First Solar, Inc. (FSLR) is seeing a significant jump in its stock price today after the company released earnings that were significantly above expected levels.  The consensus expectations were for earnings of $1.51 but FSLR came in 30% above these levels with a $1.99 EPS level.  This puts earnings 23% higher than the level seen in the first quarter and an astounding 249% above the first quarter of 2008.

Still, First Solar should continue to be a strong player in the industry with its strong capital base, and passionate pursuit of lowering production costs.  the ZachStocks Growth Model has a strong position in the company which was showing a 20% gain prior to today’s stock run-up.  (For a free trial to the model click here).  Raymond James has increased their price target on the company to $215 which is 42% above Wednesday’s close.  The target is based on a PE of 25 compared to the 2010 estimate of $8.70 in earnings.

Even given the sharp move in the stock today, I still believe First Solar offers a strong opportunity for investors.  The stock has built a solid base and the company is well ahead of its competition due to its financial stability and low cost production.  If government stimulus kicks in from multiple countries, we could see even more of a rise in the industry.  Other attractive opportunities include LDK Solar (LDK), and ReneSola Ltd. (SOL).

The recovery in solar stocks has taken much longer than I anticipated and may still face some challenges, but for now the picture appears to be clearing.  Many of the stocks are trading for incredibly low multiples and have potential for exceptional gains as investors put aside their fear and price stocks based on growth prospects.

FD: Author has a long position in FSLR and LDK in the ZachStocks Growth Model and a personal options position in LDK
FSLR Notes
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How to play, and never miss, a short-term bounce

We’re often asked at MarketClub just how to play short-term pops. Regardless if you are look at stocks, futures, or the forex market, it’s always the same… MarketClub Alerts.

With these Alerts you are getting a warning of a major move. It’s not that you are reacting to fundamentals, it’s just that when the technicals align, you are the first to know.

See our Video on the Alerts

You see, no matter what happens, what methods you use, or what markets you trade, the following is always true: If you’re the first to know, you’re the first to profit!

This applies to our trading strategy, MarketClub Alerts, and the steps we need to take to capture profits and stay on the winning side of those short-term moves.

Please enjoy the video, as always its with our compliments.

Amedisys, Inc. (AMED) is trading higher this week after a healthy earnings report.  The company beat analyst expectations by two cents reporting EPS of $0.99 on revenue of $341.8 million.  Both figures were up 60% compared to the first quarter of 2008.  While much of the revenue increase was due to acquisitions, the increase in profit was largely due to lower General and Administrative expenses as well as a decline in interest expense.

On top of a good historical report, management gave an encouraging picture of the current economic climate.  Specifically, it looks like industry lobbying efforts may be making progress in regards to the 2010 budget.  Management believes that Congress can reach a bipartisan agreement on the budget that will not include a cut to Medicare.  This would certainly give mutual fund managers who own the stock some confidence, and could cause problems for hedge fund managers who may be short due to concerns over a potential cut in reimbursements.

The financial picture continues to be strong for this long-term care firm.  Amedisys finished the first quarter with $25.6 million in cash along with $154.4 million in accounts receivables.  Skeptics have discounted account receivable balances in the past citing difficulty in collecting on these balances.  However, this quarter the company reported a drop in the Days Sales Outstanding (DSO) level which indicates success in collections processes.

The company also enjoys an additional $166 million of available funds under a revolving credit facility.  This means that management has plenty of dry capital to use for acquisitions which has been a primary driver of growth in the past.  During the first quarter Amedisys spent $7.5 million on acquisitions and will likely continue to announce purchases as opportunities are quite attractive due to the weak economic environment and lack of available credit for many competitors.  As AMED completes these acquisitions, they are able to roll out specialty programs that have higher margins and more profitability.

Amedisys is growing organically as well, with 160 start up locations in various stages of opening.  But despite the strong growth prospects, AMED is still trading at a very low multiple.  The discount is largely due to industry fear of Medicare reimbursement cuts.  But since AMED typically saves Medicare from higher costs related to hospitalizations, the company should receive preferential treatment.  At the same time, weakness in the industry works to AMED’s advantage because they can purchase competing locations for cheap prices.

The ZachStocks Growth Model has a position in the stock which should contribute to outperformance this year.  (you can get a free trial to the model here).  If the company simply meets expectations for the current year and investors begin to pay a more reasonable multiple (conservatively estimated at 15), the stock could quickly rise to a price above $60.  That’s a nearly 100% gain from current levels!  At this point it appears the market is discounting the worst case scenario and any positive surprises could quickly move the stock.

