I trade with TradeKing: $4.95 stock and options trades, plus lots of tools. It's simply the best way to invest. Click here to find out more.
Tuesday, December 11, 2007
Thankfully, I've been out of Syntax-Brillian (BRLC), a maker of LCD TVs, for quite a while now. For the past few months, the share price has continued to slowly decline.
However, things may be looking up for the little company.
I was always baffled with why investors hated BRLC so much; they are a growing, profitable company. However, some sketchy details concerning the company's business practices, suppliers, and inventory scared many people away.
Also, BRLC was being beaten at it's own game by Vizio, another maker of LCD TVs (and a private company).
A few days ago, an article was published in a local newspaper in Arizona detailing buzz about a possible merger between the two companies. Check out the article here.
The stock did not pop on this news; it may have been weighed down by news about the CompUSA sale. Plus, this rumor IS just buzz from one local newspaper - I am in no way certain that it will happen.
But I'm deciding to roll the dice. If any takeover, buyout, or merger is in the works, investors may be in for a multi-bagger. If not, I honestly do not know how much lower this thing can go; it continues to shed a few percent each day without any significant negative news. BRLC has enormous short interest; if any positive news surfaces (merger-related or otherwise), a big pop is possible. There has also been significant insider buying recently, possibly indicating increasingly positive sentiment or something bigger in the works.
But who knows - BRLC may continue to lose a dime a day until it's on the pink sheets. However, I still see a fundimentally-solid company, with a slim possibility of some explosive news soon.
Monday, December 10, 2007
Though I tend to avoid "penny stocks" (and, generally speaking, I'd advise others to do the same), there's one company with a lowly share price that is better than its label.
The Soyo Group (Soyo.ob) is a tiny electronics company with a bright future.
However, their current cash cow is LCDs. They began producing LCD monitors for computers, and sales took off - during a particular week in August (and, I'm sure it represents a broader trend), Soyo's 24-inch LCD was the bestseller throughout the country, beating Samsung, LG, HP, and others. (Soyo had 50% market share; the press release can be read here.)
They now sell a wide range of monitors at multiple big-box retailers, including OfficeMax, OfficeDepot, and Fry's, along with multiple other retailers. They also sell products via the internet, including Overstock.com. Here is a Soyo monitor at Overstock; check out the great reviews.
The most recent and potentially lucrative development is a partnership with Honeywell to produce large LCD TVs under the Honeywell brand name. This should help Soyo continue to grow sales; attractively-priced TVs and monitors will now be available under a name consumers know and trust, not some mysterious discount brand. They are debuting some Honeywell monitors in early 2008, followed by larger TV's throughout the year.
The LCD market is certainly competitive. However, Soyo's products have been reviewed very well, and as Americans are watching their pocketbooks as the country is becoming economically challenged, they might be more eager to pass on a Sony TV or a LG monitor if a cheaper alternative is available.
Soyo is also growing at a feverish pace. Net revenues increased by 124%, to $24,202,395 in the three months ended June 30, 2007, compared to $10,787,515 in 2006. They reported earnings per share of $.05/share during the three months that ended September 30th. Their earnings during this holiday quarter should be excellent, too. So far this year, they've earned $.06/share, which gives them an 18 trailing P/E. That's already very reasonable for a company with such growth; but if Soyo can earn another nickel in the fourth quarter, or project a dime for next year, the shares will undoubtedly look extremely undervalued.
Soyo is not some pink-sheets scam corporation (at least to my knowledge). The stock is volatile, and volume is low; so beware of manipulation. I have my own money at risk on Soyo, because I believe that it is a legitimate company that's quickly growing. Since it is trading at only $1.12/share (and has a $50 million market cap), there is tremendous potential for growth in such a tiny company. But, the dangers of investing in a company like Soyo are much higher than with a larger, more established company; as always, do not invest money that you cannot lose. However, as long as Soyo's books aren't cooked and they continue to grow their brand as they have thus far, I believe Soyo could be a ten-bagger over the next few years. Who knows - maybe in a decade, a Soyo might be as commonplace as a Sony.
(Full disclosure: Author is long Soyo.ob . Additional note: Trading in over-the-counter securities is very risky. My advice is not meant to be traded on, and I am not a registered investment adviser. Always do your own research, and you are solely responsible for any investment decisions.)
Friday, December 7, 2007
I loathed Crocs (CROX) during this summer and fall, as trendy investors engaged in a feedeing frenzy, inflating the price of the quirky shoemaker. I did not take joy in the stock's plunge, but I felt as if it was justified.
However, CROX is now an attractive prospect. After a massive, painful decline from $75 to $35, CROX had returned to earth from it's lofty orbit. At that point, it was trading at a forward P/E of about 15 - cheap for such a high-growth stock.
Investing in high-growth niche stocks like CROX can be tricky, or even disastrous. (I briefly owned Heely's, a similar, trendy shoemaker, selling eventually for a small loss.) Once a former high-flyer like CROX falls, it's often hard to establish a floor.
But, I decided to take a risk. I liked CROX at $35; I thought it was significantly oversold.
So when it was in the high $30's, I bought December 42.5 calls. I just closed the position today.
|11/30/07||Bought|| CQJ LV |
Call Crocs Inc $42.50 Exp 12/22/07
|$1.10|| || |
|12/07/07||Sold|| CQJ LV |
Call Crocs Inc $42.50 Exp 12/22/07
The stock certainly recovered nicely, bouncing up about $4, or 10% in one week.
