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The Oxen Report: Thursday’s Market Looking Upbeat, We Want to Buy

Good morning and happy Thursday. Yesterday, we got involved in an Overnight Trade position with Verifone Systems Inc. (PAY). We liked the company due to its really strong growth capabilities and because it appeared to have fairly underestimated EPS and revenue estimates. Last night, in after hours, PAY reported very solid earnings with an EPS of 0.29 vs. the expected 0.26 and revenue of over $240 million while expectations were around $227. The stock did well in overnight trading, and it is up over 5% in pre-market trading. I got involved at 17.25, and it is trading at 18.35. I am going to look to sell towards the open and take my profits for around a 7-8% gain.

Our Play of the Week, Big Lots Inc. (BIG), reported their earnings this morning. This trade has been tough with the market’s woes, but it has been able to stay close to our purchase level at 36.50. The company beat estimates with earnings at 0.68 vs. the expected 0.67. The company also upped their future forecasts. The stock is trading around the 37.00 range. My exit range was 37.97 and up. I am going to readjust this one and look to exit for a minimum of a 2% gain at 37.22. 

Both trades are looking pretty good, so let’s take a look at what new trades we have for today…The chart on the left shows the problems we still face from unemployment that was further showcased in unemployment claims this morning. Yet, the market is not reacting to it at all, so it is okay for us. Still an interesting chart.

 

Buy of the Day: Quidel Corporation (QDEL)

Analysis: Days when the market bolts up or down significantly are tough days to know what to do because it is hard to say we can rise a lot more to make 3% gains in individual stocks, when they are opening up 4-6%. Then, it is even harder to say we will move down and analyze the market that way. Therefore, what we want to do is find the slipper that has not had the movement the market has had but should. The market is looking up today with futures above 150 points all morning on the Dow. China’s comments that they will hold onto European bonds, some very strong earnings reports, the plugging of the oil leak, and some slightly lower unemployment numbers have helped keep futures strong. 

Therefore, we want to find some companies that have not had the movement they deserve as of yet. One of these companies would be Quidel Corporation (QDEL). Quidel supplies medical testing kits for a number of diseases and reproductive processes. They are in the healthcare sector and have seen there stock price drop quite significantly along with most other companies in the field. The company, however, should be well positioned for a rise after getting a great upgrade from Wedbush Morgan today from Nuetral to Outperform with a target price of $15. The stock closed yesterday just under 11. 

The company was upgraded because it is a strong company with good fundamentals, but it has seen its share price drop too fast due to the market factors and some overambitious product developments. 

Wedbush comments, "QDEL has historically been a lean and nimble company, effectively managing seasonal flu variances but the recent acceleration in R&D associated with ambitious product development plans (targeting molecular dx, years away from market) may have led to the recent capitulation…Shares of QDEL have been down every day for last seven trading days and are off 25% over the last month versus a 10%, 12%, and 11% decline in the comps (VIVO and IMA), BTK index, and S&P 500, respectively."

Therefore, the upgrade should set QDEL back on the right path along with the strong market today. The stock is heavily oversold, undervalued, and right at that lower bollinger band. Like Wedbush commented, the stock has dropped 25% over the past four weeks. The stock had some very poor earnings right at the end of April, which has propelled this one down. It is now though so far down that it is presenting a great buying opportunity. 

I am hoping that the upgrade and market can act like a catalyst to really send this one off. If it opens lower than the range I have set, then we want to buy it. If it opens higher, though, wait to see if it will come down. 

IN PROGRESS

Entry: We are looking to buy in the range of 11.25 – 11.35.

Exit: We are looking to exit for a 2-4% gain.

 

Buy of the Day #2: Moody’s Corp. (MCO)

Analysis: Moody’s has been in trouble. Like QDEL, this is a stock that keeps on falling. This one has dropped over 30% in the past month. It has been in bad shape ever since it has come under fire for participation in the housing bubble that was one of the major causes of the Great Recession. Further, they are facing legislation that could hinder their ability to make a lot of money. Buffett, today, is going to testify for Moody’s to the US Crisis Panel. While, at the same time, Greenlight Fund manager David Einhorn had some pretty harsh commentary for the company this morning on CNBC.

