2007 Changes – Investment Insights

January 15, 2007 2:02 am

December/January 2007 Investment Insights

This edition of Investment Insights will be the first time in a while that I have made a significant change to the overall subject matter that will become a staple of the monthly report. For the past two years, we have provided a smattering of economic and investment information in both table, graph and written format. Some of this is geared as informative and others are educational.

Investment SectorsWhile the core components of the newsletter are going to remain, there will be a significant addition to the back page. It will provide an in-depth look at the sectors that make up the markets and the performance of industry groups within those sectors. Each month there will be a different group highlighted and a commentary about the major catalyst that was driving performance.

Our goal is to continue to provide a good resource to help you better understand the markets and the underlying components. These will, in turn, give you a good vantage point to either a better understanding of why we have invested a certain way within your portfolio or, to help you with your own investment decisions. The ultimate objective is to keep you well informed about the markets.

As you can see, when you flip over to page four, there are two specific tables that will be highlighted. The first is the overview of the ten sectors that make up the S&P 500 index. These are considered to be the core areas within our economy and range from consumer related companies to technology and health care. Drill down more and you will find the specific industries that make up the sectors and below these are the specific companies represented.

January’s edition will start with consumer discretionary, and we will move forward alphabetically until all ten are covered and then we will start again.

In addition to the sectors, Investment Insights will continue to provide the latest economic trends as well as analysis of stocks. Each month we will highlight at least two specific stocks from within a sector. These are usually companies that we have an interest in buying, selling or shorting.

For example, last month we highlighted the digital photo area by showcasing Adobe and SanDisk. Each of these has the premiere products in their respective industries. SanDisk provides digital memory in the form of cards for use in many electronic devices while Adobe is a software manufacturer. Their software is by far the pre-eminent programs used by photographers, website developers as well as creative artists.

The thesis when recommending these stocks was that the digital work is continuing to expand at a rapid pace. As such, the need for faster memory cards with a much greater capacity has never been so apparent. With only a handful of companies left in this field (M-Systems was acquired by SanDisk and Lexar by Micron Technologies), there is going to be a lack of supply as more and more devices will require this type of media. In addition, there is a strong movement to utilize this type of memory in everyday computers. The current barrier is simply the fact that a hardware based memory is not as cost effectively manufactured as old-fashioned disk drives. Once we see the ability for a flash type card to hold 50+ gigabytes of data, there will be a serious shift towards products produced by companies such as SanDisk.

Adobe, on the other hand took over the market when it purchased Macromedia. The synergy was one that allowed for the two companies to merge overlapping products. It also allowed for the creation of program suites that have the best in class abilities. Macromedia had the majority of web-based tools, while Adobe had image management and editing software. The powerful combination of the two helped to cement Adobe as the premier provider of software to the creative industry.

This is the industry that creates, manages and produces all of the written and online publications that you read. They are also responsible for the movie and television industry. The fact is that aside from office programs and other business systems; Adobe has most of what is used every day by companies using Mac and Windows based systems including:

1. Video Editing: Adobe Premiere 2. Photo Management: Adobe Lightroom 3. Photo Editing: Adobe Photoshop 4. Web Design: Adobe Dreamweaver 5. Document management: Adobe Acrobat 6. Collaboration: Adobe Acrobat Connect 7. Design: Adobe Illustrator 8. Animation: Adobe Flash 9. Layout: Adobe Indesign 10. Web Content management: Adobe Contribute… The list goes on and on…

This month we are featuring two companies that are within the sector that we are reporting on. These have both been good performers for us and are part of most portfolios. Although we have shied away from the retail sector, these two companies have been standout performers due to their unique product line and a cult-like following by their clientele. Both of these have been reviewed previously but a quick look at their charts easily shows why they are back in focus.

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