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anticitrade (99.48)

Accountability for the 9 stocks I bought with real money.

Recs

9

June 26, 2009 – Comments (15) | RELATED TICKERS: AMED , SBN , TWIN

Just a quick update on the stocks I bought and some of my learnings. 


             Start           Current     Gain
SBN      0.3991           .9 125.5%
GRT        2.718           2.51 -7.7%
KNDL      12.32         11.86 -3.7%
JAKK      12.98        13.01 0.2%
WCC       26.38        24.73 -6.3%
Average Gain:                           21.6%
S&P Over same period            -3.2%
Days Since Purchase 23
(SBN was sold, and shareholders are getting .94/share)


             Start           Current     Gain
AMED    30.63             32.62    6.5%
TBSI        7.89             7.34        -7%
TWIN       6.56             6.74      2.7%
ISYS       8.46               7.9      -6.6%
Average Gain:                           -0.3% (Factoring in my doubled down TWIN)
S&P Over same period            0.5%
Days Since Purchase 8
 
What have I learned from this?
1)  Verify your numbers twice before you buy, so you don't accidentally double down on something.

2)  For a long investment, the potential upside is always greater than the potential downside.  The worst I could lose on any investment is 100%, but I can potentially gain much more than that.  If you don’t have a lot of money to move around (so transaction costs are significant), a high risk investment makes MORE sense.  Example:  Invest 500$ in a stock, transaction costs are 25$, that’s an instant 5% loss on the investment.  If you sell it for the same you got it for that’s another 25$ and now you lost 10% on your investment.  To make that guaranteed lose insignificant you need to either invest more (great idea if you can) or make each of your transactions really count (higher risk investments like SBN).  Like in baseball, its okay to have low accuracy as long as you smash the ones you do hit out of the park.

3)  Only sell when your reasons for buying have changed.  A lot of these company's prices have been significantly better and significantly worse since I have purchased them.  However, you can prevent yourself a lot of ulcers if you invest with a plan.  My analysis still shows that each of these companies are undervalued (except SBN which I will sell when I get the letter in the mail).  I will only sell when my analysis changes, or they reach my target prices.
With the exception of SBN, I do not plan on selling any of these stocks in the next few weeks.  More time is required to determine the quality of my picks.

15 Comments – Post Your Own

#1) On June 26, 2009 at 1:34 PM, dperque (70.86) wrote:

Keep up the great work. I bought AMED and TWIN based off of your last post (doing some due dilligence on my end of course) and can't thank you enough for brining these to my attention.

 dp

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#2) On June 26, 2009 at 1:35 PM, Teacherman1 (92.21) wrote:

I, for one, would like to see more information like this. i.e. stocks actually purchased, rather than just picked. I wish there was a way that caps members could designate which of their picks they have actually put money into. This would be a more valuable guide for me because then I would know that they likely put more time and effort into making those picks. As it is now (not directed at you), but many members have far too many picks (100-200) to be used as a guide for further research to make real investments. I for one get lost in the "jungle". Naturally, I look at the most highly rated members to get some clues as to what I might want to dig into deeper, but it seems that many of the most highly rated members have so many picks, I can't tell if they really believe in them, or are just using a shotgun approach.I usually don't post a pick unless I am actually invested in it, and use my Watch List", to pick those I am interested in looking at further. I say usually, because due to old age, blindness in one eye, or dyslixia, I show three picks ADCT, TEX and MTW, that I meant to put on my "Watch List", but somehow posted to my picks. Just to glean information that is of real use, It would be nice to see more highly rated members (or others) do what you did and show where your money actually is. Thanks for putting up with my "Old Dude" rambling. Good post by you and one that is actually meaningful to me.

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#3) On June 26, 2009 at 1:44 PM, bigmacfann (52.78) wrote:

As for GRT, people are just hesitant to get into real estate, especially commercial RE but they are going to be one of those companies where people are going to look back and say, "Man, I should have gotten in when they were priced at $2.50!"  Eventually retail sales will pick up and eventually consumer confidence will rise, plus at the very core of things, they own these properties (which means they can always sell something if they get in trouble).  People don't always realize that commerical real estate works differently than residential real estate.  In residential real estate, emotions play a large role in pricing.  In commercial, it's all about the numbers.  Take the gross rents over 10 years and that's the property's worth -- it's that simple.  Regarless of what people may think about how the internet is going to put conventional "store-front" businesses out of business, the simple fact of the matter is that people still like to try on shoes before they buy them.  This is a long-term thing, I wouldn't expect them to take a huge jump up over night, instead, expect a steady long-term growth as the economy recovers.  Without a doubt, however, GRT will beat the S&P and will far exceed people's current expectations.

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#4) On June 26, 2009 at 7:15 PM, ocsurf (62.81) wrote:

I like your GRT and TBSI picks. How long do you plan on holding these?

