This morning, National Bank of Greece (NYSE: NBG) posted their 2006 financial results. Results were very impressive. Net income rose 36% from 2005 to $1.29B. Results were towards the upper end of the analyst estimate range, but fell short of the high estimate by about 1%. Hence, the stock did not blow up today, but actually did end close up by a modest 0.3% after spending most of the day in the red. This activity is not uncommon. The financial results of NBG were being watched like a hawk by the world marketplace and anticipating a very strong showing. The market then 'prices' this activity in for the most part, so if it ends up where everyone thought it was going to go, it tends to not move much or even decline, sometimes sharply. Tomorrow, on Feb. 22, NBG, will be presenting its 2007-2009 3 year outlook, which is supposed to continue to be very positive as already indicated by NBG, though we will not see full details until tomorrow. Long term, NBG is a great buy and when I say long term, I could be talking several years and I do not believe it will disappoint in 2007. While I do not see a double in 2007, I think NBG getting to $14-$16 sometime before the end of the year is possible. I am considering adding to my position.
It is officially dividend time for Ash Grove Cement (Pink Sheets: ASHG). This stock does not trade very often or at least post trades. I think that this stock trades daily behind the scenes, but the market makets will only post a trade in 100+ share blocks. So, I often think the 100 share blocks is a consolidated trade posting of many small trades. Anyway, activity always picks up around dividend time, which is the first week of March. ASHG is pretty sneaky about this - I am able to see their dividend declaration information at www.pinksheets.com, but it is not anywhere else to be seen. For 2007, dividend is $0.42 per share, a 5% increase over 2006, so that is good stuff.
Anyway, although trades may not occur, the inside market, or bid vs. ask spread, will sometimes change during the day. This is indicative of someone stepping in to buy or perhaps some trades took place behind the scenes and are not yet posted. There are very, very few shares out there, so 5-10 share trades, that seem to be invisible to the market, can effect the spread. I know this because I have personally experienced and seen this first hand. So, yesterday, Feb 20, ASHG opened up the morning at $217 x $220. During a meeting at work, I noticed the spread ticked up as high as $250 x $350!!! I almost lost it and took every ounce of sanity to keep my clothes on and to restrain from humping the desk.
Today, the stock closed as $280 per share, up 24.4% to an all time high. The closing spread was $240 x $272.50 (the bid ticked up from $230 to $240 in some small increments through the day) and the only trade that posted was 125 shares at $295. Now, I have seen the inside market change with some rigor during dividend times, but NEVER like this in the nearly 2 years I have owned and followed this security.
I think this one will pull back some post March dividend, but we will see. I still plan to add to my position, regardless, and somewhat regret not adding more than I did along the way, but again, it's always better to wish you bought more than wish you bought less! I am not sure what is in store for ASHG tomorrow or even for the rest of the year - I thought reaching $240 would take all year - I was wrong. Next year? Who knows....5 years? $700 per share. This is a fantastic retirement investment.
Seaboard Corporatiion (AMEX: SEB) had a very strong day. Up 2.6% to an all-time closing high of $2,154 and touched on an all time high of $2,190 today. Volume today was very strong - double than usual. I am not sure of the activity, but in 7-10 years, do not be surprised to see this one at $6,000-$8,000 per share. There is certainly long term value here and I am considering adding more to my position, but it's tough, because 1 share at this stage chews up $2,154 of capital, which is well, a lot. If I were to buy more, it would be for the real long haul. At some point, the appreciation on this one will have to take a breath and slow down, at least short term. I am trying to figure out what the deal is with this one in terms of the short-term activity and what is means long-term for the stock. Perhaps it is institutions loading up for the long haul as dry bulk shipping, one of SEB's divisions, was very hot today thanks to a mention on CNBC. There is no question SEB is going higher, but under what terms? Timeframe? Retracement? Short and sweet, I like the shareholders equity and cash this beast produces.
