Week 10 Performance - Up 3.4%
(Nov 3rd - Dow closed 10522, S&P closed 1219)
Broader market gain: 4.2% Dow, 5.3% S&P
LIVEROCKET gain: 19.01%
Stock Performance Overview
Stock Growth >30% 2 out of 17
Stock growth >20% 2 out of 17
Stock Growth >10% 5 out of 17
Stock Growth 5%~10% 3 out of 17
Stock growth 0%~5% 3 out of 17
Stock growth <0% 2 out of 17
Week 10 Performance
Broader market gain/loss: 0% Dow (10960), 0.16% S&P (1287)
LIVEROCKET gain/loss: +3.4%
Stocks up for week: 7 out of 9
Weekly Performance Overview
LIVEROCKET beat Dow/S&P: 7 out of 10 weeks
Dow/S&P beat LIVEROCKET: 2 out of 10 weeks
LIVEROCKET tied Dow/S&P: 1 out of 10 weeks
Individual Investor Performance
If you invested in these stocks and got in and out when I said, then you would have
Generated >10%+ Returns in 10 weeks 50% OF THE TIME
Generated >20%+ Returns in 10 weeks 25% OF THE TIME
Made money 88% OF THE TIME
WEEK IN REVIEW
The Market went nowhere this week. LIVEROCKET went up another 3.4%. In fact, we were up as much as 5.4% before Friday when profit taking kicked in (and Sandisk and Whole Foods sank).
Before I review the stocks, I want to point out the surfacing of a major market trend which I forecasted months ago. Semiconductor demand is tightening – book-to-bill ratios are closing in on 1. (Book-to-bill measures the ratio of pre-orders to actual sales. It a predictor of near term future demand because bookings are usually a few months before the billings. When the number is >1, demand is outstripping recent sales.)
This measurement looks at all semiconductors, and not all semis are the same. Some are: think the flash memory that goes into your digital camera and cell phones. Others enjoy more pricing power because they are more customized. When demand grows and supply is tighter, chip producers enjoy pricing power and greater margins. After all, it I shard to use someone else’s chips for a custom solution. I think we are there, and this pricing strength will be popping up. Not just chip vendors but the companies who assemble these components. As a result, analysts should be recognizing this and pushing these stocks higher.
(Note: OPP = Original Purchase Price)
Seagate (STX): OPP 20.1, Friday close 24.23. Up 15% this week. Up 21% since purchase. Lots of strength behind this – volume was up 2x Friday.
The Seagate story is pricing strength. Seagate is breaking out of the computer dependent sales focus and is adding the consumer electronics market as well. I also see a tightening of supply, which can shift pricing power in Seagate’s favor. Don’t forget the really smart Seagate move to decrease competition by buying out Maxtor and boosting total disk drive market share from 30% to 40%. We got into this stock to take advantage of the pricing and earnings upswing that Seagate will soon enjoy by controlling supply and seeing an uptick in demand. And I think analysts are noticing the upside potential. They have a low P/E (13) in the face of 30% growth based. And that growth is based on old pricing strength, not forward pricing strength.
Marvell Technology (MRVL): OPP 49, Friday close 64.5. Up 4% this week. Up 32% since purchase. Lots of movement – volume was up 1.5x Friday. Hit a new high of ~$67 before coming down.
The story here is right products, right time. Marvell’s sales are concentrated on handful of accounts including Seagate. To boost their ability to serve the hard drive market, they bought QLogic for $280M. And Apple’s iPod. They are in a all growth segments of the high and low-end of the communications markets.
But I think we may be hitting the point where we will cash out soon.
Sandisk (SNDK): OPP 64.4, Friday close 71.83. Down ~3% this week. Up 12% since purchase. Lots of movement – volume was up 1.5x Friday. Hit a new high of ~$80 before coming down.
The Sandisk story is right product at the right time. They dominate the flash memory card market – demand for which is soaring thanks to iPod nanos, digital cameras, cell phones, Sony PSP games, and other applications. And they are moving upstream – they are the #2 player behind Apple in the flash memory audio players.
Bear Stearns downgraded Sandisk this week (the reason they sank) because of price. He actually loves the company – not only did he up earnings forecasts by 10%, the analyst said SanDisk still "presents one of the most, if not the most, powerful longer-term growth stories among the stocks we cover."
