If you are losing faith in Chinese companies, you can still benefit from the realization that investing in U.S. should not be overlooked.
On October 22, 2010 we published an article highlighting companies we believed were worth tracking at the completion of the 2010 third quarter.
Some companies we are actively tracking ahead of 2010 third quarter press releases that we believe may have a good chance to eclipse analyst estimates or are about to experience an acceleration in EPS growth.
Over all, eight of these selections delivered healthy returns, two selections delivered negative returns and two remained stagnant. All had attained 52 weeks highs at some point during the two month coverage period. If you would have invested in this portfolio you would have achieved returns of 42% applying the high price achieved during the coverage period and 34.2% using December 23, 2010 closing prices.
U.S. Companies: Original notes plus post article updates.
- The Industry leader
- Expected to achieve three quarters of 30% + growth of EPS.
- Revenue growth will only average about 11% in 2011
- EPS growth begins trailing off in second quarter 2011
- With revenues of ~$4 billion dollars it is outside our wheelhouse
- We are curious to see if this automobile retailer will surprise the street as economy improves
- Our fair value target if estimates are achieved- $17 to $26
Post article Update – Current Price*: $17.82
Reached a high of $18.90, up 27.9% since the original publication our 2010 third quarter earnings watch. Return using closing price on December 28, 2010: 20.60%
The company reported strong 2010 third quarter results, just divested itself of non-core operations, is expected to grow 2011 EPS by over 30% and announced a buy back program. We recently coded ABG as a GeoSpecial that has a GeoPowerRanking (GPR**) of 4.
- Two back-to-back quarters of strong sales and EPS growth
- Still holding short term trading position
- Company has had sporadic EPS history
- Benefiting from cable companies initiatives to upgrade their equipment to provide HD programming. Do not know how long trend will continue.
- Weak economic conditions have caused many customers to delay plant expansions. This is a short term negative that could turn into a positive surprise as economy improves.
- Selling below book value of $3.18
Post article Update- Current Price*: $3.14
Reached a high of $3.90, up 20% since the original publication our 2010 third quarter earnings watch. Return using closing price on December 23, 2010: -3.0%
AEY gave up all of its recent gains after reporting 2010 third quarter results where its commentary about the future was uninspiring. We will continue to track this story for a change in management sentiment, keeping in mind that we do not have a great history with this equity. We have sold our short-term trading position.
- Expected to achieve six consecutive quarters of 70% + EPS growth
- Revenue growth will average about 11%
- With revenue of ~ $4 billion dollars it is outside our wheelhouse
- We like to track this company because it has indirect exposure to China
Post article Update – Current Price*: $55.46
Reached a high of $56.42, up 28.9% since coded as a GeoSpecial, 21.1% since the original publication our 2010 third quarter earnings watch and 3.4% at the time of its removal from the GeoSpecial list. Return using closing price on December 23, 2010: 24.6%.
We removed the stock from the GeoSpecial list prematurely, but are will consider adding it back to the list if shares pull back. GPR 6**
A T Cross A (NASDAQ:ATX) Price: $5.98
- Mundane industry
- Revenue growth will be meager at 5% for next several quarters
- Selling below book value of $6.36
- Recently raised guidance
- Buying back a significant amount of stock. Analyst estimates probably do not account for this, which could lead to upside EPS surprise.
- EPS estimates for 2011 are calling for 28% growth
Post article Update – Current Price*: $9.70
Reached a high of $10.17 up 70.1% since the original publication our 2010 third quarter earnings watch. Return using closing price on December 23, 2010: 62.2%
ATX was of the most surprising performers on the list. Strong 2010 third quarter earnings and a share buy back pushed share to a new 52 week high of $10.17. At a current valuation of 25 times 2010 fully taxed EPS of $0.39 the stock is fairly valued. We plan to unwind this position.
- EPS growth of at least 50% for next three quarters
- Only one quarter of next six is sub par. Second quarter of 2011 is flat
- Has history of exceeding estimates
- Products are a direct beneficiary of smart phone craze.
- Outlook is strong
- Targeting high growth areas in technology sector: Wireless, fiber optic and solar industries
- Paying very little taxes
- Believe it is close to short-term fairly valued on a fully taxed basis. Long-term target $9.00.
