I'd like to inform you that I won't be publishing too many new entries in the immediate future because I have carpal tunnel in my left hand.
As the condition improves, I'll let you know what I've been up to, and start providing lots of new, quality posts.
Please keep reading, stay faithful, and happy investing!
Thursday, September 27, 2007
Sunday, September 23, 2007
Other than the huge rate cut, what else has been in the investment news every day lately? The answer is the increasing price of oil. Even as the stock market rallied through the end of the week, the price of oil kept rising, hitting a all-time actual dollar (non-inflation-adjusted) high, before losing a little ground in the little of the week.
There's a few things causing this high price; MidEast instability, hurricanes in the Atlantic, and some supply/demand issues in the United States. However, I feel as though oil (and oil stocks) are currently overpriced, and are set to correct as soon as the price of oil does.
Sure, predicting a peak is difficult, but I think that you don't have to be exactly right to profit off of this current oil bubble. As the chart below (of Exxon [XOM]) demonstrates, the stock's price is quite volitile and moves quickly and significantly as the price of oil changes.
Now here's a chart of the price of oil, over approximately the same period:
The correlation is obvious, and consistent. Also, on the chart of the price of oil, you can see how the current price run-up has increased volume, and therefore, speculation.
On Exxon's chart, you can see how as the price of oil declined earlier in the summer, the stock lost about 15% of its value in a rather quick period. That's exactly the decline that I foresee happening soon, and that I aim to profit from.
In the next week, I think the price of oil may stay steady; there's a few areas in the tropics that may turn into storms, which always cause jitters and cause the price of energy to rise. However, summer driving season is now over, and as gasoline prices rise to reflect the current price of oil, people will be further discouraged from driving, decreasing demand.
So, as I feel as though the price of oil is going to flatten and drop (it may already be happening now, as the price was down marginally on Friday the 21st), I'm going to try to initiate a short position in a big oil producer, or just buy some put options. There's lots of companies that I could see this working for: Exxon (XOM), Chevron (CVX), and ConocoPhillips (COP) are some names that come to mind. Also, iShares has an ETF made up of lots of oil companies with the symbol IXC - it may be an option to get into the general market without the risk associated with a specific company.
Overall, I think that the price of oil is going to continue to rise in the long term, until alternative energies become a reality. I'm currently long in Marathon Oil (MRO), because much of their business is refining, not production, and they are less effected by the daily price of oil.
After trying to profit from the short-term downturn, I plan to go long in oil, whether in the ETF (IXC) or an individual company. After correcting in the near term, black gold will shine in the future.
Last week was a very big week for me; my positions in my portfolio changed significantly.
I sold my long position in Hovnanian, as it was up 50% in three sessions, to a price that I felt was inflated. (So far, I was correct, as the price has fallen almost $2 from when I executed my sell order).
I was also long in some Hovnanian 12.5 September calls, which thankfully, I was able to sell for a nice little profit. I also had some Abercrombie 80 September calls, which I sold for a little more than break-even.
I'm looking to re-initiate a long position in a homebuilder at some point, once the market settles down a little bit - with earnings being reported from a couple builders this week, the potential volitility is a little more than I am comfortable with. I may or may not choose Hovnanian again; I might choose a safer play. as Hovnanian is probably one of more-endangered builders. However, I still do think HOV will not go bankrupt, and it will trade at two, three, or four times today's price, but I don't know if I want to reintroduce that risk to my porfolio now.
In other news, Syntax-Brillian (BRLC) finally bounced a little bit; I initiated long-term options position $2.50 calls, expiring January), increasing my exposure to the company with some deep-in-the-money, limited-risk calls.
Heelys (HLYS) also finally had a few positive sessions; once again, I reiterate that the company currently looks fundamentally cheap. It's a very long-term hold.
Now that I've pretty much eliminated all short-term plays from my portfolio... its time to get a new one! And for the first time in my life, I'm looking to go short and/or buy puts.
Look at the next post for what I'm thinking about.
Wednesday, September 19, 2007
Investors that held long positions as of 2:14 Tuesday should appreciate Mr. Bernanke's decisions. The interest rate cut catalyzed a rally that has now lasted two sessions and 3-4%.
