3SOF

Good morning :)

Yesterday's winners were VLO, PFSW and DLSL.OB. Here's the first analysis for VLO:


I gave it a 6 out of 10 rating, mainly because, you know, VLO is already a $39 B market cap company. In my view the best case scenario calls for a 10% average annual return in the future.

But it still looks cheap when compared to its industry average, and the short term technical trend is bullish. Good luck to people holding it :)

I still need to publish the analysis on PFSW and DLSL.OB.

While I walked for my daily coffee, I though that I shouldn't use the absolute value in my revenue table, I should use the rate of change from the previous year, because it is the rate of change that tells me if growth is accelerating or slowing, not the absolute value.

Moreover I'm thinking that for some stocks I shouldn't make such a long term estimate as 10 years down the road, but maybe just 2 or 3 years, because they're high tech companies and fundamentals change a lot. Or I could make estimates with several time frames, reflecting the expected changes in the rate of growth.

Another issue is, for someone following my more in depth analysis, you know I look for at least 16% average annual return to pick attractive stocks. But, by how much are they attractive? And for how long?

It's obvious that the higher the estimated Return on Investment, say, 30 or 40%, the better. But, how much would the stock need to rise for the expected rate of return to drop to the market average of 8%?

If ISP = Initial Share Price, X = Rate of Return, N = # of years and FSP = Final Share Price, the question I'm asking is "how much would ISP need to rise for X to drop to just 8%?"

ISP*(X^N) = FSP

I've learned this stuff, in Portugal we call it "derivatives", I don't know how you call it in the US, but I guess someone like Dnickers knows it better, that man knows about math :)

I'm thinking of building a model to find fundamental imbalances that will ultimately lead to safe and above average profits. The two questions when analyzing a stock are:

1 - Is there a fundamental imbalance here, that is, with the current public information I see an above average return?

2 - If 1 is "yes", when will that above average return turn into an average return and therefore the investment should be substituted by another stock with a powerful fundamental imbalance?

We'll keep talking, in the meantime, bring up those suggestions for today's poll (they can be the same as yesterday's if you're still interested, even though they didn't get the most votes), thank you :)

I'm wondering why small market cap...ELTK is dropping after their earnings report was issued this morning.

Eltek Reports 83% Growth in Net Income for Full Year 2006
Tuesday March 27, 5:15 am ET
-- 2006 net income increased to $2.3 million from net income of $1.2 million in 2005
-- Q4: Company records 10th consecutive quarter of year-over-year revenue growth, 9th straight quarter of profitability and operating income of $877,000, up 31% from Q4-2005
-- Q4 net income of $632,000, up 16% year-over-year

PETACH-TIKVA, Israel--(BUSINESS WIRE)--Eltek Ltd. (NasdaqCM:ELTK), the leading Israeli manufacturer of advanced Flex-Rigid circuitry solutions, today announced its financial results for the fourth quarter and fiscal year ended December 31, 2006.

Highlights for the Quarter:

    * 10th consecutive quarter of year-over-year revenue growth - revenues reached the Company's highest fourth quarter levels ever
    * 9th consecutive quarter of profitability
    * Quarterly net income of $632,000, $0.11 per basic share or $0.09 per fully diluted share

Eltek reported revenues for the three months ended December 31, 2006 of NIS 43.4 million ($10.3 million) compared with NIS 39.6 million ($9.4 million) for the fourth quarter of 2005. The increase in revenues primarily reflects the growth of Eltek's internationally sourced flex - rigid PCBs sales in general, and in the U.S. in particular.

Net income for the fourth quarter totalled NIS 2.7 million ($632,000), or NIS 0.38 per fully diluted share ($0.09) compared with a net income of NIS 2.3 million ($544,000), or NIS 0.34 per fully diluted share ($0.08) for the same quarter in 2005. The fourth quarter of 2006 was the Company's 9th consecutive quarter of profitability.

Highlights for the Year:

    * Significantly improved profitability in 2006
    * 2006 net income increased to $2.3 million from net income of $1.2 million in 2005
    * 2006 operating income increased to $2.9 million from operating income of $1.8 million in 2005

Revenues for the year ended December 31, 2006, were NIS 173.9 million ($41.2 million) compared with revenues of NIS 144.4 million ($34.2 million) in 2005. The increase in revenues primarily reflects the growth of Eltek's internationally sourced flex - rigid PCBs sales in general, and in the U.S. in particular.

Net income for the year ended December 31, 2006 was NIS 9.6 million ($2.3 million), or NIS 1.39 per fully diluted share ($0.33) compared with net income of NIS 5.3 million ($1.2 million) or NIS (0.81) per share ($0.19) in 2005.

