I spent last night working on my taxes for 2006 - yeah, I know, tons of fun. Although I have an accountant prepare my final return, I prefer to do as much of the prep work as possible to avoid having to pay CPA rates for things that are pretty easy and that programs like Quicken automatically generate for you. Plus, I was able to complete a couple of full returns myself - the ones for my daughter and the one for my corporation.
I learned more about "qualified dividends" which I should have already known more about, but I didn't - but, now I do :-). What I thought was great was that if you hold a stock that pays dividends long enough (61+ days basically), all dividends on that stock going forward become qualified dividends. Qualified dividends get taxed at a lower tax rate than ordinary dividends. Basically, from a long term standpoint, if you can accumulate stocks that pay dividends, ultimately, all dividends from that stock get a lower tax rate. So, say one day, after many years, you were able to own 50,000 shares of PFE. With the dividend currently at $1.16 - and let's just assume it stays there for now and forever (not likely as they have 40 straight years of dividend increases) you would receive $58,000 in dividend income. And let's assume this $58,000 is your only income. Since the stock has been held on for so long, it is in the form of qualified dividends. So, you would only pay the 15% tax rate on this - rather than 28%-35%. That's a pretty big savings in terms of paying taxes. Let's hope this legislation stays in place.
I also prepared my own Schedule D. Schedule D is the form that you fill out to list capital gains and losses you experienced during the year, primarily through investing in stocks. This is a good exercise to do because you really see how you actually did. You will find most people talk only about their winners, but never talk about their losers. I had a very solid year in this arena - mostly because I had a couple of big winners and was able to limit my losses quickly.
Furthermore, I significantly moved away from "day trading" which I used to do in the past with greater frequency. I did have some success in it in the past, but by going through the actual work, you can see how small incremental gains can quickly be chewed up by larger losses that you are vulnerable to when you maintain too much of a short-term focus.
Here is a great example...one of my best performers of the year, CECE. My average purchase price was $4.35/share with various purchases in 2005. My average selling price on that block of shares was $9.53, which is a 120% return. However, during the course of the run up from $4 to $13, the stock, for instance, would go from $4 to $7, back to $5.50. So, if my focus was too short-term, I would have bailed when it dropped back to $6 - sure, locking in a gain, but being distracted by the dynamics of short-term trading, I would have missed out on the larger gains.
Furthermore with CECE, after exiting the position with a gain, you always tend to feel "what if I am missing out", I bought some shares back thinking it would go back up or I'd get a quick scalp. I bought back in at an average of $9.32 and sold at an average of $9.05 a day or so later - a 2.7% loss - cutting into my gains. Turns out, I didn't miss out - CECE fell down to $7 shortly thereafter and although it rebounded back to $11 temporarily, it's at around $9.00 right now - so, I never missed the boat.
Other winners I had this year that I either closed out the position or have held on include the following.
ASTE - +38.9% (closed out)
SVVS - +17.3% (closed out, too early though, as this one ran)
RDTA - +23.1% (made some dumb trades that cut into return)
ASHG - +15.7% (1-year performance, hold)
MRK - +11,4% (Aug 2006-present, hold)
NBG - +10.1% (Sep 2006-present, hold)
SEB - +36.4% (Oct 2006-present, hold)
And, yes, I had losers - but I did a great job of cutting my losers before they got too bad. I was planning on cleaning up the portfolio on the last day of the year to sell off any losers, but I really didn't have that much of a problem as the only loser I held was LRT, down 12%.
Other losers I sold off this year before they became too bad. Note my actual loss and how much worse they could have gotten. These were mostly attempts to be 'short term' trades - and they didn't work out too well from a short term standpoint, but could have been a disaster long term.
HYBT - down 7.7% (rather 73.2%)
ATVE- down 12.2% (rather than 88.7%)
NSLT- down 5.6% (rather than 11.2%)
GHLT- down 0.8% (rather than 77.2%)
Since I was able to focus on the winners - rather than the losers and cut my losses, I was able to have a pretty strong year in this arena.
Sunday, December 31, 2006
Wednesday, December 6, 2006
Wabash National (NYSE: WNC)
Another day, a new stock has caught my eye and I have taken a position. Wabash National Corp. (NYSE: WNC) at $15.01 per share. I bought a few shares and some of the July 2007 $17.50 calls/options.
This is likely not a home run, but Jeffrey Gendell, the same value investor who brought us (well me) the likes of CECE, ASTE, and IOSP (missed the boat on that one, though I did call it), has shown up by annoucing his 10%+ position last week and subsequently purchasing another 136,600 shares on the open market. His track record is strong and WNC appears it has an above average chance to reach $20-$25 in the next 6-12 months.
The company manufacturers truck trailers and more information can be found on their web site at http://www.wabashnational.com/.
