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Sunday, 29 July 2007
"Looking Back One Year" A review of stock picks from the week of February 6, 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.

I wanted to get this review out before it is no longer the weekend :).  Las week I reviewed stocks from the week of January 30, 2006.  Let's take a look at the following week and see how stocks 'picked' during the week of February 6, 2006 worked out!

As I like to point out, this review assumes a 'buy and hold' strategy to investing with equal dollar amounts purchased in each of the stocks reviewed during the particular week and the overall performance calculated as an average of the individual performances.  In practice, I employ a very different disciplined portfolio management approach involving quick sales of declining stocks and partial sales of appreciating stocks at targeted levels.  This difference in strategy would certainly affect actual returns.  However, for the ease of calculation, the 'buy and hold' approach has been adopted for reviews.

On February 7, 2006, I posted Gardner Denver Machinery (GDI) on Stock Picks Bob's Advice when the stock was trading at $58.68.  GDI declared a 2:1 stock split on June 2, 2006, making my effective pick $29.34.  Gardner Denver closed at $41.16 on July 27, 2007, for a gain of $11.82 or 40.3% since posting.

On July 25, 2007, GDI reported 2nd quarter 2007 results.  For the three months ended June 30, 2007, revenue increased 10% to $459.9 million compared to $416.3 million in the year ago same period.  Net income climbed 36% to $44.8 million from $33.0 million last year. Diluted earnings per share jumped 34% to $.83/share from $.62/share in 2006.

With this outstanding earnings report, a still strong Morningstar.com "5-Yr Restated" financials page, 

GARDNER DENVER (GDI) IS RATED A BUY

On February 8, 2006, I posted Stamps.com (STMP) on Stock Picks Bob's Advice when the stock was trading at $30.99.  STMP closed at $11.70 on July 27, 2007, for a loss of $(19.29) or (62.2)% since posting.

On July 26, 2007, Stamps.com (STMP) announced 2nd quarter 2007 results. Revenue for the quarter ended  June 30, 2007, came in at $21.4 million, up 6% from revenue in the same quarter in 2006.  Net income came in at $.13/share, down from $.17/share in the same period last year.

With the poor price chart, the decline in earnings in the latest quarter, and the decline in revenue per the Morningstar.com "5-Yr Restated" financials during the trailing twelve months,

STAMPS.COM (STMP) IS RATED A SELL

On February 9, 2006, I posted Akamai (AKAM) on Stock Picks Bob's Advice when the stock was trading at $26.01.

AKAM closed at $36.71 on July 27, 2007, for a gain of $10.70 or 41.1% since posting.

On July 25, 2007, Akamai announced 2nd quarter 2007 results.  Revenue for the quarter came in at $152.7 million up 52% from last year's $100.6 million.  earnings came in at $21.6 million or $.12/share, up from $11.2 million or $.07/share in the same period last year.  The company met earnings expectations of $.30/share and beat  on revenue with analysts expecting $150.9 million per Thomson Financial.


With the strong earnings report, the strong Morningstar.com "5-Yr Restated" financials page, yet the weak price chart,

AKAMAI (AKAM) IS RATED A HOLD

So how did I do during this week in February, 2006?  The three stocks averaged out to a gain of 6.4%.  

Thanks so much 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.

Bob 


Posted by bobsadviceforstocks at 6:48 PM CDT | Post Comment | Permalink
A Reader Writes "I have a few questions...."

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 my favorite things about blogging is receiving letters from readers about what I write and trying to figure out the best way to respond.  All of you are more than welcome to drop me a line at bobsadviceforstocks@lycos.com or just leave your comments right on the blog.  I read all of the letters I get, and try to answer as many as possible, often on the blog!  Of course, I am an amateur, so before acting on my personal opinions, I would once again suggest you consult with professionals to make sure that my approach is appropriate, timely and likely to be profitable for you.

Anyhow, I had a wonderful letter from Mark F. who wrote:

"Bob,

Not sure how I found your blog but I've been reading
it lately... I like your ideas... sounds like your
having a lot of success. I'm a beginning trader and I
think your ideas are pretty much in line with most
successful traders. I have a few questions, maybe you
could answer one of them or all?

1) Is your basic strategy shaped by ideas from Darvas,
Livermore, O'Neil? What books on trading do you
think influenced you the most?

