Saturday 30 June 2012

Article for the week of July 2 to July 6

Hi all, I'm back, with the article for this week. No volatile earnings for next week, so no trades for the next week.
Anyway, I just want to tell you that I recently posted an article on seeking alpha about Sturm Ruger & Co. RGR. This article has been posted here before. It is only that the seeking alpha article was edited a bit more. Here is the URL to my article: http://www.seekingalpha.com/instablog/3588711-ong-kang-wei/790541-sturm-ruger-a-beaten-up-stock-up-for-grabs. (RGR is up more than 9% since I first recommended it a week ago. It went up 9% on Friday because it's direct competitor Smith and Wesson SWHC reported better than expected earnings. Even though it climbed quite a big deal, I still maintain my strong buy rating. Also, even though it stopped selling guns for quite a while, March to May, I believe it will still beat analyst expectations like the past 10++ quarters.)
About the market, Friday saw a big increase of almost 280 points on the Dow. The European leaders have come out with a plan to save their crisis-stricken countries. I don't know much, but I am still cautious about the market, which is moving quite violently on EU news these days. One day its good news and the
next it's bad.
Other than large moves in the market on Friday, Oil and other commodities also gapped higher on these news. A better Europe will obviously mean a better world, I think that is the main reason for all these big moves. But, Europe is still in dire straits and I don't think it will recover so fast. It's sure meant to recover in the future but it will be long. Lastly, the Euro also gapped a higher to around 1.26 against the US Dollar.
In options, results were quite good, with Whole Foods Market WFM closed out for a 40% gain, Tiffany TIF closed out for a 22% gain and Research In Motion and RIMM closed for a 17% gain. RIMM plunged almost 20% after reporting losses five times as much as expected, delayed release of the Blackberry 10, and a cut in workforce of about 5000, or 30%. Moving on to the losses, the Apollo APOL trade resulted in a 9% loss. This time it wasn't the stock which moved little, it was the option that depreciated a bit too fast, from time decay. The stock moved 10%. Ross Stores ROST was also closed out for a minor 2% loss. If closed earlier, I could have gained up to 20%. That's why, a target is important and the principle in options (not stocks!!), is, when you get a good gain, grab and go!

So, that's all for this week's report, please go to www.traders2results.blogspot.com to see results of previously done trades and my current positions. A tutorial can also be found there.

For a profitable week!

For those in USA, happy Independence day!

Friday 22 June 2012

Trades for the week of June 25 to June 29

Hi all, I'm back with the trades again. Yesterday, Thursday, the Dow dropped 251 points, another gloomy day, because of the unemployment numbers. The people applying for unemployment benefits is at a six-month-high. The Federal Reserve now only expects the US Economy to expand a meagre 1.9%, down from 2.4% before. These, and other factors caused the 2% drop yesterday. Away from that, on options, Red Hat RHT disappointed me by only dropping 6%, resulting in a 18% loss. CarMax KMX, although I expected less, performed better, dropping about 8%, giving me a gain of 6%. Of the three other trades initiated last week, BBBY was closed out before earnings as it was historically volatile then. It was closed for a neat 30% gain. Glad I closed it before earnings. If I didn't, I may be writing about a 90% loss. Yes, it plunged 15% that day. The only regret, not doing a straddle. Anyway, it's over. There will be better opportunities in the futrue. For more results, statistics, for positions in my virtual portfolio and a tutorial can be found here: traders2results.blogspot.com. On to the trades for this week:

Trade 1: Straddle
Research In Motion Corp. (RIMM) reports earnings on June 28, after hours.
Currently trading at around $10.20, here is what I plan to do.
Buy a Sep 2012 ATM $10 Call Option
Buy a Sep 2012 ATM $10 Put Option
RIMM is expected to climb or plunge between 8% and 23%
Its IV is between 55% and 60%, a bit high but still worth a trade given its high volatility during earnings.

Trade 2: Strangle
Apollo (APOL) reports earnings on June 25, After hours.
Currently trading around $33.30, here is what I plan to do.
Buy a Aug 2012 OTM $34 Call Option
Buy a Aug 2012 ITM $33 Put Option
APOL is expected to move between 6% and 12%.
Its IV is between 44% and 46%, worth a trade.

