Bought Aegon N.V. (AEG)

We bought Aegon N.V. (AEG), an insurance company based out of Netherlands but with a sizeable U.S. presence. About 50% of the business is originated in the Americas and the exposure of its investment portfolio on sub prime mortgages is contained at about 4% of the total portfolio. The company also offers a good dividend yield.

Below is our updated portfolio:

Stock	Buy Date	Buy Price	Current Price	Current % Of Portfolio	Unrealized % Return	Yield as % of BOY Portfolio Value Plus Deposits
Altria (MO)	Various	16.69	21.29	3.38	27.60	0.16
Philip Morris International (MO)	1/4/2005	32.19	51.07	5.83	58.64	0.18
Kraft Foods (KFT)	Various	24.03	30.37	3.21	26.36	0.11
Plum Creek Timber (PCL)	5/12/2005	35.5	42.70	6.77	20.27	0.26
Pfizer (PFE)	Various	24.37	20.23	5.35	(16.98)	0.32
ICICI Bank (IBN)	5/18/2006	27.57	45.38	7.20	64.58	0.08
Taiwan Semi (TSM)	7/27/2006	8.71	10.95	5.79	25.93	0.18
Advantage Energy Fund (AAV)	11/2/2006	11.22	12.30	4.23	9.58	0.47
SunTech Power (STP) Call Value	3/14/2007	36.73	44.69	4.73	21.69	None
Central Europe & Russia Fund (CEE)	Various	51.03	50.73	5.37	(0.59)	1.04
Patni Computers (PTI)	8/10/2007	20.85	12.78	3.38	(38.75)	0.04
Itron Inc. (ITRI)	11/07/2007	85.01	103.62	5.48	21.75	None
Anthracite (AHR)	11/09/2007	7.97	7.75	4.10	(2.76)	0.60
ClickSoftware (CKSW)	11/09/2007	4.61	2.99	1.59	(34.93)	None
Harvest Energy (HTE)	11/28/2007	21.01	23.04	4.87	9.64	0.74
iRobot (IRBT)	12/18/2007	18.65	16.16	3.42	(12.61)	None
MCG Capital (MCGC)	Various	10.86	7.50	3.17	(30.95)	0.74
LDK Solar (LDK)	01/22/2008	30.49	31.80	5.05	4.29	None
EMC Corporation (EMC)	04/08/2008	15.00	15.75	5.00	5.03	None
Aegon N.V. (AEG)	04/28/2008	15.99	16.06	5.10	0.46	0.30
Cash				7.42
Total Portfolio					5.82	5.21

• For EMC Corporation (EMC), we wrote covered calls for 2008 May 17 on 4/23/2008 at $0.57.
• For SunTech Power (STP), we wrote covered calls for 2008 June 45 on 4/1/2008 at $4.30.
• For Taiwan Semi (TSM), we wrote covered calls for 2008 October 12.5 on 4/21/2008 at $0.45.
• For Altria and Philip Morris International, assumed spin-off ratio of 30.83:69.17. Altria is yet to supply the cost-basis info

Employee Stock Purchase Plan (ESPP) - Immediate Selling Strategy

An almost fool proof strategy for ESPP shares is to opt for selling them immediately after the plan purchases the allotted shares. This “almost” guarantees a return of 17.65% on the money invested which when annualized brings the return figure to 98%. The return is not completely guaranteed as there is an outside chance that the company stock could slide significantly on the day it was purchased and before one is able to sell them. Almost guaranteed return of 98% is an outstanding investment option. Below are the details of the return calculation.

17.65% return calculation:

The company stock is purchased at a 15% discount – the discount rate that is largely standard for ESPP plans. For e.g., $100 worth of stock purchased for $85 earns a profit of $15 on the $85 that went in. So, the percentage return is:

15*100/85=17.65%

98% annualized return calculation:

The $85 is deducted from the paycheck over a period of 6 months using semi-monthly payroll deductions. An amount of $7.08 ($85/12) is deducted from the paycheck every pay period and at the end of 6 months, stocks worth $100 are purchased which on immediate sale realizes $100 cash. The XIRR function in Excel (might need to install the Analysis options package to get it to work) allows to calculate the internal rate of return for such a schedule of cash flows. Below is an example that uses the function over the first 6 months of 2007:

=XIRR(
{-7.08,-7.08,-7.08,-7.08,-7.08,-7.08,-7.08,-7.08,-7.08,-7.08,-7.08,7.08,100},
{"1/15/2007","1/30/2007","2/15/2007","2/28/2007","3/15/2007","3/30/2007",
"4/15/2007","4/30/2007","5/15/2007","5/30/2007","6/15/2007","6/30/2007",
"7/1/2007"}
)

The formula above yields a whopping 98% annualized internal return – the first array represents the cash flows – the first 12 values represents the semi-monthly payroll deductions of $7.08 and the last value in the array represents the $100 realized after selling the purchased stock. The 2nd array represents the actual dates when each cash-flow event in the first array happened.

Taxes and commissions will take its due out of this return. The commission however should be minimal on a percentage basis, especially when participating at the maximum allowed limits ($25000/year). Ordinary income taxes will be due on the gain, but the almost guaranteed return should be well above any other option with a similar risk profile that is available…

Related Posts:

1. Flexible Spending Accounts (FSA) – Great Benefit with a few caveats! - 03/09.
   
2. Writing Covered Calls against Employer Stock Plan Shares (ESPP, Restricted Stock, and Stock Options) – A Primer - 03/09.
   
3. Employee Stock Purchase Plan (ESPP) and 401K Retirement Plan Annual Enrollment and Contribution Review - 12/08.
4. Employee Stock Purchase Plan (ESPP) - Immediate Selling Strategy - 4/08.
   
5. Realizing Long-Term Capital Gains With Stock Based Compensation - 04/08.
6. Stock Based Compensation Tax Optimization Strategies - 02/08.

Using Analog TV’s In A Digital World – The Frugal Approach!

Most are aware by now that in less than a year analog TV’s will experience a permanent blackout following the federal mandate on full-power broadcast television signals to switch to digital completely. The obvious choice is to upgrade to one from the vast array of Digital TV’s available. The downside is that it can set one back upwards of $500 should the choice be for a size of 32” or higher. Cable TV subscribers get some more of a breathing space but that too is only until cable providers completely transition to digital signals as well.

