[ Pobierz całość w formacie PDF ]
.prophet.net).Matria Healthcare Pros" There was some insider buying at $20.43, but the insiders werealso buyers in April at $27.50 to $30, so their timing wasn t sohot.The company s top line was growing exponentially, as wasthe gross margin.(See Table 7.2.)Matria Healthcare Cons" A history of horrific declines the stock gapped lower threetimes in the first half of 2006." High valuation while I actually seek out higher P/E stocks fortrades (i.e., stocks with higher price to earnings ratios), theyhave to be in up trends.This stock was getting crushed and stillhad a P/E ratio of 51, more than twice the industry average atthe time.The stock hit a pivotal resistance point where it filled a large gap.More often than not, when this happens, stocks pull back again. ccc_payne_171-198_ch07.qxd 3/13/07 8:00 AM Page 179Chasing Stocks 179TABLE 7.2 Matria Healthcare Income StatementIncome Statement 6/30/06 3/31/06 12/31/05 9/30/05 6/30/05Total revenue (in millions) $82.6 $80.9 $48.6 $46.3 $44.8Gross margin 67.8% 67.5% 58.8% 58.7% 59.4%The stock was already commanding a high valuation, so thatmitigated the fact that the fundamentals looked so great, but itdidn t discount the fact stocks deserve to trade with higher mul-tiples when management is doing the right thing.That being said, you would incorporate the chart along with thestellar fundamentals and conclude that the stock became a buyonce it closed above $26.Upgrades on Stocks That Are Down Year over YearThere were seven stocks upgraded on September 12, 2006, thatwere trading at or below levels from a year earlier.Of these stocks,six were able to sustain the momentum of the upgrade and be-come viable trading ideas.Chasing this bunch was a smart idea.Advanced MicroAdvanced Micro (stock symbol ADM), the chip maker that hassteadily gained on its giant rival, Intel, saw its shares come downhard as Wall Street braced for a pricing war between the two com-panies.The stock rallied 7.8 percent from the close on September11 to an intraday high on September 12.During the same time pe-riod, the Semiconductor Index was up 3.3 percent.(See Figures 7.6and 7.7.)The stock had some momentum behind it when the upgrade oc-curred, but the share price was at about the same level as the year-earlier period and down hugely from just six months prior.WallStreet upgrades work best when they aren t nebulous ( over-weight is similar to a buy ), but the fact of the matter is if WallStreet really likes the stock, analysts should simply say it s a buyor strong buy.Moreover, Wall Street isn t great at picking bottoms,and their upgrades have a more sustained effect on the underlying ccc_payne_171-198_ch07.qxd 3/13/07 8:00 AM Page 180180 TOOLS AND RULESFIGURE 7.6 Advanced MicroChart courtesy of Prophet Financial Systems (www.prophet.net).FIGURE 7.7 Semiconductor IndexChart courtesy of Prophet Financial Systems (www.prophet.net). ccc_payne_171-198_ch07.qxd 3/13/07 8:00 AM Page 181Chasing Stocks 181share price when that same stock has already experienced a signif-icant move higher.Applied MaterialsApplied Materials (stock symbol AMAT) is the largest maker ofsemiconductor equipment and has long served as a proxy for the in-dustry.(See Table 7.3.) The stock has suffered despite numerous op-portunities via new standards and the evolution of chip making, butthere was a general sense that the worst was over, and that s whythe shares were already in motion to the upside before the upgrade.This stock was already a screaming buy based on the top line of theincome statement and other fundamental factors.(See Figure 7.8.)TABLE 7.3 Applied Materials Income StatementIncome Statement 7/30/06 4/30/06 1/29/06 10/30/05 7/30/05Total revenue (in millions) $2,543.4 $2,247.7 $1,857.6 $1,718.1 $1,631.9Gross margin 48.1% 46.5% 45.1% 44.2% 44.0%FIGURE 7.8 Applied MaterialsChart courtesy of Prophet Financial Systems (www.prophet.net). ccc_payne_171-198_ch07.qxd 3/13/07 8:00 AM Page 182182 TOOLS AND RULESSterisSteris (stock symbol STE) gapped up significantly more than 4.4percent on the upgrade, and the stock managed to rally anotherpoint on the upgrade by Key Banc.(See Figure 7.9.) To tell thetruth, not all brokerage firm upgrades carry the same weight.KeyBanc isn t known as a research powerhouse and the firm doesn thave the retail firepower to get behind a stock, either.The result isthat the company s upgrades and downgrades don t have the in-fluence of other larger wire houses and specialty firms.Montpelier ReMontpelier Re (stock symbol MRH) is a property and casualtyreinsurer and insurer whose financial situation fluctuates with theweather.The stock opened at $19.10 after closing the previous ses-sion at $18.65 and hit a high of $19.70 a couple of days later.(SeeFigure 7.10.)FIGURE 7.9 SterisChart courtesy of Prophet Financial Systems (www.prophet.net). ccc_payne_171-198_ch07.qxd 3/13/07 8:00 AM Page 183Chasing Stocks 183FIGURE 7.10 Montpelier ReChart courtesy of Prophet Financial Systems (www.prophet.net).Lone Star TechLone Star Tech (stock symbol LSS) makes steel tubes, and after awave of acquisitions in the industry, the company stood as the lone(no pun intended) U.S.player.The analyst from Bear Stearns saidhe liked the stock because the company was close to completing itsplanned acquisition of a Chinese steel tube business.Consideringthe huge premiums fetched by NS Group and Maverick Tube, therivals that were taken over by foreign buyers, the analyst s notemade it clear this was as much a takeover play as anything else.The stock continued to rally after the upgrade, in part becausethe rumor was plausible, and the fact that such a well-respectedfirm had a favorable opinion added the right dose of credibility.(See Figure 7.11.)GenentechGenentech (stock symbol DNA), a pioneering biotechnology com-pany, was also upgraded on September 12, 2006.Robert Baird ccc_payne_171-198_ch07.qxd 3/13/07 8:00 AM Page 184184 TOOLS AND RULESFIGURE 7.11 Lone Star TechChart courtesy of Prophet Financial Systems (www.prophet.net).lifted its rating on the stock to outperform, joining the majorityof its peers that already had favorable ratings on the company sstock
[ Pobierz całość w formacie PDF ]