Welcome to the fourth 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.

It is almost three months since SINLetter was started on August 2, 2005 with a cash position of $100,000. Four out of the six stocks in our model portfolio are up as of market close on October 31, 2005 and the biggest gainer is Online Resources Corp (ORCC), which is up a respectable 25.13% in just two months. The biggest loser is Airspan Networks Inc (AIRN) which is down 11.39%. I expect Airspan Networks to appreciate significantly in the long run as WIMAX Technology (discussed in the August 2005 SINLetter) is more widely deployed and adopted in the future. Overall, our model portfolio is up $3,474 or 3.47% over the last three months when compared to a loss of 2.28% for the Dow Jones Industrial Average and a loss of 4.41% for the Nasdaq over the same time period.

Chipotle, the Mexican grill that is mostly owned by McDonald's is going public sometime early next year. With only 460 restaurants, there is still a lot of room for Chipotle to grow. They serve up mouth-watering burritos made with fresh ingredients. It is my favorite place to grab a quick bite to eat and from the long lines I have seen (often spilling out to the sidewalk) at the Chipotle in the financial district of San Francisco, it looks like a whole lot of people dig their food. This would be an IPO that would be worth getting into and I will try to keep all of you posted about the IPO date.

If you missed the earnings release from the major oil companies last week, here is an update. Exxon Mobile Corp (XOM) posted a windfall profit of almost $10,000,000,000 last quarter. That is a profit of almost $10 billion in just three months. The other oil companies like Royal Dutch Shell and BP also reported excellent profits, though not quite as high as Exxon Mobile. Apart from stockholders in the energy sector, rising oil prices are hurting almost everyone else. These record profits clearly indicate that increasing demand, refining capacity or supply disruption due to natural disasters have only had a minor role to play in the dizzying jump in oil prices. And the worst is not over, yet. People who use heating oil or natural gas to keep their houses warm in winter are looking at an increase of almost 50% in their heating bills. This is after facing a 30% increase last year. A friend of mine who lives in New York mentioned that his heating bill went from $500 to $800 last year and he expects it to be a whole lot more this year. The possibility of the real estate bubble deflating coupled with very high energy prices is one of the main reasons I continue to feel bearish about the market in the short term. Having said that, I present two stocks that are well positioned to perform well in the coming months.

Seagate Technology (STX)

The Story:

On a mailing list of system administrators that I belong to, someone recently asked for a hard drive recommendation and within minutes a bunch of administrators responded with recommendations of hard drives made by Seagate Technology. All of them claimed that Seagate drives have had the lowest failure rate and are very quiet when compared to drives by competitors Maxtor (MXO) and Western Digital (WDC). About two months ago, when I wanted to purchase an external hard drive to backup files from various computers, I chose a Seagate 160 GB external hard drive and have been very pleased with its performance. Before you start thinking that this is beginning to sound like a hard drive review on Amazon.com, let me make the case for why Seagate might be an excellent stock to own.

Seagate recently reported profits of $272 million on revenue of $2.09 billion for the three month period that ended on September 30, 2005. That represents a 34% increase in revenue and a whopping 400% increase in net profits when compared to last year. You would think that a stock with such amazing numbers would be richly valued and would have appreciated a lot over the last year. That is hardly the case. Seagate sports a P/E ratio of just 7.91 and a low Price/Sales ratio of 0.83. The stock is down 16.7% since the beginning of this year. The reason for such dismal performance in the face of such excellent earnings can be summed up in a single word. Flash. Flash memory cards are currently used to store pictures in digital cameras, tiny flash USB drives are used to transfer up to 2 GB of data and files, and Apple recently announced the use of a flash drive instead of a hard drive in its new iPod Nano MP3 player. The fear is that as the storage capacity of flash increases, it is increasingly going to replace hard drives in various devices. I feel that with the continued demand for digital storage, both flash and hard drives can co-exist and grow. Consider the following facts,

1. Apart from iPod Nano, hard drives are still used in the rest of the iPods.
2. With the release of the video iPod, iPods are going to require additional storage space and hard drives are still ahead of flash memory in terms of large storage capacity. One of the reasons Seagate posted such excellent profits was on account of high profit margins associated with their tiny 1 inch drives.
3. Increasingly cell phones will use hard drives instead of flash memory. Samsung has already released a couple of phones that have tiny hard drives in them and Nokia is doing the same.
4. Other consumer electronics like digital camcorders and digital video recorders that allow you to pause, record or rewind live TV, use hard disks. JVC has already announced 4 camcorders that use hard drives.
5. In addition to high-density tapes, hard drives are increasing used for external storage and backups. As awareness about disaster recovery and off-site backup systems increases, the demand for storage will continue to grow.

