founded: 1886, NYSE code: JNJ, homepage: www.investor.jnj.com

Overview
Johnson & Johnson is a great example of a traditional, well established top business performer of the health care industry. Its main business is production and sale of large variety of health and hygienic products distributed to the worldwide markets under such household names as Band-Aid, Clean & Clear, Sudafed, Stayfree, Listerine, Nicorette, Johnson&Johnson and other.

In 2006, Johnson & Johnson gave work to about 122,000 employees through its 250 subsidiaries residing in 57 countries such as Ireland, France, Australia, Pakistan, Phillipines, Mexico and China just to name a few. In 2006, the US market contributed to the the overal company result by making 56% of total sales and the International subsidiaries were responsible for the remaining 44%were made on the US and remaining 44% of sales.

From the market segment prospective, the best Johnson & Johnson performer by net trade numbers in 2006 were products falling within the Pharmaceuticals category (44% of the total net trades; eg. REMICADE, ACIPHEX) followed by Medical Devices (38%; eg. Acuvue contact lenses) and Consumer (18%; eg. Johnson’s Baby line, Band-Aid) items.

Analysis of December 2006 financial results:

• Market Cap: Depending on the daily prices of the company’s stock the total market capitalization is around US$195 billion over 2.96 billion of issued shares
• Shareholders’ Equity: US$40.2 billion making the stock’s book value approx. US$13.60 per share (4.5% growth on FY 2005)
• Earnings per share: US$3.73 making the average EPS growth in last 5 years about 16.5%
• Return on Equity: 27.5%, averaging around 25.9%pa in last 5 years
• Balance Sheet: Working capital of US$3.8 billion (ie. US$1.29 per share) versus long term debt of US$2 billion

Sharemaket’s valuation:
Average JNJ’s Price to Earnings ratio of 28 suggests the share price around US$104.- (US$3.73 EPS x 28 P/E)

GROWTH STOCK:

• Conservative forecast of average EPS growth in next 10 years: 13%
• Share price in 10 years time: about US$355 (EPS in year 10 based on forecasted yearly EPS growth times average P/E)
• Total shareholders return in 10 years time: US$386 (share price of US$355 plus US$31 of the 10 years worth of dividends if the current payout ratio of about 40% persists)
• Rate of Return in next 10 years based on the beginning of January 2008 stock price of US$67.85 per share: 18.9%pa

Pros and cons:
+++ Established world market leader on the field of healthcare products
+++ Constantly showing excellent levels of ROE and continuous earnings growth year after year
+++ Very strong balance sheet where, if necessary, the entire long term debt could be comfortably paid off using only a portion of the current cash in bank alone
+++ Reluctant to issuing new shares hence constantly increasing the value for its current and long term stock holders
— Internal stock ownership within the top management seems to be somehow low

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It seems like yesterday since I wrote here an article Jumping into the Thai real estate market head first, yet long and rather eventful 6 months has passed since than. And so I thought it could be interesting to see what progress has been made on this latest of our real estate investing adventures.

Firstly I need to report, that due to other family and business related commitments we have not had as much time as we would like to have in order to proceed with this investment on somehow faster schedule. In other words, our in May 2007 purchased “diamond in rough” was left sitting untouched until up to late November.

Connecting the services
As the house was sitting idle for quite some time even before our purchase, all the necessary utilities were long disconnected. Hence for our little renovation to proceed first thing we had to tackle local bureaucracy and get the services reconnected.

To our surprise this proved not as hard as we anticipated, but still has taken about 2 weeks in time and about 6,000 baht (US$200.-) in funds. The fees were somehow higher due to a need for a brand new “water meter” system installation.

Tenderly loving and caring
With all the utilities connected up we employed a trustable and well known local handyman to oversee the entire renovation. Even though the property was in an “unliveable” state, all that was needed to get it upto scratch was just a few light works such as general cleaning, a change of one internal door and complete painting of all windows, doors, ceiling together with the walls both inside and outside. All this was for a pricely sum of 23,300.- baht (US$800) finished in matter of 3 days.

Again I must say that once the price and scope of work was agreed, the locals certainly do not tend to muck around with their business. They jumped at the task at hand as soon as possible and, with some minor supervision, finished the work in good quality within a very short period of time. I am not sure if the thought of a quick cash payout or anything else affected the work attitude or if it is just a regular occurrence here, but both the overall renovation result and the speed with which it was achieved exceeded our expectations.

