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Sunday, 12 August 2007
Synovis Life Technologies Inc. (SYNO) "Long-Term Review #9"

 

 

 

 

 

 

 

 

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 little time this evening to do another one of those 'long-term' reviews on this blog.  If you don't realize it, this blog had its first entry back  on May 12, 2003, over four years ago and over 1,500 entries ago as well!

So many of those early posts are easily forgotten (and I wish I could forget more than a few of those!).  But there are lessons to be learned from the first entries I made on this website as I was just developing my investing strategy and the investment rules were just forming.

As an exercise in this, I have been trying, from time to time, to go back to the beginning--so to speak--and see what happened to the stocks discussed early on.  Last week, on August 5, 2007, I reviewed my stock pick #8, Home Depot (HD) which was first posted on May 20, 2003.  The next pick was on May 21, 2003, when I discussed Synovis Life Technology (SYNO) on Stock Picks Bob's Advice.

On that date I wrote:

"May 21, 2003

Synovis Life Technology (SYNO)


The market cannot make up its mind today about direction. Appears to need to correct after its fairly good run-up the last two months.

Was checking the CNN-money list of most ups this morning....almost noon here at 11:55 am.....and thought we wouldn't find any candidates for our list. Came across this Synovis Life Technology stock....have never heard of it before....not exactly Peter Lynch investing....and it fits the bill.

SYNO is trading currently at $14.39 up $.94 (or 6.99%) Volume running at 184,572. Stock is SMALL with a market cap of $139.3 million...and only 9.683 million shares outstanding.

What moved the stock today is an outstanding earnings report which showed a 61% growth in Revenue and 63% increase in net income for the second fiscal quarter....not too shabby!

The net revenue increased to $15.3 million in the second quarter of fiscal 2003 from $9.5 million last year per the New York Times report of earnings today.

By the way the company "manufactures medical devices used in cardiac, brain, lung, and other surgeries. Its products include vascular grafts, patching materials, blood-flow interruptors, and vascular probes." That is per Morningstar.com.

Looking at the 5 year growth in revenue we see revenue of 12.0 million in 1998, 19.1 million in 1999, 22.1 million in 2000, 28.5 million in 2001 and 40.0 million in 2002. Extrapolating from the second quarter without acceleration we can anticipate a $60.0 million revenue in 2003.

There appears to be an ACCELERATION of this growth recently (!)....last four quarters before the reported quarter above...show 27.32%, 32.55%, 49.88%, and 48.07% increases in revenue year over year....free cash flow is positive by $1 million....and current assets are over $20 milllion with no long term debt and current liabilities at only $5.8 million.

This is a BEAUTIFUL stock. I don't own a share, never heard of it before scanning the lists today....but might just buy some shares in the future. Great luck investing! Bob"

Let's take a closer look at Synovis and see whether it deserves to be actively considered on this blog! 

 

Synovis (SYNO) closed at $12.32 on August 10, 2007, for a net loss of $(2.07) or (14.4)% since posting.

On May 30, 2007, Synovis announced 2nd quarter 2007 results.  Revenue increased 11% to $16.6 million and earnings turned around for a profit of $759,000 or $.06/diluted share, improved from a net loss of $(475,000) or $(.04)/share the prior year. 

Longer-term results as reported on Morningstar.com are less satisfactory with revenue peaking at $60.3 million in 2005, then dipping to $55.8 million in 2006 and only increasing to $56.7 million in the TTM.

Earnings have gone nowhere with $.50/share reported in 2003, dipping to $.10/share in 2004 and 2005, then back to a loss of $(.10)/share in 2006 and up to $.10/share in the TTM.

Free cash flow has improved from $2 million in 2005 and $2 million in 2006 to $3 million in the TTM.

The balance sheet is solid with a current ratio of 11!

Let's take a look at the "Point & Figure" chart on SYNO from StockCharts.com.   Here we can see that the stock moved sharply higher after being picked on the blog.  However, in September, 2003, after bumping twice into the $32 level, the stock turned lower, finally bottoming twice at the $7 level, first in August, 2004, then again in October, 2006, before breaking through resistance and moving higher.  Recently the stock has been under pressure with the turbulence in the market, but has not broken down from its short-term move higher.

With the satisfactory quarterly report, but the spotty Morningstar.com report with decent news just over the past 12 or so months, and a chart that only short-term looks encouraging, the best I can do is to decide that

SYNOVIS LIFE TECHNOLOGIES (SYNO) IS RATED A HOLD

Thanks so much for stopping by and visiting my blog!  I hope that this week finds the markets trading a little less wildly, and that reason and calmness returns to your trading and your lives.

Have a good week my friends!

Bob


Posted by bobsadviceforstocks at 9:43 PM CDT | Post Comment | Permalink
"Looking Back One Year" A review of stock picks from the week of February 20, 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.

