Weeks 14 & 15 Update - New stocks to buy this week
Week 14 Week 15 YTD Since Inception
Dow 1.17% 0.53% 3.71% 5.6%
S&P 0.24% 1.8% 3.13% 5.6%
NASDAQ 0% 1.58% 3.49% 5.2%
LiveRocket -1.45% 1.14% 8.58% 18.92%
In Week 14 we stopped out of the following stocks
JOYG $52.8
MDR $47
AKAM $21.8
GRP $47.5
That yielded $47,715 on a $42,31.45 investment. That’s a 12.8% yield on 6 week investment
In Week 15 we stopped out of MRVL $63 and sold SNDK $59
That yielded $$22,925 on a $22,053.5 investment, or a 4% yield. The MRVL 28.9% yield on 3 month investment was almost completely lost to the SNDK buy back.
CURRENT PORTFOLIO
JLG 263 shares
STX 597 shares
ET 500 shares
NTRI 115 shares
Cash $70,642.71
OVERVIEW
We are less than the market the past two weeks because I decided that indicators were pointing to a possible downturn. We stayed out and the market advanced. The underlying market trend is upwards, and the only reason to stay out is because of the potential to buy in at substantially better prices. Again, I still see us at an inflection point – it could go up but it traditionally has gone down.
It’s all about oil. Dell and Agilent had great earnings, but it didn’t really spark the market. HP and others will release this week, and that will add to generally positive sentiment. Oil dropped, and the market surged.
There are rebounds going on in Technology, Finance, and Energy/Mining equipment.
NEXT MOVES -
Energy/Mining Equipment: Adding aggressively
GRP – The bottom has been established (~$40). This is a screaming buy - they have a PEG of 0.63 and a backlog of $814M compared to last year’s sales of $1.35B. We just wanted to buy in at a lower price. Adding this week.
MDR – The bottom has been established (~$45). As discussed previously, the coal industry and utilities are growing and turning to MDR for equipment. Margins are up 4.5% q/q and 8% y/y
We’ll buy back in before earnings release in next 2 weeks
TIE – Offshore oil exploration requires titanium tubes (steel corrodes). That’s how I found this company. But they are much more, and I am hugely impressed. This is a quintuple play: specialty metals, energy, healthcare, aerospace, military.
Specialty metals - I don’t like commodities at this point in the business cycle. Commodity steel is dropping in price. But niche metals and alloys are doing fine.
Specialty metals – as demand grows for more metals, remaining a specialty item helps to slow the commoditization and price drops.
Energy play - With oil likely to stay this high, future planes in particular will use more titanium. Also, as oil extraction becomes tougher, pumping seawater into older wells is the premier methodology and this requires titanium equipment (steel corrodes in seawater). And much exploration in general is in the ocean as well.
Healthcare – More aging boomers require more titanium implants. This demand is slight in terms of volume, of course, but growing nevertheless.
Aerospace - The average plane requires 45+ tons of titanium today. Plane manufacturing is increasing to meet Chinese and Indian demand, and more titanium will be used.
Military – More weapons are being ordered. Titanium is a major component of these because it is lighter than and stronger than steel (tanks) and resistant to seawater corrosion (battleships, submarines). One submarine uses 240,000 tons of titanium. Bush recently announced an increase in defense spending for large ticket items.
As a result, prices are up 31%~50% and plant utilization has gone from 72% to 80%+.
The end result: margins are up 12.5% y/y and 6.5% q/q.
Of strong interest to me is the strong institutional buying and insider buying. Yep, insiders are snapping up the stock.
The company is incredibly dependent on aerospace. Historically, titanium has a longer cycle than steel, typically 6-7 years. 2006 is the 3rd year of the up cycle.
Market expansion is proceeding geographically and via increased product portfolio. With a presence in Europe and the US (airbus and Boeing), the major markets, TIE has begun operations in China – clearly the next big market. TIE is active in the auto market where aluminum is disadvantaged because it can’t be worked in the same tool and die equipment used for steel. Titanium can. Although titanium is ~8x the price of steel, the weight and fuel economy benefits may create additional demand.
