Monday, August 30, 2010

With your ideas we can build a better Alert HQ together

I am planning to add a premium section to the Trade-Radar web site. This members-only area will consist of content similar to Alert HQ but more unique. In fact, I will be naming it Alert HQ Premium and there will be a modest recurring charge to access the data.

Tell me what you'd like to see --

I would like to ask readers to submit ideas for content. Tell me what kinds of custom stock screens you would like to see and I'll try to build them.

Just to get the ball rolling, let me describe what I have built so far. The following alert lists will be generated three times per week based on our scans of the NYSE, NASDAQ and AMEX:
  • Value stocks breaking out
  • Reasonable Value Momentum Stocks to Buy on a pullback
  • Dividend Growth at Reasonable Value
  • Over-priced and Over-bought Report
  • Ebb and Flow Report - stocks on the move based on weekly data
  • Top 50 stocks based on Total Return Ratio
I think these alert lists will be unique in that I will be combining value analysis and technical analysis in order to bring you low-risk investment candidates.

I am thinking of providing some alert lists dedicated solely to ETFs. Any suggestions? Would you be interested in best and worst performing ETFs over the last week? Perhaps a report dedicated to the ProShares family of ETFs?

I'd very much like to hear your ideas --

Where do current stock screeners fall short? How can I help get you the information you need?

Please leave a comment or send me an email.

Why not share or Tweet this post so others can contribute their ideas? The more suggestions we have the better we can make Alert HQ Premium.

Let's do this together!



Friday, August 27, 2010

Total Return Ratio -- 11 stocks John Neff might have liked

John Neff, who beat the S&P by 3% over the course of 30 years while managing the Vanguard Windsor Fund, attributed much of his success to a metric he liked to use dubbed the "total return ratio." Here is the definition:

Total Return Ratio = (analysts' expected earnings growth rate + dividend yield) / price-to-earnings ratio

What is interesting about this equation is that it takes into account both earnings growth and dividends. In this era of ultra-low bond yields, stocks that pay dividends are gaining more and more importance. That makes this metric all the more interesting.

Let's break the equation down into its constituent parts.

Dividend Yield = most recent annual dividend / current share price

Finding the analyst expected earnings growth rate isn't as hard as it sounds -- it's built into PEG which is available for most stocks at Yahoo Finance.

PEG = PE / annual EPS growth rate

Annual EPS growth rate = PE / PEG

Now that we have all the pieces, we can calculate the Total Return Ratio as follows:

Total Return Ratio = ((PE / PEG) + dividend yield) / PE

Theoretically, the higher the ratio, the better the potential investment.

John Neff liked to find stocks whose TRR was 50% higher than that of the market or the sector.

Here, I used this equation to run a screen against my database of about 6000 stocks and simply picked the top 10 which turned into the top 11 because because two stocks tied for the tenth spot on the list.

Total Return Ratio Symbol Name Sector Industry Last Price PE PEG Dividend
20.00 SMP Standard Motor Products, Inc. Energy Industrial Machinery / Components $9.17 25.07 0.05 0.2
7.14 SNHY Sun Hydraulics Corp Capital Goods Metal Fabrications $22.99 36.48 0.14 0.36
6.67 GLNG Golar LNG Limited Consumer Services Marine Trans-portation $9.99 28.14 0.15 0.2
4.77 CVX Chevron Corporation Energy Integrated oil Companies $73.33 9.01 0.21 2.88
4.55 REP Repsol YPF S.A. Energy Integrated oil Companies $22.38 11.23 0.22 0.87
4.35 ALV Autoliv, Inc. Capital Goods Auto Parts: O.E.M. $52.88 13.65 0.23 1.2
4.17 MT ArcelorMittal Basic Industries Steel / Iron Ore $28.21 10.790.24 0.64
4.00 SNP China Petroleum & Chemical Corporation Energy Integrated oil Companies $78.83 7.27 0.25 2.86
3.85 NNI Nelnet, Inc. Finance Finance: Consumer Services $21.24 4.95 0.26 0.28
3.71 NM Navios Maritime Holdings Inc. Transportation Marine Transportation $5.29 7.21 0.27 0.24
3.71 NC NACCO Industries, Inc. Capital Goods Construction/ Ag Equipment/ Trucks $77.83 10.71 0.27 2.09

What do you think? Would you like to see this kind of list on a regular basis?

Do you have some familiarity with any of the stocks on this list that you would like to share with other readers? Then please leave a comment!

Note: This list is based on data gathered last weekend. We'll run this screen again after this coming weekend and see if we get some new candidates.

Disclosure: no positions



Intel cuts outlook -- confirms cautionary signal in Durable Goods report

From Business Wire today we have this report:

Intel Corporation (INTC) today announced that third-quarter revenue will be below the company's previous outlook. The company now expects third-quarter revenue to be $11.0 billion, plus or minus $200 million, compared to the previous expectation of between $11.2 and $12.0 billion. Revenue is being affected by weaker than expected demand for consumer PCs in mature markets. Inventories across the supply chain appear to be in-line with the company's revised expectations.

