"Looking Back One Year" A review of stock picks from the week of August 30, 2004





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

In the previous post, I discussed a stock from my actual trading portfolio. In this post, I shall be reviewing stocks that I have "picked" for review but do not necessarily own. In fact, I do own Cooper Companies in my trading account, but do not own any shares or options of Polaris Industries (PII).

On September 1, 2004, I posted Cooper Companies (COO) on Stock Picks Bob's Advice at $63.33/share. COO closed at $72.74 on 11/4/05, for a gain of $9.41 or 14.9% since posting.

On September 7, 2005, COO reported 3rd quarter 2005 results. For the quarter ended July 31, 2005, revenue came in at $222.1 million, 72% over the third quarter 2004 results. Income was $37.88 million, up over 50% from the $24.6 million reported the prior year. On a diluted per share basis, earnings came in at $.79/share, up 18% from the $.67/share reported the prior year same period.

On September 2, 2004, I posted Polaris Industries (PII) on Stock Picks Bob's Advice when it was trading at $51.00/share. PII closed at $46.17/share on 11/4/05, for a loss of $(4.83) or (9.5)% since posting.

On October 13, 2005, Polaris (PII) announced 3rd quarter 2005 results. Sales from continuing operations for the quarter increased 6% to $543.1 million, compared with $510.6 million the prior year. Net income from continuing operations came in at $1.17/dilued share, up 17% from last year's net income of $1.00/diluted share. However, the company did reduce full year 2005 results and this was enough to "throw some cold water" on the stock chart.

So how did we do? Well, I only "picked" two stocks that week, and Cooper showed a gain of 14.9%, and Polaris showed a loss of (9.5)% since posting. Averaging the two stocks, we get an appreciation of only 2.7% for the two stocks since they were introduced the prior year.

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

Bob

"Weekend Trading Portfolio Analysis" Hibbett Sporting Goods (HIBB)
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.

I occasionally get emails from people who are trying to figure out exactly what I am doing on my blog! Basically, this website is about two things: stock market investment ideas that I find attractive, and my own experience using those same ideas and the same strategy in developing a trading portfolio. Several weeks ago, I decided to systematically review each of my actual holdings in my portfolio and share with you my experience with those stocks and the current status of those investments.

Last week, I reviewed Genesco (GCO) on Stock Picks Bob's Advice. Going alphabetically through my current holdings, my next stock to discuss is Hibbett Sporting Goods (HIBB).

I currently own 111 shares of Hibbett (HIBB) in my trading account that was acquired 3/6/03 with a cost basis of $6.50/share. HIBB closed on 11/4/05 at $27.15, giving me a gain of $20.65/share or 317.7% for this stock(!). This investment has been a superstar in my portfolio!

I have sold portions of my original investment eight times (!), representing sales at 30%, 60%, 90%, 120%, 180%, 240% 300%, and 360%. Thus, my current next sale point would be either at a 450% (now going by 90% intervals) or $6.50 x 5.5 = $35.75 or on the downside, at a 180% gain level (half of the highest appreciation point or $6.50 x 2.80 = $18.20.

On August 18, 2005, HIBB reported 2nd quarter 2005 results. Revenue for the quarter ended July 30, 2005, climbed 15.0% to $94.0 million, compared with $81.8 million for the prior year same period. During the quarter comparable store sales jumped 3.1%. Net income grew strongly by 66.9% to $4.9 million, up from $2.9 million the prior year. On a diluted per share basis, this worked out to a 75.0% increase to $.21/share, up from $.12/diluted share the prior year. In addition, the company raised 2006 guidance and announced a 3:2 stock split!

Taking a look at the "5-Yr Restated" financials for HIBB from Morningstar.com, we can see that revenue growth has remained perfectly steady increasing from $209.6 million in 2001 to $408.1 million in the trailing twelve months (TTM).

Earnings have increased steadily as well from $.32/share in 2001 to $.85/share in the TTM. Free cash flow has been positive, increasing from $11 million in 2003 to $27 million in the TTM.

The balance sheet is solid with $48.9 million in cash and $125.8 million in other current assets balanced against $57.4 million in current liabilities and $9.7 million in long-term liabilities.

Looking at a "Point & Figure" chart on HIBB from Stockcharts.com:

We can see an absolutely gorgeous graph with Hibbett appreciating steadily in price from $2.75 in March, 2000, to $27.50 level currently. The stock really has held to the support levels very nicely if not perfectly.

