I hope when I say this, that you will believe it. But since you don't know me, or know anything about my investing style, I won't be upset if you start to yawn or begin to think about something other than what I am saying. Honestly, it will be all right if you do.
I was looking back through some of my CAPS picks, trying to understand where I went wrong. I mean one of my CAPS picks is down more than 57%, and when you add the changes in the S&P the stock is now down about 72%!
The thing about this stock, Georgia Gulf Corporation (NYSE: GGC) is that I continue to add it to my real world portfolio. At the moment I own 700 shares and have an average cost per share including sales commissions of $20.0996. The stock closed recently at $11.95, and I'm thinking I'm going to buy more shares.
Another stock in my CAPS portfolio is WP Stewart and Company, Ltd. (NYSE: WPL). This company is a publicly traded money management firm that manages the investments of extremely high net worth individuals by investing their clients money in large blue chip stocks.
In my CAPS portfolio I'm down more than 44% with this little gem, and when you add in the S&P changes, I'm down against the index by more than 55%.
This is another one that I own in my real world portfolio and one I continue to buy. I've now managed to accumulate 500 shares with an average cost per share including commissions of $12.1498.
I bought the stock because at the time I came across the company it was my belief that the housing/credit markets were going to implode which would put our economy on its ear. [more]
The company has two divisions. In one division they design and manufacture a tissue oxygen monitor and in the other division they manufacture disk drive suspension systems.
That reminds me of me.
By day, I'm a dedicated and consciences employee, willing to help with whatever problem arises. But by night I'm a marauding pirate on the high seas, taking from the rich and giving to the poor.
My ship has mighty sails and a strong bow and I am master of my own destiny, living for the fight, for the...okay so it's a rubber float I play with in the bath tub...the pirate thing could still happen...someday...maybe.
The name of the company is Hutchinson Technology, Inc. (Nasdaq: HTCH) and yes, they really do have two business segments.
What They Do
As I said, one business segment makes disk drive suspension assemblies, the precise electro-mechanical components that hold a disk drives recording heads at the precise distances from the recording disks.
The other business segment makes tissue oxygen monitors, which are attached to a patient's hand. These devices provide trauma care staff with a simple and efficient way to monitor tissue oxygenation using near-infrared spectroscopy.
What They Did
In June the company made the decision to eliminate about 500 jobs at their facilities in Hutchinson and Plymouth, Minnesota, Eau Claire, Wisconsin, and Sioux Falls, South Dakota, based on the estimated demand for suspension assemblies.
My Reasonable Value Estimate
I have the company on my watch list with a reasonable value estimate of $28, based on the company's latest 10-K for year end 09/06 and a 3-5 year hold. I have a buy target of $14, a first sell target at $27 and a close target at $29.
The stock closed on 10/16 at $23.59 with overhead resistance at $25.65, first support at $23.44, and second support at $21.53, giving the stock an upside potential of about 9%, an initial downside risk of about 1% and an overall downside risk of almost 9%, putting the odds of making short term money on this stock at current pricing levels at almost 50:50.
Once upon a time I owned shares of Hutchinson. It wasn't a bad investment, but it wasn't a very good one either. While the company is moving to diversify with it's oxygen monitor, the majority of it's sales are still from its disk drive suspension business, and is the case with many technology companies, change is never ending, with sales of suspension systems used for the 3.5" ATA drives falling, while at the same time expenses continue in an effort to get a new manufacturing process in place and running that will serve the next generation hard drive suspension market.
As these shifts occur, manufacturing capacity becomes under utilized. Such is the case with Hutchinson with manufacturing capacity utilization at 60%.
I'm not going to go into inventory issues and margin reductions as the suspension market moves between different technologies, but suffice it to say, my issue with Hutchinson is the same as it is with most technology companies, little to no upward movement in the stock, and like it or not, the vast majority of investors buy a technology stock just for the price appreciation, something I don't think I'm going to see much of with Hutchinson.
I'm rating this stock a SHUFFLE, which means there isn't any real hurry to take a position, especially as I think the price is going to get lower before it gets higher.
It also means have a seat on a park bench and just stare at the grass, which I think is going to get higher a lot quicker than the price of this stock.
I noticed a post on some discussion board the other day about Seagate Technology, Inc. (NYSE: STX) which got me to thinking about how much things have changed in the world of data storage in the past seven years or so.
I remember having conversations with folks during the late 1990s when Iomega Corporation (NYSE: IOM) was all the rage. Their position was that Iomega was the defacto standard in storage technology and because of their proprietary technology, the stock would go up and up and up.
When it came to earnings season, company after company would report and provide guidance about future earnings, with one exception, Iomega. Iomega's management simply wouldn't comment about future earnings, current earnings, or how many holes it took to fill the Albert Hall. It was almost as if management was to...advanced, to provide such petty information.
