The Proficient Investor

We had a massive rally on wall street today. It seemed like everything was up. With M&A activity in full swing, gasoline topping out, oil at record highs and a slumping housing industry, consumers are coming out of the woodwork to spend. Not to mention individual investors. Maybe it’s something in the weather. The following stocks were up at least 1% or more:

ACI, KRY, GS, CNXT, ZL, ZQK, NFLX and AMTD to name a few.

It just might be safe to say the bears are hibernating for the time being.

Monday should prove interesting as some investors may again be taking profits off the table, but if next week is anything like this one I would expect good numbers from any companies reporting earnings and another good rally mid-late in the week.

When I started The Proficient Investor, the intention was two-fold. First, I wanted to create a site where the stocks I was interested in could be talked about in my own voice and second, I wanted to be able to not only help others learn how to invest, but to make money with it as well. That should be obvious with the ads you see on this site. Along the way I have changed my design and layout many times and I am sure I have probably gained and lost readers in the process.

The quest for making money with this blog began when I came across JohnChow.com . Here was someone who claimed to be making a ton of money blogging about making money online! Imagine that. I was skeptical, but that soon faded.

JohnChow.com has some of the most insightful tips and tricks about fine tuning whatever kind of site you may have geared toward making money. Above all, his content is worth reading and isn’t condescending in the least. He writes clearly and concisely and if it weren’t for his website, I wouldn’t have discovered half of the possible revenue streams I know about now.

One thing I really appreciate are the comparisons every once in a while between two affiliates or the experiments he does with different affiliate programs. I have seen my share of failed affiliate programs, so it’s nice to know there is someone else out there grunting it out and trying to maximize their blog’s potential.

It should also be noted that his blog isn’t entirely about making money online. There are sections about cars, dining, technology, random stuff…it’s quite refreshing. Even with the variety of posting he does, it all seems to fit well together and I think this is because of his “voice” as it’s called in journalism.

It’s a great site and you should check it out because you just may find some nugget of wisdom that helps YOU make more money online than just your investments.  One of the best things is doing a review like this one.  He’ll send you traffic, he gets traffic in return and everyone wins!

Under Armour (UA) is a premium clothing manufacturer of sports apparel and gear. They compete directly with Nike in terms of their product. This is a growth story and a massive one at that. At 24% growth and a 48 PE, investors have given this behemoth the multiple it deserves. However, as with any stock investors are quick to let a company know when their expectations haven’t been met.

Marc Lichtenfeld at The Street.com talks about Under Armour in his article Cracks In Under Armour . Having been a past owner of the stock myself, I thought I would discuss it today.

In March 2006 I bought UA (then symbol UARM) at $32. and sold it 3 months later at $39. Not a bad gain for a recent IPO that was much hyped at the time. I rode the momentum and bailed when I didn’t like the news at the time. Since then the stock has really travelled reaching a 52 week high of $54 in December 2006, but It’s been a downward slide to the current price of $44 over the past few months.

What does this all mean? How can a stock that demands such a high multiple perform so poorly?

Investors in this stock are fickle. Any news that doesn’t meet the expectation of the shareholders is immediately seen in this stock. Another problem is the volume. The 10 day average is only just over 1 million shares. So volitility is a problem here as well. If hardly anyone is buying and selling, any big sale causes a big hit in the price. Does that mean you shouldn’t invest? Not necessarily.

At 24% growth, we can figure out where the stock is going, assuming sales continue to be strong. Although earlier this month UA warned it’s second quarter profits would be much lower than some analysts had predicted, the reasons weren’t because of sales. They were because of marketing costs. The big picture here is that UA is profitable and in the face of the largest sports apparel maker Nike.

By my calculations, I actually see 32% growth for next year which means the current 48 PE is undervalued. I see a bottom here with support at current levels around $45 a share. UA goes to $52 in 6 months. Maybe sooner if volume picks up.

