Stock of the Day – Update
New Oriental Education & Technology Group Inc.

Wednesday’s Closing Price: EDU – $40.80
Monday’s Closing Price: EDU – $36.93

Up 10.4% since writing the case study with a breakout today on volume 254% larger than the average. It traded more than 900k shares which crushed the average of 300k+.

As I said yesterday (Institutions are pouring in):

I like when I see $227 million worth of shares purchased and 93 new institutional holders versus only $770 thousand worth of shares sold. This shows me major support and interest by the so called “smart-money”. The company sounds interesting and looks to have an excellent market (a description is below).

Held by Institutions: 13.10%
Money Market: 45 (42 new positions)
Mutual Fund: 51 (50 new positions)
Other: 1 (1 new position)

Shares Bought last Period: 6,313,271
Shares Sold last Period: 22,600
Value of Shares Bought: $227,073,203
Value of Shares Sold: $770,637

Stock of the Day
New Oriental Education & Technology Group Inc.
Monday’s Closing Price: EDU – $36.93

Sector: Consumer Discretionary
Industry: Education Services

Not a lot of data exists for the young Chinese stock so I wanted to take the time to focus on institutional holdings and the amount of shares that have been accumulated so far (the first reporting period). As you can see below, the majority of new institutional investors loaded up over the past couple of months and I suspect that it all started in November when volume surged and the price accelerated from $26 to $33.

The stock has since consolidated and traded sideway with support near $33 and at the 50-d moving average but is starting to trend higher (slowly). I don’t own shares as I write this report but I am looking to own shares within the next couple of weeks (could be as early as today). I am currently setting up my risk/reward strategy and calculating my stop loss and potential target area. I have limited data to calculate a realistic target but I do have enough to set up my sell stop and total risk.

I like when I see $227 million worth of shares purchased and 93 new institutional holders versus only $770 thousand worth of shares sold. This shows me major support and interest by the so called “smart-money”. The company sounds interesting and looks to have an excellent market (a description is below).

Held by Institutions: 13.10%
Money Market: 45 (42 new positions)
Mutual Fund: 51 (50 new positions)
Other: 1 (1 new position)

Top Holder: Massachusetts Financial Services Co.
1.3 mil Shares for < 0.01% of Portfolio Total Equity Value of Portfolio: $86.0 billion Shares Bought last Period: 6,313,271
Shares Sold last Period: 22,600
Value of Shares Bought: $227,073,203
Value of Shares Sold: $770,637

Key Fundamental Numbers (Yahoo Finance):
Market Cap (intraday): 1.36B
Enterprise Value (6-Feb-07): 1.17B
Trailing P/E (ttm, intraday): 58.62
Forward P/E (fye 31-May-08): 40.59
PEG Ratio (5 yr expected): 2.01
Price/Sales (ttm): 11.61
Price/Book (mrq): 6.38
Enterprise Value/Revenue (ttm): 9.96
Enterprise Value/EBITDA (ttm): 34.579
Profit Margin (ttm): 16.31%
Operating Margin (ttm): 17.42%
Total Cash (mrq): 149.93M
Total Cash Per Share (mrq): 4.057
Operating Cash Flow (ttm): 37.41M

Next Year Estimate: 0.75
Next Quarter: 0.06
Last Quarter: 0.03

Earnings:
Yearly (2006): 0.12

Revenue (millions):
Yearly (2006): 96.06

Net Income:
2006: 39.8

Cash Flow:
2006: 81.6

About New Oriental
New Oriental is the largest provider of private educational services in China based on the number of program offerings, total student enrollments and geographic presence. New Oriental offers a wide range of educational programs, services and products consisting primarily of English and other foreign language training, test preparation courses for major admissions and assessment tests in the United States, the PRC and Commonwealth countries, primary and secondary school education, development and distribution of educational content, software and other technology, and online education. New Oriental’s ADSs, each of which represents four common shares, currently trade on the New York Stock Exchange under the symbol ”EDU.”

Net income for the six months ended November 30, 2006 was RMB173.3 million (US$22.1 million), representing a 135.7% increase year-over-year.

For the six months ended November 30, 2006 New Oriental reported net revenues of RMB598.4 million (US$76.4 million), representing a 31.8% increase year-over-year.

Stock of the Day
PetroChina Co. Ltd.
Monday’s Intra-day Price: PTR – $123.38

I am going to stay on the China bandwagon with PetroChina, the leading company in that country with a broad range of petroleum-related activities, including: the exploration, development and production of crude oil and natural gas; refining, transportation, storage and marketing, including import and export, of crude oil and petroleum products; production and sale of chemical products; and the transmission, marketing and sale of natural gas.

Warren Buffet has more than a $1 billion stake in this company through Berkshire Hathaway and according to reports, holds more than 9 percent of the publicly traded shares. The reports I am referring to came out in 2003 (see monthly chart below), when PTR was trading much lower (showing why he is the greatest investor ever). It never hurts to have Buffet on your side!

PTR has been screened on the MSW daily screens several times over the past 12 months but it was never added to the MSW Index or placed in the portfolio. I can’t take credit for any of the gains over the past couple of years but I would like to be part of any gains that may take place in the future.

The stock is currently forming a consolidation pattern above the 200-d moving average, similar to the support it received three times over the past two years (see the chart). If the stock can maintain support, the current trading range will become the next buying opportunity. The recent declines were logged in as distribution but the stock was also catching support during those down-weeks.

Sector: Oils/Energy
Industry: Integrated Oil and Gas
52 Wk Range $89.85 – $142.60

Stat: Value of $10,000 invested five years ago: $86,982 today

Held by Institutions: 11%
Money Market: 202
Mutual Fund: 71
Other: 13
2.2 million more shares were bought then sold last reporting period.
This equaled a $300 million difference in money transfer to the positive side.

Top Holder: FMR Corporation (Fidelity Management & Research Corp.)
4.5 mil Shares for < 0.01% of Portfolio ($566 million value) Total Equity Value of Portfolio: $618.0 billion (more than half of $1 trillion) Key Fundamental Numbers:
Market Cap.: $21.8B
Outstanding Shares: 175.82M
Short Ratio: 2.20
Net Income $M: 17,036M
ROA (%): 19.7
ROE (%): 29.61
P/E (TTM): 13.4
P/E (Forward): 11.44
Price to Sales Ratio: 0.32
Price to Cash Flow: 1.27
Book Value per Share: 319.12
PEG Ratio: 0.70
Price to Book Ratio: 0.39
Cash Flow per Share: 96.89

3-Year Sales Rate: 30.89%
3-Year Net Income: 44.25%

Earnings:
Estimated Earnings (2006): 10.93
Yearly (2005): 9.29
Yearly (2004): 7.13
Yearly (2003): 4.83
Yearly (2002): 3.26

Revenue (millions):
Yearly (2005): 552,229
Yearly (2004): 388,633
Yearly (2003): 303,779
Yearly (2002): 244,424

Net Income:
2005: 139,642
2004: 102,927
2003: 69,614

Cash Flow:
2005: 190,947
2004: 149,338
2003: 110,145

Is this just the beginning of the possible 10-bagger run or the top of the Chinese bust that some are talking about? I learn towards the former but will look for corrections to grab shares.