Week 24 Performance: Up 8.2%

Week 24
Dow 1.88%
S&P 1.71%
NASDAQ 0.73%
LiveRocket 8.2%

YTD
Dow 5.88%
S&P 5.05%
NASDAQ 6.26%
LiveRocket 23.65%

Since Inception (Nov 4, 2005)
Dow 7.8%
S&P 7.5%
NASDAQ 8%
LiveRocket 35.43%

I am travelling and will be brief this week. I'll let the numbers speak for themselves. Up 8%+. That's a great week.
You may recall that 2 weeks ago I pointed out that the Dow really wanted to hit 11,300. It is there.

Last weak I mentioned softness in tech: well, it's official. Start with the PC world.
I think the PC world is about to get exciting, but at a cost: parts vendors will be extra squeezed. I think Dell will be at the heart of this. We knew PC sales would start to slow down, and now it is all about market share. Dell will need to drop prices at the low end and also offer high end solutions against Apple. There are manufacturers that offer laptops that are much better than Apple in terms of hardware - Voodoo for example. Dell has released models. Nobody wins in a price war, except consumers.
Then there is the MP3 market. Apple iPod sales are still growing, but at a slower rate.
Then the consolidation in Telecom companies is hitting vendors like Juniper.

FINANCIALS
ET – Up 4.5%. Solid earnings. And a new 52 week high.

GHL – Down 2%+. After releasing phenomenal results (and I mean amazing - profit up 3x), GHL crashed. Midweek they rose 7% and hit a new 52 week high. Buy on the rumor sell on the fact. They are above $70 and staying there. Their P/E has fallen to 29. GHL will have erratic earnings - the nature of their business is similar to consulting: the business is not ongoing. For example, they advised NASDAQ on purchasing a chunk of the London Stock Exchange. Purchase made, the job is over. That's why they are also pursuing investment business as well, to smooth things out. But these earnings make one key criticism go away - that they are overpriced.
In any event, Goldman and Lazard did not have the drop that GHL did.

COMMODITIES & EQUIPMENT I find it remarkable that the market gives companies like JLG (and GHL, and ET, and GRP) such low P/Es. These companies are growing earnings 100%+ but the P/E is in the 30 range. The market loves high tech and gives those companies the higher multiples.

GRP – Up 15%. Amazing results this week. I was fretting for a few weeks about the market lack of support for GRP. I was worried that the market knew something that I couldn't see. Turns out, we were ahead of the market. Happens sometimes, and we get the rewards.

JLG - Up 7%, reversing a 2-week slide. I think a problem with JLG is that they are already sold out for the year, so there aren't many earnings surprises in the wings. They are planning more manufacturing facilities to meet heavy demand, but I think that they don't go online for a few more months. So we are treading water and consolidating. It is hovering around its 52 week high.

MDR - Up 6%. New 52 week high. Life is good.

TIE – Up ~18%. Hit a new 52 week high and we have a split announced. Splits are meaningless to me, but I like them anyway because the market likes them. I didn't hear China buying more planes, but the visit to Boeing was highly visible. Boeing is replicating an approach they took with Japan a long time ago: buy our planes and we'll let you build parts of them. China will make the rudders. BTW, TIE is opening a plant in China. Ahhhhh, synergy and a sign of partnership.

HI TECH - We are going to rotate out of our PC oriented holdings for a bit.
STX – Down 4%. We either wait out the summer or we jump now and come back.
MRVL – Flat
TRID – Up 7%, reversing last week.

HEALTH
NTRI – Up 11.5%. Someone is piling in.
TEVA – Down 1%. Another one we will dump shortly. It just doesn't fir our model.

Stops:
ET - $25
GHL -$68
GRP - $49
JLG - $27.5
JOYG - $64
MDR - $55
TIE - $56 (Strong resistance at $56. Let's allow for some extra exuberance here)
STX - $24.5 (we won't take a loss on this one.....)
MRVL - $55 (I want to be patient)
TRID - $27.5
NTRI - $48 (Keeping this one tight)
Teva - $38.5

New Stops

GHL just released. Earnings tripled y/y. Wow!

