The Proficient Investor

Yesterday I got to thinking about the huge blockbuster season that happens in Hollywood every summer, and starts this month with the release of Iron Man.

May is traditionally the month the biggest films of the year come out. I’m talking about the huge movies like Transformers, Star Wars, and of course this summer’s Iron Man.

Marvel, the entertainment juggernaut behind Iron Man and also the upcoming The Incredible Hulk is set to make a killing on these two movies. The hype machine has been hard at work for Iron Man but not a lot has come forth about The Incredible Hulk except for a few interviews with stars Tim Roth and Edward Norton. Both films look amazing but what does it mean for Wall Street. Can Marvel make you some money this summer?

Marvel Entertainment Inc. (NYSE: MVL) is a multi-media company. They make movies, comics and video games. Most people are familiar with their Icons like Spider Man, The Incredible Hulk, The X-Men and Iron Man. They also license these properties out to video game makers and television producers. Franchising is a major part of any entertainment company and Marvel is going to cash in this summer. There’s both an Iron Man game and a Hulk game coming out and new comics for both of these characters are already on shelves.

The stock is trading at 18 times earnings and looking at about 10% growth over the next year. At $30 a share it’s nearing the 52 week high once again and should it break that level we could be looking at a $40 stock. The average 10 day volume is around 700k shares so its thinly traded and not very volitile. They also don’t pay a dividend but the 52 week low was only $21. With a 10 point swing in either direction this is a solid performer and I see a short term price of $32 before the stock is even value. I don’t normally recommend buying a stock after it has run as much as this has, but I do see some opportunity here for a quick profit.

When looking for investments long term, there are many things that can determine whether a stock is a good buy or not but one of the main things I look for is always earnings. Based on the earnings you can figure out where a stock should be and where it is going.

One I really like right now is EMC Corp (NYSE: EMC). EMC owns 80% of VMWare which makes virtulization software corporations use for testing systems before they roll them out. VMWare IPO’d this year to great success but has since fallen from its 52 week high of $125.25 to around $55. So the VMWare play is pretty much over and if you want to bank on the success of that company you want to be buying EMC. Here’s the rundown.

EMC is growing at 18% over the next year which translates to a 36 PE institutional investors are willing to pay. Multiply that PE by the current EPS and you get a price target of $27. At the current price EMC is a steal since its trading at only 19 times earnings currently.

Although they don’t pay a dividend and there hasn’t been much insider buying, most recently 160,000 stock options were exercised. I like the fact that there hasn’t been any insider selling since December of 2007 when 100k shares sold at $19.

Another stock I think is too cheap still is Apple. Even at $154 it is far below the high of $200 set earlier in the year and with the iPhone SDK out now we should start seeing some creative applications becoming available. You can read more about my thoughts on Apple in my other posts.

Today, I bought 100 shares of Quiksilver (NYSE:ZQK) at $9.98 to backup my original purchase of 30 shares at $15 roughly. At the time I had expected the purchase of Rossignol to be a boon for the company but it just didn’t work out. Here’s what I like about ZQK. First, they just won a trademark case against Kymsta Corp. which was using their “Roxy” label as well as “Roxywear”. Kymsta has 18 months to remove the usage. This will help the Roxy brand gain solid footing which is popular with the surf-girl crowd.

Second, Analysts hate this stock and recently downgraded it. Since my investment style is mainly contrarian, that is to say I don’t follow the crowd, this is the perfect opportunity to buy up this cheap stock. In the most recent quarter, ZQK reported a loss of $.12 cents per share which missed analysts estimates of $.10 cents per share. So what! Here’s a company with 45% growth based on next year’s earnings projections. That’s unbelievable and I think at $10 the stock is just too cheap. Since it’s a cyclical stock in the consumer apparel sector you can expect sales to increase over the next couple of months as the summer rolls in. With the economic stimulus package coming in May and a brand that has been around since 1970. Its one of the most recognized brands in the surf industry and one of the biggest. ZQK also owns Hawk Clothing, the company started by legendary skateboarder Tony Hawk. Need I say more?

On the sell block is Netflix (NASDAQ:NFLX). This isn’t because I don’t like the stock. I recommended this stock in January when it was half the price it is now. Now I am saying, take some money off the table. At the current price and earnings, the stock is fair value. Now, some people like to buy stocks that are breaking new highs but I like to find the beaten down stocks of great companies and figure out where they should be. That’s how I set my sell target. Once I get there, I sell it and put it on radar. When a stock like Netflix is fair value and there isn’t much volume it doesn’t make sense to hold it hoping its going higher. If you’ve made money, take it. At least, take your original investment out and play with the house’s money. That’s what I’m doing with Apple.

I own stock in Apple, EMC and Quiksilver but hold no position in Netflix

Any sound investment strategy will have in place a plan for when to take profits. One of the biggest mistakes you can make investing is thinking that if you just hold a stock long enough you will make money. This is patently untrue and a dangerous way to play the market.