2) How long did it take you to get to where you are?
Did you always have this strategy or did you have to
stumble along the way?

3) What percentage of your total trading assets do you
commit to the strategy on your blog? Is this the bulk
of your assets and if not, what strategy do you use
for that (or do you let a broker manage other
assets)?

4) What has been your average return over, say, the
last few years or so?

Thanks. Obviously the market looks dangerous now. I
hope you don't get too many stops hit as it seems you
are maintaining your long positions. I am in cash and
reevaluating my ideas after a mediocre year of trading
full-time."

Mark, thanks so much for writing!  I hope that I may contribute to your own understanding about investing and you are more than welcome to learn from my own experience as I have also learned from others.

Let me try to answer your questions in order.

1. I am the first to give credit to all of the famous traders and authors you have mentioned.  There is little in my approach to investing that hasn't been adopted from somebody else in some form or another.

Jesse Livermore:   One of my favorite books is "Reminiscences of a Stock Operator" by Edwin Lefevre.  This is allegedly a fictionalized biography of Jesse Livermore.  Livermore was able to make large fortunes in the 1907 and 1929 crash.  Some of his lessons were to "follow the tape" closely in observing the activity of the market.  

Nicholas Darvas: Another classic text: "How I made $2,000,000 In The Stock Market" also sits my bookshelf at home.  Darvas was a professional dancer who developed his belief of a technical approach to investing utilizing price "boxes" that stocks seemed to trade within.  More of a technician, the book is a great read for an investor wishing to read about how another non-professional approached the market.

William J. O'Neil: Probably the strongest influence on my investing, the publisher of the Investors Business Daily as well as the author of "How To Make Money In Stocks: A Winning System in Good Times or Bad", O'Neil set out with a vast computerized investigation into the characteristics of stocks that later went on to make large moves higher.   The creator of the CANSLIM system, O'Neil inspired me to think about stocks similarly, looking for characteristics that might be predictive of future price gains.  Rather than looking at stocks at 'new highs', I have chosen to look at stocks moving higher on the top % gainers lists.  I also have been sold on O'Neil's discipline of selling losing stocks quicklyat 8% losses.  However, O'Neil relies more on technical charts on timing purchases and making sales than I do.

I would also like to add at least two additional authors who have inspired me in my own thinking and deserve as much credit as possible for any success I may achieve in this process.

Gene Walden:   Mr. Walden, who I do not believe is as well known as some of the others discussed, is the author of "The 100 Best Stocks to Own in America".  Unfortunately, I believe the last edition published was back in 2001.  Walden had a point system with different numbers of 'stars' for each stock in different categories in terms of dividends, earnings, etc.  This objective system for evaluating stocks inspired me to think about the specific criteria that I believed were important.

Robert Lichello: The author of "How to Make $1,000,000 in the Stock Market Automatically".  I was pointed towards this book by my good friend Pete F. who practiced medicine and was also an avid investor.  Lichello believed that an automatic system of responding to the stock market might be possible establishing two funds, one a mutual fund, and the other a money market fund (simplifying his more complex system), and then utilizing his AIM system to determine when to be transferring money between those two funds in response to market action.  My own portfolio management approach borrows from this concept as I try to respond to market action by either looking for signals from my own portfolio to be buying new positions or moving proceeds into cash equivalents.

Over the years, I have read as many articles and books on investing as I have time for.   Currently I am reading Practical Speculation by Victor Niederhoffer and would recommend that book to all of you interested in additional insight into investing. 

I believe this answers your question on books that have influenced my trading.

2. You have asked me about my own journey to where I am.  Elsewhere I have commented on the fact that I started investing in 1967 when I invested my first $300 in the market buying 5 shares of Global Marine.  At that time, I purchased shares near the peak, only to see them slide down into the teens.  

I also purchased shares through high school and college in very small amounts using a Merrill Lynch 'sharebuilder' account that I do not believe still is available.  However, an independent ShareBuilder service is now in existence that serves the same purpose of allowing small investors to buy small dollar amounts of stocks and reinvest fractional amounts as well.  I do not have any personal experience with them, but it recalls my own approach.

My own journey has been a bit irregular.  In fact, my blogging has helped me develop the trading rules and discipline that I attribute to my current success.  But I am humble enough to know that failure is only a trade or a market correction away.

