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Sunday, 6 January 2008
"Looking Back One Year" A review of stock picks from the week of July 3, 2006

 

 

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

I don't need to repeat myself and complain about how awful a trading week we just had.  At least for those of us who are going long on investments.

The weeks do seem to fly by as once again I am back at my keyboard typing away about a weekend review.  These reviews are my own attempt at some sort of 'quality control' or review to assess the success and failures of my investment selection process and to encourage some of you to dig into the blog where there are literally hundreds of stocks that I have reviewed over the past four, almost five years.

Anyhow, last week I reviewed the selection(s) from the week of June 26, 2006, so let's move ahead a week and see how things worked out for the stock(s) selected the following week, the week of July 3, 2006.  My reviews assume a 'buy and hold' strategy for investment.  In practice, I advocate and follow a very disciplined (?) investment strategy which demands of me to sell my losing stocks quickly and completely and sell my gaining stocks slowly and partially at targeted appreciation levels.  This difference in strategy would certainly affect performance, but for the ease of analysis, I have always been assuming a 'buy and hold' strategy for these weekend reviews.

On July 3, 2006, I posted Sirenza Microdevices (SMDI) on Stock Picks Bob's Advice when the stock was trading at $13.52.

Sirenza was acquired by RF Micro Devices (RFMD); the acquisition was completed on November 21, 2007.  As reported:

"Under the terms of the definitive merger agreement, each outstanding share of Sirenza's common stock was exchanged for a combination of 1.7848 shares of RFMD common stock and $5.56 in cash. Outstanding options to purchase Sirenza common stock were assumed by RFMD and converted into options to purchase RFMD common stock. Based on RFMD's closing stock price on November 13, 2007, the consideration for the outstanding shares of Sirenza stock is valued at $16.80 per share and represents an aggregate value of approximately $900 million, comprised of approximately $300 million in cash with the balance in RFMD stock. As a result of the transaction, Sirenza common stock has ceased to be publicly traded and is no longer listed on Nasdaq."

Thus, the stock pick has an appreciation of $3.28 or 24.3% since it was "picked".  

As the stock is no longer traded, I do not have a rating on this company.

Thus, for the only stock picked that week in July, 2006, the stock appreciated 24.3% until being acquired.  A very acceptable performance in light of the current difficulty the market is facing.

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

If you get a chance, be sure and visit my Covestor Page where my actual Trading Portfolio is monitored, analyzed and compared to other investors and indices.  Also, my SocialPicks page may interest you as they have been monitoring my blog for all of my stock picks since the first of 2007.  And if you have any time left, drop by and visit my Podcast Page where I have been storing some radio shows about various stocks I write about here on the website.

Wishing you a better week starting Monday!  Be well!

Bob


Posted by bobsadviceforstocks at 12:13 PM CST | Post Comment | Permalink
Saturday, 5 January 2008
A Reader Writes "Can you help end dispute?"

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 enjoy receiving emails from readers.

However, I just received a note and I am not sure whether I mis-spoke or not in the blog, so let me share this email with all of you and if any of you can add to this discussion, please just leave a comment or email with your thoughts at bobsadviceforstocks@lycos.com.  

As an amateur, I am capable of mis-speaking or mis-stating my own observations of the fact.  If you do ever catch me doing that (some time back I posted the wrong chart with a stock!), just let me know and I shall try to make amends as soon as possible.

Anyhow, Shannon wrote:

"hey,
 
I may have misinterpreted newmentioning china perchase of naztac last year...tried to find out and ended up on your site..did i tell a friend wrong about hearin' cpurchase of stockco? every time i search it comes up china instead of dead end..can you help end dispute/thanku"

 

 
Shannon, thank you for writing.  I hope that I didn't make any mistakes in what I wrote.  My concern about foreign ownership is something that every nation must address when it has an imbalance of trade.  That is, if we purchase more imports than sell exports to other nations around the world, the effects will include the drop in the value of our currency, the dollar.
 
For those of you who haven't noticed the news on the balnce of trade, this tidbit was released December 17, 2007 by the United States Bureau of Economic Analysis:
 
"The U.S. Current-account deficit--the combined balances on trade in goods and services, income, and net unilateral current transfers--decreased to $178.5 billion (preliminary) in the third quarter of 2007 from $188.9 billion (revised) in the second quarter.  Increases in the surpluses on income and on services and a decrease in the deficit on goods more than accounted for the decreases.  An increase in net unilateral current transfers to foreigners was partly offsetting." 
 

Thus, we have a growing and significant balance of trade deficit in America.  And this trade imbalance is one of the prime movers in the decline of the dollar.  As reported in the Wall Street Journal:
 

"Messrs. McKinnon and Hanke are right that there is a common interest in maintaining the stability of the dollar but jawboning to convince foreign governments and their central banks to support the dollar will not solve the problem.