The company's expectation for third-quarter gross margin is now 66 percent, plus or minus a point, lower than the previous expectation of 67 percent, plus or minus a couple of points. The impact of lower volume is being partially offset by slightly higher average selling prices stemming from solid enterprise demand.

It's surprising that just over a month ago, Intel reported stellar earnings and very positive forward guidance. Now today we suddenly have this update to the company's outlook.

Apparently, this confirms the suspicions of several analysts from JPMorgan, Barclays and Wedbush who have been saying that PC demand is clearly slowing.

Then there is this chart from my post on the recent Durable Goods report for July:


This shows new orders in the Computers and Related Products segment falling 12.7% month-over-month. Historically speaking, this is a larger than usual decline and there is little doubt that Intel is beginning to see the drop in demand that this chart suggests.

Something I didn't chart in the post on the Durable Goods report is Unfilled Orders. After two months where unfilled orders grew at over 5% month-over-month, in July we saw a decline of more than 7%.

I've been a cheerleader for tech in general and semiconductors in particular but it does look like growth is taking a breather. From the point of view of stock prices, we are now seeing solid, market leading companies such as Intel and Cree reaching levels of quite attractive valuation. The following charts show how beaten down these two companies are currently:




Given how volatile the semiconductor sector is, it's always worth watching. A few pieces of unexpected good news and it could turn on a dime. You'll want to be ready for it when companies like Intel and Cree begin their recovery.

Disclosure: no positions



Thursday, August 26, 2010

Stock Inspector Tips & Tricks -- fix bad "flash crash" data points

We haven't had another "flash crash" in a while but I still see crazy data points hanging around that can play havoc with stock charts.

When I go to a site like StockCharts.com, for example, and look at an ETF like IGW, the iShares Semiconductor ETF, there is a "flash crash" data point back in May that dips down below $15 on a day when the ETF was trading mostly in the mid-$40's. This data point makes the chart almost unreadable and tends to skew the technical analysis algorithms.

Did you know that if you are using Trade-Radar Stock Inspector, you can fix this wacky data point and get your technical analysis back on track?

You've probably noticed those fields on the right-hand side of the main screen in Stock Inspector. Those fields display the date, the open-high-low-close and volume data for the stock or ETF. Using the arrow buttons on the toolbar, you can sequence through that data and get to any date you choose.

Once you do find the wacky data point, you can click the Edit button on the toolbar and modify the data. To fix the flash crash situation, update Low value of the stock price to a value that is more reasonabke. Click the Save button on the toolbar and you're done.

The next time you look at the chart, it won't be thrown off by some data point out of left field.

One further piece of advice: when you load new data for that stock symbol you should choose a start date after May 2010 so you don't overwrite the data you just fixed.

If you're interested in trying Trade-Radar Stock Inspector, please go to our Download page and take advantage of the free 45-day trial.



Wednesday, August 25, 2010

July Durable Goods -- mixed signals from tech keep investors on edge

The advanced report for Durable Goods for July was released Wednesday and it was pretty dismal.

The fact that the market managed to advance in the face of this report almost makes me think that a rally is in the offing. This is the second instance of bad news leading to gains in stocks. The first was the homebuilders stocks rallying after the horrific existing home sales report on Tuesday. And today we have the overall market gaining even though this report clearly shows one of the green shoots of the economy showing signs of wilting.

In any case, here are some of the highlights of this latest report:

  • New orders for manufactured durable goods in July increased $0.6 billion or 0.3 percent to $193.0 billion. Excluding transportation (primarily aircraft) new orders decreased 3.8 percent. (Yikes!) Excluding defense, new orders increased 0.3 percent.
  • Shipments, up four of the last five months, increased $4.4 billion or 2.2 percent to $200.6 billion. Transportation equipment, had the largest increase, $3.4 billion or 6.9 percent to $52.7 billion.
  • Unfilled orders, down following three consecutive monthly increases, decreased $1.1 billion or 0.1 percent to $802.8 billion. Computers and electronic products, down following four consecutive monthly increases, had the largest decrease, $0.5 billion or 0.4 percent to $121.1 billion.
  • Inventories, up seven consecutive months, increased $1.8 billion or 0.6 percent to $311.2 billion. This followed a 1.3 percent June increase.
  • Capital Goods. Nondefense new orders for capital goods in July decreased 2.8 percent to $64.1 billion. Shipments increased 1.4 percent to $64.7 billion. Unfilled orders decreased 0.1 percent to $487.2 billion. Inventories increased 0.8 percent to $129.8 billion. Defense new orders for capital goods in July decreased 2.2 percent to $9.5 billion. Shipments decreased 2.4 percent to $9.5 billion. Unfilled orders decreased slightly to $139.7 billion. Inventories increased slightly or 0.1 percent to $17.9 billion.
  • Revised June Data -- all categories of June data were revised upward slightly
As always, I'll take a closer look at the tech sector. I wish I had better news to report.