 

 

 

Sometimes after a difficult week in trading it is easy to lose perspective about the long-term results of investing.  Let's take a look back to a year ago at the week of February 20, 2006, and see how those stock picks turned out.  Last weekend I reviewed the selections from February 13, 2006, and as I like to do, I try to move ahead one week each weekend and check out the picks from that entire week.

These reviews assume a buy and hold strategy with all of the stocks selected.   In practice, I utilize an active portfolio management strategy in which I try to limit my losses by selling my losing stocks quickly and completely and preserve my gains by selling appreciating stocks slowly and partially at targeted appreciation levels.  This difference between the review and my actual practice would certainly affect performance measurements and should be taken into consideration.

On February 22, 2006, I posted Metrologic (MTLG) on Stock Picks Bob's Advice when it was trading at $23.57.  Metrologic was taken private by Francisco Partners-led private equity firm at $18.50/share as reported on September 12, 2006.  This worked out to a decline of $(5.07) or (21.5)% since posting.

On February 23, 2006, I posted C R Bard (BCR) on Stock Picks when it was trading at $66.74/share.  BCR closed at $81.23 on August 10, 2007, for a gain of $14.49 or 21.7% since posting.

On July 24, 2007, Bard reported 2nd quarter 2007 results.  Revenue climbed 10% to $545.7 million from $496.5 million.  Net earnings came in at $97.5 million or $.91/share, up from $81.4 million or $.76/share.  These were good results but did come in $.02 shy of estimates of $.93 according to Thomson Financial. 

Reviewing the "point & figure" chart on BCR from StockCharts.com, we can see that while the stock has been under some short-term pressure and appears to be consolidating in price, the chart is still well above its support level.

With the solid earnings report and still strong chart,

C R BARD (BCR) IS RATED A BUY

On February 25, 2006, I posted NATCO Group (NTG) on Stock Picks Bob's Advice when the stock was trading at $24.61.  NTG closed at $44.21 on August 10, 2007, for a gain of $19.60 or 79.6% since posting.

On August 1, 2007, NTG reported 2nd quarter 2007 results.  Revenue came in at $140.7 million, up 9% over prior year revenue of $128.7 million.  Net income was $11.8 million or $.62/diluted share up from $9.3 million or $.50/diluted share last year. 

Looking at the "point and figure"chart on NTG from StockCharts.com we can see that this is quite a strong chart, and although it has recently experienced some small amount of profit-taking, does not appear to have broken down from its upward movement and appears to be trading well above its support levels. 

In light of he solid earnings report and intact price chart,

NATCO GROUP (NTG) IS RATED A BUY

So how did I do with these three stock picks from that week back in February, 2006?  In a word terrific!  One stock was acquired, one showed a solid gain, and the other had a fabulous price appreciatio.  The average gain for the three stocks works out to 26.6%.

It is nice sometimes to look back a bit to get perspective!  Although it is true that past performance is not a guarantee of future performance and that as always, recall that I am an amateur investor.

Thanks again for visiting!  Please feel free to leave your comments or questions right on the blog or email me at bobsadviceforstocks@lycos.com.

Bob


Posted by bobsadviceforstocks at 9:51 AM CDT | Post Comment | Permalink
Saturday, 11 August 2007
Graftech (GTI) "A Brief Review and a Podcast Tonight!"

CLICK HERE FOR MY PODCAST ON GRAFTECH

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.

Let me briefly go through GrafTech (GTI), which was the topic of my podcast this evening.

Graftech (GTI) made the list of top % gainers on Friday, gaining 17.07% to $15.64, up $1.65 on the day.  I do not own any shares or options on this stock.

GrafTech (GTI) reported 2nd quarter 2007 results on August 2, 2007. It was a solid report that beat analysts expectations.

The Morningstar.com "5-Yr Restated" financials on GTI are solid except for some erratic earnings which have indeed solidly grown the past few years.  Free cash flow and the balance sheet look nice.

Yahoo "Key Statistics" on GTI showed this mid cap stock with reasonable p/e, nice PEG under 1.0, and lots of shares out short. 

The "point and figure" chart from StockCharts.com appears encouraging without appearing overextended. 

With the nice move Friday, the solid earnings report, decent valuation, great Morningstar.com report, and reasonable chart,

GRAFTECH (GTI) IS RATED A BUY

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 10:58 PM CDT | Post Comment | Permalink
A Reader Writes "...although the principle behind having a stop is solid, fixing the % is not."

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  It was nice to see that I had another letter this afternoon from a reader and follower of my Covestor Page.  It is nice to see that I am reaching investors through this blog, my Podcast site as well as my Covestor account.  I enjoy discussions about investing with fellow investors.  I continue to learn much about the process from their comments and my need to find reasonable responses to their inquiries.

 

Don B. wrote:

"Congrats on exiting when your stop was hit. It's rarely possible to find out beforehand why a given position is plunging.

 

Regarding the matter of O'Neil's 7-8% stop rule: I've long believed that although the principle behind having a stop is solid, fixing the % is not.

Why?