Now, for the weekly recommendation.
The stock is... Sturm Ruger and Co. RGR

   Ruger designs, manufactures and sells guns and other firearms, like pistols and rifles. They sell guns to people who are qualified to get these guns, to commercial distributors, or directly to law-enforcement agencies and foreign countries. This is a very simple business, just designing, manufacturing then selling guns.
   It is a recognized brand name around USA. Ruger announced, in March that it would stop collecting customer orders until late May. Why? That was because they could not supply enough for the demand from their customers out there! How many companies can achieve that? This may be also because it is a small 740M company, just starting to expand fast. But that is really a great feat for a small company like Ruger. More about its business, Ruger is classified into the industry, Aerospace/Defence Products And Services, which also means that these guns are sold to foreign countries' military or law enforcement firms. But, they also can be sold to people who do things like hunting. Ruger has a direct competitor, Smith and Wesson , but there are some concerns about its fundamentals, its EPS Growth rate for the past 5 years is at -8.5% compared to Ruger's 117.6%. Although its market cap is half of Ruger's 740M cap, their revenue is one-fifth of Ruger's 45M, being only around 9M. Smith's ROE is only 10% compared to Ruger's 35%, which also means that Ruger's management is more efficient than Smith's.
On the technical aspect, RGR has pulled back quite a lot from around $60 to the current price of around $37. I have liked the fundamentals of the company and have been monitoring it for some time. I find that this pullback gives investors a very good opportunity to buy shares of a fundamentally solid company at a price near intrinsic value. Its intrinsic value, according to calculations by me, is around the $36-$38 range. The current price is at its intrinsic value, which is quite acceptable to me. This pullback comes after a 800% run up from its low in 2008, at only around $7. Speaking about insider trading,the Director of RGR, Mr. John Consentino, bought half a million dollars worth of shares at around $39, at a price cheaper than the current price, when insiders from many other companies are selling. This reflects the cheap prices of the stock now. It is so cheap that the insiders think that it is bargain! Not every company with solid fundamentals pull back for one to buy often, so I think that now,even as the market is so messy, it is a strong buy for all seeking for opportunities to get into a trade.
Now, into Ruger's fundamentals.
Here is Ruger's EPS for the past five years.
2007 0.46
2008 0.43
2009 1.42
2010 1.46
2011 2.09
EPS has been growing very fast the past five years. Even when there was a recession, EPS did not decline much. Its EPS is at a 16.4% growth annually for the last 5 years. This is great. Although I will not expect EPS to grow at this rate, a growth rate slightly slower of around 7-10% is expected, which is quite impressive too.
  Its price was at $8.89 5 years ago and now it is at the $39 mark. For every dollar of EPS earned, $5 was generated in market price. This number is great.
More calculations:
2016 EPS will be $3.37 (10% annual growth) Assuming each dollar earned generated $4 in share price, stock price will increase to the $85-$95 range, not counting dividends.
Speaking about dividends, its dividend has also increased steadily. Last quarter it paid a dividend of $0.325, which is a neat 3.3%. It has increased steadily, from 21 cents a quarter ago and 14 cents the quarter before. I do not expect Ruger's dividend to increase so fast, at this pace, but at a slower but steady pace.
Here are Ruger's sales for the past five years.
2007 144M
2008 174M
2009 266M
2010 251M
2011 324M
Sales are also increasing steadily. Even through the 2008-2009 recession, sales were only affected slightly, when other companies were experiencing drastically decreasing sales and earnings.
In other fundamental aspects, Ruger has a pretax margin of 19.3% and an operating margin of 20.3%, not impressive, but fabulous compared to some leaders of the industry like Boeing and Lockheed Martin, both at around 8% and Honeywell, at around 6%. Its quarterly earnings has also beaten analysts' estimates by quite a big margin and Zacks' earnings consensus for 10 quarters consecutively. Furthermore, its short float is at 27.4%. Even in such a good company, there are so many bearish about its stock. But, to me, this is just a plus point . I believe that, soon those people will be forced to cover their shorts and it will only drive prices higher.
More fundamental indicators:
P/S 1.94 (Very Good)
P/C 7.42 (Very Good)
Quick Ratio 2.93 (Excellent)
Current Ratio 3.08 (Excellent)
Debt $0.00 (0%) (Excellent)
EPS Growth Past 5 Years 117.6% (Excellent)
Sales Growth Past 5 Years 14.4% (Very Good)
Quarterly Sales Growth 48.9% (Excellent)
Quarterly EPS Growth 89% (Excellent)
ROA 24.52% (Excellent)
ROE 35.36% (Excellent)
ROI 31.88% (Excellent)
Gross Margin 35.43% (Very Good)
Profit Margin 13% (OK)
I believe that RGR will continue its run up, both in share price and earnings. Therefore, I rate RGR as a strong buy.





