My Own Analyst

It Doesn't Take Much

The numbers were just marginally better today, but the market is blasting to new highs.  I have some big resistance levels today that I hope don't put up too much of a fight:

• QQQ:  55.35
• SPY:  118
• IWM:  69.15

One small aspect of the report I liked was the slight uptick in hours worked.  Until mid-year, we kept going back and forth from month to month with wages and hours indicating more demand for labor or more jobs.  This is one of the first reports I have seen where we got some job growth (103K) and and expansion of the hours worked.

This has been an excellent week.  I have shared with my clients that I believe the lows of Tuesday are likely good, but it's a tough call yet.  We still face a big overhead test at 1250-1270 on the S&P 500.  My focus will be shifting to breakouts (remember them???). 

SRDX: Trash or Treasure

I used to follow SRDX closely, including it in my watchlist.  It was a one-trick pony for the most part (JNJ stents), with lots of other promising technology.  Today, the stock moved back towards its lows from late 2010, when the CEO had bolted and tax-loss selling was killing it.  I need to freshen up a bit, but today's news is only the acceleration of the bleak future with Cordis stents (that was already known).  There are some activists involved, and the company should be viewed as a call option, perhaps cheap enough.  I am going with tentative "Treasure".  The stock trades at a modest premium to its tangible book value and generates cash (and will continue to do so).  The cash and investments per share is over $3 after subtracting deferred revenue.  So, that leaves $8 roughly for a lot of technology as well as some on-going business. 

INT: Trash or Treasure

I listened to the call - haven't seen any published comments.  This is TREASURE.  The issue appears to be a big cash burn due to rising receivables (mainly because of sharply higher fuel prices, but also an acquisition).  I think whoever is selling is not thinking very clearly - this is a company that is really doing well.  EPS growth has been disguised by a share offering from last year.  NI growth was 29%.  I want to see how this one shakes out, but this is "Top 20 model-worthy".  My target for a year out is likely 45 or higher.  15PE on 2-year out non-GAAP EPS would be closer to 50.

Question on WFC

Igor asks:

I noticed you mentioned that you liked the financial sector here. Any particular thoughts you have on WFC? Having 'none' is ok. -)

 I probably would have gone with "none', but Igor asked me about F yesterday and I played the clueless card.  WFC is good enough for Warren, and it's probably good enough for all of us.  With that said, I don't really know the banks very well - they are like black boxes.  WFC is much less "Wall Street" than C, JPM and BAC, and these are the big 4 (unless GS is still a "bank", then is is in the Big 5.

On WFC, 11 PE is reasonable off of depressed earnings, the hiked dividend will help and the chart looks fine to me. 

Want some Magic?

Steve Alexander operates a service, Magic Diligence, whose goal is to go beyond the basic Magic Formula Investing screen in order to avoid value traps.  If you aren't familiar with the Magic Formula, you should get a copy of Joel Greenblatt's famous book "The Little Book that Beats the Market".  When I read it a few years ago, I liked it so much that I gifted it to clients.

While the book was fascinating and helpful (and quite basic), it suffered, in my view, from not taking it to the next step.  Perhaps that's more of an art than a science, but there are too many stocks that make the screen (low PE and high return on capital).  That's where Steve comes in.  He spends his time working to find the best names that meet the criteria (again, avoiding value traps).  He recently nailed it with J. Crew Group (JCG). 

Magic Diligence has issued a report with 5 picks for 2011.  It sells for a stupidly low price of $20.  Steve sent it to me to see what I thought, and I am confident that you will find the analysis thoughtful.  Each of the stocks is detailed in just two pages - he gets right to the meat, addressing the company background, risks and valuation.  Like me, Steve combines fundamentals, technicals and valuation.  The 5 stocks address big trends, and they include a Small-Cap, 2 Mid-Caps and 2 Large-Caps.

If you are interested in learning more:   Click Here!