Feraldo's blog

KSW to be acquired

2012-09-10T09:18:00.001-04:00

Looks as if I am not the only one to see a lot of value in KSW. The company is being acquired for $5 a share, about a 25% premium. I think this price is a steal. Kudos to the acquiring firm and thank you KSW for all the profitable trades over the years!

A strong Market breeds strong stocks

2012-09-06T14:13:00.002-04:00

Some hot stocks today, up on high relative volume:

RFIL SNFCA BDSI APP STL POPE CRWS KSW PEBK BTC PAR CBM REED BSRR CFNL
Click here for these stocks at finviz.com

One will note CRWS BDSI APP KSW have all gotten some mention here in the past few weeks. So far all my highlighted stocks on this blog have done real well. Today I have bought some KSW at $4 and look to accumulate some more. I had a bid in on CRWS for a while at $6 but pulled it and put a bid in on KSW instead. I still hold OFI and CLBH.

The general market as measured by the S&P 500 is in a giant base with handle, with the breakout starting this week and confirmed if we close above 1420 today on the S&P 500. Here is a link to how I would view the breakout.
http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=0&mn=9&dy=0&id=p96456529413

A very important factor from my perspective to confirm a possible longer term bull or good rally is the strength of small cap stocks versus large cap stocks. I measure this using the ratio of the Russell 2000 to the S&P 500 as charted here
http://stockcharts.com/h-sc/ui?s=$RUT:$SPX&p=D&yr=0&mn=9&dy=0&id=p38619738156
As you can see the Russell 2000 has been outperforming the S&P 500 since the beginning of August. This is great news as investors are becoming more speculative and this is also great news for us small cap investors. We will start to see many many breakouts and many big moves in the coming weeks. Unless, of course, there is some really bad news in the works.

Speaking of news, the unemployment news out this week has been great. This could fuel a rally in and of itself.

Happy investing all.

KSW high volume

2012-09-05T12:35:00.001-04:00

For the second day in a row KSW has high relative volume as it attempts a breakout. I highlighted the excellent fundamentals of the company on August 29th. This company should be near the top of any small cap investor's list.

CRWS breakout?

2012-09-05T12:11:00.001-04:00

This stock is still trying a breakout. There is likely going to be plenty of resistance all the way through $6. However, its been in the base for a while so a breakout could produce big results.

BDSI breaking out today

2012-09-04T14:33:00.004-04:00

BDSI is breaking out today. Click here for a stockcharts.com chart.

Charts of interest 9/4

2012-09-04T10:40:00.002-04:00

BDSI has formed a nice cup like formation
BLMN is a recent IPO that could be interesting above $13.50
CRWS might be trying a breakout today. Volume is high and its at the high point of the consolidation
KSW above $4 would be real interesting. A 10k block has gone through today.
NGNM forming a flag
OFI is in the handle. Company exploring strategic alternatives or something like that

small bank/financial stocks of interest
BKSC chart shaping up, but needs some days of high relative volume or clear price movement
BOCH has moved off the bottom. $4.40 is a pivot point
BSRR above $11 on volume would make it interesting
BTC in the handle with $2.50 as a pivot point
CFNL an up move on over 100k volume would be interesting
COBZ in the handle of a large base
CSFL in the handle of a base
CVLY a stair stepper that had an interesting volume day Friday
FCAL in a rather flat base
FXCB started a breakout Friday.
HAFC has made a flag.
MBTF needs a couple of days of volume moving out of the consolidation to be interesting.
MFNC extremely low volume stock. Formed a nice flag after a big move.
MNRK has been consolidating nicely.
MFSF above $11.50 on high relative volume would make this interesting
NASB a narrowing wedge
OABC has formed a base
OLBK in the handle
PEBK above $9.50 would get interesting
PFBI has a nice flag going. Got some good volume last week
PULB in the handle. A move on high relative volume above $7.90 would make it interesting
STL has formed a very long base. A close above $10 would be interesting
STSA in a handle
TPGI a REIT (I think) in the handle
UBOH a nice long consolidation
UCFC formed a nice base
WSBF has formed a flag after a breakout

For finviz charts of all those mentioned, click here

APP American Apparel - news out

2012-08-30T09:20:00.000-04:00

APP had a wonderful chart going into today. This morning the company reported a 19% increase in online sales. I have yet to read the full article, so I don't know all the details, just saw the headline. However, the stocks is up about 7% in premarket trading. Could be a big mover today.

KSW - a small HVAC firm in New York

2012-08-29T09:50:00.002-04:00

KSW, Inc. has been a long time favorite of mine in the small cap area. I first discovered this unique company many years ago when it was still on the bulletin board exchange. What I like about the company is the consistently strong balance sheet, an often large back log covering three or more quarters worth of revenue, and the company consistently turns a profit.

KSW, for a number of years, has had a good clean balance sheet, with plenty of liquidity and hardly any debts. Currently the one long term liability is a mortgage for an amount but a fraction of cash on hand. The current ratio (current assets to current liabilities) is just under 2, meaning the company has plenty of liquidity to cover business needs. Cash and marketable securities add up to $2.68 per share. The company trades at less than 1.5 times cash. The strong balance sheet has been consistent over the time frame I have followed the company.

The second highlight of KSW is a consistent disclosure of the backlog outstanding in each quarterly report. The company has done an excellent job of keeping investors updated on current backlog and describing the work done under the contracts as they receive them. On the company website is a list of current projects. This leaves investors with less uncertainty. From the most recent quarterly release "The Company's backlog as of June 30, 2012 was approximately $74,600,000, which does not include a recently awarded contract for a 33-story residential building located on Manhattan's West Side, valued at approximately $10,000,000." This compares to second quarter revenue around $25 million, clearly illustrating the company has a reasonable amount of bookings to perform work on over the next few quarters.

Lastly, the company has done a great job of consistently turning a profit, even in quarters with lackluster sales. This is a result of low overhead and almost all of their income statement being wrapped up in the projects themselves. Here are the quarterly results for the last six quarters:

Year over year revenue comparisons in millions
	current	previous
1st quarter 2011	$ 16.55	$ 13.46	23%
2nd quarter 2011	$ 17.43	$ 24.44	-29%
3rd quarter 2011	$ 16.17	$ 21.12	-23%
4th quarter 2011	$ 19.13	$ 17.28	11%
1st quarter 2012	$ 21.46	$ 16.55	30%
2nd quarter 2012	$ 25.34	$ 17.43	45%

Year over year EPS comparisons
	current	previous
1st quarter 2011	$ 0.05	$ 0.01	400%
2nd quarter 2011	$ 0.07	$ 0.12	-42%
3rd quarter 2011	$ 0.03	$ 0.11	-73%
4th quarter 2011	$ 0.09	$ 0.07	29%
1st quarter 2012	$ 0.11	$ 0.05	120%
2nd quarter 2012	$ 0.09	$ 0.07	29%

As you can see, the company does not exactly have consistent year over year earnings and sales growth, but even when sales declined year over year the company still turned a profit. This has been a theme for the vast majority of the time I have followed the company. After the financial problems of the US in 2008-2009 the company did struggle to turn profit as money for large HVAC contracts dried up. However, the rest of my experience watching KSW leads me to believe absent extenuating circumstances, the company will turn a profit.

Currently KSW trades at a PE around 12. Not too high, not real low. The company has a very strong balance sheet and a well document and high backlog number. From a fundamentals perspective, the company looks pretty cheap. From a technical perspective, things could get interesting if it goes above $4.

I currently own no shares but if I had free cash I would consider buying some.

Happy investing all!

CLBH Carolina Bank Holdings

2012-08-28T18:28:00.000-04:00

This entry will highlight the financial strength of Carolina Bank Holdings (CLBH) and make a case for further advancement.