Previously, I have 'shot from the hip' at stocks.  Going with my gut.  Buying and selling without much rhyme or reason.  About 12 years ago I lost quite a bit on Jefferson Smurfit options.  I was buying options and not writing them.  I don't trade in options anymore.

Some time in early 2003 or late 2002, I started realizing that it was possible to buy stocks off the top % gainers list and make a profit.  I worked that approach and started screening them for fundamental information that would help me identify stocks that might have an increased chance at success.  I credit another friend, Dean W., who pointed me to the Morningstar.com website, where I learned how to use the "5-Yr Restated" financials page.  I have incorporated that particular page and the information therein into my stock selection approach.

Robert A., a broker who had been advising my current stock club, introduced me to Point & Figure charting.  After some time, I started really appreciating this approach to graphing price movement which now gave me the ability to appreciate the bull and bear movements in a stock price. 

I learned the hard way about reinvesting stocks after selling them for losses only to see them lose again that I needed to have some timing device about when to be buying and when to be selling.  I recall reading William O'Neil talking about the M in CANSLIM, the Market to determine when to be buying stocks.  He commented somewhere about how it was important to observe that your own portfolio might be telling you that it was a bad Market when your own stocks were hitting sale points shortly after purchasing them.  

This struck me as quite important in the process.  So I learned to 'sit on my hands' after a sale on a loss, what I call "bad news".

But I needed a signal to be buying.  Logically, if a sale on a loss was a good signal to be avoiding the market, it seemed that some sort of appreciation measurement might also signal me to be buying.  I have used sales at gains to give me that signal.  Initially I sold only 1/4 of my positions at each point, figuring that 1/4 of 4/3 would be 3/3 after a 33% appreciation. But continued 1/4 position sales started eroding the size of my positions.  I reduced this to 1/6th and most recently down to a 1/7th position sale at targeted gains.

3. Percentage of my trading assets using this strategy?  All of them.  All 20 positions.  But I also have some mutual funds in retirement accounts and also employ professionally management to handle other retirement assets.

I am seeking to learn from this account.  Currently I am not willing to assume management over all of my assets.  But this account is completely managed by this approach.

4. My average return?  I have done well.  But I do not know the exact numbers.  And more recently I have been participating on Covestor, where you can check my Covestor Page which is usually linked along the left side of the blog.  Unfortunately, I haven't calculated my return until my participation on Covestor.  I would encourage you to go through the entries and about every month or so I have been writing up my holdings and valuation and gains and losses.   Hopefully, with my Covestor participation, I shall be able to get a better handle on my actual % performance.  This should be helpful to me as well as my readers.

Thanks so much for writing!  I hope that I have responded to your questions in as complete and direct fashion as possible.  Remember that I am an amateur investor, even though I have been investing for many years now, and also am still learning about how to go about this process.  If you have any other questions or comments, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.

Bob 


Posted by bobsadviceforstocks at 1:20 AM CDT | Post Comment | Permalink
Friday, 27 July 2007
On "Averaging Down"

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 thought you might enjoy this illustration from the 3 Quarks Daily Blog which illustrates the concept of averaging down.  What better topic to discuss after this week of dismal trading activity?

But seriously, the letter from Raj that I discussed earlier today presented the question about averaging down without me commenting on that issue.  That is something that really needs to be addressed imho and I would like to share with you some of my thoughts on this subject.

First of all, let's explain what "averaging down" means.  In a simple fashion, this means reducing the mathematical average of your cost of an equity by purchasing more shares after it declines in price, much like Raj did with Synalloy.  This isn't necessarily a bad idea.  It would seem that if a stock was a good buy at $30/share, then shouldn't it be a 'better buy' at $25?  And if the reasons to make a purchase were good at $30, wouldn't those reasons make that decision to buy even more compelling at a lower price?

Perhaps.

I would like to suggest there are two different perspectives one could have on this subject depending on whether one is essentially a 'value investor'  or whether one is more of a 'momentum investor' or 'market timer'.

Jim Cramer has on occasion been an advocate of 'averaging down'. 

A couple of examples: On November 29, 2006, Cramer commented on UnitedHealth (UNH):

"I think the nightmare is about to change. Because we're at the beginning of a healthcare rally that UNH will participate in. Pull the trigger. Average down. Buy more. I don't think you'll regret it."

