Session of 02/26/2007

[garyaross]

David,
You'll see that the solar power stocks are fairly hot today...no pun intended.  Probably ASTI is helped by that action.

[David Randolph]

1. Introduction

ARRS is one of the Main Portfolio holdings so no doubt I see it as a very attractive stock. We own it at $13.28 since January 17, 2007.

The company launched a $1.2 B acquisition offer for Tandberg TV, a Swedish company. Today there are news out that Ericsson launched a rival $1.4 B bid.

ARRS is selling off today because people are afraid that it will raise its bid price and enter a war it can't win, since ERIC is a $55 B market cap company and ARRS is just $1.5 B. I don't think that will happen.

My initial entry was primarily justified by ARRS's internal numbers and business, I didn't consider Tandberg TV all that much at the time. Now it looks like ARRS will remain alone, so my initial analysis is still valid. I'll just copy/paste it to here and leave an updated chart in the end.

«1. Introduction

ARRS came to my attention on HLIT's thread. ARRS and HLIT are direct competitors, but ARRS seems to have much more attractive fundamentals.

So I'm planning to trade HLIT for ARRS, let's see if the following analysis confirms my thinking.

2. Profile

ARRIS Group, Inc. (ARRS) engages in the development, manufacture, and supply of telephony, data, video, construction, rebuild, and maintenance equipment for the broadband communications industry worldwide. (complete profile here)

3. Technical Analysis
3.1. All History Chart



The all history chart shows a stock getting ready to recover some of the shine it had in the past.

3.2. Medium Term Chart



The medium term trend is bullish, as shown by the ascending trendline on the chart. The stock is at a critical medium term point, fighting for the fifth time with the 2006 descending trendline. Will it breakout?

3.3. Short Term Chart



I really enjoy this short term chart, with the positive reaction after the closing of that gap and volume picking up strongly to 7.8 million shares.

4. Fundamental Analysis
4.1. Number of Shares Outstanding + Market Cap



The share count has gone up some over the last few quarters, and it will go up even more after the completion of the Tandberg Television acquisition, as you can read here:

• ARRIS Releases Details of $1.2B Acquisition of TANDBERG Television and Tuesday, January 16th, 8:30 AM EST Conference Call
PR Newswire (Mon, Jan 15)

The good news is the more ARRS rises, the less shares it will need to issue to fund part of the acquisition.

4.2. Long Term Debt + Current Ratio



It looks like ARRS had a too much strong balance sheet, so it had to blow it all making a huge acquisition But I like this acquisition, and of course they need growth. The balance sheet will change a lot, with $520 million of new debt.

4.3. Revenues + Gross Margin



Revenues are now back to the 99/2000 levels, when the stock was trading at $50 a share.

The metrics I usually study show a bit worse picture for ARRS when compared to its industry average, but on a profit basis ...

4.4. EPS + Net Profit Margin



Look at the phenomenal turnaround in profits and especially net profit margin, which is at its highest ever, at 10.69%. My take is fundamentals are better now they have ever been.

4.6. Recent News

• ARRIS Releases Details of $1.2B Acquisition of TANDBERG Television and Tuesday, January 16th, 8:30 AM EST Conference Call
PR Newswire (Mon, Jan 15)

I have to study more about Tandberg, but at first sight, it looks like a great acquisition to me (not completely sure about the price paid, but I want to be in "digital TV solutions including IPTV, HDTV, video-on-demand, advertising on-demand, and interactive TV applications to customers in the Americas, Asia Pacific, Europe, Middle East and Africa.")

5. General Overview

I've been learning to go with the industry leader at most of the times. I used to go for the smaller competitor, because I thought this way the company had more upside potential, but as I learn more and more about long term growth perspectives and the huge world market size, I prefer to buy the industry leader (given that it isn't a mammoth like CSCO - for CSCO the size of the world market makes a difference).

I was in HLIT because of digital video and stuff like that, but ARRS seems better positioned to take advantage of future growth. Also, it looks fundamentally more attractive and the chart is also more promising in my opinion.

6. Trading Plan

Buy 6.66% of capital in ARRS.»

Rating

Positive.

