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As one of my weekend tasks, I try to get a review up examining past stock selections from this website. Going one week at a time, last week I reviewed the picks from July 17, 2006. This week, let's take a look at the stock picks from the week of July 24, 2006.
These reviews assume a 'buy and hold' approach to investing. In practice, I advocate and employ a disciplined portfolio management strategy that utilizes limiting losses to small percentages, preserving larger gains with sales and selling portions of stocks as they appreciate to targeted appreciation levels. This difference would certainly affect investment performance and this should also be taken into consideration.
On July 25, 2006, I posted Hologic (HOLX) on my blog when it was trading at $48.34. This was my second post on this stock which was posted April 27, 2005, at a split-adjusted price of $17.93. Hologic closed at $62.07 on January 25, 2008, representing a gain of $13.73 or 28.4% since posting.
Let's take a closer look at this stock and update our analysis.
On November 6, 2007, HOLX announced 4th quarter 2007 results. Revenues for the quarter ended September 29, 2007, came in at $202.6 million, up 31% over last year's revenues of $154 million. Net income worked out to $32 million or $.58/diluted share, compared with a net loss of $(1.5) million or $(.03)/diluted share.
The company beat expectations of analysts polled by Thomson Financial who had expected earnings of $.47/share on revenue of $198.1 million. However, the company did reduce guidance on fiscal 2008 results on earnings. The company adjusted guidance to first quarter earnings of $2.15 to $2.20/share on revenue of $1.7 billion. Previous guidance had been for profit of $2.35 to $2.40 per share on the same $1.7 billion. Even the reduced guidance for 2008 still allows for a strong growth in earnings and revenue, but it is always helpful to have a company guide higher rather than lower in an announcement.
Longer-term, Hologics still has a very strong Morningstar.com "5-Yr Restated" financials page. Revenue growth remains uninterrupted and phenomenal increasing from $204 million in 2003 to $738 million in 2007. Earnings have increased from $.07/share in 2003 to $1.72/share in 2007 with a slight dip last year from $.63/share in 2005 to $.56/share in 2006 only to bounce back strongly in 2007. Shares outstanding have increased from 40 million in 2003 to 55 million in 2007. This 37.5% increase in shares was accompanied by an increase in greater than 200% in revenue and an increase of more than 1,500% in earnings.
Free cash flow has been positive, and while dipping from $37 million in 2005 to $4 million in 2006, rebounded strongly to $130 million in 2007.
The balance sheet on Morningstar.com is strong with $399.0 milllion in total current assets compared to $178.6 million in current liabilities and only $82 million in long-term liabilities.
Finally, let's take a look at the "Point & Figure" chart from StockCharts.com on Hologic:
This is a PHENOMENAL graph.
With the strong quarterly report, the beautiful longer-term fundamentals and the solid price chart,
HOLOGIC (HOLX) IS RATED A BUY
Let's take a look at the second stock I 'picked' that week, BE Aerospace (BEAV) which was selected on this blog on July 26, 2006. BEAV was posted on this blog when it was trading at $23.05. BEAV closed at $37.91 on January 25, 2008, for a gain of $14.86 or 64.5% since posting.
Let's review some of the fundamentals behind this stock as well.
On October 30, 2007, BE Aerospace (BEAV) reported 3rd quarter 2007 results. For the quarter ended September 30, 2007, revenues came in at $428.2 million, up 48.7% from the prior year's result of $287.9 million. Net earnings were $44.5 million, up strongly over last year's $31.4 million. GAAP earnings increased 20% to $.48/share from $.40/share last year.
The company in the same announcement raised guidance by $.12/share for the full year to approximately $1.69/share. BEAV beat expectations for the quarter which according to analysts polled by Thomson Financial had been for $.41/share on sales of $400 million.
Examining the Morningstar.com "5-Yr Restated" financials, we find a solid, if somewhat imperfect report. Revenue has shown fabulous growth from $681 million in 2002 to $1.54 billion in the TTM. Earnings, which showed losses from 2002 to 2004 when they improved from $(3.18)/share to $(.53)/share between 2002 and 2004, and then turned profitable at $1.39/share in 2005. Earnings dipped to $1.10/share in 2006, and bounced back to $1.48/share in the TTM.
The company has increased the float from 33 million in 2002 to 81 milliion in the TTM. This 48 million or 145% increase in the float was matched by an $855 million or 126% increase in revenue. On a per share basis, earnings increased $4.66 or 146% increase in earnings. Thus, growth has been proportionate to the outstanding shares issued. I would rather see little share growth and in any case a disproportionate increase in revenue and earnings compared to the growth in outstanding shares.
Free cash flow has been erratic with $(14) million in 2004, $(4) million in 2005, $17 million in 2006, and then back to a negative $(29) million in the TTM.
The balance sheet is solid with a total of $943 million in current assets compared to current liabilities of only $296.1 million in current liabilities yielding a current ratio of greater than 3, and enough to easily cover the $191.9 million in long-term liabilities.
Looking at the "point & figure" chart from StockCharts.com on BE Aerospace, we can see an impressive display of price performance for this company.
But to summarize, this has been a phenomenal stock pick for this blog. The last quarter was strong, but the Morningstar.com report gives me some pause. Earnings have been a bit erratic, with a dip in 2006 from 2005, but a nice rebound in 2007. The company has been aggressive in issuing shares with only a commensurate effect on revenue and earnings growth. Free cash flow has been inconsistent and the latest results were negaive. However, the balance sheet is solid.
As much as I would like to rate this a 'buy', the best I can do:
BE AEROSPACE (BEAV) IS RATED A HOLD
So how did I do with these two stock picks from that week in July, 2006? In a word FABULOUS! The two stocks both made strong gains after being selected for the blog and in fact had an average gain of 46.45%
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Wishing you all a peaceful weekend and a great week ahead!