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Sunday, 26 August 2007
"Looking Back One Year" A review of stock picks from the week of March 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.

It is Sunday, and I shall try to get through the rather  busy week of March 6, 2006, when I posted review of three stocks.  This review assumes a buy and hold strategy when calculating performance assuming that equal $'s of each security were purchased and held without regards to subsequent price performance.  For the average performance, a simple mathematical average of the individual percentages is used to derive this figure.

In practice, I suggest and employ a very disciplined portfolio management strategy that involves selling losing stocks quickly and completely and gaining stocks slowly and partially.  This difference between my actual strategy and the performance estimated on this review is significant and should be taken into consideration when reviewing these results.  However, for the ease of calculating the "What if...?", this buy and hold approach is useful if not completely consistent with my own idiosyncratic approach to portfolio management.

On March 8, 2006, I posted Alliance Data Systems on Stock Picks Bob's Advice when the stock was trading at $45.22.  Alliance Data Systems (ADS) closed at $77.15 on August 24,  2007, for a gain of  $31.93 or  70.6% since posting. 

On August 8, 200, ADS announced that shareholders had approved a $6.76 billion takeover of the company by the Blackstone Group.  Since this company is to be acquired, I shall no longer be following this stock, and

ALLIANCE DATA SYSTEMS (ADS) IS RATED A HOLD

On March 10, 2006, I posted Universal Security Instruments (UUU) On Stock Picks Bob's Advice when the stock was trading at $21.65.  UUU had a 4:3 stock split on April 4, 2006, and then another 4:3 stock split on October 17, 2006.  Thus, our effective pick price was actually $21.65 x 3/4 x 3/4 = $12.18.  UUU closed at $22.97 on August 24, 2007, for a gain of $10.79 or 88.6% since posting.

On August 14, 2007, UUU announced .  For the quarter ended June 30, 2007, sales increased strongly to $13.0 million from $8.0 million last year.  However, earnings dropped to $791,002 or $.31/diluted share, from $1.6 million or $.62/diluted share last year.

If we look at the "point & figure" chart on UUU from StockCharts.com, we can see that although there has been some short-term weakness on UUU, the uptrend appears to be essentially intact.


 

 
With the phenomenal performance of this stock I am reluctant to put this at a 'sale' with only the earnings down with revenues strongly higher.  Thus,

UNIVERSAL SECURITY INSTRUMENTS (UUU) IS RATED A HOLD

Finally, On March 9, 2006, I picked Claire's Stores (CLE) for Stock Picks Bob's Advice when the stock was trading at $33.03.

Claire's was also the subject of an acquisition and was acquired by Apollo Management for $33/share.  This was completed by May 29, 2007.

Thus, I had a loss of $(.03)/share on this pick or (.1)% since posting.

So how did I do this week in March, 2006.  In a word, fantastic!  I had two companies acquired, one with a large gain and the other break-even, and the other stock showed a large gain as well.  The average gain for the three stocks worked out to 53%!

Last week the review wasn't quite as nice!  However, sometimes I get lucky :).  Thanks again for dropping 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 1:42 PM CDT | Post Comment | Permalink
Updated: Sunday, 26 August 2007 1:44 PM CDT
Thursday, 23 August 2007
Is it Time to Sell or Time to Buy or Just Time to Ignore it All?

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.


This is a tidepool picture from La Jolla, California.  Years ago I spent a summer in La Jolla at the  Bishop's School  where I had the opportunity of studying Marine Biology and Oceanography for high school students at the Scripps Institution of Oceanography.  Year's later, I had the opportunity of spending more time in San Diego doing a year of advanced medical studies at the Scripps Clinic.  San Diego has a special place in my life.  But I can recall the many times I would drift down and climb on the rocks and peer into the tide pools.

Each small pool was like a microcosm of the ocean.  Small fish.  Small molluscs.  Sea weed and other plants.  And small waves splashing over each pool.  

When I think about building my portfolio, I understand that I am building a small microcosm of the market itself.  I can observe the stocks that I hope I shall be able to hold as they mature but am aware of the tremendous forces that wash over the portfolio as each of the stocks get tossed and turned in the turbulence.  What is going on within my portfolio is a reflection of the entire market.

When stocks were climbing and I would blog about my small sales on appreciation, many of my readers would write asking me why I would sell any shares in such strong stocks.  Why not simply buy more?  Average up!  Why not?  

Certainly if stocks were set to climb indefinitely, and the strongest stocks likely to climb a lot, then such activity would definitely make sense and likely be quite profitable.  On the other hand, if we are to accept that the market exerts tremendous influences over all of us, like the waves battering a tide pool on a stormy day, we will understand the need to harvest our gains when times are good and put them away for those days of challenge, the days when subprime concerns challenge our faith in the long-term viability of our investments.

There probably are basically three basic approaches to dealing with market corrections.  There are others, but these three exemplify what I believe are the techniques that the smartest minds out there are utilizing.  (And I am not including myself into that group.  Not at this time!) I would like to comment on each of these and perhaps help you think about how your philosophy fits into these strategies.

The first strategy I would label the 'diversify and forget about it'.  In other words, the proponent of this advice would suggest that the markets are too complex or too contradictory to predict and respond to successfully.  And that anyone who does will likely buy too late, sell too late and be out of step as they try to shift into yesterday's hottest investment.  

