The last few weeks have been difficult for many retail stocks – and particularly challenging for investors in the recent IPO of Express Inc. (EXPR).  After being offered to the public at $17.00 per share, the stock has lost about 15% of its value and hit a new low in light trading this morning.  Express is a specialty apparel chain with 573 retail locations spread across the United States.  Originally a part of Limited Brands (LTD), the majority of the company was purchased by Golden Gate Private Equity Inc. in 2007.  The IPO is the first step for the private equity company to cash in on its 3-year investment.

The IPO was managed by Merrill Lynch / Bank of America (BAC) and Goldman Sachs (GS). With such a diverse retail and institutional platform, one would have expected the shares to be placed in the hands of long-term investors and priced at a discount to allow for an initial increase in the share price.  But the environment for retail stocks has been extremely difficult and institutional investors have been offloading risk at a steady pace this month.  At this point it seems that the selling shareholders got the better end of the deal – liquidating part of their position at $17.00 per share.

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According to the terms of the prospectus, there were roughly 16 million shares sold to the public of which 10.5 million were primary (sold by the company to raise  capital) and 5.5 million were sold by private shareholders.  However, when looking more carefully at the deal, this statistic is a little misleading…

Express essentially DID receive $170 million in proceeds from the deal which it used to reduce outstanding debt.  However, it should be noted that the outstanding debt is actually owed to several subsidiaries of the private equity firm that purchased the brand in 2007.  So after passing briefly through Express’s balance sheet, the funds will then be distributed to the selling shareholders in the form of a debt repayment.  Express will be left with $368 million in long-term debt and roughly $67 million in cash.  The pro-forma balance sheet has stockholders equity at $89 million – which implies a 413% debt to equity ratio – not exactly a solid balance sheet.

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But despite the shaky circumstances with which this stock began its publicly traded days, I expect EXPR to find a floor near $14 and begin to trade higher.  One of the primary reasons is because only a small portion of the stock was actually liquidated in the IPO transaction.  Sixteen million shares were sold to the public, but the number of shares outstanding is closer to 89 million.   That means Limited Brands and Golden Gate Private Equity still hold the majority of the stock and will see the market value of their investment rise and fall with the fortunes of the stock.

Once a private equity firm has begun to liquidate its position, they usually don’t wait too long to follow up by selling the remaining shares.  With the negative reaction to EXPR’s stock there is even more of an incentive for the company to find a “graceful” way of exiting this position.  So it may sound counter intuitive, but one of the best ways for Golden Gate to liquidate the rest of its position is for the company to step in and support the price of EXPR – and if they are going to take this action they need to act quickly!

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Supporting the stock at this time when the market is attempting to rebound will be key.  If EXPR begins to trade back towards the $17.00 IPO price and holds a stable pattern, then Golden Gate stands a better chance of selling its remaining shares in a secondary offering.  But if the stock is allowed to fall from here, there will likely be no market for quite some time.  So the stakes are high and the amount of capital at risk is not trivial.

Other Articles of Interest
Solar Selloff Close To Exhaustion?
Harsh Winds Blow for Solarwinds
Forbes: Beijing’s Bloated IPO
WSJ: CBOE Seatholders Approve IPO

It may be a little too cute on the trading side, but with retail names showing some relative strength over the past few days, I expect EXPR to be good for a trade higher.  The potential return is somewhere in the neighborhood of 10% to 12%.  But this can be painted against a relatively low-risk backdrop.  If I were to enter the trade later this week, I would place a stop just below $14.75 or so – exiting the trade if the rebound in EXPR doesn’t take place immediately.  Setting up a short-term trade in an improving market with capped risk is one of the better ways to play a short-term rebound and I think the general negative sentiment in the retail area could be temporarily lifted as the illusion of financial stability comes back into this market.

FD: Author does not have a position in any stocks mentioned in this article.

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A lot has happened since May 4th when I penned a negative article on First Solar Inc. (FSLR).  My expectation was that the crisis in the Euro-Zone would have a material effect on stimulus for solar projects, which in turn would hurt the solar stocks which are so dependent on these subsidies.  Since that time, FSLR has dropped from $143.72 to near $106 today, and many other stocks in the sector are down substantially more.

The concerns in the solar industry are certainly valid.  Europe has been one of the primary champions of alternative energy and Germany & Spain have been especially beneficial with their generous programs to help defray costs for installing environmentally friendly energy sources.  Without these stimulus programs, the demand for solar products could be significantly cut – and with excess capacity in the industry pricing may continue to suffer…

But how far is too far?  The Claymore Global Solar Index (TAN) pictured below is off 43% from its 2010 high and many individual stocks have experienced much wider losses.  Investors in the sector appear panicked and willing to sell at any price regardless of the fundamental value of the individual companies.

This type of environment can create attractive opportunities for the scrupulous and patient investor.  While the trend is negative and selling  could continue, several stocks are entering a range where it makes sense to allocate a small amount of long-term capital with the possibility of realizing very large returns when the sector rebounds.

Trina Solar Ltd. (TSL) is off more than 40% in just the last three weeks.  At $15 per share, the company looks like a good risk considering earnings are expected at $2.12 for this year and $2.35 for 2011.  Even if these earnings levels were cut in half, the stock would still have a low multiple relative to it’s long-term growth prospects.

In the fourth quarter, the company shipped 163.7 MW of solar product and saw its revenue increase to $313 million (over $216 million in the fourth quarter 2008). Gross margins increased to 32.6% which is impressive given the fact that average sales prices per watt dropped from $3.61 in the fourth quarter of 2008 to $1.90 in Q4 2009.

Debt levels are under control with total debt of $585 million and cash on hand of $478 million.  In 2010, the company expects Germany and Italy to make up less than half of total sales which is an improvement from past years.  However, the dependence on these two countries certainly does pose a risk to investors which is why the stock is so cheap today.

The company will announce first quarter earnings on May 25 before the market opens.  Investors will be listening carefully to understand what trends are in play and what feedback management is getting from customers.  The stock is currently in a place where even bad news could easily spark a rally.  Investors are expecting the worst and so something at or slightly better than “the worst” could quickly drive share prices higher.

Other Articles of Interest
First Solar Faces European Stimulus Concerns
Gold Stocks Back in Vogue
Barron’s: LDK Spikes; Merrill Upgrades
Market Foly: Is there Rehab for This Oil Overdose?

 

Long-term, the entire solar industry could benefit from the wake of BP’s giant oil spill.  Environmental concerns will likely drive tighter regulations for fossil fuels, and generate more demand for alternative means such as solar energy.  Short-term concerns are weighing down the market, but in the long run we could easily look back on the summer of 2010 as an excellent buying point for solar stocks.

FD: Author does not have a position in any stocks mentioned in this article.

