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Sunday, 17 June 2007
Ventana Medical Systems (VMSI) "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 hope you all had a Happy Father's Day!  I had a fairly tranquil day visiting my inlaws and running errands for my daughter as she prepares for a trip.  Then we all went off to a local Chinese Restaurant, Hunan, where I had a nice dish of lamb with broccoli. 

Afterwards, we headed over to The Pearl Ice Cream Parlor where I had a chocolate soda while my daughter worked on an Ice Cream.  It was a nice evening for this Dad, yet my diet suffered once again.  So Monday, back to lots of water.


Like so many Americans, and others around the world, we spend time with family and friends and yet food is the commonality that brings us together.

It is now getting late, and I wanted to get this entry on the blog.  I do a lot of things on this website.  Lately, I am taking the time to share with all of you readers more of my life as well.  I hope that you all enjoy this part of my writing. 

Above all I strive for transparency on this website.  I am happy to talk about stocks.  You can read about loads of investment scams out there and I do encourage every one of you to do your own investigations, do your own homework, consult with your investment advisers, and do whatever you need to do before listening to anyone suggest an investment whether it be on some strange website or this website by yours truly.  I work very hard to share with you my ideas, give you the rationale behind them, let you know whether I own shares or not, and keep you posted on my actual trading portfolio. 

I have gone so far as to register with Covestor and have them monitor my actual trading portfolio and report to you all my performance in my actual holdings.  I would encourage you all to visit the Covestor site for my portfolio as well as many other investors who are putting together their stocks for public review. 

In addition, for a third-party review of my 'picks' and the performance associated with them, I have signed up with Social Picks.com which reviews and determines my recommendations when I write up stocks.  They are not perfect in this but they are pretty good and you can visit my stock picks evaluation on Social Picks which is current as of 1/22/07.  (Thus there are many earlier picks which are not included on this review). 

These new additions are wonderful ways of verifying the usefulness of my writing.  Some people may ask why I blog.  I don't have a very good answer.  I believe that after all of the years investing that I have done, I have something to offer other investors.  I believe that my thinking is on the mark, my management of portfolios innovative, and that the built-in timing mechanism to move into and out of equities while not perfect, is a clever addition for any investor.  I hope so.  And this blog is an excellent way for me to improve my own techniques.  I sometimes dream that it will become something much bigger for me.  Perhaps another career or writing opportunity.  It is always nice to dream! 

So I hope you can see that when I write, I try to offer honest appraisals of stocks and transparent analysis sharing with all of you what I own, when I buy and when I sell, and why I do all of this. 

I was going to write about Ventana Medical Systems (VMSI) another of my holdings before I got sidetracked about Chinese food, Ice Cream and blogging.  I am not sure all of these go together very well :). 

I know this will be difficult for me, but let me try to be brief with this post.  One of the tasks I have assigned myself on this website, is to go through my stock holdings, one at a time, and share with you my actual experiences, my actual trades involving my stocks, and review their current status.  If possible, I shall be briefer than usual on this one tonight.

I am currently at my new maximum of 20 positions (I may go to 25 if I ever pay down my margin balance.)  On May 19, 2007, I reviewed my Meridian Bioscience (VIVO) holding. Going alphabetically (by symbol) I am up to Ventana Medical Systems (VMSI). 

I currently own 162 shares of Ventana Medical Systems (VMSI) which were purchased 4/16/04 at a cost basis of $23.47 per share.  Ventana closed at $53.08 on June 15, 2007, for an unrealized gain of $29.61 or 126.2% since my purchase.  As is my strategy, I have taken gains at the 30%, 60%, 90% and 120% appreciation levels.  Currently I am selling 1/7th of my holdings at each point, but when I started this process, I was selling 1/4 of my holdings at each appreciation level.

Here is the current "Point & Figure" chart on VMSI from StockCharts.com with my discussions and actual purchases marked out.

I first discussed Ventana Medical Systems on Stock Picks Bob's Advice on Decembere 23, 2003.  I first purchased shares of Ventana four months later on 4/16/04 and have sold shares four times since.  I "revisited" Ventana Medical Systems on January 13, 2005, when the stock was trading at $64.36 ($32.18 adjusted for a 2:1 stock split later that year). 

Let's take a look at some of the more recent information.

On April 27, 2007, Ventana reported 1st quarter 2007 results.  Sales came in at $64.4 million for the quarter ended March 31, 2007, up 19% over the same quarter the prior year.  Net income was $18 million or $.50/diluted share, up sharply from last year's $5.0 million or $.14/diluted share.  However, removing a one-time income of $12.3 million or $.34/share this year, the results are still good but not as spectacular with $42.1 million vs. $18 million, and $.16/share, up from $.14/share. 

