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Stock Picks Bob's Advice
Wednesday, 21 December 2005
December 21, 2005 Western Digital (WDC)
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.

The market closed for trading a few moments ago and one of the top gainers on the list of top % gainers on the NYSE was Western Digital Corporation (WDC), which traded last (shortly before the close) at $18.43, up $2.87 or 18.44% on the day. I do not own any shares of this company nor do I have any options on WDC.

Apparently, what drove this stock higher was the announcement of the acquisition of Maxtor (MXO) by Seagate Technology (STX). Apparently investors thought that other disk drive manufacturers like Western Digital might also be in play.

According to the Yahoo "Profile" on Western Digital, the company:
"...engages in the design, development, manufacture, and sale of hard disk drives worldwide. Its hard disk drive products include 3.5-inch and 2.5-inch form factor drives. The company’s hard disk drives are used in desktop personal computers; notebook computers; enterprise applications, such as servers, workstations, network attached storage, and storage area networks; and consumer electronics products, such as personal/digital video recorders and satellite and cable set-top boxes. In addition, the company’s hard disk drives are used in external hard disk drive products that feature high speed buses, such as 1394/ FireWire/iLinktm, universal serial bus, and Ethernet."
Let's take a look at a few of the things that I like to look at when reviewing a stock for this blog!

On October 27, 2005, Western Digital announced 3rd quarter 2005 results. Revenue grew from $823.6 million in the year-ago 3rd quarter to $1.01 billion in the quarter this year. Net income came in at $68.8 million or $.31/share, up over 100% from the $30.4 million or $.14/share in the same period last year. Revenue this quarter exceeded analysts' expectations of $823.6 million as well as earnings which exceeded expectations of $.29/share. Thus, not only did WDC post substantial growth, they exceeded expectations. I cannot emphasize enough the importance of expectations in evaluating the response of investors to a company's announcements.

On November 21, 2005, WDC announced a $150 million share buyback program. This is a bullish announcement from a company which is reducing its float by buying back shares. Contrast this with the continued issuance of shares by Sirius (SIRI) that was discussed elsewhere on the blog.

In addition, on November 28, 2005, WDC announced increased guidance for the current quarter,
"...citing especially strong demand for drives used in desktop and notebook PCs and consumer electronics devices."
I sometimes like to talk about a "trifecta", a term that I misuse frequently on this blog, but what I mean by this is the announcement of a company's quarterly report, with increased earnings, increased revenue, and increased guidance. I probably should talk of a trifecta "plus" if the company in addition to all of that also goes ahead and announced a stock buyback program!

What about longer-term results? Taking a look at the Morningstar.com "5-Yr Restated" financials on WDC, we can see that revenue has steadily increased from $2.0 billion in 2001 to $3.8 billion in the trailing twelve months (TTM).

Earnings during this period have fairly steadily increased (not perfectly though) from $(.59)/share in 2001 to $1.08/share in the TTM.

Free cash flow has been strong with $216 million reported in 2003 and $174 million in the TTM.

Taking a look at the balance sheet, we see that the company has $581.3 million in cash and $690.8 million in other current assets. This is more than enough to cover both the $858.5 million in current liabilities and the $65.3 million in long=term liabilities combined and have over $200 million left.

What about valuation statistics? Looking at "Key Statistics" on WDC from Yahoo, we find that the market capitalization is a large cap size $3.98 billion. The trailing p/e is very nice at 17.07 with a forward p/e (fye 01-Jul-07) of 13.87, and a PEG of .83. All of these statistics suggest very reasonable valuation.

And the Price/Sales figure? According to the Fidelity.com eResearch website, Western Digital is also fairly nicely valued from the perspective of the Price/Sales ratio. Topping this list is Network Appliance (NTAP) with a Price/Sales ratio of 6.0. This is followed by EMC Corp (EMC) at 3.5, Seagate (STX) at 1.2, Western Digital (WDC) at 0.9 and at the bottom of the list, with the "best" vcaluation was Maxtor (MXO) at a Price/Sales ratio of 0.3.

