There have been some chatter after that explosive earnings report on Crocs (CROX) regarding possible take over by either Nike or some other apparel company that are in need of growth with cash positions. Jim Cramer on Mad Money has suggested that Liz Clayborne (LIZ) should buy this company to boost company's bad product lines. http://www.thestreet.com/_tscs/funds/stoptrading/10354974.html.
But the question I have is why would Crocs even contemplate a merger or a buy out when their business is hitting on all cylinders and then some? One of the reason for this might be that despite phenomenal growth, Crocs is relatively cheap when compared to their peers such as Deckers (DECK) and Nike (NKE). The PEG is 0.95 with forward PE of 23.34 for Crocs while Deckers is PEG 1.33 and PE of 18.37. Looking at Nike it shows a PEG of 1.23 and forward PE of 16.30. The real story here is that Crocs is undervalued in relation to their rocket fuel derived growth. Crocs increased yoy quarterly revenue 236.4% and yoy quarterly earnings growth of 398.4%. That is robust. Crocs trades at least 25% discount to its peers when looking at the PEG, and that is expected to grow. The full year guidance was upped by Crocs to $2.90 to 2.93 per share. http://www.forbes.com/2007/05/04/crocs-quarterly-earnings-markets-equity-cx_mk_0504markets19.html?partner=yahootix
At these growth rates, Crocs deserves at least a 50X multiple but realistically, based on robust growth it can go as high as that. I believe that this stock will see $100 per share in relatively short order. That is probably why the company also announced a 2 for 1 stock split on 5/3/2007 which will become effective on 5/31/2007 and executed on 6/14/2007. There is strong likelihood that this stock will be at $50 to $60 range after the stock split. Based on this growth and based on stellar company executives, this stock will command a significant premium over its $2.9 billion market cap. I just can't see any company paying up that type of cash to buy this company. But if someone does, it will be much higher than the $2.9 billion.
I think the insiders in this company is doing a stellar job and I don't see any reason why this company would even consider selling this company, unless they get a significant premium. I say no deal.
Crocs
CROX
2 for 1
5/3/2007
5/31/2007
6/14/2007
Saturday, May 05, 2007
Thursday, May 03, 2007
Update on My Trading.
The market continues to power forward and those with heavy short positions in this market are getting grilled. It is easy to fall into the short camp. We discussed the disconnect between the fundamentals of the economy and the stock market technicals in prior blogs. I myself was caught with bearish hysteria over the housing bubble, subprime fallout, and Countrywide (CFC). It was easy to conjure up armageddon in the stock market and even easier to implement because that was the thinking of the "least resistance". But the markets rarely act in concert with the thinking "of least resistance". Market commonly act contrary to popular belief. That was the take home message for me this year.
I discussed in my last blog that the worst might be behind us for this economy and that the data coming out are lagging data. The market however looks forward and is seeing brighter prospects in 6 to 12 months. There is no doubt that we are at high risk levels in terms of bullish action within this market. The February 27th market meltdown is but a blip on the radar now. I still feel that we need a meaningful correction, but I am now beginning to think that the mini-correction in February is all we'll get for a while. But at a certain point, the fundamentals of economy and the technicals of the market has to reach equilibrium. So which do I follow? Recent ISM data indicates that perhaps we may have left the worst part of the economic downturn behind. Unemployment rate continues to remain low. Tomorrow's jobs data will be closely watched but something tells me that the markets will like what they see and continue to push this indices higher. Why not, so far, the only thing that works right now is being on the side of the bullish thesis. Market complacency is no longer high. Everyone is worried about this tremendous market move and everyone is cautious. I do not read any overtly bullish headlines or opinions by the pundits as I speak and I think this is good for the markets. It gives us a wall of worry to climb.
Everytime I argue with the market, I get crushed. So I have to keep conjuring up courage and stay long this market, with the exception of Countrywide Financial (CFC).
I am currently long Crocs Inc (CROX), I hold 80 contracts of June $60 at an average contract price of $3.14. I did some buying into earnings. The short percentage was tremendous and I didn't think the market has correctly priced CROX shares, which at this point still remains undervalued, even with eye popping earnings report and a 2:1 stock split to boot! The company reported Q1 profits jumped 259% to $.61 cents a share, which beat estimates by $.12. Revenue more than tripled to $142 million again blowing out forecast. The demand for the ugly shoes continue to remain strong. This goes in line with the market trend lately. Heavily shorted, high momentum stocks, with high popularity are just killing the market. Look at Buffalo Wild Wings (BWLD), which I consider equal to Crocs in terms of momentum plays. Given this data, the shares of Crocs will be fairly valued at $85 to $92 range. If anyone has any doubt that Crocs can run past post earnings day, then look at Mastercard (MA) who continues to run three days into their stellar earnings report. All I know is that there is high level of liquidity in this market and investors are clamoring to put their money into any stocks showing promise. This is a sharp contrast to the market conditions in early February when good earnings were rewarded with a stock sell off.
