December 8, 2005 ***PODCAST*** for Veritas DGC (VTS)
Hello Friends! Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice.

Please click ***HERE FOR MY PODCAST ON VERITAS DGC (VTS)***.

Have a great weekend!

Bob

December 8, 2005 Veritas DGC Inc. (VTS)
Hello Friends! Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice. As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisors prior to making any investment decisions based on information on this website.

As I like to do when looking for a potential stock pick, I started out tonight looking through the list of top % gainers on the NYSE today. Near the top of the list was Veritas DGC Inc. (VTS), which I of course initially confused with Veritas Software (VRTS), which of course you wouldn't do would you? Anyhow, VTS closed at $37.28, up $3.00 or 8.75% on the day. I do not own any shares of this stock nor do I have any options on this equity.

"Image courtesy of Veritas DGC Inc. All rights reserved."

So what does Veritas DGC do anyway? Well, according to the Yahoo "Profile" on VTS:

Veritas DGC, Inc. provides geophysical information and services for the national and independent oil and gas companies worldwide. It acquires, processes, interprets, and markets geophysical information that provides 2D and 3D images of the subsurface. The company also produces 4D surveys, which record fluid movement in the reservoir, by repeating specific 3D surveys over time. In addition, it uses geophysical data for reservoir characterization to enable its customers to recover oil and natural gas.

Veritas DGC is in the Seismic Information business for the Oil Industry!

As is often the case, what drove the stock higher today was an earnings report. In fact, yesterday, after the close of trading VTS announced 1st quarter 2006 earnings. The results, on first glance, were nothing short of fabulous. Revenue for the quarter climbed 30% to $168.7 million from $129.6 million. For the quarter earnings were $11.8 million or $.32/share, up about 1,000% (honestly) from $978,000 or $.03/share the year earlier. The latest quarter does include a $2 million one time insurance payment, but even without that payment, the earnings growth was phenomenal! Expectations by Thomson Financial were reported to be $.20/share on $155.4 million of revenue. Clearly, the company blew away analysts expectations. That, of course, is always bullish for a stock price.

And what does Morningstar report on this company? Taking a look at the "5-Yr Restated" financials from Morningstar.com on VTS, we can see that except for a small dip in revenue from $476.6 million in 2001 to $452.2 million in 2002, revenue has grown steadily to $634 million in the trailing twelve months (TTM). Earnings have been erratic; dropping from $.68 to a loss of $(1.77) between 2001 and 2003, then turning positive in 2004 and increasing to $2.37/share in the TTM.

And free cash flow? This is solidly positive, increasing from $170 million in 2003 to $269 million in the TTM.

The balance sheet as reported by Morningstar shows $249.4 million in cash and $203 million in other current assets. This is quite adequate to cover both the $192.4 million in current liabilities and the $191.6 million in long-term liabilities combined.

And how about some valuation 'numbers' on this stock? Looking at Yahoo "Key Statistics" on Veritas DGC, we find that the stock is a mid-cap stock with a market capitalization of $1.29 billion. The trailing p/e is nice at 15.74, and the forward p/e is actually higher (?) (fye 31-Jul-07) at 18.36. No PEG is reported.

Using the Fidelity.com eResearch site on VTS, we can see that Veritas DGC is in the "Oil & Gas Equipment/Svcs" Industrial Group. Within this group, VTS sports a very reasonable Price/Sales ratio of 1.9. Topping this group is Schlumberger (SLB) at 4.5, BJ Services (BJS) at 4.1, Baker Hughes (BHI) at 3, Cooper Cameron (CAM) at 2, then Veritas DGC (VTS) at 1.9 and Halliburton (HAL) at 1.7.

Looking for some additional numbers on VTS, Yahoo shows 34.59 million shares outstanding. As of 11/10/05, there were 2.42 million shares out short, representing 7% of the float or 4 trading days (the short ratio) of volume. This is a bit heavy imho, and may be some of the buying pressure in this stock.

No cash dividend is paid and the last stock split reported by Yahoo was a reverse 1:3 split in January, 1995.

