ValueClick (NASDAQ: VCLK) is a leading online interactive marketing agency and solution provider. Their business offering is diverse and provide an array of ways for advertisers, marketers, and other agencies to take a marketing message online. Whether you are looking to buy banner impressions on major web sites or hire an online direct sales force (among other things), VCLK is a place to look.
VCLK took a 20% hit on Monday after announcing its earnings. The company missed expectations and reported slightly lower earnings and revenue guidance (though they are still expecting double digit growth in both EPS and revenue for the next year). VCLK is also off over 40% from its 52 week high it reached a few weeks ago, primarily on buy-out speculation when the other interactive agencies (DCLK, AQNT, etc.) were being scooped up.
VCLK pulled a surprise move by announcing earnings a week ahead of their originally planned date and really shocked many by announcing the change of earnings date on a Friday afternoon after the market close. Furthermore, they did not give anyone time to breathe by announcing them the following morning before market opened.
First, a brief comment on the timing of the earnings announcement and the date change. In all likelihood, it makes me wonder if VCLK has another announcement of some form that will take the place of the original earnings date announcement. That is simply food for thought.
A buy-out of VCLK is certainly still a strong possibility, though I do not think we will see the same premium given to its peers. Realistically, I am unsure exactly who is left to buy VCLK, though the person that buys you is never who you think it is going to be. VCLK being acquired is certainly a possibility, though I would not bet on exactly when or for how much. In short, what I mean is that if you like the company, then this is a great time to buy. If you are looking for a buy-out, well, it’s a gamble to say the least because as much as it makes sense, typically, the last person to leave dinner gets stuck with the check.
There is a great deal to like about VCLK, especially when it comes to controlling avenues of Internet marketing distribution. I have had the experience of directly working with all of the leading Internet agencies, and in terms of being an advertiser looking to acquire more customers via the web, I am most impressed with VCLK’s Commission Junction (CJ) offering. Simply put, as an advertiser, you sign up for the service, pay a set-up fee, set a commission you are willing to offer other web sites to sell your product/service, and CJ pushes it out to its very well built out affiliate marketing network of webmasters and web site business owners. For a small business, particularly an e-commerce retailer or B2C service provider, there is not a more cost-effective, easy to launch program that yields actual results. CJ gets paid a transaction fee each time the advertiser sells something via the network – and since the advertiser only pays for real results (e.g., an actual sale, not a click), it is a win-win and easy to measure return on investment. CJ adds a handful of merchants every day (paying $2,500+ to sign up) and continually adds to its transactional revenue volume. The more sales that are handled through CJ’s affiliate marketing network, the more money for VCLK.
What is noteworthy is that one of CJ’s biggest competitors, LinkShare, was acquired for $425M in October 2005 by a Japanese company.
In conclusion, VCLK is a good buy at these levels for the long-term, especially with what I believe is their market-leading CJ program for advertisers. There is Value in VCLK and seeing it recover to the $25-$28 mark over the next 6-12 months is within reach. An acquisition is less likely than the VCLK business model churning out cash.
Tuesday, July 31, 2007
Saturday, July 21, 2007
Sometimes, It Is Just Too Obvious – Ash Grove Cement (ASHG) and Seaboard Corp. (SEB)
Ash Grove Cement – Cement Demand In Nevada
Yes, I know I just wrote about ASHG the other day. It was more of a technical discussion, short-term article, but I did make reference to believing in the strong fundamental position of Ash Grove Cement. Furthermore, I said to go read my other stuff if you wanted more of the basics rather than some rhetoric about bids and asks. Perhaps I had it coming, but I am going to touch on some of those fundamentals right now.
Sometimes, a winner is just looking you right in the face and it is just painfully obvious what is going on. I am not talking about finding the stock that is going to double in two days – sure, that would be nice, but not a good investment approach. I am talking about the obviousness of the long-term success and merits of a company’s business model.
ASHG has made it well publicized that they are building a monster cement plant in Southern Nevada. By chance, I happen to be in Las Vegas while I am writing this article. I was actually hoping to have the chance to visit the site of the plant, which is only a handful of months away from going online. Currently, it is being built. I called ASHG and wanted to ask if I could visit the site just to check it out. My call went unreturned, but likely for the best – I mean, I had plenty to do while I was here.
While I was here, I was looking at the view from a house in Henderson, NV – the town right next store to Las Vegas. The view of the mountains was fantastic, but paled in comparison to the view of the strip from the elevated, unobstructed by anything patio. What do I see? I see a 6 mile gap between the South Point Hotel and the Mandalay Bay, which is the first/last hotel on the strip for those not familiar with the landscape of Las Vegas.
From discussions with the locals and other information about the real estate in the area, I quickly learned that plans are well in motion to continue to build the strip out. Basically, in several years, that 6 mile gap will be filled and South Point will be the first/last hotel on the strip. The gap will be filled with huge resorts and residential sky rises. The resorts that are slated to be built are momentously huge – and there is an outside chance (though very small) that the tallest building in the world will be built in the vicinity. My point is, the growth in this area is not done – and with new casinos, many being backed by the large, established organizations, we are looking at many new jobs to support the new resorts. My thought – it is going to take lots, lots, and lots of cement.
It is abundantly clear that the demand for the cement in this area is going to be huge and the $200 million ASHG is spending on building the place is no small change, especially for a family owned/operated company that happens to have a handful of shares floating around. Sure, we know we need more cement and concrete – that is no secret. However, the sheer magnitude it is going to take to build these monster buildings in the strip’s gap is almost overwhelming. I do not have any specific numbers on what it is going to take to build these new resorts and the surrounding areas – nor do I know how much cement will be needed. All I know is that ASHG will be more than well positioned to take advantage of the impending boom and return on investment is likely sooner than anyone is giving them credit for.
In summary, sometimes choosing what company to invest in for the long-term is painfully obvious in terms of the success that will be enjoyed by the business model. It does not take an economic scholar nor expert fund manager to easily see what is happening here in Las Vegas and what is to come. Short and simple – 6 miles of empty space, plans for new casinos and resorts, lots and lots of concrete – buy ASHG.
