Long Idea 10/13/2009

Do your own research prior to making any investment/trading decisions. Do not make any decisions based solely on the information presented below. Always assume I am biased with the information presented. I am currently long NUHC (10/14/2009).

This particular idea is not new. However I wanted to present it in a proper way, as per my previous post.

NUHC – Nu Horizons Electronics Corp

Reco: Long                Target: $6.96+           Date Recommended: 10/13/2009

DESCRIPTION
NUHC distributes high technology active and passive components (memory chips, microprocessors, consumer electronics, etc).

THE STORY

 

NUHC represents a solid reward/risk opportunity on both a fundamental and a technical level. From a fundamental standpoint the core reasoning for this trade is the closing of the spread between the book value and the market valuation. The current market price of $4.07 per share represents an approximate 47% discount to Book Value ($7.79). Digging further, if we take the Current Assets and subtract the Total Liabilities we end up with a net valuation of $129.2mm ($6.96 per share) which is a 70%+ premium to the current market capitalization of $75mm ($4.07 per share).

Quarterly cash burn is of minimal concern at the current time due to the fact that the company has enjoyed positive free cash flow for each of the previous five quarters, albeit on a nominal level. EBITDA over the trailing twelve month period totaled $(1.86)mm.

In terms of liquidity, NUHC has access to a total of approximately $150mm through various lines of credit, the bulk of which expires in 2011. To date, they have drawn approximately $22.5mm of this total. If they decide to draw a significant portion of this I would have cause to rethink my recommendation. However at the moment I remain confident that they will not require a substantial capital infusion.

EXPECTATION
 I expect the market to bring NUHC’s valuation into harmony with Book Value. If the economic recovery is real and this company is able to regain profitability then we could easily see a price-to-Book multiple in excess of 1. However the primary reasoning for this play is to see it ‘back to book’. With institutional investors representing approximately 44% of the ownership and a fairly illiquid trading pattern, I have determined my profit target to be in the $6.80 – $7.00 range to account for possible selling pressure as it approaches Book value.

RECENT HEADLINES (June 2009 to October 2009)

x. Q2 2010 Earnings
Net sales for the quarter ended August 31, 2009 were $156.6mm compared to $211.8mm last year. Net income was $0.03 per diluted share as opposed to $0.01 the year prior. However this figure includes $0.07 per share of income tax benefit so the actual results showed a loss of $0.04 per share. On a sequential basis, sales rose 6.0% QOQ with North America ($9.9mm increase; 11.9%) and Asia ($2mm increase; 4.4%) overpowering the decline in Europe ($3.1mm; -16.3%). The primary takeaways here are the QOQ growth in revenue in North America and Asia.

x. NUHC signs on to become Master Distributor for Alcatel-Lucent

x. Conexant names NUHC as exclusive distributor in North America

x. NUHC announces departure of President/CEO

 

TECHNICAL ANALYSIS

  

NUHC was in a strong downtrend from mid-2007 to December 2008 where it bottomed. Since then it has steadily risen until hitting up against ~$4.00. This level has shown itself to be significant resistance to further advancement. While $4.00 has provided steady resistance since June of this year, the support line has been trending upward from $3.00 to its current level of $4.00+, forming an ascending triangle. On the recent earnings announcement the ~$4.00 resistance was broken in a significant way ($4.10+ on a close). I suspect this NUHC gravitate toward $7.00 rather quickly, which is the most recent significant historical level of resistance and support. The great thing about this particular situation is that the fundamentals support the projected move the technicals are showing. This isn’t always the case.

 

And for your enjoyment/to welcome myself to NYC…

Quick Update

ELX rejected the $11 per share offer. Stock is taking a big hit today.

http://www.reuters.com/finance/stocks/keyDevelopments?symbol=ELX.N&timestamp=20090709135300&rpc=66

Buys

Do your own research prior to making any investment/trading decisions. Always assume I am biased through direct and/or indirect ownership in any and all names mentioned. These are not recommendations but instead points of interest you may wish to do further research on.

Into this weakness I like the following names.