The best way to support the dollar is to balance our trade. The economic literature is full of the gains from trade that accrue to all trading partners, but every example to prove such gains shows trade to be in balance. Our goal should be free and balanced trade with emphasis on balance."

Another impact of our poorly managed trade situation is the 'recycline' of these exported $'s into ownership of our own manufacturing base.  Warren Buffett, along with Carol J. Loomis commented on this as far back as November 10, 2003, in a Fortune Magazine article available online:

"In effect, our country has been behaving like an extraordinarily rich family that possesses an immense farm. In order to consume 4% more than we produce--that's the trade deficit--we have, day by day, been both selling pieces of the farm and increasing the mortgage on what we still own.

To put the $2.5 trillion of net foreign ownership in perspective, contrast it with the $12 trillion value of publicly owned U.S. stocks or the equal amount of U.S. residential real estate or what I would estimate as a grand total of $50 trillion in national wealth. Those comparisons show that what's already been transferred abroad is meaningful--in the area, for example, of 5% of our national wealth.

More important, however, is that foreign ownership of our assets will grow at about $500 billion per year at the present trade-deficit level, which means that the deficit will be adding about one percentage point annually to foreigners' net ownership of our national wealth. As that ownership grows, so will the annual net investment income flowing out of this country. That will leave us paying ever-increasing dividends and interest to the world rather than being a net receiver of them, as in the past. We have entered the world of negative compounding--goodbye pleasure, hello pain."

In fact, that is exactly what has been happening in America as we have been finding ourselves selling, and yes even seeking to sell our own asset base as our 'farm' is under distress.

Dubai is moving ahead with its investment in 19.9% of the NASDAQ.  

As reported the other day:

"January 2, 2008 (FinancialWire) Nasdaq Stock Market Inc. (NASDAQ: NDAQ)
has received approval from the Committee on Foreign Investment in the
United States to give Dubai's state-owned bourse a stake in the U.S.
electronic exchange.
The New York Stock Exchange completed its acquisition of Paris-based
Euronext this year to form NYSE Euronext (NYSE: NYX).
The approval is the first step in allowing the Nasdaq to continue with
its plan to acquire Stockholm-based exchange operator OMX. The new
exchange will be known as Nasdaq OMX Group Inc.
Borse Dubai Ltd. will own a 19.9 percent stake in Nasdaq, though its
voting stake will be capped at five percent. It will also receive
Nasdaq's stake in the London Stock Exchange.
Nasdaq will make an investment in Dubai International Financial
Exchange, which is owned by Borse Dubai.
CFIUS is a committee with representatives from 12 federal agencies
established to review how acquisitions of American assets by foreign
companies might affect national security."

Other notable 'recycling' of dollars includes the $7.5 billion investment in Citigroup by Abu Dhabi:

"ADIA is the world's largest sovereign wealth fund with assets of $875 billion, derived from the country's oil surpluses. The fund, which will take no role in Citi's management, will buy securities that convert into 235.6 million shares starting in 2010 and yield 11% in the meantime -- almost double the bank's normal bond yield, and 4% higher than its shares' current dividend yield. Between March 15, 2010 and Sept. 15, 2011, the securities will convert to Citigroup shares within a $31.83-37.24 price range. "The structure of the deal suggests that Abu Dhabi is very bullish, effectively participating in the upside beyond $37.24, and sharing in the downside below $31.83," said George Nikas of Deutsche Bank. The purchase will make Abu Dhabi Citigroup's largest shareholder, followed by LA-based Capital Group Co. and Saudi billionaire Prince Alwaleed bin Talal."

Foreign investment in America is occurring at a torrid pace.

As reported:

"Merrill Lynch & Co., Morgan Stanley, Citigroup Inc. and Bear Stearns Cos., based in New York, sold $20 billion in stakes to bolster capital eroded by credit-market losses. International purchases of U.S. financial assets totaled $114 billion in October, the Treasury Department said Dec. 17, the fastest pace in five months."
 
In regards to China, where we have a massive deficit that is growing--
 
In the year 2000: $(83.8) billion
    2001: $(83.1) billion
    2002: $(103.1) billion
    2003: $(124.1) billion
    2004: $(161.9) billion
    2005: $(201.5) billion
    2006: $(232.6) billion
    2007: $(213.5) billion
 
These dollars also need to be recycled.
 
In 2006 it was reported that China owned $339 billion in U.S. Treasury Bills.  Not Chinese investors, and not investors from Dubai, and not investors from Abu Dhabi, but the actual governments of these countries are buying America.
 
In May, 2007, it was reported that China would invest $3 billion in Blackstone Group, amounting to approximately 10% of this asset management and hedge fund company.
 
My concerns about this series of rather rapid changes in our domestic corporate ownership involves questions about actual sovereignty of our nation.  We are well aware of the role that corporations play in our government .