For folks who rely solely on full-power broadcast television stations, there is a frugal alternative to continue receiving broadcast television for free. The solution is a set-top digital-to-analog converter box that retails upwards of $40. The kicker being the government program aimed at helping consumers with the analog-to-digital transition – the $40 digital-to-analog converter box coupon program. This box will convert the digital signal into an analog signal to allow viewing the program in an analog TV. The government discount makes this choice a no-brainer as the box comes almost for free. Needless to say, it would be a stopgap as the picture from a digital broadcast on a digital TV is superior to the converted analog signal. Then again, this gives the consumer the power to upgrade when they feel it best.

RMCN Credit Services – An Excellent Resource for Credit Repair

RMCN Credit Services is a private company located out of McKinney, Texas. It is focused on providing clients with credit restoration and education services. The company’s vision is to help people in mending their own credit record. The founder, Doug Parker has first-hand experience having repaired his own less than perfect credit and then extending out to help family and friends in the same situation.

Credit repair service is a necessity for a lot of consumers that have settled bad debts with their creditors as bad debts on one’s credit report is NOT automatically deleted even after the debt is settled with a creditor. Further, investigating inaccuracies in a credit report involves going through the Fair Credit Reporting Act and the Fair Debt Collection Practices Act. To repair credit, the plan of action would involve contacting the credit reporting agencies and working with them to either verify the item they have reported as 100% accurate or delete the item.

Needless to say, the credit repair process can be time consuming and a specialized service like the one offered by RMCN credit services is valuable. RMCN’s credit repair process involves auditing the credit bureaus and creditors. Before enrolling, one could use their free credit report evaluation and repair information request form to gauge whether enrolling for the service makes sense. Once enrolled, the process is fairly automatic with the consumer receiving updates from the credit bureaus and creditors every 30-45 days and passing on the reports back to RMCN.

Wrote May 16 Calls On EMC Corporation Shares

We wrote May 16 covered calls (EMCEQ) on our EMC Corporation (EMC) shares at $0.57 today. The options are set to expire in less than a month and if they get exercised we will realize an overall return of just over 10% in a month.

Below is our updated portfolio:

Stock	Buy Date	Buy Price	Current Price	Current % Of Portfolio	Unrealized % Return	Current Yield
Altria (MO)	Various	16.69	22.30	4.06	33.65	5.1
Philip Morris International (MO)	1/4/2005	32.19	52	5.52	61.53	3.90
Kraft Foods (KFT)	Various	24.03	31.32	3.80	30.31	3.30
Plum Creek Timber (PCL)	5/12/2005	35.5	41.22	7.50	16.10	3.60
Pfizer (PFE)	Various	24.37	19.88	6.03	(18.42)	6.2
ICICI Bank (IBN)	5/18/2006	27.57	43.63	7.94	59.23	0.80
Taiwan Semi (TSM)	7/27/2006	8.71	10.70	6.49	23.05	3.60
Advantage Energy Fund (AAV)	11/2/2006	11.22	12.55	4.95	11.81	16.80
SunTech Power (STP) Call Value	3/14/2007	36.73	45	5.46	22.53	None
Central Europe & Russia Fund (CEE)	Various	51.03	50.70	6.15	(0.65)	17.90
Patni Computers (PTI)	8/10/2007	20.85	12.94	3.93	(37.98)	0.80
Itron Inc. (ITRI)	11/07/2007	85.01	105.21	6.38	23.62	None
Anthracite (AHR)	11/09/2007	7.97	7.65	4.64	(4.01)	15.60
ClickSoftware (CKSW)	11/09/2007	4.61	3.00	1.82	(34.92)	None
Harvest Energy (HTE)	11/28/2007	21.01	22.65	5.50	7.78	16.30
iRobot (IRBT)	12/18/2007	18.65	16.80	4.08	(9.15)	None
MCG Capital (MCGC)	Various	10.86	7.08	3.44	(34.82)	21.00
LDK Solar (LDK)	01/22/2008	30.49	31.47	5.73	3.20	None
EMC Corporation (EMC)	04/08/2008	15.00	15.89	5.06	5.96	None
Cash				14.33
Total Portfolio					6.28

• For EMC Corporation (EMC), we wrote covered calls for 2008 May 17 on 4/23/2008 at $0.57.
• For SunTech Power (STP), we wrote covered calls for 2008 June 45 on 4/1/2008 at $4.30.
• For Taiwan Semi (TSM), we wrote covered calls for 2008 October 12.5 on 4/21/2008 at $0.45.
• For Altria and Philip Morris International, assumed spin-off ratio of 30.83:69.17. Altria is yet to supply the cost-basis info

Wrote October 12.5 Covered Calls (TSMJV) On our Taiwan Semi (TSM) Shares

We wrote October 12.5 covered calls (TSMJV) on our Taiwan Semiconductor Manufacturing Company Limited (TSM) shares at $0.45. The options are set to expire in 5 months and this trade essentially replaces the April 12.5 covered calls (TSMDV) that expired worthless.

Below is our updated portfolio:

