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Archive for April, 2010

Posted by MartZee April 30, 2010

Trina Solar Limited ADR (TSL) added to portfolio

This morning I opened an initial position of Trina Solar Limited ADR (TSL):

04/30/2010    09:30:08    Bought  30  TSL  @  26.9  -816.99

Posted by MartZee April 30, 2010

Trina Solar Limited ADR (TSL) solar power play

Trina Solar Limited ADR (TSL) is a stock which seems to have a great potential for growth due to recent significant reduction of its production costs faster than its peers in recent quarters, Trina Solar now can turn raw silicon into a solar panel at a cost of $0.85 per watt, the lowest level of any silicon-based solar company. Further, its silicon costs have declined by two thirds in recent quarters, meaning it is no longer severely penalized by paying prices far above its more established competitors. As a result, Trina is now the lowest-cost producer of silicon-based solar panels, recently inching past larger rivals Yingli Green Energy YGE, Suntech STP, and SunPower SPWRA. (First Solar’s FSLR costs remain well below those of even Trina’s, thanks to its unique production method that employs cadmium telluride instead of silicon.) In an intensely competitive industry where cost matters most, Trina has positioned itself to benefit as the industry again begins to grow.

Fundamental check of this stock:

QUARTERLY EPS CHANGE (THIS QUARTER VS. SAME QUARTER LAST YEAR): [FAIL]

The EPS growth for this quarter relative to the same quarter a year earlier for TSL should be greater than the minimum 18%. Unfortunately, TSL’s earnings figures are not available, hence an opinion cannot be rendered on this variable at the present time.

ANNUAL EARNINGS GROWTH: [PASS]

I look for annual earnings growth above 18%, but prefer higher than 25%. TSL’s annual earnings growth rate of 316.58%, based on the average of the 3 and 4 year historical EPS growth rates using the current fiscal year EPS estimate, passes this test.

EARNINGS CONSISTENCY: [PASS]

Each year’s EPS numbers should be better than the previous year’s. One dip is allowed, but the following year’s earnings should be a new high. TSL, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 0.00, 0.01, 0.02, 0.02, 0.03, passes this criterion, as EPS have continually increased.

CURRENT PRICE LEVEL: [FAIL]

I typically look for the stocks trading within 15% of their 52-week highs. TSL’s current stock price ($24.96) is not within 15% of the 52-week high ($31.18), and, therefore, the stock is looked at unfavorably until the price moves into the acceptable range.

4 MONTH S&P RELATIVE STRENGTH LINE: [PASS]

I’d like to see confirmation from this indicator when buying as a sign of a company’s recently strong momentum. It shows a company’s weekly performance in comparison to the overall market, as measured by the S&P 500. Look for a general upward trend in weekly relative strength, as the best stocks usually act better than the overall market. TSL’s relative strength trend has been increasing over the last 4 months. This type of price action is favorable.

PRICE PERFORMANCE COMPARED TO ALL OTHER STOCKS: [PASS]

A company’s weighted relative strength, which is the stock’s price performance compared with the overall market over the past year, should be no less than 80, although above 90 is preferred. As long as all the other numbers are in check, these companies should continue to perform well over the next 3 months. TSL’s relative strength of 94 is at an exceptional level, and therefore passes this test.

CONFIRM AT LEAST ONE OTHER LEADING STOCK IN THE INDUSTRY: [PASS]

Make sure that a company’s industry is attractive by confirming that at least one other company in the industry has a relative strength above 80. There is confirmation in TSL’s industry (Semiconductors), as there are 71 companies that have a relative strength at or above 80.

LOOK FOR LEADING INDUSTRIES: [PASS]

Investors should consider stocks in top performing industries. Look at the number of companies within an industry that have a weighted relative strength above 80, and choose only the top 30% of those industries from which to select stocks. In another method, look for industries with the most stocks making new 52-week highs. TSL’s industry (Semiconductors) is currently one of the top performing industries, thus passing the criterion.

DECREASING LONG-TERM DEBT/EQUITY: [PASS]

Companies who have consistently cut debt over the last 3 years, or who have a Debt/Equity ratio less than 2, are looked at favorably. TSL, which has a Debt/Equity ratio of 0.47%, passes this test.

RETURN ON EQUITY: [PASS]

Preferred companies must have a ROE of at least 17%. TSL’s ROE of 17.6% is above the minimum 17% that this methodology likes to see, and therefore passes the criterion.

SHARES OUTSTANDING: [NEUTRAL]

Shares outstanding should be less than 30 million, as fewer shares mean bigger price jumps when demand surges. However, there is no penalty for a large number of shares outstanding as long as all the other parameters are met. Although TSL exceeds the preferred level with shares outstanding of 69 million, the stock still passes the test.