Returning to Yahoo for some additional numbers, we can see that there are 215.7 million shares outstanding. As of 11/10/05 there were 18.67 million shares out short representing 8.85 of the float or 6.7 trading days fo volume. Using my arbitrary "3 day rule", this looks significant to me. No cash dividend is paid and the latest stock split reported on Yahoo was a 2:1 split in January, 1997.

And a chart? Reviewing the "Point & Figure" chart from Stockcharts.com on WDC:



We can see a fairly strong stock price move since September, 2001, when the stock was trading around $3.00 to its current price range in the $20 area. The stock has moved in a series of "zigs and zags", but the overall stock chart looks very strong.

So what do I think? Let's review: earnings were great, with the company showing both revenue and earnings growth while also exceeding estimates. In addition, the company raised guidance and also started a share buyback.

And Morningstar? The company shows a five year record of growing revenue and earnings, is positive free cash flow solidly, although not growing this element, and has a solid balance sheet with current assets easily paying off both current and long-term liabilities if they so desired.

And valuation quesitons? The company sports a relatively low p/e, has a PEG under 1.0 and a Price/Sales ratio that is nearly the cheapest in its group. There are, in addition, a significant number of shares out short with a short ratio in the 6 range. Finally, the chart looks solid with the stock moving higher on what appears to be a "break-out". There is little I don't like about this particular company!

However, I just sold some shares (PRGS) and until I sell some shares on "good" news, I shall not be in the market to add a new positions. So it shall just have to stay on my buyers' list until such time as this purchase is needed.

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


Posted by bobsadviceforstocks at 3:47 PM CST | Post Comment | Permalink
Tuesday, 20 December 2005
Another ***PODCAST*** on PRGS, "Trading Rules" and a question about Sirius (SIRI)
I just published a ***PODCAST*** on my PRGS sale, "Trading Rules" and a question about Sirius (SIRI).

Thanks so much for stopping by. Please email me at bobsadviceforstocks@lycos.com if you have any questions, comments, or words of encouragement.

Bob


Posted by bobsadviceforstocks at 11:24 PM CST | Post Comment | Permalink
"Trading Transparency" PRGS
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 have discussed over and over again on this blog, my investment approach includes a disciplined selling of stocks on 8% losses after an initial purchase. After I have sold a stock at a loss, I "sit on my hands" so to speak and do not reinvest the proceeds until such time that I have either sold a portion of a holding at a gain or have gotten down to a minimum investment exposure (25% of the maximum # of positions). For me, the minimum would be down to 6 positions!

Checking my portfolio this morning, I saw that Progress Software (PRGS) had dropped below my 8% loss limit, and I entered a sale of the entire position of 240 shares at a sale price of $27.574 a few moments ago. These shares were acquired 6/16/05, at a cost basis of $30.97 (40 shares) and $31.00 (200 shares) as these had been purchased in two lots even though I had entered a single purchase order. Using a cost basis of $30.99, this gave me a loss of $(3.42)/share or (11)%. Since I enter my trades manually, this places me at some additional risk of missing my sale points at either gains or losses. Automating this might be an improvement!

Anyhow, that's the news for now. I am thus "battening the hatches" (did I say that right?), and shall wait for now before any additional trading.

Thanks again for visiting. Please email me at bobsadviceforstocks@lycos.com if you have any questions about anything or comments for my blog. Please also feel free to leave your comments right on the blog!

Bob


Posted by bobsadviceforstocks at 9:26 AM CST | Post Comment | Permalink
Saturday, 17 December 2005
The ***PODCAST*** for SRA International (SRX) A Portfolio Review
Hello Friends! This is the LINK for my PODCAST on SRA International (SRX).

Thanks for visiting. Email me at bobsadvicerforstocks@lycos.com if you have any questions.

Bob


Posted by bobsadviceforstocks at 2:10 PM CST | Post Comment | Permalink
"Weekend Trading Portfolio Analysis" SRA International (SRX)
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 point out to readers of this weblog, I am trying to do several things on this website. First of all, I like to discuss stocks that look interesting to me as I try to find suitable candidates for investment. Second, I am sharing with you my actual trading portfolio that I have set up to examine the merit of my strategy, and third, I like to review past stock selections to see how they worked out a year later.