I am travelling the next few days, so here are stop prices in the event of pullbacks.
ET - $24.75
GHL -$68
GRP - $49
JLG - $27.5
JOYG - $64
MDR - $53
TIE - $54 (I sense some pullback potential here)
STX - $24
MRVL - $55
TRID - $27.5
NTRI - $48 (I sense possible pump and dump.....)
Teva - $38.5 (willing to cut losses if need be)

Earnings Releases: The Good, The Bad, & The Ugly

We hit 52 week highs on: GHL, GRP, GRP, JOYG, MDR, TIE, TRID, NTRI

Earnings are due for our stocks as follows:
ET - Today
GHL - April 25th (I think). Amazing volatility the last 3 days.
GRP - Today
JLG - May 22th
JOYG - May 25th
MDR - June (they last released March 2nd)
MRVL - May 18th
NTRI - April 24th
STX - Released yesterday
TIE - May 18th
TEVA - April 30th
TRID - April 26th

ET - Yay, great news. Earnings up 55%, beat expectations by 10% (before acquisition costs). They slammed Revenue expectations, which were up 43% to $600M (vs $555M as expected). That was even higher than the highest analyst expected. Every quarter for the past 5 quarters, ET has showed sequential earnings increase. This was the biggest sequential jump.
Earnings guidance was incrementally raised by $0.05 for the year.
Now this is what is important: daily trade volume increased 105% Y/Y and ~45% from the last quarter. And the value of client holdings DOUBLED.
The result: stock increased ~$1 to a 52 week high of $27. I think it could go higher. Here's why. AMTD and ET get a 25 P/E. ET now has a $1.30 ttm (trailing twelve months) earnings. That's a cool $32 price. At $27, they have a 20 P/E today on the basis of 55% earnings growth that is accelerating.
If you'll recall, way back when I first bought ET, I started by looking at growing trade volume overall and saying that it should spillover to ET. It clearly has.

GRP - Another rock star performance. Sales up 42%. Earnings up 140%. (Not a typo.) Earnings crushed expectations 20%. Guidance for next quarter was raised 10%. Backlog has surged to 8 months of sales. Margins grew 5%~9% Y/Y across their units. (Well, how else do you get earnings to grow 3.5X sales rate of growth). This is a seller's market for oil/gas drilling and the market is dominated by GRP.
So no slow down, sales and earnings are accelerating. Does that explain why I was utterly amazed that prices dropped last month? When they crashed to $38, I waited to see if there was any news, and there was none, so we hopped back in at $42. They hit $54 today. A bold one-day 9% rise.
This is an example of the importance of fundamental analysis. The facts showed that GRP would kick ass this quarter. But a thinly traded small cap stock is tossed about by traders and institutional holders. We stuck to our guns and were proved right. Investment over trading.

JLG/JOYG/MDR - With energy equipment/services companies starting to report incredible results, these stocks are going up. All up 5%~10% the last few days.

NTRI - This is bringing a happy smile to my face. As anyone who follows this blog will recall, the day in February, the very day we bought NTRI, the sucker crashed 15%. And then more. We watched it drop from $48 to $34. Today it is $52, up 9% in one day and 15% in 5 days.
Volume surged almost 2X.
If you stayed with me after I said to wait it out and have faith - you are up 10% in 2 months. For those who contacted me and said they bought in at $42, congrats.
Why the jump? Perhaps realization of the value here. Most likely instutional buyers moving back in before their analysts pump it up. I am very concerned about pump and dump, so we want to lock in our profits tight. Get ready for a new stop price.

STX - Ok, not so good. This was a case of beating estimates but not promising a strong future.
There are 4 markets out there:
1. Servers and High end storage equipment
2. Consumer storage (external hard drives)
3. PCs
4. Consumer devices (iPods, TiVos, gameplayers)

Servers and high end storage is going gonzo (watch NetApp)
Consumer storage is probably growing well. I myself want to buy an external drive so that I can have a video jukebox
PCs are slowing
Consumer devices are strong

The PC growth is seasonal. Many PCs are transitioning (Apple) and buying season kicks off in the Fall. Seagate is planning new drives to fit the PC release schedule and analysts thought that this was bullshit. I don’t know enough yet to judge. But this is 70% of their revenue, and it's slowing.

Consumer product sales are strong. The TiVO-like devices are going to expand exponentially (up 100% Y/Y) and the gameplayers are delayed a bit but still up 39%. The iPod is an area of current strength (up 112%) but future weakness. Something to consider – there are 200M~300M PCs sold each year. iPods added to that PC base as an end-use of hard drives. How much? My guess is maybe 20M units (the Flash based players are actually the largest size and largest growing portion of the iPod growth). That’s a 10% bump that is fading a bit.

Look for the Fall excitement. We might actually move out of STX and wait to buy back in over the Summer as folks forget about inherent STX strength.

MRVL - Despite STX's warnings, MRVL is up strong today. MRVL gets a LOT of sales from STX. With TXN & IBM reporting great numbers, MRVL is positioned nicely. BRCM reports tomorrow, and that will have an effect.

