Goldman Sachs is the best and most diversified investment bank. The company continued its streak of blowout quarters with Q107. Because of the strong numbers, analysts had to revise up F/Y 2007 EPS numbers. At the beginning of the year, the EPS concensus was for a slight decline from 2006. I thought that was wrong and these number bumps are proof. GS also has the least amount of exposure to subprime and, according to the conference call, was cutting back exposure before the Feb/Mar sell-off. Some really smart people work at GS and I have a lot confidence in their ability to execute. I think $250 is attainable. GS closed the week of 05/18/07 at $230.34, up 1.25% for the week.

The KFT spin-off brought down my ACB and now I'm doing even better in MO than before the spin-off. Wall Street looked at the $0.02 Q107 EPS miss as a dissapointment but the miss was caused primarily by below operating income line items. The company has a several catalysts ahead of itself that will add even more value to shareholders: a dividend increase, buyback and the biggest, the PMU/PMI split. Philip Morris generates a ton a FCF, has room to leverage the balance sheet to promote growth, excellent ROE and trades at a discount to its peers despite being the market leader. The past may not be an indication of the future but MO is the best performing stock in the history of the S&P. MO closed the week of 05/18/07 at $69.95, up 1.98% for the week.

JNJ blewout Q107 estimates. The stock was beaten down from $67 to $60 because of an expected plunge in stent sales and worries about weakness with Procrit. The stent sales were down but Procrit sales surprised to the upside. Sales from the acquired PFE consumer product division benefited results more than expected. JNJ also guided up EPS for 2007 to $4.02 - $4.07, while analysts had expectations of $3.90. Overall a very good earnings release. One item that nobody's really talking about is JNJ's AIDS protease inhibitor drug, Prezista. Results from a recent study were reported by reuters.com on 04/04/07. The effectiveness of the drug were well above expectations. Here's an excerpt from the article: "The patients who have gone on it have done remarkably well. It seems to be very safe. It seems very well tolerated," MacArthur said in a telephone interview. "There really is nothing else in this class that is in development, or at least not that is close to entering clinical trials. So this is likely to be the last (new) protease inhibitor that we see for three to five years," MacArthur added. JNJ's clean balance sheet, strong cash position, excellend FCF generating ability and triple A credit rating are all well known strengths of the company. As expected, on 04/26/07, during its annual shareholders meeting, JNJ raised its quarterly dividend from $0.375 to $0.415, an increase of 10.67%. JNJ closed the week of 05/18/07 at $63.42, up 1.85% for the week.

What's better than an oligopoly? An oligopoly where your only competitor can't execute at all and is losing orders to you. Boeing is killing Airbus right now and their Q4 results were absolutely amazing. 2006 full year and Q4 results were outdone by 2007 and 2008 guidance, which sets the company up for several years of 20+% growth. BA's shares jumped to a new high in the week ending 04/20/07 when an order for 30 787s appeared on BA's website. The customer's name has been kept silent for now. BA just keeps announcing new orders and Airbus just keeps having more problems (delays, order cancellations and recently announced it was in the red). It's only a matter of time before BA announces an order from UPS since the shipping company cancelled its order with Airbus. BA has a very clean balance sheet, a strong cash position, generates a huge amount of FCF and returns that cash to shareholders through a consistently increasing dividend and big buyback. BA reported strong numbers both in revenues and earnings fueled by strong defense spending and continued strength in commercial airplane orders. As expected, it was very strong quarter. BA closed the week of 05/18/07 at $96.63, up 3.46% for the week.