I found this article from the Providence Journal Newspaper which fairly clearly expressed this sentiment:

"If you have a diversified portfolio, you don’t have to be fearful of current events, says Jeff Seely, chief executive of ShareBuilder, an online brokerage that caters to small investors and is designed for long-term investing.

“Recently, there has been a lot of volatility, with 200 to 300 point up days followed by equal-magnitude down days,” Seely points out. “Small investors absolutely get stressed when the market is unstable, particularly after a sustained period of good performance.”

But if you select good fundamental stocks, or broad exchange-traded funds, those investments should produce gains longer term, and a downturn is a time to buy, he said.

“Market normalcy is in fact a sequence of ups and downs, but with a general up-trend over time,” Seely said. “Taking the dips along with the upticks is unfortunately an inescapable part of the process.”

Davidson said that if you want to avoid reaching for antacid during times like this, divide your investment contributions so that a certain percentage is invested in a variety of assets, such as large-cap or large, blue-chip stocks. You should have some money in mid-cap and small-cap stocks (medium- and small-sized companies). Put a percentage in real estate and international securities, and in fixed income securities, such as bonds.

“I think it’s safe to say every investor no matter [his or her] risk tolerance should have some exposure to all the major asset classes,” Davidson said."

I know that I personally subscribe to this philosophy in my own job-associated 403B retirement plan where I too have a variety of mutual funds in varying classes that I hope will somehow work to even out the ups and downs of the market.  But that isn't what I do with my trading portfolio!  I concentrate on the strongest stocks I can find and sell them quickly when they are weak and slowly and partially when they are strong.  

The next approach is what I would call the 'value' approach.  Or perhaps it would be better to label it the Warren Buffett approach of looking at stocks that are just plain cheap and buying them at a discount.  In fact, as you or I might be avoiding a stock like Countrywide Financial (CFC) like the plague, Buffett is poking around at that carcass of a mortgage company thinking about whether it might be a time to buy a bit of it at a discount. 

James B. Stewart expresses this value-driven approach well.  And recently wrote an article for the Wall Street Journal about how this correction presents for the value investor.  Stewart wrote:

"Early Thursday, I heard on the radio that foreign markets were selling off. By the time I got to the office, trading had begun in New York and the Nasdaq was down 50, well below my buying target of 2450.

I suppose there are circumstances in which I'd ignore my own system. But I'm hard-pressed to imagine such a scenario. A major goal of my system is to take emotion out of the decision to buy and sell. Fear of the unknown is an emotion, not a reason to stop investing. And so I launched my buying campaign.

I bought commodity producers Companhia Vale do Rio Doce and Rio Tinto, both of which had the added advantage of being foreign, boosting my allocation toward non-U.S. assets. In energy I added to my position in Valero. Among cyclicals I bought Deere, Caterpillar and Cummins. In the financial sector, I was tempted by Goldman Sachs and Morgan Stanley, but settled for more diversified, main-line banks: Wells Fargo and Bank of America.

Later at lunch, I noticed stocks had fallen further. If only I'd waited! There were even more bargains to be had. But then I got a grip, reminding myself that no one has perfect timing. The important thing is that I was able to buy at a big discount to where the market was just days ago. When the market averages again hit new highs -- which they will someday -- my gains will be all the more impressive."

For Stewart, each decline in the market is an opportunity.  For an investor who likes to invest like Warren Buffett, or who follow the Benjamin Graham approach to investing, these drops in the market only make a value investor salivate.  So many things to eat and only so much money to buy them with! 

I cannot argue with value investors any more than I can argue with those whose main approach is to diversify assets.  But I respect the tremendous strength of the market and do not wish to move against that tidal strength that can wash away any investment that doesn't respect the strength and force of a market move.

Perhaps my favorite investor of all time was the wise and wily Jesse Livermore.  This picture is from an Italian website review.  

Livermore made his millions not by diversification, not by being a value investor, but rather by observing the motions of the market itself.   Much like Martin Zweig who famously observed "Don't fight the tape and don't fight the Fed.", Livermore watched the tape and tried to move with the market.

As this review explains: 

"Livermore was a trend follower. He only took positions in the direction of the trend, and he added new postions whenever his system told him to do so."We know that prices move up and down. They always have and they always will. My theory is that behind these major movements is an irresistible force. That is all one needs to know...Just recognize that the movement is there and take advantage of it by steering your speculative ship along with the tide."

 

The basic rule to the Livermore System, therefore, is to take positions only in the direction of the trend. In or out. Long or short."

Livermore also believed in limiting losses.  As this blogger wrote:

"As long as the stock is acting right, and the market is right, do not be hurry to take a profit. You know you are right, because if you were not, you would have no profit at all. Let it ride and ride along with it. It may grow into a very large profit, and as long as the “action of the market does not give you any cause to worry, “have to courage of your convictions and stay with it.”



On the other hand, suppose you buy a stock at $30.00 and the next day it goes to $28.00, showing a two-point loss, you would not be fearful that the next day would possibly see a three-point loss or more. No, you would regard it merely as a temporary reaction, feeling certain that the next day it would recover its loss. But that is the time that you should be worried. That two-point loss could be followed by two points the next day, or possibly five or ten within the next week or two. That is when you should be fearful, because if you did not get out, you might be forced to make a much greater loss or later on. That is the time you should protect yourself by selling your stock before the loss assumes larger propotions."

