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Showing posts with label Stock Analysis. Show all posts
Showing posts with label Stock Analysis. Show all posts

November 21, 2023

EV Charging Stocks Short Thesis

I've been looking at a lot of potential sectors and stocks for short opportunities the past few months. I've been trading in and out of EV charging companies put options on stocks like Chargepoint CHPT, Blink BLNK and EVgo EVGO. The big picture on it is the EV market sentiment has readjusted to reality and peak EV hype is down now.

Another major factor is Tesla has a position in the EV charging space with their own charging stations and continue to get more major car manufacturers to sign on. This I believe was a big blow to these much smaller EV charging stocks that I mentioned. I don't see how these companies will compete with Tesla chargers if Tesla decides to try and corner the market. The stock prices continue to fall monthly making equity raises less and less helpful. Evgo EVGO was able to raise some capital recently. The cash burn is significant with them and BLNK. I recently added more BLNK puts and now have put options of various strikes as far out as January 21st.

The cracks are now starting to emerge in the industry as Chargepoint's CHPT CEO and CFO both announced their resignation on the same day as revenue forecast was slashed! Here is an article. Apparently, Chargepoint is "the leader" in this space which is sure something telling.

I got this graph from another account on Twitter that highlights cash burn at Chargepoint and EVgo. The recent overall stock market rally has caused minor rallies in BLNK and EVGO stocks that I see as better prices for long dated puts. There has been a turn in the press and I'm seeing negative press on these chargers. The Wallstreet Journal had an article a week ago on how the stations are not working.

















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Disclosure: I am long put options in CHPT BLNK EVGO and will continue to add more.

August 5, 2023

Spok Holdings (SPOK): Healthcare IT Company With a 9% Dividend Yield



















Spok (SPOK) provides healthcare communication solutions in the United States, Europe, Canada, Australia, Asia, and the Middle East. They offer subscriptions to one and two-way messaging services, voicemail, and equipment loss or maintenance protection services. They serve over 2,200 health care facilities and 83% of their revenue is re-occurring in nature. The current market cap is $271 million with the stock price at $13.60 a share.

Valuation and Metrics

The trailing twelve month PE ratio is 8. Price to sales ratio is around 2. I find this to be a compelling valuation in the current market. Free cash flow has been positive since 2019, except for 2021 which was driven by unusually large capex.

The company has been profitable since the second quarter of 2022. In 2019 to 2021 net income was negative. I didn't look at any years before 2019. Return on equity has been trending upward the past few years. The current ROE is 13% for Q2 2023.

Strong Dividend History

From 2018 to 2021 the company payed $.50 in dividends per share. In 2022 the dividend was raised to $1.25 per share.

In the years prior to 2018 the company made a total of $467 million in dividend payments.

The current quarterly payments are $.3125 per share. With the stock at $13.60 a share the dividend yield is 9% well above the risk free rate.

In addition to shareholder friendly dividends the company also has a history of returning value through share repurchases. In 2018 and 2019 they spent a combined $40 million on sharebuybacks.

Industry Long-term Outlook

The prospects for health IT is strong.

Gobal healthcare information system market size was valued at USD 406.4 billion in 2022 and is expected to expand at a compound annual growth rate (CAGR) of 13.3% from 2023 to 2030. Rise in healthcare expenditure and advancements in its IT infrastructure are some of the primary drivers boosting the market. High demand for remote patient monitoring is also significantly driving its adoption rate.
source: https://www.grandviewresearch.com/industry-analysis/healthcare-information-system-market

Other sources share similar growth rates. While the company has not experienced rapidly growing sales the industry growth does provide good defensive stability. The nature of the business doesn't require large debt loads and margins are healthy and stable. This lends to the prospect of meeting future dividend payments.

Technical Analysis

The stock price has been uptrending since the summer of 2022. It formed a base and recently broke out to a new 52 week high on earnings.













It has good short-term technicals with a clean bull flag on the daily chart highlighted in red.
















If you like this keep it simple analysis be sure to subscribe to my free Substack where I do analysis on deep value stocks trading below net tangible and net current asset value.





Full disclosure: I have no position at the time of writing. I many take a long position in the future.