Most interesting is that several long term contracts are expiring, and that will allow TIE to raise prices based on higher market prices.
With a headlock on the US, competitive imports have a 15% import tax. So that helps too.
They just split so I want to see if we can wait and capitalize on a post-split softening (if any).
I own GRP, MDR, and TIE.
Finance: Adding GHL
ET is doing well. January trading hit a new level – up 33% since December. Next, we want to add M&A. At this point in the cycle, companies will grow through consolidation (STX, Mittal, etc). The choices are LAZ or GHL. I favor GHL:
* EPS is forecast much higher: 80% vs 50%
* Sales growth is forecast to be higher: 48% vs 32%
* EPS upside is much higher: analyst ranges call for up to 150% growth vs 65%
Here is what I see:
GHL was founded by former Morgan Stanley’s top bankers. This is a trend: big brokerages are losing all of their top talent to boutique shops where the ownership opportunities (and upside) is much higher). Greenhill is one such boutique.
Margins are up 5.2% y/y, 10% q/q.
Sales are growing 50%, current PE is 42, and earnings grew 70%. Revenue and earnings are accelerating.
I own ET and GHL.
Technology: Adding
AKAM continues to look tasty, and we’ll probably get back in when it looks right. Probably close to $25
Trident (TRID) – Designer of chips for HDTVs. If you watched the Superbowl, was it on a flat panel TV? Have you been in a Best Buy lately and seen the floor space given up to these products? Sales were up 112% Y/Y and inventory is tight. Look to the 4th quarter for more supply and lower prices. That’s actually a good thing: TVs are very price elastic.
Hot sales, growing sales. Where is the play?
TRID has a headlock on the graphics in flat panel screens: Sony, Samsung, and Haier all depend on their chips. Sharp is designing them in. Their competitive advantage was basic semiconductor technique: they combined several chips onto one (so-called system on a chip). Systems-on-a-chip deliver cost and power advantages. Plus the companies don’t have to source 3 different chips, possibly from different vendors.
The competition is Genesis, which has dropped the ball. GNSS focused on PC oriented flat screens. Also, I have heard that their TV chips don’t perform very well.
OEMs like to stay with one vendor for several generations. Dislodging TRID will be hard and require enormous price/performance advantages not to mention time.
Sales - gargantuan and expected to continue growing fast
Margins – Grew 4%+ sequentially and 1% Y/Y
PEG – The ratio is 0.93
I like the accelerating sales and earnings
A chief concern is valuation: P/E of 600%+
But that includes 2 quarters (Q1 & Q2) of combined $0.07 earnings
The last 2 quarters (Q3 & Q4) had a combined $0.30 earnings. (BTW earnings surprises have been strong to the upside for the last 3 quarters).
If earnings stay flat, that would be $0.68 next year. That’s a 42 P/E on a forward basis. And that’s reasonable for a high tech company in a market growing 100%+ annually.
I own TRID.
Nuance (NUAN) – The business is speech recognition. Most customer relationship systems follow the old fashioned style of entering numbers for a selection. The new systems are voice enabled. An example is when you call the airlines for automated arrival/departure information and the system gets the information instead of an operator. For large companies, this is a major cost savings – trading system costs for salaries.
Until recently, most systems were proprietary. Nuance created an XML system that handles various dialects. Their system is used by the market leaders (Tellme & BeVocal). Sales and earnings are projected to grow 50% this year.
Solid earnings upside surprises show the adoption of the technology is taking off. Tellme, for example, handles 3 million calls daily using Nuance’s technology. I believe that Nuance could pull a Google to Tellme’s Yahoo. Essentially, everyone depends on Nuance, and there is no reason that they couldn’t vertically integrate and cut out the middleman. A sign of the potential is the purchase of Dictaphone – a healthcare voice recording system used by doctors to handle records.
Nuance sued Tellme on Friday for infringement.
Meanwhile, reporting as of 12/31/05 showed massive institutional buying.