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#5) On June 26, 2009 at 7:33 PM, anticitrade (99.48) wrote:

I buy and sell based on my fundamental analyis.  So I use dynamic price points rather than time frames.  My price points are:

GRT 6.62 which is 162% higher than its current price. 

and 

TBSI 18.36 which is 129% higher than its current price.

Sounds pretty optimistic doesnt it?  These prices will change relative to the overall market movement, and new earnings announcements.  

If I had to put a time frame I wouild say 6 months to a year....  

 

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#6) On June 27, 2009 at 7:09 AM, fmahnke (97.42) wrote:

You've done a great job. I am amazed by your CAPs score. Some random thoughts: I disagree with the buy and hold to target theory as nothing goes up in a straight line. I took some big profits in RJET this week believing that I would have an opportunity to buy it back under $6.  Although it didn't quite fall back to my rentry target , I'm still ahead having sold at 6.93 and am comforable that I will have more chances if buy under $6.

My point is that combinig fundamental analysis with technical analysis can improve overall portfolio performance, Predetermined exit and rentry points based on technicals simply make sense.  I will likely have bought and sold RJET three or four times by the time it hits your target price.

I also made alot of money in American Greetings this week, despite that your model doesn't like this stock.  I need to take my own advice and take profits as I can feel the momentum starting to wane. My problem is that I can make a case for target over $20 which leads me to a couple of questions about your model.

When you flag AM with negative earnings are you counting goodwill impairment ? (which I back out) Also, how do you assign a ranking  when no target is listed ?

Don't get me wrong, you've done some great work and the fundamentals are clearly most important. However, technicals do  matter and even if you believe that a stock will ulitimately hit your target, it does make sense to sell and buy back. (you could own lot more GRT right now)

One last thought.  Russell rebalancing wrecked havoc on the small cap market yesterday creating some interesting opportunities on the long and short side.  It is a great weekend to do some analysis and put some capital to work 

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#7) On June 27, 2009 at 8:30 AM, fmahnke (97.42) wrote:

I did have another question on the model.  The way I look at a Company like WRLS, I start with current assets less all liabilities for $2 share.  The market doesn't seem to assign any value to the business, even though a large percentage of its revenue are recurring, they hooked into the mega-trend of landline elimination, they consistently make money (cash) have no debt, and a new CEO, who I believe, simply will not allow this Company to lose money and has been buying shares will his own cash.

I was lucky enough to buy this stock at $1.24 and believe its current value is around $3.  They just bought back a large chunk of the float  @ $2.25.  

My questions are, even if I haircut AR and inventory, I cannot get close to your fundamental price of $1. Where do you think I've gone wrong and do you look at the recurring nature of revenue streams in assigning a valuation ?

Again, I am not throwing stones.  I use your analysis in making decisions with real money which have helped me identifying opportunities like RJET ( I also own PRGN and TWIN.  My hope is stimulate thoughts to learn, which is what this is all about.

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#8) On June 27, 2009 at 11:05 AM, anticitrade (99.48) wrote:

fmahnke,

Thanks for your comments.  I try to not be emotionally involved with my model so that I can continue to improve it.  You have a lot of good points, and I will do my best to address them.

I am beginning to see some value in a technical analysis.  Like you, I think that there is strong potential when a technical analysis is combined with a fundamental one.  My remaining problems with a technical analysis is that it is based on the assumption that human nature is consistant and fairly predictable.  You then must assume that for an individual stock you can see these patterns with enough clarity to make a buy or sell decision. 

Despite these disagreements with the underlying theory, I have decided to build my own technical analysis based off of the fundamental analysis.  I will store the necessary data this week for my top 100 stocks and then determine if this is a viable means for adding a timing element to my model.  

Reasons I don't like American Greetings (as an investment):

Reviewing my automated anaylsis for American Greetings it appears that the goodwill impairment IS the reason for the negative earnings flag.  When I take that out I get:  Earnings for the last 12 months of 35.5.  

Sales appear to be trending down for this company, while their COGS is trending up. Also the company has a LOT of debt.

On the positve side, I am finding a significant trend indicating that they are slightly improving their Fixed Asset turnover, SG&A Expense, Accounts Receivable, and Inventory. 

Consequently, my fundamental analysis values them at -6.6$/share (which is substantially caused by their debt).

With my full analysis I can justify about 5/10 reasons for the price being higher than 10$.

I am pretty sure that the ranking for the -100% stocks on the website are ordered by the way they get uploaded.  You may want to try the "fair" valuation option on the website to see a less stringent valuation of some of these companies.

It was a bad week for a lot of my small cap companies, I would be interested in learning how your technical analysis protected you from that.

