I want to introduce Sacramento Executives readers to The Motley Fool. Many of you probably have already heard about The Fools, Tom and David Gardner. The Motley Fool began in 1993 - when they

published a newsletter with a simple stated goal: to educate, amuse, and enrich their readers and help them make better financial decisions. Headquartered in Alexandria, Virginia, the privately-held multi-media company today has nearly 200 employees in the United States and UK and is a top provider of investment advice and financial information.

The Motley Fool's market-beating newsletter advisory services are also industry leaders. Delivering superior investment ideas and stock recommendations, The Motley Fool currently offers eight services that cover a range of strategies (including mutual funds, value, growth, small caps, etc.) and financial topics (including personal finance and retirement planning).

Today, four newsletters later, I decided to reflect on their advice and determine if it is worth it.

And the answer is absolutely yes. The Hidden Gems team has delivered. The eight stock recommendations are up on average 8.9%, versus 3.9% for the Dow Jones and 4.9% for the NASDAQ. Here are the detailed results:

1. January 24 recommendations - Volcom, Inc. (NASDAQ: VLCM) up 29.1% and Jones Lang LaSalle, Inc. (NYSE: JLL) up 8.6%;
2. February 28 recommendations - Blackboard, Inc. (NASDAQ: BBBB) up 21.8% and Aladdin Knowledge Systems, Ltd. (NASDAQ: ALDN) down 22.3%;
3. March 27 recommendations - American Oriental Bioengineering, Inc. (NYSE: AOB) up 20.5% and Hurco Companies, Inc. (NASDAQ: HURC) down 7.5%;
4. April 24 recommendations - Jinpan International, Ltd. (AMEX: JST) up 13.4% and MVC Capital, Inc. (NYSE: MVC) up 7.6%.

The bottom line - The Motley Fool's Hidden Gems newsletter provides excellent advice and is worth the $199 annual fee. I plan to renew my subscription in January. And folks, you should seriously consider subscribing too!

Disclaimer: I do not receive any benefit from the Motley Fool by writing this review.

Pierre Cutler
The Sacramento Executive

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Warren Buffett at his annual Berkshire Hathaway shareholders' meeting this past weekend:Capitalism without failure is like Christianity without Hell.

His sidekick Charlie Munger: We try to behave as if Berkshire stock was all owned by crippled relatives.

It's definitely working, many of Berkshire's investors have become multi-millionaires.

Buffett said the current financial crisis is a byproduct of a system that encouraged executives to "paint pretty pictures."

At his annual stockholder's meeting, he followed his owned advice and gave very blunt guidance:

"There is absolutely no question" that Berkshire's returns will decline, Buffett said. "Anyone that expects us to come close to replicating the past should sell their stock. It isn't going to happen. I think we're going to get decent results over time, but we're not going to get indecent results."

Gillian Parrillo
The Sacramento Executive

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One year ago this week, I invested my annual bonus in The Procter & Gamble Company (NYSE symbol PG). How has my investment performed? Rather well, thank you.

On March 19, 2007, I paid $61.72 a share. Friday, PG closed at $66.74. During the year, PG provided a dividend of $1.40 per share, resulting in a 10.4% return on investment.

Over the same timeframe, the Dow Jones Industrial Average was down 1.3%, the NASDAQ was down 6.8%, and the S&P 500 was down 7.1%.

I am pleased with the results of Procter & Gamble, given the tough market conditions we experienced the past year.

Why do I own Procter & Gamble?

PG is recognized as one of the most innovative companies in the world. The company's economics are great, posting annual double digit growth for the past five years in sales, earnings per share, book value, and return on invested capital. PG is also a huge cash cow, generating $13.5 billion in cash from operatons last year and sports a beta of .58. The management team, led by CEO A. G. Lafley, is great. According to Warren Buffett, great people work for great leaders. So, I am concluding PG has attracted great talent.

And speaking of Warren Buffett, Mr. Buffett has made PG his fourth largest publically traded company in the Berkshire Hathaway (NYSE symbol BRK.A) portfolio. If PG is good enough for Buffett, then it certainly is good enough for me.