1. Some stocks fluctuate that much and more per day. CUB shot up 26% on 8/10.

2. The 7-8% pullback may well coincide with major chart support. If you’re buying on the basis of a chart idea, it makes some sense to me to base your initial stop on a chart idea as well. This would be right under the most recent low, not closer, no matter what % is involved, because closer means it’s well within the noise range, which means way too close!

 

There is a simple solution which will preserve the principle of having a stop, but not too close:

  1. Size your position before entering, so that your $ risk is the same for all positions.  Here’s the way this works:
  2. Decide beforehand what % of your account you’re willing to lose per trade. The maximum should be 2%, but should probably be lower. So, if you have $50,000 in your account, the maximum you should risk on any trade would be 2% * $50,000, or $1000.
  3. Using CUB as an example, if you were to buy this at the close 8/10, 32.89, the closest you could put your stop would be at 25.99, one tick under the recent low.  That’s a risk of 6.90 points per share, and 21% below the buy price. If you’re limiting your risk to $1000 in this hypothetical example, you’d divide the $1000 by 6.90, and that would give you 145 (rounded up) shares. To check your arithmetic, 145 * 6.9 = $1000. 
  4. But then figure your cost, which is 145 * 32.89 = $4769.  This comes to 9.5% of your account. If you sized every position this large, you’d only be able to be in 10.5 positions, which is well under the optimal level for proper diversification. Ideally, an account needs to aim for 30 plus positions.  If you were intent on aiming for 30+ positions, you’d divide your total equity by 30, which gives $1667, and then divide that by the buy price of 32.89, which gives 50 shares. So, depending on whether you are intent on diversifying broadly, or not, you could have as few as 50 shares, and as many as 145, but not more.
  5. Note: this approach is not the same as allocating the same total $ per trade. That will vary considerably. It’s a way to minimize risk across all positions, allowing for the great differences in various positions, and insuring your ability to stay diversified.
Good luck in this beast of a market!
 
Don"
 
It is a privilege to receive as thoughtful a comment as Don wrote.  Don is an experienced commodity trader, and invesor.  You can visit Don's Covestor Page and find out more about his strategy and philosophy.   In fact Don has written about his own strategy in a sort of explanation much like mine:
 
"1. Basing stock selection on some mix of fundamental and technical criteria whose validity is backed up by decades of research--as opposed to basing my selection on the hype du jour.

2. Having a clearly thought out plan for how much to risk on each position, as opposed to basing this on my gut feeling that this is my lucky day.

3. Having a specific plan for how I'll limit my loss if wrong, and maximize my profit if I'm right. In my case, this is a trend-following program.

4. Having a way to manage my own biases, greed, fear, etc., so that I don't let them sabotage my trades. I already have enough memories of the killer trades that I got out of prematurely. This involves recording in detail my reasons and criteria at the point of entry, as well as exit. I then carry out a rigorous periodic review of all of my trades, which is helping me become a more disciplined trader."
 
You can see that Don and I share many of the same philosophies that I suppose comes from years of doing things without that discipline and realizing that rules are necessary to increase one's chance at success.
 
Don has suggested a more flexible approach to the extremely rigid 8% rule that I follow on limiting losses.  As I understand his suggestion, he is writing that it is wrong to limit a stock to an 8% loss.  I recently wrote about how Roger Nusbaum also shared this observation.  Don here suggests that it would be wiser to allow each position to fluctuate a certain percentage of the entire account.  Thus, unless each position is of equal value, then the fluctuation would also vary.  
 
In the particular example, Don would have allowed a stock to decline about 21% before a sale would be triggered.  In this particular case CUB turned around and climbed 26% on August 10th.  And the sale was ill-advised.
 
I actually do not know if Don is right or wrong on this matter.
 
I do know that my goal is first and foremost to limit risk in investing.  
 
I have found it easy and disciplined to implement this same 8% loss limit on every position.  You will see that once a stock starts appreciating, this arbitrary loss limit disappears and my biggest gainers are given much more slack so to speak.  Thus, my recent purchases are quickly dropped if the market turns on me.
 
It also seems that it might be wise to continually increase the size of your positions as you invest successfully.  This makes sense from the perspective of undoing your investments in a declining market.  Since your latest investments are most vulnerable to a quick sale on a market pullback, they would also be the larger positions to do so.  It might help move your entire portfolio into cash quicker.
 
Anyhow, there are many ways to 'skin a cat'!

From "12 Ways to Skin a Cat" by Bob Jenyns of Australia.

Thank you all for writing and listening.  There are many wiser and cleverer investors out there who may well have better approaches to managing a portfolio.  The important part is to develop rules about your holdings.  Knowing when to buy, when to sell, and how much to buy and sell.

Don and I don't have exactly the same approach to investing, but we are certainly reading from the same book.