What do I think? This was a great investment for me! I cannot tell whether the future will continue to hold bright prospects for me or not but I have already hedged my bet so to speak having sold portions of this stock eight times already! Hopefully, the stock continues to advance as Hibbett spreads out opening sporting goods stores in small towns across America!

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

Bob

A Reader Writes "I hope you don't mind me picking your brain...."
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 and that you should always consult with your professional investment advisors prior to making any investment decisions based on information on this website.

Reading my mail this afternoon, I saw that a friend of mine, Jeff S. had written a note to me with a question. This is what he had to say:

Hi Bob,

I have been frequently visiting your blog and tying to make sense of the information you share. I especially like it when you explain your strategies of when to sell a stock i.e. 8% loss or 30% gain. If the stock gains the 30% and you sell of 1/4 of your position, then do you follow the same rule again i.e.. if it loses 8% sell all or if your remaining holdings or gains 30% again sell another 1/4? How many different stocks do you think someone could comfortably manage? I am very interested in trying a few stocks but really don't know how to get started. As I filter through your past bog entries, I make notes of your tips and techniques. I hope you don't mind me picking your brain for the answers to my rudimentary questions.


Thanks

Jeff S.

Jeff, first of all, thanks for visiting my blog and for writing! You have written me about my selling strategy, and I think you understand the bulk of my approach. However, just in case, let me summarize my approach to selling a stock.

After a first purchase of an investment, I only allow it to decline 8% prior to selling all of the shares that I own. I enter these sales manually, but I am sure there are automatic ways to set this up at the time of purchase.

However, I also sell portions of stock on gains. You could say that I believe that by selling losing stocks quickly and completely, and by selling gaining stocks partially and slowly, I am biasing my investments to stocks that are performing well. That is the essential philosophy to my selling behavior.

Back to selling stocks. If stocks move higher in price, I sell them a little at a time. I only sell the entire position of any of my holdings on some sort of bad news or decline in the stock price. Currently, I have set price goals of 30%, 60%, 90%, 120%, and then by 60% intervals: 180%, 240%, 300%, 360%, and then by 90% intervals etc. At each of these particular stock price appreciation levels, I sell 1/4 of my remaining holdings. Basically, I am trying to sell my "winnings". What do I mean by that? Well if a stock appreciates by 30%, you basically have 4/3 of a stock, and then by selling 1/4 of the holding, you are back to approximately 3/3 of the original investment.

How about on the downside? How does this affect my strategy?

I learned much from reading William O'Neill who is the publisher of the Investor's Business Daily. He is the one who influenced me to set 8% stops on my losses. He also makes the astute suggestion that once one has made a gain on a stock, that you shoud avoid "giving it back" and move your stop up to a break-even position. That is exactly what I do. If I have sold once, that is a 1/4 position after a 30% gain, then my sale point on the downside is 'break-even' not an 8% loss.

However, if I have sold a stock more than once, like I did with my Dell stock, which I had sold twice, then one should sell all of the remaining shares if the stock retraces back 50% of the highest gain point sale. That is, as with Dell, since I had sold 1/4 of my position at a 60% gain, when the stock retraced back 50% of the highest gain-sale point, which for Dell was at a 30% gain, then I should and did unload the entire position.

You ask about "how many stocks" one can manage. I find the number relatively easy with my Fidelity account online. The brokerage house shows me the % gain or loss of each of my holdings as well as the history of prior sales, so it is a cinch for me to calculate when I need to sell a stock either on a retracement or on a gain. I have a 25 position maximum. I think that 20 positions would be an excellent size for a portfolio.

One thing that I believe in is, when starting a portfolio, start at 50% equity/50% cash. I would call this a neutral bias. Allow yourself to go down to 1/2 of your original # of holdings....if you shart at 10, allow yourself to only drop to 5, and stick to your previous goal of 20. Only add a new position on a sale of a partial position (1/4) on a gain. Use this as a signal to increase your exposure to equities. On the other hand, assuming you started with 10 different stocks, I would suggest you drop down to a minimum of 5 positions. After that, replace the stocks in the 5 positions if they hit 8% losses. But use sales of portions of the exising holdings as a signal to be adding positions.

I hope this explains my approach a little better to you! It is an idiosyncratic (I hope that's the right word!) strategy that works for me. You are welcome to utilize this approach as well. If you do, let me know how it works out. If you or any other reader has questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.

Bob

"Revisiting a Stock Pick" Fair Isaac (FIC)
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.

