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Saturday, 28 June 2008
"Looking Back One Year" A review of stock picks from the week of October 23, 2006

 

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

I have managed to miss a few more weeks in these 'reviews' and now am pushing two years out.  Yikes.  However, let's see if I can at least get this weekend covered!  My last review was back on May 10, 2008, when I took a look at stock picks from the week of October 16, 2006.  Going a week ahead, let's review the selections from October 23, 2006. 

The reviews assume a buy and hold approach to investing.  In practice, I advocate as well as employ a disciplined portfolio management approach that requires me to sell my declining stocks quickly at small losses and sell my appreciating stocks slowly at targeted appreciation levels.  This difference in approach would certainly affect performance and should be taken into consideration. 

Taking a look at the week of October 23, 2006, I noticed that I didn't have any picks that week!  

I will take advantage of this past lull in posting by skipping any retrospective reviews this weekend and again take a look at past stock picks next week!

Yours in investing,

 

Bob 


Posted by bobsadviceforstocks at 10:52 AM CDT | Post Comment | Permalink
Thursday, 26 June 2008
'Seeing the Forest For the Trees'--More on Investment Philosophy!

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.

Last week, after holding my Visa (V) shares for two weeks, I experienced a slightly greater than (8)% loss which triggered a sale.  I wrote about this on this blog and also over on Seeking Alpha, where my entry was entitled:  Visa:  Why I Sold All of My Shares.  I received considerable criticism, in fact getting 93 comments, mostly about my lack of intellect for dumping Visa shares so quickly.

But my sale of a stock is not merely about my belief in the long-term outlook on any particular companies.  There are many forces that act upon a stock including in particular the actual movement of the overall market.

I listen to my stocks.  And I respond to their sales either on the upside with a 'permission slip' to be adding a new position.  Or on the downside by 'sitting on my hands' unless I am at my minimum of 5 positions (as I am presently.)

Those that are unable to perceive market influences while focused solely on individual stocks that they passionately hang on to might be said to be having problems "seeing the forest for the trees".

While my blog is about "stock picks" it is also my attempt to share with all of you my own effort at listening to my own holdings and either moving more heavily into equities (on the sale of stocks that are appreciating) or swinging more into cash (by sitting on my hands when I sell stocks like my Visa (V) at a loss). 

I try to find the very best stocks to own in the universe of stocks.

Visa was one of these.  I do believe the outlook may be terrific for this stock.

But I am also greatly aware of the dangers and opportunities of investing.

I am not smart enough to know when to move to cash or into stocks.  But I am capable if disciplined to respond to the signals of my own holdings.

Currently I am at 5 positions.  My minimum.  And the market sucks.  The system is working.

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 12:59 PM CDT | Post Comment | Permalink
Wednesday, 25 June 2008
A Reader Writes "I'm writing because I need some advice...."

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.

One of the great pleasures of writing a blog is to receive comments and questions from readers who have perhaps gained something from your efforts.  If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.

I received one of those letters yesterday from Ivy K. who wrote with some questions of her own:

"Hi Bob! My name is Ivy K., 26 year old nursing student in Las Vegas, NV.  I'm a complete newbie in the world of stock market investing. I joined CNBC.com's Portfolio challenge this morning.  I'm writing because I need some advice on how to to search / research for good stocks.  I read your June 23, 2008 article about FLUOR and why it's a good pick.  Where did you get the news about their earnings and etc?

Also, I picked the following stocks for my virtual online portfolio and if you have the time, could you pls give me some advice on them? They are :

1.) VeraSun Energy Corp -- I chose this because alternative energy is always on the news even on CNN.

2.) Estee Lauder -- My sister and mom are loyal to Aveda, which was purchased by Estee Lauder. Plus, it was featured in MSNBC's Business of Innovation because it's a socially responsible company and that's something that I admire.  Plus, that show also mentioned that their profits are rising.

3.) Waste Management -- I really believe that this kind of company can help with global warming. 

4.) Whole Foods Market -- My teacher and other classmates do their groceries here and in the entertainment news, I see a lot of celebrities doing their groceries here.  I figured if the celebrities are doing it, pretty soon other people will be doing it.

Finally, I go to reuters.com's finance section because they have analyst recommendations on whether to sell, hold or buy.

This is a long email and I really appreciate the time you've taken to read and hopefully, respond.

Yours,
Ivy"

Ivy, thank you so much for writing!

I am glad that you enjoyed my write-up on Fluor (FLR), and my explanation of why I believe it is a good "pick".  Let me try and answer your questions in order.

You first asked me about "where I got my information on the earnings, etc.?"  That's easy.  I am a big fan of Yahoo Finance (and no I don't own any shares in Yahoo!).  All you need to do is enter the symbol of the company that you wish to investigate into the box next to the "get quotes"  button and you will get company-specific information.

For instance, let's use Verasun Energy (which after entering the name in the box I see that the symbol is VSE).

I generally find the logo by first going to the homepage for the company.  Virtually every company has a homepage on the internet.  To get the location, you can go over to the Yahoo "Profile" for VSE

HERE is the hompage for VSE if you are interested :).

Also on the "Profile page" from Yahoo is a description of the company:

"VeraSun Energy Corporation engages in the production and sale of ethanol and its co-products in the United States. Ethanol is primarily used as a blend component in the gasoline fuel market. The company's ethanol co-products include wet and dry distiller grains with solubles, which are used as animal feed; and corn oil that is used as an animal feed, as well as to produce biodiesel. It also markets VE85, an ethanol blended fuel through arrangements with gas distributors and retailers."