INSIDER OWNERSHIP: [FAIL]

Companies with the best prospects have strong insider ownership, which we define as 15% or more. When there is strong insider ownership, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders. Insiders own 0.01% of TSL’s stock. Management’s representation is not large enough and fails this test.

INSTITUTIONAL OWNERSHIP: [PASS]

Some institutional ownership is preferred, but there is no indication that a large number of institutions is too many. Institutions own 54.32% of TSL’s stock. Because there is some institutional ownership present, TSL passes this test.

The stock is trending well in short term (1 year) with a sideways move during this year. However, it seems to me, and I may be totally wrong, that the stock is creating a buy opportunity right now. I decided to take this trade as a solar play and bet for improvement of this stock during growing solar market.

When calculating risk I had to take into consideration a bit larger initial risk (9.18% instead of 6%), but I decided to take this play and check whether my “set-up” analysis work as expected. I will be trailing the stop loss quite close to the current price and sell immediately if the stock turns against me.

Tonight I placed a buy order of 30 shares of TSL for tomorrow market open.

Posted by MartZee April 27, 2010

ATHR, DV, MED a watch list update

ATHR, DV, MED a watch list update

Atheros Communications, Inc. (ATHR) failed my fundamental check list and has been dropped from the watch list.

I added DeVry (DV) to the watch list as a potential buy when this selling pressure fades. And I believe it will fade and the stock will create a new buy opportunity. All the selling is based on news and expectations, which seems to me do not hold water. As long as the US unemployment rate will be as high as it is today, this stock will prosper. Even though politicians and economists working for the government are telling us that employment is improving, I do not expect better data any sooner than next year. Until that DeVry may create several good chances to ride the trend, although the stock is very volatile. The only strong negative issue I can see is that the price crossed 50 DMA on heavy volume which is considered as a strong sell signal. Since fundamentally this stock is very strong, it is now all a technical game only. Here is my fundamental check list:

  2010 2009 2008  
Revenue $473,012(t) $369,615(t) $273,737(t) Pass

  2009 2008 2007  
EPS 1.00 0.59 0.50 Pass

  2009 2008 2007  
ROE 18% 17% 12% Pass

Analyst recommendation: Buy Pass

  03/10 12/09 09/09 06/09  
EPS Surprise +6.87% +20.48% +16.39% +10.45% Pass

  2014 2013 2012 2011 2010
EPS Forecast 6.3 5.48 5.39 4.51 3.67 Pass

EPS Growth Rate (next 5 years) 20.0% Pass

PEG 0.794 Pass

EPS / Industry (TTM) 54.8% 28.09% Pass

Short Interest 7.07 days Fail

Insider Form 4 -482,711 Fail

Weighted Alpha +55.10 Pass

Stock within 15% of 52 week high $69.46 Pass
RS > 70 61 Fail

Even though DV passed this check as a strong buy candidate, it doesn’t mean it will be a winning stock. It has all the prospect to grow and I will keep an eye on it.

Medifast (MED) is still a strong candidate to buy, it passed all my screening, but now I am still waiting for entry point. My entry strategy is to look at two time-frames: a weekly chart and a daily chart. A weekly chart must signal a buy point by an oscillator reversing into uptrend in oversold range, which currently MED’s oscillator is in overbought range ready to diverge into a downtrend and price creating new highs of the right leg of the cup on a very low volume. If the price and volume will continue doing what I am expecting right now we may see a price drop creating the buy opportunity. See the weekly chart:

MED
Click to enlarge

If the weekly chart creates a buy setup, than I take a look at daily chart looking for the same behavior on a daily chart. As soon as the oscillator crosses up (and this time it doesn’t have to be in oversold range, however it is preferred to see it there), it will be my buy point.

Posted by MartZee April 26, 2010

DeVry sold on stop loss

Short term selling pressure continues and DV has been sold. I am now waiting to re-enter the position once the sellers create a new buy point for me.

Sold   12  DV  @  65.9206

Cognizant Technology Solutions Corporation A (CTSH) above a buy point

Cognizant Technology Solutions Corporation A  (CTSH) above a buy point

Cognizant Technology Solutions Corporation A (CTSH) an Indian IT services company seems to be on its move. It showed up on my screener list as well as in IBD 100 list creating new highs and broke up from a flat base recently. It is a large growth (16 billion) stock and it seems to have a momentum for further growth.

I checked how the stock is trending:

CTSH

A one year chart shows that the stock is in a very strong uptrend which is positive. The stock is a trending stock. The 3 year chart confirms that trend. We can see a choppy downturn during recession period, but that can be ignored as it will be seen on 5 year trend:

CTSH

Five year trend shows that the stock has been trending prior the downturn and it resumed the trend when the overall trend of the market returned north.

