Comics, Movies, and Food

What a triple play. Specifically, I mean Marvel, Netflix, and Whole Foods. I think each of these companies has strong growth opportunities and is slightly undervalued in the short to mid-term.

Marvel
The industry reports on Marvel show it as a leader in its sub-sector (movie and licensing) with a strong balance sheet and good cash flow. Despite this, analysts on average are neutral or negative on this stock and performance for the past six months has been sluggish (down close to 5%). One interesting move that Marvel is in the midst of making is to start financing movie production for its characters using borrowed money instead of licensing the characters to a third party. This presents the opportunity for much greater revenue for Marvel with a successful film. Additionally, the debt is backed by the character IP for the film being made, so failure to repay the loan for that film will result in the character being licensed for future work, with no immediate financial loss to Marvel. The risk with this stock is that the character films will not do well over the next several years due to movie trends. Perhaps gritty, realistic cop movies will take over and comic book heroes will fall from favor among fans. I find this unlikely largely because the current age band of prime movie goers (15-40) grew up with comic books and has a large appetite for quality super hero movies. What if Marvel starts churning out crappy movies? Well, even Daredevil, which I purposefully did not see and which was not well received by critics, brought in $100 million more than it cost to produce ($78 million v.s. $179 million). Not bad for a crappy movie.

I am going to buy some Marvel stock now since it just dipped back down after a rally on share buybacks, and put some money aside for a second buy-in if the price dips sometime this summer. I expect a large (at least 30%) gain over the next 12 months as investors snatch up shares in anticipation of the Hulk and Iron Man (first Marvel financed films, one-two punch May and June 2008).

Netflix
Netflix has a strong business model, fanatical customers, and cash in the bank. But its stock price and P/E are at a low. Their primary competition, Blockbuster, is losing money trying to attract Netflix customers with lower prices, a strategy that can only work for so long. I expect Netflix stock to rebound once Blockbuster sees some bad news or raises prices. Netflix is also addressing the upcoming threat from Apple, Amazon, and others by deploying video download technology. High institutional ownership of this stock worries me since this makes the stock subject to short term swings as the big guys make their move. On the other hand, this could create opportunities for additional buy-in or to take some profit out. I expect this stock to grow by about 20% in the next year as more bad news for Blockbuster comes out and movie download turns out to be an idea that is still a little ahead of its time and perhaps too DRM-laden for the early adopters (hello Unbox!).

Whole Foods
Whole Foods has also taken a beating over the last year, falling almost 50% from its high in late 2005. This puts the stock price and P/E ratio at levels not seen since 2003. Analysts are generally neutral or slightly positive on WFMI, but the general consensus seems to be that it will drop another 10-20% to a P/E closer to 20. Of course improved performance with a flat stock price would accomplish the same thing. Part of the 'correction' in stock price also comes from reduced profits due to store expansion and a growing meme that this is 'just another grocery store' and should be priced as such. I disagree and see the store expansion as a good move to set the foundation for strong near-term growth and believe that WFMI is anything but just another Safeway or QFC. I think the twelve month upside on this stock could be as much as 10% growth, possibly higher if the Wild Oats acquisition is approved and handled well.

This is a stock I want to own because I believe that the company has what it takes for exceptional growth in the five to ten year range and because I believe in the product (local, organic, and green products) and the employees (outstanding customer service every time!!!). However, as anyone who bought in 2006 can attest, the next year or two could be a bumpy ride. Like Marvel, I plan to buy half of my shares now and another half later this summer in anticipation of an additional beating from the market.

Buy Low, Sell High

Tap, tap, tap. Is this thing on? Anyone still out there. :-) Yes, it's been a while. I still have a couple of posts from my Vietnam trip in various stages of rough-draftiness. Luckily I took good notes during our time at the Kids First Vietnam facilities, so I won't have to rely on memory alone.