Stock	Buy Date	Buy Price	Current Price	Current % Of Portfolio	Unrealized % Return	Current Yield
Altria (MO)	Various	16.69	22.16	3.99	32.81	5.1
Philip Morris International (MO)	1/4/2005	32.19	50.63	5.34	57.27	3.90
Kraft Foods (KFT)	Various	24.03	31.35	3.77	30.44	3.30
Plum Creek Timber (PCL)	5/12/2005	35.5	41.75	7.53	17.60	3.60
Pfizer (PFE)	Various	24.37	20.20	6.07	(17.10)	6.2
ICICI Bank (IBN)	5/18/2006	27.57	44.11	7.95	59.97	0.80
Taiwan Semi (TSM)	7/27/2006	8.71	11.11	6.68	27.78	3.60
Advantage Energy Fund (AAV)	11/2/2006	11.22	12.52	4.89	11.54	16.80
SunTech Power (STP) Call Value	3/14/2007	36.73	45	5.43	22.53	None
Central Europe & Russia Fund (CEE)	Various	51.03	50.93	6.12	(0.20)	17.90
Patni Computers (PTI)	8/10/2007	20.85	13.38	4.02	(35.88)	0.80
Itron Inc. (ITRI)	11/07/2007	85.01	101.82	6.12	19.63	None
Anthracite (AHR)	11/09/2007	7.97	7.64	4.59	(4.14)	15.60
ClickSoftware (CKSW)	11/09/2007	4.61	2.90	1.74	(37.09)	None
Harvest Energy (HTE)	11/28/2007	21.01	23.22	5.58	10.49	16.30
iRobot (IRBT)	12/18/2007	18.65	17.43	4.19	(5.74)	None
MCG Capital (MCGC)	Various	10.86	7.25	3.49	(33.26)	21.00
LDK Solar (LDK)	01/22/2008	30.49	33.57	6.05	10.09	None
EMC Corporation (EMC)	04/08/2008	15.00	15.89	5.03	5.96	None
Cash				13.99
Total Portfolio					7.32

• For SunTech Power (STP), we wrote covered calls for 2008 June 45 on 4/1/2008 at $4.30.
• For Taiwan Semi (TSM), we wrote covered calls for 2008 October 12.5 on 4/21/2008 at $0.45.
• For Altria and Philip Morris International, assumed spin-off ratio of 30.83:69.17. Altria is yet to supply the cost-basis info

The list of stocks/options sold during the year and the gain/losses are listed below:

Stock	Buy Date	Buy Price	Sell Date	Sell Price	% Gain (Loss)	% Portfolio Return*
LDK Solar (LDK)	11/21/2007	30.30	01/08/2008	40.83	34.75	2.64
Fannie Mae (FNM)	02/15/2008	30.70	03/10/2008	19.82	(35.44)	(2.18)
Navteq Inc.(NVT)	03/11/2008	73.32	03/12/2008	72.15	(1.62)	(0.06)
Suntech March 45 Call (STPCI)	10/15/2007	NA	03/22/2008	NA	NA	0.50
LDK Solar March 40 Call (LDKCH)	02/13/2008	NA	03/22/2008	NA	NA	0.44
Taiwan Semi April 12.5 Call (TSMDV)	10/18/2007	NA	04/20/2008	NA	NA	0.1664
Cypress Semi April 27 Call (CYDB)	04/04/2008	NA	04/20/2008	NA	NA	0.2137
Cypress Semi (CY)	04/02/2008	24.89	04/20/2008	26.95	8.26	0.4113
Realized Gain/(Loss) YTD	-	-	-	-	-	2.126

• % Gain/Loss Relative to Portfolio Value at Beginning of Year + Deposits
• The table assumes realization of profits associated with selling options only after the option is exercised or expiry.

Taiwan Semiconductor April 12.5 (TSMDV) Expired Worthless While Cypress Semiconductor April 27 (CYDB) Covered Calls Was Exercised

The April 12.5 covered calls (TSMDV) on our Taiwan Semiconductor (TSM) shares we wrote on 10/18/2007 expired worthless yesterday. The April 27 covered calls (CYDB) on our Cypress Semiconductor (CY) shares we wrote on 04/04/2008 was exercised automatically as the options ended on-the-money yesterday and our CY shares were called away.

Below is our updated portfolio:

Stock	Buy Date	Buy Price	Current Price	Current % Of Portfolio	Unrealized % Return	Current Yield
Altria (MO)	Various	16.69	22.10	4.00	32.45	5.1
Philip Morris International (MO)	1/4/2005	32.19	49.96	5.30	55.19	3.90
Kraft Foods (KFT)	Various	24.03	31.73	3.80	30.85	3.30
Plum Creek Timber (PCL)	5/12/2005	35.5	42.01	7.61	18.33	3.60
Pfizer (PFE)	Various	24.37	20.47	6.18	(15.99)	6.2
ICICI Bank (IBN)	5/18/2006	27.57	42.18	7.64	52.97	0.80
Taiwan Semi (TSM)	7/27/2006	8.71	11.11	6.71	27.78	3.60
Advantage Energy Fund (AAV)	11/2/2006	11.22	12.36	4.85	10.12	16.80
SunTech Power (STP) Call Value	3/14/2007	36.73	45	5.43	22.53	None
Central Europe & Russia Fund (CEE)	Various	51.03	50.89	6.14	(0.28)	17.90
Patni Computers (PTI)	8/10/2007	20.85	14.02	4.23	(32.81)	0.80
Itron Inc. (ITRI)	11/07/2007	85.01	98.22	5.93	15.40	None
Anthracite (AHR)	11/09/2007	7.97	7.78	4.70	(2.38)	15.60
ClickSoftware (CKSW)	11/09/2007	4.61	2.90	1.75	(37.09)	None
Harvest Energy (HTE)	11/28/2007	21.01	23.54	5.68	12.02	16.30
iRobot (IRBT)	12/18/2007	18.65	17.29	4.18	(6.50)	None
MCG Capital (MCGC)	Various	10.86	7.35	3.55	(32.33)	21.00
LDK Solar (LDK)	01/22/2008	30.49	32.89	5.96	7.86	None
EMC Corporation (EMC)	04/08/2008	15.00	15.52	4.94	3.50	None
Cash				13.81
Total Portfolio					6.82

• For SunTech Power (STP), we wrote a covered call option for 2008 June 45 on 4/1/2008 at $4.30.
• For Altria and Philip Morris International, assumed spin-off ratio of 30.83:69.17. Altria is yet to supply the cost-basis info

Realizing Long-Term Capital Gains With Stock Based Compensation

Realizing Long-Term Capital Gains With Stock Based Compensation:

Below are certain strategies we have identified in this arena:

• It takes 18 months after the purchase date for ESPP stock purchases to qualify for long-term capital gains tax treatment. Holding on to them allows for the following scenarios:
• After an 18-month cycle (3 purchases), the arrangement allows for perpetual long-term gains – at the time of the 4th purchase, the 1st purchase is sold and any gains realized are long-term capital gains.
• For restricted stocks, ordinary income tax is paid already at the time of purchase of the shares. Sell such stock instead of the ESPP shares and the additional tax will apply to only the appreciated portion of the restricted stock sale.
• In case of exercised stock options that were held for more than a year, the tax on the difference between the strike price and the sale price will be long-term gains, which generally turn out to be better than ordinary income taxes in most situations. Preferring to sell such stock instead of ESPP shares has the benefit of long-term capital gains as opposed to ordinary income.
• Exercise stock options without selling when they are significantly in the money. This allows flexibility with regards to selling in a tax-optimized fashion at a later time.
• Sell restricted stock allocations as quickly as possible. As the tax is paid at the time of the stock purchase, it makes sense to realize cash from this type of compensation as quickly as possible as holding on has two significant negatives if the stock goes down from the time of purchase:
• It directly impacts your total compensation as the value of stock at the time of stock purchase is counted as part of your total compensation and taxed upfront.
• The tax was paid based on the higher purchase price and so the tax impact is higher.

The risk with all these strategies is the potential increase in exposure to company stock as a percentage of total assets. To mitigate this risk, a selling strategy that limits total exposure to company stock as a percentage of total assets to a range (typically 2-5%) based on an individual’s risk-profile can be used.

Also Note:There are some great free tax software packages on the market that can sort through the maze of Investment and tax questions.Investor tax laws can change from year to-year and it is critical to have quality up to date tax software to keep up with the changes.

Related Posts:

1. Flexible Spending Accounts (FSA) – Great Benefit with a few caveats! - 03/09.
2. Writing Covered Calls against Employer Stock Plan Shares (ESPP, Restricted Stock, and Stock Options) – A Primer - 03/09.
3. Employee Stock Purchase Plan (ESPP) and 401K Retirement Plan Annual Enrollment and Contribution Review - 12/08.
4. Employee Stock Purchase Plan (ESPP) - Immediate Selling Strategy - 4/08.
5. Realizing Long-Term Capital Gains With Stock Based Compensation - 04/08.
6. Stock Based Compensation Tax Optimization Strategies - 02/08.

Last Updated: 04/2013.

 

De Beers Diamond Settlement – An Opportunity To Get Back Up To 59% Of Your Retail Purchase Price

De Beers Group is involved in a class-action lawsuit settlement brought on behalf of all diamond purchases in the 1994-2006-timeframe. The aggregate settlement amount stands mighty at $295M. However, only $135M of that is slated for consumers. The recognized claim percentage based on the purchase price of the diamond product can vary between 6% and 45% depending on the type and price of jewelry purchased and could be as high as 59% for loose diamond purchases.

While the settlement amount and the claim percentage tend to sound very lucrative to the consumer, it must be considered that the settlement spans a very broad class and timeframe. These two factors together make it very unlikely the consumer will receive anywhere close to the recognized claim percentages. A more likely scenario would be that the submitted claim percentage amounts would add up to a lot more than the settlement amount. In this situation, the amount consumers receive will be based on the pro rata calculation – divide the recognized claim amount by the total of such amounts claimed for the consumer sub-class to come up with each individual’s pro rata share. That value is multiplied by the $135M settlement amount (plus interest minus taxes and certain other expenses) to determine the actual amount. Below is an example with the calculation assuming your total claim amount is $5000 and the total of the claims submitted add up to $1B:

Your Recognized Claim Amount, A = $5000.
Total Recognized Consumer Claims, B = $1B.
Your Pro Rata Share, C=A/B = 0.000005
Settlement Amount Available For Consumer Claims, D = $135M
Claim Amount You Will Receive, E=C*D= $675

Obviously, the number above is dependent on the total amounts claimed by all consumers in the time period. Determining that amount is really a guessing game. Nevertheless, given the scope, it is worthwhile to make the claim especially since it is easy to file it though the online claims administration process.

Visa (V) IPO – Comparative Valuation Analysis - MasterCard (MA) and American Express (AXP)

Recognized internationally for its outstanding business, Visa, operates the world’s largest electronic payments network. This core asset provides electronic payment services to financial institutions and merchants. Service fees ranks as Visa’s principal source of revenue. There are three components to their services:

1. Card Service Fees – Payments by customers - banks, government entities, etc. - for their participation in card programs carrying Visa’s brands. The fee is calculated based on the payment volume on cards carrying the Visa brand. The reporting is lagged by a quarter in that they are based on reported volume from the previous quarter.
2. Data Processing Fees – Transaction fees met chiefly by financial institutions. These customers (banks) in turn handle the transaction processing and payments services to merchants.
3. International Transaction Fees – Assessed to customers when the customer and the merchant are in different countries.

There are also certain miscellaneous fees associated with growth initiatives, optional service enhancements, licensing, and certification. Some of this revenue is offset by costs associated with various programs to build payments volume, increase card issuance, and product acceptance and increase Visa-branded transactions. The overall revenue is correlated to the volume of transactions flowing through their payments network. The revenue is split among these sources as follows (taken from their latest SEC filing):

Card Service Fees	52.65%
Data Processing Fees	36.13%
International Transaction Fees	20.24%
Miscellaneous	13.77
Volume and Support Agreements	(22.78%)

As Visa does not issue cards, set fees, or receive any payments from cardholders or merchants, they are immune to both the benefits and risks associated with the issuance of credit. Visa’s brand along with the universal awareness and acceptance it carries makes for a very strong business with high barriers to entry for competition. MasterCard (MA) which had its IPO last year is their primary competition. They also compete with financial institutions that have self-branded credit cards such as American Express. Below is comparison of Visa (V), MasterCard (MA), and American Express (AXP) financials:

Metric	American Express (AXP)	MasterCard (MA)	Visa (V)
Market Capitalization	53B	30B	52B
Dollar Volume	562B	1.9T	3.2T
Number of Transactions	4.5B	23.4B	44B
2008 Revenue	31B	4.68B	6.08B
2009 Revenue	33B	5.26B	6.93B
2008 Earnings	3.37	7.51	1.74
2009 Earnings	3.69	9.24	2.42
Share Price	46.11	226.57	64.48
Price to Earnings (PE) Ratio	13.8	30.17	37.06
Forward PE	12.5	24.52	26.65
Earnings Growth Rate (2009 over 2008)	9.5	23.06	39

The earnings growth rate for fiscal year 2009 when compared to 2008 indicates of a discounted valuation for Visa as growth rate exceeds the forward price to earnings ratio. Also, that growth rate factors in certain payment increases that Visa is currently benefiting which should be considered one-time events. Visa’s growth rate should correlate with the expected Compounded Annual Growth Rate (CAGR) of the global card purchase transactions. The Nelson report projects this metric to slowdown from a CAGR of 14% in the 2000-2006 timeframe to 11% in the 2007-2012 timeframe. That is an ominous projection and for Visa to realize anywhere near the growth rates of the last two years, they will have to either significantly expand market share and/or increase fees realized.