FD: Author has a long position in the ZachStocks Growth Model
AMED Notes
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How to play, and never miss, a short-term bounce

We’re often asked at MarketClub just how to play short-term pops. Regardless if you are look at stocks, futures, or the forex market, it’s always the same… MarketClub Alerts.

With these Alerts you are getting a warning of a major move. It’s not that you are reacting to fundamentals, it’s just that when the technicals align, you are the first to know.

See our Video on the Alerts

You see, no matter what happens, what methods you use, or what markets you trade, the following is always true: If you’re the first to know, you’re the first to profit!

This applies to our trading strategy, MarketClub Alerts, and the steps we need to take to capture profits and stay on the winning side of those short-term moves.

Please enjoy the video, as always its with our compliments.

One of the most difficult investment decisions can be when to sell a winning position.  While common wisdom is to let your winners continue to run, and cut losers quickly; there comes a time when even strong stocks need to be sold or paired back.  In the ZachStocks Growth Model, we have reduced several of our strongest positions in order to lock in gains and take some of the risk off the table.

Investors in Buffalo Wild Wings (BWLD) will have plenty to think about today as they wait for the company to announce earnings after the close.  Anyone who has purchased the stock in the last 6 months is now sitting on an outsized gain.  After all, the stock has risen from a low of $14.50 in late November to its current price above $42.  That’s a gain of 190% in just over 5 months!

When the stock was at its low in December, the market was discounting a severe slump in consumer spending, and vast uncertainty surrounding the state of our financial sector and the broader economy.  But at $14.50, it could be quite obvious to a rational investor that this stock was a great value.  In February when the company announced strong earnings, the stock shot up 34% in one day as investors breathed a sigh of relief.  The company announced that sales continued to grow with $121.2 million in revenue in Q4 and earnings of 43 cents (up 26% from Q4 of 2007).  This kind of growth hardly reflects a recessionary environment.

But today as we head into the earnings report, the mood of shareholders is quite different.  Buyers have bid up the stock to a point where it is trading for 25 times the expectations for this year’s earnings.  Hope springs eternal, and investors are apparently quite comfortable holding the stock of this strong growth company.  But if the trader’s goal is to buy fear and sell confidence, then it may be time to consider selling ahead of what could be a disappointing earnings report.

Now I understand that BWLD is a strong company with healthy cash flows and a loyal customer base.  I also understand that earnings are stable and growing when many competitors are faltering.  But I think that the stock price more than adequately represents these positive characteristics, but may have gotten a bit too high.  So today I want to discuss a way to capitalize on investors optimism while limiting the risk of a pure short sale.

In my years of hedge fund trading, we have always looked for ways to capture profits while limiting the amount of risk to our current capital base (that’s right, some hedge funds actually care about risk).  One of my favorite opportunities is to sell options with high premiums ahead of a scheduled event.  Once the event occurs, the price on those options typically declines substantially, and so our strategy acts as a buffer for the risk we are taking in the stock.  Let me give you the basic trade for BWLD and then explain how it works.  (prices may be different depending on market movements)

• Sell the BWLD May 45 calls (BQU EI) at $2.20
• Sell the BWLD May 40 puts (BQU QH) at $2.50
• Sell Short BWLD stock at $42.00

Now essentially this is a short play on BWLD with a bit of a hedge built in.  We are selling options and bringing in $4.70 per share in premium.  As long as the stock stays between $40 and $45 until expiration which is May 15th, that $4.70 is ours to keep.  The $4.70 helps to hedge our exposure to the short stock.

If BWLD trades down below $40, then we get to keep the $4.70 but are obligated to buy the stock at $40.00 when the puts are exercised.  That’s ok with me because I am short BWLD and buying the stock back at $40 would give me an extra $2.00 of profit for a total of $6.70 in profits.

If we’re wrong and BWLD trades up to $45 at the time of expiration, we still get to keep the $4.70 in option premium but we lose $3.00 per share on our short position.  So that leaves us with a two week profit of $1.70 per share, still not too shabby.

The risk comes in if the stock trades above $45.85.  At this point, our short BWLD position is off by $3.85 and we’re also obligated to sell stock to the owner of the calls we sold – giving us a loss of another $0.85.  Above this level we begin to accumulate losses.  My intention at this point would be to buy in my short position, and then buy enough stock to cover my calls as well.  That way when I’m obligated to sell stock at expiration, I already have the stock in my account.  But the risk here is still better than if you were to short BWLD as a simple short trade.

