Passive Income for Life

I have cut loss for Eagle @ $0.095 some days back. I guess it was a good call given Rowsley who has a large stake in it is highly unpredictable at the moment. And Eagle’s financials are not too good too. Eagle stands at this point of time at $0.08. Shudders.

I might have caught a falling knife at this point of time by putting my money into Gems TV @ $1.00. Have only vested a small portion of my investment fund in it because I am trying to have some liquidity for bargain buying in case of a correction which many are expecting in this month. Now why did I buy Gems TV at this point of time when prices are downtrending? Probably some contrarian thinking I guess.

I am pretty peeved that sentiments can change so quickly. Sometime back, major brokerages and fundhouses gave positive ratings for this company and now it seems they downgraded their ratings according to their whim and fancy.

Major Considerations:
1) Their recent expansion into global markets increased their expenses significantly but i think it is necessary for growth. The exciting thing is that they are going to tap into the Japan market and the US market is worth a lot more for revenue.
2) Most of their production is relocated in Thailand. Risk factor is the political climate there but i think it is poised to only become better.
3) Intense competition. Their management seems to be adequately skilled and knowledgeable about their products to sustain innovation.
4) General economic conditions and single specialized market for Gems TV. If predicted correctly, the Bull will run till the end of 2009 which will buoy up revenue till then.
5) Seasonality for jewelery haven’t arrived. It will peak disproportionately towards Oct to Dec due to Christmas and winter TV-watching.
6) Profitability. Unlike Eagle, Gems is still in the black. The drop in profts triggered a negative sentiment which might have pushed the prices down to an oversold level. (hence i entered). Financials are ok.
7) Management. At least they recognise their errors and change strategy as announced in a presentation yesterday. There is no lack of governance and a variety of talents in the accounting, jewelery and TV industries.
Securities. Fundhouses might have triggered massive selldown due to lifted 6-months restrictions on selling of their holdings. Bought at sub 30cents level, they still profit by a huge proportion.
9) Cost of sales. Increasing cost of gold can have a negative impact as cost might not be passed to consumers.

EPS from nov 06: 0.0279
Projected conservative 20% growth EPS: 0.0335

PE ratio might be quite high but given the outlook for growth and general economic conditions, it might be justified.

Considering holding term. At least till after the 2nd quarter announcement is released.