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

April 21, 2023

AI Wars Are Beginning In Tech: How To Invest In Artificial Intelligence

taking stock in AI companies












Hello loyal readers! Grab a cup of hot coffee or fresh tea. I have a good one for you today!

My goal is to find the best investment opportunities in artificial intelligence and robotics. After researching the technology in-depth I strongly believe this is the best growth industry opportunity to invest in since the 1990's internet boom. We are still early too! I will continue to put my ideas on the blog here, my Substack and my Twitter/X account going forward.

Updated July 2023

Microsoft recently made a large investment in OpenAI and has already incorporated AI chat technology into it's search engine Bing. We are continuing to see investment as Inflection AI just secured a massive $1.3 billion funding from major investors including Bill Gates.

If you are brand new to AI technology let me give you some quick background on it. Sam Altman and Illya Sutskever used computers to make a "neural network" that was modeled after the human brain. Hinton initially developed the technology. The computers use high powered graphics cards to process the information.

Deep learning has been going on since the early 2000's but it took major breakthroughs in compute to get us to ChatGPT-3 and 4. Previously, the computers were just not powerful enough. Scientists were also not sold on the concept of scaling up neural nets. This all changed in the last 5 years as computer tech advanced. The increased size of the neural nets combined with increased compute brought breakthroughs leading to ChatGPT.

These vast neural nets are called LLM's (large language models). They use NLP (natural language processing) to retrieve info and generate it. So instead of using code to communicate with the computer you can use words. These massive LLM's are being trained on the internet and thousands of books.

If you haven't checked out the future of chat search I recommend going to Bing.com and clicking the chat icon at the top and using the interactive chat bot which utilizes the ChatGPT technology from OpenAI ChatGPT.

Ask it to find your results like you would in Google or Safari. It is incredible and free. The difference vs traditional search is you can talk to it like a person and use more detail. Don't be afraid to test it's limits. It's a streamlined chat style search without the ads, unworthy results in Google's top 10, pop-ups, paywalls or wasted time scrolling multiple results pages.

Microsoft and OpenAI are adding things regularly. You can have it write stories, poems or even articles. They now have an AI image creator too. OpenAI is regularly adding features and plug-ins to ChatGPT-4 if you want to pay for the subscription.

I remember the early days of the internet well in the mid and late 90s. The first time I surfed the web it was with Yahoo search at my dads office because we didn't have it at home yet. I am getting the same vibe using AI powered search now.

AI Is Here To Stay

I think some people maybe even Wallstreet are jaded in believing in AI tech from the over-hype of the metaverse and lack of real-world wide scale implementation. Trust me AI and LLM's(Large Language Machines) is legitimate and is going to be revolutionary. How revolutionary? I believe AI technology is someday going to be more revolutionary to mankind than the internet, especially if AGI or singularity is reached.

We still are not experts on what goes on in the brain. What exactly would it take to push AI to a level rivaling human creativity? Human innovation only comes from "learning" and experience after all. If we accelerate the learning as resesrchers are doing as I'm writing this how soon could major scientific breakthroughs occur?

It is already creative and solving problems. It is sort of akin to a 5 year old in its development. Eventually, from what I am hearing they could take an Albert Einstein, Sir Isaac Newton, and Nicola Tesla bot and have them theorize on advanced physics. This novice version we have with ChatGPT when you use AutoGPT can perform jokes and I'm hearing even a full comedy skit with a hook and final punchline like great comedians do.

Some people are afraid of advancing this technology that has given a massive technological breakthrough already for the average person. It can proof-read writing, fix spelling and grammar and make sentence structure more consice. It can write articles on any subject. It can write a business plan and do web development coding. It is an assistant with the entire knowledge of the internet by your side.

There are crucial externalities like potential slowing investment and the overall economy that could slow down the growth of this technology. If things continue as they are going the research I got from using the Bing chat paints a very prosperous picture for growth.

Future Growth

"According to Statista, the market for artificial intelligence (AI) is expected to show strong growth in the coming decade. Its value of nearly 100 billion U.S. dollars is expected to grow twentyfold by 2030, up to nearly two trillion U.S. dollars.