New position with an initial purchase made at $19.40 on 04/19/07. This is my first purchase of a semi company. The semi producers still have an inventory glut but as that gets worked off, I think the semi equipment companies will move up in anticipation of an increase in capital spending. I also like the fact that AMAT is diversifying into new growth areas such as equipment for flat panel displays and solar panels. On 05/15/07, AMAT announced decent Q207 earnings but the guidance was weak. I'm staying with the stock because it is best of breed in semi equipment and financially, it is a fortress. AMAT has been returning a lot of value to shareholders. The dividend, although not large at a current yield of 1.2%, has been increasing consistently. Also, in F/Y 2006, the company bought back over 10% of the O/S shares and announced a three year, $5 billion dollar buyback plan. At current prices, that represents 18% of the O/S shares. I think AMAT is cheap as well trading at 14.5x forward year earnings while having a L/T growth rate of 15%. Consistent with my investment themes, 80% of AMAT's sales are from overseas, primarily Asia. Also, as of the Q107 10-Q filing on 02/28/07, AMAT carries $415 million in debt with cash levels of $1.78 billion and market cap of $27.2 billion. The company is also an excellent generator of FCF. AMAT closed the week of 05/18/07 at $18.85, down 4.36% for the week.

New position with an initial purchase made at $26.98 on 04/26/07. The company reported a very nice Q107 on 05/03/07, handily beating expectations. Unfortunately, on the same day Chavez threatened to nationalize Sidor, Venezuela's largest steel company, of whcih TX is the majority shareholder. The company dipped into the mid 25s before recovering. Unfortunately, it was right before the close and I didn't have a chance to pick up some more shares. Since then, TX has had discussions with the Venzuelan gov't and will probably avoid nationalization if Sidor. 04/30/07 - TX announced that is planning to acquire IMSA, one of Mexico's largest steel makes for $1.7 billion. The deal will be financed primarily through debt. The acquisition will increase TX's presence in both Mexico and the U.S. Shares were up around 4% on the news. I wanted a position in a basic materials company as well as a foreign company and this one fit that criteria. I also ran through some valuation tests and it is incredibly cheap. Also, with the current market cap of aroun $5 billion and an EV/EBITDA of around 4 and Price/Cash Flows of around 4 as well , I wouldn't be surprised if it was taken over as the steel industry continues to consolidate. However, this was not my reason for buying. There will be a vote on 06/06/07 to decide whether a dividend of $0.50/ADS will be instituted. TX closed the week of 05/18/07 at $26.92, up 3.19% for the week.

New position with an intial purchase at $38.80 on 05/21/07. HD has had its fair share of problems, along with LOW, but it is very cheap at these levels trading at an EV/EBITDA of 7.5 and very nice generation of FCF. HD has also been buying back shares fairly aggressively along with substantial dividend increases (last increase was from $0.15 to $0.225 per quarter). Although debt levels increased in the last FY, once HD supply is sold or spun-off, that debt will be reduced or there will simply be a lot more cash for buybacks, dividends and improving the retail stores. Q108 earnings were bad and the guidance was pessimistic as well but the stock barely took a hit. I think this shows that the stock is largely discounting housing and the other problems (ie: customer serivce). Also, HD is well ahead of LOW in its global expansion. The stock, to me, is a great name for a turnaround. HD has a great brand name and the new CEO has shown a focus to increase shareholder value as well as the consumer experience in the actual store. Also, with the low EV/EBITDA and its strong brand name, HD could be bought out and there are now rumours that Eddie Lampert is looking to buy shares in HD which would be a nice catalyst. However, those are not the reasons for my position.

New posiiton with an initial purchase at $39.90 on 06/05/07. SBS is simply the cheapest water utility around. On top of that, it gives me exposure to Brazil, which is one of the best spots to be in Latin America, IMO. As Brazil continues to develop, more areas will require the clean water and sewage services SBS provides. On top of that, the regulatory environment allows the company to raise its rates, which will continue to drive revenues and profits as well. The company also has much higher operating and profit margins than other foreign water utilities like VE and SZE. Along with a PEG below 1 and EV/EBITDA of 6, at these price levels, it trades below at a price/book of less than 1, whch to me is just too cheap. I think SBS will be an excellent long-term holding in a great area (water), that's still cheap and in an emerging country that is committed to capitalism.