Orange Portfolio's Weekly Review

It's impossible to know what the market is going to throw at you from day to day. One day the market might be up 1%, because earnings look great. The next day we're down 1% on weak earnings or because German Chancellor Angela Merkel told Spanish Prime Minister Mariano Rajoy his tie is ugly.

OK, the problems in Europe are much more serious than that, but the market can be unpredictable. So as much as I enjoy looking at which markets are up and down every day, I only use the price wiggles as an indication of where to poke around for big news stories and ideas to research.

I'll make an occasional small speculation in the Orange Portfolio, but for the most part I'll be buying companies with above-average returns on invested capital, valuations that don't reflect their growth potential, and, if they have debt, enough cash flow that repayment shouldn't be an issue.

Check Point's great quarter
The qualities outlined above are precisely why I purchased shares of Check Point Software Technologies (NAS: CHKP) for the Orange Portfolio. The network security company has a great balance sheet with $1.3 billion in cash and no debt, and its razor-and-blades business model has it growing operating earnings at a 20% clip.

This week's second-quarter earnings showed more of the same. Revenue was up 9.3% to $329 million and operating earnings jumped 20.3% to $181 million. Just as important is that deferred revenues, an indication of future sales, were up 17%. Tack on a $1 billion share repurchase program and you have a great set of results.

The negatives were some weakness in Europe, accounts receivable growth that outpaced revenue growth, and a slight decline in the rate of revenue growth. The weakness in Europe and slightly slower growth aren't a surprise given the economic data that have come out the last few months and I'm not yet worried about the accounts receivable growth. Overall I still like the shares a great deal at their current price and will be looking to add to the position.

Here are two other stories that caught my eye this week.

Anheuser-Busch InBev
(NYS: BUD) and SABMiller (OTC: SBMRY.PK) don't just dominate the beer markets of developed economies, they've also gobbled up many of the leading emerging-market producers. This week Heineken (OTC: HINKY.PK) offered $6 billion for the 58% portion of Asia Pacific Breweries that it didn't already own, so it could maintain a presence in Indonesia, Thailand, and other rapidly growing Southeast Asian markets.

APB owns the well-known Tiger brand of beer and also has the right to brew Heineken in these markets. That makes this a logical deal for Heineken, particularly when you consider that Thai Beverage was starting to build an ownership position in APB. I think all of the major beer producers are pretty richly priced right now, but they're always worth keeping an eye on because of their long-term growth potential in emerging markets.

China and iron ore
BHP Billiton
(NYS: BHP) shares saw a nice boost earlier this week as iron ore output was higher than expected given the weak economic news out of China so far this year. I still think investors want to be cautious here, though. According to a report in China Daily, iron ore inventories are at a record high in China. Stimulus spending from the government may help keep demand from China up through this year's transition in government, but that's not the kind of demand I want to hang my hat on. Plus BHP Billiton is still investing to more than double iron ore production. That's the right move for the very long term, but I wonder if they're not moving ahead a little too quickly.

Earnings reports are due in the next few weeks for the Orange Portfolio's other three holdings and while I'm not jumping to buy industrial metal companies right now there are a couple of new buy ideas I'm working on. So check back next week for all the latest global investing news and portfolio moves.

As a reminder, you can follow along with all my real-money Orange Portfolio trades and updates here.

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Nathan Parmelee is a co-advisor of Champion Shares Pro and Share Advisor in the U.K. You can follow his real money Orange Portfoliohereand his Twitter feed at@GlobalFools. Nathan does not own shares of any company mentioned in this article. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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