On other notes, I added to my positions in INFT at $3.57 and WNC at $16.99. INFT has disappointed me thus far, but it just has to go somewhere. I know, famous last words, but the last time I had that feeling, I was buying up shares of CECE at $3.75-$4.25. It took many years, and I was fortunate to start adding shares just in time, but the metrics said CECE absolutely had to go higher. It did...and ran to $12 last spring and today closed at an all time high of $17. I sold out last spring on the way up to $12.
Watching CECE today - I ALMOST jumped back in at $8-$9 several weeks ago, but I didn't. I wish I did, but honestly, the money I took out of CECE (and others that maybe I sold too soon) I put into other winners:
SVVS: in at $10, out at $17; now at $48.
ASTE: in at $23, out at $34; now at $39.
Thinking about this, did I miss the boat? Well, yes and no, but not really. I took the bulk of my CECE, SVVS, and ASTE proceeds and invested in big winners like ASHG, NBG, SEB and what will hopefully become big winners, like INFT and WNC. My patiences for investments has grown tremendously. I am amazed that I have held and accumulated ASHG for 20 months now, which is a world record for me. It is tough at a young age to have a huge time horizon mentality. Plus, with the in your face of 'gotta have it now' and my need to fend off my other situation, well, as much as I would have loved to have waited the extra year for CECE to turnaround, but honestly, last spring, I didn't have a year.
Going forward, it is important to look at the scope of your investments. Of course, you can never predict the market, but sometimes, bigger gains are out there if you can open your mindset to maybe waiting 3-5 years. I have somehow been able to do that with ASHG. I think part of that has to do with the lack of activity the stock has. Unlike other issues that move up and down, I am better able to keep the fear and greed out of my decision more than the others. Regardless, it is important to set your own price targets and goals - but more importantly, how long you are willing or might have to wait. Are you willing to wait 1 1/2 years for a 75% return? That is what it would have taken for ASHG. A 300% gain requires 18 months? Well, that is SVVS for you.
Opportunities for huge gains are out there, so look for them, and if you have to wait it out, then wait it out. Of course, never underestimate the power of taking profits and successfully re-investing the proceeds in other big winners. Plus, there is only so much capital to go around. If I would have kept my hands on CECE and didn't bother buying more ASHG or SEB, I'd be feeling just as silly, but, I'd really be in the same place I am now from a numbers standpoint.
Simplistically, if you take money out of an investment, make sure you have a solid purpose for it - specifically, another investment that you feel will perform well. If you sell, that's fine, just don't piss it away, because that is when seeing the stock 100% higher than you sold it at will get to you.
Showing posts with label aste. Show all posts
Showing posts with label aste. Show all posts
Wednesday, February 21, 2007
Sunday, December 31, 2006
Closing Out 2006 - Winners & Losers
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.
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.
Thursday, November 30, 2006
ASTE - The End of the Road
It is a very bittersweet day - I have officially closed out my position in ASTE - exiting with approximately a 45% gain over the course of 10 weeks. It is always difficult to part with your winners - there is always the fear that they will go higher and that you will miss the boat on it. However, you have to keep your strategy in check. When I originally purchased ASTE back in September, the vision was a rebound into the mid 30s range after getting whacked down 50%+ following an excellent earnings report that did not meet Wall Street expectations. My September 5, 2006 blog highlighting ASTE at $24.71 discusses this. So, it's time to move on.
My reasoning is as follows. First, it hit my short-term target of the mid $30s. Also, although prospects for the company remain strong and ASTE could very well continue its upward trend, it appears that the current trend is running out of gas. $35+ has been challenged a couple of times, but on relatively light volume - at least compared to what brought it up to $30+.
Additionally, the downside seems to be more of a risk, especially now that the market is expecting ASTE to overperform in the 4th Quarter 2006 as that information was disclosed in the conference call regarding 3Q 2006 numbers. Basically, the bulk of the potential upside to a strong 4th Q may already be priced in.