In 2021, worldwide investment into AI companies has increased by 115% since 2020, marking the largest year-on-year growth in AI investment for at least two decades. Total AI investment reached $77.5 billion in 2021 The global AI market, valued at 142.3 billion U.S. dollars as of 2023, continues to grow driven by the influx of investments it receives3. This is a rapidly growing market, looking to expand from billions to trillions of U.S. dollars in market size in the coming years.
"

Best AI Stocks To Buy

Google is behind Microsoft right now with AI search. Bing chatbot came to market first. Bard finally came out but isn't competitive on financial searches. Anecdotally, I've seen mixed feedback for Bard. Googles (GOOGL) main revenue segment is search ad revenue. Google has already been struggling with declining growth in many segments and missing earnings estimates the last four quarters. This new consumer technology is a huge loss for them right now. They are losing some searches to Bing every day now. Granted ChatGPT and Bing haven't moved the needle the real threat is there now. Microsoft being first to market may turn out to be a huge advantage as Samsung has been publicly contemplating dropping Google from their devices.

I expect all major tech companies like IBM, Apple(AAPL), Nvidia (NVDA), Google(GOOGL), Facebook (META), Amazon(AMZN) among others to develop advanced AI for the consumer. I see all of these companies benefiting.

Many hardware and robotics companies will do well too as the hardware needs to be updated to handle AI The two popular AI ETFs are Robo Global Robotics and Automation Index ticker (ROBO) and Global X Robotics & Artificial Intelligence (BOTZ).These ETFs provide exposure to companies that develop, deploy or benefit from AI. BOTZ is more concentrated and has fewer companies in the holdings. This means it is less diversified than ROBO. That isn't necessarily a bad thing though because it means it has potential to have more price gain or loss.

The newcomer in AI ETFs is Roundhill Generative AI Technology (CHAT) it is an actively-managed fund designed to provide exposure to companies involved in the theme of generative artificial intelligence, and related technologies.

Internet security as an industry will do well in the future as well. As it gets harder to distinquish a bot from a human security will need to be enhanced. Very soon, if not already voice security will become compromised as bots copy our voices perfectly.

Cyber Security ETFs

The safest way to play the future security growth is with ETF's such as First Trust NASDAQ Cybersecurity (CIBR),ETFMG Prime Cyber Security ETF (HACK) or Global X Cybersecurity ETF (BUG). These sport expense ratios well below 1%. BUG has the highest average daily volume. There are other ETF's but the daily volume is much lower. It is not uncommon for specialized ETF's to fail to deliver because of declining low volume.

Entertainment Will Boom

I suspect as many creative and coding jobs become replaced by machine learning the entertainment and movie industry will benefit greatly two-fold. Firstly, they will be bringing amazing new visual and creative masterpieces to movies and various forms of entertainment. GPT is already creating comedy sets by comedians that have passed. Large movie companies will improve their margins and have bigger profits.

Many people including myself believe a recession of varying magnitudes could arrive shortly. This is not necessarilly a bad thing for movies overall. During the Great Depression, with the advent of new and impressive film technology, people escaped their daily lives by paying for entertainment. Even though unemployment was high people would pay to see the new technological advances in film at the time.

The 1930s are considered the golden era of Hollywood cinema. During this time, the movie industry thrived. Technological advances such as color and sound made movies truly extravagant. The breakthrough of synchronized sound occurred at the end of the 1920s and that of full color motion picture film in the 1930s. Two companies I see potentially benefiting greatly are Warner Bros. Discovery, Inc. (WBD), and The Walt Disney Company (DIS). Both are publicly traded on the stock market.

Some Major Tech Companies Are Behind

There is major trouble lurking for Google. At the moment Google's stock is at huge risk of significant losses as they are day by day losing searches to Bing. I am long some Google May puts. It's also a worthy pair trade to be long MSFT stock and short GOOGL at the same time. Microsoft is currently in the process of acquiring Activision Blizzard (ATVI) making Microsoft the third largest video game company. My hunch is they will be incorporating GPT into video games bringing a new level to interactive gaming. Duckduckgo.com search is even adding A.I. functionality now while Google is getting left behind in the chat search revolution.

I highly suspect having lived through the 90's that the long-term leader in this new tech will take time to emerge. I expect they will share market share significantly as I-phone people will use AI on their phones and Google people will use Bing or maybe Google or even another company not yet in our radar. The future will include deep learning A.I. advanced large language models (LLMs) are machine learning models that are very effective at performing language-related tasks such as translation, answering questions, chat and content summarization, as well as content and code making. They distill value from huge data sets and make that “learning” accessible out of the box.

I've also seen LLM's referred to as "life long learning machines" which is essentially what GPT does as it learns from your input and corrections. I've heard it is best to be polite to the chat bots because they will immulate human emotion with emoji's and attempts at showing emotion if you ask it emotional questions.

Final Thoughts

Finally, as far as stocks go I see the most obvious alpha in shorting the companies losing to this technology right now. I am long May Google puts so if the stock falls I see profit. I plan on continuing to long puts as the market is not aware of the changes happening with chatbot search.

