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Sunday, May 9, 2010
ALU heading back to $1.25 again???
ALU is again on shaky grounds and I am concerned that ALU may be heading back to $1-$1.25 range. It broke down support of $2.58 last week. It will find another support at $2.0 before it starts its downward draft to $1.09 again. I’ll be watching $2 support carefully, if it falls through the cracks, that won’t be good news to longs.
Looking historically, since 2000, ALU has mostly been in downward trend. 2004 run up gave some hopes to investors but that was it. Since then stock has been mired by Management problems and Economy. And it touched all time low of $1.09 in March 2009 with rest of market. Run-up from March to Oct was impressive when stock gave 5bagger.
In last couple of years ALU won several major contracts including NTT DOCOMO, China Mobile & several others. But stock has done worse and worse, making several investors wonder – what is going on?
When company announced its earnings recently this Quarter, stock plunged 11% in international markets. Economy and component shortages are to be blamed for missing revenue expectations & wider losses.
Company has several deals in back-pocket to be not overly concerned over growth. But company needs to execute better to meet its growing demand, management was overly concerned over economics to squeeze operations. Recovery in economy has took whole telecom industry by surprise and ALU is not the only one falling short to meet customers demand. ALU is getting punished because it could not improve margins in low interest rate environments. Management is not managing company resources everywhere. Company has ample cash, but it makes me worried if management is not executing well. ALU balance sheets are too bad for investors to digest that company should enjoy any good price premiums.
Overall I think $1.25 is remote possibility, but I won't rule out fall to $2.0 this summer where it could be good accumulation price
Saturday, May 8, 2010
GLD Analysis $119.5 resistance
GLD has remain range bound for a while, and good news is that momentum is building very nicely. GLD is heading towards resistance near its all time high of $119.54 where it will have to breakout to head towards $132-$148 range.
Past 3 years charts shows that it takes several tries for GLD to break out. So I expect the resistance to be non-trivial. I’d wait for breakout before opening new position in GLD. For holders of GLD, it might be prudent to put a moving stop order in case GLD doesn’t break out.
AMD Stock Analysis showing $5 to $18 range
Lots of growth investors seem to be cursing wall-street for valuing AMD ~1.0X P/S with 5.8B in revenues and good results lately. If everything were good with AMD, stock should be valued at $13-$18. But I think it could fall to $5 or even lower as I’d describe in the article today. But let me first explain you what’s going behind the numbers.
First of all I’d like to give credit to AMD management for cleaning up their act!! AMD has become an interesting story and lots of people think its undervalued. How can you blame them? If you look at common knowledge measures, it does look under valued.
Several investors have been severely burned by AMD fall from $40 in 2006 to $2 in Feb 2009. In 2009, company was struggling with huge debt hanging off the balance sheet & measly cash left to sustain life. Since then after management changes, AMD has been cleaning its books including Global foundries deconsolidation. Last November company hit a jackpot with huge payoff from Intel lawsuit. Before GF deconsolidation there was 9.3Billion liabilities hanging off the chest of AMD. AMD has cleaned books to reduce liabilities to 4.4B.
Today AMD still has $2.5B debt hanging in books. It doesn’t have sufficient cash/ current assets to pay off all the debt immediately. But management has been able to convince wall-street & Wall-street has handsomely rewarded stock since then ($2-$8.50 = 325% runup!). The remaining debt has hampered the growth opportunities a bit for AMD. Management has been carefully watching costs and profitability. Results show in Q1 AMD grew slower than rest of Computation/ Graphics industry. Both Intel & Nvidia revenues grew much more in Q1 than AMD compared to Q4 last year (so called seasonal slow down). I think AMD must have put the Intel 1.25B jackpot to payoff some of debt.