Starbucks (SBUX) reported earnings after market today also and reported 18% rise in profits and meeting analyst consensus of $.18 and reaffirming next quarter guidance. I believe that this stock also has some room to run as the doom and gloom scenario is for naught. I plan on selling this stock in the morning tomorrow to book gains. I have 50 contracts of June $32.50 calls at an average price of $.68. I have better uses for this money in the short term.
Cisco Networks (CSCO) is also showing bullish price action. I believe the shares will teeter around $28 to $29 range before it reports earnings next week on Tuesday 5/8/2007. I anticipate that they will continue to show market leadership and dominance. I believe that this stock will be good for $32 to $37 range by options expiration in June 2007. I hold 500 contracts of June $27.50 at an average price of $.75. I plan on adding more from Starbucks proceeds if the current $1.25 per contract price comes down to $.85 to $.95 levels.
Google (GOOG) is showing some signs of life today. It is effectively completing the handle portion of the cup base and I believe some form of acquisition news that the market will cheer is in the works. Some are postulating Monster acquisition? We will see. I still think that the shares of Google can test $500 to $520 level before June options expiration. We will see. Historically, Google does well only in the Fall months.
LHC Group (LHCG) is frustrating and in the same boat as Google as frustrating pick. I believe that once the Medicare CMS reimbursement guidelines are clarified, this stock has the potential to run to $33 to $36 range. In the mean time, I am selling shares to free up what ever is left of this trade. I only hold 30 contracts of June $30 contracts right now at 90% loss.
Watch Lists
1. Johnson and Johnson (JNJ)- a good play on diversified play. Currently, the market favors the DOW component and big cap stocks and this would be a solid company to ride the wave.
2. Smith and Wesson (SWHC)- a long time favorite of mine. I believe that this stock has a seasonality built into it. It has done well during the summer months. technically, the stock is showing support at 50 EDMA and has not broken the uptrend line. It is fairly valued and has a potential to break out.
3. Intel (INTC)- with recent resurgence among semiconductor industries, Intel remains an appealing choice. Technically, the stock is setting up into a nice double bottom weekly base and should be the beneficiary of recent debacles at AMD which might signal that the price war is coming to a close.
4. Talx Corp (Talx)- A provider of payroll related and business process outsourcing services. This stock reports earnings on May 9, 2007. The chart shows good cup with handle in daily and weekly charts but volume on the weekly chart is lacking a bit. It none the less is a key player in the corporate slow down that is anticipated. As companies focus on ways to cut costs, this company stands to benefit. I will keep researching this company but so far, I have not found the fundamentals to be all that great. It is a highly levered company with debt to equity ration of 1.05
Good luck all.
I discussed in my last blog that the worst might be behind us for this economy and that the data coming out are lagging data. The market however looks forward and is seeing brighter prospects in 6 to 12 months. There is no doubt that we are at high risk levels in terms of bullish action within this market. The February 27th market meltdown is but a blip on the radar now. I still feel that we need a meaningful correction, but I am now beginning to think that the mini-correction in February is all we'll get for a while. But at a certain point, the fundamentals of economy and the technicals of the market has to reach equilibrium. So which do I follow? Recent ISM data indicates that perhaps we may have left the worst part of the economic downturn behind. Unemployment rate continues to remain low. Tomorrow's jobs data will be closely watched but something tells me that the markets will like what they see and continue to push this indices higher. Why not, so far, the only thing that works right now is being on the side of the bullish thesis. Market complacency is no longer high. Everyone is worried about this tremendous market move and everyone is cautious. I do not read any overtly bullish headlines or opinions by the pundits as I speak and I think this is good for the markets. It gives us a wall of worry to climb.
Everytime I argue with the market, I get crushed. So I have to keep conjuring up courage and stay long this market, with the exception of Countrywide Financial (CFC).
I am currently long Crocs Inc (CROX), I hold 80 contracts of June $60 at an average contract price of $3.14. I did some buying into earnings. The short percentage was tremendous and I didn't think the market has correctly priced CROX shares, which at this point still remains undervalued, even with eye popping earnings report and a 2:1 stock split to boot! The company reported Q1 profits jumped 259% to $.61 cents a share, which beat estimates by $.12. Revenue more than tripled to $142 million again blowing out forecast. The demand for the ugly shoes continue to remain strong. This goes in line with the market trend lately. Heavily shorted, high momentum stocks, with high popularity are just killing the market. Look at Buffalo Wild Wings (BWLD), which I consider equal to Crocs in terms of momentum plays. Given this data, the shares of Crocs will be fairly valued at $85 to $92 range. If anyone has any doubt that Crocs can run past post earnings day, then look at Mastercard (MA) who continues to run three days into their stellar earnings report. All I know is that there is high level of liquidity in this market and investors are clamoring to put their money into any stocks showing promise. This is a sharp contrast to the market conditions in early February when good earnings were rewarded with a stock sell off.