Take my recent Apple (AAPL) trade. I’ve been saying how Apple is underrated and how it was way oversold after hitting a 52 week high. I bought 24 shares at $130.00 when I felt the downside had been taken out and sideways price alluded to a bottom. Today I sold those 24 shares for a profit of $497. Why sell now? Simply put, I don’t want to be a pig. I know in the long term Apple is going to go back to the $200 a share level but as it rises I want to be peeling off my positions that are profitable. This way I can stay in the game longer and I’m not being greedy.

It’s important to recognize that in order to make money, you have to sell your stock. Numbers are just numbers. Paper profits, meaning that if you bought a stock low and now show a potential profit (but haven’t sold yet) are meaningless. Also by ringing in profits on the way up, it frees up capital that I can invest elsewhere. This is the way I invest. Buy beat up stocks of good companies on the way down, and as the price moves back up, sell off these blocks when they are profitable. It’s the only way to win in this kind of market.

I still own shares of Apple.

It’s been a while since I talked about Apple and why you should be buying it. Actually, you should have bought it when it was at $125 but if you missed that bottom, don’t worry. The price is still right and Apple is way too cheap.

Here’s a company with 22% growth over the next year and trading at 28 times earnings? Apple deserves a 44 multiple putting the stock at $200 where it should be. It’s going to go back there by the end of the year. Do yourself a favor and buy 5 shares for a 70 point gain this year.

iPods and MacBooks are still going to be the big sellers for birthday presents, Father’s Day, Mother’s Day, Christmas…not to mention if the iPhone prices go lower, that’s going to sell a lot more. The iPhone and the iPod touch are going to be bigger this year than last because of the new applications available. With Microsoft Exchange coming on board the iPhone, and likely the iPod Touch sometime after, it opens up the iPhone for corporate use.

That could be huge for Apple this year and would solidify the iPhone as a real competitor to RIMMs Blackberry. There’s too much going good for Apple to ignore it and the shorts are going to get caught with their pants down.

I own shares of Apple.

I check my spam folder on this blog every day. I check it because although Akismet is really good at catching nearly all the spam, sometimes legitimate comments get relegated to the trash pile.

In the past month I have had so many spam comments about Phentermine, it’s unbelievable. Phentermine I guess is a weight loss pill. Now, I don’t know why spammers have targeted my blog for this except that at some point in a post I probably mentioned losing weght and voila, now I’m a prime target for this junk.

Its sad enough that people think a pill is going to do what a good nutritional diet and regular exercise do naturally. There is no magic bullet or pill that is going to shed unwanted pounds, no matter how scientifically proven it is.

That being said, sometimes you don’t know what to write about and that’s where I got the idea for this post.

You want to make sure you check your Akismet folder as often as you can stand it. My eyes nearly blurred at all the same phrases I was seeing. One of the good things though is I didn’t see a lot in terms of content scraping. Either those idiots stopped pulling my feeds or they took down their blogs. That stuff is out of control. Many a time I have had to move comments back out of the Akismet folder so they would show up. I do wish however that I got some kind of notification…instead I just have to remind myself to check the folder.

None of this really has to do with investing…unless of course you own a pharmaceutical company that makes Phentermine. Read the rest of this entry »

Here’s your chance to learn from one of the best penny stock traders in the business. Tomothy Sykes, author of An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund, is giving away his instructional DVD, Pennystocking.

This DVD is packed with detailed instruction on how to read penny stock charts so you can pick stocks that have the greatest potential to gain or lose on the day, allowing you to buy or short these stocks.

Timothy Sykes made a fortune trading thousands of penny stocks in his 4 years in college starting with only $12,415.00 and turning it into $2 million then started his own hedge fund called Cilantro Fund. If anyone knows how to win in the penny stock market, Tim does.

Now is your chance to win his DVD and learn his techniques first-hand. Normally, this DVD costs $297 but you can win it simply by commenting on this post. I’ve already commented, good luck to the rest of you.

One of my readers emailed me the other day asking if I still thought Google could reach $950 since it has fallen so hard over the past few months and I thought I would share with you my answer.

Here it is:

Hi.

I still think in the long run Google is going to hit $950 and here’s why. Google doesn’t like to split the price of their stock so you have to look at it like a $42 stock right now.  For growth stocks like this, I look at their earnings. Here’s the formula that works for stocks like this with high multiples (or high Earnings Per Share…EPS).

I use Etrade but you can use thestreet.com or yahoo finance just as easy. Go to the earnings estimates and what you are looking for are next years and this years earnings estimates.

Next year’s earnings estimates are around $25 and this year’s around $20…

So, I take next year’s earnings and subtract this year’s earnings $24.91 - $19.98 = $4.93 then divide that by this year’s earnings $4.93 / $19.98 = .2468 then multiply that result by 100 to get the percentage of growth .2468 * 100 = 24.68

So Google is looking at 25% growth roughly over the next year. Consider that institutional investors (hedgefunds and companies like bear stearns or goldman sachs will pay twice the growth in terms of PE (price to earnings ratio)). So a big firm like Goldman is willing to pay 50 PE for the stock. So we look at their current PE.

Google’s current PE is 33 so that means Google, right now is very cheap and undervalued according to these projections. Now if you want to be conservative you can multiply the growth by only 1.5 times and you get a 37 PE.