We can start with the PE, or price to earnings ratio. Although many will contend PE ratio is not necessarily a good indicator of anything, I do think when PE ratios are in the single digits on a company with earnings growth, there is a justifiable reason for advancement. In good times when banks are profitable, an extended bank with a reasonable PE may reach 12-15 times earnings.

CLBH has a trailing twelve month earnings per share number of $1.22.

		PE
Recent pivot point	$ 6.07	5.0
Current price	$ 7.47	6.1
Reasonable PE of 10	$ 12.20	10.0
Extended PE of 15	$ 18.30	15.0

One can see at current prices CLBH has a PE of just 6. When the stock began the recent breakout, clearing the August 2nd high of $6.07, the PE was a mere 5. To try and project a reasonable evaluation of the stock at 10 times earnings would put the stock up around 65% from current prices, or around $12.20 a share. If one were to think about an extended run where the stock may reach full value, if not over valued, a PE of 15 would put the stock two and half times its value at today's close. To see a valuation of 10 times or even 15 times earnings is not a stretch, one need only look at the industry group, Mid Atlantic Banks, as composed by Yahoo. Here one will see CLBH is at the low end of the range, actually one of the cheapest banks when using PE as a valuation.

Of course PE isn't everything. The bank could be heavily in debt and about to go under, but still churning a profit. So let's look at the balance sheet. The company has equity of $50.14 million, or $14.80 per share. This means CLBH is trading at roughly half of its equity per share. Compare this to some more well known banks, such as Fifth Third (FITB), which is currently trading at twice equity.

There are many ratios a bank uses, but some of the more important ones were highlighted in the company's recent earnings release:

"Carolina Bank, the subsidiary of Carolina Bank Holdings, Inc., continued to maintain 'Well Capitalized' status, the highest regulatory capital measure. Capital ratios at June 30, 2012 for Carolina Bank improved to 8.79% for Tier 1 leverage, 11.12% for Tier 1 risk-based, and 14.12% for total risk-based."
and
"Non-performing loans to total loans held for investment decreased to 4.74% at June 30, 2012 from 5.95% at June 30, 2011. Non-performing assets to total assets decreased to 4.16% at June 30, 2012 from 6.26% at June 30, 2011."

Clearly from a regulatory perspective the company exceeds the government standards. From a non performing assets/loans perspective, the company is showing great improvement on a year over year basis, so much improvement the company chose not to record any provisions for loan loses in the most recent quarter.
One can also look at things like, return on equity. This essentially is a measure of how well a company is using its equity to produce earnings. Again one can look to Yahoo's table above and sort it bey ROE. CLBH is one of the better performers in the group.

Lastly I want to look at earnings growth on a year over year basis.

	Earnings per share
4th quarter 2010	$ 0.12	$ (0.53)
1st quarter 2011	$ 0.10	$ -
2nd quarter 2011	$ (0.11)	$ (0.54)
3rd quarter 2011	$ 0.16	$ (0.62)
4th quarter 2011	$ 0.21	$ 0.12
1st quarter 2012	$ 0.27	$ 0.10
2nd quarter 2012	$ 0.58	$ (0.11)

From this table one can see each of the last seven quarters the company has reported year on year earnings growth, concluding in record quarterly profits for the most recent quarter, the third such quarter of record quarterly profits in a row. Now one caveat on these very nice numbers ties in to the above mention where the company did not record any allowance for loan losses. Eventually, the company will have to start taking this charge once again and earnings will not sustain themselves at the high level of $0.58 per share, however the $0.20-$0.30 per share range seems to be a reasonable expectation if the company is recording a normal amount of provision for loan losses. On a yearly basis a reasonable expectation of the company's earnings is then around $1.00-$1.10 per share assuming no change in current business conditions. Still plenty of earnings to call this stock undervalued.

Clearly this bank is undervalued relative to its peers, undervalued relative to most stocks, and undervalued in my mind. The company's latest quarter featured quarterly profit over twice as high as any other quarter in the company's history. With such a low valuation relative to equity, earnings, the financial sector, and the market in general, I can only assume there is much upside potential in this company's stocks.

However, the stock had a very nice Monday this week, climbing over 15%. Will the stock advance from here, consolidate, pull back, or base, we shall see. From a fundamental perspective this bank only has an upside potential.

Disclosure: I purchased this stock at $6.03 per share before the recent move began. I do not have a particular idea of when or at what price I want to sell and adjust my own mental stops on a daily basis.

CEMI Chembio Diagnostics

2012-08-28T15:19:00.001-04:00

CEMI, a maker of a rapid test for HIV, syphilis, and canine leishmaniasis, has had a large 20k bid at $4.54 to $4.56 range. The 50 day average volume is just under 17,000 shares so this one bid represents a whole days worth of volume. Perhaps this $4.50-$4.55 range is a solid spot of support? The company itself is profitable and growing rapidly. Future profits could swell significantly if widespread use of the rapid HIV test becomes common or mandatory due to regulations.

PFBI

2012-08-28T14:24:00.002-04:00

PFBI a bank stock with a nice chart up on high relative volume.

Small bank stocks are hot!

2012-08-27T21:10:00.001-04:00

In the last six weeks or so I have noticed small bank stocks are pretty hot. I dove into some SEC filings and press releases.

I find many small banks are fundamentally sound and well undervalued. From a PE perspective there are many under 10. The balance sheets are as clean as I have seen them in the 18 years I have been studying balance sheets. I find now I can understand each line, versus five years ago the banks had so much extra gunk they themselves didn't always know what to make of their situations.

My theory here is after the financial collapse a few years back banks of all sizes were forced to clean up or go under. The banks which survived independently are therefore extremely healthy. Additionally, the banks which already had sound balance sheets were able to absorb some fairly interest rate spreads from the troubled banks or just coast along on their own strength.

Another phenomenon we have is the increasingly lower borrowing costs, resulting from stronger balance sheets. From about 2009-2011 what money small banks were able and willing to borrow was lent at a high interest rate. Now their borrowing costs are declining, enabling them to refinance existing debts, while extracting a larger spread on new loans.

Because of this, there is plenty of room for banks to expand their income base on the back of cheap interest rates, without falling into the trap if relying on fees generated to produce income. My contention is banks are at their best when they are generating healthy interest rate spreads, not on fees.

Over the next few days, if I choose to blog more, I will highlight a few of these small banks to help others see what I have been observing.

Thanks for reading.

8/27/12 watch list

2012-08-27T16:09:00.000-04:00

Might try this blogging thing again.

Stock charts of interest:

FRS post breakout formation
CSCD flag
CRWS high tight flag with a really long flag. Or a really long consolidation period. Either way
CECE post breakout formation/flag
REED organized pull back
TPL big base. This is a land trust
CBM flag
NGNM a high tight flag with a short flag
BDSI held the 50 dma formed a nice tight base
APP in a handle
AFFY base of sorts
OFI in a handle and exploring its strategic alternatives or some such
KSW small cap base building with interesting up volume last week
PAR long flat base

small bank stocks:
FCAL BOCH PULB MFSF SONA MBTF

Other interesting movers off watch list today:
NTE CLBH DWCH

All stocks above charted at finviz for quick browsing:
http://www.finviz.com/screener.ashx?v=211&t=FRS,CSCD,CRWS,CECE,REED,TPL,CBM,NGNM,BDSI,APP,AFFY,OFI,KSW,PAR,FCAL,BOCH,PULB,MFSF,SONA,MBTF,NTE,CLBH,DWCH

Some Charts for Tuesday 4-13-2010

2010-04-13T09:11:00.001-04:00

The alarm clock was not as effective as it needed to be today so I am a bit behind. I will just post some charts and a review of past top charts.

