NGA

[nexta]

I am the same one. What will you do? Hold or Sell? I am in at 8,80...

[David Randolph]

I had to talk, didn't I?

Absolutely hold in my opinion, the chart was asking for a shake out and the relative weakness versus AZZ should have been seen as bearish short term market action, not bullish (I was mistaken about the short term).

Anyway, the stock is trading at 10.5 times conservatively estimated 2007 earnings, so it is way undervalued here. I'll hold whatever happens to the chart, as I've been shaken out by false technical signals all too often lately.

The market will make everybody right, if given time, but only long term buyers will make real money out of the situation in my opinion.

Got to go, see ya

[Stocky2000]

i dont want to bash this stock
but its a better short than long
the MACD HIst didnt turn yet in the weekly
a close below MA 50 which is near (daily not weekly chart)
no reversal candle in the daily...no signs for a trend back up
a see 6 dollar coming
thanks i am probably shorting.

i told you randolph there was never a reversal on increased volume. you see the volume going down and down....and yesterday a sell off with more volume....6 dollar gap support coming. $$$$ 

[David Randolph]

i told you randolph there was never a reversal on increased volume. you see the volume going down and down....and yesterday a sell off with more volume....6 dollar gap support coming. $$$$

Do you think so?

So you're short now, right? You told us you would sell the stock short if it were to break the $8.51 support level on close.

Ok, let's assume the stock indeed goes down to $6. If you sold it short, say, at $8.3, and cover it at $6, you'll earn 27% return on your money. I don't enter a position with such a small profit objective (of course, if it were a sure thing, I would do it, but I think it is far from a sure thing).

The risk to a short sale at this point is that, because the stock is undervalued, the market action was a false technical breakdown, and the stock will climb back above the previous support, now resistance in a matter of a few days. And then it won't stop there, it will move to breakout on the upside, above $12.

Why do I believe the latter is the case? Well, because sales in Q1 2007 rose 52% and operating income rose 112%. And NGA's main competitor, AZZ, said the following about the galvanizing services industry, referring to their quarter ended in May 31st:

«Revenues for the Company's Galvanizing Service Segment for the first quarter were $34.5 million, an increase of 65 percent compared to the $20.9 million in the same period last year. Operating income improved 32 percent to $8.6 million. Revenues for the first quarter continue to be favorably impacted by pricing actions to offset increased zinc cost. Of the 65 percent increase in revenues, 28 percent was attributable to volume and 37 percent attributable to price. Our acquisition of Witt Galvanizing on November 1, 2006, accounted for 69 percent of the volume increase.»

«The Galvanizing Services Segment achieved record setting revenues in the first quarter. Our operating results are reflective of strong market conditions and good price realization required to offset the increased cost of zinc. We are very pleased that the markets have been strong enough to absorb this level of price increases. The reduced volatility of zinc has not required us to significantly adjust our pricing levels from the third and fourth quarter of last year."»

NGA earned $0.16 per share from continuing operations in Q1 2007, and from what we see at AZZ, earnings will probably improve for the next few quarters. Say EPS will average $0.2 for the next three quarters, the company will earn $0.76 in 2007. So, the forward earnings multiple now is 10.6.

AZZ itself trades at 20 times its own EPS guidance for fiscal 2008:

«Mr. Dingus concluded, "Cost escalation recovery through pricing actions, expansion of domestic and international markets, and seeking out new product opportunities to further enhance our strategic position continue to be the focus and emphasis of our activities. Based upon the evaluation of information currently available to management, we are increasing our estimate of FY2008 earnings to be within the range of $1.65 to $1.75 per diluted share and revenues to be within the range of $310 million to $320 million."»

AZZ's guidance reflects growth expectations, because in fiscal Q1 2008 they earned just $0.34.

I know what you're thinking: "but you're not listening to the chart, not listening to the market".

To that I would respond: "but you're not listening to the fundamentals, not seeing beyond the price on your screen".

Above all this specific discussion, I would say that I've learned that shorting stocks is a waste of time,  and I'll never short a stock again, because of the unfavorable reward/risk ratio. I prefer to look for attractive long picks, even in a bear market. You can lose more than you have in a short sale, however, you can never make more than 100% (unless you use leverage, which I don't recommend), even when the stock goes down to zero (which is very rare).

