My Own Analyst

Weekend Update - Good Friday Edition

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So, we rang a big bell on Friday, closing at an all-time high.  The dynamics of overextension persist, but the market is not especially overbought:

• SPY:  .54
• IWM:  .55
• DIA:  .67
• QQQ:  .06

Looking at the sectors, though, gives a little different picture, with the following somewhat alarming:  Staples (XLP) at 1.33, Health (XLV) at 1.32 and Utilities (XLU) at 1.06.   This suggests to me that we could see some rotation, with a modest bias lower.  I am on the record with a call for 5-7% pullback from 1590 - this works out to 1480-1510.  With that said, maybe we don't get there, maybe we go further!  I don't really have any update yet to the framework I previously shared - still waiting for the sign of a top, and it's not yet there. 61 of the 100 stocks on the Watchlist closed above the 10dma.

Looking at the Watchlist ( Download Watchlist032813 ), no stocks moved more than 5% during the week.  We had some adds and deletions, but there are now 28 "black 1s".Looking at oversold names, LQDT, CATO, VOLC, UNFI and FDO are all between -1.03 and -1.73.  On the prospects list, ANV is -2.31, while ULTA has improved to -1.48.  AAPL is -1.11.  The action is really on the overbought side, with all of these >1.5:  FLO (3.11), HRL (2.56), BDX (2.18), ENV (2.08), JNJ (2.01), WAG (1.89), AVP (1.62) and CFN (1.58).  INT came on while CE fell off the 35% expected return list.  I wonder if I should lower the threshold again?  I still remember not too long ago that the cut-off was 50%.  There are some good ones that are coming in at 30%+, which, if my numbers are right, is still pretty good (CE, VOLC, ATX, UNFI).  I sure like ATX and UNFI, but I can't fit them in the model at this time. IRG at 29% is good stuff too!

Looking at positions in the models ( Download Positionwatch032813 ), I adjusted the target on CSTR higher, reflecting a higher estimate from the street and raising the PE from 12.5 to 13.5.  I also reduced CATO a bit further.  As I look at CG/B, I am tempted to reduce exposure to JNJ and WSM, but I will be patient.  I also wouldn't mind increasing CHS.  In Top 20, I am evaluating CLH, as it seemingly doesn't offer a ton of upside and there are some issues, like the CFO departure and questions about the wisdom of their recent deal.

CSCO Jacks Dividend

CSCO boosted the quarterly dividend to .17 from .14:  +21%

Sticking with this one...

 

P.S.  Here are my 4 stock picks for my quarterly contest (I got smoked last quarter!):

• ANV
• MAKO
• PLPC
• FLO (short)

 

Good News on VRNG

I shared my optimism on this one recently without any catalyst, but today we got one.  They are in settlement talks with MSFT apparently based upon communication between their outside counsel and the New York judge for the case.  This is a lot smaller than the GOOG trial obviously, but just the fact that MSFT is talking adds validity and credibility.  I don't expect anything too soon, as I would suspect that unless MSFT is willing to pay them everything that they are seeking (not disclosed) then they don't want to cut a deal until the judge rules on the GOOG royalties.  This doesn't change my assessment of a run at 5-6 with a favorable outcome in the GOOG litigation, but it does help perk the stock up after impatience has knocked it down.

Trash or Treasure: GOLD!

ANV is getting hammered today as the CEO has been booted.  I think that this is likely positive with the caveat that I am struggling a bit on this name.  Bad sector, risky project.

The stock is near 16 as the knee-jerk reaction is to assume that there is more bad news coming.  I think that the news has already been bad - they have overpromised and underdelivered.  This is a pretty small gold miner in the scheme of things, all domestic (which is good these days) and great balance sheet.  M&A is the next rumor?  I wish FINL would hit the target, as I wold buy this one right here near 16.

ULTA Follow-Up

I thought ULTA would bounce, and it did (after dipping a little more than I expected).  At this point, above $80, I would move to the sidelines, as I don't expect a big bounce but rather some work between 77 and 82.  Revisit it closer to the Q1 earnings report, and good job on the trade for those of you who got involved.  If you want to ride still, consider selling some $85 calls.  1.20 for the May expiration...

5 Interesting Names

Seeking Alpha aricle pending where I call out a few names starting to bounce - a heads up:  AAPL, ACI, BRJI, GTAT and MCF...  AAPL is about to move from a black 5 - quite timely in my view...

VRNG Update

I wanted to revisit VRNG, a speculative stock awaiting resolution of its huge lawsuit with GOOG.  This update focuses on two issues that have changed.  First, they reported Q4 and had a conference call last week.  I came away with the impression that there is incredible talent here.  It's still a very binary company - without a GOOG win it's not going to work.  Still, in assessing how the stock might perform following resolution, I am more optimistic.  Of course, this thing is like watching paint dry.  I have no idea why it is taking so long for the judge to rule.  The most important issue is the future royalties, which could be $500mm or more (not bad for a $200mm market cap or so).  Of course, there are several other outstanding issues, but I am assuming that none of them are resolved favorably (the strange damages award that was too low, the laches ruling that shortened the infringement period).