I have a couple of bucks that I need to keep available, but don't anticipate needing more than 40% of at once. My plan is to put 40% in a high yield savings account (ETrade Savings: APY 5.05%) and invest the other 60% in mid to long-term stocks. To keep myself honest I will post the details of my stock analysis before each purchase or sale. To help make informed decisions, I purchased a one-year subscription to The Motley Fool Stock Advisor service. Most of my starting points for purchases will come from their recommendations. Sales and the occasional short-term play will be inspired by what ever randomness seems appropriate at the time.

Here is a list of stocks I am considering purchasing in the next week or two:
Quality Systems, Inc.
Netflix, Inc.
Whole Foods Market, Inc.
Sasol Limited (ADR)
Marvel Entertainment, Inc.
Universal Display Corporation

End of the Road

Yesterday was our final day of cycling. We started a few kilometers from the hotel and rode to one of the largest of the "tunnel villages" that were built during the Vietnam (American) war. Around three hundred people lived in these tunnels, only coming out at night, for over three years. During this time seventeen babies were born. The tunnel system allowed the villagers to survive extensive bombing by American forces and to supply nearby military forces. We had a chance to walk through the tunnels. They were almost tall enough for me to stand comfortably throughout and had wells, small side rooms for living spaces, and even a medical area. The tunnels were built into a hillside by the beach and spanned three levels going over 23 meters deep from the surface.

After the tunnels we cycled to the DMZ border on Highway 1. We spent some time at the border, had lunch, and then cycled several more kilometers to the Kids First Vietnam Rehabilitation Village. After meeting with Roger and the staff we went to the hotel for showers and a change of clothes before having dinner at the village. After dinner we had a small party, including a performance by a group of young men and women who have been learning ballroom dancing. It was a very pleasant end to our time on the bikes.

Spin, Spin, Spin

The last two days of cycling went smoothly. Yesterday we cycled for about two and a half hours and covered about 40 km. The day started out rainy, but cleared up after we drove about thirty minutes. We spent most of the time cycling along the ocean side on small country roads.

Today we bicycled for three and half hours and covered 67 km. First we cycled to Phong Nha Cave, a World Heritage Site in Vietnam. We took a boat tour into the cave and got out partway through to walk around inside one of the many land branches. After the boat tour we had one of the best lunches since we left Hanoi. There was a good balance between fried, stir-fried, and boiled food, and between meat, seafood, and vegetable dishes. I especially liked the breaded fried shrimp. They were fried well enough that you could even eat the tails. They reminded me of fried shrimp heads that I used to eat in Japan. Yum!

After lunch we cycled along the Ho Chi Min Highway back to our hotel. The road was smooth with rolling hills and traffic was light, so we were able to make really good time. It felt nice to hit a steady pace for an hour without slowing down. This was the only day I wished that I had been on a road bike.

Hello! Hello! Allez-Vous?

I think I am stuck behind the Vietnamese firewall. Or perhaps just a
slow connection? As over the last couple of days as we have moved
further into the country side, I have been able to access fewer and
fewer U.S. based web sites. Of course accessing the Internet from a
government run post office might have something to do with it. I am
glad I can still get to Gmail to send this blog entry by email,
although even Gmail only works in basic HTML form today.

Today was our third day of riding. We cycled for about four hours
today along scenic country roads through farming villages and along
the ocean. We were greeted with cries of "Hello! Hello!" the entire
way. We waved and shouted "Hello!" back and received big smiles and
laughter in response. The previous day we covered about 90 km in
around seven hours and the day before that we just from our hotel for
a few hours to a river where we enjoyed a row boat tour. Over the
last three days I saw endless country scenes from boys riding on cows,
to live pigs tied to the back of a motor cart being taken to
slaughter, to old women working in rice fields and more. The roads
have varied from nice smooth asphalt to broken up chunks of what used
to be a road. We covered much fewer kilometers than one would guess
due to poor road conditions combined with strong winds. Highway 1 is
in much better shape, but we all protested when our guide Cuong tried
to take us on it for part of the day. We much prefer the scenery and
safety of the country roads despite their poor condition over the
fumes, blasting horns, and chaotic traffic of highway 1.