Seaboard Corporation – Aren’t They a Dry Bulk Shipper?
This is more of an alert rather than rhetoric, so it will be brief. In the past few trading days, SEB has declined under $2,200/share. The bigger news is that during this time, marine transport and dry bulk-shippers were going through the roof. SEB did not take part in the rally. Why? Perhaps since SEB is diversified with a multitude of cash producing businesses, I guess they are not a bulk shipper. Who knew, right?
SEB continues to see growth in their marine shipping business, is buying new ships (a big chunk of capital expenditures slates for 2007 and see June 14, 2007 announcement on www.seaboardmarine.com), and is one of the largest operators (perhaps the biggest?) in the Caribbean. I still like how SEB retains the huge majority of their free cash flow to reinvest in the business, rather than paying out huge dividends like some of these other shippers.
Short and simple – they are a bulk shipper, they are huge, they are expanding their fleet, they are keeping most of their money (helping to reduce taxes and allow for growth). I think that the high dividend payouts of many of the other bulk shippers will be their downfall over the long-term. Not investing more in their respective fleets and not saving cash for a rainy day could be troublesome, especially with how leveraged some of these shippers are. SEB, fortunately, is not highly leveraged. Well, I digressed a little bit – best of luck to the other bulk shippers. Of course, I wish I bought a handful of them a year ago when I started researching the shipping industry, but you cannot win them all.
SEB is not nearly as obvious as ASHG’s position in Nevada, but when a strong company shows weakness when the rest of the sector is showing strength, especially during the short term, one should take notice, particularly if there have been no material changes in the company’s financial status. I am not going to say buy more here – I will leave that up to you and timing the market. SEB can certainly drop further than it has in the past couple of weeks. Regardless, I think the future of SEB – and subsequently their stock price is obvious. And it really does not take a genius to see it – it is merely simple business principles. What am I doing with SEB, you ask? Well, that should be obvious, too.
Yes, I know I just wrote about ASHG the other day. It was more of a technical discussion, short-term article, but I did make reference to believing in the strong fundamental position of Ash Grove Cement. Furthermore, I said to go read my other stuff if you wanted more of the basics rather than some rhetoric about bids and asks. Perhaps I had it coming, but I am going to touch on some of those fundamentals right now.
Sometimes, a winner is just looking you right in the face and it is just painfully obvious what is going on. I am not talking about finding the stock that is going to double in two days – sure, that would be nice, but not a good investment approach. I am talking about the obviousness of the long-term success and merits of a company’s business model.
ASHG has made it well publicized that they are building a monster cement plant in Southern Nevada. By chance, I happen to be in Las Vegas while I am writing this article. I was actually hoping to have the chance to visit the site of the plant, which is only a handful of months away from going online. Currently, it is being built. I called ASHG and wanted to ask if I could visit the site just to check it out. My call went unreturned, but likely for the best – I mean, I had plenty to do while I was here.
While I was here, I was looking at the view from a house in Henderson, NV – the town right next store to Las Vegas. The view of the mountains was fantastic, but paled in comparison to the view of the strip from the elevated, unobstructed by anything patio. What do I see? I see a 6 mile gap between the South Point Hotel and the Mandalay Bay, which is the first/last hotel on the strip for those not familiar with the landscape of Las Vegas.
From discussions with the locals and other information about the real estate in the area, I quickly learned that plans are well in motion to continue to build the strip out. Basically, in several years, that 6 mile gap will be filled and South Point will be the first/last hotel on the strip. The gap will be filled with huge resorts and residential sky rises. The resorts that are slated to be built are momentously huge – and there is an outside chance (though very small) that the tallest building in the world will be built in the vicinity. My point is, the growth in this area is not done – and with new casinos, many being backed by the large, established organizations, we are looking at many new jobs to support the new resorts. My thought – it is going to take lots, lots, and lots of cement.
It is abundantly clear that the demand for the cement in this area is going to be huge and the $200 million ASHG is spending on building the place is no small change, especially for a family owned/operated company that happens to have a handful of shares floating around. Sure, we know we need more cement and concrete – that is no secret. However, the sheer magnitude it is going to take to build these monster buildings in the strip’s gap is almost overwhelming. I do not have any specific numbers on what it is going to take to build these new resorts and the surrounding areas – nor do I know how much cement will be needed. All I know is that ASHG will be more than well positioned to take advantage of the impending boom and return on investment is likely sooner than anyone is giving them credit for.
In summary, sometimes choosing what company to invest in for the long-term is painfully obvious in terms of the success that will be enjoyed by the business model. It does not take an economic scholar nor expert fund manager to easily see what is happening here in Las Vegas and what is to come. Short and simple – 6 miles of empty space, plans for new casinos and resorts, lots and lots of concrete – buy ASHG.
Seaboard Corporation – Aren’t They a Dry Bulk Shipper?
This is more of an alert rather than rhetoric, so it will be brief. In the past few trading days, SEB has declined under $2,200/share. The bigger news is that during this time, marine transport and dry bulk-shippers were going through the roof. SEB did not take part in the rally. Why? Perhaps since SEB is diversified with a multitude of cash producing businesses, I guess they are not a bulk shipper. Who knew, right?
SEB continues to see growth in their marine shipping business, is buying new ships (a big chunk of capital expenditures slates for 2007 and see June 14, 2007 announcement on www.seaboardmarine.com), and is one of the largest operators (perhaps the biggest?) in the Caribbean. I still like how SEB retains the huge majority of their free cash flow to reinvest in the business, rather than paying out huge dividends like some of these other shippers.
Short and simple – they are a bulk shipper, they are huge, they are expanding their fleet, they are keeping most of their money (helping to reduce taxes and allow for growth). I think that the high dividend payouts of many of the other bulk shippers will be their downfall over the long-term. Not investing more in their respective fleets and not saving cash for a rainy day could be troublesome, especially with how leveraged some of these shippers are. SEB, fortunately, is not highly leveraged. Well, I digressed a little bit – best of luck to the other bulk shippers. Of course, I wish I bought a handful of them a year ago when I started researching the shipping industry, but you cannot win them all.
