The Catholic Investor - A Catholic Investing Blog

2011 in Review

noreply@blogger.com (Felix Wong) — Fri, 10 Feb 2012 05:38:00 +0000

The year 2011 was quite eventful and it deserves a brief review. (And that's not including my personal life events!) I will focus mainly on the sectors relevant to my portfolio, but I'll also try to address some macro issues as well.

First Solar
Let's get the most difficult one out of the way: First Solar (ticker: FSLR). This was one of my favorite stocks, but sadly, it wiped out all of my gains for 2011 and then some. Let's not mince words here... I was dead wrong! It was not so much wrong judgment of the company's relative performance to its peers as the wrong judgment on the company's ability to avert catastrophe under unfavorable macro conditions. My overall assessment of the company still stands; it will weather the consolidation of the solar sector and then go on to become a great company again. However, I was terribly off in my valuation of the company.

Let's look at the lessons learned here. First, I ignored the many warnings of a supply glut of solar panels. I believed that because First Solar led the cost per watt metric by miles, that it would be able to maintain high revenue growth along with high margins. I was proven wrong here. The Chinese manufacturers were able to dump panels at very, very low prices, causing the sector to essentially implode. Although First Solar was able to achieve gross margins in the high 30s, its revenue decreased. Earnings significantly missed the mark.

This leads to the second mistake: I trusted management too much. It had maintained that earnings for 2011 would be around $9 all the way up until October. Then the board kicked the CEO out and revised earnings to around $6. And this was two quarters gone already. How do you miss by 33% and not let shareholders know until it was too late? The CEO had too little skin in the game (i.e. did not own enough shares), and I ignored that too.

Third, I doubled down without double checking. Phil Town advises us to stockpile a stock if its share price drops significantly, but we would need to know the business is still intact. I missed the second part. Again, circle back to mistake 1. I didn't do enough homework. I should have proven to myself that First Solar could survive a major sector consolidation unscathed. By stockpiling, I amplified my losses. The stock saw an impressive 70% drop off its peak! Luckily, my other stocks performed well and offset some of it. Perhaps I need to look at limiting any one stock to a certain proportion of my portfolio to prevent such losses from occurring again.

Will I invest in First Solar again? That is a definite possibility. I sold all of my position at $37 when they announced the big restructuring. The stock dipped to near $30 and has rebounded very nicely to $49. I guess I should have held on a little longer. But who knew where the stock would have ended up! The founder is now back at the company's helm and has a viable business plan. He knows that solar panels are commodity items and is steering the company into value-added services which allows it to charge a premium for its services and panels. Its focus on large scale projects in emerging markets is also encouraging. The company, however, will be going through some tough times as it's 2012 forecast numbers aren't great. I'm staying clear until there is a compelling case for a rebound in revenue and earnings growth.

Google
The stock (ticker: GOOG) in 2011 went for a rollercoaster ride and basically ended up the same place as it had started. That's not to say the company and its business has done the same.

First, Larry Page, the co-founder is now CEO of the company. Android is now the most popular smartphone platform on the planet. Google is in the process of buying out Motorola. Google+ was released and is slowly building steam. Chrome is now the second most popular browser after Internet Explorer, surpassing Firefox. Its bread and butter, search, is still gaining market share. Most importantly, its revenues and earnings continue to grow steadily.

Q4 was a little bit of a hiccup. Revenue growth was really good, but their cost of revenues and operating expenses grew a little more quickly. Thus, their earnings were impacted and grew "only" 10% YOY. Given the number of new initiatives Google has on its plate, I think this is acceptable. We'll need to keep a close eye on this.

I still like Google's story...it's not going anywhere any time soon!

True Religion
True Religion (ticker: TRLG) is another of my darling stocks. It just released its Q4 numbers and the street was not impressed with afterhours trading. It was down as much as 25% afterhours. Do note that the stock has appreciated from low 30s to mid to high 30s as it came closer to earnings.

The story remains the same for the company. Consumer direct segment (i.e. their own stores + online sales) grew significantly, while the US Wholesale segment continued to shrink. As a result, gross margins continued to rise to 64.1%. However, the operating margin decreased from 23.6% last year to 20.7% this quarter. The increase in SG&A costs in domestic and international expansion. Same store sales were up 11%.

I'm going to take this as a buying opportunity. My rationale is this: 1) Consumer Direct is killing it and the North American market is far from being saturated, 2) gross margins are super high and rising - this indicates consumers wants their products and are willing to pay the price, and 3) same store sales are increasing - translating into better brand recognition (e.g. they are not just increasing revenues by opening more stores). We went through a little of this in mid 2011. The business is intact and I'm going to put my money where my mouth is. Tomorrow, I'm going to stockpile some more of this baby!

Synaptics
Synaptics (ticker: SYNA) makes touchscreens for phones/tablets and touchpads for laptops. The stock has been on fire recently. I got in in the mid $20s and now it's ~$38! They have shifted their product mix for touchscreens and that has increased margins and profitability. With the secular growth in the mobile space, I believe Synaptics will continue to do well. With P/E ratio of 23 right now, I may just take some money off the table and wait for a dip before getting in again.

US Economy
I believe the US economy is in for a great year. 2011 was a little bit of a drag, but I think that was largely due to the Japanese Tsunami. It disrupted global economic activity and we saw the US jobs market take a little bit of a breather from its growth in mid 2011. Below is a graph of the US unemployment rate of the last 60 years (courtesy of Google Public Data). See how every peak of unemployment is followed by a sharp drop back to more reasonable values? I believe we will see the same sharp drop starting this year. Already, we're down to 8.3% unemployment (and don't believe the pundits when they say the unemployment is down all because people are no longer looking for work...look at the stats yourself...I have).

Europe will continue to struggle with its debt crisis. I don't know what's going to happen in Asia, but I think the US will be the shining star in 2012. Hey, I'm no economist, but there are certainly good things happening in the States.

Conclusion
While I did quite horribly in 2011, I'm hopeful for a better 2012. How did you do in 2011? Leave me a comment!

Rule #1 Analysis Spreadsheet: Minor Update to Accommodate Changes to MSN Money

noreply@blogger.com (Felix Wong) — Thu, 26 Jan 2012 20:54:00 +0000

Hello Folks! MSN Money recently changed the way it displays some of the data that my Rule #1 Spreadsheet uses. As a result, everything has stopped working. Not to worry, I have rectified all of the problems that I was aware of and now, I present to your version 1.3: http://goo.gl/4bmU1! Have fun with it!

You'll also find that I've added some more columns to the "Stock List" tab which hopefully will give you some more firepower in evaluating your stocks. A "Noteworthy" tab has also been added to list out some of the stock symbols that have fairly good Rule #1 numbers. Beware that some may just show up as good in this screen, but may actually be not-so-good stocks.

Please let me know if there are any bugs, etc! Cheers!

Merry Christmas!

noreply@blogger.com (Felix Wong) — Sat, 24 Dec 2011 17:23:00 +0000

2011 has been a crazy year for my family and me! First, we sold out first house and moved into our second. Then, we had our second child, Athan. And as if we didn't feel like that was enough change, I changed jobs from ATS Automation to Ainsworth! But I think these were all in God's grand plan for us. We are thankful that we all made it alive and well!

