Best Buy

I am slightly torn on Best Buy at the moment.  The uncertainty of the future is the only thing that keeps me from going all in on this issue.  Best Buy is conservatively financed with long term debt equal to less than one year of earnings.  Earnings have increased or held steady every year for the past 10 with the exception of 2009 when very few companies increased earnings.  Even with 2009 the year to year increase in earnings over the past 10 years has averaged 14%.

Return on Equity over the past 10 years is 20.9% which is well over the level of 15% that I like to see.

The price/earnings ratio for Best Buy has gone from 30 to 12.  Any company with 14% earnings growth year to year that is selling at 12 times current earnings is almost a no brainer.

While earnings have continued to rise over the past 10 years the share price has been on quite a ride.  The current share price at just under 35 is the same as it was in 2000, 2002, and 2003.

If Best Buy continues to perform over the next 10 years as it has over the past 10 I would expect the share price be somewhere between 200 and 333 which would work out to a yearly rate of return of 19% - 26%. 

So the decision comes down to whether or not I believe Best Buy can continue it's earnings increase.  The sheer fact that Best Buy is still standing (and thriving) is a testament to itself.  When I look at consumer electronics as a whole I see the biggest threats to Best Buy to be the superstores such as Wal-Mart, Target (both stocks that I like) and the like.  Personally i do not see this as a huge threat.  Best Buy has prices that compare very favorably with these stores and their selection is far superior.  Unlike many of the rental video stores I don't see Best Buy becoming obsolete with the increase of internet based entertainment.  People will continue to need the equipment to enjoy this entertainment and where better to buy that equipment than from Best Buy.

Best Buy is the best positioned company to increase it's market share with the void left by the recent bankruptcy of Circuit City.  I also see room to grow as my home town with a population of 20,000 has a Wal-Mart and a Home Depot, but still no Best Buy.

Maybe new management takes over and decides to concentrate more floor space to PCs while America drifts closer and closer to Steve Jobs.  Apple decides to stop allowing Best Buy to sell it's computers while it continues to open Apple stores across the country and Best Buy slowly fades into oblivion.  In that case I am happy I hold shares in Apple, but otherwise I see Best Buy as an excellent buy now.

My thoughts as of 8/1/2010 are that Best Buy is an excellent buy at $35 and a good buy at $55.

New Format

I've been somewhat lazy in my musings on this particular blog so I'm changing things around.  For the foreseeable future I am going to be publishing posts on various companies as I contemplate stock purchases.  I plan to update the individual posts as my thoughts on them change.  The reason for this is to have a notebook of sorts to record my thoughts on why or why not to purchase a particular issue.  The reason to do this in blog form is that I will then have access to my thoughts at any place I may be.

Should I feel some strong desire to air my thoughts on our country's treatment finance or healthcare I will continue to do that as well.

Faith in Stupidity

Vivus Inc is a pharmaceutical company that is currently in phase 3 trial of a new weight loss drug.  The results of the studies done so far are encouraging and everybody knows that a pill for weight loss is a gold mine.  If it works as well as they are touting a few people may get very rich as the BMI of America decreases.

At the moment Vivus stock (VVUS) is up 16% in morning trading.  That's not to be unexpected and it gives me a lot of hope.  It confirms to me that there are still a lot of stupid speculative investors out there.  For one thing the new drug that Vivus is marketing is nothing more than phenteramine and topiramate.  Both of those drugs have been on the market for a while.  If this new drug does become something of a money pipeline it will be for one of the big pharma companies after the rights are purchased from Vivus.  Will Vivus make money off the deal?  Sure they will, but not enough to cover the losses they have had over the past 9 years.  The last time Vivus declared a profit for their shareholders was 2000.  In the 9 years since then Vivus has had a combined net loss just shy of $100 million.

Even if this new drug is all it says it is, it will be years before it becomes profitable, once again for another company.  If it does work we're all just going to be prescribing the equal doses of phenteramine and topiramate that will both be generic by the time this new wonder drug is approved for release by the FDA.

As long as there idiots out there throwing money at companies like Vivus there are deals to be found for long term investors.  Certainly a great boost to the efficient market theory (don't even get me started on that).

Recovery or Bubble?

I'm starting to get depressed about this economic recovery. Overall I'm glad to see the country emerging from last fall, but the speed of the stock market upswing is unreal. I'm up over 60% this year and I feel somewhat like I did 2 years ago when nothing looked appealing. Investing has been easy for the past year. Throwing darts would produce a sizeable return, but now the bargains are drying up. I fear we may be heading into another bubble. At this point one of my greatest hopes is that this upswing might be sustained by the massive amount of money that will continue to flood the market as employers start to reintroduce the company match on retirement contributions.

As for now, I'm still bullish on Nike, Harley Davidson and I'm starting to take a closer look at Buffalo Wild Wings (you gotta admit the commercials are catchy), though I've never eaten there so I may have to do that before I lay down any investment money.

Perspectives On Life - View from a Resident

How's that for a title. I actually have some serious thoughts this morning that I would like to put down.

Recently I admitted one of my clinic patients to the hospital. She was a relatively new patient to me that I had seen one time previously (a couple of weeks earlier). After arriving to the hospital floor she went into Cardiac arrest and was transferred to the ICU.

It is unknown how much damage her cardiac arrest did to her brain function as she has been on the ventilator for almost a week and a half now, but she seemed to be coming around. She was able to respond when I talked with her each morning. Overall she had been improving. This morning I came in to round on her and found her extubated and unresponsive. She had passed away at 2 AM. I had not been called because the resident on the floor had been present for the code. It would have been nice to get a call around 6, but I understand.

So now my mixture of emotions is unlike any I have felt in my life. On the one hand I feel sorry for the daughters of my patient. She was doing so well just a month ago. She went downhill quick and as I look back I'm sure there are things that could have been done differently with the knowledge we now have, but in reality no mistakes were made in her care.

There is also a portion of me that feels relief at her passing. I'd like to say that this relief comes from the knowledge that she would most likely live out the rest of her days in a nursing home struggling with her constant pain issues, but a lot of my relief comes from the fact that she is not my responsibility every morning for the next 2 months. I no longer have to get to the hospital each morning to care for this critically ill patient. That seems very selfish to me, and it probably is, but that is the direct effect of her death on my life.

I wonder if my reaction would be different had I known the patient for a year instead of a month. Am I already that jaded that a critically ill patient is just 30 minutes of extra work per day? I don't believe that is the case, but I feel somewhat deceived by my feelings this morning.