SEB is not nearly as obvious as ASHG’s position in Nevada, but when a strong company shows weakness when the rest of the sector is showing strength, especially during the short term, one should take notice, particularly if there have been no material changes in the company’s financial status. I am not going to say buy more here – I will leave that up to you and timing the market. SEB can certainly drop further than it has in the past couple of weeks. Regardless, I think the future of SEB – and subsequently their stock price is obvious. And it really does not take a genius to see it – it is merely simple business principles. What am I doing with SEB, you ask? Well, that should be obvious, too.
Mr. Herb Greenberg – Thank You….and You Are Welcome
Reading the Wall Street Journal the other day, I noticed an article written by reputable author, Herb Greenberg. I hate to say it, but it appears Mr. Greenberg took a page from my book mentioning Seaboard Corp (AMEX: SEB), Ash Grove Cement (Pink Sheets: ASHG), and J.G. Boswell (Pink Sheets: BWEL) all in the same breath. I said – wow. Of course, imitation is the highest form of flattery, but I must say it is great to be on the same page with a writer like him.
The article, “Strong, Silent Types: Some Companies Let Their Fundamentals Do the Talking” talks about how a handful of companies do not participate in the gala that is investor conference calls or earnings guidance. As my previous blog on the exclusivity of ownership discusses, I 100% agree with this stance.
There is not much to be said here, except that it was nice to be in the same light with this guy.
And, of course, to play devil’s advocate, there was a quote in the article that hit it right on – basically saying that if you are any good at something, there is no need to brag or draw attention to yourself. Things will take care of themselves. I know some will say that I am bragging and drawing attention to myself by writing rather than keeping my mouth shut, but I am just writing. If someone reads it, great….if not, well, so be it. I probably should keep my investment merits and failures to myself – the best fund managers do just that – but I am not that good at the investing or writing aspect yet, so I have to brag. :-)
The article, “Strong, Silent Types: Some Companies Let Their Fundamentals Do the Talking” talks about how a handful of companies do not participate in the gala that is investor conference calls or earnings guidance. As my previous blog on the exclusivity of ownership discusses, I 100% agree with this stance.
There is not much to be said here, except that it was nice to be in the same light with this guy.
And, of course, to play devil’s advocate, there was a quote in the article that hit it right on – basically saying that if you are any good at something, there is no need to brag or draw attention to yourself. Things will take care of themselves. I know some will say that I am bragging and drawing attention to myself by writing rather than keeping my mouth shut, but I am just writing. If someone reads it, great….if not, well, so be it. I probably should keep my investment merits and failures to myself – the best fund managers do just that – but I am not that good at the investing or writing aspect yet, so I have to brag. :-)
Mr. Herb Greenberg – Thank You….and You Are Welcome
Reading the Wall Street Journal the other day, I noticed an article written by reputable author, Herb Greenberg. I hate to say it, but it appears Mr. Greenberg took a page from my book mentioning Seaboard Corp (AMEX: SEB), Ash Grove Cement (Pink Sheets: ASHG), and J.G. Boswell (Pink Sheets: BWEL) all in the same breath. I said – wow. Of course, imitation is the highest form of flattery, but I must say it is great to be on the same page with a writer like him.
The article, “Strong, Silent Types: Some Companies Let Their Fundamentals Do the Talking” talks about how a handful of companies do not participate in the gala that is investor conference calls or earnings guidance. As my previous blog on the exclusivity of ownership discusses, I 100% agree with this stance.
There is not much to be said here, except that it was nice to be in the same light with this guy.
And, of course, to play devil’s advocate, there was a quote in the article that hit it right on – basically saying that if you are any good at something, there is no need to brag or draw attention to yourself. Things will take care of themselves. I know some will say that I am bragging and drawing attention to myself by writing rather than keeping my mouth shut, but I am just writing. If someone reads it, great….if not, well, so be it. I probably should keep my investment merits and failures to myself – the best fund managers do just that – but I am not that good at the investing or writing aspect yet, so I have to brag. :-)
The article, “Strong, Silent Types: Some Companies Let Their Fundamentals Do the Talking” talks about how a handful of companies do not participate in the gala that is investor conference calls or earnings guidance. As my previous blog on the exclusivity of ownership discusses, I 100% agree with this stance.
There is not much to be said here, except that it was nice to be in the same light with this guy.
And, of course, to play devil’s advocate, there was a quote in the article that hit it right on – basically saying that if you are any good at something, there is no need to brag or draw attention to yourself. Things will take care of themselves. I know some will say that I am bragging and drawing attention to myself by writing rather than keeping my mouth shut, but I am just writing. If someone reads it, great….if not, well, so be it. I probably should keep my investment merits and failures to myself – the best fund managers do just that – but I am not that good at the investing or writing aspect yet, so I have to brag. :-)
Thursday, July 19, 2007
Paint By Numbers – Brush Engineered Materials (NYSE: BW) and Ash Grove Cement (Pink Sheets: ASHG)
The famous Art of War by Sun Tzu sports a thought that the victory in a battle is actually determined before the battle is actually thought.
I must admit, I spend a fair amount of time watching the intra-day activity of the positions I follow and am long on. Such activity is typically not suggested for long-term investors or any investor that is betting on the merits of the company. I have heard rumors that Warren Buffett shuns the use of stock quote tools and relies strictly on SEC filings and industry information to make his investment decisions. I am unsure if that is true, but I hope you can relate to the above illustration, even if it only a rumor.
Watching the tape tick-by-tick has all sorts of negative consequences that can impact investment decision. More often than not, this behavior lends itself to allowing fear and greed in get in the way. Big long-term winners are often sold on unwelcome large dips and fear sets in. A stock that has had a 20% run-up plummets 5% in a single day and in the excitement, the sell order is placed. After all, you never went broke taking a profit. But, regardless, the stock quickly rebounds from its low and then proceeds to become a double or a triple over the next 12 months. On the converse, a stock you are looking to start a position has a break-out day – and thanks to greed, you chase the bid up, only to give in to placing a market order. The stock then pulls back, naturally, and although perhaps the stock does well over the long haul, you restricted your gain somewhat by buying higher than you should. Sound familiar? I think every investor has shared the above experiences in some form at some point.