I enjoy looking at stocks on this blog and finding stocks that may eventually appreciate in price. My strategy, as I have explained elsewhere, begins with monitoring the lists of top % gainers; in this case, for the NYSE today.

Looking through the list, I came across Fair Isaac (FIC) which closed at $44.50, up $2.33 or 5.53% on the day. I do not currently own any shares of FIC nor do I have any options on this stock.

Reviewing the Yahoo "Profile" on FIC, we can find that the company "...provides analytic, software, and data management products and services that enable businesses to automate decisions primarily in the United States, the United Kingdom, and Canada."

With literally hundreds of stocks discussed on this blog, I try to avoid repeating a stock "idea" for at least a year after its prior discussion. In this case, I reviewed Fair Isaac on Stock Picks Bob's Advice on July 24, 2003, when it was trading at $55.42. FIC declared a 3:2 stock split making our effective price actually $55.42 x 2/3 = $36.95. Thus, the stock has appreciated only $7.55 or 20.4% since posting in 2003.

What drove the stock higher, and what has been driving so many similar stocks higher, was the announcement of quarterly results, in this case the announcement of 4th quarter 2005 earnings. For the quarter ended September 30, 2005, revenues came in at $203.3 million, as compared to $190.4 million in the prior year same quarter, an increase in revenue of $12.9 million or 6.8% over the prior year. Net income came in at $35.7 million, or $.53/diluted share, compared to net income of $14.4 million or $.19/diluted share the prior year. This is greater than a 150% increase in net income year over year!

What about longer-term? Reviewing the Morningstar.com "5-Yr Restated" financials on FIC, we can see the nice progression in revenue from $298.6 million in 2000 to $785.8 million in the trailing twelve months (TTM).

Earnings have grown (except for a dip from $.89/share in 2001 to $.32/share in 2002) from $.56/share in 2000 to $1.64/share in the trailing twelve months.

Dividends have also increased from $.04/share in 2000 to $.08/share in the TTM. Interestingly, the number of shares peaked at 72 million shares in 2003, and has now declined the past two years to 65 million in the TTM.

Free cash flow has been strong with $80 million reported in 2002 and $164 million reported in the TTM.

The balance sheet looks adequate with $254.4 million in cash, and $188.4 million in other current assets, plenty to cover the $133.8 million in current liabilites as well as almost all of the $408.5 million in long-term liabilities per Morningstar.

And how about some statistical measurements on this company? Looking at Yahoo "Key Statistics" on FIC, we find that Fair Isaac is a large Mid-Cap stock with a market capitalization of $2.91 billion. The trailing p/e is a bit rich at 26.97 and the forward p/e (fye 30-Sep-06) is better at 21.60. The PEG ratio (5 yr expected) is also rich at 1.53.

Looking at the Fidelity.com eresearch website, we can see that this stock is also fairly richly valued with a price/sales ratio of 4.4 in the "Business Services" industrial group. Topping this list is Global Payments (GPN) at 4.4, followed by Fair Isaac at 3.7, Equifax (EFX) at 3.4, Cintas (CTAS) at 2.3, Certegy (CEY) at 2.2 and IPAYMENT (IPMT) at 1.4.

Reviewing some more key statistics from Yahoo, we find that there are 65.38 million shares outstanding with 2.87 million shares out short as of 10/11/05. This represents 4.50% of the float or 6 trading days of volume (the "Short Ratio"). Thus, using my 3 days of short volume as a cut-off, this looks significant to me and may be driving the stock higher today in the face of good news.

The company, as noted earlier, does pay a dividend of $.08/share yielding 0.20%. The last stock split was a 3:2 split on 5/11/04.

And what does the chart look like? lookint at a "Point & Figure" chart on Fair Isaac from Stockcharts.com:

We can see a very strong chart with the company showing some significant short-term trading volatility but a long-term steady increase in price from $11.00/share in April, 2000, to the recent high near $45. The chart looks volatile but positive to me.

So what do I think? Well, I actually like this stock. The latest quarterly report was quite strong and I believe the company exceeded expectations. The past five years have been a bit inconsistent but strong overall, with free cash positive and growing and a solid balance sheet. Valuation in terms of PEG and Price/Sales ratios have been a bit on the expensive side as well.

The chart looks nice and I especially appreciate the company's effort at buying back shares to reduce the number of shares outstanding. All-in-all I like the stock even though it is not a big bargain in terms of P/E, PEG, and Price/Sales ratios.

