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Sunday, 11 March 2007
Quality Systems (QSII) "Weekend Trading Portfolio Analysis"

 

 

 

 

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website. 

I try to accomplish several things at one time on this blog.  My main goal is to see if I can enhance my own ability and skills at 'picking stocks' that might lead to future price appreciation.  I do this with the many 'stock picks' that I write about on this website. As I just did, I try each weekend to review my past stock picks, find out how they turned out, and try to determine if there is anything else I could have done to help identify further stocks of interest.

In addition to my 'generic' review, I also manage an actual Trading Portfolio.  I now have 16 stocks and when I trade them I try very hard to remember to quickly post a note that I call "trading transparency" to keep you, the reader, informed of what I am actually doing in real life.  Sometimes my trades make me look smart, other times I am taking losses as I just recently did with my WOOF stock.  

As I manage my portfolio, I continue to develop my own peculiar trading rules.  And again, this is something that I write about frequently on the blog.  The 'when to buy' and the 'when to sell' thinking.  And how I use these sales on either 'good news' or 'bad news' to direct me in how I manage my overall portfolio 'posture'.  The discipline of having rules has been quite helpful to me and the fact that I am now responsible to you, the reader, has kept me sticking to these rules.  I cannot tell you how many times I have felt like selling a stock when the market was gloomy, or when I wanted just to buy something and held back (even when I bought Kendle outside of the rules, this resulted in a loss and was another tough pill for me to swallow---but I shared even these moments when I strayed from the rules with you!).

Anyhow, as part of my weekend 'homework' around here, I have been trying on intervals to go through my actual trading portfolio and give myself as well as all of you an update on my actual holdings.  

After my sale of WOOF, I am back to 16 positions.  My maximum remains 25, and my minimum is 6.  I shall not go above 25 or below 6.  When I sell a stock at a gain and hold 25, proceeds will go to cash.  And when I sell one of the last 6 at a loss, instead of 'sitting on my hands' I plan on re-investing in a new position, if I ever get to that point.  Every couple of weeks or so, I have been reviewing my portfolio, going alphabetically through my list of holdings.  Last month, on February 17, 2007, I reviewed Precision Castparts (PCP) on Stock Picks Bob's Advice.  Going alphabetically, I am up to Quality Systems (QSII), one of my most successful investments since I started utilizing my current strategy and writing my blog.

Currently I own 88 shares of Quality Systems (QSII) which I purchased with a cost basis of $7.75 on July 28, 2003.  QSII closed at $39.05 on March 9, 2007, for an unrealized gain of $31.30 or 403.9% since my purchase.  I have now sold portions of Quality Systems nine times, representing partial sales at 30, 60, 90, 120, 180, 240, 300, 360, and 450% appreciation levels.  Thus, on the upside, my next partial sale which would be 88 x 1/6 = 14 shares, would be at a 540% appreciation or 6.4 x $7.75 = $49.60.  On the downside, having already sold a portion at a 450% gain, I would sell all remaining shares if the stock should decline to 1/2 of that level or to a 225% gain, which calculated works out to 3.25 x $7.75 = $25.19.

I first reviewed Quality Systems on Stock Picks Bob's Advice on July 28, 2003, when it was trading at $30.67.  Adjusted for two 2:1 stock splits, that works out to a pick price of $7.67. Let's take another look at Quality Systems (QSII) and see if it still deserves a big 'thumbs up' on this blog!

What exactly does this company do?

According to the Yahoo "Profile" on QSII, the company

"...and its subsidiary NextGen Healthcare Information Systems, Inc. engage in the development and marketing of healthcare information systems that automate medical and dental practices, physician hospital organizations and management service organizations, ambulatory care centers, community health centers, and medical and dental schools. It offers proprietary electronic medical records software and practice management systems under the NextGen3 product name."

How did they do in the latest quarter?

On February 5, 2007, Quality Systems (QSII) announced 3rd quarter 2007 results.  For the quarter ended December 31, 2006, net revenues came in at $38.5 million, up 44% from the $26.8 million in the same quarter the prior year.  Net income was $8.7 million, up 81% over the net income of $4.8 million reported last year.  Fully diluted eps came in at $.32/share, up 78% over the $.18/share reported last year.

Within the report was a pertinent comment about the fact that the SEC was examining the Chief Financial Officer's trading record.  The company beat expectations on earnings which were expected at $.30/share, and came in slightly light on revenue, which had been estimated by analysts at $39 million.

How about longer-term results?

If we review the Morningstar.com "5-Yr Restated" financials, we see a very pretty picture.   Revenue, which was $44 million in 2002, has steadily increased to $119 million in 2006 and $148 million in the trailing twelve months (TTM).

Earnings, which were $.21/share in 2002, have steadily increased, quadrupling to $.85/share in 2006 and quintupling to $1.17/share in the TTM.