Recent Supreme Court decisions have extended Constitutional Rights to Corporations.   What will this mean when more and more United States corporations are partially owned not just by non U.S. Citizens, but by arms of foreign governments?
 
I do not know if I have answered your question.  But I am sure I gave you some food for thought for this gloomy weekend following one of the worst trading starts to a new year since 1932.
 
Bob 

 


Posted by bobsadviceforstocks at 9:37 AM CST | Post Comment | Permalink
Updated: Saturday, 5 January 2008 10:51 AM CST
Friday, 4 January 2008
On Today's Decline

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 am really at a loss for words to explain away today's miserable action in the market.  For the record, the Dow closed today at 12,800.18, down 256.54 points, and the Nasdaq closed at 2,504.65, down 98.03, with the S&P off 35.53 at 1,411.63.

In my own trading account, I had a loss of $(2,016.31) putting my current account value at $59,136.68.  Every one of my 13 stocks declined except for Covance (CVD) which managed to post a gain of 2.18% on the day.  In other words it was an awful day in the market.

And yet what is the individual investor, especially the amateur investor to do?  Seriously.  What is the proper action to take.  Is it time to sell everything and move to cash?  Perhaps.  Is it time to ratchet up the buying as things are about to rebound?  Maybe.  Or is it wisest to stay invested and 'ride out the storm?'  It is possible that's the right action.

In other words, I don't have any magic answers for this question.  I am sure some of you arrived at this website expecting answers, after all some of you Googled me with the term "stock advice". 

So let me tell you my strategy if you don't know it already.

Except for an occasional trade that doesn't particularly stick to the rules, my planned portfolio management strategy is to stick to my own rules.  That is, I am currently at 13 positions (12 plus the 100 shares of FMC from my recent trade.)  I shall drift down further towards a minimum of 5 positions depending on the price action of my holdings---or move towards the maximum of 20 positions again dependent on the price action of my own stocks.

How does that work?

I have set up sale points (at least in my head) for every stock I own.  Both on the upside and the downside.  As my stocks appreciate, hitting targeted appreciation points at 30, 60, 90, 120, 180, 240, 300, 360, 450, 540% etc. appreciation points, I implement sales of 1/7th of my holdings.  These sales are what I call good news sales and give me a "permission slip" to add a new position.

On the other hand, after an initial purchase, I execute sales on the entire position should a position decline to an (8)% loss for me--regardless of my duration of ownership.  If I have sold 1/7th of a holding at the first sale point, which is at a 30% gain, then I sell all remaining shares at the break-even point, instead of waiting for a stock to decline to an (8)% loss.

These sales on the downside are considered 'bad news' sales and require me to 'sit on my hands' with the proceeds---essentially moving me away from equities and into cash.  

If I have sold a portion of a stock more than once at appreciation points, that is at 30, and 60% or higher points, then the entire position comes up for a sale if the stock should decline to 1/2 of its highest appreciation percentage sale point.  That is, for instance, if I have sold a stock three times: at 30, 60, and 90% appreciation points, and the same stock now declines to only a 45% appreciation level, the entire position is sold.  And the stock, regardless of the fact that it carries a profit, is still considered a 'bad news' sale.

And I once again sit on my hands unless that sale brings me under 5 positions, which would instead give me a signal to add a new position to the account.

It is this method that allows my own portfolio to respond to the long-term moves of the market.  I haven't really had a bad bear market to deal with in the past few years as I implemented this approach.  But I hear some growls that might just be a bear in the vicinity.  

Will this work?

I don't know.  I hope so.  But I don't know of anything better than more 'shooting from the hip' guessing or just trading from the gut, or arbitrary decisions that don't make much sense to me.

In general bear markets are shorter than bull markets and the overall direction of the market is up.  Those things I am pretty confident about.  But what the market will do this coming Monday or a week from Monday is anyone's guess.  

I don't know if that answered your questions.  But I shared with you what my plan is.  I planned this when times were good.  I have been around plenty long in the stock market to remember times other than good that I have lived through.  

Good luck with your investments.  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 10:50 PM CST | Post Comment | Permalink
Thursday, 3 January 2008
FMC Technologies (FTI)

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.

With the market rather anemic this afternoon and with a couple of point gain on my 'trading position', I decided to pull the plug on 300 of the 400 shares, selling them a few moments ago at $65.42.  (These shares were purchased this morning at $63.52, so it almost mad a $2 gain.)  I kept 100 shares for the account as I really do like this stock.  But with this trade 'outside of my rules', and my margin balance still quite significant, it seemed wise to undo the bulk of the position.