Thanks so much for stopping by! Please feel free to comments right on the blog or email me at bobsadviceforstocks@lycos.com if you have any comments or questions!

Bob

November 2, 2005 Aspect Medical (ASPM)
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.

Sometime around noon, I was scanning the list of top % gainers on the NASDAQ today, and found Aspect Medical (ASPM) on this list. The stock looks like a good fit to what we do here. Unfortunately, with all of the other stocks doing well late in the day, the stock was no longer on the list of top gainers! However, it is still worth a look. I do not own any shares nor do I have any options on this stock.

Aspect had a great day today, closing at $35.40, up $2.92 or 8.99% on the day. According to the Yahoo "Profile" on Aspect Medical, the company "...and its subsidiaries engage in the development, manufacture and marketing of an anesthesia monitoring system called the BIS system. The company's BIS system provides information that enables clinicians to assess and manage a patient's level of consciousness in the operating room and intensive care settings, and administer the amount of anesthesia needed by each patient."

I recently wrote up a similar company, Somanetics, on Stock Picks Bob's Advice, that is also in the anesthesia monitoring business. This must be an important growth area in the medical field.

Trying to avoid sounding like a broken record, what drove the stock higher today was the announcement of 3rd quarter 2005 results. Revenue came in at $19.6 million for the quarter ended October 1, 2005, an increase of 44% (!) over the $13.6 million reported in the third quarter of 2004. Net income came in at $2.6 million or $.11/share on 24.2 million diluted shares, up about 400% from $520,000 or $.02/share on 22.4 million diluted shares last year. This was $.04 ahead of analysts estimates of $.07/share and ahead of revenue estimates of $19.3 million for the quarter. In addition, the company guided estimates for earnings higher for the upcoming fourth quarter. The combined strong earnings/revenue results that also exceeded estimates along with the raised guidance was enough to push the stock price higher!

How about 'longer-term'? Looking at the Morningstar.com "5-Yr Restated" financials on ASPM, we can see that except for a small dip in revenue from $36 million in 2000 to $35.8 million in 2001, the company has grown revenue steadily to $65.2 million in the trailing twelve months (TTM).

Aspect has been improving its earnings picture, from a loss of $(1.01) in 2001, the company turned profitable at $.01/share in 2004, with $.19/share in the TTM.

Free cash flow, which was also negative at $(6) million in 2002, improved to a negative $(2) million in 2004 but a positive $5 million in the trailing twelve months.

The balance sheet, as reported on Morningstar, looks excelent with $40.2 million in cash alone, enough to cover both the $13.9 million in current liabilities and the $4.7 million in long-term liabilities over two times over. In addition, the company has an additional $15 million in "other" current assets.

Looking at Yahoo "Key Statistics" on Aspect Medical for some valuation numbers, we can see that this is a mid cap stock with a market capitalization of $765.24 million. The trailing p/e is an astronomic 202.29, with a forward p/e of 66.79 (fye 31-Dec-06). This is not of much concern to me as the company is growing earnings rapidly and just turned profitable.

The company also looks richly priced in terms of Price/Sales with a statistic of 11.9 at the top of the group of "Medical Appliances/Equipment" according to Fidelity.com eresearch on ASPM. Following Aspect is St. Jude (STJ) with a Price/Sales of 7.1, Medtronic (MDT) at 6.6, Zimmer Holdings (ZMH) at 5, Biomet (BMET) at 4.6, and Edwards Lifesciences (EW) at 2.7. Thus, the stock isn't a "bargain" based on this particular parameter also.

Going back to Yahoo, we can see that they are reporting 21.62 million shares outstanding with 1.45 million shares out short as of 10/11/05. This is 7.00% of the float or 8.7 trading days of volume. The "shorts" might have been "squeezed" today as the stock moved higher on great news. No cash dividend is reported on Yahoo, and no stock dividends are noted as well.

What about a chart? Taking a look at the Stockcharts.com "Point & Figure" chart on ASPM:

We can see what is an absolutely gorgeous graph! In May, 2003, the stock broke through a resistance level at $4.75 and has been trading strongly higher ever since! You won't see too many stronger graphs, imho, on this blog!

So what do I think? Frankly, I like this stock. It is a small company with a phenomenal quarter a provocative product, a nice Morningstar.com report with steady revenue and improving earnings. The company is just turning profitable as well as turning free cash flow positive. In addition the company has a solid balance sheet. On the downside, with the recent turn to profitability the company has an astronomic p/e but this should be dropping quickly. The Price/Sales ratio is also steep. Finally, the graph is spectacular :).

