OCN crushes earnings, down big

OCN came in strong
* Earnings up 600%
* Revenue up ~20%
* Costs were flat

They are servicing 30% more loans - meaning that they have been hired to get the money back on these loans. This is the bulk of their business and it is up 30%.

Analysts wanted to see $0.25 and OCN came in at $0.2 after a one time $0.1 money losing venture. They missed but I see a beat. I also focus on the fact that business is booming. Moreover, they have 90% net margins on that increase.

This is a great buying opportunity because loan defaults are only just beginning, and banks and other firms wll seek out OCN.

Why I bought DO and UCTT

I think DO is going to announce a surprise in the next week: possibly a large special dividend.
One thing is clear, they have withstood the recent market pullback, indicating to me that money knows something good about DO.

UCTT I bought because I finally looked at LAM research's results. They are a semi equipment company and their sales were incredible. That implies the same at UCTT.

CSH misses, stock down 12%

Live by earnings, die by earnings.
I truly expected a beat and that's why I bought before release. That was not a good move, it turns out.
* Revenue rose 27%, beating expectations by 12%
* Earnings rose 30% but missed expectations by $0.02 or 3%.

Interestingly, they saw 80% growth in their cash advance business. This was my major area of concern.

I took a risk and got hammered. Let's move on.

Earnings season so far

Almost without exception, earnings season has been strong. Companies continue to beat expectatins across the board with only minimal exceptions.

The big exceptions being anything housing related and oil stocks.
Housing will continue to be a source of negative surprises: analysts are foolishly expecting a soft landing in housing and it simply won't happen. The President of DR Horton said that crashes last longer and go deeper. He also said that he sees no signs of any improvement in 2007. Ouch.
Also, now we know why housing stocks have resisted a collapse: home builders have been aggressively buying their stock back. Watch Pulte Homes fall to the teens.

Worse to come
There was a lot of fraud that is only now being uncovered. Whether it was speculators with multiple primary homes enjoying mortgage interest write-offs (when only 1 is allowed), or fraudsters paying over asking price and getting kickbacks, many frauds contributed to boosting housing prices. These are now unravelling, but the effect was to keep prices artificially high. As prices begin to come down much more severely, consumer durable spending will follow home building down.

Oil companies are also in a bad place because they probably won't see $70 oil. That means that they can't beat 2006 very easily. The only possible saving grace for oil will be an all out Iraqi or Iranian war, something that upsets oil production significantly.

Buying CSH

Buying 100 shares @ $43.89

Buying UCTT, DO

Buying 500 shares UCTT $13.69
Buying 100 shares DO $80.8

TRID and buying during earnings season

In general, I don't buy during earnings season. My humble analysis shows that very few companies that have great earnings continue the upward trajectory after earnings release. Most of the time there seems to be a bit of a pullback. Look at PCP - it hit $87 and is now down to $86 (ok, maybe not the BEST example, but you get the idea). Factor in the usual fears and odd events between earnings releases, and you'll find good buy opportunities.

TRID is a bit different because it sank before earnings. (While we didn't buy back in for LR, I did buy for my personal account. That was just greed on my part - I hoped to see it slip below $17 and get it for LR.)
In my opinion, TRID didn't go up so much as it returned to its holding point of ~$20. This is a $40 stock that is incredibly undervalued because of their options issue.

So should we buy back? And if not now, when? I do like this company and I see some things that really excite me about their release. For example, sales are up 73% (meaning earnings are up at least the same if margins are more or less the same). We also finally have clarity on the degree of impact from the options hit: $50M. Not sure how that will play out (for example, it could lower last year's earnings and make the earnings growth even higher!). But there seems to be a collective sigh of relief - more visibility means less risk.

Another interesting point is that the last quarter's sales were flat with the previous quarter's. That is actually great news: chip sales are very seasonal. For TVs to get sold in November/December, they must be built by September/October. In which case, TRID's chips are bought August/Sept. So the boom time for chip vendors typically precedes the holiday season.
Most chip companies sag by as much as 15% following this seasonal boom. Not TRID: they maintained sales. For TRID to have a strong quarter following that quarter is indicative of strong demand.
They went cautious this coming quarter - and that could mean that vendors pulled in orders to ship TVs faster (i.e. New Year's and Superbowl related sales). But the bottom line is that TRID is a strong company and a takeover target

Oh, and they added ~$80M in cash (a 70% increase in cash position). The options expense is non-cash, so that's pretty exciting.