I personally can thank him for some investing success. I had purchased September calls for Abercrombie (ANF) and Hovnanian (HOV) about a month ago, when they were both close to the respective strike prices (80 and 12.5). In the month, they were flat or down, and my options were going to expire worthless.
However, Mr. Bernanke came to the rescue and surprised the market with a 50 basis point cut. Both Abercrombie and Hovnanian shot up, and the contracts became in-the-money. (Interestingly, I half-jokingly predicted with almost 100% accuracy the Hovnanian gains; read my post here.)
Anyway, just because I should disclose this anyway, I sold my options in both Abercrombie and Hovnanian, and I sold my equity position in Hovnanian today with a well-executed stop-loss order. For the record, I still love the homebuilder's prospect's for the future; I will be looking for a lower reentry point sometime very soon. However, I feel the run-up to 15 was largely unmerited and a bit of a chain-reaction, so I'm currently waiting on the sidelines for things to settle down.
Thanks to Mr. Bernanke, my personal portfolio was up 10% on Tuesday, and I am now exactly even for the quarter. (Prior losses in Hovnanian, Syntax-Brillian, and others had hurt my performance).
Looking ahead, I am uncertain; the crystal ball that I used to predict the rally Tuesday is now out of commission. I watched Mad Money tonight for the first time in a while, and Cramer predicted that this is just the beginning of a huge bull market. I can't say that I agree with taht statement; with still-unresolved (and possibly still worsening) housing/credit problems in the United States and Europe, I don't think the world markets are financially sound enough to have an organic, fundamentally-based rally. The euphoria from the interest rate cuts may last a few more sessions, then people will probably start to profit-take.
My advice? Keep your eyes on the long-term prize. I'm long Toyota (it's the biggest position in my portfolio, at about 20% of assets). It is down a couple bucks from where I bought it in the middle of the summer, and frankly, I'm not too sure it's going to go up significantly anytime soon (due to the possibly-weakening economy, tight credit, etc). However, I'm 97% sure that in two or three years, based simply on fundamentals, Toyota could easily be a $200 stock.
Trying to profit from volatility is tempting, and if you succeed, congratulations. But if you look at the world's greatest investors - people like Warren Buffet - they seek out great values, and great companies, and reap great returns.
Monday, September 17, 2007
For a fun, lighthearted post, I'm going to make some far-fetched (bordering on ridiculous) speculations about the possibilities of movement in Hovnanian (HOV) share price in the next few days.
Wild Scenario 1:
Hovnanian trades flat in early trading tomorrow. At 2:30 tomorrow afternoon, the Fed announces that they are cutting interest rats by 50 basis points. Hovnanian is up 13% in the past two sessions and is still feeling the effects of the strong weekend sales. It immediately jumps 10%, along with the rest of the homebuilders, as well as the mortgage companies and entire financial industry in general. After this move to $12.50 or $13, shorts react to cover their positions to preserve gains from trades at $15, and the short squeeze propels the price higher. Hovnanian closes at $14, posting a 20% daily gain based on a chain reaction of good news and trading nuances.
Wild Scenerio 2:
The Fed keeps interest rates steady due to inflationary fears, disappointing the market. Hovnanian, having recently sold off lots of its inventory at a steep discount, falls back to $9 as the financial and homebuilding sectors crash.
Mild Scenerio 3:
The Fed cuts interest rates by 25 basis points, with language that implies that further cuts could cautiously be made in the future, depending on continuing economic circumstances. The market is flat, unimpressed by the cut but appeased by the wording.
DISCLAIMER: This was a fun little "what-if." But it is in NO WAY intended to be a realistic analysis of expectations of things to come. Invest, don't gamble. I'm in it for the long term. Don't take anything in this post as anything remotely resembling financial advice, recommendations, or analysis.
Sunday, September 16, 2007
I just found this little write-up:
1. Apparently, the sale went well, at least in some regions. Like I said in the analysis, I think that will be good, at least in the short term.
2. Also, they said that they would release official sales figures Tuesday. Coupled with the Fed meeting, Tuesday will probably be a make-or-break day for Hovnanian, depending on the news.
It's going to be a wild week... like I said before, I like the long term prospects of the company; the short term is too unpredictable and risky.
