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Sunday, 22 February 2009
New PODCAST on Portfolio Management in the Face of a Bear Market!

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

Click HERE to listen to my latest podcast on Investment Management Strategy in the face of a bear market as well as listen to me read a few poems by Robert Frost.

 

Yours in investing,

 

Bob


Posted by bobsadviceforstocks at 9:21 PM CST | Post Comment | Permalink
Friday, 20 February 2009
AT&T (T) "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.

As I wrote earlier, I was disappointed in needing to sell my Morningstar (MORN) shares this morning as that stock fell under the pressure of a disappointing earnings report as well as the generalized weakness in the financial sector.

One stock that I have been watching as a possible 'safe haven' has been AT&T (T) which as I write is trading at $23.60, up $.41 or 1.77% on the day.  AT&T at this price trades with a p/e of only 10.92 and a yield of 7.07%.  A few moments ago I purchased 71 shares of T at a price of $23.64.  This peculiar share amount was calculated as I have described previously by calculating the average size of my other four holdings and buying 1/2 of that average amount to replace my 5th position, Morningstar (MORN), which was also sold just this morning.

Scott Moritz over at Street.com commented about how Goldman Sachs analyst Jason Armstrong has upgraded both Verizon (VZ) and AT&T (T) and both stocks have responded positively. 

The article explains:

"With AT&T and Verizon down about 18% so far this year, Armstrong says the "pendulum has swung too far" and that it's time to consider the long-range perspective. In a research note Friday, Armstrong recommends buying shares of the two telco titans now, while pessimism about the economy is weighing so heavily on the market.

Why now? Armstrong has three points: The bar has been lowered in terms of Wall Street expectations, both telcos have "an achievable path to growth in 2010," and both offer a big, safe dividend -- about 7% annual payout -- to help you bide your time."

Looking at the 4th quarter earnings report you will see that I have also accepted a less than stellar report with earnings coming in at $.41 this year down from $.51/share in the prior year.  Revenues did manage to improve slightly to $31.1 billion, up 2.4% from last year's results. 

Reviewing the Morningstar.com '5-Yr Restated' financials, we can see the impressive growth in revenue from $40.7 billion in 2004 to $118.9 billion in 2007 and $123.3 billion in the trailing twelve months (TTM).   Earnings have grown, albeit a little inconsistently, from $1.77/share in 2004 to $1.94/share in 2007 and $2.26 in the TTM.

Dividends have also been raised yearly from $1.26 in 2004 to $1.47 in 2007 and $1.60 in the TTM.  Shares have also grown from 3.3 billion in 2004 to 6.17 billion in 2007 and 6.01 billion in the TTM.  Much of this share growth may be attributed to shares issued for acquisitions.

I remember well the original break-up of 'Ma Bell' in 1983 when the seven 'baby bells' were created.   In 1998 SBC Communications acquired Pacific Telesis, the baby bell for the western states. In November, 2005, SBC Communications (the old baby bell Southwestern Bell) acquired AT&T and renamed itself AT&T. In 2006, AT&T spent $67 billion to acquire BellSouth.

Like Frankenstein, AT&T has been busy putting its pieces back together
again! 

I confess to having a personal attraction to AT&T that transcends the stock and its particulars.  Years ago, when my father was still alive, I really believe that AT&T was his favorite holding.  He had owned it for many years and enjoyed the dividend stream and the many stock splits over the years.  A while back I wrote about him and my own investing experience.  But that shouldn't really enter into our own investing decisions, should it?

Let's take a brief look at the 'point and figure' chart on AT&T from StockCharts.com.  Here we can see that the stock which corrected rather deeply in September, 2002, dipping to $15.50/share, revisited that low in Apri, 2003, and then climbed as high as $40/share in September, 2007, and again hit that high in December, 2007, only to dip as low as $21 in October, 2008.  The stock has been struggling to move higher, with higher lows but meeting resistance on the upside.  The stock is bouncing off the recent low of $23.00 from November, 2008, and now is showing some support at this price point.

Like most charts these days, the picture is less than encouraging.  But if the dividend is secure, something we cannot depend on anymore, the stock may well be support in a bond-like fashion.

In any case, I am now a shareholder, albeit a small shareholder, in an 'old favorite' of if not mine, of my father who while no longer alive, was always my main mentor in this stock business.

If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.

Yours in investing,

 

Bob 


Posted by bobsadviceforstocks at 12:27 PM CST | Post Comment | View Comments (2) | Permalink
Updated: Friday, 20 February 2009 12:31 PM CST
Morningstar (MORN) "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.

