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Buying Sun Microsystems
by
Jason Kelly
11/12/2002
I sent the following notes to
The Neatest Little List on the dates shown. The email
list is entirely free and requires only ten seconds to
enter your name and email. It is 100% spam-free. I'm the
only person who ever emails the list.
November 4, 2002:
On Sept 20, I wrote to you suggesting that
you should prepare for the upcoming good
season for stocks. The reasons:
- the third year of a presidential administration
is the best
- November to April is the best
I'm pleased to note that the market has not
wasted any time backing up this advice.
The final three weeks of October were
fantastic and the market is doing well so
far in November as well.
I suggested that you start buying Microsoft
at around $45. It's now in the mid-50s. I
suggested Intel around $15. It's now pushing
$19. Are the values gone? Not for the long-term
investor.
Other positions to consider are the broad
indexes, such as the MidCap 400 (IJH) or the
Dow. If you feel particularly bullish, consider
one of the ProFunds Ultra series of mutual funds.
They provide 200% of what their respective indexes
return, for instance, the Dow or the Nasdaq 100.
Dangerous? Yes, but after nearly three years of
down markets and the tide looking to turn, they
are not nearly as dangerous as they once were.
I also bought a big position in Sun Microsystems
for $2.56, more at $2.96, and will probably add
one more load to the position at around $3.50.
Sun is not dead. The company's book value per
share is $2.32. It has almost $3 billion in cash.
It still makes the best workstations on the planet
and Java is millions of developers ahead of
Microsoft .NET.
It's understandable to be skeptical of this market.
It has bitten you before and will probably bite
again. However, ask yourself how you ever expect
to win back what you lost if you don't invest
again. There will never be a greenlight that says
all is well. There will always be doubt. Overcome
it by putting some of your money to work.
I wish you the best, and I'll stay in touch.
It's a pleasure having you as a subscriber.
Yours very truly,
Jason Kelly
November 5, 2002:
Yesterday's note on Sun Microsystems provoked
a torrent of email asking for further information
on why I'm buying, if now is a good time, etc.
I finished building my position yesterday. I
bought the third of my three lots at $3.23 and
my average buy price is $2.90. I will stand pat
on this, which is a big position. Adding any
more money would be unwise as Sun would occupy
too much of my portfolio.
Now, for why I have invested so much in Sun.
This excerpt from Standard & Poor's Oct. 26th
stock report sums things up nicely:
For the long term, while investment in technology
infrastructure will not likely return to the heady rates
seen during 1999 and 2000, we believe there will be a
resumption of growth in this market over the next several
years, and that SunÁs competitive position in this
market remains strong. With the shares trading on a
price-to-sales basis at a discount to their historic
average, we believe the stock is attractively
priced and recommend investors hold onto current positions.
The stock beat earnings in July and again in October.
The company has almost $3 billion in cash and is saving
money after a series of layoffs.
Bill Joy, one of Sun's officers and one of technology's
most astute players, bought one million shares on July 29
at prices between $3.93 and $4.01 per share. I wrote in
The Neatest Little Guide to Stock Market Investing that
insider buying is an excellent sign for a stock. Peter
Lynch agrees. The only reason Bill Joy bought shares of
his own company's stock is that he thinks it is undervalued
and will eventually go up. He's a pretty good investor
when it comes to SUNW. Almost two years ago, he sold more
than one million shares at prices between $74 and $87.
Now he's back. I feel comfortable joining him.
You can never write only one side of a story when it comes
to investing. The flip side of this one is that the stock
has had a tremendous run over the past five days, from
$2.60 to $3.40. The technicians are calling for a drop
back down, particularly since SUNW fell below its
resistance line after gapping up yesterday morning.
I have no idea what SUNW will do in the next five days
or five weeks. But I believe it's a prudent long-term
position that's as ripe for picking as we've seen
in years. It operates at the very center of the internet,
and I believe the net's best years are ahead.
It's a pleasure having you as a subscriber.
Yours very truly,
Jason Kelly
For current quotes on Microsoft, Intel, Sun, iShares MidCap 400,
UltraDow 30, and UltraOTC,
click here.
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