Without going into details (check them yourself), the "5-Yr Restated" financials on Morningstar.com are intact with steady revenue growth, steady earnings growth, relatively limited shares outstanding, growing free cash flow, and a solid balance sheet.

Regarding valuation, looking at Yahoo "Key Statistics" on VMSI, we can see that this is a mid-cap stock, the p/e is a bit rich at 43.26, with a PEG a bit rich as well at 1.79.  With the rich valuation also comes a lot of short-sellers with 3.01 million shares out short as of 5/10/07, representing 9.10% of the float or 6.7 trading days of volume.  The last stock split was 3/15/05 when the company split its stock 2:1.

With the strong quarterly report, the steady Morningstar.com report, and the solid chart, 

VENTANA MEDICAL SYSTEMS (VMSI) IS RATED A BUY

To summarize, I still like this stock.  They are quietly cranking out earnings and revenue growth, and the stock price is appreciating alongside all of this.  However, valuation is indeed a bit rich and their are a lot of naysayers waiting for VMSI to falter.  If they continue to do well, there will also be a lot of short-sellers scrambling to cover their negative bets. 

Thanks so much 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, and if I get a chance, I shall be podcasting a new episode soon.

Bob 

 


Posted by bobsadviceforstocks at 11:28 PM CDT | Post Comment | View Comments (2) | Permalink
"Looking Back One Year" A review of stock picks from the week of January 16, 2006

 

 

 

 

 

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.

As part of my weekend routine, I have been trying (albeit not always successfully) to review past stock selections to find out how this multitude of stock picks has been turning out.  These evaluations assume a buy and hold strategy.  In fact, I advice and implement a very disciplined selling strategy for my portfolio where I sell my losing stocks quickly and completely and my gaining stocks slowly and partially at predetermined targeted appreciation levels.  This difference in management of stocks will certainly affect performance and this evaluation is no exception.  Please take that in mind when assessing this review.

I missed a review last weekend.  However, back on June 2, 2007, I did my Weekend Review and reviewed picks from the week of January 9, 2006.  Going ahead a week, let's take a look at the pick from January 16, 2006.  I am fortunate that during that week I selected only one pick, a great stock that I also now own, Bolt Technology (BTJ).

 

 

On January 19, 2006, I selected Bolt Technology (BTJ) for Stock Picks Bob's Advice when the stock was trading at $17.86.  Bolt closed at $40.32 on June 15, 2007, for a gain of $22.46 or 125.8% since posting! 

Because of the strong latest quarter, "5-Yr Restated" financials on Morningstar, and the strong chart,

BOLT TECHNOLOGY (BTJ) IS RATED A BUY  

Let's take a look at the "Point & Figure" chart on Bolt from StockCharts.com.  I have added in my 'pick price' and my purchase of Bolt shares a year later at virtually the same price.  I have also included my partial sales of Bolt as the stock has quickly climbed from the purchase price. 


The chart, even after a small pullback recently that I blogged about recently, still looks encouraging.

On April 25, 2007, Bolt (BTJ) announced 3rd quarter 2007 results.  For the quarter ended March 31, 2007, sales increased 51% to $12.7 million from $8.4 million last year.  Net income was up 118% to $2.8 million or $.50/diluted share compared to $1.3 million or $.23/diluted share in the same quarter the prior year.  This was a very strong report.

Since this was the only stock I reviewed during the week, I had a very strong week with a stock pick that has appreciated 125.8% since posting.  This is far from typical and I often write about down weeks as well, but it was a pretty nice selection, wasn't it?  In addition, I now own the stock and have ridden the stock higher in a very short period of time.  I have sold portions of this stock on the way up to 'hedge' my gain, so to speak, and am prepared to sell more on the way up or down.

Thanks so much 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.

Bob


Posted by bobsadviceforstocks at 3:41 PM CDT | Post Comment | Permalink
Updated: Sunday, 17 June 2007 3:42 PM CDT
GameStop (GME) "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 information on this website.

Before I get any further, I would like to wish all of the fathers out there a very Happy Father's Day!  This is a picture of Winthrop, Massachusetts:

 

My father hails from Winthrop.  I still have a lot of family there.  So this entry is dedicated to my father, Sumner, my Uncles and my cousins and all of the dads who happen to stop by and read this entry.  Happy Father's Day!.

