LiveRocket Week 19 Performance - Up 2.5%

Either I have a lot more readers than I thought, or I was right this week more than once.
First, I said “UCTT I think will drift before firming up and rising again.” I was right about the drifting, and I’m waiting for the rising part.
Second, “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.” The market dropped ~2% the day after the Fed’s meeting.

My prediction next week is for a lot of short squeezing, pushing prices up a bit. But in general, it’s time to exit the market a bit and re-enter in late June. No, that is not the sell-in-May-go-away plan. We’re 2 weeks overdue for that. This is part of my theory that stocks drift post-earnings season and then they pick up again about 4 weeks before next earning season. That’s when the hedge funds put down their bets and buy in. Get in 6 weeks before earnings season starts in early July.

I also wonder about the Fed and interest rates. A lot of traders may stick around in case they need to move fast because the Fed drops rates.

Now for a quick review of our performance this week. We are up 2.5% against a flat market. That’s a big opposite from last week when we were flat and the market was up. However, while I should be pleased, I am not. Most stocks were down, with TIE, PCP and MDR the only ones pushing us up.
Several stocks have softened and we need to make some decisive moves.


HIGH TECH
AMX – Up 0.75% and another 52 week high. This is 3 weeks in a row that we’ve seen a new high.
CTSH – Down 3.9%. Horrible. It is drifting and we are now even for our investment. So much for driving to $95 and selling. The positives are that they are moving in synch with their peers like INFY. Also, they bounced off their 200 DMA, so they have reached a bottom.
NUAN – Down 1.7%. Nothing new. When you look beyond the pre-earnings run-up to $16.8, we have some positives. We are up 3% since pre-earnings. The lows are higher and we seem to be headed to a base of $16. Then it’s up from there.
PWR – Down 1%.
TRID– Down 2.9%. I am a true believer and I see nothing wrong with the company’s stellar performance, only with the stock price. That in turn is driven by the options overhang. I do think something criminal happened and they are doing their very best to postpone the day of reckoning. But so is every other company accused of the options backdating. Clear that up and this will be a $40 stock. So I’m going to wait.
Because sales are booming. WMT reported huge sales in flat panel TVs. I see no downside risk anymore, only upside. Accumulate if it sinks below $20.
UCTT – Down 3.6%. Well, the damage is done and there is no downside risk. Better yet, JP Morgan calls them overweight. Shorties are having a great time: ~13% of the shares are shorted. At some point this reverses and they get squeezed. Forget cut and run, I’m thinking of adding

OIL SERVICES/EQUIPMENT
I think the oil drillers and equipment companies have demonstrated strength and the market is trying to decide what’s next. Also, the petroleum reports are showing that the US oil consumption is up 5% in volume terms since last year.

ATW – Down 8%. They missed earnings by 7%, so that’s a reasonable correction. They hit a new 52 week high before earnings. I don’t care – this stock is incredibly undervalued. Besides, the stock surged 75% in 4 months, so some contraction is okay.
CLB – Down 1%. I’m not seeing the growth I want to see here. They are now on my Watch list for selling.
ESV – Down 0.5%
MDR – Up 20% on 2.5X average volume and a new 52 week high.

BIOTECH
DIGE – Down 9% and erasing our gains. This is dead in the water until or unless Europe or the US adopts the treatment for HPV. We are even here and we only put in $4K, so I am going to walk away and come back on a down day.
HOLX – Down 2.7%. A little post earnings pullback.
IMA – Up 3.5%. They upped their Biosite bid from $90 to $92.5.

OTHER
KSU – Up 0.5%
OCN – Up 0.5%
PCP – Up 5.3%.
TIE – Up 17.5%. I said that they would hit $0.41 and they did. Buyout rumors persist.

LiveRocket Week 19 Performance - Up 2.5%

Either I have a lot more readers than I thought, or I was right this week more than once.
First, I said “UCTT I think will drift before firming up and rising again.” I was right about the drifting, and I’m waiting for the rising part.
Second, “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.” The market dropped ~2% the day after the Fed’s meeting.

My prediction next week is for a lot of short squeezing, pushing prices up a bit. But in general, it’s time to exit the market a bit and re-enter in late June. No, that is not the sell-in-May-go-away plan. We’re 2 weeks overdue for that. This is part of my theory that stocks drift post-earnings season and then they pick up again about 4 weeks before next earning season. That’s when the hedge funds put down their bets and buy in. Get in 6 weeks before earnings season starts in early July.

I also wonder about the Fed and interest rates. A lot of traders may stick around in case they need to move fast because the Fed drops rates.