He commented that the company is going to have some major issues in the long term with this new legislation and the fact that the company does not take a long-term approach to their ratings. He said he is still shorting this one. 

This does not sound like something we want to buy. Yet, we are not looking at MCO for its long-term or even medium-term prospects. We are looking at for today. The stock is down about 3% in pre-market trading, and it has been slowly creeping up throughout the morning. This movement is showing me that even the weak stocks that are falling significantly are going to get a boost from the market movement. When we have a big down day, we do the same thing in reverse with stocks that have moved too much to the upside.

This is a stock that is just so undervalued. The Einhorn comment will not help it, but it is soon forgotten. The market’s bright eyes are taking in this exceptional start to the day, and it will help MCO make a rise. The stock is oversold, undervalued, and on its lower bollinger band. I think that with Buffett testifying and the great market movement. MCO could be a great short-term trade.

Entry: We are looking to enter from 20.10 – 20.20.

Exit: We are looking to gain 2-3%.

 

Good Investing,

David Ristau

This entry was posted on Thursday, May 27th, 2010 at 9:03 am and is filed under Uncategorized. You can leave a response, or trackback from your own site.

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Comments



  1. yipcarl
    May 27th, 2010 at 9:22 am | PermalinkIgnore this user

    MCO is far from entry but QDEL should work…

  2. David Ristau
    May 27th, 2010 at 9:24 am | PermalinkIgnore this user

    Yip -

    I just changed the MCO entry.

  3. David Ristau
    May 27th, 2010 at 9:26 am | PermalinkIgnore this user

    On MCO,

    We are looking for entry of 20.10 – 20.20 now

  4. yipcarl
    May 27th, 2010 at 9:27 am | PermalinkIgnore this user

    got it…MCO still going to need a pullback a bit

  5. yipcarl
    May 27th, 2010 at 9:31 am | PermalinkIgnore this user

    Blew right through both entry prices by a mile

  6. David Ristau
    May 27th, 2010 at 9:38 am | PermalinkIgnore this user

    QDEL – It was in our range. Did you set your entry for a limit? It hit 11.33 right out of the open. 

    Missed MCO though.

  7. David Ristau
    May 27th, 2010 at 9:40 am | PermalinkIgnore this user

    Out of PAY at 18.65 for a gain of 1.40 from my 17.25 entry. That is a solid 8.5%. 

  8. David Ristau
    May 27th, 2010 at 9:42 am | PermalinkIgnore this user

    On BIG, I will take any gains at this point.

  9. yipcarl
    May 27th, 2010 at 9:46 am | PermalinkIgnore this user

    ?  I’m not sure what system your looking at but I’m looking at T and S of all trades on QDEL since 630am.  The lowest fill today was 11.33 and that was a whopping 800 shares. On paper this might look like a winner however in realtime with real entries this target was placed to low and unattainable, look at time and sales.  It was impossible enter this trade at the buy limit for even a measley 1000k share order under 11.49 however how your picks have been shooting up perhaps you need a higher buy window…

  10. yipcarl
    May 27th, 2010 at 9:46 am | PermalinkIgnore this user

    ?  I’m not sure what system your looking at but I’m looking at T and S of all trades on QDEL since 630am.  The lowest fill today was 11.33 and that was a whopping 800 shares. On paper this might look like a winner however in realtime with real entries this target was placed to low and unattainable, look at time and sales.  It was impossible enter this trade at the buy limit for even a measly 1000k share order under 11.49 however how your picks have been shooting up perhaps you need a higher buy window…

  11. David Ristau
    May 27th, 2010 at 9:51 am | PermalinkIgnore this user

    Yip -

    They both opened higher than I expected cannot argue with you there. If you like a trade though you can enter at any price. If you had gotten both at market open you’d be up 4-5% in QDEL and 5% for MCO. My entry ranges do not always work, but the beauty of me not filling your orders is that you can take my analysis and just apply it to the stock. I have to make narrow ranges and miss some trades because of this. Actually I barely ever miss with ranges, but over the past couple weeks, it has been more often. You’ll notice though the ones I miss on ranges tend to do what I want. 