I have been trying to get around to posting this stock since Friday!  And here it is Sunday.  And I really ought to get around to another of those "Weekend Reviews"! 

GameStop (GME) made the list of top % gainers Friday, closing at $39.21, up  $1.95 or 5.23% on the day.  I do not own any shares nor do I have any options on this stock.

However, I have reviewed this stock before.  On November 14, 2004, about 2 1/2 years ago, I reviewed GameStop on Stock Picks Bob's Advice when it was trading at $23.50, or actually $11.75 adjusted for a 2:1 stock split.  With Friday's close at $39.21, this represents a gain of $27.46 or 233.7% since posting! 

I would like to go over some of the current information on this stock and explain why

GAMESTOP (GME) IS RATED A BUY

Insofar as what drove the stock higher Friday, there was a report about the strong sales during the month of May which pushed the price of GameStop higher.  

As reported in the story, David Magee of SunTrust Robinson Humphrey wrote in a note to clients, regarding the recent price of GameStop which has nearly doubled since last summer:

"We believe the multiple is warranted given GameStop's dominant position as a specialty retailer of video games, its substantial infrastructure to trade used titles [providing a unique point of differentiation with customers relative to other retailers] and potential for margin expansion as new software sales increase as a percentage of the product mix"

What exactly does this company do?

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

"...operates as a retailer of video game products and personal computer (PC) entertainment software. It sells new and used video game hardware and software, and related accessories and other merchandise. The company also offers video game accessories that include controllers, memory cards, and other add-ons; PC entertainment accessories, such as joysticks and mice; and strategy guides and magazines, as well as trading cards."

How did they do in the latest quarter?

On May 23, 2007, GameStop reported 1st quarter 2007 results.  For the quarter ended May 5, 2007, the company reported total company sales climbing 23.0% to $1,279 million, compared to $1,040 million the prior year same period.  Perhaps more importantly, comparable store sales increased a very robust 15.3% during the quarter.  This beat previous guidance of a 12 to 14.0% increase.

Net earnings were $24.7 million, an 111% increase over first quarter 2006 results of $11.7 million.  On a per share basis this was $.15/diluted share this year vs. $.07/diluted share last year.

As strong as these results were, apparently they were a penny shy of expectations as analysts had expected earnings of $.16/share on revenue of $1.25 billion.  So earnings were a penny light but revenue came in a bit ahead of analysts.  The company did raise guidance for future results with full-year earnings forecast to $1.39 to $1.42 from $1.37 to $1.40/share previously guidance.

What about longer-term results?

If we review the Morningstar.com "5-Yr Restated" financials on GameStop, we can see that revenue has steadily grown from $1.35 billion in 2003 to $5.32 billion in the trailing twelve months (TTM).

Earnings, which were flat at $.53/share in 2004 and 2005, have grown strongly since with $.81/share in 2006 and $1.00/share in 2007.

The company has increased its shares outstanding from 112 million in 2004 to 153 million in the TTM.  This 37% increase in shares has been accompanied by an increase of an over 200% increase in revenue and a nearly 200% increase in net income during this period.  While I prefer to not see significant increases in outstanding shares, I am comfortable with increases in the shares accompanied by an even larger increase in earnings and revenue.

Free cash flow has been positive and increasing nicely with $48 million reported in 2005, increasing to $181 million in 2006 and $290 million in 2007.

The balance sheet is adequate.  The company reports $652.4 million in cash and $787.9 million in other current assets.  This total of $1,440 million, when compared to the $1,087 million in current liabilities yields a current ratio of 1.32.  Generally, I view current ratios of 1.25 or higher as acceptable, although ratios of 2.0 or higher are generally considered "healthy". 

What about some valuation numbers on this stock?

Using Yahoo "Key Statistics" on GME, we find that the market cap of this stock is a Large Cap sized $6.21 billion.  The trailing p/e is a bit rich at 36.47 with a forward p/e (fye 03-Feb-09) estimated at 21.19. The PEG ratio at 1.06 (5 yr expected) suggests a reasonable valuation based on estimated earnings results.

According to the Fidelity.com eresearch website, the Price/Sales for GameStop is reasonable with a value of 1.08 for the Price/Sales (TTM) compared to the industry average of 1.04.

Profitability is also a bit less than average with GME coming in with a Return on Equity (TTM) of 12.96% compared to the industry average of 18.22%.

Finishing up with Yahoo, there are 158.46 million shares outstanding with 144.15 million that float.  As of 5/10/07, there were 3.73 million shares out short representing 2.6% of the float or 2.1 trading days of volume.  This doesn't appear significant to me.