Now for a quick review of our performance this week. We are up 2.5% against a flat market. That’s a big opposite from last week when we were flat and the market was up. However, while I should be pleased, I am not. Most stocks were down, with TIE, PCP and MDR the only ones pushing us up.
Several stocks have softened and we need to make some decisive moves.


HIGH TECH
AMX – Up 0.75% and another 52 week high. This is 3 weeks in a row that we’ve seen a new high.
CTSH – Down 3.9%. Horrible. It is drifting and we are now even for our investment. So much for driving to $95 and selling. The positives are that they are moving in synch with their peers like INFY. Also, they bounced off their 200 DMA, so they have reached a bottom.
NUAN – Down 1.7%. Nothing new. When you look beyond the pre-earnings run-up to $16.8, we have some positives. We are up 3% since pre-earnings. The lows are higher and we seem to be headed to a base of $16. Then it’s up from there.
PWR – Down 1%.
TRID– Down 2.9%. I am a true believer and I see nothing wrong with the company’s stellar performance, only with the stock price. That in turn is driven by the options overhang. I do think something criminal happened and they are doing their very best to postpone the day of reckoning. But so is every other company accused of the options backdating. Clear that up and this will be a $40 stock. So I’m going to wait.
Because sales are booming. WMT reported huge sales in flat panel TVs. I see no downside risk anymore, only upside. Accumulate if it sinks below $20.
UCTT – Down 3.6%. Well, the damage is done and there is no downside risk. Better yet, JP Morgan calls them overweight. Shorties are having a great time: ~13% of the shares are shorted. At some point this reverses and they get squeezed. Forget cut and run, I’m thinking of adding

OIL SERVICES/EQUIPMENT
I think the oil drillers and equipment companies have demonstrated strength and the market is trying to decide what’s next. Also, the petroleum reports are showing that the US oil consumption is up 5% in volume terms since last year.

ATW – Down 8%. They missed earnings by 7%, so that’s a reasonable correction. They hit a new 52 week high before earnings. I don’t care – this stock is incredibly undervalued. Besides, the stock surged 75% in 4 months, so some contraction is okay.
CLB – Down 1%. I’m not seeing the growth I want to see here. They are now on my Watch list for selling.
ESV – Down 0.5%
MDR – Up 20% on 2.5X average volume and a new 52 week high.

BIOTECH
DIGE – Down 9% and erasing our gains. This is dead in the water until or unless Europe or the US adopts the treatment for HPV. We are even here and we only put in $4K, so I am going to walk away and come back on a down day.
HOLX – Down 2.7%. A little post earnings pullback.
IMA – Up 3.5%. They upped their Biosite bid from $90 to $92.5.

OTHER
KSU – Up 0.5%
OCN – Up 0.5%
PCP – Up 5.3%.
TIE – Up 17.5%. I said that they would hit $0.41 and they did. Buyout rumors persist.

LiveRocket Week 18 Performance - Up 2.5%

Either I have a lot more readers than I thought, or I was right this week more than once.
First, I said “UCTT I think will drift before firming up and rising again.” I was right about the drifting, and I’m waiting for the rising part.
Second, “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.” The market dropped ~2% the day after the Fed’s meeting.

My prediction next week is for a lot of short squeezing, pushing prices up a bit. But in general, it’s time to exit the market a bit and re-enter in late June. No, that is not the sell-in-May-go-away plan. We’re 2 weeks overdue for that. This is part of my theory that stocks drift post-earnings season and then they pick up again about 4 weeks before next earning season. That’s when the hedge funds put down their bets and buy in. Get in 6 weeks before earnings season starts in early July.

I also wonder about the Fed and interest rates. A lot of traders may stick around in case they need to move fast because the Fed drops rates.

Now for a quick review of our performance this week. We are up 2.5% against a flat market. That’s a big opposite from last week when we were flat and the market was up. However, while I should be pleased, I am not. Most stocks were down, with TIE, PCP and MDR the only ones pushing us up.
Several stocks have softened and we need to make some decisive moves.