So, now with ASTE gone, I need to find another position to fill up my day and replace ASTE in the portfolio. I will also be evaluating how I would like to use the principal and proceeds from this trade to strengthen my positions in NBG, INFT, ASHG, and possibly SEB. NBG looks very attractive right now after it reported strong earnings and is down 3.5% on the news - buy on rumors, sell on news as they say.
My reasoning is as follows. First, it hit my short-term target of the mid $30s. Also, although prospects for the company remain strong and ASTE could very well continue its upward trend, it appears that the current trend is running out of gas. $35+ has been challenged a couple of times, but on relatively light volume - at least compared to what brought it up to $30+.
Additionally, the downside seems to be more of a risk, especially now that the market is expecting ASTE to overperform in the 4th Quarter 2006 as that information was disclosed in the conference call regarding 3Q 2006 numbers. Basically, the bulk of the potential upside to a strong 4th Q may already be priced in.
So, now with ASTE gone, I need to find another position to fill up my day and replace ASTE in the portfolio. I will also be evaluating how I would like to use the principal and proceeds from this trade to strengthen my positions in NBG, INFT, ASHG, and possibly SEB. NBG looks very attractive right now after it reported strong earnings and is down 3.5% on the news - buy on rumors, sell on news as they say.
Saturday, November 4, 2006
SEB - Hits $1,540. ASTE and INFT updates.
Who bought SEB when I told everyone too when it was at $1,290? Anyone? Anyone? Bueller? Bueller? Didn't think so....biggest crickets.
I initially suggested that SEB would hit $1,500 by the end of the year...I lied. It did it Friday, Nov. 3. Today, SEB closed at $1,540 per share...up 19.3% from my mention. Well, too bad for me I bought some when I announced it :-). Anyway, solid company and reported solid financials, again. Nothing spectacular in terms of growth, but SEB is just producing a lot of cash and appears to be grossly undervalued trading at less than 7 times earnings. This really is a $3,000+ per share stock. It will take patience though - maybe 2-3 years. I hope I can buy some more.
ASTE has been relatively flat and has been somewhat soft since it's huge run up to $33.99 intraday. It has trickled down, but after a so-so trading day, it closed strong at $31.69 (up $0.18). Right now, we are seeing a natural breather following the very aggressive run up and probably some profit taking on valuation and just stock timing. 2 items to consider with ASTE: (1) the cup and handle; (2) trade shows and Don Brock's retirement.
1. CUP AND HANDLE
A pattern on bar charts resembling a cup with a handle. The cup is in the shape of a "U" and the handle has a slight downward drift. The right-hand side of the pattern has lowtrading volume. It can be as short as seven weeks and as long as 65 weeks. As the stock comes up to test the old highs, the stock will incur selling pressure by the people who bought at or near the old high. This selling pressure will make the stock price trade sideways with a tendency towards a downtrend for four days to four weeks... then it takes off. The chart on ASTE is showing just that formation. I think we will see another strong upward move in the next 6-10 weeks and it might take it closer to $37-$38, my personal price target for it. Unfortunately, it is not a perfect U shape - the closer it is to the U shape the better, but the technicals are lining up that way. No promises.
2. ASTE INVESTOR SHOWS & DON BROCK
ASTE was founded by Dr. Don Brock, 67, who remains the company's CEO today. He is also a significant shareholder with 11% of the company. ASTE recently announced their attendance at an investor show. I would not be surprised to see ASTE pursuing suitors in light of his possible retirement. This is pure speculation, but he may be ready to diversify and have an exit strategy for his estate and 'golden' years. A fair purchase price for ASTE would probably be in the $38-$48 range; probably closer to the lower end of the spectrum. It appears that ASTE may be on the path to considering offers.
Inforte (NASDAQ: INFT) has not moved much. In fact, it has actually come down some, but there appears to be a lot of buyers ready in the $3.92-$4.02 range. I took the opportunity of INFT falling to $3.90 today and purchased a little more. I hope it makes me look like I made a good decision.
NBG, which I raised my buy everything you can price limit to $9.50 almost crossed that threshold this week by touching $9.40. NBG closed today at $9.23. It is still a good buy under $9.50 and I believe we will see $11 by the spring of 2007.