TEVA - Ok, not good. It is showing no strength. I am not going to wait for it to break more to the downside. There are far too many stars. I got us in prematurely I think. I'd like to see a good earnings release and then we move on. Alternatively, it coul dget weaker, so setting a Stop at $38.

TRID - Yeah, remember this one. Doing nothing and now up 10% in 2 days. It's all about TXN and other semiconductor earnings releases.

Excited yet?

The DOW almost hit 11,300 - and that's great to see. I mentioned last week that the DOW wants to cross 11,300 and it looks like it is going up after a brief retreat. Was that a last test, a shaking out of any nervous investors before surging to 11,400? I am playing it that way.

I do recognize that there will be dips and retreats along the way, but the trend is up (for now).

Some fun stuff happened recently.

GILD - Beat earnings expectations. This was obvious - they have the best HIV drug on the market. I also thought Tamiflu sales would be higher. I wonder how much the market will boost the stock price. If they continue with a 35 P/E, then GILD is worth $66. I don't like the slowdown in sequential quarter-to-quarter growth, but that tends to be the seasonal impact (post flu season that is).

STX - Beat earnings but not good enough. Sales were up 16% and earnings were up 19.6%. I like that earnings still grew faster than sales. I bet margins ticked up a bit as well (haven't seen the actual details). But they pushed growth out into the 2nd Half. Watch for folks to get bored and walk away.

MRVL - Ok, now I am concerned about them because of STX results. They are very STX dependent. But the positives from TXN should make things all right in the sense that chip companies should look good. MRVL was up based on TXN results.

MOT - Ooops. Sales up and profit down. Not good. Margins down from 33% to 30%. Only the handsets are keeping them whole. They need to sell off the network business. But then what? They spun off semiconductors right when that business took off. They make...handsets and have a confused set of other businesses. Nokia is ready to destroy them, and Samsung is too.

TXN - Hello! This is the way it should be. Sales up 23%, earnings up 50% (and higher if you exclude the compensation expensing). TI is enjoying the cell phone rally as much as MOT is.

TIE is shooting for the stars. Will China announce more planes? Probably. Why is this happening? Unlike other metals, titanium is also an oil price play. Did you know that American Airlines spends ~$21M+ on fuel EVERY DAY? Fuel was 23% of operating costs last year. Fuel efficiency is critical and titanium is a guaranteed way to get there via weight reduction.

The initial mass of the plane affects how much fuel burn is needed to produce an increase in percent mass change. A greater amount of fuel burn per hour is required to increase the percent mass change for more massive planes than for less massive planes.

The math gets complicated – fuel gets burned off, plane gets lighter, less fuel needed, etc. Basically, a 3 hour 747 flight uses 30K gallons of fuel. Using more titanium in the engines, frame and over the composite materials will yield 10% savings in consumption.

That’s about $6K per flight (assuming $2 per gallon for jet fuel).
American Airlines operates 3600 flights a day. That’s a potential savings of $21M PER DAY in fuel costs.

The 787 and Airbus planes use 36+ tons of titanium today. 15% of the 787’s frame is titanium. There are ~500 firm orders for planes today, and growing. That is more than world titanium supply today. What happens if/when they increase demand for either new planes or for more titanium in each plane.

Titanium is now 100x the price of steel ($25K per ton). But it is also 56% the weight of steel. So the cost factor is only 56x. So if they want to double titanium content to an extra 36 tons per plane, that is incremental ~$1M in materials cost. But the fuel savings is recovered within one year (and probably much, much sooner).

Liverocket Portfolio Update

There haven't been any changes to the portfolio. This is more of a reminder.
STOCK SHARES PURCHASE PRICE
ET 500 $23.71
GHL 150 $63.65
GRP 250 $42.3
JLG 200 $29.76
JOYG 100 $58.7
MDR 135 $51.15
MRVL 200 $63.69
NTRI 115 $48.05
STX 500 $24.35
TEVA 200 $41.6
TIE 400 $41.8
TRID 400 $28.11
cash $99.45
Total value (4/17/06): $128,571
Value at start (11/3/2005): $99,539
--------------
Performance to date (as of today): 29.2%
DOW (same period) 5.2%
S&P: 5.4%
NASDAQ: 6.5%
--------------
Since inception, we have invested 32 times in 23 stocks, several of which we got back in after getting stopped out.
Of the 20 trades where we have closed our position, we made money on 15 and lost money on 5.
Our losses have totaled ~$4.3K.
We currently have 12 stocks in the portfolio, 4 of which have paper losses in the amount of $2.1K.
JLG, JOYG, MDR have been winners for us in th epast, generating 40%+ returns before we stopped out.
MRVL and STX have also been good, driving ~25%+
---------------
This portfolio was started to show that one can beat the market (Dow Jones Industrials, S&P 500, & NASDAQ). In fact, I committed to beating the market by an additional 2% each month.
At this time, I am averaging 4% (with 2 weeks left in month 6).