There were also some bittersweet moments this year...and we are thankful for those as well. I've always believed in the saying, "Bad things happen to good people to make them better." Recently, I started to (re)-read the book of Job, after seeing an extended family member go through some very hard times over and over again. I believe every Catholic/Christian should give Job a good read as it gives a biblical perspective into why God allows suffering in our lives.

Regardless, this is the season to remember that the battle has been won. "Joy to the world, the Lord is come!" I wish you and your family a joyful and peaceful Christmas. Thanks for your continued support in this blog. I'm truly grateful! Again, Merry Christmas!

Rule #1 Analysis Spreadsheet: Updated with Auto Stock Lookup

noreply@blogger.com (Felix Wong) — Sun, 04 Dec 2011 04:41:00 +0000

FINALLY! It's been a couple of months since I wrote. A newborn and a 2-year old definitely takes up a majority of my free time! Today was a bit of a vacation. The family is staying over at my parents' for the weekend and so, I have some time to sit down and do some personal stuff, while there are plenty of people looking after the kids!

I promised, earlier on, to publish my Rule #1 spreadsheet with the auto stock lookup. You can access the spreadsheet HERE. The first thing you need to do is make a copy of the sheet so you can make edits to the sheet. Click on File > Make a Copy, and name the file to your liking. Oh yeah, you'll need a Google account.

How the Sheet Works
The main difference in the sheet lies in the "Stock List" tab. The tab is designed to run the Rule #1 analysis on the symbols that is specified in column A. Here's a simple procedure on how to use the sheet.

Fill in Columns A and B with the symbols and their respective stock exchange.
Click on Automation > Run Stocks - Start at Top. This will start the script and the table will be filled with the Big 5 numbers.

If you have a long list of stocks, the Google script may time out and stop in the middle of the list. If that's the case, use Automation > Run Stocks - Continue from List instead. It will continue where you had left off.

In addition to just displaying the Big 5 numbers, I've also added an arbitrary formula that will rate the stock based on the numbers in Column R. It basically gives a higher score if the Big 5 numbers are greater than 10%, a mediocre score if they are between 0 to 10% and a negative score if the numbers are less than 0%. Feel free to change this formula to whatever you want it to be.

Data...a Lot of Data!

When I had started working on this sheet in the summer, one of my readers, Brad, got me a very comprehensive list of US stock symbols. Due to Google's script time out issue, it took me quite a while to go through all 6000+ symbols...but here it is, available to you. It's under the "Copy of Stock List" tab. Keep in mind that the data is from the summer, which may be a little outdated.

Brad also gave me a lot of suggestions to add more fields such as P/E ratios, sticker price, current stock price, etc. I haven't had time to implement much of what he suggested. For now, I would use this sheet as a stock screener. Essentially, it'll give you a list of stocks with a Rule #1 score, and you can filter the stocks based on the score. Take the ones you like and do more research on them.

Let Me Know...

Please send me any feedback that you may have. I'd like to develop the sheet further to help you out! Hopefully, it won't take me another 6 months to release the next version!

Update January 26, 2012: I've updated the sheet. Go to the Investing Resources to download the latest sheet.

The Death of (First) Solar?

noreply@blogger.com (Felix Wong) — Thu, 22 Sep 2011 04:21:00 +0000

It's been a dark month for solar...One of my favourite stock just lost a good chunk of its value. Is this a sign of things to come? Will solar energy slowly fizzle out?

Let's do a quick re-cap of the happenings in the industry. With a couple weeks of each other, two US solar panel manufacturers, Evergreen Solar and Solyndra, filed for chapter 11 bankruptcy protection. The political fallout that ensued included the US Congress putting extreme pressure on the Department of Energy for its $500+ loans to Solyndra. This puts the loan guarantees that First Solar was looking for in jeopardy. Word on the street is that it will not get one of the three loans that it was seeking from the DOE.

So, what does the future hold for First Solar? Or solar in general? Surprisingly, it is good! Here are a few reasons.

Traditionally, Europe has been the biggest solar market, with Germany and Italy being top dogs. With the Eurozone debt problems, they will soon be replaced by the following markets: US, China, and India. Just look at the comparison. You have Germany, Italy, Spain, etc....then compare them to US, China, and India. Even just one of the three nations mentioned can overshadow the entire European market.

Back to First Solar. So, what happens if it doesn't get the loans from the DOE? Well, how do other companies get financing? They sell bonds. That is exactly what First Solar will do. True, the cost of borrowing will rise, but the impact is likely just slightly reduced earnings. At its current price of $73.52, by the end of Q4, the P/E ratio would be 8.0 with the current analysts' estimate of $9.13/share earnings estimate. Even if FSLR misses by a full dollar, the P/E would a mere 9.0. The current stock price is absolutely unjustifiable. By the way, I bought some more shares at $82.50, and will continue to do so.

Going back to Evergreen and Solyndra. Do take note that the cost per watt of these two companies are greater than $2/watt and $3/watt, respectively. First Solar is closer to $0.70/watt. Now, you see why the former two companies went bankrupt. I have already written about the impending consolidation in the solar industry, with a prediction of Evergreen going belly up coming true *patting myself on the back*! Look at the days of the automobile. In the early days of the 20th century, there were hundreds of auto makers in the US. By the end of the Great Depression, only three survived. The ensuing years became a time of boom for the Big Three. I believe that solar energy will be similar. There are many players now, but we are beginning to see a phase of consolidation. A few will remain after the dust settles. My bet is with First Solar.

Do I believe the market is being irrational? I believe so. I think the downside risk of buying First Solar now is very minimal. It was much riskier to have bought the stock at $120, but I still did, because I believed its business was intact. So, at $73, are you kidding me? If I were any less responsible, I'd be taking a large chunk of money out of my home equity line of credit!

But, of course, I have to be extra responsible now because our second child, Athanasius, was born just last month, on August 17! I hope this was a good enough excuse to have put a pause on my blogging! There's a lot I need to write about, including rolling out an update to my Rule #1 spreadsheet. I'll do my best to squeeze in some writing time!

Update September 22, 2011 - You would have thought that this guy plagiarized my post! Great minds think alike! :)

Double Dip? The Question Surfaces Again!

noreply@blogger.com (Felix Wong) — Tue, 09 Aug 2011 02:48:00 +0000

Hello All! As you may have noticed, the frequency of my posts have dropped drastically over the past few weeks. That was due to my move to our new house! Almost all of my free time has been consumed with unboxing, unpacking, cleaning, assembling, etc. The recent action in the market has prompted me to pick up the pen, so to speak. As well, I am currently on a business trip and have some free time in the evening to write.

Market Turmoil
To recap, the US Congress took its sweet time and waited until last minute to pass a bill to raise the debt ceiling last week. The bill was a compromise, something no one really liked. Not only did the market not rally at the news, it actually shed a couple of hundred points within a few days. To add fuel to the fire, S&P downgraded the US debt rating to AA+ from a perfect AAA last Friday, after market close. As expected, a huge selloff happened today, Monday.

Now, it is fair that the question regarding the possibility of a double dip resurfaces. I wrote about the same double dip issue last year. I focused more on the market double dip rather than an economic double dip. I did not believe the market would dip back down to ~700 pts (S&P 500), simply on the assertion that it took the bankruptcy of Lehman Brothers and the near insolvency of many big banks to take the market to those levels. Today, companies are stronger than ever. Even the worst offenders in 2008 are making money, companies like Citigroup and General Motors. We are actually not in too bad of a situation. This is a market correction...I repeat...this is a market correction. My guess is that the S&P500 index will bottom out at around 1050 pts +/- 50 pts.