For a Profitable week!

Thursday 21 June 2012

TJX Companies (TJX)

Today's recommendation: TJX Companies (TJX)
TJX is a stock whose chart and business is very much like Ross Stores's ROST. On the technical aspect, it is on a very steady uptrend. TJX had been also consolidating around the $39.50 to $42.50 area last week, and it broke out on Monday, but that breakout was destroyed by the 250 point drop in the Dow yesterday. Although the breakout has been destroyed, I have confidence in TJX's overall business model and I believe that it will earn in the long term.
TJX's business model is also selling goods at cheaper prices, only that it is a departmental store, T J Maxx,T K Maxx, Marshalls, Winners sells clothing, footwear and other accessories at cheaper prices (like ROST) whereas its other two brands, HomeSense and HomeGoods provide one with decorations and other accessories for their house, something like what one stock I've put on my watchlist, Bed Baths and Beyond BBBY does. I want to reiterate that as the economy gets worse, people will go for cheaper goods. In turbulent times like these, these are the stocks to get. But, I'm not meaning that the economy will stay like that forever or that these companies I'm recommending now will only thrive during slowdowns or recessions. I believe they will do well at all times, even during expansions. The good reviews I have read and the praises for the store by friends I know from overseas tells me that the quality of TJX products is not compromised, too. Although some employees do not like working there, most are fine with working there. But one characteristic I found common with all employee reviews is complaints that their pay is too low. I feel that, during expansions or times of revenue increases, shareholders are not all they have to care about, workers too. This is important, so employees can serve the company loyally and happily. (There are numerous complaints I have read not only with TJX, the list includes ROST, WMT, DLTR, etc.)
With that, let's dive into the numbers.
TJX operates in USA, Canada and Europe. I believe that their sales would not be really affected much by the EU crisis as it sells off-price goods, which will be attractive, even more, I believe, in Europe
Stores: 2007 2,529
2008 2,652
2009 2,743
2011 2,859
2012 2,905
Their EPS has also been growing really steadily, from 0.53 to 1.93 now. Like ROST, growth accelerated through the past five years and the recession. For TJX's case, EPS growed throughout the past ten years although growth was slower in the 2003 slowdown. This equates to 13.8% compounded EPS growth over the past 10 years. EPS calculation: $33.57/$10.11=$3.32 generated in stock price each dollar retained in EPS.
EPS: 2002 0.53
2003 0.57
2004 0.60
2005 0.71
2006 0.82
2007 0.84
2008 1.04
2009 1.42
2010 1.65
2011 1.93
Dividend has also been growing fast. Not fabulous, but acceptable to me. As I said, dividend id not everything.
Dividend: 2007 0.18
2008 0.22
2009 0.24
2010 0.30
2011 0.38
Sales has been soaring as well, with sales also increasing at a fast pace. With goodwill increasing further, I believe it can expand faster than ever in the future.
Sales:2007 18.34B
2008 19.00B
2009 20.29B
2010 21.94B
2011 23.19B
While sales, dividends, EPS and store counts has increased, debt has decreased over the past three years after doubling in 2009, most likely caused by the recession. The management has made an effort to decrease debt after that, and that is commendable. But, its intrinsic value is around the $36-$38 range, which is a 14% premium to its price now. I rate TJX a buy.












Friday 15 June 2012

Avoid Penny Stock Recommendations!

Here's an interesting story I would like to share with you all:
   Amwest Imaging AMWI is your normal penny stock, trading at 5 cents per share, not much info, not much news, not much fluctuations, not qualified to be in the NYSE.
Last November, someone bought lots of AMWI, and then paid thirty thousand to an owner of a bogus penny stock newsletter, requesting him to PUMP the shares by writing a recommendation, and sending it to people who sign up for their bogus newsletter, or random email addresses.
   Soon, AMWI was soaring, 30 cents, 50 cents, 75 cents as people continued to buy it. On one fateful day, it soared to a high of $1.50 or maybe higher, then PLUNGED, without warning to a meager 25 cents, rebounded slightly then ended the day. Yes, the person sold most of his shares.
   Many lost money, I have heard of retirees losing up to 100K on these bogus recommendations.
   After the big plunge, these bogus newsletters gave some more excuses just to attract more people to buy some more for the last time. With one final thrust up in the stock price, the person sold all his shares, leaving more people devastated by their losses.

