Wednesday, September 29, 2010

ON Semiconductor -- on a roll as it breaks out

ON Semiconductor ($ONNN) popped up on a reversal alert screen on Tuesday evening. I only publish reversal alert lists on the weekends but now and then I do find some pretty interesting picks during the week.

So let's start with the chart and we can take a look at the reversal in progress.


There is a clear breakout that has taken place over the 50-DMA and the blue trend line. The stock is now right at a resistance level at $7.25. A move above that level would take it to the resistance level embodied by the 200-DMA. These two resistance levels will be a real test of how strong this breakout actually is.

What also makes this stock interesting is the attractive valuation. Here are a few measures that make the point:
  • The PE of 13 is modest (for a semiconductor company/growth stock)
  • PEG is only 0.5 which is quite low
  • Price to Sales is also modest at 1.48
  • Enterprise Multiple of 6.39 is definitely in the value stock range
These numbers imply the stock is not over-priced. This next chart shows the quarterly revenue, income and profit margin:

Revenue has been increasing steadily and after a couple of flat quarters, income in Q3-2010 increased almost 19% over the previous quarter.

The company has $1 per share in cash which isn't bad for a $7.25 stock. Where things get a little shaky is in the area of debt. The Debt to Equity ratio is relatively high at 64 though it is good news to see that the level debt was noticeably reduced in the last quarter.

The company's primary product line is focused on providing power management ICs and discrete components to the PC, automotive, consumer, medical and aerospace industries. Essentially, their chips can integrate with any products that require a power supply. The company's focus on helping reduce power consumption should help adoption of their products. ONNN is also moving into LED lighting, a sector that has been so successful for Cree and where a little competition wouldn't hurt. This kind of diversification might be just what is needed since a dependence on the PC industry could be a near-term problem now that many analysts are claiming that PC sales have slowed. Even Intel has reduced forecasts.

In summary, we have in ON Semiconductor a stock that is breaking out but is certainly not over-priced. It is also a stock where management should try to reduce debt while trying to get EPS to increase as rapidly as sales are increasing. Finally, as we approach earnings season, we have a stock that could be susceptible to the headwinds in the PC industry.

The bottom line is that the technicals look good, the valuation looks good and all we need is the third leg of the stool: growth in earnings. A good quarter might be all this stock needs to hit new highs.

Disclosure: no positions



Value investing -- simple ratios still provide valuable insight

I wanted to alert readers to an excellent post at the Aleph Blog titled "Portfolio Rule Two".

Those of you who have looked at the Trade-Radar Stock Inspector software know that I have included an extensive collection of valuation measures on the Fundamental Analysis tab of the Dashboard (see a screenshot). You know that the software automatically evaluates each one and flashes a red, yellow or green light indicating how well each measure fits the valuation criteria built into the program. These indicators provide a quick estimation of whether a company is a value stock, is over-priced or is somewhere in between.

David Merkel's post at the Aleph Blog touches on pretty much all of the valuation indicators in the Stock Inspector software and provides a deeper explanation of why some of them are more important for certain industries, which ones are least susceptible to "faking" and, most importantly, provides confirmation that these seemingly simple ratios do provide a wealth of information for the careful investor.

For those who want to dig deeper, the post also suggests some ways of looking beyond the ratios.

If you are interested in value investing, I encourage you to read the post (and others in the series).

Links:
Read Mr, Merkel's post
Download the Stock Inspector software



Monday, September 27, 2010

Faster, better, easier -- new Stock Inspector software release is best yet

I'm excited to announce that a new release of the Trade-Radar Stock Inspector software is available.

Version 6.0 can be downloaded today at Trade-Radar.com. Anyone who has already purchased an earlier version or downloaded an evaluation copy of an earlier version is free to grab the new one.

Why am I excited?

A major focus in this release is usability. Where the previous version did a lot of computations under the hood to make it easy to analyze stocks, there was still a lot of clicking of buttons required and windows popping up and things like that.

