bye bye MDT hello BLUD

Well I finally threw in the towel on MDT -- its only taken 7 years. My first purchase was at $40 so in 7 years I made 20% -- Yeah! how exciting. huge opportunity cost from what I could have made owning something else.

BLUD makes money by selling chemicals used in determining blood types prior to transfusions and other times when blood needs to be analyzed. This is a great business -- generally due to the quality of the management team more so than anything else. They have always been focused on blood banks for over 25 years. The growth story revolves around automating processes that are currently labor intensive. They are selling automated instruments which generally make up about 5% of revenues (their accounting forces them to recognize revenues over a 5 year period for any instrument but they take the costs immediately -- this depresses margins but has no impact on cash flow).

They have 40% operating margins, lots of free cash flow and a strong return on assets (cap ex requirements are low). Margins have been going up and while they will be under pressure in the near future due to strong instrument sales, I would expect margins to expand once growth in new instruments slows. Recently they missed numbers sort of due to some one time factors and they also are being investigated by the FTC but my understanding is it shouldn't be a big deal. The stock has pulled back about 30% or so and is now selling at about 24X next 12 month earnings. Not bad given its annuity like model (lots of consumables for each instrument sale or a razor and blade business) and long term growth prospects. I still have some cash in case I want to buy some more TECH.

I have thought about NTAP but there is also AAPL and RIMM now based on their pullbacks. I decided on BLUD because this allowed me to keep the money in the health care area and in a business that is not tied as much to the economic cycle.

AAPL and RIMM are plays on the secular growth in hand held computers -- we call them handsets or PDAs or whatever but they are really hand held computers that come with Internet access. The interesting part for Apple is many are bummed about the loss of iPhone carrier payments because of all the unlocking going on -- true but they also have iTouch iPods that are essentially the same product without the traditional phone service for a $100 cheaper. They will add email and it already has wi-fi so you can surf the web just like on the iphone where you have a wifi connection. The hard part is understanding the economics of the iTouch/iPhone and wondering how resilient to competition is Apple's lead -- which is based on a computer OS and a full browser more than the great screen (which helps but its the interface and the beautiful web access that makes a huge difference).

At what point have the stocks dropped enough to where expectations are well below reality. could be soon. need to do some reading on this. growth in this area will be much greater than NTAP's storage. 10% FCF yield for NTAP but Apple is now around 6% on my estimate for forward 4 quarters FCF. That doesn't subtract the huge cash position either. haven't done the numbers for RIMM either -- will have to check that one out too.

Key risk for both is margins -- blackberry gets high margin revenues from running the email network that every blackberry user subscribes too -- will those last? how much iPhone revenue will Apple actually receive from carriers and what are the offsets for Internet only products like the iTouch -- can they make money from other sources for their wi fi enable products to make up for the loss of carrier payments on an unlocked phone?