Earlier this morning I detailed my strategy for dealing with stock declines.  Little did I anticipate that I would so quickly be exercising that strategy in an unexpected decline of what I would otherwise tell you is a 'favorite' stock of mine, Morningstar (MORN).  As I write, Morningstar (MORN) is trading at $28.01, down $(4.52) or 13.89% on the day.

I acquired my 116 shares of Morningstar just a month ago, on January 21, 2009, at a cost basis of $33.53.  A few moments ago I sold all of my shares at $28.00, for a loss of $(5.53) or (16.5)% since purchase.  My sale point after an initial purchase is at an (8)% loss.  Since I enter these sales and purchases manually (rather an old-fashioned approach I suppose), this stock price blew right by my sale point and I incurred an even larger loss on this investment than I would prefer to take.  In any case, the stock triggered a sale for me and I am now down to four positions:  50 shares of Haemonetics (HAE), 90 shares of PetSmart (PETM), 350 shares of Rollins (ROL), and 154 shares of Sysco (SYY).

Being under my minimum, instead of 'sitting on my hands' with this sale, I actually have a 'buy signal' to be adding a fifth holding to get back to my minimum of 5 positions.  However, instead of looking to add a slightly larger position as I would do if I were at at least 5 positions, by making a purchase of 125% of the average size of the remaining holdings, I shall continue to shrink my exposure by buying a position at 50% of the average size of the remaining four holdings.

Looking for what triggered that downside move today, we can see that Morningstar (MORN) reported 4th quarter 2008 results yesterday after the close of trading. Revenue came in at $119.3 million, slightly ahead of last year's result of $118.1 million.  Net income for the quarter came in at $19.3 million or $.39/share down 3.7% from the $20.0 million or $.41/share the prior year.  While this result is not what one surprising in light of the overall weakness of the economy, what likely triggered the rather extreme move was the fact that analysts had been expecting $.43/share according to Reuters estimates in the same article.  Thus the company disappointed and failed to meet expectations.

Contributing to this drop in net income was the combined facts that "assets under advisement fell about 32% to roughtly $66 billion" according to CEO Joe Mansueto.  In addition, the company's own expenses rose in conjunction with acquisitions to 2,375 from 1,720 employees. 

The market did not take lightly to these results.

I still like this company, but I am definitely obligated to sell the holding within the framework of my own investment strategy as well as the announcement of fundamentally poor results.

I shall keep you posted on what and if I make a small purchase to bring my holdings back to my minimum of five.

If you haved any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.

Yours in investing,

 

Bob 


Posted by bobsadviceforstocks at 11:11 AM CST | Post Comment | View Comments (1) | Permalink
More Thoughts on the Market Correction

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.

Many of you who visit this blog are used to my stock market ideas that really are based on a combination of price momentum and fundamentals.  I continue to believe that this basic idea about selection of stocks is sound and important for every investor to consider---whether they be novices or pros in stock selection.

Perhaps more important, underlying these selections, I have continued to emphasize my own idiosyncratic methods of dealing with stock market moves by automatically moving into and out of stocks in response to the signals generated by my own holdings.  This may turn out to be the more important part of my own thinking and I continue to implement this approach in my own trading account (except for an occasional "trade" that I have executed at my own disgression!)

Simply put, I sell my gaining stocks slowly and partially at targeted appreciation points and sell my losing stocks quickly and completely at pre-determined levels.

Let me explain this process one more time.  

For my own use, I have set my holdings at a limit of 20 positions.  Currently I am holding five stocks.  In initially entering the market, I would suggest that an investor start at 50% cash and 50% equities---a position that I would describe as "neutral".  In other words, commmitting 5% of cash to each of the ten positions.  As a saver, I would also encourage the automatic deposit monthly of whatever amount is appropriate to each saver to grow each account over the 'long haul'.

After reaching this point, I would allow the market to determine future responses to the portfolio.  

On selling stocks on the upside, I still recommend selling 1/7th of each holding at certain appreciation points---for me I utilize gains at 30%, 60%, 90%, and 120% levels, followed by larger intervals reaching 180, 240, 300 and 360%, then 450%, 540%, 630%.....etc.  At each sale at a gain, I view this as a signal that the market is "o.k." and give myself a 'permission slip' to add a new holding....unless I am at the maximum of 20....in which case the sale would simply go into cash or paying down margin as the case may be.

