Just to show you that I am fallible, that I have a sense of humor, and can poke fun even at myself, I would like to share with you an early entry that I wrote up on May 22, 2003.  This was my entry on New Century Financial (NCEN):

Thursday, 22 May 2003

May 22, 2003 New Century Financial (NCEN)

As you can see from my post yesterday on the main website page here (http://bobsadviceforstocks.tripod.com), I am an owner of New Century Financial...in my trading account. I have actually purchased this several times starting in 12/02 when I purchased 100 at an average cost of $23.41, 12/24/02 another 100 at an average cost of $26.68, and a final 100 at an average cost of $28.03. Following my own rules, I sold 100 on 5/5/03 for an average cost of $39.93. I had reached over a 50% gain in this issue in a short period of time and starting lightening up a little. So important to sell losses QUICKLY and sell gainers SLOWLY. Can only help to bias your results to the upside.

Anyhow, NCEN is having a GREAT day trading at $47.02 up $6.57 as we write at 9:22 am Central Time. What caused this pop is the fact that NCEN TODAY announced that in was INCREASING 2003 eps guidance from the $7.40-$7.50 range up to $8.75 to $9.25 range. Yes....this company is anticipating earnning about $9.00 per share (!!!) and sells even after this move for only $46. The company "is engaged in originatin, purchasing, selling and servicing subprime mortgage loans secured by first mortgages on single-family residences," according to the CNN.money site http://money.cnn.com/MGI/snap/A1434.htm (I hope that works for you to get to the profile section). Last quarter total revenues rose 61% to $181 million and net income rose 50% to $45.7 million.

Looking at Morningstar.com on this issue, we find
sequential growth in revenue from $98.6 million in 1997, $176.4 million in 1998, $233.9 million in 1999, $163.9 million in 2000 (which IS a drop which I would RATHER not see....but the rest of this is so good!), $293.3 million in 2001 and $511.1 million in the 'trailing twelve months'.

In addition, in today's announcement, NCEN indicated that they would maintain their $.10/share dividend (an added plus)...which means in effect a 50% increase in effective dividend return. This is a 50% increase because they announced a 3 for 2 stock split.

Unfortunately, Morningstar does not have the free cash flow report but interestingly does have the growth in revenue the last four quarters showing a 779.39%, 134.17%, 117.42%, and 86.84% increase in revenue each quarter. Pretty impressive!

For a final note, even AFTER today's big price rise, NCEN sells at a p/e ratio of only 6.18 suggesting tremendous value in their shares.

As a caveat, I know NOTHING about the management of this company...and would hold to an 8% stop loss on any purchase which I always suggest on all issues. If the stock should rise further....start selling some shares at a 40-50% range in gain....this is really an insurance of reducing your overall cost on any purchase. Good luck and happy investing.

I do not need to tell you about the sub-prime lending market do I?  And the fiasco it is in?  Anyhow, you can see my current reluctance in writing up financial stocks (I still do....), and the need to take your gains when you can and limit your losses!

Have a great day trading.

Bob  

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.

It was another awful day in the market.  No two ways about it.  The Dow closed down (242.66) to 12,075.96, and the NASDAQ was down (51.72) closing at 2,350.57. 

Early on today, in the midst of this eventually dismal trading day, one of my stocks hit a sale point at a gain.  Cytyc (CYTC) which closed at $32.60, off $(.08) or (.24)% on the day, actually was up this morning, enough to hit a sale point for me at an appreciation target.  I acquired my 225 shares of Cytyc 1/29/04, a bit over 3 years ago, at a cost basis of $14.86.  This morning, with Cytyc trading slightly higher, the shares hit a 120% gain for me, and I sold 1/6th of my position, or 37 shares, at $32.73.  After it was all done,  this represented a gain of $17.87 or 120.3% since purchase. 

This sale was my fourth sale of CYTC, having sold 100 shares 3/1/04 at $18.63 (a gain of $3.77 or 25.4%), another 100 shares on 4/2/04 at $22.61 (a gain of $7.75 or 52.3%), and 75 shares on 6/2/04 at $22.79 (a gain of $7.93 or 53.4%).  You can see that my disciplined selling at 30, 60, 90, 120% levels was a bit weak.  In fact I completely jumped the gun on my third sale which should have been at a 90% appreciation target.