VisaNet, Visa’s global processing platform uses a centralized architecture that enables it to provide customers with real-time, value-added information and products. Furthermore, the design is flexible enough to quickly customize current offerings and rapidly develop, deploy and drive adoption of new products and services.

Visa has several risk factors that can materially affect its business. The effect of regulation of interchange fees charged by credit card issuers on merchants is a significant long-term risk factor. Even though, Visa does not receive any portion of the interchange fees, transaction volume can decrease if the regulatory environment is negative. Specifically, the default interchange rates set by Visa can be overridden by regulatory measures. Another major risk for Visa is the effect of host governments introducing rules that benefit domestic payments systems over global payment systems such as VisaNet. This could cripple Visa’s international growth opportunities. Significant litigation risk related to claims alleging Visa violating anti-trust laws related to interchange fees is another damper.

Visa is valued at a premium. Given the risks involved and the realizable growth rates, the valuation is not justified. Investors should wait for valuations to come down to reasonable levels before committing capital on Visa shares.

LDK Solar (LDK) – Part 3 - Outlook

LDK is valued around eighteen times this year’s earnings estimate. The basis for this valuation is that gross margins could pull back to the teens or lower in 2009 should LDK fail to produce polysilicon from their new plants. Though this is a possible outcome, its probability is very low and of the possible outcomes, many analysts are going by the worst-case scenario. Below is a look at the possible outcomes for 2009:

Gross Margin Assumption	Poly Production Assumption	Earnings/Share
10-15%*	Zero	0.85-1.7
20%**	Zero	2.55
25%***	Zero	3.4
30%	50%	4.25
35%	75%	5.10
40-45%****	90-100%	5.95-6.80

• *Assumes very high silicon acquisition costs in the spot-market along with ASP weakness.
• **Assumes the low end of LDK’s 2008 gross margin projection for 2009.
• ***Assumes the high end of LDK’s 2008 gross margin projection for 2009.
• ****LDK’s projected gross margins for 2009

The primary competition for LDK is from alternate PV cell technologies, specifically, thin-film solar manufacturers boasting a cost advantage as exemplified by the gross margins realized by First Solar (FSLR). Newer technologies that leapfrog current technologies will continue to be a threat and LDK will need to combat this by aggressively pursuing R&D moving forward.

LDK’s challenge in the short-term is managing growth, achieving polysilicon production targets, and funding capital requirements efficiently. Long-term, as alternative technologies become more profitable, a migration strategy should be in place enabling its manufacturing base to be shifted to newer technologies on an on-going basis. The company has already experienced a shift in their production base, as their recycling factory will get shutdown as the new poly production lines come online.

To recap, given the low valuation and the reasonable chance of explosive profit growth in the future, LDK Solar (LDK) is a suitable stock in the long-term growth portion of diversified portfolios.


LDK Analysis:

1. LDK Solar (LDK) - Part 1 - Introduction.
2. LDK Solar (LDK) - Part 2 - Business Issues.
3. LDK Solar (LDK) - Part 3 - Outlook.

Related Posts:

1. Trina Solar (TSL) - Stock Analysis - 08/08.
2. LDK Solar (LDK) - Stock Analysis - 03/08.
3. Solar Manufacturer Comparison (STP, TSL, YGE, CSIQ) - 11/07.
4. Suntech Power Holdings (STP) - Stock Analysis - 09/07.

Bought More iRobot (IRBT) And Some EMC Corporation (EMC) shares

We bought about 25% more iRobot (IRBT) shares at $17.80 and some EMC shares (EMC) at $15 per share. IRobot held up steady over the course of the correction during the first quarter. It is showing a little bit of weakness heading into the quarterly report. EMC valuation in January looked expensive when we used 2007 numbers. The situation has improved now with EMC premium having come down a little bit when using a conservative one-times 2008 revenue valuation for EMC and adding the 86% of the enterprise value of VMware (VMW).

Below is our updated portfolio:

Stock	Buy Date	Buy Price	Current Price	Current % Of Portfolio	Unrealized % Return	Current Yield
Altria (MO)	Various	16.69	21.43	3.71	28.44	5.1
Philip Morris International (MO)	1/4/2005	32.19	50.60	5.47	57.18	3.90
Kraft Foods (KFT)	Various	24.03	31.66	3.66	31.73	3.30
Plum Creek Timber (PCL)	5/12/2005	35.5	40.94	7.09	15.31	3.60
Pfizer (PFE)	Various	24.37	21.00	6.07	(13.82)	6.2
ICICI Bank (IBN)	5/18/2006	27.57	40.46	7.01	46.74	0.80
Taiwan Semi (TSM)	7/27/2006	8.71	10.38	6.00	19.35	3.60
Advantage Energy Fund (AAV)	11/2/2006	11.22	11.40	4.28	1.57	16.80
SunTech Power (STP) Call Value	3/14/2007	36.73	45	5.20	22.53	None
Central Europe & Russia Fund (CEE)	Various	51.03	49.04	5.67	(3.90)	17.90
Patni Computers (PTI)	8/10/2007	20.85	12.42	3.59	(40.48)	0.80
Itron Inc. (ITRI)	11/07/2007	85.01	97.08	5.61	14.06	None
Anthracite (AHR)	11/09/2007	7.97	7.41	4.28	(7.02)	15.60
ClickSoftware (CKSW)	11/09/2007	4.61	3.00	1.73	(34.92)	None
Harvest Energy (HTE)	11/28/2007	21.01	22.94	5.30	9.16	16.30
iRobot (IRBT)	12/18/2007	18.65	17.94	4.15	(2.98)	None
MCG Capital (MCGC)	Various	10.86	8.23	3.80	(24.23)	15.00
LDK Solar (LDK)	01/22/2008	30.49	33.15	5.74	8.71	None
Cypress Semiconductor Corporation (CY)	04/02/2008	24.89	26.50	5.73	6.45	None
EMC Corporation (EMC)	04/08/2008	15.00	14.82	4.82	(1.04)	None
Cash				6.80
Total Portfolio					4.90