Shipments --

I generally give less importance to Shipments since this is a backward looking measure reflecting orders that have been confirmed, manufactured and shipped. It's similar to earnings reports -- it's good to know but the data is in the past and we're more interested in the future. The following chart shows how July shipments look for the overall tech sector:

Despite all the bad press on the headline numbers, you can see that the overall Tech sector managed a pretty strong July with shipments hitting a post-recession high (just barely).

Looking a little deeper, we can see that signs of weakness are beginning to appear. Here is the chart for the Computers and Related Products sub-sector:

You can see that shipments have stagnated for the last few months and the latest data point has dropped to the 6-month moving average. Not exactly a sign of doom but still worrisome.

New Orders --

Here is where the bad news is lurking. Here's the chart of new orders for the entire tech sector:

This the second month in a row where new orders have decreased and now this month they slid under the 6-month moving average.

Where things get really dicey is in the Computers and Related Products category:

Whereas the decrease in new orders is only 2.4% for the tech sector as a whole, we have a sickening 12.7% drop in the Computers sub-sector. Interestingly, it has been exactly two years since this category endured a drop of this magnitude. What kind of impact might this have on Dell or H-P or even Intel?

We find a bit of good news at the bottom of the barrel. There is a little uptick in the chart of new orders for Communications Equipment:

Nevertheless, the uptick doesn't manage to rise above the 6-month moving average which, incidentally, is still heading downward. No wonder Cisco Systems was cautious in their most recent earnings conference call.

Conclusion --

The headline numbers surprised economists, coming in significantly weaker than expected. Last month, I looked at the numbers for the tech sector and said that after two months of decreases in shipments, it would be important for July to show a gain. It's a relief that the gain did indeed materialize but, as noted above, the sharp drop in new orders is raising a serious alarm.

If you're a pessimist, you can look at these charts and say tech is dead on arrival. With new orders breaking down so badly, tech is running into that most over-used of words: headwinds.

If you're an optimist, you can look at these charts and say that the data bounces around on both sides of the 6-month moving averages. Tech certainly seems to be taking a breather but it is not a done deal that the sector has thrown in the towel. This is especially true since the summer months tend to be somewhat of a weak seasonal period for tech. So, though the caution flags are certainly waving, full-on bearishness is not yet warranted here.

Still, as I look for a good entry point in a semiconductor ETF (why semis? read the post Analysts can't agree on outlook for semiconductors - what's an investor to do?), this durable goods report gives me pause. Tech remains at a tipping point, perhaps tipping a little further toward weakness than I had expected. Once again, we await next months' numbers. Will it be game over or recovery back on track?

Disclosure: small position in ROM, the ProShares Ultra Technology ETF, no positions in other companies mentioned in this post



Tuesday, August 24, 2010

Is company guidance worth listening to?

Yesterday I wrote a post titled "Q2 earnings scorecard -- believe the guidance or believe the bears?"  The point of that post was that forward guidance during the most recent earnings season closely matched the guidance offered during the previous earnings season and that, based on these fairly positive expectations of company management, it was unlikely that the economy was heading for a double dip.

It immediately afterward occurred to me that it might be worthwhile to test the hypothesis that Upside guidance actually results in increased earnings.

In Q1 of 2010, roughly 20% of the companies that offered any guidance at all provided Upside guidance. Here are the Q2 results for this optimistic set of companies:
  • 77% did actually deliver increased earnings
  • 2% delivered no increase
  • 21% showed a decrease in earnings
  • 93% showed year-over-year top-line growth
  • 7% saw a decrease in revenues

Companies that offer Inline or Mixed guidance usually see their stock price slammed during earnings season. Do they deserve it?

Here are the Q2 results for those companies that provided Inline guidance in Q1:
  • 68% delivered increased earnings
  • 4% had flat earnings
  • 28% saw earnings decrease
  • 76% had year-over-year revenue increases
  • 17% saw year-over-year revenues decrease
  • Only a couple had flat revenues
  • 7% were missing data on year-over-year revenue growth in Q2 results

And here are the Q2 results for those companies that provided Mixed guidance in Q1:
  • 59% delivered increased earnings
  • 5% had flat earnings
  • 36% saw earnings decrease
  • 86% had year-over-year revenue increases
  • 12% saw year-over-year revenues decrease
  • 2% were missing data on year-over-year revenue growth in Q2 results

Finally, what about those companies that didn't provide any guidance at all in Q1? Here are the Q2 results for these guys:
  • 64% increased earnings
  • 32% decreased earnings
  • 4% had flat earnings
  • 68% showed increased year-over-year revenue gains
  • 21% saw a decrease in year-over-year revenues
  • A few saw flat revenues and roughly 10% were missing year-over-year revenue

Conclusion --

I think there are several points to be made here:

In Q1, earnings were robust and guidance pretty decent. The follow-through for those expectations set in Q1 was that Q2 earnings and revenues were, as predicted by management guidance, robust and pretty decent.

Those companies that announced upside guidance did actually fare better than those who did not offer guidance at all or offered guidance that was less optimistic.

