Tuesday, September 12, 2006

Potential Software Takeovers

I recently mentioned CKCM, and just two weeks later it caught a takeover bid which puts the stock at a 40% premium from where it was mentioned on 08/21. With large IT companies sitting on so much cash they could very well be looking to put it to work buying one of these companies. The key thing is a profitable company with good prospects, little debt and experienced management.
When it comes to software I can't stress enough the value of having experienced management. In the highly niche, sophisticated and competitive software market experienced management is the difference between a deal maker or breaker. Product lifecycles are very short in the software industry, so if your buying a software company, your buying into the people running it.

Here a list of software companies that fit the bill.

BOTTOMLINE TECH (NasdaqGM:EPAY) - Electronic banking is a growing market, and EPAY has demonstrated they can be profitable in this space. The CEO has been with the company since 1996 & the COO since 1998.

COVANSYS (NasdaqGS:CVNS) - Profitable software smallcap with a CEO who has stuck with it since 1985.

MOLDFLOW CORP (NasdaqGS:MFLO) - Makes computer aided engineering software. I think this company would better complement Illinois Tool Works core businesses then CKCM, but then again I thought someone like ORCL would have bought CKCM. CEO has been with the company since 1997.

PEGASYSTEMS (NasdaqGS:PEGA) - Probably the highest risk stock of the four, but also has the most committed CEO who has been with the company since 1983. With a marketcap of 286mm, but only an enterprise value of 159mm, it could easily be taken over by one of its many impressive partners.

Tuesday, August 29, 2006

Perfect Storm Brewing

● 8 of 10 all time largest corporate buyouts occurred recently

● Private equity is sitting on nearly $1 trillion in cash (about 1/10 the value of the S&P)

● Stock buybacks are averaging $2.4 Billion daily while corporate selling (new offerings & insider selling) is around $900 million daily.

● The yield on the 10-yr treasury is 4.8%

● According to S&P the dividend + buyback yield = 5.6%

● The earnings yield on the S&P 500 = nearly 8% (2007 estimates)

● Earnings season is over and companies beat estimates by a ratio of 4:1

● Earnings estimates are rising

● Currently the fourth consecutive month of US equity fund outflows (last time was late 2002)

● The yield curve is inverted

Ok, so the yield curve is inverted, I know that has historically signaled a recession. But what does an inverted yield curve really mean? It means long term inflation is under control and short rates will be moving lower in the future. Most corporate debt is financed on the long end, so the fact that yields are falling is allowing companies to issue debt at lower yields and lower their cost of capital. The average investor is clearly bearish as witnessed by the fourth month of US equity fund outflow, but corporate America clearly isn't as witnessed by the record buybacks and M&A activity. The amount of cash just looking to be put to use is mind boggling, and when that happens it will be seeking the highest returns as capital always does, with stocks looking more attractive on a dividend/buyback & earnings yield basis. Lets not forget the analysts who follow these companies full time, they are currently revising their earnings estimates upward further showing that the fair value of many companies is above current levels. Ok, so you say with all this cash being put to use, when it finally happens their will be massive inflation. Lets not forget that businesses are growing and they need capital to finance this growth, perhaps why the yield curve is signaling low inflation ahead. So we have growth with little inflation, sounds like the making of a bull market.

Monday, August 21, 2006

Till death we part?

I was recently reading about Philip Fisher and his original investment in Motorola in 1955, which held until his death in 2004. This got me thinking about small companies today which have long term growth potential. This is a small list of unique companies which in my opinion have the potential to continue growing for years to come.

GARMIN LTD
(NasdaqGS:GRMN) - The market leader in GPS is showing great growth potential with many cars still lacking GPS, there is plenty of room to grow.

CONSOLIDATED WATER
(NasdaqGS:CWCO) - Develops and operates seawater conversion plants and water distribution systems in areas of the world where fresh water is rare or non-existent. Is there any doubt that there will continue to be demand for fresh water and in fresh water lacking areas no less?