Sizing of sales (above 5 positions---the minimum) are now set at 125% of the average holding size for the new position.

On the downside after an initial purchase I allow an (8)% loss to completely step out of a holding.  After a single sale at a 30% gain, I sell the entire position at 'break-even'.  If I have sold a stock more than once, for instance 3 times at 30, 60 and 90% levels (selling 1/7th of my holding each time), I sell if the stock should decline to 1/2 of the highest percentage level----for 90% appreciation sale, I would sell the entire position should the appreciation level decline to 45%.  With these sales I 'sit on my hands' unless I am at my minimum of five holdings, in which case I replace that holding with a smaller sized position which would also decrease my exposure to equities.

The smaller-sized position, instead of being 125% of the average, the size of a new position on the upside above 5 positions----the smaller-sized position is at 1/2 of the average size of the remaining holdings.

This is what I do.

I believe it would help any investor step aside in a bear market like we are continuously being exposed to.  It is working in this regard for me.

It isn't rocket science.  It is common sense.

Is anyone listening?

Thanks again for stopping by.  I shall be going off to work in my 'day job' now.  If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.

Yours in investing,

 

Bob


Posted by bobsadviceforstocks at 5:03 AM CST | Post Comment | View Comments (1) | Permalink
Sunday, 15 February 2009
A Reader Writes "CTSH, HAE, and ALXN---Your Thoughts?"

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 this website.

My loyal reader and commenter, Doug S., who has suggested many a good idea dropped me a line last week and wrote:

"CTSH looks like a screaming buy.  HAE has been behaving well, and ALXN looks very interesting and insulated from the economic fiasco.  No current positions."

First of all, thank you for writing once again Doug.  Since I have been spending much time on my own stocks the past few months, I would like to take a look at the stocks that you mentioned.  As you probably realize, I do own a small position in Haemonetics (HAE), but I haven't looked at Cognizant (CTSH) since way back on July 22, 2003.  I don't believe I have ever really examined Alexion Pharmaceuticals (ALXN), so that one will be a completely new stock for me and for this blog.  

In reviewing these three stocks, let's look at four basic items that may well determine our assessment.  First of all the news.  Is there any recent news item that is of signifance that will affect our current assessment of the prospects of this stock?  And I suppose, when considering the news, we can also consider the context of the current economic "fiasco" as you appropriately describe our current economy.  

Next, as I like to do, let's take a quick look at the latest quarterly report.  Were earnings growing, revenue increasing, and did the company meet, beat, or fail to meet expectations?  And did the company comment on guidance?  

Thirdly, let's review the Morningstar.com '5-yr restated' reports.  What has been happening to the revenue, earnings, free cash flow, dividends, and what about the balance sheet?

Finally, what about the chart?  Is the stock price in a 'free-fall' or does it show any support from investors?  

In the case of Cognizant (CTSH), the "news" includes the latest earnings report.   Since this company relies heavily on Indian workers for oursourcing, I would certainly be concerned that Cognizant could feel some of the effects of the Satyam disaster, but apparently this is not a problem for this particular company. Cognizant closed at $21.17 on February 13, 2009, up $.41 or 1.97% on the day.

On February 13, 2009, Cognizant (CTSH) reported 4th quarter 2008 results.  They met expectations with net income coming in at $.38/share or $112.3 million compared to the prior year $96.3 million or $.32/share.  Revenue also increased nearly 26% to $753 million from $60 million the prior year.  However, this news story suggests that removing special items (including weakness in the British pound relative to the U.S. Dollar affecting earnings by $(.03)), CTSH actually earned $.41/share and beat expectations

Reuters reported that the company reduced guidance for 2009:  first quarter revenue at least $735 million vs. estimated $746.6 million, and 2009 earnings of at least $1.54 vs. estimated $1.59 million.  Full year 2009 revenue now estimated at $3.1 billion vs. estimated $3.07 billion.

However, the company, after the slight slowing in the first quarter does anticipate 

"...a modest pick-up beginning the second quarter, as it sees a "stream of projects" that supports its assumption of a return to sequential growth in the quarter"

Clearly, while a satisfactory current quarter report, the company does appear to indicate that it too is not immune from the global economic stress.

In terms of longer-term results, the Morningstar.com "5-Yr Restated" financials page is quite strong with no evidence at all of any weakness.  

