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Monday, 6 August 2007
Morningstar (MORN) and Cubic (CUB) "Trading Transparency"

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

The market sure did turn around quickly today.  I sold two of my positions early this morning only to find the market heading higher into the afternoon.  In fact, my Morningstar stock had a big move, closing at $62.37, up $3.60 or 6.13% on the day. I sold 20 shares of my 140 share position at $62.61 at 3:27 pm this afternoon, just 1/2 hour prior to the close of trading.  These shares were purchased 11/22/05 at a cost basis of $32.57/share.  Thus, I had a gain of $29.80 or 91.5% since purchase.  This was my third sale of Morningstar, having sold previously at both the 30% and 60% appreciation targets.

Since I was down to 18 positions after selling both my NOV and my BEZ holdings, and since this was a sale at an appreciation target, I now had permission to actually ADD a new holding to the mix.  Having written up CUB earlier today, I purchased 280 shares of Cubic Corporation (CUB) at the price of $32.2856 at 3:29 pm, again just 1/2 hour prior to the close of trading.  

I emphasize these times because I want to make it clear that the late sale and purchase was after I had written up the stock report on Cubic this morning.  I hadn't planned on buying any of CUB until I was surprised to see the big move in MORN late in the day!

Anyhow, it was a volatile day in the market for all of us and my portfolio got whip-sawed a bit as well.  But I am back to 19 positions, overall my portfolio didn't do too badly, but there are two less old positions and one new one in the mix.  Wish me luck.

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

Bob 


Posted by bobsadviceforstocks at 5:29 PM CDT | Post Comment | View Comments (2) | Permalink
Cubic Corporation (CUB)

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 was hoping to find a new name today, so scanning the list of top % gainers on the AMEX, I came across Cubic (CUB), a name which has appeared on the top % gainers several times the past few weeks.  I do not own any shares or options of this company.  As I write, CUB is trading at $32.14, up $1.09 or 3.51% on the day.

I would like to share with you some of the information that has resulted in my assessment that

CUBIC CORPORATION (CUB) IS RATED A BUY

What exactly does this company do?

According to the Yahoo "Profile" on CUB, this San Diego-based company

"...engages in the design, development, manufacture, and installation of defense electronics and transportation fare collection systems. Its Defense segment provides customized military range instrumentation systems, tactical engagement simulation systems, firearm simulation systems, communications and surveillance systems, surveillance receivers, power amplifiers, and avionics systems. It also offers training mission support, computer simulation training, distributed interactive simulation, development of military training doctrine, and field operations and maintenance services."

How did they do in the latest quarter?

On August 1, 2007, CUB reported 3rd quarter 2007 results. Sales for the quarter ended June 30, 2007, increased 9% to $233.7 million from $214.9 milllion in the same period last year.  Net income grew more at $11.2 million or $.42/share up 87% from $6.0 million or $.22/share last year.

How about longer-term results?

Reviewing the Morningstar.com "5-Yr Restated" financials on Cubic, we see that revenue has been steadily increasing from $560 million in 2002 to $821 million in 2006 and $871 million in the trailing twelve months (TTM).  Earnings, however, have been more erratic, increasing from $1.10 in 2002 to $1.40 in 2003 and 2004.  They dropped to $.20/share in 2005, only to rebout to $.30/share in 2006 and $1.40 in the trailing twelve months.

The company does pay a  dividend which was $.10/share from 2002 to 2003, then increased to $.20/share in 2004 through the TTM.   The number of shares outstanding has remained extremely stable at 27 million in 2002, and 27 million reported in the TTM.

Free cash flow which was $(35) million in 2004, turned positive at $46 million in 2005, dipped to $22 million in 2006, and grew to $95 million in the TTM.

The balance sheet appears solid with $76 million in cash and $389 million in other current assets.  This total of $465 million, when compared to the current liabilities of $172 million yields a healthy current ratio of 2.70.

What about some valuation numbers?

Looking at Yahoo "Key Statistics" on Cubic, we find that this is a 'small cap' stock with a market capitalization of only $856.34 million.  The trailing p/e is a reasonable (imho) 22.76 with a forward p/e (fye 30-Sep-08) estimated at 21.09.  The PEG ratio is a reasonable 1.06.