However, watching tick-by-tick, especially over long periods of time, can provide valuable insight into the future of the company’s stock performance. The key is being able to remove yourself from the fear, greed, and other emotions that can cloud your investment decisions.
Brush Engineered Materials (NYSE: BW)
One of my recent additions to my portfolio, I jumped in BW when it was trading under $40 after it lowered its earnings guidance. Mind you, that my confidence was strengthened by the 485,000 purchase by 14% holder Tontine Capital Partners. Just recently, BW climbed back to over $47 showing a very strong short-term gain and making some of the $40 calls I bought extremely valuable. What happened? BW pulled back sharply, and traded in the $43s. Although the fundamental reason why I added BW has not changed, the pull back certainly eliminated some of the fat paper gains achieved thus far, particularly in the options which have a limited shelf-life. Watching the tape was gut-wrenching and the temptation to exit was strong, especially since 50% of my gains were lost in a single day and I was still very well in the black. However, recognizing the fundamental reason why I bought in the first place did not change, I took a deep breath and resolved that I would hold my position. I actually considered buying more, but that did not happen – though I should have.
Watching the tape over the past couple of days has been inspiring to my long-term confidence in BW at these levels. There has certainly been some volatility – not unexpected in any stock with a relatively small float and active trading environment. A big dip like BW saw lends itself to all sorts of strange variables into the equation. Momentum traders, shorts covering, shorts being scared into covering on small pops, active option contracts, and value investors looking to scoop up shares. This day to day activity can cause some frenetic activity, but among the battlefield, I noticed some very telling signs.
Intraday, BW would certainly have some swings. Nothing dramatic, but it would fall to $43.50, only to run to $44.50, and fall back to under $44. The trend I have noticed the last several days is that during the many up and down swings, volume at the levels tells the truth. There is no doubt that there is some distribution of shares going on out there. After all, BW has had quite a run up the past 12 months and is still up over 100% from its 52-week low, even after its 35% haircut from its 52-week high.
The important observation is that when BW goes on a little mini-run, money flow and buying of stock is strong. The size of the blocks and total volume in these mini-runs is far greater than it is when it takes a breather. My analysis suggests that there is net buying of BW at these levels. There is certainly stock for sale, no question and the blocks for sale come out in mass when the buyers are ready. Then, the buyers take a break and some net selling comes in – only to be met by fierce accumulation. I could certainly be wrong – I am no psychic and the marketplace is an expression of an environment far too complex to understand. However, making an educated investment decision based on rational though, BW is a buy. Exactly why it is being bought up, well, nobody really knows – everyone has a theory.
I liken it to an options contract. For instance, say a buyer (individual or a fund, more likely) thinks that BW is worth $60/share. Basic logic should say that the buyer should just buy up everything in sight, but we all know that makes no sense for many reasons. Why artificially drive the price up before $60 is due? For instance, today, say I believe that BW is going to $60 and I am willing to pay say only $44.25 for BW. If I am a fund managing large sums of money, I have to have a risk formula or reason for doing do. I may be 100% confident in the future of BW and hitting $60, and while I have some ideas of how it will get there, I do not know exactly when or how it will transpire. All I know is that each trading day that goes by is one day closer until it hits $60. So, today, I am willing to buy at $44.25, but say next week, as the $60 timeframe draws nearer (although it is an unknown), I am willing to pay $44.75. The duration is shorter, so I am willing to pay an additional premium to own the shares that I know are going to $60. So, I go in and buy everything in sight up until $44.75, then I back down…the sellers show up and maybe the stock even gets a pop on the incoming volume to $44.90. I patiently then will wait for it to come down below $44.75 to reinitiate my buying. As time goes on, as long as I remain convinced that $60 is the target price, I will be willing to pay more for it. For instance, say BW is at $44.25 and a buy out at $60 is 100% guaranteed to happen (I am not saying it is). Well, in one scenario, the buyout is 12 months away. Why buy now at $44.25? You may be able to do better elsewhere. However, if the stock is at $55 and the buyout at $60 is coming tomorrow, you would be all in.
The above is lengthy, but to summarize, the battle for the future of BW is being decided right now. The action that I am seeing, at least to me, is indicating that there are more buyers than sellers and more people that believe that BW has an upside versus those that believe it has a downside. One day, it will be very likely that the gap will be filled and BW may even be able to go on to even higher levels than it touched on earlier this year. There are no assurances of that, but the profits are being made now by the sophisticated buyers that will not get caught chasing BW up the tree when it breaks out. The activity I am seeing corroborates my fundamental business reasons for liking BW. I like when the stars align.
Ash Grove Cement (Pink Sheets: ASHG)
ASHG has not posted a trade in nearly two months. The spread occasionally moves, which is obviously indicative of some activity taking place, most likely in odd lot transactions. I know how this works because I will often go and buy 1, 5, 10, or even 25 shares – and the trade will never hit the tape, but I do own the shares. The spread, however, will change.
Armed with this knowledge, even when I am merely watching the inside market and taking notice of the change, I am able to learn a great deal about the marketplace out there. The fact that is hardly ever trades really brings some clarity to the table.
Just a couple of days ago, with no volume whatsoever, and after the spread ticked up to $240 x $265, without notice, the spread was $230 x $240. Now, instant reaction is obviously fear, but because I have watched the inside market on this one daily for over 2 years, I know what this means. I am not 100% certain of the specifics, but my strong bullish stance on ASHG (which I make no secret) screams out buying opportunity. Dips in the spread like this are common and I take advantage to nibble and add to my position. Long term, it likely will not matter that much if I paid $5 more per share, but it is nice to get a lower cost basis and to take advantage of such dips to cheaply add to your position. I think investors often forget that buy and hold really needs to be buy, buy, and buy. If it is a great company and there appears to be value in the price being offered, take it. For example, I am glad I bought and hold my first shares of ASHG that I purchased at $160 – but I am even happier that I added more at $180, $195, $205, $210, etc. Of course, in the end, I may be wrong, but only time will tell.