This analysis was written by David Randolph from www.3stocksonfire.org after a very brief study. He might have missed several important issues about the stock that you may add to this message board and complete the analysis. David makes 10 new analysis per trading day on www.3stocksonfire.org member's request. He already covered 250+ stocks which you can find on the Stocks Covered List. This effort is also a way to find very attractive picks for the 3 Stocks on Fire Portfolio, a very concentrated Portfolio with the objective of turning $15,000 into $150,000 using small cap momentum+value stocks. To know more please read the 3 Stocks on Fire Portfolio FAQ. To receive our newsletter, be able to write on the message board and vote on polls, all you need to go through is a free 10 second registration process.

[David Randolph]

David,
You'll see that the solar power stocks are fairly hot today...no pun intended.  Probably ASTI is helped by that action.

So it is a sector play, thanks for the information garyaross

I generally don't like the alternative energy sector. The public loves it, and is paying a high price for stocks that in most cases don't have revenues and are losing big bucks every quarter. Sure, the future can and will probably be bright, but in the meantime, maybe for years to come, companies will need to dilute shareholder's value to keep operations going.

But I can be wrong, and some companies will be big winners, good luck

[David Randolph]

I already covered COR just last Thursday. Now I see it was just a general comment ... I can't value this company, but maybe rudynostalgia is around and will be kind enough to share with us why he holds the stock.

Here are the two links to those remarks made just 2 sessions ago:

David's COR analysis

Rudynostalgia's comments on the stock

As I see the stock now the strong bounce from a deeply oversold level is coming to an end and the chart says it will go back down to the $1 level. I hope I'm wrong, good luck

Rating

Negative.

This analysis was written by David Randolph from www.3stocksonfire.org after a very brief study. He might have missed several important issues about the stock that you may add to this message board and complete the analysis. David makes 10 new analysis per trading day on www.3stocksonfire.org member's request. He already covered 250+ stocks which you can find on the Stocks Covered List. This effort is also a way to find very attractive picks for the 3 Stocks on Fire Portfolio, a very concentrated Portfolio with the objective of turning $15,000 into $150,000 using small cap momentum+value stocks. To know more please read the 3 Stocks on Fire Portfolio FAQ. To receive our newsletter, be able to write on the message board and vote on polls, all you need to go through is a free 10 second registration process.

[cumulina]

Hi, David.

I agree with garyaross on solar stocks.

I don't know if i disagree with you -  - I don't know much about how to evaluate a company's finances. (That you allready know )

3SOF have a long time done well with DSTI, and it looks like it's running again.

For the ease of evaluating, i'll attatch some charts.

There IS money to be made!

[rudynostalgia]

The following link contains some good information about COR:

http://www.investorshub.com/boards/board.asp?board_id=3252

It also has an intelligent discussion board, free of name calling and political insanity. The Yahoo discussion groups have become useless. Between the bashers, disgruntled employees and nut cases, one has to have degree in criminal psychology to pry any information from the comments.

[David Randolph]

David, I would like to request SGTL.

SGTL is a $135 million cap stock that is a potential longer term turnaround play.  I would love to see what you think of it, used to be quite profitable, losing money now, but may swing back to profitability in a couple of years.  Sales had grown 10 fold over over the past few years.  Dilution over the past couple of years is minimal.  Now selling for less than book value, the current ratio looks great, the long term stochastics are rising, and the macd is positive showing a negative divergence with the price.  All I need is your analysis to know if it is worth while!  Is this a potential gem or a piece of garbage that will keep going lower?

Hi TrexKerry, I already covered SGTL on January the 22nd, here's my take on it back then:

«SGTL 3 minute look:

http://video.google.com/googleplayer.swf?docId=-209491521976380092&hl=en

SGTL is not on fire, despite being up 10% or so, because it is trading below the open. The chart is bearish and fundamentals show a worsening picture from 2005, but perhaps that is already discounted since the stock is down from about $45 in 2005 to the current $4.07

I'm neutral on this stock but I wouldn't buy it right now. Good luck though »

Someone that read my analysis was kind enough to send me his own analysis by e-mail, let me see if I can find it (I hope he doesn't mind or doesn't see that I'm sharing this with you ):

«SigmaTel
Business Model:

SigmaTel's primary business is in the MP3 space in the form of SoC's (system on chip) to enable audio playback for MP3 manufacturers. It is a fables company, meaning the manufacturing of their chips are done through third parties. The company recently sold off its audio codec division in the PC space to IDT for $81.5 million, realizing a gain of $45 million. The company's core product is the multimedia SoC, representing 82% of revenue in the latest quarter. SigmaTel's largest customer in that space is Creative Technology with their suite of MP3 players. Additional offerings from SigmaTel include integrated circuits for digital video cameras and TVs, and an IC enabling FM tuners on MP3 players.