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Shares of Priceline.com Inc. (PCLN) are off sharply in early trading after the company announced earnings for the first quarter.  On the surface, the numbers were strong.  Revenue for the first quarter eclipsed a half-billion coming in at $584.4 million.  This is a 26.5% increase over revenue for the first quarter of 2009.  Earnings were even more impressive with EPS at $1.70, good for a 56% increase.  The earnings figure beat consensus estimates by 4 cents, but the revenue came in about 2% below expectations.

While the historical numbers should be viewed positively (although analysts have become accustomed to the company actually beating expectations), the forward guidance was concerning.  Management is guiding investors to expect earnings between $2.50 and $2.70 for the second quarter.  This is an important quarter for the company given travelers tendency to book summer vacation trips.  Revenue is expected to increase 18% to 23% which is significantly below the 25.8% average expectation.

Guidance for the second quarter still reflects growth for the company, but challenges are certainly pressuring that growth:

The Iceland volcano caused widespread disruptions in air travel which resulted in a significant increase in hotel room cancellations for our Booking.com business. Civil unrest in Thailand has substantially impacted hotel room reservations in Thailand, which is a key market for Agoda and Booking.com’s Asia business. Lastly, sovereign debt concerns in Europe have resulted in a significant decline in the value of the Euro as compared to the U.S. dollar which adversely impacts our financial results as expressed in U.S. dollars. ~Jeffery H. Boyd, CEO

Priceline’s stock price has been extremely volatile over the last week.  This is in stark contrast to the sustained positive move which investors have enjoyed for well over a year.  After setting a low near $45 in December of 2008, the stock has rallied more than 500% to its recent high above $270.  And despite the sharp increase, the earnings multiple is not overwhelmingly expensive at this time.

Using the forward consensus earnings expectations of $11.21 for this year (which will likely be reduced after the earnings report), the stock is trading at just 18 times forward earnings.  But while that number may appear reasonable, I expect these expectations to be reset lower and potentially continue to be adjusted as we move through the year.

Debt issues in Europe are almost certain to continue to be a problem.  Yesterday (Monday) the Euro made very little progress against the dollar despite the fact that a $1 trillion dollar bailout package was put into play.  If the Euro can’t rally on this type of stimulus, then it is difficult to see what would pull it out of its decline anytime soon.

On top of that, the global consumer’s confidence may quickly be shaken as we deal with sharp volatility in the market again.  For over a year, a rising stock market (both domestically and abroad) has led to consumer confidence, and in turn has helped to propel consumer spending on many luxuries including travel.  Businesses have become more active travelers too as liquidity and corporate spending has become relaxed.

But if those trends are reversed, PCLN could be very vulnerable to a sharp decline.  If earnings for this year turn out to be 10% above 2009 and 2011 experiences the same type of growth, the market could easily use a lower multiple in the neighborhood of 12 which would yield a stock price closer to $112.  And if earnings actually decline in 2010 or 2011 the stock could fall much farther.

At this point it appears that the risks in owning PCLN far outweigh the possible returns.  While shorting outright at this juncture may be difficult (given intense volatility) active traders could consider selling out of the money calls (and possibly puts too) to capture volatility premiums.  Before engaging in this type of trade, make sure you understand the risks of selling options and have a plan in place to offset your losses if the stock moves against you.

Other Articles of Interest
BJ’s Restaurants – Great Expectations, Greater Risk
Harsh Winds Blow for Solarwinds
Market Folly: Priceline Tanks on Soft Guidance
WSJ: Priceline’s Profit Doubles

If PCLN rallies back towards the 50 day average, aggressive traders could take a shot at shorting the stock with a tight stop.  The environment is changing for this successful travel business and I expect more weakness in the coming quarters.  As an alternative, investors could also consider shorting Ctrip.com International (CTRP) which could be under pressure both from weakening travel as well as less robust growth in the Chinese economy.

FD: Author does not have a position in PCLN

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Shares of First Solar Inc. are off more than 4.5% today as the broad market takes on water and growth investors are punished.  The stock has had a very strong run over the past few months, rising 50% from the low set on February 25th.  The company recently announced earnings of $2.00 per share for the first quarter on revenue of $568 million.  Revenue was up 36% which impressed analysts and management increased guidance for the full year due to strong European demand for its cells.

However, despite the positive outlook and strong execution, I’m concerned that  FSLR could find itself in a trading range – or worse, in a negative trend as investors shy away from growth companies which rely on European customers.

With the financial world’s attention focused on the problems in Greece, and the growing concern that contagion could quickly spread to Spain, Italy, Ireland and Portugal, European commerce could quickly come under pressure.  Germany has been one of the few stalwarts of strength, but even the fiscally conservative country could find itself with serious losses as the government is faced with the task of bailing its neighbors out.

To be sure, the crisis in Europe is nowhere near contained, and it is difficult to handicap the potential danger, and the ways that mounting sovereign debt could affect the broad global economy.

Germany has had one of the most liberal solar stimulus programs, encouraging the use of alternative energy and helping to boost the profits of solar companies that operate across Europe.  My understanding is that stimulus programs were already in the process of being wound down before the crisis truly became big news in Europe.  Now that Germany is more likely to be on the hook for a huge bailout, the stimulus programs are even more likely to be curbed – which could have a material effect on sales levels for solar manufacturers across the board.

As you can see in the chart below, Germany makes up a significant amount of projected demand for solar energy

First Solar is not particularly expensive given its strong profits and past record of growth.  But at 22 times current estimates for 2010 earnings, investors are pricing in robust growth which may be much more of a challenge as the European crisis evolves.  On top of that, FSLR appears to be on the acquisition trail as it announced a purchase of NextLight Renewable Power and could make additional purchases with its leveraged balance sheet.

There are a few positive issues that could help support the price of FSLR.  For starters, the company has little debt which will likely give the firm a competitive advantage if we enter another difficult period for solar.  In this case, acquisitions might be a strong benefit to the long-term value of the company as cash-starved competitors could sell out for attractive discounts as they would be unable to remain solvent under heavy debt loads.

Also, there is the BP oil spill which may add to pressure for more “safe” energy sources.  If oil drilling comes under tougher sanctions, we may see higher demand for solar energy as a result.  Such a move would benefit the entire industry and with FSLR as one of the leaders, it could receive higher levels of new orders.

Other Articles of Interest
Lululemon Heads South
Homebuilders – Too Far Too Fast?
FT: Greet Contagion Fears Hit Europe Stocks
Ritholtz: China Under Pressure Again as is Europe

But today, it appears the safest bet on FSLR is for a lower price.  Speculation is being punished and the solar industry is certainly one with high risks and cloudy visibility.  Investors are likely to bail out of these growth positions until the environment becomes clearer and until that happens FSLR shares could easily lose a third of their value to trade back down to the lows from February.

FD: Author does not have a position in FSLR

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Shares of Solarwinds Inc. (SWI) are off sharply today after the company announced first quarter earnings.  While the headlines beat the published consensus expectations, the devil was in the details.  As I write, the stock is off close to 15% as growth assumptions are being challenged, and speculative investors are getting punished.