What about a chart? Looking at a "Point & Figure" Chart on VTS from Stockcharts.com, we can see that the stock traded lower from $18.50 in April, 2002, to $6.50 in March, 2003, and then started trading higher. The stock is trading nicely higher since that period, above its support line on the graph. It is interesting that this period of weakness in the chart corresponds nicely with the underlying performance of the company during this time.

So what do I think? Well, the company is certainly in a very hot energy-related field. The latest quarterly report was superb, the Morningstar report for the last few years has been strong and valuation is downright cheap in both the p/e and the price/sales reviews. The chart looks nice and I don't think it is done with its climb imho. Unfortunately, I don't have a buy signal to allow me to buy this stock. But the overall picture is certainly interesting.

Thanks so much for stopping by! If you have any comments or questions, please feel free to email me at bobsadviceforstocks@lycos.com. Or you can just leave your comments right on the blog.

Bob

PODCAST for HURCO (HURC)
Click ***HERE for my PODCAST on HURCO***.

If you have questions or comments, please feel free to email me at bobsadviceforstocks@lycos.com.

Bob

December 7, 2005 Hurco Companies (HURC)

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 or on my podcast.


Looking through the list of top % gainers on the NASDAQ todlay, I came across Hurco Companies, Inc. (HURC), which closed at $27.33, up $4.50 or 19.71% on the day. I do not own any shares, nor do I have any options on this company.

According to the Yahoo "Profile" on HURC:

Hurco Companies, Inc., an industrial technology company, engages in the design and production of interactive, personal computer-based, computer control systems and software, and computerized machine tools for sale to the metal working industry. The company’s primary products consist of general purpose computerized machine tools for the metal cutting industry, principally vertical machining centers. It also produces computer control systems and related software for press brake applications that are sold as retrofit control systems.

As is often the case, what drove the stock higher was a very strong earnings report. Yesterday, after the close of trading, HURC announced 4th quarter 2005 results. For the quarter ended October 31, 2005, sales and service fees totalled $34.7 million, up sharply from the $28.9 million reported in the year earlier same period. Net income was up over 200% at $7.2 million or $1.13/diluted share, from $2.3 million or $.36/diluted share the prior year. This strong report was enough to drive the stock strongly higher. In addition, this report came out after a relative panic on this stock precipitated by the November 30, 2005, delay in the earnings announcement which drove the stock lower a week ago:

INDIANAPOLIS (AP) -- Hurco Cos. shares tumbled Wednesday after the manufacturer delayed the release of its fourth-quarter and full-year earnings report, saying it needs more time to review its tax liabilities.
Shares of the Indianapolis company, which makes computer controls, software and systems for the metal cutting and forming industries, fell $1.81, or 7.7 percent, to $21.60 in midday trading on Nasdaq, and dropped as low at $20.35 earlier in the day. But Hurco shares have risen about 39 percent since the year began.

I guess this was a case of fearing the worst and getting the best!



How about longer-term? Taking a look at the Morningstar.com "5-Yr Restated" financials from Morningstar.com on HURC, we can see that revenue has actually been a bit erratic, declining from $96.2 million in 2000 to $70.5 million in 2002. Since 2002, revenue has been growing strongly to the current $119.6 million in the trailing twelve months (TTM).


Earnings also declined during the same period revenue was dropping slipping from $.84/share in 2000 to a loss of $(1.48)/share in 2002. Since that time earnings have grown strongly and consistently to the $1.83 reported in the TTM.


Free cash flow has remained positive, with $5 million reported in 2002, increasing to $7 million in the TTM.


The balance sheet looks solid with $12.9 million in cash and $55.8 million in other current assets easily covering both the $30.4 million in current liabilities and the $4.4 million in long-term liabilities.


How about some valuation numbers? Reviewing Yahoo "Key Statistics" on HURC, we can see that this is a small cap stock with a market capitalization of only $169.86 million. The trailing p/e is downright cheap at 14.98, with a forward p/e (fye 31-Oct-6) of only 12.09. There isn't any PEG reported, but with the latest 200% growth in earnings, this has to be under 1.0!


