Apple: To bite, or not to bite

Apple (AAPL)
Price 445.15 (on 5/24 close)
Moat (eroding); Fair value (600); yield=2.49%

What is my take on Apple ?  I think the fair market value of 600 on this stock is conservative given its global opportunities even with existing businesses and hoardes of cash.  As a researcher myself, I can't subscribe to the dumb thought that their innovators will stop inventing great things, or that the passing away of one man can change all that much in that sphere.  As long as key inventors in the company stay on, this ship will right itself.

But on the negative side, the volatility of this stock requires one to have a strong stomach.  Of late, it is like almost every publication and analyst is against Apple probably demonstrating a herd mentality of their own.  Do we stay away and miss what seems to be a long term bonanza with high short term risk or do we jump in?  That is the real question.

My take has been this.  This is not a stock for the faint hearted or for someone who cannot think in terms of a multiple of 100 shares and cannot hedge with stock options.  A play that makes sense to me  today is:
A covered PUT at strike 450 for April 2014 priced today at 52.25

If it doesn't get exercised, you make a good percentage return on money parked.  If it does, then you bought it at an effective price under 400 at which I think it is a steal even if you consider some worst  case scenarios one can think of.  Add to this the fact that there is  buying going on, some appearing to make sure it doesn't go below 425 which appears to be forming as a strong support.

VMC, MLM: Along the road to recovery

Two other stocks I like are VMC (Vulcan Materials) and MLM (Martin Marietta).

VMC has a price of 55.06/fairvalue estimate 65 and a wide moat.
MLM sells at 99.53 and has a fair value of 119.
As noted earlier, the fair value estimates tend to be very conservative.

What is the story?
Between them they control most of the material for road building and construction.  If you agree the only way to provide large number of jobs is through construction, there you go.  I owned VMC bought at 29+ but sold it at about 42 and haven't got an opportunity to buy it back again; it has been going up steady.  Dumb me who needs to improve his selling strategy!  Their quarries near high population grow th areas, careful acquisitions, etc. position them very well.  VMC is highly leveraged (debt/ebitda ~6) and gets dinked for stewardship for that reason, and from that perspective MLM may look better.  They seem to control different resources and are not really in competition.  Last year MLM did try to acquire VMC but did not succeed.  Am I buying now?  No, but I am watching.  If a mrket correction brings them down, yes, I plan to buy some and forget it for a few years unless some fundamentals change.

My Investment Philosophy & Why I Post These

Disclaimer:  I am not a professional investment advisor nor do I have any formal credentials to be one.  Nothing  in these pages is to be construed as investment advice.  I am sharing ideas on what I consider as good bets for myself and bringing it to others as ideas for their own research.   You take my views at your own discretion.  Do your own research.  Over a period of time, you will yourself discover what you look for and you won't need me, hopefully.  You will probably also see I am distilling hours of research into a few snippets for you.

MY INVESTMENT  PHILOSOPHY

0. Money is necessary - even to do good, in fact if one wants to do much good - but is only a means and should never become the end.  The ability to earn it is a talent like any other (just like those that a great poet - Milton -lamented about wasting), and one should not waste it.  What makes it all right or wrong is how one earns it and what one uses it for.

1. Good investment involves protecting one's capital and earning a better return above inflation rates and major indices.  Anything else is speculative or being stupidly lazy.

2. I don't believe in parking money in an index fund or somewhere like that, or worse still delegating its management to someone else.  I don't want my returns to be average, I like it to be above it to make the exercise even worthwhile.

3. I am not going to let someone else "manage" my money to their benefit.  So, I will stay away from advisors like those at brokerages who have an obvious conflict of interest.  [Not all are bad, some are even very good, but I don't have the luxury of experimenting, nor do I want to get burned again -- and thank God I didn't have much to lose when I did stupid things like that long back.]

4. To succeed, you need to observe how the winners play the game and learn from them, and I do that on a continuous basis.

5. I solve very complex problems in my day to day work, am very analytic, etc.  Compared to everything else I do, managing my investments is not all that hard.  I refuse to be too lazy to learn the intricacies of that or to allow myself to be taken by anyone.