No dividends are paid, and the last stock split reported by Yahoo was a 2:1 split on March 19, 2007.

What does the chart look like?

If we review the "Point & Figure" chart on GameStop from StockCharts.com, we can see that the stock has been on an absolute 'tear', climbing sharply from the lows of $3.75 in February, 2003, to the current level of nearly $40.  The stock looks a bit over-extended over the short-term, but the price direction certainly appears to be strongly higher.

Summary: What do I think about this stock?

Well, I first of all wish I had purchased shares of this company when I first wrote it up :).  But I cannot buy everything I write about.  No matter how much I would like to.  But this stock deserves a place on this blog and a place in my investing vocabulary. 

To summarize a few of the things I have written about, the stock has recently moved strongly higher on the back of recent surge in video game player sales and software sales.  They are reporting strong earnings as well as important same store sales growth with strong revenue numbers being reported in the latest quarter. 

Expectations, however, are quite high for this company and it is not a tiny stock that is going under the radar.  Valuation is rich with a p/e over 30 and nearly 40.  However, with the rapid growth, the PEG is barely over 1.0.  Also, Price/Sales and ROE figures are fairly 'ho-hum' compared to its peers.  Finally the chart is quite strong.

How does this all add up?  Basically I still like this stock.  But I would be cautious based on valuation and the technical over-extended appearance of the chart.  That is where those 8% loss limits are so important.  If I were buying shares of a stock on Friday, this would be the kind of stock I would be buying.  But then again, I don't have any kind of 'permission slip' to be buying so meanwhile, the company stays in my list of 'investable' companies!

Have a great Father's Day everyone!  If you get a chance, say hello to all of my friends in Winthrop and all of my Uncles, Cousins, and Friends who are also I hope having a special day with their families.

If you have any comments or questions, please feel free to email me at bobsadviceforstocks@lycos.com or just leave them right on the blog.  If you get a chance drop by and visit my Stock Picks Podcast Website.  And if I get a chance, I shall try to make time to post a new podcast in the next day or two! 

Bob


Posted by bobsadviceforstocks at 12:31 PM CDT | Post Comment | Permalink
Thursday, 14 June 2007
CAM Commerce Solutions (CADA) "A reader suggests 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 information on this website.

I have had a series of emails from Doug S. who has some great ideas about stocks and helpful insight for me.  Usually I come up with the names around here.  But I have had other readers who suggested other stocks, including Precision Castparts (PCP) which was suggested by a reader and which eventually became part of my own Trading Portfolio! 

Let me share with you what Doug wrote, first on 6/8/07:

"A person who I highly regard put me on to CADA. I have no current position because for the life of me I can't get a grip on this issue. There has been strong insider volume especially by one deep pockets person who just sits back and lets it come to him. They seem to be making a great deal of money and signing up a lot of new clients yet
that hasn't been reflected yet in % comparisons. I really haven't run across anything that resembles this since the likes of Seas Candy and Blue Chip Stamps in the mid seventies which Buffet picked up for Berkshire. Would really appreciate your thoughts. Thanks."

Well I didn't get around to looking at CADA much except what I saw I basically liked. 

Doug did eventually take a position in the stock as he wrote on 6/11/07:

"Hi; Started a position(700) today in captioned. Nothing not to like about this(check insider activity). Regards, Doug"

Personally, I do not own any shares of CAM Commerce Solutions (CADA) nor do I have any options.  CAM Commerce Solutions (CADA) closed today at $27.65, down ($.24) or (.86%) on the day. Doug does own some shares, so take that into consideration when reading his comments.  In any case,

CAM COMMERCE SOLUTIONS (CADA) IS RATED A BUY

Let me share with you what I found out about CADA and I am sure that Doug will have more to add on this in the future.

Before I get to that, let me briefly touch on the subject of 'insider trading'.  The theory goes that people on the inside will have a good feel for the business prospects of a company, and that if insiders are buying, this is a 'bullish' signal for the stock.

I found a more formal research paper by Joseph D. Piotroski and Darren T. Roulstone of the University of Chicago on this that concluded:

"Abstract

This paper documents that insiders are both contrarians and possessors of superior information. We find that insider trades are positively related to the firm's future earnings performance (proxy for superior cash flow information), positively related to the firm's book-to-market ratio and inversely related to recent returns (proxies for trading against misvaluation). Each relation has incremental explanatory power, yet information about future cash flow changes explains a smaller portion of insider purchases than do proxies for security misvaluation. The relation between insider trades and future earnings performance is amplified (attenuated) as the benefits (costs) to trading on financial performance information increase."