One concern that I have with PG is it appears to be selling at a 30% premium to fair market value (I calculate the fair market value of PG to be $51.12). But based on its historical P/E ratio of 22.7 and analysts' projected earnings growth rate of 11.6%, the share price has room to grow to $77 in twelve months, providing a potential return on investment of 17.5% at the current price. $77 is realistic as PG's 52-week high is $75.18.

Pierre Cutler
The Sacramento Executive

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According to Sacramento-based Magazine Comstock's, the lack of a college education is costly to the average Californian.

Last year in California, the average income for a high school graduate was $27,000. That's compared to $56,000 for a bachelor's degree, according to the California Postsecondary Education Commission.

What is the State of California thinking? Duh!!!!

Once again, the Government is taking a short-sighted approach to spending on education.

The lack of education is the root of most evil. When will our politicians realize this and set a proper course for our educational system?

Pierre Cutler
The Sacramento Executive.

Posted by Gillian Parrillo at 2:57 PM | Permalink | Can you digg it? | Comments (0) | TrackBacks (0)

My daughter is working on her Masters Degree at West Virginia University. She plans to be a history teacher. So far, she has racked up $88,000 in school loans. Can this be a good thing? I just don't see how it can be. Why?

Simple math tells me otherwise. Last year, the starting salary in the Dallas Independent School District was $32,266. Assuming the interest rate on her private loan is 12% and she paid $1,000 a month, it would take twenty years to pay off the loans. Paying $1,000 a month on her initial teacher's salary would be a tall order.

The cost of college education for the average American student is becoming prohibitive. The system needs to be overhauled. Perhaps a community or government service program might be an option. Private financing from the banks is not the answer. Afterall, the banks are in business to make money. And make money they do. Our college students deserve better. The Government must step in and prevent companies like Wells Fargo and Bank of America from taking advantage of students.

Any ideas? Let's hear them!

Pierre Cutler
The Sacramento Executive

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Legacy Capitial Management, a Roseville, California wealth management service provider, consistently outperforms the market. Since June of 2002, Legacy Capital's equities portfolio has produced an annual return of 13.34% compared to a return of 8.5% for the S&P 500 Index (data through December 31, 2007).

Principals, Joe Milam and Jim McCarthy, offered the following market commentary in the most recent quarterly letter to their clients:

Stock (and bond) prices reflect expectations about the future. When those expectations suddenly change, volatility is the result. Investors are adjusting their perceptions about the strength of the U.S. (and Global) economy, and simultaneously adjusting their tolerance for risk. The result is a "double whammy" on asset prices; a lower forecast for expected profits, and a higher discount rate used to price those future profits into today's dollars.

While there is little argument that the U.S. economy is slowing, the length and depth of such a slowdown is often overestimated initially. And, when cooler heads prevail, investors will recognize the opportunities available to world-class companies that enjoy a competitive advantage in the global economy.

Pierre Cutler
The Sacramento Executive

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All About Voting took issue with my post, “My Daughter's $4 Million Wedding” with the following:

Issues:

1. You did not account for inflation. That $4 million is not worth as much in 35 years as it is now.
2. 12% and 15% tax-free returns annualized for 35 years is an incredibly high return. I don't think it is realistic to use numbers above about 8% for this situation. If you think that they can get that kind of sustained return at an acceptable level of risk then you need to spell out how.
3. You can't always live for tomorrow. You should live a little for today too.

Many of you know how passionate I am about the time value of money. I’ve repeatedly written about it. I’ve told my kids over and over about it. And every time I talk about, I anticipate someone will say, “Nobody can get 12% returns consistently over time. Show me how.” Here’s proof of some of my ranting and raving about the subject:

“My Son The Millionaire”, published in March 2007.

“Creating Wealth And The Time Value Of Money", published in May 2005.