Livermore was patient.  He would also sell quickly when stocks moved against him.  

More recently, Martin Zweig has expressed this similar philosophy:

"The basis of Martin Zweig's investment philosophy is to take a measure of whether the broader market is bearish or bullish and then stay in tune with it. If the market is bullish, buy attractive stocks and let your profits run. Lock in profits or cut your losses by selling according to pre-established criteria. If the market is bearish, stand on the sidelines with cash, waiting to enter the market when it turns bullish."

Finally, William O'Neil took the Livermore thinking, the Zweig analysis, and other observations and rolled it together in the CANSLIM approach.   He realized that earnings were important, that understanding the direction of the Market was critical, and that limiting losses was part of the equation.

I do not reject those that seek value in their investments.  I also look for value and like to see low p/e's, low price/sales ratios, reasonable PEG's and similar valuation numbers.  But valuation is for me useless out of the context of the entire market itself.  

I also do not deny the role of diversification, especially in building long-term mutual fund portfolios, in protecting the individual investor.  But diversification is like spreading one's bets on a roulette table.  It will increase your frequency of winning yet reduce the amount of each successful wager.  Nothing wrong with it, but can we remove our blinders and instead focus on the strongest stocks in he market, the highest quality companies with the steadiest record and the strongest balance sheets?

Like Livermore, like O'Neil, and like Zweig, I am interested in listening to the market, to reading the tape and avoiding moving against the tidal movement of markets.  I have chosen to listen to my own portfolio, and have been letting the stocks I own let me know when it is time to buy and when it is time to sell.  I avoid the problem of pulling completely out of the market by never allowing my portfolio to go below the minimum equity position of 1/4th the maximum (5 positions).  

And when things are good, I hedge my bet.  I am willing to sell a little when things are good.  And sell a lot in a hurry when things are bad.  It seems to work for me.  I just wanted to share with you a few thoughts this Thursday evening on what other people are doing.  And why I am comfortable, and believe I am in good company, in doing what I do.

Bob 

 

 


Posted by bobsadviceforstocks at 7:41 PM CDT | Post Comment | View Comments (2) | Permalink
Updated: Thursday, 23 August 2007 7:57 PM CDT
Monday, 20 August 2007
VSE Corporation (VSEC)

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 consult with your professional investment advisors prior to making any investment decisions based on information on this website.

CLICK HERE FOR THE PODCAST ON VSE CORP 

I did a podcast on this stock tonight and thought I ought to do a brief posting on this company.  I do not own any shares nor do I have any options on this stock.

VSEC made the list of top % gainers on the NASDAQ today, closing at $38.93, up $3.68 or 10.44% on the day.  According to the Yahoo "Profile" on VSE Corporation, the company is among other things, a military contractor which provides logistical support to the government. 

The 2nd quarter 2007 results were solid.  The Morningstar.com "5-Yr Restated" financials are solid.  The Morningstar.com "5-Yr Restated" financials are excellent showing steady revenue and earnings growth, positive free cash flow, stable # of shares, a small dividend and a reasonably good balance sheet.  

Yahoo "Key Statistics" shows this is a small cap stock with a p/e of just over 18. According to the Fidelity.com eresearch website, the price/sales (TTM) is reasonable relative to other companies in the industry, and also on Fidelity, the return on equity (TTM) exceeds other companies in the same industrial group.  Yahoo shows only a few shares out short.  The company recently split its stock 2:1 on 6/29/07.

Looking at the VSEC "Point & Figure" chart on StockCharts.com, we can see a relatively strong chart above support levels.


 

 
With the strong move higher today, the solid earnings report, the nice Morningstar.com '5-Yr Restated' financials page, reasonable valuation, and a solid chart,

VSE CORP (VSEC) IS RATED A BUY

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 10:46 PM CDT | Post Comment | View Comments (2) | Permalink
Updated: Monday, 20 August 2007 10:47 PM CDT
Satyam Computer Services (SAY) "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 stock market is making a less than convincing continuation of the rally from Friday, at least thus far today.  Most trading seems to occur in the last hour of the day, so I shall reserve judgment.

However, earlier today my Satyam stock (SAY) hit a sale point at an (8)% loss since purchase and I sold my entire position of 210 shares at $23.468.  With this technical weakness,

SATYAM COMPUTER SVCS (SAY) IS REDUCED TO A HOLD

These shares were just purchased 4/20/07 at a cost basis of $25.55/share.  Thus, I had a loss of $(2.082)/share or (8.15)% since purchase.  This is my sale point after an initial purchase of stock regardless of the duration of my holding.  It is indeed rather arbitrary but it allows me to limit my losses to some 'acceptable' level before unloading shares.

I am now down to 15 positions.  I shall be waiting for a 'buy signal' from one of my existing holdings before moving to 16.  Meanwhile, I shall be 'sitting on my hands' as patiently as possible.

Thanks again for visiting!  Please leave a comment on the blog or feel free to email me at bobsadviceforstocks@lycos.com if you have any comments or questions.