July 30, 2023

More Fast Growing Technology Companies

Yalla Group (YALA) is a middle eastern social networking and entertainment platform primarily in the Middle East and North Africa region. It's a $872 million company and a fast grower. The previous 5 year sales compound annual growth rate was 24%. The trailing twelve month gross margin was 62%. Trailing twelve month net profit margin is roughly 18%.

They have been free cash flow positive for the last four years. In 2022 free cash flow came in at a robust $103 million. 2021 had $142 mil in free cash flow, 2020 saw $64 mil.

Yalla is trading at 12 times earnings with forward growth forecasted significantly higher.

The price action is resembling the overall Chinese stock market. It just broke over a resistance level.

The technicals combined with valuation, fundamentals and recent strength in China make this a good long watch.















Nerdy, Inc. (NRDY) an $811 million company in the online education industry that utilizes AI. The companies CEO is the founder. Revenue is forecasted to grow 29%. Earnings are estimated to turn to profitablity next year.

On the balance sheet current ratio is 3. The largest mutual fund holder is Franklin Strategic Series-Franklin Small Cap Growth Fund. Goldman Sachs, Vanguard Group and Blackrock all hold over 2% of the stock each.

April 13, 2023

Quality High Yield Dividend ETF's and Stocks

how to invest in dividend stocks for high yield










How To Invest In Dividend Stocks For High Yield

With high inflation the search for yield protecting from inflation becomes more challenging. Everyone knows about bonds but I'd like to dive into some vehicles I believe have a good shot to beat the risk free rate.

Marc Lichtenfeld's book Get Rich with Dividends: A Proven System for Earning Double-Digit Returns really opened my eyes to the possible returns from the right dividend stocks. I had read of famous portfolio manager Peter Lynch's study on an all stock retirement portfolio beating any bond portfolio. I was just naturally inclined to view equities as riskier than bonds though.

I now conceptualize a diversified equity portfolio as equal or superior to bonds. Not that there is never a place for bonds but with smart stock selection I think there is edge in dividend stocks. I am going to touch on some interesting dividend ETF's and a stock with a stable history of dividends. I like to invest for quality and above average yield and steady returns.

The first high yield ETF we will look at also has the highest yield at a 19% dividend yield paid monthly. Cornerstone Strategic Value Fund (CLM) is a $1.6 billion closed end fund started in 1987 with diversified assets. By diversified I mean everything practically. From large-cap tech, healthcare, energy, MLP's, foreign equity, and other ETFs. Ten year total returns have been pretty much on par with the S&P 500 index. It underperformed the S&P by about 1%. CLM's management was smart to be overweight tech going into 2023.

Highland Global Allocation Fund (HGLB) is the next ETF with an 11% dividend yield payed monthly. 10 year returns were 5.3%. It is a discretionary fund designed to have low correlation to the U.S. equity market and they have done well with that objective. It holds an unconventional portfolio of equities and debt. One of it's largest holdings is communications company TerreStar Corp. via their stock and debt. They also have a variety of REIT's, MLP's, energy warrants, utilities, sovereign debt and preferred stock.

High Income Securities Fund (PCF) has a long track record having started in 1987 and sports an 11% dividend yield paid monthly. The share price has had very low volatility since it started and 10 year returns at 5%. It primarily invests in discounted closed end funds. It holds an extrememly diversified portfolio with 57% of assets in funds, 20% in preferred stocks and 16% in business develpment companies. It holds a whopping total of 45 closed end funds from global equity to corporate bonds. It also holds some RETI's and a steel company preferred Steel Partners. It has some minor allocattion in other sectors. Though the long-term returns are nothing overly impressive I like the share price stability over the years and consistent dividend.

Ternium S.A. (TX) is an $8 billion steel company that sells steel in many Latin American countries and the U.S. It has a 7% dividend yield and the stock has returned 13% over the last 10 years. Free cash flow has been stable and has even grown since 2019. Total shares outstanding has been unchanged at 1.9 million over the last 4 years. They have payed dividends since the 1990s and increased the dividend since the late 90s.