And if we review the StockCharts.com 'point & figure' graph on Cognizant (CTSH), we can see that the stock appears to be moving higher, having bottomed at around $14.50 in November, 2008, and at least for the short-term, is moving past resistance at the $21.17 level.

Doug, I would say that Cognizant is interesting.  I am a bit concerned about the comments in the latest quarter about short-term issues in the upcoming quarter.  I do like their historic record and the chart is encouraging.  It definitely belongs on the watch-list, if not in your portfolio at some time in the future.

In terms of Haemonetics (HAE), this is a company I am well familiar with as I currently own shares of HAE in my own trading account!  I even made a podcast on Haemonetics back on November 16, 2008! Haemonetics (HAE) closed at $61.01 on February 13, 2009, down $(1.33) or (2.13)% on the day.

I know that I am biased because like a proud parent I own this stock, but looking at the latest results, 3rd quarter results were reported on February 2, 2009.   The company beat expectations with earnings growth of 13% to $.63/share up from $.54/share the prior year....analysts had expected a profit of $.61/share.  Revenue increased 16% to $155.4 million from $134.6 million....analysts had expected revenue of $144.9 million.  In addition the company raised guidance on both earnings and revenue for fiscal 2009.

Lately, it has been increasingly difficult to identify companies beating expectations and raising guidance in the same report!  (You can see why I also like this company!)

Except for a dip in earnings between 2006 and 2007, the Morningstar.com "5-Yr Restated" financials also are quite solid.

Reviewing the 'point & figure' chart from StockCharts.com on Haemonetics, we can see that the stock, while under pressure from October, 2008, through November, 2008, appears to be showing some renewed strength and having broken through 'resistance' is moving higher, at least for the short-term.

Haemonetics (HAE) is certainly a favorite of mine.  I like their latest earnings, their optimistic outlook, and the chart is encouraging.  Of course, we need to consider that larger pressures of the economy may affect any business activity, Haemonetics included, but from the look of things, this one is a keeper.

Finally, Alexion (ALXN).  According to the Yahoo "Profile" on Alexion, this company "...primarily engages in the discovery, development, and commercialization of biologic therapeutic products for the treatment of severe disease states, including hematologic diseases, cancer, and autoimmune disorders."

Alexion (ALXN) closed at $39.91, down $(.26) or (.65)% on the day.

This is a $3.1 billion market-cap company which just reported 4th quarter 2008 results that were quite impressive.  Earnings came in at $.17, beating estimates by $.09/share, and revenue came in up over 100% at $77.4 million in the quarter.

The report does note that the company currently 

"...derives all of its revenue from Soliris, which treats paroxysmal nocturnal hemoglobinuria (PNH). The rare genetic disorder can lead to anemia, fatigue, pain and difficulty in breathing."

The company also raised guidance for 2009 to $1.00 to $1.05 in earnings on $360 to $375 million in revenue.  Currently analysts had been expecting Alexion to earn $.87/share on $381.6 million in revenue.

If we review the Morningstar.com "5-Yr Restated" financials on Alexion, we can see that revenue was only $1 million in 2005, and by 2007 this had increased sharply to $72 million.  The company has reported $216 million in the trailing twelve months (TTM).  The company has only just turned profitable and is still burning through cash with a negative free cash flow (which has also improved recently).  The balance sheet is satisfactory.  

Looking at the 'point & figure' chart on Alexion from StockCharts.com, we can see the sharp rise in price from May, 2006, when the stock was trading at $15.00/share to a peak in July, 2008, when the stock was as hjigh as $47.00/share.  The stock dipped, along with so many other companies, between August, 2008, and November, 2008, when it pulled back to a level of $29.00/share.  Since then the stock has broken through resistance and appears to be moving higher at least for the short-term.  

Alexion is an interesting company.  But for me a bit risky in that it is a one-product pharmaceutical firm.  Even though this may well be a terrific opportunity,  too much depends on this one drug. The company does have some other products in the pipeline.

Doug, thinking about these three companies, I find myself still liking Haemonetics (HAE) the best, especially with the steady and increasing results.  I am a bit concerned about Cognizant (CTSH) with the lowering of guidance for the upcoming quarter, and I am a bit wary of investing in a 'rocket-stock' like Alexion which, while growing quickly, depends so heavily on a single product.

I hope that is helpful.  Meanwhile, I appreciate your comments and emails and if anyone else would like to comment on this or anything else, they are welcome to leave their comments right here on the blog or email me at bobsadviceforstocks@lycos.com.