MPEL

Macao gambling play. Support at ~$4… sell if it breaks. I like the prospects of this company especially for Macao exposure. As the Chinese economy goes so too will MPEL, in my opinion.

TRID

At MR10Q had ~$202m in cash with ~$55m in total liabilities. Trading at $107m market cap at the moment ($1.70). Also have other assets ~$20m. Looking for $140-$150m market cap to take profit and stop exit on break of $1.50.

ELX

Received a cash offer of $11 – trading sub-9.50 currently… something’s off about this. Looks like a decent risk/reward in my opinion as there’s an offer on the table that represents a premium of >13% from the current price ($9.35).

TBT

I’m still a huge believer in high inflation coming through the pipeline. This is an ETF that shorts long Treasuries.

And finally, a throwback interlude.

This interlude is for the start of the next swing upward that (hopefully) starts Monday.

Upside Potential

As always do your own research prior to making any investment/trading decisions.

Following are some charts of potential breakouts/high-probability long trades. Be sure to implement intelligent exit strategies as the market has seen an excellent run thus far.

On a side note, a few books I’ve recently read that I have found interesting.

Binge Trading

The New Market Wizards

Trader Vic II

Risk/Reward Play

Do your own research prior to making any investment/trading decisions.

This is a swing trade with a 4-8 week time frame based solely on a technical setup. In this particular case I’ve chosen to ignore the fundamentals (at my own peril, perhaps).

PSMT – The chart below shows significant resistance in the $15 – $16 range. There are  four periods worthy of note with each marked by a circle. The initial two represent resistance. PSMT then broke out  to the upside on increasing volume (great thing to see/be a part of). The resistance points  then became support. January and early March saw the testing of this support hold strong which is exactly what one wants to see when using support/resistance. Since the breakout PSMT has been trading in two ranges: $15 – $19 and $15 – $21. As it stands now the name is coming back down to retest support. Adding to the mix is a head-and-shoulders setup taking place from March to May.

In my opinion this provides for a buyer to initiate a position in this name in the low-$15s with a target of $19 and a stop loss/exit point of $14.50. Assuming a conservative entry of $15.50 this yields an expected reward of $3.50 with anticipated risk of $1.00. What’s great about this situation is that if your long position is proven incorrect you can play the shortside head-and-shoulders confirmation.

 

As always, enjoy the interludes…

 

Range Opportunity

Do your own research prior to making any investment/trading decisions.

GILD is offering a nice range trade. Look for stop placement around 43.25 and take profits around 47.75. While the potential reward is less than amazing this opportunity may provide some respectable short term profit while providing for relatively limited normal downside risk. If you’re looking to build a position in GILD for the long term this is a great opportunity as well. You’ll know if you’re idea is wrong somewhat quickly based on the direction of GILD’s eventual breakout/breakdown from this range.

Short Idea

As always do your own research prior to making any investment/trading decisions.

Check out the chart below. This is a solid shorting opportunity in my opinion.

 

***5/8/09 update***

The business proposal has been sidelined for the time being. I’m going to focus on working as a desk analyst/trader which is what I was doing until February.

2009: Keep On Keepin’ On

Following up on THIS ARTICLE I’m going to highlight some equity plays which I expect will provide significant outperformance. As always you must do you own research prior to making any investment/trading decisions.

2009 Top Two Picks

MPEL

Macau Gaming Play

Will all the financial troubles plaguing the domestic casino operators this company offers an international option. Already controlling a high rollers’ property in Macau (island Vegas just outside China) they are working on the ‘City of Dreams’ which will be a casino for the people. ISYN is a huge fan of this name for the remainder of 2009 and perhaps beyond. Check it out.