The pessimists will have you doubting these numbers. The companies are making money, but they're not spending it, they say. The companies aren't hiring and there is no job recovery. Last I checked, initial jobless claims were down in the low 400s and the US added 117K jobs in July. They may not be huge numbers, but they are positive numbers nonetheless. Unemployment will not go away overnight. As corporate balance sheets strengthen, companies will start to spend and hire. Imagine that you are the CEO of a company. You are making good profits and so are your competitors, and things have been well for over a year now. What do you do? Do you keep hoarding cash? Of course not! You're probably thinking that you need to invest in the company lest your competitors start taking market share. So, you begin hiring and spending money. When companies do well, the economy does well. Why? The companies are the economy (or at least a big part of it).

Is there a chance that I'm wrong? Absolutely! However, I'm willing to place a bet on my hunch. You don't sell after the market has already sold off! The market has already fallen from 1370 to 1120 pts. If my prediction holds true, we are closer to the bottom than the top. It's time to start buying.

What About All This Debt and Deficit?
I wished I could tell you the answer to this question. I'm not an economist and will most definitely not pretend to be one. (I did buy a macroeconomics textbook recently...hoping to get to it soon.) Look, the US did not default on its debt. It simply got downgraded by S&P, which coincidentally is also a rating agency that gave toxic mortgage backed securities AAA credit rating a few years back. Even if the US did default on its debt, it would not be the end of the world. Many countries have defaulted on debt before, and they're still around. Obviously, a default by the biggest economy in the world would send ripples throughout the world, but it didn't happen after all. It wasn't even close to happening.

I don't know how the US government will solve the debt issue, but I am sure it will. But even if it doesn't, will the world end? It surely will not. Will all of the awesome companies all of a sudden forget how to make money? I doubt it.

What to Do
There isn't much to investing. Pick good companies and buy them at excellent prices. This works whether the economy is doing well or poorly. It works especially well when everyone is selling. And this is the time. Looking at my portfolio, I see First Solar (Ticker: FSLR) at $99. I bought some at $102 on Friday. If it falls to $95, I will buy some more. This price is absolutely not justifiable; it is worth at least $140, if not more. The same argument goes for the other companies that I own. So, run your analysis again on your own stocks, and see what the entry or MOS price is. Remember that famous mantra, "be greedy when others are fearful..."

Advanced Technical Analysis: Finding the Gold In Your Losing Trades

noreply@blogger.com (Felix Wong) — Mon, 25 Jul 2011 16:12:00 +0000

Below a guest post provided by Forex Traders. I typically focus on equities (stocks), but trading strategies in Forex applies equally well. If you would like to write a guest post, please contact me. Click on the About Me link for my contact info.

In life, most of the real lessons we learn are borne in the fires of adversity. In trading, things are the same. As humans, we tend to avoid pain at all costs. Therefore, when we experience pain, our immediate reaction is to do whatever is necessary to stop feeling that pain. When we have a losing trade, it hurts. It doesn’t hurt physically, of course, but it hurts emotionally and mentally. Thus, most traders react to a losing trade by trying to put it out of mind as quick as possible, and they move on to look for the next trading opportunity. This is a huge mistake.

In life, there are typically deep lessons hidden inside of our failures. If a person doesn’t look at their failures and extract all that can be learned, then trials are wasted. In trading, the same principle exists. We must learn to not run away from losing trades and losing streaks. They are a natural part of the trading process. Instead, it is absolutely imperative to objectively review every losing trade in order to find the gold hidden in your losing trades. In this article, we are going to discuss how to find the gold in your losing trades.

The Plan

Keeping a trade log is essential in relation to developing a high level skill set. Now, very few traders actually keep a trade log because it can be very tedious, and it is definitely not exciting! Trading is exciting. Buying and selling a financial instrument is exciting. Planning out your trades and recording them in a detailed trade journal is not exciting. However, if you want to really find the gold that is hidden in your losing trades, it is only possible if you are journaling your trading activity.

The Action

Keeping your trade journal is basically like gather evidence. If you simply gather evidence, but never analyze it to come to a conclusion, then it’s worthless. As we stated earlier, very few traders actually keep a detailed, consistent trading journal, and of those who do keep them, even fewer actually analyze their entries in order to find patterns of behavior!

The way to find the gold that is hidden in your losing trades is to sit down at the end of each trading week and intensely analyze every single trading decision and outcome from the week, especially your losing trades.

Why Winners Don’t Teach Us Much

If you follow your stock or currency trading plan perfectly and you close out a position at your profit target, what have you really learned? Not much, really. You put your plan together, you followed it, and you were rewarded. The only thing you will learn in this process is that your plan works. It will act as further confirmation and help continue to build your confidence, which is very important.

When you have a losing trade, however, something else is happening. If you follow your plan, and a trade does not work out, why does it not work out? Something happened that you were not expecting. And this is where, with a little persistence, you can find gold. Throughout your trading journey, you will most likely go through stretches where your trading approach will have to be modified. By analyzing your losing trades, you will find common patterns of behavior around losing trades, and this can be invaluable information.

An Example

I love to use Average Daily Range in my currency trading. Assuming the 20 Day ADR on EUR/USD is 120 pips, I love to fade EUR/USD back into the trading range once it reaches that 120 pip area and hits major support/resistance. During the late spring of 2010, when Greece was facing certain default and EUR/USD was falling sharply every day due to forex news, I suffered a major losing streak. As a result of logging my losing trades and analyzing them, I noticed that if EUR/USD reached its 20 Day ADR too early in the trading day, then the chances were better that it was going to continue in that same direction and not revert back into the day’s range. This literally transformed my approach and utilization of ADR.

Now, I have a strict rule that if a currency pair reaches its ADR before 8:00 am EST, then I will never fade that momentum. Instead, I will look for an entry in the direction of the day’s movement, in expectation that we are going to see a large range expansion day.

There is gold hidden in your losing trades. By closely analyzing them, you will discover how to tweak and refine your trading approach.

Risk Disclaimer: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite.

Work in Progress: Rule #1 Big 5s for ALL Stocks!

noreply@blogger.com (Felix Wong) — Thu, 07 Jul 2011 04:54:00 +0000

Just wanted to update you on what I'm working on right now. I think this will be good news for those seeking new stocks in which to invest. One of my readers, Brad, had suggested that I somehow automate my Rule #1 spreadsheet to go through every single stock traded in US exchanges and pump out a summary for them. I took up the challenge and decided to further automate my sheet to do this.

What I did was added another tab into the spreadsheet. There, I have in one column the symbols of all of the stocks listed in US exchanges (courtesy of Brad) and then I wrote a script to go through each and every one of them and look at their Big 5 numbers. Since I have 1-year, 5-year and 9-year numbers, I decided to cook up an arbitrary formula to give each company a score. As you know, Phil Town recommends that the Big 5 numbers be > 10%. So, if a particular Big 5 number is > 10%, the company gets a score of 3 for it. If it's > 0% but < 10%, it gets a score of 1, and if it was < 0%, it would get a -1. I then sum up all of the Big 5 numbers and normalize it to be out of 100. Since I do get "invalid data" once in a while for whatever reason, I just ignore that data point. What makes a good company? I think a score of 60 or above is a pretty solid company.

