Drinks & Dividends: Results from 3rd Get Together

I had a lot of fun the other night meeting folks who share an interest in stocks and investing.

Also, the following stocks were presented as possible flyers for the next month
FTO Ramesh
STX Jun
PARL Stepen
AKAM Ram
DIS Will
DBRN Ray
GRMN Raj K.
ABX Mohan
WFMI Ming
MTE Deepak
STKL Kelvin
RGLD Neeraj
BBC (Pls let me know who presented this one)
VWO Farhan
CCJ Shawn
SLV Jamileh
SLW Dev
TIE Kasey
TRID Andrew

Neeraj was kind enough to figure a way out to record the discussions and presentations. Until I get a website up, any suggestions about posting the MP3?

I leave it to you to review and make your own decisions. I know that a few of these will definitely get included on my list of companies for deeper review.

Until next month!

Week 26 Performance - Up 3.79%

Week 26 (versus previous week)
Dow 1.86%
S&P 1.14%
NASDAQ 0.86%
LiveRocket 3.79%

YTD
Dow 8.03%
S&P 6.25%
NASDAQ 6.26%
LiveRocket 30.66%

Since Inception (Nov 4, 2005)
Dow 10%
S&P 8.8%
NASDAQ 8%
LiveRocket 43.1%

Positive growth ruled the week as market concerns ebbed and flowed and more earnings were released.
Our cash position increased by $40 because of a STX dividend. We are sitting on $8.4K cash, and that base may grow if we move out of TEVA as I think we will after earnings release this week.

I'll do a separate think piece, but for now, here's a quick rundown. As always, I am looking at weekly changes, not versus our buy-in price.

FINANCIALS
ET – Up 5%. After a 10% drop last week, this was a sign of respect. I still think that they are underpriced
GHL – Down 4%. Considering that they were down 14% earlier in the week, this is an improvement. Call it a buy opportunity - it was for us.

COMMODITIES & EQUIPMENT
GRP – Up 2.8%. After an amazing earnings, they are in a slump. Oh, wait. That was last month. We are back to what-have-you-done-for-me-lately.
JLG - Up 3%. Mostly from Friday's jump. It should have enjoyed a jump because of CAT's great report. Earnings release May 24
JOYG - Up 0.5% Still in recovery mode after the China scare. I don't like that the broader market surged and they got no benefit. May 25th i searnings release, so they should start to perk up next week or so.
MDR - Up 15.8%. Outstanding sales growth. A great story. Don't say I didn't warn you.
TIE – Up 8.6%. Just a great growth story. I notice that prices are rising but not yet as high as they will be.

HIGH TECH
STX – Flat. We have an $0.08 dividend. I think that the market is transitioning. On the one hand, recognition that PC and iPod sales are high but growth is slowing. On the other hand, demand is growing in storage, DVRs and games.
TRID - Up 0.6%. Frustrated? Sure, but not like GNSS owners. I'm sticking with the facts - TRID is dominating the space of THE hot product for 2006/7.

HEALTH
NTRI – Up 2.3%. It even pushed to $72 before pulling back. I was wrong about the pullback to $66, but I still want to keep a tight STOP.

TEVA – Up 7.4%. Another win for TEVA in getting a drug approved (Zocor). Also, TEVA announced that sales of its MS drug rose 36%. (Interestingly, BRL dropped 8% this week.) I liked that TEVA ended near their high for the day and week. TEVA is approaching its 52 week high but I think that this is pre-earnings excitement. I would imagine a further $2 spike or more in the short term. May 10th is earnings release

TIE, MDR Earnings. GNSS & TRID and JOYG. NTRI

First, one of JOYG's competitors (BUCY) reported blowout earnings. This can only reflect well on JOYG.

Second, GNSS earnings. GNSS tried to blame softness on LCD TV sales. That is remarkable considering all evidence from Samsung, LG, Circuit City, and Best Buy that LCD TVs are the single item selling like hotcakes and keeping them afloat. Oh, and the 140% increase in LCD TV units since last year.

"It's absolute nonsense," CIBC analyst Daniel Gelbtuch said. "The fortunes of Trident are very much different from Genesis. Trident has exposure to the cream of the crop (customers) -- Sony, Samsung and Sharp -- Genesis has some top-tier customers, but mostly they have second-tier players. This is a great buying opportunity for Trident."

Bottom line: GNSS can't even sell crappy chips to off-brand manufacturers. There is no price war looming. Watch TRID scoop up the business.

Third, NTRI. It established a bottom and came back. I will sell if they go below $66.

TIE and MDR earnings. Wow - stand next to an open freezer because these earnings releases were hot.

