LiveRocket Week 25 Performance - Down 1.7%

Fundamentally, the economy remains rock solid thanks to global demand and strength. Short term worries about interest rates are just that: short term.

There is a liquidity retreat tied to the housing market, and that retreat has yet to play out. I see the following over the next few months:
1. Bonds pressured by subprime collapse. The subprime issue is not contained. Other bonds will get hit, and prices will drop. That is, the intrinsic value of many bonds is ~50% of stated value AND many institutions will begin dumping the eroding bonds. It creates a free-for-all that leads to a collapse in bond prices.
That could be good for stocks (leave bonds, buy equities) except that….
2. Hedge funds will scramble to make margin calls on their bonds. Funds will dump stocks to get cash. Notice the past 2 weeks that there has been a very indiscriminate sell-off of stocks.
3. Earnings season will be good but the response may be delayed as the hedge funds manage a bad situation.

As we head into earnings season, my overall concern is stock price value. That is, are the current prices already reflecting a fair price.

I am thinking that we reduce our non-energy related holdings and beef up our energy related holdings.

HIGH TECH
AMX – Down 1.3%. Hit a new 52 week high this week. They are trading at a 28 P/E, which feels reasonable (especially if it drops to 23 after the earnings release in a few weeks). 23 P/E for 40% growth.
CTSH – Down 3.9%. I thought we were going to move again as we approached $80, but the retreat in the face of resistance was disheartening. They are expected to grow ~40% and they have a 43 P/E. Feels fairly valued. The chance of upside is there, but not especially likely. I am going to wait for a surge and dump. This was a mistake.
NUAN – Down 1.25%. After hitting a new 52 week high, NUAN dropped after announcing a planned purchase of an AOL subsidiary that specializes in predictive text software for cell phones. The acquisition makes sense considering the direction of cell phone as universal device. In any case, the deal feels pricey: all cash $265M for a company generating $60M+ annually. And the earnings will drop substantially.
So why do it? China. Tegic brings an immediate channel access to China cell phones.
However, NUAN has shown a strong ability to integrate companies. Plus, it has a clear strategy of acquiring companies with strong revenue streams.
A major analyst protested that this distracts from NUAN’s “core business” of call center support (using computers to handle 411 calls). This analyst apparently does not see the cell phone business opportunity. Voice recognition has multiple channels.
Traded on 4x average volume.
PWR – Down 5.9%. I think that they are fairly valued.
TRID– Up 2.9% and on strong volume. I am going to use our cash to buy more.
UCTT – Down 4% on ~5% average volume.

OIL SERVICES/EQUIPMENT
ATW – Up 2.9% and hit a new 52 week high. Say no more.
CLB – Flat after hitting a new 52 week high
ESV – Flat.
MDR – Down2.6%. They won a major Trinidad gas construction project.

BIOTECH
DIGE – Flat, but it doesn’t matter. It’s on its way to $61 buyout price.
HOLX – Flat.
IMA – Flat.

OTHER
KSU – Down 5%. They are at a 2 month low but a lot of this is tied to the excitement after Buffet bought into railroads.
OCN – Down 5%. With foreclosure activity bursting at the seams, they will benefit.
PCP – Down 1%.
TIE – Down 5%. It is now a 19 P/E with 30%+ growth.