In September of '05 the company purchased Oasis Semiconductor. Oasis specialized in All-in-One chips used to create multifunction printers. It allows for the printer to be used as a fax, scanner, printer and copier.

In short this company is a lot like PortalPlayer, designing and marketing a SoC solution for the MP3 market. The SoC from PortalPlayer however, appears to be a superior chip with dual microprocessors as opposed to one from SigmaTel.

Like I mentioned over the phone, this industry is extremely competitive with plenty of players fighting over marketshare. Powerhouses like Broadcom and Samsung can come out with extremely low prices and squeeze their competitors into a corner. Pricing power for SigmaTel is non-existant which explains their decreasing margins.
Revenue from new businesses is becoming a bigger percentage of overall revenue but only because of decreased revenue from their flagship MP3 business.

Fundamentals

SigmaTel has a book value of almost $6.50 a share, and with a current price of $3.67 it trades at well under book. The company has current assets (minus inventory and prepaid expenses) of $3.71 a share, so that stock is pretty much trading at its current floor.

Sales have slowed to a grinding halt. From a peak of $324 million in '05 the company will be lucky enough to bring in half that amount for '06. Gross margins have decreased from 54% in '05 to 37% in the third quarter of '06. This is indicative of declining ASP's (average selling prices) and that lack of pricing power mentioned before. Inventory tells the bigger story here though. At the end of 2005 the company finished with $324 million in revenue and $23.5 million in inventory. In the third quarter of '06 the company had $45 million in revenue (some of which is non-recurring) and inventory measured in at $30 million. This says to me that their products are not selling. And remember inventory is measured at cost not at the sales price so if you add 37% to total inventory you get a sales amount of $41 million, almost half of total revenue. Not a good sign.

Even though the company currently has a solid balance sheet and is trading at less than book value, it doesn't mean that it is a good value buy. The burn rate is very important here, how much cash the company will burn through before it needs leverage or liquidation. It is very hard to pin an exact quarterly number for how much cash the company will burn, but for the first nine months of the year the company burned through $51 million. Assuming the company continues on its current course a burn rate of $60 million a year can be expected. That is a conservative estimate.
Regardless of the number, the company deserves to trade at a discount to book value (and even cash value) because it is cash flow negative and is facing weakening demand for its core product.
The one saving grace for any company like SigmaTel would be their IP. Regardless of a company's balance sheet or income statement, they may justify a higher price because of their IP. SigmaTel has been fighting cheap Chinese knockoff companies for a couple years now claiming they infringe on their patents for their SoC. Integration with Oasis is nonexistent (since no one is playing music on their printer) and their existent SoC is inferior to most other companies. It is hard to imagine any company going after SigmaTel based on their IP.

Management:

Ron Edgerton the chairman and CEO of SigmaTel recently resigned to "spend more time with his family". The CFO, Ross Goolsby , left about a month before him to take up another job. This may be a sign that the company is putting itself up for sale. Mr. Edgerton was the CEO that guided this company from a startup to a recognized company growing sales over a hundred fold in the process. The board of directors may take the opportunity and solicit for bids if they haven't already. The CEO of PortalPlayer announced he was stepping down at the end of the year, but before that took effect the company was sold. The situation here is pretty similar, with two key management positions vacated. Additionally the company sold off its PC codec business to IDT in an attempt to slim down its operations to its core business. This can be another indication that company is interested in selling itself, making it more attractive to potential suitors that are only interested in a specific business.

Overall:

•   The company is not undervalued at its current price.
•   Look for it to track its cash flow pretty closely. (may be some bumps in-between)
•   There is a  chance the company will be taken over, the premium will disappoint some investors
•   As a standalone company, it has no chance.»

I believe the man did a nice job on his analysis, and the chart agrees with him, so who am I to disagree?

Rating

Negative.

