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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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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founded: 1991, NYSE code: PGI, homepage: www.premiereglobal.com

Overview
Premiere Global Services Inc. is a technology business operating mainly withing the distance conferencing segment of IT industry. Hence it does not need to be pointed out, that for Buffett-style value investors, this corporation would hardly ever appeared anywhere near their stock picking radar. The reasons for that are fairly obvious and stated below. I only took a glance on PGI’s numbers in order to satisfy my own curiosity regarding a prospective business partner.

Putting those reasons aside, Premiere Global Services is one of the major players on the field of distance communication. It develops and supplies its clients with tailored solutions within six major categories: Conferencing, Desktop Fax, Documents Delivery, Account Receivable Management, Notifications & Reminders and eMarketing. In 2006 it operated about 60,000 corporate accounts (incl. 80% companies from Fortune 500) in 19 countries in North America, Europe and Asia Pacific regions.

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$1 billion over 70 million of issued shares
• Shareholders’ Equity: US$316 million making the stock’s book value approx. US$4.53 per share (7.98% growth on FY 2005)
• Earnings per share: US$0.37 making the average EPS growth in last 3 years about 1.9%
• Return on Equity: 8.1%, averaging around 12.2%pa in last 5 years
• Balance Sheet: Working capital of US$30.2 million (ie. US$ 0.43 per share) versus long term debt of US$136.7 million

Sharemaket’s valuation:
Average PGI’s Price to Earnings ratio of about 26.5 suggests the share price around US$9.8 (US$0.37 EPS x 26.5 P/E)

GROWTH STOCK:

• Conservative forecast of average EPS growth in next 10 years: 2%
• Share price in 10 years time: about US$11.80 (EPS in year 10 based on forecasted yearly EPS growth times average P/E)
• Total shareholders return in 10 years time: US$11.80 (since PGI has never paid out any dividends and does not intend to change this policy in the near future, the investment profits are to be made only from the potential increases in its stock value)
• Rate of Return in next 10 years based on the beginning of January 2008 price of US$14.85 per share: -2.3%pa

Pros and cons:
+++ Significant market share holder of the world teleconferencing industry
— Typical technology company with all its drawbacks such as unstable and very volatile earnings, thin profit margins, high capital expenditure requirements year after year etc.
— Regular increases in number of issued shares works prevents larger increases in underlaying stock value
— Rewarding its top management with stock options
— Uncomfortably high levels of corporate debt

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