The company has been out of favor, citing some tough times with getting enough supplies to fill orders, some costs to launching their new ERP system, and general market conditions.
Regardless, revenue for the company was up and it appears the bad news is already priced into the company.
Short and sweet, it seems that their new ERP program may alleviate some of the supply problems they have faced. They also continue to secure new accounts. Trucking is here to stay and demand will continue to be placed on this industry to deliver the goods and raw materials we use everyday. Furthermore, it appears that the company is well on its way to correcting some of their intrinsic problems they faced that led to this decline in overall income. The company trades at 1.6 times book value and 0.4 times sales, so there does appear there is some strong value to be had. The company also produces about $25M per year in free cash flow.
Again, this one is probably not a huge winner, but probably a relatively safe place to place your money and should yield a 50%+ return over the next 6-12 months. Plus, the fact that Gendell is loading up, and may continue to do so, is certainly a big plus. There is also a fair 1.2% dividend yield, though historically, it has been closer to 0.5% - so perhaps a double or even more is not out of the question.
Also, 10% of the outstanding shares are sold short - and with 12+ days on current average volume to fully cover those short positions, if the company does experience an upside, positive earnings announcement (which may be 2 or 3 quarters away), we could see return to a fair value and an additional boost from the short squeeze.
A similar thing appeared to happen to Powell Industries (NASDAQ: POWL) - another one of Gendell's holdings. Today, they announced strong upside earnings and the stock traded as high $29.39 before closing at $27.92 (up 16.7%). Part of the big gain was due to the surprise earnings and probably a fair portion was attributed to a short squeeze considering that not many shares are in the float and about 3% of their shares with a 9.9 short ratio (9.9 days to cover) was there.
Plus, WNC looks like it may benefit from what is called the January effect. Stocks that perform poorly during the year are often sold off in December to get some capital losses on a person's tax return. Often, people repurchase the shares sold off in the tax-loss selling in January, accounting for a burst upwards. That may or may not happen, but certainly a candidate to do so.
WNC is also well down from its January, 2004 highs of $30+ - partially attributed to how the high oil and gas prices impacted the transportation and trucking industry. With oil well off from its highs, appearing to stabilize, and the world getting used to $60+/bbl., business should very well start to flow again at WNC.
Double bottoms that occured in August 2006 also indicate that WNC is probably pretty close to the lower end of its trading range and likely is not going much lower than where it is today.
To sum up...
1. Most of bad news already priced in;
2. Gendell buying shares;
3. 10% of shares short - possible short squeeze on positive news;
4. Operational adjustments should help restore net income;
5. Great value at 1.6x book value, 0.4x sales, and $25M of FCF
This is likely not a home run, but Jeffrey Gendell, the same value investor who brought us (well me) the likes of CECE, ASTE, and IOSP (missed the boat on that one, though I did call it), has shown up by annoucing his 10%+ position last week and subsequently purchasing another 136,600 shares on the open market. His track record is strong and WNC appears it has an above average chance to reach $20-$25 in the next 6-12 months.
The company manufacturers truck trailers and more information can be found on their web site at http://www.wabashnational.com/.
The company has been out of favor, citing some tough times with getting enough supplies to fill orders, some costs to launching their new ERP system, and general market conditions.
Regardless, revenue for the company was up and it appears the bad news is already priced into the company.
Short and sweet, it seems that their new ERP program may alleviate some of the supply problems they have faced. They also continue to secure new accounts. Trucking is here to stay and demand will continue to be placed on this industry to deliver the goods and raw materials we use everyday. Furthermore, it appears that the company is well on its way to correcting some of their intrinsic problems they faced that led to this decline in overall income. The company trades at 1.6 times book value and 0.4 times sales, so there does appear there is some strong value to be had. The company also produces about $25M per year in free cash flow.
Again, this one is probably not a huge winner, but probably a relatively safe place to place your money and should yield a 50%+ return over the next 6-12 months. Plus, the fact that Gendell is loading up, and may continue to do so, is certainly a big plus. There is also a fair 1.2% dividend yield, though historically, it has been closer to 0.5% - so perhaps a double or even more is not out of the question.
Also, 10% of the outstanding shares are sold short - and with 12+ days on current average volume to fully cover those short positions, if the company does experience an upside, positive earnings announcement (which may be 2 or 3 quarters away), we could see return to a fair value and an additional boost from the short squeeze.
A similar thing appeared to happen to Powell Industries (NASDAQ: POWL) - another one of Gendell's holdings. Today, they announced strong upside earnings and the stock traded as high $29.39 before closing at $27.92 (up 16.7%). Part of the big gain was due to the surprise earnings and probably a fair portion was attributed to a short squeeze considering that not many shares are in the float and about 3% of their shares with a 9.9 short ratio (9.9 days to cover) was there.