The great majority of companies, more than two thirds, saw top-line revenue growth. This implies that the bears, who say all earnings improvements must be due to cost-cutting, are wrong. Whether or not they are due to government stimulus is another question.

Forward guidance in aggregate can be used as one more input when attempting to determine the general trend in stock markets.


Caveats --

Forward guidance cannot be used as the sole indicator on which to base investment decisions. But it seems like it could indeed be used in combination with other indicators or investment criteria.

Some percentage of the positive outcomes in Q2 were no doubt the result of a "rising tide lifts all boats" situation with respect to general economic improvement in the first two quarters of this year supporting better earnings. It appears that the second half of the year will be tougher.

Comparing Q1 to Q2 seems to show some interesting relationships between guidance and subsequent results. This, however, is one data point and that does not make a trend or a rule of thumb. We'll repeat this analysis after the Q3 earnings season and see if the results are consistent.



Monday, August 23, 2010

Q2 earnings scorecard -- believe the guidance or believe the bears?

The 2010 2nd quarter earnings season has wound down so it's a good time to do a comparison the 1st quarter.

I always say that earnings are ancient history so I focus on forward guidance. Unfortunately only 40% of companies provide guidance; nevertheless, I would contend 40% is enough to get a good picture of where the market might be heading.

The two charts below compare Q2 to Q1. The percentages displayed are based on the total number of stocks in a sector that provided guidance. This first chart, for example, looks at how many stocks offered upside guidance as a percentage of stocks in a sector that provided guidance.

Q2 vs Q1, Upside Guidance
This chart shows that Q2 is roughly the same as Q1: in both quarters 23% of guidance offered was to the upside. In other words, there has been no decrease in upside guidance quarter-over-quarter. For those pessimists looking for evidence of the double dip, I'm afraid there is no bearish confirmation in this measure.

Not shown are the charts for Mixed guidance and Inline guidance. They are almost exactly like the chart above in that there was very little change from Q1 to Q2.
Q2 vs Q1, Downside Guidance
There has been an increase in the amount of downside guidance in Q2 compared to Q1 but that increase is not that drastic. All told, in Q2, 12% of the companies offering guidance provided downside guidance compared to 9% in Q1. Once again the Financials take their place at the bottom of the barrel.They were noticeably bad in Q1 and even worse in Q2. If there's a double dip happening in looks like it's going to be in the Financial sector.

Conclusion --

Based on forward guidance provided by company management during the Q2 earnings season, it seems the economy is expected to continue to muddle along. The majority of companies are expecting mixed or inline results, nearly a quarter of companies are expecting improved results and only 12% are expecting results to worsen.

This may not be sufficient to guarantee an economic resurgence but it sure doesn't seem to confirm the most dire, double dip projections of the bears.



Saturday, August 21, 2010

Two reasonable value stocks raising dividends this week

With the stock market in distress and bonds yielding practically nothing many analysts and bloggers are proposing that investors should focus on companies paying dividends.

For this post, I've combined my Reasonable Value screen with a filter for those companies that have raised their dividend in the last week. Two stocks below qualified and, coincidentally, both raised their dividends by $0.08

Symbol Name IndustryPE PEG Price  To Sales Price To Book EV To EBITDA Debt To Equity New Dividend Previous Dividend
AFL Aflac Inc. Accident & Health Insurance 12.52 0.65 1.2 2.28 7.75 0.2645 1.2 1.12
ALTE Alterra Capital Holdings Ltd. Property-Casualty Insurers 4.91 0.62 1.22 0.73 N/A 0.0992 0.48 0.40

So are investors favoring these two companies? Here are the charts for each:



Though both stocks have wilted lately, Aflac seems to be holding up a bit better. Both the 200-day moving average and the 50-day moving average are still heading upward for Aflac while it looks like ALTE is really rolling over despite beating earnings expectations.

At this point, Aflac's dividend yield is 2.2% and Alterra Capital's yield is 2.7%. Compare this to the yield on the 10-year Treasury bond which is currently at 2.61%.



Thursday, August 19, 2010

Analysts can't agree on outlook for semiconductors - what's an investor to do?

So, what else is new? Let's look at the two opposing viewpoints.

In this corner, the optimists --

Starting with the positive viewpoint, iSuppli is looking at the second half of the year as being a very positive time for the semiconductor industry.

"iSuppli now predicts global semiconductor revenue in 2010 will rise by 35.1 percent to reach $310.3 billion, up from $229.6 billion in 2009. iSuppli’s previous forecast, issued on May 6, predicted growth of 30.9 percent this year.

With an $80.7 billion increase, 2010 will bring the largest annual expansion in semiconductor revenue in history in dollar terms. In comparison, semiconductor revenue increased by slightly less than $60 billion during the next best year for dollar chip growth: the dot-com-fueled year of 2000."
iSuppli points to several factors for the boom in chips: rising prices, inventory buildups and richer chip content in key electronic products like smart phones and advanced LCD-TVs.