This year, on June 15, 2007, Cramer commented on Switch & Data Facilities (SDXC):

"No, it has not been good. It does what is known as co-location. It's a terrific, terrific play on internet growth... I know averaging down is not something people like. I made a lot of money doing it when I'm investing, and I bless more buying."

So Cramer sometimes believes so strongly in stocks that he suggests it is wise to buy shares, at least occasionally, in a stock that has declined after your purchase.

But Cramer is not alone on this. 

Rick Munarriz wrote a piece on Motley Fool in a Bull/Bear discussion of this topic and advocated averaging down.  Rick commented in part:

"Yet when you refuse to take advantage of a buying opportunity when a quality company tumbles because you are tied to a "Cut Your Losses" mantra or cocky to the point that you refuse to accept that you didn't "Buy Low" in the first place, do you know what you're doing? You are passing up on a more attractive purchase scenario than the one your initial due diligence led you to make."

Jonathan D. Poland made the argument for averaging down based on a Benjamin Graham valuation argument:

"I always seek value and believe in what Ben Graham taught: there are no good or bad stocks, just cheap or expensive. That's where the margin of safety and using the markets fluctuations to your advantage."

But there are many voices out there that speak against averaging down (including mine).

A nice column on dummyspots.com writes about "Rule 7: When To Average Down":

"Never. Never ever. Never ever ever. Never Never ever Never Never ever ever.

This one should actually not even come up. When you enter a position, you know your time frame and you have an initial stop. If you stay with your time frame and respect your stop, you’ll be taken out when the position turns against you, and you won’t have the opportunity to add to a losing position.

If you are tempted, remember: the fact that you are “under water” in your position proves that you were already wrong in your evaluation of this stock. What makes you think you’re a better judge of it now that you’re bleeding?

Adding to a losing position is the ego’s attempt to be right at any cost, or even worse, greed trying to add to the profits you’ll make when the rest of the world figures out it was wrong and you were right. If that’s what you’re experiencing, you should be exploring the deeper reasons why you’re trading in the first place."

Another well-known investor, Harry Domash had this to say about averaging down:

"4. Never average down.

Averaging down means buying more shares after a stock you bought went down instead of up. Say you buy 100 shares of a stock for $20 per share. Then it drops to $10. To get back to break-even, the stock would have to double.

By averaging down, which in this case means buying 100 more shares at $10, you can break even if the stock pops back up to $15, instead of $20.

Bad idea! The stock dropped because something went wrong. Chances are, the stock will drop even further."

David Forrest, on Motley Fool, had this to say in the bear/bull case on averaging down:

"Never average down! You heard me. Don't ever average down. The process of buying a stock, watching it fall, and then throwing more money at it in the hopes that you'll either get back to even or make a bigger killing is one of the most misguided pieces of advice Wall Street has ever dispensed. I'm talking about when someone buys a stock, watches it fall 10 points (or however much it takes to make you violently ill), and then contemplates the absurd: "Shall I risk even more than I originally intended in a desperate attempt to lower my cost and save my butt?" The answer, over and over again, is a big, fat "NO.""

So what is the proper approach?  I believe very strongly that one should listen to what the market is telling you.  It is foolish to believe that you are wiser than the market in each and every decision that you make.  When you make an investment decision to purchase a stock and the stock price increases (assuming you are long the investment), then that was a wise and correct decision.  

If, on the other hand, the stock price declines after your purchase, you may well have done your homework, but you should never consider yourself wiser than the market.  Respect the market.  In other words, if you have set up an 8% loss limit, and I do, and the stock has reached that limit on a decline, your are wiser to sell that stock and limit your losses to a small loss than to buy more shares believing that this was time to 'increase your wager' on your decision because somehow you are wiser than the rest of the market.

That is a formula for disaster imho.

There are multiple sides to managing a portfolio.  One has to decide what criteria are required to pick a stock to place into your holdings.  After that you need to decide when you need to sell both on the upside and on the downside.

When your stocks decline, your portfolio is talking to you.  It is telling you to exercise caution.  Be ready to pull the plug on those investments.  Be prepared to 'sit on your hands' with the proceeds.

There will be many times when averaging down works well.  If you have a great stock that declines and you buy more shares then the market turns around and the stock climbs again you shall look brilliant.  But there shall be stocks that decline and then spend years with large decreases in price to possibly never assume their heights of price valuation.  The more you buy as those stocks decline, the greater your loss.  You will not look or feel brilliant.