Yours in investing,

 

Bob


Posted by bobsadviceforstocks at 9:38 AM CST | Post Comment | Permalink
Updated: Sunday, 15 February 2009 10:24 AM CST
Thursday, 12 February 2009
Ecolab (ECL) "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 consult with your professional investment advisers prior to making any investment decisions based on information on this website.

I wanted to share with all of you my own disappointment at having to part ways with my recent purchase of 134 shares of Ecolab (ECL) that I had just purchased on 2/6/09 at a cost basis of $35.54.  I sold these shares earlier today in the midst of the continued market correction at a price of $31.5948.  This represented a loss of $(3.9452)/share or (11.1)% since purchase.  (As I write, ECL is recovering somewhat trading at $32.04/share for a loss today of $(2.21) or (6.45)%.

After an initial purchase of stock, my own trading strategy dictates a sale at an (8)% loss regardless of the duration of my ownership of that stock.  And that includes selling shares after only 6 days!

With this sale on a decline, which for me means a sale on 'bad news', I am back to my minimum of 5 positions and shall be 'sitting on my hands' with the proceeds of this sale--thereby moving once again a little more into cash and away from equities!

What triggered the slide today was apparently the disappointment in the 4th quarter 2008 earnings results which were announced today.  Excluding one-time expenses, earnings game in at $.45/share, unchanged from last year and in line with expectations of $.45/share.  Revenue, which climbed 3% in the quarter to $1.48 billion from $1.44 billion was a bit 'light' from where analysts had pegged the company---$1.51 billion.

In addition, the company reduced expectations about the current quarter, guiding now to $.30 to $.34/share, well below analysts' expectations of $.41/share. 

Even though full-year guidance was essentially in line with expectations, the disappointment on last quarter's revenue and the decreased guidance for the current quarter, was enough to make investors turn tail on this stock and resulted in my own sale as the stock hit and passed the (8)% loss limit for me.

Thank you for visiting my blog and allowing me to share with you my own experiences, albeit disappointing today, in investing in this uncertain market.  If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.

Yours in investing,

 

Bob


Posted by bobsadviceforstocks at 2:47 PM CST | Post Comment | Permalink
Friday, 6 February 2009
PetSmart (PETM) and Ecolab (ECL) "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.

Daniel Drew, a Wall Street financier of the late 1800's had a theory about stock market investing and stock trading.  He commented about one of his strategies:

"I ought to have [closed my position] without a moment’s delay - cut short your losses and let your profits run, is the rule.”

This really isn't a bad suggestion.  It is far better to sell losing stocks than gaining stocks, but is it the best approach?  Can't gaining stocks turn into losing positions (vis a vis my own WMS sale yesterday)? 

As I have worked on my own investment strategy, I have developed my own philosophy which is similar to Drew's but perhaps has an interesting twist.  I believe it is important to 'sell your losers quickly and completely and sell your gainers slowly and partially!'

I work very hard to select stocks of what I would call the highest quality.  I anticipate that they will appreciate in price yet I am prepared to limit their potential declines on the downside as well.  In addition, I believe their actions are as much the fault of the market as my own poor investment selections! 

Thus, when a stock declines and triggers a sale I assume that there may well be something 'wrong' with the market environment and use that sale as a signal to 'sit on my hands' with the proceeds.  (Unless of course I am at my minimum degree of equity exposure, which, in that case, I still replace that holding, but with a smaller-sized position of another stock which should be equally promising.   And when a stock appreciates to one of my own appreciation targets, I sell a small amount of that holding (currently 1/7th of the position) and use that sale as a signal that not only did I make a great pick, but also that the market is acting 'healthy' and it might well be safe to expand my own exposure to equities with a new holding.

Today my PetSmart shares hit one of those 'appreciation targets' and I sold 14 shares of my 104 share position.  These shares had been acquired on November 20, 2008, at a cost basis of $15.58.  My first targeted appreciation point is a 30% gain and with the stock trading at $20.47 today, I sold 14 of my 104 shares at that price and had a gain of $4.89 or 31.4% since purchase.  This sale on the upside also generated a 'buy signal' for me and I went ahead and purchased shares of Ecolab (ECL).

Ecolab (ECL) is an old favorite of mine.  Most recently I wrote briefly about this stock on December 13, 2008, talking about the things I like to see in a stock.  But before I get to that, I wanted to discuss my latest approach to 'position sizing' within my portfolio management strategy.

