Welcome to the sixth edition of the Suria Investment Newsletter (SINLetter), a free monthly newsletter that highlights two publicly traded companies. The objective of this newsletter is to provide you with unbiased initial research and basic facts about individual stocks so that you can then research them further before deciding to add them to your portfolio or not. For those of you who are reading this and are not already subscribed, you can subscribe by going to www.sinletter.com/subscribe.aspx and you will start receiving this newsletter from next month. I have provided relevant links throughout this newsletter, but if you have any questions or comments, feel free to write to me.

Portfolio Performance:

Last month's featured stock, Tata Motors (TTM) appreciated 20.35% in just one month helping the overall SINLetter portfolio notch up gains of 13.92% since its inception in August 2005 with a cash position of $100,000. This compares with a gain of 0.89% for the Dow Jones Industrial Average, 0.45% for the Nasdaq and 0.01% for the S&P 500 over the same time period. Seagate Technologies (STX), which was featured in November acquired Maxtor Corp for $1.9 Billion in stock and continued its upward trend. It remains the best performer of the SINLetter model portfolio with gains of 37.96%.

Portfolio Readjustment:

With almost all the cash fully invested in stocks, I am now presented with the difficult task of selling some of our positions to finance the purchase of this month's featured stocks. I continue to like every single stock in the model portfolio but have decided to take some profits off the table by liquidating half of our position in Seagate Technologies. I have also decided to sell Ross Stores Inc (ROST) and realize the 6.88% in gains since we added it to our model portfolio in November. Ross expects same store sales growth of 1 to 2 percent in December and 3 to 4 percent in January. The holiday season shopping seemed to benefit most regular retailers and it does not look like Ross benefited a whole lot more. The other disconcerting factor about Ross is the $1 billion in inventory that it currently carries. The proceeds of these two stocks will finance this month's featured stocks, Pfizer and Ford.

Other Interesting Events:

Google (GOOG) insiders continue unloading Google stock with founders Sergey Brin and Lawrence Page unloading 400,000 and 135,000 shares respectively in the first 20 days of December. This amounts to over $160 million and $54 million each. (considering a low average price of $400/share). It almost feels like the dot-com bubble all over again with a small difference. Google actually has some pretty solid earnings. Whether Google's future growth potential justifies a current P/E of 92.22 and P/S of 23.65 is the question of the century. Anyone who went short on Google probably lost his or her shirt, but buying some put options on Google at this time sounds like a good idea. The downside is limited to the cost of the options, but if Google were to display even the slightest sign of stumbling then the upside could potentially be tremendous.

Anyone who read the September and October SINLetters will realize that I normally discourage the use of options or short selling of stocks except as a hedge for a long portfolio. The recent inversion of the yield curve where short term bonds start yielding more than long term bonds (imagine getting a better interest rate on a 1 year CD when compared to a 5 year CD) spooked Wall Street. The reason Wall Street was so unhappy was on account of the fact that the last six times the yield curve inversed, the economy went into a recession. This is precisely where a hedge in the form of put options, short selling of stocks or even buying gold can be useful if most of your portfolio is long.

Dogs of the Dow Theory:

This month's featured stocks are based on the "Dogs of the Dow theory" but with a small difference. According to the Dogs of the Dow theory if you were to pick 10 stocks with the highest dividend yields from the Dow Jones Industrial Average (DJI) at the beginning of the year and hold them until the end of the year, your average returns over a period of time should be higher than the returns of the entire Dow Jones Industrial Average (DJI). This proven theory has strong parallels with value investing principles and could be considered a value investing approach with all the guesswork taken out of it. The DJI consists of 30 of the largest and most widely held public companies and you can view the entire DJI list here. Based on the definition of the Dogs of the Dow theory, the list of 2006 dogs is given below.

The reasons I chose Pfizer from this list and also picked Ford as an alternative to General Motors are explained in detail below.

Pfizer (PFE)

The Story:

Pfizer is the biggest pharmaceutical company in the United States with a market cap of $171.90 billion and annual revenue of $52.5 billion. Apart from its well known blockbuster drugs like Celebrex, Lipitor, Viagra and Zoloft that treat everything from arthritis to depression, Pfizer also has a thriving consumer health care division that makes products like Listerine, Lubriderm, Neosporin and Visine. The company was founded in 1849 and has grown through innovation and acquisitions. The most recent innovative product that comes to mind is Listerine PocketPaks, which were so successful that it spurred a plethora of copycat products. However the heart of Pfizer remains the multi-billion dollar pharmaceutical drugs.

Pfizer's performance in 2005 was dismal with the stock falling almost 12%. This was after a 11% rebound in Pfizer's stock in December based on an announcement by the company that it plans to raise its dividend by 26%. This dividend raise would put Pfizer's dividend yield at about 5%, making it the fourth highest yielding dog of the Dow. The reason for Pfizer's dismal performance in 2005 was attributed to expiring patents for many of its blockbuster drugs, potential lawsuits similar to the ones Merck (MRK) is currently facing for its arthritis drug Vioxx and increased competition from both generics and biotechs.

This brings us to the question of why I am featuring this stock. Apart from the proven track record of the "Dogs of the Dow theory", the raising of the dividend signaled how the company perceives its financial strength. A glance at the balance sheet from the most recent quarter confirms this fact as Pfizer currently has $16.78 billion in cash and investments when compared to $12.143 billion in short-term and long-term debt. Apart from its financial strength, Pfizer is also widely considered to have one of the strongest pipeline of drugs amongst other pharmaceutical companies. There is also the new government medicare prescription coverage that kicks in this year, which would benefit Pfizer and other "Big Pharma" companies. I feel that Wall Street has as usual over-reacted to Pfizer's problems and the stock is likely to rebound from these levels. Even if this were to take a while, the 5% dividend payout sounds like adequate compensation for my patience.