So now we can see that this particular company, that I have not been previously familiar with, is involved in ethanol production.  Certainly this has been a very 'hot' area in the stock market. 

There isn't anything wrong with buying a 'trendy' kind of stock.  In fact, you could ride the obvious positive sentiment which may work out to price momentum hopefully to the upside.  This isn't particularly my approach--but there are many ways to select stock and this might work for you!

But my own next step in looking at a stock is to check out the latest quarterly report.  From my perspective, I am looking for companies that are growing their revenue, increasing their earnings, possibly beating guidance, and hopefully raising expectations.  O.K. that's a lot to ask from a quarterly report, but remember that we cannot expect to buy every stock.

By the way, I do NOT own any shares of VSE nor do I have any options.  

If we look down the left side of that "Profile Page on Yahoo" we can see the "Headlines" link. You might have been expecting something more spectacular than this basic approach :), but I do a lot of 'scrolling' through these headlines (one each stock I review) to find the stories about earnings and significant developments.

I did see a story about delaying the startup of the third ethanol production facility this month because of "market conditions".  I don't like the sound of that story...hmmm.  By the way, VSE closed today (6/25/08) at $4.11, up $.13 or 3.27% on the day. Generally, I have been avoiding low-priced stocks under $10/share, but that is another story.

But let's keep looking for those earnings.

On May 12, 2008, VeraSun (VSE) reported 1st quarter 2008 results.  Revenues literally exploding climbing 257% to $516.5 million.  Net income turned positive at $7.6 million or $.08/diluted share vs. a  loss of $(.3) million during the same quarter last year.

Well that report looks pretty nice!

However, you probably know that I believe that earnings expectations are often critical in determining whether a financial result is actually good or bad news!  In other words, if we look through the news, we can get another report from the A.P. that indicates that the company missed expectations on earnings ("Analysts polled by Thomson Financial expected, on average, earnings per share of 16 cents.").  Within the same article, the reporter notes tha the company did beat expectations of $500 million in revenue when they reported the $516 million result. 

So the earnings news were at best 'mixed' although on the surface they appear pretty spectacular.

My next step (which you may or may not wish to emulate) is to examine whether the longer-term results are just as positive.  For this, I utilize Morningstar.com, another free website--Morningstar also has a subscription-based premium site that does cost money.  (In this case, I do own some shares of Morningsar (MORN) in my trading account--full disclosure).

If you enter VSE into the "quotes" box near the upper left, and then click on "Financial Statements" on the left side,  and finally click on the "5-Yr Restated" tab you will get here.

Let me give you my take on this company.  First revenue growth is beautiful with steady increase from $13 million in 2003 to $848 million in 2007 and $1.2 billion in the trailing twelve months (TTM).  Earnings, however, have been at best erratic,  jumping from $.02/share in 2003 to $.39/share in 2004, before slipping back to $.01 in 2005.  Earnings then climbed to $1.03/share in 2006, and diped back to $.31/share in 2007 and increased to $.39/share in the TTM.  Not exactly steady and consistent growth.

Something else, a word about 'free cash flow'.  This might or might not be important to you.  It means a lot to me.  I am looking for companies from a relatively conservative viewpoint.  That is, I want to own shares in companies that from my most amateur viewpoint appear to be financially healthy.  And that requires them to be producing free cash instead of consuming it.

In VSE's case, the company was negative $(90) million of free cash flow in 2005, improved it to $54 million in 2006, dipped to a low of $(399) million in 2007 and has deteriorated further to a negative $(468) million in free cash flow in the TTM.

Not exactly the numbers I would prefer to see.

That doesn't mean that this might not be a terrific investment.  Seriously.  A great investment is a stock that when you have gone long, that is purchased shares for possible price appreciation, actually does go up in price.  So these financial things are the stuff I look for in a stock.  That doesn't mean that you need to...just my thing I guess.

Returning to Morningstar, we can see that the company has $73 million in cash and $323 million in other current assets.  Considering the company has $189.3 million in current liabilites, this is a current ratio of over 2:1.  Which would appear on first glance to be quite healthy.  But when we take into consideration the nearly 500 million in cash flow 'destruction', we can see that the balance sheet could possibly be in the process of deteriorating somewhat.  At least that's my take.

I usually go next to Yahoo "Key Statistics" to get some more information on the stock.  

And check a chart over at StockCharts.com: 

The chart isn't very encouraging to me.  This kind of chart is known as a "point & figure" chart with columns of x's to suggest climbing stock prices, and o's to demonstrate declines.

I feel like I am 'late to the party' but I would be reluctant to buy these shares, at best a "hold", more likely

VERASUN (VSE) IS RATED A SELL

O.K. that wasn't what you wanted me to say, but it just doesn't work for my strategy.  The last quarter was great but they missed expectations.  They are delaying their ethanol plant openings because of "market conditions", they are burning up their available cash, and the chart looks awful to me. 

I think you can check out the other stocks you mentioned in the same fashion as I did to reach your own conclusions.

Your list of stocks are basically what I would call 'top down' investing.  It isn't a bad technique--many great investors do exactly that.  They start with an idea, an observation, a realization, and then pursue the stock that sounds like it might work.  

Peter Lynch successfully utilized this approach among other strategies during his stint with Fidelity Magellan fund.

As reported on the Wharton Alumni page:

"Now vice-chairman of Fidelity Investments, Lynch has lived and breathed his strategy, even choosing one company, Hanes, in the 1970s because his wife bought and loved its new L’Eggs pantyhose line — the first department-store-quality pantyhose sold to American women via supermarkets.