The company even initiated dividends in 2005, paying $.75/share, and increased it to $.88/share in 2006.   Meanwhile, the shares have been relatively stable, increasing from 24 million in 2002 to 27 million, a little over a 10% increase in the shares outstanding while revenue was up over 200%, and earnings were up over 400%.  I can handle this level of dilution!

Free cash flow has been essentially positive and growing with $16 million in 2004, $20 million in 2005, $28 million in 2006, and a slight dip to $26 million in the TTM.

The balance sheet is solid with $80.4 million in cash, which by itself can easily cover the $54.8 million in current liabilities and the $2.8 million in long-term liabilities combined with literally millions left over.  Calculating the current ratio, when comparing the total current assets of $147.4 million to the $54.8 million in current liabilities, we find a solid ratio of 2.69.

What about some valuation numbers?

Checking the Yahoo "Key Statistics" on Quality Systems we find that this stock is a small mid cap stock with a market capitalization of $1.05 billion.  (The definition of mid cap stocks vary, but this one suggests a market capitalization of $1 billion to $5 billion).  The p/e is a bit rich at 33.21, but the forward p/e is 25.89 (fye 31-Mar-08 estimated).  Thus, with the rapid growth, as reported even in the latest report above, the PEG (5 yr expected) works out to a very reasonable .97.  (1.0 to 1.5 is acceptable to me.)

Checking the Fidelity.com eresearch website, we find that relative to the Price/Sales (TTM), this stock is richly valued with a Price/Sales (TTM) of 7.11, compared to an industry average of 5.31.  However, the company is far more profitable than the average of its group, when measured by the Return on Equity (TTM).  ROE for QSII works out to a 36.50%, compared to the industry average of 19.01%.

Finishing up with Yahoo, we find that there are 26.98 million shares outstanding with 17 million that float.  Currently, as of 2/12/07, there are 4.33 million shares out short representing 25.20% of the float or 10 trading days of volume.  Using my own 3 day rule for significance, this looks to be a lot of shares that have already been sold betting on some bad news, most likely related to the CFO investigation reported by the company.  If the company, however, comes in with good news instead, there is likely to be a lot of buying pressure as these short-sellers scramble for the exits, rushing to buy shares to close out their short positions.

As noted the company is paying a trailing dividend of $1.00, yielding 2.6%.  The last stock split was a 2:1 split on March 27, 2006.

What does the chart look like?

Looking at a "Point & Figure" chart on QSII from StockCharts.com, we can see the incredible strength shown in this chart.  Recently under a little bit of pressure from the cloud hanging over the company from the possible SEC investigation of the CFO, the stock still remains well above its support level. I have included the points at which I have made my partial sales of this stock as it hit my appreciation targets.


All of these sales may seem a little odd, but they are the result of a disciplined strategy of selling gaining stocks slowly and partially as they hit appreciation targets set at the time of purchase.

Summary: What do I think?

Well, this is a fabulous stock.  Of course, I own shares so please take that into consideration.  I suspect the CFO news is a non-story but I have no information on this and this is something that should be taken into consideration.  The latest quarter was fabulous.  I love the electronic medical record field as healthcare facilities are all moving from paper to paperless records.  I also own some shares in Cerner which is another company in this field.  The Morningstar.com report is beautiful, and the valuation is nice with a PEG under 1.0, a ROE that is higher than its peers but the Price/Sales is indeed a bit rich.

In summary:

I STILL RATE QUALITY SYSTEMS AS A BUY

Thanks so much for stopping by and visiting my blog!  Please remember that I am an amateur and that past performance of any stock or even any investor (!) is no indication of future success.  If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.  If you get a chance, be sure and visit my Stock Picks Podcast Website.  If I get a chance :), then maybe I will be able to post another podcast later this week.

Bob 


Posted by bobsadviceforstocks at 11:13 PM CST | Post Comment | View Comments (6) | Permalink
"Looking Back One Year" A review of stock picks from the week of October 24, 2005

 

 

 

 

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

The weekend is almost over :( and I haven't yet written up my review!  I don't want to get another week behind!  I have had a few questions about 'how come you say looking back ONE year and it is almost like a year-and-a-half?'  Needless to say, the answer is unfortunately self-explanatory.  I get busy.  One thing leads to another and YIKES I don't get to the write-up.  (When I tell you I am an AMATEUR blogger...I am not kidding!)

But seriously, these 'weekend reviews' help me and help you assess the usefulness of what I write on this website.  In addition, hopefully we can learn from which of these picks worked and which didn't.

As I have pointed out elsewhere, these reviews also depend on a 'buy and hold' approach to investing, which assumes that an investor actually bought all of the stocks discussed on the blog that week, investing equal dollar amounts, and let the investment sit.  In practice, I employ and advocate on this blog a disciplined approach to investing that is quite different that this 'buy and hold' system.  I use the 'buy and hold' approach for this review frankly because it is a retrospective look at stocks and it is simpler to assume I bought and held than determining the effect of a portfolio management system on the results.  However, the difference in the investment strategy would certainly affect final results---hopefully, but not necessarily, for the good.