Arieh Reichart, President and Chief Executive Officer of Eltek, commented, "2006 was a successful year for us in which we achieved record revenue, consistently delivered y-o-y quarterly growth and increased profitability. I am especially pleased with the improvement in our gross margin and profitability in Q4 06 in light of the continued adverse impact of the ongoing weakness of the U.S. dollar versus the Israeli shekel."

Reichart concluded, "Going forward, we believe that 2007 will be an important year for Eltek. We see various new long-term growth opportunities in our existing markets in the U.S. and Europe, via relationships we fostered and strengthened throughout 2006 and successful deliveries of several strategic pilot runs. With the measures we are taking in the first half of 2007 to grow our production capacity along with strengthening our sales team, we believe that we are well positioned to capitalize on the higher margin opportunities in the high-end PCB market."

Amnon Shemer, CFO of Eltek commented: "We concluded a strong year on the financial front, as 2006 sales reached a new level and we managed to grow our yearly operating and net income by 63% and 83%, respectively, from 2005. During Q4 we improved our gross and operating margins in spite of the negative impact of the continued devaluation of the U.S. dollar against the NIS, and to a lesser extent higher raw material costs."

Shemer concluded, "During 2006 we invested $3.0 million in new capital expenditures, including $1.1 million in the fourth quarter, mainly for manufacturing equipment. In order to meet the growing demand for our high end PCBs, we are now expanding our operation facility by approximately 15,000 square feet, which expansion is expected to bear fruit in the second half of 2007, and selectively adding employees to our manufacturing, supply chain and sales groups to manage expected sales increases in the second-half of 2007."

CIMT, here we go?

Quote from: buddjas1 on March 27, 2007, 10:26:16 AM
CIMT, here we go?

Nice jump. ;D

as I expected David  ;D

CIMT up

http://biz.yahoo.com/prnews/070327/uktu006.html?.v=101

CIMT news.  Sounds nice.  Applaud David for the nice pick.

David,you were right about Diet. Since earnings,they've gone up every day. Back to $4?

CIMT looks like a winner. Applaud to you David.

I'm not going to try to answer the question kslifka, but to put what I think are the right questions to lead to the answer you're looking for.

I see net income in Q4 of $632,000, $0.11 per basic share and $0.09 per fully diluted share. This means the share count is about 5,745,454 (basic) and 7,022,222 (fully diluted). How much was it over the previous years and quarters?

Balance Sheet - 10 Year Summary (in Millions) (http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?Symbol=eltk&lstStatement=10YearSummary&stmtView=Qtr)
Income Statement - quartely (http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?Symbol=eltk&lstStatement=Income&stmtView=Qtr)

The share count increased a bit, but not much.

So, we have $0.09 EPS per diluted share for the 4th quarter and the stock is trading at $4.24. If we multiple the $0.09 number by 4 we get $0.36 and a forward earnings multiple of 11.78. Doesn't look rich.

With these two tests I didn't get close to the answer ... maybe there's no long term fundamental justification, just profit taking on the good news. Or else not many people paying attention to the stock, it has very low average volume. Or else it is a $24 M market cap with 2006 revenues of just $2.3 M, price to sales ratio is 10.

I would have to study the stock a lot more, will put it on the poll, thanks kslifka :)

Quote from: kslifka on March 27, 2007, 10:27:34 AM

Quote from: buddjas1 on March 27, 2007, 10:26:16 AM
CIMT, here we go?

Nice jump. ;D

Haha, just like you said the other day kslifka!  "One day a thinly traded stock just makes a big move when you least expect it" and this was sure not expected by me at least.  Luckily it started sooner than later.

Hello David,

Great call on CIMT! Please add WEL to the list of stocks on today's poll. Although the company has increased the share count, it doesn't appear to be holding back the stock, and I would like to hear your outlook on the longer term potential here.

Have a great day

Bourbon   ;D

Quote from: soxguy on March 27, 2007, 10:33:57 AM
David,you were right about Diet. Since earnings,they've gone up every day. Back to $4?

I've been having bad dreams with DIET soxguy. I've lost on that stock twice. This second time is even harder because the stock is up 30% after the news I expected and waited for months (and this may only be the beginning, if the new food delivery program goes well - the name looks awesome "Deliciously Yours").

I didn't have the necessary patience and confidence to hold through all the storms in the general market. I've learned two very important things from this experience:

1 - If the trade is based on a catalyst, wait for that catalyst to begin, don't buy before the catalyst

2 - Ignore the general market movements, invest in the perspective of the business, using microeconomics, not macroeconomics.

Quote from: ygtrdr on March 27, 2007, 10:34:35 AM
CIMT looks like a winner. Applaud to you David.

Thanks guys, no excitement here.

Let me make those analysis on PFSW and DLSL.OB before my kids arrive home.

