Blogvesting

I like to buy when the general market is down, and sell when the general market is up. I took advantage of the down market today to increase my holdings of NVDA and ZINC, and to reduce my holdings of CCIX. However, the declining market also triggered my stop on HIMX, causing the liquidation of my entire position in this stock at a loss of -16%. I am starting to have second thoughts about HIMX. While the stock is extremely undervalued, the LCD market is likely to shrink in the short-term, and LCDs will become obsolete in the long-term, which means this stock is only good for a short-term play. The stock price is likely to go nowhere unless a major institutional buyer picks it up, which is unlikely in the current climate because there are better values elsewhere in stocks which are not in a secular bear trend. Furthermore, tax loss selling by retail investors is likely to drag the stock even lower as we approach the end of the year. There are a couple of scenarios where shareholders will be rewarded without an institutional buyer. Firstly, a large LCD company can buy out HIMX. Secondly, management can issue large dividends to divvy up the hidden value in the company. Both scenarios are pretty iffy. Companies may hold back on investing in LCD technology if they think it will slowly become obsolete. Managements typically like to hold plenty of cash in the coffers, at least without substantial shareholder pressure, since this gives them more flexibility and power. Of course, it would have been nice to have thought of this before my original investment, but I guess that’s the school of hard knocks for you.

I have a much higher confidence level in Makita Corp (MKTAY), a Japanese ADR which specializes in producing power tools for professional contractors. The company’s products are very highly regarded in the field, and less than 15% of sales is in the US, meaning its exposure to the US housing market is very small. The company has $1990M in tangible liquid assets (cash, securities etc), or $14.21 per share. In year ending 2008 Mar, FCF was $142M, net income was $460M. Amazingly, for 3 months ending June 2008, sales is actually running above 2007 levels! Sales increased in every region except North America, which dropped 5%. Management is actually forecasting revenue will be flat from 2007, and 2008 net income will come in at $420M, or $3 per share. Even assuming net income drops to $140M, at a PE of 10, MKTAY is still worth $10 per share in earnings, plus $14.21 per share in cash. No matter how you slice it, this is ridiculously cheap for a company which is holding revenue steady in a difficult global economic environment, and which has a very strong brand value. The only worry I have is that the stock may be largely owned by the Japanese, and I am unfamiliar with the psychology of the Japanese stock market. Unlike HIMX, I expect Makita to continue to survive and prosper in the long term, especially if the US housing crisis takes down a couple of Makita’s competitors in the US.