If things are going so well, they can only go down from here, right?

iSuppli further states the following:
"Robust semiconductor revenue growth in 2010 is based on a strong increase in the sales of electronic equipment. Factory OEM revenue for electronic equipment is projected to grow by $131 billion to reach $1.54 trillion in 2010, up 9.3 percent from 2009. The previous high for electronics OEM revenue was $1.53 trillion in 2008.

Shipment and revenue growth for electronics equipment is surpassing expectations in areas including PCs, cell phones, LCD-TVs and other semiconductor-rich products."
I'm not sure where iSuppli gets the projected revenue numbers referenced in the preceding paragraphs but it is clear they are pretty optimistic numbers. Unfortunately, recent Durable Goods reports don't do much to generate confidence in an outlook quite this bullish.

iSuppli makes the point that semiconductor revenues are in a special situation. Pricing strength is unusual because both inventories and capacity were so drastically reduced in 2008 and early 2009 and now that demand has improved, shortages are driving high prices and juicing revenues. Another factor is that there is a trend to more sophisticated system-on-a-chip solutions that are harder to design and manufacture, command higher prices and yield fatter margins. The fact these chips are also seeing somewhat of a shortage also serves to increase semiconductor revenues.

Another optimist, Bill Jewell from consulting firm Semiconductor Intelligence LLC, said he believes capacity utilization will continue to increase through the rest of the year, hitting 96 percent in the fourth quarter. Jewell said he believes end demand will hold up at least through the end of this year. "I think capacity got cut so far back last year and just has such a long way to come back."

The following chart, courtesy of iSuppli, illustrates how 2010 will be killer year for semiconductors:


The chart also illustrates iSuppli's thesis that semiconductor revenues will return to normal seasonal patterns beginning in 2011.

In this corner, the pessimist --

Christopher Danely, an analyst at J.P. Morgan, writes:
"Semiconductor industry capacity utilization will peak during the third quarter at 96 percent, then decline to 90 percent in the fourth quarter,"

A decline in capacity utilization is a sign of slowing sales; hence, the importance this measure is accorded.

Danely also said the PC end market, which accounts for 40 percent of semiconductor sales, appears weak. Perhaps he has newer information than the most recent Durable Goods report which shows new orders still in an uptrend. Indeed, Danely says Taiwan supply chain checks show that order rates from the PC end market deteriorated sharply during the last part of July.

The communications end market, which accounts for 25 percent of chip sales, he believes is also showing signs of weakness. This is confirmed by the drop-off in new orders for the communications sector in the last Durable Goods report and is also illustrated by Cisco Systems Inc.'s second quarter results, which disappointed analysts and contributed to a down day for tech ETFs.

Conclusion -- 

In actuality, both optimists and pessimists see semiconductor revenue growth peaking this year and dropping off to more typical rates next year. The difference in outlooks vary by only a quarter or two.

Having concentrated on analyst opinions, it is worthwhile to review earnings season and what company management thinks. There are 95 semiconductor companies in my earnings report database. Of these, 68 beat expectations and 92 showed  year-over-year revenue increases. There were 62 companies whose management offered forward guidance; of these, 32 provided upside guidance, 25 in-line or mixed. That leaves only 5 companies that offered downside guidance. All in all, the sector has turned in pretty results this earnings season.

With IGW, the iShares Semiconductor ETF at a three month low and the rest of the year still looking fairly strong for the sector, an aggressive play would be to buy at this point on the expectation that an upside bounce is due. The chart below shows the cyclical nature of the price action over the last three months.


Note that MACD and Williams %R do not confirm the Slow Stochastics buy signal. In addition, the overall stock market is currently struggling and this can be a headwind for any individual sector.

In summary, the semiconductor sector does not appear to be over-valued, in terms of capacity utilization it is running essentially flat out and revenue growth will slow from an unusually strong rate to a more normal rate over the course of the next couple of quarters. Is it too late to invest? Yes, it's too late to take advantage of the big surge in growth rates that occurred during the last year. But the current pessimism of investors could be an opportunity to buy into a hot growth sector at reasonable prices. Keep in mind that bringing on new capacity in the semiconductor industry is not trivial or quick; therefore, high capacity utilization should continue to support prices and revenues, especially for those more complicated or smaller geometry chips where capacity is most constrained.

The consensus seems to be that growth rates may slow but no double-dip will occur in the semiconductor sector. That's actually a better scenario than most investors seem to expect. Don't write off the semis yet.

Disclosure: no positions



Wednesday, August 18, 2010

Google keeps getting social - and stands to make money from it

Google has been in the limelight quite a bit lately. The main reasons are as follows:
  • Google's supposed repudiation of its commitment to "net neutrality"
  • Oracle suing Google over an alleged violation of the terms of the Java license
  • In the most recent quarter, smartphones using the Android operating system actually outsold Apple's iPhone and RIMM's Blackberry
For those of you who have not yet come up to speed on these news items, the following links provide some excellent reading:
My two cents on the net neutrality issue is that Google is a public company with shareholders. It should be no surprise that they have chosen to "play along to get along" in the mobile space, an industry on which they are increasingly staking future growth prospects. As for Oracle, the company needs to call off the lawyers. It's sad to see a company that has championed innovation in the past starting to rely on legal wrangling to extract a few million dollars out of a competitor. Finally, though the growth rate of Android is surging, the operating system has a long way to go before it it's total market share exceeds that Nokia, Apple or RIMM. Still, Android seems to have the wind at its back.

