KOMG

[Michael]

Komag finally broke out of the descending triangle pattern under good volume. It ended the day at the top of a beautiful white candle.

This will hopefully be the start to the long journey back to fair value 

[la-onda]

fyi:

Komag "accumulate"
Wednesday, June 28, 2006 6:09:14 AM ET
Brean Murray & Co

NEW YORK, June 28 (newratings.com) - In a research note published yesterday, analysts at Brean Murray maintain their "accumulate" rating on Komag Inc (KOMG.NAS).
The target price is set to $54
http://www.newratings.com/analyst_news/article_1306872.html

[la-onda]

part 2 ( 3months old):

Friday, April 28, 2006 1:24:06 PM ET
Bear Stearns

NEW YORK, April 28 (newratings.com) - In a research note published yesterday, analysts at Bear Stearns reiterate their "outperform" rating on Komag Inc (KOMG.NAS), while raising their estimates for the company.
The target price has been raised from $62 to $65link:
http://www.newratings.com/analyst_news/article_1262568.html

[Michael]

KOMG definitely looks good but don't think the shorts have run for cover yet.

In fact I would expect another short attack before earnings. There are simply too much money on the table to give up without a fight.

So if you are still not in Komag you might want to wait for another suspicious reiteration of American Technology Research's strong sell with a target of 29. After all you normally pay for 3 reports and we have still only seen one and the next one would be the ideal entry point 

[Michael]

I always end up talking about the short position on KOMG when I do the updates on Komag. That is really a shame because it takes the focus away from the company's stellar performance.

But unfortunately the short position has and will continue to influence the performance of Komag's stock in some time to go. As said before there are a huge amount of money on the line here. The increase in KOMG's share price the last 10 trading days has increased the shorts loss with 45 million dollars and they must consider what to do now. Based on the chart it seems like they are continuing to try to cover which is great news.



I believe the short position is a great asset for Komag but I know that many investors shy away from stocks that are heavily shorted. There are a perception that shorts have unlimited resources and knowledge that is not available for the normal investor.

To be honest I think this is partly true at least when we talk about stocks that are being shorted by institutional investors.

There is often a story that is not known to the wider investor community when institutions decides to go short and often the shorting of stocks are spearheaded by hedge funds which has significant resources available to drive down a stock.

Sometimes the shorts do however get caught on the wrong leg and that is the stocks that I love to buy so let me present my 7 golden rules if you want to bet against the short community:

1) Check how large a short position is.

The larger the position the better! This gives you a good indication of the willingness of the shorts to continue to sell shares and also the potential support when they start to cover. A good indication of the depth of the shorts problem is the "days to cover". If the shorts needs more than 3-4 days to cover and the stock meets the rest of the rules you are on to something!

2) Check how old the position is

If the position is old the shorts are more likely looking to cover. Most shorts have a short investment horizon and don't like to be short for extended periods as they always run the risk that fundamentals might come out that changes the assumptions behind the short position. And old position is also often a sign that the short scenario has not panned out as planned

3) Is the short position decreasing?

This is probably the best sign that either the shorts believe the stock has reached bottom or their assumptions for going short were not correct.

4) Is the short position profitable?

This is important for several reasons. First off all it shows if there are investors with similar resources that are willing to bet against the short community. Second the short are investors like us. If they are sitting on a loss they are more likely to cover at the first opportunity providing a nice floor under the stock.

5) Understand why there is a large short position.

If you see a stock that is fundamentally attractive but has a large and increasing short position don't touch it unless you know why the stock is being shorted and you think the bad news is more than reflected in the price.

6) Make a thorough due diligence!

Never buy a stock that has a large short position unless you have done a thorough DD and are confident about the fundamentals of the stock. Shorts are normally very experienced traders and don't underestimate the amount of time they have used to investigate a stock before going short.

7) Is the stock on the naked short list?

Failure to deliver is normally a sign that the short attack are coming to an end or at least that it has become increasingly difficult and expensive to short the stock. This situation can go on for months so don't expect the stock to shoot up the day after it is added to the list.

If you find a stock that meet most if not all of these rules you might be looking at an excellent investment. From time to time the shorts have huge profits from stocks they rightly identify as overvalued but by the end of the day the hedge funds are not doing any better than the average market so they are also sometimes losing huge amounts of money when they make a bad bet and from my experience the rules above helps you identify those cases.