I believe these ideas can provide some high grade unconventional diversification to an income portfolio. I also highly recommend the Lichtenfeld for learning how to invest in high yield dividend stocks.

September 4, 2022

Long and Shorts Continue To Work

It sure has been awhile since I posted here. I've been busy with daytrading full-time. I continue to be amazed at how many long biased traders there are along with stocks running up staggering amounts. This past week we saw the IPO frenzy long and short. I've been shorting IPOS like FRZA and longing bounces on ones like PXMD. There is never a lack of opportunity long or short in this market. It's such a bullish market at times stocks with high short interest and 30% of the float short or more have been squeezing. Stocks like APRN FAZE VERU. FAZE might just run again. You can also find easy opportunity on the short side shorting multi-day breakdowns on stocks like PETQ YSG. There are crazy supernovas to short like NERV recently as well. I recently started using Tradersync.com to track and analyze my trades. I have found a lot of success trading Crude Oil long and short with options and stock via USO. It trades well off technicals in trends.

I recommend Tradersync if you are investing even as it tracks your performance. The other popular one is Tradervue. You can just save your trades from your broker with a couple clicks and upload directly to Tradersync or Tradervue.

On the long side CLAR stock dropped over 40% on no news or catalyst. Management came out with a statement that they intend to buy back stock. I see some rotation into fertilizer plays like LXU CF BIOX now. I like the fundamentals on NU going forward. Looks like they will grow earnings very well.

August 12, 2021

TLT Short Setup

Long-term T-bonds look like a top was in. It did a technical top formation and took out support. They have just rebounded and kissed right off the old support line that is now resistance. Very text book action going on here. The fundamentals are when rates go up bonds go down and it looks like that is going to play out if the FED is forced into a corner with rates because of inflation. I think shorting bonds is a good play here. I am looking at the TBT ETF.
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January 7, 2020

Net Tangible Asset Play AQMS

I found AQMS Aqua Metals in a scan. I calculated rough net tangible asset value at $51.8 mil. The current market cap is $46. Looks like a property fire beat it down quickly but it was down regardless. Balance sheet looks ok. Current ratio is above 1. Seeing revenue guidance from Zacks and Yahoo at $39 mil to $42 mil next year. Up from about $5 mil this year. Earnings misses are narrowing. Seeing 1 or 2 analysts. It is not profitable but it's trying to bottom out here. A clear bull flag off unusual high volume the other day.

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October 5, 2019

Coffee Holding Company (JVA) Deep Value Play

Coffee Holding (JVA) is back around deep value territory after spiking to $7 a share earlier in the year. It's now below $4 a share and I calculated net tangible asset value at $21 million or about $3.77 a share. Net current asset value is not much lower at $18.7 million or $3.35 a share. To me $3.35 to $3.77 roughly is the floor for the stock at such a discount. It's a crazy discount because this company is profitable, growing and in a good industry. I have a small position and will be adding if it continues to dip below NTAV and NCAV.

November 10, 2016

This Is Sector Rotation

The sector rotation is going out of big tech and into financials, healthcare, possibly defense and transportation. This is essentially a strong bull market move. It's interesting tech is not leading the way but people are obviously positioning for the presidency and congress. I was wondering if the fall in tech had something to do with possible tariffs coming on tech companies in Asia if we start taxing China. I think it might have something to do with that but its just capital going from one sector to others here regardless.

The call I made here on the blog to buy biotech and financials was pretty epic the other day. Biotech is outperforming big-time. The other macro thing going on here is long term US treasuries are continuing to crash. Ticker TBT is the way to go as I have been talking about here for some time.

After surveying some scans and putting things together I have a great watchlist. I really like this small-cap Scorpio Bulkers SALT. It's a shipper. Breakout on trend on high unusual volume, earnings guidance is trending up and is improving. "I have to be able to draw it in crayon" -Peter Lynch

HEAR needs 1.45 to start to clear this long flag.