Reviewing information from the Fidelity.com eResearch website, we see that HURC has a Price/Sales ratio of only 1.2. This is the lowest in the "Scientific/Tech Instruments" Industrial Group. Leading off this group is Garmin (GRMN) with a Price/Sales ratio of 6.8, followed by Flir (FLIR) at 3.8, Agilent (A) at 2.5, Beckman Coulter (BEC) at 1.5, Fisher Scientific (FSH) at 1.5, and at the bottom, with the cheapest valuation was Hurco (HURC) at 1.2.


Looking back at Yahoo for some additional valuation numbers, we find that there are only 6.22 million shares outstanding. To top off this low float, there are 633,930 shares out short as of 11/10/05, representing 12.40% of the float or 5.8 trading days of volume. I would suspect that the strong price action today included some short-sellers scrambling to cover their negative "bets" as the stock climbed strongly!


The company does not pay a dividend and no stock split has been reported on Yahoo.


What about a chart? Looking at a "Point & Figure Chart" on HURC from Stockcharts.com, we can see that the stock seemed to be moving higher between May, 2004, and January, 2005, when the price climbed from a low of $7.00 to a high of $19. However, after that the stock sold off back to the $10.50 level where it found new resistance, and appears overall to be trading higher now. The chart looks strong and not very over-extended imho.

So let's summarize, the company a week ago delayed earnings results causing a bit of a panic with investors. Then instead of reporting problems, they announced fabulous earnings for the quarter! The company, at least for the last 3-4 years has been steadily growing revenue and earnings, they are free cash positive, have a solid balance sheet, great valuation numbers with a low p/e and a low Price/Sales ratio. Even the chart looks strong!

Unfortunately, I don't have a buy signal from my own portfolio, otherwise, this might have been where I would be shopping!

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

Bob

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

A few moments ago I published a ***PODCAST*** on SBUX and BOOM "Trading Transparency". Please click on the above and you can listen to me talking to you about the topics and recent letters.

Regards!

Bob

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

One of the things I like to do on this blog is to share with you my actual trades in my trading account. I do this to help you understand that what I talk about are things that I actually implement, to provide you with an insight on my strategy and the successes or failure associated with them. I do not post them so that you can copy my trades; in fact, I would discourage that, but instead hopefully you will learn to pick stocks and invest in ways that are most suitable for you!

My own strategy of selling stocks includes selling portions of the stocks I own as they appreciate in price. I like to say that I like to sell losing stocks quickly and completely, and sell gaining stocks slowly and piecemeal.

I have adjusted my selling program to sell only 1/6th of my holding (instead of the previous 1/4 postion) at each of my targeted appreciation points. When I worked on the mathematics behind this, by simply setting up a theoretical position, I found that as I suspected, if I continued selling 1/4 of my position, then the position would gradually dwindle in size. Selling 1/6th left the position intact for multiple sell points.

Currently my targeted appreciation points, which are clustered in groups of four, are at 30, 60, 90 and 120%; and then by 60% intervals: 180, 240, 300, and 360%; and then by 90% intervals: 450, 540, 630, 720, and then by 120% intervals, etc. At each of these points, I plan on selling 1/6 of my remaining shares of the stock in question. I haven't hit all of those higher points, but I have sold shares of QSII at a 450% appreciation level. These sale points are not entirely theoretical.

I recently had an email by a reader who asked about how I monitored my stocks and implemented sales. I am sure there are much better ways than what I do, but I just simply look at my holdings, and my Fidelity account allows me to see the percentage gainers as well as the previous sales on each holding. I do the 'mental math' figuring out the # of sales and the % targeted gain, and usually can easily figure out when it is time to sell.

In fact earlier this morning, in spite of the weak market, my Starbucks (SBUX) stock hit a sale point. I had 70 shares remaining in my portfolio, so rounding down 1/6 of 70, worked out to 11 shares. And I sold 11 shares this morning at $31.95. These shares had been purchased 1/24/03, slightly before I started by blog, at a cost basis of only $11.40/share. Thus, I had a gain of $20.55 or 180.3% on the investment. This was my fifth sale of Starbucks, having sold shares 9/8/03, 1/23/04, 6/18/04, and 12/03/04. Thus, having sold at the 30, 60, 90, and 120% level of appreciation, my target was a 180% level, and the stock just hit that target! You will note that instead of selling 1/4 of my position, I only sold 1/6th!