According to the Fidelity.com eresearch website, valuation is also reasonable when measured by the Price/Sales (TTM) ratio.  CUB comes in with a Price/Sales (TTM) of 0.97 compared to the industry average of 1.45.  However, profitability, as measured by the Return on Equity (TTM) is low at 9.84% compared to the industry average of 28.06%.

Finishing up with Yahoo, we can see that there are 26.72 million shares outstanding with only 14.05 million that float.  As of 7/10/07, there were 1.45 million shares out short representing 7.7 trading days of volume, more than my own '3 day rule' for significance in the short ratio.  With good news, this stock may be subject to a short-squeeze with short-sellers scrambling to cover their sales with purchases.

As noted above, the company pays a small divided with $.18 reported by Yahoo (I noted $.20/share on Morningstar),  calculated to a 0.5% forward annual dividend rate. 

The last stock split was a 3:1 stock split on May 1, 2002.

What does the chart look like?

Reviewing the StockCharts.com 'point & figure' chart on CUB, we can see that the company has had a very erratic price movement since 2002.  Since late 2006, the chart appears to be moving higher.  


Summary:  What do I think?

Well, I like this stock.  If I were purchasing shares today, this is the kind of company I would be buying.  In the meantime, I shall be adding this to my 'vocabulary' of stocks to watch, and wait for the appropriate signal to purchase.

Summarizing, the company is moving higher today, reported good earnings just last week, has a 5 yr record of solid revenue growth with some definite earnings volatility.  Free cash flow is strongly positive, the outstanding shares are rock solid and the company pays a small dividend.  Finally, the balance sheet looks great and valuation is reasonable with a moderate p/e, a PEG just over 1.0, a low Price/Sales but an unimpressive Return on Equity statistic.  In addition, the chart looks moderately encouraging.

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.  If you get a chance, be sure and visit my Stock Picks Podcast Website, check out my Covestor page which reviews my actual trading portfolio performance, and my SocialPicks page where all of my stock picks from January, 2007, and more recent, have been recorded and evaluated.

Bob  


Posted by bobsadviceforstocks at 1:35 PM CDT | Post Comment | Permalink
Baldor Electric (BEZ) and National Oilwell Varco (NOV): "Trading Transparency"

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

As I wrote about yesterday, several of my stocks are near sale points.  In fact, two of them (Baldor and National Oilwell Varco) just hit those sale points and they were sold from my trading account. 140 shares of Baldor (BEZ) were sold at $43.36, representing a loss of $(3.83) or (8.1)% from my purchase cost of $47.19.  Also, 105 shares of National Oilwell Varco (NOV) were sold at $106.20.  This represented a loss of $(11.88) or (10.1)% from my purchase cost of $118.08.  

I am now down to 18 positions.  I will wait for a sale at an appreciation point before adding any new positions.  

This is not a reflection of my own assessment of the market which is one of concern to say the least.  These sales are my portfolio's own attempt to respond to market action and start moving stocks into cash.  Hopefully this correction is short-lived and I shall be moving back into stocks.  But I shall do this based on the signals generated by my own positions.

It is an interesting method.  A little slow perhaps in responding.  But we shall see whether this lag will hurt performance over the long term.  

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

Bob 


Posted by bobsadviceforstocks at 9:35 AM CDT | Post Comment | Permalink
Sunday, 5 August 2007
Home Depot (HD) "Long-Term Review #8"

 

 

 

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 am now getting well into my fifth year of blogging here on Stock Picks.  There are many entries and I am sure many of you find it difficult to find entries on the website.  I know that I do.  In fact, when looking for whether I have reviewed stocks, I often need to Google myself!  Don't laugh, it works.

This past year I have been trying to dig way back into the early days of this website to find out how those early picks turned out.  As I like to point out, these reviews also depend on a buy and hold strategy.   In practice, I advocate and employ a very different strategy of closely monitoring the actual stocks in my own portfolio, selling the losing stocks quickly and completely and selling gaining issues slowly and partially.  Much of my success or failure long-term will depend on this strategy.  But for this review, I assume a buy-and-hold approach to these investments.