Figure 1: Updated Rule #1 Spreadsheet

One disappointment I had was that Google limits the run time of a script to be 5 minutes. The spreadsheet takes about 5 hours to run through the script. So, I'm painfully refreshing the script to go through the 6000+ symbols. Once that is done and I've thoroughly debugged the sheet, I will publish the sheet along with its results for you.

I would imagine you would want to sort the score using descending order and just see which companies interest you. I'm quite excited to see what kind of results I get. This is really a lot better than using an off-the-shelf stock screener since there is really no Rule #1 screener. Here, you just hit up the stocks with a high score and start your research there. Since you will have access to the sheet formulas, you can also create your own formula as you see fit.

Hopefully, I will have it published by the end of the week!

FaithShares Catholic Values: The Only Catholic ETF Out There

noreply@blogger.com (Felix Wong) — Fri, 01 Jul 2011 03:21:00 +0000

So you've read my series on the US Conference of Catholic Bishops' investment guidelines and figured you are just a little too lazy to go through all of that research. Or you've done all the research and made your picks (good for you!), but you wanted to hedge your bets and buy something that performs a little more like the market. Well, do I have something for you! It is the only Catholic ETF out there: the FaithShares Catholic Values ETF (Ticker: FCV).

First of all, if you don't know what an ETF is, the acronym stands for "Exchange Traded Fund". What that means is it is like a mutual fund where it's run by a fund manager and has many different holdings, but it trades like a stock, where you can buy and sell it within fractions of a second on the open market. There are also no sales loads, redemption fees, exchange fees, etc. In other words, it's got all of the advantages of a mutual fund, but not many of the disadvantages. It does have management fees, however, but really, what funds don't?

I did not feel like boring myself with reading its prospectus (you should if you're thinking about buying it), but I did take a peek at its fact sheet. From there, I found out what their strategy is. They take the 400 largest US stocks and apply a screen of them based on the USCCB investment guidelines. This filters out a number of companies that violate the guidelines. They then rank the remaining "good" companies based on the same USCCB guidelines. Once they have a ranking, they take those stocks, and perform sector allocation so that the fund matches the MSCI USA Index, which, for all intents and purposes is equivalent to the S&P500 index. In short, the FCV mimics the market but invests only in companies which have been screened for Catholic values.

Figure 1: FCV's Performance (Blue) Compared to That of S&P500

Looking at Figure 1, it appears FCV mimics the S&P500 index pretty well. If you're looking for market returns but want to adhere to Catholic values, this ETF is for you!

I also looked at its top holdings and was quite happy to see 2 of my 4 holdings, Google (Ticker: GOOG) and First Solar (Ticker: FSLR). My other two, Synaptics (Ticker: SYNA) and True Religion (Ticker: TRLG) were too small to even make it on the radar for the fund to consider. I had written earlier that I was concerned by Google's leanings to the political left. I had eventually worked that out and concluded that it was likely ethically acceptable to invest in Google. I'm glad I've gotten confirmation here. I will sleep well tonight!

Another thing to mention is that FaithShares donate 10% of the fund's net income to a Catholic charity/organization. This is excellent!

Overall, I think this ETF is not a bad investment vehicle for those who are lazy, but ethically conscious, or for those who want to hedge their bets. Do be aware that someone is making an investment decision on behalf of you, and he/she may be wrong! Factor that into your investment decision. Lastly, if you're not Catholic, FaithShares does have other Christian oriented ETFs as well. Do check them out!

Some Recent Changes in My Portfolio

noreply@blogger.com (Felix Wong) — Sun, 26 Jun 2011 04:23:00 +0000

Finally got some time to update my trading history page. Bought some Google and First Solar since end of April.

Google
Is there any indication that Google's business is declining? There's one answer to that question: No. The main reason is that the Internet is still growing. According to Internet World Stats, the Internet's penetration of the world is still only at around 30%. That's a long way to go to get to probably around 85%, where I think saturation will take place.

What's more important is that the Internet is reshaping the way the world operates. Not only will the number of users increase over time, the amount of money to be made on the Internet will continue to grow. For example, online video streaming is only in its infancy. Think Netflix and Youtube. They have been around for less than 10 years, and Blockbuster has become the first casualty. I have no doubt that cable TV as it is will disappear in about 20 years. People will still need to be entertained, but likely through some form of Internet service. This is the megatrend of the 21st century, ladies and gentlemen. By owning Google, you will be able to participate in this mega-growth!

First Solar
Renewable energy, another megatrend in the making. First Solar is the lowest cost solar panel maker, and also one of the largest in the world. Lots of profits and lots of cash, what more can you ask? Thanks to the Japanese Tsunami, nuclear has lost its popularity as an alternative to fossil fuel power generation. There will always be naysayers, but solar energy has already reached critical mass. Again, own this company and you will ride the wave.

Do You Have the Guts?
Half of the battle is finding the courage to buy the right stock. Anyone can feel good buying a stock that has just gone up 50%. But those who make money are the ones who have the guts to buy a stock after it has gone down 50%. Of course, you need to know that it's a good stock in the first place. Warren Buffet opens his wallet most often during times of calamity, when stock prices are driven down. You should learn to do the same. In order to have the guts, you need to have the conviction that your picks are good. Rule #1 Investing can help you do that. Start your journey here.

Worried about the US Job Market?

noreply@blogger.com (Felix Wong) — Fri, 24 Jun 2011 04:13:00 +0000

Laugh all you will, but I like Jim Cramer. I know he's a buffoon sometimes, but he's entertaining, and I also think he's actually very talented. He doesn't get the credit he deserves. Here's a perfect example.

While everyone is worried about the US initial jobless claims number rising this week, he goes and takes a look at the situation from another angle. He looks at the results of Paychex, a provider of outsourced payroll services. He noted that the "cheques per client" metric is up this year, which indicates that employers are continuing hiring rather than laying off people.

I appreciate this kind of out-of-the-box thinking. You don't necessarily need to look at the widely used economic indicators to find out what's going on. Sometimes they are not that accurate. I've come up with my own indicator for retail companies using Google Insights. I talked about it here.

In any case, take a look at what Cramer's got to say...

USCCB Socially Responsible Investment Guidelines - Part 7: Encouraging Corporate Responsibility

noreply@blogger.com (Felix Wong) — Sat, 18 Jun 2011 04:43:00 +0000

The sixth and last area covered by the investment policies of the USCCB is "Encouraging Corporate Responsibility".

This category is in fact a summary and also a catch-all. What does it mean to be a good corporate citizen? It really boils down to a company behaving in ways that are acceptable to the society in which it operates. Largely, it is a question of morality. Therefore, this category should not be new to us by now. By looking at the previous 5 categories of protecting human life, promoting human dignity, reducing arms production, pursuing economic justice, and protecting the environment, we would know what a good corporate citizen looks like.