The housing bubble has been one of the most talked-about topics over the past year. Due to low interest rates and lots of individual and corporate speculation, housing prices artificially blossomed right after the turn of the millennium. As a homebuilder, Hovnanian (HOV) benefited from this trend. I have a chart below in the article, and take a look at it; the "stock price" is my approximate average yearly price based on real monthly close price over the past 10 years. As you can see, Hovnanian's stock enjoyed an incredible increase in the years up until July of 2005, when it had a monthly close of $70. The stock was trading in the $3-5/share range in the late 1990s, and if you had timed the low precisely, you could have purchased shares for $2.75 each in May 2000, scoring yourself a 25-bagger if you had timed the low and high precisely. (That's unrealistic, and not the point of this article. But in doing the research for this analysis, those were some interesting statistics I sorted through). Fundamentally, Hovnanian is very cheap right now. I can't do this analysis based on P/E, because Hovnanian is currently losing money (as homebuilders regularly do during the negative parts of the housing cycles). Plus, according to lots of professional, successful analysts, price to book value is a much better indicator of true company worth. Below is a chart plotting my approximate average yearly share price versus a mathmatical function of the yearly price/book value ratio. (Price data was obtained at finance.yahoo.com, while price/book ratios were found at Morningstar.com.) ((Book Value x 4)/1.6)^2. The formula allowed the data to be comparable on the same graph. If you'd like a further explanation, click here to download a short explanation in microsoft-word format. My point is, the share price of Hovnanian has closely followed its book valuation over its history. However, today represents its lowest price/book ratio in the 10-year statistical history, by far. Here is the history, in one-year intervals:
The formula that I used to create a chart that exemplified my point was:
The housing bubble has been one of the most talked-about topics over the past year. Due to low interest rates and lots of individual and corporate speculation, housing prices artificially blossomed right after the turn of the millennium.
As a homebuilder, Hovnanian (HOV) benefited from this trend. I have a chart below in the article, and take a look at it; the "stock price" is my approximate average yearly price based on real monthly close price over the past 10 years. As you can see, Hovnanian's stock enjoyed an incredible increase in the years up until July of 2005, when it had a monthly close of $70. The stock was trading in the $3-5/share range in the late 1990s, and if you had timed the low precisely, you could have purchased shares for $2.75 each in May 2000, scoring yourself a 25-bagger if you had timed the low and high precisely.
(That's unrealistic, and not the point of this article. But in doing the research for this analysis, those were some interesting statistics I sorted through).
Fundamentally, Hovnanian is very cheap right now. I can't do this analysis based on P/E, because Hovnanian is currently losing money (as homebuilders regularly do during the negative parts of the housing cycles). Plus, according to lots of professional, successful analysts, price to book value is a much better indicator of true company worth.
Below is a chart plotting my approximate average yearly share price versus a mathmatical function of the yearly price/book value ratio. (Price data was obtained at finance.yahoo.com, while price/book ratios were found at Morningstar.com.)
((Book Value x 4)/1.6)^2. The formula allowed the data to be comparable on the same graph. If you'd like a further explanation, click here to download a short explanation in microsoft-word format.
My point is, the share price of Hovnanian has closely followed its book valuation over its history. However, today represents its lowest price/book ratio in the 10-year statistical history, by far. Here is the history, in one-year intervals:
Youcan see that the price/book value is inflated in a great (overvalued/bubble) housing market, while depressed in a tough housing market. However, even during the bottom of the previous housing cycle in the late 1990's, the lowest price/book ratio Hovnanian had was 0.6. Today, that ratio is 0.4. That number is one-third lower than the previous low, which is statistically significant; if the stock was trading at a 0.6 book value today, it would be over $16/share.
So, strictly on valuation, I think that Hovnanian is currently looking fundamentally cheap. However, I think that there are other reasons why Hovnanian is attractive right now. The company does business in at least 19 states, with multiple markets within most states. They create housing developments, but also will build one of their housing plans on an individually-owned lot. This diversified business model will, I believe, help to cushion the effect of this housing bust. Yes, Hovnanian is exposed in some of the worst markets, like Florida and California, where housing is expensive and speculation was rampant. However, it also has operations in communities right around me in Western Pennsylvania, where housing prices are steady, or even increasing.
