January 14, 2011

Stopped out of DISCA

I still like DISCA, but was stopped out of my long position this morning.  So I imagine the logical question is, why did I let myself get stopped out?  Sure, I could have canceled or moved the stop, but I could be wrong about the stock.  Stops are there to protect the downside and limit risk in case I've made a mistake on DISCA.

I still have my Feb 35 call on DISCA, and expect to keep that for now.

January 12, 2011

Re-visiting Priceline (PCLN)

Time to check back in on Priceline - to recap last week, I liked it and was ready to buy (Priceline (PCLN)), but held off because of the chart (PCLN Again).  I wanted to wait and see where it went short term within its 2+ month trading range (hoping it would drop to the bottom of the range for a better entry point).  Here is today's chart:

You will notice that it did finally break out of the range the very day I decided not to go long (and has stayed above since), but the volume (see yellow above) has been lackluster.  To me that's not a solid breakout and should be eyed with caution.  While I still like the stock, I think it's just as likely to drop back below what I view as weak support around $426 in the short term.  Holding off again for now.

Back To Gold Again (IAU)

As mentioned in a post from last week, My Current Gold Position, I'm looking to add to my ETF holding in IAU, but was waiting for some price stabilization after it dropped after the first of the year.  That's happened now, as IAU has closed in an 0.11 cent range since Jan 4th, and it's currently trading only .03 cents above my last buy.  I'm going to buy IAU before the close today.

January 10, 2011


DISCA has continued to drop since my last post and is now down over 5% since last Monday and more than 1.5% below from where I bought more on Thursday morning.  Since this is currently my largest position I decided more research was in order (and some of this I should have done already).

To recap, DISCA is trading at a multiple more or less equal to the growth rate, very cheap.  I listened to the 3rd quarter conference call today (from Nov 2nd) and heard didn't hear anything to change my bullish view on the company.  Also took a closer look at the 3rd quarter financials:

  • Current ratio is 2.7 vs. a 2.1 ratio at 3rd quarter 2009
  • Long tern debt is up only slightly (4% from 3rd quarter 2009)
  • 3Q net income was $186 million with only $49 million in interest expense for the quarter - And interest expense was actually down over 24% from 3Q 2009
  • Margins were up over 3Q 2009 - 45% vs 43% last year
The decline seems to coincide with a Citigroup conference they participated at last Tuesday, 1/4.  So thinking there must have been bad news I listened to the presentation today, which was a 30+ minute Q&A session.  It was sort of bland, but I didn't hear anything to drive the stock down - on the other hand nothing was said you'd consider "exciting" for the company, and maybe that's what the street was looking for.

We should also look at the chart since I did note last week that it was approaching support at $40, which it has broken through - that $40 is now resistance.  However, I see the next level of support relatively close, around $39, which is also just slightly above the 200 day ema.

My bottom line opinion - I see nothing to change my positive view on the company.  This is yet another buying opportunity, but I do recognize that the stock could have some difficulty trading above the $40 resistance in the short-term.  Also, if you look at the chart above, we're not that far from my stop which I placed a little below the 200 day ema.  Maybe I'll leave my common position alone and go with a call for my next by...?

January 5, 2011

Discovery Communications (DISCA)

Discovery Communications is a current position that I made 2 buys back in November at $40.28 and $41.59.  It was profitable for awhile but has taken a 3% dip this week on higher volume.  It's also starting to approach support at $40 (see chart below) so I thought I should take a second look.

  • DISCA is currently trading ($40.55 close) at 19.1 times 2011 earnings which is more or less even with its 2011 estimated earnings growth of 19.8%.  (Estimated 2011 EPS has actually been revised $0.02 higher than when I first looked at it back In November)  One times earnings growth is cheap.
  • Median analyst price target is $45 - 11.1% from today's close.
  • To get only a 10% upside, DISCA only needs to trade at 1.06 times the 2011 growth rate.
Bottom line - I still like it and will take this as another buying opportunity at tomorrow's open.  Look for tomorrow's How I'm Doing to show another purchase or I'll post an explanation if something changes.