After selling my $42.5 calls, I deciced to reinitiate an options position, and purchased December $47.5 calls for $1.40/contract.
This investment, in my opinion, is attractive for two reasons; fundimentals, and momentum.
As I previously discussed, CROX was ridiculously overvalued at $75. When they announced earnings, which weren't even bad, the expectations of speculators were crushed, and as Jim Cramer shouted "SELL" on Mad Money, investors dumped the stock. (That wasn't a direct shot at Jim - though he had been pumping up the stock on its way up, a panicked investor that sold on his advice would have not endured the full losses). CROX fell over $25 the first day after earnings, and continued its downward slide for another two weeks before stabalizing.
Now, CROX has an attractive long-term vaulation. The shoes are still selling well, as consumers snatch up the trendy, colorful, albeit unusual clogs. During the last conference call, the company still called for strong growth, just not strong enough to justify a 40 forward P/E. CROX is also releasing clothing to compliment their product line, using lightweight material; if the clothing is as revolutionary (or intreuging) as the shoes, sales could become supercharged.
I usually wouldn't touch a stock if I didn't believe its long term prospects were respectable, so CROX passes that test. However, the real reason why I'm playing with some options is because CROX is (or was) a hot momentum stock. Now that CROX is well off its low (and up in 4 out of the last 5 sessions), individual investors who had sworn off CROX might be attempted to jump back in.
I don't think a valuation of $75/share is reasonable, but CROX still definitely has room to run. The average prediction of next year's earnings is $2.69/share. The current forward P/E is just 17, which I'd consider pretty low for a company expected to grow 40% next year and at 26% over the next 5 years.
I'd start to find CROX a little overpriced with a forward P/E in the mid-20's. However, the stock still has lots of ground to cover before then. With a forward P/E of 20, CROX would trade around $54/share. Assuming a forward multiple of 22.5, that would make CROX a $60 stock.
My December options will expire too soon to enjoy all of CROX's potential price increase. But, even as a value-oriented longer-term investor, I think CROX is an attractive buy-and-hold at this current valuation. CROX may be cold-blooded now, but I think it's going to bask in the sun.
Just to follow up, (and for the sake of full disclosure),
I closed my Strangle trade yesterday. ConocoPhillips (COP) moved up, the calls increased in value, and I sold the calls, netting a 16% gain in three days, including commission costs. I still hold the puts (which are now nearly worthless at 11 cents), which I could have sold to make another 3% gain. (I'm holding just so that, if COP falls, I might milk a little more money out of this trade.)
16% doesn't sound like much, but annualized, it was a 1920% return. (Also, if I would have traded more contracts, commission costs would have been lower per contract and the percentage gain would have been slightly larger).
This was a sort of experiment for me, and my "long strange" worked as planned. If you see the potential for volatility in a stock, this is a good strategy to consider.
Monday, December 3, 2007
The fluctuating, inflated price of oil has held the attention of businessmen and lay people alike. Oil's price run-up has certainly been impressive; from a low near $10/barrel in the late 1990's, oil flirted with $100 just last week. This dramatic increase was only rivaled by the price spikes after the oil embargoes and crises in the 1970's and 80's. Just this year, oil is up 30%.
The cause of this increase is debatable. Sure, the incredible growth in China, India, and other emerging economies will strain the production capabilities of the world. But did it really merit such a dramatic increase?
I'll let professional economists and commodities experts argue over the causes and effects of $100 oil. But I think that the average investor can profit off of the volatility in oil.
Oil has retreated from nearly $100 to about $90 per barrel. But where will oil go from here?
Wednesday may be the day that clearly defines a trend. Two defining events will happen this December 5th. First, the weekly oil inventory report will be released, and this week's numbers could be effected by the pipeline explosion late last week. If inventories significantly declined at Cushing, the delivery point for the Nymex contract, that could be a catalysts for a pop back to $100.
The more significant event will be OPEC's meeting in the United Arab Emirates on the same day, this Wednesday, December 5th. Much of the developed world is looking for OPEC to increase production quotas to ease prices. However, with the recent 10% decline in the price of oil (the steepest and quickest in years), OPEC may not be motivated to hike their output. Unless a major event occurs tomorrow, I see oil staying stationary into the two announcements yesterday.
So two possibilities exist:
- On one extreme, US inventory was steady (or even increased) and OPEC decides to increase production. If those happened together, the price of oil may plummet.
- However, if inventories are pinched and OPEC deems current production sufficient, then the price of oil could be back near record territory, considering the market is already pricing in a production increase.
I set up a "Strangle" options scheme, using my favorite oil stock, ConocoPhillips. When the stock was trading around $80 today, I bought $75 puts and $85 calls. The calls were about half as expensive as the puts, so I bought twice as much. (Also, I have a tendency to expect upward price movement simply because the oil stocks have declined considerably recently.)
The puts were $63/contract, and the double-strength calls were $78 for two. The at-the-money calls and puts both trade for around $2/contract. So, as long as Conoco moves $5 either way, the transaction will be profitable. (If it moves to the upside, which I made a slight bet on, It'll be a little more lucrative).
Using a "Straddle" (at-the-money calls and puts with the same strike price) or a "Strangle" (out-of-the-money calls and puts at opposing strike prices) can allow a trader to profit off of the volatility of a stock, no matter which way it may move.
Since my crystal ball is out of order, I don't know if oil is going to be up, down, or flat on and after this Wednesday. But as long as something happens and oil moves in one direction, this trade should profit from an unpredictable market.