“I did a little bit of research,” Lynch told PBS’s Frontline. “I found out the average woman goes to the supermarket or a drugstore once a week. And they go to a woman’s specialty store or department store once every six weeks. And all the good hosiery, all the good pantyhose is being sold in department stores. They were selling junk in the supermarkets. They were selling junk in the drugstores.” Lynch knew Hanes had a winner. L’Eggs became a huge success, and Hanes became Magellan’s biggest position."

So you are in good company if you subscribe to this approach.  And it may work out well for you!

My own approach is more eclectic.  I call it a "Zen" approach (of course I know next to nothing about Zen Buddhism).  But what I mean is that I want to simply observe the market.  Note which stocks are moving higher and examine their underlying fundamentals to see if they might be suitable investment vehicles.

I try to reduce my own calculations and concentrate on observations.

In addition, greatly influenced by Gene Walden who wrote about "100 Best Stocks to Own in America", as well as my own observations about finding the most consistent, steady growers in the market to park my own investment money, I started looking hard at recent quarterly reports (also influenced by William O'Neil and the CANSLIM strategy), I noted that companies like Fastenal (FAST) or Wal-Mart (WMT), had records of steady growth in revenue and earnings and these results were accompanied by steady and spectacular price appreciation. 

Reading Robert Lichello and his AIM system from "How to Make $1,000,000 in the Stock Market Automatically" I started thinking about listening to my own portfolio.  I limited my losses and started preserving my gains by small sales of appreciation stocks.  I used these sales on the upside and the downside to give me 'signals' on when to be buying or selling positions in my portfolio.

I hope all of this works.

I am not sure if I have answered your questions.  But I hope that I have encouraged you to seek more information, think about your investment strategy and perhaps to add to your knowledge by looking, observing, and responding to the stock market.

Thanks for visiting and writing!

Yours in investing,

 

Bob 


Posted by bobsadviceforstocks at 6:52 PM CDT | Post Comment | View Comments (1) | Permalink
Updated: Wednesday, 25 June 2008 6:58 PM CDT
Monday, 23 June 2008
Fluor (FLR)

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.

When looking for a new stock to "pick" and discuss, my first screening involves reviewing the top % gainers.  From among these stocks, I try to identify the highest quality companies--which for me are the ones with evidence of persistence of revenue and earnings growth, stable outstanding shares, growing and positive free cash flow, acceptable balance sheets and reasonable valuations.  These are the kind of companies that I try to own and to follow here on this blog.

Fluor (FLR) made the list of top % gainers on the NYSE today.  As I write, the stock is trading at  $202.34, up $10.79 or 5.63% on the day.  I do not own any shares or options on Fluor.  But I would like to share with you why

FLUOR (FLR) IS RATED A BUY

Let's review some of the facts about Fluor (FLR) that led me to this assessment---first of all, what exactly does this company do?

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

"...through its subsidiaries, provides engineering, procurement, construction management, and project management services worldwide. It operates in five segments: Oil & Gas, Industrial & Infrastructure, Government, Global Services, and Power."

And the latest quarter?

On May 12, 2008, Fluor (FLR) reported 1st quarter 2008 results.   Revenue for the quarter ended March 31, 2008, came in at $4.8 billion, up about 32% from the prior year $3.6 billion.  Net earnings for the quarter came in at $138 million, up 63% from last year's $85 million in the same quarter.  On a per share basis, this worked out to $1.50/share, up sharply from $.94/diluted share last year.

In light of new awards and excellent prospects in the near future, the company went ahead and raised guidance for 2008 with earnings now expected in the $6.25 to $6.55 range, up from the previous range of $5.10 to$5.55/share previously announced.

The company easily beat expectations with the $1.50 figure, as analysts polled by Thomson Financial had expected a profit of $1.27/share.  The company also beat expectations on the revenue with the $4.8 billion figure as analysts had been expecting revenue of $4.64 billion.

I appreciate a great quarter, but quality is about great quarters one after another for many years!  And for this information, I generally turn to Morningstar.com for additional information.

Reviewing the Morningstar.com "5-Yr restated" financials on Fluor (FLR), we can see that revenue has grown nicely from $8.8 billion in 2003 to $16.7 billion in 2007 and $17.9 billion in the trailing twelve months (TTM).

During this same period, earnings have dramatically and steadily improved from $1.95/share in 2003 to $5.85/share in 2007 and $6.41/share in the TTM.  As a 'bonus', the company has also been paying a dividend and rather regularly increasing it from $.64/share in 2003 to $.80/share in 2006 and $.85/share in the TTM.

Outstanding shares have been expanding but at a modest rate from 81 million shares in 2003 to 91 million in 2007 and the TTM.  Thus, this approximately 13% increase in shares was accompanied by an approximately 100% increase in revenue and a 200% increase in earnings.  I am quite comfortable with a small increase in shares when this is associated with a larger increase in both earnings and revenue reported.

Free cash flow has been somewhat erratic dipping from $195 million in 2005 to $22 million in 2006.  However, this jumped back sharply to $621 million in 2007 and the company has reported $656 million in free cash flow as reported by Morningstar.com.

The balance sheet appears adequate with $1.13 billion in cash and $3.32 billion in other current assets, which, when compared to the $3.13 billion in current liabilities yields a current ratio of 1.42.

Checking Yahoo "Key Statistics" for some valuation numbers, we see that this is a large cap stock with a market capitalization of $17.88 billion.  The trailing p/e is reported at 31.46 with a forward p/e of 25.55 (fye 31-Dec-09).  The PEG ratio is a bit rich at 1.73. (All things being equal, I would prefer to see a PEG between 1.0 and 1.5).