Starbucks (SBUX) reported earnings after market today also and reported 18% rise in profits and meeting analyst consensus of $.18 and reaffirming next quarter guidance. I believe that this stock also has some room to run as the doom and gloom scenario is for naught. I plan on selling this stock in the morning tomorrow to book gains. I have 50 contracts of June $32.50 calls at an average price of $.68. I have better uses for this money in the short term.
Cisco Networks (CSCO) is also showing bullish price action. I believe the shares will teeter around $28 to $29 range before it reports earnings next week on Tuesday 5/8/2007. I anticipate that they will continue to show market leadership and dominance. I believe that this stock will be good for $32 to $37 range by options expiration in June 2007. I hold 500 contracts of June $27.50 at an average price of $.75. I plan on adding more from Starbucks proceeds if the current $1.25 per contract price comes down to $.85 to $.95 levels.
Google (GOOG) is showing some signs of life today. It is effectively completing the handle portion of the cup base and I believe some form of acquisition news that the market will cheer is in the works. Some are postulating Monster acquisition? We will see. I still think that the shares of Google can test $500 to $520 level before June options expiration. We will see. Historically, Google does well only in the Fall months.
LHC Group (LHCG) is frustrating and in the same boat as Google as frustrating pick. I believe that once the Medicare CMS reimbursement guidelines are clarified, this stock has the potential to run to $33 to $36 range. In the mean time, I am selling shares to free up what ever is left of this trade. I only hold 30 contracts of June $30 contracts right now at 90% loss.
Watch Lists
1. Johnson and Johnson (JNJ)- a good play on diversified play. Currently, the market favors the DOW component and big cap stocks and this would be a solid company to ride the wave.
2. Smith and Wesson (SWHC)- a long time favorite of mine. I believe that this stock has a seasonality built into it. It has done well during the summer months. technically, the stock is showing support at 50 EDMA and has not broken the uptrend line. It is fairly valued and has a potential to break out.
3. Intel (INTC)- with recent resurgence among semiconductor industries, Intel remains an appealing choice. Technically, the stock is setting up into a nice double bottom weekly base and should be the beneficiary of recent debacles at AMD which might signal that the price war is coming to a close.
4. Talx Corp (Talx)- A provider of payroll related and business process outsourcing services. This stock reports earnings on May 9, 2007. The chart shows good cup with handle in daily and weekly charts but volume on the weekly chart is lacking a bit. It none the less is a key player in the corporate slow down that is anticipated. As companies focus on ways to cut costs, this company stands to benefit. I will keep researching this company but so far, I have not found the fundamentals to be all that great. It is a highly levered company with debt to equity ration of 1.05
Good luck all.
Tuesday, May 01, 2007
Sell in May and Stay Away?
So last year, we all got our guts kicked out by the sudden correction in the market last year around this time. The FED raised interest rates by 25 basis points and that sparked a market wide sell off. With inflationary pressures rising and oil prices peaking, the economic conditions seemed bleak. We all know what happened to our stocks then. Noise in the media was at fever pitch levels regarding the demise of the stock market.
Fast forward 12 months and we are at the very uncomfortable May, a month of demise, a month to sell and lock in your gains until October. A time to let the boogey man take control of the stock market. Has anything changed since that time?
Well, yes.
It is said that the stock market is always forward looking and the current stock price reflects future events. Kind of cheesy but before you jump to conclusions hear me out. The market as a whole is thought to price in the future. It is uncanny. So, the price that you pay for your stocks today is not necessarily the reflection of recent earnings report or the current events but forward looking future possibilities. Is the market always right? Of course not. But upon review, the market is eerily efficient in this regard. But there are dislocations and as traders we try to capitalize on this aspect in most cases.
So where am I going with this? I think the general media is wrong.
Historically speaking May is a month of tough market conditions where corrections happen. This is why the saying "Sell in May and Stay Away" started. On Marketwatch.com, Michael Ashbaugh's article http://www.marketwatch.com/news/story/could-one-time-not-sell/story.aspx?guid=A5F0934F-EA5C-47E8-9A45-2E4AA39BD1FD&dist=SecMostRead supports my thesis. That is, perhaps this May is a bit different from historically proven adage. I know that statistically I am perhaps an outlier. I also know that since 1950's if you invested just $10,000 and not invested a penny more since and avoided buying in the month of May, the stakes would be worth over $500,000 today. On the other hand if that same $10,000 was invested in the month of May, that stakes would be just over $9,000. So, am I crazy?
Perhaps. This market has me baffled as the economic sentiment is resoundingly bearish. I too feel bearish but have chosen to obey the technicals of the market with the exception of Countrywide (read my other blogs on this topic- I am tired of beating a dead horse). That is I am technically bullish on this market. Why? Is it because I got burned by Countrywide last month? No, but that memory still lingers and is painful. It is because when I review what happened last May, it is highly correlated to the current market fundamentals. In May 2006, the market was hoping for a rate cut but instead got a rate hike, which sent the market over the edge. But was that the catalyst? When you dig deeper, it appears that May 2006 was looking ahead to May 2007.