On the short side I like HADV EA GORO short. From Twitter Marc Lehman ‏@markflowchatter Sell side desk indicating 2 leading $EA titles are being discounted 40% at Target and Walmart = slow pre orders for holiday sales

November 9, 2016

Net Current Asset Stock STLY

Stanley Furniture (STLY) is a well known brand in the furniture industry. With the stock just around a $1.00 a share it's below net current asset value or quick liquidation value. Because a lot of their assets are in furniture inventory this isn't a true "liquidation" value. The margin of safety would peg the stock much lower than net current assets. This is still a compelling net-net. It is a good one I believe if only because it is not a perennial one. Net current asset stocks that suddenly become this cheap that are retail with a good brand name often work out.

Net current assets are 19.2 mil. Market cap is 16 mil. I read the last quarterly and its just not being managed well. They have some apparently short-term supply chain issues. It's a decent net-net especially if they can turn it around any. Things are going poorly at the moment. They have cashed out life insurance policies to raise cash. This is as much a turnaround play as a value play. That's something to keep in mind.

September 29, 2016

PSG Ripe for a Short

This company Performance Sports Group ticker PSG has run up 100% in less than 30 days from $1 and change to $4.00 a share. It appears the main driver of this huge run is that it is in such a poor financial position it got an extension on a loan agreement. This is from another article,

Shares of Performance Sports Group (PSG) were surging 29.44% to $2.33 on heavy trading volume late Friday morning as the sports equipment maker nears a deal to receive a 60-day extension to meet its loan covenants, sources told the New York Post. If the Exeter, NH-based company fails to reach such a deal, it will reportedly default on August 29 and consequently become vulnerable to creditor action. Certain creditors hope to swap their debt for equity and assume control of the business, the Post reports.

A quick peek reveals it doesn't seem to be going well financially for the company. I ask myself is a move from $1.80 to $4 logical given what I see here. I think this run-up is overdone. Technically, it has printed a couple doji candles back to back and the last two trading days have been red. It looks ready to roll over if $3.88 fails to hold. I have a stop order to short sell PSG at $3.87.

September 2, 2016

Short Setup On NTP

Recently, I came across a familiar chart pattern in the stock NTP. It shows a long period of normal, light daily trading volume. We can see roughly two weeks ago the stock surged much higher on unusual volume. The unusual volume continued everyday as the stock continued to run. The daily candle's representing each trading day became shorter the past few days. These are doji candles. Doji candles indicate uncertainty and often are the beginning of a trend reversal. In the case of NTP this reversal could be down. This kind of enormous unusual buy volume always gets exhausted. It can't keep up for weeks. This stock looks overbought. I see it going lower in the short-term.

Initially, I only noticed the chart but digging deeper into the company I discovered this is a Chinese company. There was some news before the move up about a share buyback. I couldn't find any other substantive news on the stock around the beginning of the run.



Full Disclosure: I have a short position in NTP

May 9, 2016

Pet Stocks Make the Portfolio Purrr, More BUFF FRPT

You might remember my article on two great pet companies from last year. The two pet companies I looked at in that article were PETS and WOOF. Both have done very well. PETS just reported earnings, beat the street and boosted the dividend. The stock just broke out over $20. WOOF is on a run to. I continue to believe this industry is a great long-term play. It's non-cyclical. Just look at the numbers in that BLS report in the article above. Some things worth repeating.

In 2011, households spent more on their pets annually than they spent on alcohol ($456), residential landline phone bills ($381), or men and boys clothing ($404).

Despite the recession, families continued to spend consistently on their pets between 2007 and 2011. Spending on pets stayed close to 1 percent of total expenditures per household, despite the recession that occurred during this time.

Spending on pet food stayed constant or increased during the recession, even while spending at restaurants fell. Married couples without children living at home spent the most on their pets out of any household configuration in 2011.

Blue Buffalo Pet Products (BUFF) is another good one in this business. Revenue growth is great and there is $129 million in free cash flow. The valuation is fair considering their growth. It ain't cheap but its growth at a reasonable price. The PEG ratio is about 1.6 and earnings forecasts have consistently been getting bumped higher. They report earnings tomorrow on the 10th. This is one to keep an eye on.

As more of a distressed play we have FreshPet (FRPT). This one has been beaten down for awhile. However, the analyst consensus is they will be swinging into profitability next year. I've seen the brand in Walmart so they have a fair chance at success.

