We sold our position in GYI on August 28, 2007. The price was $31.04. The reason for selling was declining earnings prospects. GYI is facing stiff competition from other sellers of image.

We purchased an initial position in Getty Images on November 22, 2006. Here is the stock selection guide we used for the purchase decision.

We sold Affiliated Computer Systems on November 11, 2006 at $29.74. We had a long term gain of $13. We originally purchased ACS in November 2003.

Rationale for sale: ACS seems unable to move forward. Click here for a SSG. As the chart below shows, it seem it has been unable to grow its revenue and earnings in any significant way over the past 4-5 quarters. It is now mired in an options pricing mess and will have to restate its earnings. ACS failed to fully report its current quarter and instead offered up instead “non-GAAP” (GAAP = generally accepted accounting principles) metrics of performance. Its TTM pre-tax margin (10.5%) is below the industry average (15.8%). Morningstar still rates ACS 4-stars but also rates it F for stewardship.

We sold Marsh & McClennan on November 11 at $32.01. This gave us a long term capital gain of $143.18. We had originally purchased MMC in November 2004.

Rationale for the sale: MMC has not yet recovered from its myriad of regulatory problems. Click here for a SSG. It has failed to re-establish growth in either revenues or earnings. Return on equity and pretax margins have dipped significantly, with no immediate sign of recovery. It may be a good value stock (Morningstar rates it 4-stars) but it currently fails as a quality growth stock. We have replaced it with GYI and WAG.

We sold Harley Davidson on June 28, 2006. Although a high quality company, HDI is no longer a growth company. Projected average return is under 8%. The proceeds from the sale were invested in other companies in the portfolio with better long term prospects.

Prior Analysis of Harley Davidson from May 2005

Stock Selection Guide Updated. Harley Davidson’s share prices got shwacked when it announced its quarterly earnings. Sales only increased 6.3% over the same quarter last year. This is the second quarter in a row in which sales growth disappointed. (Last quarter sales increased 5.4% over the same quarter one year before.)

The stock selection guide for HDI has been revised to reflect projected 5-yr sales growth of 7.5%. This is a conservative projection. HDI derives revenue from motorcycles, parts & accessories and financing.

Value Line rates HDI’s financial strength B++ and its earnings predictabiltiy 100 (out of 100). HDI has a (RQR) quality rating of 71 (out of 100). Note that Morningstar has lowered its fair value estimate for to $44 per share from $55 to reflect slow growth in the next few years nd only rates HDI with two stars.

HDI remains a high quality company but currently it is in the “hold” range.

Company Description: Harley-Davidson, Inc. manufactures heavyweight custom and touring motorcycles and related products. Also owns Buell Motorcycle (sport and performance motorcycles) and Eaglemark Financial, a wholesale and retail finance unit. Sold Holiday Rambler Corp. in 1995. Harley is the only major American manufacturer of heavyweight motorcycles. Has over 1,000 dealers worldwide. Foreign business is about 18% of sales; R&D, 3.2%. ’03 depreciation rate: 9.0%. Has about 8,800 employees. Officers & directors own 1.5% of stock; AXA Assurances I.A.R.D. Mutuelle, 6.4%. (3/04 Proxy). Chairman and CEO: Jeffrey Bleustein. Inc.: Delaware. Add.: 3700 W. Juneau Ave., Milwaukee, WI 53208. Telephone: 414-342-4680. Internet: www.harley-davidson.com.

We sold Fifth Third Bancorp on June 28, 2006. FITB’s performance has been subpar for some time. It has also had a defection of senior management people. The proceeds from the sale have been redeployed to other financial stocks in our portfolio that have brighter prospects.

Prior Analysis from April 2005

Moose Pond Investors purchased an initial position in Fifth Third Bancorp on March 24, replacing Fannie Mae. FITB has a projected average return 19.5% and quality rating of 78.9.

Morningstar gives Fifth Third Bancorp a five-star rating and a wide moat. Here are the positives and negatives from the Morningstar report.