(I am working on an answer for your other questions in my next comment)

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#9) On June 27, 2009 at 11:25 AM, anticitrade (99.48) wrote:

WRLS:

4/10 valuations suggest a 1$ value for this stock.  5/10 valuations suggest a value between 2 and 6.  1/10 is not applicable for ths stock.

Here is what my discounted cash flow analysis yields:

I am showing a strong trend in sales dropping off.  But lets ignore that and assume a 3% annual growth.  COGS/sales is slightly decreasing each year.  The company is slightly decreasing R&D spending, but increasing their current assets.  Before 2007 this company had 5 years of negative earnings.  

While I think this company will have a recurring revenue stream in the future, they are just not generating enough real earnings to justify a price much higher than a 1$ from a DCF perspective.  

This is not a bad stock, there are just a bunch of others that are SO much easier to justify an undervalued call.  

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#10) On June 27, 2009 at 10:36 PM, fmahnke (97.42) wrote:

Anticitrade,

Thanks for the feedback.  I'm sorry to hear it was a rough week but  I do beleive the Russell rebalancing caused some strange things to happen to the market last week.

Anyway, as far as how I apply technical analysis to a trading strategy, we can look at the chart for TWIN since 5/1/09. It has consistently traded between 6.5 and 7.5 during this period. After reading your initial post and completing my research, the stock had spiked to 7.4. I liked the company but just felt comfortable that I would have a chance it buy it under 7 (which I did at 6.71 yesterday) based on the pattern of very recent price history. 

We could probably spend a lot time debating the predicitabily of human nature, but I look at TWIN's price this way. I see no likely catalyst affecting the stock price until they report Q2. So why would the stock continue to go up from 7.4 ? With only two analyst covering the stock, upgrades are unlikely. It would seem that only big insider buying, a preannounced forecast or some big change in the overall market could knock it out of this range. So I wait and will likely sell at 7.5 prior to Q2 EPS. expecting more opportunities to buy under 7 given the absence of the above factors. ( Looking at the chart more closely, I'd bet it sees 6.5.)

 I am not sure that technical analysis protects me, but it does help me to  develop some paitence and discipline.  The fundamentals are the most compelling reason to buy and sell.  However, if you look at the charts, you can find many stocks which trade in fairly predictable patterns and can yield trading profits even though the stocks don't move much over the longer term, This is where the  opportunities to combine an investment thesis (fundamentals) with a trading strategy (technicals) can make money.

I  appreciate your insight into the DCF valuations of AM and WRLS as I now have a better understanding of how your model works. It's ironic that much of your fundamental analysis is based on historical performance which is a large part of how I apply the technical analysis component. 

When I look at AM from a fundamental perspective , I see a very different business than it was a year ago as they have divested their retail stores, and laid off  a bunch of programmers who were creating an online greetting cards website and just got back to the basic business of making plain old greeting cards. I was lucky and right when these changes resulted in tremendous improvements in margins and earnings last quarter.  I quess the difference is that I see these changes as permanent affecting the future in a way that makes the historical data less relevant. Although you are very right in identibying the key risk as their debt, given current cash flow and thier dent covenants, things would have to deteriorate very quickly for this to become a big problem.

WRLS has also made major changes in their business shedding an unprofitable LOB.  However, this stock brings up a potential difference in how I aproach fundamental analysis.  I start with liquidation value and believe I could go out and raise the money to buy WRLS at $1.  Not that I have anywhere near the means to do it, but I could convince enough people that if I closed the doors tommorrow, its worth at least  $1.60 - $1.75 once I sell the assets and pay the liabilities. Many company's have declining revenue in today's environoment, especially those connected with housing. However, most people won't turn off the their alarm system or stop buying greeting cards, even in a recession. I still see WRLS as a great investment, but most importantly, a very safe one at this price point.  I quess time will tell whether it sees $3 before $1 (actually at the risk of sounding arrogant, it really can't trade below its unencumbered cash)

I quess the point of this rambling is that Company's trading below liquidation value while maintaing profitability are some of the safer small caps in today's market.  Many of these Company's have cut the fat in their organizations and should produce some compelling valuations when the ecomony improves. Liquidation value is where the real protection can be found in the volitale world of small cap investing/trading. (which is how I spend most of my time in life)

Compelling valuations in company's like LZB and ALY have yielded  huge percentage gains this quarter even though they have been losing money ( and probably score very poorly in your model). I beleive this is because some investors panic, spend too much time on earnings and earnings expectations and temporarily forget about liquidation value.

For whatever its worth. 

Fred 

 

 

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#11) On June 28, 2009 at 12:55 AM, anticitrade (99.48) wrote:

Great to hear back from you. 

At one point I had incorporated a liquidation value into the model for stocks that I value negatively.  I had a lot of problems automating it in a way that would not create a bias for one industry over another.  What you say makes a lot of sense, and I will probably revisit the liquidation value again.