Plus, WNC looks like it may benefit from what is called the January effect. Stocks that perform poorly during the year are often sold off in December to get some capital losses on a person's tax return. Often, people repurchase the shares sold off in the tax-loss selling in January, accounting for a burst upwards. That may or may not happen, but certainly a candidate to do so.
WNC is also well down from its January, 2004 highs of $30+ - partially attributed to how the high oil and gas prices impacted the transportation and trucking industry. With oil well off from its highs, appearing to stabilize, and the world getting used to $60+/bbl., business should very well start to flow again at WNC.
Double bottoms that occured in August 2006 also indicate that WNC is probably pretty close to the lower end of its trading range and likely is not going much lower than where it is today.
To sum up...
1. Most of bad news already priced in;
2. Gendell buying shares;
3. 10% of shares short - possible short squeeze on positive news;
4. Operational adjustments should help restore net income;
5. Great value at 1.6x book value, 0.4x sales, and $25M of FCF
Monday, December 4, 2006
Pfizer (NYSE: PFE) - Buy @ $24.80 & Other Updates
Today's big story in the stock market was the 11% decline of Pfizer (NYSE: PFE). On Saturday, PFE announced that it was ceasing development of its new cholesterol drug. This was a huge development because it has been said that this new drug was going to be a huge homerun for PFE and was going to be key in replacing lost revenue from Lipitor once the patent protection expires in 2010. So, with all of this being said, let the panic begin.
In the company's press release, the CEO of PFE was cognizant of the impact of the lost revenues that this event would have on PFE and the stock price. The CEO emphasized strong revenue growth to return in 2009, returning shareholder value through raising dividend & repurchasing shares, and noted the deep product line that is in the PFE pipeline (though admittedly, none had the alleged potential that the new PFE cholesterol drug would have). So, despite this set back, things do not look too bad, right?
Well, the media jumped all over this story all weekend - analysts and stock brokers were hyping the 'end of Pfizer' and the potential for an up to 25% fall in the stock price today. The stock did open low - yes - down 15% at around $23.50, but at that price, the buyers were ready in mass. Funny how EVERYONE says the stock is finished and going to collapse on the heels of this news, yet the buying at the open was huge. In fact, despite a couple of blips down to this price of $23+, you would have to go back to 1997 or thereabouts to when PFE actually first hit this price.
I think PFE is a long-term buy at these levels, but probably best through its direct stock purchase plan as there are absolutely no fees and the key to this one is long term focus. Close to a 4% dividend yield, less than 11x next year's earnings, $1.75/cash on hand (some say to more aggressively purchase shares and to potentially raise the dividend), and over $17B in operating free cash flow.
Of course, with this, I feel even better about my decision to buy MRK over PFE, although the experts said PFE was the better buy. You can see my blog on this from October 13, 2006 (when I went up 1-0) and the original blog on September 5, 2006 (when the article came out and my discussion points).
Regardless, I see this dip as an opportunity to enter into PFE and start accumulating a stake for myself and my daughters. This is certainly a long term one that you want to put a chunk of money in every month or even once a year (Dogs of the Dow Theory), re-invest the dividends, and then just commit to fund your position every year.
Regardless, look for PFE to return to $28 within 6 months - on to other updates.
INFT - At Last We Will Reveal Ourselves to the Jedi
Well, I can see nobody jumped on the announcement and bought any INFT before I bought today. I know this because my trade was the first of the day. I picked some up at $3.69 and $3.70 and it closed at $3.72. I suppose it didn't really bounce up all that much as I thought it had the chance to, but that is a good thing. This provides more time to acquire shares at these levels. In all honesty, it probably will not move up much until 2007 sometime - we may even seen it decline some as we plow through the usual December tax selling. I will strategically and incrementally add to my position during this time.
SEB - Breaking $1,700 - We're Gonna Need a Bigger Boat
Another banner day for SEB - closing at $1,715, up 2.7%. Of course, I wish I bought more at $1,290 when I first blogged on it and I really wish I first bought when it was at $1,200 when I first started looking at it - but, better to wish you bought more than wish you bought less. So, with that being said, I grabbed the sack and picked up a little more today at $1,703.89. The fundamentals for SEB are making it look outrageously cheap from a long term standpoint and there continues to be heavy buying of shares out in the marketplace. Of course, there are shares for sale, but someone is buying them away. Rumor has it that it is the company that is doing so or value investors. I still think SEB is a $2,000+ stock by the end of 2007 and possibly as much as $3,000-$3,500 per share over the next 3-5 years. So, if it gets there, I'll wish I bought more, of course, but I'll feel better knowing I could have had even less than if I didn't pull the trigger at these levels. It probably was not the wisest move to buy near the upper end of the day's range on a very strong day, but I think in the end, I'll be glad I bought some more.