Post article Update – Current Price*: $10.08
Reached a high of $10.23, up 96.7% since coded as a GeoSpecial and 56.4% since the original publication our 2010 third quarter earnings watch. Return using closing price on December 23, 2010: 54.1%
The stock eclipsed our price target of $9.00. Once again the company exceeded expectations. However, we have reduced our holdings in this name. EPS growth is expected to slow in 2011, but investors should keep in mind that the company has had a habit of exceeding estimates and is riding the smart phone craze.
- Has pulled back after a steady rise from when coded as a GeoSpecial at $12.07
- Products are a direct beneficiary of smart phone craze
- After third quarter, only two above average growth quarters left. Will need to report a spectacular quarter to gain momentum.
- Second quarter conference call was extremely bullish
- Aggressive target- $17.00
Post article Update- Current Price*: $12.87
Reached a high of $14.34, up 18.8% since coded as a GeoSpecial and 10.2% since the original publication our 2010 third quarter earnings watch. Return using closing price on December 23, 2010: -1.0%
The stock has traded in a tight range since it reported strong 2010 third quarter earnings after concerns that EPS growth will soon be constrained by margin pressures. EPS growth is expected to slow starting in second quarter of 2011 which may keep the stock at bay unless 2010 fourth quarter commentary tells a different story. If not we will consider removing NANO from the GeoSpecial list. NANO has exceeded analyst estimates by wide margins in the past.
- Company is benefiting from a transition in its business plan, where it is switching its product offering from analog to digital.
- Second quarter was break out quarter
- Momentum is expected to continue through the rest of year
- Stock is selling below book value of $3.37
- Company is not paying taxes
- Minimum short-term target of $6.00
Post article Update – Current Price* $2.07
Reached a high of $2.84, up 54.3% since coded as a GeoSpecial and is down 11.9% since the original publication our 2010 third quarter earnings watch.
BDR shares attracted little attention from investors in response to its strong 2010 third quarter report. Unfortunately, the conference call was a bust where management was not nearly as colorful as the previous call and seemed to retract on its previous statement that 2010 second quarter numbers could be maintained. We think that the 2010 fourth quarter will show gains, but EPS will be sequentially lower than 2010 third quarter results. Investors will likely have to wait to see 2011 first quarter results before feeling comfortable bidding shares up. It should be noted that there have been take over rumors circulating around the BDR story. BDR still trades below its book value per share, a reason why we will keep the stock coded as a GeoSpecial.
- Major customers are semiconductor companies. This can lead to volatile quarters.
- After 11 straight quarters of losses the company has put together three consecutive sequentially profitable quarters in a row.
- Comments suggest that semiconductor cycle is in an uptrend.
- 2010 second quarter was a dramatic quarter. We were unable to gauge if these levels will be maintained.
- Conference call was bullish, but tempered.
- Guidance for the 2010 third quarter is wide, but still implies strong comps.
- Any talk of sustained optimism could send this stock to much higher levels.
- Not taxed
- Aggressive short-term target if EPS targets are met – $6.40
Post article Update – Current Price*: $2.56
Reached a high of $3.07 and is down 19.9% since the original publication our 2010 third quarter earnings watch. Return using closing price on December 23, 2010: -19.9%
INTT sold off after it reported higher, but sequentially lower 2010 third quarter EPS. The company’s guidance for the 2010 fourth quarter was dismal making this stock a tough play for the near term. Increased staffing expenses will also impact margins. The next few quarters will be key for INTT. Will it continue to post profits or revert back to its history of reported losses and lackluster EPS growth?
- Cloud computing
- Has experienced three consecutive quarters of dramatic EPS growth.
- No guidance
- Fourth quarter will be a tough comp.
Post article Update – Current Price*: $6.92
Reached a high of $8.43, up 225.5% since the original publication our 2010 third quarter earnings watch.
The stock exploded to new highs, propelled by strong earnings and cloud computing hype. At Current Prices MGIC seems more than fairly valued. We have closed out our trading position at 7.60, up 193.4%.
- Had pulled back after a steady rise from when coded as a GeoSpecial.
- Second quarter was extremely bullish
- Contract backlog is at record high, given us some confidence that estimates can be exceeded.