The months following May 2006 was down right scary. High fliers such as Google, Apple, Coach, and many others were simply taken out to the shed and shot. Apple was trading almost 50% off its highs at that time. Oil prices kept climbing and climbing. Hurricane season in 2005 had left an indelible mark on the psyche of the stock market. Many were not even factoring in a recession. By the way, recession is probably over as you read this blog today. That is because when all the market fundamentals appears to be going to the outhouse, that is when the market has recovered. It is just that the indicators of recession is a lagging one by about 6 to 8 months. Having said that, is it possible that the markets have been pricing in a economy that will recover in 6 to 12 month time? Recession is all over the news media and I am also guilty of that over the past few months on this blog. It is just that I had a epiphany agonizing over the apparent dislocation of the market fundamentals and technicals.
At least this way I am able to explain the market fundamentals and the apparent rally in the stock market that seems to keep charging ahead. This thesis is by no means complete. I do know that the small caps have not participated at all in this rally and that the advancers to decliner ratio was actually bearish in most cases. But be as it may, I am a price to volume guy and I tend to discount many other technical indicators which are mostly lagging.
Housing will continue to drag on this economy but I believe the market has essentially priced in the worst case scenario for the majority of the market. This does not mean that the housing related stocks and mortgage lenders are in the clear. They will yet feel the sting of the market. But like I said, the actions that we saw in the past month does not happen at market tops. Clear and simple.
I think the great barometer of whether this market rally will continue will hinge on the FOMC meeting next Wednesday. I believe that the FED will continue to remain neutral with some hawkish posturing. But I believe the FED is a toothless tiger in this case because they can't do anything without causing some harm. Catch 22 my friends, Catch 22. They can't raise or lower rates but if pressed, they will raise rates rather than cut. You can take that to the bank.
So why do I think that the markets will not sell off in May 2007? Because we have worked off the excess in February 27th through March 21st. It was a short lived correction and I still remain weary of the follow through day but a rally of this magnitude with indices breaking to new highs despite my sentiments to the contrary, states that the market knows something I do not. I would however throw caution to the wind and say that if the rally continues through May and the summer, likelihood of a market meltdown in October remains high. Especially if the market is wrong now, which I tend to agree it is. I just choose to follow the trend.
Good luck and be careful out there!
Fast forward 12 months and we are at the very uncomfortable May, a month of demise, a month to sell and lock in your gains until October. A time to let the boogey man take control of the stock market. Has anything changed since that time?
Well, yes.
It is said that the stock market is always forward looking and the current stock price reflects future events. Kind of cheesy but before you jump to conclusions hear me out. The market as a whole is thought to price in the future. It is uncanny. So, the price that you pay for your stocks today is not necessarily the reflection of recent earnings report or the current events but forward looking future possibilities. Is the market always right? Of course not. But upon review, the market is eerily efficient in this regard. But there are dislocations and as traders we try to capitalize on this aspect in most cases.
So where am I going with this? I think the general media is wrong.
Historically speaking May is a month of tough market conditions where corrections happen. This is why the saying "Sell in May and Stay Away" started. On Marketwatch.com, Michael Ashbaugh's article http://www.marketwatch.com/news/story/could-one-time-not-sell/story.aspx?guid=A5F0934F-EA5C-47E8-9A45-2E4AA39BD1FD&dist=SecMostRead supports my thesis. That is, perhaps this May is a bit different from historically proven adage. I know that statistically I am perhaps an outlier. I also know that since 1950's if you invested just $10,000 and not invested a penny more since and avoided buying in the month of May, the stakes would be worth over $500,000 today. On the other hand if that same $10,000 was invested in the month of May, that stakes would be just over $9,000. So, am I crazy?
Perhaps. This market has me baffled as the economic sentiment is resoundingly bearish. I too feel bearish but have chosen to obey the technicals of the market with the exception of Countrywide (read my other blogs on this topic- I am tired of beating a dead horse). That is I am technically bullish on this market. Why? Is it because I got burned by Countrywide last month? No, but that memory still lingers and is painful. It is because when I review what happened last May, it is highly correlated to the current market fundamentals. In May 2006, the market was hoping for a rate cut but instead got a rate hike, which sent the market over the edge. But was that the catalyst? When you dig deeper, it appears that May 2006 was looking ahead to May 2007.
The months following May 2006 was down right scary. High fliers such as Google, Apple, Coach, and many others were simply taken out to the shed and shot. Apple was trading almost 50% off its highs at that time. Oil prices kept climbing and climbing. Hurricane season in 2005 had left an indelible mark on the psyche of the stock market. Many were not even factoring in a recession. By the way, recession is probably over as you read this blog today. That is because when all the market fundamentals appears to be going to the outhouse, that is when the market has recovered. It is just that the indicators of recession is a lagging one by about 6 to 8 months. Having said that, is it possible that the markets have been pricing in a economy that will recover in 6 to 12 month time? Recession is all over the news media and I am also guilty of that over the past few months on this blog. It is just that I had a epiphany agonizing over the apparent dislocation of the market fundamentals and technicals.