Despite the “alternative energy” name, Solarwinds is actually a network company which seeks to identify and solve network performance issues.  The company has a broad client base – boasting 93,000 customers at the end of the first quarter and offers a wide assortment of solutions:

• Network Monitoring
• Configuration Management
• Network Traffic Monitoring
• App & Server Monitoring
• IP Address Management
• IP SLA Monitoring
• Virtualization Monitoring
• Wireless Monitoring
• Network Mapping

I’m not a tech guy by any means, but I can tell you that investors were excited about this relatively new stock because of the broad number of services the company offers, and the potential to cross- sell these services to existing clients.  The idea is for the company to get their foot in the door by selling one service, and then quickly explain why the customer needs a full bundle of services to operate efficiently.

Up to this point, it looks like the company has been very effective in growing its revenue base.  The first quarter showed a revenue increase of 43% over the same quarter last year.  The business was nearly evenly split between license revenue and maintenance revenue.  The maintenance business is a bit more valuable to investors because this is largely recurring revenue with stability quarter after quarter.

But looking at management’s projections, it appears the growth rate is likely to contract considerably – which is a major concern for investors.  For the second quarter, management is guiding revenue of $36 to $37.8 million which is at best a 40% increase over the second quarter of 2009.  For the full year, revenue is expected to be $159-165 million.  This indicates that management is expecting a significant pickup in revenue for the third and fourth quarters in what is known as a “back end weighted” year.

Essentially, management is asking investors to take a “leap of faith” stating that revenues will be in the mid 30 million level for the first two quarters – and then the high 40 million range for the third and fourth quarter.  Unless there is a particular contract that management expects to land – and the timing is very specific, it would seem that the back-end weighted guidance is sketchy at best.

Despite the 15% drop in Tuesday trading, the stock still appears to be over-valued based on earnings expectations.  Management is guiding analysts to expect 72 to 75 cents per share this year which only represents an increase of 15%.  But at $20.50, the stock is trading at 27 times the high end of guidance.  This multiple might be reasonable for a stock in the middle of a strong growth period, but with heavy competition, disappointing growth projections, an extended and vulnerable market, and a technically broken stock chart; the risks seem to far outweigh the potential benefits of owning the stock.

Other Articles of Interest
Neutral Tandem – Rebounding After Patent Pressure
Three Industries for Building Short Positions
Market Foly: Hacking Innovation Education in NY
TDI: Is Google Getting Soft?

Shorting SWI today may be a bit premature.  With the market likely to at least stage a rebound attempt from the sharply negative trade today, I wouldn’t be surprised to see SWI consolidate or even trade back to the $22-23 range.  But with the technical breakdown we have seen today and the potential for more selling as managers become less confident in the recovery, the stock will remain on my short list and could potentially trade back down to the IPO price of $13.

FD: Author does not have a position in SWI

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2008 ZachStocks Articles

2008-12-31 Four Stocks for the New Year

2008-12-29 NYSE Euronext (NYX)

2008-12-28 AthenaHealth Inc. (ATHN)

2008-12-26 Syniverse Holdings, Inc. (SVR)

2008-12-24 Focus Media Holding Limited (ADR) (FMCN)

2008-12-22 Capella Education Company (CPLA)

2008-12-20 Infrastructure and Investment

2008-12-18 VMware, Inc. (VMW)

2008-12-15 Expedia Inc. (EXPE)

2008-12-10 Salesforce.com Inc. (CRM)

2008-12-09 AECOM Techonology Corporation (ACM)

2008-12-07 Resources for Successful Investing

2008-12-06 A Primer on the Shipping Industry

2008-12-05 RiskMetrics Group, Inc. (RMG)

2008-12-03 TransDigm Group Incorporated (TDG)

2008-12-01 Blue Nile, inc. (NILE)

2008-11-29 Focus Media Holding Limited (ADR) (FMCN)

2008-11-10 Petrohawk Energy Corporation (HK)

2008-11-05 FCStone Group, Inc. (FCSX)

2008-11-04 MasterCard Incorporated (MA)

2008-11-03 TBS International Limited (TBSI)

2008-10-30 JA Solar Holdings Co., LTD (ADR) (JASO)

2008-10-29 Titan Machinery Inc. (TITN)

2008-10-26 Precision Drilling Trust (USA) (PDS)

2008-10-18 CBOE Volatility Index (VIX)

2008-10-03 Wells Fargo & Company (WFC)

2008-10-01 JPMorgan Chase & Co. (JPM)

2008-09-28 Waste Connections Inc. (WCN)

2008-09-24 EnerSys (ENS)

2008-09-02 Hill International Inc. (HIL)

2008-08-27 GT Solar International, Inc. (SOLR)

2008-08-26 Herbalife Ltd. (HLF)

2008-08-22 Burger King Holdings, Inc. (BKC)

2008-08-20 Las Vegas Sands Corp. (LVS)

2008-08-19 Salesforce.com, Inc. (CRM)

2008-08-18 Solarfun Power Holdings Co., (ADR) (SOLF)

2008-08-14 American Water Works Co., Inc. (AWK)

2008-08-13 China Medical Technologies, Inc. (ADR) (CMED)

2008-08-12 LDK Solar Co., Ltd. (LDK)

2008-08-03 Rackspace, Inc. (RAX)

2008-07-31 Mastercard Incorporated (MA)

2008-07-29 Managing Risk in a Dynamic Market

2008-07-28 The Blackstone Group L.P. (BX)

2008-07-27 Chiopotle Mexican Grill, Inc. (CMG)

2008-07-23 VMware, Inc. (VMW)

2008-07-20 GT Solar International, Inc. (SOLR)

2008-07-17 Fannie Mae (FNM) and Freddie Mac (FRE)

2008-07-16 MSCI Inc. (MXB)

2008-07-14 Chipotle Mexican Grill, Inc. (CMG)

2008-07-10 VMWare, Inc. (VMW)

2008-07-07 China Medical Technologies, Inc. (ADR) (CMED)

2008-07-06 MCSI Inc. (MXB)

2008-07-02 Energy Recovery, Inc. (ERII)

2008-06-28 What is a Secondary Offering?

2008-06-25 Comscore Inc. (SCOR)

2008-06-24 Verso Paper Corp. (VRS)

2008-06-23 FCStone Group, Inc. (FCSX)

2008-06-22 Hedge Funds – Good or Bad?