Thanks Don and if any of you have 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 5:00 PM CDT | Post Comment | Permalink
A Reader Writes "...how do you distinguish between following your signals and just following 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 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 great pleasures I receive from writing a blog or hosting a Stock Picks Podcast,  is to get feedback or emails from my readers and listeners.  If you would like to reach me, feel free to leave a comment on the blog or just drop me a line at bobsadviceforstocks@lycos.com.

In any case, I had a nice note from S.J.K. from Anchorage, Alaska who wrote:

"Hi Bob,

I get your podcast off of Itunes. I had just gotten an Ipod and was looking for a financial podcast to listen to. I downloaded a single program from maybe fifty different podcasters, including casts from Morningstar, Fidelity, Morgan Stanley, and independent podcasters.Your podcast is the only one I ended up subscribing to. It is thoughtful, insightful, and always interesting. Your style is very approachable and you just make good sense. Thank you for doing what you do.

My question has to do with getting into the market. We had cashed out a large amount of our investments to enable the purchase of a house. Now that the house is financed and our cashflow is reliable, we are looking to enter the market again. If you had a large windfall, how would you
re-enter the market? We're nervous about the market being overvalued and so are hesitant to drop everything in at once, just to see our assets drop in value. I'd be interested to hear your thoughts on the podcast or in an email directly to me.

The question opens up a broader question I've got about your strategy... many are predicting a 10% or greater "market correction" in the coming months. I assume that a general market drop would trigger your sell signals on many of your investments. Hypothetically speaking,
if all of your investments lost 10% or more and you followed the signals to sell all but six of your holdings, wouldn't you be missing a tremendous buying opportunity? how do you distinguish between following your signals and just following the market?

I look forward to hearing from you. Thank you for your time.

Yours,
---S J.
Anchorage, Alaska"

 

First of all, thank you so much for writing SJ.  And thank you for listening!  I promise you I shall get a podcast up ASAP, hopefully this afternoon! Before I answer your question, I must again emphasize that I am an amateur investor.  I am not qualified or certified to give you individual advice, so I would suggest that you consult with a certified advisor prior to acting on anything that I write, or anything I talk about on my podcast.  But let me try to tell you what I would be doing if I were in your shoes.

I would like to try to break down your comments and answer your questions one by one.

First of all, if I had a large windfall, how would I get into the market now?  I certainly would be very careful :).

Currently, I am using 20 positions as my maximum (instead of my former maximum size of 25 holdings.)  Thus, my minimum is now at 5 positions (rather than the six that I had originally blogged about.)  But what about your hypothetical situation?

Recall, as you have done, that I have both minimum and maximum numbers of holdings in my peculiar investing strategy.  Thus, if we are to assume a maximum of 20 positions, which should be plenty for anyone, I would divide the amount of your total investment pool by 20 to get the size of each individual holding to be purchased.

My initial goal would be to get to what I call a "neutral" posture, which would be at 1/2 of the total number of positions.  If going for 20 total, then 10 would be 1/2 or neutral in my scheme.

I wouldn't get there immediately.  I would look for stocks in the top % lists and start buying stocks that meet my criteria until I got to 10 positions.  Once at 10, then I would implement my portfolio management strategy, adding new positions if the stocks I picked appreciated or just sitting on my hands if the stocks I bought sold on 'bad news'.  Of course, once down to the minimum (5 positions), I would plan on buying a new positions to replace the minimum holdings so that the number of holdings would never theoretically get down much under the minimum (5 holdings). 

Your last questions about my positions losing 10% or more, I would sell all but six positions (or actually 5 as the minimum).  Let me clear this up in case you didn't understand my selling strategy.

After an initial purchase of a stock, I sell if I incur an 8% loss regardless of the duration of my holding.  (I recently sold my CUB stock after holding it for a total of two days!).

However, if stocks have had partial sales on appreciation, then my strategy changes rather drastically.

Let me review the selling strategy at gains.  Currently, I am selling 1/7th of my remaining position when stocks appreciate (for the first time) to 30, 60, 90, and 120% appreciation 'targets'.  After this group of four sales,  and with the doubling of the stock price, I increase the interval to 180, 240, 300, and 360%, and then increase once more by another 30%: 450, 540, 630, 720%, etc.

Now, how does this affect my selling strategy?

Well, after selling a stock once after a gain, much as William O'Neil advocates,  I very much want to avoid ever letting a gain turn into a loss.  Thus, after one sale at a 30% gain, I move my sale point up from an 8% loss to break-even.

After two or more sales at gains, I move the sale point up to 50% of the highest appreciation sale level achieved.  In other words, if the stock experienced partial sales at 30, 60, and 90% levels, I would allow the stock to decline to 50% of the highest sale level, which in this case would be at 50% of 90% or at a 45% appreciation level over the initial purchase price.

My last 5 positions are still vulnerable to a sale if they decline to a sale position.  However, in that case, I would have a 'permission slip' to add a new position that would otherwise qualify to be purchased.  Except at the minimum, my sales at 'bad news' would require me to 'sit on my hands' and not reinvest the proceeds in another position.  I am trying very hard to avoid compounding my losses on the way down and instead to compound my gains on the way up.