We will continue to hold KOMG according to the trading plan. Komag in my opinion meet 6 out of the 7 golden rules (it is not on the naked short list!) so we are quite confident about our bet against the short community 

[la-onda]

Komag Announces Second Quarter Fiscal 2006 Conference Call
Monday , July 10, 2006 16:01 ET

SAN JOSE, Calif., July 10, 2006 /PRNewswire-FirstCall via COMTEX/ -- Komag, Incorporated (Nasdaq: KOMG), a leading independent supplier of thin-film media for disk drives, today announced that the Company will release its second quarter fiscal 2006 financial results after the close of the U.S. stock market on July 26, 2006.

(Logo: http://www.newscom.com/cgi-bin/prnh/19990816/KOMGLOGO )

A conference call to discuss Komag's second quarter fiscal 2006 financial results has been scheduled as follows:

EVENT:              Komag Q2 FY06 Conference Call

WHEN:               Wednesday, July 26, 2006 at 2:00 p.m. PDT

DIAL-IN NUMBERS:    800-822-4794 (U.S.)
                         913-981-4912 (International)

CONFIRMATION CODE:  8114393

AUDIO WEBCAST: Please access http://www.komag.com to listen to the
                         live webcast.

TELEPHONE REPLAY: Available after 5:00 p.m. PDT on July 26, 2006
                         through 11:59 p.m. PDT on July 30, 2006.

                         Replay Numbers:
                         888-203-1112 (U.S.)
                         719-457-0820 (International)

                         Replay Passcode:  8114393

[Michael]

It seems we might have a volatile day today. Hutchinson reported Q3 earnings after the close yesterday and as usual they disappointed and as usual this will most likely mean that Komag will drop in sympathy.

http://biz.yahoo.com/bw/060720/20060720005897.html?.v=1

The market seems to draw parallels between the two companies as Hutchinson is the largest independent supplier of suspension assemblies to the HDD industry and Komag is the largest independent supplier of Drives to the same industry.

An investment in Komag when they get punished due to Hutchinsons non-performance has however been a good investment long term based on the historical charts:

[la-onda]

Short update:
KOMG       $ 42.07
Komag Inc.    0.20
Shares Short    8,000,222
Days to Cover (Short Ratio)    9.3
Short % of Float    26.14 %
Shares Short - Prior    6,904,741
Short % Increase / Decrease    15.87 %
Squeeze Ranking™    73
% from 52-Wk HIGH ( 54.98 )    -30.69 %
% from 52-Wk LOW ( 24.49 )    41.79 %
% from 200-Day MA ( 45.13 )    -7.27 %
% from 50-Day MA ( 43.42 )      -3.21 %
Price % Change (52-Wk)    30.23 %
Trading Volume - Today    755,695
Trading Volume - Average    858,699
Trading Volume Vs. Avg.    88.00 %
Total Shares - Float    30,610,000
Total Shares - Outstanding    30,729,574
% Held by Insiders    31.37 %
% Held by Institutions    %
Market Cap    1,292,793,169
EPS    4.05
PE Ratio    10.30
Sector: Technology
Industry: Data Storage Devices
SI Record Date    2006-Jul

&

Zacks update:
Komag, Inc. (NASDAQ: KOMG) posted first quarter earnings per share of $1.09, which trounced the year-ago result of 59 cents, while topping the Wall Street consensus by almost 3%. Revenue improved to $208.5 million. The company said early indications for 2006 are that overall demand continues to be very strong and its factories are continuing to run at full manufacturing capacity. Komag will report its second quarter results on Jul 26.

[la-onda]

Hard-drive shipments exceed expectations in 1Q, says iSuppli

Press release, July 20; Rodney Chan, DigiTimes.com [Thursday 20 July 2006]

Seagate Technology in the first quarter bolstered its lead in the hard-disk-drive (HDD) market, amid stronger-than-expected demand throughout the industry, according to iSuppli.

"Global HDD shipments amounted to 101.7 million units in the first quarter of 2006, up 16.5% from 87.3 million units during the same period of 2005," said Krishna Chander, senior storage analyst for iSuppli. The research firm said it had previously predicted growth of 15.4%.