Individual stocks are getting hit hard by profit takers and money shifting from small and mid-cap stocks to industrial and large-caps as can be seen by the further increase in both the Dow Jones Industrial Average and the NASDAQ.

As the DJIA reaches record highs each day, individual stocks not included in those indexes suffer.

Arch Coal (ACI) is down from 40 earlier in the week at 37.71 and this is one of the strongest coal stocks besides Peabody (BTU). Most investors predicted energy stocks would gain this week as housing data shows continued slowing in the homebuilders and gas prices continue to rise. This seems not to be the case as both sectors are retreating. KB Homes (KBH) is down .46 cents in intraday trading.

Retail appears to be the winner this week even though Wal Mart (WMT) shares tumbled on the news their sales for last quarter came up short and then gave cautious guidance going forward. JC Penny (JCP) also had a rough quarter and the stock has been sliding since mid-March. Jim Cramer on his Wall Street Confidential show supports both of these securities as we head into the summer season. According to Cramer, JC Penny has cleaned up their stores and the shopping experience is much better than it used to be. He also gave support for Sears Holdings (SHLD) which has come down from a 52 week high in April and has bottom support here.

Tech is down all around this week as well. Texas Instruments (TXN) is off after a downgrade from analysts at CIBC. Apple, Inc. (AAPL) is down mostly due to profit taking after hitting a record high yesterday of 110.20. AMD is still trading sideways, but has seen recent gains after announcing figures from their latest graphic chip. Salesforce.com (CRM) is up over 2% and analysts expect a 51% increase in revenue from the year ago period.

For the individual investor, it’s time to consolidate and consider the large-caps as viable investments in light of a weakening dollar and a possible FED rate cut which would weaken the dollar further. Dividend paying stocks are also a great way to protect assets in downturns because you can compound your money. One of my favorite stocks in the energy sector that pays an excellent dividend is Ferrellgas Partners (FGP) which pays a .50 cent dividend quarterly. FGP is off of it’s 52 week high yesterday at 24.40 and the PE is extremely high at 98 but you have to consider the energy sector is still ramping in preparation for the summer. Gasoline prices and the raw cost of crude are keeping these stocks elevated and I don’t see an end for the time being.

Shares of memory drive maker STEC (stec) are down sharply today amid a uncertain and rocky quarter. STEC lost about a quarter of its value after the earnings announcement and weaker than expected guidance going forward.

The lowered guidance was pinned mostly to the uncertain pricing climate and a sudden fundamental cautious stance for their largest business segment. Two Wall St. firms downgraded the company which contributed to its shares seeing a large sell-off throughout the course of the trading day.

For the quarter, STEC made .13/share for the just reported period on sales of $47.2 million, up roughly $7 million from the year ago levels. However excluding certain numbers, the company made .05/share. Last quarter the company sold its consumer business unit which it booked in this just reported quarter.

Guidance was a horror as Wall St. expected the maker of computer memory to post a profit of .09/share against the reported guidance of .01-.03/share. Sales were expected to be in the range of $48.8-49 million. Company now expects revenues to be in the range of $41-43 million.

STEC, formerly known as Simpletech Solutions was a huge winner in 2006. I personally did very well investing in the stock the second half of 2006 (sold in early 07). Now the company looks like it is going through a fundamental soft period. I would not advise buying this stock until its fundamentals improve.

Shares of STEC closed @ $6.10/share.

When a stock has run up as much as Goldman Sachs (GS) is, I like to pause and take a look at where it’s really going. As investment guru Jim Cramer says, “We don’t care where a stock has been, we care where it’s going”. So where is GS headed after a straight line run to 227 from 190 in March?

The good news here is the PE is just over 10 and if we look at the growth it doesn’t look spectacular at only 2%. However, GS is on momentum. There are few very successful financial stocks you can bank on. Wells Fargo and Goldman Sachs are two of the best.