Anyway, seeing the spread at $230 x $240, I knew it would not last long. I added to my position at $240. About 45 minutes later, the spread went to $235 x $240. Within minutes of that, the spread moved to $235 x $243. I actually went to add more at $243, but before the order could even be placed, the spread went to $235 x $250 and then quickly to $235 x $255. I then added a little more at $255. My limit orders at $231, $236, and $240 have gone unfilled, which is typically how this stock works. Good luck buying at the bid or not at the ask, especially if you are working with odd lots. The odd lot approach makes sense as it can be done under the radar. Who knows how much a 100 or 200 share market order would do to the spread – it could be a disaster. I’ve taken out asks before with 5 and 10 share offers.
Today, the spread is $235 x $260. The $255 ask went away the following trading day. I am glad I took the $255 shares when I did – or else I would have had to pay $260. My fundamental reasons for buying ASHG have not changed and I still think it is a value at these levels, so I will continue to add where appropriate. Being attentive to the inside market and learning how this stock behaves afforded me the opportunity to add some shares at an 8% discount to what they are currently fetching – and that fire sale lasted only a few minutes.
Obviously, other people are watching ASHG closely – likely far more closely than I am. I am not sure what happened, but my theory suggests that maybe an employee or a fund wanted out of a handful of shares – bringing the price down. And as usual, someone was there to buy them to keep the marketplace clean. It could have been another fund, though I think it is the founding family doing most of the cleanup work. They will part with a handful of shares here and there for the benefit of their employees and other investors, including institutions and goofballs like myself, but that suggests that a time for these latter groups to sell will come. If you had to bet who is more likely to sell their shares first, would you bet on me or the founding family that has owned them for 100+ years. I feel confident in the future of ASHG and its business prospects (I have written about those already in other articles, so I will spare you that) and I feel even more confident that when those decide it is time to move on from ASHG, the family will acquire those shares to keep the marketplace in balance. The battle for me has already been won. When ASHG hits $300 and potentially $400 – that is when I will remember it is on days like this where there is some form of arbitrage or what not going on that the real money was made.
I must admit, I spend a fair amount of time watching the intra-day activity of the positions I follow and am long on. Such activity is typically not suggested for long-term investors or any investor that is betting on the merits of the company. I have heard rumors that Warren Buffett shuns the use of stock quote tools and relies strictly on SEC filings and industry information to make his investment decisions. I am unsure if that is true, but I hope you can relate to the above illustration, even if it only a rumor.
Watching the tape tick-by-tick has all sorts of negative consequences that can impact investment decision. More often than not, this behavior lends itself to allowing fear and greed in get in the way. Big long-term winners are often sold on unwelcome large dips and fear sets in. A stock that has had a 20% run-up plummets 5% in a single day and in the excitement, the sell order is placed. After all, you never went broke taking a profit. But, regardless, the stock quickly rebounds from its low and then proceeds to become a double or a triple over the next 12 months. On the converse, a stock you are looking to start a position has a break-out day – and thanks to greed, you chase the bid up, only to give in to placing a market order. The stock then pulls back, naturally, and although perhaps the stock does well over the long haul, you restricted your gain somewhat by buying higher than you should. Sound familiar? I think every investor has shared the above experiences in some form at some point.
However, watching tick-by-tick, especially over long periods of time, can provide valuable insight into the future of the company’s stock performance. The key is being able to remove yourself from the fear, greed, and other emotions that can cloud your investment decisions.
Brush Engineered Materials (NYSE: BW)
One of my recent additions to my portfolio, I jumped in BW when it was trading under $40 after it lowered its earnings guidance. Mind you, that my confidence was strengthened by the 485,000 purchase by 14% holder Tontine Capital Partners. Just recently, BW climbed back to over $47 showing a very strong short-term gain and making some of the $40 calls I bought extremely valuable. What happened? BW pulled back sharply, and traded in the $43s. Although the fundamental reason why I added BW has not changed, the pull back certainly eliminated some of the fat paper gains achieved thus far, particularly in the options which have a limited shelf-life. Watching the tape was gut-wrenching and the temptation to exit was strong, especially since 50% of my gains were lost in a single day and I was still very well in the black. However, recognizing the fundamental reason why I bought in the first place did not change, I took a deep breath and resolved that I would hold my position. I actually considered buying more, but that did not happen – though I should have.
Watching the tape over the past couple of days has been inspiring to my long-term confidence in BW at these levels. There has certainly been some volatility – not unexpected in any stock with a relatively small float and active trading environment. A big dip like BW saw lends itself to all sorts of strange variables into the equation. Momentum traders, shorts covering, shorts being scared into covering on small pops, active option contracts, and value investors looking to scoop up shares. This day to day activity can cause some frenetic activity, but among the battlefield, I noticed some very telling signs.
Intraday, BW would certainly have some swings. Nothing dramatic, but it would fall to $43.50, only to run to $44.50, and fall back to under $44. The trend I have noticed the last several days is that during the many up and down swings, volume at the levels tells the truth. There is no doubt that there is some distribution of shares going on out there. After all, BW has had quite a run up the past 12 months and is still up over 100% from its 52-week low, even after its 35% haircut from its 52-week high.
The important observation is that when BW goes on a little mini-run, money flow and buying of stock is strong. The size of the blocks and total volume in these mini-runs is far greater than it is when it takes a breather. My analysis suggests that there is net buying of BW at these levels. There is certainly stock for sale, no question and the blocks for sale come out in mass when the buyers are ready. Then, the buyers take a break and some net selling comes in – only to be met by fierce accumulation. I could certainly be wrong – I am no psychic and the marketplace is an expression of an environment far too complex to understand. However, making an educated investment decision based on rational though, BW is a buy. Exactly why it is being bought up, well, nobody really knows – everyone has a theory.