DLLR continues its cup with handle pattern

EVOL began a breakout yesterday

KNXA began a double bottom with handle breakout yesterday.

MRLN has set up a cup with handle pattern which may have started a breakout yesterday.

NEWS is a high tight flag, perhaps the closest true hight tight flag in the market.

TRGT is a very large flag which began a breakout a few weeks ago. On the daily, Thursday and Friday of last week were a pullback and what essentially amounts to a handle on this type of pattern.

Here is the performance of the past two weeks:

Ticker	One Week	Two Week	Highest Close	Result
3/30/10 Post
CLCT	15.0%	16.6%	16.8%	Breakout
CRIC	4.3%	-0.2%	4.8%	Breakout/Fallback
DLLR	1.9%	0.3%	1.9%	Still in pattern
KMGB	23.9%	20.6%	34.9%	Breakout
SRLS	-4.2%	4.3%	11.1%	Breakout
WINA	2.2%	7.9%	8.6%	Breakout
4/5/10 Post
CHOP	-2.6%		-0.6%	Still in pattern
DLLR	-1.6%		-0.7%	Still in pattern
GMK	-2.1%		-0.6%	Still in pattern
GTE	-4.1%		-1.1%	Fell back
KCI	-1.0%		-3.8%	Still in pattern
LION	34.0%		34.0%	Breakout
MEND	-5.7%		-1.5%	Failure
NWL	5.4%		5.4%	Breakout
OVTI	5.2%		8.5%	Breakout
SRLS	9.0%		15.7%	Breakout
VLCM	8.2%		8.2%	Breakout
WINA	5.6%		6.2%	Breakout
Average	5.19%	8.25%	8.21%
S&P 500	1.2%	2.0%	2.0%
Russell 2000	2.2%	3.2%	3.2%

All the above charts courtesy of stockcharts.com and I did the mark ups myself.

Disclosure: I have interests in the following stocks DGP CELH BRCO.ob ALIF.ob MFI OPXA.

Charts from my watch list for Tuesday 4/5/2010

2010-04-06T08:06:00.005-04:00

I'll start off with a review of the top charts from last week, today being one week, 4 trading days later.

S&P 500 +1.2%
Russell 2000 +2.3%

KMGB broke out and ran higher up 23.9%
CLCT broke out of it consolidation area up 15.0%
CRIC continues to trade above its down trend 4.1% higher

DLLR (+1.9%) SRLS (-2.8%) and WINA (+2.2%) are still in their handles and will again be featured charts.

Top Charts

China Gerui Advanced Materials Group (CHOP)
This company is a Chinese steel manufacturer. Fundamentally the company has a PE of 7, cash flow from operations for fiscal 2009 ended December 31st of $0.81 per share, current assets in excess of current liabilities of $1.18 per share, and no long-term debt. The company has been growing both sales and earnings.

The chart is a miniature cup with handle. Volume dried up on the left side of the cup and increased on the right side. The two down days in the handle had dried up volume and now as the stock climbs the right side of the handle the volume has picked up once again.

If I had time to finish, the following would also be marked up as top charts:
Finviz charts
CRIC DLLR GMK GTE KCI LION MEND NWL OVTI SRLS VLCM WINA

All the above charts courtesy of stockcharts.com and I did the mark ups myself.
Alas I have not the time to draw up every chart I like and to go into detail, so here are the others on my watch list of interest, by category.

Base with handle:

Finviz charts
BRS GTS IIVI JJSF JOBS LIZ PRE RSG STC TUP UGP

Double bottom (with or without handle):
Finviz charts
CEDU CHBT GPI LHCG MTSC

10 day simple moving average area interaction:
Finviz charts
HMA LL RCKY

20 day simple moving average area interaction:
Finviz charts
SMCI TRLG WMT

50 day simple moving average area interaction:
Finviz charts
JJSF

Flags or consolidating closes:
Finviz charts
ABII CRVL GXDX HVT NKTR NOIZ NUS OGXI ORCH PPCO PSMT TIVO

Other interesting patterns:
Finviz charts
BFR CSIQ CTRP DEER DEST FNDT LAVA MELI MGPI MSO OPNT TSL

Recent Breakouts (new category)
Finviz charts
BOFI CLCT DFZ HOG IRS JOEZ KMGB KWR OZM YUM

Disclosure: I have interests in the following stocks DGP CELH BRCO.ob ALIF.ob MFI. My interest in KMGB was closed out Thursday +$2.22. I am looking to buy something on Wednesday when the KMGB money frees up (T + 3 rule).

Charts from my watch list for Tuesday 3-30-10

2010-03-29T19:54:00.002-04:00

First, I'll show the top charts for Tuesday, then the rest by type of pattern. I am looking at the charts on a daily time frame.

Note the charts have been removed to make way for charts on later posts. Stockcharts will only allow 25 charts for free.

Collector's Universe (CLCT)
This provides grading, authentication, and other services to collectors. The company sports a PE of 15, a clean balance sheet, and 4 quarters of accelerating sales. Chart wise, the company broke out of a cup with a long handle and has since consolidated, bouncing off the 20 day moving average area. Monday's actions showed a close above the recent consolidation on increased volume.
China Real Estate Information Corporation (CRIC)
The name pretty much describes this company. CRIC had an IPO in October of 2009. The IPO allowed the company to clean strengthen its balance sheet and provide room to grow. The company's first quarter public showed a 203% increase year over year in sales and a 150% increase ($0.10 vs. $0.04) in EPS. Technically, the company has been in a down trend since its IPO but just broke the downtrend on Monday.

Dollar Financial Corporation (DLLR)
Dollar Financial provides check cashing, consumer loans, and money orders. Earnings feature a return to growth in the previous two quarters. Sales show three quarters of acceleration, returning to growth at +16% in the most recent quarter. Unfortunately, this company has some debt, but is working to pay down the debt, already resulting in anticipated reduced interest expenses for the current fiscal year. Others in the group including AEA EZPW and FCFS have set up basing patterns or moved higher in recent times. Dollar has formed the best cup with handle out of the group with the handle riding the 20 day moving average upwards the last three days.

KMG Chemicals (KMGB)
This company makes specialty chemicals and wood preservatives, such as the chemicals used preserve railroad ties and telephone poles, among others. The company has a PE of 11, increased earnings 56%, 780%, 193%, and 338% the last four quarters, and has three quarters of accelerating sales. Much like DLLR, the company has some debt on the balance sheet, but nothing overly outrageous. On the chart, KMGB has drawn out a bottoming base with a handle. The handle bounced off the 20 day moving average today and the stock began to aim for what could be a pivot point at $16.

Seracare Life Sciences (SRLS)
From the latest quarterly earnings press release, Seracare's "innovative portfolio includes diagnostic controls, plasma-derived reagents and molecular biomarkers, biobanking and contract research services." The has four quarters of accelerating sales, including a return to growth of 9% and 21% in the last two quarters. Earnings have come back after reporting 4 years of losses and the company now has a trailing PE of 21. A little caveat is the company has not filed a form 10-Q for the most recent quarter, though the company has released a press release with an income statement. The balance sheet as of the most recent filing shows a moderate amount of debt, not too much the company could not service the debt with cash on hand, much less incoming cash flow. The chart I will post is a flat base with handle, however the weekly chart will show this flat base with handle is really a handle for the overall base, which is a theme across many stocks.