2008-06-21 Blue Nile, Inc. (NILE)

2008-06-19 Huron Consulting Group (HURN)

2008-06-14 Mechanics of an IPO

2008-06-13 ReneSola Ltd. (ADS) (SOL)

2008-06-12 Rubicon Technology, Inc. (RBCN)

2008-06-09 American Water Works Co., Inc. (AWK)

2008-05-30 State of the New Issues Market

2008-05-28 VMware, Inc. (VMW)

2008-05-27 New Oriental Education & Tech. Group Inc (EDU)

2008-05-21 Mindray Medical International Limited (MR)

2008-05-19 Copa Holdings, S.A. (CPA)

2008-05-15 Clearwire Corporation (CLWR)

2008-05-13 Genoptix, Inc. (GXDX)

2008-05-09 Interactive Brokers Group, Inc. (IBKR)

2008-05-06 Morningstar, Inc. (MORN)

2008-05-03 Dolby Laboratories, Inc. (DLB)

2008-05-01 Baidu.com, Inc.(ADR) (BIDU)

2008-04-30 Visa Inc. (V)

2008-04-29 Giant Interactive Group Inc (GA)

2008-04-28 China Finance Online Co. (JRJC)

2008-04-25 Chipotle Mexican Grill, Inc. (CMG)

2008-04-22 MF Global Ltd. (MF)

2008-04-20 Lululemon Athletica (LULU)

2008-04-16 Crocs Inc. (CROX)

2008-04-15 Euroseas Ltd. (ESEA)

2008-04-13 FC Stone Group (FCSX)

2008-04-07 comScore Inc. (SCOR)

2008-04-06 Chipotle Mexican Grill (CMG)

2008-03-31 E-House China (EJ)

2008-03-30 Neutral Tandem (TNDM)

2008-03-27 Diana Shipping (DSX)

2008-03-26 FC Stone Group Inc. (FCSX)

2008-03-25 China Medical Technologies (CMED)

2008-03-21 Blackstone Group LP (BX)

2008-03-19 Crocs Inc. (CROX)

2008-03-17 Chart Industries (GTLS)

2008-03-13 CTC Media (CTCM)

2008-03-10 Salesforce.com (CRM)

2008-03-06 Syniverse Technologies (SVR)

2008-03-05 Genoptix Inc. (GXDX)

2008-03-03 Oil, Gold, Inflation & a Round Earth

2008-02-28 Continental Resources (CLR)

2008-02-26 Perfect World (PWRD)

2008-02-25 Burger King (BKC)

2008-02-22 First Solar (FSLR)

2008-02-21 Phase Forward (PFWD)

2008-02-18 Is the Worst Behind Us?

2008-02-15 Netsuite (N)

2008-02-13 Salesforce.com (CRM)

2008-02-12 KBW Inc. (KBW)

2008-02-11 Shutterfly (SFLY)

2008-02-08 Morningstar Inc (MORN)

2008-02-07 Las Vegas Sands (LVS)

2008-02-06 NYSE Euronext (NYX)

2008-02-04 IntercontinentalExchange (ICE)

2008-02-01 OptionsXpress (OXPS)

2008-01-30 MetroPCS (PCS)

2008-01-26 VMWare (VMW)

2008-01-24 MasterCard Inc. (MA)

2008-01-23 New Oriental Education (EDU)

2008-01-19 2008 – How to Profit by Sticking to the Plan

2008-01-16 FC Stone (FCSX)

2008-01-14 Blue Nile (NILE)

2008-01-13 Las Vegas Sands (LVS)

2008-01-09 2008 – Five Trading Days, Down 5%

2008-01-07 Google Inc. (GOOG)

2008-01-05 Diana Shipping (DSX)

2008-01-03 CTrip.com International (CTRP)

2008-01-01 LDK Solar (LDK)

Archives 2010

Archives 2009

Archives 2007

2009 ZachStocks Articles

2009-12-31 2010 ZachStocks Recommendations (BX, AGO, ICE, SLV)

2009-12-31 Four Stocks for the New Year (A 2009 Recap) (JASO, ACM, TBSI, CMED)

2009-12-29 For WMG, 2010 Could Be the Year the Music Died (WMG)

2009-12-28 Clearing Firms Rally Into Year End (ICE, CME)

2009-12-28 Happy Holidays from ZachStocks

2009-12-21 Clear Channel Takes Advantage of Junk Bond Liquidity (CCO)

2009-12-16 Talecris Bounces Off IPO Price – Strong Growth Potential (TLCR)

2009-12-15 Banking in 2010 – At Risk If You Do, More Risk If You Don’t

2009-12-14 For-Profit Schools Face Default Risk (STRA)

2009-12-10 Fortress Investment Sees Better Times Ahead (FIG)

2009-12-9 Archipelago Learning IPO Sets Up Attractive Trade (ARCL)

2009-12-7 Emergent Biosolutions – Buying Opportunity (EBS)

2009-12-3 First Cash Financial Breaking to New Recovery High (FCFS)

2009-12-2 Taleo Raises Capital – But Where’s the Growth? (TLEO)

2009-12-1 Investors Will Soon Have Choices in China Telecom Stocks (ASIA)

2009-11-30 Netsuite Investors Begin to Doubt Growth (N)

2009-11-27 Black Friday Indeed

2009-11-24 Whole Foods Market – Not Every Sale is a Bargain (WFMI)

2009-11-23 The Silver Trade is Better than Gold (SLV)

2009-11-19 Agriculture in Focus – Fertilizers Sprout Profits (IPI)

2009-11-18 CRM Earnings – The Price of Perfection (CRM)

2009-11-17 China Drug Research Company Reports Stellar Earnings (WX)

2009-11-16 Solar Manufacturers Draw Attention (STP)

2009-11-13 Aecom Shars Rebound Sharply – Domestic and International Strength (ACM)

2009-11-12 Green Mountain Coffee (GMCR) Fails to Live Up to Expectations (GMCR)

2009-11-11 Vitamin Shoppe Adds to Successful IPO (VSI)

2009-11-10 Rosetta Hits IPO Price – Lowest Trading Since April (RST)

2009-11-9 Genoptix Beats Expectations and Raises Estimates (GXDX)

2009-11-7 Loans to Congress – The Untold Debt Story

2009-11-6 Blackstone Sees Improving Trends (BX)

2009-11-6 Blue Nile Reports Growth (NILE)

2009-11-5 Fed Maintaints Emergency Rate While Saying “All is Well”

2009-11-2 IPO’s Offer Mixed Bag of Results (DOLE, VRSK, GS)

2009-10-30 Stanley Inc. Reports and Raises Guidance (SXE)

2009-10-29 LogMeIn Logs a Strong Third Quarter (LOGM)

2009-10-28 Verisk Analytics – A Successful IPO (VRSK)

2009-10-27 AECOM Acquisition Lifts Stock (ACM)

2009-10-26 Tiffany Continues to Face Challenges – But Shareholders Continue to Buy (TIF)

2009-10-23 Carnival of Financial Planning

2009-10-21 First Cash Financial Reports Strong Earnings (FCFS)

2009-10-20 Strategic Acquisition Boosts EBIX (EBIX)

2009-10-15 E-House China to Launch New IPO (EJ, CRIC, SINA, GAME)