Bob 


Posted by bobsadviceforstocks at 1:06 PM CDT | Post Comment | Permalink
Sunday, 19 August 2007
Research in Motion (RIMM) "Revisiting a Stock Pick"

CLICK HERE FOR MY PODCAST ON RESEARCH IN MOTION (RIMM) 

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 tonight I did a podcast on RIMM before I had written it up.  (I think it shows since I usually have the entry written first which gives me more structure as I am 'casting!)

 Let me try to briefly (if at all possible) go over a few of the things I discussed on the podcast and why I thought Research in Motion deserved a spot on this website.

RESEARCH IN MOTION (RIMM) IS RATED A BUY 

First of all, RIMM made the list of the top % gainers Friday, closing at $220.52, up $22.50 or 11.36% on the day. 

I say "revisit" RIMM, because I first posted RIMM early in the history of this website, writing up Research in Motion (RIMM) on September 26, 2003, when the stock was trading at $38.24/share.  The stock split 2:1 on June 7, 2004, making my effective stock pick price even lower at $19.12.  Thus, this stock has appreciated a WHOPPING $201.40 or 1,053.3% since posting!  (Too bad I didn't buy any shares back then and I don't have any shares now!)

On June 28, 2007, RIMM reported 1st quarter 2008 results for the quarter ended June 2, 2007.  Revenue for the quarter was $1.082 billion, up 16.3% from $930.4 million in the same quarter the prior year.  GAAP net income was $223.2 million or $1.17/diluted share, up from $187.4 million or $.98/diluted shre last year.

These results exceeded expectations as analysts had been expecting earnings of $1.06 on revenue of $1.05 billion.  In another expression of confidence in the company, the board announced a 3 for 1 stock split which will be payable August 20th (tomorrow!).

Longer-term,  examining the "5-Yr Restated" financials n RIMM from Morningstar.com, we can see the steady revenue growth from $307 million in 2003 to $3.03 billion in 2007.  Earnings have also steadily improved from a loss of $(1.00)/share in 2003 to $.30/share in 2004, and all the way to $3.30/share in 2007.  During this period, outstanding shares have been stable with 155 million shares outstanding in 2003, increasing to 185 million in 2007.  This approximately 30% increase in shares was accompanied by a 700% increase in revenue and a 1000% increase in earnings!

Free cash flow has been a bit erratic, but was $42 million in 2004, increasing to $169 million in 2005, dropping to a negative $(29) million in 2006 and back positive at $482 million in 2007.

The balance sheet is solid with $677 million in cash, enough to cover both the $546.6 million in current liabilities and the $58.9 million in long-term liabilities combined.  The company has an additional $1.2 billion in other current assets making its current ratio somewhere north of 3.0.

Checking Yahoo "Key Statistics" on RIMM, we can see that this is a large cap stock with a market capitalization of $123 billion.  The trailing p/e is a rich 173.36, with a forward p/e (fye 03-Mar-09) estimated at a more reasonable 27.74.  Thus, the PEG ratio, a good valuation of the relative richness of the p/e is a more reasonable 1.38.  (1.0 to 1.5 is satisfactory imho).   

In terms of valuation, RIMM has a Price/Sales ratio (TTM) of 11.66, well ahead of the industry average of 4.00 according the Fidelity.com eresearch website. The company does better in the 'profitability department' with a Return on Equity (TTM) reported at 30.23%, ahead of the industry average of 24.57%.

There are 558.00 million shares outstanding with 485.4 million that float.  Of these, as of 7/10/07, there were 9.31 million shares out short representing 1.1 trading days of volume (the short ratio).  This does not appear to be a significant short interest at least relative to my own '3 day rule' for short interest.

No dividend is paid and the last stock split was a 2:1 stock split June 7, 2004. 

Let's take a look at the incredible 'point & figure' chart on RIMM from StockCharts.com

The chart shows such a meteoric increase since 2003 that it is difficult to display on the blog!  The chart still looks strong but certainly the continued strength of this stock is dependent (from my perspective) on the continued performance on a fundamental basis of this company.

Thus, RIMM stock had a great day Friday.  Shows an unbelievable increase from the posting back in 2003.  Earnings are still strong and beating expectations and the Morningstar.com report looks solid.

Thanks again for visiting my blog!  If you have any comments or questions, please fee 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 Page where you can review an download all of my podcasts (including this one on RIMM), visit my Covestor Page where my actual trading portfolio is reviewed and evaluated, and take a look at my Social Picks Page where that website works to evaluate the success and usefulness of my writing.

Regards to all of my friends and readers.  Hopefully, we shall see more of the same from Friday tomorrow and the rest of the week!

Bob 

 

 

 

 

 

 


Posted by bobsadviceforstocks at 9:55 PM CDT | Post Comment | Permalink
"Trading Portfolio Update" August 19, 2007

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.

Transparency.  Such an important topic.  As part of my blogging, I have worked very hard to keep all of my readers informed of my actual holdings, my actual trades, and how I have been doing.  I don't know how to write about stocks without letting you know whether I own or don't own positions in the stocks I write about.  I cannot discuss with you portfolio management philosophy without showing you what I am actually doing in my own 'trading portfolio'.  This blog is not about hyping any stocks or pretending to be something it isn't.  It is just about thinking about stocks, developing investment strategy, and dealing with the volatile market in equities that we face.  I hope this has been helpful in this regard.