In order to share my own trading activity with you I try to post my trades as soon as possible under the entry "Trading Transparency". In addition, a few months ago, I started discussing my holdings and my trade history with each holding. Going alphabetically, reviewing one holding per week, I am currently up to SRA International (SRX). Last week I reviewed ResMed (RMD) on Stock Picks Bob's Advice so let's take a closer look at my SRX holding!

I purchased 320 shares of SRA International (SRX) on 2/1/05 with a cost basis of $29.82/share. SRX closed on 12/16/05 at $29.37, up $.21 or .72% on the day, giving me a loss of $(.45) or (1.5)%. If the stock declines further I will sell at an 8% loss or .92 x 29.82= $27.43. On the other hand, if the stock appreciates 30%, I shall sell approximately 1/6 of my holdings at 1.3 x $29.82 = $38.76.

I first discussed SRX on Stock Picks Bob's Advice on June 1, 2004, when the stock was trading at $41.80. SRX had a 2:1 stock split on May 31, 2005, giving that pick a price of $20.90. I "Revisited" SRX on Stock Picks Bob's Advice on June 13, 2005, when it was trading at $34.74. Thus, the stock is above the first pick price, about the same as my purchase price, and below my second "Revisit".

Let's take a closer look at SRA International (SRX):

According to the Yahoo "Profile" on SRX, the company:
"...provides information technology services and solutions in the United States. The company offers strategic consulting; systems design, development, and integration; and outsourcing and operations management. Its strategic consulting services include assessment of current operations, development of strategies and plans for improvement, define key priorities and accountabilities, and design enterprise architectures that capitalize on client investments in legacy systems."
SRX does a lot of contracting, including defense contracting, with the Federal Government.

And the latest quarter? On November 2, 2005, SRA International announced 1st quarter 2006 results. Revenue for the quarter ended September 30, 2005, climbed 38% from $203.5 million to $280.7illion. Net income climbed from $12.4 million to $14.4 million. Diluted earnings per share jumped from $.22/share to $.25/share this year.

How about Morningstar? Reviewing the "5-Yr Restated" financials on Morningstar.com for SRX, we can see the steady revenue growth from $312.5 million in 2001 to $959.0 million in the trailing twelve months (TTM).

Earnings have increased from $.63/share in 2003 to $1.03/share in the TTM. Free cash flow has stayed positive with $34 million reported in 2003, and $28 million reported in the TTM.

And the balance sheet on Morningstar? Looks fine with $111.6 million in cash and $285.6 million in other current assets, with $165.2 million in current liabilities and the smallish $10 million in long-term liabilities reported.

And the chart? Taking a look at a "Point & Figure" Chart on SRX from Stockcharts.com:



We can see that the stock was moving sideways from June, 2002, until April, 2003, when it broke out higher from the $12 level to a peak of $28. The stock has since sold off and is now challenging the support level of $27. The stock looks o.k., but I would rather see it start trading higher from here!

Anyhow, that's another position of mine! A defense contractor that had a great latest quarter, a nice Morningstar.com report, and a reasonable chart.

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

Bob





Posted by bobsadviceforstocks at 1:40 PM CST | Post Comment | Permalink
Another ***PODCAST*** for Adobe Systems (ADBE)
Hello Friends! Here is the ***PODCAST*** for the ADOBE entry.

I had to finish this one up quickly when the phone rang :). Shows you what an amateur I really am!!!.

Have a Happy Saturday!

Bob


Posted by bobsadviceforstocks at 10:52 AM CST | Post Comment | Permalink
Friday, 16 December 2005
December 16, 2005 Adobe Systems Inc. (ADBE)
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.

Looking through the list of top % gainers on the NASDAQ, I came across Adobe Systems Incorporated (ADBE) which closed at $38.82, up $3.89 on the day or 11.14% in price appreciation. I do not own any shares nor do I have any options on this company.