I follow my own proprietary stock picking process. Not every stock has been a winner.

• Of the 5 stocks we lost money on, 2 were losses of 3.5% and 1%.
• Of the 4 stocks we currently have that are losing money, 3 are nominal paper losses <-5%.

From a trading standpoint, I follow basic rules:

• Invest in fundamentals. Avoid speculation whenever possible.
• Never be greedy - always assume that I will leave some money on the table (I'll never get in at the absolute low or leave at the absolute high)
• Always try to lock in a large gain so that it doesn't become a small gain
• Always try to lock in a small gain so that it doesn't become a small loss
• Always try to cut the small loss so that it doesn't become a large loss
• Always re-think my assumptions. Don't get emotional about a stock. This is business, not marriage

Week 23 Performance - Down 0.25%

Week 23
Dow 0.16%
S&P -0.54%
NASDAQ -0.56%
LiveRocket -0.25%

YTD
Dow 3.93%
S&P 3.29%
NASDAQ 5.49%
LiveRocket 16.21%

Since Inception (Nov 4, 2005)
Dow 5.9%
S&P 5.7%
NASDAQ 7.2%
LiveRocket 27.27%

This was a short week and one filled with holidays. Nevertheless, the theme is definitely strong earnings in the face of inflation (and rising interest rates). I think only Intel gave a pre-earnings guidance that was negative, and many others gave strong positive guidance.
Regardless, the market may not react positively in the near term because it is overconcerned about interest rate hikes - which are now inevitable and possibly not just one more.

We continue to overweight technology and mining/commodities.
However, softness in tech and softness in some other holdings bears watching.

FINANCIALS
ET – Down 2%. But it is EXACTLY the same as AMTD and SCHW. The key here is that ET outperforms AMTD and SCH over the longer term. We are still within 5% of their recent 52 week high, so I am happy with things as they are.
GHL – Up 3% and it set a new 52 week high, again. That's 3 weeks in a row that it is pushing a newer high. I pointed out last week that it was gettiing >$70. Well, this week it stayed above $70 every day. Also, LAZ dropped 4% and GHL rose - I like to see that because it highlights for me the market view of GHL's potential relative to its peers.

COMMODITIES & EQUIPMENT
GRP – Up 5% ON TOP OF A 3.4% run last week. It's all about oil strength. GRP's chart looks EXACTLY like VLO's, similar to SWN and better than CHK & BP. I bought it because it has performed better than oil companies. It was my way of getting the oil benefit at a higher multiple. Lately, that hasn't been the case....

JLG - Straight down another 9%. That's 2 weeks of consecutive down weeks. Straight down, do not pass GO. It's not sector rotation either, as other companies are looking fine. It COULD be related to the split - it is pulling back a bit. Except that it's sudden weakness. It could be the recent dividend payment, but...
JOYG - Up 2.4%. It hit a new 52 week high. Life is good.
MDR - Up 1%. Hanging around its high.
TIE – Up ~6%. Hit a new 52 week high and stayed there - a great omen. Incredibly strong volume too.

HI TECH - Seems to be signs of weakness among chip stocks. Possible sector rotation, possible concerns over short term impacts of delays by MS Vista and PS3. Possible concerns over Apple iPod sales.
STX – Down 3.5%. Starting to feel like a trading range.
MRVL – Down 6%. I am sensing strong negative sentiment building here. Like a trading range between $55~$60.
TRID – Down 7%. All signs are pointing to incredible strength in the flat panel TV market, so why is TRID showing weakness as more and more evidence mounts that it will have a great quarter? It isn't overpriced - after this quarter, the P/E will drop from 600 to 55. Meanwhile, earnings are growing 800%.

HEALTH
NTRI – Down 4%. I think that NTRI is in a wait-and-see trading range around $45. We are waiting for an earnings release to begin our move up again.
TEVA – Flat. Frankly, after 4 months, I thought that we were poised to break out of a trading range of $40~$45. Apparently, not yet. Sentiment is negative and they show signs of being oversold. Additionally, they are under most moving averages (20/50/100) and approaching the 200 DMA. The underlying theme here is weakness

Stops:
ET - $24
GHL -$67
GRP - $43
JLG - $27
JOYG - $60
MDR - $53
TIE - $49
STX - $24
MRVL - $55
TRID - $26
NTRI - None.
Teva - None. It will take longer to realize the growth.