MDR - How many different ways are there to beat expectations? We knew that they would be great. Let's hope the stock price obliges us.
* Sales: Up 50% to $645M. Beat expectations of $608M. Sales were up in every product line
* Earnings: Up 125% to $0.72 per share. Expectations were for $0.50. Think about that: earnings grew almost 5x the rate of sales.
* Backlog of $6B, 2X last year's
* stock split announced
* In a smart move, they are redemming $200M of bonds paying 11%. That was an easy decision.

TIE - They had no scheduled earnings release date, so this was a surprise
* Sales: Up 85% to $287M. Expectations were $240M.
* Earnings: Up 40% to $0.64. They beat expectations of $0.45. An important thing to note is that the prior year's $0.44 earnings included $0.29 one time tax benefits. That means actual growth was much higher - closer to 4X.
* Backlog - almost $1B, almost 2X last year and up $55M from last quarter
* Prices increased. On average, prices are up 50% but some prices were up 107%. That is a critical reason for the earnings growth
* Volumes increased - Mill products up 19%, melted products up 3%. The capacity constraints prevent much more volume increase BUT additional capacity comes online next year.
* Increased guidance ~8% increase in sales and 15% increase in earnings

Stock comments

The market hit 11,300 and is catching it's breath. I expect the market to close up 16% for the year, which is 1.5% growth per month. A lot of spurts followed by consolidation.

I own TTI, and it had great news today. It's yet-another-energy-services/equipment stock (not in the LIVEROCKET portfolio because we have others). It did not rub off on other stocks - which are now discounted somewhat by the market. Each of our energy stocks is producing triple digit growth but the market keeps forgetting that.

MDR releases today - should be spectacular.

NTRI has fallen back down. I see $67 as the resistance level.

Seagate continue to dog paddle around the pool. Storage is THE hot tech play for 2006/2007. EMC and NTAP and others are all showing demand for storage, and that means boxes that hold lots of Seagate drives. A P/E of 12 is just too low. Even WDC has a P/E of 16.

TIE - Early selloff countered and it's holding at $74.

GNSS & TRID

GNSS released earnings. Their sales are down 21%. Contrast that with TRID which announced sales up big. TRID has stolen their market. WHile TRID gave upwards guidance of ~10%, GNSS gave guidance down 10%~15%.

This is great news for TRID. But the stock is down. Probably fears about price pressure as GNSS seeks to regain momentum and get rid of inventory.

I don't think that there will be impact - if price were the key issue then TRID would not be so solidly gaining market share. Performance is what matters, and TRID is known to have much better performing chips.
The market will continue to grow and GNSS will be fine because of the low-end LCD TVs. But it is easier for TRID to go downstream than it is to go upstream: they could slash prices on older generation chips and stay competitive at the low end.

This is massive vindication for TRID. Their designs are winning. As sales volumes increase, the margins will also improve.
The market is incredibly stupid about TRID.

Investment club get together Thursday 5/6

I am organizing an informal dinner on Thursday at 6pm.
If you're interested, let me know.

GHL - better than I thought

This is not - as I initially thought - a dilution move. reuters reported it as a secondary offering. GHL is NOT ISSUING NEW SHARES. rather, employees/founders are cashing out.
http://biz.yahoo.com/prnews/060501/nym244.html?.v=22
"GHL...announced today that it intends to file a registration statement with the Securities and Exchange Commission registering 4,025,000 shares of common stock. All of the shares of common stock to be registered are currently owned and will be offered and sold by current and former managing directors of Greenhill & Co.Greenhill & Co. will not receive any proceeds from the sale of the shares of common stock being registered"

I feel an awful lot better now. I hate dilution moves. This type of thing is to be expected. 75% of GHL is still held by insiders (aka founders). That means that we can expect selloffs as the company matures and allows more institutional ownership.

Keeping a lid on access to shares can drive up stock price - think of Google. Today GOOG is still 30% owned by insiders. And that's after 1 year of massive selling by employees.

What this means for us is that some stock momentum will go away as GHL shares get less exclusive. That's ok. The company tripled earnings and has a VERY LOW 26 P/E. that is lower than LAZ but higher than MS and GS. On the other hand, those companies are growing at a significantly lower rate and continue to see their top deal makers walk away.

GHL's move shakes the investment community hard. In just a couple of years, massive wealth has been transferred to GHL management. Much more than they could have earned at a Goldman Saks. This can only hurt institutions like LAZ and GS and Lehman Brothers as the top rainmakers at these firms leave to follow GHL's path. An exit strategy becomes clear.

This is like Silicon valley in the 90s, where top engineers left larger companies to start up companies and get more money.

Impact #1: Larger companies get distracted. Losing top dealmakers will distract and dull larger companies. This will help focused boutiques like GHL

Impact #2: Big boys will bleed money and talent. As top dealmakers leave the firms, they will take deals away and the financial impact will begin to hit the bottom line. Other talent at the firm may look elsewhere for better opportunities. GHL can cherrypick.

