MRVL, JLG and some changes to STOP orders

MRVL stock price rose 10% today.
Sales up 34%
Earnings +100%
Margins are also increasing from 53.7% to 54.4%

This is important: semiconductor pricing power has moved to Marvell's advantage.

They also projected continuing sales growth of 13% sequentially. Given the margins, that means potential for even more earnings upsides. With the potential next quarter to show $1.30~$140 for 12 months earnings, that makes for a 40 P/E AFTER today's 10% price jump (it was ~60).

Quick note: many people use the P/E as shorthand for a fair valuation. Use it, but do some additional homework too. With a growing company (where earnings are growing 50%+), the first two quarters are irrelevant. If anything, by depressing the 12 month earnings, they are artifically raising the P/E. Annualize the recent 2 quarters and adjust if there is management guidance.
Google is a great example of this. P/E of 89. People cite that as a warning sign that the company is overvalued. But Y/Y earnings are up 10X. Apply my rule of thumb. If Google's earnings stay flat, that's $5.30 per share or a 75 P/E at $400 per share.
In the next 2 quarters, if Google's earnings grow 20% then the P/E is 66
In the next 2 quarters, if Google's earnings grow 50% then the P/E is 50
In the next 2 quarters, if Google's earnings grow 100% then the P/E is 38
That's why the stock keeps growing - if the earnings continue to grow >100%, the stock is relatively cheap.

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JLG stock also zipped up a tidy 14.5%
Sales +56%
Earnings were $28M or $0.53 per share (no Y/Y growth number because they had a $8M loss last year).
Using the rule of thumb, if earnings stay flat (which they won't), that's a 21 P/E at today's price.

Other highlights were accelerating sales growth (raised outlook from 15% to 20%+), dividend declared (puny, but still....), and a likely increase in prices to offset oil costs. ALso, PEG ratio has slipped <1.
Most important: trading volume rocketed from an average 500K shares daily to 3.1M shares.

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We are changing the stop limit orders for the stocks as follow
BCSI $37
PWR $13
WFMI $138
GILD $51
CERN $90
MRVL $50
JLG $40
GYI $82
JBLU $17.5
DESC $9

In two weeks we are already at the point where (on some stocks) we are now playing with the house's money (to use Vegas terms).

Apple's Last Hurrah?

Is Apple peaking? Say it isn't so.
Truth is, Apple's earnings are vulnerable.
Check the math.

Revenue 2003: $6.2B
Revenue 2004: $8.3B
Revenue 2005: $13.9B

Earnings 2004: $276M
Earnings 2005: $1.3B

The iPOD has driven sales from ~34% to 67%
Earnings have grown ~5x

But these numbers are hugely misleading. Apple's growth is actually almost flat.
FOR THE LAST 3 QUARTERS, APPLE'S REVENUE HAS BEEN A FLAT $3.4B per quarter.
The growth comes from a much lower sales in 2004, which makes the annual growth look phenomenal. But that growth is over. Sure, next quarter will rock because of holiday sales, but then what? If the market for $400 iPods is 100 Million users, we are talking saturation in under 3 years.

1. iPod sales flattening out - the Nano is filling a much needed product portfolio void: a cheaper iPod. It expanded the market for Apple because a $400 Walkman is a bit much.
2. Flat revenue - How do you justify a 40 P/E when growth and sales move back to low double digits? In order for Apple to show 20% sales growth and 20% earnings growth, the next quarter must show $700M sales growth. Meanwhile, sales have been flat for 3 quarters. That means, Apple must increase iPod sales from ~6M per quarter to 8M. And keep it there! Oh, and earnings must grow $70M. Guess what: total earnings growth for the last 3 quarters was $20M. And that's for a mediocre 20% sales growth. To keep a 40 P/E Apple must deliver much better than that.
3. Not the golden touch - iTunes Cell phone was a dud; the fabled ability of Apple to add products is not there. The Motorola iTunes phone crashed at take off.
4. Video iPod: don't get your hopes up too high - WIll this catch on? No doubt. Many people will toss their old iPod for a video version. It could be the photo album of the future. But the shortcomings will hurt. To begin with, battery life will be measured in minutes, not hours. Anyone with a digital camera knows the limits of battery life and LCD screens. And the screen will be tiny. A neat gadget, but not an iPod killer. Not a portable DVD substitute either.

Apple needs major new revenue streams. iTunes will help. It's growing.
But what happens when Apple returns to the old ways - mediocre growth in Macs and iPods. Answer: P/E of 20, which makes Apple waaaay overvalued.

Besides, the shock of the low growth will inject som emuch needed reality into the stock price. Get ready to short.

BCSI - Story of a Drive By Mugging

BCSI was $52 and now is $40. This stock was mugged
Who, What, When, How? And most importantly: Why??

First, the Clues.
Revenue: +67% Y/Y
Earnings: +350% Y/Y
Let me repeat that: Earnings are up 350% from $1.1M to $4.7M per quarter. That's $0.02 per share more than expected
Future Demand: Looks sparkling. Many top companies are now customers.
Future guidance: even higher earnings

Time to bail? Quite the opposite. Consider this:
Q4 '04 EPS $0.02
Q1 '05 EPS $0.22
Q2 '05 EPS $0.27
Q3 '05 EPS $0.28 (just released)
With one quarter's earnings release, their PE dropped from 91 to 63 (at $50 stock price). Now the P/E is 50.
Assuming that their guidance is correct and earnings will be $0.32+, in one quarter the PE will be 37. That is reasonable for a company delivering earnings growth of 350%.

They got clobbered by high expectations and a recent pre-earnings run up. Don't be fooled - the stock drop returns them to their pre-earnings trading level of $40. This is a great buy opportunity.

PORTFOLIO MOVES
We set the Stop limit and sold at $46 (if memory serves). I propose to buy back at the current trading price of $39.50. That would look like this
Sold: 200 shares * $46 = $9200
Buy: 233 shares at $39.46 = $9200

Remember this: small cap stocks that are fast growing are more volatile. You need to stay with them as long as they are meeting/beating earnings growth targets.

Stocks for the less than faint hearted

Some folks want to know stocks that I like but don't put in this more conservative portfolio.
SRCL - Stericycle. They are waste management for medical waste.
RMD - Resumed.
CTSH - finally making a move, perhaps. They are definitely on my short list to float into the test portfolio
CMTL - Satellite communications equipment
UNH - United Health care. They can raise rates and we'll just....pay it.
USAK - Trucking company. WIth gas prices mellowing, trucking will be more profitable.

I own RMD, CMTL, and USAK. Anyone looking for steady growth should consider SRCL. UNH, well, I can't make up my mind. I don't know if they are growing, just getting more efficient through consolidation, or what.

STOCK UPDATE
Meanwhile, RTLX update. They're up, they're down. Almost worth buying and selling repeatedly to take advantage of the interday 3% movements.

PORTFOLIO UPDATE
The portfolio is sagging a bit. Week 1 ended with us up 5% and week two has us down to 3%.
Some is profit taking (DESC)
Some is timing and buying near a high (WFMI)
Some is earnings announcement jitters (BCSI)
Our movers to date are
GILD +5%
CERN +5%
JBLU +5%
DESC +14%

Even though it is a bit early (it's only week 2), lets start tracking the stocks as follows:
8 out of 10 stocks are up
1 out of 10 stocks are up >10%
4 out of 10 stocks are up >5%
2 out of 10 stocks are down ~1%