By Paul Honda
paul@hondareport.com
Tuesday, June 19, 2007

Yup, it's time to look back and review the good and the bad.

A few months ago, I started writing bits and pieces about companies that (in my opinion) were fundamentally solid growers. Companies like CNOOC, Posco and China Mobile.

Then I formulated a new list of companies that also had excellent growth potential, but weren't quite as fundamentally sound. Companies like Apple, Baidu and Gamestop. In other words, they had high P/E ratios, or the stock price had already run up a bit much, or the company's price per share was simply volatile.

Well, turns out, this market is so bullish that the more conservative picks are doing as well, and in several instances, much better than the more risky selections. The Fundamental Growth list is up 15%. Big winner: CNOOC (42%). Big loser: Procter & Gamble. (The only down stock on a list of 25.)

The Growth/Some Fun(damentals) group is up 15.1%. Big winner: Baidu. Big loser: Starbucks. (China expansion is around the corner, though.)

In the past month or so, I've started to give each company I study a grade. Those have been interesting, sometimes fascinating and occasionally disappointing. The grades have ranged from A- to D. Of the dozens I've looked over, only seven earned A- ratings, but more have B+ grades.

Here are some capsules of my recent additions in the A-/B+ levels.

Infosys (INFY)
Grade: B+
It was just a matter of time before former Netscape guru Marc Andreessen's latest company approached global reach again. I rated Opsware a B- recently while the price was at 8.22. But as of this week, CheckFree is the latest, newest customer, and OPSW finished the week up more than 1 buck. At 10.07 today, the pps may be overextended. It's a definite keeper on a pullback. Quarterly revenue was up 59% and I believe Andreessen when he says the future is very bright. June 18: $53.

HDFC Bank (HDB)
Grade: B+
The Indian economy is thriving and this bank is mirroring the growth. HDB Bank has 82% earnings growth and 56% operating margins. What's not to like? June 18: $83.

Intercontinental Exchange (ICE)
Grade: B+
The market is bullish and ICE benefits directly. Ridiculously positive numbers (151% quarterly revenue, 182% earnings growth) are impossible to dismiss, even with a 54 P/E (31 forward P/E). Everything changes if the market cools off. June 18: $156.

Research In Motion (RIMM)
Grade: B+
Yes, makers of the Blackberry. The growth for this company knows no end, it seems. Earnings growth is astronomical (1592%) and quarterly revenue was up 65%. The iPhone won't chase away RIMM's customers, not with the significant price differential. RIMM is trading at a 28 forward P/E. June 18: $173.

CNOOC ADR (CEO)
Grade: B+
CNOOC is another China play, one that should be solid for years to come. With the Middle Kingdom in the midst of a free-market revolution, something will have to fuel the monster. With 48% operating margins, this is a relatively conservative B+ pick, but one with mucho growth. June 18: $112.

Nintendo (NDTOY.PK)
Grade: B+
What separates Nintendo, which I had rated as a B until today, from the rest of the crowd is the Wii explosion in sales. Wii is going to dominate that space for several months, even going into Christmas. Wii has outsold PS3 5-to-1 in Japan. The Co also has another interesting development with the Nintendo DS (handheld game), which has a "Dream Skincare" software. Could be a big market for women. Or not. June 18: $43.

Here's a look at some of my earlier picks (graded stocks). It's too bad the portfolio tracking on that site doesn't adjust for splits, which is why CROX and POT are listed with such a high start price. Oh well.

And a closing curtain to . . .

Netflix (NFLX)
Grade: C
What started out as a B+ pick quickly dissolved. Despite monstrous earnings in the past year, Netflix is facing some immovable opposition. Blockbuster is intent on staying in the home delivery space, even at minimal profit. Also, NFLX's aim to be the "first mover" in downloadable movies isn't panning out as planned. It all spells a huge challenge for NFLX, and earnings just won't be the same.

Disclosure: Pupule Paul owns none of the stocks written in this piece.

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