On October 24, 2005, I 'revisited' K-Swiss (KSWS) which was, at that time, trading at $32.71/share.  KSWS closed at $28.20 on March 9, 2007, for a loss of $(4.51) or (13.8)%.

On February 22,  K-Swiss reported 4th quarter 2006 results. Revenues for the quarter ended December 31, 2006, increased 1.7% to $93.8 million, compared with $92.3 million in the same quarter the prior year.  Net earnings, however, decreased to $10.7 million or $.30/diluted share, down from $11.6 million or $.33/diluted share the prior year.

The company also offered what I would view as discouraging guidance for 2007:

"The Company's estimates for the first quarter of 2007 and full-year 2007 reflect a significant decline in domestic revenues; substantial investments in product development and marketing for the K-Swiss brand, including a retail strategy; continued expansion of international operations; and continued investment in the Royal Elastics brand. The estimates are based upon the following assumptions: domestic revenues will decline approximately 30% for the year; gross margins will be approximately 46%; SG&A will not rise above $40 million for the first quarter of 2007 or $152 million for the full-year 2007; our tax rate will approximate 20%; customer order cancellations will be moderate; and the Company's growth initiatives with respect to Royal Elastics will not exceed a net loss of $0.11 per share for the full year."



From this perspective,

K-SWISS IS RATED A SELL

On October 24, 2005, I "revisited" Simpson Manufacturing (SSD) on Stock Picks Bob's Advice when the stock was trading at $38.01.  SSD closed at $31.11 on March 9, 2007, for a loss of $(6.90) or (18.2)%.

On February 1, 2007, Simpson announced 4th quarter 2006 results.  For the quarter ended December 31, 2006, net sales decreased 11.9% to $179.6 million as compared to net sales of $203.9 million for the same quarter in the prior year.  Net income declined 13.4% to $18.7 million in the 2006 final quarter compared to $21.6 million in the same quarter in 2005.  On a diluted per common share basis this worked out to $.38/share in 2006 down from $.44/share in the fourth quarter of 2005. 

The company failed to meet expectations.  Analysts had been expecting earnings of $.40/share on revenue of $189 million.  Simpson missed on both counts.


Due to the poor earnings results, failing to meet expectations on both revenue and earnings, and the poor technical appearance of the chart,

SIMPSON (SSD) IS RATED A SELL.


On October 25, 2005, I posted Rimage (RIMG) on Stock Picks Bob's Advice when the stock was trading at $28.62.  RIMG closed at $26.30 for a loss of $(2.32) or (8.1)% since posting.

On February 26, 2007, Rimage (RIMG) announced 4th quarter 2006 results.  For the quarter ended December 31, 2006, revenue came in at $30.5 million, up 26% from $24.3 million in the same quarter in 2005.  Net income increased 57% to $3.6 million or $.34/diluted share, up from $2.3 million or $.22/diluted share in the same quarter the prior year.  These results exceeded the company's own previous guidance.

With the outstanding earnings report, the great "point & figure chart" from  StockCharts.com, even though I am showing a loss on this stock the RIMAGE IS STILL RATED A BUY.


On October 26, 2005, I "revisited" Digital Insight (DGIN), when the stock was trading at $28.99.  On December 1, 2006, it was announced that Intuit would acquire Digital Insight for $1.35 billion or $39.00/share.  This worked out to a gain of $10.01 or 34.5% since posting. 


On October 27, 2005, I "revisited" ASV (ASVI) on Stock Picks Bob's Advice when the stock was trading at $23.02.  ASVI closed at $15.19 on March 9, 2007, for a loss of $(7.83) or (34)% since posting.

On March 7, 2007, ASVI announced 4th quarter 2006 results.  For the quarter ended December 31, 2006, sales declined to $46.1 million from $66.0 million in the same period a year earlier. Net earnings were down even more sharply at $2.4 million compared with $8.2 million, or $.09/diluted share vs. $.29/diluted share in the 4th quarter 2005.


With the weak earnings report and the weak technical appearance of the "point & figure" chart from StockCharts.com, I would have to say that

ASV INCORPORATED (ASVI) IS RATED A SELL

The last stock I discussed that week was Micros (MCRS) which I posted on Stock Picks Bob's Advice on October 28, 2005, when the stock was trading at  $45.82.  MCRS closed at $54.18 on March 9, 2007, for a gain of $8.36 or 18.2% since posting.

On January 25, 2007, Micros (MCRS) announced 2nd quarter 2007 results.  Revenue increased 15.8% to $189.9 million from $164 million in the same quarter the prior year.  Net earnings were $18 million, up from $14.2 million or $.44/share, up from $.35/share in the same period last year.

The company beat revenue expectations of $188 million, but, if stock-based compensation expenses are included, missed earnings expectations of $.48/share.  However, without these one-time expenses (I am not sure whether analyst expectations included these or not), earnings would have also beaten expectations at $.49/share.