OK, enough of that. I wanted to focus on a less noticed event involving Google - their acquisition of a small company named Jambool/Social Gold. The company provides a platform for purchasing virtual goods and currency online and managing virtual holdings. Why is this significant? Because a pattern is emerging.

Google recently acquired Slide, a company that makes some of the most popular games on Facebook. They have also made a $100 million to $200 million investment in Zynga, probably the leading producer of social games, many of which are also featured on Facebook.

So it is clear that Google is building strength in social gaming and, with the acquisition of Jambool, Google now has a payment platform to directly profit from gaming. This allows Google to go beyond advertising. In addition, with Picasa they have photo sharing and with Google Profiles they have a database of personal information. These could all be considered the building blocks of a fullblown social site to rival Facebook. And indeed, there are rumors galore that Google is planning to roll out a social site or at least a social gaming site.

What is also an interesting is that Jambool has an API that allows the payment process to be embedded in games or any other kinds of applications. And that suggests to me that it could just as easily be embedded in games or apps that run on Android. So this acquisition supports Google's mobile strategy, as well.

In any case, even if Google doesn't go head to head with Facebook, they now have a set of properties that provides Google more ways to profit from the social web and even use Facebook as a platform. Which brings to mind an old saying: "If you can't beat em, join 'em."



Sunday, August 15, 2010

A week without posting - here's what I've been up to

Wow, it's been a week since my last post. During that time markets have gone through some wild gyrations and the Trade-Radar blog has been silent.

I just want everyone to know that I've been busy working on a site redesign. The blog now gives you a preview of how things will look. Unfortunately, this process has been quite time consuming and has kept me from my usual rate of posting.

In addition to the new look and feel, I will soon be rolling out a members-only, premium section of the site that will provide some new stock signals. I'm quite excited about this but I want to do it right so I need to devote a serious effort to it before making it public. Stay tuned - there will be more information about this forthcoming.

In the meantime, if you'd like to register your opinion of the blog's new look, please leave a comment or send me an email.



Thursday, August 5, 2010

15 under-valued stocks to buy on a pullback

Here's another "Reasonable Value" screen run against Tuesday's Trend Leaders list. For those of you who have not see one of my previous "Reasonable Value" posts, here are the criteria for the screen:

  • PE between 0 and16
  • PEG between 0 and 1.2
  • Price-to-Sales less than 2
  • Debt-to-Equity less than 1
  • EV to EBITDA less than 10
With the market showing some strength the last week or two, we actually have a Trend Leaders list that has a reasonable number of stocks on it now - over 500, as a matter of fact. This gives us a wider field in which to seek out those stocks that still have some value characteristics while exhibiting some strong price action. The table below lists this week's candidates:

Sym
bol
Name Industry Last Price PE PEG Price To Sales Price To Book Debt To Equity Cash On Hand Divi-
dend
EV to EBITDA
CACI CACI Int'l, Inc. EDP Services $47.62 13.12 0.98 0.47 1.27 0.4666 174.7M 0 7.4
DOV Dover Corp. Industrial Machinery/
Components
$48.56 18.55 0.95 1.4 2.18 0.4383 973.5M 1.04 8.57
TSTC Telestone Tech-
nologies Corp.
Telecom Equipment $12.10 11.66 0.17 1.61 1.82 0 10.01M 0 9.12
VSEC VSE Corp. Military/
Government/
Technical
$36.22 7.54 0.79 0.19 1.77 0 2.19M 0.24 3.81
ARW Arrow Electronics, Inc. Electronic Components $25.40 16.3 0.43 0.19 1.01 0.4316 576.7M 0 6.93
POWL Powell Industries, Inc. Electrical Products $33.01 9.11 1.01 0.63 1.44 0.075 113.6M 0 3.63
GIII G-III Apparel Group, LTD. Apparel $25.48 12.45 0.64 0.58 2.1 0 17.8M 0 6.73
JACK Jack In The Box Inc. Restaurants $20.89 11.6 0.81 0.49 2.14 0.6549 105M 0 5.85
CORE Core-Mark Holding Company, Inc. Food Distributors $30.10 13.27 0.73 0.06 0.97 0.0021 91M 0 4.62
UNH United Health Group Inc. Medical Specialities $32.42 8.19 0.91 0.38 1.39 0.3237 11B 0.5 4.35
MFB Maidenform Brands, Inc. Department/
Specialty Retail Stores
$24.68 13.33 1.21 1.12 3.56 0.464 22.8M 0 9.35
FDO Family Dollar Stores, Inc. Department/
Specialty Retail Stores
$41.41 16.46 1.19 0.7 3.84 0.1758 444.8M 0.62 7.32
FCX Freeport-McMoran Copper & Gold, Inc. Precious Metals $74.03 9.42 0.73 1.96 3.16 0.4447 3,042M 1.2 4.35
HS Health-
spring, Inc.
Medical Specialities $19.03 7.37 0.93 0.4 1.15 0.1628 294M 0 3.42
AMP Ameriprise Financial Services, Inc. Investment Managers $42.82 13.58 0.85 1.31 1.09 0.7601 4.4B 0.72 8.3
ALV Autoliv, Inc. Auto Parts: O.E.M. $57.78 14.29 0.25 0.78 1.94 0.2708 459.4M 1.2 5.23

Valuation measures listed in the table above show all of these stocks to be at reasonable levels. Data not included in the chart above, however, shows that two companies in particular are also showing impressive growth.