Natural Gas (UNG)

Mentioned a couple days ago my trade in natural gas, UNG (ETF), had finally moved in my favor, but I stayed away because it had a huge 5%+ day.  Today it pulled back to about 2% above my initial purchase and I went back in for my second buy.  You can see the update on the How I'm Doing page.

I'll discuss stops in more detail in a later post, but on UNG, I had set my stop prior to today at 5.24, slightly below a long term low of 5.27.  Well, now I have more exposure and that's a 14% drop from today's close which is more than I'm willing to risk.  I don't set my stops the same way on each position, but I'll rarely have more than a 10% stop.  There's a recent low (mid-December) at 5.53 so I'm going to move the stop up toward that, which will put me just under 10%.

My Current Gold Position (IAU)

If you've looked at the How I'm Doing page, you'll see that I have a current position in gold using the iShares ETF, IAU.  I've made 2 purchases, the second about 2% above the first.  As stated in an earlier post, I'd like my first "addition" to any position in favor of the trade, and preferably about a 2% move.  So, done and done on that one.

Now, I still like gold and would like to add to my IAU holdings.  However, I'm OK with any further additions not being above the last purchase.  Take a look at the chart below - notice if I used the same guideline as above, I would be buying at about $13.80.

Purchase 1 13.27
Purchase 2 13.53 2.0% up from 1st buy
Purchase 3?? 13.80 2.0% up from 2nd buy
Stop 12.38

In theory, my next purchase ("Purchase 3") could be anywhere between my 12.38 stop and approx 13.80.  In reality, I will probably never add to a position below the initial purchase price, in this case 13.27.  And I will probably never buy more than 2% above the last buy.  So that puts me between 13.27 and 13.80.  As gold has been taking a little beating the first few days of the year, I'm going to wait for it to stabilize a bit.  Most likely I will purchase more somewhere in the neighborhood of purchase 2 (13.53) after the price settles down.

PCLN Again

Priceline 1/4/11

I was ready to go long on Priceline at the open this morning but have decided to hold off based on this chart.  PCLN has been in the range shown above since it gapped up in early November.  Currently it's in the middle of the range, which is not a terrible entry point, but I'd like to wait and see if it goes closer to the range bottom.  Of course a few things could happen:

  • It could trade up to the top of the range, at which point I will likely wait and see if it breaks out on strong volume, which would be a good entry point
  • It could just mark time where it is, and then I'll likely just go long around this level
  • It could drop to the bottom of the range, which is my ideal entry point - yes, I know it could then break below, but I'll have a tight stop so if I'm wrong I can cut my loss quickly

January 4, 2011

Priceline (PCLN)

Priceline looks promising:
  • Another high earnings grower like OPEN and NFLX - as expected, growth is declining. It's just tough to maintain such a high flying-growth rate - 55% for year-end Dec 2010 vs 33.6% for year-end Dec 2011.
  • This is just plain cheap on earnings (using yesterday's close of $415.99) - trading at 31.5 times the 2010 EPS estimate which is a dirt cheap 0.57 times 2010 growth
  • To give only a 10% upside from these levels, Priceline only needs to trade at 0.63 times the 2010 growth rate.
The 2010 earnings report is not far off, 2/4/11, so we should also take a closer look at how this stacks up against the 2011 estimates.
  • PCLN is currently trading at 23.6 times 2011 estimates, which is still much less than 2011 growth, only 0.7 times the 33.6% rate.
  • Looking at a 10% upside, Priceline only needs to trade up to 0.77 times the 2011 growth rate.
Of the 3 high growers, PCLN looks much cheaper than either OPEN or NFLX. I'm likely to go long on this one and will let you know when it happens.

Netflix (NFLX)

Not thrilled about Netflix:
  • Growth is declining - 40.9% for year-end Dec 2010 vs 37.6% for year end Dec 2011. But not a huge issue with that, 37% is still pretty darn good
  • Somewhat expensive at yesterday's close of $178.41 - trading at 63.9 times 2010 EPS estimate, but my bigger concern is that 63.9 is 1.56 times the 2010 growth
  • Netflix would need to trade up to about 1.7 times the 2010 growth to offer a 10% upside - getting too close to the double growth rate multiple I want to avoid
No go for NFLX. If I'm looking at high-growth stocks, I still like OPEN better which I wrote about yesterday.

