LIVEROCKET Week 11 Performance – Down (1.05%)

Week 11 Performance – Down (1.05%)
Performance to Date (since inception Nov 3rd)
(Nov 3rd - Dow closed 10522, S&P closed 1219)
Broader market gain: 1.4% Dow, 3.4% S&P, 3.6% NASDAQ
LIVEROCKET gain: 18%

Performance Year to Date - Up 7.7%
(Dec 30th close- 10717 Dow, 1248 S&P, 2205 NASDAQ. LIVEROCKET VALUE $109,015)
Broader market gain: -0.5% Dow, 1% S&P, 2% NASDAQ
LIVEROCKET gain: 7.7%

Stock Performance Overview
(Note - does not include today's purchases)
Stock Growth >30% 1 out of 17
Stock growth >20% 3 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%>
Week 11 Performance
Broader market gain/loss: -2.67% Dow (10667), -2.02% S&P (1261)
LIVEROCKET gain/loss: -1.05%
Stocks up for week: 2 out of 9

Weekly Performance Overview
LIVEROCKET beat Dow/S&P: 8 out of 11 weeks
Dow/S&P beat LIVEROCKET: 2 out of 11 weeks
LIVEROCKET tied Dow/S&P: 1 out of 11 weeks

Individual Investor Performance
Excluding today's buys, if you invested in these stocks and got in and out when I said, then you would have:
Generated >10%+ Returns in 11 weeks 53% OF THE TIME
Generated >20%+ Returns in 10 weeks 24% OF THE TIME
Made money 88% OF THE TIME

WEEK IN REVIEW
Who wasn’t a casualty Friday? Last week on the 12th I predicted “Oil prices to zip up.” I also said that, as a result, “stocks [will] show volatility and swing 3% in a day.” Well, they did. And then some. Although ‘only’ a 2% one-day drop, the DOW has actually fallen 4% in 2 weeks, erasing the gains. But here’s the point – the market showed a lot of resilience in the face of surging oil prices. It dropped 4% against a 12%+ oil price increase.

Focus on NASDAQ – tech stocks are up whereas DOW is flat for the last 12 months.

Also, JBLU and WFMI showed remarkable resilience. JBLU is especially intriguing. They should have dropped precipitously in the face of surging prices. But they dropped the same % as everyone else. The only thing keeping me from jumping in again is greedy desires of buying them closer to $12. I did this with GILD when I waited for them to hit $49 – I missed out on their subsequent ~17% growth because I wouldn’t spend the extra $1.

(Note: OPP = Original Purchase Price)
Seagate (STX): OPP 20.1, Friday close 25. Up 3.2% this week. Up 24%+ since purchase. Earnings were released and they were phenomenal. Sales up 24% and Earnings up 99%. More importantly, as I predicted last week, they are showing pricing strength: margins were up from 20% last year to 25% this year. THAT IS HUGE. They were probably the only company to release earnings that actually went up after.

Marvell Technology (MRVL): OPP 49, Friday close 62.4. Down 2.5% this week. Erased last week’s gains. Up 27% since purchase.

Sandisk v1.0 (SNDK): OPP 64.4, Stopped out at $71. We netted a 10.2% gain in just 2 weeks. This is v.1 because we bought back in

Akamai (AKAM): OPP 19.98, Friday close 22.7. Down 0.4% for the week. Up 14.2% since purchase. It keeps toying with $24 before easing up. Erased last week’s gains.

McDermott (MDR): OPP 42.7, Friday close 49.3. Down 0.9% for the week. Up 15.4% since purchase. MDR gave up very little ground, a good omen I hope.

Joy Global (JOYG): OPP 37.17, Friday close 45.11. Down 2.9% this week. Up 21.4% since purchase. Basically erased last week’s gains

JLG Industries (JLG): OPP 38, Friday close 50. Flat for the week. Up 32% since purchase.

Gilead (GILD): OPP 50, Friday close 57.6. Down ~3% this week. Basically erases last week’s gain. Up 15% since purchase.