On about a monthly basis, I have been trying to write up a summary of my holdings and an update on recent trading activity.  Fortunately, I am now participating in Covestor and you can view my Covestor Page where my holdings and their performance are also reviewed. But Covestor doesn't provide actual share #'s and doesn't have the long-term history of each stock purchase.  So I don't think these reviews will be completely obsolete in the near future.

My last review of my holdings was on July 8, 2007.  Since then we have seen an extremely volatile stock market.  We have observed 200 point swings or more on many trading days.  We have witnessed the near-collapse of the subprime mortgage market and the challenges facing even Countrywide Financial.  

My portfolio is now down to 16 positions.  I shall be waiting for a partial sale of an existing position to move to 17 positions (up to a maximum of 20), and shall be prepared to move to 15 if one of my holdings hits a sale point.  (down to a minimum of 5 positions if needed).

Let's take a look at my 'trading portfolio' which I shall list in alphabetical order followed by: symbol, number of shares held, date of purchase, price of purchase, latest price (8/17/07), and percentage unrealized gain (or unrealized loss).

Bolt Technology (BTJ), 129 shares, 1/12/07, $17.44, $39.45, 126.25%

Cerner Corp. (CERN), 120 shares, 2/2/07, $49.76, $57.48, 15.51%

Coach (COH), 61 shares, 2/25/03, $8.33, $44.32, 431.97%

Covance (CVD), 119 shares, 4/9/07, $62.61, $71.08, 13.52%

Harris Corp. (HRS), 120 shares, 1/31/07, $50.05, $57.60, 15.08%

Kinetic Concepts (KCI), 140 shares, 7/13/07, $56.31, $58.44, 3.78%

Morningstar (MORN), 120 shares, 11/22/05, $32.57, $62.22, 91.01%

Precision Castparts (PCP), 74 shares, 10/24/06, $69.05, $131.50, 90.44%

Quality Systems (QSII), 88 shares, 7/28/03, $7.75, $39.68, 412.08%

ResMed Inc (RMD), 150 shares, 2/4/05, $29.87, $40.79, 36.57%

Satyam Computer Svcs (SAY), 210 shares, 4/20/07, $25.55, $24.55, (3.92)%

Starbucks (SBUX), 50 shares, 1/24/03, $11.40, $26.70, 134.11%

Universal Electronics (UEIC), 155 shares, 2/23/07, $25.24, $28.47, 12.79%

Meridian Bioscience (VIVO), 232 shares, 4/21/05, $7.42, $25.15, 238.99%

VCA Antech (WOOF), 210 shares,  7/27/07, $41.04, $38.94, (5.11)%

Wolverine World Wide (WWW), 200 shares, 4/19/06, $23.55, $27.44, 16.54%

Since my last review on July 8, 2007, I sold my 350 shares of MedTox Scientific (MTOX) at a loss on 7/12/07, sold 12 shares of Precision Castparts at a gain on 7/12/07, and purchased 140 shares of Kinetic Concepts on 7/13/07. On 7/24/07 I sold 17 shares of Kyphon (KYPH) at a gain and purchased 105 shares of National Oilwell Varco (NOV) on 7/25/07.  On 7/27/07 I sold my position in Kyphon (KYPH) of 108 shares.  I then purchased 210 shares of VCA Antech (WOOF) on 7/27/07.  On 8/6/07, my recent purchase of National Oilwell Varco (NOV) hit a sale point on a loss and my 105 shares were sold. On 8/6/07, 20 shares of Morningstar (MORN) were sold at an apprreciation target and I purchased 280 shares of Cubic (CUB) on 8/6/07.  Also on 8/6/07, my Baldor (BEZ) hit a sale point at a loss and 140 shares were sold. 

On 8/8/07 my Cubic (CUB) stock declined to a sale point and my 280 shares were sold. On 8/9/07 I sold my 120 shares of Hologic (HOLX) as it declined to a sale point.  on 8/13/07 38 shares of Meridian Bioscience (VIVO) were sold at an appreciation point.  With that 'permission' I purchased 280 shares of Flotek (FTK) on 8/13/07.  On 8/14/07 my shares of Mesa Laboratories (MLAB) hit a sale point and all 210 shares were sold.  The next day, on 8/15/07, my 280 shares of Flotek (FTK) were sold as the stock hit a targeted sale at a loss.  

Currently I am at 16 positions. My equity value is at $95,453.58 and I am still carrying a margin balance of $(37,624.36) giving my account a net value of $57,829.22.  (This is down from the account value of $63,930.58 last month.)  However, with the sales, the margin equity percentage has improved to 60.58%.

As of 8/17/07, I have $26,306.07 of unrealized gains in the account.  I have now taken a net of $(1,757.12) in short-term losses, and $23,712.56 in realized long-term gains for a total realized gain of $21,955.44 in 2007.  I have also paid $3,078.30 in margin interest this year.  I have received a total of $320.28 in ordinary dividends and miscellaneous income in 2007.

Thus, it hasn't been an awful year for me, but I have taken a 'hit' with this correction as I am sure most of you have also experienced.  I continue with my disciplined investment strategy and very much enjoy the opportunity of sharing with all of my readers my thoughts and strategy on investing and dealing with the good times as well as the bad that we all must experience as we respond to the vagaries of the stock market!  