My last 'long-term' review was on July 8, 2007, when I reviewed my May 19, 2003 write-up of Bradley Pharmaceuticals.  Let's take a closer look at Home Depot (HD) which I wrote up on May 20, 2003:

"May 20, 2003

Home Depot (HD)

Thanks for stopping by. Taking a look first at the NYSE biggest advancers we find Home Depot near the top. We find HD trading currently at $31.10, up $3.03 or 10.79%. I have to confess to some bias in reviewing these charts and let me explain. I have found that the larger cap issues overall tend to perform better with this technique and also stocks over $10. If I can find issues on the NYSE, stocks even like Dell or Krispy Kreme, then I will go with them....many of the smaller issues I have been "shaken out" as they say in the business because a company trading at $4.00 a share, needs to go down only $.32 to reach the 8% stop.

Back to Home Depot. This is a long time growth stock favorite. Recently, it has sold off with relatively slower growth, presumably due to stiff competition with Lowes among other retail outfits.

Last quarter, just reported today (!), sales increased to $15.1 billion from 14.2 billion. However same store sales dropped 1.6% (a negative) although EXPECTATIONS were for a 2-4% drop in same store sales. what is important here is what the 'street' was expecting and HD outperformed.

Looking at Morningstar we find that sales have grown from $24.2 billion in 1998 to $30.2 billion in 1999, $38.4 billion in 2000, $45.7 billion in 2001, and $53.6 billion in 2002. Extrapolating out the first quarter...which is probably unreasonable due to somewhat seasonality of retail business, we can see a near $60 billion rate for the year 2003.

The cash flow of this company has really turned around as well from a -762 million in 2001 to a positive 2.57 billion in 2002 and the TTM as Morningstar says...is $3.6 billion in positive cash flow (TTM is 'trailing twelve months').

Anyhow, the issue is not perfect....but at a p/e of 17.9, this issue is ripe for the picking. Good luck and remember to hold to the 8% stop loss. I do own some shares of this stock among my different accounts...as do members of my family. Bob"
 
Home Depot (HD) closed at $36.19 on August 3, 2007, for a gain of $5.09 or 16.4% since posting.
 
How did they do in the latest quarter?
 
On May 15, 2007, Home Depot announced 1st quarter 2007 results.  Net earnings came in at $1.0 billion or $.53/diluted share, down from $1.5 billion or $.70/diluted share the year earlier same period.  Sales for the quarter came in at $21.6 billion, up 0.6% from the prior year same period.  More telling, however, was the figure on 'same-store sales' which showed a (7.6)% decline year over year.
 
What about longer-term results?
 
Reviewing the Morningstar.com "5-Yr Restated" financials, we can see the recent dip in revenue, earnings dipped from 2005 steadily to 2007 and are up in the trailing twelve months.  Free cash flow is nicely positive and the balance sheet is adequate. 
 
How does the chart look?
 
Looking at the "Point and Figure" chart on Home Depot from StockCharts.com, we can see the dip in 2003, the recovery in March, 2006, and the apparent resistance to upward price moves.  Overall, the chart is less than exciting.
 

Thus, with the weak earnings report and negative same-store sales, and un-impressive chart, with the knowledge of the continuing real-estate and home-building challenges,
 
HOME DEPOT (HD) IS RATED A SELL
 
Thanks so much for stopping by and visiting my blog!  If you have any comments or questions, please feel free to leave them right on the blog or email me at bobsadviceforstocks@lycos.com.
 
Bob 


Posted by bobsadviceforstocks at 10:26 PM CDT | Post Comment | Permalink
Baldor Electric (BEZ) "Weekend Trading Portfolio Analysis"

 

 

 

 

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 amater investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

One of my goals of this blog is to share with you my own experience in investing.  As part of this transparency I have been on a regular basis reviewing each of my stock holdings which now number twenty.  On July 7, 2007, I reviewed Wolverine World Wide (WWW).  Alphabetically, that was the bottom of th list.  Starting at the top once more I am at Baldor Electric (BEZ). 

Let's take a closer look at Baldor, which being one of the latest additions to my portfolio is teetering on the edge of a sale.  

I first wrote up Baldor on Stock Picks Bob's Advice on May 4, 2007, when the stock was trading at $44.01/share.  Shortly after writing up Baldor, Doug S., one of my loyal readers on this blog, pointed out that much of the revenue growth was due to acquisitions.  My own review of this didn't lead to much concern, and the stock stayed in my portfolio.  Currently I own 140 shares of Baldor (BEZ) that were acquired May 22, 2007, at a cost basis of $47.19.  BEZ closed at $43.63/share on August 3, 2007, for a loss of $(3.56) or (7.5)% since my purchase.  I plan on selling my shares if they decline to an (8)% loss, which for Baldor would mean declining to .92 x $47.19 = $43.41/share.  The stock just needs to decline $.25 tomorrow to trigger a sale. 