TBT

US Inflation Play

TBT is the ProShares UltraShort 20+ Year Treasury ETF. I am of the opinion that a steep increase in inflation is on the horizon. Economic cycles are nearly always interfered with by government and this one has been no different. The Federal Reserve has undertaken quantitative easing as well as lowered the Fed Funds rate to the range of 0-25 bps. There are always ways in which the private sector can damper the impact of actions such as these but in this case, with such large quantities of dollars being printed and spent, I expect we’ll enjoy a large increase in the rate of inflation over the next two-five years. That being said I expect institutions will start piling in to the inflation hedge trades (commodities, short Treasuries, forex, etc) over the next year as evidence begins to suggest the accuracy of this opinion (if it doesn’t disprove it first!). There are plenty of smarter men than I who have written articles on the subject of inflation and the current economic conditions – go read them. Also TBT has been consolidating nicely between $44 – $48 as the market awaits confirmation in either direction.
I’m still a fan of the Loonie (Canadian dollar) due to it’s backing by natural resources. FXC is the CurrencyShares Canadian Dollar Trust you can invest in to gain exposure.

Look for some new names over the coming weeks. And as always, please enjoy the interlude.

-ISYN

No Explanation Necessary

Following is a sharply abbreviated list of my top picks for the next few years. My expectations of forward macro trends has continued to lead me to these names for several months. A man who understands whether the tide is coming or going will never be stranded. It is always best to grasp the bigger picture while focusing on what’s in front of you. Do your own research prior to making any investment decisions.

TBT

This is an inflation hedge – it shorts some of the longer US Treasury paper.
Inflation rises, yields rise, Treasury prices decline, TBT rises.
This is my number one must-have.

MPEL

Macau-based gaming. Current focus on
high-rollers segment while expanding
into regular segment.

FXC

Long Canadian Loonie.
Different inflation hedge.

Don’t forget, there’s always a bull market somewhere.

And how could I leave you without another interlude?

This is NOT SUITABLE FOR WORK

FX Trade

Just opened another trade in my micro account.

I went long EURAUD at 1.9750 with a target of 2.0000 and stop of 1.9675. Should be a fun ride – this pair rips up and down daily.

Updates

Do your own research prior to investing/trading in any of these names. All ideas expressed here are my own opinion and should not be relied upon or taken as investment advice. Also please recognize the high level of risk present in leveraged-financial instruments and small-to-micro-capitalization stocks.

A couple names I like here are MPEL (Macau gaming) and DXO (leveraged oil).

First, I believe oil is undervalued at this level. DXO offers an excellent way to have a leveraged-long position in oil. Crude went from ~$140+ to ~$36 very quickly following a path of $140 to $70, then $70 to $36. Those are essentially the inverse of two-100% moves… 100% of 100% is a level at which I’ve been told many significant moves end. I expect the main risk here is missing upside instead of  losing on the downside.

Second, MPEL has recently come down hard and may be worth looking for the long side. This is something to think about.

Third, I made tons of green (%-wise) on the GBPUSD short and lost tons of green (%-wise) on the USDCAD short. The micro-fx experiment continues…

-ISYN

Forex Update

Added another trade. Short GBPUSD. Same applies – this is not a recommendation. These trades have already been placed and this is merely an exercise in getting to know currencies. Chart below.

Forex Trading

Thought I’d post a trade I’m currently in within a mini-forex account. We’re talking peanuts here but I wanted to get some experience trading some pairs and figuring out the various trade setups.

First – the spreads on mini accounts are HORRENDOUS… I’m paying about a 4-7 pip spread on every USDCAD trade I do… that means to hit the breakeven point I need the pair to go in my direction 4-7 pips. I don’t recommend opening a mini account for any reason other than to try out forex trading and get a feel for how the various pairs move. Second - this is a cheap way to give forex a try…. you can initiate a position in microlots of $1k. Mistakes can be made without breaking the bank. Third – forex is extremely risky. This is more to feed my curiosity and try out a new asset class than anything else. I don’t expect to see large profit from it as I’m only risking a few hundred dollars.

The following information is NOT a recommendation to trade and/or invest. This is an after/during-the-fact trade example that I thought may be helpful to some.

Now that that’s all out of the way, here is a chart of the USDCAD.

My thought process is two-fold. A fundamental argument can be made that the CAD has depreciated against the USD too much too quickly. The US is going through some economic issues that I suspect outweigh our neighbors to the North to a significant extent. They’ve also got their hands on ample quantities of natural resources which have enjoyed a very steep decline in recent months. Those resources will bottom soon if they have not already. Also I suspect some of the USD’s appreciation stems from the massive rally in Treasuries over the past month. As these positions unwind and people become less risk-averse capital should flow out from USD into other instruments.