Have a good week everyone and stay healthy!

Bob 


Posted by bobsadviceforstocks at 11:44 AM CDT | Post Comment | Permalink
Saturday, 18 August 2007
New Century Financial (NEWCQ.PK) "Long-Term Review #10"

 

 

 

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 probably should rename this blog, The Good The Bad The Ugly,  after that 1966 'spaghetti western' starring Clint Eastwood.  It is a great movie if you somehow haven't seen it. 

There have been a lot of great stock picks on this blog.  But then again, we have a few duds now and then.  I emphasize over and over the need to manage one's holdings, to limit one's losses, and not to stick one's head in the sand and ignore the world.

It just isn't a good idea.

I unfortunately wrote up New Century Financial (NCEN) and also spent some time as a stockholder  It wouldn't have been a good stock to hold long-term at all.

This was my tenth stock discussed on this blog.  I wrote up New Century Financial (NCEN) on May 22, 2003, when the stock was trading at $47.02/share.  This company is probably the most concentrated stock in the sub-prime mortgage area.  Needless to say, its current financial status is rather bleak, and the company now trades on the pink sheets and is now a very speculative penny stock that last traded at $.10/share and trades under the new symbol NEWCQ.PK.

This is what I wrote on May 22, 2003, about this company:

"May 22, 2003

New Century Financial (NCEN)

As you can see from my post yesterday on the main website page here (http://bobsadviceforstocks.tripod.com), I am an owner of New Century Financial...in my trading account. I have actually purchased this several times starting in 12/02 when I purchased 100 at an average cost of $23.41, 12/24/02 another 100 at an average cost of $26.68, and a final 100 at an average cost of $28.03. Following my own rules, I sold 100 on 5/5/03 for an average cost of $39.93. I had reached over a 50% gain in this issue in a short period of time and starting lightening up a little. So important to sell losses QUICKLY and sell gainers SLOWLY. Can only help to bias your results to the upside.

Anyhow, NCEN is having a GREAT day trading at $47.02 up $6.57 as we write at 9:22 am Central Time. What caused this pop is the fact that NCEN TODAY announced that in was INCREASING 2003 eps guidance from the $7.40-$7.50 range up to $8.75 to $9.25 range. Yes....this company is anticipating earnning about $9.00 per share (!!!) and sells even after this move for only $46. The company "is engaged in originatin, purchasing, selling and servicing subprime mortgage loans secured by first mortgages on single-family residences," according to the CNN.money site http://money.cnn.com/MGI/snap/A1434.htm (I hope that works for you to get to the profile section). Last quarter total revenues rose 61% to $181 million and net income rose 50% to $45.7 million.

Looking at Morningstar.com on this issue, we find
sequential growth in revenue from $98.6 million in 1997, $176.4 million in 1998, $233.9 million in 1999, $163.9 million in 2000 (which IS a drop which I would RATHER not see....but the rest of this is so good!), $293.3 million in 2001 and $511.1 million in the 'trailing twelve months'.

In addition, in today's announcement, NCEN indicated that they would maintain their $.10/share dividend (an added plus)...which means in effect a 50% increase in effective dividend return. This is a 50% increase because they announced a 3 for 2 stock split.

Unfortunately, Morningstar does not have the free cash flow report but interestingly does have the growth in revenue the last four quarters showing a 779.39%, 134.17%, 117.42%, and 86.84% increase in revenue each quarter. Pretty impressive!

For a final note, even AFTER today's big price rise, NCEN sells at a p/e ratio of only 6.18 suggesting tremendous value in their shares.

As a caveat, I know NOTHING about the management of this company...and would hold to an 8% stop loss on any purchase which I always suggest on all issues. If the stock should rise further....start selling some shares at a 40-50% range in gain....this is really an insurance of reducing your overall cost
on any purchase. Good luck and happy investing."
My own personal experience with this stock is as noted, I purchased 100 shares at $23.41, and $26.68 in December, 2002, and another 100 at $28.03.  I sold 100 5/5/03 at $39.03, I sold 50 shares 6/5/03 at $48.77,  another 50 6/9/03 at $49.31.  The last 100 shares split 3:2 and I received 50 shares on 7/14/03, and then went ahead and sold my last 150 shares 7/29/03 at $25.70.  
 
Thus, my total cost of the shares was $2,341 + $2,668 + $2,803.00 for a total cost of  $7,812.
 
My total proceeds were $3903 + $2438.50 + $2465.50 + $3855 = $12,662; thus, I had a gain of $4850 or  62.1% since purchase.  I was very lucky with this particular stock that later melted down and ended up in bankruptcy.  With the stock at just $.10/share this is a virtual complete decline from the initial pick price.
 
The last news story that I could find on the web was a report dated August 10, 2007, in which New Century reported they will be unable to file second quarter 2007 results on time.  In fact as noted:
 
"New Century has yet to report financial results for the first quarter and for full-year 2006.

The last time the company issued financial results was November, when it reported its third-quarter 2006 performance.

New Century had been the second-largest provider of home loans to high-risk borrowers but New Century collapsed after a spike in mortgage defaults led its lenders to pull funding and demand that it buy back bad loans.