In my opinion, there are 3 main categories of corporate citizens: the bad, the questionable, and the good. The bad is an easy one; the company is really all about making money. If corners could be cut, you can be sure they'd be cut. If they screw up something, they will try to cover it up. A good example would be Johnson and Johnson (Ticker: JNJ), with its recent drug recall fiascoes. The questionable may include Google (Ticker: GOOG). Google's got some nice initiatives, which includes the promotion of renewable energy, but it also has some left leaning tendencies, such as support for gay marriages. Lastly, the good are the bullet proof companies, where their business is beneficial to society, and it is not plagued by moral issues. I have yet to find such a company. Why not? It's simply because I'm just a regular joe. I don't even know half of what's going on in the company at which I work, how is it possible to verify that all of activities of any one company are ethical?

That is not to be a cause for concern, however. As ethical investors, we are not required to find the perfect company. As I said, that is simply not possible. What we are to do is to do the best that we can, within reason, to conduct research on a company to see if they are good corporate citizens. What does that entail? An hour or two of Google searches will likely suffice. If there are some glaring misconduct, chances are people will know about it and it will be on the Internet. If there are minor issues, you may not be able to find out about it, but then again, they likely don't warrant boycotting of their stock. In the end, what matters is really up to you. No one is pointing a gun at your head to make you screen stocks for ethical misbehaviour. God will likely not damn you to the Inferno for not spending more than a couple of hours researching either. The fact that you're looking into the corporate citizenship of a company already puts you ahead of 99% of all other investors. Give yourself a pat on the back!

Now that we've gone through the USCCB investment guidelines, I think we can safely say that we can do our due diligence when investing. Our research may not be perfect, but it's miles ahead of not doing any at all!

Getting Back into True Religion (TRLG)

noreply@blogger.com (Felix Wong) — Wed, 08 Jun 2011 16:14:00 +0000

I'm starting to buy True Religion (Ticker: TRLG) again after selling a number of shares and also having my call option exercised. I will buying more if price drops below $25. Google Insights is showing good search volume, which I believe correlates with sales. Come join the party!

+1 This Blog and Follow Me...Please!

noreply@blogger.com (Felix Wong) — Tue, 07 Jun 2011 04:50:00 +0000

Jumping onto to the social media bandwagon here...I've added 2 buttons on the right column on this blog. The first one is the Google +1 button and the second is the Twitter Follow Me button.

I'm fairly certain most of you know what Twitter is by now. Not everyone uses it, but most people know what it is and what it does. The Catholic Investor has had a Twitter account for some time now, and I've set up Feedburner to automatically tweet a link to each post that I publish. I am also going to start tweeting a little more. Sometimes, I find that I have thoughts about investing, but it's either not long enough to justify a full post or I simply don't have time to write a post on it. So, I'll just tweet my thought. If you use Twitter, please follow me by clicking on the Follow button!

The other one is the Google +1 button. What exactly is +1, you ask? It's Google's way of "Liking" something (borrowing from Facebook). With Facebook, you "like" something and it shows others that you enjoyed, say, another friend's picture or comment. It's a short and sweet way of keeping in touch with a friend. For example, I see my friend upload a picture on Facebook, but I don't really feel like writing a long winded comment. So, I just "like" the picture. He sees my "liking" and knows that I've enjoyed it. The next time we meet up, we can talk about the picture and it's like we have already talked about the topic.

Google's +1 is a little bit more subtle and ingenious. At first glance, it looks like a Facebook rip off, but it's more than that. The "+1" phrase was developed by use in forums (I believe...or at least that's where I see it most). When one forum member says something and another member agrees, he/she would reply with simply "+1" to convey that message. It's like saying, there's 1 more person who agrees with this. I think Google's engineers basically had this in mind, and wanted to use it to enhance its search results, which is its bread and butter. I believe +1 will be hugely successful.

The reason is simple. When I search for a topic, say, "Rule 1 investing", this blog shows up near the bottom of the first page. This is due to Google's algorithm taking into account the number of incoming links and their quality, along with the contents of this web page. Once +1 is fully launched and many people are using it, if my readers decide to +1 the site enough, the Google results will take that into account and bump up my ranking, because people have +1'ed it. It makes +1ing actually useful to the many other users, including those you don't know, as opposed to the Facebook "like" button. In the past, Google has always looked at the internet itself to determine the relevance of a site, neglecting the input of the countless internet users. +1 is the single, easiest way of tapping into the collective wisdom of us users. I'm hopeful that +1 will turn out to be the next breakthrough in Google Search!

So, won't you be so kind as to +1 this site?

I Bought Some First Solar (FSLR) Today! Part 2

noreply@blogger.com (Felix Wong) — Sat, 04 Jun 2011 04:21:00 +0000

This is going to be a reoccurring theme...buying First Solar on the cheap. As I try to stick to my stock allocation strategy, I can't help but keep wanting to buy more of First Solar. This stock is now 33% off from its 52-week high of $175. If you buy now and it rises back up to that point, you get a nice 48% gain. So, I decided to buy more today.

Why am I so confident in the stock? Here's why. First Solar reported its Q1 earnings on May 3, 2011. That is more than 4 months into the FY11. It reiterated its earnings per share guidance for the year of $9.25 to $9.75. First Solar has a pretty good record for beating analyst estimates, which don't deviate too much from the issued guidance. So, chances are First Solar will earn at least $9.25/share. At $118, this works out to be a forward P/E of 12.8, which is a very, very modest P/E ratio, considering it has been sitting near 20 for the past couple of years.

What if they miss estimates? How bad could they be? Let's say they miss by a full $1.25. That gives $8.00/share, which results in a P/E of 14.75, still below the current P/E of 17. I would say there's quite a bit of margin of safety here. Since the year is back-end loaded, I can somewhat foresee that the stock price will rise in the second half as Q2 and Q3 results are announced.

Moreover, I believe First Solar may actually beat the estimates. It earned $1.33/share in Q1, which beat estimates by $0.17/share. That is not really the important part. The important part is that they achieved this despite some difficulty. Their CFO, Mark Widmar, explained in the Q1 earnings call that "net sales for the first quarter were $567.3 million, down $42.5 million or 7% compared to the fourth quarter of 2010. The decrease was primarily driven by lower volumes as we allocated modules to system builds to meet contracted delivery schedules. Revenue recognition is expected for those volumes later in the year." What this means is that they had produced a number of panels, but they went to the system builds (large scale projects), where the customer doesn't pay until a certain milestone is achieved in the project. The product is out the door; they're simply waiting for the money to come rolling in.

First Solar also benefits from the fact that they are a systems builder. So, instead of just selling panels, they actually build solar farms using their own panels and sell the farms to operators. An analogy that can be used is this. There are 2 miners who operate gold mines. Miner A mines the gold and simply sell the gold bars at whatever price gold happens to be. He makes money, but margins are low. Miner B also mines gold, but he also has a jewellery wholesale operation. He signs contracts with Tiffany and the like at the beginning of the year and produces fine gold jewellery for them using the gold they have mined. Miner B is at an advantage because he is no longer selling a commodity. You can't go on the open market and buy a designer necklace at the current necklace price. There is no current necklace price for a designer necklace. Miner B is able to differentiate itself from competitors. He also has good visibility of what's coming down the pipeline. He already knows what the contracts call for and the prices at which the goods are sold. Therefore, First Solar's forecast carries more weight than pure panel makers. Pure panel makers make forecasts based on how many panels they can produce and a guess of what the average selling price (ASP) would be. If the ASP falls dramatically over the course of the year, the forecast would no longer be correct.