The technical argument is a fairly strong one as far as technical analysis is concerned. The daily trend’s direction is down (which means the CAD is getting stronger against the USD). I’ve drawn in two simple trendlines to evidence this. I also completed some simple Fibonacci work using two admittedly questionable points for A and B (A = 1 thick line, B = 2 thick lines). Based on the information provided below, our resistance levels were 1.1986 and 1.2123. The (hopeful) completion of point C ended up being in between the two @ 1.2079. From there our profit points look to be 1.1719, 1.1496, and 1.1136. After factoring in the overall trend I suspect USDCAD will retest the ~1.1500 low made at the beginning of November. If things go well I’ll be taking profits in that area. If not I’ll close out the position.

 

Finally, click on the picture of the Bacon & Cheese Roll below for the ingredients/directions on how to make the best meal EVER!

DIG – Long Oil ETF

Prior to making any investment/trading decisions be sure to do your own research. Assume I’m biased via direct or indirect ownership in all ideas mentioned.

A couple points:

• The political stage has recently become further unstable due to Israel’s actions in Gaza – many large scale wars have found their origin in minor conflicts that escalate. In addition many wars have stemmed from a weak economic environment. Global economic pessimism continues to rise. War is bullish for oil.
• The oil producers are going to do anything they can (and I believe have already begun cutting production) in order to stabilize and then drive the price back up (to where, I have no clue). Humans act on incentives and the producers are incentivized to get prices back up.
• “This too shall pass” is a  phrase most of us should pay close attention to nowadays. With all the negativity out there it’s hard to believe things will get better and the global economy will get back on track. However the odds of a total meltdown are much lower than the odds of a recovery, in my opinion. With the amount of money that has been pumped into the system globally I don’t see how things won’t end up working out.

These are some very basic, logic-based points of analysis. Sometimes simplicity serves an analysis best - I believe this is one of those times.

DIG has apparently found some support on a weekly basis in the mid-twenties.

 

********ISYN is now a proponent of DXO – for any long oil plays I would use this instead.********

GBP/USD Trade Update

Here’s a review of the trade idea I had posted last week. It looked like a triple bottom/inverse H&S pattern and as such I thought a long position may be in order… I was wrong in a big way as the GBP/USD has since declined to 1.4463. Seems to me that support has been broken.

Currency Trade

Do your own research prior to placing any trades and/or investments. Assume all posts here are biased through direct and/or indirect ownership.

I don’t normally look at currencies but this little doozy caught my attention today. From ISYN’s perspective this is a strictly technical trade which is not necessarily a great reason to initiate a position. The GBP/USD seems to be sporting the makings of a triple bottom / inverse head and shoulders using the daily time frame. May be worth going long here.

 And a closer view with trendlines shows the pair has broken the 3-and 4-month resistance lines while possibly setting up a postive-trending channel… while I don’t put much stock into pure technical analysis I do see the value of reading charts to gauge sentiment flows (I’ll discuss my views on this in a later post). Obviously the GBP has found some support in the 1.47 range, if only on a temporary basis. The benefit of this particular opportunity is that you’ll have a fairly strong idea of whether you’re correct or otherwise rather quickly as the market’s support is clearly delineated.

 

I think we could all use a little bullish encore…

Treasuries

Don’t call it a comeback….

Been away for a while on vacation and since this site is a hobby and I earn zero money from it I thought I’d take a break from it as well. I’ve been watching this particular trade for a few weeks now and have discussed it with some friends who are in agreement – Treasuries are in full fear mode and will need to come back in. There’s two ways to play this via ETFs (TBT and TLT). See the charts below.

As always do your own research prior to investing in anything. Also always assume these posts are biased through direct and/or indirect ownership in the securities mentioned.

TLT has risen approximately 11% in 5 trading sessions. This ETF moves with the US long bonds. One potential trade is to short TLT which looks visually overextended. Some view the T-notes and bonds as a gauge of fear as their yields decline when fear rises causing a flight to quality, which we see here.

TLT

The second potential trade is to go long TBT which is an inverse ETF on the US long bonds.