Now in order to sell options “naked” or without stock to cover the position, you have to have a margin account, and enough capital to cover the risk of the trade.  In order to place this trade you should also have a firm understanding of how each part of the trade actually works.  But for those who are willing to do some homework and think outside of the box, this type of trade can be quite lucrative.

If you’re interested in looking at alternative ways to approach market trading, then please give me a call and we can discuss what options are available to you.  My direct line is 678-467-7064 or you can email me at growth@zachstocks.com

FD: Author does not have a position in BWLD
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Synaptics, Incorporated (SYNA) reported earnings on Thursday.  The figures came in significantly above wall street expectations with earnings hitting 38 cents for the quarter.  Despite a weak economic environment, the earnings were actually up 56% from the same quarter last year and 5 cents ahead of analyst expectations. The company saw revenue climb 28% to $101 million, quite an impressive feat for any company in 2009.

In addition to blowing current estimates out of the water, the company also issued strong guidance for the rest of the year.  Management expects to earn $0.37 to 0.47 per share in the fourth quarter (fiscal year end is June 30), on revenues of $105 to $115.  The street had been expecting earnings of $0.36 cents and one would likely assume that the company would give relatively conservative guidance.  Even at the low end of guidance, the company will finish fiscal 2009 with earnings of $2.09 per share.

Synaptics makes many of the touch applications that were originally cutting edge technology, but are now accepted as common for computers and PDAs.  In particular, the company makes the touch-wheel made popular by Apple Inc. (AAPL)’s iPod, as well as the mouse touch-pad used on most laptops.  The touchscreens on most popular PDAs are also products made by Synaptics.  Although the company has already built a strong market share of roughly 60% for laptop applications, its growth will likely continue to come from mobile devices.

Currently the company has a deal to work on the new Blackberry Storm smart phone being launched by Research In Motion Limited (RIMM), and is also involved in 3 LG tough phones that will be launched later this year.  In fact there are 15 to 20 OEM handsets that are currently in production with Synaptics gear included.

Gross margins were reported at 40.9% for the past quarter which was a huge relief for analysts.  There was some concern of the possibility for a price war to erode profitability, but that does not seem to be a factor at this time.  JPMorgan Chase & Co. (JPM) actually believes that over the long-term Synaptics will realize 40 to 45% gross margins and more than 15% operating margins.  Paul Coster who is the analyst for Synaptics has the stock at “Overweight” and last week he raised the price target from $33 to $36.

The higher price target may still be conservative considering the strong growth Synaptics has been able to record.  In 2008, the company saw earnings up 51%, and in the last two years sales levels have been up 45% and 35% respectively.  The company has a healthy balance sheet with a cash position large enough to cover all liabilities if necessary.

While no company is immune to competition, Synaptics has done an excellent job of positioning themselves as the leader in their niche industry.  There could certainly be additional technologies which have the potential to take market share, but Synaptics is active in re-investing a strong percentage of revenues into research and development in order to stay ahead of the technology curve.

Multiples on growth stocks have certainly contracted in the current environment.  But for a company that continues to show fundamental growth and stability, a premium price is likely warranted.  Currently SYNA trades at just 15 times this years expected earnings.  Analysts have a conservative view of next year’s growth which is likely weighing on the stock.  So despite a fun of 100% since late last year, I still believe SYNA offers an attractive investment for long-term gains.  The company has a strong backlog of business and continues to win contracts.  A price of $42 (or 20 times current earnings) does not seem unreasonable to me.

FD: Author does not have a position in SYNA
SYNA Notes
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• Earnings Season Adds Volatility for Investors
• Bank Stress Tests – Quality of Assets in Question
• Economic Update – Mixed Signals
• Private Equity – Resurgence in Activity
• Potential Skype Spinoff from Ebay

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Stocks Mentioned:
du Pont (DD)
Merck & Co., Inc. (MRK)
Caterpillar Inc. (CAT)
Allegiant Travel Company (ALGT)
Blackstone Group (GS)
eBay Inc. (EBAY)

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NYSE Euronext (NYX) traded sharply higher on Thursday on rumors of a possible merger with Deutsche Borse Group. Now under normal circumstances it would be easy to dismiss these comments, but a few circumstances make a potential merger much more than a passing possibility.