The trailing p/e is also a bit rich at 31.46.

Reviewing information from the Fidelity.com eresearch website, the Price/Sales ratio comes in at 0.95 (TTM), compared to an industry average of 1.06.  In terms of profitability as measured by the Return on Equity (ROE) (TTM), the company also does well relative to its peers with a 27.43% ROE compared to the industry average of 23.97%.

Yahoo reports 88.7 million shares outstanding with 87.46 million that float.  As of 5/27/08 there were 4.63 million shares out short representing a short ratio of only 1.9.  (Less than my own arbitrary 3 day level for significance.)  The company does pay a dividend (as noted above) of $1.00/share going forward, with a .5% dividend yield. No stock split is reported on Yahoo.  (The company previously announced a 2:1 split to be effective July 2, 2008 for shareholders of record on June 6, 2008).

Checking a "point & figure" chart on Fluor from StockCharts.com, we can see that the stockwhich was trading sideways earlier this year, broke through resistance in February, 2008, and has been moving strongly higher the past four months.

Insofar as future prospects, Fluor should benefit from alternative electricity generation as this report on participating in a $350 million contract for an offshore British wind farm indicates.  Last month, Fluor was also awarded a $1.8 billion contract for the world's largest offshore wind farm project.  So besides doing well with existing oil and gas projects, Fluor is well positioned for the likely expanded role for wind and alternative energy.

Thus, with the nice price performance today, the solid earnings report that beat expectations and found the company raising guidance, the terrific Morningstar.com data, reasonable valuation a great stock price chart, and a good 'story' on wind farms as well, it is easy to see why I would be rating this stock so highly.

It is the kind of stock I would be buying if I had my own idiosyncratic signal to be acquiring a new stock.  My own portfolio generates these signals as my own holdings hit appreciation targets and portions of them are sold.  However, without such a signal, I shall be continuing to admire Fluor (FLR) from a distance.  

Thank you again for stopping by!  If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.  If you get a chance, be sure and visit my Covestor page where my actual holdings are reviewed, my SocialPicks page where all of my prior stock picks from the last year or so are assessed, and my Podcast Site where you can listen to me review some of the many stocks I discuss right here on the blog!

Yours in investing,

 

Bob


Posted by bobsadviceforstocks at 2:38 PM CDT | Post Comment | Permalink
Sunday, 22 June 2008
A Short Comment on Visa (V) as it Pertains to my Investment Philosophy

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

With those words, I have been starting virtually every one of my entries on this blog.  I do this because they are accurate words.  Words that describe my own professional expertise--which is not in investment management or analysis--and yet do not reflect my own personal experience with investing or writing about stocks on this blog.

Recently I wrote about my short-term holding of Visa (V) stock.  This started out with my entry here on Visa, which was then picked up and packaged by Seeking Alpha here.  I initiated my amateur 'coverage' of Visa with a "Buy" rating.

Unfortunately, just two weeks later, my Visa shares demonstrated weakness....along with the rest of the market....and hit my 8% loss limit.  I sold the shares.  I discussed this on my blog here and this was also picked up by Seeking Alpha here.

With my own sale of shares for my idiosyncratic technical reasons, I did not feel it would be ethical to maintain my "Buy" rating on this stock, and reduced it to a "Hold".

Unfortunately, my own approach to investing is neither famous nor well-understood in the world of Seeking Alpha.  I do believe that my regular readers understand my approach.  I do not even know whether my particular investment strategy will even be successful or profitable over the long haul.  I do not know whether it will be more profitable than simply buying an index fund.

I do know that it makes good sense to me.

I shall not be buying stocks because they are fad stocks.

I shall continue to listen to my portfolio by 'sitting on my hands' on sales of stocks on losses and looking to add to my equity exposure when my stocks hit appreciation targets.

I shall limit my losses when they hit sale points that I have established at the time of purchase.

In one comment on Seeking Alpha I was accused of using my 'calculator' instead of my brain or intuition in making a sale decision.  I regret to inform that writer and any other commenter that I shall continue to use my calculator to make sale decisions.  That is the heart of my approach.

There is no doubt that I shall miss many of the great moves of the stock market.  But I shall not be in love with any of my investments to the point that I shall over-ride my own thought processes and strategy with infatuation.

In 1942, before becoming President, it has been reported that Harry S. Truman, as noted in The Soda Springs Sun had said:

"Favorite rejoinder of Senator Harry S. Truman, when a member of his war contracts investigating committee objects to his strenuous pace: 'If you don't like the heat, get out of the kitchen'."

I am not prepared to get out of the kitchen :).  I can take the heat.

Time will tell whether my approach will be any better than a random selection of stocks.

I am glad that some of you have chosen to come along with me on this journey.  I shall continue to try to make rational decisions not based on any affection for any stocks or dislike of any investment.  But rather based on a systematic identification of potential investments, a clear management of each purchase, and a thoughtful response to the movements of my own portfolio in determining my next action in response to the market.

Thank you for coming along with me.

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 10:16 AM CDT | Post Comment | View Comments (3) | Permalink
Wednesday, 11 June 2008
Visa (V) "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.

Fortunately, I don't often write up a stock like Visa, which I just reviewed on May 29, 2008, suggested a "Buy" rating, buy shares of the stock and then go ahead and sell share just about two weeks later.  But that is exactly what has happened!