So I would say that you should wait a bit for a pullback over the next few days. There is bound to be a bummer day that will push the market down a bit. But trying to time the price ($20 vs $19) seems strange within the context of my belief that this is a $40 long term price. They have a 18 P/E but are growing earnings 70%. Their stock price could double and they'd still be undervalued. And I continue to think they will be acquired.

STOPs on CSH, UCTT, TRID

We were stopped out of these stocks and my plan for TRID and UCTT was to buy back in. Well, I waited 1 day too long and they bounced back and then some: TRID up 20%, UCTT up 10%.

And that's a valuable lesson: if you do use STOPs then you must watch the market daily to time re-entry. Re-entry of course assumes that the stocks went down because of market malaise and not stock specific issues.

As someone pointed out so candidly, STOPs don't always save you money.

Motley Fool picks for 2007

MOTLEY FOOL 2007 STOCKS
Someone kindly forwarded me MF’s take on 2007. I thought I’d share my view of their picks
Yet again, I am scratching my head because I don't agree with most of their picks. But they liked Dolby and I didn't and they were right.
On the other hand, DLB went up because of strong growth, something missing from most of their picks.

ANF – Abercrombie & Fitch. Clothing is always vulnerable to trends. GAP, for example, is suffering from lack of trendiness. They are trading at their 52 week high and they don’t seem overpriced relative to value.
I am not a fan of retail going forward, so I’ll pass.

BAK – Brazilian petrochemical firm. Chemicals continue to grow, but I don’t like the way they are so dependent on the price of oil. Also, the cyclical nature of the business is something that I’ll avoid as economies soften a bit.

CNC – Centene is a healthcare play with a twist: they focus on Medicare and similar government subsidized programs. That could be bad or good: there is a lot of focus on reducing the cost of healthcare.

CHS – Chicos clothing has been a darling of Motley Fool for some time. After steadily crashing 50% in the last year, the stock price seems to be flatlining. I think the heady growth days are over and, while there is some growth to be had, I don’t like retail in a softening environment.

CVH – Coventry healthcare is another healthcare play. Compared to Aetna or United Healthcare, CVH is smaller and so growth looks bigger for them. But they seem fairly valued and they don’t have AET’s warchest.

FCFS – First cash operates pawn shops. I like this area and my favorite play here has been CSH. FCFS is a good play: they are growing faster and have better margins. I like this company

IBM – Services companies are ho, but IBM is too big for me. IBM is certainly looking strong these days. Margins are improving, which says a lot for a large company like IBM. But growth is pretty mild ere. I tend to go for more pure play companies whereas IBM is hardware, software and services. I like the play but prefer CTSH or INFY.

LOGI - Logitech. I like this play. LOGI can benefit from iPOD accessory growth just as PC sales accessory growth softens. But long term, Chinese and Korean companies are lurking.

MCHX – Marchex has a lot of online marketing companies with well known names. As online sales have continued to grow, so too has MCHX. So why is the stock down 50% in 1 year? Because they have to invest a lot more to keep their businesses growing. Motley Fool likes them not because they have a great product and sales are growing but because they think MCHX is undervalued. Considering that MCHX keeps lowering sales and profit expectations, I’m not so sure. I’d consider them once they stem the tide of blood.

PAYX – Pacychex handles payroll for small businesses. Think ADP for smaller companies. With unemployment so low, this is a great area. However, small businesses tend to be the first to get hit in a recession, so I would be a bit concerned here. While BoA has announced similar services, PAYX is diversifying into Europe. Otherwise, the company is growing and managing itself well. I don’t see anything remarkable here.

PHM – Pulte Homes. Hunh? These guys are in the single worst marketplace. Cancellations, higher costs and lower sales, oh my. The worst has yet to happen – every month a home builder announces even worse results and lowers guidance and forecasts. DR Horton today said 2007 won’t even be the year the market bottoms out. And we’ve only just started 2007. But analysts think housing stocks.
Partly because it’s a game of keeping the cash flowing to pay off the interest on their massive debt. PHM is one of the deeper pocketed companies. In picking PHM Motley Fool points out the excellent concentration in Arizona, Florida and California. As anyone knows, Florida is now a disaster and Arizona is not much better. PHM is exposed in the worst housing markets – MF really missed this one. Smart pick in 18 months, dumb pick right now.

S – I’ve said that I like Sprint. They are a sinking ship but they will be bought by Comcast or TWC, which need some kind of cell phone service.

URBN – Urban outfitters. Yet another clothing company. And an expensive one – P/E of 35. Any comeback has already happened.