Thus, there is academic support to this view that insider buying may well be predictive of future earnings and thus price appreciation.  So Doug's observations, once again, are on the mark and worthy of consideration!

What exactly does this company do?

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

"...engages in the design, development, marketing, installation, and servicing of integrated retailing and payment processing solutions for small to medium size traditional and eCommerce businesses based on its open architecture software. It offers retailing systems and solutions consisting of software, hardware, installation, training, and technical support services, as well as Web hosting services." 

How did they do in the latest reported quarter?

On May 2, 2007, CAM reprted 2nd quarter 2007 results.  For the quarter ended March 31, 2007, revenue climbed 13% to $7.3 million compared to $6.5 million for the same quarter in 2006.  Earnings grew 100% to $854,000 or $.20/share, up from $417,000 or $.10/share in the same period the prior year.

As small as this company is, they announced a dividend and announced that the dividend would be increasing 43% to $.20/share, up from a dividend of $.14/share last year.

What about longer-term results?

Looking at the Morningstar.com "5-Yr Restated" financials, we can see that this is a very small company with revenue of $20 million in 2002, $20 million in 2003, then increasing to $27 million in 2006 and $28 million in the trailing twelve months (TTM).

Earnings, as is often the case in these small companies, has been erratic, with $.09/share in 2002, a loss of $(.04)/share in 2003, $.57/share in 2004, $.44/share in 2005, then increasing to $.64/share in 2006 and $.79/share in the TTM.

The company paid a dividend of $.10/share in 2005, increased it to $.42/share in 2006 and is paying $.45/share in the TTM.

The total number of shares is small and fairly stable with 3 million shares outstanding in 2002, increasing to 4 million in 2004 but staying stable at 4 million in the TTM.

Free cash flow is small but positive with $3 million reported in 2004 and $4 million in 2006 and the TTM.

The balance sheet is solid with $25.3 million in cash which by itself can pay off both the $4.2 million in current liabilities and the -0- in long-term liabilities combined.  In fact, calculating the current ratio, we get a total of $28.9 million in current assets, which when compared to the $4.2 million in current liabilities, yields a current ratio of 6.9.  Generally, ratios of 1.25 or higher are considered healthy. 

What about some valuation numbers on this stock?

This is a very small company with a market capitalization of only $111.87 million.  This meets the definition of Micro-cap:

"Micro cap refers to a company with a market capitalization of between $50 million to $300 million."

Continuing with Yahoo "Key Statistics" on CADA, we find that the trailing p/e is a moderate 35.0, there are not forward p/e's nor PEG ratios because of the apparent lack of analysts providing these estimates on this tiny company.

Examining the data from the Fidelity.com eresearch website, we can see that the Price/Sales (TTM) is reasonable at 3.94, compared to the industry average of 5.57.  As measured by Return on Equity (TTM), the company is not as profitable as its peers with a ROE (TTM) of 13.3%, compared to an industry average of 25.03%.

In terms of insider transactions, Yahoo reports that in the past 6 months there as been a net of 27,034 shares purchased by insiders.  Institutional purchases have also been a net of 111,843 shares added to institutional holdings with this being an 8.3% increase in the total held.  Both of tese statistics are bullish for the stock.

Yahoo reports that there are 4.05 million shares outstanding with 2.96 million that float.  Currently, as of 5/10/07, there were only 5,850 shares out short representing 0.2% of the float or 1.1 trading days of volume.  This doesn't appear significant at these levels.

As noted above, this company does pay what works out to be a significant dividend of $.80/share (going forward) with a forward yield of 2.8%.  No stock splits are reported on Yahoo.

What does the chart look like?

Looking at the "Point & Figure" chart on CADA from StockCharts.com, we can see that the stock made a large move higher from April, 2003, when the stock was trading at $3.00/share, to a peak of $20 in May, 2004.  The stock then traded in a tight range between $20 and $11, before breaking to the upside in Novembger, 2006, pushing higher to $24, and now once again pushing higher to the $27 level.  The chart looks encouraging to me!


Summary: What do I think?

Well, I believe that Doug S. has picked a great, but tiny stock.  Like all small companies, we are often faced with significant volatility.  However, the latest quarter was solid, the Morningstar report was solid especially the past few years.  The company even pays a dividend and is raising its payment.  The number of shares, while small, is stable, and the company is generating free cash flow.  The balance sheet, while also showing small numbers, is solid with a great current ratio.

There really isn't much not to like as Doug has stated!