Finally, you commented on how I might be missing opportunities when things are cheap.  You are absolutely right!  I often write how my particular strategy may well not be the optimal technique with dealing with the stock market.  I cannot argue with that.  However, I just do not personally know when things realy are cheap.  Cheap can only be decided in hindsight.  If indeed a stock you have purchased moves higher after you buy it, then you are right it was cheap.  Otherwise, if the stock should decline after you purchase it, it really was't that cheap was it?

Of course, we can measure 'cheapness' in terms of fundamental criteria like p/e, PEG, Price/sales, book value, etc., etc., etc.  There isn't anything wrong with that.  But it isn't what I do.  It may well be a better approach.  In fact I am trying to determine whether my strategy works at all.  That is the very big reason why I blog and why I share things publicly. If I am developing a successful strategy you all will be witnesses to this process and you are more than welcome to adapt your own trading strategy accordingly.

Finally, you asked how I can distinguish between following my signals and just following the market.  To answer, I am not very good at predicting market action.  I don't thing there are many (anyone?) who can tell me where the market is likely to be in a month yet alone tomorrow.  

I was inspired into my strategy after reading O'Neil sometime ago when he was talking about the M in CANSLIM.  He advised being careful about buying stocks when the Market was turning against you.  He commented on the fact that if your own stocks are hitting sale points on declines, you should notice what your own portfolio is telling you about the condition of the Market.

So instead of guessing what the Market condition is.  Instead of listening to CNBC or to Jim Cramer or to Ben Bernanke or to Kudlow or to any othe other experts out there, I have chosen to listen to my own portfolio.  To try to stop thinking and anticipating so much and to do what I call the Zen of investing.  To listen to my own stocks and to observe their actions letting them determine my own actions in the market.  There may well be times that my own portfolio will be giving me the wrong signal.  I will need to deal with a lag between signals and market action.  But I have something that I can deal with the gyrations of the market without trying to guess myself. 

If on the other hand, if it isn't successful, then I may well determine what the changes I need to make are and then implement them.  Again, I do this with all of you readers during this process.

In summary, thanks so much for writing.  I do not know if I helped with this response.  I do not kid you when I write that I am an amateur.  I am.  But I have been watching stocks and buying and selling shares for quite awhile now.  And I offer my readers the documentation of my many hundreds of blog entries as my resume.  Let my decisions and my write-ups speak for themselves.  If you find anything I write about to be useful,  please use it.

Let me know how things work out!

Regards to you and all of my readers and listeners out there!

Bob 


Posted by bobsadviceforstocks at 3:51 PM CDT | Post Comment | Permalink
Updated: Saturday, 11 August 2007 3:58 PM CDT
Thursday, 9 August 2007
Watson Wyatt Worldwide (WW)

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.

It was a really lousy day in the market.  But I bet you noticed.  For the record, the Dow closed down 387.18 points at 13,270.68, and the NASDAQ was down 56.49 at 2,556.49.  YIKES. 

As the most entertaining Jim Cramer has said:

"I like to end every television and radio show I have with this signoff: "There is always a bull market somewhere, and I will try to find it for you." I say that because it's true."

I guess I am a little more of a Jim Cramer fan now.  I don't always agree with his style but his comments on the seven million American homeowners who might lose their homes due to tight money struck a chord with me.  Cramer had this to say:

"As someone who is a history buff, who's spent a lot of time analyzing what happened in the Depression, spent a lot of time analyzing 1987 and 1990, I felt that there were people who knew that things were breaking down in the depression," Cramer said. "They knew that the forgotten man was going to be forgotten. There were people who were quite aware of the stress in the system in 1987, 1990 and also in 1998."

I guess it isn't always about profits and booyahs with Jim. 

So in the midst of this rout, let's discuss a stock that appears to be in a bull market of its own: Watson Wyatt Worldwide (WW).  I do not own any shares of WW nor do I have any options.  Watson Wyatt Worldwide closed at $47.38 today, up $4.38 or 10.19% on the day.  This was enough to make the list of top % gainers.  

WATSON WYATT (WW) IS RATED A BUY 

Let's take a closer look at this stock.

What exactly do they do?

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

"...provides human capital and financial management consulting services worldwide. It designs, develops, and implements human resource strategies and programs in five principal practice areas, which include benefits; technology and administration solutions; human capital consulting; insurance and financial services; and investment consulting."

How did they do in the latest quarter?

On May 9, 2007, the company reported 3rd quarter 2007 results.  Sales rose to $395.6 million from $343.1 million in the same period last year.  Net income was $33.8 million or $.76/share, up from $30.4 million or $.71/share last year.  Analysts had been expecting $.63/share, and thus the company beat expectations.

In addition, the company raised guidance on sales to $1.48 billion for 2007 from previous guidance of a range of $1.43 billion to $1.46 billion.  The company also raised guidance on earnings for 2007 to $2.52 to $2.56/share up from prior guidance of $2.41 to $2.44/share.   