Both companies have already acknowledged that they had discussions late last year but were unable to settle on terms for the deal. Raymond James notes that at the time there were two large activist shareholders that hindered a deal from being inked. Those investors are no longer in play which could allow negotiations to flow between the two companies’ boards.

Other Articles of Interest
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Intercontinental – Conviction Level High

NYSE Euronext is no stranger to mergers, but has historically been on the buyers side of the table. Currently, the company is working on integrating its Euronext acquisition. Management says the process is going smoothly and the company is on schedule to realize $250 million of cost savings from this merger and another $120 million from the American Stock Exchange purchase. But in a merger with Deutsche Borse, it is more likely that NYX would be the target instead of the buying firm.

Deutsche Borse Group has a larger market cap than NYX and would likely use equity to make its purchase. NYSE investors are bidding the stock higher because in a stock exchange, NYX shareholders would largely get a premium conversion rate while Deutsche Borse shareholders would see their interests somewhat diluted. A combined company would have an incredible global footprint with more than 50% of US option trading, a strong position in the European futures market, and a large portion of the continental European equity markets. Raymond James believes a combined company would face an “integration nightmare” as the two companies attempt to combine systems and save expenses on redundant back office functions.

The rumors actually raise some other possibilities for mergers in the industry. IntercontinentalExchange, Inc. (ICE) has been a strong growth company both organically and through making its own acquisitions. If talks with NYSE Euronext fall through, Deutsche Borse Group could easily approach ICE. Or there is a potential for NYSE to combine with ICE in order to fend off a hostile takeover (although at this point a deal looks to be friendly).

Consolidation in the industry would likely catch the attention of regulators. The current administration is certainly not likely to support any merger that would put individual investors at a disadvantage, and so there may be divestitures required in order to complete the deal. But at the same time the industry has become so technically advanced that it is more possible for small niche companies to set up shop and compete for order flow. As the industry continues to evolve, we will likely see continued consolidation and growth in companies willing to adapt to changes. FD: Author has a long position in the ZachStocks Growth Model NYX Notes Enjoy this article? Subscribe to ZachStocks via RSS (What is RSS?) Or Subscribe Via Email:

For the quarter, VMW realized revenue of $470 million which is only 7% above the revenue from the first quarter 2008.  Management noted that the macro environment was extremely challenging and stated that revenue for the second quarter would likely be flat to down compared to last year.  Customers are expected to continue to be tight fisted when it comes to technology spending.  While these customers are likely to choose VMW over a competitor due to the cost savings aspect, the competitive advantage will likely not make up for the industry weakness.

While the company will continue to be profitable, and holds plenty of cash on its balance sheet to survive the economic cycle, many investors are likely to dump shares.  The stock is well off its high of $72.08, but still likely to fall.  In fact Barclays issued a report this morning with a price target in the low to mid 20’s.  Unfortunately, when a growth stock company no longer shows strong growth prospects, the multiple can contract quite quickly.

According to Wachovia research, 2009 is likely to be a year of uncertainty for VMware.  The report cites a deceleration in top line growth along with margin compression.  This is a fancy way of saying the company will get less in sales, and even those sales will generate smaller profits.  Compound smaller profits with a lower multiple on the stock and you have a very disappointed shareholder base.  This is why I think it makes sense to be out of the stock and potentially short even at this point (in the $26 range).

VMware will continue to work on providing new solutions for customers.  They recently announced strategic collaborations with Cisco Systems, Inc. (CSCO) as well as Intel Corporation (INTC).  On top of that, the company is pushing new features which cater specifically to small businesses offering top notch service for a smaller initial investment.  The management will almost certainly keep the company profitable, but at a lower level than investors had been hoping for.

FD: Author does not have a position in VMW
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Information on the infamous bank stress test is due out later this week, with a more detailed report scheduled for May fourth.  This may be the most “leaked” news article of the year as we have been given several clues both from elected and appointed officials as well as from the individual banks involved in the tests.

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Allegiant Travel Company (ALGT) is certainly a bright spot in the current recessionary market.  Although the S&P dropped more than 4% on Monday, Allegiant actually saw its shares rise by nearly the same amount.  With the stock less than a dollar from its 52 week high, a positive trend is certainly in place and the stock has been very helpful in the success of the ZachStocks Growth Model.  (Get a Free Trial Here)

The rise in the stock price is largely a result of the earnings figures which were released over the weekend.  The company saw its revenue come in at $142.1 million which was 6.7% higher than the first quarter last year.  A small increase in business is pretty exceptional in today’s market but the revenue growth pales in comparison to a gain of 191.5% in earnings.  The first quarter earnings came in at $1.37 per share which represents about 80% of the earnings the company saw during the entire YEAR in 2008!