This new version now integrates the chart screen into the main screen. That means that the program's menu system and toolbar are accessible at all times. You can switch stocks and view new charts quickly and easily without ever leaving the main screen. Here is a screen shot:

(Click to view larger image)

Please note the two drop-downs at the bottom of the chart screen. With one of the drop-downs, you can turn on and off the various indicators on the top chart and add Bollinger Bands. With the other drop-down, you can view any of the following indicators on the lower chart:
  • The Trade-Radar BUY or SELL Signal
  • Volume
  • Aroon
  • Chaikin Money Flow
  • Wilder’s DMI (ADX)
  • MACD
  • Slow Stochastics
  • Williams %R
  • Relative Strength
  • Money Flow Index
All the technical analysis indicators in the list are also evaluated in the Dashboard. Now you can get a visual impression of the indicator and easily compare to the Trade-Radar evaluation.

Speaking of the Dashboard, there are four new indicators. This brings the total number up to 40. Besides Relative Strength and Money Flow, two new fundamental indicators have been added: Net Profit Margin and the Cash Flow to Enterprise Value ratio.

In a further nod to usability, the Fundamental Analysis tab on the Dashboard has been reorganized to group indicators better and to make room for the new ones. Most importantly, each indicator now has an Info button next to it that provides a quick description of the indicator and how it is evaluated. No need to leave the program to search through the Help anymore.

Program Preferences - customizing the program for you

One more item that enhances usability is the Program Preferences dialog. This is a new feature in version 6. Click that toolbar icon with the gears on it and the Preferences dialog appears. Here are a couple of the things you can do:
  • You can now easily control where you store your active database file (tip: instead of keeping it in the Program Files/Trade-Radar folder structure, save it to another folder using the Backup function so it won't be overwritten by software updates. After an update, just use the Preferences to point to your preferred database file)
  • You can customize the amount of data you retrieve when you click the "Get data from Yahoo!" button. The values are incremented in months. For example, the default used to be two years of daily data. You can adjust that now to 18 months, 12 months or whatever amount of data works for you. You can do this for daily data, weekly data or monthly data.

Get the new version now!

In addition to all the improvements listed above, you will find that the program runs faster, a bug in the cash flow calculation has been fixed and charts display automatically after retrieving data, saving you clicks.

I hope this description encourages you to try Stock Inspector or to upgrade your current version if you are already a user. I am confident that you will find the software to be much easier to use while providing even more analysis capability than before.

Download Stock Inspector version 6.0 today!



Monday, September 20, 2010

A Divergence in Tech - why it's important

What is going on in tech these days and why is it important?

If you read the post "Chart of the Day: Looking for Sector Leadership" at the Vix and More blog, you can see from the chart that tech is not the leading sector in the current rally (there are several sectors doing better) but but it has been performing decently. To see the rally continue, however, investors would like to see tech step up and assume more of a leadership role as it usually does when stocks break out to new highs.

Something is holding tech back. Let’s look at three tech-focused ETFs and see graphically what is happening.

The first is the iShares Dow Jones Technology Index ETF ($IYW). You can see a beautiful breakout above the 200-DMA and the 50-DMA. Indeed, the 50-DMA is now trending upward.


The next one is the iShares S&P North American Tech-Software ($IGV). This ETF is in a full-fledged, all-out bullish trend.


Finally we have the iShares S&P/GSTI Semiconductor ETF ($IGW). This ETF is noticeably lagging the other tech ETFs. And no wonder, with Intel reducing guidance a month after their earnings report, analysts from JP Morgan and other institutions pointing to slowdowns in the supply chains for PCs and flat-screen TVs, Texas Instruments giving lackluster guidance recently, Samsung's CEO saying today that LCD and chip profits have hit a peak, reports from Taiwan that PC component sales are slowing and fab capacity is increasing, etc.


This chart is certainly showing improvement but where the other charts are showing clear signs of a breakout, this chart looks like it's just getting started. Some might ask whether the reversal in semiconductors is even real given that the ETF struggled for three days just to break above its 50-DMA.

Can tech outperform without the semiconductors?

The following is a list of all the industries that are considered part of the tech sector according to data I gathered from the NASDAQ web site.

Tech Sector Industries:
  • Advertising
  • Computer Communications Equipment
  • Computer Manufacturing
  • Computer peripheral equipment
  • Computer Software: Prepackaged Software
  • Computer Software: Programming, Data Processing
  • Diversified Commercial Services
  • EDP Peripherals
  • EDP Services
  • Electrical Products
  • Electronic Components
  • Industrial Machinery/Components
  • Professional Services
  • Radio And Television Broadcasting And Communications Equipment
  • Retail: Computer Software & Peripheral Equipment
  • Semiconductors
  • Telecommunications Equipment

There are a total of 17 industries in the list.