I sure appreciate your contribution Doug and shall be adding this stock to my vocabulary of stocks here on the blog.  Maybe one day I shall have the opportunity to actually own some shares!

Thanks so much to Doug and all of you who visit and especially contribute here on this website.  You all are really my friends!  If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.  Please include your first name and general location.  Helps me keep things interesting.

Bob


Posted by bobsadviceforstocks at 9:32 PM CDT | Post Comment | View Comments (1) | Permalink
Updated: Friday, 15 June 2007 8:51 AM CDT
Wednesday, 13 June 2007
A Reader Writes "What are your thoughts when you are in a situation like this:"

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 had another nice email from Eric N. in Boston, who writes about worrying that not all of his stocks are participating in the rally today.  He wrote:

"Hi Bob,

I hope you have enjoyed your day.

I am always happy to see the stock market take an upswing and cover the previous day's decline. For me, this means that the positions I own go up also... well, usually.

What are your thoughts when you are in a situation like this:
The stock market has sharply declined (if a 1% drop is considered a sharp decline) and the following day the market rebounds to pretty much cover that 1% drop. So, the stocks that fell in price the previous day (potentially days) have recovered... BUT... not all of your stocks rebound, and instead there are a "few" that fall even more.

What are you thinking in a situation like this? Any thoughts on why the stock didn't rebound like the rest of the market?

Thanks,

Eric N.

Boston, MA"

Eric,

Thanks again for writing.  You have raised an excellent question.  We know that one of the largest influences on stock prices is the Market, the "M" in CANSLIM, as William O'Neil would explain.  But there are also many stock-specific events that we may not even be aware of that can explain why a stock may move contrary to the market.  Things like a big investor or mutual fund sellling its position, or the fact that the stock has been recently been over-performing the market and now other stocks are moving higher in a sort of sector rotation.  In other words, I never know why a stock doesn't move as I expect it to move. 

But what do I do?

I stick with my own trading rules.  I am patient when patience is called for.  I sit on my hands when sitting on my hands is the right thing to do.  I act when action is required.  If I need to sell a position, I enter the sell.  Otherwise I am patient. 

It has been my strategy to avoid second-guessing the market.  Thus, I do all of my thinking and analysis at the time of purchase.  After that, I spend a lot of time observing my stocks and not trying to figure them out.  It sure does make life easier for me!

I am not sure that quite answered your question.  But I believe you got the gist of the answer!  If you have any other comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.

Bob


Posted by bobsadviceforstocks at 11:06 PM CDT | Post Comment | View Comments (2) | Permalink
Updated: Thursday, 14 June 2007 9:44 PM CDT
A Reader Writes "EML Sometimes it pays to shake the trees."

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 had a very nice letter from Doug S. who had some ideas about the poor performance of Eastern (EML) which hasn't worked out as well as we all could have wishd.  He wrote:

"Got interested in EML on Feb 7 when they reported the earnings that
initiated the recent/ initial move in the stock.

Going through the
report two things bothered me; the heavy influence of a government
contract and certain acquisitions which brought into question the subject of organic growth.

The latter was the reason that BEZ has never turned me on. That said since I probably could have gotten in at around 24 /25 my analysis cost me about a 5 point move(("Even paranoids have enemies" H. Kissinger).

The classic recent example of this syndrome(ie:quality of earning, organic growth) is the activity surrounding ROCM over the last few months where the initial move started with an earnings report that had all the transparency of a Chinese fire drill and I'm sure end in the fact that for every person who went to the bank on the way up ten got crucified on the way down."

Doug,

Thank you so much for writing.  As always, I have come to expect and appreciate your insightful assessment of reports that I have probably read in far too superficial a fashion.  Much like "same-store sales growth" which I like to discuss when looking at retail firms, it is indeed helpful to assess the role of acquisitions and one-time events and settlements on revenue and earnings reports.

If we look at the 1st quarter Eastern Company (EML) earnings report, we can see that even taking into consideration these items, the underlying results were still quite satisfactory. 

The company reported:

"Despite the strong impact of the military contract and the Royal Lock and Summit acquisitions, the Company's core businesses experienced a 12.9% increase in sales as compared to the first quarter of 2006. This increase was primarily in the Industrial Hardware segment." (emphasis added)

You can see that even without these one-time events and acquisition-related revenue/earnings, things haven't been going too badly with EML.

It is hard to know exactly why EML hasn't behaved better the past several trading days.  Even with the indices moving strongly higher today, the stock lagged the rest of the market.  EML today closed at $29.75, down $(.45) or (1.49)% on the day. 