Arrow Electronics (ARW) has steadily improving financials as shown in the chart below:


Revenue, earnings and margins are all up sequentially as well as year-over-year for this distributor of electronic components and systems.

Our other growth candidate is Ameriprise Financial (AMP). I normally am not too fond of financial companies as the sector overall has been the worst performing in our Earnings Scorecard analysis. This company, however, has managed to perform reasonably well while staying far enough under the radar to maintain its value characteristics.


Here, in the chart above, we can see that the most recent sequential quarterly results were quite good on both top line and bottom line.

So why buy on a pullback?

All of these stocks have been on a tear lately, hence their inclusion on our Trend Leaders list. Our experience is that most stocks stay on the list for a week or two and then drop off. These pullbacks are often good buying opportunities as the best stocks show up on the Trend Leaders list again shortly after. For example, UnitedHealth and Family Dollar are both repeat members of the Trend Leaders.

So browse through the table above and pick a few of these stocks for your watch list. Their value characteristics should help limit any downside and their momentum characteristics should eventually yield some good price gains.

Disclosure: no positions in any of the stocks mentioned in this post



Tuesday, August 3, 2010

Does finding winning stocks have to be so hard?

With respect to the Trade-Radar Stock Inspector software, one of the requests I often get is that I should add a stock scanning facility. Users have said that they like all the analysis features in the software but that it's hard for individuals to unearth those good stocks that look like winners.

My reply has usually been that I have already done the scanning for them and the results are available at Alert HQ where I provide free stock picks and alerts. Daily and weekly BUY and SELL signals are available as well as Trend Leaders, Trend Busters, Swing Signals, Gaps and Cash Flow Kings.

But wait. There is another alternative: our affiliate friends at MarketClub have a technology they call Smart Scan.

Using Smart Scan, you can easily spot winning stocks, futures, precious metals, and currencies that meet one of 24 preset scanning criteria, including uptrends or downtrends.

As traders we have 3 potential positions we can take at all times: (1) We can be long the market (2) We can be short the market (3) We can be on the sidelines and out of the market.

Using their Smart Scan technology and filtering out the noise can help find some of the real nuggets that are out there.

To see how Smart Scan works, you can watch this video. As always, the videos are free to watch and there are no registration requirements. If you'd like to comment on this video please do so and let us know what you think.

Oh, and by the way. If you are interested in trying the Trade-Radar Stock Inspector software (click here to download), please be aware that anyone who signs up for the User Group email newsletter gets a discount coupon code worth $10 off the purchase price.



Three weeks of earnings -- it's clear which sectors are strongest now

Three weeks of second quarter earnings season are in the books. Here's the status so far broken down by sector (analysis is provided below):

Sector Earnings Beats Y-o-Y Earnings Increases Y-o-Y Revenue Increases Upside Guidance Total Providing Guidance Total Number of Stocks Reporting
Basic Industries 48 54 65 9 23 72
Capital Goods 104 95 99 21 56 124
Consumer Durables 69 67 77 12 43 91
Consumer Non-Durables 47 42 45 5 27 64
Consumer Services 106 90 111 10 81 152
Energy 52 43 53 1 11 78
Finance 105 98 57
0
9 171
Health Care 82 77 92 14 69 113
Miscellaneous 23 27 31 4 24 42
Public Utilities 29 23 31 4 17 45
Technology 163 170 207 36 136 238
Transportation 35 34 38 2 3 42
Totals 863 820 906 118 499 1232

Before getting into individual sectors, let's start by looking at some of the totals and calculating the percentages.
  • Earnings beats:  70%
  • Year-over-Year Earnings Increases: 66.5%, down a few percent compared to last week's results
  • Year-over-Year Revenue Increases: 73.5%
  • Upside Guidance out of those providing guidance: 24%, down about two percent compared to last week
  • Upside Guidance out of total stocks reporting: 10%
Unless otherwise noted, this week's percentages are pretty similar to last week's. These summary numbers show that as earnings season has progressed, company fundamentals have remained pretty strong.

Here are a few more ways of looking at the results:
  • There are 212 companies (17% of those that have reported) that have exceeded earnings estimates by 20% or more. 
  • There are 626 companies (almost 51%) that have registered year-over-year increases in earnings of 20% or more.
  • There are 371 companies (30%) that have registered year-over-year increases in revenues of 20% or more.