Well, All About Voting, here’s how:

1. Invest in the Dogs of the Dow – the historical annual return has been 17.3% since 1973. I wrote about the Dogs of the Dow last month (click here for the post).
2. Invest in Berkshire Hathaway (BRK.A or BRK.B) run by perhaps the most successful investor of all time – Warren Buffett. I have been a huge fan of Warren Buffett for years, even dragging my twelve year old son Nathan to a share holder meeting once, where Warren Buffett offered Nathan sound advice. (See “Bob Shallit Makes A Dad Even Prouder”, published by Gillian Parrillo, March 2007). The annual return on investment for BRK.A has been 19.25% since December of 1988.
3. Invest according to the principles of Joel Greenblatt’s Magic Formula, where he has achieved 40% annual returns since 1985. I introduced the Magic Formula in a post in December 2006 (click here for the post).
4. Be a value investor the Warren Buffett and Phil Town way. This means buying companies at market discount (i.e., paying 50 cents on the dollar). Phil Town’s book, Rule #1, explains how. I invest this way. All my trades are documented weekly on our companion website Our 4-Hour Workweek.
5. Subscribe to The Motley Fool’s Hidden Gems Service. I pay $199 a year for the service. Since 2003, Tom Gardner’s picks are up on average 29.55% and Bill Mann’s picks are up 38.52% (versus 12.71% for the S&P 500 over the same timeframe).
6. And the best way to achieve higher than 12% returns is through the Company 401K plan. I invest in seven funds, with a lifetime average annual return of 15.45% (includes a base of 13.63% plus matching funds from the company of 75 cents per dollar invested). The seven funds are Fidelity Diversified International Fund, with an 11.93% annual return since 12/27/1991; Fidelity Blue Chip Growth, with an 11.4% annual return since 12/31/1987; Allianz NJF Small-Cap Value Institutional Class, with a 14.17% annual return since 10/1/1991; Rockwell Collins Stock Fund, with a 22.05% annual return since 7/6/2001; Dodge and Cox Stock with an amazing 12.09% annual return since 1/4/1965; Fidelity International Discovery Fund with a 10.05% annual return since 12/31/1986; and, Fidelity OTC Portfolio with a 13.72% return since 12/31/1984.

So folks, it can be done. Every single investment that I make, I expect at least a 15% return, or I don’t make the investment. It requires me to do my homework, be patient, and not follow the crowd.

My daughter will have a lovely wedding and enjoy the moment. But she will also budget accordingly, and invest now for her future. Just remember, every $2,000 dollars spent today is a $233,446 loss 42 years from now at 12% annual return. Think about what you spend today, and save some too!

Pierre Cutler
The Sacramento Executive

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My daughter Rebekah called me two weeks ago to announce that she is engaged to be married to Brian. I am absolutely thrilled and happy for Rebekah and Brian.

And now for the wedding plans and a very interesting question - how much should Rebekah and Brian budget for the wedding? I sent Rebekah an email on my thoughts...

Rebekah, Gillian and I are so happy for you. Congratulations!

Here is something to think about regarding the wedding budget. Assume you spend $30,000 for your wedding. The real cost of the wedding would be $4,000,000. Now don't call me crazy, but let me prove it. You are now 25 years old. If we gave you $30,000 to invest in the stock market and you were able to achieve 12% annual return on investment (tax free) until you were 60 years old, the investment would grow to $1,583,989. And if you achieved 15% annual return, the investment would be worth $3,995,266.

That's essentially your $4 million wedding. Imagine what kind of party you could have at 60, if you invested the $30,000 now! Gillian and I look forward to working with you and your Mom to help with the wedding plans and budget.

Love, Dad.

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The Sacramento Executive began play yesterday at MSN's stock picking contest Strategy Lab Open. Today, I wrote two blogs to kick off play:

1. Out Of The Starting Blocks
2. Strong Buy Recommendaton For Cognizant Technology Solutions

Posted by Pierre Cutler at 9:31 AM | Permalink | Can you digg it? | Comments (0) | TrackBacks (0)

Tomorrow is the start of round 2 of the Strategy Lab Open, a stock picking contest sponsored by MSN Money. Read how you can play against the pros in picking stocks. I entered and will be looking to bring my "A" Game.

Join in on the fun!