How about longer-term results?

Reviewing the Morningstar.com "5-Yr Restated" financials on WW, we can see that revenue growth was stagnant between 2002 and 2004 when revenue actually dropped from $710 million in 2002 to $702 million in 2004.  However, revenue grew to $737 million in 2005 and $1.27 billion in 2006 with $1.45 billion reported in the trailing twelve months (TTM).

Earnings also were unimpressive in that period increasing from $1.40 to $1.70 from 2002 to 2003, then dropping to $1.50/share.  However, earnings have increased steadily since then to $1.60/share in 2005 and $2.00/share in 2006 with $2.40/share reported in the TTM.

The company initiated a dividend of $.30/share in 2005 and has continued to pay this same dividend.  There has been a slight dilution of the stock with 33 million shares outstanding from 2002 to 2005.  However, this increased to 41 million in 2006 and 42 million in the TTM.  This 27% increase in outstanding shares has been accompanied by a 50% increase in earnings and a nearly doubling of revenue.  Thus, this is an acceptable dilution imho.

Free cash flow which was $36 million in 2004, dipped to $33 million in 2005, then increased sharply to $131 million in 2006 and is staying strong at $117 million in the TTM.

The balance sheet appears solid with $69 million in cash and $429 million in other current assets.  This total of $498 million, when compared to the $282.8 million in current liabilities yields a current ratio of 1.76--acceptable from my perspective.

What about some valuation numbers?

According to the Yahoo "Key Statistics" on WW, the company is a mid cap stock with a market capitalization of $2.03 billion.  The trailing p/e is a moderate 19.63 and the forward p/e (fye 30-Jun-08) is estimated at 17.10.  The PEG is a little steep at 1.58, but with earnings exceeding expectations, this is likely to decrease to an acceptable range under 1.5.

According to the Fidelity.com eresearch website, valuation is reasonable as measured by the Price/Sales (TTM) with WW coming in at 1.26 compared to an industry average of 2.78.  Also, in terms of profitability, WW comes in with a Return on Equity (TTM) of 15.74%, ahead of an industry average of 13.68%.

Finishing up with Yahoo, we find that there are 42.76 million shares outstanding with 41.47 million that float.  Currently there are 2.99 million shares out short (7/10/07) representing 13 days of trading volume (the short ratio), representing 7.2% of the float.  There are a lot of shorts out there that may well have been doing a bit of covering today. 

As noted above, the company now pays a forward dividend rate of $.30/share yielding 0.7%.  No stock splits are reported on Yahoo.

What does the chart look like?

If we look at the "point and figure" chart on Watson Wyatt Worldwide from StockCharts.com, we can see that the stock which climbed steadily from $18 in January, 2005, to a peak of $53 in May, 2007, has now rebounded from the dip to $42 in August, 2007 to a recent price of $47.38.  Overall the chart still looks encouraging with the upward movement of the price essentially intact.

Summary: What do I think?

Well, I like this stock.  No I am not buying anything :).   But if I were buying something, this is the kind of stock I would be purchasing.  Let's review a few of the points above--the latest quarter was solid with growth in both earnings and revenue with the company exceeding expectations on both.  In addition they went ahead and raised guidance for 2007 in both revenue and earnings.

Longer-term, the stock has been making headway only the last few years, but the progress is impressive.  Revenue has grown nicely and earnings are on the move.  The company initiated a dividend, has been growing its free cash flow and the balance sheet is solid.

Valuation-wise, the p/e is under 20, the PEG is a bit rich just over 1.5, but the Price/sales ratio is low while profitability is a bit higher than average as measured by the Return on Equity (ttm).  Finally there are lots of short-sellers out there, sellers who may well be finding themselves squeezed a bit by the recent move higher in spite of an overall weak equity market.

Chart-wise the graph is impressive, and although the stock has been under a bit of pressure recently, longer-term bullish price movement appears intact.

Anyhow, that's the bull market in this stock that I found a la Jim Cramer!  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

I hope tomorrow finds you profitably trading. 

Bob 


Posted by bobsadviceforstocks at 5:19 PM CDT | Post Comment | View Comments (1) | Permalink
Updated: Friday, 10 August 2007 9:11 AM CDT
Hologic (HOLX) "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 noted that my Hologic stock (HOLX) had hit the 8% loss level and I sold my 120 shares at $50.80.  These shares had been purchased 1/31/07 at $55.58, so I incurred a loss of $(4.78) or (8.6)% since purchase.

I am now down to 17 positions.  With a sale on "bad news", I am not 'permitted' to go and look for something else to buy.  I don't need to read the headlines on the miserable stock market conditions.  My own portfolio is talking to me loud and clear.  And I shall be sitting on my hands monitoring my other stocks as my portfolio more or less 'automatically' is shifting its emphasis from equities towards cash.