Winmark (WINA)
Speaking of weekly charts, this last one (alphabetically) is a weekly chart. I will also post the daily chart as I think both are highly relevant in this instance. Fundamentally, WINA is in the worst shape from my perspective out of these six top charts. The last two years have actually featured earnings growth, and earnings growth of 53%, 29%, 38% and 100% in the last four quarters is nothing to shy away from. However, the company also has about $3 per share in equity and over $9 a share in debt. The current ratio is 1.6 so there appears to be no immediate threat of the company going under, however, the company had $0.25 per share in interest expense last year and earnings of $1.10. The liabilities are weighing down earnings. This may also induce the company to have an offering if the stock should take off or do well in the future, but this is just speculation.

Technically speaking, on the daily the company recently bounced off the 200 day moving average area and today began an approach of what should be a $23 pivot point. On the weekly this base extends back similar to many bases seen in charts in today's market.

Base with handle:

Finviz charts
Stockcharts charts
CCME CEDU CSIQ CTRP DEER GTS JOBS MAPP ORCH OZM

Double bottom:
Finviz charts
Stockcharts charts
GPI LHCG VLCM

10 day simple moving average area interaction:
Finviz charts
Stockcharts charts
LL ODSY TESS

20 day simple moving average area interaction:
Finviz charts
Stockcharts charts
HVT MELI SMCI

50 day simple moving average area interaction:
No listed companies, though ITKG.ob has been skirting the 50 day moving average

Flags or consolidating closes:
Finviz charts
Stockcharts group1 (10 charts)
Stockcharts group2 (5 charts)
ABII BFR CHOP FNDT GLRE GXDX HOKU MDF NOIZ NUS OGXI OPNT SSRX TRLG ZOOM

Other interesting patterns:
Finviz charts
Stockcharts group1 (10 charts)
Stockcharts group2 (2 charts)
ADK ANV ASYS BOFI CAAS DEST DFZ JOEZ MSO RCKY TSL WWIN

Disclosure: I have interests in the following stocks DGP CELH BRCO.ob ALIF.ob KMGB MFI

14 Charts for Monday December 27, 2010

2009-12-27T13:08:00.007-05:00

This weekend I went through all my watch lists and ran all ten of my custom screens at dailygraphs.com. I came up with a rather extensive list about 100 stocks long. I then narrowed this list down to 14 charts worth posting in a blog. There are numerous other charts I like, but these 14 are the easiest to draw. I also include a little bit about the fundamentals of each company, which can further narrow the decision when the time comes to pick which one to buy. I am going to post these in alphabetical order, so there is no ranking per se, but if I had to pick one overall best set up between fundamentals and technicals, I am looking at WWIN.

Disclaimer: Neither I nor my clients own any of these, but may perhaps buy one of them at any given time.
Charts courtesy of stockcharts.com
Clicking on the company's name will take you to the company's website.

Note the charts have been removed to make way for charts on later posts. Stockcharts will only allow 25 charts for free.
China Wind Systems Inc. (CHWY.ob)
China Wind Systems has been gaining momentum fundamentally. Trailing 12 months comprehensive earnings per share, which include gains on the translation of currency, amount to $0.43, on about 15 million shares. In this number the gains on foreign currency are not too dramatic, amounting to a few pennies a share. In previous years, the number was much larger, distorting comparable earnings. Suffice it to say, the company is growing both the top and bottom line on the income statement. At $0.43 per share, the company's PE is 12. So we have a growing company, with a relatively low PE, which is in the wind sector, and in China. There are many things right with this company fundamentally. The balance sheet shows negligible long term debt and a current ratio near 2. Early this next year the company intends to open a new manufacturing facility, for which it has already sold some product contractually.

The chart is fairly impressive as well. On December 9th the company announced the aforementioned deal to sell product and the stock gained both volume and price movement as a result. Since, the stock has made a handle of sorts and close $0.07 out of the handle on Christmas Eve, with large and increased volume despite the shortened session. There is still time to buy unless it becomes a Monday gapper.

China Sun Group High Tech Co. (CSGH.ob)
China Sun Group is not a solar company, despite the name. The company is actually into lithium ion batteries, specifically the excitement is centered around lithium ion batteries for electric vehicles. The company has signed multiple agreements to produce and sell batteries and has the second largest production facility of its type in China. Historically the company has grown sales from $8.3 to $25.3 to $37.0 million for fiscal years ended May 31 2007-2009. Profits were $0.01, $0.13, $0.16 on 53.4 million shares. The real growth phase of the company is yet to come and should manifest itself this coming year.

The chart features a nice basing period over the last three months and a handle which has developed over the last 7 days. A breakout above $1.90 on good volume would make this one hard not to buy.

Commtouch Software Ltd. (CTCH)

Commtouch Software is an Israeli company making messsaging, anti-spam, and anti-virus software for businesses. The company first became profitable in fiscal year 2006 and has grown earnings from $0.03 to $0.11 to $0.14 in fiscal 2008. Earnings are currently accelerating as are sales. Sales read 6% 4% 4% and 8% over the last four quarters while earnings accelerate from -25% to 0% 0% +25%. The balance sheet is clean with negligible debt and the company has been buying back shares, reducing share count by 3.4% year over year as of the most recent quarterly report. There are about 25.3 million shares fully diluted.

The chart for Commtouch is a nice looking cup with handle. The actual pivot may be anywhere between $3.85 and $4.00, since there are often asks stacked at even dollar amounts. A large volume up move from here would pretty much signal the breakout.

Dynex Capital, Inc. (DX)

Dynex Capital is a REIT investing in residential mortgages. The current yield is 10.4%. I am not going to delve into the balance sheet and income statement of Dynex, rather I will simply say the company appears to be solid, but who really knows in the mortgage market?
The chart, however, is a very nice, tight flag. The exceptionally large volume in the flag can either become support or resistance in the future, depending on if the the chart breaks out or fails. The trade up at $9.30 is likely an errant trade as the stock did not trade up to $9.33 and back down. Disregard the tick. If the stock trades into the upper $8.90's and approaches $9 it becomes very interesting.

Duoyuan Printing, Inc. (DYP)

Duoyuan is a recent IPO which makes off-set printing equipment. Trailing earnings give DYP a PE of 8 and I'm sure the balance sheet is in good shape after the recent IPO. The company has managed to grow earnings in each of the last 4 years. Solid fundamentals at first glance, but usually IPOs have a lot of pro forma issues and etc.. to fully sort out the earnings picture. Something I have not done yet.
Technically speaking, DYP has made a new issue base. The pivot point is $8.80. I have removed the IPO day on this chart in order to better see the volume.

iGATE Corp (IGTE)

From the iGATE website: "iGATE provides IT consulting; application development and maintenance; data warehousing; business intelligence solutions; ERP/ enterprise solutions; BPO/business service provisioning; infrastructure management; independent verification and validation; KPO and contact center services." In other words, they provide outsourced services. The company has grown earnings each of the last three years and is currently two quarters away from the bottom in earnings and sales, with 7% earnings growth in the most recent quarter and sequential sales growth in the previous two quarters after three quarters of declines. On the balance sheet there are plenty of current assets to cover current liabilities and negligible long term debt, nothing to worry about there.

The chart features consolidating closes for the last 7 days as volume has dried up in a sort of high handle to a rough looking W pattern. The overall pattern is pretty rough, but the handle is very nice indeed, especially with the volume drying up.

Jinpan International Ltd. (JST)

Jinpan is the second wind company and the fourth Chinese company on this list. China is seeing excellent growth, even with the struggling United States and Europe trying to hinder growth. China is also stimulating the wind and solar industry to a much larger degree than in the developed world. Jinpan has been one of my favorites for many years, though it is not solely a wind company. The company makes transistors for medium to high voltage transmission situations. In the most recent quarter 18.5% of net sales came from out of China, versus only 13% a year earlier, with sales to the wind industry representing 18% of the total versus 14% a year earlier. The balance sheet is healthy and the company is on pace to add over $25 million in cash during the year. Shares total around 8.1 million with 4.75 million float.