I liken it to an options contract. For instance, say a buyer (individual or a fund, more likely) thinks that BW is worth $60/share. Basic logic should say that the buyer should just buy up everything in sight, but we all know that makes no sense for many reasons. Why artificially drive the price up before $60 is due? For instance, today, say I believe that BW is going to $60 and I am willing to pay say only $44.25 for BW. If I am a fund managing large sums of money, I have to have a risk formula or reason for doing do. I may be 100% confident in the future of BW and hitting $60, and while I have some ideas of how it will get there, I do not know exactly when or how it will transpire. All I know is that each trading day that goes by is one day closer until it hits $60. So, today, I am willing to buy at $44.25, but say next week, as the $60 timeframe draws nearer (although it is an unknown), I am willing to pay $44.75. The duration is shorter, so I am willing to pay an additional premium to own the shares that I know are going to $60. So, I go in and buy everything in sight up until $44.75, then I back down…the sellers show up and maybe the stock even gets a pop on the incoming volume to $44.90. I patiently then will wait for it to come down below $44.75 to reinitiate my buying. As time goes on, as long as I remain convinced that $60 is the target price, I will be willing to pay more for it. For instance, say BW is at $44.25 and a buy out at $60 is 100% guaranteed to happen (I am not saying it is). Well, in one scenario, the buyout is 12 months away. Why buy now at $44.25? You may be able to do better elsewhere. However, if the stock is at $55 and the buyout at $60 is coming tomorrow, you would be all in.
The above is lengthy, but to summarize, the battle for the future of BW is being decided right now. The action that I am seeing, at least to me, is indicating that there are more buyers than sellers and more people that believe that BW has an upside versus those that believe it has a downside. One day, it will be very likely that the gap will be filled and BW may even be able to go on to even higher levels than it touched on earlier this year. There are no assurances of that, but the profits are being made now by the sophisticated buyers that will not get caught chasing BW up the tree when it breaks out. The activity I am seeing corroborates my fundamental business reasons for liking BW. I like when the stars align.
Ash Grove Cement (Pink Sheets: ASHG)
ASHG has not posted a trade in nearly two months. The spread occasionally moves, which is obviously indicative of some activity taking place, most likely in odd lot transactions. I know how this works because I will often go and buy 1, 5, 10, or even 25 shares – and the trade will never hit the tape, but I do own the shares. The spread, however, will change.
Armed with this knowledge, even when I am merely watching the inside market and taking notice of the change, I am able to learn a great deal about the marketplace out there. The fact that is hardly ever trades really brings some clarity to the table.
Just a couple of days ago, with no volume whatsoever, and after the spread ticked up to $240 x $265, without notice, the spread was $230 x $240. Now, instant reaction is obviously fear, but because I have watched the inside market on this one daily for over 2 years, I know what this means. I am not 100% certain of the specifics, but my strong bullish stance on ASHG (which I make no secret) screams out buying opportunity. Dips in the spread like this are common and I take advantage to nibble and add to my position. Long term, it likely will not matter that much if I paid $5 more per share, but it is nice to get a lower cost basis and to take advantage of such dips to cheaply add to your position. I think investors often forget that buy and hold really needs to be buy, buy, and buy. If it is a great company and there appears to be value in the price being offered, take it. For example, I am glad I bought and hold my first shares of ASHG that I purchased at $160 – but I am even happier that I added more at $180, $195, $205, $210, etc. Of course, in the end, I may be wrong, but only time will tell.
Anyway, seeing the spread at $230 x $240, I knew it would not last long. I added to my position at $240. About 45 minutes later, the spread went to $235 x $240. Within minutes of that, the spread moved to $235 x $243. I actually went to add more at $243, but before the order could even be placed, the spread went to $235 x $250 and then quickly to $235 x $255. I then added a little more at $255. My limit orders at $231, $236, and $240 have gone unfilled, which is typically how this stock works. Good luck buying at the bid or not at the ask, especially if you are working with odd lots. The odd lot approach makes sense as it can be done under the radar. Who knows how much a 100 or 200 share market order would do to the spread – it could be a disaster. I’ve taken out asks before with 5 and 10 share offers.
Today, the spread is $235 x $260. The $255 ask went away the following trading day. I am glad I took the $255 shares when I did – or else I would have had to pay $260. My fundamental reasons for buying ASHG have not changed and I still think it is a value at these levels, so I will continue to add where appropriate. Being attentive to the inside market and learning how this stock behaves afforded me the opportunity to add some shares at an 8% discount to what they are currently fetching – and that fire sale lasted only a few minutes.
Obviously, other people are watching ASHG closely – likely far more closely than I am. I am not sure what happened, but my theory suggests that maybe an employee or a fund wanted out of a handful of shares – bringing the price down. And as usual, someone was there to buy them to keep the marketplace clean. It could have been another fund, though I think it is the founding family doing most of the cleanup work. They will part with a handful of shares here and there for the benefit of their employees and other investors, including institutions and goofballs like myself, but that suggests that a time for these latter groups to sell will come. If you had to bet who is more likely to sell their shares first, would you bet on me or the founding family that has owned them for 100+ years. I feel confident in the future of ASHG and its business prospects (I have written about those already in other articles, so I will spare you that) and I feel even more confident that when those decide it is time to move on from ASHG, the family will acquire those shares to keep the marketplace in balance. The battle for me has already been won. When ASHG hits $300 and potentially $400 – that is when I will remember it is on days like this where there is some form of arbitrage or what not going on that the real money was made.
Tuesday, July 10, 2007
National Bank of Greece (NYSE: NBG) - Slash & Burn, Buy Everything in Sight up to $12.00
I am raising my slash and burn, buy everything in sight on NBG to $12.00. That means, anything under $12.00 is a buy. NBG recently ran as high as $12.32 - and actually got way ahead of its Athens Stock Exchange parent in terms of valuation. NBG is currently fetching $11.93/share. In the light of earnings season, it's aggressive, yet obtainable 3-year plan, and UBS price target of about $15, I would suggest buying everything in sight up to $12.00.
Of course, that is somewhat of an exaggeration based on the Gordon Gekko quote from Wall Street, but the fundamentals of the bank and the world economy remain strong.
NBG was also featured in a recent Forbes article, "The Exchange That Launched 1,000 Ships."