It's hard to pick the sole long-term winner with new technology as every other technology breakthrough has shown. Few would have pegged Amazon a lowly book seller as becoming the giant it is as just one example. With this in mind, going the ETF route like ticker BOTZ or CHAT with diversification is the safest bet.

I expect many industries will benefit from this technology becoming acessible to consumers. Right now Microsoft, Google's Bard and Snapchat are battling in the war for large LLM's. More newcomers are popping up rapidly. Now there is Perplexity for Android and conversational HeyPi an AI assistant. These are certainly exciting times.

I also write a free Substack on value stocks. Subscribe here for free value oriented stock ideas. I cover Ben Graham net current asset stocks, net tangible assets and net cash values.

Join Robinhood with my link and we'll both pick our own free stock 🤝

September 7, 2015

Under Armour UA Overvalued

We all knew Netflix NFLX was overvalued with a PE multiple of a whopping 200. It's been taking a beating in the recent downturn. I'd like to propose Under Armour UA as overvalued. It's a great company and leader in its industry just like Netflix but the valuation is still to rich. Under Armour currently trades at 88 times earnings. It also trades for 6 times sales. Earnings are expected to grow roughly 24% a year going forward. With a PE of 88 and at 6 times sales perfection is "baked in" to the companies future performance. There is a lot of market cap that could quickly get trimmed on a bad quarter or future guidance. Or how about a market correction! This looks like a correction and an industry leader like Under Armour could get sold off like a Netflix or Apple. I see it happening here in the charts. Let's look at a 6 month chart of Under Armour below.


















See the red line that is forming a round top? A rounding top is a bearish top formation. Some people call it a head and shoulders. Under Armour is a high beta stock and this chart is essentially mimicking the major indices. So yeah we are very close to confirmation of a top in the market. What is does after the pennant bear flag below is key. It looks to me that with the shooting star candles on UA we are going lower next. I am short some Under Armour at 94.52. I successfully shorted Netflix the other day at 116 and covered at 110. I cataloged that trade on my trading blog .










August 9, 2015

Energize The Portfolio With Planet Fitness (PLNT)

Get The Portfolio In Shape With Planet Fitness (PLNT)
Greetings investors across the globe! Amidst the latest economic data on jobs and speculation on the FED raising rates I have something different. I have a stock analysis. A couple of days ago Planet Fitness (PLNT) a fitness center went public on the New York Stock Exchange. I know this company well. I am a black card member of Planet Fitness. I've been going to Planet Fitness for about a year now. The thing I like the most about it is I pay $19.99 a month and I can go to any location I want. I go to two different locations that are open 24/7. There is a Planet Fitness a block from my apartment and there is another one near my work! Tomorrow after work I'm going to stop by the one next to work. A couple of days ago I was at the one near my place. The black card is actually the highest tier of membership and it's still only $19.99. The other membership tier is cheaper and is $10. With my membership I get access to the massage chair for free, tanning, 1/2 price cooler drinks and probably a lot of other perks I'm not aware of or won't use. Some clubs have hydromassage, haircuts and 20% off Reebok apparel.

One of the reasons the company has been so successful is it is marketed to the broad population. It's marketed as a welcoming, non-intimidating "judgment free zone." It appeals to people who are just getting started. It's not a typical bodybuilding "gym." "This exceptional value proposition is designed to appeal to a broad population, including occasional gym users and the approximately 80% of the U.S. and Canadian populations over age 14 who are not gym members, particularly those who find the traditional fitness club setting intimidating and expensive." There are no free weight barbells. It doesn't attract the steroid using bro's who need huge plates to squat. They do have plenty of free weights but they are dumbbells. There is a squat rack, smith machine, pull-down cables and plenty of weights. There is also every necessary piece of equipment for whatever your fitness goal. They cover it all. The place is big.

Why Is This A Good Stock?
With the economy doing well people are spending money on all sorts of discretionary industries. I recently heard that Americans are spending more on eating out at than ever before. The government jobs report that came out Friday noted that one of the strongest job growth industries is leisure. So the bottom line is people are spending. I believe they are willing to spend $10 to $20 a month on a gym membership. The growth of Planet Fitness proves this. They have grown from 389 stores in 2010 in 39 states to 918 stores in 47 states, Canada and Puerto Rico for the year end 2014. They are one of the largest and fastest growing fitness centers in the country. If there is a trend toward healthy living fitness centers and gyms will reap the rewards of that trend.