When managing your portfolio, sell your losing stocks quickly and completely at preset limits.  Respect the market.  Listen to what it is telling you.

So averaging down, while ok for some, will not work with my strategy.  Otherwise you will be like Raj feeling like you were broadsided with a loss and wondering 'what to do next?'.

Thanks so much for 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.  I do not mean to be so gloomy.  But then again, it was a pretty awful day in the market, wasn't it?

Bob 


Posted by bobsadviceforstocks at 6:26 PM CDT | Post Comment | Permalink
A Reader Writes "What do you suggest....?"

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 my favorite things about writing this blog is corresponding with fellow investors who have questions about investments and 'what to do...'.  I have to emphasize that my advice should always be taken with a grain of salt.  That is, remember that I am an amateur at all of this.  I am not qualified to advise anyone regarding their own particular investments and am not trying to do so.  I can only respond in telling people what I do in those situations.  That doesn't mean that my response is correct for them; this is just to help all of us think about investing.  My suggestion to consult with professional investment advisers holds.  

That being said, I did receive a nice letter from Raj who had a good question for me.  Raj wrote: 

"Hi Bob,

Thanks for the great work you been doing in helping
new players in market. I am one such new player who is
losing a lot of money day by day on SYNL. I bought the
stock at 37$(100 shares) at the end of june and since
then its been following a down trend and i being a new
player was ignorant and added 75 more shares at
34$/share. Today it hit a low of 21.5/share and i am
at loss of 2500 $ totally. What do you suggest, should
i dispose it off or do you think it still would yield
something fruitful. Any help in this regard would be
greatly appreciated

Regards
Raj"

Raj, thanks so much for writing!  The market has been very rough on investors, and I am sure there are many people who are facing this same problem every day.  What to do with a stock that declines in a never-ending pattern.  As I wrote above, I cannot tell you what is write with your particular situation.  I don't know all of the facts and besides, I am an amateur myself.  But let me tell you about what I do in similar situations.

After many years facing similar trading near-disasters like this, I have adopted, in a very disciplined fashion, my first rule of investing which is to limit your losses.  Let me again repeat the first rule of investing, just in case my point has not been made.  When I buy a stock, I set my maximum tolerated loss ahead of time (I do this with a 'mental' stop, but you could actually enter a real stop if your brokerage allows this.)  For me, after a first purchase of an equity, I sell the stock, regardless of my own affection or interest in the equity, if the stock sells down or passes an 8% loss.

In your particular case, with a cost of $37, I would sell if the stock dropped to 92% of that level or .92 x $.37 = $34.04.  I would not be owning the stock anymore at the $21.50 level.  So when you ask me what to do at this level, I really don't have much recent experience with stocks losing so much recently.  Because I would have and do sell those stocks that decline.  By the way, as I write, SYNL is trading at $22.18, up $.41 or 1.88% in an otherwise weak market.

If I were owning a stock that declined, I would need to decide whether I wished to continue holding that stock if the facts were favorable, and if I hadn't done so, I would then set a stop of 8% under the current level and sell the stock at that price if it declined further.  All of these losses must stop!  

You probably really like this stock.  Maybe I could say you love the stock because of what you have read and what you believe the company's prospects are.  I haven't looked yet but shall in a moment review some of those facts.  It doesn't matter.  I strongly believe that managing your holdings is equally important to the process of a successful investment strategy as is picking the stocks to put into your portfolio.  That is why, over and over again, I explain how I sell my losing stocks quickly and completely and my appreciating stocks slowly and partially.  I do not know if this strategy works or is right for anyone else anyhow.  But it seems to be working for me.

In addition, after selling a stock at a loss, it is important to avoid compounding that loss by immediately looking for a new stock to buy.  And you guessed it, I did that many times, limited my losses then went and bought a new holding only to lose some more money.  

Recently, I have been looking for the signals to help me make those investment decisions.  I use sales of my own shares at appreciation points as a source of a 'good news' indicator that allows me to put a new position into my portfolio. Sales on the downside or on otherwise bad news, means that I should be 'sitting on my hands' as I like to explain.

