BlastInvest
Blast Investor Real-time Plus           by Henry Lu

Roller Coaster Feb, SOHU SINA USG

02/15/2005

Horrible February?

2005 February turned out to be roller coaster month for Blast Investor Real-time Plus (BIRTP) Model Portfolio.  Many BIRTP stocks dropped hard: USG, SOHU, NTES. On the other hand,  oil or natural gas stocks CHK WLL and energy stock NRG had pretty impressive rally and helped BIRTP Model Portfolio rally back from low and cut its loss to -2% year to date after big gain of 60% in 2004.

General stock market for 2005 first 2 months has been tough, which tests investors' nerve and guts. Although the market looks and feels scary, I still feel pretty good about the market overall. Lots of stocks are cheap and on sale, which offered attractive and exciting investment opportunities in value stocks such as CEI, a new pick of BIRTP in 2005.

Is sell off really that awful as it appears? I think not. First of all, whether we like it or not, big sell off  happens all the time and it is usually unpredictable. Second of all, value investing method has been proven as a winning investment method over past many decades in both bull and bear market environment.  Value investing is essentially a method that takes advantage of big sell off, buying during horrible days and selling during rosy periods. Third of all, stock market tends to frustrate most of its participants, whether longs or shorts for most of its time. Frustrating months such as first 2 months of 2005 are just normal way of business cost for any value investor who wants to make big profit in stock market for the long run.

USG - attacks from shorts

Since the peak price of $40, USG dropped a lot to $30 right now.  USG has been very volatile over past few months. Big rally up and then big correction as well. There are lots of negative articles on USG in press and in internet message board as well.

First of all, do not be scared by USG shorts' negative opinion or sometimes unwarranted misleading rumors spreading out in Yahoo msg board or somewhere else. As of latest SEC filing, Warren Buffett continues to own 15% of USG on 12/31/2004 and there is no form-4 insider selling filing from Warren Buffett. Because Warren Buffett owns more than 10% of USG, Mr. Buffett is required to file with SEC if his firm sold USG holdings within a few days.

Second of all, volatility is likely to continue. A decent money management (diversified portfolio plus dollar cost averaging investment) can smooth out some of up or down movement. This up or down movement typically has been news driven, either Congress action or rumors of action, lawsuit news, or President Bush' talk. However, I do not believe the intrinsic value or net worth of USG changed that frequently with the news. It was all short term phenomena.

In the end, volatility is something unavoidable especially for news-driven stock like USG. Emotions are high on stock like USG. However, emotions do not have final say on stock price in the long run. I continue to believe in USG.

I am not afraid of volatility. I am ready to ride this USG investment for the long run side by side with all USG shareholders including the great investor Warren Buffett.

SOHU is out-performing SINA!

SOHU reported pretty decent 2004 Q4 earning recently. The stock was sold off due to its weaker than expected 2005 Q1 estimate.

However, SEC-regulation related one-time fee constitutes 2 cents cost per share for 04 Q4 earning so that we can argue that SOHU actually beat earning estimate by 2 cents, not bad. Right now SOHU's online ads revenue constitutes 66% of total revenue and 77% of total gross profit. The trouble of wireless problems are very much over. 

Below is past ads revenue comparison between SOHU and SINA:

in $ millions

 03Q2 03Q3 03Q4 04Q1 04Q2 04Q3 04Q4 05Q1 (est)
SOHU
 6.8 8.7 9.5 11 13.4 15.5 15.9 14.75
SINA
 9.5 11.4 12.9 13.1 15.5 18.5 18.3 16.75


Currently, SINA is still No. 1 in terms of internet ads revenue in China and SOHU is close No.2. But the gap is closing and internet traffic is leading indicator of such trend.

SOHU's web properties combined traffic surpasses that of SINA's according to Alexa rating and SOHU's news channel internet traffic has surpassed SINA's news channel for quite while. It is not surprising at all that SINA's portal business is losing out to SOHU's. SINA's current main revenue and profit come from wireless business and SINA seems to be lost in its diworsification into non-internet portal business acquisitions.

Even in wireless business SINA is not that much superior to other Chinese companies either. Just a couple of quarters ago SINA's management blamed a few "bad apple muddling the water" and they believed SINA is immune from wireless trouble. Now SINA has exactly similar wireless trouble as NTES and SOHU had before.

SOHU management team had lots of mistake before. But one thing I want to congratulate Charles Zhang is that SOHU achieved what he said a year before: "2004 is year that SOHU will surpass SINA in internet portal business". Although it is not there yet in terms of revenue, SOHU already surpassed SINA in terms of internet traffic. Advertisers always go to where the most web users visit and I believe SOHU will surpass SINA as number 1 internet portal in terms of revenue in China soon.

SOHU valuation is cheap

Traditionally Q1 is weakest Q for ads and SOHU's ads business is expected to grow 30% year over year in 2005 according to SOHU's management.