In essence, we expect killer growth of around 50%, and that’s more than we had reason to previously expect. In the last 90 days, Sandisk earnings projections were increased from $0.44 to $0.61, a 39% increase in expected returns.
Now for the WOW FACTOR. Sandisk has delivered positive earnings surprises in the last 4 quarters: >55% for 2 of those quarters and ~20% for the other two.
This is the story – Sandisk is throwing off money and analysts are being caught by surprise. Growing ~50% annually and has a 40 P/E, but analysts are pricing this company as if it had a 20% earnings growth. They have moved the projections up above what they were but are still low-balling demand.
Akamai (AKAM): OPP 19.98, Friday close 22.8. Up ~1% this week. Up 14.6% since purchase. Hit a new high of ~$24 before coming down.
The Akamai Story is just like Sandisk: right product, right time, and Wall St is just discovering this. Akamai handles data traffic for Apple to sell songs and TV. Apple’s iTunes Music Store is booming already, and now they add TV. And Yahoo is jumping into the fray. Yahoo is an Akamai customer.
What does it mean when AKAM has a low P/E of 11 and analysts think that they are growing 40%? It means massively underpriced. What I find particularly meaningful is that, for the last 90 days, analysts haven’t increased their earnings expectations in the face of Apple’s amazing iTunes story and Yahoo as well. I think this could be a hot stock this year.
McDermott (MDR): OPP 42.7, Friday close 49.8. Up ~1% this week. Up 16.5% since purchase. Hit a new high of ~$52 before coming down.
MDR’s story is energy technology. They own pollution control equipment for coal – a very in demand technology as demand for coal increases. They are building oil platforms for Saudi Arabia.
Sales growth of 50% is expected for the next year to $3B, and only 5 analysts cover this stock. They are undiscovered country, really.
HERE’S THE KICKER – Earnings surprises for the last 4 quarters were >123% each quarter. This is a $65 stock if they deliver in-line.
Joy Global (JOYG): OPP 37.17, Friday close 46.42. Up ~3% this week. Up 25% since purchase. Hit a new high of ~$47.5 before coming down.
AS Motley Fool puts it when discussing JOYG:
“Want to buy a hot stock in a hot space servicing other hot sectors like coal, copper, gold, and oil sands? Here you go”
They are completely sold out for the next year and can raise prices for 2007 orders. It shows in the way earnings have tripled. They reported earnings in December, and I chalk up this growth to re-positioning for the new year based on those announcements.
JLG Industries (JLG): OPP 38, Friday close 50. Up ~2.5% this week. Up 32% since purchase. Hit a new high of ~$52 before coming down.
The story here is – Construction equipment maker. The company has revenue of $2B and is expected to sell $2.7B next year, but their market cap is $2B. Bottom line – Wall street is just discovering this company. There are only 4 analysts covering them, and next year’s earnings forecasts vary widely: from $2.73 to $3.67. That’s a $1 delta or $20 stock price upside. Rarely are analysts disagreeing by ~40%.
And they are raising prices:
JLG said it may consider a price increase of a "couple of percentage points" in early fiscal 2006 as freight and petroleum based components costs are increasing, despite the recent drop in oil prices.
That’s opportunistic price hikes…because they can.
I think that they are susceptible to the ongoing bust in real estate construction, but not for a while.
Gilead (GILD): OPP 50, Friday close 59.4. Up ~2% this week. Up 19% since purchase. Hit a new high of ~$60 Friday.
I like Gilead’s continued focus and execution. Revenues and earnings are growing 50%+ year-over-year.
Whole Foods Market (WFMI): OPP 73, Friday close 73. Down 6% this week. Our stop loss kicked in at $75 and we sold for a net 2.7% gain.
Lots of movement – volume was up 1.5x Friday. Just after splitting in December, WFMI hit a new high of ~$80.
The story here is right products for a shifting market. The supermarket industry is clearly changing. The low-end is competitive, with WalMart and Costco hurting Albertsons among others. The high end has only WFMI.
WFMI is expanding its presence at a time of health consciousness among aging boomers.
I like WFMI and I think this correction in price is really tied to excitement over the split and addition to the S&P 500. It is actually approaching its 100 day moving average – an important level.
I’d like to see WFMI fall back to $70 and jump back in. WFMI tends to tread water until right before the earnings report, which is soon. But the bigger problem is the 43 FORWARD P/E. That’s high for a company growing 22% per year.