ADBE

The elevator speech on ADBE -- hey its 2:12 am right now so this the best I can do (still have to take out the garbage and recycling before bedtime too!)

Reasons to like ADBE:

1. Almost all web development involving video related effects is done in Adobe Flash. Quite a lot of other development on the web is done using other Adobe technologies. This makes them an indirect play on the growth in the web. Its not the best play -- that is a direct one where revenues directly move with usage. An indirect play benefits over time because the more websites there are the more people are needed to program them and make them look pretty and use all the latest technologies like ADBE's.

2. PDF -- its 25% of revenues and has grown very consistently in its history as ADBE has continually found ways to increase usage and productivity. Think forms like the irs website. In my own case we use it at work to pull together presentations from various packages -- rather than put everything into powerpoint we take information from excel, word, access and powerpoint and put it all together in Acrobat (PDF). Its just easier to do it that way.

3. CS3 -- their latest product launch means an upgrade cycle is at hand. That should drive results to be greater than estimates -- rising estimates is the best way to get this stock going.

4. Stock has been relatively flat since late September of 2006 -- stuck in a high 30's to low 40's range. Now we are at the high end of that range but still relatively flat yet EPS are growing.

5. Free Cash Flow is higher than earnings consistently -- I think they are selling for 21X 2008 free cash flow but they might be closer to 25X when looking at earnings estimates. As a software company there are very little needs for cap ex -- they have almost $4 per share in cash on the balance sheet.

6. Management knows how to build a software franchise and keep it fresh by continually adding innovative functionality in ways that build the size of their potential markets. slow and steady but adobe keeps growing. Their profitability is pretty solid too. Before purchasing the stock, I will have to get comfortable that I can envision them not as a $25 bill market cap but rather a $50-100 bill market cap stock over the next several years. Are Adobe's markets big enough to support $5-10 bill in sales at current margin levels?

stay tuned to see if this one gets added to the portfolio. They have a lot going for them but on the other hand if the US economy declines, Adobe will be hurt -- about 50% of sales are US based.