on to my valuation screen a few weeks ago. Running with a P/E of 8.16, and a return on assets of 20.97%, the company looked interesting. Digging a little deeper reveals Turkcell commanding a 57% market share of the cell phone subscriber market, growing 45% in subscriber growth from the same period last year. Operating margins run at an impressive 28% (ttm) [1]. What pushed me over into the “buy” side was that the population demographics lean heavily towards Gen Y and Millenials. I had the opportunity of visiting Turkey two years ago and was very fortunate to visit Leo Burnett’s local office for a presentation where I learned half the population is below 30 years of age. This age group presents a stable forward looking revenue stream in the cell phone service market for many years to come. It also doesn’t hurt that landlines across Europe are being dropped in favor of cell phones [3].

Buy number 2: Magyar Telekom PLC. (MTA) Next up is a Magyar Telekom, a telecommunication service provider based in Hungary. They offer mobile, fixed line, and IT services for corporate clients in Hungary. The valuation metrics are not as favorable as TurkCell, with a P/E of 11.73, and a return on assets of 7.08%. Operating margins are nice at 19.8%. Besides these metrics, the company paid a nice dividend for 2007 at $2.37/share [4]. If trends continue, this results in a 9% yield at today’s share price. Holding this company gives me an excuse to understand the telecommunication services market in Hungary, Montenegro, and Macedonia :)

Buy number 3: Research in Motion (RIMM) Finally, I decided to pick up Research in Motion, It’s no secret that Apple simply wants to kick them in the groin as they open up the iPhone to software developers and Microsoft Exchange compatibility. For those who don’t really understand this move, it is like having hundreds of thousands of programmers available to you to write phone applications as opposed to a few hundred. So why RIMM? I’ve been using a Blackberry for over 5 years now and this thing is my bread/butter for office email connectivity. I’ve dropped these things on the parking lot floor with such furious force hoping it would break out of spite of being collared to my day job.

Besides that, I was impressed with the company’s expansive growth last year and decided to do a full cash flow analysis on the company. Updating my analysis and tracking the next 3 year forecast at 25% year over year revenue growth, trailing down in step wise fashion to 15% and then 5% thereafter puts them at a valuation range of:

The company does have a very high valuation with P/E of 40.56. However, this is still a growth story. They command exceptional operating margins close to 30% that will help them deflect some of the economic weakness and should set them up nicely when things turn around. As much as Apple, Nokia, and Research in Motion want to eat each other’s lunch, there is still room for all of them.

Homework time:
I got my work cut out now… the queue for publishing my full detailed analysis now looks like this:

• Herman Miller
• Harley Davidson
• Intevac
• TurkCell Iletisim Hizmetleri
• Magyar Telekom
• Research in Motion

Enjoy Monday’s Fannie Mae and Freddie Mac fireworks, while I continue to plug away at these companies.

Disclosure: I own RIMM, MTA, and TKC

References:

1. TurkCell 2008 Q1 Presentation
2. CIA World Fact Book (Turkey)
3. Europeans Ditching Landlines for Mobile. Vucheva, Elitsa. June.30.2009.
4.Dividend Policy, Magyar Telekcom

Update on NutriSystem and Harley Davidson

NutriSystem recently announced the acquisition of Nu-Kitchen, a health oriented food delivery service in the New York city area. NutriSystem plans to expand the freshly prepared meal service to the north eastern part of the United States, and looking to take it nationally. The stock has responding nicely on the news, however there are a few things to keep an eye on:

1. The terms of the deal weren't announced. At last check, NutriSystem had $42.9 million in Cash and equivalents. We'll have to wait until the Q2 earnings report to get a better picture on this investment.
2. I never heard of Nu-Kitchen before, obviously because they only serve New York city. And therein lies the challenge for NutriSystem. Freshly prepared health based meals cater to the New York city crowd. I used to live/work there and this service makes sense for those that want to eat right, but don't have the time because they are working and partying hard in the Big Apple. Now if you head out to Debuke, it is simply going to be a tough sell. NutriSystem will probably do well with this new product/service line in the major metro areas. The current business as is will need to be rigged for scalability. Nu-Kitchen's current Nutritionist Penny Geller, and Executive Chef Atusko Boyd simply won't be enough to scale nationally. Shelf stable NutriSystem kits and Freshly Prepared Meals are two different animals. The logistics of managing a service like this nationally from the ground up won't be easy. I'd expect NutriSystem to hire someone that knows how to manage fresh/meal management at a national level as they look to expand.

In one of our other holdings (HOG), Harley Davidson recently announced layoffs of about 700 people company wide and then follows up today with the announcement of the purchase of Italian motorcycle maker MV Agusta Group for approximately $25 million Euros, and also assume $45 million Euros of the company's debt... ouch. The layoffs I understand, the acquisition not readily so. I'll see if I can make sense of both of these acquisitions in future posts.