This next list is the sub-set of industries that are clearly not reliant on semiconductors:
  • Computer Software: Prepackaged Software
  • Diversified Commercial Services
  • Professional Services
Note that Advertising includes at least some companies that are primarily involved in online advertising. These companies usually maintain large server farms from which ads are served and tracked and, hence, can be considered to have semiconductors somewhere in their supply chain.

So here’s the quandary: It is understandable why the software companies are doing well, especially after an excellent earnings report from Oracle last week. Indeed, Gartner just released a report indicating that worldwide enterprise software revenue is on pace to surpass $232 billion in 2010, a 4.5 percent increase from 2009 revenue of $222.4 billion. No double-dip in the software industry, apparently. Though sales are expected to be most robust in the Asia/Pacific region, enterprise software spending in North America is forecast to reach $110.8 billion in 2010, an 8.5 percent increase from 2009 revenue of $102.1 billion. Gartner says the market will experience consistent growth through 2014.

But what about all those other tech companies?

Pretty much all hardware companies use semiconductors in their products. It seems reasonable to say, therefore, that companies involved in manufacturing hardware or companies that are heavily dependent on using technology products should, by extension, feed demand for semiconductors.

But the charts seem to show that investors don’t expect that semiconductor demand to materialize.

Which way to jump?

There are two possible scenarios.
  1. Tech stocks continue to rise and semiconductors, currently lagging, offer an excellent entry point before they begin to catch up with their high tech brethren. With the PC industry only responsible for approximately 40% of chip demand, perhaps semiconductor stocks can join the rally despite the signs of a slowdown in PCs. That seems like a big "perhaps" but given that at least 13 out of 17 industries in the tech sector require semiconductors, it just might happen. Especially if the economy cooperates
  2. Tech stocks have gotten ahead of themselves and the poor performance of the semiconductors suggests a pullback is overdue. Is some of the rise in tech stocks due to the buyout mania currently sweeping the industry? It is instructive to note that of the recent acquisitions by IBM, Cisco, HP and Intel only one of them acquired a semiconductor company and that is Intel when they bought the RF chip business of Infineon. Even Intel went for a software company when they acquired McAfee.
This week we will see the Durable Goods report for August so we'll get some better insight on the state of the hardware manufacturers (semiconductors are no longer broken out separately).

And so, back to the original question: can the market put on a substantial rally without tech? Probably not but it seems the market can definitely rally without the semiconductors, at least for a while. Nevertheless, I have to consider the lack of participation by the semiconductors to be a warning sign, even as I enjoy the rally.

Disclosure: no positions



Wednesday, September 15, 2010

Offering a big dividend and threatening to break out -- BT Group bears watching

Here's a stock I found on the weekend's screen for Total Return Ratio (you can get a free preview of this and other screens that will soon be available at Alert HQ premium). The company is BT Group (BT).

BT is a UK-based provider of communications solutions and services operating in more than 170 countries. Its principal activities include the provision of networked IT services globally; local, national and international telecommunications services to customers for use at home, at work and on the move; broadband and internet products and services and converged fixed/mobile products and services. BT consists principally of four lines of business: BT Global Services, Openreach, BT Retail and BT Wholesale.

The perhaps more well-known entity British Telecommunications plc (BT) is a wholly-owned subsidiary of BT Group plc and encompasses virtually all businesses and assets of the BT Group.

In addition to more mundane telecom activities like phone service, the company is also involved in some sexier projects like the next-generation trading floor project at the New York Stock Exchange. As it turns out, BT is a major provider of communications and voice recording for trading systems.

Here is some of the data on the company that makes it interesting:

  • Dividend is over 6%
  • PE is under 11
  • Price to Sales is only 0.54
  • Enterprise Value/EBITDA is 4.35
  •  Total Return Ratio is 3.04
In other words, BT has some characteristics of a deep value stock and sports a hefty dividend.