The important numbers updated:
• Exact purchase and transfer cost 163,000.- baht (US$ 5,500.-)
• Utilities 6,000.- baht (US$200.-)
• Renovation cost 23,300.- baht (US$800)
• Yearly cost of ownership estimate (repairs, taxes, fees) 4,000.- baht (US$ 135.-)

Making money from the rent
The next step is now again a crucial one – finding a tenant. This may prove somehow more difficult than we are used to since smallish Thai towns such as the one we live in here do not really have any real estate agent we could employ for this. If I understand it correctly, the normal way of advertising a property for sale or rent involves in most cases one simple FOR LEASE / RENT sign in front of it.

Of course we are trying to do a little better than that and have already posted number of leaflets around the most frequented areas of the town. To date this only resulted to 3 inquiries and nothing more.

As it stands we are looking for 2,500 baht in monthly rent (US$ 85,-) which would mean quite satisfactory 15.3% gross yearly return on overall investment (30,000.- baht in yearly rent / 196,300 baht of total purchase and renovation cost), however should we not have any luck at that price within next month or so, we are thinking to go as low as 2,000.- baht per month. This would decrease our return to about 12.2% per annum.

In my opinion still well worth the hassle considering the term deposits here in Thailand pay around 2.5% p.a. and the best term deposit rates worldwide seem to sit somewhere around 8% (should anyone need any pointers look at New Zealand).

Dreaming up the future
Hence overall I must report: so far so good. We are pretty much meeting or exceeding the budget together with all the other expectations and currently we are only left to overcome one last important hurdle – finding a suitable tenant. If that can be done at the rental levels I indicated above, than really the sky is the limit here as similar property investments are by no means rare here in Thailand countryside.

So wish us luck and make sure to visit here soon for another installment of our Thai real estate investing adventure!

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founded: 1875, NYSE code: COP, homepage: www.conocophillips.com

Overview
Measured by the market capitalization, Houston, Texas headquartered ConocoPhillips is the third largest integrated energy company in the United States. Of non-government controlled companies worldwide, it is also the sixth largest proved reserves holder and the World’s fifth largest refiner.

In 2006, ConocoPhillips employed more than 38,000 employees in over 40 countries including such locations as Equador and Peru in South America, Ireland, Czech Republic and Norway in Europe, Indonesia, Singapore and Malaysia in Asia and many more.

Of the four core worldwide business activities petroleum exploration was responsible for about 63% of the last year income and the petroleum refining for 29%. The remaining 8% was contributed by natural gas and oil gathering investments together with profits made by ConocoPhillips’ chemicals and plastic division.

Analysis of December 2006 financial results:

• Market Cap: Depending on the daily prices of the company’s stock the total market capitalization is around US$135 billion over 1.61 billion of issued shares
• Shareholders’ Equity: US$82.6 billion making the stock’s book value approx. US$51.35 per share (38% growth on FY 2005)
• Earnings per share: US$9.67 making the average EPS growth in last 3 years about 17%
• Return on Equity: 18.8%, averaging around 15.3%pa in last 5 years
• Balance Sheet: Negative working capital of US$-1.37 billion (ie. US$ -0.85 per share) versus long term debt of US$23 billion

Sharemaket’s valuation:
Average COP’s Price to Earnings ratio of 11 suggests the share price around US$106.3 (US$9.66 EPS x 11 P/E)

CYCLICAL STOCK:

• Conservative forecast of average EPS growth in next 10 years: 8%
• Share price in 10 years time: about US$230 (EPS in year 10 based on forecasted yearly EPS growth times average P/E)
• Total shareholders return in 10 years time: US$260 (share price of US$230 plus US$30 of the 10 years worth of dividends if the current payout ratio of about 20% persists)
• Rate of Return in next 10 years based on the beginning of January 2008 stock price of US$88.25 per share: 11.4%pa

Pros and cons:
+++ One of the world leaders in the oil and petrochemical business
+++ Constantly showing good levels of ROE and book value per share ratios
+++ Reasonably strong balance sheet ie. if required, total debt could be paid off using about 1.5 year of net earnings
— Cyclical nature of the business pretty much guarantee high levels of earnings volatility
— Negative short term cash position as reported by the latest balance sheet

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