Pierre Cutler
The Sacramento Executive

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I am all charged up and ready to go for the next round of the Strategy Lab Open. My engine is revved and here's what I'm thinking...

1. The market has taken a beating since October and now is the perfect time to go shopping because stocks are on sale. My top two value picks are Cognizant Technology Solutions Corp. (CTSH) and Helix Energy Solutions Group (HLX).
2. A growth stock that has fallen almost 50% (from $43 to $23) since October is Buffalo Wild Wings Inc. (BWLD). I love the fact that at this sports bar and restaurant, the "girls have gone wild'! Sally Smith and her management team (5 out of 7 executives are women) have racked up impressive numbers. Since 2000, revenue has grown from $53.2M to $321M (8-year annual growth rate of 29.3%) and net income has grown from $2.6M to $20.5M (8-year annual growth rate of 34.3%). Under Smith's leadership, the company grew from 35 locations (in 1994) to 493 in December of 2007. The 500th unit will open in February.
3. And then my rock steady company - The Procter & Gamble Company (PG) - a Warren Buffett heavy weight (his fourth largest publicly traded company). Earnings come out on the eve of the start of the contest and I don't expect any surprises. The stock is off ten dollars from its recent high. PG is an innovation machine.
4. My final area will be to focus on the Magic Formula Index which I introduced on my website a little over a year ago. The Magic Formula Index is inspired by "The Little Book That Beats the Market". According to the author Joel Greenblatt, the book may be the only investment book that you will ever have to read. Greenblatt claims an enviable record of 40% annual returns since 1985 in his private investment firm Gotham Capital. In the Little Book (it really is little!), Greenblatt lays out a simple strategy that just seems to work. He contends you should buy 20 to 30 stocks each year with the highest pre-tax earnings yield (the inverse of price to earnings ratio) and the highest return on capital. And so I have five picks from my Magic Formula Index - Biovail Corp. (BVF), Freight Car of America Inc. (RAIL), Korn/Ferry International (KFY), United Online Inc. (UNTD), and ViroPharma Inc.(VPHM).

Pierre Cutler
The Sacramento Executive

Posted by Pierre Cutler at 8:23 PM | Permalink | Can you digg it? | Comments (0) | TrackBacks (0)

There's a fun stock picking contest at Investor Place Blogs. According to the website:

We're partnering with MSN Money and Marketocracy to find the next great undiscovered stock picking guru. The Strategy Lab Open stock picking competition starts February 1, 2008 - and we want you to come along for the ride.

Here's how it works: You get $1,000,000 to manage in a model portfolio from February 1, 2008 through July 11, 2008. You plan your picks, react to the market, and write about your investing decisions, and we all have a lot of fun along the way.

The winner goes on to compete against the investing pros in front of an audience of millions in MSN Money Strategy Lab.

Pierre Cutler
The Sacramento Executive

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Fear and panic selling! Fear and panic selling! That's all I'm hearing on CNN, NPR, MSNBC, CNBC, etc. Since October, the Dow Jones Industrial Average has fallen 16.2% from its high of 14,279.96. And the past few days, oh my! The world is about to end! So say the market pundits.

But what is the truth? Since 1945, the market has fallen more than the present decline thirteen times. And what happend after each of these market setbacks? The market recovered each and every time. Imagine that! Did the world come to an end? No. Did the sky fall? No. Should I have jumped off the building and ended my life? No.

So what did happen? Well here are the facts:

1. May 1946, the Dow was at 213. The market fell 23.9% for 38 months until hitting a low point of 162. And ten months later, the market fully recovered.
2. April 1956, the Dow was at 521. The market fell 19.4% for 19 months until hitting a low point of 420. And ten months later, the market fully recovered.
3. January 1960, the Dow was at 521. The market fell 17.4% for ten months until hitting a low point of 566. And seven months later, the market fully recovered.
4. December 1961, the Dow was at 735. The market fell 27.1% for seven months until hitting a low point of 536. And fourteen months later, the market fully recovered.
5. February 1966, the Dow was at 995. The market fell 22.2% for eight months until hitting a low point of 774. And 25 months later, the market fully recovered.
6. April 1968, the Dow was at 985. The market fell 22.2% for 18 months until hitting a low point of 744. And 30 months later, the market fully recovered.
7. January 1973, the Dow was at 1,067. The market fell 46.3% for 21 months until hitting a low point of 573. And 118 months later, the market fully recovered.
8. September 1976, the Dow was at 1,026. The market fell 28.9% for 42 months until hitting a low point of 729. And thirteen months later, the market fully recovered.
9. April 1981, the Dow was at 1,030. The market fell 25.3% for sixteen months until hitting a low point of 769. And two months later, the market fully recovered.
10. August 1987, the Dow was at 2,746. The market fell 36.9% for four months until hitting a low point of 1,733. And twenty months later, the market fully recovered.
11. July 1990, the Dow was at 3,024. The market fell 22.5% for three months until hitting a low point of 2,344. And nine months later, the market fully recovered.
12. May 1998, the Dow was at 9,311. The market fell 20.8% for five months until hitting a low point of 7,379. And two months later, the market fully recovered.
13. January 2000, the Dow was at 11,908. The market fell 39.7% for 32 months until hitting a low point of 7,181. And 50 months later, the market fully recovered.

And my point? The recent decline should not worry the long term investor? Why? It's simple. Long term, the market always makes investors money. My proof:

• January 12, 1906, the Dow Jones hits 100.
• Less than 22 years later, December 19, 1927, the Dow doubles, hitting 200.
• 27 years later, December 28, 1854, the Dow doubles again, hitting 400.
• Less than 10 years later, February 28, 1964, the Dow doubles again, hitting 800.
• Less than 24 years later, February 6, 1986, the Dow doubles again, hitting 1,600.
• Less than 6 years later, January 3, 1992, the Dow doubles again, hitting 3,200.
• Less than 5 years later, November 20, 1996, the Dow doubles again, hitting 6,400.
• Less than 11 years later, April 18, 2007, the Dow doubles again, hitting 12,800.

Pierre Cutler
The Sacramento Executive

Posted by Pierre Cutler at 7:21 PM | Permalink | Can you digg it? | Comments (0) | TrackBacks (0)

On December 15, I offered Warren Buffett's Contrarian Thought #21 - "Be fearful when others are greedy and greedy when others are fearful."

Today, on my ride home from work, National Public Radio reported the world stock markets fell in dramatic fashion with more bad news about the U.S. economy. In two separate reports, I heard the words "fear" and "panic selling". And today's results - China's Shanghai Composite Index fell 5.1%; Toroto Stock Exchange fell 4.5%; Janan's Nikkei fell 3.9%; Hong Kong's Hang Seng fell 5.5%; India's market fell 7.4%, the largest one day fall ever; Germany's DAX fell 4.2%; France's CAC 40 fell 4.7%; and Britain's FTSE 100 fell 3.6%. The U.S. markets were closed today in honor of Martin Luther King Jr.

The sell-off reminded me of Warren Buffett's words. Fear is creeping into the stock market. And when it takes a stronghold, buyer beware! Tomorrow's markets promise to be volatile, based on today's Index futures trading. As the markets continue to plunge and fear becomes more widespread, buying opportunities will be at their best. Per Buffett's value investing strategy, "When fear is the highest, stocks will be on sale". And be ready to buy.

Remember, "Be greedy when others are fearful". That's the basic principle for Rule #1 - Don't Lose Money. Thank you Warren for this lesson. Who will learn the lesson?

Pierre Cutler
The Sacramento Executive

Posted by Pierre Cutler at 2:53 PM | Permalink | Can you digg it? | Comments (0) | TrackBacks (0)

Earlier in the month, I wrote about the Dogs Of The Dow. The "Dogs" are beating the overall Dow Jones Industrial Average. Since the beginning of year, The DJIA is down by 8.8%, while the Dogs of the Dow are off 6.6%. Click here for details.

