Finishing the 1st quarter, we find that LR outperformed the market. We are up 3% versus a flat or negative stockmarket. And that is including the stop/loss debacle last month and this week's buy-in just before a pullback. I'm not unhappy, but I expect better from myself. I blame my slow response to being STOPPED out last month. As such, you will not see me adding stops this week.
The risky stocks continue to batter our performance in the near term, but we hope that they will shine over the next few months. Meanwhile, the oil stocks continue to shine and I expect some nice jumps soon.
The revised Q4 2006 GDP shows that we are still in a period of moderate growth. That is good news, especially because home building was starting to take a big bite. Inflation watch continues, but that is defined as the timing of a rate drop - the Fed won't increase rates.
On a side note, it has been discussed in arcane sites that disscuss these things, that rent will start showing up in inflation numbers as boosting inflation. Basically, housing is measured in a really stupid way by the Fed. Unlike, say, the Bank of England, the Fed does not look at actual housing prices but at equivalent rents. What that means is that over the past 5 years housing prices doubled but rents were flattish. Apparently apartment rental prices are up 10%+. It's a bit amusing that the staggering home price inflation of the past few years (15% CAGR) did not get reflected but now that home prices are beginning to crash, housing is looking inflationary.
From the standpoint of how that affects the Fed's decision to drop rates, it's unknown. They clearly have an awful track record of handling things, but maybe that's just the Greenspan era.
Earnings season will commence soon - my game plan is to focus on how many companies beat earnings expectations and by how far.
HIGH TECHAMX – Trading near its 52 week high. We are looking at a 50% growth rate this year with a trailing 21 PE. Anti-recession play because everyone will use cell phones even in a downturn
CTSH – Pulled back significantly. They are expected to grow 40% plus with a forward P/E of 30, so they are not undervalued. Anti-recession play is weak here because IT spending will drop in a downturn, but I believe that their global expansion will offset any weakness. The market is negative on similar consulting stocks, so I have my doubts here. I’d like to sell ~$95.
NUAN – I think that they are undervalued relative to expected growth. Anti-recession play in the sense that their service is ubiquitous.
PWR – I like their expansion plans and the reach it will provide. Not really an anti-recession play but they are critical to long term roll-out plans by key US carriers.
TRID – Watch out. April 2nd (Monday) is the deadline for TRID to file its earnings statements or face delisting. TRID requested an extension on Jan 31st. There is no news.
On the one hand, TRID announced at the last earnings announcement that the options overhang issue was pretty much resolved. Meanwhile, 3 months and a pretty big deadline and no more news. I had assumed that they would respect the shareholders and get this done without needing to take it to the wire. They aren’t alone – virtually every other options-hit company is operating in silence. But I continue to be dismayed and disappointed.
What I find much more interesting – and indicative of a market manipulation – is the rampant negative press based on bad reporting. It’s as if someone wants to buy TRID cheap by pushing down shares.
* Motley Fool reports that TRID is overpriced at 8x sales. Actually, TRID is 4x sales. Pretty sloppy. And besides the point – this is a growth company, not an IBM. A strange need to reach so far to create negative spin. http://www.fool.com/investing/small-cap/2007/03/29/is-trident-worth-86-times-sales.aspx
* Forbes reports that TRID is losing ground to GNSS. Actually, the article is more nonsense. Sony and other buyers are not single source and have always bought from non-vendors. There were no facts in the article, so I am forced to ask: why the negative spin?
http://www.forbes.com/2007/03/23/genesis-trident-circuits-markets-equity-cx_af_0323markets28.html?partner=yahootixAny rumor could be true – Sony developing their own solution, GNSS providing a new and better chip. But the fact is that any competitive product will affect 2008 sales, not 2007. In order to meet production targets for the 2007 holiday season, those chips have to be ordered now, manufactured by summertime, and then built in. In other words, TRID has a headlock on 2007 chip sales and nothing can change that. That also leaves them as the team to beat for 2008.
I think that TRID raced up since last quarter on the double hopes of a resolution to the options overhang AND a possible acquisition. God knows that’s why I bought in.