Please put EGR back on the list.  It is again up today.

Hi,
could you please check IEAM (buddjas1 analysis: http://www.3stocksonfire.org/trading/index.php?topic=5889.105)

tia
O.

(CIMT = another awesome call David  ;) )

Great call on CIMT.  I was fortunate to get in yesterday at $2.65

I also bought NVTL and GIGM.  CHEERS

I'm not in the game of making general market calls, but I don't know for how long the general market will be worried about the housing market when LEND itself  is now up 4% after being down more than 10% earlier in the session.

Keep the recommendations coming David we still have more time to make money in this Bull market.  The Fed is pumping out money. our government will keep spending like crazy, and the rest of the world is awash in Global Liquidity.

Below is from a market analyst:

A few days ago, Chairman Ben Bernanke confused everyone by making a slight change in the Federal Reserve's policy.  Essentially, he deleted the part that implied a bias towards higher interest rates.  Now the major financial houses are divided over which way rates will move next.  Because interest rates have a big impact on investments, we want to clarify the situation for you...

If you're a long-term reader of these updates, you may recall that when Bernanke took office, we suggested that the key to Ben's mind lay in his previous body of work.  Bernanke rose to fame in academic circles because of his research on the Great Depression -- specifically what caused it and how to avoid another big D in the future.

We theorized that if the Fed today must choose between inflation and depression, Bernanke will do everything he can to prevent the latter, even (to use his own expression) if that means dropping money from a helicopter to keep liquidity as high as possible.  We might add, even if that liquidity results in soaring inflation.  The last thing he wants is to go down in history as the Chairman who caused Great Depression II.

In your last update, we argued that the subprime mortgage crisis, while serious, is unlikely to derail the economy.  Compared to the 1990 real estate crisis, today's meltdown in subprime mortgages is quite limited.  Nonetheless, Mr. Bernanke's change of policy was clearly intended to help keep liquidity high in order to ease the situation in the mortgage industry.

This is the only instance we know that a Fed Chairman has ended a bias towards tightening in the middle of a period of long-term, worldwide expansion.  (Global economic growth is now around 5% annually.)  And we feel it is an overreaction on his part.   

After all, every way we look at it, inflation is a much bigger threat than recession/depression today.  Industrial commodity prices are rising strongly.  The dollar looks weak.  Money supply is huge and expanding rapidly worldwide.  Core inflation, the most widely quoted inflation measure, is near a 10-year high.

Core inflation, as you may know, resembles the Consumer Price Index except that it leaves out energy and food costs.  If you are not a government economist, you probably think that the price you pay for energy and food matters.  So let's consider what these two factors are up to today ...

NON-CORE INFLATION ... IGNORE IT AT YOUR PERIL



Let's begin with food, since we talk about energy more often. (Well actually, food and energy are closely related today.  Here's why...)

The centerpiece of U.S. alternative energy policy today is ethanol, a fuel made from corn.  We deplore this policy, which could only have been designed by someone who wanted to discourage America from developing alternative energy.

As we have said before, meeting our nation's fuel needs with ethanol will simply take too much corn.  In a world where food and water are becoming scarce, it makes little sense to convert food into auto fuel.

Already, corn prices have doubled as a result of this policy.  Now, we have had periods before when corn prices doubled as a result of drought, which reduced supply.  But those were temporary price increases that eased when rainfall returned to normal.  This time, we have an increase in demand which is unlikely to ever lessen -- unless Americans give up their love of the automobile.  That means food prices will rise, and stay higher, which puts pressure on the CPI to rise.

Turning to energy itself, the other component left out of core inflation, clearly it is in a dramatic long-term uptrend.  Admittedly, August 2006 saw the beginning of a correction in oil prices, but that correction looks to be ending.  (Oil rose 2.7% last week to close over $62.)  If it surpasses $65, we think the correction will be definitely over.  Oil will have broken through horizontal resistance, its 200-day moving average, and similar technical indicators traders use to judge changes in trends.

We don't know exactly the situation in Saudi Arabia (no one does, apart from the Saudis themselves), but we think it is suspicious that Saudi oil production peaked in 2004 despite rising demand.  We also are concerned that oil inventories have fallen dramatically.  Worldwide growth isn't likely to slow anytime soon.  So even if oil doesn't break above $65 this time, it will next time.  And a jump in oil prices, combined with rising food prices, certainly spells higher inflation. -- especially if the Fed holds interest rates steady.

However, one thing we are not worried about to day is the stock market...

PFSW analysis:


I used to overweight the importance of the Price to Sales Ratio and the Price Earnings Ratio in my analysis, and that is part of the reason I previously owned PFSW, the stock has one of the lowest revenue multiples I've ever seen, at 0.11.