NEW PURCHASES TODAY
Sandisk v2.0 (SNDK): OPP 70.02, Friday close $68.4. Down ~2.3% this week. Down 2.3% since purchase. After watching the carnage on Wall Street I thought the market would bounce back a bit. SNDK dropped from $73 to $70 (-4.1%) and we bought back in. It kept dropping, along with the rest of the market. SNDK has dropped 14.4% since peaking 10 days ago. That’s a major correction – almost equal to the GOOG correction. Except no-one is nervous about SanDisk’s numbers. It’s more a measure of the excitement the company is generating that it got a little ahead of itself. Analysts are looking for earnings to double from last quarter – THAT’S MORE THAN 3X LAST YEAR. That is essentially a P/E of 35. Meanwhile, I believe that Sandisk growth justifies a much higher valuation. Also, Sandisk has beaten expectations 4 quarters in a row and more. Earnings are scheduled for Thursday, Jan. 26.
Note: I'm calling this v2.0 to avoid confusion because we bought in again this week.

Grant Prideco (GRP): OPP 49.23, Friday close 49.87. Up 1.3% this week. Up 1.3% since purchase. I continue to like energy as a sector but only from the equipment standpoint. We have JOYG for coal extraction, MDR for oil platform construction & coal, and we added GRP for drill bits. I am sorry it took me so long to find GRP. Drill bits wear out and are critical for exploration. 2006 earnings are expected to grow 50% Y/Y, and the latest quarter should be closer to 100%+. But they have a forward P/E of 19. (And they have a long streak of beating expectations.) Earnings announcement is Feb 8th

mRVL stop - take it off

We do not want to sell MRVL. Remove the stop

Buying stocks

Taking advantage of the buy opportunity, we are going to do some trades
GRP Price 49.23 250 shares
Sandisk Price $70.02 175 shares

Additionally, we will be buying puts on BMHC soon

Portfolio changes

Sadly, Sandisk hit our $71 stop limit. We net 10.1% in 2 weeks - not bad, but I like Sandisk. I think volatility will hit the market again and we'll buy back in.

Akamai and Seagate are showing strength - up @20% and 30% respectively since we bought 2 weeks ago.

Given volatility and some potential buy opportunities this earnings season, we will be moving quickly. The Sandisk sale gives us $30K+ cash for some purchases.

In the meantime, these are the new stop limits

GILD 56
MRVL 62.5 (new)
JLG 47 (new)
JOYG 43 (new)
MDR 46.5 (new)
AKAM 22 (new)
STX 24 (new)

Short term Strategy
The theme is locking in gains. With the volatility this earnings cycle, we want to catch some stocks on the high and possibly buy back on a down day.
Locking in - We've tightened some of the stops.
Buying in - I will do a short list of stocks to buy and price targets for buying in.

Be careful - This is a brutal market. One stock I own just reported record earnings (PCP) but sales were off a bit (~1%), and they got slammed - down 10%. I expect them to move back up, but the point is that these stocks have risen out of expectations of perfect performance. Every single Liverocket stock is at or near 52 week highs.
'Great' works for the intermediate term, but 'great' will hit the price in the short term. Results must be perfect or prices will soften.

There will be some fast moves in the next few days, so get ready. The $30K cash needs to be invested.

IRANIAN IMPACT

IRAN HAS A CLEAR STRATEGY
Many might look at the Iranian President's moves as the outcome of bumbling incompetence. I disagree.
Iran wants a nuclear weapon. Why? History. Iranians are Persians not Arabs. And they are Shiite as well. They are surrounded by Sunni Muslims and Arabs. Since Khomeini, Iran has been involved in a struggle with the Saudi Wahabbi Sunnis to wear the mantle of most Islamic Country.
This struggle has manifested itself in the massive bankrolling of anti-Israel activity (Hezbollah, Hamas, Fatah) and anti-Taliban activity pre-9/11. Remember - The Taliban were massively supported by the Saudis.
Iran also harbors ill will after being manipulated by the US via the Shah and after Iraq attacked and the US was found to be supplying Iraq with support. They are currently surrounded by the US: in Kuwait, Dubai, Iraq, Saudi Arabia, Pakistan and Afghanistan.

Whether one thinks Iran isolated itself or that the US policies have isolated it, Iran feels under attack. Hence, the nuclear weapon.

Iran's strategy is deflection. While the actual view is Persia versus the Arabs and the West, Iran is trying to sow confusion within the Arab community.
1. Colonialism - Unlike the Arab countries, Iran was never broken up by Britain/France. Nevertheless, it seeks to re-define the nuclear weapon issue as a colonial issue.
2. Israel - The anti-Israel sabre rattling and Holocaust denials are part of attempts to re-position itself as the protector of Islam and to re-define the efforts against them as an attack against Islam.
Whether Arabs buy into this will be a test of their political and societal maturity.