The chart features a typical flag which may be formed after a big run, with the price holding above the 20 day moving average. If the stock breaks above $46 on volume it has some room to run, though there is a roughly drawn upper up trend line which roughly parallels the lower up trend line. This stock tends to make large moves on earnings reports. The moves in May, August, and November were all due to earnings reports. This week will be interesting watching to see if it breaks below the 20 day moving average, or breaks out of this flag and moves on to new all time highs.

Liquidity Services Inc. (LQDT)

Liquidity Services is operates an online auction services directed towards wholesale and liquidation of salvaged and surplus assets, catering to professional buyers and sellers. The company does not consistently grow earnings every single year, but is on a steady pace upwards. Starting in fiscal 2003 earnings were $0.10, $0.19, $0.15, $0.32, $0.43, $0.51, and $0.31 in fiscal 2009. Sales bottomed in the quarter ended December 2008 and have since rebounded off the lows, but are still not growing year over year. In a current earnings basis, LQDT is a below par. However, the company's business has done well over time and there is over $2.00 per share of cash and short term investments on the balance sheet, with only deferred tax liabilities for long term liabilities. A small uptick in business can go a long way when a company has a clean balance sheet.

Although the fundamentals are not exactly top notch, given the previous year's down turn during the recession, the chart is excellent. The stock powered itself off of recent lows, creating the right side of the base. The last 12 days have featured consolidating closes with the high volume day in the handle being the Russell 2000 rebalance volume day. The pivot point lies somewhere in the $12.50 to $12.67 area. Any move with volume over $12.50 would be a break out. One can clearly see there is a handle formed at previous resistance which also holds above the base building area off the bottom.

Libbey, Inc. (LYBI)

Libbey makes items for the dinner table, such as ceramic, glass, metal, and plastic dishes. This is by far the weakest company from a fundamentals perspective in this blog entry. There is farm more debt than I would like to see on a company's balance sheet. The company has negative shareholder equity and has over $1.00 per share in quarterly interest expense. One slip and this company goes under.

However, the chart has been great for a long time. First, the company made a very nice base in August, September, and October, holding the 20 day moving average throughout the long handle. The company began moving out of the base three days before their latest earnings report and gapped up on earnings. The company is again consolidating on the 20 day moving average with a move higher on good volume being a buy indication.

Newtek Business Services (NEWT)

Newtek is another company with a balance sheet and fundamentals which are not impressive. However, the company does have some potential with some recent deals in place and a quarter of profitability, though the company's guidance for next year is still for a loss. I would not buy this company based on fundamentals.

Again, though, the chart is something to mention. NEWT has made a high tight flag with a very clear $0.98 pivot point. A break of $0.98 and then the psychological resistance at $1.00 would be worth a buy, but not a large buy and not a buy I would hold through too many closes.

Pennantpark Investment (PNNT)

Pennant is a business development company, required to pay out the vast majority of profits in dividends. The current yield is 11.3%. For the purposes of this post I will not delve into the fundamentals of the company, but will not that they have grown earnings in each of the last 8 quarters.

The chart is a little tricky given some chart services include last week's ex dividend adjustment and some do not. The chart I have here is one which does include the ex dividend adjustment to previous day's trading. This chart shows a clear base breakout and since the stock has sat right on top of the base. A chart without the adjustment would show the stock still in the handle. Either way, the company is in a nice consolidating pattern which may get some room to run if it can trade up in the $9's on heavy volume. To add to the confusion on the chart, the largest volume day in the handle/consolidation was the Russell rebalancing day.

Radware Limited (RDWR)

Radware is the second Israeli company in this post, providing integrated application delivery services to nearly 10,000 enterprises and carriers. The company has accelerating earnings after two years of losses and reported record quarterly revenues in the most recent quarter, up 24% year over year. The company has more cash and short term investments than total debt, with over $3.00 per share in liquid assets and over $7.50 per share in equity. Overall the company looks to be on solid ground with good potential going forward. There are roughly 15.5 million shares float.

The chart is another one greatly altered by the Russell 2000 rebalance. The rebalance caused the stock to break out of a consolidation or another step in an overall stair step pattern. The next two days crashed the stock down to the 50 day moving average area, but the stock bounced and closed up on the second day. I'd like to read this chart as able to break out at any time, but I have no idea what to put as a pivot. There is a clear uptrend and the stock likes to hold the 50 day moving average area, leading me to believe it should go higher from here.

Teltronics, Inc. (TELT)

Teltronics makes equipment and software to improve communications networks. It would be difficult to tease out a trailing 12 months earnings and sales picture so I'll give the nine months. The trailing nine months picture has the company producing $0.48 per share in earnings versus a loss in the previous year of ($0.26). Sales grew 36%. The balance sheet is not pretty, with current assets less than current liabilities and a negative shareholders equity. The company needs a few solid years of growth to fully dig the balance sheet out of the hole, but with a PE of around 3 on trailing 9 months earnings, it is well on its way.

TELT has built a high tight flag on the chart. Volume has dried up in the flag nicely, present a clear idea of what a break out would look like. Any movement out of the flag on good volume could be considered the start of a breakout. This flag could very easily go on for weeks or months, but I would not be surprised if the stock broke out this week or the first week of the year as the small cap rally continues onwards.

Winner Medical Group, Inc. (WINN)

Lastly, I present what is my favorite set up of this blog post. Winner Medical develops dressings and disposables for medical care, wound care, and home care. The company does so in China, marking the fifth of fourteen Chinese companies in this post. Their main product is a 100% cotton dressings, which appears to be gaining momentum. The previous four quarters earnings grew 40%, 133%, 75%, and 86% with sales growth in each quarter. The company has been profitable in each of the last six years, but not until recently have earnings really taken off. The company has a current ratio over 2, negligible long-term debt, and over $3.50 per share in equity. The last statistic of note is a meager 4 million shares in the float.

Winner Medical Group's stock has made a nice cup with handle base. One might try a bigcharts.com chart to see a more complete history, as the company moved from the bulletin board to the NYSE Amex exchange in early October. Since then, the company has formed a very nice cup with handle base, featuring volume drying up in the handle, after increasing on the right side of the base. The pivot for this company is around $6.60 and for sure at $6.75. I would expect another day or two of handle development, preferably on increased volume, before a breakout late in the week or early in the new year. However, this does not rule out a break down in pattern, or a large one day break out at any point.

Conclusion

The Russell 2000 small cap index led the market over the previous few weeks, plowing strongly into new highs. The Santa Claus rally was on and soon the New Year's rally should continue to push small caps higher. In my search through likely 1500 charts this weekend, I encountered an overwhelming sense small caps are going to go higher very soon. Lost of stocks are bouncing off of support or major moving averages, while many others have developed nice bases during the last three months and are either about to break out or have broken out recently. Looks to be a good trading environment in the near future. Good luck and happy New Year everyone.

feraldo

My first Celsius experience

2009-12-16T19:04:00.002-05:00

The Celsius Website
I took the 32 mile trek to the second closest retailer carrying Celsius. My first attempt to acquire Celsius was thwarted by poor information on the Celisus.com website. The website had told me there were two Krogers in the town I live in which sold Celsius. Not the case. The Celsius website has since posted a bit of info saying it has cleaned out some bad locations. However, the website still lists a GNC in my town which no longer exists. I'd have to give the website, all things considered, a very poor C- with F being no website and D being a barely functional site. Booooooo!!