CLICK COMMERCE
(NasdaqGM:CKCM) - In short Click Commerce provides the software which allows e-commerce companies to work efficiently with their channel partners. Unless you see e-commerce going away, demand for supply-chain software should remain robust for years to come. Given the size of Click Commerce its not hard to see someone like Larry Ellison adding it to their collection.



DISCLOSURE: I maybe long the stocks mentioned above for myself and clients. Not a recommendation to buy or sell any security. The information above has been obtained from sources we believe to be reliable, but its accuracy cannot be guaranteed. The author and affilates shall have no obligation to update or amend any information contained above. For informational and educational purposes only.

Tuesday, July 25, 2006

Medicine that Scales

Andy Kessler recently said in an interview "It is doctors that are the problem with medicine. Why? Because they are human (after all), and humans donĂ‚’t scale, they get more expensive. The trick is to embed their knowledge and expertise in silicon and software and algorithms and deliver it cheaper every year."

After reading that, I instantly thought of among my favorite momo's - INTUITIVE SURGICAL (NasdaqGS:ISRG) - about one-fifth of doctors not using the DaVinci said they would like to but did not have practical access to a DaVinci device despite the hospital having a machine, which Piper Jaffray analyst Timothy B. Nelson said suggests potential future sales.

Valuation isdefinitelyy lofty, but the company continues to beat analyst estimates and at $1 million per machine, the company only has to sell 1000 Da Vinci's to do a billion in sales. With that kind of potential, I'm buying and holdinguntill the story is folding.


DISCLOSURE: I maybe long the stocks mentioned above for myself and clients. Not a recommendation to buy or sell any security. The information above has been obtained from sources we believe to be reliable, but its accuracy cannot be guaranteed. The author and affiliatess shall have no obligation to update or amend any information contained above. For informational and educational purposes only.

Monday, July 24, 2006

ATI should beat on Wednesday

TITANIUM METALS CORP (NYSE:TIE) reported better then expected earnings today. ALLEGHENY TECH NEW (NYSE:ATI)is a more consistent producer with more conservative estimates. Given the current demand for titanium based on TIE's reported quarter, I am willing to say with a high degree of probability that Allegheny will beat on Wednesday.

DISCLOSURE: I maybe long the stocks mentioned above for myself and clients. Not a recommendation to buy or sell any security. The information above has been obtained from sources we believe to be reliable, but its accuracy cannot be guaranteed. The author and affilates shall have no obligation to update or amend any information contained above. For informational and educational purposes only.

Monday, July 17, 2006

Playing the Heatwave

This is expected to be one of the hottest summers on record. People will be using their air conditioners which are known to consume alot of electricity. The clear winners in this case are the electrical utility companies. A few names I'm looking at are listed below.

AVISTA CORP (NYSE:AVA)
EMPIRE DISTRICT (NYSE:EDE)
F P L GROUP INC (NYSE:FPL)
MONTANTA DAKOTA UTIL (NYSE:MDU)
NISOURCE (NYSE:NI)
NRG ENERGY INC (NYSE:NRG)
PG&E CP (NYSE:PCG)
WESTAR ENERGY INC (NYSE:WR)
XCEL ENERGY INC (NYSE:XEL)

Earnings Plays for the Week of 7/17

This week is options expirations week and the start of earnings season, which creates good oppertunties for option plays ahead of earnings. I am looking at buying July out of the money calls for the following stocks.

