Continue to Stay Long China (FXI)

On November 28, I posted about getting long the iShares FTSE/Xinhua China 25 Index Fund (FXI). I will reiterate my "buy." It would be prudent to take some profits in China Life Insurance (LFC) if you went long on the November 28th. I still like LFC and FXI long term.

Note: I have no postion in LFC or FXI

Sell Coke (KO), Buy Proctor (PG)

It is always nice to "buy what you know." Some of the best investments have been in things we use everyday. Based on pure valuation, Coke (KO) (8% Growth) is overvalued trading at 19 times forward earnings while Proctor & Gamble (PG) (12-14% Growth) is fairly valued at 19 times forward earnings. One of the two stocks will correct in the next 6-12 months. In 12 months P&G should trade around $70 and Coke see little price appreciation.

Note: As of 12/20/06 I have no position in either KO or PG

Buy Federated (FD) & Nordstrom (JWN)

There has been a lot of negativity recently surrounding Federated (FD), which owns both Macy's and Bloomingdale's. Sales in Midwestern stores are estimated to be off 11-20% from consumer backlash against converting Marshall Field's stores into Macy's. Eventually, these customers will come back looking for great deals and quality products. In the meantime, the trade is to buy Nordstrom (JWN), which has many stores directly next to Marshall Field's/Macy's stores in the Midwest. The bad news is already priced into Federated, which makes it a great buy at $38. FD can't lose any more loyal Marshall Field's customers. Take advantage with the recent decline from $45 to $38 in and buy Federated.

The trade is to buy Nordstrom now and sell it after they report a monster same store sales number the first week of January. Hold Federated long term as customers will come back that were once loyal to Marshall Field's. Carl Ichan has also considered Federated as a LBO candidate because of its real estate holdings.




Note: I am currently a seasonal employee at Macy's. As of 12/17/06, I have no position in FD or JWN.

Buy When It's Down

The best time to get into a hot stock is when it is taking a "breather." Take a look at Apple (AAPL). With the stock selling off because of declining iTunes revenue is no reason for the stock to drop from $93 to $86. I would still consider setting a stop-loss to avoid any unnecessary pain.

Note: I have no position in Apple as of 12/12/06.
Invest at your own risk. Consult your financial advisor.

Drilling For Value

Energy stocks have held up well in 2006 despite volatile crude oil prices. If you are looking for energy exposure, the big integrated oil companies are the best way to play high oil prices. The big oil companies should outperform the drillers. Just using EV/EBITDA multiples the big oil companies are cheap.

Name, EV/EBITDA, Price/Sales
ConocoPhillips (COP), 3.8, 0.62
Chevron (CVX), 3.9, 0.79
Petroleo Brasileiro (PBR), 4.8, 1.51
ExxonMobil (XOM), 5.3, 1.30
BP (BP), 5.7, 0.84
Petro China (PTR), 6.6, 2.92

Private Equity Takeover Targets

Private equity has a lot of money to invest. The buying binge has just begun. The best way to spot future deals is to see what multiples private equity firms paid in recent buyouts. I focused on the retail sector.

Recent Deals
Golf Galaxy (9.9 xEBITDA) (0.82 xSales)
Eddie Bauer (9.3 xEBITDA) (0.6 xSales)
Yankee Candle (9.8 xEBITDA) (2.1 xSales)
OSI Restaurants (9.0xEBITDA) (0.77 xSales)

Based on recent deals, look for companies trading under 7 x EV/EBITDA , Price to sales under 1, a low amount of debt, and real estate assets)

Takeover Targets, EV/EBITDA, Price/Sales
Finish Line (FINL), 5.5, 0.50 (No long term debt)
Barnes & Noble (BKS) , 5.9, 0.51 (Stock options overhang)
Kirkland's (KIRK), 6.0, 0.21
Charming Shoppes (CHRS), 6.2, 0.56