Here are some comparative numbers I wanted readers to consider:
VALUATION MEASURES | AMD | INTC | Nvidia |
Market Cap (intraday)5: | 5.92B | 117.82B | 7.91B |
Price/Sales (ttm): | 1.01 | 3.11 | 2.42 |
Price/Book (mrq): | 7.34 | 2.77 | 2.99 |
Profitability | |||
Profit Margin (ttm): | 18.16% | 16.15% | -2.04% |
Operating Margin (ttm): | -1.60% | 29.69% | -5.04% |
Management Effectiveness | |||
Revenue (ttm): | 5.80B | 38.28B | 3.33B |
Qtrly Revenue Growth (yoy): | 33.70% | 44.10% | 104.20% |
Gross Profit (ttm): | 2.27B | 19.56B | 1.18B |
% Gross Profit/ revenue | 39.1% | 195.7% | 282.2% |
Total Cash (mrq): | 1.93B | 16.34B | 1.73B |
Total Debt (mrq): | 2.76B | 2.38B | 24.45M |
Current Ratio (mrq): | 2.03 | 2.66 | 3.16 |
Given high P/B ratio, AMD will remain sensitive to market economy gyrations, which could bring stock down to $5 if stock gets attention of Short side Sellers. If P/B is brought to levels of Intel/ Nvidia, stock could be cut in half from here. Which is 45-60% drop. Today stock is valued at 7X Book value which is much higher than industry. Higher valuation shows that street is convinced that management can fix the balance sheets more this year.
Company operations are generating enough money to pay off current debts. But it could take company a long time to pay off debts. Its not growing fast enough to convince the wall-street otherwise. Everybody is in wait & watch mode. Company is not growing as much as competition (Nvidia, Intel), Company is higher debts and gross margins are very poor. Management should look into suing Intel again to raise funds more quickly?? After all they were very successful last time J
All in all I consider AMD as a speculative bet, with lower downside potential and huge upside. Its great company to watch. In next quarters keep an eye on balance sheets in addition to revenue/ margin growths. If company executes well, stock could go $13-$18, but if they flounder, $5 will be in plates. Momentum charting also shows that stock could fall at $5, so I won’t rule out completely for this summer if “sell in may & go away” plays out.
Other day I published charts for $5 targets : http://0c18bf18.linkbucks.com
Friday, May 7, 2010
Disney - The great bull run not over yet.... journey from $32.50 to $44
The market turmoil on 5/6/10 sent DIS stock tumbling 12% intraday lows to $31.00, that was 17% price correction from local peak of $37.98. It was a great buying opportunity today if Markets will let you hold on to any lucky buys you did during turmoil today.
Disney has been trading close to 20% above its 200 day moving average. With recent turmoil, I expect DISNEY to consolidate near $32.50 during summer time & should hit $44 this year.
Disney has been trading close to 20% above its 200 day moving average. With recent turmoil, I expect DISNEY to consolidate near $32.50 during summer time & should hit $44 this year.
Fundamentals look good for DIS, only watchout I'd have is that DIS must improve its operating margins.
Speculations around Dow 1000 intraday crash!
There are lots of speculations surfacing around what caused Dow 1000 point intraday loss.
A computerized selloff possibly caused by a simple typographical error triggered one of the most turbulent days in Wall Street history Thursday and sent the Dow Jones industrials to a loss of almost 1,000 points, nearly a tenth of their value, in less than half an hour. It was the biggest drop ever during a trading day.
No one was sure what happened, other than automated orders were activated by erroneous trades. May be a Fat Fingered Trader! Duh!! One possibilility being investigated was that a trader accidentally placed an order to sell $16 billion, instead of $16 million, worth of futures, and that was enough to trigger sell orders across the market.
The Dow recovered two-thirds of the loss before the closing bell, but that was still the biggest point loss since February of last year. The lightning-fast plummet temporarily knocked normally stable stocks such as Procter & Gamble to a tiny fraction of their former value and sent chills down investors' spines.
No one was taking blame, either. The New York Stock Exchange said there was no problem with the Big Board's systems, and all the markets were on a conference call with the Securities and Exchange Commission.
Nasdaq issued a statement two hours after the market closed saying it was canceling trades that were executed between 2:40 p.m. and 3 p.m. that it called clearly erroneous. It did not, however, mention a cause of the plunge.
The NYSE also said it would cancel some trades on its electronic platform.
The SEC issued a statement saying regulators are reviewing what happened and "working with the exchanges to take appropriate steps to protect investors."
Whatever started the selloff, automated computer trading intensified the losses. The selling only led to more selling as prices plummeted and traders tried to limit their losses.
