What is happening in the Market, What are we doing about it? Part 3 of 3
The next 3 weeks will shift attention from earnings to more macroeconomic issues: employment, GDP, oil, and so on.
Just to re-cap our short term tactics:
1. Market uncertainty will continue
2. Buy the rumor, sell the fact: some earnings excitement is being followed by profit taking.
3. Goodbye techs and energy - Market sentiment is shifting away from these stocks in the near term, after flooding in over the past few months
4. Wait for overselling - We have a large cash position and are able to jump in any time. Opportunities will emerge shortly
5. We have our eyes on some choice stocks, several of which we recently got stopped out of.
MRVL – Down 10% from the high it hit on Broadcom’s earnings. MRVL is up 35% in 3 months. With amazing sales from their end users (Xbox, iPod, Seagates hard drives), I expect strong sales and even stronger earnings. I expect margins to stay solid and possible increase (Broadcom’s increased ~3% Y/Y but flat sequentially).
Sales – We know that they will be very solid here. Expectations are for a 43% increase. Rumors are flying that MRVL is going to enter the cell phone business and take on BRCM more directly. And MRVL gets $100K more revenue per employee than BRCM.
Earnings – Expected to hit $0.41 this quarter, a 71% increase Y/Y and 22% sequential increase. That would be a slower growth rate (it was 112% last quarter). I am going to pay attention to margins here.
Margin – Flat and possibly increasing. BRCM showed flat margins but I suspect that MRVL has a chance to show strength.
P/E – Currently at 72, the P/E will be ~52 after earnings release. BRCM is being given a 62 P/E after their release. That would make MRVL an $80 price.
Sentiment – Daily volume increasing
JLG – Earnings release Feb 22. Trading very close to its high. JLG is completely sold out for the next year – no downside surprises and plenty of room for upside surprises once their new manufacturing facilities come online and production increases.
Sales – We know that they will be very solid here. Only 25% annual growth, but highly profitable sales and the expectation is for continued sales strength through 2007.
Earnings – Expected to hit $0.46 this quarter, a 250% increase Y/Y and 20% sequential increase. Earnings have been accelerating the last 3 quarters, and earnings surprises have been growing in size.
Margin – They have been growing each quarter the last year: from 15% in Q1 to 19.8% last quarter. I’m looking for a slight increase here. A 0.3% margin increase would kick out $1.3M in extra earnings or $0.025 per share.
P/E – Currently at 29, the P/E will be ~25 after earnings release. Competitors like Astec have a 29 P/E as well but JLG is growing at 2X the pace. In any case, if JLG hits earnings expectations, at a 29 P/E this stock is $62. If they beat earnings by 10%, it’s $65. If the margins increase 0.3%, that extra $0.025 would add another $1.
Sentiment – Daily volume has held steady.
JOYG – Releasing Feb 27, expectations are high. And why not? With commodity prices soaring and staying high, mining equipment is cruising on high. Their recent stock price has more to do with market sentiment and fear of softening commodity markets than actual news. Also factor in the rapid stock price appreciation – up ~100% in just 3 months before pulling back. I continue to believe that even softening commodity prices won’t affect their business as long as prices stay above a certain height. Moreover, with more mines to service, JOYG enjoys a strong core customer base.
Sales – Expected to grow 34% Y/Y but I wouldn’t be surprised to see some upside surprises here.
Earnings – Earnings have been growing 30% sequentially per quarter. Per quarter. They won’t stop now. I think earnings estimates are wrong – they are sitting at a 15% sequential decrease from last quarter.
Margin – They have been creeping up each quarter the last year: from 29% in Q1 to 30%% last quarter. I like companies with solid and growing margins
P/E – Currently at 43, the P/E will be ~35 after earnings release. But I think earnings will be $0.10 higher ($0.49 this quarter). That would make the P/E 33. I could see the stock hitting ~$70.
Sentiment – Daily volume is growing. Up ~25%.
GRP – Across the board solid growth.
Sales – Solid 37% growth and even beat expectations by 3%. The order backlog is up 10% sequentially to $818M. Considering they sold $1.35B last year, this enables strong pricing control.