According to the Yahoo "Profile' on Adobe Systems, the comnpany
"...offers a line of software and services for public and private sectors worldwide. It operates through four segments: Creative Professional, Digital Imaging and Video, Intelligent Documents, and OEM PostScript and Other. The Creative Professional segment provides software tools for professional publishing,"
As is often the case, what drove the stock higher was the announcement of 4th quarter 2005 results after the close of trading yesterday. Revenue for the quarter gained 19% in the latest quarter to $510.4 million, up from $429.5 million in the same quarter the prior year. GAAP net income came in at $156.3 million for the quarter compared with $113.5 million in the same quarter in 204. GAAP diluted eps worked out to $.31/share, up from $.23/share in the same period in 2004.

How about longer-term? Looking at the "5-Yr Restated" financials on Morningstar.com for ADBE, revenue, which was flat between 2000 and 2002 at about $1.2-$1.3 billion, has subsequently increased to the upside in the following three years to $1.9 billion in revenue.

Earnings during this period were disappointing between 2000 and 2003 dropping from $.57/share to $.40/share, but have picked up subsequently to $.55/share in 2003, $.91/share in 2004 and $1.11/share in the trailing twelve months (TTM).

Free cash flow has also bee growing since 2002 when it was $298 million, this has increased steadily to $639 million in the TTM.

The balance sheet? Looks great with $1.9 billion in cash, more than enough to pay off both the $479.1 million in current liabilities and the $46.4 million in long-term liabilities combined more than three times over. In addition, Morningstar reports that Adobe has another $287.9 million in "other" current assets.

And "valuation"? Checking Yahoo "Key Statistics" on ADBE, we find that the company has a market cap of $19.18 billion, the trailing p/e is a moderate 35.10, the forward (fye 03-Dec-06) is a bit nicer at 27.15. However, the PEG is 1.86.

According to the Fidelity eResearch website, Fidelity is in the "Application Software" industrial group.

Even within this group ADBE looks pricey with a Price/Sales ratio of 9.4. This is followed by Oracle (ORCL) at 5.4, Seibel (SEBL) at 4.2, Cognos (COGN) at 3.5 and Hyperion Solutions (HYSL) at the bottom of this list at 3.

Going back to Yahoo for a few more numbers on this company, we find that there are 494.13 million shares outstanding but only 33.3 million shares are out short representing 6.80% of the float or 5.4 trading days of volume. This may be significant if you go along with my "3 day rule" of short interest.

The company does pay a small dividend of $.03/share yielding 0.10%. The last stock split was a 2:1 split in May 24, 2005.

What about a chart? Taking a look at a "Point & Figure" chart on ADBE:


We can see that dip in price during 2002, as the company's financial report dipped, and the strong rise after 2002, after earnings and in particular revenue, climbed.

So what do I think? I like the latest quarterly report, the Morningstar.com report looks great with a turn around in earnings in revenue after 2002. Free cash flow is strongly positive and the balance sheet looks terrific. Valuation is a bit rich p/e wise, and the PEG is really out of this world! So this is at least a caution flag to observe as we go about our business.

Now, If only I had some cash to be buying some new sotkcs :). But that doesn't really matter, I shall be 'sitting on my hands' until I get the proper signal to make a new purchase from my own portfolio.

Regards and be sure to drop me a line at bobsadviceforstocks@lycos.com.

Bob




Posted by bobsadviceforstocks at 10:33 PM CST | Post Comment | Permalink
Updated: Friday, 16 December 2005 10:40 PM CST
Thursday, 15 December 2005
The ***PODCAST*** on Satyam (SAY)
Hello Friends! Here is the ***PODCAST*** on Satyam (SAY).

Enjoy!

Bob


Posted by bobsadviceforstocks at 10:39 PM CST | Post Comment | Permalink
Listen to my ***PODCAST*** on "Happy Holidays" An Editorial
Hello Friends! I just created a ***PODCAST*** on "Happy Holidays" An Editorial.

Please enjoy and you can comment on this right here on the blog or email me at bobsadviceforstocks@lycos.com.

Bob


Posted by bobsadviceforstocks at 9:55 PM CST | Post Comment | View Comments (1) | Permalink
December 15, 2005 Satyam Computer Services Ltd (SAY)
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 I start looking for a stock to write about on this blog, I reviewed the list of top % gainers on the NYSE today. Satyam Computer Services Ltd. (SAY) closed at $36.11, up $1.04 or 2.97% on the day, making the list, in an otherwise unimpressive market environment today. I do not own any shares of this stock nor do I own any options.