This sale is not a reflection of my feelings towards Hologic.  Perhaps it should be.  I still just about love the company.  But my 'portfolio management system' is doing its job.  It is forcing me to unload my recent positions and pull back from an aggressive stance as the correction unfolds.  

Thanks so much for stopping by and visiting my blog!  If you have any comments or questions, please feel free to leave them right under this entry or drop me a line at bobsadviceforstocks@lycos.com.

Bob 


Posted by bobsadviceforstocks at 1:49 PM CDT | Post Comment | Permalink
Wednesday, 8 August 2007
Cubic Corporation (CUB) "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.

Just yesterday, I was reading an excellent column by Roger Nusbaum about stop orders.  He questioned the wisdom of using blanket 8% stop orders that limit losses to 8% on all of your purchases.  This happens to be my strategy in my portfolio.

Perhaps wisely, he argued that different stocks experience different volatility patterns.  One could say that due to different 'betas', the stocks with larger volatility deserve a larger range to travel, or perhaps one should tolerate a larger loss on these high beta stocks.

Roger wrote:

"A common strategy for placing stop orders is simply to put one 8% below your purchase price. This has never made sense to me for several reasons. I advocate for tailoring your stop order to your stock, for reasons I'll make clear as I review why using this rule of thumb is more like hitting your thumb with a hammer."

I cannot argue with his thinking.  Perhaps it would be better to have a 'beta-adjusted' risk tolerance.  But then again, a better question is whether the application of these 8% loss limits is a successful strategy. 

William O'Neil, the publisher of the Investor's Business Daily has been a big force for the utilization of 8% loss limits.

O'Neil, in an interview on Motley Fool commented:

"TMF Otter: You've stated publicly that an investor who followed your system would have avoided the egregious losses suffered by holders of Enron or Global Crossing. How would an investor be protected in your mind without also taking the chance of selling out on good companies way too soon?

 

O'Neil: My rule is simple -- any stock that I buy that declines 7% or 8% below my actual purchase price, I will always without exception, sell to cut short my loss.

TMF Otter: No exceptions?

O'Neil: None. This way I guarantee myself that my capital will never be exposed to a 25%, 50%, or 75%, loss which is always difficult to recover from. So, your first loss is always your smallest loss. The only insurance policy you can take out to protect against a large devastating loss is to cut them all without exception while they're still small."

I have chosen this approach and have found that it has been successful in providing me with the discipline and the rules that are the framework to my trading activity.  I avoid making any exceptions; even though I write often about my ability to choose to override any of my rules if I feel it is required.

I also have written about selling stocks even if I have held them for a very short duration.  And that is exactly the case with Cubic Corporation (CUB) which I sold this morning, bringing me back down to 18 positions, after it passed that 8% loss limit for no particular reason that I could find.

Earlier today I sold my 280 shares of CUB at $28.6888.  These same shares were purchased two days ago (!) at $32.32.  Thus, in the very short period of 48 hours, I had managed to incur a loss of $(3.6312) or (11.24)%. In these particular situations, I do not have time to calculate whether the beta of the stock deserves a larger leeway before selling.  My decision was terribly wrong for reasons I have yet to decipher. 

But that doesn't matter.

No matter what Roger has to say (and I greatly respect Roger for his accomplishments as a fellow blogger as well), I have found that the less exceptions we make to our own rules the more likely the rules will serve us well in the long run.

Those shares were sold without hesitation when I saw the price they were trading at.  With a sale at a loss, I do not have permission to replace that stock with another.  I applied the proceeds to my margin balance and shall be waiting for one of the other 18 to hit a sale at a gain and I shall try again with another investment. 

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.

Bob


Posted by bobsadviceforstocks at 4:17 PM CDT | Post Comment | Permalink
Monday, 6 August 2007
Morningstar (MORN) and Cubic (CUB) "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 sure did turn around quickly today.  I sold two of my positions early this morning only to find the market heading higher into the afternoon.  In fact, my Morningstar stock had a big move, closing at $62.37, up $3.60 or 6.13% on the day. I sold 20 shares of my 140 share position at $62.61 at 3:27 pm this afternoon, just 1/2 hour prior to the close of trading.  These shares were purchased 11/22/05 at a cost basis of $32.57/share.  Thus, I had a gain of $29.80 or 91.5% since purchase.  This was my third sale of Morningstar, having sold previously at both the 30% and 60% appreciation targets.

Since I was down to 18 positions after selling both my NOV and my BEZ holdings, and since this was a sale at an appreciation target, I now had permission to actually ADD a new holding to the mix.  Having written up CUB earlier today, I purchased 280 shares of Cubic Corporation (CUB) at the price of $32.2856 at 3:29 pm, again just 1/2 hour prior to the close of trading.  

I emphasize these times because I want to make it clear that the late sale and purchase was after I had written up the stock report on Cubic this morning.  I hadn't planned on buying any of CUB until I was surprised to see the big move in MORN late in the day!