Insiders haven’t sold stock since October of 2006 and if you look at the open calls for July both in the money and out of the money far outweigh the puts which tells me there is a lot of buying interest still in this stock. At 227 it may look expensive, but it’s a lot easier for a stock here to hit 300.00 than it is for a 10.00 stock to get to 70.

Remember Google (GOOG) back when it was at 150.00? Everyone thought that was crazy. At the end of 2006, GS had a cash surplus of roughly $6 billion.

Bottom line is in the short term you may see a pullback but this train is heading straight for 300 with a stop at 250 in the meantime. Can you afford to miss it?

Overall markets are somewhat negative today. The broader market is losing steam as the trading day goes on. The S&P 500 and NASDAQ are among the index losers. The Dow remains stronger about unchanged for the day so far.
Last week was interesting as we witnessed a 150 point sell off in the Dow and a mirror image percentage wise for the overall broader market. Then on Friday we bounced off and rallied over 80 points. So where does the market stand and what are traders talking about today?

In my view, the traders are talking about lower growth and inflation worries. With a down market today this may translate into more profit taking this week. There does not appear to be a big emphasis to buy right here at this moment. But investors have continued to buy stock in this type of environment.
I am a bear so naturally I am inclined to see negative trends developing in the markets. If the markets change course look for heavy selling on stronger than normal volume.

Toyota Motor has just taken a beating by investors over the past couple months. This has been a great performer for a year now and they are certainly showing no signs of slowing down.

Growth for TM is about 9% which isn’t exactly stellar and the low number is due to several factors including the high cost of gasoline and oil, and the growing need for eco-friendly vehicles.

I doubt we are going to see Toyota hit the levels it did last August when it was near $90 so the question is where do I buy in assuming I like this stock? It depends how you view the automobile industry. If you compare Toyota to the other big names like Ford (F), Honda (HMC) and GM, Toyota has left them in the dust.

Ford is in the middle of restructuring, Honda hasn’t done as well with the ‘Element’ and the new ‘Fit’ just doesn’t seem to be resonating with consumers as much as they had hoped. GM has also seen it’s share of woes, though these have more to do with the gas guzzling beasts like the Hummer and other heavy duty vehicles. Only the very dedicated and/or rich can afford to drive these tanks around and to afford the price tag of the vehicle to begin with.

Toyota still seems to be the best bet. Even as you compare the prices of these stocks, the others may seem cheap because they don’t fetch $120 a share, but again you have to dig deeper and run the numbers. I like TM here and I think it goes back to $140.00 by Year’s end.

Jim Cramer mentioned JSDA on his Mad Money show during the lightning round a couple days ago and I thought I would give my analysis on the stock.

Jones Soda has run way up in the past few months but is now seeing profit taking. In Mid April, JSDA was over $30 a share and has since slid to nearly $20 which is always an indication that sellers are taking gains off the table when the fundamentals are still good and growth is phenomenal.

Based on current numbers, JSDA is seeing a whopping 64% growth and trades at 110 times next years earnings. That may sound like a high PE since we usually like the PE to be between 10 and 20 before pulling the trigger. You can’t ignore the growth story here though. The stock should be trading an even higher multiple, around 120 if you accept the reasoning that institutional investors will pay up to twice a company’s growth rate in PE.

If we use that 120 as our PE and multiply by the current EPS, we get a price target of 22.8 so I will agree with Cramer on this one in that we want JSDA below 20. Let this one come in just a bit more before buying, but then it’s buy buy buy because next years estimated earnings look way too good.

Shares of CDC Corporation (china) formerly known as chinadotcom are rising today after Cantor Fitzgerald initiated the software and gaming company with a buy rating. The analyst believes there will be significant upside in the quarters to come.

Mark Verbeck the analyst now covering the stock believes its shares are trading at a steep discount relative to each of the firm’s operating companies. Sets a $12/share price target for the next twelve months.

I’ve been a big proponent of CDC Corp for a long time now. I recently bought back a large position in the company as I believe the shares are cheap.

*Long china shares, sold a chunk of china last quarter for a 120% profit.