FMC TECHNOLOGIES (FTI) IS RATED A BUY

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

Bob

 


Posted by bobsadviceforstocks at 2:14 PM CST | Post Comment | Permalink
FMC Technologies (FTI) "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 exercised my prerogative that I have established to 'break the rules' with one position in my portfolio.  With that in mind, I noticed that an old favorite of mine, FMC Technologies (FTI) had made the list of top % gainers on news.  I say 'old friend' because I have owned FTI in the past and first wrote it up on Stock Picks Bob's Advice back on January 30, 2006, almost two years ago!  With that in mind, and sensing that the market was going to turn positive, I purchased 400 shares of FMC Technologies (FTI) at $63.52 earlier this morning.

FMC TECHNOLOGIES (FTI) IS RATED A BUY

Let me briefly review the usual factors that went into my decision.

This morning, FMC announced that it had been awarded a $980 million contract to "supply deepwater processing and production systems to Total Exploration & Production Angola."

Probably in light of this contract, Wachovia upgraded the stock from "underperform" to "market perform".

Regarding the latest quarter, FMC reported 3rd quarter 2007 results on October 29, 2007.  Revenue came in at $1.1 billion, up 22% over 3rd quarter 2006.  Diluted earnings per share came in at $.60/share up 46% from $.41/share the same quarter last year.In the same report, the company raised guidance for full year 2007 to $2.16 to $2.21.

With this report, the company beat expectations of $.55/share and met expectations of revenue of 1.14 billion.

Longer-term, the Morningstar.com "5-Yr Restated" financials page is solid with strong revenue growth, a resumption of earnings growth (after a slight dip from $.84/share to $.75/share between 2004 and 2005, then $1.97/share in 2006 and $2.32/share in the TTM), and stable outstanding shares.  Free cash flow has improved from $16 million in 2006 to $174 million in the trailing twelve months (TTM).  The balance sheet appears reasonably solid.

Finally, the chart looks strong.  Checking the StockCharts.com "point & figure" chart on FTI:

Anyway, I am 'back in the game!'  I don't think I should be 'day-trading' a quality stock like this for a point or two.  I don't know if that's a mistake or not.  I shall stick with my disciplined portfolio management for my other holdings, but this holding shall continue to be an ongoing experiment for me as I try to think 'out of the box' and purchase and sell stocks in a more unrestrained fashion.  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.  If you get a chance, drop by and visit my Covestor Page where my Trading Portfolio is analyzed and compared to the indices and other investors, my SocialPicks page where my stock picks are reviewed since the first of last year, and my Podcast Page where you can listen to me discuss a few of the many stocks I have reviewed here on the blog.

Have a great 2008! 

Bob

 


Posted by bobsadviceforstocks at 11:58 AM CST | Post Comment | Permalink
Tuesday, 1 January 2008
New Year's Resolutions

Hello Friends!  It is the first of January of 2008.  And I am still trying to figure out what is going to happen when Y2K hits.  Doesn't that seem like just yesterday?  I remember all of the panic and planning that went on as all of our computers were supposed to crash and struggle as the year 2000 rolled over.  And I am still waiting.

I thought I would spend a few moments today and share with you some resolutions that I am making for the New Year.  As always, please remember that these are 'amateur' resolutions :).  So always seek advice with professionals before copying any of mine :):).

1.  To stay with my approach in a disciplined fashion.  But occasionally, when the 'writing is on the wall', go ahead and do something that isn't completely on the straight and narrow.  I recall in 2007 when I saw that Starbucks (SBUX) wasn't acting well.  I love the store.  The stock had been great for me.  The stock hadn't hit any sale points, yet I unloaded shares because they came in with some week same store sales numbers, and as I recall they missed slightly on earnings.  It paid to think a little.

2. To give credit to others more often.  This year I would like to expand my reading of other blogs and comment more on what some very bright and innovative minds are writing.  There are so many great thinkers out there and we can all learn more from others if we spend the time.  This will also increase the possibilities of integrating what I write more into the 'blogosphere'.  I do enjoy reaching more readers and having them stick around more than the 0:00 seconds that my Sitemeter reads on their visits.  This also includes encouraging all of you to comment and write letters more often so that we can increase the amount of two-way discussions here on this website.  Please be aware that if you email me at bobsadviceforstocks@lycos.com I shall try to answer your comments either directly or on the blog.  But I cannot guarantee that I shall be able to respond to every letter even though I read all of them.

3. To blog less and to blog better.  I cannot be blogging every single day.  It just isn't physically possible.  Although I come close.  But to continue to work on improving the content with as much educational links as possible.

4. To learn more about charting, day-trading, and short-selling.

5. To integrate political commentary into the blog.  Occasionally I digress and offer some political observations here on this website.  While we can all agree that profitable investing is useful, there will likely be large ranges of opinions on these controversial topics.  I have been reluctant to enter into these discussions except on rare exception, and while I am not sure it is the wisest thing for this blogger to do, blogging is a personal affair that is shared with the public.  I have many different hats, and one of them is as a very political person.  How I do this, I haven't decided.