Dow 1.17% 0.53% 3.71% 5.6%
S&P 0.24% 1.8% 3.13% 5.6%
NASDAQ 0% 1.58% 3.49% 5.2%
LiveRocket -1.45% 1.14% 8.58% 18.92%
In Week 14 we stopped out of the following stocks
JOYG $52.8
MDR $47
AKAM $21.8
GRP $47.5
That yielded $47,715 on a $42,31.45 investment. That’s a 12.8% yield on 6 week investment
In Week 15 we stopped out of MRVL $63 and sold SNDK $59
That yielded $$22,925 on a $22,053.5 investment, or a 4% yield. The MRVL 28.9% yield on 3 month investment was almost completely lost to the SNDK buy back.
CURRENT PORTFOLIO
JLG 263 shares
STX 597 shares
ET 500 shares
NTRI 115 shares
Cash $70,642.71
OVERVIEW
We are less than the market the past two weeks because I decided that indicators were pointing to a possible downturn. We stayed out and the market advanced. The underlying market trend is upwards, and the only reason to stay out is because of the potential to buy in at substantially better prices. Again, I still see us at an inflection point – it could go up but it traditionally has gone down.
It’s all about oil. Dell and Agilent had great earnings, but it didn’t really spark the market. HP and others will release this week, and that will add to generally positive sentiment. Oil dropped, and the market surged.
There are rebounds going on in Technology, Finance, and Energy/Mining equipment.
NEXT MOVES -
Energy/Mining Equipment: Adding aggressively
GRP – The bottom has been established (~$40). This is a screaming buy - they have a PEG of 0.63 and a backlog of $814M compared to last year’s sales of $1.35B. We just wanted to buy in at a lower price. Adding this week.
MDR – The bottom has been established (~$45). As discussed previously, the coal industry and utilities are growing and turning to MDR for equipment. Margins are up 4.5% q/q and 8% y/y
We’ll buy back in before earnings release in next 2 weeks
TIE – Offshore oil exploration requires titanium tubes (steel corrodes). That’s how I found this company. But they are much more, and I am hugely impressed. This is a quintuple play: specialty metals, energy, healthcare, aerospace, military.
Specialty metals - I don’t like commodities at this point in the business cycle. Commodity steel is dropping in price. But niche metals and alloys are doing fine.
Specialty metals – as demand grows for more metals, remaining a specialty item helps to slow the commoditization and price drops.
Energy play - With oil likely to stay this high, future planes in particular will use more titanium. Also, as oil extraction becomes tougher, pumping seawater into older wells is the premier methodology and this requires titanium equipment (steel corrodes in seawater). And much exploration in general is in the ocean as well.
Healthcare – More aging boomers require more titanium implants. This demand is slight in terms of volume, of course, but growing nevertheless.
Aerospace - The average plane requires 45+ tons of titanium today. Plane manufacturing is increasing to meet Chinese and Indian demand, and more titanium will be used.
Military – More weapons are being ordered. Titanium is a major component of these because it is lighter than and stronger than steel (tanks) and resistant to seawater corrosion (battleships, submarines). One submarine uses 240,000 tons of titanium. Bush recently announced an increase in defense spending for large ticket items.
As a result, prices are up 31%~50% and plant utilization has gone from 72% to 80%+.
The end result: margins are up 12.5% y/y and 6.5% q/q.
Of strong interest to me is the strong institutional buying and insider buying. Yep, insiders are snapping up the stock.
The company is incredibly dependent on aerospace. Historically, titanium has a longer cycle than steel, typically 6-7 years. 2006 is the 3rd year of the up cycle.
Market expansion is proceeding geographically and via increased product portfolio. With a presence in Europe and the US (airbus and Boeing), the major markets, TIE has begun operations in China – clearly the next big market. TIE is active in the auto market where aluminum is disadvantaged because it can’t be worked in the same tool and die equipment used for steel. Titanium can. Although titanium is ~8x the price of steel, the weight and fuel economy benefits may create additional demand.