"Shipments declined by 1.7% in first-quarter 2006, when compared to the 103.4 million units shipped in the fourth quarter of 2005. However, HDD sales typically decrease sequentially in the first quarter, following the peak holiday period of the fourth quarter. The stronger-than-expected HDD sales of the first quarter were driven by demand from the mobile-PC and consumer-electronics markets," Chander added.

all details:
http://digitimes.com/NewsShow/NewsSearch.asp?DocID=00000000000000000000000000005842&query=SEAGATE

[Michael]

Komag reported earnings after the close today and they were even better than expected. EPS came in at 1.21 6% above the consensus estimate of 1.14. This represents an increase of 31% over Q2 last year.

The outlook is also above my expectations:

"Current expectations for 2006 are that overall demand for our products remains strong and our factories continue to run at full manufacturing capacity. Our capacity expansion plans remain on or slightly ahead of schedule and we expect to have 39 million finished disk capacity in the third quarter of 2006. Based on current demand and our capacity expansion plans, we expect total revenue in the third quarter of 2006 could increase approximately 5% from the record second quarter level. With continuing aggressive product development and production transition activities for multiple advanced products and customers, we currently expect net margin to be in the range of 16% to 17% in the third quarter. In addition, with Seagate's completion of the acquisition of Maxtor, we expect that unit shipments of finished media to Seagate in the third quarter of 2006 will increase from the combined unit shipment level to Seagate/Maxtor in the second quarter of 2006.

As we are already in Q3 Komag probably have a very good idea about how much media they are going to ship to Seagate so American Technology Research's prediction that Seagate would reduce their purchase from Komag seems a bit silly 

The stock trades down in AH. This has obviosuly nothing to do with earnings but rather with damage control from the short side of the investment community. Komag is heavily manipulated by shorts but with this kind of fundamentals Komag will sooner or later prevail 

[Michael]

Hmmmm... found this on Yahoo MB:

15:50 KOMG Komag: Ahead of quarter, believe 2007 numbers must move lower - Amtech (41.85 -0.22)

AmTech remains confident on their Sell thesis on KOMG ahead of tonights earnings. Firm says their call is based on their strong belief that Y07 numbers must move substantially lower. Firm is not making a call on the quarter to be reported tonight, and have broadly heard from industry contacts as well as investors that expectations are for a very solid quarter and outlook. That said, WDC has recently reaffirmed its long term relationship with Showa Danka, which refutes the bullish argument that KOMG will take incremental share at WDC, and firm has seen HTCH disappoint investors due to pricing pressure and demand softness in desktop. While KOMG may have navigated this potential landmine so far, firm believes it is a matter of "when" and not "if" that the onslaught of new capacity will cause pricing to soften and estimates to plummet. Firm believes the risk of remaining a KOMG shareholder at current valuation is too great, and recommend investors to sell shares of KOMG and to utilize any strength that may materialize from the report later today to sell stock.

This is the second report from American Technology Research. One to go unless they get paid for additional three reports 

[voova99]

What a joke - They gave their "report" after  excellent earnings from the company.
If they so bearish on a stock why not do it before?

[voova99]

Sorry , a bit before the PR.. But it doesn't matter , I think. 

[la-onda]

please check carefully the update Q2/06 investor presentation (esepcially slides 20-30) and my last posting, this AMTECH report is complete bullshit IMO:
http://www.komag.com/investors/presentations/KOMG2Q06_Jul06.pdf

cheers
Oliver

[Michael]

Sorry , a bit before the PR.. But it doesn't matter , I think. 

Hi Voova

I think it does matter. To reiterate their strong sell recommendation 10 minutes before earnings tells me that this has nothing to do with serious research. An analyst that is interested in issuing an unbiased report would obviously wait the additional 10 minutes and get the latest figures from the company.

As said before American Technology Research motives are highly questionable. The timing of the release and the immediate heavy selling in the AH lets me believe that this is yet another well orchestrated attempt by the short hedge funds to drive the stock price down. It might work short term but I think it will create a unique buying opportunity for long term value investors.

The short case is based on concerns about the supply/demand balance going forward. We already know that HDD shipments in Q1 were above the analysts forecasts, which is a good omen for future demand.

This is confirmed by Seagate who has forecasted very tight media supply/demand for 2007 so have some of the recognized industry experts and now Komag announced in their CC that media is expected to be very tight in 2007 and beyond.

Of course American Technology Research could actually believe in their own research but I honestly believe that this is paid research.