The company stopped trying to make new home loans in March due to lack of funds."

Anyhow, THAT was pick #10.  I managed to get in an out of it fairly quickly, and I think I could even see the writing on the wall shortly after writing up the stock when the stock price started declining on what was really good news they reported.

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 10:35 PM CDT | Post Comment | View Comments (2) | Permalink
Bolt Technology (BTJ) "Weekend Trading Portfolio Analysis"

 

 

 

Hello Friends! Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amater 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 weekend assignments on this blog is to update my trading portfolio.  This blog serves several simultaneous tasks.  I try to post as many stock market ideas as possible, I discuss my own stock holdings which I call my "Trading Portfolio", and I spend time suggesting and exploring portfolio management strategy.  I hope that all of this is useful for all of you.  If any of you have any comments or questions, I am always interested in reading them as comments on the blog or you can email me at bobsadviceforstocks@lycos.com.

Currently I am at 16 positions, down from my maximum of 20, yet well above my minimum of 5.  I have been trying to review a holding every two or three weeks so that it takes close to a year to get through the list.  Going alphabetically, following Baldor (BEZ), a stock I no longer own and that I reviewed on August 5, 2007, I am up to Bolt Technology (BTJ).

I first reviewed Bolt (BTJ) on Stock Picks Bob's Advice on January 19, 2006, when the stock was trading at $17.86.  Currently I own 129 shares of Bolt (BTJ) which were purchased 1/12/07 with a cost basis of $17.44.  Bolt closed on August 17, 2007, at $39.45, for an unrealized gain of $22.01 or 126.2% since purchase.  I have sold portions of Bolt five times, at 30, 60, 90, 120, and 180% levels of appreciation.

On the upside, I would plan on selling 1/7th or 129/7 =  18 shares if the stock should appreciate to a 240% appreciation level or 3.40 x $17.44 = $59.30.  On the downside, with the latest sale at a 180% appreciation level, I am planning on selling all remaining shares should the stock decline to a 90% appreciation point (1/2 the highest appreciation target at which the stock has been sold), or 1.90 x $17.44 = $33.06.  You can see that this particular stock is closer to a sale on the downside rather than near the upside target at least for now.

Let's take a look at the 'point and figure' chart on Bolt (BTJ) from StockCharts.com:

The upward move of Bolt (BTJ) has not quite broken down but the stock is indeed coming close to a sale according to my own trading strategy. 

The latest earnings report that I could locate was the 3rd quarter 2007 results which were reported on April 25, 2007, and are available on the Bolt website.  For the quarter ended March 31, 2007, revenue increased 51% to $12.7 million from $8.4 million last year.  Net income increased 118% to $2.85 million or $.50/diluted share, up sharply from the $1.3 million or $.23/diluted share reported in the prior year.  As is often the case, the year-end and 4th quarter often take a bit longer than the 3 month interval we normally expect on quarterly reports.  However, I would expect that these results would soon be forthcoming.

Finally, the Morningstar.com "5-Yr Restated" on Bolt is intact with steady revenue growth, earnings growth, and stable outstanding shares.  Free cash flow is positive and increasing, and the balance sheet is solid.

With the solid earnings report, a chart that while showing some recent volatility is still showing an intact upwards move, and a solid Morningstar report,

BOLT (BTJ) IS RATED A BUY

Thanks again 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.  If you get a chance, be sure and visit my Covestor page where my current Trading Portfolio is analyzed and monitored.  Also, be sure and visit my SocialPicks page where all of my picks are reviewed and analyzed as well.  If you still have time after all of that, consider listening to a podcast or two on my Stock Picks Podcast Website.

Phew....that's a mouthful of stuff to do!

Good luck next week in the market.  Let's find out if the Fed's action has staying power and if the market can hold on to Friday's gains.  Just like an increase in the Fed rate, a cut in the rates may well lead to another!

Bob

  


Posted by bobsadviceforstocks at 9:11 PM CDT | Post Comment | Permalink
"Looking Back One Year" A review of stock picks from the week of February 27, 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 weekend.

What a difference a day makes!  The Fed cut rates by 0.5% on Friday to ease the credit crunch and the market soared...giving the S&P its best day in nearly 4 1/2 years!  

There were many moments when I was anxious to throw in the towel and take my cash and put it in my mattress! Instead, I stuck with my investment strategy and sold when selling was indicated and sat on my hands when that was called for!

But it is Saturday and while I have a few moments to catch up on my weekend homework around here, let me get to the 'review'!  In general, I try to keep working at examination of past stock selections each weekend going back a bit more than a year and see how they would have turned out if actually purchased as picked.

This review assumes a buy and hold approach to investments.  In practice, I actually employ a disciplined investment strategy that dictates to me when to be buying and when and how many shares to be selling.  This difference in strategies will certainly affect ultimate performance.  However, for ease of evaluation, I shall stick with these 'buy and hold' reviews.  Perhaps someday I can implement a more accurate computer modeling using my own actual investment strategy!

On February 28, 2006, I posted CAS Medical (CASM) on Stock Picks when the stock was trading at $12.60.  CASM closed at $4.49 on August 17, 2007, for a loss of $(8.11) or (64.4)%.

