Follow up on a couple of ideas

In addition to BKI and ROC from last week, readers might want to take a look at Darling International symbol DAR.  DAR is in what most people would say is a pretty ugly business.  It operates in some segments that most of us don't want to think about.  Rendering, recycling, and recovery for the food services industry.  Rendering accounts for about 75% of the sales and recovery the rest.  The fundamentals of the stock look pretty good while the technical's look higher.  DAR has a market cap of about 1.7 billion, is trading at about $15.20 a share, does not pay a dividend, has grown revenue at about 14.3% per year over the last ten years and has averaged a net profit margin of almost 5.0% over this same time frame.  With a  beta of around 1.76 it is not for the faint of heart but, it could produce a decent return.  Buy the stock in this price range wait for an up-tick in the price and look to sell a June or July call contract against it.   Now here is a stock that has a great deal of upward price momentum  Ariad Pharmaceutical ticker ARIA.  This is a bio tech company that must have some good news in the pipeline.  First, some facts on ARIA.  They do not make money.  They do have what appears to be some good news on drug therapy for soft tissue cancers.  The stock has gone from the $6.00 per share range to the low 9's.  There are some  announcement's on these various therapies coming out in late June.  If current market action in this stock is any indication it looks like the news will be good.  Even with about 11% short interest of the daily float ARIA has managed to go up.  Here is a decent way to play the June FDA/Ariad announcement buy a June 10 for about .40c and sell the June 11.00 for about .15c.  As long as ARIA gets and stays above 10.25 you are in the money.

Correlation.... what's an investor to do?

"The only thing that goes up in a bear market is correlation".  Wiser words have never been spoken.     During this last market melt down, that was the result of the financial crisis, it was pretty darn hard to find any investment that was not headed south.  Traditional asset classes that in the past several years had performed quite differently, suddenly became married and turned downward.  The decline may have been at different rates, but they all went down.  Today, it looks like all asset classes are again correlated.  Only this time in the opposite direction.  If you look at the TLT (the 20+ year treasury index) you see a bit of the dreaded double top back in the late summer of last year.  Then that index started a downward trend, hit a low in February of 2011 (so far) and has started moving up in price.  (Don't forget if it is moving up in price then yields on similar treasuries are getting lower.)  While this drama has been  playing out in the debt markets the stock market has continued its climb upward, closing Friday at over 12,700.   This thing is getting pretty close to its pre-financial crisis levels and it is getting there without that much help from the financial services or bank stock sectors.  As the crisis was just getting started Citigroup was in the 50's,  Bank of America was in the high 40's, and there was even a Merrill Lynch.  Think for a second about Bank of America....the stock was in the high 40's before it acquired Merrill Lynch and now after the acquisition the price is in the low teens.  Can you imagine what that loan portfolio must really look like?   But, Merrill probably brought some crap to the table too (sold to them by Goldman no doubt).   Sorry for the rant.  My point, keep a sharp eye on the asset classes you are invested in.  Either the economy is slow enough that even the slightest upward movement in interest rates will put us back into recession.  Or, things are picking up enough that this upward trek in the stock market is the pre cursor to an economy that is set to take off.   Now if that is the case why are long treasury bonds yielding so little?   Maybe it is part two of the Greenspan years.  Keep those interest rates low no matter what.  After all it only hurts the saver, and in America there aren't that many of them.

A couple of small cap stocks worthy of attention

Today a client gave me a call and wanted to know why the mutual fund she just purchased  2 weeks ago is down about 2.5%.  I explained to her that the fund had a front end load of 3% and she should at least give the thing a chance to pay a dividend before she condemns it.  It seems that the 3 minute holding period, I mentioned the other day, has invaded the brain of the average investor.  

I posed the question..."Can an individual make money with the perspective of a long term hold?"


My answer is YES!  Here are a  couple of smaller cap stocks that I think are worthy of attention: 


1.  Buckeye Technologies  (BKI) 
BKI has a market capitalization of about 1.0 billion and trades on the NYSE.  The yearly price range of the stock has been between $9.32 and $28.50, it pays a very nominal dividend of .20c per share per year and has a forward PE of about 9.5.  Fundamentally the stock looks pretty strong as shown by year over year revenue growth of almost 14% and a net profit margin of 8%.  Debt makes up only about 28% of capitalization so interest funding is very solid.  Technically, the up momentum has slowed just a smidge these past few days (probably because the company is about to report first quarter earnings which are scheduled to show up on the 28th of April).  In the past 6 quarters BKI has beaten the street estimates 4 times and no doubt these positive earnings surprises have carried the stock up.  If BKI can hold, and move up a little, it will give you a great opportunity to sell calls against your position which will help on the total return front.  After the earnings announcement, I'll address the call strategy. 


2.  Rockwood Holdings (ROC) 
ROC is about a 3.5 billion dollar company that is also listed on the NYSE.  At $48.50 per share it is pretty close to its yearly high of just under $52.00.  The earnings momentum on ROC has been great as the company has beaten street estimates 10 of the last 12 quarters.  ROC is a decent size player in the lithium market (can you say batteries?) as well as other speciality chemicals.  Like BKI, ROC has a decent beta and with just a bit of an uptick will provide a great chance to sell calls against your position.


Disclaimer: The opinions provided herein are intended to inform. They come with no warranty of any kind. If you should choose to interpret this information as investment advice, you do so at your own risk.

Investor vs. Trader? Can the Average Joe make money in today's market?

How many financial planners or brokers out there talk to their clients about the need to take a long term perspective on the markets?  The investment professional researches a company's financial reports, reviews market trends and recommends a "buy".  The Average Joe makes an investment in the company based upon this information. 
There is a study I recently came across that deals with the NYSE's pending merger that follows the volume of trading in the exchange.  It appears that 70% of the daily volume of the NYSE is held for around 3 minutes.  A few years back the Big Board did 2.5-3.0 billion shares a day in volume.  Now the volume is about 1/3 of that level; and roughly 70% of this number is only held for 3 minutes.   No doubt the big hedge funds and high frequency traders are the main drivers of this phenomenon and are affecting the market place.  Are these high tech gamers affecting volume?  Yes.  Are they affecting value?  Probably.  Is that bad?  Not necessarily.  Value/stock price can be improved with attention.


I believe in they system.  I have to.  I'm a broker.  Does the US economy need to believe in the system...absolutely.

Can the Average Joe make money in the stock market if your philosphy is to be a long term investor?  I think you still can.  Check back tomorrow...I'll have some suggestions for you.