I initially suggested that SEB would hit $1,500 by the end of the year...I lied. It did it Friday, Nov. 3. Today, SEB closed at $1,540 per share...up 19.3% from my mention. Well, too bad for me I bought some when I announced it :-). Anyway, solid company and reported solid financials, again. Nothing spectacular in terms of growth, but SEB is just producing a lot of cash and appears to be grossly undervalued trading at less than 7 times earnings. This really is a $3,000+ per share stock. It will take patience though - maybe 2-3 years. I hope I can buy some more.
ASTE has been relatively flat and has been somewhat soft since it's huge run up to $33.99 intraday. It has trickled down, but after a so-so trading day, it closed strong at $31.69 (up $0.18). Right now, we are seeing a natural breather following the very aggressive run up and probably some profit taking on valuation and just stock timing. 2 items to consider with ASTE: (1) the cup and handle; (2) trade shows and Don Brock's retirement.
1. CUP AND HANDLE
A pattern on bar charts resembling a cup with a handle. The cup is in the shape of a "U" and the handle has a slight downward drift. The right-hand side of the pattern has lowtrading volume. It can be as short as seven weeks and as long as 65 weeks. As the stock comes up to test the old highs, the stock will incur selling pressure by the people who bought at or near the old high. This selling pressure will make the stock price trade sideways with a tendency towards a downtrend for four days to four weeks... then it takes off. The chart on ASTE is showing just that formation. I think we will see another strong upward move in the next 6-10 weeks and it might take it closer to $37-$38, my personal price target for it. Unfortunately, it is not a perfect U shape - the closer it is to the U shape the better, but the technicals are lining up that way. No promises.
2. ASTE INVESTOR SHOWS & DON BROCK
ASTE was founded by Dr. Don Brock, 67, who remains the company's CEO today. He is also a significant shareholder with 11% of the company. ASTE recently announced their attendance at an investor show. I would not be surprised to see ASTE pursuing suitors in light of his possible retirement. This is pure speculation, but he may be ready to diversify and have an exit strategy for his estate and 'golden' years. A fair purchase price for ASTE would probably be in the $38-$48 range; probably closer to the lower end of the spectrum. It appears that ASTE may be on the path to considering offers.
Inforte (NASDAQ: INFT) has not moved much. In fact, it has actually come down some, but there appears to be a lot of buyers ready in the $3.92-$4.02 range. I took the opportunity of INFT falling to $3.90 today and purchased a little more. I hope it makes me look like I made a good decision.
NBG, which I raised my buy everything you can price limit to $9.50 almost crossed that threshold this week by touching $9.40. NBG closed today at $9.23. It is still a good buy under $9.50 and I believe we will see $11 by the spring of 2007.
Saturday, October 21, 2006
Market Commentary - ASTE & Caterpillar, Inc. (NYSE: CAT) and a possible buy
Shareholders of Caterpillar (NYSE: CAT) had a very rough Friday. The company reported record-setting profits and sales and forecasted higher sales #'s and higher profit #'s for 2007.
Well, officially, they said 2007 sales and profit would grow in the range of 0%-5% and 0%-10% respectively. All sounds good, right? Well, on the day of this seemingly positive announcement, Caterpillar's stock fell nearly 15%. This decline is in addition to the 15% the stock was already down (pre-earnings announcement) since May, 2006, it's all time high. Basically, the stock is down 28% in the last 5-6 months.
The culprit? The company also reported that some segments of their business, like the U.S. housing market, was going to suffer another decline in 2007. The company also said that global growth would slow - not decline, but slow down. However, the company also said that many other segments of their business were going to continue to experience strong growth in many other aspects of their business, so what's the problem?
This one event sent shockwaves through the stock market on Friday. The Dow Jones was down 9 points and many estimate that Caterpillar's drop probably took 50-70 points off of the Dow. Basically, if it was not for CAT, the Dow would have been up another 50 points or so to another all time high.