NBG - More Value at $9.20 - BORK! BORK! BORK!
NBG had a tough day down 1.8% to $9.15. I purchased some more last week between $9.26-$9.32, which was well off from its $9.60 highs. The pull back was not at all unexpected following the earnings announcement (buy on rumors, sell on news) and a welcome one. I might look to pick up a little more tomorrow. From a present day value, with the stock at $9.60, analysts said it was 'inline' with its peer group. So, that fact alone should make it a screaming buy at $9.15. Plus, NBG is assembling a massive growth strategy like no other bank in their region. It will be a couple of years before we see the real value from their acquisitions take hold - perhaps even longer - but this is still a $15-$20 stock or has a very viable chance to be within the next 12-24 months.
In the company's press release, the CEO of PFE was cognizant of the impact of the lost revenues that this event would have on PFE and the stock price. The CEO emphasized strong revenue growth to return in 2009, returning shareholder value through raising dividend & repurchasing shares, and noted the deep product line that is in the PFE pipeline (though admittedly, none had the alleged potential that the new PFE cholesterol drug would have). So, despite this set back, things do not look too bad, right?
Well, the media jumped all over this story all weekend - analysts and stock brokers were hyping the 'end of Pfizer' and the potential for an up to 25% fall in the stock price today. The stock did open low - yes - down 15% at around $23.50, but at that price, the buyers were ready in mass. Funny how EVERYONE says the stock is finished and going to collapse on the heels of this news, yet the buying at the open was huge. In fact, despite a couple of blips down to this price of $23+, you would have to go back to 1997 or thereabouts to when PFE actually first hit this price.
I think PFE is a long-term buy at these levels, but probably best through its direct stock purchase plan as there are absolutely no fees and the key to this one is long term focus. Close to a 4% dividend yield, less than 11x next year's earnings, $1.75/cash on hand (some say to more aggressively purchase shares and to potentially raise the dividend), and over $17B in operating free cash flow.
Of course, with this, I feel even better about my decision to buy MRK over PFE, although the experts said PFE was the better buy. You can see my blog on this from October 13, 2006 (when I went up 1-0) and the original blog on September 5, 2006 (when the article came out and my discussion points).
Regardless, I see this dip as an opportunity to enter into PFE and start accumulating a stake for myself and my daughters. This is certainly a long term one that you want to put a chunk of money in every month or even once a year (Dogs of the Dow Theory), re-invest the dividends, and then just commit to fund your position every year.
Regardless, look for PFE to return to $28 within 6 months - on to other updates.
INFT - At Last We Will Reveal Ourselves to the Jedi
Well, I can see nobody jumped on the announcement and bought any INFT before I bought today. I know this because my trade was the first of the day. I picked some up at $3.69 and $3.70 and it closed at $3.72. I suppose it didn't really bounce up all that much as I thought it had the chance to, but that is a good thing. This provides more time to acquire shares at these levels. In all honesty, it probably will not move up much until 2007 sometime - we may even seen it decline some as we plow through the usual December tax selling. I will strategically and incrementally add to my position during this time.
SEB - Breaking $1,700 - We're Gonna Need a Bigger Boat
Another banner day for SEB - closing at $1,715, up 2.7%. Of course, I wish I bought more at $1,290 when I first blogged on it and I really wish I first bought when it was at $1,200 when I first started looking at it - but, better to wish you bought more than wish you bought less. So, with that being said, I grabbed the sack and picked up a little more today at $1,703.89. The fundamentals for SEB are making it look outrageously cheap from a long term standpoint and there continues to be heavy buying of shares out in the marketplace. Of course, there are shares for sale, but someone is buying them away. Rumor has it that it is the company that is doing so or value investors. I still think SEB is a $2,000+ stock by the end of 2007 and possibly as much as $3,000-$3,500 per share over the next 3-5 years. So, if it gets there, I'll wish I bought more, of course, but I'll feel better knowing I could have had even less than if I didn't pull the trigger at these levels. It probably was not the wisest move to buy near the upper end of the day's range on a very strong day, but I think in the end, I'll be glad I bought some more.
NBG - More Value at $9.20 - BORK! BORK! BORK!
NBG had a tough day down 1.8% to $9.15. I purchased some more last week between $9.26-$9.32, which was well off from its $9.60 highs. The pull back was not at all unexpected following the earnings announcement (buy on rumors, sell on news) and a welcome one. I might look to pick up a little more tomorrow. From a present day value, with the stock at $9.60, analysts said it was 'inline' with its peer group. So, that fact alone should make it a screaming buy at $9.15. Plus, NBG is assembling a massive growth strategy like no other bank in their region. It will be a couple of years before we see the real value from their acquisitions take hold - perhaps even longer - but this is still a $15-$20 stock or has a very viable chance to be within the next 12-24 months.
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