(My ownership of  Baldor is confounded by a short purchase and sale....I purchased 140 shares on 5/4/07 and sold them 5/23/07 for a short-term gain of $352.50....these shares were sold because I 'accidentally' (!) purchased shares twice.  I then unloaded these shares and purchased Mesa Laboratories instead.  I wouldn't be near a sale point if I had been paying attention :(.   But regardless of all of that, I shall be selling my BEZ if it hits a sale point on the latest purchase.)

Let's take a closer look at this company and see if the stock still deserves a spot on my blog and a spot in my portfolio!

Since I recently reviewed Baldor, let's take a brief look at the chart, the latest quarterly report, and the Morningstar.com "5-Yr Restated" financials on this company and double-check the data! 

First of all the "point & figure" chart on Baldor from StockCharts.com:


You can see how confusing this picture appears.  The second purchase was a mistake.  I sold shares shortly thereafter but that gave me a new basis for the shares. Yikes.  However, while there has been some profit-taking and the market overall has certainly hasn't helped, the chart appears intact with prices well above the blue 'support line'.

What about that latest quarterly report?

On July 26, 2007, Baldor (BEZ) reported 2nd quarter 2007 results.  Net sales increased 139% to $491.6 million from $205.6 million.  Net earnings climbed 103% to $25.2 million from $12.4 million the prior year.  On a per share basis this worked out to a 42% increase from $.38/share to $.54/share this year.  However, the increase would have been even more except that the number of shares climbed almost 50% to 46.6 million from 32.8 million the prior year.

The company was pretty clear that much of the big increase was due to acqusitions, but the fact that they were able to significantly increase their earnings even with more shares outstanding is pretty encouraging to me.  

And the longer-term results?

Reviewing the Morningstar.com "5-Yr Restated" financials on Baldor (BEZ), we can see that revenue growth is uninterrupted.  Earnings which did dip after 2004, have now strongly rebounded to higher levels than even the $1.10/share in 2004.  The company has been paying a dividend, and also increasing that dividend.  Free cash flow is positive and growing, and the balance sheet looks fine although the long-term debt is a bit impressive at $1.9 billion.

Even though I am just 25 cents from a sale, the latest quarter looks fine, the chart appears intact, and the Morningstar.com page looks adequate except for the long-term debt, which should be able to be handled with the growing free cash flow.

Thus,

BALDOR ELECTRIC (BEZ) IS RATED A BUY 

Thanks so much again for stopping by!  If you get a chance, be sure and visit my Stock Picks Podcast Page and I shall make a good effort at posting a new podcast this month.  In addition, to review my trading portfolio performance, be sure and visit my Covestor Page for BobsAdvice, and also for all of my picks and a review of my picking performance, stop by and visit my SocialPicks page which summarizes and evaluates my stock picking relative to the world of stock pickers and analysts.

Have a better week trading!

Bob


Posted by bobsadviceforstocks at 9:30 PM CDT | Post Comment | View Comments (2) | Permalink
"Looking Back One Year" A review of stock picks from the wek of February 13, 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.

What a volatile week we had in the market!  The Dow closed out the week Friday with a 281.42 point loss representing a 2.09% pullback in that index.  The NASDAQ composite was even worse closing at 2,511.25 down 64.73 just on Friday alone, a loss of 64.73 points or 2.51% on the index.

Glad to see that week completed!  I do not know how the market will move on Monday, this week, this month, or this year.  I do know that I shall still maintain my investment strategy of monitoring my holdings closely, selling them quickly on losses, and slowly and partially on gains.  

Let's take a look at some stock picks from last year. As is my practice, I reviewed stock picks from the week of February 6, 2006 last wekeend.  Going ahead a week, I want to review the picks from the week of February 13, 2006.  For the sake of this review, this evaluation assumes a buy and hold strategy for all of the stocks selected.  In actual practice, I advocate and employ a disciplined strategy of limiting losses by selling declining positions quickly and completely, and partially selling appreciating stocks at targeted appreciation levels.  This difference in strategy between this review and my actual practice would certainly affect the overall outcome of stocks selected from this blog.  However, for the ease of evaluation, I plan on continuing to use the "buy and hold" analysis for reviews.