Regardless, with three prior sales I was waiting for a 120% appreciation level, which was indeed reached today, and 1/6th of my remaining position was sold.

Having 17 positions, which being below my maximum of 25 positions, this sale produced a 'permission slip' to add a new position.  I have never been good with a nickel in my pocket and turned to the list of top % gainers where I found Angeion (ANGN) a stock that I have looked at in the past. I went ahead and purchased 300 shares of Angeion (ANGN) at $15.09. ANGN actually sold off a little from there closing at $14.73/share. 

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

Bob 

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 always consult with your professional investment advisers prior to making any investment decisions based on information on this website.

Earlier today I reported how I was able, due to a partial sale of my Bolt (BTJ) stock, to get a "permission slip" to add a new holding to my Trading Portfolio.  Checking through the list of top % gainers on the NASDAQ, I came across Jones Soda (JSDA) which has been on the list several times the last week and I decided to take a closer look at this company.  I liked what I saw and I decided to use this opportunity to add a position in Jones to my portfolio.  This morning I purchased 300 shares of Jones (JSDA) at $18.18.  JSDA closed at $18.67, up $1.54 or 8.99% on the day today.

I would like to take a brief opportunity to point you in the direction of the factors that led me to make this purchase.

If you review the Yahoo "Profile" on Jones, you will see that this company is a premium beverage producer and distributor.  I became familiar with Jones during my visits to my local Panera store where Jones sodas have been stocked.   

Last Thursday, on March 8, 2007, Jones announced 4th quarter 2006 results for the quarter ended December 31, 2006.  Revenue climbed 15% to $10 million from $8.8 million last year.  Earnings jumped 179% to $1.7 million.  Net income was up 256% to $2.1 million vs. $.6 million last year and diluted eps were up 167% to $.08/share from $.03/share last year.

Just as important, the company beat estimates of $.01/share on sales of $9.8 million for the quarter.

The Morningstar.com "5-Yr Restated" financials are solid with revenue, after dropping to $19 million in 2002, climbing to $34 million in 2005 and $38 million in the trailing twelve months (TTM).  Earnings have been steadily improving from a loss of $(.09) in 2001 to $.13/share in the TTM.  The company has increased the # of shares from 19 to 25 million.  Free cash flow which was a negative $(1) million in 2004, came in at $1 million in 2005 and $4 million in the TTM.

The balance sheet is solid with total current assets of $42.6 million, compared to the $6.0 million of current liabilities yielding a current ratio of just over 7.  No long-term liabilities are reported.

The stock is a small cap stock according to the Yahoo "Key Statistics" with a market capitalization of $474.48 million.  It is richly priced with a trailing p/e of 144.73 (!).  With the rapid growth, the forward p/e (fye 31-Dec-07) is estimated at 50.46.  Still, the PEG works out to a rich 2.58 (5 yr expected). The price/sales is reported at 11.54.

Yahoo shows 25.41 million shares outstanding with 23.28 million that float.  As of 2/12/07 there were 4.04 million shares out short representing 17.3% of the float or a significant 6.7 trading days of volume.  In the face of good earnings, this sharp rise in the stock price may well represent a squeeze of the short-sellers.

Looking at a "Point & Figure" chart on Jones from StockCharts.com, we can see that the stock has had a very steep rise since mid 2003 climbing from literally $.20/share to a level of $19.00/share in 2007. If anything, the stock appears to be a bit over-extended technically.

To summarize, I purchased shares of Jones Soda (JSDA) earlier today as a result of my partial sale of my Bolt (BTJ) shares.  The stock is a very fast growing soft drink producer and is showing very strong price momentum.  Earnings have been strong, free cash flow is improving, and the balance sheet is solid.  Valuation, however, is priced for perfection with a p/e literally nearly 150.  There are lots of short-sellers betting against this company.  With any more good news stories, the short-sellers will be squeezed anew and the stock may well rise further.  On the other hand.....

Thanks so much for visiting!  I just wanted to get a quick note off on this stock tonight before crashing for the evening.  If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.

Bob

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.