HIGH TECH
AMX – Up 0.75% and another 52 week high. This is 3 weeks in a row that we’ve seen a new high.
CTSH – Down 3.9%. Horrible. It is drifting and we are now even for our investment. So much for driving to $95 and selling. The positives are that they are moving in synch with their peers like INFY. Also, they bounced off their 200 DMA, so they have reached a bottom.
NUAN – Down 1.7%. Nothing new. When you look beyond the pre-earnings run-up to $16.8, we have some positives. We are up 3% since pre-earnings. The lows are higher and we seem to be headed to a base of $16. Then it’s up from there.
PWR – Down 1%.
TRID– Down 2.9%. I am a true believer and I see nothing wrong with the company’s stellar performance, only with the stock price. That in turn is driven by the options overhang. I do think something criminal happened and they are doing their very best to postpone the day of reckoning. But so is every other company accused of the options backdating. Clear that up and this will be a $40 stock. So I’m going to wait.
Because sales are booming. WMT reported huge sales in flat panel TVs. I see no downside risk anymore, only upside. Accumulate if it sinks below $20.
UCTT – Down 3.6%. Well, the damage is done and there is no downside risk. Better yet, JP Morgan calls them overweight. Shorties are having a great time: ~13% of the shares are shorted. At some point this reverses and they get squeezed. Forget cut and run, I’m thinking of adding

OIL SERVICES/EQUIPMENT
I think the oil drillers and equipment companies have demonstrated strength and the market is trying to decide what’s next. Also, the petroleum reports are showing that the US oil consumption is up 5% in volume terms since last year.

ATW – Down 8%. They missed earnings by 7%, so that’s a reasonable correction. They hit a new 52 week high before earnings. I don’t care – this stock is incredibly undervalued. Besides, the stock surged 75% in 4 months, so some contraction is okay.
CLB – Down 1%. I’m not seeing the growth I want to see here. They are now on my Watch list for selling.
ESV – Down 0.5%
MDR – Up 20% on 2.5X average volume and a new 52 week high.

BIOTECH
DIGE – Down 9% and erasing our gains. This is dead in the water until or unless Europe or the US adopts the treatment for HPV. We are even here and we only put in $4K, so I am going to walk away and come back on a down day.
HOLX – Down 2.7%. A little post earnings pullback.
IMA – Up 3.5%. They upped their Biosite bid from $90 to $92.5.

OTHER
KSU – Up 0.5%
OCN – Up 0.5%
PCP – Up 5.3%.
TIE – Up 17.5%. I said that they would hit $0.41 and they did. Buyout rumors persist.

TIE Excitement

About 2 weeks ago I wrote about my suspicions that TIE was preparing for a buyout.
Right or wrong, others seem to share my thinking. TIE Buyout rumors are flying.

Adding fuel to the fire, TIE's assistant general counsel (not even th egeneral counsel) sai d that nothing had been said by Executives. That is not exactly a denial.

That plus a short squeeze will push this puppy up to $40.

So lets play the what-if game. If it gets bought, expect a minimum 20% on $38.50 or $45. It could go as high as 40% - $53.

I plan on riding this and setting $40 as my minimum if it crosses that threshold.

TIE Excitement

About 2 weeks ago I wrote about my suspicions that TIE was preparing for a buyout.
Right or wrong, others seem to share my thinking. TIE Buyout rumors are flying.

Adding fuel to the fire, TIE's assistant general counsel (not even th egeneral counsel) sai d that nothing had been said by Executives. That is not exactly a denial.

That plus a short squeeze will push this puppy up to $40.

So lets play the what-if game. If it gets bought, expect a minimum 20% on $38.50 or $45. It could go as high as 40% - $53.

I plan on riding this and setting $40 as my minimum if it crosses that threshold.

Quickies for the day

ATW - Missed earnings by 7%. Still doubled YoY and they now have a PEG of 0.18 and a P/E of 20. Most of the miss came from some rigs out of service.
My Take: They are growing and incredibly undevalued and things are still great. Short term weakness and then strength again. Will review in depth later

NUAN - Hit earnings target. Got an analyst upgrade and raised guidance by ~12%. It reversed the downward trend on strong volume. With 12% short ratio and an expiration date next Friday, I could see $17 next week. Many will point to debt load but that is a deliberate not accidental debt load: they are on an acquisition binge and it is paying off. Will review in-depth later.

MDR - It just keeps getting better.

TIE - Up huge today on rumors of a buyout. One advantage of Simmons owning ~50% of the company is that any buyout will go smoothly.

PCP - Slammed earnings. Life is good. Will review more in depth later

DIGE - Met expectations but down 5%. Now down below 50, 100 & 200 DMA.
My take: A little reverse of pre-earnings run-up. Business is booming and they are undervalued (45 P/E for 60%+ earnings growth).

CTSH - Below a critical line: under $80.

Preparing for tomorrow

I think today was a taste of what will happen tomorrow & Thursday after the Fed says no rate hike.

Our stocks could ease 5% or more and then move again in 6 weeks.
I think HOG, MAR, UA and CCL or RCL are ripe for PUTs.

HOG I've discussed previously - they will drop hard next earnings with a miss.

Anecdotal reports are confirming my suspicions that vacations will be cut back.