Too bad I don't have a signal to be buying some stock :(. I know where I would be shopping today!

Thanks so much for stopping by! If you have any questions or comments, and if you don't mind me writing up a response on the blog, please drop me a line at bobsadviceforstocks@lycos.com. Or you could always leave your comments right on the blog itself! Regards to all of my friends!

Bob

"Revisiting a Stock Pick" Hi-Tech Pharmacal (HITK)
Hello Friends! Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice. As always, please rememember that I am an amateur investor, so please remember to consult with your professional investment advisors prior to making any investment decisions based on information on this website.

I looked through the list of top % gainers on the NASDAQ today, and came across Hi-Tech Pharmacal (HITK) which closed at $37.55, up $3.78 or 11.19% on the day. I do not own any shares nor do I have any options on this company.

I first posted HITK on Stock Picks Bob's Advice on September 8, 2003, when the stock was trading at $28.75. Thus, we have a gain of $8.80 or 30.6% since posting this stock here a little over two years ago!

According to the Yahoo "Profile" on Hi-Tech Pharmacal, the company "...engages in the manufacture and marketing of prescription, over-the-counter, and nutritional products in liquid and semi-solid dosage forms in the United States. It manufactures generic and branded products, most of which are prescription items and include oral solutions and suspensions, as well as topical creams and ointments."

On September 8, 2005, HITK 1st quarter 2006 earnings results. For the quarter ended July 31, 2005, net sales came in at $15.4 million, a 27% increase over the $12.1 million for the same quarter ended July 31, 2004. Net income for the quarter was $1.4 million, a 62% increase over the $869,000 reported in the same quarter in 2004. Fully diluted earnings per share climbed 60% to $.16/share from $.10/share in the same quarter last year. These were great results for this relatively small company!

Looking longer-term at the "5-Yr Restated" financials from Morningstar.com on HITK, we can see the beautiful series of purple bars representing the steady growth in revenue from $29.6 million in 2001 to $71 million in the trailing twelve months (TTM).

Earnings have also steadily grown (except for a flat year between 2003 and 2004), from $.36/share to $1.02/share in the TTM. Free cash flow has been positive and growing from $4 million in 2003 to $8 million in the TTM.

The balance sheet, as presented on Morningstar.com, is absolutely 'gorgeous', with $39.1 million in cash, enough to pay the combined $11.8 million in current liabilities and the $1.2 million in long ter liabilities, more than 3 times over! In addition, the company has another $23.9 million in other current assets.

What about some "valuation statistics"? Looking at Yahoo "Key Statistics" on HITK, we can see that this is a very small company, with a market capitalization of only $295.71 million. The trailing p/e is a bit rich at 36.67, with a forward p/e of 30.67 (fye 30-Apr-07). No PEG is reported by Yahoo.

Reviewing the data from the Fidelity.com eresearch website, we can see that HITK has been assigned the "Drugs-Generic" industrial group. Within this group of stocks, HITK is moderately priced with a Price/Sales ratio of 4.2. Ahead of HITK is Bar Pharmaceuticals (BRL) with a ratio of 5.8, Mylan (MYL) at 4.5; stocks with ratios lower than HITK, included Ivax (IVX) at 3.8, Watson Pharmaceuticals (WPI) at 2.5, and Par Pharmaceutical (PRX) at 1.8.

Reviewing some additional figures from Yahoo, we can see how small this company really is, with an outstanding 7.88 million shares! Currently there are 323,940 shares out short (10/11/05), representing 5.50% of the float or 3 trading days of volume (the short ratio). This is at my own personal limit of significance for short sales, and thus doesn't look too elevated to me.

The company does not pay a dividend and the last stock split was a 3:2 split 1/21/03.

What about a chart? Reviewing the "Point & Figure" chart from Stockcharts.com:

We can see that the stock was trading higher from February, 2003, through July, 2003, when the price broke down and the stock declined steadily to a low of $14.00 in August, 2004. The stock then moved higher, breaking resistance at $21 in March, 2005, and has been trading higher since. The stock looks strong and not over-valued. At least in the short-term, the stock looks strong.

So what do I think? The last quarter was exceptionally strong, the Morningstar report was excellent with steady five year revenue and earnings growth. The company is spinning off free cash flow that is growing and the balance sheet is fabulous. Valuation-wise, the P/E seems a bit rich, but then again with the huge growth reported in the very latest quarter, this doesn't see very out of line to me. The company is so small, that the required estimates for Yahoo to provide a PEG apparently are not available.