At least this way I am able to explain the market fundamentals and the apparent rally in the stock market that seems to keep charging ahead. This thesis is by no means complete. I do know that the small caps have not participated at all in this rally and that the advancers to decliner ratio was actually bearish in most cases. But be as it may, I am a price to volume guy and I tend to discount many other technical indicators which are mostly lagging.
Housing will continue to drag on this economy but I believe the market has essentially priced in the worst case scenario for the majority of the market. This does not mean that the housing related stocks and mortgage lenders are in the clear. They will yet feel the sting of the market. But like I said, the actions that we saw in the past month does not happen at market tops. Clear and simple.
I think the great barometer of whether this market rally will continue will hinge on the FOMC meeting next Wednesday. I believe that the FED will continue to remain neutral with some hawkish posturing. But I believe the FED is a toothless tiger in this case because they can't do anything without causing some harm. Catch 22 my friends, Catch 22. They can't raise or lower rates but if pressed, they will raise rates rather than cut. You can take that to the bank.
So why do I think that the markets will not sell off in May 2007? Because we have worked off the excess in February 27th through March 21st. It was a short lived correction and I still remain weary of the follow through day but a rally of this magnitude with indices breaking to new highs despite my sentiments to the contrary, states that the market knows something I do not. I would however throw caution to the wind and say that if the rally continues through May and the summer, likelihood of a market meltdown in October remains high. Especially if the market is wrong now, which I tend to agree it is. I just choose to follow the trend.
Good luck and be careful out there!
Monday, April 30, 2007
Market Rally Hangover?
So we ended April with quite a beating. I expected it. Let's face it. The market has been over bought at these levels for quite some time. The pull back today was necessary and in my opinion long over due. Now, my subjective bias is still tilting towards a market meltdown in the future, but as I have learned repeatedly in my short trading career, what it seems is never what it is, at least in the short term. Did that make sense? To put it more clearly, the market gods have a way of exhausting, demoralizing, and ridiculing you until you give up your thesis. Then the thesis comes to fruition. Anyone care to refute that?
I know that we are treading on thin ice here with the economy. Like I have said in my past few blogs, some of the market actions seen in the past 3 weeks do not happen at market tops. However, I am still biased towards negative economic impact on the stock market within the next 6 months or so. This teflon market cannot continue in this fashion. I am hopeful that we can have a meaningful pull back from today's action to wash out excess speculation and to bring the fundamentals of this economy more in sync with the technicals of the stock market. Some of my respected bloggers have been calling the rally that occurred in April a blow off top. But I tend to disagree. It is still too early in the cycle to be able to characterize this rally as that. I think it will come, but I would expect such action more in the future, say in the Fall. Read: Watch out for October this year!
Today's market beating was broad based and just about everyone was taken out to the wood shed and shot. Economic indicators continue to point to slowing economy with inflation just above the FED's comfort level. Like I said, in the short term, the FED will do nothing. But in the longer term, the FED must do the right thing and hike interest rate by at least 25 basis points. It will hurt and there will be much agony but it is necessary and worth it. No pain, no gain. Otherwise, if Bernake makes a bone headed move and cut interest rates to jump start the economy, which won't happen, we would be definitely mired in "stagflation".
Many of the market pundits are coming out and calling for a correction, announcing caution, calling for defensive stock plays (read: Cramer), and Mark Hulbert calling this rally stale. My how fast sentiments change, but it was long over due. On what grounds did this market rally the past 4 weeks? Was it that the market is pricing in the bottom of the economic slow down and pricing in for more robust growth of 3% or higher in GDP within the next 6 months? Possible but doubtful that this will happen. But funnier things have happened. All I can say is that this market continues to baffle me and I choose to stay on the side of the trend, which is firmly up, for the time being.
Now, just about the only company I am bearish on is Countrywide. Yes, I have paid dearly in April for my bearishness, but I am even more emboldened by the recent media shift on subprime and housing slow down. It is clear that some one is not telling the whole truth and it isn't the investors in this terrible company. AP has even gotten into the act these days by reporting on Mozilo's record setting rate of selling. This despite Mozilo continuing to spew diarrhea from his mouth regarding how strong Countrywide will be, utilizing the whore Cramer to pump his stock into earnings, and now pleading the powers that be to see things "their way". Sorry Angelo, the only thing you'll likely get is a prison term and a rate hike in the future. Oh by the way, did anyone see the news today that David Lereah is leaving the NAR? That guy single handedly propped up the real estate market during the boom and now the bust is here, he is leaving. Be worried. Be very worried because I think the fun is about to start! I am short Countrywide with 500 contracts of July $35 puts. If I lose that bet, I will continue to buy puts out to October! (remember what I said about October this year!)