Pierre Cutler
The Sacramento Executive

Posted by Pierre Cutler at 10:03 AM | Permalink | Can you digg it? | Comments (0) | TrackBacks (0)

Earlier in the month, I wrote about the Dogs Of The Dow. The "Dogs" are beating the overall Dow Jones Industrial Average. Click here for details.

Pierre Cutler
The Sacramento Executive

Posted by Pierre Cutler at 7:12 PM | Permalink | Can you digg it? | Comments (0) | TrackBacks (0)

The Dogs of the Dow investment strategy has been around for several years, first introduced by Michael O’Higgins in his book “Beating the Dow” in 1991. The strategy is simple – once a year, buy the ten highest dividend yielding stocks in the Dow Jones 30. At the end of each year rebalance, being sure to sell only after the short term capital gain timeframe has expired. Since 1973, the results have been dramatic, with an average annual return of 17.7% vs. 11.9% for the Dow Jones Industrial Average (according to www.DogsoftheDow.com).

As of December 31, 2007, the Dogs are (yield/closing price):

• Altria Group (MO), 3.95%, $75.58;
• AT&T (T), 3.83%, $41.56;
• CitiGroup (C) 7.33%, $29.44;
• DuPont (DD), 3.71%, $44.09;
• General Electric (GE), 3.34%, $37.07;
• General Motors (GM), 3.98%, $24.89;
• JP Morgan Chase (JPM), 3.46%, $43.65;
• Pfizer (PFE), 5.62%, $22.73;
• Home Depot (HD), 3.35%, $26.94;
• Verizon (VZ), 3.92%, $43.69

Let’s track the progress of these Dogs and see how it compares to our other investment strategies, the Magic Formula Index and the Power Women 50 Index.

The Dow Jones closed the year at 13,264.82 and the S&P 500 closed at 1,468.36.

Pierre Cutler
The Sacramento Executive

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“Managing your career is like investing – the degree of difficulty does not count. So you can save yourself money and pain by getting on the right train.”

In my year-end post, Ten Lessons Learned In 2007, my number eight lesson learned was “Work for great people at great companies”. Mary Buffett details the lesson with the following account from her former father-in-law:

One not only needs to learn what kind of business to invest in but what kind to work in. If one goes to work for a company with poor long-term economics, then he can never expect to do really well because the company doesn’t do well. Salaries will be below average and raises will be few and long between, and there is greater risk of losing your job because management will always be under pressure to cut costs.

But if you go to work for a company that has great long-term economics working in its favor, then the company will be awash in cash. This means higher salaries and tons of raises and promotions for a job well done. Plus there will be plenty of room for advancement as management looks for ways to spend all that free cash.

You want to work for a company that has high margins and makes lots of money. And you want to stay away from businesses that have low margins and lose money. One is a first-class train ride to Easy Street; the other is a long, slow hard freight-train ride to a Siberian nowhere.

To drive Warren and Mary Buffett’s point home, examine the company that I work for - Avionics Systems, Inc. (not the actual real name) and its stock performance. The company provides a 401K program and presently matches my contributions with 8% in company stock. The historical return on the company stock is 22.41% (since 2001). Assume I am 29 years old and have $10,000 in company stock, and the company’s stock continues to perform at the historical level of 22.4% until I retire in 33 years at the age of 62. My $10,000 of company stock would be worth $7,906,015. And that’s not adding any more shares to the account.

Now what if I had not chosen to work for this great performing company, but rather worked for an average company that performs at the historical stock market average return of 11%? My $10,000 in company stock would be worth $313,082 at retirement.

You see Warren Buffett’s point? Work for great companies. It pays off in the long run.

Are you working for a great company? If not, go get a great job this year.

Want some suggestions? Try Garmin Ltd. (GRMN), The Procter and Gamble Company (PG), Research In Motion, Limited (RIMM), Apple Inc. (AAPL), Google Inc. (GOOG), Intel Corporation (INTC), Microsoft (MSFT), Dick’s Sporting Goods Inc. (DKS), or T Rowe Price Group Inc. (TROW), all which outperformed the market the past year and have great long-term economics working for them.