Earnings – A 256% Y/Y increase and a slight upside surprise. A 12% sequential growth in earnings. Analysts are raising estimates for the next 2 years and the stock price is dropping. Expectations are for a 80% increase the next year.
Margin – Solid around 43%. Not bad for a non-high tech company
P/E – With a 26 P/E in the face of 80% growth, this company could double again over the next 12 months.
Sentiment – Daily volume is growing. Up ~50%.
MDR – For the last 4 quarters MDR have posted upside surprises of 120%+ each quarter. Last quarter they posted a 134% upside surprise. Conditions in the market have not changed, demand is strong and they now have additional earnings now that one of their subsidiaries is out of bankruptcy (B&W). Their stock price has eased 12% after running up 60% since September. Today, Saudi Arabia awarded them 2 new contracts to service offshore platforms – typically these are worth ~$50M each.
Sales – Analysts are expecting 50% growth this year. And they have been lowballing this company for over 4 quarters. But sales growth is slowing from the incredible high levels it had enjoyed in 2005
Earnings – Grew 300% Y/Y.
Margin – Solid around 43%. Not bad for a non-high tech company
P/E – With a 17 P/E, a $0.40 upside surprise would tack on $9 to the share price. Sentiment – Daily volume is growing. Up ~50%.
AKAM – The online content is going through Akamai’s infrastructure. As a result, as this business booms, so does Akamai. They are beginning to build a tidy war chest of cash. I mentioned this back in early January – the analysts missed big developments at AKAM – when Apple announced record downloads off iTunes, a major AKAM customer, that data should have led to upgrades and earnings expectations increases. Instead, nothing happened. I think that analysts don’t quite get the digital wave that I am talking about. I want some softening before we jump back in.
Sales – Grew 9% sequentially and 44% Y/Y. Akamai raised expectations to at least 30% growth this year. They added some key customers including Clear Channel. Clear Channel owns a lot of radio stations and is trying to develop a web presence to compete with Sirius and XML.
Earnings – Up 60% Y/Y. They beat expectations by one penny. Analysts were busy increasing 2006 earnings estimates by a substantial amount
Margins – Increased by 0.6% from the previous quarter.
P/E – The P/E is 12, and that includes a one-time tax credit. I like their valuation.
Just to re-cap our short term tactics:
1. Market uncertainty will continue
2. Buy the rumor, sell the fact: some earnings excitement is being followed by profit taking.
3. Goodbye techs and energy - Market sentiment is shifting away from these stocks in the near term, after flooding in over the past few months
4. Wait for overselling - We have a large cash position and are able to jump in any time. Opportunities will emerge shortly
5. We have our eyes on some choice stocks, several of which we recently got stopped out of.
MRVL – Down 10% from the high it hit on Broadcom’s earnings. MRVL is up 35% in 3 months. With amazing sales from their end users (Xbox, iPod, Seagates hard drives), I expect strong sales and even stronger earnings. I expect margins to stay solid and possible increase (Broadcom’s increased ~3% Y/Y but flat sequentially).
Sales – We know that they will be very solid here. Expectations are for a 43% increase. Rumors are flying that MRVL is going to enter the cell phone business and take on BRCM more directly. And MRVL gets $100K more revenue per employee than BRCM.
Earnings – Expected to hit $0.41 this quarter, a 71% increase Y/Y and 22% sequential increase. That would be a slower growth rate (it was 112% last quarter). I am going to pay attention to margins here.
Margin – Flat and possibly increasing. BRCM showed flat margins but I suspect that MRVL has a chance to show strength.
P/E – Currently at 72, the P/E will be ~52 after earnings release. BRCM is being given a 62 P/E after their release. That would make MRVL an $80 price.
Sentiment – Daily volume increasing
JLG – Earnings release Feb 22. Trading very close to its high. JLG is completely sold out for the next year – no downside surprises and plenty of room for upside surprises once their new manufacturing facilities come online and production increases.
Sales – We know that they will be very solid here. Only 25% annual growth, but highly profitable sales and the expectation is for continued sales strength through 2007.
Earnings – Expected to hit $0.46 this quarter, a 250% increase Y/Y and 20% sequential increase. Earnings have been accelerating the last 3 quarters, and earnings surprises have been growing in size.