Until recently, my position sizing was rather arbitrary.  I thought about $5,000 for a position would be reasonable and then I purchased shares that hopefully were divisible by 7 to allow for a possible first sale.  It was that bad!

My greatest challenge was determining what to do with positions when I got down to what I call my minimum size of portfolio--5 positions.  That is, when one of my minimum 5 holdings hit a sale point on the downside and I needed to sell that holding, my strategy still required me to buy another stock to replace it.  But replacing one position with another of the same size (or even larger) would still cause me to compound my losses in an unrelenting bear market that we certainly have experienced.

I decided that I needed to have some formula to select the size of my investment and since I still wanted to have five positions, the replacing position needed to be smaller to allow me to continue to reduce my exposure to equities even while maintaining the same number (5) of positions.  I chose to replace holdings in my minimum portfolio with new stocks that were only 1/2 of the size of the average remaining holding. 

But what about new purchases on actual good news.  That is, assuming I am at 15 positions, and less than 20 (my maximum), how much money should I put to work when I get a buy signal (as I did today)? 

My initial thought was to add new holdings equal to the average of the remaining stocks.  But that wasn't aggressive enough.  It could be possible that the size of the remaining holdings was quite small secondary to that extended bear market I discussed.  Therefore, my current strategy is to continue to expand exposure to equities aggressively with 'good news' sales and purchase new holdings equal to 125% of the average of the other positions in the account.

And that is what I did today with Ecolab (ECL).

With my buy signal in hand, and that nickel burning a hole in my proverbial pocket, I purchased 134 shares of Ecolab (ECL) at $35.4776 this morning.  I have bent the rules recently, not requiring the new stock I am adding to my portfolio to be on the top % gainers list at all.  That list is a great place to find new potential purchases and I continue to do so on this blog.  But I am reserving the right to assemble what I consider the very best of stocks in my portfolio including all of the ones I have discussed in the past.

As I write, Ecolab (ECL) is trading at $35.73, up $.92 or 2.64% on the day.

Briefly, Ecolab was selected because of the solid latest earnings report, a great Morningstar '5-Yr Restated' financials, and reasonable valuation.  I like the business they are in--"products and services for hospitality, foodservice, healthcare, and light industrial markets....", and like Sysco (SYY), I hope they are relatively recession-resistant.

Thank you very much for bearing with me as I reported on this trade and once again shared with you my own thoughts on dealing with portfolio holdings in as rational a manner as possible.

Yours in investing,

 

Bob

 


Posted by bobsadviceforstocks at 1:44 PM CST | Post Comment | Permalink
Updated: Friday, 6 February 2009 1:45 PM CST
Thursday, 5 February 2009
Dolby (DLB) and Badger Meter (BMI) "Two Stocks: A Revisit and a New Name"

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 starting to feel a little of what I would call the normal functioning of the stock market.  I say this in regards to what I would describe as the normal response to news.  That is, stocks report great earnings and the 'Street' responds with a large news to the upside.  This is what is supposed to happen in my book and is something that for the last six months or so has been relatively absent from the market action.

It was great today to look at the list of top % gainers on the NYSE and see Dolby (DLB) an 'old favorite' of mine make the list closing at $30.18, up $4.31 or 16.66% on the day.  I first wrote up Dolby (DLB) on Stock Picks Bob's Advice on January 7, 2008, and also purchased some shares that I held for a short period of time.  (I do not own any shares of Dolby nor do I own any options presently).  At the time of my write-up, Dolby (DLB) was trading at $49.21, so we can see the stock has along with the rest of the market been under pressure.

Let me explain why this stock and also Badger Meter (BMI), a new name for this blog, deserve a spot on this website.

Besides making the list of top % gainers, they did this with great news.  Dolby (DLB) reported 1st quarter 2009 results yesterday evening after the close.   Earnings came in at $.68/share, easily exceeding estimates of $.43/share.  Revenue also beat expectations, coming in at $180.3 million as compared to the estimated $164.9 million expected.  To top this off, the company went ahead and raised guidance for 2009 earnings but did cut the outlook on revenue.

Alex Davidson over at Forbes.com pointed out that shares were upgraded to "outperform" over at Pacific Crest Securities and that analysts anticipate that Microsoft Windows 7 will significantly add to earnings.

What I really like about Dolby (DLB) isn't about the fabulous products they offer.  I just really like their numbers on Morningstar.com with their "5-Yr Restated" page

I am impressed by the steady growth in revenue from $289 million in 2004 to $640 million in 2008.  I like the earnings growth that has skyrocketed from $.43/share in 2004 to $1.70/share in 2008.  And their relatively steady outstanding shares which did grow from 93 million in 2004 to 112 million in 2006 but through 2008 stood at a barely increased 115 million shares.

