Saturday, February 11, 2006

Be a Contrarian

Three things can work for a great investor playing the stock market- these are : spotting trends , spotting momentum, knowing the fundamentals and being a contrarian. Most of the stock recommendation on this blog have been based on strong fundamentals : CVS, UNH and HSY. While CVS and UNH have since moved up 3 and 2 points respectively since they were recommended (especially for those who caught UNH at 56 on Tuesday - that was a sale!), HSY is still a little bit sluggish but in the long run (as always is fundamentals) , this stock will definitely outperform. Today, I have two stock recommendations based on being a contrarian. The momentum chase is easy to play since you are basically moving with the crowd, but you also can get hurt- e.g. you bought GOOG at 560 (you must feel like a pig now) or APPL at 76 (waoh- you suck!). However, by far the hardest is being a contrarian.

Being a contrarian involves going against the grain. It involves being able to predict that the market is either under valuing a stock or have sold off a stock too much to the downside and you feel it is now on a garage sale! Garage sale goes on everyday on wall street you know- like when BHP was selling for 21 dollars last year May, today it is 35 or BRCM at 29 in April it is near 70 today. last year, these stocks were on sale! But it is hard because you will going all out against the smartest guys in wall street- these guys get paid to read the market and you are betting that they are wrong? You must be out of your mind, you think. No. In wall street, there is what we all know as the "bandwagon" effect. Everybody buys and sells thesamething- since you are not everybody, then you better be picking up these two stocks that I think are on sale this week.

- XM Satellite Radio (XMSR): Can there be a better story than this? XM is one of two satellite radio offerings in continental united states. It's only competitor, Sirius (SIRI) is no match in my opinion. Far from the fact that XM have more subscribers and more connects in the auto world - last week XM got a good deal. In fact, may I say the best deal! Oprah for 50 million dollars? Sirius paid tons to my man Howard Stern- Stern deserves every worth of his money, but Oprah deserves more! Okay, Oprah brings in the women, Stern bring in the nasty men! Who makes the decision on which car to buy mostly in houses across America? Women! So SIRI is screwed and XM is a buy! When you put these stocks head to head in terms of valuation you will see Wall street have it all wrong. SIRI even with lower number of subscribers have more market cap than XMSR (7.6 to 5.6 Billion). Meaning XMSR is cheaper! XMSR revenue quadruples SIRI and may be it is not growing twice as fast, but SIRI is just the Howard effect that will soon be erased by my girl Oprah! XMSR is set to breakeven quicker than SIRI and it is far more profitable with a higher operating margin that quadruples SIRI. Its debt management is superior to SIRI but it has more shorts as a percentage of float, meaning a little amount of short squeeze will send you sweet cash! The risk in being in a single digit stock is also incredible- which makes a double digit valuation for XMSR a better risk than SIRI trading as a five dollar stock that can get shot off the mutual fund list if it deterirorates below the 2-3 dollar mark. Simply put, XMSR will make it to 30 dollars in a minute- I might be wrong but not for too long - it is the best of breed not Sirius which just happens to have a more colorful and media savvy CEO that the likes of Cramer and the mutual fund heads happen to like- who cares? Just make some money.

-Chicago Bridge and Iron (CBI): This company is not located in Chicago and it has nothing to do with Bridge and Irons. In fact, it is a Netherlands based company, that is in the EPC (Engineering, Procurement and Construction) business. This company lost about a third of its valuation last week. The problem was it cancelled guidance and fired management. It will be rash to call a bottom now but I will say put this on the watch list. This company has a compelling valuation story- it is mainly in the oil and gas industry (offshore and onshore, gas) support which is in boom. If big oil doesn't want to get taxed then they have to look for those hard oil and the way to do it is to unload some cash to CBI! CBI is an international firm and is definitely hard to keep up with it, but it is worth way more than $21 while spotting a 31% earnings growth? And a debt management that Buffet will even envy! While some very smart guys have started pumelling the company for bad book keeping, I sincerely think it is over earned. See, DRL another fallen angel like this have made me more money than any other stock on my mock and real life portfolio (click right bar) than any other but one. The only one that made more money? FMD - another fallen angel that lost 50% of valuation into my hands. The easiest way to make money is to predict bottoms at the right time and run with it- because, you can hold on to it for the longer run until it levels off at former level where the old pigs were slaughtered and then you can free yourself. It doesn't get better than that. You ask JUBAK

**Last week predictions of a turnaround in the managed health care sector was correct. Aetna reports uplifted the whole sector . This week, I expect the NASDAQ to sizzle and that includes the new age tech plays like STX as well as the biotech plays. My mock portfolio was resized to hold my Dec-Jan gains and get ready for the ides of March/April as well as sell laggards like MSFT and MRH. MRH is a good buy now but I am down 17% on it, cos I predicted the bottom too early but anyone picking up the stock now is buying it for a cheap. I will replace this stock with AIG to flatten out in the sector. See you again next week.
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1 comment:

Rami Torbay said...

You said it all just like it is supposed to be said.