The thing I love about this company is they are growing from franchising.  Everyone knows about the Mcdonald's (MCD) growth story. The way they grew so fast and so profitable was from franchising. Same here. Planet Fitness has had same store sales growth since 2010. Planet Fitness franchised locations are growing same store sales twice as fast as corporate locations! For the year of 2010 franchisee owned locations grew same store sales 14% and corporate owned grew 5.7%. In 2011 they both grew 3%, in 2012 franchise were 8.7% corporate 4.8%,  2013 franchise were 9.1% vs 6.1%, 2014 11.5% vs 5.4% and in the last quarter 2015 franchisee sales almost tripled with 11.7% vs corporate 4.6%.

There have been 33 straight quarters of same store sales growth. Here is the companies growth in pictures.















When you invest in a stock you ask, what could go wrong? I don't see the franchising model failing this company. Infact I see it as a major catalyst for serious growth. One thing that could happen is they try to grow to fast which will hurt them. That's a bridge to cross if we get there though. There are roughly 900 locations nationwide and the company sees potential for 4,000 in the US.

Numbers and Valuation
Not only does the company have revenue and earnings growth they generate a lot of free cash flow. Free cash flow in 2013 was $60 million. In 2014 there was $25 million. Free cash flow is great to see in any business. Some have zero! Just how profitable is this company? Net profit margin for the full year 2014 was 13%. This is a good net margin. They are carrying a good bit of debt. They were bought by private equity a couple years ago and I'm not sure if that had something to do with the debt. The balance sheet is fine none the less. The current ratio is .94. I like to see 1.0 or greater for a current ratio but this is close enough.

Now the sexy stuff. Earnings. Earnings from 2013 to 2014 grew 48% from $25 million to $37 million. They can definitely grow. Earnings per share for 2014 was $.24. Off of a stock currently trading at $18 the trailing price to earnings (PE) multiple is 75. This seems expensive, however, if they continue to grow like they have this is a fair price at $18 a share. This is a growth stock. Let's take a more common example of PE valuation. A company grows earnings 10% a year. The PE is 20 and we call that a healthy PE premium for a quality company growing at 10%. The PE for Planet Fitness in that scenario would be close to 100.

 I see the floor for the stock price at $12 a share. At $12 a share it is trading at a multiple equal to its earnings growth. A 50 PE or the growth rate puts us at $12 a share. Growth stocks are great because there is often multiple expansion as more people want to be a part of fast revenue and earnings growth. The downside with them is if the multiple gets to far ahead of real growth the stock is priced for disappointment on any negative news. This stock has a long way to go before it gets to that point. I see a lot of potential for share price growth with Planet Fitness over coming years.

Sources

http://investor.planetfitness.com/investors/about-planet-fitness/default.aspx

http://www.sec.gov/Archives/edgar/data/1637207/000119312515230459/d888681ds1.htm#rom888681_9

July 3, 2015

Coffee Holding Company (JVA) Analysis

I posted on Coffee Holding Company JVA before because the company was trading for around net tangible asset value. It had some decent flashes of operating ok. I still see potential in the business. They just recently released results of the second quarter. Sales were up 19% year over year. Sales growth came in all the businesses which include green coffee, private label, and branded products. Gross profit was blown however because of hedging with futures contracts. Selling and admin expenses were down but because of the blown gross margin the loss on the quarter was -.33 a share.

This company could make a lot of money if a decent gross margin could be had. I crunched a couple years numbers. In 2014 they had a 14% gross margin, 2013 was 4% and 2012 was 6%. The entire industries gross margin is around 29%. Still looking for good in 2012 the company was free cash flow positive. They just launched a new product line that has had good feedback and We have also commenced sales of our Café Caribe label into Stop & Shop, a large retail grocery chain with more than 275 locations throughout New England, New York and New Jersey. So it looks like sales are probably going to do well. If they just watch margins there is potential to be unlocked.

Technically the stock at around $5 is testing some support and possibly could be beginning an uptrend. My first reaction to this possible trend is to take a 1/4 or so of a full position right here on this support. Looking at the lack of strong buy volume recently makes me think waiting for more of a confirmation of the uptrend is more prudent. Let's see what it does first. If it hits over $5.50 the uptrend is pretty clear.



May 15, 2015

Bojangles BOJA IPO

Bojangles a southern style fast food restaurant went public this week. Bojangles BOJA is headquartered in my hometown and I'm very familiar with eating there. I've been eating at Bojangles since I was a kid and the food quality is always great. Fried chicken and biscuits aren't my favorite food but I like them and eat them occasionally. Bojangles does have some spicy fried chicken that I do like. In my opinion Boajangle's sweet tea might be the best fast food sweet tea. They do a big breakfast with biscuits. They do lunch and dinner of course with the chicken entrée. For side dishes they have typical southern things like macaroni and cheese, mashed potatoes etc. They have a very large marketing presence in Charlotte. They always work the the NFL Carolina Panthers and their players. They sponsor the Hornets too. That's my quick company profile. Here is the more in-depth Yahoo Finance profile.