Cash flow for this company is positive and solidly growing.  They reported free cash flow of $124 million in 2006 and increased it to $152 million in 2007 and $251 million in 2008.

The balance sheet is equally impressive with $395 million in cash and $297 million in other current assets.  This total of $692 million, when compared to the $200.7 million in current liabilities yields a current ratio of 3.45.  From my perspective a current ratio of 1.5 or higher is solid.   The company has a relatively nominal amount of long-term liabilities totaling $86.2 million.

Like virtually every other tech stock on the market, Dolby (DLB) has been under pressure since early 2008 as this 'point & figure' chart from StockCharts.com demonstrates.

The stock is far from overpriced and appears to have 'double-bottomed' at around $25.  However, a price move above $33 would be more reassuring to me that this stock is showing any particular technical strength at all.

Reviewing some Yahoo "Key Statistics" on Dolby, we find that Dolby is a mid cap stock with a market capitalization of $3.4 billion.  The trailing p/e is only 17.36 with a forward p/e (fye 26-Sep-10) of 17.05.  The PEG is a reasonable 1.12.

In terms of valuation, the Fidelity.com numbers suggest that the Price/Sales (TTM) is rich at 4.53 compared to the industry average of only 0.93.  However, in terms of profitability, Fidelity reports that the Return on Equity (ROE) at 20.59% almost doubles the industry average of 11.11%. 

Finishing up with Yahoo, there are 112.58 million shares outstanding but only 51.78 million that float.  Currently there are 6.18 million shares out short (as of 12-Jan-09) with a resultant short interest ratio of 10.9 days.  From my perspective, this is well above my own arbitrary 3 day rule for short interest suggesting that today's sharp price move might well have been a bit of a 'squeeze' of the shorts.

No dividend is paid and Yahoo does not report any stock splits.

Since I have gone on for some time about Dolby (DLB), let me briefly fill you in on the second stock I wanted to comment on--Badger Meter (BMI).  I do not own any shares of this Wisconsin firm (I love those Wisconsin companies that show up in my blog---Go Badgers!)

Badger Meter (BMI) made the list of top % gainers today.  They closed at $30.51, up $6.42 or 26.65% on the day (!).  Basically they reported a terrific fourth quarter 2008 with solid revenue and earnings growth.  They also have a terrific Morningstar.com "5-Yr Restated" page with steady revenue growth, earnings growth and yes (!) dividend growth.  The free cash flow results are incomplete on the page but the 2007 results show $12 million in free cash flow.  Their balance sheet appears solid with a current ratio of about 1.5.

The 'point & figure' chart on Badger Meter from Stockcharts.com shows the stock price peaking at about $62 in August, 2008, only to dip as low as $18 in November, 2008.  The stock price has been fighting back but like Dolby, I would like to see it above the 'resistance line' at about $32. 

In terms of valuation, according to Yahoo "Key Statistics" the stock has a trailing p/e of 20.94 with a forward p/e estimated at 19.81 (fye 31-Dec-09).  This is a smaller company that Dolby, actually a small cap stock with a market capitalization of only $451.18 million. 

In terms of valuation, according to Fidelity.com, Badger has a Price/Sales (TTM) ratio of 1.31 compared ot the industry average of 0.77.  The company is slightly more profitable than its peers as measured by the Return on Equity (TTM) which according to Fidelity comes in at 22.75% compared to the industry average of 20.17%.

Yahoo reports only 14.79 million shares outstanding with 13.66 million that float.  As of 12-Jan-09 there were 1.55 million shares out short representing 4.2 trading days of short interest--a little above my own '3 day rule' for significance.  As I noted, the company does pay a small dividend of $.44/share with an indicated yield of 1.8%.  The last stock split was a 2:1 split back on June 16, 2006 per Yahoo.

If you read the Bob Herbert column from the January 29, 2008 edition of the New York Times, you might realize that the infrastructure stimulus might well include Badger Meter products in water projects (?).  Anyhow, perhaps that is what the 'street' is thinking in dealing with this company!

Anyhow, I feel like more of my old self today---finding firms on the top % list reporting great earnings and being rewarded for their financial success!

Thank you again for visiting here and if you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.

