Kevin: February 2004 Archives

Reading through Anthem's Annual Report today I was reminded of how much I like this company. It is an agressive Indiana-based medical insurance company that Jill and I used to deal with. Essentially, they are (what was once) Blue Cross/Blue Shield in Indiana, Kentucky, Ohio, Connecticut, New Hampshire, Maine, Colorado, Nevada and Virginia.

Basically what I am adding this stock to our mock portfolio on is the belief of 1) the strength of this sector, and 2) the benefits of the impending aquisition of WellPoint Health Networks. In Anthem's Merger Agreement WellPoint's stockholders will receive consideration of twenty-three dollars and eighty cents in cash and one share of Anthem common stock for each WellPoint share outstanding. This is interesting to note because on any given day (if you were confident in the merger) these two stocks should exhibit a symbiotic relationship. Looking at them in that way, you can see that the merger is already priced into the Wellpoint shares -- a sign that the market thinks the merger will go through.

That means additional revenue streams for Anthem before year-end 2004 with a large addition to their cash flow. I think this stock is on the rise in the near term.

Well, my first foray into stock shorting ended up well; in the mock portfolio I covered Disney today for $5,200. That's a 5% return, which is enough to make a worthwhile experiment. I've decided that playing the "short" game while Comcast thinks about up'ing its offer might be a little risky. From the newswire:

Comcast Could Add Cash To Disney Bid - Merrill Analyst via Yahoo!
...
Comcast "clearly has the financial wherewithal to add a substantial cash component while preserving an investment grade profile," the analyst said in a note Tuesday. Comcast could cut its stock component and add up to $27 billion in cash...

If they do make another offer, the stock price would likely rise again which would take away the gains I made on the first piece of news. Therefore, I'm removing this bit of risk from my plate. But in all seriousness, I don't think Disney will ever except an offer of this type. Time will tell.

Well, I'm up early this morning reading the news and stumbled across this:

Defiant Disney says 'no' to bid via BBC NEWS
The board of entertainment giant Disney has unanimously rejected a takeover bid by cable firm Comcast, and endorsed its much-criticized chief, Michael Eisner.

The firm conceded it would consider any "legitimate proposal" to enhance shareholder value, but argued Comcast's $54bn (£29bn) price-tag was too low.

What does this mean? This means that the board of directors at Disney has valued their company much higher than what the market did days before the proposed buyout by cable operator Comcast. Of course, at the news of the buyout bid share prices rose to meet the bid and then exceeded them at the end of the week -- probably prompting the quote above.

There are two obvious things to me here: Disney has a very strong brand image that can muster a lot of support behind it, and the facts behind that support do not cut the mustard. There is apparent lack of support by shareholders for chief Michael Eisner -- at very least some internal turmoil. For me, news alone that Disney had let future works with Pixar (of Toy Story and 'Nemo fame) fall by the wayside prompted some doubts in me. Of course, I am inundated with 'Buzz', 'Buzz' all day long from my 1-year-old, so the Pixar thing hits close to home.

So the short of it (wink) is that I am shorting Disney in my mock portfolio. I will short at the opening price this morning.

If you are not familiar with stock shorting, here is a good FAQ.

I can't be greedy, that's what I keep telling myself. And you can't fall in love with a stock. I've got a lot to learn about investing.

But, I took a step in the right direction today regarding SGI. I still like the stock, but I took my profits and ran today in my mock portfolio. You can check out my transaction history here.

Just wanted to let you know that I updated the family page with our 2003 photos. The one of Hale is a filler because I couldn't find the right picture of him after the iBook died. Nannie, if you still have it on your camera, please let us know!

Enjoy the changing faces; no snickers, of course.

I forgot to mention that back in January I began my mock portfolio with a purchase of 1,000 shares of Silicon Graphics, Inc. I'll tell you something -- I am a sucker for this company. I don't necesarily like the financials on it at this point, but the brand and its position in the industry have not lost muster; even while the stock was trading down around $1.

What makes me like their main product line is the fact that they understand the concept of the bottleneck. Inside computers there is a ton of information that is moving from place to place, across bridges, to and from disks, and out to displays. There are various slow-downs involved with each path, much like the streets around town. Some are four-lanes in both directions, some are dirt roads with one-lane bridges. SGI uses proprietary memory access and video buses (paths) that are larger and less restrictive than on your home computer. Do you mind? No, because if you are like me you are hardly ever taxing your memory or video subsystem. But some companies and research organizations do, and that's where SGI's product shines.

For instance, say you are American Airlines and are concerned about the fact that none of your existing pilots have any experience on the Boeing 777's you just ordered. If you wait until the planes arrive in order to begin training, you will be postponing the revenue stream you need to help pay down the debt you entered upon ordering the planes. It makes sense, then, to have your pilots trained ahead of time in order to just put the planes right into their new rotations. Unfortunately, you're the first kid on the block to have that kind of new plane. What do you do?

You call SGI, and they either create custom for you a simulator, or schedule time with your pilots in one of their simulation centers completely outfitted with cockpit hardware and an immersive 3-D environment where you can train pilots in any number of situations the new planes might see. It doesn't come cheap, but their systems are arguably the best at this or any other type of data visualization applications.

So again, I bought a 1,000 shares with my play money and we'll see where it goes.