Bojangles', Inc. owns, operates, and franchises a chain of quick-service restaurants. The company offers boneless chicken, buttermilk biscuits, sandwiches, iced tea, biscuit sandwiches and snacks, salads, combos, boxes, dinners, family meals, drinks, sweets, fixin’s, and kids’ meals. It also sells apparel, drink ware, and lifestyle and writing products online. The company was founded in 1977 and is based in Charlotte, North Carolina. It has locations in Alabama, Florida, Georgia, Kentucky, Maryland, Mississippi, North Carolina, Pennsylvania, South Carolina, Tennessee, Virginia, and Washington, D.C., as well as Honduras.

I think Bojangles might be one of the better Food IPO's to come out recently. I'd like to do some comparative analysis of BOJA vs the rest of the industry but I didn't find any financial statements. I tried unsuccessfully on the SEC's site too. It's a good market for food companies lately and the Street has been eating them up. Bojangles looks like a good speculation as far as this industry goes as the stock printed a new high of 28.45 today.

April 14, 2015

Deep Value Stock Blonder Tongue BDR

You guys remember the value stock Blonder Tongue (BDR) ? It's usually been around net tangible asset value over the years. It will run up a bit one year then come back to around net tangibles. Well the stock has recently just crashed. It plummeted from over $2.00 a share to just $.77 a share. I went through the press releases on Yahoo! from the 30th and 31st on the day it crashed and couldn't find a good cause of the crash. They released quarterly results which were not to bad, not to good. I don't get it. There may be no good reason though of course and the stock is just crazy cheap for no reason. Here are the old posts on BDR. Looking back at all my notes on the stock $1.00 has been the floor for many years. At the last print it traded at $.90 Monday. This puts it at a market cap of roughly $5 million. Net current asset value is just above $5 million also. We are near net current asset value territory. I really like the stock here below $1 and might take a small position in it.

February 4, 2015

Small-Cap Value Oil and Energy Stocks









I like researching and writing these articles. I always try to post here atleast once a month. I could probably post almost every day because I love analyzing and blogging but I doubt my girlfriend would like that. She would probably punch me.

The drop in oil prices has brought a lot of energy companies share prices down significantly. Key Energy Services (KEG) is a $313 million dollar well servicing company out of Houston, Texas. This small-cap has $443.8 million in net tangible asset value(tangible assets - total liabilities). So with a market cap of $313 million and tangible assets of $443 million it is selling for less than all the working capital and equipment it owns. This is even with the stock price up a whopping 17% today. In 2013 it had $64 million in free cash flow. As a small company the stock presents the possibility of significant growth in stock price as it recovers. The downside is earnings haven't been consistent over the years.














Energy XXI (EXXI) owns oil and natural gas wells and has a cool $1.42 billion in net tangible assets and a market cap of just $336 million. This is 76% below net tangible assets and 82% below book value. The company was profitable since 2012 but earnings are trending down.
















The final oil stock is Parker Drilling (PKD) a $384 million dollar company with $492 million in net tangible assets. So we are still at a discount to net tangible assets. This one is not as cheap as the ones above, however, it boasts a lot more profitability. Earnings are more consistent. Infact it was profitable in the second and third quarter.
















If oil prices are actually bottoming here as they appear to be doing small companies will have some nice appreciation. They come with more long-term risks of course versus their large cap counterparts. The ones above are basically penny stocks which is fine with me as they are traded on good exchanges and present some value and technical opportunity. I hope you enjoyed these oil and energy ideas on this value investing small cap stocks blog.

January 21, 2015

Bottom Up and Top Down Stocks

I went through some scans I typically go through and thought I'd post some that caught my eye. The first one bottom up is Sucampo Pharmaceuticals SCMP.  The chart was cool because it just broke out of consolidation on very strong volume. It's also at a 5 year high. I looked at it some more and this is just under a $700 million dollar company with a diverse portfolio of pharmaceuticals it sells. The good thing I see here is the earnings revisions. Next quarters earnings estimate is $.11 up from $.05 90 days ago. The current years estimate is $.47 a share up from $.22 ninety days ago. Next years EPS is currently $.60 up from $.40 ninety days ago. It's always great when earnings are revised up. With the stock at $15.66 this gives us a forward P/E multiple of 26. With earnings growing about the same rate the stock is conservatively fairly valued. However, the next 5 years are expected to grow more giving the stock a mere .35 PEG multiple(price to earnings growth). Lots of bullish stuff going on here.