Now, let's focus on what I am doing on the long side.
I am very bullish on Cisco (CSCO). Technically, Cisco is forming a double bottom base with tight 3 weeks of trading. Additionally, the right side of the double bottom base is forming an ascending triangle base which can indicate accumulation. That is proven when you consider the last 3 weeks of above avrage volume accumulation in tight price patterns. What will propel Cisco above that proverbial $30 mark? It would have to be another outstanding quarter but with the cooperation of the markets. So far, any companies that are levered to the global economy has been rewarded. Cisco's global business comprises 45 to 50% of their business. With their recent Webex acquisition, it is clear that Cisco is serious about video conferencing and telephony leadership. Also, this will allow Cisco to also lever itself to selling software to manage these new technologies. There has been quite a bit of chatter about Cisco's Enterprise division which comprises 50% of their entire business as slowing down. There has been rumors of Cisco "borrowing" sales figures from Q4 to Q3, but those are all bunk. I believe that Cisco's core enterprise business has kept up or has increased a bit (little bit of increase is all it can muster as this is a very mature cash generating business for Cisco). What will be interesting is the overseas revenues especially since Cisco has had 2 full quarters of sales with record low dollar versus just about any other country. That will mean huge profits that will be recognized even for a company like Cisco. I am in accumulation mode for Cisco June $27.50 and $30 call options. I currently have accumulated 110 contracts thus far of Cisco $27.50 and 50 of $30's. I would like to ultimately own 300 contracts of $27.50 and 500 of $30's all expiring in June 07. The call is short which I normally do not do but I am that bullish on Cisco's prospects.
LHC Group (LHCG). This stock has broken all aspects of my technical trading parameters but I still remain bullish on this stock. Perhaps I am fighting the tape like I did with Countrywide in April but listen me out a bit. This stock fell on huge volume today and pierced the 200 EDMA. It has began to form the right side of the head and shoulders base on the weekly chart and quite frankly the daily chart is god awful as well. Why is all of this happening and why am I still bullish? It is for two reasons. People are worried that Medicare will cut reimbursement rates for home health care providers and agencies. Amedisys went as far to say they are uncertain what medicare will do when they announce changes. The rules for home health care will change but for the better. One of the things that people fail to recognize is that institutionalized care in nursing homes and rehabilitation hospitals cost far more than home health care delivery. It is cost effective and affords better health care and increases patient compliance. In the long run, this unfounded concern will be just that. I am banking on this issue. I am banking on the fact that LHCG will profit and benefit from the new Medicare rule changes. I am holding 22 call options for $30 strike expiring in June. Once the news is released, which should be any day now, we can expect this stock to trade above $35 and possibly test $40. Also, preliminary earnings were announced today and it was a beauty! Net service revenue increased 50.7% to $70 million. Net income increased 51.4% to $6.3 million and EPS rose 34.6% to $0.35. Conference call is scheduled for tomorrow 5/1/2007 at 10:00 AM EST. I expect to hear more on medicare rule changes and its status tomorrow. If favorable, we can expect a quick $3 to 5 gain.
Starbucks (SBUX). This stock is dissed over and over again. It is left out in the left field to rot and die. People have just about given up on this stock and it is trading down from its high of $40.01 on 11/15/2006, which is about 24% down. They have shown that earnings growth was slowing and that there have been questions whether or not Starbuck's days as a growth stock are over. With increased competition from MacDonald's which was purportedly serving better gourmet coffee, this fed fuel to the fire that perhaps Starbucks competitive edge was finally diminished. But that is where everyone is wrong. Starbucks had some mis-steps the past 2 quarters due in part to rising coffee prices and vendor issues. But Starbucks have broadened their initiatives at newer growth arenas including a new music label business which should add some sizzle to the stock price. Their foray into China has been successful and with the weak dollar, this should again give some "Oomph" to the earnings this time around. Starbucks still commands strong brand name and top notch executives leading this company. This company has a tendency to surprise just when people have given up on it. Technically, the stock has bottomed and has been trading in tight 7 week pattern. It has also broken the down trend and this earnings might just propel this stock higher on May 3rd. My feeling is that Starbucks should post a surprising $.22 EPS.
Google (GOOG). Oh Google! I haven't given up just yet. It is forming a cup with a handle. But boy is this stock frustrating! This is definitely a good long term hold stock, not for the faint hearted. It is just not getting any love and the Doubleclick deal seems to not have settled well with the Street.
There you have it! Be careful out there. This week will price in negative employment and unemployment numbers. I think that this will also be a temporary pull back which is necessary!
Just hoping that Mozilo will finally pay his dues! Down with CFC!