2009-10-13 China Restricts Online Game Industry (PWRD, SNDA, NTES)

2009-10-12 Blackstone to Capitalize on Market Liquidity (BX)

2009-10-07 Mortgage Crisis, Part Deux

2009-10-06 Commodities Run as Australia Raises Rates

2009-10-05 Macau IPO Funds Wynn’s Growth (WYNN)

2009-10-01 Red Hat, Inc. – Growth at Any Price (RHT)

2009-09-30 FDIC – A New Concern for Bank Liquidity (C)

2009-09-29 Shanda Games IPO Flops (SNDA)

2009-09-24 Credit Card Defaults Set New Record

2009-09-23 Government Contracts Drive Stanley Inc. (SXE) Growth (SXE)

2009-09-21 HealthSpring – Higher Revenue, Higher Costs (HS)

2009-09-18 CH Robinson – Stepping In Front of a Train (CHRW)

2009-09-18 Flash Trading Continues at Direct Edge (NITE)

2009-09-10 Under Armour – Fourth and Long (UA)

2009-09-09 Swaps Dealers Face the Clearinghouse (ICE, CME)

2009-09-08 Education Breakdown – An Expensive Short Opportunity (EDU)

2009-09-08 Three Indications Gold and Silver Will Continue to Rise (SLV)

2009-09-04 Mixed Signals from Payroll Data

2009-09-03 Three Reasons to Avoid Tiffany & Co. (TIF)

2009-09-02 Athenahealth INC – A Reluctant Short (ATHN)

2009-09-01 A Specialty Finance Opportunity – KKR Financial (KFN)

2009-09-01 Stage is Set for IPO Rebound (NYX)

2009-08-31 Flash Trading Drives Profits – Unseating Established Competitors

2009-08-28 American Superconductor Rides Wind Energy Wave (AMSC)

2009-08-27 Black List Grows for Troubled Banks

2009-08-27 CME Clearing Revenue Should Drive Stock Higher (CME)

2009-08-26 FDIC Backs off Slightly – PE Firms to Buy Troubled Banks (BX)

2009-08-26 Syniverse Makes Strategic Acquisition, Shareholders Celebrate (SVR)

2009-08-25 Deficit Spending – Borrowing from Tomorrow to Spend Today

2009-08-25 Lululemon Athletica – Alarming Trends (LULU)

2009-08-24 Synaptics Stock Back to Attractive Price (SYNA)

2009-08-21 SuperNanke to the Rescue

2009-08-20 Whole Foods Stock is as Pricy as its Wares (WFMI)

2009-08-20 Chart Industries Rides Natural Gas Trend (GTLS)

2009-08-19 Oil Inventory Report Fuels Market Rally (CHK, SPWRA, SOL)

2009-08-19 Starwood IPO Benefits Underwriters – Investors Take Losses (STWD)

2009-08-18 Rosetta Stone IPO Under Pressure (RST)

2009-08-18 Vegas Dodges A Bullet (LVS)

2009-08-17 Consumer Stocks to Struggle, Debt to Blame

2009-08-13 Retail Data Fails to Inspire

2009-08-12 Blue Nile Diamonds – All That Glitters Isn’t Gold (NILE)

2009-08-11 Genoptix Inc. (GXDX) Adding Physicians and Growing Revenue (GXDX)

2009-08-10 Chesapeake Cuts Deal With PXP – “Lump Sum Please…” (CHK, PXP)

2009-08-10 Neutral Tandem Offers Attractive Entry (TNDM)

2009-08-07 Emergent Posts Huge Gain – Anthrax Vaccine Extended (EBS)

2009-08-06 Blackstone Opportunities Propel Stock (BX)

2009-08-05 ISM Data Casts Doubts on Economic Recovery

2009-08-05 Home Inns Vulnerable to China Lodging (HMIN)

2009-08-03 S&P Hits 1,000 – A Sampling of Headlines From Last Time

2009-08-03 Verso Paper Breaking Out From the Brink of Death (VRS)

2009-08-02 GDP Reports Offers Positive Headline, Negative Details

2009-07-30 Health Care Reform Quotes: An Assortment of Opinions

2009-07-30 SOHU and CYOU offer Unique Investment Opportunity (SOHU, CYOU)

2009-07-28 Debate Rages over Position Limits

2009-07-28 Solar Stocks Cheer SunPower Results (SPWRA)

2009-07-27 Interactive Brokers Earnings Propel Stock Higher (IBKR)

2009-07-23 Chipotle Earnings – CMG Getting Heavy (CMG)

2009-07-21 Amedisys Rallies Ahead of Earnings (AMED)

2009-07-20 Stock Rally Could Continue Higher

2009-07-17 Bailout Nation – CIT Failure is a Healthy Process (CIT)

2009-07-16 An Airline Stock Set to Take Off (ALGT, GOL)

2009-07-13 Short Interest Stocks (LVS, AMED, NTRI)

2009-07-11 FDIC Crisis Mode Pressures Blackstone (BX)

2009-07-09 Energy Regulation Weighs On Exchanges (CME, ICE)

2009-07-08 Loan Delinquencies

2009-07-07 BJ’s Restaurants Inc. (BJRI)

2009-07-06 Defensive Investment Strategy

2009-07-03 Priceline.com Inc. (PCLN)

2009-07-02 Unemployment Numbers Decline

2009-07-01 Shanda Interactive Entertainment Ltd. (SNDA)

2009-06-30 Four Stocks for 2009 – Q2 Review

2009-06-30 Apollo Group, Inc. (APOL)

2009-06-29 Risky China Bank Loans

2009-06-29 LogMeIn, Inc. (LOGM)

2009-06-27 Three Investment Trends Benefiting from Cap and Trade

2009-06-26 Ctrip.com International Ltd. (CTRP)

2009-06-25 UBS AG (UBS)

2009-06-24 Economic Data Whipsaws Markets

2009-06-24 The Blackstone Group L.P. (BX)

2009-06-23 Baidu, Inc. (BIDU)

2009-06-22 Healthcare “Discussion Draft”

2009-06-22 Focus Media Holding Limited (FMCN)

2009-06-16 Potash Corp. (POT)

2009-06-15 BlackRock, Inc. (BLK)

2009-06-13 Podcast: Wealth, Employment and Currency Issues

2009-06-12 CarMax, Inc. (KMX)

2009-06-11 LDK Solar Co., Ltd. (LDK)

2009-06-10 Brinks Home Security Holdings Inc. (CFL)

2009-06-09 Green Mountain Coffee Roasters (GMCR)

2009-06-08 Retail Stocks Appear Ready to Fail

2009-06-08 The Middleby Corporation (MIDD)

2009-06-07 Podcast: Trading Aggressively in an Age of Black Swans

2009-06-05 Renesola Ltd. (SOL)

2009-06-04 Three Essential Issues for IPO Investing

2009-06-03 Open Table, Inc. (OPEN)