SCMR New high on volume

 
 I found this coffee company called Coffee Holding Company ticker JVA. It is a small company with a mere $34 million dollar market cap. Coffee companies are usually good businesses especially if you are selling beans wholesale, which they are. They are profitable and I see no reason the stock should trade around net tangible asset value. Roughly $20 million is net tangible asset value and the market cap is just above it at $34. It's around technical support and just had a wide ranging day up 7%.
that is technical and fundamental support
















The top down one is oil. I think it is a good time to start scaling into crude oil long. Everybody knows the ETF USO. USO is a terrible way to invest in oil. It's because of the way it rolls the contracts. It has to turnover futures contracts thus resulting in a lot of decay. The futures themselves CL is ideally the best way to trade oil. There are better ETF's like 12 month Oil ETF USL . USL holds longer term contracts and thus more closely resembles the actual price of oil. I'm long some USL now. Full Disclosure: long USL

December 30, 2014

The Best Net Net Stocks?

I looked through a lot of net-net's lately and didn't find all that much. On Zacks.com I screened for ones with zero long term debt. That diminished the universe of them along with ignoring all Chinese ADR's. So far this company called The LGL Group ticker LGL founded in the year 1917 seemed the most intriguing. Mostly because the company and stock price has not always struggled. The stock preformed very well in 2010.The company has $9.9 million in net current asset value and a market cap of just $8 mil. $5.4 mil of the net current asset value is cash. The company is not profitable. The last year of profitability was 2011. I put it sort of in the category of Emerson Radio MSN a perennial net because they are both electronics companies. MSN by the way is now selling for less than half of its net current asset value and is profitable.



November 6, 2014

Deep Value Stock Blonder Tongue BDR

There is some activity in deep value asset land worth talking about. Blonder Tongue Laboratories (BDR) has always been a cheap value stock. It has never really delivered and seen the stock price follow through. Could this time be different? They just recently reported a strong quarter with actual sales growth and net income!! This has happened before as we can see from some of my old posts on BDR over the years. In 2010 the stock actually ran to almost $3.00 share. On this last quarter the buying volume in the stock is the highest I could find on any chart going back at least 10 years. The companies sales were up 23% and net income was $.06 per share vs. a ($.11) loss last year.  Margins improved too. Management said they expect the rest of the year to be improved as well.

Right now the stock is 29% below net tangible asset value of $1.74 per share. 

Since 2006 the stock has always found a floor around $1.00 a share. So it's pretty safe to say $1.00 is the current low side and about $3.00 the upside.  I made an 8% gain on my DGAZ trade shorting natural gas. I posted the setup on the blog and my entries and exits on my Twitter page.










October 14, 2014

Two Net Current Asset Value Stocks

Lots of different things can become of net current asset value stocks. These are the truly deep value stocks that only a true value investor can love. Why? Because they aren't glamorous. They usually are not as sexy as say an Apple (AAPL) or GoPro (GPRO). Net Net's often don't even turn any profit. They are sometimes entering their journey into stock market obscurity.

However, sometimes they can be tremendous opportunities. Once in awhile a net net will be a former profitable growing company that just hit a rough patch. I find that many times these will have a "brand moat" like a major retailer. This can help the turnaround. Sometimes these good or great companies that turnaround and come out of net net territory can be big gainers and even multi-baggers. Yes, multi-baggers. Sometimes we value investors look for companies we that we know probably will never be good again. Companies that are just so cheap like trading below net cash that there might be a catalyst to bring out the value of the assets. Special situations and going private transactions can unlock that deep value. Or the company just recovers into profitability. One such company we will look at today that could possibly do so.

Delcath Systems (DCTH)
This troubled stock DCTH is seeing its stock price hammered lately. This is a struggling company. The reason I am interested in this one is the cash on the balance sheet. The cash has been stable. Let us crunch some numbers on this one. There is 25.1 million in net tangible assets or 2.64 per share, 22.7 million in net current asset value or 2.40 a share and 21 million in net cash which is 2.22 per share. The stock last traded at 1.77 a share. This is 20% below net cash. Technically this stock is taking out all kinds of support and I see it continuing to decline for awhile. Maybe we can see it around 40% below cash. That looks pretty good as cash stays stable.