On August 9, 2007, CASM announced 2nd quarter 2007 results.  Revenue for the quarter came in at $7.96 million, down $67,000 from $8.03 million reported in the same quarter in 2006.  Earnings came in at a loss of $(.03)/diluted share, down from a profit of $.03/diluted share the prior year.

Reviewing the 'point and figure' chart on CASM from StockCharts.com, we can see the unfortunate timing of my pick with the stock hitting resistance in February, 2006 and then trading consistently under the resistance level.  This is a very weak chart at this point from my perspective. 

With the weak earnings report and weak chart,

CAS MEDICAL SYSTEMS (CASM) IS RATED A SELL

On March 1, 2006, I posted Autodesk (ADSK) on Stock Picks Bob's Advice when the stock was trading at $41.68.   ADSK closed at $44.90 on August 17, 2007, for a gain of $3.22 or 7.7% since posting.

On August 16, 2007, Autodesk reported 2nd quarter 2007 results.  Revenues came in at $526 million, up 17% over the 2nd quart of 2006.  Net income was $92 million or $.38/share on a GAAP basis.  (Or $.44/diluted share or $108 million on a non-GAAP basis).  Prior year results worked out to $87 million or $.36/share on a GAAP basis (Or $96 million or $.39/diluted share the prior year).  Whether you choose to go with GAAP results (my preference), or non-GAAP, either way this was an improvement year-over-year.

Looking at a 'point and figure' chart on Autodesk from StockCharts.com, we can see that while the stock has recently been under some short-term pressure, it has not broken down and appears to be trending higher above the 'support line'.


With the solid earnings report and the continued strength in the chart,

AUTODESK (ADSK) IS RATED A BUY

So how did I do that week back in February/March of 2006?  Well actually pretty mediocre.  With one stock down big, and the other stock moderately higher, the two stocks showed an average of a loss of (28.4)% since posting. 

Once again, this demonstrates the importance of limiting losses and harvesting gains! If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.  If you get a chance be sure and visit my Stock Picks Podcast Website, where you can hear me discuss a few of the many stocks I write about on the blog, or my Covestor Website where my actual trading portfolio is monitored and evaluated, as well as my SocialPicks website where all of my stock picks have been reviewed this year!

Thanks so much for stopping by and visiting!  I hope you all have a wonderful weekend and a great week trading next week!

Bob


Posted by bobsadviceforstocks at 9:49 AM CDT | Post Comment | Permalink
Friday, 17 August 2007
A Reader Writes "Have you ever thought of using a close protective stop...?"

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

I had another nice letter from Doug S., who has been a regular write and commenter here on the blog.  Doug is bright and clever, and his thoughts deserve consideration.  He has regularly written to me about different names to consider and he is a good stock picker as well!

Doug wrote:

"Hi: Have you ever thought of using a close protective stop on a certain percentage of your gain at segmented designated levels on the
way up. It seems to me with a little research on past history you could structure a plan that would afford you approximately the same protection and allow "that big winner(position)' to make you a lot more money."

Doug, thanks for writing!

There is absolutely a lot of truth in what you write.  Your question is a little bit confusing for me.  I believe you are suggesting that I move up my stops a little bit 'closer' on those stocks that have appreciated a lot for me.  In that way, I might preserve my large gains so that they don't just drop back to a lower level.  Please correct me if I have misinterpreted the question/comment.

You raise some interesting points--especially in the light of the recent volatile correction that we have experienced in the stock market.  In other words, 'wouldn't it be wiser to have tighter stops under the big gainers to avoid 'giving back' so much of the profits'.

Let me review my current selling strategy on the downside.  After a first purchase, I allow a stock to decline only 8% before selling the entire position.  Thus selling at 92% of the price in a worst case scenario.

After a single sale at a 30% gain, I allow a stock to drift back to 'break-even' before selling.  This represents selling at 100/130 or 77% of the peak price.

After two sales, or at 30 and 60%, I would plan on selling all remaining shares if the stock declined to 30% appreciation.  That would work out to a level of 130/160= 81% of the peak.

After three sales, (30, 60, and 90%), I would sell at 45%, thus 145/190 = 76% of the peak.

Four sales (30, 60, 90, and 120%), I would sell at 60% or  73% of the peak.

Five sales (30, 60, 90, 120, 180%), then I would sell at 90% or 68% of the peak.

It isn't perfect, but I think you can see the trend.  After each sale I move up the stops, but generally the 'leash' that I give each stock increases after each sale...giving a stock more 'room to play' in a turbulent market.  

The result of this is that when a market corrects, my tendency is to unload my recent purchases before selling my longer-term holdings that might well survive smaller corrections better.  In this fashion I retain my strongest stocks and sell my newer additions as I move from equities to cash.

Anyhow, that's how I do it.  If I can figure some new methods to manage these questions, then I amn sure I shall make some changes.  Meanwhile....

Thanks again for visiting!  If you have any other comnenbts or quetions, please feel free to email me at bobsadviceforstocks@lycos.com or leave them on the blog.  

Hopefully, today's rally will hold and we will find most of the correction behind us with smoother sailing ahead.

Bob


Posted by bobsadviceforstocks at 1:23 PM CDT | Post Comment | Permalink
Updated: Friday, 17 August 2007 7:48 PM CDT

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