The strength is largely due to a decrease in fuel costs.  The company has decided to avoid hedging fuel prices which has certainly benefited them in the last several quarters as oil prices are sharply off the levels seen last summer.  In the first quarter the operating expense per passenger was $75.42 compared to $102.86 last year.  When you consider the average revenue per passenger was $108, the savings make a big difference.  In fact, Allegiant reported operating margins at an all time high of 31.3% .

Allegiant operates a very non-traditional airline which has allowed them to remain profitable despite competitors reporting significant weakness.  For starters, the company concentrates on small regional cities not serviced by the major airlines.  This allows Allegiant to avoid price wars.  A focus on leisure travel may seem a bad strategy for today’s environment, but leisure flights have better margins than business flights right now and the company is able to make additional revenue by partnering with hotels and attractions to sell other services to customers.  Improving liquidity in the financial markets also allows individuals more options for vacation loans. Allegiant is dedicated to being a low cost airline so they keep expenses at a bear minimum.  And as we have already noted, they do not hedge fuel costs.

While Allegiant’s planes were busy during the quarter (carrying a load factor of more than 90%) management was also busy making some key strategic decisions.  In the press release, management noted that one of the most important events of the quarter was the acquisition of the Information System assets from CMS.  This will allow the company to cut back on quarterly expenses, and is a great example of management using cash on-hand to create a more healthy firm for the long-run.

The company also used $11.5 million for capital expenditures including the purchase of 3 additional planes.  Allegiant now has 41 aircraft in service compared to 36 last year.  There is an additional 5 aircraft owned by the company which will soon be flying with the fleet.  Right now 3 of those planes are being leased to a third party – a creative way for the company to earn additional revenue on its assets.

Cash on hand increased to $236.4 million at the end of the quarter with only 59.3 million in total debt.  This is after the company spent $7.1 million to buy more than 210,000 shares.  The average paid was $33.59 which is a pretty attractive price.  In fact, if you look at the chart you can see how this purchase program actually supported the stock in the low 30’s before it began the current run.

At this point the stock has rallied more than 70% from its March swing low.  But ironically, the stock still looks quite attractive.  With expectations of $4.36 per share this year and $4.51 next year the stock is just 12.5 times earnings – quite a deal for a firm with the growth of Allegiant.  And with new routs being added (including the new Los Angeles destination) these estimates could prove conservative.  I think Allegiant will continue to provide investors with strong gains and I look forward to seeing the news at the end of the second quarter.

FD: Author has a long position in the ZachStocks Growth Model
ALGT Notes
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The IPO Market is back in gear!  So far in April we have had three new stocks hit the market…  The most activity seen since July of 2008.  Now while the deal rate is still well behind the levels seen in the middle of this decade, the trend is certainly encouraging.  And not only are the deals getting priced, but at this point all three deals are trading above their offering price – a positive sign of demand.

The Wall Street Journal compared RST to Intrepid Potash Inc. (IPI) which also saw significant gains in its first day of trading.  However, IPI still took more than a month to consolidate those gains before pushing higher, and after that the stock dropped more than 80% from June to December of last year.

Rosetta earned just 68 cents per share in 2008, and has noted that weakening traffic in malls and airports could hamper growth.  Yet the stock is trading for more than $28 per share as I write which is quite an aggressive multiple.  Obviously the company is young and could grow tremendously in the coming years, but the stock is priced so that there is significant risk to investors.

Another problem with new issues is the lack of visibility.  Research firms who know the company the best are currently in the silent period and not allowed to issue recommendations.  Once this silent period is over, they still have a conflict of interest which may bias their opinion to reveal more positive facts about the company and less of the risk.  Until the stock has been trading for a few months, it may be difficult for the average investor to get quality information on the company.

During strong bull markets, IPOs usually offer great investments for supercharged returns.  But in today’s volatile (and arguably overbought) market, the potential for gains may be dwarfed by the risk.  It may be difficult to borrow shares to short RST until the stock has been trading for a week or so, but at some point over the next week will likely become a good candidate to play from the short side.  I truly enjoy investing in IPOs during favorable market conditions, but the opportunity in RST does not currently appear very attractive.

FD: Author does not have a position in RST
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