Yours in investing,

 

Bob


Posted by bobsadviceforstocks at 6:23 PM CST | Post Comment | Permalink
Updated: Thursday, 5 February 2009 10:24 PM CST
Wednesday, 4 February 2009
Microsoft (MSFT) and WMS Industries (WMS) "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.

As is my policy on this blog, I try to keep you posted as soon as possible regarding trades in my own 'trading account'.  I also try to reasonably follow my own investment strategy that may lead me to part ways with stocks that I otherwise admire and otherwise would be thinking of holding.

Occasionally I 'toss out all of the rules' and do what I call a 'trade' which might mean holding a stock for hours, days or weeks, but otherwise is a purchase outside my own relatively rigid strategy for buying and selling of stocks.

My Microsoft purchase on 1/22/09 was one of these trades. 

On that day, the stock was under severe pressure when the earnings announcement failed to meet expectations and an already 'beaten up' stock was beaten up further to levels not seen in over a decade.  It was with that thought in mind, that perhaps things had really been 'overdone' that I chose to purchase what for me would be a very oversized purchase of 1,000 shares at a cost of $17.69.

Today, with Microsoft trading about a point higher, I chose to unload those 1,000 shares and sold them at a price of $18.68.  This worked out to a gain of $.99/share or a 5.6% gain in the two weeks since my purchase.  Overall, with a 1,000 share position, with a total cost of $17,697.99 and a net of $18,671.89, this yielded a gain of $973.90 on this trade.

With about half of my equity tied up with the Microsoft position, and with my own purchase outside of my usual trading rules, I was rather anxious to take my profit and run.  However, this does not mean that I do not like Microsoft, but rather that my aim with that purchase was to exploit the short-term over-reaction on the stock price and pick up a short-term gain.  Fortunately I was correct on this educated guess.

My other sale today was one of my regular positions:  my 72 shares of WMS Industries which were all sold a few moments ago at a price of $19.69.  These shares were just purchased 10/28/08, so I had a loss of only $(.43)/share or (2.1)% since purchase.

I have actually sold shares twice at the 30% gain (quite frankly an oversight (!) because the second 1/7th position was sold forgetting the first sale at the 30% gain!).  I sold 13 shares 11/4/08 at $26.05, and 11 shares on 12/3/08 at a price of $25.48.

However, in any case, after a single sale at a gain, it has been my policy to sell all shares should a stock holding decline to under break-even.  Normally after a purchase of shares I wait for an (8)% decline before pulling the plug.  WMS has been sold previously at a gain, and now has declined into a losing position.  No matter what my own personal affection for the stock, my 'trading system' was directing me to dispose of shares.

Ironically, the behavior of WMS in the market mimics the activity of MSFT prior to my own purchase.  I am torn between wanting to override my own trading policy and actually buying shares at this point or following my rules and selling shares.  With the market acting as anemic as it is, I chose the conservative action and entered the sell orders!

Looking hard for news, the best I could come up with today was the announcement of a 'downgrade' of shares by analysts over at JP Morgan who changed their recommendation from "overweight" to "underweight" and the rest is history.

In fact just a few days ago on January 29, 2009, WMS announced 2nd quarter 2009 results with total revenues increasing 12% year-over-year and earnings coming in at $.41/share, a nickel ahead of estimates of $.36/share per Reuters.  Revenue at $178.4 million also beat expectations of $175.7 million expected.  However, the company did guide slightly lower for the upcoming quarter with revenue of $178 to $185 million now expected, below the street's expectations of $188.1 million.

In any case, I felt that today was a day of sticking to rules, getting out of profitable trades, and otherwise taking stock of the market while maintaining a cautious optimism over future prospects!

Thank you again for visiting!  If you have any comments or questions, please leave them right here on the blog or email me at bobsadviceforstocks@lycos.com.

Yours in investing,

 

Bob


Posted by bobsadviceforstocks at 1:12 PM CST | Post Comment | Permalink
Tuesday, 3 February 2009
Is That Jubak on the Marketwatch Page?

O.K. forget about stock picks for a moment.  We can do that later!

I just want to know if you all think that cartoon looked like Jim Jubak from MSN.

First Jubak's actual picture:

Now the picture from MarketWatch today:

 

O.K., maybe it's just a coincidence, but I thought it was kind of cute and there is a resemblance there!

Thanks for bearing with me.  So what do you think?

Yours in investing,

 

Bob


Posted by bobsadviceforstocks at 1:05 PM CST | Post Comment | View Comments (1) | Permalink

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