Most interesting is that several long term contracts are expiring, and that will allow TIE to raise prices based on higher market prices.
With a headlock on the US, competitive imports have a 15% import tax. So that helps too.
They just split so I want to see if we can wait and capitalize on a post-split softening (if any).
I own GRP, MDR, and TIE.
Finance: Adding GHL
ET is doing well. January trading hit a new level – up 33% since December. Next, we want to add M&A. At this point in the cycle, companies will grow through consolidation (STX, Mittal, etc). The choices are LAZ or GHL. I favor GHL:
* EPS is forecast much higher: 80% vs 50%
* Sales growth is forecast to be higher: 48% vs 32%
* EPS upside is much higher: analyst ranges call for up to 150% growth vs 65%
Here is what I see:
GHL was founded by former Morgan Stanley’s top bankers. This is a trend: big brokerages are losing all of their top talent to boutique shops where the ownership opportunities (and upside) is much higher). Greenhill is one such boutique.
Margins are up 5.2% y/y, 10% q/q.
Sales are growing 50%, current PE is 42, and earnings grew 70%. Revenue and earnings are accelerating.
I own ET and GHL.
Technology: Adding
AKAM continues to look tasty, and we’ll probably get back in when it looks right. Probably close to $25
Trident (TRID) – Designer of chips for HDTVs. If you watched the Superbowl, was it on a flat panel TV? Have you been in a Best Buy lately and seen the floor space given up to these products? Sales were up 112% Y/Y and inventory is tight. Look to the 4th quarter for more supply and lower prices. That’s actually a good thing: TVs are very price elastic.
Hot sales, growing sales. Where is the play?
TRID has a headlock on the graphics in flat panel screens: Sony, Samsung, and Haier all depend on their chips. Sharp is designing them in. Their competitive advantage was basic semiconductor technique: they combined several chips onto one (so-called system on a chip). Systems-on-a-chip deliver cost and power advantages. Plus the companies don’t have to source 3 different chips, possibly from different vendors.
The competition is Genesis, which has dropped the ball. GNSS focused on PC oriented flat screens. Also, I have heard that their TV chips don’t perform very well.
OEMs like to stay with one vendor for several generations. Dislodging TRID will be hard and require enormous price/performance advantages not to mention time.
Sales - gargantuan and expected to continue growing fast
Margins – Grew 4%+ sequentially and 1% Y/Y
PEG – The ratio is 0.93
I like the accelerating sales and earnings
A chief concern is valuation: P/E of 600%+
But that includes 2 quarters (Q1 & Q2) of combined $0.07 earnings
The last 2 quarters (Q3 & Q4) had a combined $0.30 earnings. (BTW earnings surprises have been strong to the upside for the last 3 quarters).
If earnings stay flat, that would be $0.68 next year. That’s a 42 P/E on a forward basis. And that’s reasonable for a high tech company in a market growing 100%+ annually.
I own TRID.
Nuance (NUAN) – The business is speech recognition. Most customer relationship systems follow the old fashioned style of entering numbers for a selection. The new systems are voice enabled. An example is when you call the airlines for automated arrival/departure information and the system gets the information instead of an operator. For large companies, this is a major cost savings – trading system costs for salaries.
Until recently, most systems were proprietary. Nuance created an XML system that handles various dialects. Their system is used by the market leaders (Tellme & BeVocal). Sales and earnings are projected to grow 50% this year.
Solid earnings upside surprises show the adoption of the technology is taking off. Tellme, for example, handles 3 million calls daily using Nuance’s technology. I believe that Nuance could pull a Google to Tellme’s Yahoo. Essentially, everyone depends on Nuance, and there is no reason that they couldn’t vertically integrate and cut out the middleman. A sign of the potential is the purchase of Dictaphone – a healthcare voice recording system used by doctors to handle records.
Nuance sued Tellme on Friday for infringement.
Meanwhile, reporting as of 12/31/05 showed massive institutional buying.
posted by Andrew at
3:38 PM
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