That said, First Solar is likely not immune to falling ASPs. If customers see a dramatic drop in ASPs, they may want to re-negotiate the price of the system. Customers typically aren't stupid either. This risk, however, is smaller than the risks that pure panel makers face.

Am I nervous about the dramatic decline in stock value of First Solar? Sure! Am I hopeful that it'll bounce back? Absolutely! In the game of stocks, we need to take out emotions, which often drive us to do irrational things. Let's try to keep our heads clear. In 12 months time, when First Solar is trading at $200, we would likely ask ourselves, why didn't we buy more when the stock was at $120?

Stock Allocation: A Way of Increasing Returns

noreply@blogger.com (Felix Wong) — Wed, 01 Jun 2011 03:33:00 +0000

If you are an investor, chances are you would have heard of the term "asset allocation". The idea is to maintain a certain percentage of your portfolio in different asset classes, for example, stocks, bonds, etc. Why would you want to do that? The answer is simple: it increases your return.

Suppose you have Asset Class A and Asset Class B, and you want to maintain the percentage of each to 50%. Say you had invested $10000 in each and Asset Class A rose 50% in the first year while Asset Class B dropped 30%. At the end of the first year, you would have $15000 in A and only $7000 in B. You now have an imbalance. What you do is sell A and buy B so that you have equal amounts of both (50% of each). At the start of year 2, you would have $11000 of each of A and B. If B then rises 50% in year 2 while A falls 30%, you would have $7700 in A and $16500 in B. This would total to $24200. If you had not rebalanced your portfolio, you would have had $10500 in A and $10500 in B, totaling only $21000. Asset allocation works very well when your asset classes are not correlated (i.e. they do not move in the same direction all the time).

The really curious thing is this: your portfolio returns is actually greater than the average of the returns of both investments. Back to that example above. A had risen 50% in the first year and dropped 30% in the second year. Its returns was 5% over 2 years. B had dropped 30% in the first year and risen 50% in the second year. Similarly, its returns was 5% over 2 years. However, the rebalanced portfolio ended with $24200, which works out to be 21% gain over 2 years. Both only returned 5% over 2 years, but somehow, your portfolio returned 21%! Isn’t that cool?

The key lies in correlation, the lack of it actually, between the assets. What we are effectively doing is buying low and selling high. Now, you all know that I am a stock kind of guy (I only hold cash or stocks). Therefore, instead of asset allocation, I propose doing a stock allocation. I currently have 4 stocks in my portfolio. Chances are, they will be slightly correlated. That is, they tend to move in the same general direction, but some times do deviate. In Figure 1, you can see the performance of the 4 stocks over the past 2 years. As you can see, they definitely follow different paths. The goal is to allocate a certain percentage of your portfolio to each stock. In this case, I may want to allocate 25% of my portfolio in each stock equally. It doesn't necessarily have to be an even split. I may have a belief that True Religion would outperform the other 3 stocks. In that case, I might want to give it a 40% weighting and the rest 20% each. It is entirely up to your discretion.

Figure 1: The Stocks in My Portfolio: Google, True Religion, First Solar, Synaptics

Dumb Stock Allocation
So, you now get the general idea of stock allocation. You can either use a "dumb" stock allocation strategy or a "smart" stock allocation strategy. The dumb strategy is to simply set an allocation target percentage and every few months (or weeks or years), rebalance your portfolio to that percentage.

Let’s look at a real life scenario to see how that works out. Instead of 4 stocks, let's keep things simple and use 2 stocks. The table below shows quarterly price data of Google (Ticker: GOOG) and True Religion (Ticker: TRLG), starting from January 2005. If you had bought and held the stocks, you would have gotten 193% returns over the 25 quarters. If you had rebalanced your portfolio every quarter using dumb stock allocation, you would achieve 297% returns over the 25 quarters! It works alright!

Smart Stock Allocation

"Smart" stock allocation, on the other hand, requires some smarts from you. I would definitely say that this is a more advanced strategy with a combination of Rule # 1 Investing and pure gut feel. I'm starting to employ this strategy...So, we're into uncharted territory here! Ok, ok, I'm exaggerating...investors have done this many, many times already. In fact, many people do this without knowing it.

Here's a real life example. If you have followed my trading history, you would have noticed that I started buying True Religion around this time last year and began to sell it just recently. I have also bought some First Solar recently. This is me doing some smart stock allocation. True Religion has run up to the high $20s in the last couple of months. My cost was $22.55. Because of this run up, the holding has grown in proportion. Meanwhile, First Solar spiked up for a little while, but is now trading in the $120s, off its 52-week highs in the $170s. It has decreased in proportion. Therefore, I sold some True Religion and bought some First Solar. The likelihood of First Solar moving back up to $170 is greater than True Religion moving up the same amount to $42; the True Religion stock had already gone up from $22 to $29 in a short amount of time. If things work out as they should, we should see First Solar bounce back up while True Religion takes a breather and stays steady or retreats a little. Hopefully, this will work out. Pray for me!!

Some Major Major Caveats

Whether it's dumb or smart stock allocation you are using, you must have good reason to own any particular stock. Please do not, I repeat, do not use stock allocation blindly by just picking whichever stocks you like and hope that you will make money. If you pick 5 overpriced stocks, as the prices tumble 50%, stock allocation won't be of much help.

You need to know the intrinsic value of the stock. My advice is to use Rule #1 to help you determine that. Never buy a stock that is ridiculously overpriced. For that matter, never buy a stock that is fairly priced. Always buy a stock that is underpriced.

If you are using smart stock allocation, use technical analysis to help you figure out when to buy and sell. Rule #1 talks a bit about the "3 tools", but from my own experience, I prefer using supports and resistances. However, the 3 tools in Rule #1 are more objective and require less experience.

Lastly, know that stock allocation might not increase your returns. If your one stock does really, really well for an extended amount of time compared to the others, you would end up selling more and more of it prematurely. Therefore, study the movement of the stock. If it tends to gyrate between supports and resistances, then it would be wise to rotate in and out of the stock as it moves up and down. However, if the stock tends to be steadier and rises constantly, stock allocation may not end up helping you. I would recommend doing some back testing to see how stock allocation works out. By back testing, I mean running a simulation of the past few years of data and see if the returns are magnified or decreased (similar to what I did above with Google and True Religion).

Let me know how this works for you!

Good Bargains Available!

noreply@blogger.com (Felix Wong) — Thu, 26 May 2011 16:08:00 +0000

There are currently some good bargains available. First, we have First Solar (Ticker: FSLR) which is getting hammered for no apparent reason, aside from just pessimism and bearishness. Google (Ticker: GOOG) is also seeing the $510s, also for no apparent reason. Fundamentals for both companies look great. Since I have already bought both of these companies recently, I will be holding out some more.

If FSLR drops below $105, I will start to buy aggressively. Same with GOOG if it nears $500. If you don't currently have either of these stocks, you may want to begin thinking about buying some.

USCCB Socially Responsible Investment Guidelines - Part 6: Protecting the Environment

noreply@blogger.com (Felix Wong) — Sun, 22 May 2011 05:39:00 +0000

The fifth area covered by the investment policies of the USCCB is "Protecting the Environment".