Pierre Cutler
The Sacramento Executive

(Note: I own shares in The Procter and Gamble Company.)

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Two weeks ago I posted Twenty Contrarian Thoughts. I 'd like to add one and make it 21:

Warren Buffett on investing in the stock market:

"Be fearful when others are greedy and greedy when others are fearful."

Pierre Cutler
The Sacramento Executive

Posted by Pierre Cutler at 6:44 AM | Permalink | Can you digg it? | Comments (0) | TrackBacks (0)

A year ago today, we introduced the Magic Formula Index, inspired by The Little Book That Beats the Market. According to the author Joel Greenblatt, the book may be the only investment book that you will ever have to read.

Greenblatt claims an enviable record of 40% annual returns since 1985 in his private investment firm Gotham Capital. In the Little Book (it really is little!), Greenblatt lays out a simple strategy that just seems to work. He contends you should buy 20 to 30 stocks each year with the highest pre-tax earnings yield (the inverse of price to earnings ratio) and the highest return on capital. That's all there is to it. Sit back and beat the market. If you applied this magic formula since 1988, you would have realized a 30.8% annual return. Not bad, particularly when the S&P 500 produced a 12.4% annual return over the same period.

This is year two of testing Greenblatt's magic formula. Here's how it works:

For the next year I will keep track of his results. We'll call it the MagicFormula Index. From his website www.MagicFormulaInvesting.com, I applied his formula and ran the following search: top 25 companies with a minimum market capitalization of $100 million. Here are the results and closing prices as of December 12. Let's invest a fictional $100,000 and see where we end up on December 12, 2008.

• Accenture Ltd. (ACN), $34.65
• Aspreva Pharmaceuticals Corp. (ASPV), $25.77 (second year on the list)
• Avici Systems Inc. (AVCI), $7.35
• Barrett Business Services Inc. (BBSI), $18.14
• Biovail Corp. (BVF), $14.73 (second year on the list)
• China 3C Group (CHCG), $3.81
• Cutera Inc. (CUTR), $15.72
• Freight Car America Inc. (RAIL), $35.17 (second year on the list)
• Heelys Inc. (HLYS), $6.05
• Heidrick & Struggles International Inc. (HSII), $34.45
• ICF International Inc. (ICFI), $25.79
• Idearc Inc. (IAR), $17.51
• Intevac Inc. (IVAC), $16.34
• King Pharamceuticals Inc. (KG), $10.25 (second year on list)
• Korn/Ferry International (KFY), $19.71 (second year on the list)
• Pacer International (PACR), $14.36 (second year on the list)
• Palm Inc. (PALM), $5.49 (second year on the list)
• Palomar Medical Technologies Inc. (PMTI), $20.14
• Replidyne Inc. (RDYN), $4.01
• Silicon Image Inc. (SIMG), $4.88
• Travelzoo (TZOO), $15.14
• Trident Microsystems Inc. (TRID), $6.95
• USA Mobility (USMO), $13.50
• United Online Inc. (UNTD), $11.25 (second year on the list)
• ViroPharma Inc. (VPHM), $8.55 (second year on the list)

Posted by Pierre Cutler at 5:25 AM | Permalink | Can you digg it? | Comments (1) | TrackBacks (0)

Twelve months ago we begain tracking the Magic Formula Index. Since December 13, 2006, the Index is up 2.8% versus 5.3% for the Standard and Poor's 500 Index. Hence, the Magic Formula did not produce magic. It underperformed the S&P 500 Index by 2.5%.

A year ago we introduced Joel Greenblatt's book "The Little Book That Beats The Market". In his book, Greenblatt shared his success with the Magic Formula.

Recall that we started with a notional $100,000 investment in a basket of 25 stocks. The investment is now worth $102,844. The Standard and Poor's 500 Index closed today at 1486.59 (the S&P 500 Index closed on December 12, 2006 at 1411.56).