In light of the outstanding earnings report and the nice technical appearance of the "point & figure" chart on MCRS from StockCharts.com,

MICROS IS RATED A BUY.

So how did I do during this week in October, 2005?  Pretty mediocre.  I had an average loss of (3.6)% for the week's picks with four stocks showing declines after I picked them and two showing gains.  

Thanks so much for stopping by and visiting my blog!  If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.  If you get a chance, be sure and visit my Stock Picks Podcast Website.

Bob 


Posted by bobsadviceforstocks at 8:39 PM CST | Post Comment | Permalink
Dave Johnson Returns to the Blogosphere!

Two months ago I gave Dave Johnson, who has written at DayveJohnson on the Markets a farewell speech.  I cannot tell you how many times I have looked at my own blog and figured I might just be better 'packing it up'.  So I could completely empathize with him.  But I hoped he just might return to write and add to the world of financial blogging with his honest and insightful perspective.  Well he has.

I was happy to see a comment the other day from Dave who dropped by and alerted me to his new website where he has joined forces from John (from Texas) to blog at The Trading Digest.  Welcome Back Dave!

So if you are a loyal reader to this blog, drop by and say hello to Dave and John the Connecticut and Texas partnership, and tell them Bob from Wisconsin says hello!  Good-luck Dave and be sure and drop by here from time to time and add some of your Connecticut perspective to what I write!

Bob 


Posted by bobsadviceforstocks at 7:46 AM CST | Post Comment | View Comments (1) | Permalink
Saturday, 10 March 2007
Middleby (MIDD) "Revisiting a Stock Pick"

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on this website.

I was looking through the list of top % gainers on the NASDAQ yesterday and came across an 'old favorite' of mine, Middleby Corporation (MIDD), which closed at $123.96, up $12.68 or 11.39% on the day.  I do not own any shares of this company nor do I have any options on the stock.

When I write 'old favorite' I mean that I have looked at this stock previously on this blog.  Generally, my policy is to wait 12 months or close to that prior to reviewing a stock again.  When I do re-examine a stock, I call it "revisiting a stock pick."  Some of my best stock picks show up again and again on the list of top % gainers as they move higher in price.

I first posted Middleby (MIDD) on Stock Picks Bob's Advice on July 29, 2005, when MIDD closed at $69.86/share.  With yesterday's close at $123.96, this represents a gain of $54.10 or 77.4% since I first posted this stock a little under two years ago!  I believe the stock still is worthy of a place on this blog, so let's take another look at this stock!

What exactly does this company do?

According to the Yahoo "Profile" on Middleby, the company

"...through its subsidiaries, engages in the design, manufacture, marketing, distribution, and service of a broad line of cooking equipment and related products in the United States. The company operates in three segments: Commercial Foodservice Equipment, Industrial Foodservice Equipment, and International Distribution."

How did they do in the latest quarter?

As I commonly point out on the blog, this stock soared because of the earnings report which was released after the close of trading on Thursday.  On March 8, 2007, Middleby announced 4th quarter 2006 results.  For the quarter ended December 30, 2006, net sales increased 27.8% (even excluding acquisitions, sales still increased 13.3% in the quarter).  Sales came in at $98.3 million this year vs. $76.9 million last year.  Net earnings came in at $11.1 million this year vs. $7.2 million in the same quarter the prior year.  On a diluted per share basis this worked out to $1.34/share in the 4th quarter 2006, vs. $.88/share in the same quarter last year.  

The company beat expectations with this report. 

What about longer-term financial results?

Reviewing the Morningstar.com "5-Yr Restated" financials on MIDD, we find that the stock has had steady revenue growth from $103.6 million in 2001 to $316.7 million in 2005 and $359.5 million in the trailing twelve months (TTM).

Earnings have also been steadily increasing from $.18/share in 2001 to $3.98/share in 2005 and $4.39/share in the TTM.  The company apparently did pay a dividend in 2003 and 2004 but no dividend is reported on Morningstar.com since.  Outstanding shares have been steady with 9 million in 2001 and 8 million in the trailing twelve months.

Free cash flow has been positive with $29 million reported in 2003, $17 million in 2004, $41 million in 2005 and $40 million in the TTM.

The balance sheet, as reported on Morningstar.com, appears adequate with $3.2 million in cash and $109.7 milllion in other current assets.  This total of $112.9 million in current assets, when compared to the $94.1 million in current liabilities works out to a current ratio of  1.27.  In addition, the company has $109.5 million in long-term liabilities.

What about some valuation numbers on this stock?

If we refer to Yahoo "Key Statistics" on Middleby, we find that the company is a small cap stock with a market capitalization of $984.24 million. The trailing p/e is a moderate 26.50 with a forward p/e (fye 31-Dec-07) of 21.41.  The PEG is a reasonable 1.59. 