Marketing
Below I have attached 4 pictures of varying angles of the can for reference. These were 12 ounce cans and I purchased them for $2.19 per can, before taxes. The convenience store/gas station had a 5 door cooler system. 1 Coke, 1 Pepsi, 1 energy drink/water, 1 tea/juice/misc/, and 1 milk/cheese random foodstuffs door. Celsius was located one shelf below what I would consider eye level, with five flavors taking up 5 slots. The flavors I can remember are Lemon Lime, Orange, Green Tea, and Green Tea Raspberry Acai. The can resembles a Red Bull, only a little larger and with more colors. At $2.19, it seemed much more expensive than the drinks in the same door, but would have been at home in the energy drink door. So far, however, Celsius does not seem to be marketing itself as an energy drink, but more as a weight loss supplement. I give the marketing team a B, since after all they are actually starting to be in coolers now.

In The Can
What stands out on the can are the ingedients. We have 100% of vitamin C, Riboflavin, niacin, B6, B12, biotin, and pentothetic acid. There is also 5% calcium, 41% chromium and 1810 mg of their proprietary mix of taurine, guarana extract, green tea leaf extract, caffeine, glucuronolactone, and ginger root extract. Reads like an energy drink, but marketed as a diet drink. After two drinks I feel a bit more energetic than before, but I am not overwhelmed like I would be with a Monster or other energy drink.As far as weight loss, there are a lot cheaper ways to lose weight than to drink Celsius.

What I was really after here was the taste. I have seen scores of drinks go through retailers over the years with a whole bunch of different marketing ploys. So renting an ad in Times Square and plastering Mario Lopez all over the place is not going to sell the drink if it tastes like crap. The Green Tea Raspberry Acai was pleasant and good enough for an energy drink/weight loss drink. Was it worth $2.19 plus tax for 12 ounces? Heck no. But I am not one to regularly buy such things. In front of me in line was a lady buying multiple Monster coffee drinks which cost $2.99, though the can was larger. Next my wife and I tried the Orange flavored Celsius. My wife gave it a big thumbs down and would not drink more than the first sip. She basically called it a powdered orange drink mixed with seltzer water. My reaction was Tang meets ginger ale. Tang is the forerunner to every powdered drink we know of today. I drank the rest of the can, but it is not a flavor I would prefer. I like ginger ale and I like, to some extent, tang. But the two together is just not what I have in mind for $2.19 per can. I give what is inside the can a C for high cost and a flavor which will undoubtedly turn off some people on the first can.

Conclusion
My first Celsius experience was sub par. The drive to get the drink was enjoyable and we got to see an average Indiana winter sunset. The drink itself disappointed me due to a surprisingly poor flavor and a high cost for 12 ounces of liquid. The website I give a very big thumbs down to and does nothing from my perspective to better the company's chances of succeeding. Overall I like the chances of this company succeeding less now than before my first experience trying the product.

Dow % bullish Indicator for 12/8/09 close

2009-12-09T12:43:00.000-05:00

The indicator stood at -15.71% at the close on Tuesday. We could easily see some bearish action after such a readying, but its not a very bearish reading. Looking through the Dow there is very little bullishness and just enough bearishness to turn it negative. Mostly, Dow stocks are holding moving averages and not significantly breaking down, though there are a few.

I take today's reading as a reason to increase caution. If the Dow closes down significantly today we are likely to revisit lower up trend lines and moving averages.

Dow % bullish Indicator for 12/7/09 close

2009-12-08T14:26:00.000-05:00

The indicator is still heavily weighed by neutral readings, which count as a 0. This makes the trend overall increasingly bearish. Here at 2:00 p.m. eastern the Dow is down around 100 points. A lot of the neutrals could easily become bearish and a big pull back in the bullish looking charts would turn them into neutrals. So far today this is the general trend. The indicator hovering around 0 is not something new. Last year in the end of year doldrums the same situation occurred. Between 12/2 and 12/30 there were only three days where indicator was more than 40% bullish or bearish. If the indicator should spend consecutive days outside of the -40% to 40% range, I would be much more tempted to trade a leveraged ETN one way or the other, but for now we are predictably range bound here at the end of the year.

Dow % Bullish Indicator for 12/1/09 close

2009-12-02T13:29:00.000-05:00

The Dow % bullish indicator stood at 47.89 at the close on Tuesday. This is almost a return to the bullish strength shown pre-Dubai. A big down move in the Dow today could easily reverse this number back to bearish again as many Dow stocks hovered around 0 for the previous two days. There were pull backs to support levels across most of the Dow and Tuesday featured a nice bounce off these levels. Volume is still not great on Dow stocks, but volume does tend to be higher than last week. Given past history of the indicator and the current reading, I would say bulls should not see a big downside risk, but there is precedence for the Dow to go in either direction after a two or three day period of negative readings on the Dow % bullish indicator. Of course we are either on a shoulder or a on the way to nice new highs once again on the general markets. The Russell 2000 has been the weakest cap of the markets during the November move. Today, the Russell 2000 leads. All things considered, I think there is more of a case for an afternoon rally in the markets than a case for a sell-off. Only time will tell.

Celsius Holdings (CSUH) - A second phase beverge company.

2009-11-25T14:43:00.001-05:00

I have had the opportunity in the past to watch three very distinct beverage companies go from relative obscurity, to relative success, each with three very distinct end results. From watching these three companies, along with several other beverage companies which never really made it, I have developed a general 4 phase cycle idea for beverage companies. This blog post will outline these 4 phases and discuss the past three examples, ending in an evaluation of Celsius and where it stands in the path of a typical beverage company.

Snapple, the poster child

Some people may already know the Snapple story, but for those of you who don't, its a wonderful history. Carbonated soft drinks (CSD's in industry speak) dominated the single serve beverage market in convenience stores and super markets and still to this day command a rather large swath of cooler space. There were a handful of other items available, but the incentives for the store owner clearly centered around CSD's. Along came Snapple. When Snapple entered the market, other types of beverages began to get more door space in convenience stores and began seeing more shelf space in supermarkets. Snapple was a phenomena. I don't remember how many flavors the company ended up marketing, but at one point it was over 48 different flavors. I myself tried perhaps 40 of them and used to collect the bottles. The beverage was a hit and forced retailers to rearrange their coolers. Now teas and juices command a whole door of a typical convenience store cooler, versus the bottom shelf of decades past.

Eventually Snapple would be bought out and shuffled around as an asset to much larger beverage companies. Before this happened, Snapple went through some very distinct phases. It started out small, with hardly anyone knowing about Snapple and there was not a full national footprint (to be sure I never saw a place with all 48 flavors). Next the company expanded to a much larger footprint, then a national footprint complete with TV ads. Finally the company was everywhere and its big growth stage was over. This is when they were bought out and the story ends. The stock of Snapple followed a similarly spectacular path. Going from relative obscurity, to a big winner everyone was talking about, to a has been in the stock world. By the time the Snapple was the buzz, most of the stock performance had been played out, such is the case with most big winners in the market.

Hansen's Natural, a rerun of the rise of Snapple

Hansen's Natural followed a very similar path to Snapple. Before Hansen's there was an energy drink called Red Bull which occupied some shelf space in convenience stores and became part of many a mixed drink. But there was no push for energy drinks to gain any significant dominance in a retailer's cooler. There was CSD's, juices, milks and teas, water, but not a whole cooler door full of energy drinks. Along came Monster energy drinks and the various forms the company has created to infuse energy into the consumer. Hansen's took a similar rise to fame as Snapple. For 70 years, according to the Hansen's website, Hansen's has produced beverages, but in relative obscurity. There was no craze, no grand taking over of shelf space, nothing spectacular. Then all of a sudden the energy drink craze begins and Monster gets a larger distribution footprint. The third stage for Hansen's was about taking over nearly a full cooler door in convenience stores all on its own. Piggybacking on Monster, Hansen's marketed a total of four energy drink lines and a range of energized coffee drinks.