On February 14, 2006, I posted Chico's FAS (CHS) on Stock Picks Bob's Advice when the stock was trading at $47.61.  CHS closed at $17.99 on August 3, 2007, for a loss of $(29.62) or (62.2)% since posting.

On May 30, 2007, Chico's FAS announced 1st quarter 2007 results.  Net sales for the quarter increased 16% to $453 million from $391 million in the same 2006 quarter.  During the quarter comparable store sales decreased 1.6%.  Net income for the quarter dropped from $52.5 million in 2006 to $47.2 million in the same quarter this year.  Net income dropped to $.27/diluted share from $.29/diluted share last year.

The bad news does not appear to be over for Chico's.  On July 11, 2007, Chico's reported that June 'same-store sales' declined (7.3)% in June.

With no good news in sight from my perspective, as well as a poor technical chart,

CHICO'S FAS (CHS) IS RATED A SELL

On February 15, 2006, I posted Roper Industries (ROP) on Stock Picks Bob's Advice when the stock was trading at $42.31.  ROP closed at $60.25 on August 3, 2007, for a gain of $17.94 or 42.4% since posting.

On July 26, 2007, Roper Industries reported 2nd quarter 2007 results.  Second quarter sales came in at $531 million, up 25% over last year's $425 million in sales.  Net earnings came in at $61.2 million up from $48.1 million last year.  This worked out to $.66/diluted share, up from $.53/diluted share.

The company beat expectations as analysts had been expecting $.65/share in earnings on revenue of $513 million.  The company also raised guidance on 2007 earnings results with $2.60 to $2.66/share now expected, up from the prior guidance of $2.54 to $2.64/share.

With this solid earnings report and raised guidance as well as a strong chart,

ROPER INDUSTRIES (ROP) IS RATED A BUY

 

 On February 16, 2006, I posted Barnes Group (B) on Stock Picks Bob's Advice when the stock was trading at $39.11.

Barnes had a 2:1 stock split on June 12, 2006, making my effective stock pick price $19.56.  Barnes (B) closed at $27.40 on August 3, 2007, for a gain of $7.84 or 40.1% since posting.

On August 2, 2007, Barnes (B) reported 2nd quarter 2007 results.  Revenue came in at $359.5 million, up 16% from $308.9 million last year.  Earnings came in at $28.4 million or $.49/share, up from $18 million or $.34/share in the same quarter in 2006.  The company beat expectations on earnings which had been expected by analysts to come in at $.47/share.  However, revenue came in a little bit low of expectations which were expected to come in at $362.1 million according to Thomson Financial.

With this strong earnings report, and a strong chart,

BARNES GROUP (B) IS RATED A BUY

On February 17, 2006, I posted Micronetics (NOIZ) on Stock Picks Bob's Advice when the stock was trading at $16.22.  NOIZ closed at $9.67 on August 3, 2007, for a loss of $(6.55) or (40.4)%.

On June 29, 2007, NOIZ reported 4th quarter 2007 results.  Revenue for the quarter fell 27% to $6.3 million from $8.6 million last year.  Net income declined to $340,063 or $.07/share, down from $942,109, or $.19/share last year.

With this poor earnings report and weak chart,

MICRONETICS (NOIZ) IS RATED A SELL

So how did I do with these four stocks picked during the week of February, 13, 2006?  Well it certainly was a 'mixed bag' with two gainers and two losers.  The overall performance was a loss of (5.03)%.

This once again demonstrates how there is nothing magical about what I have been doing here and the necessary sales on small losses!  

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

Bob 

 

 

 

 

 

 

 

 

 

 

 


Posted by bobsadviceforstocks at 5:21 PM CDT | Post Comment | Permalink
Saturday, 4 August 2007
Market Comment: Picking up the Pieces after Last Week's Action!

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

I would be negligent if I didn't acknowledge the fast and sharp correction in virtually all of my holdings this past week.  I am not immune to market action. 

But as of this date, during this particular correction, none of my stocks have been sold.  But four of the twenty are now at the cusp of being sold.