Checking the Fidelity.com eresearch website, we find that Middleby is a bit richly valued insofar as the Price/Sales ratio is concerned, coming in with a ratio of 2.44 (Price/sales TTM), compared to an industry average of 1.34.  However, the company is also more profitable than average when viewed from the return on equity (ROE) perspective.  The ROE (TTM) for MIDD comes in at 54.37% vs. an industry average of 22.81%.

Returning to Yahoo we find that there are 7.94 million shares outstanding with 7.15 million that float.  Of these, as of 2/12/07, there were 830,630 shares out short representing a significant (imho) 11.4 trading days of volume.  (higher than my arbitrary 3 day rule for significance).  Thus with good news, the 'stage is set' so to speak for a squeeze of the shorts in face of strong earnings reported.  No dividends and no stock splits are reported on Yahoo.  

What does the chart look like?

If we review a "Point & Figure" chart on Middleby on StockCharts.com, we can see that the stock has been moving ahead fairly strongly since late 2004 with aperiod of consolidation through much of 2006.  The stock is on the upswing again and the chart appears encouraging to me.


Summary:  What do I think about this stock?

In a word, this was a GREAT stock pick in 2005 and still looks nice today!  Middleby reported a terrific earnings report that beat expectations, they have had at least five years of strong financial results, and valuation appears reasonable with a bit of a steep Price/Sales but a strong Return on Equity.  The p/e is moderate and the PEG is just a little over 1.5.  Free cash flow looks nice and the balance sheet is reasonable.  Finally, there are a significant number of short-sellers on this stock, and with the great earnings report, the 'stage is set' for an unwinding of those positions and significant buying of shares to cover the short sales.

Thanks again for stopping by and visiting!  If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.  If you get a chance, be sure and visit my Stock Picks Podcast Website where I discuss many of the same stocks I write about here on the blog.

Bob  


Posted by bobsadviceforstocks at 10:16 PM CST | Post Comment | View Comments (1) | Permalink
Monday, 5 March 2007
A Reader Writes "Do you trade stocks according where we are in the current business cycle?"

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisors prior to making any investment decisions based on information on this website. 

I was delighted to receive an email from Marcus A. L. who had some questions about my investing strategy.  Marcus wrote:

"Hello Bob,

   I've been reading your extensive web site for over a year now. The 8% rule is wonderful; it take a lot of the emotion out of the trading process. I want to know how do you feel about the trading with business cycle? Do you trade stocks according where we are in the current business cycle? Keep up the great work.
 
Thanks,

Marcus A L"

First of all Marcus, thanks so much for writing and taking the time to drop me a line.  You raise an excellent question about investing, taking into consideration our position in the "business cycle".  A lot of thought has gone into this approach.  In fact, looking through the internet for an explanation of this, I found this comment from "Tradingonlinemarkets.com":

"As the economy grows and expands the Federal Reserve usually raises interest rates to try to control inflation. When the economy contracts the Federal Reserve will lower interest rates to try to stimulate demand by lowering the costs of borrowing. If you hear that the Federal Open Market Committee (FOMC) has raised or lowered rates, they are actually raising or lowering the federal funds rate for banks. The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight.

The business cycle has implications for markets and investors. Broadly, a recession often corresponds with a sustained period of weak stock prices, or a bear market. And a healthy, expanding economy that keeps inflation from rising too quickly often corresponds with a bull market, or period of sustained market growth.

Fortunately, there are investment strategies for all parts of the cycle, thanks to the diverse economy we have. Companies that do well when the economy is experiencing good times are called cyclical stocks. Industries that fall under this group include travel and leisure companies, airlines, consumer electronics firms and jewelry makers. Companies that make goods that are necessities, such as food and health care are called non-cyclical stocks. These stocks tend to provide more stability during an economic downturn. During an economic expansion one should invest in cyclical stocks. On the other hand during an economic contraction one should consider investing in non-cyclical stocks."

It is this philosophy that will often drive commentary about different stocks as discussed by analysts on CNBC or elsewhere.  They may say we are "late in the cycle" or that "cyclical stocks are best now...." etc.  These assessments may well be useful and be profitable advice that should be heeded but that is not how I structure my own activity.

I do not preclude the investment in cyclical stocks.  But in practice, I do avoid stocks that I consider tied to commodity prices.  Recently I made an exception with Bolt (BTJ) which is clearly moving in tandem with oil prices.  Gold stocks will also tend to follow the price of the underlying metal closely.

My approach is to stay with stocks that are generating consistency in their financial results regardless of the point that we may be in the "cycle".  However, with my "Zen approach" of allowing stocks that are moving higher to attract my attention, sort of allowing them to come to me rather than me figuring out which stocks to "pick", if those particular stocks are indeed strong relative to the market due to the underlying business cycle, then those stocks may well show up on my blog.

My purchases of stocks are dependent on my own portfolio developing a "signal" to add a new stock by the partial sale of an existing position at an appreciation target--and the simultaneous appearance of an acceptable investment on the top % gainers list.  This semi-random selection process will open up new stocks for me to consider.  