During researching on story I learned about GPGPUs allowing sophisticated financial analytics programs. Which sophisticated traders write computerized algorithms to trade on live data making split second decisions. Here is a link to site explaining GPGPUs:
Other speculations surfaced were around Greece situation getting worse, Dollar loosing ground to Yen. One noticeable move was in bond markets TLT (iShares Lehman 20+ Year Treas.Bond ETF) crossing $100, where intraday 10 year bond yields fell to 3.25% before recovering.
It was a massive goof up today and SEC must get answers fast!
A computerized selloff possibly caused by a simple typographical error triggered one of the most turbulent days in Wall Street history Thursday and sent the Dow Jones industrials to a loss of almost 1,000 points, nearly a tenth of their value, in less than half an hour. It was the biggest drop ever during a trading day.
No one was sure what happened, other than automated orders were activated by erroneous trades. May be a Fat Fingered Trader! Duh!! One possibilility being investigated was that a trader accidentally placed an order to sell $16 billion, instead of $16 million, worth of futures, and that was enough to trigger sell orders across the market.
The Dow recovered two-thirds of the loss before the closing bell, but that was still the biggest point loss since February of last year. The lightning-fast plummet temporarily knocked normally stable stocks such as Procter & Gamble to a tiny fraction of their former value and sent chills down investors' spines.
No one was taking blame, either. The New York Stock Exchange said there was no problem with the Big Board's systems, and all the markets were on a conference call with the Securities and Exchange Commission.
Nasdaq issued a statement two hours after the market closed saying it was canceling trades that were executed between 2:40 p.m. and 3 p.m. that it called clearly erroneous. It did not, however, mention a cause of the plunge.
The NYSE also said it would cancel some trades on its electronic platform.
The SEC issued a statement saying regulators are reviewing what happened and "working with the exchanges to take appropriate steps to protect investors."
Whatever started the selloff, automated computer trading intensified the losses. The selling only led to more selling as prices plummeted and traders tried to limit their losses.
During researching on story I learned about GPGPUs allowing sophisticated financial analytics programs. Which sophisticated traders write computerized algorithms to trade on live data making split second decisions. Here is a link to site explaining GPGPUs:
Other speculations surfaced were around Greece situation getting worse, Dollar loosing ground to Yen. One noticeable move was in bond markets TLT (iShares Lehman 20+ Year Treas.Bond ETF) crossing $100, where intraday 10 year bond yields fell to 3.25% before recovering.
It was a massive goof up today and SEC must get answers fast!
Thursday, May 6, 2010
AMD Heading to $5 but a great buy!!
http://78c09e81.linkbucks.comAMD is heading towards $5 but is a great buy. Here is how I analyze this stock:
Charts:
Charts show that AMD is going to face resistance at 200day moving average. But if you notice it left gap around $5 on Nov 12, 2009 after $500M settlement with Intel. I think AMD will fill this gap if market remains negative this summer.
Valuations:
Valuations look great at moment. With Current PE at ONLY 7.5 with forward looking at 13.5, P/S ratio hovering around 1.0, its a cheap cheap stock.
My Plan: I'll start buying AMD if it falls below $6.
Charts:
Charts show that AMD is going to face resistance at 200day moving average. But if you notice it left gap around $5 on Nov 12, 2009 after $500M settlement with Intel. I think AMD will fill this gap if market remains negative this summer.
Valuations:
Valuations look great at moment. With Current PE at ONLY 7.5 with forward looking at 13.5, P/S ratio hovering around 1.0, its a cheap cheap stock.
My Plan: I'll start buying AMD if it falls below $6.
Returns are small When VIX goes up
When VIX goes up, returns tend to go down (see this article). * Back in March 2009, it was observed The returns on the S&P 500 and the returns on VIX (percentage changes in VIX) were correlated at -67%. The returns on EFA and EEM were correlated to VIX at -43% and -52% respectively. These are high negative correlations and show the danger signal of a rise in VIX.
* During the volatility spike, a very profitable strategy was to sell call options,
Following chart shows recent spike in volatility
TLT - What a great Breakout!!
I believe its heading to $97 and will face resistance there.
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