Hovnanian has already cut many of its losses, writing down land and options in some of the most expensive, volatile markets. I'm not going to naively predict a full housing recovery in the near term, but I believe that Hovnanian has already accounted for many of its liabilities.
Plus, two short-term events could positively affect Hovnanian's business.
First, the "Sale of the Century," a three-day event this past weekend that included price slashes of up to 20% on Hovnanian homes, could generate lots of cash, allowing the company to keep operating normally while removing some of its financial obligations. Though a deeply-discounted home will obviously not yield as much as a full-price home, right now I think it's important for Hovnanian to unload lots of the homes and land that they currently have to pay to maintain. An important feature of the sale is that many of the less-expensive properties will now fall below the price cutoff of a jumbo-mortgage, allowing buyers access to more affordable rates, especially because the lending market has tightened.
Second, the result of the Federal Reserve meeting on Tuesday will surely affect Hovnanian. Surely, a cut will be beneficial, allowing freer access to capital for all. I think that the general market reaction is going to be more unpredictable; it currently seems like either a 25- or 50-basis point cut can be the right or wrong decision. However, I think that the news of any cut, which should occur, will at least be a symbolic gesture that will help restore some confidence.
I have no idea when the bottom of the housing market, and stocks like Hovnanian, will occur. Personally, I initiated a long position in Hovnanian around $15/share, when I thought it was cheap; it's 52-week high is around $40. However, I have no idea if $10 a few days ago was HOV's bottom (that's the least likely scenario), or if it may fall back to $10, or $8, or even less in the coming months or years. However, I think that Hovnanian has the fundamentals to survive this bust; even if it becomes more troubled than it is, I can see a large bank or investor not allowing the company to go out of business.
Hovnanian was probably overvalued at $70 when the housing market was at its over-inflated peak, but I don't think it's a $10 stock either. Based on a rough average price/book valuation of 1.5, that translates to a stock that would be $40 based on today's book value. Even if that estimate is high, it's clear that Hovnanian is clearly NOT a $10 stock.
I don't give financial advice, but if I did, I would not recommend getting into this stock tomorrow morning in anticipation of good news concerning the sale and the Fed. Those are two short-term good-news injections that may temporarily raise the stock price. However, I think the big picture is more important; Hovnanian is trading at a historic low, both in terms of actual price AND valuation, and as the housing market recovers, in 1, 2, or 5 years, Hovnanian's share price should mirror the change.
Disclosure: Author is long HOV.
Friday, September 14, 2007
Thursday, September 13, 2007
The Dow was pleasantly up 130 points today, along with an almost 1% gain in the S&P 500 and a more modest 1/3% gain for the NASDAQ. The Dow was lead by Countrywide Financial, the struggling mortgage company. Today they announced that they secured an additional 12 billion dollars in financing, allowing the company to basically keep its doors open.
McDonalds was also up very strongly, continuing a multiple-session rally. To be honest, I was thinking about buying them a week ago at 48, but felt like waiting because I thought they may be overvalued... now I am uncomfortable buying at the current level. However, they just raised their dividend by 50%, adding valuation to the shares.
In my portfolio, Sun Microsystems continued its rally to close up another 3%. Marathon Oil was also strong today because of higher energy prices. Electronic Arts was up a few percent, as was CIT, a financial company that has nothing to do with subprime lending that was hurt by the financial crash during the early subprime crisis.
Heelys declined, but that's a long term play, so I'm not worried. My tiny position in BRLC, arguably the worst short-term decision I've ever made, fell additionally in the open market today after being down 25% after-hours today. However, I went with my investing instincts and doubled my position today, lowering my cost. Once again, I think this stock is super risky, but for dumb reasons; it's a solid company, but day traders and short sellers really manipulate the price and make it trade irrationally. The earnings for this year were $.48/share; it's now less than a 10 P/E company... and for such a high-growth company, I'm willing to take the risk, because BRLC shouldn't stay at this valuation once it starts behaving rationally again.
Right now, I've got September calls in Harley Davidson (HOG) and Abercrombie (ANF). Abercrombie was up nicely today, and hopefully I'll be able to get out of those profitably (I bought the contracts a few weeks ago, and the stock was marginally down for the time in between the purchase and now). HOG is simply a play on the utter destruction of that stock over the past few sessions; they altered guidance, and shares fell almost 20%. I'm hoping the price stabilizes, and I can make a small short-term gain.