However, when I do have a "permission slip" to buy a new stock, I always reserve the right to choose which stock to buy when several are eligible.  This small "wiggle room" allows me to bias my purchase to stocks I feel may represent the greatest promise by whatever personal prejudice or preference I may hold.  I recognize this, and generally bias myself towards names that are already stocks I am familiar with, what I call "part of my vocabulary".

To answer your question, I suppose that if stocks that are doing well are indeed responding to the business cycle, then my system will also pick up those stocks.  However, I do not try to anticipate moves in stock groups or sectors; rather, I like to respond to their developing momentum with developing interest on my part.

I hope that answers your question.  If you have any other questions or comments, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com. If you get a chance, please feel free to drop by and visit my Stock Picks Podcast Website!

Bob 

 


Posted by bobsadviceforstocks at 10:57 PM CST | Post Comment | View Comments (1) | Permalink
"20 Questions" on "Gannon on Investing"

I had the pleasure of being interviewed by Geoff Gannon, a value investor who is also a value investor advocate who blogs on "Gannon on Investing" and also does a podcast.

Thank you Geoff!  Visit Gannon on Investing to read this post.

Bob


Posted by bobsadviceforstocks at 10:25 PM CST | Post Comment | Permalink
VCA Antech (WOOF) "Trading Transparency"

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisors prior to making any investment decisions based on information on this website.

A few moments ago, as I have been commenting about here on the blog, my VCA Antech (WOOF) passed an (8)% loss position, and I sold my 180 shares, that I recently purchased, at $35.88.   I had purchased these shares on February 22, 2007, at a cost basis per share of $39.21.  With this sale, this represented a loss of $(3.33) or (8.5)% since purchase.  I don't care how much I like this stock---a lot---rules are rules.  And out the shares went.  Especially with my heavy margin, I cannot afford to bend my trading rules and need to raise cash when stocks hit their sale points on the downside.

Fortunately, this is the first sale at a loss in this correction.  Another recent purchase Harris (HRS) is also flirting with a sale and if it hits that 8% level, out it will go!  As is my strategy, since this is a sale on "bad news", this does not entitle me to buy a replacement stock but requires, since I am above my minimum of 6 positions (now at 16) to 'sit on my hands' and use the money to either add to my cash position (or in my case to pay down some of the margin!).

Thanks again for visiting!  If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.  If you get a chance, be sure and visit my Stock Picks Podcast Website!

Bob 


Posted by bobsadviceforstocks at 12:28 PM CST | Post Comment | View Comments (2) | Permalink
Saturday, 3 March 2007
"Looking Back One Year" A review of stock picks from the week of October 17, 2005

 

 

 

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website. 

One of the tasks I assign myself each weekend is to review past stock picks.  I want to find out if these picks would have been successful if I had actually purchased them (I only pick a few of the many stocks discussed on this blog to actually purchase for my own Trading Account.)  This review assumes a "buy and hold" strategy.  In fact, I practice and advocate something quite different--a strategy that involves selling losing stocks quickly and completely and gaining stocks partially and slowly.  This difference in strategies would certainly affect the performance evaluation.  I have been using the 'buy and hold' evaluation assumption simply for the ease in evaluating past stock picks.

On October 18, 2005, I posted Graco (GGG) on Stock Picks Bob's Advice when the stock was trading at $35.89.  Graco closed at $39.60 on March 2, 2007, for a gain of $3.71 or 10.3% since posting.  

On January 29, 2007, Graco reported 4th quarter 2006 results.  For the quarter ended December 29, 2006, net sales increased 10% to $203.4 million.  Net earnings increased to $35.6 million from $32.3 million last year, and diluted earnings per share grew to $.52/share, up from $.46/share last year.

The company met analysts' expectations of $.52/share, but came in a bit light of expectations on revenue of $205.8 million. 

 

On October 18, 2005, I posted Pharmaceutical Product Development on Stock Picks Bob's Advice when the stock was trading at $62.26 as a "revisit".  The first time  I had written up PPDI, was on October 16, 2003, when the stock was trading at $29.16.  I do not currently hold any shares or options on this stock.  PPDI underwent a 2:1 split on March 1, 2006, making the latest pick price effectively $31.13.  In a strange coincidence (?), PPDI closed at $31.13 on March 2, 2007, unchanged, from the prior post a bit more than a year ago.





On February 5, 2007, PPDI reported 4th quarter 2006 results.  Net revenue came in at $327.0 million for the quarter ended December 31, 2006, a 19.1% increase over net revenue of $274.6 million for the same quarter in 2005.  Net income increased sharply to $41.6 million from $30.5 million in the same period last year.  On a diluted eps basis, this came in at $.35/share, up from $.26/share last year.

The company beat expectations in the latest quarter which according to Thomson Financial, analysts had been expecting profit of $.33/share on revenue of $299.6 million. 