SOUTHERN COPPER (NYSE:PCU) - 7/18
PLX TECHNOLOGY INC (NasdaqGM:PLXT) - 7/18
JEFFERIES GROUP INC (NYSE:JEF) - 7/18
C S X (NYSE:CSX) - 7/18
UNITEDHEALTH GROUP (NYSE:UNH) - 7/19
DXP ENTERPRISE (NasdaqCM:DXPE) - 7/19 - no options traded
ASML (NasdaqGS:ASML) - 7/19
GEN DYNAMICS (NYSE:GD) - 7/19
ORBITAL SCIENCES (NYSE:ORB) - 7/19
RADIAN GROUP INC (NYSE:RDN) - 7/19 - in the money calls
DECKERS OUTDOOR (NasdaqGS:DECK) -7/20
POOL CORPORATION (NasdaqGS:POOL) - 7/20
CHARLOTTE RUSSE HL (NasdaqGS:CHIC) - 7/20
GENTEX (NasdaqGS:GNTX) - 7/20 - in the money calls
JOHNSON CONTROLS INC (NYSE:JCI) - 7/20
RELIANCE STL & ALMN (NYSE:RS) - 7/20
STEEL DYNAMICS (NasdaqGS:STLD) - 7/20
FREESCALE SEMICONDUCTOR (NYSE:FSL) - 7/20
SKYWORKS SOLUTIONS (NasdaqGS:SWKS) - 7/20
SPANSION INC. (NasdaqGS:SPSN) - 7/20
WESCO INTL INC (NYSE:WCC) - 7/20
NOKIA (NYSE:NOK) - 7/20
HOKU SCIENTIFIC INC (NasdaqGM:HOKU) - 7/20 - stock maybe better then options
MCMORAN EXPLOR CO SC (NYSE:MMR) - 7/20
BRITTON & KOONTZ C (NasdaqCM:BKBK) - 7/20
CONTINENTAL AIRLINES CL B (NYSE:CAL) - 7/20
INFINEON TECH (NYSE:IFX) - 7/21 - in the money calls

DISCLOSURE: I maybe long the stocks mentioned above for myself and clients. Not a recommendation to buy or sell any security. The information above has been obtained from sources we believe to be reliable, but its accuracy cannot be guaranteed. The author and affilates shall have no obligation to update or amend any information contained above. For informational and educational purposes only.


Sunday, July 02, 2006

Growth VS Value

My issue with valuing investing has always been that its based on rearview investing, and most studies favor value over growth mainly because they have been done in hindsight with data flawed by survialship bias.

I decided to compile a small list of growth and value companies by sector, and will revist their performance at a later date, this way we can avoid the flaws that come with testing in hindsight.
TECHNOLOGY
GOOG (P/E 70) vs MSFT (P/E 18)

BEVERAGES
HANS (P/E 56) vs KO (P/E 20)

BUILDING PRODUCTS
VMC (P/E 20) vs LPX (P/E 5)

RETAIL

SHLD (P/E 23.5) vs WMT (P/E 17.6)

PHARMA
KG (P/E 40) vs PFE (P/E 14)

INVESTMENT FIRMS
SEIC (P/E 24) vs GS (P/E 8.6)

COMPUTER EQUIPMENT
HPQ (P/E 24.5) vs IBM (P/E 14.6)

TELECOM

Q (P/E -35 (negitive EPS)) vs VZ (12.8)

Wednesday, June 28, 2006

The Growth From Long Term Care

Not too far off, the first wave of baby boomer will start to retire, and of course that will help fuel Sun Healthcare Group's (NasdaqNM:SUNH) growth in the long term, that in conjunction with the growth in long term care insurance products.
This is a smallcap long term healthcare provider which recently went through a restructure. It seems to have worked because the earnings are growing again. Trading at $8.88, they are currently doing $48 in revenue per share. That means its trading at 0.28 x sales. I think margins should expand as demand for these services grows, allowing SUNH to convert more of that revenue into earnings. The main catalysts for that growth being an older population which now has the means for pay for that care (long term care insurance).

Tuesday, June 27, 2006

Semiconductor Slowdown?

It would still be nice to own a stock like FREESCALE (NYSE:FSL). So diversified between the transportation, networking & computer systems and wireless industries. While the rest of the industry is overloaded with inventory, Freescale's inventory levels have been dropping over the past 3 years. Its ROE & ROA is 3x greater the industry average. FSL currently trades at about 13x next years earnings vs 19 for the industry. Its also interesting to note that Freescale has beat earnings estimates every quarter since it came public.

DISCLOSURE: I maybe long the stocks mentioned above for myself and clients. Not a recommendation to buy or sell any security. The information above has been obtained from sources we believe to be reliable, but its accuracy cannot be guaranteed. The author and affiliates shall have no obligation to update or amend any information contained above. For informational and educational purposes only.