TBT

Watch List

I should probably clarify that this watch list is very unofficial and just a collaboration of names ISYN thinks are worth watching. While the returns from open to close are realistic what happens in between is not. For instance SKF and SRS nearly hit 300 prior to coming back down and becoming profitable. That means the watch list position would have been in the red by 75/share which ISYN would not actually allow to happen because cutting your losses is essential (mental and/or real stops). Take this list for what it is, a forum for idea generation. Enjoy your turkey and pie!

 

If only it were as simple as ABC…

Update

This is ISYN’s updated watch list for opportunities. Getting crushed in the long names.

Epic Short Opportunity

Check out the charts. This is a great time to short these two names if you believe a rally is on the close horizon. Never make an investment based on what you read here – do your own research! These are now part of the watch list as of the close today.

SKF - Ultrashort Financials

 

SRS - Ultrashort Real Estate

Watch List Update: CIEN

Do your own research prior to making any investment decisions. Always assume that ISYN is biased with its analysis by way of direct or indirect ownership.

CIEN is being removed from the watch list today and ISYN will use the closing price to calculate the G/L from the transaction. CIEN is being removed because ISYN believes there are better opportunities in better industries to exploit.

Stock Series: BEAV

Do your own research prior to making any investment decisions. Always assume that ISYN is biased with its analysis by way of direct or indirect ownership.

Current ISYN Watch List

This is still lacking an industry comparison but based on the firm-specific information alone this firm is looking poised for some serious price appreciation.

REASONING
BE Aerospace Inc. presents an extremely attractive valuation at the current price level. The company is trading at 75% of its book value with increasing revenue, operating margins, and profitability in a contracting economy. These facts are more compelling when one considers that their primary business is focused on servicing/manufacturing products for the airline industry. BEAV boasts excellent debt coverage with a quick ratio of ~1.0 and enjoys a geographically-diversified revenue stream which helps mitigate the negative impact of currency fluctuations and economic slowdowns. BEAV also just received their largest contract ever from Airbus totaling $1b USD. With fuel costs decreasing drastically and the current fleet of airlines aging this is the firm to own as the world climbs out of the economic doldrums and begins to once again expand.

Company Information & Fundamentals

Stock Series: BTIM

Do your own research prior to making any investment decisions. These are names that ISYN finds compelling for a long or short entry point. The date of the inclusion on the watch list, ISYN will use the closing prices as entry points. ALWAYS ASSUME THESE ARE BIASED IDEAS AND ISYN OWNS OR KNOWS SOMEONE WHO OWNS THESE NAMES.

Watch List

Great short story in my opinion. Firm needs financing and will be out of money (by their own calculations) by the end of 2008 unless they’re able to raise capital. There’s been some positive press releases recently so the stock has enjoyed a nice bump and is approaching its six month highs. There is significant resistance up here. ISYN believes this to be a solid short entry point so we will add BTIM as a short to the watch list today, 10/29/08.

Here’s an example of a recent press release: HERE

As of 06/30/08, according to page 2 of the 10Q HERE the company has ~600k in total assets with ~2.8mm in current liabilities… spells disaster, no? The only way this firm survives is through an acquisition, merger, or capital injection/financing of some sort. The odds of BTIM receiving this are minimal due, in ISYN’s opinion, to extreme weakness in their product pipeline.

BTIM

-ISYN

Basing & Breakout Time!

Current Watch List

AAPL

MPEL

CIEN

We’ve enjoyed some sideways stability for a few days now as many names begin to form some bases and/or break out of previous downtrends. This is further evidence of bullish momentum and the above names are interesting to look at.

-ISYN

Current Watch List

Current Watch List

Long Ideas cont…

CURRENT WATCH LIST (entry)
YHOO ($12.99)
GU ($3.25)
CIEN (today)
MPEL (today)
QLD (today)
AAPL (today)
GOOG (today)

NEW ADDITIONS
_________________________________________

CIEN

CIEN

Reasoning: These monsters have tons of cash and great debt coverage with a high level of valuation appeal.

