Preparing for this week
I think that there will be a pullback this week.
The catalyst may be the Fed and interest rates, but the technical reason is the 10% bull run over 7 weeks.
I propose to do a few things
1. Review portfolio and re-balance as necessary
2. Buy Puts
KEEPERS
Based on strong future earnings growth, improving net profit margin growth, 1 year PEG <1, and consistent earnings beat
AMX
ATW - Question about operating profit margin that needs to be addressed this quarter
CLB
DIGE
ESV
HOLX
IMA
KSU - Exception #1. Shipping is absolutely slowing down for auto and home building linked shipments. And this will continue. KSU is to be owned primarily for the Mexican connection which will drive growth.
MDR
NUAN
OCN - Exception #2. Margin improvement but flat earnings for 2007. I disagree with the earnings assessment. There are only 3 analysts covering this company and I think that they are shortchanging the future earnings potential. OCN is just about to start a spurt imho. More forclosures and credit card troubles means more business for OCN. I don't like the earnings miss for 2 quarters in a row, but I am hoping for upside surprises.
PCP
TIE - I think the growth prospects are being under predicted
TRID -
QUESTIONABLE
CTSH - Margins under pressure
PWR - I don't like the PEG or the margin issues. I think we lock in profits and sell.
UCTT - The recent selloff may take a while to reverse, and that's not what concerns me. I don't like the latest results. The margins and earnings are off this quarter because of increased SOX costs, but this is 2 quarters in a row.
BUY PUTS
The STOPs pushed us out of stocks 2 months ago that raced back up (PCP for example). I like to use STOPs to jump back in on stocks that I believe in but which have hit some kind of short term glitch.
Rather than use STOPs to protect us from deep falls this week, I propose to buy Puts.
HOG - I don't like HOG for a few reasons
1. PEG is too high: 5% growth this year and 10% for 2008 but a forward P/E of 15.
2. Upside overstated: I think that they saturated the market in 2005/2006. Indeed, sales are already falling. Additionally, margins are dropping significantly.
3. Problem balance sheet: Assets down $140M while inventory is up $80M. I think that $80M was blamed on a strike at Harley, but I wonder.
4. Problem with subprime loans will slow sales and begin to affect their bottomline as they re-possess the bikes. http://www.thestreet.com/_yahoo/markets/activetraderupdate/10347201.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA
5. No pent-up demand. I believe that construction workers will be selling their Harleys, flooding the market with barely used Harleys at great prices. These are toys at a time of slowing big ticket items. It's a discretionary purchase at a time of slowing discretionary purchases.
So lets buy some January 08 puts. The $55s.
Buying 10 contracts
I am also looking for a good bank or lender to short
The catalyst may be the Fed and interest rates, but the technical reason is the 10% bull run over 7 weeks.
I propose to do a few things
1. Review portfolio and re-balance as necessary
2. Buy Puts
KEEPERS
Based on strong future earnings growth, improving net profit margin growth, 1 year PEG <1, and consistent earnings beat
AMX
ATW - Question about operating profit margin that needs to be addressed this quarter
CLB
DIGE
ESV
HOLX
IMA
KSU - Exception #1. Shipping is absolutely slowing down for auto and home building linked shipments. And this will continue. KSU is to be owned primarily for the Mexican connection which will drive growth.
MDR
NUAN
OCN - Exception #2. Margin improvement but flat earnings for 2007. I disagree with the earnings assessment. There are only 3 analysts covering this company and I think that they are shortchanging the future earnings potential. OCN is just about to start a spurt imho. More forclosures and credit card troubles means more business for OCN. I don't like the earnings miss for 2 quarters in a row, but I am hoping for upside surprises.
PCP
TIE - I think the growth prospects are being under predicted
TRID -
QUESTIONABLE
CTSH - Margins under pressure
PWR - I don't like the PEG or the margin issues. I think we lock in profits and sell.
UCTT - The recent selloff may take a while to reverse, and that's not what concerns me. I don't like the latest results. The margins and earnings are off this quarter because of increased SOX costs, but this is 2 quarters in a row.
BUY PUTS
The STOPs pushed us out of stocks 2 months ago that raced back up (PCP for example). I like to use STOPs to jump back in on stocks that I believe in but which have hit some kind of short term glitch.
Rather than use STOPs to protect us from deep falls this week, I propose to buy Puts.
HOG - I don't like HOG for a few reasons
1. PEG is too high: 5% growth this year and 10% for 2008 but a forward P/E of 15.
2. Upside overstated: I think that they saturated the market in 2005/2006. Indeed, sales are already falling. Additionally, margins are dropping significantly.
3. Problem balance sheet: Assets down $140M while inventory is up $80M. I think that $80M was blamed on a strike at Harley, but I wonder.
4. Problem with subprime loans will slow sales and begin to affect their bottomline as they re-possess the bikes. http://www.thestreet.com/_yahoo/markets/activetraderupdate/10347201.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA
5. No pent-up demand. I believe that construction workers will be selling their Harleys, flooding the market with barely used Harleys at great prices. These are toys at a time of slowing big ticket items. It's a discretionary purchase at a time of slowing discretionary purchases.
So lets buy some January 08 puts. The $55s.
Buying 10 contracts
I am also looking for a good bank or lender to short
posted by Andrew at
6:20 PM
2 Comments:
Hi Andrew!
Great pick on MDR, the stock rose up almost 15% before the earnings and they had a very nice quarter. After convinced by your post on MDR, I bought in and glad I am in. Its up almost 8% after hours. Lets see if it holds up this good run...
Thanks again for your analysis and sharing(aka caring) ;-)
You are very welcome and I'm glad you made money.
If they hit $1.38 again next quarter, it's hard not to see $70.
In the meantime, I got busy today and did not buy the Puts or sell PWR. Wednesday is the Fed meeting, so I still have time
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