LiveRocket Week 4 & 5 Performance: Up 1.28%
All in all, we seem to be on the right track. To re-cap our fundamental strategies:
1. Soft landing - The overall US and world economies continue to perform
* Recession in housing now. Affected areas are construction, materials and banking. The next dominos to fall will be consumer products
* Limited recession. Recession in housing and related areas will translate into a technical recession (i.e. total GDP growth goes negative) but widespread malaise will not happen in the near term. It may happen towards the end of the year, but most likely not. That does not mean that fear of a recession will go away or will not haunt stocks. Put another way, expect frequent shocks and buying opportunities
2. Obey the Business Cycle - according to the business cycle, we are out of everything consumer related and focused on healthcare. I may be right about the future economy, but th emarket may respond differently. Or, I may be dead wrong. Either way, we'll continue our stay in biotech but we will apply our model to find the right growth stocks.
3. Specific sectors continue to perform strong - Oil services/equipment companies outperform - I think hedge funds will re-discover these companies in the next few months. Aerospace is also a strong sector. Military looks strong as well - I'll be targetting CRDN as a possible addition.
The recent round of earnings was quite good for us. Even CSH rebounded. And even though DIGE and ILMN fell, they showed growth and strong management. Sadly, ILMN represented a large position in our portfolio so the 10%+ drop had a large impact: it knocked 2% off our performance.
I will write a stock performance overview separately, but for now we continue to stay on this course.
This is a busy week for us. Earnings calendar for our stocks:
Feb 5th NUAN
Feb 6th UCTT
Feb 7th AMX, ATW
Feb 8th DO
Feb 15th CLB
posted by Andrew at
10:50 PM
2 Comments:
UCTT earnings are on 12th Feb -- atleast as per YHOO. Also, what would be your take on the stop price of ILMN? Its dropping like a rock!
Thanks for the UCTT correction. I misread the date!
ILMN is dropping too far IMHO. Lets say the earnings impact is massive: 15% or $0.10 for the year. They had a~ 50 P/E, so a $0.10 drop in annual earnings should have dropped them to $39 from their high of $44 (50 * $0.10 = $5).
Instead, they are at ~$35.
How much should we read into future guidance? With some sectors, future guidance is absolutely unbelievable (like housing construction company future guidance over the summer).
With ILMN, I think the future guidance is really a worst case scenario.
Consider the core issue: ILMN will see lower earnings but sales continue to surge.
Sales for the March quarter are expected to rise 127%, and rise ~300% for 2007.
Moreover, the quality of earnings is still strong (I need to review margins, but I suspect margins remain quite strong). ILMN is investing in growth by hiring sales people and boosting R&D - this is excellent for the intermediate and longterm. But the price of a savvy and prepared management is for short term earnings pressure.
In essence, they have shifted their business model from a small, 1 product company into a more developed, high growth company that needs feeding. This is good news.
But investors buy earnings and they are voting to come back when the payoff materializes in 6 months to a year.
My vote is to get in because I think they will beat the lowered expectations. After all, it is very possible that higher sales will neutralize the higher costs. And keep in mind that hiring won't affect earnings for at least anothe rquarter, meaning they will probably surprise this quarter.
I'll take the risk given the growth potential.
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