SORL Auto Parts (SORL)
This is one of those that almost doesn't make any sense. This company has had sales and earnings growth and yet has been a net current asset stock. The last time I posted on SORL on the blog was last year. The stock ran up a lot and has started coming down again. Other than that not much has changed with this company. I can only guess the low price pegged on it is because it is a Chinese company. It's a small company too which is fine with me. The price to earnings growth rate (PEG) is nice here again at around 1.00. Last quarters earnings got shaved a little from forecasts. There is 129 million in net current asset value or 6.65 a share. The stock last traded at 3.48 per share or about half of its net current asset value. I think once SORL is below 3.00 a share it is in the buy zone. If you've read the blog over the past couple months or so you probably pinned me as just a technical analysis chart guy. Nope. I was a value investor before I learned how to read a chart. Why do I use both approaches? Simple. I like every edge I can get. I like to buy stocks that go up and short stocks that go down.




September 24, 2014

What I've Been Doing And Looking At

Greetings from Bull Market USA. The bull market capital of the world. Where low interest rates reign forever! Wheeee! In all seriousness however, I don't think Japan's lost decade has much on our QE. We've done better in my opinion. A few years ago everyone was predicting something along the lines of a Japan post asset bubble collapse stagnation. That is what they had in the 90s. Our true collapse was really in the wake of the tech bubble bursting in the year 2000. Atleast when it comes to the economy and equites. Yes, that was the secular stock market bubble that had been going since the early 80s. So I don't think comparing Japan and the USA was really apples to apples anyway. The other expectation Austrian economists had was serious inflation following QE. There was definitely some inflation as evident commodity prices but the dollar inflation seems gone now. Just look at the gold price. Gold and the dollar are always completely inverse. Gold is still crashing. I'm not sure what is going to happen from here.

History would say that if rates stay low for a long period of time there will be significant inflation ala the 70s inflation. Only Paul Volcker could stop it when he effectively let the market set rates at 20%. Could you imagine that today? So far things are going pretty well with the macro here. Doesn't hurt to be hedged though.

To me a good hedge on low rates is to be long precious metals.  I actually bought some more silver bullion recently around $21 an ounce. I got some Engelhard Silver Rounds on Apmex.com. I've always been pleased with my orders with them and I recommend them. They are one of the top 2 respected online metals dealers. So far I have Silver Eagles and the Engelhards. I'd like to get some gold Krugerrands soon and some Palladium.

I longed some emerging Asian stocks via the Fidelity Emerging Asia (FSEAX) mutual fund in my Roth IRA. I like the Goldman Sachs Emerging Debt Fund (GSDAX) also and have it on my watchlist along with the I-Shares International Real Estate Fund (IFGL). All of these funds have low expense ratios and similar or better performance vs their benchmark index.

High Yield Stocks
I also have some high yield equites on my watchlist. Whether stuff keeps falling or not these look good to me too. The first is my favorite REIT. It's not one of those sketchy adjustable rate mortgage REIT's or anything like that. Those mortgage REITs are going to blow up when rates go up. There's probably a reason they are all yielding 9 to 11%. I like these simple ones.

One like Sun Communities (SUI) which is just mobile homes and RV's that have great cash flow. Sun has increased the dividend consistently and currently is yielding around 5%. Shareholder equity has been growing the past couple years along with revenue and earnings. The chart is a breakout too.

UMH Properties (UMH) is the second REIT. UMH is yielding 7% and has a consistently rising dividend history along with revenue and earnings. This one has a smaller market cap at just $215 million.

Another high yield stock I like is Energy Transfer Partners (ETP). This is a diversified natural gas pipeline company that also sells gasoline and runs retail convenience stores. ETP's current dividend yield is 6%. The PEG ratio (price to earnings growth) is a very nice .69.

August 9, 2014

Ebola Virus Stock Plays

With ebola in the news there has been considerable buzz about what is going on with the drug that the two Americans were given. Apparently there is more than one company that is working on a vaccine. The company that has gotten the most publicity the past couple days is Tekmira Pharmaceuticals (TKMR). TMKR's stock was up 45% today. Another company I found that is working on a vaccine is Newlink Genetics (NLNK) . The news headline is the company "secures a Letter Contract From the Defense Threat Reduction Agency for Testing and Evaluation of Ebola Virus Vaccine". Its stock was up 6% today. I found an interesting link in the comments on ZeroHedge.com from 2013. The military was supporting working on a vaccine back then. It proved effective on primates. Here is a summary from the military.

May 13, 2014

LoJack LOJN Looking Good

Fundamentals
I wrote a quick post on a small-cap stock I thought was undervalued a month ago. LoJack Corp. LOJN I believe is a good value here now at $4.50 a share. It looked cheap then at almost $6.00 a share when I wrote that. With $.23 a share in earnings for the year the current PE multiple is just 19 here at $4.50 a share. This is a small company with only about an 80 million market cap and revenue growth is apparent along with earnings growth. Next years earnings are forecast at $.43 a share. If they hit the $.43, that times a PE multiple of just 20 values the stock at $8 share. I think that PE is pretty conservative given how fast their revenue and earnings can grow. I see this stock as an economic recovery play at a fair price.
Technicals
I am going to nibble on some shares and put a buy limit order in to buy at $4.57ish a share. I want to see it hold the $4.50s first. Sell volume looks currently exhausted as it is resting on trend support.