The Price/Sales ratio is relatively reasonable with the generic drug group. Finally, the chart looks strong but certainly not way over-extended. The stock just recently broke through resistance and is now moving higher.

An added plus is the very small size of this company which barely qualifies as a small cap stock instead of a micro cap stock. The potential really does seem to be "sky's the limit" for this stock!

Thanks so much for stopping by and visiting! If you have any questions or comments, please feel free to email me at bobsadviceforstocks@lycos.com or leave your words right here on the blog! I hope everyone had a Happy Halloween and avoids eating too much of that candy your kids are bringing in!

Bob

"Looking Back One Year" A review of stock picks from the week of August 23, 2004





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.

It is almost Halloween, and I was out at a party this afternoon doing of all things a scavenger hunt. My team came in last. But we had a good time in any case. But this evening, I wanted to make sure I take care of my "review" that I like to do each week, looking back about a year at all of the picks that week, and seeing how they turned out!

Fortunately, I only picked one stock during the week of August 23, 2004. On August 25, 2004, I picked Williams-Sonoma (WSM) for Stock Picks Bob's Advice when it was trading at $34.64. WSM closed at $37.34 on 10/28/05, for a gain of $2.70 since posting or 7.8%.

On August 23, 2005, Williams-Sonoma reported 2nd quarter 2005 earnings results. Revenue grew 13% to $776.2 million from $689.6 million for the same quarter last year. Net income grew to $30.8 million or $.26/share, for the three months ended July 31, 2005, up from $27.6 million or $.23/share last year. As reported elsewhere, comparable store sales increased 3.7% during the quarter.

Thus, with only one stock to review for the week, the performance for that stock, Williams-Sonoma (WSM), was a gain of 7.8% since listing on the blog.

Thanks again for stopping by and visiting! If you have any questions or comments, please feel free to leave them right on the blog or email me at bobsadviceforstocks@lycos.com. Have a great week trading and investing in the market!

Bob

"Weekend Trading Portfolio Analysis" Genesco (GCO)
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.

For those of you who are new to this blog, I enjoy "picking" stocks and discussing possible investments that look attractive to me. Something else I do, is to share with you my actual trading portfolio and give you my view on the stocks I hold in my own actual portfolio. When I buy a stock, I post this on the blog, when I sell a stock, I post it on the blog. Usually under the subtitle "Trading Transparency". And lately, I have been trying to go through my holdings, one issue each week, and review again my history with the stock and whether the stock still looks attractive to me.

Last weekend I discussed Cytyc (CYTC) on Stock Picks Bob's Advice. Going alphabetically through my list of 19 stocks I currently hold, the next to be reviewed is Genesco (GCO).

I first discussed Genesco (GCO) on Stock Picks Bob's Advice on November 18, 2004, when the stock was trading at $28.35. On May 26, 2005, I made my initial purchase of GCO in my trading account, purchasing 200 shares at a cost basis of $34.40. GCO closed at $35.85 on 10/28/05, for a gain of $1.45 or 4.22% since purchasing these shares. I plan on either selling all my shares when the stock hits an 8% loss or .92 x $34.40 = $31.65, or sell 1/4 of my position if the stock should appreciate to a 30% gain or 1.30 x $34.40 = $44.72.

According to the Yahoo "Profile" on Genesco, the company "...engages in the design, marketing, and distribution of footwear, headwear, and accessories. The company distributes footwear under its own Johnston & Murphy brand and under the licensed Dockers brand to retail accounts, including various department, discount, and specialty stores. It operates through five segments: Journeys, Underground Station Group, Hat World, Johnston & Murphy, and Dockers Footwear."

On August 24, 2005, Genesco reported 2nd quarter 2005 results and also raised guidance for 2006. For the three months ended July 30, 2005, net sales increased 12% to $275.2 million from $245.9 million the prior year. Net earnings grew 41% to $6.7 million from $4.8 million the prior year. On a diluted share basis, this came in as a 35% increase to $.27/share, up from $.20/share the prior year same period.

Checking the Morningstar.com "5-Yr Restated" financials, we can see the steady increase in revenue from $.7 billion to $1.2 billion in the trailing twelve months (TTM).

Earnings during this period have grown fairly steadily, except for a drop in 2004, from $1.21 in 2001 to $2.07 in the TTM.

Free cash flow has increased from $6 million in 2003 to $67 million in the TTM.

