Just because we feel that the overall stockmarket is unlikely to perform well in 2008 this doesn't mean that every stock is going lower. We therefore like and are investors in the following stocks.

Note, that we are usually long term holders of stocks and are therefore not that concerned with the short term movements, many of which in our view are completely random. In fact, we often prefer that the stocks we buy fall in price after we make the initial purchase so enabling us to buy more at cheaper prices (as long as we still like the fundamentals of the company and sector)

Usually our strategy is to buy some stock to get a foundation holding and then look to increase the position on subsequent falls. But if a stock does rally then at least we've got a beneficial core holding.

Google (GOOG)

Still our favourite non mining stock. We first started to buy this company in the summer of 2007 and will be buying more on every $25 increment lower below $500.

The potential of Google we believe is enormous and it has nothing to do with what the company does today, ie make the majority of its money from advertising. Rather it's all to do with the concept of Cloud Computing which is going to set the technology world alight over the next few years.

Cloud Computing is where all our programs and data move off our hard drives and onto massive central servers. Ultimately it's all about efficiency and making computer users' lives far easier. For this reason Google is going to force us to use more and more of their services, not by putting a gun to our heads, rather because they'll make computing so much easier and as we said above far more efficient.

If you want a more comprehensive explanation of Cloud Computing check out this Wikipedia link.

Stay tuned for next month's issue because we're going to fully explain exactly how Google will force you, me and everyone else to use their products more and more.

Marchex (MCHX)

This is a domain investing company. It currently owns around 200,000 domains but its stock price has been really struggling over the last 3-4 months. We've been buying at every $0.25 down below $10 and will continue to do so.

If ever there was a company ripe for takeover it's this one because the domain market is and has been super hot over the last few years. Frank Schilling, one of the world's largest domain investors, said this a year ago about the valuation of Marchex's portfolio -

Reading Schilling's excellent personal Blog he always comes across as super positive which is always a valuable trait. Personally I think he's being too kind in his final sentence of 'smart guys running the show', most probably because the big domainers are far too incestuous in their business relationships. To me Marchex's management seem to be the opposite of smart which is why I think they won't be around within a year.

The risk of this stock though is that even if there is a takeover at a large premium to the current price, the offer price might be low because the stock is currently in the doldrums. Whatever the case there are a lot of very sharp and very savvy internet operators with either big pockets or big backers that are keeping a very close eye on company developments.

My minimum valuation of the stock is nearer $20 and with the right strategy and people behind the helm I don't see why it can't be priced at $30 or more over the coming years.

Internet Gaming Stocks

We first promoted the idea of buying into this sector a few years back when the freedom loving and promoting US government banned its citizens from betting or gaming online. Of course, 'America is business' as President Truman once remarked so the decision had everything to do with US companies having virtually no foothold in the sector and therefore Dollars, profits and tax revenues were leaving the US continent and falling into the hands of UK and other foreign internet gaming firms.

Can anyone imagine the executives of the big US Casinos and other US entrepreneurs not at present seeking ways to repel the ban by opening up their own online operations? That will obviously take time but assume that a law gets passed in the next few years. What then are the US businessmen going to do? They can build online gaming companies from scratch or take the short cut and take over some of the current bigger players. This is why we still really like the sector for the long term.

Interesting, when the US ban came into effect many suggested that the gaming companies were really going to struggle but there's more to the world than US citizens hence 888 Holdings has just announced a 36% increase in revenues to £109million in the first full year after the US ban.

We like the big players (because of the takeover potential) like 888 and Party Gaming. Another stock we're about to buy in this sector is Probability PLC (UK ticker PBTY). It's had a reasonable run over the last few months due mainly to Michael Spencer the ultra-sharp boss of money broker iCap being a heavy buyer with a current 16% stake.

The company is a leader in mobile phone gaming services and if you think about it gambling and mobiles go together like Fish & Chips especially in the UK market where we British love nothing more than a flutter. But the company is not just focussing on the UK market it wants to be a global leader and I bet it's got bulging eyes on the potential lucrative Asian markets.

All these internet gaming stocks are like the products they offer speculative in nature so they aren't for widows or orphans.

Probability (UK ticker PBTY) - Weekly Chart

(note this stock is still way below it's initial float price)

888 Holdings (UK ticker 888) - Weekly Chart

Party Gaming Google (UK ticker PRTY) - Weekly Chart

Yahoo (YHOO)

As indicated in the last few Newsletters we've been buying Yahoo for several months, started off at $25-$26 and added all the way down. The bid from Microsoft at $31 was welcome but at $31 it grossly under values the company's real long term potential.

We sold 50% of our shares the day after the bid announcement but are holding out for what I believe will be the final price of $40+. Back in the November newsletter we suggested that $50 was perhaps the right price for a takeover but now with hindsight that does seem a bit rich in the current climate.

If the company is finally sold for $40+ most market commentators would I think suggest that it's far too high a price. However, most of them are far too short term in their outlook and are therefore always swayed by what's happening today and right now rather than the longer term bigger picture.

The internet, computers and above all the communication aspect of technology is obviously not going away, in fact it will be bigger than most people can imagine over the next few decades. If this is the case then overpaying today might look like underpaying tomorrow because how often do the top internet companies come up for sale?

Using a Football analogy to explain this point -

• In 1992 Blackburn Rovers bought Alan Shearer (63 England caps) for a then record breaking £3.6m
• Many felt and reported at the time that it was far too high and Jack Walker (Blackburn's benefactor) was being taken advantage of in his quest to buy the Premiership title at almost any cost
• 2 years later Chris Sutton (1 England cap) was bought (also by Blackburn) for £5m
• Shearer's price of 2 years previous was then viewed as an absolute steal
• Shearer himself was later sold for £15m in 1996 an increase of 300%+ in 4 years

Don't therefore discount that many more companies will start sniffing around Yahoo and a real bidding war might develop especially as well over 60% of the stock is now held by those who have no allegiance to the company and would happily sell out to the devil if he offers the highest price.

Yahoo Valuations Versus Facebook.com

Something to think about.

Facebook, which in my view is shaping up to be another internet fad/fashion, but I agree will perhaps be more successful than most of the other previous online fad companies is worth an estimated $15billion.

Yahoo is worth $42billion at $30 a share ($56billion at $40 a share). Which company would you rather own?

Something else to consider re Yahoo/Facebook

• Yahoo's 2007 profits $250million
• Facebook's estimated 2007 profits $30million