Probably the biggest problem with The Eastern Company is its small market cap and small float: the market cap is only $165.95 million, and there are only 5.58 million shares outstanding with 4.80 million that float.  This makes the stock very volatile from my perspective and difficult for large investors to move into and out of positions without moving the stock price in those moves. 

Again, before I conclude that the 'sky is falling', let me once again post an updated chart on EML for your review (from StockCharts.com): 

Again, as you look at the chart, I think you will see what I see, which simply put means that the stock price has had a huge appreciation over the past two years and that the price decline recently appears more to be 'profit-taking' than some breakdown of the price support of this equity. 

Regardless of all of this head-scratching, analysis, and second-guessing, the fact remains that the stock has indeed declined in price from the stock pick level.  If I owned this stock, and I do not have any shares, I would be selling the stock if it hit an 8% loss and not looking back.  I would not be reinvesting the proceeds unless I was at my minimum investment level.

There is nothing 100% about anything I pick or write about on this blog.  There is much risk with every investment and with the smaller companies the risks as well as the rewards are usually greater.  That is why it is important to have trading rules.  To have a portfolio of stocks.   And to follow rules that dictate your own trading activity regardless of what you might actually think about the true value or the validity of the earnings reports.

Sometimes it is helpful to shake the trees.

(A beautiful painting from the March/April edition of Nexus, by the painter Lynne Loshbaugh)

But sometimes it is helpful to just sit back, think quietly, and appreciate the beauty of each tree as it comes together to make that forest.  And instead of shaking trees that don't seem to fit or work out maybe it is time to remove them from your patch of woods and settle on a new seedling.

Thanks again to all of you for visiting and commenting and adding your thoughts and passion to investing.

Bob

 


Posted by bobsadviceforstocks at 10:08 PM CDT | Post Comment | Permalink
Not Seeing the Forest for the Trees!

Sometimes it is hard to see the big picture.


 

 

I have had a lot of questions about The Eastern Company (EML).

Some readers of this blog have either purchased shares of EML or have used this stock in 'virtual' portfolios.  The result either way has been the same.  The stock has declined.  In fact, many of my own stocks have declined as well.  

Is there something wrong with these stocks?

Or is there something else going on?  Are our stocks proverbially 'talking' to us? Is our portfolio telling us something?

I believe so.  As I have written so many times, it is important to respond to what our stocks do.  When they decline, let them go.  But do not replace them immediately (unless I am at my 'minimum' stock exposure).  Because their actions may well be reflecting a problem not with technique, not with individual stocks, but with the market itself.  The market is talking to us through our own stocks.

No matter how brilliant we think we are, how smart we have been and figured things out, the market will bring us back to earth each and every time.

So do not look too closely at any particular holding to figure it out.  When things do not appear to be acting as we expect them, then it is time to readjust not our thinking but our perspective.

Like the trees blocking out the forest, our stocks can block our view of the stock market.  And the market bears are out.  And they are growling.  And it is time to be observant and thoughtful as we respond.  

Bob 

 

 

 

 

 


Posted by bobsadviceforstocks at 5:36 AM CDT | Post Comment | Permalink
Updated: Wednesday, 13 June 2007 5:41 AM CDT
Tuesday, 12 June 2007
A Reader Writes "I was wondering, if you were in a situation like this...."

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 had another nice letter from Eric N. who apparently also has dabbled in The Eastern Company (EML), but this time in reality, and not a virtual or simulated portfolio, and is also incurring some losses on this investment.  Eric writes:

"Hi Bob,

EML hit -8.42% for me. I missed the sale on this at the -8% mark before the end of the trading day.

I was wondering, if you were in a situation like this and you missed the -8% sale point and the stock opened above the -8% level, would you sell at the open of the next day or hold on to it until it hit the -8% level again?

I know you are very disciplined and you have a series of rules that you follow, but would this be a situation for a judgment call depending on the relative strength of the company based on the research?

This makes me think of MTOX. It fell to below -8% and you sold it off. When you sold it you said something like, 'I don't understand why it fell 8%, the company is doing so well.' It is now at +41.47% since you posted the company (+49.47 since you sold the stock).

And finally, what made you decide to use an 8% (opposed to 7% or 6%) drop in price to be the signal for you to sell all and not look back?

Thanks for your thoughts.

Eric

P.S. I enjoyed reading your blog when you talked about some of the things that you were up to in your personal life."