In addition, the balance sheet looks good with $38.8 million in cash and $312.2 million in other current assets, plenty to cover the $168.8 million in current liabilities, with enough 'left over' to pay off most of the $229.1 million in long-term liabilities.

What about the chart? Taking a look at the "Point & Figure" chart from Stockcharts.com on GCO, we can see how the stock had been trading at flat to lower between July, 2001, when the stock was trading as high as $32 to a low of $11 in July, 2002. The stock broke through resistance at around $18.50 in February, 2004, and hasn't looked back since, closing as noted on $35.85 on Friday.

So what do I think? I like the stock. In fact, I own the stock! However, I was and am prepared to sell all of the shares if the stock hits an 8% loss, no matter how much I think the stock is a good investment. The latest earnings were solid. Revenue and earnings have been great long-term, and solid the past few years. And the balance sheet looks reasonable, especially with the growing free cash flow.

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

A Reader Writes "...I wondered if you have an ideas as to why."
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 decisions based on information on this website.

I was delighted to see that I had received another email today. This time from Linda B. who wrote:

Just wanted to say that I've been visiting your website for about six months in order to learn all I can before investing a small inheritance (< $20K). I have learned investing basics in an investment club but recently got out of it -- and want to do my own careful investing. I'm so afraid of losing my windfall, and am pretty much still a novice at investing, so I really do appreciate your analyses and explanations. So far, I haven't gotten my feet wet, but have to grit my teeth sooner or later and take the plunge.

I've been looking at KSWS and appreciated your recent comments on it. But then it dropped precipitously after earning were reported -- and I wondered if you have an ideas as to why.

Thanks again -- I start each morning by visiting your website with a cup of coffee and an eagerness to learn what you have to share that day.

Sincerely,
A neighbor in Minnesota,
Linda B.

Linda, thank you for your kind words. I hope that my writing gets you going in the morning and doesn't instead give you any indigestion :).

I believe that you are wise to be afraid of losing your windfall of $20k inheritance. It is wise to be cautious, to have a plan, and yet be willing to take limited risk to allow that windfall to appreciate.

You ask about KSWS that I recently wrote-up. Let's start out with an updated "Point & Figure" chart on KSWS from Stockcharts.com:

Here we can see that while the stock pulled back a bit, the stock was actually up $.04 yesterday to $29.57. Overall, the stock price picture does not appear to have truly broken down. It helps to get the big picture right. By the way, I do not own any shares or options on this stock.

Looking through the Yahoo "Headlines" on KSWS, I really couldn't see any news to tell me why the stock might be pulling back on the short-term. I really believe that the biggest effect on stocks is the "M" of CANSLIM that William O'Neil likes to talk about....he is the publisher of the Investor's Business Daily and he is quite brilliant, although a bit more politically conservative than I am :).

The "M" is the MARKET. That is, the trading environment has been awful recently. That is why my portfolio has shrunk from 25 to my current 19 position level. Not because I was "thinking" and decided to move into cash, but because the stocks I own are hitting sale points. And none are signalling me to do any buying.

Thus, even with a great stock, you are bound to lose money if you try to fight the overall market.

What to do? Well, if you were investing your $20k, let's assume that you wanted to invest in 12 stocks with about a $1600 investment per stock. In that case, I would start at "neutral", that is invest half of your cash in 6 stocks leaving the rest in cash. Only add a position above 6 if you get a sale at a gain. And allow your 6 to go down to 3 positions if things are sold at losses.

Just an idea. But you are right to be cautious. I am just not good at timing the market, knowing when to move in or out. I just want to let my portfolio make the decisions for me!

Thanks again for writing. I am a big fan of Minnesota living just across the river, but I confess I was rooting for the Packers even if I didn't watch the game :). Maybe next year?

Regards from Wisconsin.

Bob

A Reader Writes "I was wondering about your entry method...."
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.

I always enjoy getting email from my readers. It makes everything I do worthwhile knowing that there are people out there who enjoy reading what I am writing! (Remember that first paragraph :), I am truly an amateur investor, so considers these answers as part of a discussion rather than individual advice!)

Anyhow, Eric L. writes:

Bob,

I was wondering about your entry method when taking a position in a stock. From you blog, is it correct to say when taking a new position that you buy the day that the stock reports earnings if the earnings report is favorable? Do you buy at the close or just as soon as you can?

There's a stock that I'm interested in, ESRX, which reported earnings on 10/27, and then it closed up 17%. I was hoping for a pull back today, but it closed up another 2.5%. How do you take a position in a stock like that?