6. To work hard at staying humble.  It is easy for my head to 'get bigger' as I blog and write as if I really have all the answers.  I don't.  I am capable of failure, my approach may or may not work long-term, and there are many brighter investors out there.  I have been very lucky to have so many 'followers' over at the Covestor site.  But I trust that these followers are interested in my thoughts on stocks and not necessarily my performance which lags many great fellow investors.  I shall try hard to stay ahead of the S&P (which I accomplished in 2007), but remember that we all must work to refine out techniques, enhance our understanding, and recognize that our accomplishments may all be just one step ahead of failure.

7. To stay upbeat about investing, blogging, and my family. Without being so pessimistic at such an early time in the year, I have a wonderful group of readers on this blog.  I love to sit down and write about things and share with all of you my thoughts, and I have a wonderful family that I can be proud of.  Without sounding Pollyannish, there is much for me to be 'glad' about :).

8. To continue to look at ways to improve the functionality of my blog and maybe, perhaps, develop some index :).

This may be just Part I of my resolutions so stay tuned.  Meanwhile, I would like to wish all of you the best of years in 2008.  May you find happiness and success as well as an occasional profit.  May all of you experience the best of health and find the strength to deal with all of the challenges that may lie ahead for all of us this year.  And maybe we can find 2008 a year that has more Peace and Well-Being for each inhabitant across the globe who may find reason to have more hope than discouragement about their own lives and families.

Bob


Posted by bobsadviceforstocks at 11:46 AM CST | Post Comment | Permalink
Sunday, 30 December 2007
"Trading Portfolio Update" December 30, 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.

As we approach the end of 2007 and begin a new year in a couple of days, I thought that this was about as good a time as any to take a look at my Trading Account.  I haven't been doing these updates quite as frequently as previously because you can all venture over to my Covestor Page where my holdings and performance are summarized and analyzed and compared to indices as well as other investors on the site.

In fact, I last reviewed my holdings on October 7, 2007, and my overall performance has been pretty neutral since that post.

This is the status of my account as of December 30, 2007.  These holdings are listed in the alphabetical order of their trading symbols followed by number of shares, date of purchase, price of purchase, latest price (12/28/07), and percentage unrealized gain or (unrealized loss).

Abaxis (ABAX), 180 shares, 10/25/07, $28.29, $36.90, 30.42%

Cerner (CERN), 103 shares, 2/2/07, $49.76, $57.58, 15.71%

Copart (CPRT), 210 shares, 9/27/07, $33.73, $42.62, 26.36%

Covance (CVD), 102 shares, 4/9/07, $62.61, $87.28, 39.40%

Harris (HRS), 103 shares, 1/31/07, $50.05, $62.69, 25.25%

IHS (IHS), 140 shares, 10/1/07, $58.53, $61.21, 4.58%

Morningstar (MORN), 103 shares, 11/22/05, $32.57, $77.60, 138.22%

Precision Castparts (PCP), 64 shares, 10/24/06, $69.05, $138.54, 100.63%

ResMed (RMD), 150 shares, 2/04/05, $29.87, $52.55, 75.94%

Universal Electronics (UEIC), 155 shares, 2/23/07, $25.24, $33.33, 32.05%

Meridian Bioscience (VIVO), 199 shares, 4/21/05, $7.42, $30.57, 312.05%

VCA Antech (WOOF), 210 shares, 7/27/07, $41.04, $44.60, 8.68%

 

Currently I am at 12 positions with 20 being the maximum and 5 the minimum.  My equity value is $90,809.41 with $28,702.47 in margin outstanding with a net account value of $62,105.02.  My margin equity percentage is 68.30%, up from 57.11% at the last report in October.

As of December 28, 2007, I had a net of $27,511.45 in unrealized gains in the account.  Since the first of the year I have taken a net of $282.20 in short-term gains and $30,851.56 in long-term gains giving me a total of $31,133.76 in realized gains.

I have had total income of $422.74 and have paid $(4,888.66) in margin interest as of this date.  

This has been a very good year for me in the market.  I hope that the market has treated you just as kindly.  Wishing all of my friends the happiest and healthiest of New Years in 2008.  

Bob 


Posted by bobsadviceforstocks at 11:49 AM CST | Post Comment | Permalink
Saturday, 29 December 2007
"Looking Back One Year" A review of stock picks from the week of June 26, 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 the weekend and it is time for a review!  Last weekend I reviewed the only stock selected on the blog during the week of June 19, 2006.  Going ahead a week, during the week of June 26, 2006, I also had only one stock that I 'picked' for the blog.  Let's take a closer look at Interactive Intelligence (ININ), find out how that pick would have worked out had we purchased any shares, and whether that stock still deserves a spot in the blog.