CAT's decline also impacted just about every other stock in its industry. For instance, one of my holdings, Astec Industires (NASDAQ: ASTE) which is still up 6% since I mentioned it September 5, 2006 (despite being down 7% on Friday) had a rough day. For ASTE, this is probably a good thing. ASTE's stock cranked up to $28.50 on strong volume on Thursday before getting whacked on Friday thanks to CAT's earnings and partially to the October 2006 options expiring which always adds some volatility to the stock price.
Here are the realities:
1. Gap Filled
The stock closed the gap down that occurred in late July from $27.50 to $24.50. If you look at a 1 year chart, you will see the gaping whole in the stock price. The stock market is nothing but inventory management of the shares out there - more often than not, these gaps get filled somewhere along the line to restore balance. This has just recently happened and the upward pressure in the inventory to get back to close the gap was possibly responsible for the big upswing on Thursday morning. It's kind of like the stock getting ahead of itself. Controlled movements up are more solid than big explosions, though the latter are very exciting.
2. Support Held
From a technical standpoint, the stock held it's support line at $26.02. Of course, only time will tell, but long term, the current marketplace indicates things still bode well for ASTE.
3. Buffer for Earnings Announcement
As strange as it sounds, I actually welcomed this correction. I do have some nervousness about ASTE's earnings report on Monday morning. If the ASTE stock was flying high above $28 and maybe even breaking $30 going into Monday, well, if the earnings announcement was anything less than spectacular, we would have seen a very strong correction downard. Even worse, if the earnings report were negative, it would have been even worse. Additionally, even if the earnings were strong, it probably would not have had a huge upward effect on the price as that event may already have been priced in. Come Monday, regardless of earnings announcement, we likely would have seen a correction upward. The market always overreacts in the short term - either too high or too low. The steep decline on Friday will likely return some of the gains it took away come next week. Plus, in the event of a bad earnings news, CAT's announcement already laid the groundwork for that possibility and subsequently priced it into ASTE's stock price.
All in all, the fundamentals have not changed; I am not further acting on ASTE until I see the earnings announcement come Monday morning. If anything, I will add to my position, but I may just hold with what I have.
As for Caterpillar, down 15% in one day...and 30% in 5 months...it could very well be a buy for the long-term. When a stock has historically delivered 10%+ annual returns and then in a short period of time like 5 months or even 1 days...gives back 1-3 years of hard earned gains, it might make sense to dive in.
Well, officially, they said 2007 sales and profit would grow in the range of 0%-5% and 0%-10% respectively. All sounds good, right? Well, on the day of this seemingly positive announcement, Caterpillar's stock fell nearly 15%. This decline is in addition to the 15% the stock was already down (pre-earnings announcement) since May, 2006, it's all time high. Basically, the stock is down 28% in the last 5-6 months.
The culprit? The company also reported that some segments of their business, like the U.S. housing market, was going to suffer another decline in 2007. The company also said that global growth would slow - not decline, but slow down. However, the company also said that many other segments of their business were going to continue to experience strong growth in many other aspects of their business, so what's the problem?
This one event sent shockwaves through the stock market on Friday. The Dow Jones was down 9 points and many estimate that Caterpillar's drop probably took 50-70 points off of the Dow. Basically, if it was not for CAT, the Dow would have been up another 50 points or so to another all time high.
CAT's decline also impacted just about every other stock in its industry. For instance, one of my holdings, Astec Industires (NASDAQ: ASTE) which is still up 6% since I mentioned it September 5, 2006 (despite being down 7% on Friday) had a rough day. For ASTE, this is probably a good thing. ASTE's stock cranked up to $28.50 on strong volume on Thursday before getting whacked on Friday thanks to CAT's earnings and partially to the October 2006 options expiring which always adds some volatility to the stock price.