On May 29, 2008, after a partial sale of Copart on a gain, I purchased 70 shares of Visa (V) at a cost basis of $86.03.  A few moments ago, with the market once again under pressure, Visa shares have been selling off and as I write are trading at $78.14/share, down $(2.17) or (2.70)% on the day.  When they passed my (8)% loss level, I initiated a sale and sold all 70 shares at $78.99.  This worked out to a loss of $(7.04) or (8.2)% since purchase.

Without anything fundamentally wrong with the stock, but with my own sale of shares,

VISA (V) IS RATED A HOLD

After an initial purchase of shares, no matter how much I 'like' a stock, I sell my shares should they decline to an (8)% loss.  Since this is on 'bad news', I do not plan on replacing these shares, but instead am now back to my five position level, my minimum, and shall wait either for a sale on bad news (which I shall in this case find a replacement for), or a sale on good news to be buying a new position.  'Good news' for me is a partial sale of a holding at an appreciation target reached.

Thanks again for visiting and stopping by!  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 9:20 AM CDT | Post Comment | View Comments (5) | Permalink
Monday, 9 June 2008
Ensco (ESV)

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 wanted to try to briefly review a stock today and looking through the list of top % gainers on the NYSE, I came across Ensco (ESV) which as I write is trading at $78.65, up $4.21 or 5.66% on the day.  I do not own any shares nor do I have any options on this stock.  However, I would like to share with you briefly why

ENSCO (ESV) IS RATED A BUY

First of all, what do they do?

According to the Yahoo "Profile" on Ensco (ESV), the company

"...through its subsidiaries, provides offshore contract drilling services to the oil and gas industry. Its offshore contract drilling operations include exploration, development, and production of oil and natural gas. As of February 15, 2008, the company owned and operated 44 jackup rigs, 1 ultra-deepwater semisubmersible rig, and 1 barge rig. It also had four ultra-deepwater semisubmersible rigs under construction."

And how did they do in the latest quarter?

On April 24, 2008, Ensco (ESV) reported 1st quarter 2008 results.  For the quarter ended March 31, 2008, revenue came in at $580.3 million, up from revenue of $514.1 million the prior year same period.  Net income increased 17% to $272.0 million or $1.90/diluted share, up from $232.3 million or $1.54/diluted share the prior year.

Perhaps equally important, from my perspective, was that the company which reported $1.90/diluted share, beat expectations of $1.81/share as surveyed by Thomson Financial.

What about longer-term results?

According to the Morningstar.com "5-Yr Restated" financials on ESV, the company has increased revenue (except for a slight dip from 2003 to 2004) from $733 million in 2003 to $2.14 billion in 2007 and $2.21 billion in the trailing twelve months (TTM).  Earnings also dipped from $.66/share in 2003 to $.62/share in 2004 befor soaring to $1.87/share in 2005, and $6.73/share in 2007 with $7.09/share reported in the TTM.

The company does pay a dividend of $.10/share which has been unchanged since 2003.  Outstanding shares have been very stable and actually have decreased from 150 million in 2003 to 147 million in 2007 with 147 million in the trailing twelve months (TTM).

Free cash flow improved from a negative $(126) million in 2005 to a solid $583 million in the TTM.  The balance sheet appears solid with $665 million in cash and $540 million in other current assets.  This total of $1.2 billion, when compared to the $443 million in total current liabilities yields a current ratio of 2.72.

What about some valuation numbers?

According to the Yahoo "Key Statistics" on Ensco (ESV), the company is a large cap stock with a market capitalization of $11.32 billion.  The trailing p/e is a very cheap 11.09 with a forward p/e even better at 9.15.  Thus, with strong estimates going forwards, the PEG works out to a downright reasonable level of 0.53 (5-yr expected).

Even with this apparent reasonable valuation, accoding to the Fidelity.com eresearch website, in terms of Price/sales (TTM), the company is still selling at a bit of a premium to its peers with a ratio of 4.89 compared to the industry average of 3.68.  Ensco does a bit better in terms of profitability as measured by the Return on Equity (TTM) with a ratio of 27.75%, compared to the industry average of 27.34%.

Finishing up with Yahoo, we can see that there are 144.35 million shares outstanding with 143.02 milion that float.  As of 5/12/08, there were 13.41 million shares out short representing 4.9 days of trading (the short ratio).

As I have noted above, the company pays a small dividend of $.10/share yielding 0.1%.  The last stock split was a 2:1 split back on September 16, 1997.

What does the chart look like?

If we examine the Ensco (ESV) "point & figure" chart from StockCharts.com, we can see the recent price volatility and the price 'break-out' recently in February, 2008, when the stock broke through resistance at the $56 level and has continued to chart higher since.  The stock chart looks quite strong to me.

Summary: 

To summarize, I do not need to tell anyone about oil trading at over $100/barrel. In fact, well over $100.  Without any great scientific analysis, we can fully expect that there will be an anxious effort to obtain reserves and discover more oil deposits.  At least, from my amateur view, this appears to be a reasonable expectation.  And a driller like Ensco should benefit from this effort.

My selection of this stock is not based on any expectation about what oil prices should do and what this should mean to this company---although I find this environment helpful for this company.  But rather, I selected this stock with all of the usual screens and devices that I use to identify potential stocks for inclusion.  I like the recent quarter which beat expectations, the longer-term results, the valuation, and the chart.  What is there not to like?

Now, if only I had a signal or could justify buying some shares--then this would be a stock I would be buying.  But meanwhile, I shall try to wait patiently for the proper moment to be doing anything.