According to the Yahoo "Profile" on Satyam:
"Satyam Computer Services Limited operates as a consulting and information technology (IT) services company. Its range of solutions include software development, business intelligence and data warehousing, consulting and enterprise solutions, embedded systems, engineering solutions, enterprise resources planning applications solutions, geographic information system solutions, enterprise infrastructure solutions, and enterprise storage solutions. The company also provides business process outsourcing; Internet access and hosting; and network and network-enabled services."
The company is headquartered in Hyderabad, India.

Let's take a closer look at this Indian software company that provides extensive outsourcing services.

First, the latest quarter. On October 20, 2005, SAY announced 2nd quarter 2006 results. Revenue grew 9.09% sequentially and 33.97% year over year. (many of these results are in Rupees!). The net profit grew 34.195 year over year, and beat guidance. In addition, the company raised revenue guidance in the same report. As I like to say, this is the "trifecta": increasing revenue, earnings, and raised guidance---about as good a result as one can get from a quarterly report!

And how about longer-term results? What does Morningstar.com say about this company? Reviewing the Morningstar.com "5-Yr Restated" financials, we can see that revenue grew from $310.3 million in 2001 to $793.6 million in the trailing twelve months (TTM). Earnings are noted to have increased from $.52/share in 2003 to $.96/share in the TTM. Free cash flow has also improved from $88 million in 2003 to $132 million in the TTM.

The balance sheet, as reported by Morningstar.com, looks solid with $129.8 milion in cash, which alone can cover both the $86.1 million in current liabilities and the $30.1 million in long-term liabilities combined. In addition, the company is reported to have $203.1 million in other current assets.

And valuation statistics? Checking Yahoo "Key Statistics" on Satyam, the company is a large cap stock with a market capitalization of $5.81 billion. The trailing p/e is moderately rich at 32.24, the forward p/e (fye 31-Mar-07) is estimated at 23.76, and with the rapid growth expected to continue, we have a PEG of only 1.13.

Looking at the Price/Sales ratio, for relative valuation within its industrial group of "Information Technology Services", we can see that SAY is very expensive with a Price/Sales ratio of 6.1 per the Fidelity eResearch website. This is followed by SRA International (SRX) at a distant 1.7, Affiliated Computer Services (ACS) at 1.5, Anteon International (ANT) at 1.4, Computer Sciences (CSC) at 0.6 and Electronic Data Services (EDS) at 0.6. Certainly, from the point of view of this particular parameter, the valuation of this stock appears quite rich.

Going back to Yahoo for some additional numbers, we can see that there are 160.98 million shares outstanding with 876,910 shares out short representing only 1.3 trading days of volume. This doesn't appear significant to me. In addition, Yahoo reports that the company pays a small dividend of $.23/share yielding 0.60%. No stock splits are reported.

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



We can see that the stock was trading "sideways" between January, 2002, and August, 2003, when it broke through resistance at $12.00 and then moved sharply higher. Once again, the stock showed weakness, dropping from a high of $36/share down to $17/share, until breaking through a new resistance level at around $22 in August, 2004, and moved higher from there. More recently, the stock appears to be moving ahead strongly.

So what do I think? The stock is certainly showing strong fundamental and technical strength with a superb quarterly report which also raised guidance, a solid Morningstar.com "5-Yr Restated" financials, including growing free cash flow and a solid balance sheet. Valuation-wise, the PEG being just a bit over 1.0 is encouraging. However, the Price/Sales appears very rich at 6.1, way ahead of other stocks in the same business.

With the other performance figures, I still find that the rest of the information outweighs this one statistic. If I were to be purchasing stock, this one might be on my list. However, as you may know, I only buy additional positions when one of my own positions hits a sale point on a gain and I am under my maximum # of positions, which is at 25 posltions at this time.

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

Bob



Posted by bobsadviceforstocks at 5:29 PM CST | Post Comment | Permalink

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