  12. David Ristau
    May 27th, 2010 at 9:56 am | PermalinkIgnore this user

    Oxen Alert – Entry/Exit and Position Updates

     

    QDEL - This one was within my range of 11.25 – 11.35 for a short moment at 11.33. Therefore, I can take my entry of 11.35 and was looking for an exit of 11.48 – 11.72. The stock has already passed through 11.72, so it was good for a solid 4% gain. This one has moved over 5% since open.

    MCO - We missed this one for entry, but if it comes down to the 20.50 – 20.70 area, I would not hesitate to reenter. It has jumped 5% since open.

    PAY - We exited at 18.65 for an 8.5% gain from yesterday’s 17.25 entry.

    BIG - This one actually got within my range I recommended this morning, and we were able to exit at 37.24 for a 2% gain.

     

    Great investments and Good Investing!

  13. yipcarl
    May 27th, 2010 at 9:57 am | PermalinkIgnore this user

    You definitely pick stocks that move absolutely however 800 shares in the buy range can hardly be called a trade HOWEVER KUDOS to you for mostly ALWAYS pickling a popping or dropping stock….no question about it.

  14. David Ristau
    May 27th, 2010 at 10:04 am | PermalinkIgnore this user

     YIp -

    The range is just what I use for my tracking, so I can be held accountable. 

    On my trades, if it opens you know 10 cents above or 20 cents above and it is a 20 or 30 dollar stock this is nothing. If it a 10 dollar stock, then its something to consider. Yet, from my analysis, we should have garnered this would be a big mover.

  15. yipcarl
    May 27th, 2010 at 10:05 am | PermalinkIgnore this user

    Well you were right about it being a big mover!

  16. b1llk
    May 27th, 2010 at 10:15 am | PermalinkIgnore this user

    Hi David,
    I’m curious – what criteria/methodology do you use to set your target entry range?

  17. David Ristau
    May 27th, 2010 at 10:35 am | PermalinkIgnore this user

    b1llk -

    I look at pre-market movement, where the stock settled in after hours, what I think the market will do right from the start. I usually have no problem getting the range met. Today was just an underestimation by me of how fast the market would take off.

  18. David Ristau
    May 27th, 2010 at 10:46 am | PermalinkIgnore this user

    I am changing the name of my Daily Musing to the Daily Discourse.

  19. David Ristau
    May 27th, 2010 at 11:06 am | PermalinkIgnore this user

     

    The Oxen Report: Daily Discourse – The Failure of the Fossil Fuels Market and Its Alternative…Solar Power
     
    Today, I will begin my investigation into solar power energy as a solution to the crisis caused by the fossil fuel market. It is definitely a market that I am excited about and have been for some time. The market still faces a number of hurdles and crises to overcome, but it always has appeared to me to be the cleanest, safest, and most probable replacement for oil and other fossil fuels. Here is Part 2 of our three part series:

     

    In the late 1970s, after success in satellites launched during the space age, solar energy began its young life as a domestic energy source. Solar power was first used to “provide electric power via photovoltaic devices in certain remote applications…where inaccessibility otherwise ma(de) equipment operation and maintenance involving other energy sources extremely costly.” Applications were used in railroad signs, water pumps, and power systems in remote locations where other energy was not able to provide. Solar energy soon began to become a reliable energy source and was on its way to being a viable energy source for rural homes. Over time, the energy source has gained more and more market share and is important in all geographical areas. Today, solar energy accounts for under 0.05% of the world’s energy production around 0.02%.
     