What will be my next sale point on SBUX? Assuming the stock does not announce some fundamentally bad news, that would push me to arbitrarily sell the shares, I will be selling 1/6th of my position on the upside if the stock hits a 240% gain....which would amount to 3.4 x $11.40 = $38.76. If the stock should decline, I plan on selling ALL of the remaining shares at 50% of the highest gain, that is at a 90% appreciation point = 1.9 x $11.40 = $21.66.

Going a bit further, since I am under my 25 position maximum, even though the market is in a bit of a funk as I write, (the Dow is down 57.14 at 10,820.37, and the NASDAQ is down 18.41 at 2,254.96), this sale gives me permission to add a position. And there are almost always candidates to purchase that fit my strategy :).

With that nickel burning a hole in my pocket I went right away over to the percentage gainers lists. Looking through the list of top % gainers on the NASDAQ, I recognized a stock that I had reviewed previously. Dynamic Materials (BOOM) was reviewed on Stock Picks Bob's Advice on May 23, 2005. I went ahead and purchased 240 shares of BOOM for my trading account at $28.27 a short while ago. As I write this, BOOM is trading at $28.84, up $4.69 or 19.42% on the day.

Let's briefly review some of the recent information on BOOM and I will show you why I think it fits my strategy!

First the Yahoo "Profile" on Dynamic Materials:

Dynamic Materials Corporation engages in metalworking business in North America, western Europe, Australia, and the Far East. The company operates in two segments, Explosive Metalworking and Aerospace. The Explosive Metalworking segment utilizes explosives to perform metal cladding and shock synthesis. Its principal product is a explosion welded clad metal plate, which is used in the construction of heavy, corrosion resistant pressure vessels, and heat exchangers for petrochemical, refining, and hydrometallurgy industries. The Aerospace segment provides welding services principally to the commercial and military aircraft engine markets, and to the power generation industry.

And the news on Boom: As reported today:

CHICAGO, Dec 5 (Reuters) - Metalworking company Dynamic Materials Corp. (BOOM.O: Quote, Profile, Research) on Monday said its AMK Welding division has entered a five-year supply agreement with General Electric Co. (GE.N: Quote, Profile, Research) , sending shares to an all-time high.

Clearly the street liked this piece of good news and the stock charged higher in the face of an overall weak equity market!

And the last quarter result? (even without this news): On November 8, 2005, BOOM reported 3rd quarter 2005 results. Revenue came in at $20.2 million, up 68% from last year's $12.1 million. Profit came in at $3.15 million or $.52/share, compared with $834,000 or $.16/share the prior year. This is a growth of over 200% in net income!

And the Morningstar results? Looking at the "5-Yr Restated" financials on BOOM from Morningstar.com, we can see an almost perfect (except for a dip from 2002 to 2003), growth in revenue from $24.3 million in 2000 to $76.1 million in the trailing twelve months (TTM).

Earnings have been erratic, dropping from $.27 in 2001 down to a loss of $(.06) in 2003, then increasing to the current $.79/share in the TTM.

Free cash flow has remained positive with $4 million reported in 2002, $2 million in 2003, $3 million in 2004 and $4 million reported in the TTM.

The balance sheet, as reported by Morningstar.com, looks solid with $1.4 million in cash and $29.2 million in other current assets, easily covering both the $12.0 million in current liabilities and the $6.8 million in long-term liabilities.

And a chart? Looking at a "Point & Figure" chart on BOOM from Stockcharts.com:

We can see a very strong stock chart with the stock price dipping to $.38/share in November, 2000, then climbing steadily and dynamically to the current $28.75 level.

Anyhow, I sold some SBUX and picked up some shares of BOOM. The rest is all of the details :).

Thanks again for stopping by! Please write me at bobsadviceforstocks@lycos.com or just write a note on the blog! Hope that you have a great week!