Thursday, June 22, 2006

The Cheapest Energy Momo

I like VALERO ENERGY (NYSE:VLO) because its one of the lowest cost refiners, which in a rising oil market will give it a pricing advantage over the competition. This advantage is currently evident using just about any metric.

* Operating margins over the past 12 months increased almost 5% vs 1.8% for the industry.
* ROE of 32.50 vs 11.5 for the industry.
*• EPS growth over the last 5 years is 50% vs 15.59% for the industry.
* Sales growth over the last 5 years of 46.80% vs 15.59% for industry.
* P/E of 8.44 vs 16.10 for industry.
* Trading at 7.5 x cash flow vs 10 for industry.
* Trading at 7.35 this years expected earnings vs 14.21 for industry.
* Trading at 8.38 next years expected earnings vs 13.61 for industry.

Whats interesting is the analyst consensus for next year is less then this year, despite the growth for the industry's estimate. Still, this gives Valero an earnings yield of nearly 12% vs 7.7% for the S&P & 5.2% for the 10-yr t-bond.

This stock is cheap even using the analysts incorrect estimates, and I say incorrect because that estimate will be raised, just like it was by 3% this week, and by 6% over the past 12 weeks vs only .42% for the industry.

DISCLOSURE: I maybe long the stocks mentioned above for myself and clients. Not a recommendation to buy or sell any security. The information above has been obtained from sources we believe to be reliable, but its accuracy cannot be guaranteed. The author and affilates shall have no obligation to update or amend any information contained above. For informational and educational purposes only.

Tuesday, June 20, 2006

Giving Management Tools

WEBMETHODS INC (NasdaqNM:WEBM) offers SOA (Service-oriented architecture), and BPM (Business Process Management) tools which is used in the planning and integration of Sarbanes-Oxly and Patriot Act compliance into the business processes. Clearly for those reason its obvious why this companies products could be in demand right now.

what is not as obvious is the companies main focus, which is not compliance, but strategic business and IT process modeling, integration and monitoring (then rinse and repeat). With management styles getting more sophisticated (Six Sigma, Performance Management), a pen & pad may no longer cut it, even an excel spreadsheet will get messy.

Usually I would be quick to dismiss such hard to understand business model, but with 1,300 customers, earnings growth and coverage by 11 analysts (which is unusual for a smallcap) I see potential. Mainly the hard to understand business model which seems to have created a mispricing, even with 11 analysts, it has beat estimates the past year. From a growth prospective WebMethods products are in use by several big management teams, and no one wants to leave an edge on the table for the competition.

Thursday, June 15, 2006

PARL revisited using Graham's risk-arbitrage formula

To determine optimal risk/reward in a deal Graham used the following formula:

Annual Return = Probability deal will go through (deal price - current price) / current price

Assuming the going private deal proposed by the CEO has only a 50% chance of working out, the formula for PARL would look like this:

50% ( (29 - 19.50)/19.50 = 24%

If you assume a 25% chance of the deal going through:

25% ( (29 - 19.50)/19.50 = 12%

The yield on the 10-yr is 5.1% and by my estimate the yield for the S&P (based on 2007 estimates) is 7.6%. Compared to the alternatives 12% is a nice return.

Now even if the deal does not go through I believe the downside is very limited. It's currently trading at about 7x next years earnings which is an expected growth rate of 38% this produces a PEG ratio of 0.18, making it one of the cheapest stocks on a growth basis. Its also worth noting that the estimates used are historically conservative because PARLUX continues to beat them quarter after quarter.

DISCLOSURE: I maybe long the stocks mentioned above for myself and clients. Not a recommendation to buy or sell any security. The information above has been obtained from sources we believe to be reliable, but its accuracy cannot be guaranteed. The author and affilates shall have no obligation to update or amend any information contained above. For informational and educational purposes only.