Earlier this morning I noticed that my stock in Bolt (BTJ) had hit a sale point.  In fact it hit the 60% appreciation point and with my targeted appreciation point of 30, 60, 90, 120%, etc., this triggered a sale (which I did manually).  I sold 1/6th of my remaining 250 shares or 41 shares at $28.70.  These shares were acquired 1/12/07 at a cost basis of $17.44 so this represented an appreciation of $11.26 or 64.6% appreciation. 

When will I sell next?  On the upside, if the stock hits a 90% appreciation point, or 1.90 x $17.44 = $33.14, then I would be selling 1/6th of my remaining 209 shares of Bolt.

Since I am under my 25 position maximum (currently holding 16 positions) this resulted in a 'permission slip' to add a new position.  I saw a new name that seemed to fit the bill and purchased 300 shares of Jones Soda (JSDA)  at $18.18.  I didn't let that nickel burn a hole in my pocket very long.  I always 'kick myself' for not buying any Hansen's (HANS) so maybe I wanted to have another shot at a soft drink manufacturer.  Wish me luck.

I have noticed Jones on the top % gainers before today but haven't written it up before.  I shall try to get to a review of Jones later today if possible.

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

Bob 

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 try to accomplish several things at one time on this blog.  My main goal is to see if I can enhance my own ability and skills at 'picking stocks' that might lead to future price appreciation.  I do this with the many 'stock picks' that I write about on this website. As I just did, I try each weekend to review my past stock picks, find out how they turned out, and try to determine if there is anything else I could have done to help identify further stocks of interest.

In addition to my 'generic' review, I also manage an actual Trading Portfolio.  I now have 16 stocks and when I trade them I try very hard to remember to quickly post a note that I call "trading transparency" to keep you, the reader, informed of what I am actually doing in real life.  Sometimes my trades make me look smart, other times I am taking losses as I just recently did with my WOOF stock.  

As I manage my portfolio, I continue to develop my own peculiar trading rules.  And again, this is something that I write about frequently on the blog.  The 'when to buy' and the 'when to sell' thinking.  And how I use these sales on either 'good news' or 'bad news' to direct me in how I manage my overall portfolio 'posture'.  The discipline of having rules has been quite helpful to me and the fact that I am now responsible to you, the reader, has kept me sticking to these rules.  I cannot tell you how many times I have felt like selling a stock when the market was gloomy, or when I wanted just to buy something and held back (even when I bought Kendle outside of the rules, this resulted in a loss and was another tough pill for me to swallow---but I shared even these moments when I strayed from the rules with you!).

Anyhow, as part of my weekend 'homework' around here, I have been trying on intervals to go through my actual trading portfolio and give myself as well as all of you an update on my actual holdings.  

After my sale of WOOF, I am back to 16 positions.  My maximum remains 25, and my minimum is 6.  I shall not go above 25 or below 6.  When I sell a stock at a gain and hold 25, proceeds will go to cash.  And when I sell one of the last 6 at a loss, instead of 'sitting on my hands' I plan on re-investing in a new position, if I ever get to that point.  Every couple of weeks or so, I have been reviewing my portfolio, going alphabetically through my list of holdings.  Last month, on February 17, 2007, I reviewed Precision Castparts (PCP) on Stock Picks Bob's Advice.  Going alphabetically, I am up to Quality Systems (QSII), one of my most successful investments since I started utilizing my current strategy and writing my blog.

Currently I own 88 shares of Quality Systems (QSII) which I purchased with a cost basis of $7.75 on July 28, 2003.  QSII closed at $39.05 on March 9, 2007, for an unrealized gain of $31.30 or 403.9% since my purchase.  I have now sold portions of Quality Systems nine times, representing partial sales at 30, 60, 90, 120, 180, 240, 300, 360, and 450% appreciation levels.  Thus, on the upside, my next partial sale which would be 88 x 1/6 = 14 shares, would be at a 540% appreciation or 6.4 x $7.75 = $49.60.  On the downside, having already sold a portion at a 450% gain, I would sell all remaining shares if the stock should decline to 1/2 of that level or to a 225% gain, which calculated works out to 3.25 x $7.75 = $25.19.

I first reviewed Quality Systems on Stock Picks Bob's Advice on July 28, 2003, when it was trading at $30.67.  Adjusted for two 2:1 stock splits, that works out to a pick price of $7.67. Let's take another look at Quality Systems (QSII) and see if it still deserves a big 'thumbs up' on this blog!