Bob

"Looking Back A Year" A review of Stock Picks from the week of September 27, 2004





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

In the previous entry, I discussed about the different aspects of this blog. With this entry I would like to address the 'quality control' issue. This is the part that examines past picks, where I look back about a year and see how picks from that trailing week period have performed. As I also point out elsewhere, this performance evaluation assumes a buy and hold strategy, something I don't actually do in real life. I sell my losers quickly and sell my gainers slowly piecemeal. This difference would certainly affect performance.

On September 29, 2004, I posted Perot Systems (PER) on Stock Picks Bob's Advice, when it was trading at $16.14. PER closed at $14.17 on 12/2/05, for a loss of $(1.97) or (12.2)% since posting.

On November 1, 2005, Perot Systems announced 3rd quarter 2005 results. Revenue climbed 12% to $510.1 million from $454.3 million the prior year same period. However, quarterly income dropped to $25.4 million or $.21/share, from $26.6 million or $.22/share the prior year.

On September 30, 2004, I posted Sauer Danfoss (SHS) on Stock Picks Bob's Advice when it was trading at $17.08. SHS closed at $18.67 on 12/2/05, for a gain of $1.59 or 9.3% since posting.

On November 1, 2005, SHS announced 3rd quarter 2005 results. Sales for the quarter grew 5% to $342 million from $324.7 million the prior year same period. Net income, however, declined to $4.3 million or $.09/share, down from $7.7 million or $.16/share the prior year same period.

So how did we do with these two stocks? Well, PER had a (12.2)% loss since posting, and SHS had a 9.3% gain. Thus the performance averaged to a loss of (1.45)% since posting. Nothing to write home about!

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

Bob

***PODCAST for Weekend Trading Portfolio Analysis: Quality Systems (QSII)***
Hello Friends! Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice. Please remember that I am an amateur investor, so please remember to consult with your professional investment advisors prior to making any investment decisions based on information on this website!

I am pleased to let you know that I have authored another podcast on the latest entry. Click HERE for the ***PODCAST***.

Please come by and visit my Stock Picks Bob's Advice PODOMASTIC website where you can listen to my other podcasts! If you have any comments or questions, please feel free to email me at bobsadviceforstocks@lycos.com.

Bob

"Weekend Trading Portfolio Analysis" Quality Systems (QSII)
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 professiional investment advisors prior to making any investment decisions based on information on this website.

If you are a regular reader here, you will know that I try to do several different things with Stock Picks. I have been writing up different stocks that I think are attractive and deserve consideration, I have been reviewing those picks, and I have also been sharing with you my own trading action and holdings to allow you to have a sort of "virtual reality" of stock market investment decisions from the perspective of an amateur investor. This weekly entry on "portfolio analysis" is a discussion of the actual holdings in my "trading account" done alphabetically. Last week I discussed Progress Software on Stock Picks Bob's Advice. Going alphabetically, today I shall take a look at my strongest holding in my portfolio, Quality Systems (QSII).

I currently own 44 shares of Quality Systems (QSII) which closed December 2, 2005, at $84.08/share. These shares have a cost basis (cost adjusted for stock splits and commissions) of only $15.50. Thus, I have an unrealized gain of $68.58 or 442.5% since these shares were purchased 7/28/03. As per my former trading system (I am now planning to sell only 1/6 of remaining positions), I sold 1/4 positions of my original 300 shares multiple times. In fact, I have sold shares nine times (!), with proceeds totalling $17,718.97, and I still have 44 shares remaining. (My original QSII position was for 300 shares purchased at $30.95 (not adjusted for stock splits), with a total cost of $(9,298.70)) Unfortunately, with my 1/4 sale rate, the position has been dwindling; thus, I have readjusted my sales to 1/6 positions, and I believe the bulk of the positions will remain intact.

When will I be selling next? Well with nine sales, that means I have sold portions at 30%, 60%, 90%, 120%, 180%, 240%, 300%, 360%, and 450%. Thus, my next sale would either be on the upside at a 540% gain (6.4 x $15.50 = $113.50) or on the downside, at a 225% gain (1/2 of the top gain sale of 450%) or 3.25 x $15.50 = $50.38.