Briefly about Synalloy (SYNL), checking the Morningstar.com "5-Yr Restated" financials, thinks look okay in the earnings department and revenue growth, except that the company in 2006 and the TTM has been cash flow negative. Otherwise, on July 19, 2007, the company reported a strong second quarter 2007 result.  Sales climbed to $43.9 million from $36.7 million in the year ago same period.  Diluted earnings more than doubled to $.50/share from $.24/share. However, in light of the cash flow being negative, the best I could do with this stock is

SYNALLOY (SYNL) IS RATED A HOLD

I am not sure if I answered your question.  I hope so.  And what is right for me may not be right for you.  It is just that I have found something that works for me.  You need to establish your own trading rules and stick to them.  That, at least, is my take on all of this.

Good luck!  Keep me posted and thanks for writing!

Bob 

 

 


Posted by bobsadviceforstocks at 11:11 AM CDT | Post Comment | Permalink
Updated: Friday, 27 July 2007 11:12 AM CDT
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 check with your professional investment advisers prior to making any investment decisions based on information on this website.

A few moments ago I spent that nickel that was burning that hole in my pocket :).  Checking the top % gainers lists,  I saw that an old favorite of mine, VCA Antech (WOOF), a stock that I had owned earlier this year and actually had sold at a loss, was behaving well.  It was, you could say, barking for attention :).  (Excuse the pun so early in the morning).  But the stock, as I write, is trading at $40.99, up $4.38 or 11.96% on the day.  I went ahead and purchased 210 shares at $40.986.  (I purchase in these odd numbers so that they are divisible by 7.  It isn't superstitious, but it is easier to do the division :)).  

WOOF had announced 2nd quarter 2007 results after the close of trading yesterday.  Revenue climbed 17.7% to $300.3 million, net income climbed 21.3% to $35.8 million, and diluted eps was up 20.0% to $.42/share.  The Morningstar.com "5-Yr Restated" financials appear intact although earnings have been a bit volatile.  For all of these reasons,

VCA ANTECH (WOOF) IS RATED A BUY

and buy is exactly what I did!  Wish me luck!

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.

Bob


Posted by bobsadviceforstocks at 9:37 AM CDT | Post Comment | Permalink
Kyphon (KYPH) "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 advisers prior to making any investment decisions based on information on this website.

A few moments ago I sold my remaining 108 shares of Kyphon at $67.9863.  These shares were originally purchased 5/20/05 at a cost basis of $29.21.  Thus, I had a gain of $38.77/share or 132.7% since purchase.

I sold all of my remaining shares, instead of my usual 1/7th of my holding as the stock moved sharply higher today (currently it is trading at $67.86, up $14.1818 or 26.42% on the day as I write) due to the announcement of an impending acquisition of the company by Medtronic (MDT) at $71/share.  I could probably have hung on to get the last few points, but the risk factor is that the acquisition doesn't go through.  My goal in investing is to be involved in stocks with capital appreciation due to their internal growth and price momentum not by making money by arbitrage.

On top of this, the company announced 2nd quarter 2007 results today which were strong with sales up 43% and net up 16%. 

In any case, I am back to 19 positions and with this sale of a position on 'good news' I am 'entitled' to add a position #20.  So I shall keep you posted as I am on the 'look-out' again, and that nickel is burning a hole in my pocket :).

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.

Bob 


Posted by bobsadviceforstocks at 9:09 AM CDT | Post Comment | Permalink
Wednesday, 25 July 2007
National Oilwell Varco (NOV)

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.

Earlier today I posted about how I purchased 105 shares of National Oilwell Varco (NOV) at $117.92.  This purchase was enabled by my partial sale of Kyphon (KYPH) yesterday which, since I was below my maximum of 20 positions, 'entitled' me to add a new position to bring my portfolio up to the maximum of 20 positions that I recently established (from my prior portfolio size of 25 positions).  NOV closed at $123.89, up $11.56 or 10.29% on the day.

Let's take a closer lok at this company and I will share with you why, as I wrote previously,

NATIONAL OILWELL VARCO (NOV) IS RATED A BUY

What exactly does this company do?

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

"...engages in the design, construction, manufacture, and sale of systems, components, and products to the oil and gas industry worldwide. It operates in three segments: Rig Technology, Petroleum Services & Supplies, and Distribution Services."

How did they do in the latest quarter?