This is one of my favourite categories. I moved to Canada from Hong Kong when I was 8 years old in 1987. Just shortly after I had arrived, Toronto started the curb side recycling program. Initially, it was only a small "blue box" program where you had about 3 cubic feet of space to place your recyclables each week. The idea that your garbage was really not garbage was really revolutionary. There was also a big push in education in the schools. Over the years, the recycling program had really expanded. Currently, in Toronto, there are now 3 types of boxes for recycling. The blue box still exists, but is now a big wheel barrel. Items such as aluminum cans, glass, and Tetrapaks go here. There is also a grey box which take paper products. Similarly, it is a big wheel barrel. Most recently, a green bin program was started. Compostable material such as food scraps go here. These items are all picked up weekly by the curb. The goal of the city is to divert 70% of garbage from landfills. A large majority of Canadian cities run similar programs and I would say they have been largely successful.

The same cannot be said for our friends in the US. I work with many customers from the US and from the anecdotal evidence I have gathered, curb side recycling is still an exception rather than the norm. I'm not here trying to trash my American friends, but the point I want to make is that the protection of the environment cannot be achieved, at least efficiently, unless there is governmental and corporate support. This is where our investment comes into play. We should be using our investment as our voice.

The USCCB's policy for their own investment is to actively promote and support shareholder resolutions that encourage corporations to act responsibly. Just recently, I had exercised my shareholder right and obligation and voted, by proxy, on the various matters to be discussed at the annual shareholders meetings. However, what I found was that most of the questions on which I voted were very broad. They usually revolved around executive pay, use of certain accounting firms, and other shareholder resolutions. Therefore, I have concluded that it would be difficult as an individual investor to voice peripheral concerns such as the protection of the environment, unless the company's business was directly linked to it.

How to Invest to Protect the Environment

As a result, our obligation is really to select companies that are already environmentally conscious, or better yet, have products or promote technologies that protect the environment. We should also avoid in investing in companies that harm the environment, whether through their manufacturing processes and business practices or by the use of their products.

I will use my own portfolio as an example. First and most obvious is my investment in First Solar (Ticker: FSLR). It makes solar panels which produce electrical energy with no byproducts. The only impact to the environment would be the manufacturing process and also the panels' disposal at the end of life. One solar panel produces in the vicinity of 4000 kWh in its lifetime, which is equivalent to 14400 MJ, or 413 L worth of gasoline. I hardly think one would need to burn a fifth of 413 L of gasoline to produce 1 solar panel! Solar energy, is without a doubt, green energy. First Solar is not without some problems. It uses cadmium telluride in its panels. Elemental cadmium and cadmium telluride in its own form are toxic to humans. It is important that First Solar is able to recycle these panels at the end of their lives.

The second and less obvious green investment I have is Google (Ticker: GOOG). To many people's surprise, Google is actually a very green company. It invests heavily in solar and wind energy, for example. It also uses goats to "mow" their lawn, instead of traditional lawn mowers. There are many good things that Google is doing with regards to helping the environment.

On the flip side, we want to avoid investing in companies that do the environment harm in one way or another. One obvious example is oil companies like Exxon Mobil (Ticker: XOM) and British Petroleum (Ticker: BP). BP has become the poster child for companies to hate, with its recent oil spill in the Gulf of Mexico. Aside from oil spills, the burning of fossil fuels derived from crude oil releases huge amounts of carbon dioxide and other pollutants. Fossil fuels, in and of themselves, are not evil, but in today's world, humans rely so heavily on them that there may be irreparable damage done to the environment if we continue to consume them at the current rate. Our insatiable thirst for crude oil is simply not sustainable. We should direct our investment elsewhere.

Conclusion

It is really not that difficult to evaluate whether a company is environmentally friendly or not. Just look at its products and how it is made and used. If you find that it's not that easy to evaluate, try multiplying its current volumes by 10 or 100. That may make things more obvious. Or, you can try googling the company name with "environment" and see what results come up. The internet is really a great place to do research in this area. In the end, using common sense is likely all you need to do.

I Bought Some First Solar (FSLR) Today!

noreply@blogger.com (Felix Wong) — Tue, 17 May 2011 16:18:00 +0000

Good day! First Solar (Ticker: FSLR) seems to be finding a nice support around the $120-125 area. I bought some more shares today as I continue to take this as a great buying opportunity. I also recently started a naked put option on First Solar. See my trade history.

So what happens if it continues to fall? I'm buying more! Overall, Q1 has not been a nice quarter to a number of solar companies. Evergreen Solar (Ticker: ESLR) is on the brink of bankruptcy. So, the fallout is beginning! This is a good thing! Why? As I have said before, the smaller players will die out, leaving the field for a handful of larger players, such as First Solar. We know the solar sector will flourish in the current and next decade. Having stake in the best company in the industry will help you ride the wave.

Also of note, Sunpower (Ticker: SPWR) is being bought out by Total. This means well for the industry in general. If an oil company is investing in clean energy, you know it's got a future! Who knows, maybe some other company like Exxon or BP would be interested in First Solar? A takeover will send shares very high!

Quick Comparison: First Solar (FSLR) vs. JA Solar (JASO)

noreply@blogger.com (Felix Wong) — Wed, 11 May 2011 03:23:00 +0000

JA Solar (Ticker: JASO) impressed investors today with its earnings report and its stock was given a nice 6% jump. I was a little less impressed. Here's why. I am a big fan of huge gross and profit margins. Why? Large margins indicate one thing: a huge moat! People are willing to pay a premium for the product relative to the cost of the product. Ok, so you say, what's the big deal about profit margins anyway? A company can still make money and grow revenues/profits even with low margins. Yes, that is true, but the safety factor for companies with small margins is small. Let's do a quick comparison.

First Solar 2011 Q1 Results
Revenue: $567 million
Gross Profit: $260 million
Gross Margin: 45.9%
Operating Margin: 20.4%

JA Solar 2011 Q1 Results

Revenue: $556 million

Gross Profit: $96.3 million

Gross Margin: 17.3%

Operating Margin: 15.0%

You can see that both companies made about the same amount of revenue, but the gross profit of First solar was more than double that of JA Solar. This essentially means that the selling price of JA Solar's products were just a bit above that of its cost. The one big risk that everyone talks about in the solar industry is falling average selling prices (ASPs). It means that because many companies are ramping up production, the supply of solar cells/panels will exceed the demand. As a result, the price of the cells/panels drop. Because First Solar has a large gross margin, it is more insulated from dropping prices. If ASPs dropped by 15%, you can bet JA Solar will be losing money. First Solar may still be able to make money, but just less.

It is a little unfair to do this comparison, however, because First Solar makes panels and JA Solar makes cells. Solar cells are essentially commodities and are typically a low margin business. I guess this makes my point even stronger. First Solar has proprietary technology that lowers its cost significantly. However we spin it, First Solar's business is superior to that of JA Solar's.

Another interesting point...JA Solar has a very, very low SG&A component, about 2.3% of revenues (gross margin minus operating margin). The company used only $12.8 million for sales, general, and admin expenses in the quarter, which is suspiciously low. I'm wondering if there are any accounting tricks that were used. You can compare this with First Solar's $145 million. While this is high, it seems much more reasonable.

All in all, it is no surprise that JA Solar's P/E ratio is at a low 4.0. Investors know this is a risky play.