First of all, thank you so much for writing.  As you can see there is nothing magical about any of the stocks that I write up.  Overall, I think they will do great long-term, but then again, each one is likely to respond to multiple influences, especially the overall market tone which has been recently anything but encouraging.

What should you do if you miss a sale point?  That certainly is up to you and as your MTOX example demonstrates, you may well come to a different conclusion than I do, and you may end up making a better decision as well.  Since personally I do all of this manually, as it sounds you do as well, I have also missed sale points both on the upside and the downside.  If the stock recovers before I get a chance to sell or find out about the drop, then I do not sell the stock at all.  However, if the stock is still in a sell-range, then I do what I am supposed to do, which is to sell the stock either on the upside or the downside depending on what the price change is.

You asked about the 8% loss level.  That particular level is adopted from the CANSLIM technique that I have commented on elsewhere popularized by William O'Neil of the Investor's Business Daily.

As the IBD website states:

"The first rule is sell any stock that falls 8% below your purchase price. Why 8%? Because research shows stocks showing all the right fundamental and technical factors in place and bought at precisely the proper buy point (which is explained fully in the "Using Stock Charts To Round Out Stock Selection" lesson of the stock buying course) rarely will retreat 8%. If they do, there's something wrong with them."

Thus this rule isn't something I created.  I have borrowed this one from one of the brightest minds in the investing world.  I accepted that I needed to place a limit to my losses somewhere, and the 8% loss seemed reasonable to me. 

You may choose to have a 10% or a 12% loss limit.  It doesn't matter.  Whatever you do, stick to your rules that you establish.  If you are a value investor and don't want any rules about stock price declines, then don't have rules.  But decide ahead of time what your own particular trading parameters are.  Write them down if you need to.  You can even start a blog :).  But whatever it is, stick to it. 

Let me know how everything works out.  The market is at best choppy and my own investments are getting tossed and turned.  In fact, my MLAB stock was at a (7.99)% loss, and I was waiting for a .01% decline to unload my position today only to have the stock rally from that level to close above the sale point.  So it is always hard to predict stock price movements from day to day.

Thanks for your kind comments on my personal commentary.  I enjoy sharing with all of my readers some personal experiences and things going on in my life.  I suspect most of my readers are more interested in the stocks but then again, it helps knowing people are just people no matter how or what they blog.  :).

Bob


Posted by bobsadviceforstocks at 8:52 PM CDT | Post Comment | Permalink
Updated: Tuesday, 12 June 2007 8:53 PM CDT
Stock Picks Bob's Advice on "Guzzo the Contrarian" Website!

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  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 was delighted to learn that this blog was the subject of a flattering review on Guzzo the Contrarian.  You can find the review here.  Michael Guzzo, a pharmacist explains his blog:

"Guzzo the Contrarian is the personal finance, investing, and stock market weblog of that insightful individual investor and wryly skeptical pharmacist, Michael Guzzo. I use this blog to convey my financial thoughts, ideas and opinions, in my “Quest To Conquer The Markets”."

Do drop by and visit Michael's blog and say a big 'thank-you' for me for his kind words as a fellow blogger and fellow healthcare profesional who is also examining the world of investing that we all strive to understand!

Bob

 


Posted by bobsadviceforstocks at 7:42 PM CDT | Post Comment | Permalink
BobsAdvice on Covestor and SocialPicks

I was invited earlier today to participate in Covestor.  This is a third party website that verifies actual brokerage accounts and holding.  Even though I already share with you my actual holdings, I believe this is an opportunity for verification of what I purport to be my holdings, trades, and performance.  I am not sure how this will work out but you are willing to visit and explore my account on Covestor.  I hope this is useful and will be of interest to my readers as well. 

There was a great article by David Jackson on Seeking Alpha about Covestor and VesTopia.  These are both what are called peer to peer investment sites.  VesTopia is a bit more selective, and I haven't been invited to participate there.  In fact, everyone is welcome to join in the Covestor website.  So check it out.  Meanwhile, if you are interested in another website where my 'picks' are judged and evaluated by a third party, you may have noticed the link to SocialPicks on my blog. 

You can view a summary and review and ranking of my stock picking activity on my homepage on SocialPicks.  I hope all of this is helpful to all of you.  I am not sure my activity is worth all of this attention, but these third party websites help me find out how things are working and let you know how both my actual stock selections and purchases are working out.

Let's see how this works long-term!

If you have any comments or questions, like always please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com!  Have a great week trading everyone.

Bob


Posted by bobsadviceforstocks at 7:27 PM CDT | Post Comment | Permalink
Updated: Tuesday, 12 June 2007 7:51 PM CDT

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