Tuesday, June 13, 2006

PARLUX undervalued after all

Today PARLUX FRAGRANCES (NasdaqNM:PARL) reported earnings around 2:50pm. The company reported diluted EPS of $0.78 vs $0.71 expected by Wedbush Morgan. The company also reported 82% sales grow over the previous year, contrary to a downgrade note by Wedbush last week which believed sales would decline. I called Wedbush out on this call and took heat for it because after all isn't the job of good analyst to provide insight prior to a market moving event so it's clients can get out before it missed its earnings? Of course it is, but with over 60% of the float short, you have to wonder if the clients were trying to avoid an earnings miss or bank on it?

Apparently the CEO feels the same way. After the close the CEO announced a going private proposal at $29 per share, to eliminate the compliance costs of being a public company and to end disruptions in the company's operations caused by short sellers.
The stock is currently trading at $25.25 in afterhours which is about a 35% premium to the closing price, but is about a 15% discount from the proposed acquisition price.

DISCLOSURE: I maybe long the stocks mentioned above for myself and clients. Not a recommendation to buy or sell any security. Some of the information mentioned is opinion and may differ from fact. For informational and educational purposes only.

Friday, June 09, 2006

Bottom in place


I have been looking at this market will a bullish bias because I believe stocks are cheap compared to the alternatives. The S&P is expected to earn 95.54 in 2007 according to the bottom-up analyst consensus. This gives the index a yield of 7.7% (95.54/1246) which is almost 3% greater then the 10-yr treasury. Credit spreads and a flat yield curve indicate relatively little risk right now, so for the market to have a 3% risk premium over bonds is just ridiculous. In addition there are more companies beating analyst estimates then not, so the 3% difference may turn out to be understated. In the short term I believe we put in a bottom yesterday because the indices have fallen more then 2 std deviations from their 20 day MA which is normally an aberration and for the hour ending 11:30am we hit a new multi-month low but closed at the highs of that period on a volume spike. Which could very well indicate a bottom in place.

Thursday, June 08, 2006

Irrational Selling?

Parlux Fragrance (PARL) is currently down 13% because of a downgrade by Wedbush Morgan due to poor visibility on their Paris Hilton perfumes. One has to wonder why they would do this the day of the earnings, before the earnings? Why not wait until after the earnings? The whole thing smells wrong on behalf of Wedbush, and this could be a great buying opportunity

DISCLOSURE: I maybe long the stocks mentioned above for myself and clients. Not a recommendation to buy or sell any security. For informational and educational purposes only.

Wednesday, June 07, 2006

Automating The Financial Planner?

Everyone is now aware of the success of the online brokers. They took the traditional transactional broker, automated him/her which resulted in lower costs and faster executions. Recently I was reminded of how widespread they have gotten when I was pitching a certain someone with $50 million in the market, by the end of my pitch he already bought the idea through his ameritrade account.
The one thing most of these online brokers don't do is financial planning, except for ETRADE. While the others automated the broker, ETRADE automated the financial planner. The brokerage part of the platform allows the user to see how much return they can expect for risk, stress testing (how would the portfolio act on black monday 1987 or 9/11) and performance evaluation with benchmarking. In addition they created a one stop shop for banking, brokerage, credit & lending. This allows them to not only sell on commission but they can also integrate it with the brokerage, so the user can plan out their finances from an investing, banking, spending and borrowing perspective. This allows ETRADE to sell more products such as credit cards and mortgages, and because of the nature of financial planning probably allows them to gather more assets per customer.
Actions are louder then words, and the number are saying the approach is working. Over the past 5 years EPS growth averaged 76% vs 21% for the industry, and valuation wise its cheap trading at 15x this years earnings vs 17x for the industry and 13x next years vs 15x for the industry.
ETRADE may appeal to the retiring baby boomers, but it may really appeal to the younger workforce coming on to replace them, for who it may not make sense to use a traditional financial planner.

Monday, June 05, 2006

Free market hope in Peru

Peru: Alan Garcia claimed victory as Peru's next president with 77% of votes counted and 55% in favor of Alan Garcia and vowed to increase trade ties with the U.S. and challenge Venezuelan President Hugo Chavez's efforts to expand his influence in Latin America.