Moral of the story: Do not buy on recommendations, even if they seem extremely attractive.

I know because I received the bogus newsletter, watched the rise, the drop, and researched about penny stock pumping after that.

Trades for the week of June18 to June22

This week was a good week for stocks, with stocks generally rising. The Dow Jones is at 12,650 now, a good increase for the week. Also, we have a major event coming up this weekend, the Greek elections on June 17th (Father's Day). I am eager to see whether SYRIZA will win, which means Greece has a high possibility of getting out of the Eurozone. This will have the Euro and the market plunge. Having the New Democratic party winning is also on the cards, which means that Greece has a high possibility of staying in the Eurozone. This will have the Euro soar, along with the market. I do not think that there will be a deadlock like the last time they had elections.
Not many companies reporting earnings this week, but there is one I'm recommending.
Trade 1: Straddle
Red Hat (RHT) reports earnings on June 20 after hours.
Currently trading at around $54.70, here is what I plan to do.
Buy a July 2012 ATM $55 Call Option
Buy a July 2012 ATM $55 Put Option
RHT is expected to shoot higher or lower up to 20%, or as low as 5%.
its IV is at a reasonable 45-50%, which means its good for a trade.

Here are some other option trades I'm going to do, explained thoroughly.
Trade 2: Synthetic Short
Tiffany & Co (TIF) has been on a steady downtrend since it reported earnings a while ago, dropping from around $60 to about $53.50 now. I believe that it will continue to plunge,so here is what I plan to do.
Sell a Nov 2012 OTM $60 Call Option, which will be at $2.20 now
Buy a Nov 2012 OTM $45 Put Option, which will be at $2.19 now.
That gives you the right to have the position, without paying anything!! In fact, you get one cent more. Although this is the case, this is a very risky trade, and I'd recommend that you do not put too large a portion of your portfolio into these trades. This is an unlimited profit-unlimited loss trade (that means you can lose more than 100%, which requires us to be real careful.
$2.19-$2.20=-$0.01
IV is in the 40-50% range , which is good for a trade.

Trade 3: Call
Whole Food Markets(WFM) has been on a strong uptrend in the past one-and-a-half years. It has climbed to around $92 now from its $70s, a year ago. Therefore, here is what I plan to do.
Buy a Aug 2012 ATM $92.50 Call Option.
Its IV is at a comfortable 30%, nothing to worry about.

Trade 4: Call
One of my favourite, Ross Stores (ROST) has been on a really strong uptrend, and the value retailer looks like it has no signs of stopping. It is now at $65.52, while just a year ago it was in the $30-$40 range. Therefore, here is what I plan to do.
Buy a Nov 2012 OTM $70 Call Option
Its IV is at a desirable 30% too, good for a trade.

Trade 5: Strangle
Carmax (KMX) reports earnings on June 21 before market opens.
Currently trading at $27.68, here is what I plan to do.
Buy a Jul 2012 OTM $27 Call Option
Buy a Jul 2012 OTM $28 Put Option
KMX is expected to shoot higher or lower within the 5% and the 15% range.
Its IV, within the 40-50% range, is worth a trade.