From what I've seen (and suffered) with SILC, VPHM and NTES, where stocks were steadily going down before very positive news and significant push ups, I conclude the chart knows little about the future.

How could the chart know? If somebody has inside information and acts on it he may end up in jail. No wise and rich man is willing to take that risk.

Well, I took some time off (from the time off ) to write about NGA because this was the stock of the Main Portfolio that went down the most on yesterday's session. There isn't much to say when everything is fine, like JAKK just 1% or so from all time highs, TBSI, SNDA and ICOC pushing up almost 5% on the session.

See you tomorrow (I know it's the 4th of July, enjoy the holiday )

[Stocky2000]

you should never forget this stock went up from 3 to 11 in 2 months...even if the company is good the chart needs a break...

[mbaugh]

David, NGA filed an 8k, do you think this is a positive or nothing at all in terms of affecting the company?  It seemed like buying increased when it was posted.  Also, from my past expereince the day before a holiday the market is easily manipulated due to the low volume. 

http://biz.yahoo.com/e/070703/nga8-k.html

Thanks,
Mbaugh

[David Randolph]

you should never forget this stock went up from 3 to 11 in 2 months...even if the company is good the chart needs a break...

You're right ket1390, applaud.

Anyway, if I get too concerned with the next 10%, up or down, I'll be less concerned about the big picture, that is, which way the next 50 to 100% will go? And that's what I need to know to profit.

David, NGA filed an 8k, do you think this is a positive or nothing at all in terms of affecting the company?  It seemed like buying increased when it was posted.  Also, from my past expereince the day before a holiday the market is easily manipulated due to the low volume. 

http://biz.yahoo.com/e/070703/nga8-k.html

Thanks,
Mbaugh

Hmm, I don't think that 8-K file has any relevancy for the stock price, at least not from a medium term fundamental standpoint. But it may have helped to push some people to "just let me check it out NGA" and decide it was a good buy, I don't know.

What I do know is that NGA is dirty cheap at current levels. The company made $0.16 in Q1 2007 and Q2 will probably be even better, according to what AZZ said about the galvanizing market conditions in its March - May quarter earnings release. I see $0.76 EPS for the full year of 2007, and that means a stock trading at 10.4 times earnings. AZZ for example trades at 20 times earnings (and NGA is growing faster).

EPS just doubled in Q1 2007 compared to the previous quarter. And what if it doubles again this quarter, what do you think it will happen to the stock? And what if it goes back down to the Q4 2006 level? Well, I don't think that is a possibility, because we know the market is even stronger than in Q1 2007.

I believe the recent technical breakdown is just short term noise and the stock will react positively going forward, after touching the 50% Fibonacci retracement level you see on the chart below. I'll continue holding NGA.

[David Randolph]

I believe the recent technical breakdown is just short term noise and the stock will react positively going forward, after touching the 50% Fibonacci retracement level you see on the chart below. I'll continue holding NGA.

True for today, at least.

I can understand why Galvanizing services are in such a high demand, look at the best performing industry of the DJ industry groups has been doing YTD:

DJ Heavy Construction Index

NGA should double just based on existing fundamental numbers. But I expect growth going forward.

I'll continue holding NGA with strong hands, despite the "bearish" chart.

[mbaugh]

David, despite the bearish chart on NGA, I compare this company to the likes of TBSI since they both resemble strong fundamentals.  I just hope that there is not something that we don't know about since the stock is heavily shorted and keeps breaking support lines.  My belief is that people looked at the stock split as a negative and the shorts took advantage of the split also.  Last year NGA reported Q2 earnings on July 30.  If that's the case this year then we are only weeks away and i would hope that we get a boost before then.  Also, Alcoa reports earnings on Monday, I'm hoping this would help jump start NGA's move upward.

Thanks,
Mbaugh

[David Randolph]

David, despite the bearish chart on NGA, I compare this company to the likes of TBSI since they both resemble strong fundamentals.

Yes, the situation looks similar. At one point I've been losing 12.6% in TBSI, but ended up taking a 34% profit in five weeks. I expect NGA to do even better.