These reviews assume a 'buy and hold' approach to investing.  Actually I advocate as well as practice a very disciplined portfolio management strategy for all of the stocks in my Trading Account.  That is, instead of just 'buying and holding' any particular stock, I actively respond to news as well as the price movement of the equity, trying to limit losses by aggressively selling declining stocks, and locking-in gains by selling portions of appreciating stocks as they hit 'appreciation targets.'

But enough of all of that.  Let's take a closer look at Interactive Intelligence.

I posted Interactive Intelligence (ININ) on Stock Picks Bob's Advice on June 30, 2006, when the stock was trading at $14.27/share.  ININ closed at $27.38 on December 28, 2007, for a gain of $13.11 or 91.9% since posting.  I do not own any shares nor do I have any options on this stock.

What exactly does this company do?

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

"...provides software applications for contact centers and voice over Internet protocol (VoIP) applications to enterprises. Its products include Customer Interaction Center that provides contact centers and enterprises a single platform and a pre-integrated all-in-one application solution for IP telephony; Vonexus Enterprise Interaction Center, an IP PBX phone and communications system for SIP-supported VoIP in the mid-sized enterprises; Interaction Dialer that provides call scripting, multi-site campaign management, intelligent campaign staging, and compliance options; and Interaction EasyScripter, which integrates to Interaction Dialer for easy Web-based scripting."

How did they do in the latest quarter?

On October 29, 2007, Interactive Intelligence reported 3rd quarter results.  For the quarter ended September 30, 2007, revenue came in at $28.7 million, up 29% over last year's $22.2 million in the same period.  GAAP earnings came in at $.13/share vs. $.26/share last year.  However, these results include one time gains and expenses--and removing this year's expenses related to stock-based compensation and a non-cash income tax benefit last year, the 'non-GAAP' results were net income of $3.3 million this year vs. $2.2 million in 2006 or $.17/share, up from $.12/share. 

The company beat expectations which were for $.12/share earnings on revenue of $26.9 million according to analysts polled by Thomson Financial.

What about longer-term results?

Reviewing the Morningstar.com "5-Yr Restated" financials on ININ, we find that revenue has steadily increased and actually that growth has accelerated recently.  They had $47.8 million in revenue in 2002 increasing to $62.9 million in 2005, $83.2 million in 2006 and $103.9 million in the trailing twelve months (TTM).  Earnings have also steadily increased improving from a loss of $(.50)/share in 2002 to $.06/share by 2004, $.56/share in 2006.  With the latest dip in earnings in the latest quarter (see the above comments), earnings for the TTM have dipped to $.41/share.

Free cash flow has also been improving turning from a negative $(2) million in 2004 to $3 million in 2005, $7 million in 2006 and $9 million in the TTM.

The balance sheet appears adequate with $23 million in cash and $49 million in other current assets.  This total of $72 million in total current assets, when compared to the $50.7 million in current liabilities yields a current ratio of 1.42.

How about some valuation numbers?

Reviewing the Yahoo "Key Statistics" on ININ, we can see that this is a small cap stock with a market capitalization of only $440.7 million.  The trailing p/e is quite rich at 66.14, with a forward p/e (fye 31-Dec-08) of 38.56.  With the solid growth estimated (5 yr expected), Yahoo derives a PEG ratio of 1.57.  Generally ratios beetween 1.0 and 1.5 are reasonable.  This number also shows the 'richness' in valuation.

Using the Fidelity.com eresearch website, we can see that the Price/Sales (TTM) ratio is reasonable at 4.58 compared to the industry average of 6.61. Also on Fidelity, we can see that the Return on Equity (TTM) is a bit under the industry average at 27.30%, compared to the industry number of 31.76%.

Returning to Yahoo,  there are 16.10 million shares outstanding while only 12.38 million float.  As of 11/27/07, there were 1.2 million shares out short representing 7 days of trading volume (the short ratio) which also works out to 9.5% of the float.  Using my own '3 day rule' for short interest, this is a significant level that may well result in a 'short squeeze' if the company continues to report solid results.  No dividends and no stock splits are reported on Yahoo.

What does the chart look like?

Looking at the 'point & figure' chart on ININ from StockCharts.com, we can see a very strong record of price appreciation from May, 2005, when the stock was trading as low as $3.75/share to the current level of $27.38, just under the high of $30.  The stock had one episode of price weakness in March, 2007, when it broke through support from $22 down to a level of $13.50 before turning around and heading higher.  Overall the chart looks quite strong to me.

Summary:  What do I think about Interactive Intelligence (ININ)?

To review a few of the points, this has been a great stock pick for me and the blog, with an appreciation of nearly 92% since posting the stock about 18 months ago. The latest quarter was a bit opaque with solid revenue growth and actually nice earnings appreciation once we take out the 'one-time' accounting events.  The company also beat expectations on both revenue and earnings.

