Sunday, August 29, 2010

Management and Fundamentals colliding

Another company I like is Universal Travel Agency (UTA). As of late though, there have been some....interesting...things materializing which makes it very hard to make a decision with regards to buying in or not, especially on this huge dip it's taken. Taking a look at management first, there are a lot of negatives lately in terms of decisions.

First, they issued more shares at $7ish in order to help pay for aquisitions. There reason I see this as a bad decision is two fold. First, because they were in the middle of a quarter in which they made $0.33/share. That puts them easily over a dollar EPS this year which means the stock should fall somewhere between 10 and 15 dollars per share depending on the P/E ratio. Possibly more if this growth rate gives a higher P/E which it may. Well, if that is the case they are effectively aquiring a company but paying double what they should by using cash raised from shares that are worth half of the company's intrinsic value.  The second reason is why dilute shares when you have $43.5 million in cash? Just use the cash you have on hand for the aquisitions and do a buyback, thus increasing the price of your stock closer to fair value. And why is there no insider buying if this is potentially a triple based on forward EPS? The way they are handling these aquisitions worries me because they are doing pretty much everything Buffett says management should not do if managment cares about the stock price.

There is also some discrepancy about reported earnings, along with the fact that they had to ammend their 10Q because of an expense being put under the wrong business segment. This mistake didn't effect overall earnings, but I don't blame people for wondering if there are other mistakes.

Now on to the positives. Fundamentals are great, huge EPS, and clearly a growing company. Also, despite the offering of more shares, float is still very low around 20 million. Management are obviously looking to expand and the kiosks for booking trips are a great option in China, where personal computers aren't as prevelant. They also have a recent partnership with Agoda, a subsidiary of Priceline, which allows UTA to access their hotel network. This in turn, will allow Agoda to increase exposure in China.

UTA still has 16% margins for the MRQ, despite the fact that they included the numbers of two aquired companies in their 10Q that have the lowest margins of the 4 aquisitions they are planning on closing. A P/B < 1 doesn't look too shabby either. Finally, subtracting out their 43.5 million in cash from their current market cap gives them an enterprise value of around 56 million or an effective P/E of 2.8.

UTA definitely has potential to show big jumps in PPS, but not without management showing more concern for the share price. They may be forced to do this, however, if they plan on paying for aquisitions with stock. That said, I am not buying more until I see how management handles the remaining 2 aquisitions, but I am not selling because I see upside potential. That is my stance, as of now.

These posts are not meant to be taken as investment advice. Everything written is solely the opinion of the poster.

Wednesday, August 25, 2010

Stock Market different than the mall...Why?

Ever been to TJ Maxx? I have bought countless polos from there for less than 50% of their original price. So why is it when a stock is priced at 50% of what it should be (or less) people freak out? I see posts online titled "WHAT'S WRONG?!?" "WHAT AM I MISSING?" etc. First off, don't "type scream". It's unhealthy. Besides, decible level is not controlled by font size. Second, I can't wait for the day someone storms out of TGX yelling WHY IS THIS SHIRT HERE FOR THIS CHEAP PRICE!? kicking the door open, and leaving their mom standing there sweating, holding 10 back-to-school bags, and crying because she couldn't buy her son the $50 abercrombie shirt he really wanted.

If you liked the stock at $10 and nothing changes except the price, you should like it more at $5, and even more at $3. Don't be afraid of deals. Buy them like you would any other deal.

That is all.

Monday, August 23, 2010

My mistakes so far

Two quarters into the year I'm in the red... a lot. Well, unrealized looks worse than realized. I won't give an exact number because I don't care right now. I like my current picks and feel they will be up in the long term. I am all for value investing and if I make a quick buck while doing so, great. But value investing isn't synonmous with day trading; so many people seem to forget that. In fact, I stopped looking at my etrade portfolio tab. I'll follow my stocks via yahoo etc, but I don't want to know exactly how up or down they are. I am of the opinion that seeing a big red number will make me panic. I don't want to panic.