2009-06-02 Genco Shipping & Trading Limited (GNK)

2009-06-01 Personal Spending hits Perfect Storm

2009-05-31 SolarWinds, Inc. (SWI)

2009-05-30 Podcast: Weak Dollar, Multinational Taxation, Precious Metals

2009-05-29 Tiffany & Co. (TIF)

2009-05-28 DreamWorks Animation SKG, Inc. (DWA)

2009-05-27 Steven Madden, Ltd. (SHOO)

2009-05-26 Neutral Tandem Inc. (TNDM)

2009-05-25 Risk and Reward – Lessons from last 18 Months

2009-05-24 Podcast: Currency Issues, Credit Cards, and Housing

2009-05-21 NetEase.com, Inc. (NTES)

2009-05-20 Congress Sends Credit Cards a Message (V)

2009-05-19 CEC Entertainment, Inc. (CEC)

2009-05-18 Air Methods Corporation (AIRM)

2009-05-18 Podcast: Chrysler, Market Pullback, Retail and Economics

2009-05-14 DigitalGlobe, Inc. (DGI)

2009-05-14 CME Group Inc. (CME)

2009-05-12 The Buckle, Inc. (BKE)

2009-05-11 Investments in Healthcare

2009-05-10 Podcast: Stress Tests, TARP, Moral Hazard and Solar

2009-05-07 Chipotle Mexican Grill, Inc. (CMG)

2009-05-06 The Blackstone Group L.P. (BX)

2009-05-05 IntercontinentalExchange, Inc. (ICE)

2009-05-04 Carter’s Inc. (CRI)

2009-05-02 Podcast: GDP, FOMC, Voting Rights and Earnings

2009-05-01 Sell in May and Go Away?

2009-04-30 First Solar, Inc. (FSLR)

2009-04-29 Amedisys, Inc. (AMED)

2009-04-28 Buffalo Wild Wings (BWLD)

2009-04-27 Synaptics Incorporated (SYNA)

2009-04-26 Podcast: Earnings Season, Stress Tests & Private Equity

2009-04-24 NYSE Euronext (NYX)

2009-04-23 VMware Inc. (VMW)

2009-04-22 TARP Assets and Balance Sheet Games

2009-04-21 Allegiant Travel Company (ALGT)

2009-04-20 Rosetta Stone Inc. (RST)

2009-04-19 Podcast: Bankruptcies, M&A, and Playing Defense

2009-04-17 Citigroup – Beginning and End of Rally

2009-04-16 First Cash Financial Services, Inc. (FCFS)

2009-04-15 Jos. A. Banks Clothiers, Inc. (JOSB)

2009-04-14 Green Mountain Coffee Roasters Inc. (GMCR)

2009-04-13 Quality Systems, Inc. (QSII)

2009-04-11 Podcast: Bubbles, Depressions, Banks and Growth

2009-04-10 Quarterly Stock Contest

2009-04-09 China Medical Technologies, Inc. (CMED)

2009-04-08 Uptick Rule Reinstatement

2009-04-07 Netflix, Inc. (NFLX)

2009-04-06 Allegiant Travel Company (ALGT)

2009-04-05 Podcast: Mark-to-Market, Rally Dynamics

2009-04-03 IntercontinentalExchange, Inc. (ICE)

2009-04-02 American Public Education, Inc. (APEI)

2009-03-31 Four Stocks For 2009 – Q1 Review

2009-03-31 Salesforce.com (CRM)

2009-03-29 From The Mailbag: Barron’s and Solar

2009-03-28 Podcast: Toxic Assets and China News

2009-03-27 Solar Panels – China Picking Up the Tab

2009-03-25 Verso Paper Corp. (VRS)

2009-03-24 Syniverse Holdings, Inc. (SVR)

2009-03-23 NetEase.com, Inc. (NTES)

2009-03-22 Podcast: FOMC Shopping Spree…

2009-03-21 FOMC Pulls Out the Stops (part B)

2009-03-19 FOMC Pulls Out the Stops (part A)

2009-03-18 Blue Nile Inc. (NILE)

2009-03-17 Knight Capital Group (NITE)

2009-03-16 Clearwire Corporation (CLWR)

2009-03-14 Podcast: Week of the Citi…

2009-03-13 LDK Solar (LDK)

2009-03-11 Citigroup Ignites a Rally (C)

2009-03-10 Visa (V)

2009-03-09 The Blackstone Group, LP (BX)

2009-03-08 Podcast: March Comes In Like A Lion…

2009-03-06 Intrepid Potash Inc. (IPI)

2009-03-05 AECOM Technology Corporation (ACM)

2009-03-04 Obama’s Budget and Healthcare

2009-03-03 MetroPCS Communications, Inc. (PCS)

2009-03-02 Continental Resources, Inc. (CLR)

2009-02-26 Double Investment Return (Too Good To Be True?)

2009-02-18 Homeowner Affordability and Stability Plan

2009-02-10 NYSE Euronext (NYX)

2009-02-08 Visa Inc. (V)

2009-02-02 Quality Systems Inc. (QSII)

2009-01-29 Stimulus Package – No Free Lunch

2009-01-27 Transdigm Group Incorporated (TDG)

2009-01-25 Interactive Brokers Group (IBKR)

2009-01-22 Open Text Corp (OTEX)

2009-01-21 Shanda Interactive Entertainment Ltd ADR (SNDA)

2009-01-19 Emergent BioSolutions, Inc. (EBS)

2009-01-17 Amedisys, Inc. (AMED)

2009-01-14 Retail Sales

2009-01-12 Devry Inc. (DV)

2009-01-11 Defense Stocks

2009-01-10 Tower Group, Inc. (TWGP)

2009-01-07 LDK Solar (LDK)

2009-01-05 The Ensign Group, Inc. (ENSG)

2009-01-03 MetroPCS Communications, Inc. (PCS)

2010 Archives

2008 Archives

2007 Archives

2007 ZachStocks Articles

2007-12-31 Giant Interactive (GA)

2007-12-29 The Disciplined Investor

2007-12-28 Interactive Brokers (IBKR)

2007-12-26 Wuxi PharmaTech Inc. (WX)

2007-12-24 Chipotle Mexican Grill (CMG)

2007-12-21 IntercontinentalExchange (ICE)

2007-12-19 Nighthawk Radiology (NHWK)

2007-12-18 Crocs Inc (CROX)

2007-12-17 Fortress Investment Group (FIG)

2007-12-14 Longtop Financial (LFT)

2007-12-13 021 Smile Communications (SMLC)

2007-12-12 Mindray Medical (MR)

2007-12-10 Aruba Networks Inc. (ARUN)

2007-12-06 Blue Nile Inc (NILE)

2007-12-05 E-House China Holdings (EJ)

2007-12-03 MCSI Inc (MXB)

2007-11-30 Lululemon Athletica (LULU)