Yes, I'm A Jim Cramer Fan

I don't take everything Jim Cramer says as gospel, but I would consider myself a "follower". Is he right all the time? Of course not. Is he going to make wrong calls? Absolutely, everyone will. So, yes, there will be references to Cramer here occasionally as I do get some of my ideas from him.

With that said, Jim has set his Dow target for 2011 at 13,365. His top 3 Dow Stocks for the year:
3) AXP, American Express - $60 target
2) INTC, Intel - $30 target
1) AA, Aloca - $22 target

I'll provide some of my own analysis on these names soon.

January 3, 2011

Positions Updated for 1/3/11

How I'm Doing has been updated for Jan 3rd. I don't expect to write an update each day, but today's 5%+ increase in UNG deserves a comment.

Normally I would look to make a first addition to a long position when it first moves approx 2% in my favor. Nothing magical about 2%, I just want to see a positive move to confirm the trade is working. BUT, when a position blows past my 2% mark, I'm going to take a wait and see approach.

Open Table (OPEN)

Open Table is interesting:
  • The growth rate is declining - 106% for Dec 2010 vs 54.4% for Dec 2011. But c'mon man, it was growing over 100%! Tough to hold that against it.
  • Not expensive at all at current price of $70.65 - yes, it's trading at 103.9 times the 2010 EPS estimate, but that's 106% growth, so it's still trading at slightly under 1 times the 2010 growth rate.
  • Open Table only needs to trade at 1.07 times 2010 growth to give a 10% upside from here - still cheap. If it could trade 1.25 times growth, we're looking at a near 19% upside.
As I'm looking for opportunities as far away from double the growth rate as possible, this fits. Some other things I'm considering before jumping in:
  • 2010 earnings report on Feb 7th - not that far away and I typically like to stay out (or be out) of trades when the report hits.
  • Since 2010 earnings is so close, the 2011 earnings outlook may be more relevant - to get the same 10% upside referenced above, OPEN needs to trade at 1.36 times 2011 growth. Yes, that still looks cheap, but still higher than the 1.07 above.
  • Also want to analyze a couple other high-growth stocks, Netflix and Priceline.
Definite maybe to go long on OPEN - I'll keep you updated.

Nike (NKE)

Taking a look at Nike:
  • Declining growth rate - 15.3% for May 2011 vs 12.6% for May 2012
  • Not expensive at current price of $86.09 - trading at 19.3 times 2011 EPS estimate which is only 1.26 times 2011 growth
  • Nike only needs to trade up to 1.5 times the 2011 growth to give a healthy 18.9% upside from current levels
I'll leave this on the radar for now, but it's not a buy for me yet. I like to see trades that can be profitable while staying away from trading at double the growth rate, and this fits that profile. However, I don't like the declining growth rate.

Costco (COST)

Some thoughts on COST:
  • Increasing earnings growth - 13.3% year-end Aug 2011 vs 14.5% year-end Aug 2012
  • Currently seems a little expensive trading at nearly 22 times 2011 EPS estimate of $3.32 which equates to about 1.6 times the 2011 growth rate
  • Costco would need to trade up to about 1.75 times the 2011 growth in order to be profitable, and that's only about 6.7% upside from the current price
I generally look for stocks trading closer to their growth rate. The numbers get better when you look at 2012 earnings but I'm looking for shorter-term opportunities. Going to pass for now.

Welcome to the New Year

The first trading day of the year seems to be an appropriate time to begin a new posting endeavor. I believe this is the 3rd attempt and am hopeful it will indeed be the "charm" and I will stick it out.

As all my positions have changed since my last post in May, I'm starting fresh with my "How I'm Doing" page and listing all my current positions. "Last close" is the 12/31/10 closing price and I will try to update the performance daily.

Currently on my list for evaluation are COST, NKE, OPEN, PCLN, NFLX, and HRB.