Quality Systems (QSII) has been an early selection for this stock blog, having been discussed on Stock Picks Bob's Advice on 7/28/03. Shortly after writing up QSII, I was sold on the prospects, and made my purchase. I discussed the purchase of QSII on Stock Picks Bob's Advice on 7/28/03. I have, and I continue to strive to achieve trading transparency in my own stock holdings and trades!

Let's take another look at this stock and this company.

Quality Systems is in the electronic medical record (EMR) business. According to the Yahoo "Profile" on Quality Systems:

Quality Systems, Inc. and its wholly owned subsidiary, NextGen Healthcare Information Systems, engage in the development and marketing of healthcare information systems that automate medical and dental group practices, community health centers, physician hospital organizations, management service organizations, and dental schools. Its software systems include general patient information, appointment scheduling, billing, insurance claims submission and processing, managed care plan implementation and referral management, treatment outcome studies, treatment planning, drug formularies, electronic patient records, dental charting, and letter generation.

Let's take a look at the latest quarterly result for QSII. On November 3, 2005, QSII reported 2nd quarter 2006 results. Revenues came in at $29.5 million, up 39% from $21.2 million reported during the same quarter last year. Net income was reported at $5.8 million, a 56% increase over net income of $3.7 reported the previous year same period. Fully diluted eps also climbed 54% to $.43/share, up from $.28/share the previous year. These were certainly solid results.

While looking at the news for the earnings report, I noted that there has been a recent Piper Jaffray analyst downgrade from "outperform" to "market perform". As reported:

Piper Jaffray analyst Sean W. Wieland downgraded the company to "Market Perform" from "Outperform," and said in a client note that subsidiary Nextgen will "have to work harder to maintain its historic growth rate." The analyst also saw growing competitive pressure from Allscripts Healthcare Solutions, a provider of clinical software for doctors.

Over the past two years, the analyst wrote, Quality Systems saw its year-to-year earnings grow an average of 51 percent. This, he added, may be tough to maintain, and deceleration over the next two years to a 30 percent level is likely.

To maintain growth, the analyst wrote, the company would have to "aggressively grow" its sales force, which now stands at 38 people.

The stock, he added, "has already priced in much of the anticipated growth in the next 12 months, with no room for error."

It is always important to take analysts assessments into consideration. But it doesn't sound like it would be too hard to grow a sales force that stands at only 38 people. But this information needs to always be considered when evaluating a stock!

Let's take a look at the Morningstar evaluation for a 'long-term' perspective. Looking at the Morningstar.com "5-Yr Restated" financials on QSII, we can see the perfect progression of revenue from $39.3 million in 2001 to $104.6 million in the trailing twelve months (TTM). Earnings per share have also grown perfectly from $.29/share in 2001 to $1.48/share in the TTM. Free cash flow has been positive and steadily growing with $12 million in 2003, $16 million in 2004, $20 million in 2005, and $24 million in the TTM.

The balance sheet as reported by Morningstar is also gorgeous with $63.1 million in cash alone, enough to pay off 1 1/2 times the combined $40.7 million in current liabilities and the $3.2 million in long-term liabilities combined. In addition, Morningstar reports $45.2 million in other current assets.

What about valuation? Looking at Yahoo "Key Statistics" on Quality Systems, we can see that this is a mid cap stock with a market capitalization of $1.11 billion. The trailing p/e is 56.62 (it was only in the mid 20's when I purchased shares) and the forward p/e is still a rich 39.11. However, with the steady and rapid growth anticipated, the PEG comes in at 1.39, just a bit over 1.0, my "perfect" growth valuation.

Insofar as the Price/Sales ratio is concerned, looking at the Fidelity eResearch website, we find that Fidelity assigns Quality Systems to the "Healthcare Info Svcs" Industrial Group. Within this group, QSII is priced richly relative to the other companies similarly assigned. Topping this list is Merge (MRGE) with a Price/Sales of 13.6, followed by Quality Systems (QSII) at 10.9, further down is Cerner (CERN) at 3.6, ECLIPSYS (ECLP) at 2.6, IDX Systems (IDXC) at 2.4, and Emdeon (HLTH) at 2.3. Thus, by this parameter, QSII is also priced richly.

