My Own Analyst

Updated Thoughts on LQDT

I shared this weekend my concern about LQDT, and it has had a crappy week.  Keep in mind that the shorts are all over this one and today is options expiration.  We tested the reaction low today and are back above 30.  I am keeping my fingers crossed, but we (my clients and I) are very nervous.  The two that own have been doing a little selling.  I am hoping that they are overreacting to a few issues, which include CEO selling a small amount of his position (for taxes) and a weak "GMV" of $80mm for February.  Scary charts are bad until they aren't, and today's reversal MAY be a harbinger of better days ahead.  I plan to stick with it, but I will be slow to add for now most likely.  At 30, we are still very oversold (close to -1.9).

LMNX Inks Collaboration with MRK

Not too long on details:  LMNX is developing a "companion diagnostic device" to "help screen patients for recruitment" into the MRK MK-8931 (for Alzheimer's).  No financial details, but this is very interesting and out of the blue.  I continue to think that these guys have a very powerful technology but the profitability growth isn't being maximized - it's a growth stock on hold.  Hopefully they have a few other tricks up their sleeves.

Another New Watchlist Name

XLNX is out, VRTU is in...

 

VRTU is one that captured my attention last month.  This is an off-shore IT consulting company, similar to CTSH.  Earnings?  UP.  Sales?  UP?  Price?  Flat?  Valuation?  LOW

Big insider ownership, great biz model, lots of drivers, margin expansion story, strong balance sheet ($3 per share cash)

Price today near 17.50.  Price in a year?  26 (16PE plus cash).

If you do the math, you will see that I think it has 50% upside...

Lots of Supply of ENV

ENV filed a $250mm shelf, allowing them to issue debt or equity.  Given the large size relative to the market cap of $450mm, this is rather interesting.  Perhaps they are looking at doing a very large acquisition.  Done correctly, it could be very bullish, but it could also be a risk.  

Interestingly, at the same time, there are 8.5mm shares about to be offered, which is about 25% of the company.  It's not the company selling - it's mainly private equity fund holders (probably tax-driven).  It creates an interesting dynamic of being able to buy the stock probably in the low 13s.  I like the company, but I feel like it's a tad expensive here for now.

 

LMNX Analyst Day

Long story short, they confirmed sales guidance for 2012, introduced a new diagnostic system and are moving to a direct sales model.  I think that this is a very cool company and like what they are doing.  I like that they will work more directly with their customers, though this will add some costs on top of added costs of the recent Genturra DX acquisition.  The big knock has been a focus more on sales growth rather than profitability.  They addressed the new medical device tax.  37% of their products will be hit by this 2.3% tax, but they believe that they can pass it through to their customers.  The company didn't guide for 2013.  They made it sound, though, like sales will remain "slow" at just mid-teens until their new products gain traction.   Most companies would die for this kind of growth!  They said that the 227mm consensus (+13%) is "reasonable", which was good.  R&D/Sales LT target is 15% but will be 20% in 2012.  The company expects this to move back down, which will help profitability and offset that cost of the sales model.  Hard looking at this chart to get excited today, but I expect this stock will get back to the low 20s at a minimum.  Hopefully, to my 28 target within the next year...

LQDT

Lots of sell-side support this morning, with many calling it oversold and a good entry.  I will be reviewing the transcript shortly, but I wanted to point out that 36 was 2 units oversold.  We probably have some time on this one - it's a real battleground.  It was disappointing to see them screw up their financial modeling of their recent acquisition, but the valuation and long-term story is seemingly quite positive.  The company expects to grow organically at 18% in 2013 and has a PE of less than 20X???

Fly Raven Fly?

For model subscribers, you may wonder why I put this in the model on Friday.  I want to say that I don't have the opportunity to buy it in the model as I would like.  Today, for instance, I could have told you it would open down and should be bought, but I didn't know that at the cut-off time.  Their report came out after 8:30 EST.  So, I would have to wait until tomorrow to act on this info.  I felt like the market had reflected a pretty poor report, so I wanted to be in case it proved better than expected (it didn't).  Recall, I was trying to sell MIDD too.  At the time I put the trades in (based on Thursday night closes), I was trying to sell MIDD at 126.82 and buy RAVN at 25.64.  We ended up getting 126.79 and 25.80 (average of Friday high and low for each), so not too different.  RAVN dropped a little more, for now, but MIDD is down too.  

Envestnet Posts Solid Quarter

ENV is one of my higher-confidence names in top 20.  In case you haven't looked into it, it is a platform for registered investment advisors, with over $80 billion under management or advisement.  The growth is stellar, though the valuation is rather high on a PE basis.  This year's earnings are depressed by some strategic acquisitions that they closed earlier.  This is a hidden gem in my view, with powerful trends working in its favor.  Every single day new advisors are leaving Merrill Lynch or Citi and forming their own company.  ENV allows them to be small but look big to their clients in terms of processes and products.  

Their sales growth was better-than-expected by a little, with a slight beat on EPS.  I think that ths stock will often be too rich for me to want to own a lot in the model, but the target is a moving target (pun intended).  I will review this weekend, but every month the target should go up about 2% - it's growing that fast.  I wish I could say that about all of the stocks in Top 20!

MIDD - Yummy Q3!

MIDD had a decent not great report.  I say that because they didn't repeat the huge blowout from Q2 (when they beat by $10mm or 4% above the consensus).  This quarter should cement those gains and perhaps drive a slightly higher all-time high.  They posted a $2mm beat (1%) that led to a .07 EPS beat (5%).  The report was very balanced in all regards - I saw no flaws whatsoever.

EWwwww

Edwards LifeSciences (EW) has been a rocket ship.  Today, it fell out of orbit, as it pre-announced Q3, citing problems with Europe for its new transcatheter heart valve.  Assuming an FDA approval that is expected, the company believes it can hit the low-end of its full-year sales guidance.

This is a story more about the future than the now - hence the sky-high valuation of 35X forward earnings before this plunge.  That's more expensive than ISRG!  Why, because so many more people will be able to get heart valves (older, sicker people can sustain the new minimally invasive procedure but not current ones).

On the miss, which was about 7% on the top-line, the stock has fallen from 107.5 to 91.  91 is the 150dma.  It's now 1.36 units oversold.  I see support near 87 (86-88) which isn't too far away.  At that price, it would be 1.77 units.  I think it's TREASURE