Also, what do you do with a stock that has a great earnings report but sells off sharply? I like CRDN, which also reported earnings on 10/27 and I thought the earnings report was pretty good. Notwithstanding, the stock closed down 15% that day. The next day it recovered partially and closed up 6%. Would you take a position in a stock like that?

Would really appreciate a reply if you can spare a few minutes to answer. By the way, I very much enjoy your blog. I wish I was as capable as you at investing.

Regards,
Eric

First of all thanks for writing and especially thanks for the kind words! I do not think that I do anything magical that anyone else couldn't figure out....so hang in there.

Let me try to answer your questions in order. First of all, I often do purchase stocks when they are announcing great earnings. But that is not the criterion that I use to make a decision on purchasing a stock.

There are two things that I use to make a purchase. First of all, assuming I am under 25 positions, my personal maximum number of holdings, I only am in the "purchase mode" if I have "permission" from my portfolio :). Now you might think that is a peculiar way to approach things. But I use my own portfolio as an indicator on the health of the overall market. That is, I require a sale on "good news" to "entitle" me to purchase a stock. A "good news" sale is a sale of a portion of a holding, that is usually a 1/4 position, of one of the stocks I already own.

Assuming I have made a sale, I often will purchase a stock, in fact usually, that very day. If you read through my blog, you will hear me writing about nickels "burning a hole in my pocket". That is my attempt at humor, explaining that when I have "permission" to make a purchase, I usually have loads of stocks that are candidates for purchase.

What makes a stock "eligible", assuming that I am "entitled" to purchase a new position? As I have reviewed on many different entries, I am looking first of all on the list of top percentage gainers. This is my first screen and I generally purchase a stock the same day it is on that list. This is my way of finding a stock which has the best momentum that particular day when I am purchasing a stock.

It is a bit of an arbitrary rule, but it seems to be working for me! Now about earnings, I have found that many of the stocks that I like are making the top % gainers list on the same day that good earnings reports are issued. That makes a stock attractive to me as well. But the earnings portion of the indicator isn't necessary, just that it made the list.

After that, I check Morningstar for steady revenue/earnings/free cash flow/ and balance sheet. In addition, I require that the latest quarter shows increasing profitability as well as revenue growth over the prior year's results.

You asked about ESRX, and without reviewing that particular stock, you comment on how you observed the stock moving up 17%, you waiting for a pull back, and then the stock moving higher another 2.5%. And you ask me how I would take a position in a stock like that.

I do not believe I can predict future stock movement. I am just not that good ;). However, I wouldn't be looking at ESRX with my peculiar approach, unless the stock made the top % gainers list and I was entitled to make a purchase. Lots of coincidences I guess :). Thus, if I had sold some stock on the day that ESRX was making a big move higher, I would go ahead and purchase some shares that day. If I had my "indicator" the following day, and ESRX wasn't on the list, well I would just pass on that stock.

Will I miss lots of investment this way? Most definitely. But on the other hand, if my approach works, well, that's enough for me!

You probably are shaking your head figuring I am nuts or something :). However, what I am trying so hard to do is to remove my emotions from my trading activity. I want to be a good observer of the market. To listen to my own portfolio. To buy when the buying is good, and to pull in my horns, so to speak, when things are negative. I try to respond to the market, to listen to what the market is telling me, and not to "think" or speculate too much.

You mentioned Ceradyne (CRDN), a stock that I have owned in the past, and that my stock club has also owned. You ask about the stock moving lower 15%. And the next day it going higher 6%. Would I take a position in a stock like that. O.K., back to my same old answer. If I had sold a stock that day on a gain, was below my maximum number of positions, and the stock that day was on the top % gainers list, and it passed the rest of my screens, well yes I would. Hmmm...I hope that answers your question.

In summary, I have removed my own intuition about stocks, except when I have the opportunity of selecting from among several stocks that are available for me to purchase among the top % gainers...then I try to make a guess :). Otherwise, I don't chase stocks, I don't outthink the market, I don't speculate that the stocks are great values, I simply buy stocks that are moving higher and have the characteristics that I feel will help them continue to appreciate in price!

Thanks again for visiting. Please let me know if my explanation is at all helpful to you! My approach is not the only, nor do I claim it is the best approach to buying stock. In fact, it is a bit peculiar even from my view. But it seems to be working and I shall continue to share with all of you my continued experience in its application.

Bob