Competitors:

Pfizer faces competition from many fronts. On the one hand there are other big pharmaceutical companies like Merck (MRK), GlaxoSmithKline (GSK) and Novartis (NVS). Then there are the biotech's like Genentech (DNA) and Amgen (AMGN) who have taken a totally different approach to making drugs and have been highly successful. Finally there are the generic drug companies like Israel's Teva Pharmaceutical Industries (TEVA), India's Dr. Reddy's Laboratories (RDY) and Mylan Laboratories (MYL) who constantly challenge "Big Pharma's" patents.

The Good:

• Attractive current valuation with a P/E of 21.26 for a company that expects double-digit growth in 2006 and pays a dividend of 5%.
• A strong balance sheet with $16.78 billion in cash, short-term and long-term investments when compared to $12.143 billion in short-term and long-term debt.
• The new medicare prescription drug benefit could be positive for Pfizer.

The Bad:

• There hasn't been a significant increase in R&D expenditure. Pfizer spent $8 billion in R&D in 2005, compared with $7.7 billion in 2004.
• Potential lawsuits similar to those faced by Merck for its arthritis drug Vioxx.
• Intense competition from biotechs and generic drug companies.
• Looming patent expirations for some of the best selling Pfizer drugs and patent challenges by generic drug companies.

The Numbers:

Ford Motor (F)

The Story:

Recommending Ford at this point is very unpopular, but from a contrarian or value standpoint, Ford could reward investors who are willing to go against the grain. Ford and General Motors are losing market share and face many other problems such as rising healthcare costs but with an extremely low P/S of 0.08 and current P/E of 7.52, Ford looks heavily undervalued. An investment in Ford at these levels reminds me of a trade described by the investment guru Peter Lynch in his book One Up On Wall Street. In the 1980's when Chrysler was in a lot of trouble and widely expected to go bankrupt, Lynch picked up Chrysler stock and made over 300% on his investment. I could be wrong about Ford and investing in Ford at this time does involve considerable risk but it is hard to discount the following positive things that Ford has going for it.

1. Ford currently has $36.8 billion in cash and short-term investments on its balance sheet. With that much cash on hand, the likelihood of Ford going bankrupt looks slim to me. The long-term debt is $141.74 billion, but a large portion of that is debt on account of the car loans given out by the finance arm of Ford.
2. Ford owns Jaguar, Land Rover, Aston Martin and Volvo. While the Jaguar unit of Ford has not performed well in recent years, each of these impressive brands represents solid value. Last week Ford decided to inject $2.1 Billion into its troubled Jaguar unit. Ford also owns Mercury, and a considerable stake in Mazda.
3. Ford recently sold its stake in Hertz for $5.6 billion. I was unaware that Ford owned a big stake in Hertz Car Rentals but was pleased to hear of the sale as it infuses a lot of cash into Ford and at the same time gets rid of a car rental company that seems to consistently charge almost twice the rate of its competitors.
4. Unlike GM and a host of other automakers that did not see the importance of adding hybrid engines to their lineup of cars, Ford quickly followed in the footsteps of Toyota and Honda to introduce a hybrid version of its popular small Escape SUV. The New York yellow taxi company has already started using some hybrid Escapes and plans to convert a large part of its fleet to hybrid Escape SUVs. New York city has offered significant price breaks on taxi medallions (which usually cost upwards of $500,000) for cabbies who decide to use a hybrid.
5. Ford has a considerable presence internationally and Ford Europe is profitable. After lukewarm response to the Ford Escort in India, Ford introduced its new model called the Ford Ikon, which was very well received in India. Ford is likely to continue gaining market share in the luxury car segment in India. Volvo (a unit of Ford) is also expanding into trucks in India.
6. The Ford Mustang remains a very popular car in its category and Ford had to increase production to over 190,000 units to meet the high demand for the newly redesigned Mustang.

While you wait for Ford to recover from these lows, you can continue collecting the dividend, which is currently 5.1%. If for some reason Ford decides to eliminate the dividend or even reduce it, all bets are off. The chances of this happening are very low as it would lead to an exodus of value and income oriented investors. To recognize the risks presented by Ford, I have only invested the proceeds from selling half of Seagate Technologies.

Competitors:

The Good:

• Very attractive current valuation with a low P/S of 0.08 and P/E of 7.52.
• A high dividend yield of 5.1%.
• Profitable international operations and certain best selling domestic cars like the Ford Mustang.
• Ford reached a new deal with the United Auto Workers union that will allow it to save $650 million annually.
• The only American auto company with an established hybrid strategy.

The Bad:

• A heavy pension burden combined with rising healthcare costs.
• Loss of market share to Toyota and Honda.
• Lower profits on account of slowdown of sales of highly profitable light trucks and SUVs.

The Numbers:

Every month we will add the two featured stocks into a model portfolio started with a cash position of $100,000 on August 2, 2005. To keep calculations simple, trading costs are not included. Prices reflect the closing price as of the last trading day of the previous month (December 30, 2005 for the January 2006 newsletter).

Voluntary Disclosure: I currently own shares of Airspan Networks (AIRN), ATI Technologies (ATYT), Wipro (WIT), Online Resources (ORCC), Nokia (NOK), Medifast (MED), Tata Motors (TTM), Ford (F), Pfizer (PFE) and Seagate Technologies (STX).