What exactly does this company do?

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

"...and its subsidiary NextGen Healthcare Information Systems, Inc. engage in the development and marketing of healthcare information systems that automate medical and dental practices, physician hospital organizations and management service organizations, ambulatory care centers, community health centers, and medical and dental schools. It offers proprietary electronic medical records software and practice management systems under the NextGen3 product name."

How did they do in the latest quarter?

On February 5, 2007, Quality Systems (QSII) announced 3rd quarter 2007 results.  For the quarter ended December 31, 2006, net revenues came in at $38.5 million, up 44% from the $26.8 million in the same quarter the prior year.  Net income was $8.7 million, up 81% over the net income of $4.8 million reported last year.  Fully diluted eps came in at $.32/share, up 78% over the $.18/share reported last year.

Within the report was a pertinent comment about the fact that the SEC was examining the Chief Financial Officer's trading record.  The company beat expectations on earnings which were expected at $.30/share, and came in slightly light on revenue, which had been estimated by analysts at $39 million.

How about longer-term results?

If we review the Morningstar.com "5-Yr Restated" financials, we see a very pretty picture.   Revenue, which was $44 million in 2002, has steadily increased to $119 million in 2006 and $148 million in the trailing twelve months (TTM).

Earnings, which were $.21/share in 2002, have steadily increased, quadrupling to $.85/share in 2006 and quintupling to $1.17/share in the TTM.

The company even initiated dividends in 2005, paying $.75/share, and increased it to $.88/share in 2006.   Meanwhile, the shares have been relatively stable, increasing from 24 million in 2002 to 27 million, a little over a 10% increase in the shares outstanding while revenue was up over 200%, and earnings were up over 400%.  I can handle this level of dilution!

Free cash flow has been essentially positive and growing with $16 million in 2004, $20 million in 2005, $28 million in 2006, and a slight dip to $26 million in the TTM.

The balance sheet is solid with $80.4 million in cash, which by itself can easily cover the $54.8 million in current liabilities and the $2.8 million in long-term liabilities combined with literally millions left over.  Calculating the current ratio, when comparing the total current assets of $147.4 million to the $54.8 million in current liabilities, we find a solid ratio of 2.69.

What about some valuation numbers?

Checking the Yahoo "Key Statistics" on Quality Systems we find that this stock is a small mid cap stock with a market capitalization of $1.05 billion.  (The definition of mid cap stocks vary, but this one suggests a market capitalization of $1 billion to $5 billion).  The p/e is a bit rich at 33.21, but the forward p/e is 25.89 (fye 31-Mar-08 estimated).  Thus, with the rapid growth, as reported even in the latest report above, the PEG (5 yr expected) works out to a very reasonable .97.  (1.0 to 1.5 is acceptable to me.)

Checking the Fidelity.com eresearch website, we find that relative to the Price/Sales (TTM), this stock is richly valued with a Price/Sales (TTM) of 7.11, compared to an industry average of 5.31.  However, the company is far more profitable than the average of its group, when measured by the Return on Equity (TTM).  ROE for QSII works out to a 36.50%, compared to the industry average of 19.01%.

Finishing up with Yahoo, we find that there are 26.98 million shares outstanding with 17 million that float.  Currently, as of 2/12/07, there are 4.33 million shares out short representing 25.20% of the float or 10 trading days of volume.  Using my own 3 day rule for significance, this looks to be a lot of shares that have already been sold betting on some bad news, most likely related to the CFO investigation reported by the company.  If the company, however, comes in with good news instead, there is likely to be a lot of buying pressure as these short-sellers scramble for the exits, rushing to buy shares to close out their short positions.

As noted the company is paying a trailing dividend of $1.00, yielding 2.6%.  The last stock split was a 2:1 split on March 27, 2006.

What does the chart look like?

Looking at a "Point & Figure" chart on QSII from StockCharts.com, we can see the incredible strength shown in this chart.  Recently under a little bit of pressure from the cloud hanging over the company from the possible SEC investigation of the CFO, the stock still remains well above its support level. I have included the points at which I have made my partial sales of this stock as it hit my appreciation targets.