But now I see that the most important issue isn't the ratios now, but the expectations one can get, for the future, given the current fundamental information. And I can't see the future for PFSW, there's no visibility because the company continues to lose money, despite rising sales.

An investor looks for a high earnings yield, and there's no earnings yield in PFSW.

My take is PFSW needs a catalyst, a profitable quarter, to move sharply higher. I won't consider the stock for now, but I can see the potential if it gets somewhat more efficient and profitable. Results will be out on April the 2nd, I'll be watching.

I gave it a 6 out of 10 rating.

Nice article Windsurfer, thanks :)

I've been making an effort to design an investment strategy that, by being microeconomic and based on the business perspective, ignores the general market movements.

But it is curious to note (between others), the following sentence:

«In your last update, we argued that the subprime mortgage crisis, while serious, is unlikely to derail the economy.  Compared to the 1990 real estate crisis, today's meltdown in subprime mortgages is quite limited.  Nonetheless, Mr. Bernanke's change of policy was clearly intended to help keep liquidity high in order to ease the situation in the mortgage industry.»

It says that the 1990's real estate crisis was worst than now (at least for now). And what did the stock market do in 1990? It had a correction, and then the long term bull market continued to new highs.

I believe this will also be the outcome now, even though I don't care about the market being a bull or a bear when I'm picking individual stocks.

David, can you please take a quick look at CECE's earnings of last week, the CC is today after the market close! Before you said you liked the stock, maybe now is a good opportunity to buy it after it's recent drop.

QuoteCECE is having a correction, which is great ! If it goes down to the $13 area I'll probably buy it to the Main Portfolio, I need something in the environment space and CECE looks like an astounding pick in that sector.

David:

While the subprime mortgages have been about 20% plus of the market for the past two years they are only about 1% of all outstanding mortgages.

This is from a news paper report:

Greenspan said that if home prices "would go up 10 percent, the subprime mortgage problem would disappear."  (Cut interest rates and the problem is solved)

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson also have said they don't expect the problems of the subprime mortgage market to spread through the financial system and hurt the economy.

What Bernanke is really saying is that he will cut interest rates if they see a real problem.  Just try to find a cheap foreclosure today.  To many investors are ready to snatch them up.  The people that will really be hurt are the people that were talked into the subprime mortgages.

David, how about putting medifast MED on you poll for tommorrow, or you could take a quick look today if you have time. THNX

http://stockcharts.com/h-sc/ui?s=MED&p=DAILY&b=5&g=0&id=p

CIMT looks to be breaking out of an intraday symmetrical triangle.

3.30

Hi David could u put VA on your poll.
thks

DLSL.OB analysis:



From what I was able to see, this OTCBB stock has sound fundamentals and seems attractive, but I didn't look under the carpet and you know how OTCBB traded stocks can be tricky.

Even though long term fundamental trends are positive, with my long term estimates showing a 30% average annual gain, usually penny stocks (here "penny" being OTCBB traded) don't behave in a smooth manner, look how DLSL.OB is up 300% in just about 5 weeks.

What this type of stocks usually does is run up a lot and then go down by a lot, they don't move slowly, also because liquidity is scarce.

I gave it an 8 rating but I'll pass the investment, I'm not looking to invest in risky stocks from the OTCBB, I don't need extra risk to beat the market by a wide margin.

The poll is on with today's candidates. Tomorrow I'll be covering just one stock, because with three analysis per day I can't make that "10 page course in Fundamental Analysis" that I need/want to do.

See you tomorrow :)

Quote from: BigSully1 on March 27, 2007, 02:12:56 PM
David, how about putting medifast MED on you poll for tommorrow, or you could take a quick look today if you have time. THNX

http://stockcharts.com/h-sc/ui?s=MED&p=DAILY&b=5&g=0&id=p

MED (a profitable DIET competitor) closed just one penny off it's HOD at $7.00. I think it looks good to go tommorrow. Maybe some minor resistance at $7? What do you chartists think? I already bottom fished/ value hunted it around $6.40, as it looks to me to be a great value. I'm still learning to interpret the charts. How bout some help here? THNX

Hi David,

Can you see tomorow about COGN? I'm quite curious and I believe they work in a field that can grown quite well.

Quote from: Dracull on March 27, 2007, 05:04:58 PM
Hi David,

Can you see tomorow about COGN? I'm quite curious and I believe they work in a field that can grown quite well.

Ah, I forgot it for today Dracull, sorry, will put it for tomorrow.

Today's winner was CECE.

Thx for taking a look at CECE David, if you have the time you should listen to the CC, it was a very informative CC imo with a lot of questions asked and answered, especially about the gross margin, also some news about their new sales rep in Mexico, their business in India and China, record earnings growth and revenue growth and they are expecting another record year,  backlog increased 3fold!  :o :)