potential new ideas

I recently received the quarterly report from Baron funds run by Ron Baron. He is definitely a bit promotional about his stocks and his funds but if you look through that he has a great track record. His process is close enough to mine that I can often find great ideas -- He owns Factset (I didn't get that from him, I'm a user of the service), CME, FLIR, CLB, etc.

This report mentioned a few interesting ideas -- Ritchie Brothers Auctioneers (heavy equipment), an industrial distributor whose name escapes me (MSM is the symbol), CoStar (commercial real estate data base) and MSCI (MSCI indexes and Barra).

MSM is a great business but it is completely tied to the US. They are about using the Internet to reach more customers with more products. The stock got crushed during March but then they beat numbers and it exploded upward. Perhaps on another pull back but now it seems fairly valued.

CoStar -- great looking business that has way too high expenses -- supposedly to build out their infrastructure. They have built a database of info on 3 million commercial real estate buildings in the US and UK. Now that they have finally reached good coverage they are trying to boost revenues without growing expenses -- operating leverage. They should have margins about 2X what they are based on other similar businesses -- Factset and Navteq. Trouble is when I went to the yahoo message board to see what was there all the discussion is about what a horrible place to work it is and how there is constant huge turnover of sales people (like 60% a year). That's not good -- the business is good enough so that it doesn't hold them back too much but its bad enough that I don't want to get involved -- too many other choices that don't have those issues.

MSCI -- another one whose margins should be higher -- they have just recently been spun out of Morgan Stanley so their margins are still ramping. They dominate international indexes to serve as benchmark's for funds as well as ETF's -- they get fees for access to index data and they get asset based fees from the ETF's. Its a great buisness as long as ETF's based on these indexes keep growing. They probably will but the risk is more growth in more actively managed ETF's of the power.... something funds or with the Wisdom Tree type funds. Those ETF companies use their own indexes. They also have the Barra business which is a risk analytics type business -- pretty good except its all based on mathematical models which rely on standard deviation -- as you know I believe standard deviation is a concept that should be banned from finance because there are no normal distributions to be found anywhere. I would have to swallow my high horse and just focus on the business prospects regardless of whether I thought it was a good product or not to buy into this stock. Of course the index business represents most of the profits anyway. but this is the one I'm most likely to think about buying.

Ritchie brothers looks interesting except they have very heavy cap ex spending -- need to understand why because as an auctioneer I wouldn't think they would have a lot of cap ex needs. stock has a perfect chart.