All is not perfect for BT, however. Price to Free Cash Flow lags the industry average. Revenues have been erratic though earnings seem to be on the mend (up 32% year-over-year). The following chart from Google Finance gives the picture:


Investors seem to be seeing the value in the stock and have bid the price up nicely lately. Here is the chart:


The price momentum has been strong lately but the stock is entering over-bought territory. Note the textbook pullback to the 200-DMA followed by another rally and the bullish crossover of the 50-DMA above the 200-DMA. A breakout above that $22.75 level and the stock could be off and running. Given that you could still call BT a value stock, valuation should not be an impediment to further gains.

BT Group has an interesting mix of characteristics, not least of which is that hefty dividend. I suggest this stock is one to watch.

Disclosure: no positions



Thursday, September 9, 2010

4 reasons Intel deserves another look

Intel's stock price has been circling the toilet lately but I'm not so sure the company deserves the scorn of investors. In actuality, the outlook is not nearly so dismal.

First, let's start by looking back a couple of months. At that time Intel announced blow-out earnings and margins at the high end of their historical range. The stock popped briefly and then began a steady decline. Here is the chart:


The nail in the coffin was when Intel announced that they were reducing their guidance for the third quarter of 2010. The stock dropped like a rock and took much of the semiconductor sector down with it.

Why should Intel merit your attention? Here are four reasons:
  1. Intel has turned into a value stock. Looking at some of the classic valuation measures for Intel you would never suspect the company is a tech industry growth stock. For example, the PE is less than 11 which is very close to the 5-year low for the company, PEG is only 0.76, Enterprise Value/EBITDA is a mere 4.5 which is typically considered deep value.
  2. Intel pays a dividend. This is not particularly common among tech companies. What is also interesting about this is that the 5-year dividend growth rate is over 28%, much higher than the industry or the sector.
  3. The company is still growing revenues and earnings. Here is a chart from Google that makes the point:

    Growth may not be double-digit but then Intel is a large company and growth is harder to come by when earnings are measured in billions of dollars. Though the outlook for Q3 is not quite so bright, neither is it a disaster. CEO Paul Otellini was quoted in the Wall Street Journal saying that at the midpoint of the new guidance range, it is equivalent to roughly $11 billion which would be Intel's best Q3 ever. Visibility for Q4 is still indeterminate but so far the company is expecting unit sales growth of 17% or 18%. This is down from an earlier estimate of 20% but, all in all according to Otellini, 2010 could be Intel's best year ever or close to it.
  4. The company is diversifying its sources of revenue. Intel has announced several acquisitions in the last month or so. None of the acquisitions are in the PC microprocessor space. The biggest acquisition is McAfee, the software company that produces anti-virus software for consumers and the enterprise. Though Intel expects to eventually be able to apply McAfee's technology to Internet devices and phones, there is no doubt that McAfee will continue to sell its software through all the current channels. Intel is buying a unit of Texas Instruments that makes cable-modem chips and, more notably, Intel is buying the wireless chip business from Germany's Infineon Technologies. The Infineon deal has clear ramifications that allow Intel to achieve design wins even if it's processors are not selected. Make no mistake, however, Intel intends to provide all the basic chips necessary for a cell phone, especially the higher margin smart phones. Intel is also teaming with Google to supply chips to the new Google TV. In summary, Intel is aggressively working to diversify. This will tend to smooth the effects of the PC boom-and-bust cycle and also allow Intel to grow into new sectors.
These four reasons make Intel an attractive candidate. Perhaps the near term holds some uncertainty but the company is positioning itself for growth. A year from now, this may have turned out to have been an excellent buying opportunity for Intel investors.

Disclosure: no positions




    Tuesday, September 7, 2010

    8 value stocks with increasing dividends

    There have been a plethora of posts about dividend stocks lately. Quite a few have pointed out that many stocks that offer dividends now yield more than Treasuries or corporate bonds. Others tout the advantage of dividends being able to add to total return in a choppy, range-bound market. For a good round up of the latest articles on this topic, you can visit the Investing Ideas page at Seeking Alpha and check out the section on dividends.

    One of the planned features of the upcoming Alert HQ Premium site will be a couple of stock screens that focus on dividends. In particular, I will be identifying those stocks that just raised their dividend during the previous week and yet are still more or less in the value stock category.

    The following list is from this weekend's screen.