April 4, 2014

Interest Rates and One Stock

As far as macro trades go there doesn't seem to be anything more certain than the fact that interest rates will eventually rise. The FED has said they will raise rates when they like the employment figures. Unemployment rates have been falling across the country and to my knowledge the most recent rate was between 6-7% nationwide. My state of North Carolina is now down to about 6.5%.
A few years back I was almost certain that the FED's unprecedented low interest rate environment was going to spawn serious dollar inflation. Something along the lines of the late 1970s through early 1980s inflation that only Paul Volker saved us from in the early 80s. One of the reasons I feel less concerned about massive inflation is the falling price of gold. To see the true value of the dollar you only have to look at gold. Rapidly rising gold means the dollar is falling and vice versa.
Now to the play. The only place rates can go from here are up. The timeframe is less certain but the fact they will go up is clear. When rates go up bonds go down. The simple trade is to short long-term Treasury Bonds. The Proshares Ultra short US Tresury bonds ticker TBT is a vehicle. I'm not going into this trade tomorrow or the next day or even next month. But some day this will be a good trade.
LoJack Corporation (LOJN)
As I am typing this we are in the middle of the tech bubble it seems. I probably wouldn't touch Facebook with a ten foot pole. I noticed this stock LoJack LOJN awhile back when they reported their 4th quarter. 4th quarter revenue had risen 20%. The thing I like more is that they gave guidance of next full years revenue growth to be 8% to 10% year over year. The business is simple. They help people recover stolen cars and do car security. It's a small company too with just under a $100 million market cap which is good. The market still isn't fully valuing this companies revenue and earnings growth. The stock is currently at 5.60. They should grow earnings atleast 25% a year but the current PE is just 16. Foward PE multiple is just 13!! This is if they just do $.43 EPS for the year.

November 12, 2013

Wandering in Deep Value Land




As many of you know Benjamin Graham had a famous style of investing that sought to purchase deep value stocks selling for large discounts to their net current asset value. It's also called the cigar butt approach. You find these cigar butts laying around and sometimes they are good for one last puff. There are different kinds of deep asset value stocks. There are the cheap for a good reason and then there are the cheap with good potential. The deep value companies in industries that typically turn into deep value traps are biotech and semi-conductors. So many of these have traded for huge discounts to net current assets and even had some profitability but the stocks never come around.
Some of the best net current asset stocks I've seen tend to be in businesses with simply better business fundamentals. A lot of these will even have a "brand moat" they can in-circle around their little castles while working to bring the company back from the gutter. An example of one of these former net current asset stocks that turned around was sports retailer Finish Line years back.
The first stock I am going to look at today is SkyPeople Fruit Juice (SPU). It is in China so I proceed with caution. SPU trades on the Nasdaq and has a market cap of $51 million. It is in net current asset deep value territory because the company has $66 million in net current asset value. I simply took the $200 million in current assets and subtracted the 36 million in total liabilities. So, we are at a discount to NCAV. I bring this one up because cash has been extremely stable.
The next one is Books a Million (BAMM). BAMM has a market cap of $36 million and net current asset value of $21 million. We are not in NCAV land yet but this is something to watch. The stock currently trades at $2.46 per share and NCAV is $1.4 a share. Net tangible asset value is $6.50 a share.
Disclosure: no position in SkyPeople Fruit Juice SPU or Books a Million BAMM at time of writing.

July 9, 2009

Family Dollar FDO

Family Dollar FDO looks like growth at a reasonable price and is still a recession resistant company. Institutions really loaded up yesterday with some nice blocks. That volume was higher than it has been for 5 months.

Forward EPS is looking like atleast $2.20 so there is a 14 PE multiple. EPS growth will probably be low double digits. I think it could easily make it to 34 a share. Not sure how much follow through there will be if the market takes a major dive here. I'd bet on 34 atleast though. I like this stock here. click below or post title to continue

I like the steady uptrend that always reacts to the trend lines I drew. The circles I made are gap up days. Very consistently after a strong gap up day like we had yesterday and big volume spike the stock has kept getting picked up. Guess what this gap up and volume spike on trend line support yesterday tells me the stock is going to do? Take that with the fundamentals and this is a good entry.

















full disclosure: no position