Now look at the mix of companies: MF has chosen many stocks that will suffer in a downturn: retail clothing, housing, and commodity stocks. Yikes.
Retail clothing – 3
Housing – 1
Commodity – 1
Payroll Services – 1
Healthcare – 2
High Tech - 3
Web services – 1
Pawn shop - 1

UA, CRDN, CROX, CELG, TEVA

Some other stocks that I follow and considered for my portfolio

Under Armour
I wrote about UA a few months back. I indicated that while I liked the company and saw great things, the stock price was way unjustified. Barron’s agreed with me this wee: saying that the price could not be justified

CRDN – They make ceramics and body armor. They have a P/E of 13 with expected 90% growth rates in EPS. One thing I like about CRDN is that operational costs have been mainly flat while sales has grown ~60%: Quarterly Sales rose $71M but OPEX rose only $3M. At the same time, Gross margins have grown from 35% to 37%. I expected Iraq pullback but Bush has signaled more troops. By no means is the next year solid, and so I think there is still risk here.
They are flat.

CROX
They make trendy shoes and the momentum behind this stock is obvious. They have a P/E of 39. I didn’t want to invest because they are a trendy play and their growth seems to be slowing.
Nevertheless, they are up 12%

CELG
I just don’t get CELG. They have a product. It sells. But a P/E of 400%?? That happens frequently with medical stocks, but that P/E usually falls as the sales pick up, maybe over 3 or 4 quarters. CELG, however, has had a massive P/E for 6+ quarters. It finally hit profitability and the comparative earnings growth is solid. But when you come from 1 penny in earnings, 2 pennies is 100% growth. Get the idea? They have a forward P/E of 51%, and I just think they are too rich. One thing I admire is the positive cash position.

TEVA
I am belatedly putting TEVA back on the burner. I was thinking of this when the Dems took power (they like universal healthcare) and then Gov Schwarzenneger jumped on board. Generics are the wave of the future and TEVA has seen its stock price beaten down. I was watching when it hit $31 and kept watching. Then an analyst pointed out the obvious, and it’s up 15% in a week or so.

Great day today

Oil services/equipment companies had a major rebound today
ATW +2%
CLB +5.5%
ESV +2.5% (did you buy the $55 LEAPs as I recommended?)
IO + 4.5%
MDR + 3.2%

Also noteworthy:
AMX Up 2.9%
ILMN – Up 3% in 2 days (and up on a down day yesterday)
OCN Up 1.5%
PCP – Up 6%
TIE Up 2%
TRID Up 5%. I got stupid and greedy and wanted to buy below $17. I hate myself.
CSH Up 4.5% (see TRID comment above)

While most of these movements are mainly rebounds, PCP is a clear win.
* Earnings Up 69% year over year, or 15% better than expected
* Revenue was up 62% yoy, about 6% better than expected
* Margins look strong and I look forward to reviewing the details to see if margins actually grew as well.

Growth Stocks are the place to be

It’s Sunday and the NFC/AFC Playoffs are on TV – a season of surprise teams and upsets. In fact, it’s a perfect time to stop and consider the stocks that I considered, turned down, and where they are now. This isn’t the best time to reflect: earnings are not out yet. (Earnings frequently trigger stock movements.) But it’s always a good time to reflect.

CASH FLOW GROWTH
These companies seemed solid and were seeing large cash flow growth. I chose INFY (+5%), DIGE (flat), MDR (-7%) & IMA (flat) from this list of picks that I considered. So what has been the 6 week performance?
SAY – Flat but upward momentum
TGA – Down 4%
FADV – Up 4%
TZOO – Down 10%
ENT – Down 20%. 5% Qtly Dividend (yes, 20% annual) but I avoided due to tax changes on Canadian trusts
PRXI – Up 50%. This was one of my serious choices but I did not think that their exhibitions could really throw out the money and perform. I was wrong.
ALX –Up 2%
GLDN – Up 25% and with serious momentum. 0.4% Qtly Dividend. I liked because I see Eastern Europe growth continuing to accelerate. I went with AMX instead. Worth revisiting.
SNY – Up 4% & 0.4% Qtly Dividend. I liked DIGE potential better
NVEC – Down 45%
HTC – Up 21%. Worth revisiting. Same as GLDN – Eastern European telecom growth.
ACGL – Flat but heading down
DMRC - Flat
BAM – Flat. 0.35% Qtly Dividend
SRVY – Flat but I see upward momentum
OPSW – Down 17% This was another one that kept popping up in my research. But I didn’t get the story.
PHLY – Flat.
IMCL – Flat after recovering from a 20% drop. This was another serious contender (especially because I wanted more stocks to hedge a recession)
UTHR - Flat after recovering from a 20% drop.
IPG – Up 13%
ADS – Flat.
BAP – Flat. 0.6% Qtly Dividend.