Edit: Almost forgot about my new interesting little company, The Soyo Group (SOYO.OB). Yes, it's traded over the counter, but its an established company; it used to focus on making motherboards for certain gaming computers, but now it makes the most popular LCD at the 24 inch size with a whopping 50% of market share; check out the article here.
They're making money, which is very impressive for such a little company. They have big plans for the future; they're supposed to start making huge-screen HD TV's under the brand name Honeywell for 2008.
I bought a tiny position for $.56 yesterday; it closed at $.71. I was surprised by the huge jump on no news, and I'm sure its going to give up its gains in the next few sessions. But this is going to be on my long-term radar; if they can continue to grow, while producing good product, this could be a great long-term play. Look past the penny-stock assumptions; it's a real, established company that's turning a profit, not some pump-and-dump scheme like other comparably-priced offerings.
Wednesday, September 12, 2007
I'm glad that my risky position in BRLC was very limited. When it reported earnings today, the company pretty much matched this quarter's earnings but revised downward for the year.
The stock, which is known for volatility, dropped 25% afterhours. I think that that drop is an overreaction, and it will hopefully open higher tomorrow.
Long term, the company is fundamentally fine, in my opinion. In the earnings report, they came in at $.48/share for this year's earnings. As a $5 stock, as it's currently priced, it's trading at just a 10 P/E. The freak-out sell-off seems a little extreme, so hopefully, for investors with bigger positions than me, it will recover in the short term. However, I have no doubts that my investment will pay off in the long term; I buy for the future.
Elsewhere, the market ended flat as oil topped $80/barrel, after being up for most of the day.
I'll post another stock analysis soon - I've gotten too caught up caring about BRLC soon, instead of just letting it run its crazy course in the short term.
Early this morning BRLC announced that they would indeed be reporting earnings today, after pushing it back yesterday. Shares were up 5% in early market trading, but have fallen flat by the time I'm posting this (1130 EST).
If they report earnings this afternoon, I still believe the earnings will meet or exceed expectations, so I'm hoping this play will pay off over the next few sessions. Like I said before, I think it's a great company in a great industry for the current economic conditions.
Obviously none of my posts are supposed to be acted upon, but I would advise against entering BRLC at this point in time. If the company reports well and the stock jumps a dollar, there's still plenty of long-term upside left. But, even though I am long in BRLC, I wouldn't be surprised if the missed earnings or re-delayed or something else happened that caused the price to collapse.
That's all for now; as of post time, the NASDAQ is up a half-percent and the other indexes are following.
Tuesday, September 11, 2007
Well, BRLC was a disappointing story today... by earnings bet apparently backfired. They delayed reporting results today, sending the stock down almost 10 percent. I'm still positive long-term, but this short-term problem is indeed unfortunate.
EDIT: In fact, a few analysts have speculated that the earnings delay may be due to overwhelming sales. I'm not going to buy any additional stake, but I hope they are correct.
However, the market (and the rest of my positions) had a great day. The major indexes were up 1-2%, with some large gains in individual stocks.
My best position today was Sun Microsystems (JAVA), up almost 6% today because of great information about its new server product, Solaris. This stock has been the gem of my portolio so far: I bought shares on August 24th for $5 each ($5.05 after commission); the stock has returned a very healthy 14% since then. The stock is now bordering on being overbought, so I wouldn't be surprised if it has a few flat, or down, sessions. However, I think Sun is a great company that has been overlooked for a long time, and its business and share price will continue to grow. I'll probably have a full writeup on Sun sometime soon.
Also, today, another recent purchase, Electronic Arts (ERTS) was up a few percent. I think that they are in a great position right now; they have a ridiculously-hot selling NCAA football game as well as the ONLY NFL football game, and are releasing a game to compete with the hugely-successful guitar hero franchise for this holiday season.
Western Digital, Take-Two Entertainment, and Ebay also led the NASDAQ higher today; I've been looking to get into eBay for a while, but it just keeps going up and up.
Overall, it was a great day! Hopefully it will spill over into tomorrow.