• For SunTech Power (STP), we wrote a covered call option for 2008 June 45 on 4/1/2008 at $4.30.
• For Taiwan Semiconductor (TSM), we wrote a covered call option for 2008 April 12.5 at $0.35 on 10/18/2007.
• For Altria and Philip Morris International, assumed spin-off ratio of 30.83:69.17. Altria to yet to supply the cost-basis info
• For Cypress Semiconductor Corporation, we wrote a covered call option for 2008 April 27 on 4/4/2008

LDK Solar (LDK) – Part 2 – Business Issues

LDK’s wafer capacity improved from 105MW EOY 2006 to 420MW EOY 2007 and is anticipated to nearly double annually going forward. Shipments for the year 2007 stood at 260MW and again the expectation is to almost double that in 2008. Gross margin slipped from the industry leading level of 39.3% for 2006 to 32.5% for 2007 and is projected to settle on a range of 25-31% in 2008. Declining gross margins are directly related to silicon sourcing costs. Polysilicon costs increased sequentially from an average of $146/kilo for the first two quarters to $176/kilo in the 4th quarter. The company has ambitious plans to rein in those costs to $60/kilo range as poly production gets sourced internally. Gross margin is projected to reverse to the low 40’s then. However LDK is vague on the manner they arrived at these projections. The company needs to outline reasonably conservative estimates for gross margins and provide clear indications to analysts as to how they model it.

LDK’s headcount stands at 6316 at the end of the 4th quarter with previous milestones being 5409 at the end of the 3rd quarter and around 3000 at the time of the IPO. The headcount is expected to cross 10000 in 2008. This level of hiring is fast paced even for LDK’s remarkable growth projection. The growth rate on headcount has to ease going forward for gross margins to reach up to the projected range as they source polysilicon production internally.

LDK’s capital requirements for 2008 are in the range of $600-$800M. The following summarizes LDK’s current plan to meet this funding requirement:

1. $85M cash on hand.
2. $200M expected earnings for 2008.
3. Customer prepayments of $400M expected for 2008.
4. About $350M available from credit facilities. One $100M 5-year credit facility and a $500M line of credit under 1-year revolving terms from which about $250M is drawn already.

LDK has been punished on negative analyst perception. As seen in the 4th quarter analyst call, some of the analysts have been openly displaying animosity and disbelief in these calls. Further, LDK needs to spruce up the manner in which these calls are currently conducted and maintain a professional level.

Solar module pricing is expected to be slashed in the coming years as the industry strives to achieve grid parity without subsidies. The demand for PV modules tracks government subsidies and so a scenario can be visualized where margin squeezes occur following demand drop-off as subsidies get reduced moving forward. That situation should continue till around 2011 when solar module pricing starts to approach grid parity in areas that have both high-energy costs and lot of sunlight. As grid parity approaches, solar module demand should explode and LDK along with other solar businesses that survives the uncertainties should enter their explosive growth phase. That phase should last at least a decade.


LDK Analysis:

1. LDK Solar (LDK) - Part 1 - Introduction.
2. LDK Solar (LDK) - Part 2 - Business Issues.
3. LDK Solar (LDK) - Part 3 - Outlook.

Related Posts:

1. Trina Solar (TSL) - Stock Analysis - 08/08.
2. LDK Solar (LDK) - Stock Analysis - 03/08.
3. Solar Manufacturer Comparison (STP, TSL, YGE, CSIQ) - 11/07.
4. Suntech Power Holdings (STP) - Stock Analysis - 09/07.

Wrote Cypress Semiconductor Corporation April 27 Covered Calls.

We wrote April 27 covered calls on our Cypress Semiconductor Corporation (CY) shares at $1.10. The options are set to expire in 10 trading days and if the shares are exercised, we will realize a return of about 13% in less than three weeks.

Below is our updated portfolio:

Stock	Buy Date	Buy Price	Current Price	Current % Of Portfolio	Unrealized % Return	Current Yield
Altria (MO)	Various	16.69	21.71	3.98	30.11	5.1
Philip Morris International (MO)	1/4/2005	32.19	51.37	5.54	59.57	3.90
Kraft Foods (KFT)	Various	24.03	31.54	3.86	31.23	3.30
Plum Creek Timber (PCL)	5/12/2005	35.5	41.13	7.55	15.85	3.60
Pfizer (PFE)	Various	24.37	21.35	6.53	(12.38)	6.2
ICICI Bank (IBN)	5/18/2006	27.57	38.93	7.14	41.19	0.80
Taiwan Semi (TSM)	7/27/2006	8.71	10.47	6.41	20.39	3.60
Advantage Energy Fund (AAV)	11/2/2006	11.22	11.30	4.49	0.67	16.80
SunTech Power (STP) Call Value	3/14/2007	36.73	45	5.51	22.53	None
Central Europe & Russia Fund (CEE)	Various	51.03	48.19	5.90	(5.57)	17.90
Patni Computers (PTI)	8/10/2007	20.85	12.28	3.76	(41.15)	0.80
Itron Inc. (ITRI)	11/07/2007	85.01	98.04	6.00	15.19	None
Anthracite (AHR)	11/09/2007	7.97	7.10	4.34	(10.91)	15.60
ClickSoftware (CKSW)	11/09/2007	4.61	2.87	1.76	(37.74)	None
Harvest Energy (HTE)	11/28/2007	21.01	23.21	5.68	10.45	16.30
iRobot (IRBT)	12/18/2007	18.65	18.22	3.62	(2.31)	None
MCG Capital (MCGC)	Various	10.86	8.16	3.99	(24.88)	15.00
LDK Solar (LDK)	01/22/2008	30.49	36.40	6.68	19.37	None
Cypress Semiconductor Corporation (CY)	04/02/2008	24.89	26.68	5.75	7.17	None
Cash				13.52
Total Portfolio					5.68