 

On October 19, 2005, I posted The Cheesecake Factory (CAKE) on Stock Picks Bob's Advice when it was trading at $34.88.  CAKE closed at $26.68 on March 2, 2007, showing a decrease of $(8.20) or (23.5)% since posting.

 


On February 6, 2007, The Cheesecake Factory reported 4th quarter 2006 results.  For the quarter ended January 2, 2007, revenue came in at $360.7 million, an 18% increase from the fourth quarter of 2005 when revenue was $328.6 million.  Net income, however, dropped to $20.4 million in this year's fourth quarter compared with $22.6 million in last year's 4th quarter.  On a per share diluted basis this worked out to $.26/share this year, down from $.28/share last year.

On October 21, 2005, I posted SanDisk on Stock Picks Bob's Advice when it was trading at $56.45/share.  SanDisk (SNDK) closed at $37.84/share on March 2, 2007, for a decrease of $(18.61) or (33.0)% since posting.

On January 30, 2007, SanDisk (SNDK) reported 4th quarter 2006 results.  For the quarter ended December 31, 2006, revenue climbed 55% to $1.164 billion, compared with $750.6 million in the year-ago same quarter.  Net income however, dropped to a loss of $(35.1) million, compared with an income of $133.9 million last year.  On a diluted per share basis this worked out to a loss of $(.17)/share, compared with an income last year of $.68/share.

So how did I do with these four picks from that week in October, 2005?  Mediocre in a word!  In fact, the overall performance for these stocks, assuming an equal dollar purchase of each and a buy and hold strategy, works out to an average loss of (11.55)% on these stocks.  It was certainly a difficult week for me picking stocks!  Just goes to show that I am quite capable of picking stocks that lose money, and that it is imperative to have a strategy to limit losses to enhance your overall returns.

Thanks so much for stopping by!  If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.  If you get a chance, be sure and stop by and visit my Stock Picks Podcast Website where you can get a chance to listen to me discuss many of the same stocks I write about on the blog.

Have a great week trading everyone!

Bob 


Posted by bobsadviceforstocks at 10:12 PM CST | Post Comment | Permalink
Updated: Sunday, 4 March 2007 8:09 PM CST
Friday, 2 March 2007
Superior Energy Services (SPN)

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!   As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisors prior to making any investment decisions based on information on this website.

While this bear market correction continues, I still want to use each trading day to identify stocks that are 'high quality' companies which fit into my own trading strategy.  While not in the market to be buying anything, and actually close to the sale point on a few stocks on the downside, I plan on continuing to expand my 'vocabulary' of investable companies, so that when the opportunity should arise, I shall be more literate in the investing world and ready to act in a knowledgeable fashion. 

Looking through the list of top % gainers on the NYSE this afternoon, I came across Superior Energy Services (SPN), which closed at $32.72, up $1.47 or 4.70% on the day.  I do not own any shares nor do I have any options on this company.  I do believe that it meets many of the factors I use in selecting stocks and wanted to briefly share it with all of you.

What exactly does this company do?

According to the Yahoo "Profile" on Superior, the company

"...provides oilfield services and equipment focusing on serving the drilling and production-related needs of oil and gas companies primarily in the United States. It operates through five segments: Well Intervention Services, Rental Tools, Marine Services, Other Oilfield Services, and Oil and Gas Operations."

How did they do in the latest quarter?

Just this past Monday, on February 26, 2007, the company reported 4th quarter 2006 results.  For the quarter ended December 31, 2006, revenue almost doubled at $319 million compared with $188 million in the same period last year (last year was negatively impacted by Katrina).  Net income came in at $62.2 million, up again almost 300% from net income of $16.2 million, or $.76/share up again almost 300% from $.20/diluted share in the same period in 2005.

The company beat expectations, according to Thomson Financial, of earnings of $.71/share on revenue of $298 million. 

In addition, the company raised guidance on the upcoming first quarter, announcing an expected increase of 90% from the year ago quarter.  With last year's first quarter coming in at $.40/share, this would work out to $.76/share expected.  Currently analysts are predicting earnings of $.73/share on revenue of $326.4 million in the first quarter of 2007. 

How about longer-term results?

Examining the Morningstar.com "5-Yr Restated" financials on SPN, we can see that while revenue dipped from $449.0 million in 2001 to $443.1 million in 2002, it subsequently steadily increased to $735.3 million in 2005 and $962.7 million in the trailing twelve months (TTM).  Earnings also dipped from $.77/share in 2001 to $.30/share in 2002.  However, since 2002 earnings have steadily increased to $.85/share in 2005 and $1.75 in the TTM.  The company has held its outstanding shares fairly stable, increasing by about 15% from 69 million to 80 million between 2001 and the TTM.  In the same period, earnings were up over 100% and revenue also doubled.

Free cash flow has been positive but erratic over the past few years with $50 million in 2003, and $8 million in the TTM.