All of these sales may seem a little odd, but they are the result of a disciplined strategy of selling gaining stocks slowly and partially as they hit appreciation targets set at the time of purchase.

Summary: What do I think?

Well, this is a fabulous stock.  Of course, I own shares so please take that into consideration.  I suspect the CFO news is a non-story but I have no information on this and this is something that should be taken into consideration.  The latest quarter was fabulous.  I love the electronic medical record field as healthcare facilities are all moving from paper to paperless records.  I also own some shares in Cerner which is another company in this field.  The Morningstar.com report is beautiful, and the valuation is nice with a PEG under 1.0, a ROE that is higher than its peers but the Price/Sales is indeed a bit rich.

In summary:

I STILL RATE QUALITY SYSTEMS AS A BUY. 

Thanks so much for stopping by and visiting my blog!  Please remember that I am an amateur and that past performance of any stock or even any investor (!) is no indication of future success.  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 Stock Picks Podcast Website.  If I get a chance :), then maybe I will be able to post another podcast later this week.

Bob 

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.

The weekend is almost over :( and I haven't yet written up my review!  I don't want to get another week behind!  I have had a few questions about 'how come you say looking back ONE year and it is almost like a year-and-a-half?'  Needless to say, the answer is unfortunately self-explanatory.  I get busy.  One thing leads to another and YIKES I don't get to the write-up.  (When I tell you I am an AMATEUR blogger...I am not kidding!)

But seriously, these 'weekend reviews' help me and help you assess the usefulness of what I write on this website.  In addition, hopefully we can learn from which of these picks worked and which didn't.

As I have pointed out elsewhere, these reviews also depend on a 'buy and hold' approach to investing, which assumes that an investor actually bought all of the stocks discussed on the blog that week, investing equal dollar amounts, and let the investment sit.  In practice, I employ and advocate on this blog a disciplined approach to investing that is quite different that this 'buy and hold' system.  I use the 'buy and hold' approach for this review frankly because it is a retrospective look at stocks and it is simpler to assume I bought and held than determining the effect of a portfolio management system on the results.  However, the difference in the investment strategy would certainly affect final results---hopefully, but not necessarily, for the good.

On October 24, 2005, I 'revisited' K-Swiss (KSWS) which was, at that time, trading at $32.71/share.  KSWS closed at $28.20 on March 9, 2007, for a loss of $(4.51) or (13.8)%.

On February 22,  K-Swiss reported 4th quarter 2006 results. Revenues for the quarter ended December 31, 2006, increased 1.7% to $93.8 million, compared with $92.3 million in the same quarter the prior year.  Net earnings, however, decreased to $10.7 million or $.30/diluted share, down from $11.6 million or $.33/diluted share the prior year.

The company also offered what I would view as discouraging guidance for 2007:

"The Company's estimates for the first quarter of 2007 and full-year 2007 reflect a significant decline in domestic revenues; substantial investments in product development and marketing for the K-Swiss brand, including a retail strategy; continued expansion of international operations; and continued investment in the Royal Elastics brand. The estimates are based upon the following assumptions: domestic revenues will decline approximately 30% for the year; gross margins will be approximately 46%; SG&A will not rise above $40 million for the first quarter of 2007 or $152 million for the full-year 2007; our tax rate will approximate 20%; customer order cancellations will be moderate; and the Company's growth initiatives with respect to Royal Elastics will not exceed a net loss of $0.11 per share for the full year."

From this perspective,

K-SWISS IS RATED A SELL. 

On October 24, 2005, I "revisited" Simpson Manufacturing (SSD) on Stock Picks Bob's Advice when the stock was trading at $38.01.  SSD closed at $31.11 on March 9, 2007, for a loss of $(6.90) or (18.2)%.

On February 1, 2007, Simpson announced 4th quarter 2006 results.  For the quarter ended December 31, 2006, net sales decreased 11.9% to $179.6 million as compared to net sales of $203.9 million for the same quarter in the prior year.  Net income declined 13.4% to $18.7 million in the 2006 final quarter compared to $21.6 million in the same quarter in 2005.  On a diluted per common share basis this worked out to $.38/share in 2006 down from $.44/share in the fourth quarter of 2005. 

The company failed to meet expectations.  Analysts had been expecting earnings of $.40/share on revenue of $189 million.  Simpson missed on both counts.