Cash, equivalents, and ST investments = ~$1.0b as of 07/31/08
Market Cap currently = ~$825mm as of 10/27/08

All this with positive net income… given sales are declining – the name is discounted for a reason. However this looks to ISYN like a solid acquisition candidate and at the very least you won’t have to worry about it going bankrupt for a while.

MPEL

MPEL

Reasoning: Macau casino owner. Caters to highest net worth individuals so all the “Visa travel issues”
plaguing other companies won’t have an immediate material impact on these guys. Also owners (Ho family)
are extremely well-connected to politics and the whole government process. Very attractive valuation.

QLD

QLD - Nasdaq Ultralong ETF

Reasoning: I believe we’re in for what Fly would call a Zeus Rally due to my reasoning set forth in the ISYN articles from last week. The domestic equity markets require a rebound of some sort. Everyone is looking for a reason good enough to justify a full-fledged long-entry assault or to bail completely and wait until 2009 to resume operations. There is so much cash on the sidelines right now that the past few days of relative stability will nudge some of this cash back into the water…. albeit maybe on a toe-by-toe basis to see how cold it is.

GOOG

GOOG

AAPL

AAPL

For information on GOOG/AAPL trades check out THIS POST from RaginCajun.

Do your own research prior to making any investment decisions. These are names that ISYN finds intriguing for a long entry point as noted in the prior post HERE. Today’s closing prices will be taken as entry points. ALWAYS ASSUME THESE ARE BIASED IDEAS.

AAPL / GOOG

Two names that have been beaten down significantly but continue to have extremely solid prospects. Looks like a solid entry on the long side. The idea for the trade came from THIS ARTICLE.

AAPL

GOOG

ISYN will be using today’s closing price for tracking purposes. This is a trade based solely on quality of the companies involved and the severe price depreciation in the stocks.

Entry Price: (receive at close)

Names To Watch

These tickers present some very strong risk/reward profiles in ISYN’s opinion -> 6-9 month time frame for the individual companies and 1-3 month time frame for the ETFs.

Individual Companies
CIEN, MPEL, YHOO
ETFs
QLD, SSO, UUP

GU Update

Until the fraud allegations are cleared up ISYN is going to stop tracking GU. Today’s closing price will be the price used to calculate the loss.

Can someone who reads Chinese please translate the gist of this article or tell me of a place to do the translation…. apparently it details GU’s accounting fraud.

http://finance.sina.com.cn/g/20080924/03002438842.shtml

Updates (ELN, YHOO, GU)

ELN UPDATE: Market apparently does not like outlook for the company. I’m sticking with it – long idea still valid as spec play.

ELN
ELN earnings came out and the market seems to like what they saw. Current bid @ 8:20am is showing 8.18 per share or $0.36 above yesterday’s close of $7.82. This of course is WAY below the price of $9.08 ISYN decided to watch at for the earnings play. Fair enough. With the growth in Tysabri sales to $237mm in in-market sales globally ISYN still believes there is some value in a longer term holding (albeit as a minor position and a purely speculative drug play).
YHOO
ISYN still likes this and believes you won’t be punished for holding this six months out. Could be wrong but we think we’re right. If YHOO received a new offer that was lowered from $33 to half that ($16 or so) – you’re still making bank.

GU
No legitimate updates except a new variable has been thrown into the mix. I have yet to be able to confirm or deny this rumor but there’s discussion of fraudulent accounting practices with GU – mainly in terms of their input cost of vegetable oil. Apparently (and again, I haven’t seen the article yet) a reporter in China wrote up an article stating that the company has been lying. I’ll let you know when I know.

Looks like another tough start for the market today. ISYN stands behind the article it wrote yesterday about exposing yourself to the market here and now. We may be early but with an S&P that is now discounted ~40% from it’s peak (it was around 34-35% when ISYN published the article) we believe now is the time to start accumulating solid companies with strong cash positions and operating cash flow. You have to be selective.

-ISYN

Stock Series: Elan Plc (ELN)

This is the third in a series of posts which will be focused on stock picks on a long/short basis which ISYN will track the performance of. This will not be actively managed and each idea will be independent of the others – no portfolio construction, etc. I will use the closing price of the day a pick is recommended.