Baldor Electric (BEZ) is carrying a (7.54)% loss since my purchase of shares, Hologic (HOLX) is at a (6.77)% loss, National Oilwell (NOV) is a (7.02)% loss, and VCA Antech (WOOF) is showing a (6.21)% loss.  These stocks are close to my (8)% loss limit.  I have set that up as a level that I sell stocks after an initial purchase.

In addition, after a single sale at a gain, I implement sales of remaining shares if they drop to break-even.  Also, if I have sold shares more than once at different appreciation targets, such as a holding like ResMed (RMD) which I have sold twice at 30% and 60% levels, I allow that stock to decline to 1/2 of its highest appreciation-sale level before selling shares.  In other words, since ResMed (RMD) has been sold at a 60% target, if the stock shoud decline back to a 30% appreciation level I plan on selling all remaining shares.   (ResMed closed Friday at a 47.82% appreciation level, so this particular stock is not currently near a sale point).

Also, after any sale on a decline, I consider this a sale on "bad news".  This difference is critical as I do not have "permission" to re-invest those proceeds in another position.  Instead, those proceeds must be used to either pay down my margin (which is still significant) or simply add to a cash position.  The only exception is if I have shrunk the size of my portfolio down to a minimum level of equity exposure which for me is 5 positions.  Recall that 1/2 of my maximum of 20 positions (where I am at currently) is called "neutral" or 10 positions.  The minimum is 1/2 of that or 5 positions.  Since my 'strategy' requires me to respond to my own portfolio, I cannot completely get into cash as I shall not have a signal to be buying new positions!  Thus, at my minimum, if I receive a 'sell signal' then I would indeed plan on selling that stock, but I shall also plan on replacing that stock with a new position selected through the same techniques I use to pick stocks on "good news".

Wish me luck!

Remember that I am truly an amateur, so do consult with professional investment advisers to see even if this particular approach is appropriate for you.

One important note.  Throughout this discussion you will see that I am not predicting the market action.  I shall reserve the right to sell EVERYTHING if I feel there is something terribly fundamentally wrong with the market.  Just as I reserve the right to over-ride my own trading rules and do something arbitrary.  However, I haven't been doing this very often at all.  And the very rare times that I have done so, I have generally been wrong.

I do believe in the long-term financial prospects of stock markets, especially the stock market in the United States.  That is the one I am most familiar with.  And thus, my goal is not to be shaken-out of investments by corrections, but not to put my head in the sand either.  I shall continue to work at responding to my own portfolio's signals and see if this shall continue to be profitable for me.

Have a great week trading everyone!

Bob 

 

 


Posted by bobsadviceforstocks at 5:36 PM CDT | Post Comment | Permalink
Updated: Sunday, 5 August 2007 9:18 AM CDT
Friday, 3 August 2007
A Reader Writes; "I have two questions:"

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 market sure was just terrible today.  If your portfolio is anything like mine, I am sure you incurred some serious losses.  I haven't sold anything at this time as I have my sale points all set and a couple of my holdings are now nearing sales.  The important thing, however, is that I have anticipated this possibility and have definite price levels at which I shall be parting with these companies.

I had another nice email from a reader today which I wanted to share with you and answer on the blog as it raises some good questions about my own method of selecting stocks.

Vijay wrote:

"Bob,
I am very new to stock market investing, and your blog is one of the more illuminating ones that I have come across.  It is one of the very few that I religiously read every day.

In one of your recent posts, you had mentioned that you buy only those qualifying stocks that are in the top % gainers of the day.  I have two questions:

1. Is it not ill advised to buy after a stock has already gained big?
2. How far down the list of gainers do you go, and where do you get this list?

Thanks
Vijay"

Vijay, thank you for writing and especially thank you for those kind words.  In days like today, any words of encouragement are appreciated. 

I do not know if I deserve the credit that you assign me and I am sure there are many other websites that deserve your attention and are equally if not more illuminating.  But I shall strive to continue to be informative so that your visits are worthwhile.

Regarding your first question:

"1. Is it not ill advised to buy after a stock has already gained big?"

Certainly if stock price movement were random events then buying after a stock rise might be considered risky because it would be more likely subsequently to be incurring declines.  But stock price movements aren't random.  They are, from my perspective, the result of many different forces acting upon stocks including earnings, expectations, industry expectations, and the overall market action. 