Seagate has a strong balance sheet with $1.84 billion in cash and short-term investments versus $740 million in short-term and long-term debt. Seagate also pays a dividend and the current dividend yield is 2.3%. Based on the stellar results this quarter and the continued growth I anticipate in the storage sector, Seagate seems like a good buy for the long term.

Competitors:

The primary competitors of Seagate are Western Digital (WDC), Maxtor (MXO) and Hitachi (HIT). Maxtor has faced some troubled times in the recent past on account of management problems (the CEO, CFO and president have left within the last year) and they have been many reports of quality issues. This is well reflected in Maxtor's current stock price of $3.50. Western Digital is a well managed company with a balance sheet that has very little debt and over half a billion dollars in cash and short-term investments. I bought Western Digital stock last year when it was trading at $8 and sold it at an average price of $12.73 earlier this year for a profit of 59%. At that time I felt that Western Digital was more attractively valued than Seagate, but I now feel that the tables have turned. Western Digital currently sports a P/E of 13.22 when compared to Seagate's P/E of 7.91.

The Good:

• Attractive current valuation with a P/E of 7.91 and Price/Sales of 0.83
• A strong balance sheet with $1.84 billion in cash and short-term investments versus $740 million in short-term and long-term debt.
• A high growth rate of over 34% year-over-year in the latest quarter.
• Continued growth through consumer devices such as MP3 players, Cell Phones, DVRs and Camcorders.

The Bad:

• Strong competition from both Hitachi and Western Digital.
• Eroding market share to Flash as the storage capacity of Flash increases. iPod Nano now uses Flash.
• Groundbreaking storage research at IBM called the "millipede" that has demonstrated the feasibility of storing one terabyte of data in one square inch.

The Numbers:

Ross Stores Inc (ROST)

The Story:

Over 663 Ross Stores sell everything from apparel to house furnishings and toys across the United States. Ross has created a business niche for itself by purchasing closeout and slightly defective brand-name apparel and selling them at a highly discounted price to consumers. During the recession after the dot-com bubble burst, people flocked to discount retailers like Walmart and Target. High-end retailers like Neiman Marcus continued to do well. It was the middle tier of retailers that suffered the most during the recession. If consumer budgets are stretched thin this holiday season on account of high energy prices, we could see a similar trend again. Ross is well positioned to benefit from this trend. Even if such a scenario were not to materialize, Ross is currently doing quite well with year-over-year quarterly revenue growth of 16.20% and earnings growth of 31.20%.

Ross seems reasonable valued with a Price/Sales ratio of 0.87 and a P/E of 22.04 provided it can continue to grow. The balance sheet also looks strong with $145 million in cash and short-term investments versus long-term debt of $50 million. The only red flag that came up was the $807 million of accounts payable when compared to only $44.3 million of net receivables. Among the hundreds of balance sheets I have read, I usually see slightly higher accounts payable when compared to net receivables but never have I come across a difference this big. It could easily be attributed to the business model of Ross and a phone call to Investor Relations should set things straight. The high inventory they are carrying could also have something to do with their business model and might tie in to this high accounts payable figure. If these issues are resolved, Ross could prove to be a good short to intermediate term investment.

Competitors:

It is hard to classify any large company as a direct competitor of Ross. On the one hand you could consider Target (TGT) a competitor and on the other hand you could consider TJX Companies (TJX) or the privately held Mervyn's a competitor. TJX Companies operates the chains T.J. Maxx, Marshalls, and A.J. Wright in the United States.

The Good:

• Attractive quarterly revenue growth of 16.20% and earnings growth of 31.20%
• A strong balance sheet with $145 million in cash and short-term investments versus long-term debt of $50 million.
• Unique business model that is well positioned if consumer spending is tight this holiday season.

The Bad:

• Close to a billion dollars of inventory.
• Expectations of continued high growth by Wall Street.

The Numbers:

Every month we will add the two stocks that are highlighted 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 day of the previous month (October 31, 2005 for the November 2005 newsletter).

* Price and number of shares adjusted for Wipro to reflect split.

Voluntary Disclosure: I currently own shares of Airspan Networks (AIRN), ATI Technologies (ATYT), Wipro (WIT), Online Resources (ORCC), Nokia (NOK) and Seagate Technologies (STX).