CTSH

So the stock is a trending stock. Let’s take a look at fundamental evaluation:

  2009 2008 2007  
Revenue $3,278(m) $2,816(m) $2,135(m) Pass

  2009 2008 2007  
EPS 1.78 1.44 1.15 Pass

  2009 2008 2007  
ROE 20% 22% 24% Fail

Analyst recommendation: strong buy Pass

  12/09 09/09 06/09 03/09  
EPS Surprise +2.40% +9.76% +25.67% +1.88% Pass

  2014 2013 2012 2011 2010
EPS Forecast 3.26 2.85 2.76 2.31 2.07 Pass

EPS Growth Rate (next 5 years) 20.0% Pass

PEG 1.21 Fail

EPS / Industry (TTM) 16.16% 48.7% Fail

Short Interest 1.7 days Pass

Insider Form 4 -181,986 Fail

Weighted Alpha +118.70 Pass

So far the stock has received 8 point out of 12 available. That means that the stock DIDN’T PASS through my fundamental evaluation, so I am not continuing in further evaluations. Originally I was thinking to be lenient on PEG, which seems to be quite low, but such a large negative insider activity prevents me from further evaluating of the stock or being lenient in regards loosing some rules.

The next stock I wish to look at is Atheros Communications (ATHR)

Medifast (MED) shows great results and trading setup.

Medifast (MED) shows great results and trading setup.

Next stock which showed in my trading screener list is Medifast (MED). I added it to my watch list and performed my analysis and it passed my screener, trending and fundamental criteria.

As for the trending, the stock started its move up basically two years ago, in June 2009 and since then it ran up almost to $40 per share. I made quite a good money riding this stock. However during January 2010 correction the stock pulled back with, as IBD says, “absurdly deep cup” and it is running back up.

The company shows excellent performance and I wonder what power slashed this stock so deep because fundamentally there was no reason for it.

See the daily chart:

MED

From the three year chart it is obvious that the stock broke from its base and since then it has been trending up:

MED

I ran my fundamental check with the following results (data are retrieved from EDGAR unless noted otherwise):

  2009 2008 2007  
Revenue $45,005(t) $27,281(t) $21,845(t) pass

Because the last quarter data weren’t complete, I was comparing the last known quarters. But even with incomplete last quarter the company is already beating revenue of the previous years easily.

  2009 2008 2007  
EPS 0.23 0.11 0.07 pass

  2008 2007 2006  
ROE 14% 12% 18% pass

Available data weren’t complete, so I was comparing older numbers and reviewed other sources for 2009 & 2010. The most actual number I could get for ROE was 28.22%, while industry is only 7.89%. With that in mind I am assigning a “pass” mark to this criterion.

Analyst recommendation: strong buy pass

  12/09 09/09 06/09 03/09  
EPS Surprise +41.67% +11.11 +21.05% +10.53% pass

The company consistently beat EPS forecast last year and it is expected to do so this year. The 1st Quarter earnings is supposed to be released on May 5th.

  2012 2011 2010  
EPS Forecast 1.76 1.55 1.17 pass

EPS Growth Rate (next 5 years) 25% pass

source: Yahoo.com

PEG 1.45 failed

source: TD Ameritrade

EPS / Industry (TTM) 137.70% 100.79% pass

source: TD Ameritrade

Short Interest 3.4 days failed

Insider Form 4 +7,660 pass

Insiders are buying !! Total trades in last 3 months was 13 and in last year 34 with positive number.

Weighted Alpha +337.4 pass

Another great number indicating strong price move over the years.

The stock received 10 points out of 12 available which makes it a very strong candidate to buy.

However, there are two reasons, why I am not going to buy right now. The stock seems to be forming a cup with handle pattern right now:

MED

It would pay to wait what the price will be doing in a couple of weeks prior buying. Also when I checked a weekly chart, it also shows a possible overbought reversal, so the price may actually drop. The earnings expectation until May 5th may sink the price and create a handle of the cup. If the earnings will be positive and better than expected, that may be the break out.

The second reason is that when I was calculating my risk I wasn’t able to meet my buying criteria. With the price of the stock at $29.89, ATR Value at 1.25 and total risk per the entire portfolio at 2% I could buy only 22 shares. That would still account to $657.58 trade size which is below my required $800 minimum limit and still my total capital exposure will rise to 10.66% which is a way too lot above 6% limit.
Since my total portfolio liquidation value to existing stops will be at $2,013.69 (above $2,000 limit) and this stock shows really strong momentum, it is #2 on IBD 100 list, etc, I may consider a variance for the rules and accept higher risk for this trade. But I really have to think about it.