Margin – They have been growing each quarter the last year: from 15% in Q1 to 19.8% last quarter. I’m looking for a slight increase here. A 0.3% margin increase would kick out $1.3M in extra earnings or $0.025 per share.
P/E – Currently at 29, the P/E will be ~25 after earnings release. Competitors like Astec have a 29 P/E as well but JLG is growing at 2X the pace. In any case, if JLG hits earnings expectations, at a 29 P/E this stock is $62. If they beat earnings by 10%, it’s $65. If the margins increase 0.3%, that extra $0.025 would add another $1.
Sentiment – Daily volume has held steady.
JOYG – Releasing Feb 27, expectations are high. And why not? With commodity prices soaring and staying high, mining equipment is cruising on high. Their recent stock price has more to do with market sentiment and fear of softening commodity markets than actual news. Also factor in the rapid stock price appreciation – up ~100% in just 3 months before pulling back. I continue to believe that even softening commodity prices won’t affect their business as long as prices stay above a certain height. Moreover, with more mines to service, JOYG enjoys a strong core customer base.
Sales – Expected to grow 34% Y/Y but I wouldn’t be surprised to see some upside surprises here.
Earnings – Earnings have been growing 30% sequentially per quarter. Per quarter. They won’t stop now. I think earnings estimates are wrong – they are sitting at a 15% sequential decrease from last quarter.
Margin – They have been creeping up each quarter the last year: from 29% in Q1 to 30%% last quarter. I like companies with solid and growing margins
P/E – Currently at 43, the P/E will be ~35 after earnings release. But I think earnings will be $0.10 higher ($0.49 this quarter). That would make the P/E 33. I could see the stock hitting ~$70.
Sentiment – Daily volume is growing. Up ~25%.
GRP – Across the board solid growth.
Sales – Solid 37% growth and even beat expectations by 3%. The order backlog is up 10% sequentially to $818M. Considering they sold $1.35B last year, this enables strong pricing control.
Earnings – A 256% Y/Y increase and a slight upside surprise. A 12% sequential growth in earnings. Analysts are raising estimates for the next 2 years and the stock price is dropping. Expectations are for a 80% increase the next year.
Margin – Solid around 43%. Not bad for a non-high tech company
P/E – With a 26 P/E in the face of 80% growth, this company could double again over the next 12 months.
Sentiment – Daily volume is growing. Up ~50%.
MDR – For the last 4 quarters MDR have posted upside surprises of 120%+ each quarter. Last quarter they posted a 134% upside surprise. Conditions in the market have not changed, demand is strong and they now have additional earnings now that one of their subsidiaries is out of bankruptcy (B&W). Their stock price has eased 12% after running up 60% since September. Today, Saudi Arabia awarded them 2 new contracts to service offshore platforms – typically these are worth ~$50M each.
Sales – Analysts are expecting 50% growth this year. And they have been lowballing this company for over 4 quarters. But sales growth is slowing from the incredible high levels it had enjoyed in 2005
Earnings – Grew 300% Y/Y.
Margin – Solid around 43%. Not bad for a non-high tech company
P/E – With a 17 P/E, a $0.40 upside surprise would tack on $9 to the share price. Sentiment – Daily volume is growing. Up ~50%.
AKAM – The online content is going through Akamai’s infrastructure. As a result, as this business booms, so does Akamai. They are beginning to build a tidy war chest of cash. I mentioned this back in early January – the analysts missed big developments at AKAM – when Apple announced record downloads off iTunes, a major AKAM customer, that data should have led to upgrades and earnings expectations increases. Instead, nothing happened. I think that analysts don’t quite get the digital wave that I am talking about. I want some softening before we jump back in.
Sales – Grew 9% sequentially and 44% Y/Y. Akamai raised expectations to at least 30% growth this year. They added some key customers including Clear Channel. Clear Channel owns a lot of radio stations and is trying to develop a web presence to compete with Sirius and XML.
Earnings – Up 60% Y/Y. They beat expectations by one penny. Analysts were busy increasing 2006 earnings estimates by a substantial amount
Margins – Increased by 0.6% from the previous quarter.
P/E – The P/E is 12, and that includes a one-time tax credit. I like their valuation.
posted by Andrew at
7:28 AM
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