Arab countries in the neighborhood are starting to get concerned, but only because Israel and the US look reluctant to strike directly. The smaller states in particular are nervous, because the truth is that the main Iranian target is not Israel but the Arabs.

The weapon is a point of pride and losing that option would bring down the mullahs. The only leverage the world has is economic: the Iranian economy is incredibly fragile and was on the point of collapse before the oil prices rose so high, so fast.

But any embargo on Iran can disrupt oil supplies.
So we are avoiding oil dependent stocks (USA Trucking, JetBlue)

WHERE ARE THEY NOW?

A stock roll call is needed.
Over the past 10 weeks, many stocks have popped up in this blog either because we invested in them and got out or because I had some thoughts. Beyond our current portfolio, I have reviewed 22 stocks, out of which we invested at one point in 7. Let’s take a look at:
BMHC VDSI GYI UNH ISRG
RMD DESC WFMI USAK SRZ
CERN PWR CMTL ACL
BCSI RTLX SRCL MOT
TNH JBLU CTSH CRM

BMHC (discussed 11/7)
Bouncing around $80 since the summertime, BMHC bumped up after Hurricane Katrina. I mentioned concerns about their exposure to the housing market. They were $88 when I discussed them, now $78.

RMD (11/7)
I liked them for the revenue growth, product portfolio expansion, and immunity to cycle downturns. They were $37 when I reviewed them. After touching $42, they are down to $38. I think the price needs to get closer to $32 before buying.

CERN (11/7, 12/23)
We owned Cerner briefly (bought at $44, sold at $46.5). It peaked at $49 just before splitting and is now at $46. We had a chance to get back in, but I did not like the way the sentiment was moving against this company. I said (12/23) to wait for post split to re-visit. I like the financials and the story behind them (hospital paperwork automation), but I want to wait.

BCSI (11/7, 11/15, 11/22)
We owned BCSI twice. The first time we bought at $50 and stopped out at $45 for a loss, but immediately bought back at $39.5 and sold at $42 for a gain. They are at $41.8 and have been bouncing around $42 for some time. I like them (they are in my IRA) and with more music/TV downloads, web security is just more critical, especially solutions that don’t slow the traffic down. They are also growing their product portfolio (Permeo Technologies acquisition). Also interesting to note – they are below the 100 day Moving Average.
Worth reconsidering for the shortlist.

TNH (11/7)
The shit hit the fan for this fertilizer company. They were at $25 when I looked at them and have fallen as low as $18 before rising to ~$23. Pass.

VDSI (11/7)
A security company focusing on banking, they were at $10.5 and hit $12.5 before sagging to $10. I like them, but they are still such a small cap stock (~$350M) that most institutions are not buying them. And that is affecting the price, adding volatility. I like their story and I think that they are demonstrating a tight bottom of $10 with upside from here. (Note that they are also at the 100 day and 200 day moving averages.)
Worth reconsidering for the shortlist of stocks to buy.

DESC (11/7, 12/9)
We owned DESC, buying at $8.5 and selling at $9.2, after they peaked at $10.7. They drifted down to $7.3 before shooting up again to $8.8 because of renewed interest in alternative energy and the new year. I’d like to see renewed sales strength signals before getting in. But they have sentiment behind them and a strong trading volume.
Worth reconsidering for the shortlist of stocks to buy.

RTLX (11/7)
Another small cap company that I love but it is early. At $25 back in November, they touched $27.5 before settling into a $26 zone. They moved up after being placed on the RED HERRING 100, but it didn’t stay: daily volume is maybe 20,000 shares. This company sells $200M in product a year, is growing sales 55% Y/Y and has earnings growth of 165% Y/Y. Undiscovered, and still undiscovered.

PWR (11/7, 12/9)
Bought at $13.3, sold at $13.7. They peaked at ~$15 and then slowed down, finally triggering our stop. It’s been bouncing around $13.5. I like their story and would buy if they sag more to ~$12, because their forward P/E may be showing only slight upside.