Ansys (ANSS) evaluation

In my previous post I tried to describe how I evaluate stocks which I am going to buy. First I was looking at Stryker Corporation (SYK), but further evaluation disappointed me so I decided not to buy yet. The next stock I liked was Ansys (ANSS). My first criteria is that the stock must be in my screener list, then I look at the chart to see if the stock is trending. I look at 1 year chart, 3 year (or 2 year) chart and then to 5 year chart. If on both charts you can identify strong uptrends I then continue with evaluation or drop the stock and do not bother anymore. Ansys passed all these first screening criteria and now is time to take a look at fundamentals.

I want to buy an aggressive fundamentally strong companies which have great potential for doubling or tripling their value. However these stocks are naturally more volatile and sort of dangerous to trade. So a good money management with defined stop protection is crucial. To eliminate stocks which are just a pure pump & dump stocks I want to be sure that such a company is making money; that I am not looking at any sort of phantom stock with virtual value. The only way how I can be sure is to look at some fundamental numbers. I look at 14 financial ratios and key number and try to decide whether it is good or what I am looking for or not. It is not an easy job and I am not an expert in it, but at least I try and make sure I did all I could.

Also all those fundamentals I am reviewing do not guarantee that the stock will perform well or even exceeds all my expectations. But at least I know that the stock has a high probability to grow and I am more confident holding the stock during corrections.

First I take a look at 12 criteria to see whether to continue with others or not.
The very first ratio I look at is revenue. I think, there is no need to explain this. If the company is not making money, I do not bother buying it. I want to see the revenue growing every year, so I take a look at last three known years (if the last year is not known yet I compare last three known quarters):

  2009 2008 2007  
Revenue $516,885(t) $478,339(t) $385,340(t) pass

The stock passed. Every year the company increased its revenue.

Next I check its EPS. I want to see grow in every year:

  2009 2008 2007  
EPS 1.27 1.29 1.02 fail

EPS in 2009 was lower than in 2008, the stock didn’t pass.

Here are the next criteria I typically look at:

  2009 2008 2007  
ROE 9% 9% 13% fail

Analyst recommendation = should be buy or better. This stock fails. You may say that opinion of analysts may be irrelevant and they may be wrong. That’s true and they may be wrong, but 12 independent analyst ca create some consensus and today’s Wall Street is obsessed with analysts and every a bit piece of bad or good news may trigger a large move of the stock. I do not want to go against the crowd. I want the crowd to ride my profit.

Next number I look at is EPS surprise which has to be positive in every reported period. That means that the stock had to exceed analyst expectations. Those number are what provide fuel to the further growth of the stock. Ansys passes this criteria:

  Quarter End Surprise %
  Dec 2009 8.38
  Sep 2009 8.96
  Jun 2009 18.78
  Mar 2009 2.49

Next number I want to see is the EPS forecast and it should be positive and higher every following year. This company meets such criteria.

Then I check what is the EPS long term growth. It should be more than 10%. This company indicates 20%, so it exceeds my criteria twice.

Then I want to see how expensive the stock is, what premium I will pay by buying this stock. I check its PEG and it should be at 1 or less. This company doesn’t meet this criteria. It’s number at 1.87 exceeds my criteria. The expected 5 year trailing PEG is 1.27, so I assign “fail” to this criteria.

Next I check EPS growth of the stock with industry. The stock has a ratio 7.68% while the industry 16.04%, so the stock is not a leader in the industry.

Next criteria I look at is short interest. I want to know how long it would take to cover all short positions (assuming that I will trade the stock long). I want the coverage to be at 2 days or less. This number basically tells me how confident bulls are vs bears. The higher the number the more bears are selling the stock and it will most likely be falling in price. This stock has more than 5 days to cover, so it fails.

Next number I check is what insiders are doing. From the Form 4 I can see selling. Sometimes it doesn’t have to be as negative as it looks, but with this stock it may be a warning. This stock fails.

The last number I look at is Weighted Alpha. That tells me whether the stock price has growing or falling tendency over the time based on its current price and its movement. Ansys passes this criteria.

Overall this stock received 5 points out of 12 possible. That means I do not have to bother with further review because I am not satisfied with such results and I am not buying this stock.
If the stock ranked high (such as DeVry (DV) did recently) I would then calculate my risk, gain expectation, position size and look at the chart again to identify my entry point. But since I am not satisfied with the results of this stock I am not going to waste my time by reviewing it more.

The next stocks which were in my list and which I will review using the same approach are:

BIOS, PLCE, & CTSH (I will follow with this last one first, since it ranked really high). But I will write about it more later.
Happy trading.