I know that we are treading on thin ice here with the economy. Like I have said in my past few blogs, some of the market actions seen in the past 3 weeks do not happen at market tops. However, I am still biased towards negative economic impact on the stock market within the next 6 months or so. This teflon market cannot continue in this fashion. I am hopeful that we can have a meaningful pull back from today's action to wash out excess speculation and to bring the fundamentals of this economy more in sync with the technicals of the stock market. Some of my respected bloggers have been calling the rally that occurred in April a blow off top. But I tend to disagree. It is still too early in the cycle to be able to characterize this rally as that. I think it will come, but I would expect such action more in the future, say in the Fall. Read: Watch out for October this year!
Today's market beating was broad based and just about everyone was taken out to the wood shed and shot. Economic indicators continue to point to slowing economy with inflation just above the FED's comfort level. Like I said, in the short term, the FED will do nothing. But in the longer term, the FED must do the right thing and hike interest rate by at least 25 basis points. It will hurt and there will be much agony but it is necessary and worth it. No pain, no gain. Otherwise, if Bernake makes a bone headed move and cut interest rates to jump start the economy, which won't happen, we would be definitely mired in "stagflation".
Many of the market pundits are coming out and calling for a correction, announcing caution, calling for defensive stock plays (read: Cramer), and Mark Hulbert calling this rally stale. My how fast sentiments change, but it was long over due. On what grounds did this market rally the past 4 weeks? Was it that the market is pricing in the bottom of the economic slow down and pricing in for more robust growth of 3% or higher in GDP within the next 6 months? Possible but doubtful that this will happen. But funnier things have happened. All I can say is that this market continues to baffle me and I choose to stay on the side of the trend, which is firmly up, for the time being.
Now, just about the only company I am bearish on is Countrywide. Yes, I have paid dearly in April for my bearishness, but I am even more emboldened by the recent media shift on subprime and housing slow down. It is clear that some one is not telling the whole truth and it isn't the investors in this terrible company. AP has even gotten into the act these days by reporting on Mozilo's record setting rate of selling. This despite Mozilo continuing to spew diarrhea from his mouth regarding how strong Countrywide will be, utilizing the whore Cramer to pump his stock into earnings, and now pleading the powers that be to see things "their way". Sorry Angelo, the only thing you'll likely get is a prison term and a rate hike in the future. Oh by the way, did anyone see the news today that David Lereah is leaving the NAR? That guy single handedly propped up the real estate market during the boom and now the bust is here, he is leaving. Be worried. Be very worried because I think the fun is about to start! I am short Countrywide with 500 contracts of July $35 puts. If I lose that bet, I will continue to buy puts out to October! (remember what I said about October this year!)
Now, let's focus on what I am doing on the long side.
I am very bullish on Cisco (CSCO). Technically, Cisco is forming a double bottom base with tight 3 weeks of trading. Additionally, the right side of the double bottom base is forming an ascending triangle base which can indicate accumulation. That is proven when you consider the last 3 weeks of above avrage volume accumulation in tight price patterns. What will propel Cisco above that proverbial $30 mark? It would have to be another outstanding quarter but with the cooperation of the markets. So far, any companies that are levered to the global economy has been rewarded. Cisco's global business comprises 45 to 50% of their business. With their recent Webex acquisition, it is clear that Cisco is serious about video conferencing and telephony leadership. Also, this will allow Cisco to also lever itself to selling software to manage these new technologies. There has been quite a bit of chatter about Cisco's Enterprise division which comprises 50% of their entire business as slowing down. There has been rumors of Cisco "borrowing" sales figures from Q4 to Q3, but those are all bunk. I believe that Cisco's core enterprise business has kept up or has increased a bit (little bit of increase is all it can muster as this is a very mature cash generating business for Cisco). What will be interesting is the overseas revenues especially since Cisco has had 2 full quarters of sales with record low dollar versus just about any other country. That will mean huge profits that will be recognized even for a company like Cisco. I am in accumulation mode for Cisco June $27.50 and $30 call options. I currently have accumulated 110 contracts thus far of Cisco $27.50 and 50 of $30's. I would like to ultimately own 300 contracts of $27.50 and 500 of $30's all expiring in June 07. The call is short which I normally do not do but I am that bullish on Cisco's prospects.
LHC Group (LHCG). This stock has broken all aspects of my technical trading parameters but I still remain bullish on this stock. Perhaps I am fighting the tape like I did with Countrywide in April but listen me out a bit. This stock fell on huge volume today and pierced the 200 EDMA. It has began to form the right side of the head and shoulders base on the weekly chart and quite frankly the daily chart is god awful as well. Why is all of this happening and why am I still bullish? It is for two reasons. People are worried that Medicare will cut reimbursement rates for home health care providers and agencies. Amedisys went as far to say they are uncertain what medicare will do when they announce changes. The rules for home health care will change but for the better. One of the things that people fail to recognize is that institutionalized care in nursing homes and rehabilitation hospitals cost far more than home health care delivery. It is cost effective and affords better health care and increases patient compliance. In the long run, this unfounded concern will be just that. I am banking on this issue. I am banking on the fact that LHCG will profit and benefit from the new Medicare rule changes. I am holding 22 call options for $30 strike expiring in June. Once the news is released, which should be any day now, we can expect this stock to trade above $35 and possibly test $40. Also, preliminary earnings were announced today and it was a beauty! Net service revenue increased 50.7% to $70 million. Net income increased 51.4% to $6.3 million and EPS rose 34.6% to $0.35. Conference call is scheduled for tomorrow 5/1/2007 at 10:00 AM EST. I expect to hear more on medicare rule changes and its status tomorrow. If favorable, we can expect a quick $3 to 5 gain.
