Hi all,

this is my first writing on this site. I am from German and I have to admit that my English is lousy at best. But I hope that it could be understand what I want to say.

My portfolio is divided in the three types:

A. The companys that I will hold probably forever (wonderful companies bought at a fair/wonderful price)

Here are my usual suspects. Right now in my account portfolio there are: JNJ, USG, GSK, SNY and KFT. I made a few writings on the first 4 companies in forums, so I dont want to repeat the old writings. KFT is "only" a WEB move. I have to admit it, I would not buy KFT without the information that WEB bought heavily on higher prices because the numbers are not to good in my view. But I believe that when WEB sees a moat that this is probably a good longtime pick.

B. The companys that I will probably hold a long time (good companys at a wonderful price)

Here are companies that have right now a moat (in my view) that will not survive forever (in my view). I will sell them if the numbers get weaker or when I need money to buy wonderful companies.

This group contains BDK, HOG, LOW, MHK, NOK

C. The companys that got a tremendous hit because of fear or irrationality

This companys are short-term plays. But do not  confuse me with Mr. Market. My holding period on short-term plays can be very long when I do not see a better investment.

This group contains AMGN, APOL, GCI, MRK, SGP and UNH.

Maybe I will do a little writing on AMGN or GCI or UNH next time but now I want to dig a little deeper on APOL.

In the last two weeks Mr. Market behaved - in my view- like his usual self. He got panicked out on a few extremely interesting stocks.

1. Apollo
2. Merck
3. Schering-Plough

In my writing I will try to explain why I think that the old funny man was totally irrational (like usual) with Apollo.
A writing on MRK and SGP would sound very similar.

 Apollo

The company(in short):
Apollo is one of the leading supplier of extension studies. With the University of Phoenix they have the biggest private university in the US.
A so called "red flag" appeared because there was a issue with the right valuation of stock options (a greedy management is not worth a long term bet in my view).

The revenue and earning growth from 1993 to 2003 was unbelievable good. Because of revisited earnings there was a earnings decline in 2004. Since 2005 the earnings are still flat.

Is there a moat in the business?
1. It is definetely not easy to build a new "brand" in the business. First a new company had to spend a whole lot of money to get a "foot" in the business. You have to build a name that is in my view really expensive. 

2. Apollo is in a regulated business. That means Joe Sixpack can not establish a private university. The government give a regulatory approval called accreditation. There are different levels of accreditation in the US. The most valuable accreditation is the regulation which makes it easier for students to transfer credits to public universitys, which is not easy to get. Guess what kind of accreditation Apollo has! Right, they have  the most valuable. This is a huge competitive advantage. One extremely interesting point is that only accredited schools can accept federally subsidized student loans. So potential competitors have a big disadvantage to compete with Apollo.

What do the numbers "say"?

From 1993 to 2008 the revenue grow with a satisfying speed. The price-revenue-ratio stays at a modest 2.3. The ROE was only one time under 25% in the last 15 years (in the year 2004 because of the revised earnings. You know the valuation of the options...). The revenue margins were allways above 10% in the last 12 years with the exeption of 2004. In 2004 the revenue margin was a "modest" 7.3% (not too bad in my view).

The stock:

After the earnings revisiting and the flat earnings since 2005 Mr. Market is not in love with Apollo. The stock- formerly known as the HIGHFLYER- had a short run in the last months before the last earnings announcement that came on the 20. of march.
The company posted a loss of 19 cents per share because of a charge related to a class action lawsuit. Independent of the charge, Apollo recorded earnings of 41 cents per share. The crux was: Mr. Market expected earnings of 52 cents per share :-). The sales were not good for Mr.Markets mood, too. (When I would be cynic, I would state that Mr. Market had to high expectations.).

My view:

The decline to 40$ is in my view not approbriate. With the nice run in the last week it could be that if KO`s stock loose a bit of its valuation I will change Apollo in Coke. But I am not in a hurry to sell Apollo because I dont think that the stock is expensive. But it is definetely not a longterm bet for me.

Happy investing!