I really hope the stock market has a semi-crash this year so I can buy a basket of all these pet stocks and any profitable pet or veterinary related company.

February 16, 2016

Jones Soda JSDA

While looking through a stock scanner for stocks showing high buy volume spikes I came across a familiar name. Jones Soda (JSDA) has been around a long time and even have their products in my local high end grocery store Harris Teeter. It's been almost forgot now though and trades on the OTC with other penny stocks at just $.51 a share. It bottomed out lately at about $.30 a share. Average daily trading volume on JSDA is 85,000 shares. It traded 1.5 million shares Friday!

This is a $21 million company. Looking at the balance sheet everything is fine. No long-term debt and a 1.5 current ratio. Hardly your typical penny stock. Something must be wrong. Yes, revenues have been flat to down the past couple years. Gross margins are stable now though. I think this is one of those companies where expectations are so bleak that anything positive boosts the stock. I see that likely hood a lot more than I see the revenue and earnings getting worse. With the balance sheet the way it is they have plenty of time to get it together. Technically, the stock has bottomed. It looks like a high bull flag going on here. If it breaks over $.56 again it's off to the races.

February 3, 2016

A Good Resource

Some of you may have heard about the Valeant Pharma (VRX) news story awhile back. The company was doing some suspicious things and Citron called them out on it. Their report opened up the doors for further investigations. Citron Research does analysis from frauds to simple shorts on overvaluation. There is a short bias tilt. Anyway, be it something fraudulent or just a simple possible short people give Citron attention. That in itself has debatably triggered bear raids on lower volume names. Even larger volume large-cap stocks can see bearish action.

Their newest article is on Monster Beverage (MNST). No big smoking gun here. Just simple overvaluation. The stock looks a little expensive. The entire case is in this article here on Monster Beverage (MNST).

December 2, 2015

MSN and JVA Revisited

I quickly went through a net current asset stock screen. There is not much out there to no surprise. There are a few though that have potential. I've been blogging on them some. The SORL, the SPU. I've blogged about these two deep value stocks a lot in the past. First up is Emerson Radio (MSN)and it has always been around net current asset value and profitable. I took a look at Emerson again and this is what I see currently. I see cash on the balance sheet stable the past year. It is actually marginally up from last year. Cash is 28.1 million. There is zero long-term debt. Total liabilities are just 3.9 million. So net cash is roughly $24 million. The market capitalization of the company is $27 million. So it is right around net cash with the stock at 1.01 per share. I don't think it is any coincidence the stock has bottomed out and found support around 1.00 the past couple years. You can see that here in this chart below.










They squeaked out a small profit last quarter though revenue doesn't look good. Who knows what is to come. I am going to put a limit order to buy some shares around 1.11 or lower. If the price drops below .90 the thesis doesn't work anymore and I'll take the loss.

Coffee Holding JVA is very close to being a net current asset stock. It's been a net tangible asset value stock for awhile. The price has just been in free fall this year. It appears technically it could be bottoming. I hope it keeps dropping though. I see this as the best net current asset value if we get there. It almost got there in early October this year in the 3.80s. That was the bottom though and it got picked up on strong buy volume. This one really just needs an activist investor I think. Something like that. I don't know a whole lot about this company but wholesale coffee can be consistently profitable.

September 10, 2015

Video Blog #2




This is my second video blog ever. The first one I posted on my other blog . I was looking for a good desktop recording software and ran across this one called HyperCam. I'm still working out some bugs with the audio to video sync. I forgot to mention the rounding top that Under Armor has. In the video I discuss my UA short and look at crude oil and natural gas. Which way will crude go from here? Watch and find out.

August 6, 2015

Lands End (LE) Fashion at Clearance Prices

Lands End ticker symbol (LE) has been selling clothes for decades. I remember distinctly the catalogs they mailed out in the 90s. I may have even had a jacket or shirt I got from Lands End back then. Not long ago the company was spun off from Sears. The apparel industry is a highly competitive industry. They have been around in one form or another since the 1960s no less. The company was founded in 1963 by Gary Comer in Chicago. They started out selling sailboat equipment. I imagine they will be around in another decade.