Here are the realities:
1. Gap Filled
The stock closed the gap down that occurred in late July from $27.50 to $24.50. If you look at a 1 year chart, you will see the gaping whole in the stock price. The stock market is nothing but inventory management of the shares out there - more often than not, these gaps get filled somewhere along the line to restore balance. This has just recently happened and the upward pressure in the inventory to get back to close the gap was possibly responsible for the big upswing on Thursday morning. It's kind of like the stock getting ahead of itself. Controlled movements up are more solid than big explosions, though the latter are very exciting.
2. Support Held
From a technical standpoint, the stock held it's support line at $26.02. Of course, only time will tell, but long term, the current marketplace indicates things still bode well for ASTE.
3. Buffer for Earnings Announcement
As strange as it sounds, I actually welcomed this correction. I do have some nervousness about ASTE's earnings report on Monday morning. If the ASTE stock was flying high above $28 and maybe even breaking $30 going into Monday, well, if the earnings announcement was anything less than spectacular, we would have seen a very strong correction downard. Even worse, if the earnings report were negative, it would have been even worse. Additionally, even if the earnings were strong, it probably would not have had a huge upward effect on the price as that event may already have been priced in. Come Monday, regardless of earnings announcement, we likely would have seen a correction upward. The market always overreacts in the short term - either too high or too low. The steep decline on Friday will likely return some of the gains it took away come next week. Plus, in the event of a bad earnings news, CAT's announcement already laid the groundwork for that possibility and subsequently priced it into ASTE's stock price.
All in all, the fundamentals have not changed; I am not further acting on ASTE until I see the earnings announcement come Monday morning. If anything, I will add to my position, but I may just hold with what I have.
As for Caterpillar, down 15% in one day...and 30% in 5 months...it could very well be a buy for the long-term. When a stock has historically delivered 10%+ annual returns and then in a short period of time like 5 months or even 1 days...gives back 1-3 years of hard earned gains, it might make sense to dive in.
Wednesday, September 6, 2006
ASTE - New Stock Pick - $24.71
Astec Industries, Inc. engages in the manufacture and marketing of road building equipment in the United States and internationally. It operates in four divisions: Asphalt, Aggregate and Mining, Mobile Asphalt Paving, and Underground.
I actually first started watching this one around $22 and initially jumped in at $23.50. But, I did not do my service to humanity and I did not post immediately as the burning bush told me to buy. But, that was like 2-3 trading days ago. Today, the stock closed at $24.71, up 5.15% on above average volume (330,000 shares vs. 3 month average of 231,000). A stock moving up on above average volume is a good thing...it typically indicates that there is more buying than selling.
This stock originally caught my attention when I noticed that on August 3, 2006, Tontine Capital Partners, which is run by Jeffrey Gendell, showed up on the insider transaction list. I know that name likely means nothing to you, but he is a tremendously successful investor and specializes in value investing. In short, he likes to buy companies when they appear to be grossly undervalued, at least in his opinion. And, at least for the positions he is required to report (owning more than 10% he has had tremendous success.
Mutual funds or independent investors typically do not like to buy more than 10% of the shares outstanding. This is because once you own 10% or more of a public company, you are required to report all of your buys and sells. This can get quite annoying and when trying to move large blocks of stock, really gives away your hand. If you own less than 10nd are not an officer or director, you can buy and sell freely without reporting. If you are a mutual fund and own less than 10%, you do have to report your position, but only every 3 months, and you do not have to disclose your individual transactions - just your overall position.
Anyway, the significance of the 10% issue is that Gendell sees a monster opportunity and not only went over the 10% mark, he continues to buy on the open market. He has reported purchases on 8/4, 8/7, 8/11, 8/17, 8/18, 8/31, and 9/1. I also would not be surprised to see that he bought more on 9/4 (today) since you have 2 trading days to report your purchases. Pretty sneaky on his part - as he bought last Thursday, but didn't tell anyone until after the market close today, allowing him to maybe pick up some more without showing his hand right away. In one month, he has bought 374,6000 shares from anywhere from $20.51-$23.58. Additionally, we have seen over 835,000 shares purchased by institutions and mutual funds during the 2nd Quarter of 2006....I am unsure how many of those are the responsibility of Gendell. We'll get a better take as to overall institutional buying come October when the funds report their 3rd Quarter activity.