Bulls Say

• Consistent midteen earnings growth and a focus on efficiency have made Fifth Third among the most respected regional banks in the country.
• The bank has expanded into more-lucrative markets like Chicago and Florida.
• Although it accounted for just 11% of revenue in 2004, Fifth Third’s segment that focuses on services like ATM and merchant-card processing is growing rapidly.
• The loan and lease portfolio is about evenly split between consumer and commercial credits, and the commercial portfolio is well diversified across business sectors. The bank also minimizes the size of loans (few are for more than $25 million) and avoids subprime lending.
• Few banks have as entrepreneurial a culture as Fifth Third. To push financial responsibility as far down the management chain as possible, some 2,500 segments, units, and groups have their own profit and loss statements produced on a monthly basis.

Bears Say

• Improved efficiency has helped drive earnings gains, but Fifth Third has cut most of the fat from its organization. Further savings won’t be easy to find. Fifth Third has earned its premium because of its consistent growth, but its lofty valuation leaves no room for disappointment. If one occurred, the stock could be severely punished.
• Although Fifth Third’s growth prospects remain bright, the larger the bank becomes, the more difficult t will be to balance its decentralized, entrepreneurial culture with the need to maintain consistency and adequate risk control.
• By entering larger, more competitive markets, Fifth Third is straying from its historical successes in sleepy Midwest towns. Although its low cost structure provides the bank a powerful weapon with which to compete, larger, more-entrenched banks will not cede share easily.

For a less optiistic view of FITB see article by Tom Brown on BankStocks.com. Brown concludes that Fifth Third’s 2004 annual report shows that the company has morphed from great to merely good. He also believes that the company’s sheer size will prevent a return to its previously lofty levels of performance. We don’t agree.

From February 6, 2006:

SSG and PERT A Graph | Google “Stocks: COF” | Company Website

Capital One Financial remains a high quality growth stock. Currently at $31.25, our stock selection guide has COF a buy up to $88.85 with a projected average return of 11.4%. COF pays a very small (0.1%) dividend. Its current price makes it a strong HOLD.

The Feb 24, 2006, Value Line rates COF’s financial strength as an “A+” and earnings predictability as 95. VL estimates projected growth in the 14% range. Morningstar also speaks well of the company and projects revenue growth of 10% while Value Line loan growth of 12% and earnings growth of 14.5%. Morningstar only gives COF 3-stars which means that the current price is close to Morningstar’s estimate of fair value.

Here is an upside/downside chart that shows the current price just outside of the buy range.

Investor Advisory Service also follows COF and notes: “Going into the fourth quarter, there were several legitimate concerns about Capital One Financial’s short-term outlook. It had recently completed the acquisition of Hibernia, a large bank in hurricane-stricken Louisiana, and had a surge in bankruptcy filings before new bankruptcy legislation took effect. Fourth quarter results came as quite a relief. EPS rose 26%, and would have been slightly better excluding some minor one-time items. Revenue increased 17%, but would have been 10% even without the Hibernia acquisition. Loan losses increased significantly because of the bankruptcy legislation, but delinquencies decreased significantly. Capital One plans to re-brand Hibernia under the Capital One name, and is accelerating its strategy of building new branches in Texas. Capital One expects reasonable growth in 2006, which is remarkable given the expense of integrating Hibernia and the cost of expensing stock options. We remain enthusiastic about the company, its prospects and valuation.” IAS has COF as a buy up to 92.

We took an initial position today in OXY (and increased our existing position in Chevron). This is our second energy stock. For an assessment of OXY, see the October 15 report by McDep Associates. OXY has the lowest ratio of market capitalization and debt to present value (“McDep” ratio) making it the best value among the medium and large cap independent oil and gas producers. Value Line rates its financial strength A+. OXY pays a 1.5% dividend.