Starbucks (SBUX). This stock is dissed over and over again. It is left out in the left field to rot and die. People have just about given up on this stock and it is trading down from its high of $40.01 on 11/15/2006, which is about 24% down. They have shown that earnings growth was slowing and that there have been questions whether or not Starbuck's days as a growth stock are over. With increased competition from MacDonald's which was purportedly serving better gourmet coffee, this fed fuel to the fire that perhaps Starbucks competitive edge was finally diminished. But that is where everyone is wrong. Starbucks had some mis-steps the past 2 quarters due in part to rising coffee prices and vendor issues. But Starbucks have broadened their initiatives at newer growth arenas including a new music label business which should add some sizzle to the stock price. Their foray into China has been successful and with the weak dollar, this should again give some "Oomph" to the earnings this time around. Starbucks still commands strong brand name and top notch executives leading this company. This company has a tendency to surprise just when people have given up on it. Technically, the stock has bottomed and has been trading in tight 7 week pattern. It has also broken the down trend and this earnings might just propel this stock higher on May 3rd. My feeling is that Starbucks should post a surprising $.22 EPS.
Google (GOOG). Oh Google! I haven't given up just yet. It is forming a cup with a handle. But boy is this stock frustrating! This is definitely a good long term hold stock, not for the faint hearted. It is just not getting any love and the Doubleclick deal seems to not have settled well with the Street.
There you have it! Be careful out there. This week will price in negative employment and unemployment numbers. I think that this will also be a temporary pull back which is necessary!
Just hoping that Mozilo will finally pay his dues! Down with CFC!
Sunday, April 29, 2007
Can This Rally Continue?
As I have said, there is a divergence between the technicals of the market and the fundamentals of the market. This week, the market will attempt to make 5 straight weeks of gains. There is a lot hinging on the jobs report on the economic front but the real driver this week will again be the corporate earnings. GM, Procter and Gamble, Starbucks report this week.
Starbucks? Yes, Starbucks is probably the biggest barometer of the health of consumer spending and the status of the economy. This is because Starbucks has the "Latte factor", meaning that, it is a perk that consumers enjoy and is highly levered to the health of the consumers and the economy. If Starbucks reports bad earnings and guides lower, we can also anticipate that the economy is in trouble and that last week's report regarding strong consumer spending is just a facade. Perhaps it is too simplistic but many things in life that are worth anything in salt are. I am willing to bet this week that Starbuck's earnings will surprise to the upside. I believe technically, the short term bottom has been reached at $31.50. The stock has formed 6 week tight pattern with diminishing sell side volume.
I will establish a small 10 contract position in Starbucks June $32.50 call position this week. I anticipate that if the earnings are good, we can see a gain of $2-$3.
I will sell LHCG calls early Monday morning based on the earnings report. The chart is bearish with double top pattern and high volume selling and residence for the past 3 weeks below the 50 EDMA, but this is a low float stock and selling appears done. If the earnings report is stellar, we can see $30 in short order.
Valuclick still remains an appealing candidate for a long call. I may purchase June $30 calls with expectations of selling shortly after earnings.
Starbucks? Yes, Starbucks is probably the biggest barometer of the health of consumer spending and the status of the economy. This is because Starbucks has the "Latte factor", meaning that, it is a perk that consumers enjoy and is highly levered to the health of the consumers and the economy. If Starbucks reports bad earnings and guides lower, we can also anticipate that the economy is in trouble and that last week's report regarding strong consumer spending is just a facade. Perhaps it is too simplistic but many things in life that are worth anything in salt are. I am willing to bet this week that Starbuck's earnings will surprise to the upside. I believe technically, the short term bottom has been reached at $31.50. The stock has formed 6 week tight pattern with diminishing sell side volume.
I will establish a small 10 contract position in Starbucks June $32.50 call position this week. I anticipate that if the earnings are good, we can see a gain of $2-$3.
I will sell LHCG calls early Monday morning based on the earnings report. The chart is bearish with double top pattern and high volume selling and residence for the past 3 weeks below the 50 EDMA, but this is a low float stock and selling appears done. If the earnings report is stellar, we can see $30 in short order.
Valuclick still remains an appealing candidate for a long call. I may purchase June $30 calls with expectations of selling shortly after earnings.
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