    Symbol Name New Dividend Yield New Annual Dividend Old Annual Dividend
    ACGY Acergy S.A. 1.24% 0.21 N/A
    BOBE Bob Evans Farms, Inc. 2.91% 0.80 0.72
    ESLT Elbit Systems Ltd. 2.30% 1.18 N/A
    SSI Stage Stores, Inc. 2.49% 0.30 0.20
    MGPI MGP Ingredients, Inc. 1.36% 0.10 0
    HRS Harris Corporation 2.28% 1.00 0.88
    PZE Petrobras Energia Participaciones SA 3.70% 0.57 0.35
    SPIL Siliconware Precision Industries Company, Ltd. 6.21% 0.30 N/A

    Despite having the financial wherewithal to be able to raise their dividends, most of these stocks have been spurned by investors. There isn't really a strong stock chart in the whole bunch though some of them (see SSI, for example) show signs of beginning upside reversals.

    So actually, these stocks are good candidates for the watch list of anyone who considers themselves to be value investors. Raising dividends, reasonable valuation, not over-priced, not being chased by the momentum crowd -- these are all characteristics that might be attractive to patient investors. And remember, pulling in some income while waiting for the capital gains to arrive is not such a bad strategy.

    NOTE: To see the original page from which this list came, click on this link to see Value Stocks with increasing Dividends. The value criteria are also included on the page along with market cap and price data and you can download the list into Excel.

    Disclosure: no positions in any of the stocks listed



    Monday, September 6, 2010

    Stocks surge to resistance -- real momentum or just another head fake?

    It's been over a month since the last time I wrote a post like this so I'm taking the opportunity today to provide an overview of this weekend's stock market BUY and SELL signals available at Alert HQ and to take a look at what our indicators are saying.

    This weekend we had the following stock picks and signals:

    • Reversal Alerts based on daily data, we have 98 Alert HQ BUY signals and 1 SELL signal
    • Reversal Alerts based on weekly data, we have 7 Alert HQ BUY signal and 3 SELL signals
    • We have 72 Bollinger Band Breakouts based on daily data and 59 are bullish. We also have 101 Breakouts based on weekly data of which 86 of them are bullish.
    • We have 578 Cash Flow Kings
    • 31 Swing Signals --  every single one is a  BUY signal
    • 112 Trend Leaders, all in strong up-trends according to Aroon, MACD and DMI. We have 41 stocks that are new additions to the list and 14 that fell off the previous list from Thursday.
    • 81 Trend Busters based on daily data of which all but 1 are BUY signals. We also have 46 Trend Busters based on weekly data  of which 24 are BUY signals.
    • 136 Gap Signals -- stocks with upside or downside gaps or gaps that have been closed. We see 45 downside gaps and 91 upside gaps based on daily data. We also have 39 Gap Signals based on weekly data of which 27 are bearish.

    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).

    Despite how erratic the market has been lately, this chart looks like a slow uneven improvement has been underway since early July. As negative as many bloggers are on the prospects for the market, what we see here is that roughly half of all stocks are now above their 50-day moving average. That is certainly not a sign of a bear market.

    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 clearly shows the bipolar nature of the market these days. Almost every month, the number of stocks in down-trends surges to a peak and then, just as quickly, drops off while the number of stocks in up-trends surges. You couldn't have a better picture of a market that is stuck in a trading range. Be that as it may, it looks like another cycle started this week with the number of stocks in up-trends beginning to increase, reflecting a week where stocks racked up solid gains. This suggests at least one or two more weeks of bullish follow-through before the cycle turns again.

    I kicked off this post by listing the weekend's results at Alert HQ. Pretty much every single screen was bullish. Some, like the Swing Signals, Trend Busters and the Reversal Alerts based on daily data were extremely bullish. The Trend Leaders list, which includes Aroon analysis in its combination of indicators, shows improvement but also shows that we are not yet at a point where the rally is exhausted.

    So far, only one of the major indexes (the NASDAQ) has just managed to rise above its 200-day moving average while the others (the S&P 500, the Dow, the Russell 2000) are just below that important point. So with the backdrop quite bullish now, we'll see if the indexes can break through resistance and regain their important levels above the 200-DMA.

    What other catalysts could provide the boost that stocks need? That's where the uncertainty lies. Earnings season is over, the economic calendar this week is relatively empty. Nevertheless, it seems the bias is now to the upside. It looks like "wall of worry" time again.




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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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