Due to the poor earnings results, failing to meet expectations on both revenue and earnings, and the poor technical appearance of the chart,

SIMPSON (SSD) IS RATED A SELL.

On October 25, 2005, I posted Rimage (RIMG) on Stock Picks Bob's Advice when the stock was trading at $28.62.  RIMG closed at $26.30 for a loss of $(2.32) or (8.1)% since posting.

On February 26, 2007, Rimage (RIMG) announced 4th quarter 2006 results.  For the quarter ended December 31, 2006, revenue came in at $30.5 million, up 26% from $24.3 million in the same quarter in 2005.  Net income increased 57% to $3.6 million or $.34/diluted share, up from $2.3 million or $.22/diluted share in the same quarter the prior year.  These results exceeded the company's own previous guidance.

With the outstanding earnings report, the great "point & figure chart" from  StockCharts.com, even though I am showing a loss on this stock the RIMAGE IS STILL RATED A BUY.

On October 26, 2005, I "revisited" Digital Insight (DGIN), when the stock was trading at $28.99.  On December 1, 2006, it was announced that Intuit would acquire Digital Insight for $1.35 billion or $39.00/share.  This worked out to a gain of $10.01 or 34.5% since posting. 

On October 27, 2005, I "revisited" ASV (ASVI) on Stock Picks Bob's Advice when the stock was trading at $23.02.  ASVI closed at $15.19 on March 9, 2007, for a loss of $(7.83) or (34)% since posting.

On March 7, 2007, ASVI announced 4th quarter 2006 results.  For the quarter ended December 31, 2006, sales declined to $46.1 million from $66.0 million in the same period a year earlier. Net earnings were down even more sharply at $2.4 million compared with $8.2 million, or $.09/diluted share vs. $.29/diluted share in the 4th quarter 2005.

With the weak earnings report and the weak technical appearance of the "point & figure" chart from StockCharts.com, I would have to say that

ASV INCORPORATED (ASVI) IS RATED A SELL. 

The last stock I discussed that week was Micros (MCRS) which I posted on Stock Picks Bob's Advice on October 28, 2005, when the stock was trading at  $45.82.  MCRS closed at $54.18 on March 9, 2007, for a gain of $8.36 or 18.2% since posting.

On January 25, 2007, Micros (MCRS) announced 2nd quarter 2007 results.  Revenue increased 15.8% to $189.9 million from $164 million in the same quarter the prior year.  Net earnings were $18 million, up from $14.2 million or $.44/share, up from $.35/share in the same period last year.

In light of the outstanding earnings report and the nice technical appearance of the "point & figure" chart on MCRS from StockCharts.com,

MICROS IS RATED A BUY.

So how did I do during this week in October, 2005?  Pretty mediocre.  I had an average loss of (3.6)% for the week's picks with four stocks showing declines after I picked them and two showing gains.  

Thanks so much for stopping by and 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.  If you get a chance, be sure and visit my Stock Picks Podcast Website.

Bob 

Two months ago I gave Dave Johnson, who has written at DayveJohnson on the Markets a farewell speech.  I cannot tell you how many times I have looked at my own blog and figured I might just be better 'packing it up'.  So I could completely empathize with him.  But I hoped he just might return to write and add to the world of financial blogging with his honest and insightful perspective.  Well he has.

I was happy to see a comment the other day from Dave who dropped by and alerted me to his new website where he has joined forces from John (from Texas) to blog at The Trading Digest.  Welcome Back Dave!

So if you are a loyal reader to this blog, drop by and say hello to Dave and John the Connecticut and Texas partnership, and tell them Bob from Wisconsin says hello!  Good-luck Dave and be sure and drop by here from time to time and add some of your Connecticut perspective to what I write!

Bob 

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 this website.

I was looking through the list of top % gainers on the NASDAQ yesterday and came across an 'old favorite' of mine, Middleby Corporation (MIDD), which closed at $123.96, up $12.68 or 11.39% on the day.  I do not own any shares of this company nor do I have any options on the stock.

When I write 'old favorite' I mean that I have looked at this stock previously on this blog.  Generally, my policy is to wait 12 months or close to that prior to reviewing a stock again.  When I do re-examine a stock, I call it "revisiting a stock pick."  Some of my best stock picks show up again and again on the list of top % gainers as they move higher in price.