This Week's Stock: Ross Stores ROST
I know I have chosen Ross as one of my picks before, but I do not think that I have made a detailed report on it yet. On the technical aspect, it is great, it is on a solid uptrend-- it has doubled over the past year. Ross, in its upward channel, has stayed around the $60-$64 area over the past five weeks, building a nice base. It has broke out from that base, shooting to a price of $65.52 now. It is good on the technical aspect and holds a chance of breaking out. But that's not all I'm looking for, here are the fundamentals.
It has a simple and easy-to-understand business, it sells clothing, footwear and other accessories. But the difference it has with other branded apparel stores like Abercrombie and Fitch ANF or Michael Kors KORS is that it sells cheaper clothing. The many reviews that I have read tells me that although they can sell their clothes cheaper, the quality is not compromised. Many like going there to hunt for bargains or get clothes to wear for some special occasion (at a cheaper price). The catch here is, who does not like cheaper goods? As the economy worsens and Americans try to save more, Ross would be a better place to go to save money rather than to go to somewhere like Michael Kors KORS or Urban Outfitters URBN, which are considered more "expensive" options.
Ross has also been successful in its business, as they have opened many more stores in the US. It has 1,125 stores at the moment, from 896 just five years ago.
Store count: 2007 896
2008 954
2009 1,005
2010 1,055
2011 1,125
Its EPS has also been growing steadily, year after year, from 0.63 in 2003 to 2.86 today. Although its profit declined during 2003, when there was a slowdown, its EPS has been rising well since then. It has grown 16.3% annually. 8.90.
EPS retaining calculation: It has retained $12.51 in EPS in the past 10 years. Its price 10 years ago was $8.90, now its $65.52. Price change $65.52-$8.90=$56.62
$56.62/$12.51=4.53. Each dollar retained by Ross generated $4.53. This is a fabulous number
EPS: 2002 0.63
2003 0.735
2004 0.565
2005 0.68
2006 0.85
2007 0.95
2008 1.165
2009 1.77
2010 2.31
2011 2.86
Dividends has been growing at a very fast pace in the last five years and is likely to increase at this pace for the next 5 years as sales grow(shown below). Although its dividend yield is at 0.90%, as I said, I believe it will increase. After all, although dividends are important, it is not everything to look for about a company.
Dividends: 2007 0.16
2008 0.198
2009 0.24
2010 0.35
2011 0.47
Like its EPS, its sales number has been increasing continually through the recession and still growing. I am confident that, as it gets more goodwill, its sales will increase even if there is a recession. The 2003 decrease in EPS could have been due to the lack of goodwill.
Sales: 2007 5.975B
2008 6.486B
2009 7.184B
2010 7.866B
2011 8.608B
Even while sales, dividends, stores and EPS growed, long term debt did not grow, staying at 150M. A good company does not need much long term debt as it can generate enough money to support itself. In Ross's case, it has excess cash to distribute to its shareholders.
Final calculations:
Assuming it grows at this rate, by 2021, its EPS will be 12.98. With its average P/E in the last 10 years at around 17.5 and 5-yr forecasted EPS at 15, we will be assuming that its P/E is 16.25. At this P/E ratio, its price will be at $210.89. If it can maintain its $0.56 (2012) dividend for the next 10 years, its price will be at $216.49 in 2021. This is a $150.97 increase from prices now, or a 230.41% increase. Therefore, I find this momentum stock a great buy for the next 10 years.

P.S. Trades 2,3 and 4 were already done in my virtual portfolio yesterday, on Thursday 14 June.

For a profitable week!
Also, wishing a Happy Fathers' day to all the fathers out there.



Friday 8 June 2012

This week's update

I have nothing much to write this week, not many earnings, so no straddle plays this week. There will be many earning reports from stocks highly volatile on the week of July 30th, just saying.
This week have been a good week for the market, with many picks also soaring high. The list of stocks includes Wal-Mart WMT, Kimberly-Clark KMB, Disney DIS, Ross Stores ROST and AT&T T, to a certain extent.
On options, this week have been a good week too, with Men's Wearhouse MW straddle performing best with a gain of 58%, Cooper COO doing also very well with a gain of 36%. Altera ALTR brought a loss of 34% and Oracle ORCL was cancelled due to the wrong earnings date my source provided. Sorry for that.
The market have somewhat recovered from their large fall last week but I do not think that that was the bottom. There was no "final panic selling" like there was in March 2009, people aren't exactly bearish (in fact they're bullish), and so for these reasons, not bottomed yet. There is still lots of "fun" coming up, Greece is going to the polls on June 17, that will be the biggest event this month. That will affect the market, it decides the fate of Greece. Also on Greece, I just read that the Greek government may run out of cash as early as July. Taxpayers cannot pay the government money and the government itself does not have enough money to support itself and needs the EU's help, desperately. I have thought that it will default since early this year and I'm maintaining my stand on that. As for the other countries like Spain, Italy, etc., I believe that the EU government will not let them get out of the EU or default, so Eurobonds are highly possible in the near future.
I'm reading some books now to increase my investment knowledge so I will just stop here, and continue reading. Hope to present more information to you all in the future. Thanks for reading!

For a profitable week!