This analysis was written by David Randolph from www.3stocksonfire.org after a very brief study. He might have missed several important issues about the stock that you may add to this message board and complete the analysis. David makes 10 new analysis per trading day on www.3stocksonfire.org member's request. He already covered 250+ stocks which you can find on the Stocks Covered List. This effort is also a way to find very attractive picks for the 3 Stocks on Fire Portfolio, a very concentrated Portfolio with the objective of turning $15,000 into $150,000 using small cap momentum+value stocks. To know more please read the 3 Stocks on Fire Portfolio FAQ. To receive our newsletter, be able to write on the message board and vote on polls, all you need to go through is a free 10 second registration process.

[magu]

Hi David:
Every trading day around 15:15 p.m ,east time, Peter Reznicek reads some pages of the book Reminiscences of a Stock Operator by Edwin Lefevre. 

Anyone who is interested can listen to him at this link http://38.98.140.164:8000/ , good reading.  I think he will start chapter  V, pag 60. today.

thanks for all the great job yoy are doing.

[David Randolph]

I covered EXM late last week, here's what I said:

«EXM has an amazing chart! Very powerful bull trend going on. Let's make some fundamental tests:

• Market cap is $384 M. The Company is a provider of worldwide sea borne transportation services for dry bulk cargo including among others, iron ore, coal and grain, and steel products, fertilizers, cement, bauxite, sugar and scrap metal.
• Balance sheet shows they've been reducing long term debt, still at $195 M in Q3. Also $81 M in cash, not bad.
• Revenues are growing strongly, from $15 M in 2002 to about $119 M in 2006. Estimates for 2007 are for $135 M revenue.
• EPS in 05 was very high, at $3.64 (but the stock was declining throughout the year, this is interesting). EPS expected for 07 is $2.61, and that means a forward earnings multiple of 7.66, which looks attractive

Recent news have been fairly positive. I'm a bull on the shipping industry at this point and I feel EXM presents a great long term opportunity.

Thanks »

And since the stock is pulling back 10% today on no news I just bought it for the 3 Stocks on Fire Portfolio. I like to buy a dip in a stock with a bullish chart and attractive fundamentals as EXM has.

Rating

Positive.

This analysis was written by David Randolph from www.3stocksonfire.org after a very brief study. He might have missed several important issues about the stock that you may add to this message board and complete the analysis. David makes 10 new analysis per trading day on www.3stocksonfire.org member's request. He already covered 250+ stocks which you can find on the Stocks Covered List. This effort is also a way to find very attractive picks for the 3 Stocks on Fire Portfolio, a very concentrated Portfolio with the objective of turning $15,000 into $150,000 using small cap momentum+value stocks. To know more please read the 3 Stocks on Fire Portfolio FAQ. To receive our newsletter, be able to write on the message board and vote on polls, all you need to go through is a free 10 second registration process.

[chobi]

And since the stock is pulling back 10% today on no news I just bought it for the 3 Stocks on Fire Portfolio. I like to buy a dip in a stock with a bullish chart and attractive fundamentals as EXM has.


Excel Maritime Carriers Cut To Hold From Buy At Cantor
Last update: 2/26/2007 7:18:48 AM

[David Randolph]

And since the stock is pulling back 10% today on no news I just bought it for the 3 Stocks on Fire Portfolio. I like to buy a dip in a stock with a bullish chart and attractive fundamentals as EXM has.


Excel Maritime Carriers Cut To Hold From Buy At Cantor
Last update: 2/26/2007 7:18:48 AM

Thanks for the information chobi, that's no news to me

[nica33]

And since the stock is pulling back 10% today on no news I just bought it for the 3 Stocks on Fire Portfolio. I like to buy a dip in a stock with a bullish chart and attractive fundamentals as EXM has.

Rating

Positive.

Nice catch David!! EXM pops up in my screener for low PE stocks during the weekend, but I never imagined that we could get at this price. It seems that the correction is mostly due to the news, but no problem with this!!   

I watched too  IIIN, but it didn't win the poll   

[David Randolph]

1. Introduction

WWAG.OB is a dead penny stock, I don't know how it got 5 votes on our poll

Anyway, let's see what we can do on it.

2. Technical analysis



There's not much technical analysis we can do on a stock that is trading just $10,000 or so today.