I first posted Middleby (MIDD) on Stock Picks Bob's Advice on July 29, 2005, when MIDD closed at $69.86/share.  With yesterday's close at $123.96, this represents a gain of $54.10 or 77.4% since I first posted this stock a little under two years ago!  I believe the stock still is worthy of a place on this blog, so let's take another look at this stock!

What exactly does this company do?

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

"...through its subsidiaries, engages in the design, manufacture, marketing, distribution, and service of a broad line of cooking equipment and related products in the United States. The company operates in three segments: Commercial Foodservice Equipment, Industrial Foodservice Equipment, and International Distribution."

How did they do in the latest quarter?

As I commonly point out on the blog, this stock soared because of the earnings report which was released after the close of trading on Thursday.  On March 8, 2007, Middleby announced 4th quarter 2006 results.  For the quarter ended December 30, 2006, net sales increased 27.8% (even excluding acquisitions, sales still increased 13.3% in the quarter).  Sales came in at $98.3 million this year vs. $76.9 million last year.  Net earnings came in at $11.1 million this year vs. $7.2 million in the same quarter the prior year.  On a diluted per share basis this worked out to $1.34/share in the 4th quarter 2006, vs. $.88/share in the same quarter last year.  

The company beat expectations with this report. 

What about longer-term financial results?

Reviewing the Morningstar.com "5-Yr Restated" financials on MIDD, we find that the stock has had steady revenue growth from $103.6 million in 2001 to $316.7 million in 2005 and $359.5 million in the trailing twelve months (TTM).

Earnings have also been steadily increasing from $.18/share in 2001 to $3.98/share in 2005 and $4.39/share in the TTM.  The company apparently did pay a dividend in 2003 and 2004 but no dividend is reported on Morningstar.com since.  Outstanding shares have been steady with 9 million in 2001 and 8 million in the trailing twelve months.

Free cash flow has been positive with $29 million reported in 2003, $17 million in 2004, $41 million in 2005 and $40 million in the TTM.

The balance sheet, as reported on Morningstar.com, appears adequate with $3.2 million in cash and $109.7 milllion in other current assets.  This total of $112.9 million in current assets, when compared to the $94.1 million in current liabilities works out to a current ratio of  1.27.  In addition, the company has $109.5 million in long-term liabilities.

What about some valuation numbers on this stock?

If we refer to Yahoo "Key Statistics" on Middleby, we find that the company is a small cap stock with a market capitalization of $984.24 million. The trailing p/e is a moderate 26.50 with a forward p/e (fye 31-Dec-07) of 21.41.  The PEG is a reasonable 1.59. 

Checking the Fidelity.com eresearch website, we find that Middleby is a bit richly valued insofar as the Price/Sales ratio is concerned, coming in with a ratio of 2.44 (Price/sales TTM), compared to an industry average of 1.34.  However, the company is also more profitable than average when viewed from the return on equity (ROE) perspective.  The ROE (TTM) for MIDD comes in at 54.37% vs. an industry average of 22.81%.

Returning to Yahoo we find that there are 7.94 million shares outstanding with 7.15 million that float.  Of these, as of 2/12/07, there were 830,630 shares out short representing a significant (imho) 11.4 trading days of volume.  (higher than my arbitrary 3 day rule for significance).  Thus with good news, the 'stage is set' so to speak for a squeeze of the shorts in face of strong earnings reported.  No dividends and no stock splits are reported on Yahoo.  

What does the chart look like?

If we review a "Point & Figure" chart on Middleby on StockCharts.com, we can see that the stock has been moving ahead fairly strongly since late 2004 with aperiod of consolidation through much of 2006.  The stock is on the upswing again and the chart appears encouraging to me.

Summary:  What do I think about this stock?

In a word, this was a GREAT stock pick in 2005 and still looks nice today!  Middleby reported a terrific earnings report that beat expectations, they have had at least five years of strong financial results, and valuation appears reasonable with a bit of a steep Price/Sales but a strong Return on Equity.  The p/e is moderate and the PEG is just a little over 1.5.  Free cash flow looks nice and the balance sheet is reasonable.  Finally, there are a significant number of short-sellers on this stock, and with the great earnings report, the 'stage is set' for an unwinding of those positions and significant buying of shares to cover the short sales.