NBG has a lot going for it for the long-term and is postioned as perhaps the best banking play in all of eastern Europe, especially considering its expansion into Turkey and other countries in the region. NBG, long thought of only as a Greek, regional bank is slowly evolving into a European player. They are still several years off from reaching such lofty goals, but they are moving in the right direction.
I still say $14-$15 by the end of 2007. The weakening U.S. Dollar vs the Euro also adds some upside pressure to the NYSE traded ADRs.
Of course, that is somewhat of an exaggeration based on the Gordon Gekko quote from Wall Street, but the fundamentals of the bank and the world economy remain strong.
NBG was also featured in a recent Forbes article, "The Exchange That Launched 1,000 Ships."
NBG has a lot going for it for the long-term and is postioned as perhaps the best banking play in all of eastern Europe, especially considering its expansion into Turkey and other countries in the region. NBG, long thought of only as a Greek, regional bank is slowly evolving into a European player. They are still several years off from reaching such lofty goals, but they are moving in the right direction.
I still say $14-$15 by the end of 2007. The weakening U.S. Dollar vs the Euro also adds some upside pressure to the NYSE traded ADRs.
The Best Direct Stock Purchase Plans
Direct Stock Purchase Plans (DSPPs) are just what they sound like – they let you buy stock in participating companies direct rather than going through a broker. Such programs also offer additional benefits such as automatic recurring investment and full investment of your funds, even if you cannot buy a full share initially.
These programs are offered via the transfer agents that represent the participating companies and are a great way to start to build a retirement nest egg for yourself or an education fund for your children. A DSPP can also be a great gift to a family member.
Specifically, I feel that DSPP participation by investors should be a part of a long-term investing strategy. The way the programs are set up, where it can be somewhat of a hassle to withdrawal your money, make them ideal candidates for buy and accumulate, especially with the full reinvestment of proceeds and dividends – even into fractional shares.
Some may argue that index funds are better places to stash cash for the long-term. There is certainly merit in that philosophy as the stock market as a whole is a fantastic wealth building vehicle. But, there is something to ownership and although lacking in the diversity of a DSPP, over the course of many years or even decades, you will find that some stocks outperform the market and some under perform. For a long-term perspective, both are well-received. Why? If you are investing a single stock or preferably 2-3 DSPPs to have some diversity, in the years the stock outperforms, you can get accelerated appreciation on your investment. In the event of under perform, such phases allow for accumulation of more shares at what may be a market discount. Of course, do not disregard the fundamentals of a company, but more often than not, companies participating in DSPPs are long-established, blue-chip type companies that pay out dividends to shareholders. This is not always the case, but you are more likely to find names of companies you recognize rather than under the radar companies.
I especially suggest DSPPs for your children, especially in a 529 account or a custodial account. Please consult your financial planner for the best situation for your needs, but I find it a great thing to start building for your children’s future at an early age.
DSPPs have many elements to their make-up. Some of these include:
· Minimum initial purchase
· Purchase fees
· Online access
· Electronic automatic investments
· Reinvestment fees
In many cases, the companies charge initial set up fees or ongoing fees to help maintain the account. This makes sense considering the company incurs fees from the transfer agent to administer the plan, but many plans have no fees at all to enroll and purchase shares – some even offer discounts.
May I suggest the following three DSPP for a balance, affordable direct investment strategy for your children and part of your long-term financial goals?
Pfizer (NYSE: PFE)Pfizer has not been the world’s favorite stock in 2007. Pulling multiple drugs and citing rising costs, PFE has failed to keep pace with the rest of the pharmaceuticals. However, Pfizer is a great DSPP selection. The downside is a $500 initial requirement for participation, but after that, there are no requirements for recurring investment frequency. Of course, you have the option of monthly recurring investments – with a minimum of $50 – or making one-off purchases at your convenience with a minimum of $50. Fundamentally, I like Pfizer – and while analysts are saying it may be a couple of years, at least, before Pfizer returns to growth, this provides opportunity to build up some shares at these prices. Pfizer has raided their dividend every year for as long as anyone can remember and it seems that this trend will continue. The 4.5% yield offered by Pfizer at current market prices rivals the return that most savings or money accounts will give you – all without minimum balances or service fees. I think that over the course of the next 20-30 years, Pfizer is a winner. It certainly will not be the biggest winner, but having exposure to the pharmaceutical sector makes a great deal of sense. Additionally, taking the time to acquire some shares now, especially at these levels, should pay off over the years to come as we look for dividend increases which will significantly boost the yield on your initial shares. Plus, to keep things simple, as long as there is a need for medicine, Pfizer will remain an industry leader and a safe place to put some money aside for the future.
Health Care REIT (NYSE: HCN)
The biggest knock on HCN is the $1,000 minimum requirement to establish an account – that can be a good chunk of change, especially for your two-year old. HCN sports all of the features you would expect from a solid DSPP, such as no purchase fees, full reinvestment of dividends, and option for a recurring investment. However, one thing that makes HCN stand out from many DSPPs is the 2% discount offered on initial purchase of shares, new purchases of shares, and on shares purchased through reinvestment of dividends. 2% is not a huge difference maker, but consider it like getting a match from your employer in your 401(k). Anytime you can buy stock for the long-run at even a slight discount, it is a win, especially with HCN’s history of raising dividends. As a REIT, do not expect huge growth, but HCN is well positioned to take advantage of the well documented need for healthcare and things like assisted living facilities. As of December 31, 2006, HCN’s portfolio consisted of over 550 properties, including assisted living facilities, skilled nursing facilities, independent living care retirement communities, and specialty care facilities. HCN continues to build its portfolio – adding over $400M in new acquisitions alone in the second quarter of 2007. This means more property and increased dividends over the long-term as more rents are collected. HCN has been around for nearly 40 years.