Going back to Yahoo for some additional statistics, we find that there are only 13.20 million shares outstanding. Of these, as of 11/10/05, there were 1.17 million shares out short representing 14.30% of the float or 5.5 trading days of volume. Clearly, the short-sellers are not convinced that this stock can continue its meteoric rise, however, in the meantime, these sellers may need to scramble if QSII continues to pump out positive reports and their bet starts costing them dearly. In my view, anything over a 3 day short ratio should be considered bulllish, assuming no apparent bad news that has been recently reported.

The stock does not pay a regular dividend and the last stock split was a 2:1 on March 28, 2005.

What about the chart? Looking at the "Point & Figure" Chart on QSII from Stockcharts.com:

You can see the virtually uninterrupted ascent of this stock from August, 2003, (about the time I purchased shares!) to its current level. This is a phenomenal chart of incredible strength! What can I say, I own the stock and I love it!

So what do I think? Except for the valuation issues, this stock is terrific. This stock is no longer undiscovered, and you do need to pay top dollar to buy shares. Would I buy shares at this price? Well, if it made the top percentage gainers list, I wouldn't hesitate if I had a buy signal from my own portfolio. Meanwhile, I shall sit back and try to sell of the small position I have remaining at a slower rate.

Thanks so much for stopping by! If you have any comments or questions, please email me at bobsadviceforstocks@lycos.com, and you can find my podcast on iTunes. Just search under "Podcasts" for "Stock Picks" and I should pop right up!

Bob

A Reader Writes: "I would like to get your opinion on AEOS"
Hello Friends! Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice. As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisors prior to making any investment decision based on information on this website.

(Click HERE for the PODCAST on this entry)

I had another interesting email for the website that I would like to share with you. Vooch writes:

Hi Bob,

I love your Podcast! I've been listening to it a few days, and I
went back to listen to all the shows. I look forward to listening to
what you say every day. Your thought process is similar to mine, and
I've learned a few things (eg. morningstar and fidelity web features).

I've heard about your buy points (the sell 1/6th at
30,60,90,120,...), but could you elaborate on your sell points? How
do those work? Hypothetically, let's say a stock is taking a steady
decline to -95%, but you don't know it of course. What do you do as
the price keeps falling? Do you average down to improve your cost
basis? Or, do you sell portions off to eat the loss and reduce your
risk exposure?

Finally, I'd like to get your opinion of AEOS. I bought it a week
ago, and the stock dropped 6 out of 7 days or so, leaving me with a
current -13.55% loss (not including today).

Thanks,
Vooch

Thanks Vooch for writing! I appreciate your interest in my blog and my podcast. I am glad you picked up a few ideas from my blog, and hope they are useful for you.

Let me get right to your questions. You write:

I've heard about your buy points (the sell 1/6th at 30, 60, 90, 120,...), but could you elaborate on your sell points?

First of all, unless you wrote something you didn't intend, I believe you have misunderstood my strategy. These appreciation points: 30, 60, 90, 120, 180, 240, 300, 360, 450, 540...., are sell points and not buy points! That is these are points where I sell portions of my holdings on what I call "good" news, that is on an appreciation of the underlying holdings. For instance, if I purchase a stock at $10, I will sell ALL of my shares if the stock drops 8%, that is down to $9.20.

On the other hand, I will also start selling a stock as it appreciates. Currently, I am planning on selling 1/6 positions on gains of 30%, 60%, etc. In the case of this particular example, I would be selling 1/6 of my holdings if the stock hit the first 'appreciation point' representing a 30% gain or $13/share. This is not in any way a point at which I am buying shares. I am selling some of my holdings!

You write further:

Hypothetically, let's say a stock is taking a steady
decline to -95%, but you don't know it of course. What do you do as
the price keeps falling? Do you average down to improve your cost
basis? Or, do you sell portions off to eat the loss and reduce your
risk exposure?