One stock that will benefit from this is SOUTHERN COPPER CORP (NYSE:PCU). The stock has come under pressure partly due to the threat of a nationalist running who would have taxed Southern Copper's revenue at 3%.

Now that the threat is gone, it presents an opportunity since the stock is almost unchanged today. With over a 10% dividend yield, P/E of 8 and PEG of 0.38, this is cheap stock for income, value or growth investors. With something for everyone, investors from various persuasions can come together and sing kumbaya on this one.

DISCLOSURE: I maybe long the stocks mentioned above for myself and clients. Not a recommendation to buy or sell any security. For informational and educational purposes only.

Sunday, June 04, 2006

Potential for earnings surprises

The summer is generally a slow time. One way to get around that is to play earnings surprises. Below is a list of companies reporting over the next two weeks (06/05 - 06/16) that have a high probability of beating.

VERITAS DGC INC (NYSE:VTS) - reporting 06/06 - This is an oil service company that processes geophysical data on behalf of various energy companies that use the data for oil & natural gas recovery. With the price of energy going up there is demand for oil service companies that help in the energy discovery & recovery processes. That being said I was shocked to find the analyst consensus expects Veritas earnings to decline this year.

COMTECH TELECOM CO (NasdaqNM:CMTL) - Reporting 06/06 - This is a good time to be a wireless technology company, but its especially good when the pentagon has a big demand for your product. On top of its strong organic growth, CMTL is getting bombarded with orders from the pentagon for its warlock jammers which disrupt the electronic signals that Iraqi terrorists transmit to trigger roadside bombs. After the previous sell off the downside is limited while the potential upside is enhanced.

VAIL RESORTS INC (NYSE:MTN) - Reporting 06/07 - Great ski resort and real estate company. This one might sell off on good earnings because they are going into a seasonally slow quarter for them, but that should be used as a buying opportunity because come their normal season it may be much higher.

NOBILITY HOMES INC (NasdaqNM:NOBH) - Reporting 06/08 - This could be an exception to the homebuilder syndrome. They are a Prefab home builder and as result can manufacture homes that are about $30 per sq Ft cheaper.

PARLUX FRAGRANCE (NasdaqNM:PARL) - Reporting 06/08 - This is a perfume company with limited products in a fickle industry, but with 61% of the float short and a PEG of 0.36, the downside could be priced in.

GOLDMAN SACHS GRP (NYSE:GS) - Reporting 6/13 | BEAR STEARNS COS THE (NYSE:BSC) - Reporting 6/14 | A G EDWARDS HOLDING (NYSE:AGE) 6/15 - What can I say? Brokers are hot.

ENTEGRIS INC (NasdaqNM:ENTG) - Reporting 6/16 - Entegris supplies the semiconductor industry with materials and equipment that assure the integrity of the manufacturing process. These days many semiconductor companies are switching to a fabless model, as that trend continues companies like Entergris stands to benefit.


DISCLOSURE: I maybe long the stocks mentioned above for myself and clients. Not a recommendation to buy or sell any security. For informational and educational purposes only.

Wednesday, May 31, 2006

Stocks that go BOOM

I have been following DYNAMIC MATERIALS (NasdaqSC:BOOM) for over a year and the whole time the stock has been scary to buy because of its Mt. Everest looking chart. Thanks to a secondary offering by some old bagholders, the stock has sold off the past month. I think the stock has been beaten down too far and makes for a good buying opportunity.

Dynamic Materials is one of the lowest cost claded metal producers in the world. Its main competitor is Asahi Kasei in Japan, which can't really compete because of shipping costs. The industries that BOOM serves are petrochemical, refining, hydrometallurgy, aluminum, shipbuilding and energy. All of which are booming right now.

This puts Dynamic Materials in a sweet spot with 112% EPS growth in 2005 & 81% over the last 5 years. LT debt/cap has been reduced to 5% and ROE has grown from 17% to about 40% currently.