Longer-term the stock has also been recently accelereating its growth with solid revenue improvement, earnings growth, relatively stable outstanding shares, and increasing free cash flow.  The balance sheet appears solid.

Valuation-wise, the p/e ratio is quite rich with a PEG just over 1.5.  Price/Sales is reasonable but the Return on Equity was a tad under the industry.  

There are lots of shares out short which without any known negative news is a positive factor.  Finally the chart looks solid.

With all of this,

INTERACTIVE INTELLIGENCE (ININ) IS RATED A BUY

Thanks so much for visiting!  If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.  Other associated websites you might wish to visit includ my Stock Picks Podcast Page, where you can download mp3's of my discussions on some of the same stocks I blog about, my Covestor Page where my actual Trading Portfolio is evaluated and compared to the indices and other investors, and my SocialPicks page where most of my stock picks for this year are reviewed and monitored.

Wishing you all a wonderful 2008!

Bob 


Posted by bobsadviceforstocks at 10:30 PM CST | Post Comment | Permalink
Friday, 28 December 2007
Actuant Corporation (ATU)

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 looking through the list of top % gainers on the NYSE and came across Actuant (ATU) which is currently trading at  $34.70, up $1.75 or 5.31% on the day.  I do not own any shares or options on this stock but do think it deserves a spot on this blog.

ACTUANT (ATU) IS RATED A BUY

Let's take a closer look at this company and I will explain to you why I like this stock.

What exactly does this company do?

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

"...manufactures industrial products and systems worldwide. It operates in four segments: Industrial, Electrical, Actuation Systems, and Engineered Products."

How did they do in the latest quarter?

On December 19, 2007, ATU reported 1st quarter 2008 results.  For the quarter revenue came in at $415.1 million, up 21% from the prior year.  Earnings were $27.4 million or $.43/share up from $25.1 million or $.41/share last year.  Prior to restructuring charges, earnings were $.52/share. 

With this report the company actually beat expectations which were for $.48/share and revenue of $395 million according to Reuters Estimates.  In the same report, the company also raised guidance for the second quarter, with earnings now expected at $.39 to $.42/share on sales of $385 to $395 million.  Analysts had been expecting earnings of $.42/share on revenue of $379.6 million.

As you probably know, this is what I look for in an earning report.  That is, strong revenue and earnings growth, beating street expectations, and raising guidance.  In my terminology, I call this a 'trifecta plus'.  (But of course, I don't go to the races, so I don't really know much about horse-racing!) 

What about longer-term results?

As I have written about over and over on this blog, my search for stocks is to identify companies that have consistently been reporting great results.  Not just a quarter or even one year of financial success.  I know that this search is pretty 'picky' and I shall miss lots of great opportunities, but my belief is that if we restrict our attention to the finest companies available, we shall have a more consistent performance than otherwise.

Anyhow, I like to refer to Morningstar for these results, and the Morningstar.com "5-Yr Restated Financials" on Actuant support this consistent pattern.  Revenue has grown steadily from $585 million in 2003 to $1.46 billion in 2007.  Earnings have also steadily increased from $.59/share in 2003 to $1.69/share in 2007.  The company initiated dividends in 2006 at $.04/share and also paid $.04/share in 2007.  (If I had my druthers, this would also show an increasing pattern--but the presence of a newly initiated dividend does offer an attractive feature to an investment.)

Outstanding shares have not been extremely stable; that is they have increased from 49 million in 2003 to 64 million shares in 2007.  However, this approximately 25% increase in shares was accompanied by an approximately 200% increase in revenue and a more than 200% increase in earnings.  This is more than acceptable 'dilution' imho.

Free cash flow is not only positive but increasing with $82 million in free cash flow reported in 2005, growing to $102 million in 2006 and $146 million in 2007.

The balance sheet is solid with $87 million in cash and $419 million in other current assets.  This total of $506 million in total current assets, when compared to the $290.8 million in current liabilities yields a current ratio of 1.74.  Generally ratios abover 1.2 are 'adequate'.  The company also carries a not insignificant $710 million in long-term liabilities on its books per Morningstar.

What about some valuation numbers?

According to Yahoo "Key Statistics" on ATU, the company is a small cap stock with a market capitalization of only $940.39 million.  The trailing p/e is a very reasonable (imho) 20.23 with the forward p/e even nicer at 15.43 (fye 31-Aug-09).

With the reasonable valuation and the strong record and estimates, ATU ends up with a PEG under 1 at 0.98.  Generally from my perspective PEG ratios between 1.0 and 1.5 are reasonably priced.  Companies with PEG's under 1.0 are relatively 'cheap', and above 1.5 are generally 'rich' in valuation.