The balance sheet looks strong with $111.9 million in cash and $344.3 million in other current asssets giving the company a total of $456.2 million in total current assets, which when compared to the $253.8 million in current liabilities yields a current ratio of 1.80.

How about some valuation numbers?

Checking Yahoo "Key Statistics" on Superior Energy Services, we find that this is a mid cap stock with a market capitalization of $2.61 billion.  The trailing p/e is a very reasonable 14.13, with a forward p/e (fye 31-Dec-08) estimated at a dirt cheap 8.45.  The PEG, (5 yr expected) is estimated at 0.23, which again is a screaming buy, with a reasonable PEG being priced between 1.0 and 1.5 from my experience.

Referring to the Fidelity.com eresearch website, we find that the Price/Sales (TTM) is also reasonable when compared to similar companies coming in at 2.28 when the industry average is higher at 3.05.  

In terms of profitability, the Return on Equity (TTM) is nearly at the average with SPN coming in at 29.59%, compared to an industry average essentially the same of 29.99%.

Finishing up with Yahoo, we find that there are 29.83 million shares outstanding with 79.23 million that float.  As of 1/9/07, there were 2.37 million shares out short representing 3% of the float or 2.1 trading days of volume.  No dividend is paid, and no stock splits are reported on Yahoo.

What does the price chart look like?

Looking at a  "Point & Figure" chart on Superior (SPN) from StockCharts.com, we see that this stock has actually very steadily been increasing its share price from a low of $6/share in September, 2002, to a high of $36 in September, 2006.  the stock is currently near its high at $32.72.  

 

 

Summary:  What do I think?

Well, I am not a big fan of commodity-driven stocks and this company certainly is subject to the effects of the oil market.  However, in light of the fabulous earnings, its recent inclusion in the S&P Midcap 400, the steadiness of its earnings and revenue growth, and the cheapness in terms of p/e, PEG, and even Price/sales, this appears to be a relatively lower risk investment than might be expected.  If I were buying a stock, I might well buy shares of this one.  Of course, instead of buying anything, I am anxiously awaiting the next drop in the market when I shall probably start to unload shares instead.  But that is another discussion entirely!

Thanks so much for stopping by and visiting!  If you have any comments or questions, please feel free to leave them right in the blog or email me at bobsadviceforstocks@lycos.com.  Also, be sure and visit my Stock Picks Podcast Site where I discuss many of the same stocks I write about on the weblog.

Bob 


Posted by bobsadviceforstocks at 5:26 PM CST | Post Comment | Permalink
Thursday, 1 March 2007
It All Comes Back to Iraq.
Those of you who know me better know that I also have a political hat that I sometimes wear.  As we face this market correction, I do think that we should ask whether there is something basically wrong with our government management of the American economy in the face of a questionable foreign policy.  We can argue whether America needed to be involved in Iraq.  Whether thst policy was implemented in an appropriate fashion.

But of greater concern, is my question whether it was responsible for this Administration to pursue a policy of tax cuts during a time of growth in expenditures.  This pursuit of lower taxes without any regard to fiscal responsibility and reducing deficits, a policy that had been successfully pursued under the previous President Clinton, has resulted in reliance on the Federal Reserve which is supposed to manipulate money supply and inter-bank loan rates to control inflation.

Our deficit in America is now being held more and more by investors offshore and our economic future is more and more dependent on the success of economies in places such as China and other countries that hold more and more of our dollar-based Treasury notes and obligations.  

The dollar has suffered as more have been 'printed', with the dollar dropping against foreign currencies.  Yet we have not acted to reduce our dependence on foreign oil, we have not required more fuel efficiency from our vehicles, we have not made the needed investments in alternative fuels, we have not made Kyoto a goal, but have continued to increase our addiction on oil produced in areas of the world that are growing hostile to our own interests.  Our trade deficits have grown simultaneous with our fiscal deficit.

So when we hear about how China can affect our own market, let us not examine this in a vacuum.  Let us realize that we have been misled by our politicians who depended on our own greed to allow them to fail to make the hard decisions to restore fiscal responsibility and instead promise us never-ending 'tax cuts'.  This fuzzy-math economics is coming home to roost.

And when we get out to drive in our Suburbans, Tahoes, and heavy-duty pick-ups, gloating about how we can buy gas cheaper than they do in Europe where high prices has moved drivers to efficient vehicles, let us be aware that our inability to encourage our leaders to make the hard decisions is costing us hard right here at home.

O.K., enough of the politics.  But don't you just get sick when you see futures down more than 100 points before the market opens!

Wishing you all well.  I shall try to reduce my political ranting here and try to stick to stocks.  But let me know if it is ok with all of you to intersperse these stock market discussions with occasional political subjects.  Whether you agree with me or not, I encourage you to respond to what I say and you are welcome to join in the discussion.

Bob 


Posted by bobsadviceforstocks at 7:44 AM CST | Post Comment | View Comments (11) | Permalink
Updated: Thursday, 1 March 2007 7:46 AM CST

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