Iomega stock is currently trading at about $5, which makes me wonder if management is as impressed with themselves now as they were 10 years ago.
At any rate, my argument at the time was that the defacto standard had yet to be determined, and while Iomega may be a stock that I might want to own, I certainly wasn't going to pay that much (I have no idea how much THAT much was) for a stock.
Eventually of course the bottom fell out of the market and technology stocks were no longer in vogue. The NASDAQ fell to under 1200 and for a time the markets seemed to be collapsing onto themselves.
Looking back, I have likened that period in the markets to September 11, 2001. It was simply not fun, unless you happen to be a value investor. So while fear, uncertainty, anxiety, anger, and even general chaos seemed to permeate the markets, folks like Warren Buffett and Walter Schloss were quietly setting themselves up to make a fortune.
What They Do
But as they say, life goes on. And so too have the technology markets, including hard drive manufacturer now digital storage manufacturer Seagate Technology.
Seagate makes disc drives, all kinds of disc drives, which are sold to computer makers for use in desktop and notebook computers, consumer electronics devices, corporate data centers, enterprise servers, mainframes, and workstations.
The company also makes products for mobile computing applications, digital video recorders (DVRs), and gaming devices, and external hard drives.
In May of 2006 the company acquired Maxtor Corporation, also in the digital storage business and today Seagate sells not only storage devices with the Seagate name but also with the Maxtor name.
I have Seagate on my watch list with a reasonable value of $32, a buy target of $16, a first sell target of $31, and a close target of $34, all based on the company's latest 10-K of June 2007, and a 3-5 year hold.
The stock closed on 10.11.07 at $26.21, with overhead resistance at $28.51, first support at $25, and second support at $24.11, which works out to about a 9% appreciation opportunity and an 8% risk opportunity.
I like the company. I've owned it twice, once as a NASDAQ company and once as an NYSE company, and I think management is on top of not only the company's operations, but future operations as well, which to me is always a strong signal that management is considering themselves as stakeholders.
I have seen several discussions on the web which place a value on the stock of about $40. The problem with a $40 value is that it takes into account earnings growth, which analysts have set at about 19%. [more]
I've been looking at retail stocks lately, having read at various sites that the coming recession and economic malaise is going to be a good thing for retailers. I haven't quite figured out why that is, I mean if we are really in recessionary times, and the economy is a mess because of the housing/credit meltdown, then why would people spend money they don't have, to buy stuff they don't need?
At any rate, this morning I took a peak at a retailer that I own 700 shares of, Wal-Mart Stores, Inc. (NYSE: WMT)
What They Do
The company operates more than 6700 retail stores worldwide. Let that soak in for a minute, I mean what a staggering number of stores. According to Reuters the company operated more than 4,000 stores in the United States, more than 1600 in Mexico and South America, almost 300 stores in Canada, about 300 stores in the United Kingdom, and almost 400 stores in Japan.
What They Did
In addition to setting up shop in China, participating in the operation of 73 stores there via joint ventures, the company has also worked out agreements with the Indian government and is in the process of starting joint venture operations there. [more]
I keep reading stuff on the web about what a great value play Talbots, Inc. (NYSE: TLB) is. I have to tell you, I don’t see it.
What They Do
Certainly the company has a lot of retail space, how could they not with 1364 stores in 47 states, not to mention all of the catalogs they ship out, some 48 million of them in fiscal 2006. So yes, the company reaches a lot of people. Personally, I think the only one that makes out in the deal is the United States Postal Service!
By the way, the company is in the retail clothing and catalog business, selling women’s, children’s, and men’s clothing.
What They Did
I’m not going to go into a big thing here, I’m simply going to say that in fiscal 2006, Talbots bought The J.Jill Group, Inc., which explains how Talbots’ balance sheet got all fouled up, increasing the company’s debt levels by almost $415 million.
Think about that for a second. The company increased it’s debt levels by $415 million because management decided The J. Jill Group was a good fit, and while I don’t disagree that J.Jill is a good fit, I don’t think I would have prostituted one company to acquire another company.
In fiscal 2006, the company had $100 million in long-term debt, no short-term debt, and $103 million in cash.
Today, having acquired J. Jill, the company has $389.2 million in long-term debt, $125.5 million in short-term debt, and $35.9 million in cash. What struck me as I glanced at the numbers however, was not the increase in debt, not the decrease in cash, but that sales seemed to be at the same levels post J.Jill as pre J.Jill.
My Value Estimate
I have the stock on my watch list with a reasonable value estimate of $34, with a buy target of $17, a first sell target of $33, and a close target of $36.
How Mr. Market Sees It
The stock closed on 10.05.07 at $19.46, with first resistance at $20.43, second resistance at $22.78, and support at $16.65, which means that the gain potential outweighs the risk potential by about 2%.