As we have seen in many of the stocks written up on this blog, it was the announcement of 2nd quarter 2007 results this morning hat pushed the stock higher early today.  Revenue for the quarter increased 44% to $2.38 billion from $1.66 billion during the same period last year.  Net income increased to $318.5 million or $1.79/share, up from $147.9 million or $.84/share last year.  This was more than a 100% increase in earnings year over year!

In addition, the backlog increased to $7.2 billion compared with the $6.4 billion in backlog the previous quarter.

As reported, this result was $.25/share higher than the $1.54/share expected by analysts.  The revenue came in at $2.38 billion while analysts had been expecting $2.2 billion. 

How about longer-term results?

Reviewing the Morningstar.com "5-Yr Restated" financials on National Oilwell, we can see that revenue has steadily increased from $1.5 billion in 2002 to $7.0 billion in 2006 and $7.7 billion in the trailing twelve months (TTM).

Earnings have also increased, although they dipped from $1.30 in 2004 to $.60/share in 2005, from $.80/share in 2002 to $1/40/share in 2006 and $4.70/share in the TTM.

The company has increased its float from 86 million in 2004 to 175 million in the TTM.  During the same period, revenue more than tripled while the shares increased by 100%.

Free cash flow has also been a little erratic, dropping from $127 million in 2004 to a negative $(28) million in 2005 than rebounding strongly to $1.01 billion in 2006 and $1.18 billion in the TTM.

The balance sheet appears solid with $1.2 billion in cash and $4.3 billion in other current assets.  Compared to the current liabilities of $3.0 billion, the current ratio works out to a 'healthy' 1.84.

What about some valuation numbers?

Reviewing the Yahoo "Key Statistics" on National Oilwell Varco, we find that this is a large cap stock with a market capitalization of $22.00 billion.  The trailing p/e is a moderate 26.13 and the forward p/e (fye 31-Dec-08) is estimated at a more reasonable 16.67.  The PEG ratio (5 yr expected) is estimated at 0.63, well below my acceptable level of 1.0 to 1.5 in terms of valuation relative to growth.

According to the Fidelity.com eresearch website, valuation is also reasonabl in terms of Price/Sales.  NOV comes in with a Price/Sales (TTM) of 2.57 compared to an industry average of 3.88 per Fidelity.  However, the Retun on Equity (ROE) (TTM) is below the industry average at 17.01% compared ot the industry average of 30.61%.  

Finishing up with Yahoo we can see that there are 177.61 million shares outstanding with 177.26 million that float.  As of 6/12/07, there were 7.59 million shares out short representing 2.7 trading days of volume (the short ratio) or 4.3% of the float.

No dividend is paid per Yahoo. The last stock split reported on Yahoo was a 2:1 back on November 19, 1997.

What does the chart look like?

If we review the "point & figure" chart on National Oilwell Varco from StockCharts.com, we can see that the stock which was consolidating through the latter part of 2006 in the $52 to $67 level, broke through resistance in February, 2007, and the $65 level.  The stock has moved relatively quickly to its current level of $123.89.  The chart looks quite strong to me!

 

Summary:  What do I think?

I have generally avoided investing in companies that are so dependent on the price of commodities like oil.  Well, excep for Bolt (BTJ) which has indeed been a terrific investment, although quite volatile, for me.

Here is a chart of light crude oil.


You can certainly see the upward price pressure of oil supporting the strong move in all of these oil service companies like NOV. 

In any case, National Oilwell Varco made a strong move today.  Fortunately, I caught the move relatively early and achieved a buffer of almost five points the very first day.  I would not be surprised to see some profit-taking tomorrow.

They announced earnings that were incredibly strong.  Especially for a stock with a p/e in the mid 20's with earnings reported up over 100%.  They beat expectations and have bene growing strongly for the last four or five years.  Finally, valuation, while not perfect, isn't bad.

And the chart is quite strong as well.

I like the stock a lot.  In fact enough to buy some shares!  Wish me luck!

Thanks again for dropping by and visiting!   If you have any comments or questions, please feel free to leave them on the blog.  If you get a chance, be sure and visit my Stock Picks Podcast Website!  Also, stop by and visit my Social Picks Page where Social Picks evaluates my many stock selections since early 2007 and evaluates my picking performance relative to many other bloggers and stock pickers!  Finally, if you would like to see how my actual Trading Portfolio has been performing, you can visit my Covestor Page where Covestor, for the past two months, has been monitoring my actual trading account and holdings and evaluating my performance relative to other investors on the website.