Sector results --

There are several sectors that seem to be faring particularly well:
  • Capital Goods and Transportation have the most earnings beats at over 80%
  • Consumer Durables, Consumer Non-Durables, Health Care and Consumer Services registered between 70% and 76% earnings beats
  • Transportation has the highest percentages of y-o-y earnings increases (81%) and y-o-y revenue increases (90%)
  • Between 71% and 77%  of the companies in the Capital Goods, Basic Industries, Consumer Durables and Technology sectors have registered y-o-y earnings increases
  • Between 80% and 90% of companies in the Capital Goods, Basic Industries, Consumer Durables and Technology sectors have registered y-o-y revenue gains

Investors have been especially interested in guidance this quarter due to the worries about the economy slowing in the second half of the year. Only about 40% of companies have offered forward guidance so far this earnings season. Here's how it looks:
  • Transportation has the highest percentage of upside guidance but it is only 2 out of 3 companies so it can effectively be ignored
  • Roughly 38% of companies in the Basic Industries and Capital Goods sectors have provided upside guidance
  • Consumer Durables and Technology are next with 28% and 26% of companies, respectively, in each sector offering upside guidance
Noticeable by its absence in our discussion above is the Financial sector which continues to rank near the bottom in terms of our earnings season performance.

If you are interested in using this data to guide your investing, there are many sector ETFs that will fairly closely match the sector results discussed above.



Sunday, August 1, 2010

Stocks take a rest -- will they wake up rejuvenated?

As I often do, I am taking the opportunity to provide an overview of this weekend's stock market BUY and SELL signals available at Alert HQ. This weekend we have the following stock picks and signals:

  • Reversal Alerts based on daily data, we have 34 Alert HQ BUY signals and 11 SELL signals
  • Reversal Alerts based on weekly data, we have 11 Alert HQ BUY signal and 12 SELL signals
  • We have 103 Bollinger Band Breakouts based on daily data and 73 are bullish. We also have 101 Breakouts based on weekly data of which 69 of them are bullish.
  • We have 700 Cash Flow Kings
  • 7 Swing Signals --  4 are BUY signals and 3 are SELL signals
  • 399 Trend Leaders, all in strong up-trends according to Aroon, MACD and DMI. We have 82 stocks that are new additions to the list and 81 that fell off the previous list from Thursday.
  • 35 Trend Busters based on daily data of which all but 4 are BUY signals. We also have 46 Trend Busters based on weekly data  of which 25 are BUY signals.
  • 191 Gap Signals -- stocks with upside or downside gaps or gaps that have been closed. We see 94 downside gaps and 97 upside gaps based on daily data. We also have 39 Gap Signals based on weekly data of which 11 are bearish.
The numbers of bullish signals suggest the broader market still has some strength despite the S&P 500 being stuck at it's 200-day moving average.
    The view from Alert HQ --

    The data for the following charts is generated from our weekly Alert HQ process. We scan roughly 6040 stocks and ETFs each weekend and gather the statistics presented below.

    In this first chart below we count the number of stocks above various moving averages and count the number of moving average crossovers, as well. We then plot the results against a chart of the SPDR S&P 500 ETF (SPY).


    Though SPY stalled and fell back slightly below it's 200-DMA, the the market essentially ended flat on the week. That is seen on the chart above as the number of stocks above their 50-DMA (the yellow line) barely budged. There was, however, an increase in the number of stocks whose 20-DMA had made a bullish cross above their 50-DMA. This chart has the look of a market in consolidation.

    The next chart provides our trending analysis. It looks at the number of stocks in strong up-trends or down-trends based on Aroon analysis.


    This chart has a much more bullish tone. The number of stocks in strong up-trends has increased sharply over the last week. The number of stocks in down-trends has continued to dwindle. It's good to see that neither is at an extreme yet.

    The outlook --

    Though the S&P 500, the Russell 3000 and the Nasdaq Composite have failed to hold their 200-DMA, the Dow Jones Industrials, the NASDAQ 100 and the Russell 2000 have managed to hold onto that important level. The picture, therefore, is mixed. Our signals and indicators suggest the recent bullish trend has not yet exhausted itself though it may be taking a rest.

    With roughly one half to two-thirds of companies having reported second quarter earnings results, we can expect further turbulence from earnings season. The big market moving report coming this week, however, is the Non-Farm Payrolls report. With the last couple of weekly claims reports coming in slightly better than expected, investors will be holding their breath waiting for the big NFP numbers to confirm some improvement in the jobs market.

    While waiting for the Non-Farm Payrolls report which hits on Friday, we get to see construction spending, personal income and personal spending (consumer discretionary stocks and ETFs will certainly react to these numbers), factory orders, pending home sales, auto and truck sales and important ISM services index. And don't forget that on Wednesday, we get a preview of the employment numbers when the ADP employment Change report is released. In other words, there will be plenty of data to keep investors on edge.

    Earnings, data and stocks at a strong resistance level. This week could set the tone for the next couple of months to come.




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    Disclaimer: This site may include market analysis. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.




     
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