Thursday, December 27, 2007

Constructing A Portfolio For Lazy Buggers

If you have a few hundred thousands, or a million or two, but don't want the hassle of monitoring the markets day in day out - and you come and ask me to construct a portfolio that would allow you to receive good dividends and one that will allow you to laze on the beach for days on or sail for a few weeks - well, here it is:

Mastercard - You know, you probably have one on you, and the number of users just jumps alongside with the rising middle class especially in Latin America, China and India. The best play for 2-5 years hold. No credit risk almost, the banks hold the bulk of the risk, everytime you go swipe, Mastercard collects, better than tolls. Profit jumped 63% for 3Q2007 to US$314.5m or US$2.31 a share. Share is trading at US$209. Ebitda margin an incredible 29%. Return on capital 25%, return on assets 13.4%. Debt/Equity 0.07x. Free cash flow per share US$5.40. Shares have surged five fold since IPO in May 2006 but will have more upside still. Dividend not exciting at just US$0.54 but you buy for capital growth. However, they have more than US$24 in cash per share. They keep the cash to invest and build to protect from Visa's incursions. However, with the listing of Visa and some of MC's subsidiaries, we may see special dividends in the near future. Valuations not expensive when you look at earnings growth 1-3 years out, should double within 3-5 years. The main reason why you still get decent valuations is because the stock has already jumped 5 fold in less than 2 years.

Visa Inc - Upcoming global IPO, the world's largest card payments processor. Will go for a US$10 billion following Mastercard's May 2006 IPO. Watch the price comparison on listing, and accumulate when valuations are not too severe.

Well, you still need some dividends to survive right. Then go for the following stock with the right currency exposure as well:

UOB-Kay Hian - Trades at just S$2.10 but you will be getting a dividend yield of 9.3%, where to find. Links within the UOB group and the UOB asset management and banking will ensure this broking unit has better quality earnings and will be more defensive than others in the industry. Sell whenever you see dividend yield dropping below 6%. You buy at 9% yield, if it falls to 6%, it means the stock price has jumped by 50%, sell la. If share price keeps dropping, then buy more as you are getting even higher yield - there is ample cash in the company and earnings is not as volatile as it seem or even cyclical as its an integrated financial unit, not just a broking house.

More stocks to retire on later ... cheerio for now.... gotta get back to the beach ... but wait, I can't afford to retire... CB!!

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