The reason the stock is falling in my view is that in the absence of news that the market has been expecting, another patent troll, VHC, has been sliced in half.  I haven't fully researched this one, but, besides the fact that they play on the same field, there is no relationship between the success or failure of VHC with its trials and the potential for VRNG.  

So, I still like this one.  It's been a laggard, and I hope I have it right to remain positive.  I think that the stock could trade towards 5...

JOSB Pre-Report Question

Alan, any take on JOSB earnings report? Is it worth taking a shot on JOSB before earning report?

I don't have any feel here at all.  These guys should be in the penalty box after their Friday afternoon pre-announcement in January, especially as they blamed, blamed, blamed without taking any sort of responsibility for the horrible quarter.  I think that the stock is cheap at 5.4X EV/EBITDA, but I would prefer to bet on FINL.

Feet On The Street Research

Guys, I have been mentioned RMD before.  Resmed makes CPAP machines and masks to treat Sleep Apnea.  This is a great company in a rapidly growing industry.  I got my client into the stock in the low 30s, and we still love the stock.  My target is 58 a year out based on 20PE plus cash.  Nice little dividend here too.  

I like the stock in the short-term.  There is an island gap that I expect to be filled - upside to at least a test of 50 over the next month.  I wanted to share that I had dinner last night (i.e. Passover seder) with one of the countries largest internet dealers of CPAP equipment.  He is incredibly bullish on the company's prospects.  This was encouraging, as I was under the impression that the internet market was actually BAD for RMD.  

Weekend Update - Short Week Ahead As Q1 Ends Edition

The week started ugly but ended in typical bull market fashion.  This week ends on Thursday, as Friday is Good Friday, and marks the end of a fantastic quarter for stocks.  I expect that we could see some follow-thru from the late-week buying and am still targeting 1590 as an interim peak.  This is really a one-day move from here (1557).  Maybe we see some of the overbought food stocks, like HRL, give it up the following week.

The number of stocks on my watchlist above the 10dma is a relaxed 53.  While the overall market has gone to a "black 1", it remains contained from a price-momentum perspective.  SPY is just .52, while IWM is .60, DIA is .71 and QQQ is .02.  Looking at the SPDR ETFs, XLP is the only one above 1 at 1.2 (Consumer Staples).  Healthcare (XLV) is close at .98.  These numbers tell me that there is a very strong focus on quality right now.  Low beta names are attracting the most interest.

Looking at the watchlist ( Download Watchlist032213 ), the number of black 1s  is now 23, with some coming off and some coming on.  We have just three stocks that offer 35% or more, with CE joining AKAM and CTCT and INT and ATX dropping off.  10% winners included: FLO, ENV and WSM.  I didn't quite get FLO (and still don't fully) but now that they won their bid from Hostess for the breads, the analysts jacked their estimates by 15% or so.  I have raised my target, which was based on 18PE (and now 20PE) from 27 to 34.  I wish I hadn't been scared out of ENV by their filing - I really thought we would get a chance to buy it back on the cheap.  WSM, of course, moved higher on a solid report and Cramer's public hard-on that I think has to be based on the fact tha they have a young female CEO who caught his interest.  CAH was the closest to -10%, falling 9.6% on the contract loss.

Looking at oversold names on the watchlist, LQDT (-1.83), CATO (-1.72), VOLC (-1.45) and UNFI (-1.36) are the only ones below -1.  ANV (-2.31) and ULTA (-1.83) stand out on the "prospects".  On ULTA, I know that I was "Treasure" and it did bounce after going a little lower than I had expected.  I do want to caution that this one could take time - I would sell at 79.50 from a short-term perspective.   Further out, I think it can rally if I understand correctly the cadence of their expenses in 2013 that led to the terrible Q1 guidance.  I also want to point to the very overbought names on the watchlist, all > 1.5:  FLO (3.43), ENV (2.35), HRL (2.12), WAG (1.84), BDX (1.8), JNJ (1.69), CFN (1.64) and AVP (1.52).

Turning to the stocks in the models ( Download Positionwatch032213 ), I changed a few targets.  I adjusted TECD lower slightly. I cut CATO.  I reduced LQDT - PE from 20 to 18.  I increased RAVN slightly to 20 PE (I think I will just sell this remaining piece).  I increased WSM too with a higher multiple (now using 19PE).  I raised OMI slightly (now 19PE).  Finally, I raised my target on WAG (13.5 PE to 15, which is also 10X EV/EBITDA) to 59.  This is a stretch to me, but it dicates that I will be looking to sell the remaining stock at 48-49.

This is a very quiet week with respect to earnings - nothing on the entire watchlist!  We do have FINL on Thursday.  JOSB on Wednesday could be interesting - this is the company that had a horrible Friday afternoon pre-announcement in January.

 

Service Update

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