Did anyone invest or consider investing in HANS, VLO or
WFMI?

Debi

Hi Debi,

I could resist looking at the stocks in your message! If you are an NAICer,
you will note that VLO's sale are rather steady but earnings are quite
eratic. Value Line's analysts are projecting no sales growth and no price
appreciation long term. And with a projected net margin of only 4.2%, I'd
want a serious margin of safety on this one.

I recently invested in Hydril (HYDL), a nuts and bolts company that supplies
connectors to the oil and gas production industry. This company sells to
everyone, making it a little more stable. The price bounces a lot! When it
dropped from $88 to $78 2 weeks ago, I ran home to make the trade. By the
time I got there it was back to $80.50. Now it's at $86. Projections are
for $102 in 12 months.

Whole Foods (WMFI) is an awsome stock. I've watched it on and off for a
couple years, but never found an entry point. It's not watched by Value
Line (no time this morning to look at other sites), but the SSG makes a good
case for waiting for a clean entry point. So they say, the biggest mistake
we, as investors, can make is to buy good companies at a bad price. Whole
Foods' current P/E is 59, which is 170% above it's 5-year average trading
range of 35. This company would have to grow through the roof to ever catch
up to its own P/E!

Hansen Natural (HANS) is another interesting company! I'll have to put it
on my watch list. At $348 million in annual sales, it's fun to find a new
small cap. But here again, the current P/E is 65. The 5-year average is
14. So investors have bid this company's price 470% over it's average
trading range. I would liken this price to a suicide purchase! <G>

Do you have online access to your local library? Most of them have online
access to Morningstar. I'm finding these reports very helpful. The
"library edition" is 4-5 pages (vs. 10-12 pages for the full edition), but
it gives great insight on these stocks, as well as some fair value
purchasing prices. It' not that I would take their figures verbatim, but
they are a good starting point.

Thanks for the exercise!

Lynn Ostrem, President
garbagecop@earthlink.net
Crow River Investment Club
www.bivio.com/crowriver

Oops! I meant I "couldn't" resist looking at the stocks!

Lynn

Lynn Ostrem writes:
> Whole Foods (WMFI) is an awsome stock.

My club held WFMI a few years back, and I'm still holding it. The
trick with high P/E stocks is to use covered calls to reduce your
invested capital, and therefore reduce your risk.

High P/Es are the rule rather than the exception these days. I am
careful around them, which is why I hedge my bets. You'll wait
forever for the P/E of a popular stock to drop. Popularity is
directly related to volatility, which, of course, is incorporated in
the price of a stock's options. That, in turn, helps the fundamental
investor, who is investing in persistently high-P/E stocks. If you
see a positive, fundamental trend, like you do in WFMI, you research
is telling you something. That's why you are doing all that work in
the first place: to find solid trends. At the same time, the high P/E
must be accounted for, that's what options are for.

Some people will run screaming as soon as they hear the word "option".
This is an emotional, uniformed reaction. I've take the time to read
up on options, and I've been using them as an integral part of my
investing strategy over the last two years. Options were invented to
reduce risk and to smooth out return curves. Some people like risk,
and will buy calls. I am risk-adverse, and I sell covered calls to
them.

I reduce the capital invested by selling a "call option", which gives
the buyer the right to buy my stock at a fixed price, called the
"strike price". It's an insurance transaction. I am limited my
upside potential. If the stock goes passed the strike price, the call
buyer wins, and so do I. If the stock stays below the strike price,
the call buyer loses, but I may still win, and often do. The trick is
that the sale of the call option is profit that I take today (along
with its short-term tax consequences).

The insurance trade-off I make is easy to calculate in advance. It's
not a prediction of the future, like the SSG. Rather, it's more like
comparing car insurance prices. I get to choose my loss coverage by
limiting my profit potential. The higher the loss coverage, the more
profit I give up.

Covered calls do not cover 100% of a stock's value. Unlike insurance,
however, it's an open market. I get to choose how much coverage I
want to pay for. If I want 2% coverage, I pay less on the profit side
than if I want 15% coverage.

I'd like to thank Mark Wolfinger for bringing covered calls to my
attention with his easy to read book: The Short Book on Options: A
Conservative Strategy for the Buy and Hold Investor. You can buy it
directly from him at:

http://www.mdwoptions.com

(bivio does not make a cent on this book, btw.)