3. Fundamental analysis
3.1. Market Cap & Business Description

Market cap is $17.8 M. The Company has been engaged in the auctioning of transportation and industrial equipment since its incorporation. Its primary auctioned items include mobile and stationary earthmoving and construction equipment.

3.2. Share count evolution

I don't see dilution over the recent years.

3.3. Balance sheet analysis

Balance sheet is weak, with negative working capital (but not by much).

3.4. Revenues

Revenue has been rising over the years. It was $16.31 M in 2005 and maybe around $16 M for 2006, Q3 was especially weak.

3.5. Earnings

The company has been profitable since 2002, and reported EPS of $0.07 for 2005. For the nine months already reported in 2006 it had EPS of 6 cents.

3.6. Recent News

• WWA Group Reports on Major Dubai Auction
Business Wire (Thu, Feb 15)

• WWA Group Acquires Interest in Mining Concern
Business Wire (Tue, Feb 20)

4. General Overview

It's a pity the stock almost has no volume, but the business is interesting and valuation looks attractive.

5. Rating

Positive.

This analysis was written by David Randolph from www.3stocksonfire.org after a very brief study. He might have missed several important issues about the stock that you may add to this message board and complete the analysis. David makes 10 new analysis per trading day on www.3stocksonfire.org member's request. He already covered 250+ stocks which you can find on the Stocks Covered List. This effort is also a way to find very attractive picks for the 3 Stocks on Fire Portfolio, a very concentrated Portfolio with the objective of turning $15,000 into $150,000 using small cap momentum+value stocks. To know more please read the 3 Stocks on Fire Portfolio FAQ. To receive our newsletter, be able to write on the message board and vote on polls, all you need to go through is a free 10 second registration process.

[ravenquork]

Hi David, The other day you asked a couple of questions.
"What percentage of the company is still owned by its founders?
On Yahoo I get $0.4 as a 2007 EPS projection. I assume you expect more. What is your 2007 EPS projection, based on the margins and expansion plans you refer to?"

Here is my take:
JADE
Insider ownership:
From Roth Dec 06
CEO and founder owns   19%
Others own 7%

JADE has two primary, but related businesses. The wholesale US and Europe markets has a gross margin of 23-24% and will grow about 15%/yr. The China retail business which has a margin of 34% is growing in triple digits from a small base. When in doubt I have used conservative numbers.

This analysis is split into three areas: whole company; wholesale; retail. The full company is shown first but relies on data from the other two.
Full Company Revenues are a mix of the two business models.
05                                              FY = 94.6m
06FYE   105 (wholesale 86% of sales)+18m (retail 14% )   FY = 123m
07FYE   121 (wholesale 71%) + 49 (retail 29%)                   =170m
08FYE   139 Wholesale (59%) + 97 (retail 41%)                  =236m
(The company has indicated that for 08 retail sales should overtake wholesale sales which would suggest an additional 43m in sales.)

Full Company Gross Margin (%) is mix of gross margins from retail (34%) and wholesale  (24%) in the same proportion as sales  
05FY                       =23%  
06FYE=  (24% x 86% =  20.64)  +  (  36% x 14%  = 5)  = 25.6      
07FYE= (24%  x 71% = 17. +     (36% x 29% = 10.4) = 28.2  
08FYE= (24% x 59% =  14.6)  +   ( 36% x 41% =  14. = 29.4

Full Company Gross Profits  ( margin x revenue)
05    FY  =  22m  
06    FYE=  31.5m
07    FYE=   48m
08    FYE=   69m   

Full Company Earnings
05    FY  =   3.4m            
06    FYE=   6m  (76% growth)  Ratio of Gross profits/net profits =  5.25
07    FYE=   9.1m  (Assuming that the ratio above (5.25) holds constant.)
08    FYE=  13.25m

EPS
05EPS      FY =.24
06EPS E  FY =.34 (33%)  (19m shares outstanding)  
07EPS E  FY =  .44   (20.9m shares – assuming 10% dilution)
08EPS E  FY =   .58   (23m shares – assuming 10% dilution)
Visibility on future dilution is low, but the rate may decrease mid-term as cash flow is able to fund growth

PE A company with this kind of growth should be able to maintain a PE of 35
Implied Share price
06   11.9  Today's price is 11.01
07   15.4
08   20.3