By my own financial modeling of SOHU in 2005 with 30% ads growth and flat wireless business, SOHU is likely to earn close to $1 a share EPS in 2005.  SOHU stock price is currently trading at PE of 17 and forward PE of 15 and its main business is internet ads business just like Yahoo or Google. That is pretty cheap.

Do not expect US stock market is rational or efficient in pricing China stocks. A Chinese internet job listing company 51 Jobs (JOBS) is trading at PE = 57 and it is worth more than SOHU, the internet portal company with No.1 internet traffic in China.

Although I do not expect SOHU stock price can rally big soon, I am pretty optimistic on the future of SOHU stock investment going forward in the long run.


Blast Investor Model Portfolio Update

(as of 02/15/2005)

Model Portfolio - Performance


Portfolio inception date
 12/31/2003
Portfolio inception value
 $89,000
Portfolio 12/31/04 value
 $141,981.00
2004 Portfolio Performance
 59.53%
2004 S&P500 Performance
 8.78%
2005 Portfolio YTD Performance
 -2.13%
2005 SP&500 YTD Performance
 -0.15%


Model Portfolio - Open Positions
Symbol Last Shrs Value Paid Gain
ADGO.OB 1.36 9,000 $12,240.00 0.78 $5,210.00 +74.11%
CEI 17.47 1,000 $17,470.00 16.75 $710.00 +4.24%
CHK 18.90 1,100 $20,790.00 13.90 $5,490.00 +35.88%
EXX-A 1.79 6,500 $11,635.00 1.638462 $965.00 +9.04%
LIBHA.PK 4.65 1,200 $5,580.00 5.10 -$550.00 -8.97%
NRG 37.69 670 $25,252.30 23.05 $9,798.80 +63.41%
NTES 40.38 150 $6,057.00 36.60 $557.00 +10.13%
SOHU 15.60 700 $10,920.00 24.882857 -$6,518.00 -37.38%
USG 29.86 950 $28,367.00 18.425789 $10,842.50 +61.87%
WLL 38.50 600 $23,100.00 22.683333 $9,470.00 +69.48%
$$CASH -22,454 -$22,454.00 - - -
11 symbols Total(USD):
$138,957.30




Model Portfolio Transactions
Date  Type Symbol Shares Price Comm Amount Notes
Jan 31, 2005 Buy CEI 1,000 16.75 10.00 16,760.00
-
Nov 24, 2004 Sell HRB 350 47.35 10.00 16,562.50 - 12.31%
Nov 4, 2004 Sell NTES 100 46.50 10.00 4,640.00 + 27.05%
Oct 19, 2004 Buy EXX-A 1,500 1.60 10.00 2,410.00
-
Oct 6, 2004 Buy EXX-A 5,000 1.65 10.00 8,260.00
-
Oct 6, 2004 Sell NEN 100 80.00 10.00 7,990.00 + 48.15%
Oct 5, 2004 Buy USG 250 18.75 10.00 4,697.50
-
Oct 5, 2004 Sell NTES 100 39.12 10.00 3,902.00 + 6.9%
Sep 30, 2004 Buy USG 700 18.31 10.00 12,827.00
-
Sep 29, 2004 Sell NEN 100 79.65 10.00 7,955.00 + 47.5%
Aug 5, 2004 Buy WLL 250 23.50 10.00 5,885.00
-
Aug 2, 2004 Sell NEN 100 69.95 10.00 6,985.00 + 29.5%
Jun 17, 2004 Sell HCA 250 40.30 10.00 10,065.00 - 4%
Jun 17, 2004 Buy NRG 670 23.05 10.00 15,453.50
-
May 24, 2004 Sell ADGO.OB 13,000 1.55 10.00 20,140.00 + 98.7%
May 10, 2004 Sell HCA 250 39.97 10.00 9,982.50 - 4.8%
May 10, 2004 Buy SOHU 200 15.59 10.00 3,128.00
-
Mar 5, 2004 Buy WLL 350 22.10 10.00 7,745.00
-
Jan 26, 2004 Sell WRP 700 17.40 10.00 12,170.00 - 5%
Dec 31, 2003 Buy CHK 1,100 13.90 10.00 15,300.00
-


Date  Type Symbol Shares Price Comm Amount Notes
Dec 31, 2003 Buy NEN 300 54.00 10.00 16,210.00
-
Dec 31, 2003 Buy HRB 350 54.00 10.00 18,910.00
-
Dec 31, 2003 Buy NTES 350 36.60 10.00 12,820.00
-
Dec 31, 2003 Buy SOHU 500 28.60 10.00 14,310.00
-
Dec 31, 2003 Buy LIBHA.PK 1,200 5.10 10.00 6,130.00
-
Dec 31, 2003 Buy ADGO.OB 22,000 0.78 10.00 17,170.00
-
Dec 31, 2003 Buy HCA 500 42.00 10.00 21,010.00
-
Dec 31, 2003 Buy WRP 700 18.30 10.00 12,820.00
-
Dec 31, 2003 Cash In -
-
-
-
 89,000.00 Inception