I just hope that there is not something that we don't know about since the stock is heavily shorted and keeps breaking support lines.

I think there are a lot of shorts (15% of float) because the stock has been up so much and the chart looks like a confirmed double top.

My belief is that people looked at the stock split as a negative and the shorts took advantage of the split also.

Maybe, but as you know, the split doesn't mean anything from a fundamental standpoint, so it shouldn't have an effect on the stock price (at least not one that lasts).

Last year NGA reported Q2 earnings on July 30.

I confirm that.

If that's the case this year then we are only weeks away and i would hope that we get a boost before then.

It would be nice, but not a necessity. We'll see what happens over the next three weeks, I'm expecting the stock to claw back above the $8.51 resistance level.

Also, Alcoa reports earnings on Monday, I'm hoping this would help jump start NGA's move upward.

Well, the two companies are somewhat related, but Alcoa is a $36 B market cap, NGA is a $96 M market cap. Alcoa is primarily aluminum production, NGA is galvanizing & coating services (mostly of steel). At first sight I wouldn't consider that AA's earnings may have an impact on NGA's share price, but we'll see what happens.

Thanks,
Mbaugh

You're welcome Mbaugh

I've derived my valuation model for NGA, taking into account existing fundamental trends, and got this:



We'll go over the explanation for the four variables of the model over the next few updates.

Just one more thing, Q2 2006 was a lot stronger than Q1 2006, so the very strong Q1 2007 wasn't due to seasonality, and from what AZZ said about the galvanizing market, everything points to an even better Q2 2007 for NGA when compared to Q1 2007.

I'll continue holding NGA.

[David Randolph]

I think NGA cleaned up almost all weak hands and it is ready to climb back above the $8.51 key resistance level. Look at the volume increase to 647,600 shares, beautiful.

Even more beautiful is what AZZ has been doing after reporting its "not so great" results:



AZZ now trades at 111 times its latest quarterly EPS. NGA trades at 44 times. In annualized terms, AZZ trades at 27.75 times EPS and NGA at 11 times EPS.

There's not a single doubt in my mind that NGA will push higher and breakout above its all time high at $11.63.

[David Randolph]

I've already displayed the bull case for NGA, now let's see who wins the bull/bear battle roughly between $7.5 and $8.5.

I bet on the bulls and will keep holding the stock.

[mbaugh]

David, just curious, does NGA's chart resemble a bull-flag pennant formation? 

[David Randolph]

David, just curious, does NGA's chart resemble a bull-flag pennant formation? 

Hi mbaugh, nice talking to you

Well, I must say that I have a few books that deeply explain the most intricate technical patterns, inclusively the flag and pennant patterns. However, those books are in my living room shelves and I don't open them for a long time ... I feel they didn't teach me anything of value, you know?

But, from what I can recall, I think those patterns happen in ascending short term trends, and NGA has a descending short term trend. I think NGA's pattern is more of a falling wedge pattern.

My advice is for you not to direct your curiosity to that space of the financial literature. I've lost several years reading and thinking about them. I wish I didn't.

I prefer to think that AZZ, which is NGA's closest competitor in the galvanizing market, closed at a new all time high today:



Now consider AZZ's long term chart:



The stock quadrupled in less than two years. It goes to show the strength in the galvanizing services market.

NGA's fundamentals are a lot more attractive than AZZ's, in my view. The fundamental setup is getting stronger and stronger, against the "bearish chart". I believe that ultimately value will prevail and NGA will shoot towards new highs above $12 over the next few months (or else in one single day gap up, that can be the case too).

I'll continue holding NGA with strong hands.

[David Randolph]

My Metastock is not giving me a chart for NGA, but I'm sure you saw how the fight between the bearish technicals and the extremely attractive fundamentals ended: NGA rallied 14% on the day

Now, there's one more bearish technical view, I guess it was Terliso that posted it, unifying the recent highs and coming up with a short term "important" technical resistance. Well, I'll draw it next Tuesday when my computer is fixed.

But I'll keep fully concentrated on the fundamentals and my expectation of a breakout above $12, since the company's fundamental value is, according to my valuation model, something like $14.56.

I'll keep holding NGA.