- Three of the next 5 quarters are expected to show impressive growth. A lull is expected to occur in the second quarter of its fiscal 2011 second quarter.
- Fiscal third quarter conference call was extremely bullish
Post article Update – Current Price*: $26.76
Reached a high of $27.11, up 141.0% since coded as a GeoSpecial and 56.3% since the original publication our 2010 third quarter earnings watch. Return using closing price on December 23, 2010: 54.2%.
The financial performance of ASYS continues to surprise investors as does the steady flow of contracts which could give upside to future estimates. The stock has a GPR** of 3, which implies EPS growth of at least 30% for the next three quarters. GPR** would be 6 if not for an expected weak fiscal 2011 fourth quarter. The stock has more than doubled from its inclusion in the GeoSpecial list and is close to short-term fair value of $28.65 using a P/E of 15 on fiscal 2011 September EPS estimates of $1.91. We do have some concerns that ASYS may look to tap the equity markets soon. We are considering removing ASYS from the GeoSpecial list, but believe the stock can possibly eclipse $50 for long-term investors.
- We are still waiting for ORBT to turn the corner. Which could still be one quarter away.
- Could be a nice sleeper stock once it turns this corner.
Post article Update – Current Price*: $3.65
Reached a high of $3.90, up 18.7% since the original publication our 2010 third quarter earnings watch. Return using closing price on December 23, 2010: 10.9%
The company reported its best quarterly EPS performance in six quarters, but will need to show more EPS consistency to garner investor love. ORBT anticipates to report a strong fourth quarter which may prompt us to consider a small position fairly soon. Note that the stock sports an aggressive adjusted trailing P/E of 35.5.
Whx Corporation (NASDAQ:WXCO) Price: $10.37
- New on our radar due to a huge 2010 second quarter.
- We are not sure if the quarter is repeatable, since no guidance was provided and securing an interview has been difficult.
- Eager to see if 2009 third quarter financials will continue trend
- No analyst coverage
Post article Update- Current Price*: $13.05
Reached a high of $13.39, up 29.1% since the original publication our 2010 third quarter earnings watch. Return using closing price on December 23, 2010: 25.8%.
The company followed its 2010 second quarter performance with another blowout EPS outing for its 2010 third quarter. The company serves markets that will directly benefit from a gradual economic recovery:
…medical, semiconductor fabrication, aerospace and instrumentation industries refrigeration, automotive, and heating, ventilation and air conditioning (“HVAC”) industries building and roofing material wholesalers military/aerospace, wireless communications, transportation, energy generation, oil drilling, general industrial, and semiconductor markets
The Stainless Steel Tubing Group’s capabilities in long continuous drawing of seamless stainless steel coils allow this Group to serve the petrochemical infrastructure and shipbuilding markets.
“The increase in demand as compared to 2009 for WHX’s products and services that we reported in the first half of 2010 continued in the third quarter, resulting in 22.1% quarter-over-quarter sales growth, and 22.9% sales growth on a year-to-date basis versus 2009,” said Glen Kassan, Vice Chairman of the Board and Chief Executive Officer of WHX. “The increased sales volume across all operating business segments was driven by the improvement in the world-wide economy, with increased demand from the electrical, replacement roofing, petrochemical and commercial construction markets.”
We will consider adding WXCO to the GeoSpecial list.
*Closing Prices are as of business close on Monday, December 28, 2010 while beginning period prices were as of the business close on October 23, 2010 or the GeoSpcecial price when applicable.
**For more on GPR, please see this.
We will soon follow up with a portfolio of stocks to watch as the 2010 fourth quarter comes to an end. Stocks we are considering to include: MERC ABG WXCO ORBT AMOT CVU BWS GTEC RES DDIC DTLK ENTG KEM IEC NNBR SGMA TIII TORM UFI USHS FORTY MCCC WSTL VPF CLRO WSCI BELFA MDCI CCIX VSR
Positions: At time of article, long MERC, ABG, WXCO, AMOT, CVU, BWS, GTEC, DDIC, DTLK, KEM, IEC, NNBR, SGMA, TIII, TORM, UFI, USHS, CLRO, VSR, ABG, ANR, AXT, AXTI, BDR, ASYS, WXCO