JBLU (11/7, 11/10)
Bought at $12.3, out at $14.5. They peaked at $16.85 just before the split and have been sagging, closing down to $13.6. I still love this company and they look great while their competition is falling apart. With Southwest Airlines perfecting the short-hop part of the business, JetBlue is perfecting the long haul. It’s an interesting form of specialization that is working and more and more people are catching on. Also, I think a lot of institutional sentiment supports them. The clouds on the horizon continues to be oil.
JBLU earnings have dropped from ~$6M per quarter to ~$2M because of oil. That’s a $0.40 per share drop, and the reason JBLU stock has crashed from $20 to $13 over 16 months.
My point is – without oil, JBLU would be seeing a lowly ~20 P/E not the 90 P/E it has today. So don’t focus on the P/E, focus on the growing sales. Focus on oil, and I don’t see prices increasing dramatically.
I think the market is signaling that JetBlue is a $13 stock unless oil starts to ease up. I think Jetblue bottomed out and is at an inflection point, especially given expansion plans and possible future partnerships with overseas carriers.
I would load up on weakness.

GYI (11/7, 12/9, 12/12)
We bought at $88 and got out at $89 after it peaked at $95. Getty has been bouncing around $90. We did not get back in because Getty said that they see slowing business.

WFMI (11/7, 11/10)
We bought at $73 and got stopped out at $75 after it peaked at $80 and has settled to $73.. The peak came from a split and addition to the S&P 500. This is unfortunate because I wanted that $4 per share special dividend. I like WFMI and they have a lot of sentiment and enthusiasm behind their stock. I think that they will sag more and will want to buy back in at $70, but they are pricey.
Worth reconsidering for the shortlist of stocks to buy.

CMTL (11/15)
At $40 when we looked at them, and they peaked at $45. But CMTL missed earnings in December and crashed hard: now trading at $32. Move on.

SRCL (11/15)
At $62, they have slipped to $57. I like them and their story – medical waste is a growing business. But they have no love behind them – they will continue to drift. Move on.

CTSH (11/15)
At $46 when we looked at then, they hit $52 before settling down to $49. Everyone loves this company and their booming business, but they are fairly valued. With a forward P/E of ~35, they are at their expected earnings growth. More importantly – I see a slowdown in outsourcing from the US. Move on.

UNH (11/15)
At $60 when we looked at them, peaked at $64 before settling down to $61. I don’t see any surprises here, and that’s why I’ll move on. To repeat what I said back in November, I still don’t know what is driving their growth, so I don’t feel comfortable buying them.

USAK (11/15)
At $24 when we looked at them, they peaked at $32 before settling to $29. They are a great company and I owned them before getting stopped out. They move with oil price volatility, but they move up.
Worth reconsidering for the shortlist of stocks to buy.

ACL (12/11)
Our biggest loss. Bought at $145 and sold at $130 after a lawsuit was announced with a $271M judgment against ACL. They had peaked at $149 and have settled to $135. I think they were oversold. But the fraud bothers me and we will stay out for now.

MOT (12/12)
Was $24, and hasn’t budged. This is a majorly hyped company. Everybody loves Motorola suddenly, thanks to a vague company vision and the RAZR cell phone. I need to see more, because cell phones aren’t enough.

CRM (12/12)
Salesforce.com. Was $31, now $38. I still don’t get it. They aren’t priced for perfection – they are priced with fairy dust. And they are getting downgraded to UNDERPERFORM but continue to rise. I don’t like the story, I see competition growing, and these guys are waaaaay overpriced. Worth buying puts.

ISRG (12/12)
Was $120 and is $127, after peaking at $133. This company is a Motley Fool darling and I own them. But I think that they are priced pretty high.

SRZ (12/12)
Was $36 and now $34. they will continue to tickle $35 and slide back. I owned them in my personal portfolio before getting Stopped out. I like their story and would buy back in at $30.

Revising Stop Limits

The portfolio is as follows:
Stock Shares Purchase Price Stop Price
GILD 200 50 56 (new)
MRVL 200 49 60 (new)
JLG 263 38 46
JOYG 242 37.17 43 (new)
MDR 211 42.74 46
AKAM 603 19.89 21
SNDK 186 64.4 71
STX 597 20.1 22 (new)
Cash $17,227
Dividends (JOYG, JLG) $19.06

THINGS TO NOTE:
Increasing and tightening limits on GILD, MRVL, JOYG and STX
All stock price Stop limits are ABOVE original purchase prices!
These changes lock in $2,000 more than previously
If we were stopped out on all stocks (i.e. Godzilla trashed New York), we would lock in $111,252. That's a GUARANTEED 11.8% return in 10 weeks.