    Solar energy is used in two main methods. The first is to harness the sun’s energy through photovoltaic (PV) cells. These cells convert solar radiation given off by the sun into usable energy. The PV cells capture the electromagnetic radiations and transfer it into DC voltage, which can then be used by electronics or transformed into AC voltage, which is what is used to power most homes. The other major use of solar energy as a power source is in solar water heaters, which capture the heat from the sun and transfer it to water to heat it. Also, solar energy can be harnessed by heating solar thermal collectors, which heat fluids that produce steam that turns turbines and generates electricity.
     
    Solar energy is a viable alternative energy source to fossil fuels because of a number of benefits that it possesses that are heightened when considering their ability to respond to the negatives and market failures of oil. The main benefits that solar energy can provide are that it is a clean energy that emits literally no emissions (except during production) and generates no waste, it reduces energy dependence and creates domestic energy sources, hedges against future price rises in fossil fuels, and provides numerous quality of life improvements.
    The first major benefit of solar energy is that is a clean energy source, meaning that it emits no emissions or creates any waste while producing energy. This benefit is important as a solution to the problems that are presented by fossil fuels.
     
    Production of solar energy does create some negative externalities, but its consumption and use is completely emission free. Since the energy harnesses natural radiation in the air and converts it into energy, the energy source gives off no byproducts. A 5 kWh PV system can produce, for example, 700 kWh of clean, renewable energy that emits no emissions or causes any pollution. The average home, in 2007, used over 900 kWh per month of polluting energy from one of the fossil fuels. A typical solar panel system can provide the American household with nearly all the energy it needs per month with no pollution.
     
    One can value this benefit of solar energy using the damage function method. The number of contaminants produced by energy sources would be reduced by increasing the number of households, businesses, factories, etc. that use solar energy over homes being fueled by fossil fuels. By decreasing the level of contaminants, the number of total damages would also be released. The reduction in total damages, thus, can then be given a monetary value in its ability to reduce health costs, pollution costs, reduction in greenhouse emissions, which would increase crop yields, curb natural disaster costs, and provide many other benefits, as well. Obviously, these results are indirect, but in the same way one can measure costs of fossil fuels through negative externalities, one can value the positive externalities and avoidance of other negatives that would have been created.
     
    The market failures of public goods discussed earlier would be also alleviated, which would reduce that market failure. Further, the benefits of clean energy have both user and existence value. On the user side, there is direct value that using cleaner energy has for the user, which include health benefits and aesthetic benefits. There is also indirect user value associated with receiving utility by free riding on those that do have solar energy in a society. Existence value also exists in the sense of vicarious consumption and stewardship. By allowing others to receive the benefits of clean energy, there is utility associated with knowing that others can enjoy the energy and cleaner environments. The most beneficial value, however, is most likely stewardship. By cleaning up our environment and providing cleaner energy sources, individuals can satisfy their sense that they are obligated to preserve our world for the future.
     
    Another major benefit of solar energy is that it reduces energy dependence. One country that best recognized this capability of solar power was Germany. In 2000, Germany passed the Renewable Energy Act. This Act has helped propel Germany into the second largest solar powered nation in the world. Germany, like many other European nations, for years was severely bound to Middle Eastern countries and Russia due to their dependence on these nations for oil that was not available in their own nation. Germany, recognizing an opportunity in solar energy, passed the Act to help promote the growth of its solar industry and other non-renewables with the goal to be completely divested in non-renewable energy sources by 2050. 
     
    The Renewable Energy Act required that utility companies help solar startups by purchasing their electricity at high rates that would subsidize these startups to help them make profits. What occurred was that Germany was able to greatly reduce its dependence upon foreign energy, create energy jobs at home, and create economic opportunities for itself by becoming a leader in solar technology. The country, in 2006, exported 15% of the world’s sale of solar panels and PV equipment, which was a $9.5 billion industry, which, at the time, was growing 20% annually. The reduction on foreign oil, however, is one of the crucial benefits of solar energy. Since the energy needed for solar panels (the sun) is available to all nations, nations are not caught up in the imperfect competition of the oil industry and the constant price shifts of the oil industry. By reducing foreign dependence, the country can control its own energy industry, which is an economic and political relief. The political benefits are somewhat immeasurable, but economically, Germany was able to shift paying for their energy through imports and now are able to make money off their expertise and production through exports.
     