UCTT – Felt good to buy UCTT even at a high. Probably a lot of folks like me buying in pre-earnings release.
OIL SERVICES/EQUIPMENTAs I predicted, crude is getting more expensive. That creates a positive environment for these stocks: if their customers are making bigger profits, then the customers should be willing to spend on infrastructure. Additionally, M&A activity has happened once recently (THE was bought) and lightning can strike twice. Wish I bought BTU as suggested last week.
All of these stocks are recession proof because they are in long-term contracts and because I believe oil isn’t dropping any time soon
ATW – They hit a 52 week high. A strong growth company which has been mostly under the radar. They are incredibly undervalued relative to their 1 year PEG ratio.
CLB – No news, not much stock movement.
ESV – ESV took delivery of a new major rig. That’s big – that means immediate revenue and earnings expansion for the next quarter.
MDR – They announced a $320M order for nuke parts, with a potential $1.4B more on the way. BTW their 12 month revenues are $3.2B. Expected 60% growth and a P/E of 23. Undervalued.
BIOTECHDIGE – Another group suggested more HPV testing. So far no official stance (AMA or CDC) calling for HPV testing.
HOLX – Hit by the report that MRIs are the best for mammographies. No doubt. MRIs are better than X-rays for broken bones, but that doesn’t mean doctors use them. HOLX is in the market for annual mammograms. MRIs would be used for follow-up - not for routine.
IMA – No news other than an upgrade from TheStreet.com
OTHER
KSU – Expectations are for a weaker Jan-June period for all train companies. KSU has a unique model that makes it stand out – even if near term numbers don’t yet reflect it. Scroll through the following excellent description.
http://www.forbes.com/2007/03/23/genesis-trident-circuits-markets-equity-cx_af_0323markets28.html?partner=yahootixSlide 19 shows their railroad routes. Slide 28 breaks out the importance of their Mexican route.
In addition to getting more traffic from the Mexican connection, KSU is managing the debt very well. Total debt is down ~$170M (10%) since 2005 and they are replacing expensive debt (10.25%) for cheaper debt (7.65%) That helps the margin out.
OCN – OCN received a boost to their ratings, which lowers borrowing costs. Other than that, they seem to be doing well.
PCP – I am waiting for the split announcement.
TIE – Still growing the business, stock still languishing. Looking at the future earnings makes TIE look like a slowing company: less than 10% growth YoY. In fact, last year’s number is inflated by a one-time gain from a sale. Removing that event, expectations are for a cool 35% growth.
-----------------------
Someone shared a great idea with me - shorting Harley Davidson (HOG).
They pointed out the degree of dependence on subprime loans for Harleys. That will hit their earnings in at leat 2 ways. They won't be able to qualify new buyers and they will be having a lot of bikes returned.
http://www.thestreet.com/_yahoo/markets/activetraderupdate/10347201.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NAThat link shows that delinquencies are up significantly.
Harley funded 50% of their bikes and 28% would qualify as subprime. In other words, 14% of their sales could get written off. And 14% of sales might never happen going forward. Ouch.
And that's just due to financing. Market dynamics are another negative. These are expensive toys and mostly sold to blue-collar workers. Those same blue collar workers are the first to get hit with the housing bust and recession. That affects not just demand but also supply: a lot of used Harleys will compete with new Harleys.
August $60 puts are $4 (stock is currently ~$59). Seems reasonable to me.
-----------------------
PCP is signalling a lot of positive momentum these days.
The $105 Sept Calls are ~$10. Wow - a 10% surcharge for 6 months. PCP growth has really kicked in since Sept. Prior to that, it was relatively flat for 6 months. It all depends on which 6 month period you happen to catch. PCP is undervalued (70% growth on a trailing 20 PE) so it's not as if the stock will drop precipitously.
Finishing the 1st quarter, we find that LR outperformed the market. We are up 3% versus a flat or negative stockmarket. And that is including the stop/loss debacle last month and this week's buy-in just before a pullback. I'm not unhappy, but I expect better from myself. I blame my slow response to being STOPPED out last month. As such, you will not see me adding stops this week.