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The big news is the current merger of United [stckqut]uaua[/stckqut] and Continental [stckqut]cal[/stckqut] (yes, I know that there is plenty of other big news such as nuclear non-proliferation, Republican and Democrat politically maneuvering, and the current American Idol contest but I don’t talk about those things on this site).

Those that have listened to my advice in the past know that I do not believe in the wondrous predictions of mergers. Have you ever heard the leaders of the companies involved in mergers declaring,”This is really bad for our company and our shareholders but we are going to do it anyway because it is more fun than just running our own company profitably.” I can’t find anyone saying it but they probably should as it is likely more close to the truth than anything they said in their various public releases.

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To be honest, I never considered this approach before.

I typically do not like paying fees to fund managers. I am especially skeptical of standard mutual funds when their track record can be worse than the market almost as frequently as above the market.  According to that great champion of individual investors, Motley Fool:

The average actively managed stock mutual fund returns approximately 2% less per year to its shareholders than the stock market returns in general.

Most of my advice is to pick great companies and invest in them with caution, taking profits when the market moves against the company’s stock. I do suggest that a certain portion of your portfolio reside in index funds – I typically tell people to pick their favorite broker and buy a DOW index fund, a S&P index fund, and at least one international index fund.  I rarely care about the brand since we are just trying to match whatever the market is doing.

Crossing Wall Street just did a great post describing a fairly mathematically correct method of creating your own S&P Index fund.  This would allow you to avoid any fees leveraged by the index fund management company.  Not a bad idea.  Note though that not all of these companies are Good Companies (in fact at least one of them is a Poor Company) but that is okay since you are only investing in these companies because they are your own home-grown index fund.

Looking to build a quick-and-easy index fund? Of all the stocks in the Dow, United Technologies [stckqut]UTX[/stckqut] has had the strongest daily correlation with the S&P 500 going back to the beginning of 2005. Each day’s UTX gain or loss has a 69.7% correlation with the S&P 500.

If add in Dupont [stckqut]DD[/stckqut], the correlation jumps to 80.5%. (Note this is average daily change, so it assumes you invest equal amounts each day.)

If you add is Disney [stckqut]DIS[/stckqut], the correlation rises to 85.4%.

Now the extra correlation really is hard to come by. If you add ExxonMobil [stckqut]XOM[/stckqut], the correlation rises to 88.9%.

Still more?

If we add American Express [stckqut]AXP[/stckqut] the daily correlations rises to 90.6%.

Verizon [stckqut]VZ[/stckqut] brings it up to 92.6%.

If you want to go for seven stocks, IBM [stckqut]IBM[/stckqut] will bring you up to 94%.

Now we’re almost out of room. Wal-Mart [stckqut]WMT[/stckqut] will bring our eight stock index fund up to a 95% daily correlation with the S&P 500. This is, of course, an equally weighted fund.

Obviously, you will spend $15-$20 per stock as you buy and eventually sell each stock (I assume you know where to buy or sell a stock for $7-$10). this may make this strategy not work for you depending on the amount that you invest in your “fund” so do the math before you get online with your favorite broker.

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Greg Sushinsky over at Investopedia had an article discussing the fundamentals of Potash.  I still think that POT [stckqut]POT[/stckqut] is a Good company and a good investment so I stand by my analysis of the numbers on February 15 but Greg has some interesting analysis that is worth reading.

Below is the first part of the article but you can click through here to read the entire opinion.

Potash Corp. (NYSE:POT) of Saskatchewan has seen its stock rise from a close of $104.49 per share to just over $115 per share last week. The fertilizer company’s stock has traded between $63.65 and $126.47 per share in the last 52-weeks. But is the stock a good buy on fundamentals?

A Dust Bubble Scattered?
A quick review of the last couple of years in the agriculture business found a startling commodity bubble in fertilizer. Not so long ago – 2008 in fact – Potash Corp. earned $11 a share for its fiscal year, but earnings fell to $3.25 a share in fiscal 2009. Prices for potash fertilizer had run up from a relatively stable $100 per ton in 2003-2004 to its current price of approximately $580. Potash Corp.’s stock price reflected these changes, as it shot from under $30 a share to the low $200s during the boom.

The Stock’s Fundamentals
The boom price in the $200s saw Potash Corp. trading at a PE of roughly 20. Now the multiple is about 35 times earnings, at over five times book value and an almost punitive dividend.

How about forward earnings? The company is calling for $4 to $5 earnings in 2010, less than the $6 analysts had expected. The forward multiple on this outlook would put the PE at 23 to 28.75, still pricey in a market where historical PEs have gone awry since the spate of negative earnings.

More important, this multiple exceeds the 20 PE multiple Potash Corp. carried at even its fullest earnings. So on the face of it, fundamental investors might want to simply say the stock is overvalued right now at its $115 market price. But things are not so simple.

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I picked this up over at iPhoneFreak. It is good to know that one of the major new products that Apple (one of our Good Companies) has a decent profit margin.

A recent report from BroadPoint AmTech analyst Brian Marshal suggests that Apple is going to be making more than $200 for every iPad they are able to sell. The range of profit appears to range from $208 on the $499 model and up to $446 on the $829 model.

“According to a bill of materials (BOM) analysis by Brian Marshall of BroadPoint AmTech, the cost of goods inside Apple’s 16GB Wi-Fi-only iPad totals $270.50. That figure includes a $10 line item dedicated to manufacturing, but doesn’t include another $20 set aside for under-warranty service costs. Adding the latter makes Marshall’s bottom-line total $290.50.”

Also interesting to note, but not surprising is that the display was the most expensive part on the list, coming in at $100. That however can be off-set by the lower price of the Apple A4 chip which was noted as being just $15. Other prices include the 16GB of memory and the aluminum casing both of which were $25 each.

This means the profit margin for the 16GB Wi-Fi only iPad is roughly 42.9%.

In terms of the 16GB Wi-Fi + 3G model, based on the same estimates that model is only costing Apple an extra $16 to make which means they will be making a higher profit on the +3G models. On the 16GB Wi-Fi + 3G model it was noted that the profit margin jumped up to 52%.

I caution you that just because the profit margin on this one product is good, it doesn’t mean the company will maintain as a good company to invest your money. The actions or inactions of its managers are the real drivers of solid performance.

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Investopedia has a great article on Amazon and its ability to build and sustain a successful business. I think there analysis is quite good. I continue to think that the company is worth buying and holding even though the current technicals indicate waiting for a bit of a rebound.

Online retailer Amazon (NASDAQ:AMZN) continues to pour it on. This online juggernaut, which now sells just about everything under the sun, reported results that continue to defy expectations. In the 2009 fourth quarter, net sales shot up by 37% on an apples-to-apples comparison. The bottom line benefited even more – up 71% in the quarter, representing 85 cents per share. For the full year, sales were up nearly 30% to $24.5 billion and net income reached $900 million, up 40%. Even more impressive is the effect on cash: free cash flow for 2009 was nearly $3 billion, more than twice the cash generated in 2008.

There is more good information in the original article so click through to read the rest.