2007-11-28 American Public Education Inc. (APEI)

2007-11-27 Perfect World (PWRD)

2007-11-26 Deltek Inc. (PROJ)

2007-11-21 Yingli Green Energy (YGE)

2007-11-20 Dice Holdings Inc (DHX)

2007-11-19 FC Stone Group Inc (FCSX)

2007-11-15 Blackstone Group LP (BX)

2007-11-15 Doin’ a new Thain

2007-11-14 Ulta Salon Cosmetics & Fragrance (ULTA)

2007-11-06 Cellcom Israel Ltd. (CEL)

2007-11-05 Giant Interactive Group Inc. (GA)

2007-11-02 Dicks Sporting Goods (DKS)

2007-11-01 China Medical Technologies (CMED)

2007-10-31 MF Global (MF)

2007-10-30 Turkcell Iletisim (TKC)

2007-10-29 Under Armour Inc. (UA)

2007-10-26 WuXi PharmaTech Inc. (WX)

2007-10-23 LDK Solar Co. LTD (LDK)

2007-10-19 Amtrust Financial Services Inc. (AFSI)

2007-10-18 Orbitz Worldwide Inc. (OWW)

2007-10-16 Huron Consulting Group Inc. (HURN)

2007-10-15 Bolt Technology Corp (BTJ)

2007-10-09 Ceregon Networks Ltd. (CRNT)

2007-10-04 NutriSystem Inc. (NTRI)

2007-10-03 BladeLogic Inc. (BLOG)

2007-10-02 Perfect World (PWRD)

2007-10-01 MF Global (MF)

2007-09-27 First Marblehead (FMD)

2007-09-26 Diana Shipping (DSX)

2007-09-25 LKQ Corp (LKQX)

2007-09-24 Blackstone Group LP (BX)

2007-09-20 Lululemon Athletica (LULU)

2007-09-17 Apple Inc. (AAPL)

2007-09-13 Nucor Corp (NUE)

2007-09-12 EMC Corp (EMC)

2007-09-11 Coach Inc. (COH)

2007-09-10 MasterCard Inc. (MA)

2007-08-30 Atheros Communications (ATHR)

2007-08-28 NutriSystem Inc. (NTRI)

2007-08-27 Nucor Corp (NUE)

2007-08-24 Cognizant Technology Solutions (CTSH)

2007-08-23 Netgear Inc (NTGR)

2007-08-21 Deckers Outdoor Corp (DECK)

2007-08-20 MEMC Electronic Materials (WFR)

2007-08-15 Fortress Investment Group (FIG)

2007-08-14 comScore Inc. (SCOR)

2007-08-13 Burger King Holdings Inc (BKC)

2007-08-08 First Marblehead Corp (FMD)

2007-08-06 OptionsXpress Holdings Inc (OXPS)

2007-08-03 Moody’s Corp (MCO)

2007-08-02 Chipotle Mexican Grill (CMG)

2007-08-01 Coach Inc. (COH)

2007-07-31 ValueClick Inc. (VCLK)

2007-07-30 Pinnacle Entertainment, Inc. (PNK)

2007-07-27 Intercontinental Exchange (ICE)

2007-07-25 Legg Mason (LM)

2007-07-24 Starent Networks Corp (STAR)

2007-07-23 Tempur Pedic International (TPX)

2007-07-20 Suntech Power (STP)

2007-07-19 Capella Education (CPLA)

2007-07-18 Nucor Corp (NUE)

2007-07-17 Medtox Scientific Inc (MTOX)

2007-07-16 AECom Technology (ACM)

2007-07-13 FC Stone Group Inc (FCSX)

2007-07-12 Talisman Energy (TLM)

2007-07-10 NVE Corporation (NVEC)

2007-07-09 BARE Escentuals (BARE)

2007-07-06 Research in Motion (RIMM)

2007-07-05 Mindray Medical (MR)

2007-07-03 Acorn International Inc (ATV)

2007-06-29 Trina Solar Ltd. (TSL)

2007-06-28 Metro PCS Communications (PCS)

2007-06-27 Bear Stearns (BSC)

2007-06-26 Immucor Inc. (BLUD)

2007-06-25 Moody’s Corp. (MCO)

2007-06-22 Fortress Investment Group (FIG)

2007-06-21 Carmax (KMX)

2007-06-20 The Knot Inc. (KNOT)

2007-06-19 Quality Systems Inc (QSII)

2007-06-18 CB Richard Ellis Group (CBG)

2007-06-15 Focus Media (FMCN)

2007-06-14 FC Stone Group Inc. (FCSX)

2007-06-13 Coach Inc. (COH)

2007-06-12 CBOT Holdings (BOT)

2007-06-11 Las Vegas Sands (LVS)

2007-06-08 Chipotle Mexican Grill (CMG)

2007-06-07 Resmed (RMD)

2007-06-06 Under Armour (UA)

2007-06-05 Carmax (KMX)

2007-06-04 Intercontinental Exchange (ICE)

Archives 2010

Archives 2009

Archives 2008

Last week two telecom IPOs were offered to the market – each showing strong gains out of the gate.  The transactions were indicative of a healthy IPO market with plenty of liquidity, and while that can change in a heartbeat, for now the environment looks technically strong for these new issues.

Today, I want to take a closer look at MaxLinear Inc. (MXL) which was priced Wednesday at $14.00.  The book was jointly managed by Morgan Stanley (MS) and Deutsche Bank Securities (DB) in a deal which provided underwriting commissions of $6.3 million.  The stock was well accepted by investors who immediately sent the stock up 33% in its first day of trading to close at $18.70.  The positive traction is likely giving private equity companies such as The Blackstone Group (BX) additional confidence as they prepare additional offerings which could quickly hit the US exchanges.

Part of the appeal for the MXL deal is that the majority of shares being sold to the public were primary shares.  This means that the proceeds went directly to the company which should be helpful in providing the financial ability to continue to generate growth.  According to the prospectus, MXL will use the cash for “working capital” and possibly for future acquisitions.  I would prefer to see a bit more information on how this capital could be put to work, but since the company has shown strong historical growth, I’m willing to give them the benefit of the doubt for the time being.

MaxLinear is a “fabless semiconductor company” which designs chips that allow devices to better receive wireless television signals.  The majority of the company’s sales have been in Japan where it appears that MXL has a lock on the mobile handset market.  In the last four quarters, the company has seen sales increase by 49%, 13%, 107% and 96% (using year over year comparisons).

In addition to the handset market, MXL is increasing its product offering to include chips that enable devices to receive wireless signals for more traditional television viewing.  These products are anticipated to go in cable boxes, digital televisions, PC’s and notebooks.  While the handset market continues to provide stable cash-flow, these new markets are expected to drive the growth in future quarters.