Long story short.....more buyers than sellers = stock price goes up. And there is some smart money flowing into this stock.
On to the fundamentals. The company engages in the construction industry and is heaviliy involves producing industrial equipment for making, mixing, and working with asphalt cement and environmental remediation and control equipment.Both of these are huge markets and are growing.
Astec operates internationally and their product line is instrumental for the cement industry. The demand for cement is growing like crazy, both domestically and overseas, and ASTE can service both markets. This is further evidenced by the 5th largest cement company in the country and the largest American owned (this has implications), Ash Grove Cement investing over $160M in capital equipment to boost production in an Arkansas cement plant and to build a brand new plant in Nevada. Fortunately for me, Ash Grove Cement trades under the symbol ASHG and I am a long term holder and purchaser of ASHG for myself and my daughters. You can read more about ASHG in a previous blog of mine and in my stock picking group.
Anyway, back to ASTE.
ASTE is also involved in making equipment for emissions control and other environmental remediation processes. This is also a big industry and a big demand is present. There is growing national and international pressure for facilities, especially cement and asphalt facilities, to clean up their act. ASHG, for instance, is involved in many discussions about the high level of mercury emissions from their plants. Typically, ASHG just pays the fines associated with this, but there is growing pressure to address the cause of the problem and not just write checks. This environmental pressure should also play favorably into Astec's performance over the next 12-24 months.
Astec also has several other lines of business - www.astecindustries.com/companies/companies.htm
So, with all this being said, why ASTE? Aren't there other companies that make similar equipment and are in the same industry? Well, of course, but here are the facts.
1. I discussed the Gendell purchasing and track record above. That is certainly an important reason;
2. The financial metrics on this company are very attractive. There is no debt and ASTE trades at less than 1 times sales and less than 2 times book value. These are very attractive valuations. The company's sales and earnings continue to grow - 12% and 21% espectively year over year - and the company has a 14%+ return on equity. For a boring construction company, that is not bad.
3. The recent dip in the company's stock price. ASTE fell from a high of $42.25 in late April, 2006 to $19.95 just 3 months later. The reason? Despite posting 13.4%, 36.7%, and 38.2% gains in sales, net income, and backlog, respectively for the first 6 months 2006 vs. first 6 months 2005, the stock tanked 50%. Why? The company missed earnings estimates posted by the analysts. They were well off....20% less earnings than expected, but due to what the company called "certain negative events occurring at the end of the quarter that were beyond our control."
Overall, I expect demand for their products to be strong, the company to continue to post solid growth numbers for revenue and net income (at least over the next 2 years), and I expect the buying by Gendell to continue for a little while...maybe until the stock gets back to $30. These observations coupled with the apparent buying opportunity created by the stock price losing 50%+ of its value because of 'missing the estimates' should equate to a winner over the next few months and beyond. No promises, of course, but the facts look good.
I actually first started watching this one around $22 and initially jumped in at $23.50. But, I did not do my service to humanity and I did not post immediately as the burning bush told me to buy. But, that was like 2-3 trading days ago. Today, the stock closed at $24.71, up 5.15% on above average volume (330,000 shares vs. 3 month average of 231,000). A stock moving up on above average volume is a good thing...it typically indicates that there is more buying than selling.
This stock originally caught my attention when I noticed that on August 3, 2006, Tontine Capital Partners, which is run by Jeffrey Gendell, showed up on the insider transaction list. I know that name likely means nothing to you, but he is a tremendously successful investor and specializes in value investing. In short, he likes to buy companies when they appear to be grossly undervalued, at least in his opinion. And, at least for the positions he is required to report (owning more than 10% he has had tremendous success.
