CKCM

[Michael]

HI Stocky,

Yes I am still holding DHB and has no plans of selling at this level.

I sold it up to the earning release and bought it back at 6.72 when I posted on the DHB thread.

I am not a big fan of subscription services - except in the case of 3SOF of course but for insider activities I use these three free sites:

http://yahoo.smartmoney.com/eqsnaps/index.cfm?story=insiders&symbol=VPHM

http://www.insidercow.com/

http://www.insider-monitor.com/

Insider activity is not very supportive for DHB. The management team has repeatedly sold shares at the top and the CEO has a bad habit of issuing stock options to himself!

I believe that is the main reason why we are not at 20 now.

But even a stock with appaling insider activity can be a good buy, after all this stock has great earnings quarter after quarter. The stock is now undervalued even with the stock options granted for the next 5 years and that combined with TA is why I bought.

I am not very good at timing and targets but I am not planning to sell below 8 unless the fundamental change.

[stocky]

4 applauds for your informative post. One now and three later.

[valueseeker]

Hi Michael,

Do the naked shorts absolutely have to covered by 9/6? I read a lot of brokerage firms don't abide the rules.

What is a good website for getting the naked shorts/shorts info (other than nasdaq on short interests)? Thanks.

Take a look at this company (OVTI). It has 14M shares shorts and takes 10 days to cover. It has $1.2+/yr earning (PE=12) and currently trades at $14.65. It has $6/shr cash ($300M+ in cash) and has $83M authorized to buy back shares (has bought $17M last Q at $13.75 average). It is in a growing field of CMOS sensor chip for digital camera/camera phone/surveillance camera. The management just guided higher earning for next Q/year on Thurs. evening. Stock is up 10% on Friday.


-Louis

[Michael]

Hi Valueseeker

Here is what the SEC is saying on naked shorting:

"Close-out" Requirement: Regulation SHO imposes additional delivery requirements on broker-dealers for securities in which there are a relatively substantial number of extended delivery failures at a registered clearing agency ("threshold securities"). For instance, with limited exception, Regulation SHO requires brokers and dealers that are participants of a registered clearing agency to take action to "close-out" failure-to-deliver positions ("open fails") in threshold securities that have persisted for 13 consecutive settlement days. Closing out requires the broker or dealer to purchase securities of like kind and quantity. Until the position is closed out, the broker or dealer and any broker or dealer for which it clears transactions (for example, an introducing broker) may not effect further short sales in that threshold security without borrowing or entering into a bona fide agreement to borrow the security (known as the "pre-borrowing" requirement).

The problem is that there are no penalties for brokers who don't comply with SHO regulation. You will therefore often see that stocks stay on the naked short list for weeks or even month. It really depends on the brokers' business ethics and unfortunately brokers' business ethics could be better. (remember UBS on DNDN?)

You do however tend to see a price increase on stocks on the naked stock list as some covering will happen before the settlement day and also because the stock is difficult to short.

Let me send you a list over my favorite investment sites. This is a question I get quite a lot so I have put a list together of freebie sites!

Mike

[KCScott]

First, I'd like you to know I only share this information as a contributing member of this community.
I have learned a great deal in my short time here regarding TA.
I only contribute in those instances where I have firsthand knowledge of a particular company, or in this case, technology. In the case of RFID, I have been consulting with and working with retail companies for 15 years in loss prevention. RFID, in concept, has been "sold" as the future of retail since the mid '90s when IBM ran the commercial during the Super Bowl of Dennis Leary (wearing a trenchcoat) walking into a Supermarket, apparently shoplifting several steaks and walking out through a set of pedestals at the store exit. The pedestals go off as he goes through. The store manager yells for him to stop and runs towards him - when he arrives he says "you forgot your receipt".

Were it all so easy, I'd have been retired on a beach in Costa Rica by now.

I agree that RFID will not be universally accepted before the price of the tags gets down but that is just a matter of time. This is however mainly an issue for the makers of readers and printers like Zebra and Sensormatic who have disappointed the market.

As I mentioned previously, RFID in retail has serious significant hurdles. To be frank, based on my 15 years in working with retail and my knowledge of RF technology I do not foresee it replacing item UPC within th next 10 years. I am very familiar with Zebra (whose bread and butter has and will continue to be barcodes and printers) as well as Tyco (who bought the Sensormatic brand 3 years ago and melded it into their ADT offerings). Neither of these companies is a leader in the development of the readers - for that you would look to a company like Intermec or Alien technologies.

It is less of an issue for CKCM as the companies are still investing in the software and services as long as some of the largest retailers demand it.

CKCM seems to do exceptionally well in channel management and forecasting software. I believe they will continue to thrive in that space.