The first thing I noticed about Lands End currently is the price to earnings multiple is pretty low. The PE is 15. The very next thing I did is look at the yearly cash flow statement. There was $211 million in cash flow from operating activities. There was $16 million in capital expenditures.  I take 211 minus 16 and we get $195 million in free cash flow. Free cash flow is the money the company has left over after it pays bills. They can either re-invest it in the business or return money to shareholders.  It is always good to see robust free cash flow numbers. I'm about to run one more calculation and we are about to discover just how cheap Lands End really is.

The market cap of the company currently is $762 million. That number divided by the $195 in free cash flow give us a price to free cash flow multiple of 3.9. So the price to free cash flow of Lands End is about 4. Wow! Just wow. That is a super low multiple for a company like this. A lot of investors will actually put a lot more weight on cash flow figures. Some people run extensive spreadsheets that do discount free cash flow projections. With these kind of low valuations I wouldn't be surprised if a Lands End file isn't being emailed around the office of some private equity or one of Lands Ends competitors. I'm not saying there is or will be I just could imagine it.

So I saw this valuation and kept looking around the financials expecting to see a company on the brink of destruction. Earnings are down recently and earnings guidance is down from $2.00 to $1.46 per share. Pretty bad but how bad? I looked at the income statement again. I looked at sales over the past couple years. The past couple of years had flat sales growth. Sales were almost exactly the same as last year. Net income is flat too. This isn't great but they are holding in there. It's almost a billion dollar company too. It's harder to grow sales fast at giant companies.

I read about their customer base. "We believe our customer base consists primarily of affluent, college-educated, professional and style-conscious women and men. In fiscal 2014 our customers had average household income of $105,000 and approximately 42% of our customers were within the 35-54 age group. "

Looking at more valuations and ratios we have a price to sales ratio of .48. Obsurd. We have return on equity of 17%. A return on equity over 10% is very good. Pushing 20% we have a one of a kind golden business. If they can do 17% ROE in a mediocre year they can do 19-20%. A solid return on equity is meaningless, however, if low debt levels are not maintained. You will see high ROE numbers in a lot of industries like auto's and manufacturing but they blow up huge debt bubbles. Lands End's liabilities are stable. Long-term debt is actually down some even this quarter. Long-term debt is down $4 million since Aug 2014. They do carry a lot of debt with debt to equity around 1 but this debt is manageable. Lands End also has $181 million in cash on the balance sheet.

Trying to do a relative valuation is a little pointless. Some companies in this industry do well and have high valuations. Some do poorly and have low valuations. The industry is so competitive I'm not sure looking at other companies helps. I looked at a few though. Companies doing well like Under Armour (UA) has a PE ratio of 90! It has a price to sales ratio of 6. I think Columbia Sportswear (COLM) is pretty apples to apples with Lands End. Columbia has a price to sales ratio of 2 and PE ratio of 30.

The bottom line is will these bad results Lands End has been experiencing lately with sales continue? I don't think the valuation makes since. If sales improve just marginally the valuation could be 20,25 times earnings easily. This is the kind of company that can fetch a 20 PE in a bull market easily. So the way I look at it is over the next few years if things are going well for the company earnings could be $2.00 a share. The stock could be $40 to $50 a share and the compounded yearly return from the current stock price of $23 to $40 or $50 is worth it. There is a brand "moat" in this one and I see them defending the castle through this battle.

August 4, 2015

Net Net SORL Is Cheap

I've made a couple posts on SORL Auto Parts over the past couple of years. Nothing has changed much with the companies long-term fundamentals. The only thing that has changed significantly is the stock price. It's net current asset value has actually increased from 2013 when it was $124 million and 2014's of $129 million. Right now $141.7 is the net current asset value of SORL. It still sells brakes and auto parts in China. It's a major player in commercial brakes. What I didn't realize about SORL before is how diversified it is internationally. 73% of its business is in China but 27% is international in 104 countries including the United States, UAE and Europe. I'm always skeptical of Chinese companies so I looked around to see if I could find info on where they are sold in the US. I didn't see anything which likely is because they are sold directly wholesale to big companies with commercial trucks. I did find some parts on Alibaba.