So let’s be conservative and multiply that 37 times the current earnings per share and we should get a figure that tells us where to sell the stock because at that price it’s fairly valued. 37 * 13.28 puts the stock at $492.

This is the kind of homework I do for any growth stock be it Coca Cola (KO), Goldman Sachs (GS), Wells Fargo Bank (WFC), you name it. If it’s considered a growth stock or some call it a value stock…you can do these kinds of calculations. Now this only works for projecting 1 year out…multi year projections become much more complex and I don’t really bother with them because I only look for growth 18 months out. By the way, if you didn’t calculate the 2X figure…you get a stock price of $664. That’s a nice gain from here. Google can do that easily over the next 18 months. I don’t see it going much lower from here considering the beating wall street has already given it. Even still, now is a good entry point because it’s bouncing off the 52 week low and the 10 day moving average volume looks pretty good. I’d say if you want to buy it here, buy a quarter position or maybe half. If you want to own 100 shares for example you would buy 25 or 50 and hope it drops a little so you can buy another quarter or half…then as the stock gains momentum and the price increases, you peel off those positions when they are profitable taking either half or your original quarter position to your target price. That’s how you make money and stay in the game.  We call it playing with the house’s money.

 Anyway, I know that seemed like a long explanation but I hope it helps you understand how I look at these kinds of stock.

I hope you’ve been following me on this story. Rudy Nutrition (RUNU) the crappy microcrap stock that trades on the pink sheets gained 5% in trading today on 365,000 shares volume. That’s the average for the last 10 days as well. I expect to see this move to around $2 next week or possibly higher depending on the volume and demand. With such a small float it can be unpredictable.

This is true speculation here folks. I make no guarantees you can make money trading this thing, I just know my entry points are well within making me a profit. My average price is  $1.11 so if you factor in the $19.98 round-trip cost in brokerage fees, I need to sell above $1.26 to even make the smallest ($.01) profit. Make sure when you trade these kinds of stocks that you have a price point in mind. $2.00 and I can jet with my small profit if it looks like it won’t hold.

The good thing here is the low float (available shares) as this allows for less manipulation and no shares available to short. Any buying pressure would kill the shorts here anyway.

I don’t recommend you play with your full deck on this stock but if you are comfortable sacrificing a portion of your funds to gamble a little, you could make some serious money.

Another of my big winners today was Crystallex International (KRY). They were up 18.50% on no news, so I’m not sure what’s going on there. I’ve been holding this canadian mining company for 2 years…sometimes you just have to wait things out if you can stand the pain.

disclaimer: I own shares of RUNU and KRY. 

A quick update on the site.

It came to my attention that users were unable to comment on posts. This was due to the spam filter I have in place requiring users to register in order to make comments, however the register link was missing. That link is now available in the navigation bar as well as the brand new Forums!

Now you can discuss your favorite or least favorite stocks with everyone. You need to register to use the forum but it is open to everyone.

Happy Trading!

With the recent news that Yahoo rejected the more than fair bid from Microsoft, it’s time to examine why a failing company like Yahoo would resist such a merger.

Let’s start with Microsoft. Microsoft (MSFT) is coming off a recent 52 week low and hasn’t seen a 52 week high since October of 2007 when it hit $37.50.  You would think they would be worried about this, but then they bid $44 billion for Yahoo. And why? Because a merger of Microhoo would mean more competition with leading search provider Google, which has also seen its fair share of shakeups on Wall Street.

Microsoft is on a bounce here and from what I can tell is on the way up, but I wouldn’t buy just yet.  Several lawsuits are still plaguing the company and unless Yahoo agrees to the merger, Microsoft doesn’t have any big ticket items on the horizon for the coming months. Sales of the XBox360 have slowed considerably after it was announced the HD-DVD format was dead and new 360 consoles wouldn’t be including the player. External units are still available but nobody is making the discs anymore which means users are stuck with their limited library.

Now, lets look at Yahoo. In January of this year, Yahoo hit its 52 week low of $18.58. A strong sell-off based on poor earnings outlook and slowing ad sales had investors running for the hills. Upon the news that Microsoft had made a bid for the company, the stock shot promptly to $30 and has been hovering since.  The Microsoft bid is valued at $31 a share, a huge premium over what the stock was valued at in January.

Yahoo then declines the bid. Seriously? Here’s a failing company who can’t keep up with it’s biggest competitor, Google and they reject a bid from the 400 lb gorilla? Yahoo’s board didn’t feel they were getting the best offer out there, but the fact of the matter is nobody else has the cash to make such a purchase. Microsoft has hinted at a hostile takeover should the bid be rejected again after the recent delay and Yahoo is also rumored to be in talks with AOL/Time Warner.

So is this acquisition good for either of these companies?

Microsoft stands to gain a better foothold on search giant Google by acquiring Yahoo, but it’s unknown if there are plans by Microsoft to lay off Yahoo’s employees once the merger completes. After all, Microsoft is merely positioning themselves to better compete with a bigger foe. Unfortunately, if the merger doesn’t go through, you can bet Yahoo is going to be shorted heavily to the downside and will likely break a new 52 week low.

No positions in any company mentioned.