IndyMac Bancrop (NYSE: IMB)IndyMac is the 7th largest savings and loan and 2nd largest lender in the nation. The DSPP sports an affordable minimum investment requirement of $250 and company paid fees on all purchases and reinvestments. This bank has taken a hit with the recent mortgage and real estate slowdown and currently trades close to its 52-week low. The company’s trailing dividend yield is 6.4% but historical dividend yield is closer to 2.7% - inline with other banks. Even with such a high yield, the payout ratio is still under 50%, so there is plenty of room for error in the event of an issue. Insiders and mutual funds are currently buying IMB and likely for the long-term. IMB trades at less than 7x current earnings and less than 8x projects earnings. The company is also trading at a slight (10%) premium to book value. The value indicators look good and over the short term, the problems hitting the real estate market may still take their toll on IMB, but with long term goals of generating 15%+ return on equity each year, I like my chances.
Of course, there are many tremendous, established companies that offer DSPPs to investors - and most are good choices. However, if you were to ask me where I am putting some money aside for myself and my daughters, these three get the nod.
These programs are offered via the transfer agents that represent the participating companies and are a great way to start to build a retirement nest egg for yourself or an education fund for your children. A DSPP can also be a great gift to a family member.
Specifically, I feel that DSPP participation by investors should be a part of a long-term investing strategy. The way the programs are set up, where it can be somewhat of a hassle to withdrawal your money, make them ideal candidates for buy and accumulate, especially with the full reinvestment of proceeds and dividends – even into fractional shares.
Some may argue that index funds are better places to stash cash for the long-term. There is certainly merit in that philosophy as the stock market as a whole is a fantastic wealth building vehicle. But, there is something to ownership and although lacking in the diversity of a DSPP, over the course of many years or even decades, you will find that some stocks outperform the market and some under perform. For a long-term perspective, both are well-received. Why? If you are investing a single stock or preferably 2-3 DSPPs to have some diversity, in the years the stock outperforms, you can get accelerated appreciation on your investment. In the event of under perform, such phases allow for accumulation of more shares at what may be a market discount. Of course, do not disregard the fundamentals of a company, but more often than not, companies participating in DSPPs are long-established, blue-chip type companies that pay out dividends to shareholders. This is not always the case, but you are more likely to find names of companies you recognize rather than under the radar companies.
I especially suggest DSPPs for your children, especially in a 529 account or a custodial account. Please consult your financial planner for the best situation for your needs, but I find it a great thing to start building for your children’s future at an early age.
DSPPs have many elements to their make-up. Some of these include:
· Minimum initial purchase
· Purchase fees
· Online access
· Electronic automatic investments
· Reinvestment fees
In many cases, the companies charge initial set up fees or ongoing fees to help maintain the account. This makes sense considering the company incurs fees from the transfer agent to administer the plan, but many plans have no fees at all to enroll and purchase shares – some even offer discounts.
May I suggest the following three DSPP for a balance, affordable direct investment strategy for your children and part of your long-term financial goals?
Pfizer (NYSE: PFE)Pfizer has not been the world’s favorite stock in 2007. Pulling multiple drugs and citing rising costs, PFE has failed to keep pace with the rest of the pharmaceuticals. However, Pfizer is a great DSPP selection. The downside is a $500 initial requirement for participation, but after that, there are no requirements for recurring investment frequency. Of course, you have the option of monthly recurring investments – with a minimum of $50 – or making one-off purchases at your convenience with a minimum of $50. Fundamentally, I like Pfizer – and while analysts are saying it may be a couple of years, at least, before Pfizer returns to growth, this provides opportunity to build up some shares at these prices. Pfizer has raided their dividend every year for as long as anyone can remember and it seems that this trend will continue. The 4.5% yield offered by Pfizer at current market prices rivals the return that most savings or money accounts will give you – all without minimum balances or service fees. I think that over the course of the next 20-30 years, Pfizer is a winner. It certainly will not be the biggest winner, but having exposure to the pharmaceutical sector makes a great deal of sense. Additionally, taking the time to acquire some shares now, especially at these levels, should pay off over the years to come as we look for dividend increases which will significantly boost the yield on your initial shares. Plus, to keep things simple, as long as there is a need for medicine, Pfizer will remain an industry leader and a safe place to put some money aside for the future.
Health Care REIT (NYSE: HCN)
The biggest knock on HCN is the $1,000 minimum requirement to establish an account – that can be a good chunk of change, especially for your two-year old. HCN sports all of the features you would expect from a solid DSPP, such as no purchase fees, full reinvestment of dividends, and option for a recurring investment. However, one thing that makes HCN stand out from many DSPPs is the 2% discount offered on initial purchase of shares, new purchases of shares, and on shares purchased through reinvestment of dividends. 2% is not a huge difference maker, but consider it like getting a match from your employer in your 401(k). Anytime you can buy stock for the long-run at even a slight discount, it is a win, especially with HCN’s history of raising dividends. As a REIT, do not expect huge growth, but HCN is well positioned to take advantage of the well documented need for healthcare and things like assisted living facilities. As of December 31, 2006, HCN’s portfolio consisted of over 550 properties, including assisted living facilities, skilled nursing facilities, independent living care retirement communities, and specialty care facilities. HCN continues to build its portfolio – adding over $400M in new acquisitions alone in the second quarter of 2007. This means more property and increased dividends over the long-term as more rents are collected. HCN has been around for nearly 40 years.
IndyMac Bancrop (NYSE: IMB)IndyMac is the 7th largest savings and loan and 2nd largest lender in the nation. The DSPP sports an affordable minimum investment requirement of $250 and company paid fees on all purchases and reinvestments. This bank has taken a hit with the recent mortgage and real estate slowdown and currently trades close to its 52-week low. The company’s trailing dividend yield is 6.4% but historical dividend yield is closer to 2.7% - inline with other banks. Even with such a high yield, the payout ratio is still under 50%, so there is plenty of room for error in the event of an issue. Insiders and mutual funds are currently buying IMB and likely for the long-term. IMB trades at less than 7x current earnings and less than 8x projects earnings. The company is also trading at a slight (10%) premium to book value. The value indicators look good and over the short term, the problems hitting the real estate market may still take their toll on IMB, but with long term goals of generating 15%+ return on equity each year, I like my chances.
Of course, there are many tremendous, established companies that offer DSPPs to investors - and most are good choices. However, if you were to ask me where I am putting some money aside for myself and my daughters, these three get the nod.
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