I'd like to take a look back at the picks I have made in which I realized losses and comment on them. I'm also going to comment on some picks I made that were stupid, but I realized gains on.

CPBY - First stock I bought. Did no real DD, didn't do my own share price estimate. Actually don't think it's a bad company. Just not as undervalued as others. In fact, didn't know what undervalued really meant. Price dropped, I had no estimate, didn't know what to expect. I panicked. I sold.
TRMD - BAH! Saw the dividend (when I bought). Great yield. Buy. Only problem, I knew nothing about the shipping industry...or the country they were based out of. I watched it trade flat while the shipping ETF went up. Then they cut the dividend...I sold at minimal loss. Could have been worse. Investing to learn, well I sure learned; seeing a dividend doesn't mean it will always be there.

SPKL - dumbest "investment" ever. Nothing pointed at a good company. I got lucky. Very lucky. In fact, I'm not even going to list everything that was wrong with it because I don't know what the max number of characters per post is. Let's just go with ridiculously high O/S, poorly run, brand that wasn't quite catching on. Oh yeah, and NO EARNINGS.

KERX- I'm going to analyze this just because I like this pick. I found it in the high twos before any news started coming out. Now it seems to be finding resistance in the high threes. I did much more research on this company. Slowly learned from the mistakes above. Lots of cash to fund trials, multiple drugs in the pipeline, and a potentially huge market across multiple forms of cancer with their drug perifosine. Am I a bit nervous due to the number of cancer drugs that fail in phase 3? Yes, but that's why I sold some of my shares in the 6's when the price jumped on some fast track news. Wasn't going to pass up an easy double. Holding the rest and hoping for some big gains.

I have a list of my mistakes on a piece of paper. When I buy stock in a new company, I make sure I don't repeat any of the mistakes above. I suggest you do the same. One thing I have realized in this short amount of time is, the more emotion you take out of it, the better you do. I think you'd be hard pressed to find someone that disagrees.

Sunday, August 22, 2010

You Are Your Own Enemy, Idiot.

People are impatient. There's no denying it. Think about the last time you were at a stoplight and the tard next to you was creeping forward before the light changed. Or maybe you were that tard. Congratulations sir, you arrived at your destination 2 seconds sooner than you would have otherwise. No need to rush; you aren't as important as you think you are. No one will miss you, I promise.

As I was traveling last weekend, I realized how impatient everyone in our society has become. In fact, it blows my mind. I was in the 5th row on an airplane and we had just landed and arrived at the gate. I looked back and 80% of the people on the plane were standing. The door wasn't even opened yet...I mean wasn't "disarmed" yet. Easy there speedsters, I know you have been sitting for an entire hour and a half, but 75 people have to get off before you so what's the big deal with sitting another 5 minutes? Not to mention the lady behind me who actually asked me "are you getting off?", as far as I could tell, only because I will still sitting. After I realized this was a serious question, I replied with "yes, after the people in front of me do." I was nice. Rheotorical or not, what a stupid question. What impatience.

This impatience is the fault of our society. Everything is based around making things faster, making things easier. At least that's how it seems in the U.S. When I was in Spain two summers ago we waited over an hour for our bill at lunch. Not because the server was being rude, but because they are in less of a rush on the other side of the pond. They don't always feel like they are missing something (as far as I could tell, atleast). I wonder, are they better investors?