When we say that MaxLinear is “fabless” it simply means that the company does not have its own manufacturing facilities.  This can be both a business strength as well as a liability.  During the financial crisis, many firms struggled under the weight of the debt used to build large manufacturing plants.  For several solar companies, the decision to expand manufacturing capacity at the wrong time turned out to be fatal.  So MaxLinear’s decision to outsource the manufacturing process gives the company better financial flexibility to be able to focus on research and development and growing other parts of its business.

But the flip-side of this coin is that if the economy improves to the point where it becomes difficult to negotiate contracts with outside manufacturers, MXL could see its costs rise exponentially.  The laws of supply and demand can easily come back to bite the firm if it is not accurate in its long-term projections of customer demand and its need for manufacturing capacity.

After staging a positive IPO transaction, MXL has largely been biding its time and trading within a relatively close range.  This week we will begin to see some patterns developing and from a trading perspective, it will be interesting to see what opportunities set up.  Due to the success of the IPO transaction, it appears demand is in control at this point and I would recommend trading from the long side initially.  A pullback closer to the IPO price would provide a welcome entry point and risk can be carefully managed by placing a stop slightly below the $14.00 IPO price.

On the other hand, if MXL were to break higher – crossing $19.50 – a higher-risk breakout setup might be in order.  The risk is higher in this type of trade because there is less of a defined floor that would be supported by the underwriting team.  When buying above $19.50, traders should look to use a stop where they would exit the position if MXL trades back into its current range.

Fundamentally, it is very difficult to set a fair valuation for the stock.  This is because MXL is just crossing the line where its revenue overcomes fixed expenses and the company is starting to show a positive profit.  There are many variables which could cause MXL to ramp up its profitability sharply over the next two years, or possibly cause it to over-extend and lose value for investors.

Other Articles of Interest
Resurging IPO Market Adds Liquidity for Businesses and Owners
Home-Based Healthcare is Good Business
WSJ: High-Profile Technology IPO Lined Up
Barron’s: NXP To Raise $1B in IPO

So for today, it is important to determine who is trading this vehicle and what these traders are looking at.  Currently, MXL is being largely held by growth stock investors who currently appear willing to give the global economic rebound the benefit of the doubt.  As long as these investors continue to provide liquidity and are willing to pay speculative prices for future growth, MXL should stay in a positive trend.  But when the tide turns and growth investing falls out of favor, MXL will likely be hit with distribution – and at that time it might make sense for us to set up a short position.  The stock is dynamic – positive for now – and offers swing traders ample opportunity for profits.

FD: Author does not have a position in any stocks mentioned in this article.

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Note: This is a recap of performance for the stocks picked at the beginning of 2009.  Picks for 2010 will be posted January first.

To paraphrase a hedge fund manager that I follow closely, “Nothing has happened this year the way I expected it to.”  While this statement does little to instill confidence in this money manager, William posted returns north of 20% for the year in his long-short fund which remains fairly neutral as far as market exposure is concerned.  The point is that although 2009 was a year of major shifts in market direction, policy decisions, and investment risk; it was still possible to adjust trading style along the way to account for the changes and book significant profits.

My four picks for 2009 did not turn out to be very profitable despite a significant market rally from March through December.  Thankfully, portfolios managed for Sound Counsel Investment Advisers were able to trade actively throughout the year and performed much better than the 2009 recommendations.  As I choose growth opportunities for the portfolios I manage, I am careful to use stop points in order to exit losing trades, while letting winners continue to compound gains.  Often we use covered calls to manage some of the risk, and the advent of inverse ETFs has also been helpful in managing downside risks for entire markets as well as individual sectors.

So without further adieu, here is some commentary on the four picks for 2009.  Stay tuned for the 2010 picks which will be posted January 1.

1. JA Solar Holdings (JASO)
   While Alternative certainly received its fair share of headlines this year, the solar industry was plagued with rising inventory levels and falling prices for solar products.  On top of the supply dynamics, many countries which had implemented strong solar energy tax incentives had to pull back on the stimulus measures due to financial strain.  As a result, many solar companies experienced a difficult period and those with excessive leverage were especially hard hit.  At the time of writing, it looks like JASO will finish the year with a gain of 30.5% which is certainly healthy, but the majority of the gains came in the last few weeks of the year.  JASO could continue to post additional gains in the coming year, but there are still significant uncertainties surrounding the alternative energy market.
2. AECOM Technology Corp (ACM)
   AECOM is an international construction management company which is expected to benefit from global stimulus projects aimed at improving infrastructure projects such as bridges, roads, power plants and other developments.  Since AECOM has a well diversified client base, it was expected that the company would grow earnings (which occurred quite nicely) and see its stock price rise as a result (which unfortunately did not occur).  Much of the stimulus spending took longer than expected to reach the market, and investors have placed a lower multiple (paying a smaller price for every dollar that the company earns).  The lower multiple is likely due to a perception that the company will not continue to grow quickly after the stimulus projects are completed.  At this point AECOM still looks like a great investment with little debt and a low earnings multiple, but it has taken longer than expected for the stock to bounce.  Currently it looks like ACM will finish 2009 with a loss of 1.2% – not a very healthy showing considering the strength of the market.
3. TBS International (TBSI)
   At the end of 2008, it looked like shipping companies were primed for a significant rebound.  The financial crisis had sent many of the more leveraged players into the abyss, but companies with longer-term charters and reasonable debt levels were showing signs of improvement.  The wildcard in this industry was whether the day rates for dry bulk shipping would improve over the coming year.  Unfortunately, shipping has continued to be a challenging area for the economy, and since TBSI does not pay a dividend, it has been especially unattractive to investors.  The stock is down 27.2% for the year which is extremely disappointing.  Looking into the coming year, there is little evidence that this company will offer investors much hope of improving profits so I would not recommend an investment in this stock and have kept clients out of this name for some time.
4. China Medical Technologies (CMED)
   China Medical is another disappointing story as the stock is now down 30.2% for the year.  Midway through 2009, CMED had traded higher as the company’s rapid growth caught investor’s attention and the diagnostic company was expanding its base of customers.  However, a management change along with significant debt has caused investors to lose confidence.  At the current price, CMED is looking like a very solid value, but I am not invested right now because I want to know for sure that the business metrics are solid.  If management were to issue healthy guidance for the coming year (ending March 2011), I would consider working back into the stock, but for now it appears to hold excessive risk.

We have many risks and many opportunities in front of us as we enter this new decade.  Flexibility and damage control will be important skills to employ as the markets face the risk of inflation, mounting sovereign debt, and significant fluctuations in currency rates.  I would welcome the chance to help you develop a comprehensive plan for your investments in the coming year.  Please email me if you would like more information on Sound Counsel’s investment strategies.

Wishing you a happy New Year!

Other Bloggers 2009 Results

Intelligent Speculator

The Financial Blogger

My Trader’s Journal

The Wild Investor

Four Pillars

Where Does All My Money Go

Million Dollar Journey