I work with several of the retail companies discussed in this thread.
Wal Mart, for instance, demanded last year that their top vendors begin shipping all pallets (not cases or item) into the various DCs with RFID tags. That test is still ongoing, but has highlighted  some of the problems I mentioned earlier. Products like cases of Coke in cans have such high metal content that the tag on the skid cannot be read. This isn't a problem of the RFID reader as much as it is a problem of physics.

This doesn't also begin to address the anti collision issue I raised regarding item level RFID tags. If you have 1,000 packages of Gillette blades in a case, or on a peg rack and each has an RFID # of 123456789 the reader only sees 123456789. It has no way to differentiate between the same signal.

The only way around this issue is to give every item it's own "license plate" - meaning every individual item would need a different number in order to be read.

Did you read the USA Today's write up on RFID? I think it gives an excellent overview so let me copy and paste:

If you've ever marveled at the number of products and companies that use bar codes, you get an idea of how popular RFID tags may be. RFID, short for radio frequency identification, is the next evolution of the bar code. These tags, which can be used in countless applications, allow businesses to monitor and track the presence of physical objects.

It's best explained with an example. RFID tags, for instance, would allow a shipping company to easily see how many containers are in the port waiting to be unloaded and how many are empty. These tags would allow retailers to count the number of boxes on a shelf and know where they are located in a store.

RFID is more exciting than regular bar codes, because the technology opens up many more applications. Bar codes require a printed label to be directly scanned by a reader. For instance, when you go to the grocery store, a clerk must pick up the product and carefully scan the printed bar code. How many times have you seen a clerk get frustrated when the reader isn't able to scan the bar code correctly when it is slid across?

RFID takes away these frustrations because the tags emit radio signals that can be passively picked up by a reader. Again, let's explain this with an example. Picture a stack of hundreds of cardboard boxes that have a bar code label and a RFID tag. And let's say, you want to count them using both the bar code and RFID tag. With the bar code, you'd have to grab the reader and climb up on a ladder, find the bar code and "scan" each label. However, it's completely different with RFID tags. Standing on the floor, you can point a reader at the stack, and the reader can hear all the radio signals being put out by the boxes in the stack and count them.

By now, you're probably understanding why RFID is potentially a very popular technology. In fact, Wal-Mart (WMT) has already said it plans to require its suppliers to use RFID technology. Certainly, if there are cost savings, it's possible for more retailers to follow suit.

As you can imagine, there are countless companies involved in RFID technology. And I'm not going to even attempt to list them all. IBM (IBM), for instance, is very involved in designing RFID networks, complete with point-of-sale terminals. Traditional bar-code companies like Zebra Technologies (ZBRA) and Symbol Technologies (SBL) also have units dedicated to researching this new area. And then there are smaller, pure RFID plays such as Digital Angel (DOC) and Click Commerce (CKCM).

The article paints a picture with large broad strokes. As always, the devil is in the details.

Right now, RFID works very well in certain applications where a unique identifier can be read and tracked; Toll or Pike Passes for cars on interstates (Different frequency - very large tag) or Freight trailers (same as cars).

Another very good application is the implanting of medical information in a chip under the skin that can be read if a patient is unconscious.

The closest application to retail right now is being used in Libraries. The books are constantly recirculated and RFID allows for theft prevention, speed of inventory, self checkout and automatic check in.

There are multiple applications on the horizon, but unfortunately, item level retail remains more sizzle than steak.

[Michael]

Hi KCScoot

Thanks a lot for your posts. You are a prime example why this site is one of the best investment sites on the net!

Even though it might seems like we are standing in opposite corners I actually agree in most of what you are saying.

I do however think your timeline for the broad acceptance of RFID is a bit pessimistic. Most experts expect that to happen in 2011 – 2012 as is shown in the market forecasts I posted.

I am sure you are aware of the AMR research headed Dennis Gaughan. AMR issued a very critical RFID report in the middle of 2005. This report was used by many to dismiss RFID. As always the press picked up the sensational headlines like Forbes article: "The great RFID experiment that wasn't" citing some of the issues you also mention (and which I agree in).

Many shorts used this research to argue that RFID was a mirage and went on shorting stocks like CKCM.

If you go into the details of the report the picture is however much more supportive of a company like CKCM. The report says that:

the high costs of RFID hardware, software and services and the immaturity of the technology contribute to a lack of ROI for end users. It also says the adoption of RFID technology is being spurred by retailer and government mandates, which is pushing many end users into using a technology they would not otherwise use until it was more affordable and mature. Gaughan says this echoes what AMR Research staff is hearing from many of the end users they speak with. "Most users we talked to are approaching RFID as a compliance requirement rather than as an enabling technology," he says. "Most of them say they would not be using RFID right now if they didn't have to."