Business Description. Occidental Petroleum Corporation primarily engages in the exploration for, development, production, and marketing of crude oil and natural gas in the United States, Latin America, and Middle East. As of December 31, 2004, the company had proved reserves of 2,489 million barrels of oil and gas equivalent. Occidental Petroleum also manufactures and markets basic chemicals, such as chlorine, caustic soda, potassium chemicals, and their derivatives; vinyls, including polyvinyl chloride (PVC), vinyl chloride monomer, and ethylene dichloride; and performance chemicals, including chlorinated isocyanurates, resorcinol, antimony oxide, mercaptans, and sodium silicates. PVC resins are used in piping, electrical insulation, external construction materials, flooring, medical and automotive products, and packaging. The company markets its chemical products to industrial users or distributors through its own sales force. Occidental Petroleum is headquartered in Los Angels, California.

Reluctantly, we sold ORLY and redeployed the cash. It has been a good performer but we needed to reduce the number of stocks in the portfolio (moving torward a total of 20 stocks). Although ORLY remains a quality company, the project average return dropped to 7.5%. We have replaced it with a stock of comparable quality and higher return.

Company Description: O’Reilly Automotive, Inc. supplies automotive aftermarket parts, tools, equipment, and accessories to both “do-it yourself” customers and professional mechanics or service technicians. Operates stores in Texas, Missouri, Oklahoma, Kansas, Iowa, Arkansas, Louisiana, Nebraska, and Illinois. Acquired Hi-Lo Automotive, 1/98. Has 1,132 stores (3/04), about 12,635 employees, and 26,300 stockholders. Directors and Executive Officers own 11.1% of common stock; Wasatch Advisors, 12.4%; T. Rowe Price and Associates, 9.2% (3/04 Proxy). Chairman: Charles O’Reilly, Jr. President and Chief Executive Officer: David E. O’Reilly. Incorporated: MO. Address: 233 South Patterson, Springfield, MO 65801. Telephone: 417-862-6708. Internet: www.oreillyauto.com.

We sold LNCR today and redeployed the cash. LNCR’s revenue and earnings growth has declined over the past two years. See PERT A graph (above). Lower federal reimbursement for supplemental oxygen has cut into its margins. We used the above stock selection guide in making this decision.

Company Description: Lincare Holdings is a leading provider of oxygen and respiratory services to home-based patients, who typically suffer from chronic obstructive pulmonary disease, such as emphysema, chronic bronchitis, or asthma. Products and services incl.: liquid oxygen systems, oxygen concentrators, nebulizers, respiratory medications, noninvasive ventilation, apnea monitors, ventilators, and continuous positive airway pressure devices. Also provides infusion therapy and home med. equip. 2003 dep. rate: 12.3%. Has about 7,375 empls. Off./dir. control 6.4% of com.; Capital Grp. Intl., 10.4%; GE Asset Mgmt., 7.4% (4/04 proxy). Chrmn., CEO & Pres.: John P. Byrnes. Inc: DE. Add: 19337 US 19 North, Ste 500, Clearwater, FL 34624. Tel: 727-530-7700. Internet: www.lincare.com.

We sold FISV today and redeployed the cash. FISV has had three quarters of declining revenue and earnings growth. See PERT A graph (above). Also, FISV’s market overlaps with two other portfolio holdings — JKHY and SNV. We used the above stock selection guide in making this decision.

Company Description: Fiserv, Inc. provides information mgm’t. systems and services to the financial industry, incl. transaction process., outsourcing, software and systems. Clients incl. banks, broker-dealers, credit unions, thrifts, insur. companies and agents, and self-insured employers. First Trust unit provides trust admin. and processing serv. for retirement plans. Operates full-service data centers, software system development centers, and item processing and backoffice support centers in 85 countries. Has approximately 21,000 employees. Officers and directors own 7.7% of common stock; T. Rowe Price, 5.5% (2/04 Proxy). Chrmn., Pres. & CEO: Leslie M. Muma. Incorporated: WI. Address: 255 Fiserv Drive, Brookfield, WI 53045. Telephone: 262-879-5000. Web: www.fiserv.com.