Impact #3: GHL model gets validated. As more boutiques open up, GHL gains credibility. Shift from size to value. GHL as early leader gets biggest boost. Eventually (2~3 years) consolidation of some boutiques. LAZ has $1.7B debt, so consolidation is a problem for them. But not GHL.

Monster.com

I can't believe that I didn't think about investing in Monster.com
Job hopping is back in fashion. Employers are having to work for employees. Recruitment is up.

I need to do some analysis, to see if it fits, but I can see how it would.

Bernanke and market volatility

Bernanke has spoken again - The Fed could easily raise rates further depending on the data.
Which data?

Every week there are new data points: consumer confidence, housing, manufacturing, employment.

This means incredible volatility. Lets take off all stops for now until this gets sorted out.

Latest Portfolio and events (ET, GHL, WIRE, TEVA)

This is what we own:
ET 121 shares @ $24.7
GHL 151 shares $67.63
GRP 250 shares $48.8
JLG 250 shares @ $26.8
JOYG 100 shares @ $64.85
MDR 135 shares @ $51.15
NTRI 115 shares @ $48.05
STX 500 shares at $24.35
TEVA 200 shares @ $41.6
TIE 400 shares @ $41.8
TRID 436 shares @ $27.35
cash $8,413

ET shrank further. Did anyone else notice the announcement that ET is opening in China. ET is going to be the very first global broker. More importantly, ET broke its 50 dma. One of the reasons that I so quickly jumped back in yesterday is that ET has been above its 50 dma for a year. I don't like this. Schwab, AMTD, GS. They all showed lots of weakness today. ET is showing th emost overselling, however. I am counting on strong April trading data to add some pep. If not, this could be a long couple of months

GHL dropped like a stone. It wasn't until after market close that the reason emerged - they are selling 4M shares. Great - 12% dilution. Hmmmm. The stock is also down exactly 12% since peaking at ~$75 2 weeks ago. Do you think that maybe word got out? Somebody should notify the SEC on this. Greedy bastards!

MRVL hugging $55 again. Glad we didn't get back in.

NTRI - I don't trust it. I just don't. Short ratio is plenty high. $66 is my Stop

TEVA - Up on good news. Wow. Some life at last.

TIE - RTI was up, but TIE was down. Something that I don't like: TIE keeps tapping on the door of $73 and keeps retreating. That is often the sign of consolidation and slight bearishness.
I want to stay in - all positives. They are masters of working the market and will report next week. So we wait 1 week.

Cramer mentions TIE, uh oh. That guy is a moron. He changes his tune every week. Still, at least he's positive this time.
Also, here's a quote from the news.
"Henry Hubschman, CEO of GE Commercial Aviation Services (GECAS) told the AeroClub of Washington that there is expected to be a jump in air freight thanks to "global sourcing and just-in-time inventory management." He said there are about 1,700 freighters that are growing old around the world, and about 400 of those are 35 years old or more, including DC-8s, 727s and 707s. He notes that GECAS has been "very active in this area" and has a conversion program in place.GECAS has already turned 55 older 737s, 747s and 767s into freighters and Hubschman predicts that conversions or orders for new planes will accelerate if fuel prices remain high. For example, he said the trip cost for a 737 freighter is about half that of a 727 freighter. "In short, there is a huge upside for the global aviation industry in freighter replacement," he said."
Next week, airlines start reporting. I expect positive passenger rates to translate into price hikes and new plane orders.

TRID - Up is up, but we bought at a price much higher than close, but I think that the price dropped because of Fed fears. Volume was very high, and I like that. Another analyst came in and pointed out the obvious - this stock is at least worth Zoran style multiples and should be at $34.
One more point. I completely fumbled the ball on the P/E calculations. I was off by one quarter. Current P/E is 550. NEXT quarter it drops to 55.

Stopped out of WIRE

We hit our $42 Stop

Stopped out of GHL

We hit our $68 stop. This is amazingly stupid of the market.
Buying 154 shares @ $67.63

CORRECTION: shouldbe 151 shares

Bought TRID

Bought 436 shares @ $27.35

This week's moves

There are some specific moves I want to make
TEVA - Prepare to move on. Set stop of $40.
TRID - Buy back in. We have $11,949 in cash that we will use.
WIRE - Prepare to move on. Set stop of $42.
NTRI - Protect against pullback. NTRI had a super run. There is the chance of a 10% pullback to ~$60. I want to get out before that happens - we can always get back in. Setting a stop of $66.

With TEVA and WIRE our goal is to take the profit and move forward. If they go up, fine. Otherwise we set tight stops - about 3% below closing prices.