Do your own research prior to investing in any stocks mentioned here. Always assume ISYN is biased via direct or indirect ownership in the companies mentioned.

Click HERE for a webcast of an ELN presentation at Natixis’ Hidden Gems Conference. Following are some of the key parts of the webcast as provided by the CEO (so it’s obviously biased).

Debt Coverage

• Creditors confident in cash flow and debt coverage ability
• 1st debt maturity 2011, 2nd is 2013 (2 fixed and 2 floaters)
• LIBOR rates (if remaining high) could have negative impact

Tysabri

• every 10,000 patients is roughly $100mm in EBITDA
• In the 1st six months of 2008, Tysabri enjoyed a patient increase of ~10,000
• Q308 earnings announcement on Thursday, October 23 – expected to announce patient and doctor increases in Tysabri
• Goal: 100,000 patients on Tysabri by 2010
• large debate on the safety of drugs (see HERE and HERE)

MS Market

• 4 main therapies other than Tysabri
• Relapse reduction rate in mid-20s to low-30s, Tysabri in high 60s
• New drug pressure coming on from competitors

Very risky but it may be worth the earnings play on the long side. It would seem to me that expectations are fairly low for this firm going forward. After a decline from $36 to $10 any sort of positive news or insight should provide a ST boost. This is a ST trade and extremely risky so tread lightly. While listening to the call it sounded like the CEO was frustrated with the investment community (who happens to be frustrated with him as well). This could be a positive sign – as in the “I know the results are legit why don’t you get this?!?!” type of way. The other argument could be that ELN is toast. Again, very spec play and probably not the play to throw up a hail mary on.

Entry Price: (today’s close) $9.06

Stock Series: Gushan Environmental (GU)

This is the second in a series of posts which will be focused on stock picks on a long/short basis which ISYN will track the performance of. This will not be actively managed and each idea will be independent of the others – no portfolio construction, etc. I will use the closing price of the day a pick is recommended.

Do your own research prior to investing in any stocks mentioned here. Always assume ISYN is biased via direct or indirect ownership in the companies mentioned.

***NOTE THIS HAS BEEN WITHDRAWN FROM THE WATCH LIST DUE TO UNCERTAINTY REGARDING ACCOUNTING PRACTICES***

Gushan Environmental Energy Limited (GU)

Current capacity of 290,000 tons is expected to increase to 400,000 tons in Q408 through the construction of two additional production facilities and a ramp up in production capacity at a pre-existing facility. In addition GU has expectations of adding an additional 200,000 tons of capacity throughout 2009. Using what I expect to be an extremely conservative estimate for the price per ton of biodiesel ($435pt or ~50% of Q208 price) I derive FY09 revenue of $172mm with operating income of $57mm. GU is currently trading at less than 6x forward estimated operating income. In addition their debt coverage is exceptional and their margins are strong. I suspect with China’s pollution issues we should see more of a transition to biofuels such as GU produces.

Description

Gushan Environmental Energy Limited produces biodiesel and by-products of biodiesel.

Q208 Highlights

• Revenues increased 52% YOY and 20% QOQ to $58.3mm
• Gross Profit increased 43.8% YOY and 18.5% QOQ to $24.1mm
• Income from Operations increased 29.4% YOY and 8.3% QOQ to $19.3mm
• Biodiesel sales volume rose 21.8% YOY and 15.8% QOQ to 59,921 tons
• Selling price of biodiesel increased by 33.5% YOY and 7.6% QOQ to $865/ton

Fundamentals

LF = latest filing LY = EOY 2007

Liquidity
LF Quick Ratio 7.8
LF Cash Ratio 7.6

Profitability
LF Gross Margin 41.3%
LY Gross Margin 43.8%
LF Operating Margin 33.2%
LY Operating Margin 39.1%

Gushan Environmental

Entry Price: (receive at close) $3.25

-ISYN

Stock Series: Yahoo! (YHOO)

This is the first in a series of posts which will be focused on stock picks on a long/short basis which ISYN will track the performance of. This will not be actively managed and each idea will be independent of the others – no portfolio construction, etc. I will use the closing price of the day a pick is recommended.