CONCLUSION – Cash rich shares are not showing particular appeal at this time. 7 out of 25 stocks reviewed showed growth (28%) and 6 out of 25 showed losses (24%)
Flat - 12
Down - 6
Up - 7

ESSENTIALS THAT PAY GOOD DIVIDENDS
Another recession hedge: companies whose products people will continue to buy (food, cigarettes, etc) and that offer decent growth opportunity and dividends. None of these companies appealed to me.
WGL – Down 5%. 1.1% Qtly Dividend just paid
WR – Down 6%. 1% Qtly Dividend just paid
WW Down 7%. 0.25% Qtly Dividend just paid
UST – Flat but showing signs of strength. 1% Qtly Dividend just paid
DEO – Flat but showing signs of strength. This one is worth revisiting – it’s a classic defensive play: food
CL – Flat but showing signs of strength. 0.5% Qtly Dividend
ITY – Up 7%. 2% Qtly Dividend just paid. Worth revisiting.
GIS – Flat. 0.7% Qtly Dividend just paid
MKC – Down 3% after 0.5% Qtly Dividend just paid
DA – Down 3%. Yogurt just didn’t compel me much.

CONCLUSION – Experts say that a slowing economy is the time to switch assets to recession-proof stocks kicking out dividends. That would have been a money losing venture so far: 1 out of 10 stocks showed growth (10%) and 5 of 10 showed losses (50%)
Flat - 4
Down - 5
Up - 1

STRONG EARNINGS GROWTH
These are companies that are expected to show strong earnings and margin growth. I chose INFY (+5%), ESV (-8%), TRID (-16%), AMX (flat), CLB (-12%), MDR (-7%)

ITG - Flat
JNC – Up 4%
TSS – Up 12%. They just released 80% earnings growth and beat estimates by 75%.
ANST - flat
BLUD – Up 10%. They just released earnings of 90% growth and beating expectations by 10%
PSPT - flat
IDCC – Up 6%. I’m not a big believer in cell phone hardware these days.
FMD – Up 4%
DO – Flat. I own them.
OXPS – Down 22%. I liked the optionsExpress story but I also do not think buying investment companies (ET included) is a smart play when the economy softens. It also showed slower growth, and got chopped.
XTXI – Down 2%
PETM – Up 3%. I like this company a lot, and they are worth revisiting.
WCC – Down 10%.
APH – Down 5% Incredible earnings growth including a surprise cost that hit their earnings by $0.15. They still beat estimates by 5%. They gave conservative forward guidance and got hit. Worth revisiting – a possible oversold situation
CPA – Up 22%.
MSTR – Flat
VOL – Up 15%. Incredible earnings release. I own them (I didn’t sell when they were up 30% a few weeks ago)
NTRI – Down 6%.
CBEY – Flat
ACGY – Down 6% after lowering revenue guidance for 2007
HRZ - Flat
WAT – Up 10%
MRVL – Down 6% on a downgrade. I agree that MRVL growth is challenged, and so I didn’t buy. Yet. I want them back down around $19.
IPR – Up 4% Was up 15% but electricity prices have moderated
KSU – Up 6%
STA – Flat. I liked the premise – insurance companies upped premiums and saw lower payouts (weather in the Gulf of Mexico and Florida was mild). But I saw this as already backed in aka I missed out earlier this year.
LECO - Flat
VFC – Up 5%. This one popped up several times in my research but I didn’t like them – consumer products don’t fit my approach at this time. They just paid a 0.8% dividend and announced that they will buy Eagle Creek, a great company.
AFG – Up 2%
BAX – Up 10% after a 1.1% dividend.
TD - Flat
SYT – Up 10%. Guidance was raised. Worth revisiting.
BMS Up 6% on upgrade.
NVS - Flat
HB – Down 3%. Paid 0.5% dividend
LMT – Up 8%
UTX – Flat after issuing lower guidance
PG – Up 4%
SIAL - Flat


CONCLUSION – In general, this was a great place to invest (unless you are me and showed a remarkable knack for picking losers from this grouping). These companies live and die by the earnings or reports on growth. Great earnings and guidance and the stock goes up almost on down the line. That is what we want. That is the dream. Hopefully my picks will show strength after they release earnings (INFY had great results, for example).

19 out of 44 showed growth (43%) and 11 showed losses (25%)? This growth had strongest returns compared to other groups. Also, I believe that many of the stocks that went down will snap back after earnings get released.
Flat - 14
Down - 11
Up – 19