Week 2 esults: Up 3%

Talk about a balanced potfolio: 5 stocks up big in one month and 6 stocks down big. The big gainers since we bought last month:
INFY +9% NUAN +20% OCN +10% PCP + 8% UCTT +23%
At the same time, the oil/commodity stocks are lagging, to say the least:
ATW -9% CLB -13% ESV -6% MDR -9% TIE -7%
And TRID is down 16%.

A VOLATILE PROFILE
Volatility enters the LiveRocket portfolio in two very calculated places.
1. Business cycle contrarian stocks
2. Small cap stocks
At this point in the cycle, when we expect a downturn, a lot of sectors are out of favor. Those sectors include IT, consumer products, oil/energy related, commodities, manufacturing and so forth. Clearly, we have stocks that play in these areas:
Energy Related: ATW, CLB, ESV, MDR
Commodities:TIE
Consumer Electronics: TRID
IT: INFY, CTSH
Manufacturing: PCP

In fact, most of our stocks should be bad plays at this stage. So why did I get in? The reality is, oil excepted, I am not contrarian at all.
Oil services/equipment still has legs. This is the only place where I am contrarian. My premise certainly looks shaky given that the price of oil has fallen from $73 to $52 in just a few months. I continue to believe that these companies are incredibly undervalued. In fact, Friday’s big bounce up on high volume means only one of two things: dead cat bounce or pre-earnings buy-in. Also, I had expected some consolidation of players at this point (and maybe so did others, which is why the stocks zipped up beginning December.) In any event, we are down an average 9% for this sector.
I am continuing my support for oil rigs and drillers for some basic reasons. First, most new oil discoveries are occurring offshore. Second, most countries are non-OPEC countries – they want oil in order to avoid paying OPEC prices (or to benefit in case they can sell).
Additionally, the negative movements in these stocks is 100% sector related: compare them versus OIH (Oil services Index) and you will see exactly what I mean. That means that they are giving up some momentum but not because of fundamentals.

Commodities should go down, but TIE is not a commodity per se. They are tied to Boeing’s airplane production (as well as new military products). There is an ongoing severe shortage of titanium that even a 30% cancellation in planes will not change.

Consumer Electronics should go down, but LCD/Plasma TV sales are continuing to surge. TRID is only going to continue to benefit.

IT continues to enjoy investment and growth.

Manufacturing is going down, but PCP is dedicated to Boeing and demand is super strong.

The other area of volatility comes from buying small cap stocks. Small caps are where we play because small caps are where the biggest earnings growth can be achieved.


AMX – Up 2%+ this week. AMX pulled back from its 52 week high 2 weeks. It has consolidated a base of $44 and looks poised to run again. I will point out that Motley Fool chose AMX as a stock to own.

ATW – Up 2%. After releasing blazing earnings in early December, ATW has slumped 20% from the oil malaise.

CLB – Flat for the week. Almost a mirror image of ATW – down 20% from oil malaise.

CSH – Up 3%+. After setting a peak 3 weeks ago, CSH pulled back. I see a consolidation here and then forward movement.

CTSH – Up 4%. This is due to the great INFY earnings results. CTSH has earnings release in 3 weeks.

DIGE – Up 1%. DIGE has filed a lawsuit against a company named Third Wave. This is a defensive lawsuit that is trying to delay the inevitable entry of competition. Currently DIGE offers the only HPV test approved by US regulators. The fact that competition is coming is just testimony to the market potential. Now, interestingly enough, the CEO also announced that DIGE plans to expand beyond the HPV test. The two are clearly related: DIGE wants to grow past being a one-trick pony. Creating options for growth is always a nice thing to see, even if it is really just a way of getting a better price from a potential buyout.

ESV – Flat. YAOS (Yet another oil-related stock). ESV starred in downgrades by Citigroup and JPMorgan. (Remember, JPMorgan is the same company that said they thought the real estate market had bottomed.)

HOLX – Up 4%+.HOLX has been trading between $45~50 for the better part of a year. I am hoping that the next earnings release will push them up to $54 and stay there.

ILMN – Up 4.5%. ILMN has been consolidating around $39 ever since it announced its acquisition. ILMN has had a lot of positive news recently. They are working with the Mayo clinic. They will probably benefit from DNA (Genentech’s) great results. I spoke with someone who works for Genentech and has friends at ILMN. He said that his friend talks about amazing business. For what it’s worth…..

IMA – Up 5%. An acquisition of a distributor in Canada was well-received.

INFY – Up 5%. Blistering earnings results and it hit a new 52 week high. Earnings up 51%. I am not convinced that these results defy the IT slowdown in the near future. These earnings could reflect past contracts reaching maturity. I’d like to see it hit $58 and then I’ll consider leaving.

MDR – Up 2.7%. I think their nuclear energy products should soften the perceived oil sector issues.

NUAN – Up 5.5%. They are at a 9 month high, and only positive news so far. I wonder if the iPhone will use this technology…..We are up 20% here and I could see more when earnings come out, potentially $14. This feels like more than pre-earnings excitement because it has been on a solid move up since July (after a major collapse in May).

OCN – Up 6%. OCN finally seems to be making its move: it hit a new 52 week high and is above $16. (Yeah, I know, price points are only psychological, but it’s a nice thing to see.) I do think that this is pre-earnings excitement.

PCP – Flat. PCP seems to be ignoring the broader market: moving up on down days and down on up days. It hit a new 52 week high this week before pulling back. Actually, they started the week with an announced acquisition of a rivet maker (all part of providing aerospace manufacturing support to Boeing). Also, one of PCP’s previous acquisitions (SMC) is yielding better margins than expected.

TIE – Although ending the week flat, TIE dipped as low as $28. I said that it would be a bumpy ride to $35, and I wouldn’t be surprised to see a rally shortly. I continue to think this company is undervalued, but it keeps staying within the $28~$33 zone. Watch it test $33 the closer we get to earnings.

TRID – Down 5%. And it hit $17. The flat panel TV sales were expected to exceed the wildest expectations. This is probably being discounted because Xmas sales were mostly booked last quarter when manufacturing took place. So the fear is about margin pressure and ongoing demand in the face of potential consumer spending slowdowns. There is also a rumor that Toshiba is taking its business away from GNSS and giving it to TRID. Prices and margins can get squeezed 5% as long as sales grow much faster. Earnings were released Oct 25th, my options expire Jan 19th – probably before the next earnings release. In other words, the market has proven that it can stay irrational longer than I can stay liquid.

UCTT – Up 18% this week on no n3ws. Not only did it hit $15 for the first time, it went way beyond, stopping just pennies away from $16. Volume has been very strong: a sign of pre-earnings excitement.