With this kind of growth, a larger float and a marketcap over $300mm its not surprising to see a Wall St firm initiate coverage last week. I always find it funny how institutional investors refuse to buy a small amount of shares in a company when its a smallcap, but they will pay a lot more for the same amount of shares when its a mid or largecap. Hey! That sounds like an inefficiency.

DISCLOSURE: I maybe long BOOM for myself and clients. Not a recommendation to buy or sell any security. For informational and educational purposes only.

Monday, May 22, 2006

Alpha Watch List

This is a list of high alpha stocks with earnings momentum and interesting future prospects. Or as I like to tell the usual skeptics: "I think their not done going up."



SYMBOL | COMPANY NAME | WEIGHTED ALPHA
TIE TITANIUM METALS +504.20
HANS HANSEN NATURAL +433.90
NTRI NUTRISYSTEM INC +308.60
KNOL KNOLOGY INC. +307.30
NXG NORTHGATE MINER +255.20
MGPI MGP INGREDIENTS +249.10
FMCN FOCUS MEDIA HOL +248.30
DXPE DXP ENTERPRISE +238.80
NEU NEWMARKET CORP +234.80
CELL BRIGHTPOINT INC +212.30
WIRE ENCORE WIRE CP +206.10
ANDE ANDERSONS INC
+202.30
PLXS PLEXUS CP +192.90
TTI TETRA TECHNOLOG +191.50
FAL FALCONBRIDGE LT +181.00
BTUI BTU INTL INC +175.20
MWRK MOTHERS WORK IN +170.40
LDSH LADISH COMPANY +167.30
MDR MCDERMOTT INT P +166.50
PSTA MONTEREY GOURME +159.80
SHOO STEVEN MADDENS +159.60
ATI ALLEGHENY TECH +155.60
RAIL FREIGHTCAR AMER +154.60
EZPW EZCORP INC CL +151.00
GPI GROUP 1 AUTOMOT +149.10
SMSI SMITH MICRO SOF +148.00
TWGP TOWER GROUP INC +145.90
NTG NATCO GROUP INC +145.30
CFK CE FRANKLIN LTD +143.20
SLW SILVER WHEATON +139.40

Data from barchart.com

Friday, May 19, 2006

NutriSystem Inc. (NTRI)

This is a great play on the #1 disease worldwide; obesity. More people suffer from obesity then any other other disease, and NutriSystem has a solution.

The Glycemic Index : measures the quality of carbohydrates and their impact on your blood sugar. According to Nutrisystem, "carbohydrates that break down slowly in your body encourage stable blood sugar levels, which is good, so they rate well or "low" on the Glycemic Index. On the other hand, carbs that break down too quickly cause your insulin levels to spike, and high insulin levels cause your body to store fat, so these carbs are given higher glycemic values. These "bad" carbs also leave you hungry soon after a meal, so if you're looking to lose weight, you should seek to incorporate more "good" carbs with low glycemic values to keep your blood sugar levels stable and you metabolism burning strong." The NutriSystem Nourish meal plan features low Glycemic Index foods and optimal amounts of protein to help keep your blood sugar levels stable and your metabolism burning strong.

NTRI is a major momo with 1867% earnings growth in 2005, and 212% expected earnings growth for 2006, although that estimate looks conservative because it recently beat the quarterly estimate by 50%.

NTRI operating margin is 12.5% vs 4% for the industry, ROE is 55.6% vs 12.68% for the industry. Turnover is 40.83 vs 7.58 for the industry.

This company is at the top of my momo list because of its quadruple digit earnings growth!
I'm looking to ride this bull until its earnings and guidance start to match analyst estimates.


DISCLOSURE: I am long NTRI . Not a recommendation to buy or sell any security. For informational and educational purposes only.

Why We're Here

Because value investing is really boring. If your going to do something, do something you love. Value investing these days is boring, we are tired of buying marginal business below book value that sells candy, tires, underwear or some other mundane product/service as old as time. We're not trying to buy 50 cents for $1 (if such a thing exists), we're trying to buy an apple seed that will blossom into a tree. We don't look to avoid risk, we seek it, that how we get paid, by taking on the risk others don't want.