Mutual funds or independent investors typically do not like to buy more than 10% of the shares outstanding. This is because once you own 10% or more of a public company, you are required to report all of your buys and sells. This can get quite annoying and when trying to move large blocks of stock, really gives away your hand. If you own less than 10nd are not an officer or director, you can buy and sell freely without reporting. If you are a mutual fund and own less than 10%, you do have to report your position, but only every 3 months, and you do not have to disclose your individual transactions - just your overall position.
Anyway, the significance of the 10% issue is that Gendell sees a monster opportunity and not only went over the 10% mark, he continues to buy on the open market. He has reported purchases on 8/4, 8/7, 8/11, 8/17, 8/18, 8/31, and 9/1. I also would not be surprised to see that he bought more on 9/4 (today) since you have 2 trading days to report your purchases. Pretty sneaky on his part - as he bought last Thursday, but didn't tell anyone until after the market close today, allowing him to maybe pick up some more without showing his hand right away. In one month, he has bought 374,6000 shares from anywhere from $20.51-$23.58. Additionally, we have seen over 835,000 shares purchased by institutions and mutual funds during the 2nd Quarter of 2006....I am unsure how many of those are the responsibility of Gendell. We'll get a better take as to overall institutional buying come October when the funds report their 3rd Quarter activity.
Long story short.....more buyers than sellers = stock price goes up. And there is some smart money flowing into this stock.
On to the fundamentals. The company engages in the construction industry and is heaviliy involves producing industrial equipment for making, mixing, and working with asphalt cement and environmental remediation and control equipment.Both of these are huge markets and are growing.
Astec operates internationally and their product line is instrumental for the cement industry. The demand for cement is growing like crazy, both domestically and overseas, and ASTE can service both markets. This is further evidenced by the 5th largest cement company in the country and the largest American owned (this has implications), Ash Grove Cement investing over $160M in capital equipment to boost production in an Arkansas cement plant and to build a brand new plant in Nevada. Fortunately for me, Ash Grove Cement trades under the symbol ASHG and I am a long term holder and purchaser of ASHG for myself and my daughters. You can read more about ASHG in a previous blog of mine and in my stock picking group.
Anyway, back to ASTE.
ASTE is also involved in making equipment for emissions control and other environmental remediation processes. This is also a big industry and a big demand is present. There is growing national and international pressure for facilities, especially cement and asphalt facilities, to clean up their act. ASHG, for instance, is involved in many discussions about the high level of mercury emissions from their plants. Typically, ASHG just pays the fines associated with this, but there is growing pressure to address the cause of the problem and not just write checks. This environmental pressure should also play favorably into Astec's performance over the next 12-24 months.
Astec also has several other lines of business - www.astecindustries.com/companies/companies.htm
So, with all this being said, why ASTE? Aren't there other companies that make similar equipment and are in the same industry? Well, of course, but here are the facts.
1. I discussed the Gendell purchasing and track record above. That is certainly an important reason;
2. The financial metrics on this company are very attractive. There is no debt and ASTE trades at less than 1 times sales and less than 2 times book value. These are very attractive valuations. The company's sales and earnings continue to grow - 12% and 21% espectively year over year - and the company has a 14%+ return on equity. For a boring construction company, that is not bad.
3. The recent dip in the company's stock price. ASTE fell from a high of $42.25 in late April, 2006 to $19.95 just 3 months later. The reason? Despite posting 13.4%, 36.7%, and 38.2% gains in sales, net income, and backlog, respectively for the first 6 months 2006 vs. first 6 months 2005, the stock tanked 50%. Why? The company missed earnings estimates posted by the analysts. They were well off....20% less earnings than expected, but due to what the company called "certain negative events occurring at the end of the quarter that were beyond our control."
Overall, I expect demand for their products to be strong, the company to continue to post solid growth numbers for revenue and net income (at least over the next 2 years), and I expect the buying by Gendell to continue for a little while...maybe until the stock gets back to $30. These observations coupled with the apparent buying opportunity created by the stock price losing 50%+ of its value because of 'missing the estimates' should equate to a winner over the next few months and beyond. No promises, of course, but the facts look good.
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