Thanks again for visiting!  If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.  If you get a chance, be sure and visit my Covestor page where you can read about my actual trading portfolio, my SocialPicks page where you can find out how my picks have been doing, and my Podcast Page where you can listen to me talking about some of the many stocks I write about here on this website.

Have a good week everyone!

Yours in investing,

 

Bob


Posted by bobsadviceforstocks at 1:54 PM CDT | Post Comment | Permalink
Saturday, 7 June 2008
My Prosper.com Account: Update #4

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.

Besides investing in stocks, I have also been dabbling in person-to-person loans on the Prosper.com website. (Full disclosure: if you sign up with Prosper with these links both you and I earn $25 if you fund a loan and I actually would earn $50 if you take out a loan.)

About six weeks ago, on April 23, 2008, I wrote up my Prosper.com "Update #3".  As I have promised, I would like to share with you my continued experience on this peer-to-peer lending website. 

For some additional background, Prosper CEO and founder Chris Larsen recently reported on activity on this lending website for 2008:

"In April, we saw the supply of loan listings with an attractive risk-return tradeoff hit an all time high and approximately double compared to the prior month. At the end of March, the supply of loan listings with an attractive risk-return tradeoff was approximately $5 million; and at the end of April the supply increased to approximately $11 million and has remained at that level into May.

This significant increase in the supply of loan listings with an attractive risk-return tradeoff is attributed to the fact that on April 15 we commenced our business arrangement with WebBank, a Utah-chartered industrial bank. Through our agreement, all loans originated through the Prosper marketplace resulting from listings posted on or after April 15, 2008 are made by WebBank under its bank charter. Prosper provides services to WebBank in connection with the origination of such loans and Prosper services loans made to Prosper borrowers on behalf of registered Prosper lenders who purchase such loans. In effect, this partnership opened the platform to more borrowers, who may have previously been constrained by low state rate caps."

Back to my Prosper.com account:

As of June 7, 2008, I now have 83 loans.  77 are current, 1 is late (<15 days), 2 are late (15-30 days), 2 are late (2 months), and 1 is 4+ months late.  The two loans that are 2 months late are in "collections" and the single loan 4 months+ late is in collections and is likely heading to be sold as a "default".

I have now made a total of $5,011.80 is loans, received payments totaling $580.27, with an average interest rate of 14.62%.  My daily interest accrual is currently $1.85.  Net income totals (interest +fees + reward) totals $177.17.  I have had -0- net defaults (although one loan with a principal balance of $(46.76) is heading for a default).

I mention "rewards" above and indeed I have received a total of $75.00 for referrals to the Prosper.com website.

Again, to get a 'third-party' analysis of my lending activity, and actually to review any lender, you can visit LendingStats and see how they view my account.  They actually currently estimate my ROI as a negative (.25)%.  This hasn't been my experience thus far, but we shall see how accurate they turn out to be.  Please remember that these loans are high risk, fraught with the possibility of default and are unsecured.  So enter this loan area at your own risk!

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

Congratulations to all of the recent graduates!  I shall be spending some of my weekend visiting with all of these great kids!

Yours in investing,

 

Bob 


Posted by bobsadviceforstocks at 7:43 AM CDT | Post Comment | Permalink
Wednesday, 4 June 2008
Greif (GEF) "Revisiting a Stock Pick"

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 today I saw that an old favorite of mine, Greif (GEF) had made the list of top % gainers on the NYSE.   Greif had a nice day trading today and closed at $68.92, up $2.80 or 4.23% on the day.  However, that 4.23% gain was not enough by the close to keep it on the list.  However, since it was on the list earlier, I certainly reserve the right :) to 'revisit' this stock!  

I would like to explain why I still feel that

GREIF (GEF) IS RATED A BUY

On  April 5, 2005, I first discussed Greif (GEF) and actually purchased some shares at that time.  Gef was trading at a split-adjust price of $37.03 at that time.  Unfortunately, with my trading rules I sold my shares of GEF when they hit an (8)% loss just a few months later and do not currently own any shares or options on this stock.  In fact, I revisited GEF on December 12, 2006, when the stock was trading at a split-adjusted price of $57.88.

So here it is another year-and-a-half later and Greif (GEF) is making the list again, and once again I shall tell you why it belongs on the blog (and maybe in my portfolio if I get the opportunity). 

It is a big late, so let me try to be brief.

First of all, according to the Yahoo "Profile" on Grief (GEF), the company

"...engages in the manufacture and sale of industrial packaging products, and containerboard and corrugated products worldwide. It operates in three segments: Industrial Packaging and Services; Paper, Packaging, and Services; and Timber. Industrial Packaging and Services segment offers industrial packaging products, such as steel, fiber, and plastic drums; intermediate bulk containers; closure systems for industrial packaging products; and polycarbonate water bottles."

The stock moved higher today in anticipation of an earnings report that was scheduled to be announced after the close of trading.   In fact right after the close of trading the company announced 2nd quarter 2008 results.  Net sales climbed 13% (7% adjusted for the positive effect of currency translation), net income was $54.3 million or $.92/diluted Class A share, compared to $39.2 million or $.66/diluted Class A share last year.

In itself that was a strong report.

But more importantly than just a strong report, the impact of a financial result is best understood in terms of expectations.  In this case, analysts polled by Thomson Financial had expected earnings of $.87/share.  Thus the company beat expectations!

Sort of like icing on a cake..... 

if we can also as shareholders own shares in a stock in which the company not only reports strong results, beats expectations but also raises guidance we are in great shape!  (Assuming we haven't partaken of too much of that cake!)