This is a reason I feel one must invest to learn when learning to invest. I read numerous books telling me wait for a pullback before you buy. Be patient. You won't miss it; if it's a good company you wont miss it. The only problem is, you haven't convinced yourself this is the truth yet. You're your own enemy. I'm telling you not to make this mistake. Either wait for the company to be severly undervalued, or find another company. There, I told you what not to do. Don't worry, you'll make the mistake anyways. I did. And I even waited for a pullback. CNAM took a huge jump to the 11 dollar range after it's uplisting. Then it pulled back to 7. Hey, pullback. BUY! So I bought. Only problem was, and what I didn't realize yet, is a pullback and being undervalued are two incredibly different things; especially when the company is still overvalued after the pullback! I still like CNAM despite the $0.02/share loss posted this recent quarter because I'm looking at the future. They have the means to be posting 400 million in revenues if the macro effects would stop playing their trump card. If that's the case, my original 7+ dollar order won't kill me. And I bought more on the way down so my cost basis is considerably lower. But, we'll see what happens. Could holding here be a rookie mistake? Maybe. Am I going to hold? You betcha. I like the future, I try to forget the past (especially if it's already priced in).

Don't be your own enemy, but I'm willing to bet at some point you will be. Hell, I'm willing to bet at some point I will be again. But, maybe one day I'll learn. At least that's the idea.

Friday, August 20, 2010

WOW! That's a Low Price!

There are some stocks out there that are just screaming, WOW! That's a low price. One that I love, that's seemingly getting zero attention is China Advanced Construction Materials (CADC). This company grew revenues 44% from 2008 to 2009 and grew net income by 100%. With China's alleged push to focus on being more green, it seems that CADC's business consisting of ready-mix concrete is in a great position to benefit from this. Not to mention goverment backing, as they have been given $7+ million in high speed rail contracts. In a recent press release their CFO blatantly stated that "companies stuck in the commodity building materials business model of just a couple years ago will not be able to compete in the new, high-tech, eco-conscious building materials paradigm rapidly evolving in Asia." This is perfect for China ACM, as their business model is not only built around what looks to be the future of China, but it is built around a segment of the concrete industry that has been showing 27% growth over the last 10 years and is expected to continue. Furthermore, in China 40% of their of concrete work is ready mix, 60% is on site. In so called "developed countries" this ratio is 80-20. Room for improvement and expansion of ready-mix in China? I think so!

When it comes to future earnings, as far as I can tell, this company currently has the means of cranking out around 60 million in revenue for 2010. While this may not seem like overly extreme growth from the 39 million in revenue of last year, the fact that their three business segments sales, manufacturing, and technical services produce margins of 10%, 40%-60%, and 90% respectively makes this number look more appealing. All my calculations were done by taking numbers in their July 2010 presentation on their website and using a fully diluted share count of ~18 million. I get an estimated EPS to be $1 per share give or take. That means right now CADC is trading around 3.5X forward earnings. And to that, I say,

WOW! That's a low price!

Thursday, August 19, 2010

My First Thoughts

I'm starting this blog because I enjoy investing. Am I someone you should take advice from? Frankly, probably not. But, I hope to become one. Everything I have become good at, dare I say great at, has been because I threw myself in the deep end. I am learning to invest, by investing. There is so much material out there reflecting on past experiences when it comes to the market. I want to take it from another angle. I want to express my ups and downs, good days and bad, gains and losses as they happen, not after they happen. And I invite you to follow me through it. Yes, even feel free to disagree with me, I won't get defensive (I don't think).

To be honest, I have often tried to understand why people get so defensive when someone disagrees with them. To date, I have become fairly convinced people get defensive only when they don't really understand what they are talking about. They can't open themselves up to listen to others because they can't even convince themselves of what they, themselves, are saying!(Contrary to popular belief, I do understand what I just wrote so I'm not quite a hypocrite yet). Once you understand your side, it gives you the ability to stop defending what you think and instead intelligently explain what you think as it relates to the thoughts of others.

That said, I welcome the bashers, the haters, the supporters, the pumpers the shorts and the longs. Challenge me to question my picks. Force me to be able to explain my reasons for owning a stock. Contradict me, not because I will always have an answer or argument from my side (remember, I'm learning) but because it will teach me how to think so I can beat the market.

Afterall, no matter your position, isn't that a goal we all have anyways?