    The benefit here of solar energy is the elimination of the market failure of imperfect competition, which causes uncontrollable prices and unknown supplies. The reduction in foreign oil allows for growth of clean industry in one’s own nation. This benefit can be assessed through contingent valuation methods. By asking individuals of a nation their willingness to pay for taxes to create subsidies in their country to bring solar energy into the nation, one could see if people truly value both the reduction in foreign dependence and further see their willingness to reduce emissions that would be had by keeping fossil fuel energy.
     
    Further, if in the CVM surveys, one could gage the amount of money that would be saved and reverted back into an economy and pose this question to individuals, one could see a tangible benefit of solar energy. For example, if the industry creates a certain number of jobs and a certain level of industry that was not there before, one can ask individuals how much would you want that industry to pay you indirectly in order for us to move towards energy independence indirectly through aggregate wages. The CVM would be able to assess whether or not individuals are willing to pay or accept payments in order to move towards the cleaner and independent energy market and value this benefit.
     
    A reduction in foreign dependence on oil would have user value and existence value. On the user side, the direct value to having all the benefits of energy independence would be beneficial to those that were most greatly affected by the switch – those that gained jobs and saw reductions in energy prices. The switch would, however, have even greater existence value. Knowing that your entire nation is better off for energy independence produces vicarious consumption in society. Additionally, developing a nation’s own energy source has a sense of stewardship in that a society will be better off to thrive in the future.
     
    Good Investing,
     
    David Ristau
     
    Tomorrow we begin our investigation into the final benefits of solar energy and some investment opportunities in the sector…
     

     

     
     
  20. jromeha
    May 27th, 2010 at 11:20 am | PermalinkIgnore this user

    Great call on PAY D!!!

  21. David Ristau
    May 27th, 2010 at 11:25 am | PermalinkIgnore this user

    Jro -

    Thanks buddy.

  22. David Ristau
    May 27th, 2010 at 12:04 pm | PermalinkIgnore this user

    Midday Update

    No new updates really. We are out of all positions.

    Gains made for today: 4% on QDEL, 8.5% on PAY, 2% on BIG

    I am going to be working on my long term investment for tomorrow afternoon’s post this afternoon/evening. If you have any stocks you think are really solid long term investments, I will investigate and gage fair value estimates.

    Thanks and Good Investing!

  23. fuzz
    May 27th, 2010 at 12:12 pm | PermalinkIgnore this user

    Well PAY turned out pretty green, especially for those who held on to it (I sold at 19.50).
    BIG … bleh … missed my limit by a few pennies and plummeted down to 34.50 … that’s when I said "bs, that’s not right and bought a bunch more to avg down to around 35. Just sold at 36.  Whew :)

  24. David Ristau
    May 27th, 2010 at 12:30 pm | PermalinkIgnore this user

    Fuzz -

    Awesome play  and hedge. Congrats!

  25. fuzz
    May 27th, 2010 at 6:02 pm | PermalinkIgnore this user

    As far as long-term goes, not sure what range you are looking for but MOS looks like it has a lot of resistance at this point. I actually picked up a little bit when it was @43 this week. I also did a few swing trade with KERX which tends to be quite volatile but well-bound (shorted from 6.20 to 5.10  then long from 4.30 to 5.20).

  26. morxlntway
    May 27th, 2010 at 8:48 pm | PermalinkIgnore this user

    as someone who has been involved in home building for many years i have to say that solar has been a big frustration. It just never seems to get off the ground. There must be something it’s up against. Not just cost & complication. Conspiracy theory i guess.

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