6. I have equipped myself with quite a bit of training   through my own studies, from university courses, one-on-one coaching, etc., and from a lot of shadow boxing over a few years with investment ideas.  I continue to educate myself more.

7. I refuse to fall into the trap of becoming  over-confident and remind myself each day that for every one successful in this area, there are hundreds who have failed miserably.


WHY I SHARE MY IDEAS

1. That is my nature.  Plus it burns me to see otherwise bright and brilliant people getting burned or losing opportunities just out of  misconceived notions like: this is hard; I have no time; my work (and making someone else richer) is more important.

2. Life is going to be harder for the next generation without our safety nets of pension, social security, etc.  I am hoping my kids will take a greater interest in such matters as will their friends.

3. I am all too aware of the many studies that confirm the regression to the mean by each immigrant ethnic group to the USA and want to do my best for my cohorts and their kids to maintain the lead our generation has given them.

4. I am sure that if you see a good idea, you will pass it my way and give me yet another idea to research and add to my learning and possibly benefit financially too.

5. Posting my preferences publicly forces greater discipline of research on my part, and some day if I turn pro (most unlikely, though), you can judge if I am worth it.

Two more interesting ideas: CERN & ESRX

CERN &  ESRX

Cerner Corporaton (ESRX)
Price: 98.83 , 3 star;  MorningStar Fair Value: 100

Supplier of healthcare IT software, services, devices & hardware in a market shared mostly by Cerner and Epic.  Beneficiary of new laws (American Recovery Reinvestment Act) and its HITECH (Health Info Tech Economic & Clinical Health) provisions.  The 3 star, I guess, is only because it is now getting close to Fair Market value which in my view has always been overly conservative (with very  few but noticeable misses in the tech arena).

Have you noticed the increased automation in your doctor's offices, for example?  That is what made me research into this issue.  Enjoys a WIDE MOAT rating and decent free cash flow.  Switching costs for customers give it a stable clientele, and its own experience with all segments of the health industry give it a significant edge over the competition.   I like this for its growth potential as well as for its role as a potential defensive stock as a member of the healthcare family.  In short, a  good long term prospect.  I will add to my holdings if it dips anytime due to a general market but not stock specific correction.  If I didn't have any, I would buy some now and time average over the year buying at dips.

Express Scripts (ESRX)
Price: 63; Fair Market Value 73; 4stars; Wide Moat
A thing that earned big money for Peter Lynch ("One up on Wall Street") was keeping his eyes wide open right at home and happenings around him such as his wife buying up Rubber Maid products like crazy.  Are we ?  If so, how could you have not noticed Medco as the prescription provider with increasing presence?  With the acquisition of Express Scripts, they now hold a big market share.  Personally, I am impressed with how they come after you every time you buy a prescription elsewhere, their good service, and the incentives they give to use them.  Relative to peers, they enjoy a high margin and also benefit from various regulatory reforms.  Again, being in the healthcare arena and as one with a large and increasing market share, it also provides for stability in the portfolio in addition to high potential for growth.  Will revisit at the end of the year to review how this did and what 2014 may portend.

This steel is a steal

AN INVESTMENT I LIKE RIGHT NOW:

Arcelor Mittal (MT)
Price on 5/17/2013: 12.90
MorningStar Fair Market value: 35.00  Yield: 5.05%

Hurting in the short term due to European financial problems.  But pent up demand for steel will open up eventually   In the meanwhile, MT is showing tremendous stewardship in cutting costs, getting rid of less profitable properties, etc.  Its handling of the labor  issues in France was masterly.  EU may act soon to restrict Chinese dumping of steel which alone will give MT a great boost.  Even if it doubles in 5 years
(a 14% compound return), it is still below its fair market value and I am willing to wait it out.

A sophisticated play is to write a Jan 14 put for $13 at 1.50 or up.  If it gets exercised, you still paid less than the current price.  If it doesn't you have a return that is well over 10% in just 7 months for parking the money to cover your put writing.  Who gives you that kind of return in fixed income today ????