Monday, February 20, 2006

Still Searching

The market is open for one less day this week - closed for President's day. Generally, a shorter trading week indicates a lull to robust upcoming trading week since 5 days money will become 4 - depending on the market's mood.

CBI is up 10% from last week's recommendation, while XMSR is down 12% after it and SIRI announced a wider lose. I say buy more XM - it has been over sold and you can make an easy killing. The competition is just so well defined that it is too tempting to ignore this buying opportunity. Remember that the objective of a business enterprise is to make money and kill competition- XMSR is doing a better job at it than SIRI.

Google (GOOG) is back but I think Yahoo!! ( YHOO ) has a better valuation and lower expectation hence a better upside. Imagine GOOG at 360 as 36 dollars, YHOO is 31 + . While GOOG can easily get to 430, I see YHOO getting to 42. There is a difference between 11 up and 7 up- Go for YHOO. YHOO is GOOG most formidable enemy yet GOOG is arrogantly focused on Microsoft - bad business buddy, no one incurs the wrath of Mr. "Softie" and gets away with it. Stay posted

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.
***Click HERE if you wonder about how much money you can make from high yield dividend stocks by just doing regular dividend re-investing.

Thursday, February 02, 2006

Stake Your Claim

Picking stocks is very exciting, picking the wrong ones can be hypertensive. Believe me, a sudden drop of 20% in your stock pick can cause you myriad health problems. Ask those that had investments in Worldcom or Enron- life was hell. In this short piece my aim is to help us pick our 5 stock- which I want to call the Beginner's Portfolio. There are two rules in stock picking that you need to know. The rules are simple: Know the company. The second rule is : Thou shall not forget the first rule. This rule allows you to avoid picking the dogs of the show on one hand eg. a DRL or GM or Ford, but also prevents you from selling dirt cheap a damaged stock eg. AIG. If you know a company and how it makes it money by doing your research, then you will not buy and sell at rabid market movements. You will allow dollar cost averaging and dividend yield work in your favor all the way. Above all, you will know when to sell.

For any beginner, there are two stocks that should make your list automatically. The first stock is your bank. Your local bank will make you heck lot of money. There are few banks out there that don't make money- ever wondered why the financial sector makes up over 20% of the S & P 500? Ever wondered why they don't lose money? Heck! You keep money with them. So if your bank is Bank of America buy BAC, if yours is Citi buy C, if yours is JP Morgan buy JPM and if you are sitting on a great mowback with Buffet buy Wells Fargo. The second stock you want to own is either your favorite retailer e.g. Walmart, Target, Kroger etc. or your uitility e.g. TXU Energy, Time Warner, Excelon - which are by the way great investments with commonly comfortable yields.

After choosing these two stocks, you still owe me three more. Any balanced portfolio must have a small cap stock and an international stock. Small cap stocks are historically known to outperform the larger market simply because that is where you find growth, but like international they are volatile. The world is a global village and if you dont want to be punished for living and investing in a mature market you need some ChinoIndia plays. I will never advice you to go out there and buy just one stock. Instead, buy an ETF. ETFs are great ways to play the market- in these past yeat many of them just seem to defy the law of gravity. Simply put, Exchange Traded Funds are mutual funds that you can trade on the market like stocks- most of them have dividend yields that commonly pay off the expense ratio and some change! ETFs are best of both worlds- in one ETF you are effectively insulated from the shock of owning stocks while being diversified same time and capturing the gains of one particular sector. Small cap ETFs include PBW or DSG or PWT - you can get some picks here. Foreign play is best for emerging markets like Brazil, Mexico, China, India or Japan. You have to make a choice - though I like the exposure of Australia or Honk Kong ETFs like EWH and EWA since they trade stocks in the whole wide region from Taiwan to South Korea to even the booming malaysian or indonesian economy.

Now our stocks are four.: Your Bank, Your Retailer or utility, Small Cap ETF, International ETF. The last breed of stock you should own is a speculative play. Before you choose this breed, you will need to do your research. This is your opportunity to either break the bank or lose money. Either way you cannot have more than 20% of your net portfolio in this baby even though making money over the short term will tempt you. Your speculative stock must meet certain criteria of future worthiness, for more on this go here. In this day and age it can be a biotech stock, or a nano tech play. You know something of the future. But the key is knowing when to buy or sell. With this sort of portfolio you can reach for the sky and smile to the bank. Take care- pick carefully, but act swiftly because the most money is lost when you dont act on your instincts.