The stock is cheaper relative to NCAV than in 2013 with the market cap back at $50 million, NCAV at $141 million and the stock at 2.72. It is priced at 36% of net current asset value. I do believe this would even meet Benjamin Graham's margin of safety requirement! Sales have grown steadily every year since atleast as far back as 2012. Yet the current price to sales multiple is .23. Below 1 is low for about any decent company. The company is profitable yet the PE ratio is 3. On the balance sheet the current ratio is 3.6. Healthy. A cool $18 million in free cash flow in 2014.

I'm very bullish on China over the long-term and I would expect this correction currently going on in the overall China market to end sooner than later. The current PE multiple on the stocks in FXI is around 10-11. If you can get major Chinese companies for single digit PE's that is cheap. Not to mention some dividend yield too. SORL has a lot of support until 2.50. I think the fundamentals make it a compelling buy here.


July 14, 2015

Two Veterinary Stocks, WOOF and PETS

Vet Stocks are Must for a Portfolio

I grew up with cats in the house. When I was five or six years old I got a cat. I was going to name the cat Garfield but it turned out not to be a male. Ms. Garfield was debated. Name plans blown we called her Princess. My sister got a cat named Midnight later as well. I had a roommate who had a Jack Russell Terrier too. I never really thought much about veterinary hospitals and practices as a big business until I started paying my recently rescued cats bills.

Last Fall I rescued a kitten from behind a shopping center. She was just walking around all by herself meowing at me. She was only about 2 months old so I took her in. I took her to a veterinary practice just a half mile from my place. It's called a vet hospital but they do routine appointments. My little kitten Precious was healthy. She had some eye and nose crusting we figured were just allergies. Maybe a couple months later she exhibited some symptoms of a urinary tract infection. My ex-girlfriend took her to the vet and yep she had a UTI. She had an eye infection too. Twelve or fourteen days of Amoxicillin later she was cured. A few weeks ago she got another infection and thankfully after yet another round of antibiotics she is fine again. Her allergy symptoms are almost all gone as well after I gave her antibiotic drops in her nose.

After all of those appointments and treatments I realized having a pet can almost be as expensive as having a kid at times. I knew this before I got the cat of course but it finally hit home. We love our pets almost like children. I did some research on pet spending and not surprisingly Americans spend steadily on their pets. About three-quarters of Americans have pets. This is a huge business. Americans spent $61 billion on their pets in 2011. The BLS government statistics on this are pretty astounding. Take a look at the full article here. Some of the interesting points are as follows.

In 2011, households spent more on their pets annually than they spent on alcohol ($456), residential landline phone bills ($381), or men and boys clothing ($404).

Despite the recession, families continued to spend consistently on their pets between 2007 and 2011. Spending on pets stayed close to 1 percent of total expenditures per household, despite the recession that occurred during this time.

Spending on pet food stayed constant or increased during the recession, even while spending at restaurants fell. Married couples without children living at home spent the most on their pets out of any household configuration in 2011.


So not only were pet companies a recession beater they are a baby boomer play also. In my quest for public pet companies I have fallen for two stocks I'd like to take home. The first one is VCA Inc.(WOOF). WOOF has 643 animal hospitals in the US and Canada. It is a $4 billion company. It has a solid balance sheet, good profit margins and growing free cash flow. Return on equity is 11%. Forward PE is 21. The stock has been on a run and just broke out to a new high yesterday.

The second stock is Petmed Express (PETS). PETS is a much smaller company with a market cap of just $370 million. They sell prescription drugs and pet supplies. PETS has similar healthy margins like WOOF. Net profit margin is 7.6%. Much better than WOOF PETS sports a whopping 23% return on equity and 22% return on assets! These are return on equity numbers that would make even Warren Buffet do a double take. This company has an incredible balance sheet with zero long-term debt. Solid free cash flow is there and to boot the company pays a big dividend. The dividend yield is 4%. The stock is also hitting fresh highs over $18 a share now. As I've made the case pet stocks are a must for a portfolio.

full disclosure: no current position in WOOF or PETS but am looking to buy both.