Personally I don’t think that my $34 valuation is going to hold up. The reason I don’t is because I believe at the end of the day the company is going to fall short of prior years’ earnings.
Admittedly, things could turn around as the Christmas buying season approaches, but with all of the turmoil over housing/credit, with high energy prices, with the fighting in the middle east still going on, I just don’t think earnings are going to come in where analysts and management think they will.
Also, I think management is clueless. They have allowed the company to take on debt with no clear plan how to mitigate the increase in debt service, or least none that has shown up yet. [more]
I admit it…my favorite companies have always been companies that can do more than one thing. What I mean by that is that they are diversified in their revenue stream enough so that if revenue from one source slows, revenue from another source would still be strong enough to sustain the company. [more]
I used to pay extremely close attention to what the markets were doing as well as what was being said about them. Everyday I would spend several hours reading what the analysts were saying about the markets or more importantly about stocks.
I really didn't have any preference when it came to stocks, I figured if the analysts said a particular stock was the one to own, then that was the one, and I dutifully added it to me watch list. Eventually of course I bought many of the stocks the analysts had said were the "ones" to own, and for a time I felt like the wizard of Wall Street.
I watched the value of my little portfolio steadily increase. I keep thinking if it will move just a little bit higher, I would sell out and retire. There were actually a couple of times that the value of my portfolio increased by more than $100K in a single day! Not bad for a portfolio that at the time totaled less than $750K.
Of course....the bubble burst...pop...and before the wizards of Wall Street could change their socks, the value of my little portfolio had fallen by just a little under $400K.
Gone were my hopes for an early retirement...palm trees swaying in the ocean breeze, island girls in grass skirts bringing me refreshing drinks in coconut shell cups, dancing till dawn, sailing to Tahiti...you know all of the things that sound so appealing but you would never actually do? Not because you couldn't, but because all those things really suck and you never actually wanted to them in the first place?
Eventually I pulled my head out, assessed what I had left, went back through all of the things I had learned about investing, and then tossed all of that out, with one exception.
The thing I kept was actually a reminder from my days as a construction electrician. What I kept was...Never bet on another man's trick.
Think about that. Who knows the trick better than the person the trick belongs to? If you believe that, who knows Wall Street and the markets better than the folks that work there? So why do so many folks pay attention to Maria Bartiromo and all the rest the CNBC news folks?
Enter MoneyCentral's Jim Jubak. I've never met this guy, but just looking at his picture sort of makes me want to take him to the Ice House and buy him a beer...swap stories...make outrageous claims about anything...try to out lie each other.
The reason I sort of like this guy is because my perception of him when it comes to investing is that he could care less if you read what he writes, listens to what he has to say, or get hit by a bus on your way to a public toilet.
In a recent article titled Will the Fed Keep the Rally Going he loosely examines what the recent Fed rate cut has done to, and for, Wall Street. Since I think the rate cut was 100% political, intended to forestall a recession until after the 2008 elections, I almost passed on the article.
But the more I thought about the title, the more I thought that finally a voice of reason has been sounded.
The long and the short of all of this is that Mr. Jubak believes, as I do, that the markets are being propped up by the recent rate cut and by the belief that another rate cut is imminent. As I said earlier, I believe the recent rate cut was 100% political, and depending on how the Republicans are doing in the polls prior to Christmas, there may indeed be another rate cut.
But the fact of the matter is, housing is hurting, and once lenders have had an opportunity to figure out what is going to be a realistic fix that will help folks not only afford a home, but be able to pay for it longer than a few years, the housing industry is going to rebound.
In the meantime, think about all of the things in your home/apartment, furniture, pots and pans, glassware, flatware, carpeting, linens, appliances, and the list goes on.
And what about the implements of frustration and aggravation for the chores outside your home? The lawnmower that won't start, the edger with a broken blade, the string edger with no line, the snow blower that you can't get to because the bass boat and the kids bikes are in the way. Which begs the question how is it the kids always manage to get their sleds or hockey sticks or ice skates out without moving the snow blower?
So with a housing slowdown continuing, for how long who knows, a generally slowing economy thanx in part to all of the prior rate increases by the Fed, with jobs moving to places we can't pronounce, with folks wanting to eat organic though nobody has a clue what organic means, and with anything else happening that you may want to add to this ever expanding list...
I'm going to ask you to consider one more thing. Election day is coming, and while I know everyone is tired of all of the political rhetoric now, it's only going to get worse as we get closer to November 2008.
This election, instead of selecting the usual assortment of liars, thieves, and cheats we call politicians, instead of betting our futures on another man's trick, why not take the time to understand just what it is we could be getting before we cast our ballots?
Why not invest in our own trick, by investing the time required to make an informed decision. Who knows, one day, that snow blower may end up in front of that bass boat.