S.T.A.M.T.C

Stocks That Almost Made the Cut: May 2006

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May 1, 2006 | S.T.A.M.T.C | Author Asif

I strongly considered featuring the aluminum producer Alcoa (AA) in this month’s SINLetter. Alcoa would have fitted in well with the theme of the May SINLetter as a large amount of aluminum is used in airplanes. It would have also been a play on the current bull market in commodities. However I found Eaton (ETN) more intriguing for reasons already discussed in the latest edition of SINLetter.

A friend recently started a position in Pacific Ethanol (PEIX) and suggested that I take a look at it. I looked into Pacific Ethanol briefly but decided against it on account of heavy insider selling as chronicled in this blog entry by Himanshu Pandya. When the CEO and CFO start dumping their company stock in unison, it is best to stay away from the stock. Investing in Pacific Ethanol at this point just feels like subscribing to the greater fool theory. Instead I picked CMGI (CMGI) as an alternative play on alternative energy.

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Stocks That Almost Made the Cut: April 2006

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April 4, 2006 | S.T.A.M.T.C | Author Asif

Given the high level of interest in alternative energy and specifically ethanol, I started looking into companies that produce ethanol or help in the process of producing ethanol. When you buy gasoline there is a good chance that you are buying a mixture that contains at least 10% ethanol. Another version, which uses 85% ethanol with just 15% gas is called E85 and is widely used in Brazil. As part of its “Go Yellow” campaign, General Motors (GM) also has a line of cars, trucks and SUVs that run on E85. Ethanol is most commonly produced using corn but could be produced using other waste biomass such as grass. Converting grass to ethanol is currently a long and challenging process. A micro-cap company called Dyadic International (DIL) engineers enzymes that help convert biomass into ethanol. SmartMoney featured this company in a story titled Children Of the Corn and the stock shot up more than 50% in a period of less than 2 weeks. Given the underlying fundamentals of the stock, its rapid ascent and lack of additional information, I decided to put the stock on my watch list instead of featuring it in this month’s SINLetter.

Another stock I considered was Dean Foods (DF), the company that is well known for its regular and organic products such as Horizon Organic milk, Silk soymilk, Mountain High yogurt and Berkeley Farms dairy products. The reasons I decided not to pick Dean Foods are covered in the April 2006 edition of SINLetter.

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Stocks That Almost Made the Cut: March 2006

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March 1, 2006 | S.T.A.M.T.C | Author Asif

Intel (INTC) has seen quite a drop in its share price over the last three months, loosing almost a fourth of its value. Intel was a strong contender for this month’s SINLetter based on its current valuation but I was not entirely convinced that Intel has hit bottom as yet. Apart from the fierce competition that Intel is facing from AMD, I think the bigger threat on the horizon is the revolutionary nine core Cell processor developed jointly by IBM and Sony for the Playstation 3. While Intel and AMD are dabbling with dual core processors, IBM has already made plans to introduce the Cell processor in a line of blade servers. Intel’s margins may also face pressure in the future thanks to its decision to enter the highly competitive and (often) low margin business of consumer electronics.

Another stock that I strongly considered for this month’s investment newsletter was NetScout Systems (NTCT). NetScout makes a line of network monitoring products called nGenius. I am not sure why anyone would choose this product over the network monitoring software that comes bundled with routers and switches or available for download from open source websites. Revenue growth has been good in the recent quarters but profit margins are very low. This does look like a promising company and I am going to follow up on it to see if I can get some of my questions resolved. Interestingly, a Kaufman Bros analyst initiated coverage on the stock today with a buy rating and the stock was up 4.72% in after hours trading.

Full Disclosure: I currently do not own any positions in INTC or NTCT.

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Stocks That Almost Made the Cut: February 2006

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February 1, 2006 | S.T.A.M.T.C | Author Asif

While VA Software (LNUX) was an easy pick for this month’s SINLetter, I had a rather difficult time deciding on my second pick. After featuring Pfizer (PFE) last month, I wanted to pick one more stock from the healthcare sector. Genentech (DNA) was a very strong contender especially after its recent pull back to the $86 level from almost $100 per share just a few weeks ago. The company has been growing at an annual rate of around 30% over the last five years and expects to grow earnings between 35% to 45% in 2006. Genentech also garnered the number 1 spot in Fortune magazine’s list of 100 Best Companies To Work For In 2006. According to Fortune, job applicants may have to face up to 20 interviews before they get a job at Genentech and this was correlated by what I heard from a friend a few months ago about Genentech. So why did I pick UnitedHealth Group (UNH) instead? At 13.66 times current sales and 72.81 times current earnings, I felt that Genentech is still richly valued and there may be additional downside to this stock. The market was a little spooked after Genentech released sales numbers which fell short of market expectations for Avastin, one of its key drugs. Richly valued stocks can fall precipitously even at the hint of bad news and I plan to continue watching Genentech closely over the next few months.

Timberland (TBL) makes some of the best light hiking shoes I have ever tried and I also like their apparel. After recently noticing their sweaters selling for $100 (read high profit margins) at a store, I checked into the stock as a possibilty for this month’s SINLetter. Growing inventory and anemic earnings growth put Timberland out of the running. I finally decided on UnitedHealth Group on account of its projected earnings growth, reasonable valuation and excellent product.

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Stocks That Almost Made the Cut: January 2006

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January 3, 2006 | S.T.A.M.T.C | Author Asif

This month’s SINLetter was based on the “Dogs of the Dow theory” and my pick for the dog with the most potential was Pfizer (PFE). I strongly considered featuring the generic drug manufacturer Teva Pharmaceutical (TEVA) or the biotech Amgen (AMGN) as my second pick to balance the ying of Pfizer and create a ying-yang effect.

The $1.73 billion in long-term debt that Teva carries on its balance sheet combined with its 48% run-up in 2005, made me seriously reconsider Teva. I liked Amgen a lot but its 8.07 P/S seemed a little inflated and took it out of the running. I finally decided on Ford as it is another dog (not of the Dow), that seems well positioned for a rebound and also fit in well with the Dogs of the Dow theme of the January issue.

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