Volatile Stock: First Solar (FSLR)

noreply@blogger.com (Felix Wong) — Fri, 06 May 2011 04:53:00 +0000

First Solar reported earnings earlier this week. They beat estimates by about 15%, but investors weren't pleased with the outlook, which was the same as their guidance last quarter. Talk about illogical! Mr. Market is having big mood swings. It was less than 3 months ago that the stock hit $175. Now, it's $128. This, ladies and gentlemen, is volatility for you!

Take a look at their earnings press release and also earnings call transcript. I got a sense that Q2 will be another tough quarter, but sailing should be smoother in the second half. Be prepared for a bumpy ride for the next few months. On the bright side, some positive outlook they've given include 3.0 GW capacity by end of 2012 and cost per watt down in the $0.52 to $0.63 range by 2014. This means their capacity would be doubled of what it is today in about 18 months. In the meantime, I am planning on selling a naked put and maybe also buying some shares (both are bullish positions).

True Religion (TRLG) Explodes (In a Good Way)!

noreply@blogger.com (Felix Wong) — Fri, 29 Apr 2011 03:57:00 +0000

True Religion (Ticker: TRLG) released their quarterly earnings today after market close. You can read its press release for the details. It beat estimates by 38%! Are you kidding!?! Analysts estimated that it would earn $0.26/share, but it ended up making $0.36/share. The quarter was really a blowout...just incredible!

Management had set up the business for success. It opened up new stores and invested in advertising for their web store. This was done because this was their highest margin segment (gross margins of 72.2%!), US Consumer Direct. Conversely, they began to scale down the lowest margin segment, US Wholesale. We can now see the fruits of their work.

Going forward, I'm feeling pretty good about the stock. I believe a P/E ratio of 20 or even 30 can be sustained by the current growth of the company. I will start to scale out of the stock as it continues to rise into the $30s, and then buy back at lower prices. With its volatile nature, I would not be surprised if it were to come back to the mid-to-high $20s at some point.

One more thing I wanted to show you was a tool called Google Insights. I use it as a tool to predict the current quarter's performance of companies which sell consumer products. When you enter a search term, Google returns a chart that shows the search volume of that particular term. Since True Religion is a term that would be searched by the masses, it would give a fairly good indication of how well its business is. I've embedded a chart of the search volume for the term "true religion" below. If you look at the history of True Religion's earnings, there is some correlation between it and this chart below. Try it out! See what you get when you type "iphone", "android", and "garmin". Chances are, the company's stock performance has some correlation with the search volume of its products!

Just in case you're wondering why I wouldn't use this tool for other industries...it's quite simple. The number of searches don't necessarily correlate with its sales. For example, I work with lasers at work. I wouldn't use this tool to predict the performance of the laser maker, IPG (Ticker: IPGP), because the number of searches don't really correlate with its sales. If you're curious, check it out. The Google Insights chart for "IPG" does not correlate at all with its earnings or stock price. However, for consumer products, if the masses are searching for a product, it's likely that they are going to buy that product. Not so much for other industries.

A Flurry of Activity

noreply@blogger.com (Felix Wong) — Wed, 27 Apr 2011 04:42:00 +0000

For those of you who don't know, I publish all of my trades on this page. I don't show the number of shares, but I do show the price at which I bought/sold. Recently, I've been busy buying and selling and my broker is loving it. I've bought shares of Google (GOOG), First Solar (FSLR), Synaptics (SYNA), and sold some True Religion (TRLG) and Garmin (GRMN). On the options side, I've sold uncovered puts for TRLG and SYNA, as I'm bullish on the stocks and wouldn't mind owning some more shares even if they got exercised. As well, I sold some covered calls on TRLG, because I felt that the recent run up could lose some steam. I could be wrong and the shares could be called away, but only after a 28% gain! Either case, I'm a happy man!

I still haven't written about my case for Synaptics, but I hope to do it sometime within the next 2 weeks. It just had a pretty impressive quarter and I'm hyped about this company.

Happy Easter!

noreply@blogger.com (Felix Wong) — Mon, 25 Apr 2011 03:48:00 +0000

Happy Easter! Easter is truly the reason for our faith. St. Paul tells us, "if Christ has not been raised, your faith is vain; you are still in your sins" (1 Corinthians 15:17). Even this blog would be in vain. But fortunately for us, Christ is indeed risen! Alleluia!

Update of Portfolio: Garmin (GRMN)

noreply@blogger.com (Felix Wong) — Wed, 20 Apr 2011 03:41:00 +0000

Not all things are rosy in my portfolio. I've had some losing positions over the years and this post will be on one of them. It is the very familiar name, Garmin (Ticker: GRMN). If you don't know what they do, they are one of the major GPS makers (alongside TomTom).

I had started my position in Garmin when I first started reading Rule #1 back in 2008. Phil Town liked the stock and I was a Garmin user myself. I ran some numbers and thought that the company was on solid footing. I started buying as it fell to $40 from $120. I thought it was an excellent price. I continued to accumulate and had a sizeable position, with an average cost of about $37. As the financial meltdown took its course, Garmin fell all the way to $17. If only I had cash left at that time, I would have bought more.

Fast forward a few years, after getting paid $1.50/share in dividends and making a small amount in Garmin options, I exited the stock at around $33.50. I bit the bullet and took a loss, because I looked at my other holdings and realized that my money was doing not much work in Garmin and the potential for growth was smaller than the others (i.e. True Religion, Google, etc.). All in all, I lost a couple of bucks per share, but the higher costs was really the opportunity cost.

Garmin's Brief History and Current State
Let's look at how Garmin is doing these days. If you flip through the Rule #1 analysis below, you can see that there's some missing data in MSN Money, but the data that do exist are telling. Every was rosy until about 3 years ago. This was when the financial crisis hit and the smartphones started to take off.

Since many people had bought a car GPS by then, the market was beginning to saturate. Overall growth in the company became stagnant. It also flopped on its venture into the smartphone space. In my opinion, it failed not because it did not have a good strategy, but because of poor design choices. The strategy of using Android as the platform was sound; HTC has become a major force in the smartphone world by adopting the Android OS, so it could be have been done. The failure stemmed from the lackluster hardware specifications that the Garmin phones had. Garmin's phone specs could not match those of the likes of Motorola Droid and HTC/Google Nexus One.

Figure 1: Rule #1 Analysis of Garmin (GRMN)

However, there is light at the end of the tunnel for Garmin. As its automotive segment begins to wind down, its outdoor/fitness, aviation, and marine segments are still doing quite well and with great margins. These segments combined already bring in more net income than the automotive segment. Garmin will soon find its groove again if it can successfully fend off newcomers such as Nike in the outdoor/fitness segment.

The rise of China and India also presents some much needed lifeblood for the automotive segment. So, it is not entirely dead yet. Garmin pays a nice 5-6% dividend, has a steady cash flow, and its balance sheet is strong. It's current P/E ratio is 11.2, which is not expensive at all. Investors have priced it as a steady, if not declining stock. If the stock falls below $30, it could be start to be a bargain again.

Conclusion

So, was Garmin a mistake? Yes and no. The mistake was exhausting my cash a little too quickly, but who would have known how low it could go back in 2008/09. If I had only started buying a little later, I would have made some good money. The company is not exactly a Rule #1 stock now, since it is well past its growth phase, but it could still be a value stock. The main reason I wanted out was because I saw better opportunities out there. Taking that loss was difficult, but it's for the better.