It has been my observation that the stocks that are moving higher in a significant fashion may well include among them stocks that will make very significant moves higher following the initial spike in the stock price.  I simply start with this list, and then look carefully at the underlying reasons for that price move.  I examine their latest quarterly result, their Morningstar.com results, the price chart and valuation numbers.  It is not enough that a stock should have moved higher one day.  But it isn't a bad place to start in trying to identify stocks that are likely to move higher in the future.  That at least has been my experience.

Your second question:

"2. How far down the list of gainers do you go, and where do you get this list?"

I will go all the way to the bottom of the list, which usually has the 50 top % gainers on the NYSE,  NASDAQ and AMEX markets.  When I write up my reviews, I generally include a hyperlink to the underlying information unless you are reading my blog on another website where this link is no longer available.  I have found the Money.cnn.com website the most helpful.  (http://money.cnn.com/data/gainers/nasdaq/?).  This is the link for the NASDAQ top gainers.  There are many other sources of top % gainers including even USA Today.

I hope this answers your questions adequately.  If not, please feel free to comment right on the blog or email me at bobsadviceforstocks@lycos.com.

As your positions decline in price, you will all find it helpful, I believe, to anticipate any degree of price appreciation or price declines with planned sales either to limit losses or to lock-in small gains on appreciating stocks.

Bob


Posted by bobsadviceforstocks at 5:06 PM CDT | Post Comment | Permalink
Wipro (WIT) "Clearing up a Comment!"

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.

On Wednesday, I answered a reader about my investment strategy.  He asked in particular about Wipro (WIT), the Indian outsourcing firm.  I am a big fan of Wipro stock, and my stock club actually owns a few shares.  

Somehow, Social Picks, the website that tracks my 'picks' interpreted my evaluation as a "Sell" on the stock.  This was not my intention in case you happened to read my review on that website.  I am a great fan of Social Picks, and if you are interested you can visit my SocialPicks Page where all of my discussions have been reviewed since January, 2007.  

Just to make sure, I took a quick look at Wipro (WIT).   Their latest quarterly report was positive.  The Morningstar.com "5-Yr Restated" financials on WIT are intact, and the StockCharts.com "point and figure" chart on Wipro appears to be still bullish to me.

For all of these reasons, I still maintain that

WIPRO (WIT) IS RATED A BUY

I hope that clears up the confusion.

Thanks again for dropping 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 


Posted by bobsadviceforstocks at 12:00 PM CDT | Post Comment | Permalink
Wednesday, 1 August 2007
A Reader Writes "When would you be buying....? and ....your overall strategy?"

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

One of favorite things about writing this blog is receiving emails from readers about things I write about.  As I have mentioned before, I cannot answer every email I receive, but I do read them all and when I get a chance, enjoy responding right on the website.

This afternoon I received an excellent note from Balaji V. who wrote:

"Bob:

Sometime back, I saw your blog and I have been
visiting your blog now and then. Your way of analysing
the stocks is good. Your analysis are very simple,
easy to understand.

I came across an analysis for Wipro (WIT). Assuming
you have a 'permission' to buy (and we are in an
uptrend), when would you be buying this stock ? For
the last few sessions, the market is kind of zig
zagging, without a direction.

Also, is it possible for you to create a separate link
which explains your method ? I have gone through
several of your postings to find how you pick the
stocks and your overall strategy. But IMHO, if you
could put a separate page, it would really help people
like me, who is starting to invest (I understand and
respect your disclaimer).

TIA for your time.

Regards
Balaji V"

Balaji, thank you for writing!  I would like to answer your questions in two different parts.  First of all you write about WIPRO (WIT) a stock that I first wrote up on October 4, 2004, when the stock was trading at $20.86.  WIT had a 2:1 stock spit September 2, 2005, giving me an effective pick price of $10.43.  WIT closed today (8/1/07) at $14.42, for a gain of $3.99 or 38.3% since posting.

But your question is not about me.  It is about you.  And you asked me when i woud be buying the stock assuming I have a "permission" to do so.  

You have made an excellent observation that the first part of deciding to purchase a stock for me is to have permission to do so.  I get this "permission" by a partial sale at a gain at a targeted appreciation price in one of my existing holdings.  Assuming I was not at my maximum portfolio size (I currently am at my maximum of 20), this would 'entitle' me to add a new position.