Get informed on options, and you'll find stocks like WFMI become more
accessible to your buy-and-hold strategy.

Rob

Disclaimer: statements are opinions expressed herein are not official
statements of bivio, Inc. These statements are not intended to replace
professional investing advice. When in doubt, follow the advice of
your local investment advisor who is familiar with your particular
circumstances.

Gosh Rob, I hate to be one of those people who run screaming from
options...<G>

But seriously, most of us (and I'm referring to clubbers) don't delve that
deeply into investments where options, calls, puts, etc. are part of our
normal routine! Hell, we don't even use stops or limits in our club. <G>

But I do appreciate that you make those things available to us because
people who have the curiosity and inclination may truly benefit from the
experience.

For me, I think this is where Manifest has really come in handy
(www.manifestinvesting.com). The SSG has always been a "rear view mirror"
document. We've been taught to spend more time on the past than looking
toward the future. At Manifest (which, by the way, is the same philosophy
as NAIC, just a slightly different approach to it) we are learning to temper
history and weight future expectations appropriately, as well as make our
purchases more portfolio-centered. The experience is giving me a whole new
look at P/Es.

But the fact remains. Our biggest mistake is paying too much. So P/E still
counts.

Lynn

Lynn Ostrem writes:
> But seriously, most of us (and I'm referring to clubbers) don't delve that
> deeply into investments where options, calls, puts, etc. are part of our
> normal routine! Hell, we don't even use stops or limits in our club. <G>

I don't use stops at all. I only use limits on thinly traded stocks.
The "delving deeply" part is a bit odd. I don't delve deeply into
anything. :-) I spend about 1-2 hours every three months on my
research, and a bit of general reading in between, and that's it.

Options are neither complex nor complicated. They are *much* simpler
than the SSG. Anybody who can understand an SSG and has looked into
car insurance can understand options.

One of the things I've found about the world of investing is that
people think investing is complicated. It's usually peoples' fears of
the unknown that stop them from learning about something that can help
them. This is why most people invest in mutual funds. Those same
people probably spend more time thinking about their garden (talk
about a complex subject!) than thinking about their investments.

Don't let fear of the unknown cloud your thinking.

Rob

Lynn Ostrem wrote:
> Hi Debi,
>
Hansen Natural (HANS) is another interesting company! I'll
have to put it
> on my watch list. At $348 million in annual sales, it's fun to find a new
> small cap. But here again, the current P/E is 65. The 5-year average is
> 14. So investors have bid this company's price 470% over it's average
> trading range. I would liken this price to a suicide purchase! <G>

The club I belong to tends to agree with your observation.
Last November one of our members presented a Value Line
report on HANS. At that time the stock price was under
$100.00 per share. Unlike many clubs, we don't make
purchases every month, so we put in on our watch list. At
our April meeting, the club decided to purchase BBBY instead
of HANS due to all the reasons you stated above.

I personally had a very good feeling about HANS. Especially
when I heard they were talking to Anheuser-Busch about some
type of partnership. I decided to take the plunge and bought
a small amount of the stock for my IRA at $127, which felt
suicidal. Then, I left on vacation and came home to a 45%
gain. I assume this is what they mean by the high risk high
reward thing, or else it's just dumb luck. Not sure which.

> Do you have online access to your local library? Most of them have online
> access to Morningstar. I'm finding these reports very helpful.

I have Morningstar service, but HANS is not one they do an
analyst report on. They do grade the profitability,
valuation, and growth which were all A+.

I do have my eye on WFMI. Don't know what I will do at this
time. Time will tell.

> Thanks for the exercise!

Thank YOU for your input!!!! It is greatly appreciated. I

Debi

Loved your post, Deb! I, too, will go out on a limb in my personal
portfolio, just for fun. Sometimes it works out; sometimes it doesn't. If
the club is set up to follow a certain philosophy, and they are trying to
remain disciplined, they should be commended for that. Not all clubs (or
individuals) have the strength to stay the course! Sure, they will miss
some lightening-fast growers, but we have to remember, it's a marathon, not
a sprint.

Congratuations on taking the plunge. I'm all giddy about Hydril. I hope
I'm as lucky as you!

Lynn