Monday, September 10, 2007
Syntax Brillian Corp (BRLC)
As a consumer, you have probably never heard of Syntax Brillian before, and have no idea what they do. However, there's a good chance you have probably seen their products, and you might even own one yourself; they make LCD High-Definition televisions, under the brand name Olevia. Olevia is a discount brand; a fully-priced Olevia high-def TV may be 30% cheaper than a Sony that's on sale.
A major reason why I'm looking at the stock is because people seem to like the TVs: here is example from cnet.com. Cnet only gives the TV a 6, but 33 reviews contradict (some directly calling out!) Cnet's rating; the average user review is an 8.3, or "Excellent." I'm not going to try to sell you a TV, so I won't provide any more examples directly. Other sites I looked at had reviews of 7s or 8s out of 10, or 4 stars out of 5. It seems to be a good product at an excellent price.
One last example of how great of a deal the TV's are: here is a page from circuit city's website, featuring LCD TV's in the medium-size range. Notice that Olevia are the cheapest, followed by another discount brand (Vizio), and then the major manufacturers are hundreds of dollars more.
So how is that going to help BRLC increase in price? Here's my train of thought:
- Short Term:
- Retailers have been doing pretty well this summer, even during the "credit crunch" and worries about a recession. TV's should mirror that trend.
- It's baseball playoff time, and the start of football season, which is a major time of HDTV purchases.
- If consumers are becoming tight on money, what kind of TV are they going to buy? The well-reviewed, discount brand that's two-thirds of the price of the competition.
- Long Term:
- They have recently swung to profitability, and their forecasts are for a continued increase in revenue and profits. The TVs are appearing at more retailers across the country; the brand has plenty of room to grow.
- The fundamentals, based on current estimates, are solid: it's forward PE is only 8, based on today's pricing and estimates. For a high-growth company, that is ridiculously low. As long as BRLC doesn't guide lower, shares should have plenty of room to grow.
- I think that many Americans will be replacing the last generation of picture-tube TVs with the new LCD or Plasma TVs over the next 10 years. BRLC's position as a discount manufacturer is excellent to capitalize on that potential trend.
Here are revenue estimates: keep in mind these could change at any time, but assuming these figures are correct, they are very promising:
|Revenue Est|| Current Qtr |
| Next Qtr |
| Current Year |
| Next Year |
|No. of Analysts||5||5||5||5|
|Year Ago Sales||59.81M||87.02M||192.99M||690.47M|
|Sales Growth (year/est)||231.3%||194.9%||257.8%||84.5%|
BRLC is set to report earnings tomorrow, September 11th, after the bell. The earnings, and future guidance, will dictate much of the company's future. I honestly would not suggest getting into the company tomorrow, before the earnings come out, because that's a very risky play that could lose a significant portion of the investment. However, after the numbers and future projections come out, the picture will be clearer on whether BRLC is still the great long-term deal it appears to be today.
Plus, a very high percentage of shares are currently shorted, so if earnings are positive and the stock price goes up, a short squeeze could easily propel the price even higher. But like I said, don't enter a long position at this point; wait until earnings are released. Even if you miss some positive movement, the buying opportunity will not be lost.
I have been long on BRLC for a few days now, in anticipation of earnings, simply because the risk versus reward is worth it for me. Remember, anything written on this blog is for entertainment purposes only, and in no way is financial advice that you should act upon.
Following Friday's fiasco, today's trading began unpredictably. Futures began positive, then leveled off. During the course of the day, the markets swung up and down: the Dow traded in a range of 150 points, ending the day up marginally, while the Nasdaq was down almost 1% at one point, and ended with a loss of one-quarter percent. The S%P 500 recovered from a 1% deficit to close almost unchanged.
There were some movers today:
- Apple (AAPL) announced that it had sold its 1 millionth iPhone, and recovered $5 (3%) of last week's losses. The announcement verified that the iPhone is selling very well; Apple's own goal was to sell one million units by the end of September. The news today seemed to calm investor's nerves, after the unsettling price cut on the device last week.
- Countrywide (CFC) fell 5% today after announcing Friday that it was terminating another 12,000 jobs.
- Homebuilders declined, with all major companies falling by over 2%. My Hovnanian (HOV) led the way, giving up another 5% to close at a multi-year low. Hopefully, if the Fed decides to cut rates, the homebuilders will be the first to react positively.