Do your own research prior to investing in any stocks mentioned here. Always assume ISYN is biased via direct or indirect ownership in the companies mentioned.

YHOO
Whether or not the statement made today by Microsoft CEO Ballmer holds any weight Yahoo! (YHOO) is looking very attractive at these levels. A few things to consider.

General Reasons
Oversold market; fair earnings power with excellent debt coverage; acquisition target within previous six months at price > 50% today’s price; huge online significance

Points of Interest
*Trading at ~6x cash & ST debt securities
~18b USD market cap
~3b USD in cash & ST debt securities
*Carl Icahn sits on the Yahoo! board now and was a proponent of the initial buyout offer
*I believe that an economic slowdown will have a relatively muted impact on virtual businesses compared to physical ones
*As recent as June MSFT offered $33 per share… discount YHOO back to $18-20 (where it traded just prior to the offer) from $30 , then discount in an economic slowdown (choose your rate) and we’re still looking at $13 being a steal
*It’s doubtful anyone would disagree with the macro assumption that online/virtual businesses or extensions of businesses are the future. Name recognition is essential (think of it like ‘location location location’) and Yahoo! is one of the best recognized names on the internet.
*I know GOOG is trading at a better P/E but fundamental comparisons at this juncture in time are essentially worthless with the massive and reckless selling occurring in many tech names.

YHOO

Entry Price: $12.99

Playing The Earnings Season v.Q308

The recent rally was a knee jerk reaction I alluded to in a previously posting HERE and will be short-lived. I believe this because earnings estimates are almost surely elevated to unrealistic levels. So here’s how I recommend one plays this round of Earnings Season v.Q308.

1. Develop a list of names by running an equity screen for certain fundamental characteristics you deem important. Right now cash is king so a well-capitalized firm with solid debt coverage ratios and low valuations should do you good.
2. Determine if you like the industries the companies are in or if you feel the current valuations are discounted enough to provide for any decline in sales/profitability due to a declining economic environment.
3. Find out when the companies mentioned have their conference calls to discuss quarterly results and listen to the call (NOTE: the Q&A session will typically provide the most insight).
4. If everything checks out and earnings surprises are negative as I anticipate you should be able to acquire shares on the cheap in the names you believe will lead the charge out of the depths (or at least survive/hold up in the chaotic environment).

Now some notes of interest to bring us all up to speed. Typically small cap stocks are the front-runners of an economic recovery. Therefore we’ll be paying close attention to this market capitalization (with some discretion). I’ve run a screen on a list of names that may provide some solid entry opportunities once we see how they’ve performed this past quarter as well as hear their outlook for the rest of the year and into 2009.

My example of a screen was to find small cap stocks which have strong debt coverage and positive cash flow from operations. By nature small cap stocks are more risky than others. Keep in mind there’s a reason all of these names are so discounted – odds are it has to do with the ongoing outlook for the firms. Tread lightly as you seek out your own list of names.

1. $300mm <   Market Cap <  $5b
2. Cash Ratio (latest filing) > 2.0
3. Quick Ratio (latest filing) > 2.5
4. Free Cash Flow (TTM) > $50mm
5. P/E < 10.0
6. Market Cap/FCF (TTM) < 10.0

Results: ISIL, ELX, ARLP, MRX, CIEN, CRDN, ADCT, KG, TRA, ELNK

These are stocks that I will be watching during earnings season and depending on how the conference calls go and the market’s reaction will determine which, if any, are worth acquiring shares in. I will be revisiting this post/topic to follow through with an update on my opinions of these names.

(SFI) High Risk – Huge Reward

SFI (iStar Financial) has stated that they while they will not be paying their Q308 dividend they will be paying out 90% of their annual taxable income to shareholders in the form of a Q408 dividend. This could be well worth the risk of owning this company as their share price is sub-$1.30. Any dividend of even nominal size will provide an excellent yield.

This is a short-term trade and the long-term viability of this company, as per this analysis, remains unknown and irrelevant. Going long SFI for the dividend and then selling may prove a prudent move. There is a risk of bankruptcy.

-ISYN