Greif (GEF) indeed did raise expectations by raising fiscal year 2008 guidance to $4.25 to $4.45/Class A share, from its previous forecast of $4.15 to $4.35/share.  

I really do like these sorts of announcements from a company!

But let's take a quick look at the longer-term picture of Greif (GEF) as my 'pick' depends not only on strong current results but a longer-term record of persistence of good results.  

In this case,  reviewing the Morningstar.com "5-Yr Restated" financials on Greif (GEF), we can see that revenue has been steadily increasing from $1.92 billion in 2003 to $3.32 billion in 2007 and $3.42 billion in the trailing twelve months (TTM). Earnings have also been steadily and dramatically increasing from $.28/share in 2003 to $.92/share in 2007 and $1.02/share in the TTM.

Dividends are great.  But a company that can steadily increase its dividend is even nicer!  I recently heard Jim Cramer also comment on his interest in increasing dividends.  This isn't a new concept.  I do not restrict myself to stocks that even pay dividends, but when I can find a stock that not only pays dividends but also increases dividends regularly I certainly think this is another attractive point about a stock pick.

In 2003, Greif (GEF) paid $.28/share.  This was increased each year to $.92/share (a more than 3-fold increase in the dividend in 4 years!), and the company has paid $1.02 in the trailing twelve months.

Free cash flow is solid with $103 million in 2005 increasing to $273 million in 2007 and falling back slightly to $190 million in the trailing twelve months.

The balance sheet appears at least adequate with $107 million in cash and $797 million in other current assets.  This total of $904 million in current assets when compared to the $624 million in current liabilities yields a healthy current ratio of 1.45. The company does have a significant level of long-term liabilities reported at $1.1 billion, but this does not appear to be a problem for Greif (GEF).

In terms of valuation, Greif is a mid cap stock with a market cpaitalization of $3.23 billion.  The trailing p/e according to Yahoo "Key Statistics" on Greif (GEF) is 22.37 with a forward p/e (fye 31-Oct-09) estimated at 13.92.   The PEG is a very nice 0.91.  (5 yr expected).

Referring to the Fidelity.com eresearch website, we find that the Price/Sales ratio is reasonable at 0.90 compared to the industry average of 0.86.  The company is far ahead of its peers with a return on equity (TTM) ratio of 19.21% compared to the industry average of a negative (11.73)%.

Yahoo reports 46.81 million shares outstanding with 41.90 million of them that float.  As of May 12, 2008 there were 2.41 million shares out short representing 9.2 trading days of volume (the short ratio) or 10.2% of the float.  This was down slightly from the 2.45 million shares out short the prior month.

I don't fully understand why so many shares would be out short on such a 'high quality' company from my perspective.  But then again, I don't understand a lot of things :).  However, with the strong earnings report coming out today, I suspect the short squeeze may have started today in anticipation of the earnings report, as short-sellers rushed to cover their 'negative bets' looking for shares to purchase.  I use an arbitrary '3 days' as a level of significance--with Greif at 9 days, this is something to consider.

As I have noted the company pays a nice dividend--and has been regularly increasing it.  In fact, the forward dividend rate is $1.52/share yielding a nice 2.3%.  This still represents a payout ratio of only 33% giving the company lots of leeway to operate and increase it further in the future. 

As I also noted above, the company last split is stock with a 2:1 stock split effective April 12, 2007.

Finally, let's take a look at the chart for Greif (GEF) from StockCharts.com:


Needless to say, from my amateur perspective, this is a beautiful chart of incredible price momentum strength. 

In summary, there are several reasons why I really like this stock.  First of all they had a great earnings report which beat expectations and then they went ahead and raised guidance.  They have a record of steady revenue and earnings growth while keeping their outstanding shares quite stable.  

The company has been paying a dividend and has been consistently been raising it.  They are producing an increasing amount of free cash flow and the balance sheet appears solid.

Valuation-wise, the company appears reasonably priced with a p/e in the low 20's and a PEG under 1.0.  The Price/Sales is fairly average for its industry, with a Return on Equity ahead 'of the pack'.  

Finally, there are a bunch of shares out short that need to be covered giving the stock some additional support.  The chart looks solid.  

What is there not to like?

Now, if only I had a signal to be buying a new position, you can "bet your sweet bippy" that this is the kind of stock I would be buying!

But seriously, this is my kind of stock and deserves a third pick (!) on this blog. 

If you have any comments or questions, please feel free to leave them right on the website or email me at bobsadviceforstocks@lycos.com.  If you get a chance, be sure and visit my Covestor Page where you can track my actual trading portfolio, my SocialPicks Page where you can monitor my many stock picks, and my Podcast Page where you can download some mp3's of me discussing some of the many stocks I write about here on the blog.

I hope you all have a great week ahead!

Yours in investing,

 

Bob 


Posted by bobsadviceforstocks at 10:28 PM CDT | Post Comment | Permalink
Sunday, 1 June 2008
Graham (GHM) "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.

I wrote Friday about my decision to make what I call a "lateral" move, selling my IHS stock (IHS) and buying 105 shares of Graham Corp. (GHM).   Graham is actually an 'old friend' of mine having first written about Graham October 27, 2007, at a split-adjusted price of $46.60, on the suggestion of Doug S., a great and loyal reader of this blog. 

I have also owned shares of Graham (GHM) for short periods of time (literally) having purchased 400 shares 11/23/07 at a split-adjusted cost of $49.98 and then selling those shares just 3 days later at split-adjusted price of $52.91.  This was a "trade" and not exactly within my usual 'disciplined trading strategy'!