• For SunTech Power (STP), we wrote a covered call option for 2008 June 45 on 4/1/2008 at $4.30.
• For Taiwan Semiconductor (TSM), we wrote a covered call option for 2008 April 12.5 at $0.35 on 10/18/2007.
• For Altria and Philip Morris International, assumed spin-off ratio of 30.83:69.17. Altria to yet to supply the cost-basis info
• For Cypress Semiconductor Corporation, we wrote a covered call option for 2008 April 27 on 4/4/2008

Sold MCG Capital Rights (MCGCR), and Added Cypress Semiconductor Corporation (CY)

The MCG Capital Rights (MCGCR), which was available to trade in our brokerage account (TD Waterhouse) as of yesterday, was sold immediately as we do not expect to exercise the option to buy the shares. These rights were expected to be available for trading on March 26, 2008 but it did not get transferred to our account until yesterday. We also initiated a position in Cypress Semiconductor Corporation (CY). As mentioned in our analysis, these shares are trading at a discount when considering its ownership of SunPower (SPWR).

Below is our updated portfolio:

Stock	Buy Date	Buy Price	Current Price	Current % Of Portfolio	Unrealized % Return	Current Yield
Altria (MO)	Various	16.69	22.08	4.38	32.33	5.1
Philip Morris International (MO)	1/4/2005	32.19	51.21	5.61	59.07	3.90
Kraft Foods (KFT)	Various	24.03	31.58	4.18	31.40	3.30
Plum Creek Timber (PCL)	5/12/2005	35.5	40.84	8.11	15.03	3.60
Pfizer (PFE)	Various	24.37	21.51	7.12	(11.73)	6.2
ICICI Bank (IBN)	5/18/2006	27.57	39.45	7.83	43.07	0.80
Taiwan Semi (TSM)	7/27/2006	8.71	10.51	6.96	20.85	3.60
Advantage Energy Fund (AAV)	11/2/2006	11.22	11.35	4.88	1.12	16.80
SunTech Power (STP) Call Value	3/14/2007	36.73	45	5.96	22.53	None
Central Europe & Russia Fund (CEE)	Various	51.03	48.14	6.37	(5.67)	17.90
Patni Computers (PTI)	8/10/2007	20.85	12.16	4.02	(41.72)	0.80
Itron Inc. (ITRI)	11/07/2007	85.01	96.82	6.41	13.76	None
Anthracite (AHR)	11/09/2007	7.97	6.98	4.62	(12.42)	15.60
ClickSoftware (CKSW)	11/09/2007	4.61	2.89	1.91	(37.31)	None
Harvest Energy (HTE)	11/28/2007	21.01	23.23	6.15	10.54	16.30
iRobot (IRBT)	12/18/2007	18.65	18.07	3.89	(3.11)	None
MCG Capital (MCGC)	Various	10.86	8.46	4.48	(22.12)	15.00
LDK Solar (LDK)	01/22/2008	30.49	30.09	5.97	(1.32)	None
Cypress Semiconductor Corporation (CY)	04/02/2008	24.89	24.80	5.43	(0.38)	None
Cash				14.31
Total Portfolio					4.11

• For SunTech Power (STP), we wrote a covered call option for 2008 June 45 on 4/1/2008 at $4.30.
• For Taiwan Semiconductor (TSM), we wrote a covered call option for 2008 April 12.5 at $0.35 on 10/18/2007.
• For Altria and Philip Morris International, assumed spin-off ratio of 30.83:69.17. Altria to yet to supply the cost-basis info

Added to Pfizer (PFE), Altria (MO), MCG Capital (MCGC), and wrote Suntech June 45 (STPFI) Covered Call Option

We added to our existing positions in Pfizer Inc. (KFT), Altria (MO), and MCG Capital (MCGC):

• Pfizer (PFE) – Added 25% more shares at $21.12.
• Altria (MO) – Added 50% more shares at $21.26.
• MCG Capital (MCGC) – Added 33.33% more shares at $7.88.

Pfizer sports an attractive dividend of 6.2% but continues to be in an extended slump. Altria just finished a spin-off of the international unit and should continue to act as a core defensive holding in the portfolio. MCG Capital is down about 30% in the last month mainly due to confusion/unknowns related to the rights issue. We also wrote a covered call option against our Suntech Power holdings - June 45 (STPFI) at $4.30.

Below is our updated portfolio:

Stock	Buy Date	Buy Price	Current Price	Current % Of Portfolio	Unrealized % Return	Current Yield
Altria (MO)	Various	16.69	22.15	4.44	32.75	5.1
Philip Morris International (MO)	1/4/2005	32.19	50.58	5.59	57.12	3.90
Kraft Foods (KFT)	Various	24.03	31.71	4.24	31.94	3.30
Plum Creek Timber (PCL)	5/12/2005	35.5	41.16	8.26	15.93	3.60
Pfizer (PFE)	Various	24.37	21.38	7.15	(12.26)	6.2
ICICI Bank (IBN)	5/18/2006	27.57	41.18	8.26	49.35	0.80
Taiwan Semi (TSM)	7/27/2006	8.71	10.64	7.12	22.35	3.60
Advantage Energy Fund (AAV)	11/2/2006	11.22	11.23	4.88	0.05	16.80
SunTech Power (STP)	3/14/2007	36.73	41.47	5.55	12.92	None
Central Europe & Russia Fund (CEE)	Various	51.03	48.86	6.53	(4.26)	17.90
Patni Computers (PTI)	8/10/2007	20.85	12.15	4.06	(41.77)	0.80
Itron Inc. (ITRI)	11/07/2007	85.01	92.83	6.21	9.07	None
Anthracite (AHR)	11/09/2007	7.97	7.05	4.71	(11.54)	15.60
ClickSoftware (CKSW)	11/09/2007	4.61	2.90	1.94	(37.09)	None
Harvest Energy (HTE)	11/28/2007	21.01	22.51	6.02	7.12	16.30
iRobot (IRBT)	12/18/2007	18.65	18.20	3.95	(2.42)	None
MCG Capital (MCGC)	Various	10.86	8.23	4.40	(24.23)	15.00
LDK Solar (LDK)	01/22/2008	30.49	27.50	5.52	(9.82)	None
Cash				21.08
Total Portfolio					3.34