Anyhow, it was a volatile day in the market for all of us and my portfolio got whip-sawed a bit as well.  But I am back to 19 positions, overall my portfolio didn't do too badly, but there are two less old positions and one new one in the mix.  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 5:29 PM CDT | Post Comment | View Comments (2) | Permalink
Cubic Corporation (CUB)

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 was hoping to find a new name today, so scanning the list of top % gainers on the AMEX, I came across Cubic (CUB), a name which has appeared on the top % gainers several times the past few weeks.  I do not own any shares or options of this company.  As I write, CUB is trading at $32.14, up $1.09 or 3.51% on the day.

I would like to share with you some of the information that has resulted in my assessment that

CUBIC CORPORATION (CUB) IS RATED A BUY

What exactly does this company do?

According to the Yahoo "Profile" on CUB, this San Diego-based company

"...engages in the design, development, manufacture, and installation of defense electronics and transportation fare collection systems. Its Defense segment provides customized military range instrumentation systems, tactical engagement simulation systems, firearm simulation systems, communications and surveillance systems, surveillance receivers, power amplifiers, and avionics systems. It also offers training mission support, computer simulation training, distributed interactive simulation, development of military training doctrine, and field operations and maintenance services."

How did they do in the latest quarter?

On August 1, 2007, CUB reported 3rd quarter 2007 results. Sales for the quarter ended June 30, 2007, increased 9% to $233.7 million from $214.9 milllion in the same period last year.  Net income grew more at $11.2 million or $.42/share up 87% from $6.0 million or $.22/share last year.

How about longer-term results?

Reviewing the Morningstar.com "5-Yr Restated" financials on Cubic, we see that revenue has been steadily increasing from $560 million in 2002 to $821 million in 2006 and $871 million in the trailing twelve months (TTM).  Earnings, however, have been more erratic, increasing from $1.10 in 2002 to $1.40 in 2003 and 2004.  They dropped to $.20/share in 2005, only to rebout to $.30/share in 2006 and $1.40 in the trailing twelve months.

The company does pay a  dividend which was $.10/share from 2002 to 2003, then increased to $.20/share in 2004 through the TTM.   The number of shares outstanding has remained extremely stable at 27 million in 2002, and 27 million reported in the TTM.

Free cash flow which was $(35) million in 2004, turned positive at $46 million in 2005, dipped to $22 million in 2006, and grew to $95 million in the TTM.

The balance sheet appears solid with $76 million in cash and $389 million in other current assets.  This total of $465 million, when compared to the current liabilities of $172 million yields a healthy current ratio of 2.70.

What about some valuation numbers?

Looking at Yahoo "Key Statistics" on Cubic, we find that this is a 'small cap' stock with a market capitalization of only $856.34 million.  The trailing p/e is a reasonable (imho) 22.76 with a forward p/e (fye 30-Sep-08) estimated at 21.09.  The PEG ratio is a reasonable 1.06.

According to the Fidelity.com eresearch website, valuation is also reasonable when measured by the Price/Sales (TTM) ratio.  CUB comes in with a Price/Sales (TTM) of 0.97 compared to the industry average of 1.45.  However, profitability, as measured by the Return on Equity (TTM) is low at 9.84% compared to the industry average of 28.06%.

Finishing up with Yahoo, we can see that there are 26.72 million shares outstanding with only 14.05 million that float.  As of 7/10/07, there were 1.45 million shares out short representing 7.7 trading days of volume, more than my own '3 day rule' for significance in the short ratio.  With good news, this stock may be subject to a short-squeeze with short-sellers scrambling to cover their sales with purchases.

As noted above, the company pays a small divided with $.18 reported by Yahoo (I noted $.20/share on Morningstar),  calculated to a 0.5% forward annual dividend rate. 

The last stock split was a 3:1 stock split on May 1, 2002.

What does the chart look like?

Reviewing the StockCharts.com 'point & figure' chart on CUB, we can see that the company has had a very erratic price movement since 2002.  Since late 2006, the chart appears to be moving higher.  


Summary:  What do I think?

Well, I like this stock.  If I were purchasing shares today, this is the kind of company I would be buying.  In the meantime, I shall be adding this to my 'vocabulary' of stocks to watch, and wait for the appropriate signal to purchase.

Summarizing, the company is moving higher today, reported good earnings just last week, has a 5 yr record of solid revenue growth with some definite earnings volatility.  Free cash flow is strongly positive, the outstanding shares are rock solid and the company pays a small dividend.  Finally, the balance sheet looks great and valuation is reasonable with a moderate p/e, a PEG just over 1.0, a low Price/Sales but an unimpressive Return on Equity statistic.  In addition, the chart looks moderately encouraging.

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.  If you get a chance, be sure and visit my Stock Picks Podcast Website, check out my Covestor page which reviews my actual trading portfolio performance, and my SocialPicks page where all of my stock picks from January, 2007, and more recent, have been recorded and evaluated.

Bob  


Posted by bobsadviceforstocks at 1:35 PM CDT | Post Comment | Permalink

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