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Saturday, 15 December 2007
"Looking Back One Year" A review of stock picks from the week of June 12, 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.

Thank goodness for the weekend!  We have certainly had a volatile week or two!  We have had so many different forces acting upon the market that it is difficult to know which way to turn. Early in the week we had the American stock market moving higher on the news of the Fed injecting liquidity to ease some of the financial challenges facing the economy. But then later in the week we found ourselves faces with inflation data suggesting that the Fed was indeed caught between a rock and a hard place trying to ease liquidity issues without fueling the fires of inflation.

In the midst of all this, I foolishly thought I could do a few 'day-trades'.  I am still learning, and still an amateur :).  Fortunately, I had the discipline to quickly close out these trades before they did any significant damage to my account.  When I write that I am an amateur investor, I think I have convinced all of you that I am honest!

Anyhow, it is the weekend and no use dwelling on things like that.  Let's do what I like to do on the weekend which is to review past stock selections from the blog.  I have been going a week ahead at a time from a period about a year-and-a-half ago.  (This started out as a year-ago review, but after missing a week here and a week there....well you get the picture!)

Last weekend I took a look at the week of June 5, 2006 here on the blog.  Let's move ahead a week and examine the week of June 12, 2006, which, fortunately I did review a stock!

On June 13, 2006, I posted Diodes (DIOD) on Stock Picks Bob's Advice when the stock was trading at $38.39.  This was the second post for me of Diodes, which was first 'picked' on this blog at $33.30/share on June 14, 2005. The stock has split 3:2 on December 1, 2005, and again 3:2 on July 31, 2007, making my first pick in 2005 having an effective pick price of $33.30 x 2/3 x 2/3 = $14.80 and my second pick in June, 2006, having an effective price of $38.39 x 2/3 = $25.59.

Diodes (DIOD) closed at $29.33 on December 14, 2007, representing a gain of $3.74 or 14.6% since my 'pick' last year and a gain of $14.53 or 98.2% since my first 'pick' in 2005.  I do not currently own any shares of Diodes (DIOD) nor do I own any options on this stock.

Let's take a closer look at this company and see if it still deserves consideration and a spot on my blog.

DIODES (DIOD) IS RATED A BUY

Since we were discussing the price and appreciation of this stock,

What does the chart look like?

Looking at the "point & figure" chart on DIOD from StockCharts.com, we can see an impressively steady appreciation in this stock from a low of $2.00 in September, 2003, to the recent high at $35 in October, 2007.


What does this company do?

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

"...and its subsidiaries engage in the manufacture and distribution of standard semiconductor products to manufacturers in the consumer electronic, computer, communications, industrial, and automotive markets. Its products include discrete semiconductor products, including performance Schottky rectifiers; performance Schottky diodes; Zener diodes and performance Zener diodes, such as tight tolerance and low operating current types; recovery rectifiers; bridge rectifiers; switching diodes; small signal bipolar transistors; prebiased transistors; MOSFETs; thyristor surge protection devices; and transient voltage suppressors."

How did they do in the latest quarter?

On November 1, 2007, Diodes (DIOD) reported 3rd quarter 2007 results.  For the quarter ended September 30, 2007, DIOD reported:

This was a solid report!  In addition, on December 12, 2007, Diodes raised guidance for the 4th quarter.

What about longer-term results?

Reviewing the Morningstar.com "5-Yr Restated" financials on DIOD, we can see what to me really appears to be a beautiful report.  Revenue has steadily increased with $115.8 million reported in 2002 climbing to $343.3 million in 2006 and $388.0 million in the trailing twelve months (TTM).  Earnings have increased steadily from $.20/share in 2002 to $1.16/share in 2006 and $1.34/share in the TTM.  Total shares are up a bit more than a third during the period in which revenue more than tripled and earnings more than quintupled.  This is acceptable.

Free cash flow which was a negative $(5) million in 2004 increased to $28 million in 2005 and $26 million in 2006 and the TTM.

The balance sheet is solid with $45 million in cash and $475 million in other current assets, more than enough to cover both the $83.7 million in current liabilities and the $249.5 million in long-term liabilities.  The current ratio works out to approximately 6.  (over 1.25 is adquate).

What about valuation?

Looking at the Yahoo "Key Statistics" on DIOD, we see that this is a small cap stock with a market capitalization of $1.18 billion.  The trailing p/e is a very reasonable 21.73 with a forward p/e (fye 31-Dec 08) of 16.03.  The PEG (5 yr expected) works out to a nice 1.06.

Using the Fidelity.com eresearch website, we can see that this company has a Price/Sales (TTM) of 2.98 compared to the industry average of 4.17. The company is also more 'profitable' than its peers (Fidelity) as measured by the Return on Equity (TTM) ratio which works out to 17.41% for DIOD compared to the industry average of 15.10%.

Finishing up with Yahoo, we can see that there are 40.07 million shares outstanding and the float is 30.62 million.  As of 11/27/07, there were 5.88 million shares out short representing 14 trading days of volume or 15.10% of the float.  Using my own '3 day rule' for short interest, this appears significant and could be setting the stock up for a short squeeze should good news continue to be announced.

No dividends are paid and as already noted, the last stock split was a 3:2 split on July 31, 2007

Summary: What do I think?

Well, I really like this stock.  Perhaps the only possible weakness might be a potential cyclical slowdown in semiconductor stocks, but even this appears remote with the company signalling strong results by raising guidance for the upcoming quarter.  Going through some of the things I have just presented, the latest quarter was strong, the longer-term results are gorgeous with steady revenue and earnings growth, positive free cash flow, and a solid balance sheet.  Valuation is excellent with a p/e just over 20, a PEG just over 1.0, a Price/Sales ratio low for its industry, and a Return on Equity high for the industry.  The chart is gorgeous, and there are lots of naysayers out there who represent a large short interest on the stock.

I don't really like the overall tone of the market.  But I like this stock a lot!

Thanks again for visiting my blog!  If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.  I cannot respond to every email I receive, but I do read them all and try to respond to comments when posted.

If you get a chance, try to visit some of my related intenet sites: my Covestor Page where Covestor.com reviews my actual trading portfolio and compares it to other investors and how I am doing relative to the S&P; my SocialPicks Page where SocialPicks evaluates my stock picks from the past 12 months, my Podcast Page where I have been podcasting on many of the same stocks I write about on this blog.

Finally, if you are willing to take additional risks and are aware of the potential of loss, check out Prosper.com where if you sign up and initiate a loan both of us receive $25 credit.  (Talking about win-win!).  But be sure to take into consideration the high risk of loss on non-secured loans, be sure and spread out your loans to reduce that risk, and consider emphasizing higher-rated borrowers in your lending plans.  That being said, it is a fascinating website even if you don't end up participating. 

I hope you all have a wonderful weekend and a very wonderful Holiday Season.  The best gift we can receive is not of the financial type at all.  Remember to spend time with family, appreciate your good health if you are fortunate to enjoy good health, and be considerate of others who have less than you--whether it be of the financial or non-material type.

Peace.

Bob


Posted by bobsadviceforstocks at 11:28 AM CST | Post Comment | Permalink

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