My own 'idiosyncratic' system doesn't allow me to buy shares of WIT just because i like it and the company is doing well.  I restrict myself to stocks that are on the list of top % gainers in the market that particular day.  If there are no stocks on the lists of top % gainers that meet my criteria then I wait an additional day.  I usually can find a stock that works for me by the second day if not almost immediately.  So I wouldn't be buying shares of WIPRO unless that particular stock was on the list of top % gainers the day I was selling shares at a gain.  In which case, I could buy WIT if it was on the list.  Otherwise I would be buying something else.

You don't have to follow that particular rule.  I am not sure it is necessary.  But I have been following that rule for the last several years.

Regarding my overall strategy, it would be a good idea to place my strategy on a separate page.  Long-term I have even thought about writing a short book on my strategy.  I am not sure if there would be any market for it at this time.  I am still an unknown amateur but I think I have some good ideas.

My overall strategy could be expressed in the summary that it is important to decide WHAT to buy, WHEN to buy and WHEN to sell.  

The WHAT to buy for me is to start with the top % gainers list, check the latest quarterly results, look at long-term results on Morningstar.  I insist on revenue growth, earnings growth, free cash flow, stable outstanding shares, and a reasonable balance sheet.  I look at a few valuation numbers, and like to see a chart that is basically moving higher.  Each entry repeats this strategy over and over.  I think if you follow a half-dozen entries or so it will become clearer to you.

WHEN to buy is easy as well.  

Before I comment on that I want to point out that my portfolio has a relatively elastic number of positions.  That is, I currently have 20 positions (different stocks) in my trading account.  That is my maximum number of stocks I wish to own right now.  (In earlier entries I have written about a maximum of 25 positions.  But I chose to stop at 20 until my ever-present margin balance is erased).

I consider 10 positions to be in "neutral" posture.  Ideally, one would have 505 cash and 50% equities at that point.  My minimum is 1/2 of that or 5 positions, and my maximum is double that or 20 positions.  When I sell a stock on "good news" I have a signal that is encouraging and I look to the 'top % gainers lists' for a new holding.  On the other hand, stocks on declines or fundamental problems, I consider selling on 'bad news'.  On those events I 'sit on my hands', essentially moving further into cash from equities.

My basic exceptions to this are at times when I am either at a minimum equity exposure (5 postions) in which case if I sell a holding on bad news, I plan on replacing that holding with a new name, or if I am at 20 positions and I sell a portion of a holding on good news; in that case, I also use the proceeds to add to my cash position (or pay down my margin).

The second point that shoud be made is that when I sell stocks on 'bad news' I sell the entire position.  On good news, I sell only 1/7th of my holding (rounded down) so that I exercise a bias against poorly performing stocks.  That is I sell my poorly performing stocks quickly and completely and sell my better performing stocks slowly and partially.

Let me talk a little about the WHEN I sell.  First the good news part.  I sell stocks at intervals of appreciation that I group by four sales.  That is I have appreciation targets of 30, 60, 90, 120, then 180, 240, 300, 360, then 450, 540, 630, and 720, and then 840, 960% appreciation targets etc.  At each of these levels, I sell 1/7th of my remaining shares.

And the bad news sales?  First of all, I reserve the right to sell if any bad news is announced.  And I reserve the right to define that bad news myself.  This is regardless of the price move.

Based on price moves, I sell a stock after a purchase if the stock should decline 8% no matter how long I have held the stock.  Sometimes they drop even a day or two later.  If I have sold once on 'good news', which for me would be a 1/7th sale at a 30% appreciation target I push up my 'stop' to break-even.  Otherwise, if I have sold a portion more than once, for instance three times with the highest sale point at 90%, then I sell ALL remaining shares if the stock should decline to 1/2 of that highest appreciation level.  That is if the stock should decline to a 45% appreciation level (over my purchase) from a 90% appreciation level where a portion was sold, then my sale would be triggered and the entire position would be liquidated.

Anyhow, that's my strategy in a nutshell.  If you review my past entries, I think you will get a better handle on my approach.  Please let me know if you have additional questions.  And I will think about that additional page.

Please feel free to leave comments or questions on the blog or email me directly at bobsadviceforstocks@lycos.com.

Bob 


Posted by bobsadviceforstocks at 6:16 PM CDT | Post Comment | Permalink
Updated: Wednesday, 1 August 2007 6:18 PM CDT

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