In our basket of stocks, 14 were up and 11 were down. The best performing stock was Fording Canadian Coal Trust (FDG), up 81.5%. The worst peformer was Mannatech Inc. (MTEX) down 52.1%. Details of the Index, assuming today's closing prices:

• Aspreva Pharmaceuticals Corp. (ASPV), $19.70 vs. $25.77, (up 30.8%)
• Biovail Corp. (BVF), $21.00 vs. $14.73, (down 22.7%)
• Cavco Industries Inc. (CVCO), $34.41 vs. $35.78, (up 4.0%)
• EPIQ Systems Inc. (EPIQ), $10.50 vs. $16.78, (up 59.7%)
• Earthlink Inc. (ELNK), $6.42 vs. $6.76, (up 5.3%)
• Fording Canadian Coal Trust (FDG), $22.58 vs. $38.40 (up 81.5%)
• Freight Car America Inc. (RAIL), $53.39 vs.$35.17 (down 33.8%)
• Frontier Oil Corp. (FTO), $31.34 vs. $41.82 ( up 34.4%)
• Harvest Natural Resources Inc. (HNR), $10.21 vs. $12.54 (up 22.8%)
• King Pharmaceuticals Inc. (KG), $16.56 vs. 10.25 (down 38.1%)
• Korn/Ferry International (KFY), $22.30 vs. $19.71 (down 11.6%)
• Mannatech Inc. (MTEX), $13.46 vs. $6.18 (down 52.1)
• New Frontier Media Inc.(NOOF), $9.31 vs. $5.20 (down 35.1)
• OmniVision Technologies Inc. (OVTI), $14.59 vs. 17.40 (up 19.3%)
• PW Eagle (PWEI), $34.96 vs. 33.91 (down2.4%)
• Palm Inc. (PALM), $14.01 vs. $5.48 (up 3.4%, includes special dividend of $2,569.59)
• Pinnacle Airlines Corp. (PNCL), $10.34 vs. $15.71 (up 51.9%)
• PortalPlayer Inc. (PLAY), $13.40 vs. $13.48 (up .6%)
• True Religion Apparel Inc. (TRLG), $15.41 vs. $18.97 (up 23.1%)
• United Online Inc. (UNTD), $13.38 vs. $11.25 (down 10.0%)
• Vaalco Energy Inc. (EGY), $7.97 vs. $4.69 (down 41.2%)
• Valassis Communications Inc. (VCI), $16.44 vs. $12.40 (down 24.6%)
• Verigy Ltd. (VRGY), $18.06 vs. $26.69 (up 47.8%)
• ViroPharma Inc. (VPHM), $14.99 vs. $8.55 (down 43.0%)
• Western Refining Inc. (WNR), $27.17 vs. $27.29 (up 1.7%)

I still believe in the Magic Formula Index and will track it again over the next year. Look for a new set of stocks for the Index in the next post.

Pierre Cutler
The Sacramento Executive

Posted by Pierre Cutler at 10:12 PM | Permalink | Can you digg it? | Comments (0) | TrackBacks (0)

FMC Technologies (NYSE symbol FTI) is undervalued, selling at 55% discount of fair market value. Using Warren Buffett's approach, on Friday I paid 45 cents on the dollar for FTI. My purchase price was $58.45 and the estimated fair market value is $130.84. Now that's a real bargain!

Here's what attracted me to FTI (all five-year annual growth rates): bookvalue 25.8%, earnings per share 40.8%, revenue 16.0%, return on invested capital 13.0%, and free cashflow 23.2%. The analysts' consensus earnings annual growth estimate for the next five years is 31%.

What's not to like about this? Great financial results over the past five years and solild future predictions. And so I jumped at it.

Now let's see if I am right.

About FMC Technologies: FMC Technologies is a global provider of technology solutions for the energy industry and other industrial markets. The Company designs, manufactures and services systems and products, such as subsea production and processing systems, surface wellhead production systems, high-pressure fluid control equipment, measurement solutions, and marine loading systems for the oil and gas industry. It also produces food processing equipment for the food industry and specialized equipment to service the aviation industry.

Pierre Cutler
The Sacramento Executive

Posted by Pierre Cutler at 1:42 PM | Permalink | Can you digg it? | Comments (0) | TrackBacks (0)