I purchased 210 shares once again 1/10/08 at $46.30, only to find myself losing money this time and unloading shares 1/16/08 when I found myself losing money and the stock trading at $41.30.

They say that 'third time is the charm'.  So when looking for a stock to replace my IHS holding, I saw that GHM was on the move once more making the list of top % gainers and I purchased 105 shares at $64.40-- Graham (GHM) closed Friday at $68.44, up $6.69 or 10.83%. 

Let's take another look at Graham (GHM) and I will explain why

GRAHAM (GHM) IS RATED A BUY

First of all, what exactly do they do?

According to the Yahoo "Profile" on Graham (GHM), the company

"...engages in the design, manufacture, and sale of vacuum and heat transfer equipment used in the chemical, petrochemical, petroleum refining, and power generating industries worldwide. Its products include steam jet ejector vacuum systems; surface condensers for steam turbines; vacuum pumps and compressors; various types of heat exchangers, including helical coil heat exchangers marketed under the Heliflow name; and plate and frame exchangers."

How did Graham (GHM) do in the Latest Quarter?

As is often the case in the stocks I review, it was the announcement of earnings, in this case 4th quarter 2008 results, that drove the stock higher on Friday.  Before the opening of trading, the company reported that fourth quarter revenue grew $1.9 million or 9% to $22.8 million for the fourth quarter the prior year.  Net income for the quarter came in at $4.2 million, up 22.7% compared to net income of $3.4 million during the same period last year.  On a diluted per share basis this worked out to $.83/share, up 20.3% compared with $.69/diluted share the prior year same period.  

The company noted that the backlog increased a healthy 40% to $75.7 million on March 31, 2008, compared with $54.2 million in backlog on March 31, 2007.  The company guided the full year 2009 to a 15 to 20% revenue increase.

How about longer-term results?

Reviewing the Morningstar.com "5-Yr Restated" financials on Graham (GHM), we can see that after a dip in revenue from $44.5 million in 2003 to $37.5 million in 2004, the company has been steadily growing sales to $66 million in 2007 and $84 million in the trailing twelve months (TTM). 

Likewise, earnings dipped from $0.00 in 2003 to a loss of $(.20)/share in 2004.  Since then earnings have grown rather dramatically to $.10/share in 2005, $1.20/share in 2007 and $2.80/share in the TTM.  The company also pays a small dividend which was increased from $.06/share in 2003 to $.08/share in 2004 and has held constant at that level.  The outstanding shares, while small, are rather stable with 4 million share reported in 2003 increasing only to 5 million in the TTM.

Free cash flow which was a negative $(5) million in 2005, has increased to $4 million in 2007 and $17 million in the TTM.

The balance sheet appears solid with $3 million in cash and $48 million in other current assets.  This total of $51 million can easily cover both the current assets of $16.8 million and the negligible $1.8 million in long-term liabilities almost 3 times over.  The current ratio is calculated at a healthy 3.03.

What about some valuation numbers on this stock?

Reviewing some of the numbers on Yahoo "Key Statistics" on Graham (GHM), we can see that this company is a 'small cap' stock with a market cap of only $339.46 million.

The trailing p/e is a reasonable (imho) 23.99 with a forward p/e of only 17.96 (fye 31-Mar-09).  No PEG is available (probably because there aren't any analysts out there estimating 5-yr results!).  

Looking at a couple of value statistics from the Fidelity.com eresearch website, we can see that GHM has a Price/Sales figure of 3.97, well ahead of the industry average of 1.41.  However, this premium in price/sales may be justified in light of the Return on Equity (TTM) figure of 39.16%, well ahead of the industry average of 22.26%.

Finishing up with Yahoo, we can get a feel for how small this company really is when we see that there are only 4.96 million shares outstanding and only 4.33 million of them actually float.  As of 5/12/08 there were only 43,430 shares out short representing a very low 'short ratio' of only 0.3 days.  This also represents only 0.9% of the float. 

According to Yahoo, the company is now paying an increased dividend rate of $.12/share yielding 0.2%.  The last stock split was a 5:4 stock split January 3, 2008.

What does the chart look like?

Reviewing the "point & figure" chart on Graham (GHM) from StockCharts.com, we can see the tremendous volatility with the stock moving strongly higher from $18/share in June, 2007, to a high of $61/share in December, 2007, only to plunge back to a low of $28 in January, 2008.  The stock has moved strongly higher since January, 2008, to its recent price level at $68.44.

What do I think about this stock? 

To summarize, I sold my IHS shares and discussed my rationale and have substituted Graham (GHM) a small cap stock that trades on the AMEX in its place.  The company reported a great quarterly report Friday and the stock moved sharply higher.  The valuation is reasonable and the company has a strong backlog of sales orders.  Unfortunately, the stock is rather thinly traded with an average daily trading volume of only 211,588 shares.  This may result in quite a bit of volatility as  I have already experienced and may lead to me getting 'shaken out' of this position once again!

Thanks again for dropping by!  If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.  If you get a chance, be sure and visit my Covestor Page where my actual trading portfolio is monitored, or my SocialPicks Page where my many stock picks are monitored.  If you get a chance, stop by and visit my Podcast Page where you can listen to some of the many stocks I write about discussed in a podcast format.

Wishing you all a great week ahead!

Yours in investing,

 

Bob


Posted by bobsadviceforstocks at 10:25 PM CDT | Post Comment | View Comments (1) | Permalink
Updated: Sunday, 1 June 2008 10:26 PM CDT

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