Toshuo Portfolio Update- Markets are Choppy, more Suntech Power, Harris & Harris, and Loop.net

November 10th, 2007 by Mark

It hasn’t even been that long since the last time the sky fell, and once again the market is taking some dips. Over the past five days, with the S&P 500 down by 3.4%, the Nasdaq down by 6.2% and the Xinhua China 25 Index down by 11.4%, several of my holdings have taken a beating. The good news is that I don’t plan on retiring anytime soon. This is another opportunity.

I’m not a big believer in active trading, but…

Choices, choices, choices!

Buffalo Wild Wings is down another 10% since it took a 20+ percent plunge in a single day last week. It’s still the great company now that it was when I bought it then. I’d love to buy more, but my money is limited and I already have a big chunk in BWLD.

Middlebury (MIDD) is up 13% today, but it’s for a good reason. They released a screaming hot earnings report- net income increased 15%, and net sales increased 31.7% to $136 million. Not only that, but their income from operations increased 20.9%, despite a workstoppage in Illinois. Up to this point, I’m up 148% since my investment early in 2005. Not bad for a boring oven-maker!

Gigamedia (GIGM) is bouncing up and down like a first time casino-going retiree who just hit the jackpot. It soared up to 25, and now it’s back down to about 19. This kind of volatility is to be expected. It’s up by 73% since I bought in July, but not a bad price to add a bit more in my opinion.

Shanda (SNDA),or Shèngdà for those in the know, is down over 10% and for no good reason. The video game industry is hot in China and Shanda owns it. Chen Tianqiao, the founder, has beaten the odds again with his move to the “free to play, pay for upgrades” model. A year and a half ago, most western analysts thought he’d lost it. Now that the business has come screaming back with growing online revenues and a full pipe-line of games on the way, they’re singing a much different tune. The stock price is up 164% since I loaded up on shares last March, but I think it’s the most compelling buy I know of. It’s the top dog in one of the fastest growing sectors in the fastest growing economy in the world. Not only that, but it trades at a trailing P/E of fifteen and a half.

Baidu (BIDU) is the one that got away. It was the first stock I ever analyzed on Toshuo, and it’s already more than a four-bagger. Baidu is now the #4 website in the world and it’s absolutely brutalizing Google in the Chinese search engine market. After its 16% haircut this week, I’m tempted to pick some up now that it’s “only” at a P/E of 167.

Suntech Power (STP) is another one that’s gotten away. I’ve had my eye on a Chinese company called Suntech since last December and it’s about doubled since then. Suntech may not be “the next Google”, but it is the world’s most exciting solar power technology company. While solar technology may sound like something for a granola-chowing vegetarian living either in the 70’s or in Boulder, Colorado, this is for real. Solar energy costs about an eighth of what it did 25 years ago as measured by watt peak output, and PV (photo-voltaic) cells are far more efficient. Suntech has had some experimental success with over 30% efficient cells in the lab, and they mass produce 17.6% efficient monocrystalline silicon cells and should have a 20% efficient model on the market before the Beijing Olympics. Suntech is riding a wave of convergent trends- China’s growing energy demands, high oil prices, and a massive governmental push towards environmentalism. While I’m normally wary of buying anything that’s gone up 30% in the last month, in this case I think it really is better late than never. Suntech now has access to the US market and a huge deal to supply a South Korean power company. I bought 35 shares.

Loop.net (LOOP) is looking very appealing right now. Since it’s essentially the “eBay of real estate sales”, it’s network will become exponentially more valuable as it continues to grow. And it has been growing at a good clip, but the stock price hasn’t. I bought a stake at $19/share this August as the price was falling, but it’s continued down. Now, it’s trading at less than $16.5/share, despite posting some wonderful earnings growth a couple of weeks ago. If it goes down to 16, I’m buying more.

Harris & Harris (TINY) is the most interesting opportunity of them all in my opinion. Their portfolio of nano-tech companies has continued to develop quietly over the past six months since my initial investment, but the price is down and there hasn’t been any big news. None of their start-ups have had an IPO yet, and nothing has really captured the attention of Wall Street analysts. This is exactly the kind of situation in which the little guy can find market inefficiencies to exploit. It’s clear their portfolio is developing into something more and more valuable– one of their holdings, DWAVE has unveiled the first functioning quantum computer and will be presenting at the SC07 conference on Monday. The thing about Harris and Harris is that there won’t be any way of predicting when it takes off. It could remain a very boring stock for two more years, if we don’t see an IPO-friendly market for a while. When it does happen, though, I think it will be big. I’ve decided to double down.

Sales

To help pay for this, I’ve decided to sell Select Comfort Corp. (SCSS) and United Fire and Casualty (UFCS). I’ve lost a couple of hundred dollars on SCSS and it’s nicely priced, but I’m having doubts about the prospects of the business. The US dollar is weak and will be for the foreseeable future, their costs are high, and I don’t see the mattress industry as having the same growth potential of solar power, Chinese video gaming, or American eating. There’s also a considerable risk of disruptive technology. As such, I sold it immediately. UFCS is a similar story. Costs for insurance companies are high and probably will be for a while. I think the management is great, but as they say, when great management takes on a rough industry, usually it’s the industry’s reputation that stays intact. I’m not sure how much I’m willing to sell UFCS for, though, and it’s not very urgent. I’ll calculate it this weekend and then decide.

11/09/2007 14:56:26 Bought 250 TINY @ 10.2099
11/09/2007 15:01:55 Bought 35 STP @ 63.1694
11/09/2007 15:06:40 Sold 90 SCSS @ 10.45