1. Marriott said business was slow. They are in a double bind because their timeshare business will be tanking with the rest of the real estate market. And they are slowing timeshare development anyway.

http://biz.yahoo.com/ap/070427/marriott_outlook.html?.v=3

2. Airplanes are finding seats aren't filling up.

http://www.reuters.com/article/reutersEdge/idUSN3042081420070430

3. And RCL reported that cruises to the Caribbean are soft. I would like to point out that the Caribbean is the destination of choice for working class cruiseship junkets. http://yahoo.reuters.com/news/articlehybrid.aspx?type=comktNews&storyID=urn:newsml:reuters.com:20070501:MTFH13345_2007-05-01_16-34-51_N01444512&pageNumber=1&imageid=&cap=&sz=13&WTModLoc=HybArt-C1-ArticlePage1

All of these companies suffer from a potential lack of customers. Cruise lines and airplanes are more exposed to a second bullet: higher fuel costs.

MAR - Down 12% already, but a bit further out and things will worsen.
AMR or UAUA - both look broken. I think AMR's fight with the pilot union could get nasty and hurt margins, so I'd choose them.
CCL or RCL - CCL has worse margins and higher P/E. I'd go with CCL

So the strategy is to buy puts to take advantage of any short term market pullback and also to simply acknowledge that 1 year out things will be bad. I would choose a strike price of 15% below current stock price to reflect a real pullback. Remember that you don't have to be in the money for the value to increase.

Looking at Jan 08 PUTs
MAR $40 - $1.40 (15% price drop before being in the money)
AMR $25 - $2.75 (20% price drop before being in the money)
CCL $40 - $1.10 (20% price drop before being in the money)
HOG $55 - $1.90 (18% price drop before being in the money)

Or you could buy the July puts for some real gambling
MAR $40 - $0.45 (12% price drop before being in the money)
CCL $40 - $0.20 (15% price drop before being in the money)
AMR Aug $25 - $1.65 (15% price drop before being in the money)
HOG Aug $55 - $0.75 (15% price drop before being in the money)

My preference is for the MAR puts and the HOG January puts.

Profit taking

As I expected, profit taking before the Fed's meeting.

It is relatively mild although our stocks are getting a 2% haircut. But the day is young

TIE beats expectations

I was right: they hit $0.41.
Here's the breakdown
* Sales up 19%
* Earnings up ~30% and beat expectations by 10%. The major driver: the higher ASPs I mentioned. ASPs are 20% and 37% higher than last year.
* Costs increased - something I need to investigate
* Backlog remains ~$1B

I was wrong about the sponge production: that started April and will be additive this quarter. They beat expectations purely on higher ASPs and greater factory utilization: they are now operating at 95% capacity.

TIE is fairly valued based on existing sales: PE ~26 versus EPS growth of 30% (exlcuding one time events). Going forward, however, it's a completely different story.

Scenario #1 - flat EPS.
That's $1.64 in by year end or P/E 22
Keeping the P/E of 26 would mean a stock price of $43

Scenario #2 - Sponge adds $0.02 EPS per quarter
At $22M production per quarter of sponge and a 12% net profit margin, we could get $0.02 more EPS.
EPS = $1.73 or P/E 20
Keeping the P/E of 26 would mean a stock price of $45

Shorts may push this up a bit: 11% short ratio with 12 days to go.

Longer term, I see $40+ within 6 months, but the upside here is limited until then. Fast and furious growth is gone for a while. It really depends on the market willing to recognize the future growth 9 months from now or whether they will be short term focused.

The question is, do we sit tight for a $45 price 9 months from now.

NUAN news

Logitech is getting into voice recognition equipment
http://www.pcmag.com/article2/0,1895,2126061,00.asp
Interestingly enough, the NUAN Chairman and former CEO sits on Logitech's Board of Directors.

I suspect that they are using NUAN software - it is being used as the standard. The timing of the release is interesting - just prior to NUAN's earnings release.

In any case, it just points to the significance of NUAN.

MDR Obliterates Earnings

It's hard not to get too excited about MDR. I've been gung ho about this stock for a long time, talking about it and even admittedly whining about it when it wouldn't rise.

Well, it has hit with a vengeance.
* Revenue up 100%+ and beat expectations by 9%
* Earnings up 182% and beat expectations by 84%

It's all about strong and growing margins. They have pricing control: backlog grew from $5.9B to $7.9B. That's 18 months of sales at current levels.

Where does it go from here? until 2 weeks ago, it had an 18 P/E and a 16 forward P/E. (yeah, an 18 P/E with 200% growth). It will be $66 to keep to the 18 P/E. But the forward EPS will probably be revised up to $4.50. That's $70.

Stock split soon.

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