I must of course point out with this discussion, that my approach is not necessarily the best way, the only way, or even always a profitable approach to investing. It is just the way that I am doing things currently!

Back to the question. If a stock is heading down hypotheticall -95% as you say, I shall not be owning it for long! Here are my trading rules for selling a stock on a decline:


1) If I have not sold any shares of this holding at a gain, then I shall sell ALL of the holding at an 8% decline from the purchase price.


2) If I have sold a portion of my holdings ONCE at a gain, that is I sold either 1/4 or 1/6 of my holding generally at the 30% appreciation point, then I will only allow a stock to fall back to the "break-even" stock price. Any lower and I plan on selling all of my remaining shares in that company.



3) If I have sold a portion of a stock more than once, then I will allow the stock to fall back to 50% of the highest appreciation sale point. That is if I sold 1/6 of my shares for the third time at the 90% gain level, I would plan on selling ALL of my remaining shares if the stock retraced back to a 45% appreciation level.



Other parts of your question: I do not average down. I do not sell portions of a stock as it
declines, I sell the whole thing.



Finally about American Eagle (AEOS). You commented on how you just purchased the stock and it has declined 6/7 days. Leaving you with a (13.55)% loss. In my portfolio, I would probably consider buying a stock like AEOS. I will review it in a second. But I wouldn't stay sitting on a (13.55)% loss. As soon as a stock hits an 8% loss, I sell the holding. I don't care if I have held the stock for one week or one year. The stock goes down, then out it goes.



Let's take a look at American Eagle Outfitters (AEOS). I do not own any shares nor do I have any options on this company.



American Eagle Outfitters (AEOS) closed at $21.00 on December 2, 2005, up $.18 or 0.86% on the day.



First place to check things out on an investment is the news. Is there something there that you should know about the stock before committing money. Looking through the Yahoo Finance page on AEOS, I came across the November Same-Store Sales report. On November 30, 2005, AEOS reported that sales at stores open at least a year, gained 1.7% which was "far below analyst estimates." Even though total sales climbed 6.9%, much of this was due to new store openings.



In the news story:

The company said the results were below management's expectations, and cut its fourth-quarter outlook to earnings between 70 cents and 72 cents per share, from 73 cents to 75 cents per share, including a 2-cent tax charge. Analysts, on average, are expecting the company to earn 74 cents per share.

Thus we have a real "double-whammy" to report---same store sales coming under expectations and the company lowering guidance to analysts. No wonder the stock has been retreating!



Let's look at the latest quarterly report. On November 15, 2005, AEOS reported 3rd quarter results. Total sales climbed 20.5% to $577.7 million from $479.6 million for the same quarter last year. Comparable store sales were up 13.6% in the quarter. (You can see how dramatic the slow down was for November). Net income was also up nicely at $73.3 million or $.47/diluted share, up nicely from the $57.9 million or $.38/diluted share the prior year.



Taking a look at the Morningstar.com "5-Yr Restated" financials on AEOS, the page looks perfect, with steady revenue growth, nice increase in earnings, which did dip from $.60 to $.41/share in 2004, but has increased to $1.77/share in the TTM. The company also pays a small dividend and recently increased it. Free cash flow is positive and growing, and the Balance Sheet is perfect with $950 million in combined cash and other current assets, easily exceeding aht $240.1 million in current liabilities and the smallish $87.6 million in long-term liabilites combined.



What about a chart? Taking a look at a AEOS "Point & Figure" chart from Stockcharts.com, we can see that the stock has been trading very erratically, increasing from $11.50 in 2001 to $21/share in July, 2001. The stock subsequently sold off, down to $4.75/share in Septeber, 2002, again moved higher, breaking through resistance at $11 in August, 2003. the stock is currently trading at the $20 level, and I don't see support on the chart until way down to around $11. Anyhow, that's an amateur take on this chart :).



So what do I think? The latest quarter was solid, the Morningstar.com report was great, and the balance sheet is o.k. What concerns me is the very latest bit of information on same store sales that are anemic, and the company reducing guidance on earnings. This isn't the combination that is likely to lead to a stock price appreciation in the short-term. That, at least, is my take on the matter.

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

Bob