But it goes on to say:

While respondents point to cost as a major roadblock to an ROI, the lack of standards is another issue. Says the report: "Overall, 44 percent of the respondents believe that the maturity of today's RFID standards is enough to deliver an ROI.

What's more, few of the respondents—only 8 percent—have transitioned from a pilot project to a full deployment, while 23 percent are currently in a pilot, according to the report. Based on spending projections, the report says, not many more end users will be moving into full deployment in the coming two year, either.

Despite the survey respondents' apparently slow movement into deploying RFID, especially when compared with the hype surrounding the technology, Gaughan believes companies stand to gain many important benefits from deploying RFID, including supply chain visibility and reduced out-of-stocks. But, he explains, these benefits will be realized only by devising a long-term strategy beyond compliance

CKCM's products and services are critical for Supply chain visibility!

As I said previously the lack of full deployment of RFID is a major issue for the "hardware companies" whereas a company like CKCM who sell software and services including consulting) tend to benefit from the numerous pilot project. (after all you only need one scanner and one printer to make a test but you need the full software solution). This view seems to be support by the figures posted by CKCM.

To a certain extent I like to compare CKCM with VPHM. The company is profitable and is traded at a very low PE compared to each peers. They stand to have a leading product in a $10 billion market if the product in the pipeline (RFID) gets - not FDA approval - but market approval.

Let me finished with another quote from Dennis Gaughan and Erik Michielsen:

Gaughan noted that the RFID market is fragmented with many players and that no one company has seized a leadership position. That coincides with conclusions reached by ABI's Erik Michielsen, who says that larger and more established companies will add RFID products to round out their existing offerings. The larger players will likely scoop up the smaller players over time.

I never buy a stock solely on take over speculations (but am not shy to buy when the rumuors have been confirmed!) but with CKCM's present valuation it should be a prime candidate as one of the few pure RFID plays around. If this is going to be a $10 billion market you will see companies like Oracle, Microsoft and CSCO make some major investments.

Mike

[LuckyFish]

Michael, your analysis is just astounding, and the feedback has so much information.

This is my first post, and I would subscribe to this site just to read your stock analysis and recommendations!
Thank You!
Brigitte

[Michael]

Hi Brigitte

Welcome to 3SOF and thanks for the kind words.

I have received a few mails concerning CKCM and #1 question is not surprisingly what my target for CKCM is. I am normally reluctant to give targets but let me give it a shot.

CKCM is as discussed fundamentally undervalued based on their profitability and growth. Q2 sales grew with 115% and net income grew with 172% but the stock is still trading at a PE of 22.

Management told during the Q2 CC that they expected the growth to continue in Q3 and Q4. Based on this I would say that the company would be fair valued at a PE between 40 and 50 or a stock price between $32 and $41. This target is supported by the valuation of their peers:

Symbol Technologies is probably the company that is most similar with CKCM. It is another RFID solution provider with a stellar growth. It is however traded at a PE of 58. Companies like Sieble and Salesforce.com are traded at PE's of 249 and 149 respectively!

Looking at the chart the most obvious feature is the gap between 22.8 and 25.5 from August 3rd. Short term I would therefore have a target of $25.5 and long term $32.

The stock printed a nice white candle today and MACD will most likely make a bullish crossover in the coming few days (you can read about MACD here: http://stockcharts.com/education/IndicatorAnalysis/indic_MACD1.html). This combined with short covering up to September 6 seems to make the present level an attractive entry point.

[Michael]

As always the press picked up the sensational headlines like Forbes article: "The great RFID experiment that wasn't" citing some of the issues you also mention (and which I agree in).

Well life is full of surprises. Today the Forbes investment gury selected CKCM as his top dollar value buy (I guess he don't read Forbes  ):

The biggest dollar-value buy was the purchase of 18,382 shares of Click Commerce (nasdaq: CKCM - news - people ) for $323,527. The Chicago-based, $207 million (market cap) company provides collaborative commerce solutions for enterprises and institutions. The company last week released the latest version of a product for research institutions to automate their regulatory compliance procedures, manage research project approvals and improve the efficiency of complicated human and animal research.

Revenue for the June quarter was up 115% to $13.3 million, compared with the quarter ended June 30, 2004. Net income shot up 117% to $3.2 million. Shares have surged 242% in the past 12 months but closed Aug. 26 at $17.60, 40% lower than their 52-week high of $22.90 on Aug. 1.

Shorts have been feasting on Click Commerce; as of Aug. 10, 21.4% of its shares were sold short. Since then, the price has dropped another 15%. Gurus were willing to get on board for a possible short squeeze, feeling comfortable enough buying a stock that trades for 13 times expected 2005 earnings of $1.34 per share.

Hmmmmm... why do I have the feeling that the gury is reading 3SOF!

[Michael]

The technical picture is becoming very interesting.