Thanks again for stopping by and 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 Stock Picks Podcast Website where I discuss many of the same stocks I write about here on the blog.

Bob  

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 was delighted to receive an email from Marcus A. L. who had some questions about my investing strategy.  Marcus wrote:

"Hello Bob,

   I've been reading your extensive web site for over a year now. The 8% rule is wonderful; it take a lot of the emotion out of the trading process. I want to know how do you feel about the trading with business cycle? Do you trade stocks according where we are in the current business cycle? Keep up the great work.

 

Thanks,

Marcus A L"

First of all Marcus, thanks so much for writing and taking the time to drop me a line.  You raise an excellent question about investing, taking into consideration our position in the "business cycle".  A lot of thought has gone into this approach.  In fact, looking through the internet for an explanation of this, I found this comment from "Tradingonlinemarkets.com":

"As the economy grows and expands the Federal Reserve usually raises interest rates to try to control inflation. When the economy contracts the Federal Reserve will lower interest rates to try to stimulate demand by lowering the costs of borrowing. If you hear that the Federal Open Market Committee (FOMC) has raised or lowered rates, they are actually raising or lowering the federal funds rate for banks. The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight.

The business cycle has implications for markets and investors. Broadly, a recession often corresponds with a sustained period of weak stock prices, or a bear market. And a healthy, expanding economy that keeps inflation from rising too quickly often corresponds with a bull market, or period of sustained market growth.

Fortunately, there are investment strategies for all parts of the cycle, thanks to the diverse economy we have. Companies that do well when the economy is experiencing good times are called cyclical stocks. Industries that fall under this group include travel and leisure companies, airlines, consumer electronics firms and jewelry makers. Companies that make goods that are necessities, such as food and health care are called non-cyclical stocks. These stocks tend to provide more stability during an economic downturn. During an economic expansion one should invest in cyclical stocks. On the other hand during an economic contraction one should consider investing in non-cyclical stocks."

It is this philosophy that will often drive commentary about different stocks as discussed by analysts on CNBC or elsewhere.  They may say we are "late in the cycle" or that "cyclical stocks are best now...." etc.  These assessments may well be useful and be profitable advice that should be heeded but that is not how I structure my own activity.

I do not preclude the investment in cyclical stocks.  But in practice, I do avoid stocks that I consider tied to commodity prices.  Recently I made an exception with Bolt (BTJ) which is clearly moving in tandem with oil prices.  Gold stocks will also tend to follow the price of the underlying metal closely.

My approach is to stay with stocks that are generating consistency in their financial results regardless of the point that we may be in the "cycle".  However, with my "Zen approach" of allowing stocks that are moving higher to attract my attention, sort of allowing them to come to me rather than me figuring out which stocks to "pick", if those particular stocks are indeed strong relative to the market due to the underlying business cycle, then those stocks may well show up on my blog.

My purchases of stocks are dependent on my own portfolio developing a "signal" to add a new stock by the partial sale of an existing position at an appreciation target--and the simultaneous appearance of an acceptable investment on the top % gainers list.  This semi-random selection process will open up new stocks for me to consider.  

However, when I do have a "permission slip" to buy a new stock, I always reserve the right to choose which stock to buy when several are eligible.  This small "wiggle room" allows me to bias my purchase to stocks I feel may represent the greatest promise by whatever personal prejudice or preference I may hold.  I recognize this, and generally bias myself towards names that are already stocks I am familiar with, what I call "part of my vocabulary".

To answer your question, I suppose that if stocks that are doing well are indeed responding to the business cycle, then my system will also pick up those stocks.  However, I do not try to anticipate moves in stock groups or sectors; rather, I like to respond to their developing momentum with developing interest on my part.

I hope that answers your question.  If you have any other questions or comments, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com. If you get a chance, please feel free to drop by and visit my Stock Picks Podcast Website!

Bob 

I had the pleasure of being interviewed by Geoff Gannon, a value investor who is also a value investor advocate who blogs on "Gannon on Investing" and also does a podcast.

Thank you Geoff!  Visit Gannon on Investing to read this post.

Bob