Using the Fidelity.com eresearch website for additional valuation numbers, we can see that the Price/Sales ratio is also reasonably priced at 1.19 (TTM) compared to the industry average of 1.47.   In terms of profitability, at least as measured by the Return on Equity (TTM), Fidelity again shows that not only is the company less 'expensive' than its peers by the Price/Sales ratio, the company also is more profitable with a ROE (TTM) of 22.48%, compared to the industry average of 21.52%.

Returning to Yahoo, the company has 27.12 million shares outstanding (54.28 million adjusted for a split), and 53.50 million that currently float.  As of 11/9/07, there are 4.77 million shares out short representing 8.9% of the float and 8.1 trading days of volume (the short ratio).  Using my own '3 day rule' on short interest, the 8.1 days of trading volume is quite significant and with the ongoing 'good news' being reported by the company, is only another bullish indicator for the stock.

As I noted above, the company is paying $.04/share in annual dividends yielding only 0.04%.  The last stock split was last month on November 9, 2007, when the company split its stock 2:1.

What about the chart?

Examining the 'point & figure' chart from StockCharts.com, we can see what I would consider a very strong price performance since January, 2002, when the stock broke through resistance at $9.00/share.  The stock bottomed as low as $.63/share in September, 2000 (of course adjusted for stock splits).  Since 2002, the stock price has literally been on a tear, climbing to the recent levels of $34.38, just under its apparent all-time high of $35.

Summary: What do I think?

Needless to say I like this stock a lot.  I am not buying any shares as I do not have a 'permission slip' from my own portfolio to be adding positions.  But if I were, this is my kind of stock!

Reviewing a few of the things that make me attracted to this equity, let's recall that the company just reported a quarterly report with strong revenue growth and earnings growth.  They beat expectations and they raised guidance.

They have been steadily been reporting strong results for the past five years or more, have initiated a dividend, kept the outstanding shares reasonably stable, and are reporting positive and growing free cash flow.  The balance sheet looks solid.

Valuation-wise, the p/e is just over 20 and the PEG is under 1.0.  The price/sales ratio is lower than average, and the Return on Equity is higher than average.  On top of this, there are lots of shares out short and the chart looks terrific.  WHAT is there NOT to like :).

Anyhow, that's a pick for you for the end of the year!

If you have any comments or questions, please feel free to leave a comment on the blog or email me at bobsadviceforstocks@lycos.com.  Furthermore, if you get the time, be sure and visit my Stock Picks Podcast Site, where you can listen to be discuss some of the stocks from the blog.  Or visit my Covestor Page where my actual trading portfolio is tracked and compared to the S&P and other investors real-time without me actively providing information.  In addition, for a review of my past stock picks for the year, visit my SocialPicks Page where these are recorded and reviewed.

Again, thanks for visiting!  Have a great New Year and may 2008 find us reading more about good things in the world instead of Assassinations, Wars, Terrorism and Torture.  (o.k. I had to put a little bit of politics in there!)

Regards to all of my readers and their families!

Bob


Posted by bobsadviceforstocks at 11:15 AM CST | Post Comment | Permalink
Updated: Friday, 28 December 2007 11:18 AM CST
Thursday, 27 December 2007
Maintaining Perspective

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 lousy day in the market.

First we had the assassination of Benazir Bhutto in Pakistan letting us all realize once again how fragile each life is as well as how willing some people are to change history through violent means.  The market didn't like that kind of unsettling news and slumped along with increases in oil prices.

In addition, real estate prices are slumping, jobs aren't being created in a vigorous fashion, and consumers weren't buying adequately during the holiday season to set any kind of records.  Quite the reverse actually.

But I don't know which direction the stock market will move tomorrow or next week.  I don't know whether we are embarking on a prolonged bear market correction or if tomorrow will mark the beginning of a new bull phase of trading.

I don't mean to disappoing anyone but I cannot read the future.  I can guess, we can all guess, but nobody really knows these things. 

So how do I respond to this turmoil?  I stay with my system.  I restrict my ownership to high quality companies that are doing well---growing their revenue, earnings, free cash flow, and maintaining outstanding shares as well as a solid balance sheet.  And then I respond to market activity by evaluating the price action in each of my holdings.  I do not try to guess their moves either, but sell quickly if they incur losses and slowly if they yield gains.  And with these sales I either add to my exposure to equities or bias my account more towards cash.  In other words, I let the price performance of my existing stocks determine my own strategy.

I don't know if this is the best way, or even the most successful approach.  Sometimes, like I yield to the urge of doing a 'trade', I also have the inclination to throw in the towel and move everything to cash. But I don't.  I have stopped trying to guess the market direction.  Maybe you are a better guesser.  As for me, my own portfolio has moved me to 12 positions out of a maximum of 20 and a minimum of 5.  My portfolio is literally 'speaking to me'. 

And I shall listen.

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 6:09 PM CST | Post Comment | Permalink

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