I would say that my investing style assumes that:

1) I have no advantage over other investors in my understanding of the soft issues of a company, so I can assume that the these issues are priced in and I can ignore them.  

2) I do not have the time to take advantage of standard technical analysis triggers, so I should assume they are also inconsequential if I have a long enough time horizon.  

Lately I have begun questioning my second assumption more and more.  However, tt seems technical indicators do no exist for low volume companies like SBN.  One day their price just shoots up 123% because they get bought.   Also, I eagerly anticipate earning releases because my analysis gives me a fair indication what to expect.  

I have always thought that the transaction costs would be a significant barrier to technical trading....  Unless you were moving big money....  While I still only have small money, is it really wise to invest off technical indicators?  I guess I am asking, how big of positions do you need to make jumping in and out worth it?

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#12) On June 28, 2009 at 8:29 AM, fmahnke (97.42) wrote:

I can certainly understand how automating liquidation value in any model dealing with large numbers of stocks is a big problem that is truly both industry, and even Company specific. However, there are certain balance sheets asset categories which are easier to value than others. For  example, I feel so comfortable talking about WRLS because cash is cash and A/R is typically close to cash.

Inventory and property are much harder. At LZB and AM, inventory is safer as recliners and greeting cards don't become oboslete too quickly and are relatively inexpensive . However in high tech, it is a much different ballgame.  At ALY the property is mostly drilling rigs, which I understand have appreciated, but I'm no expert and am relying on other experts blog's ( See J. Jubiak postings for RIG).

In some of your earlier postings you've indicated you have positions in oil companies. I sold my ALY and TSO positions Friday after hours once this Cap and Trade bill passed the House.  I think we'll see some panic selloffs in energy stocks in the short term which will lead to buying opportunities.  

Much of this is what I guess your referring to as "soft issues".  I look at these much differently as they are precisely where I think I may have my only  competitive advantage. (But then again I've been wrong before)  Everyone has some form of a mathematical model they  use for valuing stocks. Yours is a really good one, but I beleive it will work best in certain (bullish) market environments. I never assume the market is rational. Overall market valuations as of 7/08 and 3/09 support this theory, so the soft issues and liquidation value is what I rely on for "protection" and are not always priced correctly by the market. I think management skill is the ultimate soft issue and I rely on press releases and conference calls to draw my conclusions. (This happens to be the most important reason I like WRLS.) 

As far as the transaction cost issue is concerned.  I bought 500 shares of TWIN, if I sell at 7.50 and am able to buy back at 6.75. Thats a profit of $375 before commissions.  Small money from my perspective, but well worth the roundtrip commission of $18. Especially if I can do it more than once before Q2 EPS.

I  think technicals indicators exists for all companys. One of the important reasons for paying attention to them is that many investors use em, and it really is that simple. That's why I make the time, everyday, in cases where I'm investing money.

Of course fundamentals still rule, particulary  in cases where "real" catalyst exist. Like AM earnings jumping off the charts or RJET purchasing a bunch of good of assets for next to nothing. Less real catalysts like some brokerage firm upgrade,  provide  opportunities to use the technicals  in order to determine where to take profits.

I suspect thay you realize that you and these blogs may have become one of these catalysts. I view is as "less real", no disrepect intended. Of course that creates a whole other investment/trading thesis which is less complicated but more amusing, but what do I know anyway.  

 

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#13) On June 29, 2009 at 6:43 PM, darroj (99.30) wrote:

anticitrade - TWIN looks very nice, thanks for bringing it to my attention. 4.2% yield plus huge upside potential. High insider ownership. Book value of 10.64.  Very manageable debt. Founded in 1918, dividend steady/increasing since 1999, consistently paid since as far as the chart goes back on yahoo, 20% payout ratio... all the meantime, sporting a P/E under 5.  What's your current target for TWIN? Any other thoughts on it?

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#14) On June 29, 2009 at 7:40 PM, anticitrade (99.48) wrote:

I can easily justify a price for TWIN at about 11.21 and 13 doesnt seem too unrealistic.  However, the DCF has some interesting results:

My standard DCF is the weakest indicator for this company.  They have a pretty big accrued liabilities account (I am not sure what that entails but it may be something to look into).  I see good trends in their COGS and inventory use.  But the movement in SG&A, and use of fixed assets may be a problem.  If I massage the numbers a bit I get a DCF value somewhere between 7.3 and 8.6.

I hope that helps?  I will probably hold them until about 11$. 

 

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#15) On July 01, 2009 at 12:33 PM, darroj (99.30) wrote:

Thanks for the reply. I had to look up half of what you said (which is a good thing for me to do) but it did help.  Jumped in today on the decline.  If your valuation changes, I'd be curious to hear it, more from a prospective of what's going wrong/right, not just your targets.  While your system seems to yielding great results, I still like to buy and trade a long term investor, so fundamentals are a big thing for me.  Keep it up!!

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