Cycling through the country side has been a great experience so far
and given me a glimpse of one way of life in Vietnam. The food and
accommodations are significantly worse out here than in Hanoi. I felt
a little queasy after lunch the last couple of days. I am consciously
avoiding looking at the kitchen were our food is prepared. The
bathrooms are typically squat toilets and the urinal in the men's room
today at lunch wasn't connected to a waste line and just drained onto
the floor. Our hotel rooms are a step above the places we stopped at
for lunch and have toilets and stall-less showers in the bathrooms.
The food in the hotels is also significantly better than the country
side restaurants. It has been well worth roughing it a bit for the
experience so far.

I am being very careful in what I eat so as to avoid getting seriously
ill. So far avoiding shellfish and uncooked leafy vegetables has
worked. Our meals have included many meat dishes. I am not sure if
this is because these are the safest foods for us to eat or if our
guide thinks we prefer meat or if it is just what is on the menu.
Overall the beef, pork, and chicken have been good fried and
stir-fried, although I didn't care for the boiled skin-on chicken the
few times it was served. I also didn't enjoy the boiled skin-on goat
either. We had Pho for breakfast today and that was very good.

Hoa Phuong Orphan-Bringing-Up and Educating Village

I still haven't been able to come to terms with our trip to the Hoa Phuong Orphanage two nights ago, so I will just try to describe what I saw. We pulled into the orphanage around 7 p.m. The building is a two story concrete complex with many rooms. We met with the directors of the orphanage and had a chance to ask a few questions.

Key Facts:

• 55 children live in the orphanage
• Orphanage was started 15 years ago
• Children are organized into mixed-age, mixed-gender families of eight to ten with an employee acting as the mother for each family
• Children come to the orphanage from communities and hospitals
• Between five to ten children are adopted each year and leave the orphanage
• When a child turns 18, they leave the orphanage to live on their own

Our visit was arranged as a party for the children and they seemed very excited to see us. We gathered in a large room with buffet tables covered in food arranged around the room. We were surrounded by children ages 7 to 17 as soon as we entered the room. They were all very friendly, laughing, tugging at us, bringing us bits of food to try. Roger explained to us earlier that these children are more fortunate than many disadvantaged children, even if they don't have their parents, because they have food, education, and people giving them loving care.

We have been cycling for two days now and it has gotten harder to find time and places to access to the Internet. I still hope to post something everyday, but expect missed day every once in a while. More about biking tomorrow.

Unexpected Downpour

Today is a free day for the group. I left the hotel around eight a.m. to try to find a notepad. The Old Quarter of Hanoi is much more peaceful in the early morning. I still had to make my way dodging people and motorbikes, but the constant honking was absent and I had room to breath. Then it started to rain. At first it was just a mist, but it quickly turned into a downpour. I had fun running between awnings, carefully planning my next move in an attempt to stay dry. I found a bookshop and bought a notepad, a couple of pens, a Vietnamese-English dictionary (~$1) and a bunch of Vietnamese children's books (~$2). I also found a luggage shop with a decent rolling duffel for about ten dollars. My luggage is nearly full and I can tell I will need the extra space soon.

Know One Teach One
We had dinner two nights ago at KOTO (Know One Teach One), a restaurant near the commercial district of Hanoi. Entering KOTO feels like stepping through the looking glass into a trendy Seattle restaurant. The difference is that all the labor at KOTO is done by street kids. The goal of the restaurant is to provide vocational training for disadvantaged youth and so that they will have the skills to work in high end restaurants anywhere in Vietnam. Look to the end of this post for pictures of our night at KOTO.

Getting the Word Out
Last night after dinner Roger and I spoke briefly about brainstorming ideas for marketing Kids First Vietnam more effectively. I think he would like to tap into the ideas behind open source and social networks. A quick search turned up change.org, a social network focused on improving the world. I will play around with it more when I get home, but it looks promising.