Have a great Thursday everyone!  Please remember that I do own shares in this stock, so take that into consideration.  Also remember that past performance is not guarantee of future performance and that I am truly an amateur so please check with your own advisers prior to making any investment decision!

Bob


Posted by bobsadviceforstocks at 10:09 PM CDT | Post Comment | Permalink
National Oilwell Varco (NOV) "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 advisers prior to making any investment decisions based on information on this website.

A few moments ago I purchased Position #20, after getting a 'permission slip' yesterday after my partial sale of Kyphon at a gain.  (See my previous entry for more details on that transaction).

Looking through the list of top % gainers today, I came across National Oilwell Varco (NOV) which as I write, is trading at $116.47, up $4.14 or 3.69% on the day.  I have not discussed this stock previously, and I owe all of you a good review. 

I purchased 105 shares at $117.92, so I am actually down a bit over a point on this one already :(.  NOV announced strong 2nd quarter 2007 results today which drove the stock higher in trading.  The 5-Yr Restated Financials on Morningstar.com appear solid. And I went ahead and bought some shares!  Wish me luck.  I am a bit under my purchase price already, but time will tell if this one works out.

NATIONAL OILWELL VARCO (NOV) IS RATED A BUY

Bob 

 


Posted by bobsadviceforstocks at 10:34 AM CDT | Post Comment | Permalink
Tuesday, 24 July 2007
Thoughts on a Dreary Day in the Market!

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.

What a day in the market!  The Dow closed down 226.47 points at 13,716.95, the NASDAQ was down 50.72 points at 2,639.86, and the S&P closed down 30.53 points at 1,511.04.  

And yet my only sale was a small sale of 1/7th of a position that hit an appreciation target. 

That doesn't mean that I didn't suffer losses.  In fact my Trading Account dropped about $1,600 or so in value.

But the difference is that having exit points allows one to weather the market.  It doesn't prevent losses.  It prevents panics.  In other words, it is imperative to have a working strategy dealing with every single investment that you own if you are to responsibly deal with your portfolio.  Of course, this is an amateur's perspective.  So take that into consideration.

For me, I know when I shall be selling each and every one of my holdings.  If the time comes, they shall be gone.

I know that I shall not be replacing my stocks unless I have an indication to be buying.  Ironically, I got that signal today with my sale on "good news".  I now have permission to add a new position up to my maximum of 20 holdings.

Planning.

That's what it is all about.

I am banking on a long-term bias towards upward movement in the overall market.  I am a long-term investor as long as stocks move in a reasonably positive direction.

Just a brief comment to let you know that I am here.  I am also losing money when stocks decline.  I am sitting tight when sitting tight is indicated.  And I am prepared to sell when the price dictates that action.

Have a better day trading tomorrow!

Bob 


Posted by bobsadviceforstocks at 5:23 PM CDT | Post Comment | Permalink
Kyphon (KYPH) "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 advisers prior to making any investment decisions based on information on this website.

The market is doing lousy as I write.  Dow is down 100+, NASDAQ down 25+.  Yet my Kyphon stock (KYPH) hit a sale point on a price rise.  In fact, a few moments ago I sold 1/7th of my 125 shares (17 shares) at $56.29/share.  This was my third targeted sale, having sold twice before, thus my target was a 90% appreciation level.

These shares were originally purchased 5/29/05 at a cost of $29.21.  Thus, I had a realized gain of $27.08 or 92.7% since my purchase.  When will I next sell a portion of Kyphon?  On the upside, I shall be looking to sell 1/7th of my holding if the stock should appreciate to a 120% appreciation level.  This works out to 2.20 x $29.21 = $64.27.  On the downside, if the stock should drop to 1/2 of the highest appreciation level, which now works out to 1/2 of 90% or a 45% appreciation level, then I would plan on selling ALL remaining shares.  This price level would work out to 1.45 x $29.21 = $42.35.

With only 19 positions (maximum of 20), this sale at a gain gives me a "permission slip" to add a new position.   That "nickel" is burning a hole in my pocket already!

Thanks so much for stopping by!  If you have any comments or questions, please leave them on the blog or email me at bobsadviceforstocks@lycos.com!

Bob


Posted by bobsadviceforstocks at 8:59 AM CDT | Post Comment | Permalink

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