• For SunTech Power (STP), we wrote a covered call option for 2008 June 45 on 4/1/2008 at $4.30.
• For Taiwan Semiconductor (TSM), we wrote a covered call option for 2008 April 12.5 at $0.35 on 10/18/2007.
• For Altria and Philip Morris International, assumed spin-off ratio of 30.83:69.17. Altria to yet to supply the cost-basis info

Roomba 400 & 500-Series vs Infinuvo CleanMate QQ-1, QQ-2, QQ-2 Plus, QQ-2 LT QQ-3 Comparison/Review

The CleanMate QQ-1 and QQ-2 are second-generation robotic vacuum cleaners designed and manufactured by Infinuvo, a private company based out of San Jose. From the basic website it is obvious the company is quite small and will find it challenging to compete with iRobot’s Roomba product series. Infinuvo CleanMate products are distributed by Metapo, but are also sold at Amazon.com and various other sites. Below is a comparison of the iRobot Roomba products with the Infinuvo CleanMate products:

Product	Roomba 410	CleanMate QQ-1	Roomba 530	CleanMate QQ-2	Roomba 532 and above
Manufacturer	IRobot	Infinuvo	IRobot	Infinuvo	Roomba
Best Price	$149.99	$114.99	$269.98	114.99	$299.99 and up.
Warranty	1 year	1 year for parts. 6-months for battery.	1 year.	1 year for parts. 6-months for battery.	1 year except for 610 professional which has 2 years.
Measurements	13 by 4 inches	14 by 3.6 inches	16.75 by 21 by 5 inches	14 by 3.5 inch	16.75 by 21 by 5 inches
Battery Type	14.4V 3.0Ah NiMH	14.4V 2.5 Ah NiCd	14.4V 3.3Ah NiMH	14.4V NiMH 2.5 Ah	14.4V 3.3Ah NiMH
Battery Charging Time	7 hours	2.5 hours	3 hours	3.5 hours	3 hours
Self-Charging Home Base	No – optional accessory	No.	Yes	Yes.	Yes.
Voice Demo	No	No	Yes	No	Yes
Dirt Detection – spends more time cleaning dirtier areas	Yes	No	Yes	No	Yes
Cleaning Times	120 minutes	60 minutes	120 minutes	70 minutes PLUS additional 40 minutes after recharge.	120 minutes except 610 professional which has a max mode.
Spot Cleaning	Yes	No	Yes	No	Yes
Remote	No	Standard	No	Standard	Roomba 570 & 580 only. Optional $59 accessory with Roomba 535 and up.
Virtual Wall – Allows blocking off-limit areas.	Yes	No	Yes	No	Yes
Light House – directs Roomba back to the home-base from up to 4 rooms	No	No	No	No	Yes except 532.
On board scheduling	No	No	No	No	Roomba 550 and up
UV light based disinfection	No	Yes	No	Yes	No
Motor Cleaning Movement Design	Counter-Rotating – but a generation behind compared to 5-series technology.	5-step repetitive	Counter-Rotating	5-step repetitive	Counter-Rotating
Supported Floor Types	No published limits	Not suitable for plush and long fur carpets.	No published limits	Not suitable for plush and long fur carpets.	No published limits.
Odor Removal	None	Fragrance Slot.	None	Fragrance slot.	None.
Dirt Detection	Yes	None.	Yes	None	Yes
Stair Detection/Avoidance	Yes	Yes.	Yes	Yes	Yes
Motor Details	Quiet and Slow	Less Quiet and Faster.	Quiet and Slow	Less Quiet and Faster.	Quiet and Slow.
Auto Resume After Recharge	No	No.	No	Yes.	No.
Under-bed Sensor – Moves out of a dark area when battery is closed to being drained.	No	No.	No	Yes	No

The Infinuvo product closely resembles iRobot’s Roomba 410 product and the features are very comparable though there are exceptions. Given iRobot’s large technology patent portfolio it is reasonable to categorize this as a knock-off. As mentioned in our review of iRobot, they have been successful in driving out knock-offs, specifically the KoolVac product from Koolatron. It is conceivable that iRobot will use the same strategy against Infinuvo. To Infinuvo’s credit, they have steered clear of some of the patented features of the Roomba such as the virtual wall and the lighthouse. At the same time, they have added a couple of innovative features – the UV light based disinfection and the under bed sensor. The under bed sensor prevents CleanMate QQ-2 from getting caught in inaccessible areas once the cleaning cycle is completed. This handy feature allows it to be used in rooms without the charger or home base. It will be interesting to see how these two products compete moving forward.

The Infinuvo website currently has a disclaimer stating not to use on plush or long fur carpet. They also have new variants called the Cleanmate QQ-2 Plus and Cleanmate QQ-2 LT - the former adds scheduling and sells for $169 while the latter adds an LCD panel for $10 more. The product can be scheduled for up to 7 days per week, and works for 70 minutes on a single charge. Infinuvo also has a new version called the Cleanmate QQ-3 which has two-stage cleaning, handles pet hair, works 100 minutes on a single charge, and has an optional sonic wall (similar to virtual wall). It sells for around $200.

Related Posts:

1. Roomba 700, 600 & 500 Series Comparison/Review (780, 770, 760, 610, 530, 532, 535/540, 550, 555, 560, 562, 570, 580).
2. iRobot (IRBT) Analysis.
3. ConnectR delays highlight growing pains at iRobot (IRBT).
4. Infinuvo CleanMate QQ-1, QQ-2 – An Alternative To The iRobot Roomba Robotic Vacuums – Comparison and Review!.
5. iRobot Roomba 5-series Robotic Vacuum Part/Accessory Replacement (Side Brushes) – Customer Support/Warranty Coverage Experience
6. Best Value Robotic Vacuums - A Comparative Review.
   

Last Updated: 10/2012.