All of a sudden the beverage industry is completely changed once again. In days past one could go to a convenience store and expect one whole cooler door of nothing but Coca Cola in its various forms: diet, cherry, diet cherry, caffeine free, diet caffeine free. The next cooler door would be other Coke products like Sprite and etc.. Then the next two doors were Pepsi, Mountain Dew and Dr. Pepper/Seven Up products. Finally the last few doors were for milks, juices, teas, snacks, microwavable quick meals, cheese, just about everything else. Also, there is typically a contingent of random CSD's shoved in somewhere away from the Coke and Pepsi products so as to shield Coke and Pepsi from competition. Now one expects 1 door for Coke, 1 door for Pepsi and Dr. Pepper/Seven Up, one door for energy drinks and hydration drinks (water, Gatorade, Powerade) 1 door for fruit drinks and teas, and the last door or two will contain milk, other random drinks, and various food products. With the Snapple craze and the energy drink craze as book ends, Coke and Pepsi have lost a very large swath of convenience store cooler space.

Just like Snapple, the stock of Hansen's mirrored the growth pattern of the drink. The company went from relative obscurity, to a winner, to a big winner as the product penetrated more and more of the shelve space allotted to cold drinks. Now, however, the company is in what I would call stage 4 of the growth phase, which is past the peak of the company's success. Here companies typically get taken over, under perform due to lack of growth, or fail miserably when their product does not have staying power. This brings me to my third case study, if you will.

Jones Soda, what went wrong?

The case of Jones Soda is very peculiar indeed, when compared to Snapple and Hansen's. The company went through all 4 stages of growth, yet came out the other side a failure. What happened?

As Hansen's was changing nearly a full cooler door (typically 15-25% of a convenience store shelf space), Jones was working its own strategy to gain cooler space. Jones Soda makes CSD's (carbonated soft drinks), which would in theory be competing against Coke, Pepsi, Dr. Pepper/Seven Up, Faygo, the purple stuff, and all the other hundreds of small CSD makers all over the country. As Jones began its rise, the intent of the company seemed to be just to start shaving off small slices of Coke and Pepsi market share. Sure they admitted they competed against the other products in the cooler, but one going in for a water is not usually going to drink the heavily sugared (with natural sugar cane) CSD produced by Jones. Jones was after an inlet, or a finger of a very large pond. The idea was to get people to drink the more natural CSD's produced by the company. Their gimmick was to have more and better flavors than the established competition.

Jones rose to fame in such a meteoric fashion as Hansen's and Snapple. Out of nowhere Jones went from relative obscurity, to a few flavors in some stores, to a few shelves in most stores, to an exclusive promotion with Target, to shelf space in the largest of them all Wal-Mart. For a while Jones Soda was delivering on its vision. Then, unlike Hansen's and Snapple, whose influence on the beverage industry is still evident today, Jones failed. From my perspective Jones failed because of price and location within the cooler. Instead of being stacked up against Coke and Pepsi, essentially in the same door of the cooler, Jones was relegated to the juice and tea door or the energy drink door. Jones was not placed in a spot which would draw consumers from other CSD's to Jones. Additionally, Jones was expensive. At a time when a Coke or Pepsi bottle could be bought for roughly $1.29, Jones was selling smaller bottles for $2.19 or more. The larger bottles of Jones would go even higher in price (of course).

Jones went through all four stages of growth in the beverage industry and failed. The stock took a similar path to Snapple and Hansen's during the first three stages of growth, but in stage four the stock failed with the product. Hansen's stock is not at all times highs but it has also not failed. No company every offered to take over Jones, like was the case with Snapple. However, as a stock trader we are not interested in stage 4, we are interested in stages 2 and 3, which brings me to an outline of the 4 phases.

Phase 1, Relative Obscurity

Relative obscurity is where nearly every company starts out. Even Hansen's which produced beverages for 65 years before making it big was still in relative obscurity prior to the energy drink craze. After the energy drink craze, one would still be hard pressed to find people who drink the old Hansen's Natural drinks, but they are on the shelves of major grocery store chains. In phase one companies are not making money on their products, but they do have a product which they are testing. Quite often the product is on the shelves of several small regional chains, maybe featured in some, maybe just stuck over to the side in others. Phase 1 is often a period where the company's stock is also not going to go anywhere and quite possibly might not even trade but a few thousand shares a week.

Phase 2, Gaining a Distribution Footprint

Phase 2 is the phase where the company has made a name for itself in the original convenience stores and retail sites and has begun to get a much larger distribution footprint. Quite often the company will issue press releases monthly, or even weekly, of new distribution partners. In late stage 2 the company will begin a national advertising campaign on the radio, in print, and on TV. The company also tries to find an event to sponsor or a celebrity to endorse the product to create brand association. Snapple gave us the slogan "Made from the best stuff on earth." Hansen's promotes Monster with a life style saying on the Monster website "at Monster all our guys walk the walk in action sports, punk rock music, partying, hangin’ with the girls, and living life on the edge."

The company, behind the scenes, is often trying to move from the Bulletin Board trading system to the Nasdaq or Amex. The stock will often rise a few hundred percent or more out of relative obscurity, but will not become a big name everyone is talking about. In stage 2 the company has not made it to the big time yet, but there is a clear path established ahead in an attempt to be a major beverage company. Lastly, the company is likely not to make any profits during this phase and if so they will be small and sporadic. Expenses will ramp up to cover an increased distribution network and increased advertising, thus these companies are going to be issuing shares and raising money through debt and other means.

Stage 3, The Promised Land

Stage three is the most exciting phase for consumers, investors, and the company. To be sure not all companies are going to make it out of phase 2, nor will most even make it out of stage 1. Stage 3 the company has a brand which may be recognized as new. The brand may be talked about in social circles, news programs, and may even be labeled as the latest fad. For evidence one needs to look no further than the penetration of energy drinks into our lives and the talk for years now of how people pay to drink bottled water, for better or for worse. In this stage the company will have penetrated a large percentage of major convenience stores and super markets and will have expanded its shelf space.

From a company perspective there is now a critical mass for the company to turn a profit on. Sales have been skyrocketing for a while and reach some sort of parabolic state for a few quarters, if not a few years. The stock is now listed on a major stock exchange, has a high volume run rate, moves up several hundred percent more, and becomes a name bandied about in stock trading circles. The phrase, "I wish I had bought back then," or some derivation of the phrase is uttered by many a stock trader. Expectations are very high and there is talk of a whole new type of beverage company. Analysts discuss the impacts of the company on Coke and Pepsi and the CEO is on CNBC promoting his meteoric rise to success.

The next part of phase 3 is the kicker. Its the part of phase three which signals ultimate success, but quite often is the end of the rise to stardom. For Jones Soda, it was a very clear signal. The company gets a deal with Wal-Mart, Target, Costco, Kroger, and all the other large behemoths. Just getting initial shipments to these big companies will be a very large sales increase for the beverage maker. These deals represent the most rapid phase of growth for the beverage maker and therefore mark the end of hoopla.

Stage 4, The Come Down

Stage 4 is market by one of three events. First, a company may be taken over, such as in the case of Snapple. Second, a company, such as Hansen's, may have made it big and will continue to sell large quantities of beverages, but the rapid growth phase is over. In this scenario there won't be a whole lot of 200%, 300%, 1000% gains in the stock, because the company's growth rate is likely to be 25%, 10%, or even negative. Simply put, the market has been penetrated. The third event is the failure, which is the case of Jones Soda. Jones had its shot, threw all its chips in, but came out a loser. The company had the national roll out, the Wal-Mart, Target, Costco deal, but the drink did not have staying power. Most companies fail in stages one or two, so making it to stage four means success at some point along the way, but not long term success. In stage 4, these companies are not going to be exciting investments.