- Harley-Davidson (HOG) fell an additional 3.5% today after declining almost 10% on Friday. A bleaker earnings forecast caused the decline; however, I feel as though the stock price may be over-reacting.
That's all for now; hopefully I'll have a chance to write another individual stock analysis later tonight or tomorrow.
Sunday, September 9, 2007
What will trading on Monday, September 10th be like? It's not certain, but lots of indicators are pointing to another day of selling. Asian markets were down during their sessions, and the market could likely keep reacting to the unfortunate economic news from Friday. Plus, there is now speculation that the Fed may not cut rates during its meeting this month, because of fears of uncontrollable inflation.
I think it's going to be a wild day. But, who knows, the indexes might end up flat for the day. Some stocks I'm personally going to be watching:
Apple (AAPL), still reeling from the negative opinions stemming from its price cuts and new product line, has lost almost 10% of its share value over the last few days of trading. I think it will continue slipping today, but it also might hit a bottom.
Countrywide (CFC) announced on Friday that it will be cutting approximately another 12,000 jobs.
Homebuilders (in particular, I own Hovnanian (HOV). As a sector, they posted major losses on friday, mostly because of the weak economic data. A rate cut could really help homebuilders, so if speculation is positive (or an early rate cut occurs) they could move significantly.
That's all for now; check back later for daily post-close wrapups every day, plus insight into the market and individual companies. Subscribe to my blog, or just bookmark it!
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Saturday, September 8, 2007
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The Heelys shoe is a very hot product for children spanning a broad age range. You have undoubtedly already seen children zooming around on them in the mall or on the street. The shoe is certainly “trendy,” which always poses a risk to the stock’s value as the fad becomes outdated and unfashionable. However, just as Crocs addressed the same concerns, I believe that Heelys will weather the storm and emerge a strong company.
My primary reason for confidence in the brand is the practicality of the product. Unlike most fashion hits, Heelys is not solely based on style (in Heelys’ case, the wheel that makes its shoes unique). First and foremost, a pair of Heelys IS a pair of shoes – the wearer can walk in the shoes just as easily as he can choose to glide. In fact, Heelys recently released a shoe without a wheel, asserting its position as a general footwear company.
Heelys had its initial public offering last year, with shares fetching around $30. By February 2007, shares topped $40. However, after that point, the value slowly declined, possibly as investors reassessed the true value of the niche brand. In the beginning of August 2007, Heelys was trading around $22 per share, when third quarter earnings projections were negatively adjusted to reflect a growing inventory at retailers. Shares were demolished, dipping to $12 that day, losing almost 50 percent of their value. Since then, shares have steadily declined, hitting an all-time low of $8.10 on Monday, September 10th.
Here's a picture of the chart over the last month and a half, and it isn't pretty:
Chart courtesy of StockCharts.com
However, when I look at this chart, I see opportunity.
Heelys is a fundamentally solid company. Here are some of its noteworthy fundamentals, obtained at finance.yahoo.com:
Market Cap (intraday)6:
Enterprise Value (9-Sep-07)3:
Trailing P/E (ttm, intraday):
Forward P/E (fye 31-Dec-08) 1:
PEG Ratio (5 yr expected):
Profit Margin (ttm):
Operating Margin (ttm):
Return on Assets (ttm):
Return on Equity (ttm):
Total Cash (mrq):
Total Cash Per Share (mrq):
Total Debt (mrq):
I italicized some important indicators, detailed here:
- Very low PE: Whether analyzing this year’s numbers, or next year's weaker estimates, Heelys is still a very, very cheap company, especially considering its industry and type of business. Sales probably won't grow at the astronomical pace that has occurred over the past few years, but that shouldn't matter: Heelys is so beaten up now that even if sales simply level off, the shares could trade at double their current value, based on the current PE of 6.
- Business Model: Heelys does not manufacture their own product; they outsource the production to another company. Therefore, Heelys has no long term obligation to pay off costs for factories, machines, or materials: their product goes straight from manufacturer to the retail distributor. They are able to avoid excessive risk because of this.
- Clean books – Heelys has no long term debt. Even if they do have a few weak quarters while retailers are getting rid of excess inventory, the company will not go bankrupt paying off debts. The company is insulated from the dangers that many infant companies have to endure.