The price is increasing very slowly in a controled way but the divergence with RSI shows that an upward pressure is building.

The Bollinger bands are very tight for a stock like CKCM.

In my opinion it is only a matter of time before CKCM will break out to the upside. There are free beers for all members of 3SOF next week in Mozambique if CKCM has not broken out before Friday next week.

[Michael]

There are free beers for all members of 3SOF next week in Mozambique if CKCM has not broken out before Friday next week.

Hmmmm... I might have to drink the beer all alone

[Melf Elf]

Mike,

Hey, it's up nicely this morning!  Applause.

CKCM held at its 200DMA, but this looks like a bearish counter-trend rally.

The H&S top on the chart below is very unorthodox, to say the least.  There's no right shoulder.  Several years ago, I read a TA article that showed examples of stocks that "were in a hurry" to break to the downside, and never stopped to form the traditional right shoulder of the pattern.  One of the hallmarks of that pattern is heavy volume on the break to the downside, which CKCM had on August 9. 

As the chart stands, today's rally looks like a move back to the top of the "possible' Bear Flag, and back to the June low (horizontal dotted line), both of which come in at about 20.14. 

If CKCM can get through 20.14 and the top of the Bear Flag, I would peg next resistance at the 50DMA, which has rolled over to the downside, and the neckline of the unorthodox H&S top: 21.75-22.10-ish.  The 50DMA falls daily...the neckline rises daily, so those are ballpark numbers.

CKCM currently is BID 19.43...ASK 19.45, up 7½% on the day.

Good luck, Mike.  Hope you make lots of $$$ to buy more beer.   

[Melf Elf]

CKCM held at its 200DMA, but this looks like a bearish counter-trend rally.

Mike,

As the chart stands, it looks like that's what we got.  A one day rally, then six days of selloff.

CKCM broke below the Bear Channel just slightly yesterday, and it's back to 200 DMA support, but in addition to the big gap down on August 9, the September 15 failure at the top of the Bear Channel doesn't look good.

[Michael]

Melf Elf

I agree that was a good call 

I learn a little from every one of your messages (applauded again).

We do however have a very different investment philosophy. I am not afraid to bet against a chart. In fact I have a number of shares that I am following, which I consider to be undervalued. Instead of shying away from a stock that has a chart break down (as it happened to NFI on Friday) I see it as a great buying opportunity when I have confidence in the companies' fundamentals.

Stocks like:

• NFI
• CKCM
• RANGY
• KOMG
• STX
• DNDN

Have all gone through significant drops in share price and most of them have a heavy short position. I try to understand why people are selling the stock and if I believe they are wrong I consider a short position to be an asset.

In the case of CKCM I think the short position was a result of misunderstandings of the insider selling and cash flow.

In the case of KOMG and STX I believe it is a wrong perception of the future development of the HDD market

In the case of RANGY it is uncertainty about the assets on their balance sheet

In the case of DNDN it is a bet about whether or not Provenge will get FDA approval

In the case of NFI it is a bearish view on the REIT sector

I can use anywhere between a couple of days to a couple of weeks to analyze a stock. In some cases much longer than most analysts. I can only be amazed when I see stocks like VPHM or AMLN fall because Mr. Cramer has taken a glance at them in his lightning round and find that it is time to take profit.

Sometimes fundamentals change (like in the case of GIGM or IMOS) and when that happens I sell without hesitations. The main problem is when the stock price falls so rapidly that there is no time to get out (like DHB and CRYP). The only protection from that is diversification (unless you are a TA genius)

I do however have a lot of patience when a stock falls without any changes in the fundamentals and I normally use these times to add to my position (RANGY, AOB, VPHM etc.)

When I really appreciate your mails it is because I still believe that a fundamental understanding of TA is very important for successful investing.

I use TA for Stock screening and timing of buy and sell. Just the right timing can easily add 20% to 50% to and investment.

I would never buy a stock only based on bullish chart. I have a lot of respect for people like yourself, eliteG and David. I realize that a lot of money can be made using only TA but I guess it comes down to personality. A lot of stocks comes up in this forum as momentum plays I find that only one out of 5 to 10 is also a good fundamental play but when it happens you will normally se a prolonged and sustainable increase in the stock price (like in the case of HOME, AOB, VPHM). All in all I am very satisfied with the return on my investments so my style works for me.

To come back to CKCM. Yes this was a failed break out and the stock is back to base. I am however confident that the stock is worth significantly more than the existing PPS so even though I would have loved a successful BO I am not too concerned. Earnings will be out in one and a half month and I still believe we will have a nice run up to earnings. What will happen after really depends on the figures.

Mike

[stout7735]

Excellent stock,but may go lower in near term...What scares me the most is current short interest is 21.4% of float...