Celsius Holdings (CSUH) - A second phase beverage company

Now to the reason I have expounded all this is to explain where I think Celsisus is in their growth phase. The company has begun distributing beverages to many super markets and convenience store chains, but has not struck the big deal with Wal-Mart or Costco, etc...Since the company does not have any huge national distribution accounts to serve, there is plenty of room for the hyper growth of phase three to occur. The company recently signed Mario Lopez as national spokesperson and has launched at least one ad campaign, while working on another. The company also recently filed to issue more shares to raise money for the advertising campaign and to expand the business. The company is not currently making money, but sales are increasingly swiftly as it expands its distribution foot print. Lastly, the company is trying to move from the Bulletin Board to the Amex stock exchange. Everything is set up for the company to enter stage three within the next year and become a big winner, a more recognized name by consumers, and to gain distribution with the behemoths of the retail world. I think CSUH will be one ticker to keep an eye on for the next year or two.

I am not sure if Celsius will make it in the long run. They have a different sort of product which really isn't currently on the shelves. A beverage which burns calories is likely to be stuck next to Hansen's products and therefore be in the energy drink and rehydration door of the convenience store cooler. Thus, it will not directly compete with CSD's, teas, or fruit drinks. There is no direct competition currently as far as drinks which burn calories, so there is some space for Celsius to become a fad or a whole new line up of beverages to unfold with Celsius being the clear leader. Only time shall tell, but I do think stage 3 is achievable so we will see an answer to these musings down the road.

disclosure: a client owns shares of CSUH but I do not own any myself.

Summary and comments on the Fed minutes from Nov 3-4

2009-11-24T15:27:00.001-05:00

The full minutes can be found at the Federal Reserve's website. Since the fed in its attempts to record and explain their actions is still confusing to most, I'll summarize, comment, and extrapolate upon these minutes.

Ability to reverse its policy

One of the most important things for the Federal Reserve is the ability to be able to reverse its policy. Right now the fed has an "accommodative" stance on the economy. The people in charge are doing whatever they can to foster growth and get money moving. The fed is just about as accommodative as its ever been, with interest rates near 0 and a $2 trillion balance sheet. The famed $2 trillion balance sheet contains U.S. Treasury bonds, various forms of corporate and public debt, and other instruments I will not attempt to explain. The fed believes, if needed, they could reverse their policy by raising interest rates, selling some of these "assets," or letting the U.S. Treasury and other entities repay their loans. Remember, the Federal Reserve is just a giant bank. The "assets" of the fed are for the most part loans it gives out to various entities at various interest rates. Since the Fed is the largest bank, it gets to set its own interest rates. Oh, and the Fed can create its own money too, so if you wonder where the $2 trillion came from.......

The Fed's summary of the economy

The Fed rehashes a lot of what we know. The labor market is bad, but its not getting as bad as fast as it did before. Here they use the term "albeit", a word Jim Cramer featured in a Mad Money show on CNBC. Good job Cramer, you identified a buzz word, which is even used by the Fed now. The Fed says "The length of the average workweek for production and nonsupervisory workers decreased, and the index of aggregate hours worked for this group fell, albeit more slowly than earlier in the year." One can sum up the labor market in much the same way: getting worse, but not as fast as before.

Businesses, however, are having a whale of a time. CNBC mentioned this morning 25% of S&P 500 companies reported record profits in the 3rd quarter. Industrial production is expanding, retail sales are strong. Seems businesses, especially large businesses, are doing quite well. After cutting 3 million workers and much excess fat, businesses are thriving. Except, when they want to expand and need to borrow money for expansion. Consumers are finding it equally hard to borrow money. One can look at this as a bad thing in the short term, because it hinders economic growth now, but good in the long run. With consumers and businesses carrying less debt, the economy will have less of a burden in the future. In fact, businesses and consumers have been shrinking their debt load for many months now. My guess is this is due to tight credit markets and job losses which shut the door on consumers seeking credit.

Inflation is pretty much non existent. Makes it easier on consumers, but a bit harder for businesses to grow profits. Some inflation is good for businesses. Pricing power means more profits. The Fed seems very subdued in its forecast for inflation over the next few quarters.

My opinions of these statements

Despite the crazy run in gold recently, the supper accommodative policy of the governments around the world, oil which is back to expensive levels relative to just a few years ago, and health care costs which will continue to hinder consumers with or without government intervention, the fed sees little risk to high inflation any time soon. The low inflation stance may be missing the mark. Oil could easily take off back to $100 and we could have hyper inflation. Oil prices are not controlled by the U.S., but rather the world. The high population centers of the world are still growing and still consuming more fossil fuels, while the amount of oil the world pumps out of the ground is back to declining. The situation is ripe for inflation. So the fed reports a relative lack of inflation pressure and an outlook for relatively low inflation, but I disagree in this regard.

The fed's ability to pull money out of the economy and therefore stem the tide of inflation dwindles as the months go by. As the U.S. becomes less of a percentage of the global economy, the prices we pay for items are less influenced by the supply and demand picture naturally occurring in the U.S. and created by our governments. The government has no ability to just turn on an oil spigot if prices should sky rocket again. No government has the ability to adjust oil supply in large ways in the short run. So while the government may have the ability to adjust the inflation picture to some degree using instruments such as the money supply (print money or just delete it quite literally with one mouse click) and interest rates, the U.S. government does not have the ability to adjust the global economy quite like it could just ten years ago.

I agree with Cramer and his rants on the word "albeit." The economy is still shrinking, albeit at a slower rate. Year over year the new estimate for real GDP change was -2.4%, released this morning. That's not as bad as it was last quarter or even the quarter before. But, we are not growing. The consumer is just about dead in the water and the Fed will not come out and say so, but instead danced around saying so again in this release. They remain worried about the consumer and they tell us the consumer has less and less credit, less and less income, less and less of everything, but they won't wrap it up in one succinct statement. I'll give it a shot

"The consumer is in bad and worsening shape. Consumers are getting worse much more slowly, but there are no indications the consumer will be getting better any time soon."

And that, my friends, is my summary and comments on today's fed minutes release. They were a lot less revealing as in, say, their August minutes, but still very insightful.

Dow % Bull for 11/20/09 close

2009-11-21T10:15:00.000-05:00

The indicator came in at 9.87 at Friday's close. Still just slightly bullish. A lot of neutral readings and a lot of Dow stocks sitting on the 10 day moving average. Options Friday kept the market fairly range bound Friday. Monday and Tuesday the market should loosen up to one direction or the other. Let's hope its buillish. Then again, we could be "range bound" for the rest of the year and make no progress on the market. There still exists a significant divergence between small caps and large caps, with the Russell 2000 a good ways off the highs.

Dow % Bull for 11/19/09 close

2009-11-20T09:08:00.001-05:00

The reading came in at 16.84 Thursday, well below the Monday peak of 85.90. Historically a reading as high as 85.90 has resulted in a pullback or correction of some sort. Thursday's reading of 16.84 means we are just barely buillish on the Dow. Friday morning futures are indicating a gap down for the Dow of 80ish points. Such a level is probably enough to flip this indicator to negative and thus by the end of the day we could be in a correction mode once again. However, there is still 6 1/2 hours of trading ahead so the verdict is not in.

Please click on the chart for the full image. I have yet to figure out how to get this blog to expand out to the left and right instead of a narrow column in the center.