The famous heeled shoes represent over 90% of Heelys sales, which is obviously why investment is the company is risky. They are currently trying to launch an apparel line to diversify their product lineup. If successful, it will stabilize the company while adding revenue and profit.
Another interesting thought is the possibility that Heelys could be absorbed into a larger apparel company. Since it is a small company that currently has one unique and popular product, it wouldn't be unfathomable for a company like Nike or Adidas to acquire them. There is currently NO suggestion of this, but it's not a ridiculous statement. If bought out, shares would clearly fetch more than their current value.
I have a small personal position in Heelys; I entered the stock after the big declines, and am now marginally down on my investment. However, I am confident that even if Heelys shares slip further in the immediate, the company has a solid foundation, and is currently drastically undervalued.
In conclusion, Heelys is a fundamentally solid company that is going through a rough time. The product that they sell still has no direct competitor, and it is a great product: It is both practical (a fully-functioning shoe) and enjoyable (as the wheel provides entertainment value, like a toy). Since the product is a shoe, and growing children are the market, kids that wear Heelys will outgrow their shoes, and, seemingly satisfied, will ask for more. Overall, they have a tiny fraction of the shoe market, and have plenty of room to grow, especially as they expand traditional offerings and enter the apparel market.
I think the chance of Heelys completely ceasing to exist as a company, i.e. going bankrupt, is practically zero. It has no debt to pay off, and inventory is tied to retailers, not the company itself. Even if it stops selling shoes, it has no long-term obligations to fulfill.
It may continue to be a tough market for Heelys, especially as it reports third-quarter earnings, which were responsible for the 50% share price decline as the new guidance was announced.
However, I feel as though the company is undervalued, and in the long run, Heelys shares will be worth much more than they are today.
My short-term recommendation is HOLD, my long-term recommendation is BUY.
Friday, September 7, 2007
I plan to post multiple different types of posts. So far, here are some ideas that I have identified:
- Individual Stock Analysis
- General Market Analysis
- Portfolio Commentary
- Individual Play (i.e. stock or option purchase based on timing) Commentary
This post will probably be edited as this blog grows and evolves. Feel free to comment and submit any ideas!
What a day, week, and month to start publishing a blog about the stock market. Today, the three major indexes were all down 1.5-2%, with some big-name individual stocks falling 5% even without any mention of bad news.
There has been lots of news in the past week, and even more market reaction.
Apple cut the price of the iPhone, and introduced new products. Investors freaked out because of fears of lower margins, and the stock has fallen 10% in just a few days.
Homebuilders are hovering at or near their 52 week (and, in many cases, multiple-year) lows. I regrettably bought Hovnanian (HOV) around 16, assuming that was a bottom, and it has fallen since. I believe the industry will eventually recover, but it's certainly going to be a tough period over the next few years.
Poor data on jobs shook the market today (Friday, September 7), as a loss of 4,000 jobs, compared to the estimated creation of 100,000, represented the worst report in years.
There were few bright spots in today's trading; arguably, the best result is that it now seems inevitable that the Fed will cut interest rates significantly later this month. Until then, this September seems like it will live up to its historically volatile, negative nature.
Personally, I'm primarily invested in value positions, since the short-term future of the market is so uncertain. Hovnanian is obviously the extreme laggard in my portfolio, but some of my other positions, like Toyota, are also now lower than the price I purchased them for. However, I'm in it for the long run, and I have supreme confidence that my investments will recover and flourish.
Until then, I may speculate on short-term performance by playing options.
There will be more on my individual positions, portfolio, and investment ideas to come.
Welcome to Student Stocks, a brand new blog.
The purpose of this blog is to track my performance in the stock market, as I discuss ideas discussing trading strategies, personal favorites, and overall market conditions.
At this point, I'd like to remain anonymous, but I'll provide some personal information just to put this blog into context. I'm an 18-year-old freshman at the Pennsylvania State University. I've been trading stocks for about five or six years now, and now am responsible for managing the savings that are set to pay for my senior year of college. This is real money in the real world, with very real consequences.
Bookmark this blog - hopefully we'll grow investments together!
You can support me (education, books, and recreation are expensive; I also plan to devote lots of time to this blog!) by visiting the sponsors on the boarders of this page.