M2 Telecommunications (MTU.AX) delivered strong results across their businesses in 2009-2010. With underlying EPS up 72% to 16.7cents on the back of the People Telecom acquisition and organic growth. 2011 forecasts were strong with underlying EPS targeted in the 20.7-22c range.
With the current price of $1.80 you’re buying earnings growth of 28% for a P/E multiple of 8.4, which is an appropriate multiple for a no-growth company. In others words, current buyers are getting all M2’s growth for free. Alternatively the market believes M2 is not going to grow in the future …

Skillful individual investors exploit market inefficiencies to earn abnormal profits.

Ceres Power and Ceramic Fuel Cells are the two leading competitors in small scale combined heat and power (CHP) products. Both are targeting the residential market in Europe and have partnerships with German manufacturers and European gas suppliers. Both use technology based on Solid Oxide Fuel Cells (SOFCs) and if you believe their respective marketing both are the leading company in this niche area. So who is the leader and who is the pretender?

Minimise your personal debt.

The Australian stock market historically returns around 13%, comprised of roughly 10% capital growth and 3% dividends. The current yield on Telstra inverts those returns, with over a 10% after tax dividend and 3% growth.

Telecommunications is a capital intensive business. Telstra are fighting increasing competition, increasing interest rates, decreasing returns on their defined benefits fund and an insane government at a time of generational change in their business. Projecting consistent earnings into the future for a company faced with so many issues is hazardous. However, Telstra do have a very strong brand and have invested heavily in their transformation project.

No-one was ever fired for buying an Intuitive Surgical robot.

Excellent results highlight the growth path.

The greatest outperformance can be achieved by buying growth stocks using a value framework.

Taking 3% bets on your best ideas gets you no where. Concentrate to accumulate.

The random walk theory does not look right and current index valuations have a strong predictive ability for future long term returns.