Liverocket Week 18 Performance - Up 0.1%

Considering that the market was up and we were mostly flat, I am not happy.

Frankly, I have been challenged by some key players: CTSH, TIE, TRID, & UCTT. These 4 stocks combined to knock out gains elsewhere. I am comforted by the potential for a reversal next week in TIE and TRID. That matters because TIE and TRID represent 20% of the portfolio. UCTT I think will drift before firming up and rising again.

Meanwhile, I do suspect that we will see a shock next week. The market is overbought - it's up 10% in 8 weeks. Time for a correction and the Fed meeting may be exactly what the doctor ordered.

HIGH TECH
AMX – Up 0.5% and another 52 week high. Considering its 5% drop mid-week, I am glad to see that it maintained its position.
CTSH – Down 7.4%. Horrible – buy on the rumor, sell on the fact. Not much momentum after 4 months. I had wanted to sell at $95, and that was based on a 5% jump up on earnings. Instead, we got a 7%+ drop. I will say this: for folks concerned about salary spikes, those factors affect every Indian service company. Which means that they will start to pass costs on to customers I the form of higher prices.
NUAN – Down 1.3%. Continues to trade on low volumes. I’d say the bets have already been made and now it’s time for next week’s earnings release.
PWR – Up 5%. They picked up a slew of analyst upgrades.
TRID– Down 4%. But this is interesting: up 3.5% in afterhours on heavy volume (2M shares). This could be tied to th efollowing report http://www.forbes.com/afxnewslimited/feeds/afx/2007/05/03/afx3684694.html Essentially, Sony is shifting away from 32” TVs and buying more 40” TVs from Samsung. That means TRID.

UCTT – Down 4%. Was this week a deadcat bounce? I’d say so. I see it drifting a bit lower and then coming back up to $18+. I will look to buy more ~$14 unless weakness pushes it down even more. A lot of shorties are pushing it down and we will let them enjoy the overselling and take advantage.

OIL SERVICES/EQUIPMENT

Interestingly, today ESV, CLB, & ATW all spiked up early in the day. Same with DO. I think something is up.
ATW – Up 4.6% and a new 52 week high. No news, just pre-earnings excitement.CLB – Up 0.7%. It hit a new high today before pulling back.
ESV – Up 2.7% and hit a new 52 week high
MDR – Up 4% on 2.5X average volume and a new 52 week high.

BIOTECH
DIGE – Down 1.3% on low volume
HOLX – Up 5.5%.
IMA – Down 1.4%

OTHER
KSU – Flat.
OCN – Down 2%.
PCP – Up 2.6%.
TIE – Down 4.6%. Cramer pooh-poohed TIE. TIE needs to beat earnings in order to move this stock price up and the odds are decent that they can do that.
Throughout 2005/6 the theme was contract re-negotiation. Prices quadrupled and more, giving mammoth upside. The theme for 2007 is expanding production.
Prices: Strong and rising. That was reported last quarter and ATI’s recent report confirms that prices remain strong (ASPs increased 4% for ATI). TIE can take advantage of rising prices because only 39% of its production is committed to long term contracts. That means that Boeing is snatching up as much as it can and paying top dollar. And the dollar is weaker by 5%, which could push up TIE’s ASPs even more considering their ability to charge global prices. Lastly, on a purely year-over-year basis, ASPs are up 30%+.
Production is up: This quarter, TIE opened an expansion in Nevada for sponge production. The expansion will add 4000 tons of sponge per year or 8.8M pounds. Sponge sells for ~$10 per pound and is the raw material out of which titanium metal and alloys are made. If sold, it can generate ~$22M sales upside per quarter and if consumed it will reduce TIE’s costs, increasing earnings.

Costs: up and down. Energy costs are no doubt higher. At the same time, sponge costs will be lower because they produce more of their own.

Analysts expect 20% earnings growth year-over-year or $0.38.
Anchoring the low end is last quarter’s $0.32 (after netting out one-time gains)
Driving the high end is a 30% higher ASP and greater production. That implies closer to $0.41 or ~10% higher than expectations. To achieve this, TIE needs to get $14M more earnings.
Sales growth yield: At 34% margins, the $14M equals $43M increased sales YoY. Last quarter was $37M above Q1 2006, putting $43M within reach. Now, if prices rose an additional 4%, they could see an extra $7.7M (Some 60% of TIE’s sales is not locked into long term contracts, so $194M @ 4% = $7.7M in upside.) And then there is the extra sponge production – some of which they may be selling.
Another means to that EPS is cost management. How much cost does the extra sponge production reduce? Unknown. Even a 10% cost reduction is significant (~$2.2M per quarter or $0.015 EPS).

I see $0.41 within reach but then what? No further production comes online this year and assuming flat sales prices, 2007 EPS is ~$1.64, which is about what analysts expect. Not much blistering upside. The excitement comes in early 2008 when production again grows by ~20%.

I wonder if indeed Simmons is looking to sell. At the moment he extracts about $75M per year in salaries and dividends from the various stakes in TIMET and related investments in VHI and Contran. Selling at a 20% premium means an extra $500M in his pocket (in addition to his current stake). He can make that in 4 years and TIE’s stock will grow at least that much in 4 years. He would probably need to see 40% in order to sell. TIE at $50 sure sounds nice, but it’s wishful thinking.