Disclosure: I own NTRI and HOG

HOG Wild

Sometimes while I am driving in my car I sit there salivating and admiring the freedom exhibited by motorcycles I see on the street. Unfortunately for me I have a beautiful wife who loves me dearly and does not want to see me injured by riding one of these bad boys. If you are smirking while reading this because you have one in your garage... then screw you. If you are like me and can only live vicariously through others, then read on.

In my lala world, this is the bike I would be riding. My other bike would be in the garage, most likely a Ducati Monster or something like that. I'd have a black helmet, tinted visor, a 3/4 cut New York city style leather jacket, and a regular pair of jeans... wait, maybe if I had biceps like Bruce Lee, I'd wair a tank, and go out and get a matching tatoo across my forearms...

Some of you may cringe at this vision, because you'd rather be seen riding a different Harley, but decked out like Angus Young from AC/DC, or someone from Pearl Jam. The point I am trying to make, is that Harley resonates with people from different walks of life. I don't have to go into details about how strong Harley's brand is, or how people associate these bikes to their lifestyle. Each Harley owner "customizes" how they want to look on these bikes. If you tell me you don't sit back and wonder what kind of threads you would wear while riding a Harley, then you are lying.

So, what is a guy like me who has "my lovely wife loves me and doesn't want to see me die on a Harley" syndrome to do? Well, you can own a Harley by buying up HOG shares. This is a stock that turns up using Joel Greenblatt's magic forumla system. Return on Average Assets for 2007 runs at 16.69%, and price to earnings multiple of 9.74.

Last Thursday during the Dow's dive, I mentioned that I was going to go shopping. Harley Davidson was on the list... but I didn't pull the trigger until today. I do know that Harley is experiencing problems collecting on customer loans, and that prospective Harley buyers are tapped out on credit. I think the strategy going into this bear market is to pick up quality companies run by good management that are currently on sale and that will do well when the economy turns around.

My full analysis report will come. Lots of homework to do. I'll be publishing these reports in the following order:

- Herman Miller (MLHR)
- Harley Davidson (HOG)
- Intevac (IVAC)

If there is anything you'd like to see that I didn't cover from my other analyses, please let me know. In the mean time, ride on!

DeVry and Strayer's recent pull back

Two companies which I like, but waiting for a better entry point saw pretty sharp declines June.30th. DeVry and Strayer both fell 12% and 6% respectively that day. The only news coming out was that both companies were being added to the Russell 1000 index, and what looked to 3.1 million shares of DeVry offloaded. The valuation looks more attractive, but I'm still waiting for a range below the $50's to compensate for the risk associated with the DOJ investigation that came to light in May.

In other news Apollo (APOL) reported a good quarter last night. Quarterly revenues rose 14% while they mentioned an improvement in collections from students before they are likely to drop out.

$9,789.66 (Q2 2008) Peformance Update

Q2 wrapped up with more selling. Oil broke $140/barrel, the financials continue to slide with investment firms downgrading each other, and home values continue to slide. Outlook looks pretty bleak, but there are opportunities in this environment. Some notable Q2 actions of the Ten Grand Chicago portfolio:

More Nutrisystem: I decided to increase my position in NutriSystem yesterday. Given the bleak economic outlook, the company guided their top line revenues downward for 2008. I revised my estimates for the company to drop by 11% in 2008, followed by another drop of 6% in 2009. Taking a 5% year of year growth from 2010 onwards, I have them valued at just over $18/share. Trading under $14/share as of yesterday, this was enough of a safety margin to add to my existing position. Nutrisystem’s brand and product line should help them once the economy turns around. It all depends on how deep this is going to go :)

Building Homes: The Select SPDR Homebuilders ETF (XHB) was added to the portfolio this quarter as well. This was one of those “no need to overanalyze” moves. If your time horizon is 20 to 30+ years and you believe that people still need to live somewhere, then this makes sense.

Herman Miller: They had a great quarter, but will face tough headwinds with rising costs in steel, plastics, and aluminum. They are trying to protect margins by recently increasing product prices. Again, another nicely valued company with a strong brand and product offering that will help them once the economic malaise passes. I’m working on a deeper analysis of this company in the coming weeks.

Financials Hurt: The Select SPDR Financials ETF (XLF) has been beaten down since adding it to the portfolio. More writedowns, layoffs, government interventions, and even the possibility of money market funds stepping in to buy stranded auction rate securities. The stomach virus is working its way through the gut… hopefully out the rear this year or next.

Copper Strike: Southern Copper (PCU) has dampened the losses of the overall portfolio showing relative strength. Copper is still in demand, supply isn’t increasing any time soon. The only blemish is the current mining strike happening in Peru. Still holding on to PCU.