Comments: This Company appears to be aggressive, successful and tends to minimize estimates so as to keep up a monthly flow of "good" news. Some of the assumptions I made are probably on the low side. For example same store sales growth will probably exceed the 15-20% I used.  The number of new stores may well exceed the 65 I used for 08 and maybe even the 58 estimated for 07. The wholesale business lessens overall risk to their retail growth strategy by providing a stable, profitable base , quality control of products, price stabilization, innovative designs and one of, if not the fastest large volume turnaround from design to market. Down side risk is relatively small, while the implied share price might actually be significantly higher.
++++++++++++++++++++++++++++++++++++++++++++++
Wholesale
Revenue Growth
05        06  105m (85% of Business)  07E  121m  08  139m
Revenue Growth %
01- 05 25% compounded annually vs.   06 15%  07  15%  08 15%
Growth is likely to remain around 15% due to a larger base and an existing large US penetration.  The company has announced plans to enter the diamond business, which opens up an additional 51% of the market, but at slightly lower margins. This is NOT factored in here.

Margin is  Consistently 23-24%
Gross Profit  (Revenue x Gross Margins)
05        06  105m 07E  121m 08E  139m
+++++++++++++++++++++++++++++++++++++++++++++++++++++++
Retail
Growth in number of Stores  
04-05 18   06 42 07E 100    08E  165  
Revenue growth
05        06  18m (15% of Business)  07E  49m   08  97m
For 07E we use (06 rev)18m x (store growth)100/42  x (Sales growth per store) 15%  = 49m  (26% of company sales)
For 08 we use 49m  x  165/100  x  20%  =   97m  (41% of company sales)
(This number is significantly higher than current company estimates of 40m. However they have a history of under estimating and over reporting and are planning an estimate update in the next few weeks. As more stores have time to ramp up we can expect average per-store sales to increase. Since brand new stores start from a zero base, this number (20%)  may prove to be very conservative, but visibility on the timing of that growth is low.)  
Margin  54%  less  20%  store rental = 34% (I include that here because  the store rentals are a fixed % of revenue and are the single greatest drag on revenue.  This number is projected to go down over time as ENZO is able to exert leverage.)  

[David Randolph]

1. Introduction

It looks like I'll need to work after hours today, still INNO and BTJ to go

2. Technical analysis
2.1. Long term chart



Brrr, this long term chart isn't pretty (and the all history chart since 1991 is even worse) and it suggests dilution over the years. We'll just see about that.

2.2. Short term chart



The short term looks better, the question is: «will the stock resume its bull trend and make new highs above $1.45 after the 50% correction, or the trend has reversed and it is bearish now?»

Let's see if fundamental analysis helps.

3. Fundamental analysis
3.1. Market Cap & Business Description

Market cap is $45.3 M. Principal business activity has evolved into the design, development and worldwide marketing of apparel products. Products consist of branded and private label denim and denim related products.

3.2. Share count evolution

Did I say "dilution"? Oh yeah, look at the Basic Weighted Average Shares line on an annual and quarterly basis.

3.3. Balance sheet analysis

The balance sheet is weak, with just $0.39 M in cash and a current ratio of just 1.26.

3.4. Revenues

Revenues rose 30% in 2006 from 2005, but they're still way below 2003 levels.

3.5. Earnings

The company has been losing serious money since 2003. It had a smaller loss in Q4 2006, hence the rally, but dilution will kill any attempt of a bull run.

4. General Overview

Management is not working for the shareholder's benefit, as it keeps diluting their value. The balance sheet is too weak and the company has been losing too much money over the years.

5. Rating

Negative.

This analysis was written by David Randolph from www.3stocksonfire.org after a very brief study. He might have missed several important issues about the stock that you may add to this message board and complete the analysis. David makes 10 new analysis per trading day on www.3stocksonfire.org member's request. He already covered 250+ stocks which you can find on the Stocks Covered List. This effort is also a way to find very attractive picks for the 3 Stocks on Fire Portfolio, a very concentrated Portfolio with the objective of turning $15,000 into $150,000 using small cap momentum+value stocks. To know more please read the 3 Stocks on Fire Portfolio FAQ. To receive our newsletter, be able to write on the message board and vote on polls, all you need to go through is a free 10 second registration process.