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The Oxen Report: Europe’s Recovery, Afghan Minerals, and Higher Oil Pointing to Continued Rally

Good Monday to all! Hope everyone had a great weekend. Last week, we had a superb week with a number of excellent plays. Later today, I will be giving everyone a quick recap of what we did last week. Additionally, I will be publishing a Play of the Week later this morning along with my Longterm Play of the Week in China Automotive Systems (CAAS). I was not able to publish that on Friday due to traveling, and I did not realize weddings and receptions took so long. I am excited about this company as another great long term play. 

Mondays are always my most challenging morning for our one day plays, and since the market is looking quite superb, I am only going to get us into one Buy Pick position this morning. 

And…its good to see everyone still hates Goldman more than even oil spills…

 

Buy Pick of the Day: Aviat Networks Inc. (AVNW)

Analysis: The market’s future are stable up over 70 points on the Dow this morning as a slew of good news is coming to the American markets. Asian markets had a terrific day followed by in an even better morning for Europe. The "Euro zone" first got a better than expected reading on industrial production. England and France launched plans to cut their deficits to help strengthen the Euro. European markets are up to levels they haven’t seen in a month. The oversea news about Afghanistan having significant amounts of precious metals that are priced at over $1 trillion is also helping. It is all seen through the bellwether oil, which is up over $75 per barrel. This all is causing the markets to rally this morning, and it is looking to be a bullish day.

Therefore, we want to find some plays on undervalued stocks that could get some more movement after the open upwards and hopefully follow this bullish trend. One such company should be Aviat Networks Inc. (AVNW). Aviat is a wireless networking company that is working closely with the 4G/WiMax area. The company should be getting some nice movement after one of its close competitors and similar businesses Ceragon Networks (CRNT) received two upgrades this morning along with an outstanding new business deal with the Philippines. The company was upgraded by Morgan Joseph and Merriman. Ceragon’s expansion in the Philippines is a great sign that developing nations are continuing to upgrade their networks and become more exposed to cellular networks. Shares of CRNT are up over 8% in pre-market.

Aviat is a very similar company that does work in India, another developing nation with a large population. They operate the largest WiMax share in India as WiMax is growing in that nation very quickly outpacing the 3G network. Amazingly, India along with many other Asian nations has a much stronger 4G presence than the USA. 

The movement and similarities of these two companies should give AVNW a large boost today. The company could use it. The stock has dropped significantly since the beginning of May, over 50%. Since the company switched its named from Harris Stratex towards the beginning of the year, the stock has dropped nearly 75%. The stock, in the short term, is very undervalued and oversold. It is right at the lower bollinger band. With the market moving up and Ceragon stealing the spotlight in a strong fashion, AVNW should be ready to make a nice move to the upside this morning.  

The stock closed at 3.91 on Friday, so I have a range looking for a small gain to open. I am going within the first five minutes looking for this entry range. If it is below, buy for sure. If it is above and it is not above 4.05, I will still buy. Good luck!

Entry: We are looking to enter AVNW at 3.90 – 4.00.

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

 

Good Investing,

David Ristau

This entry was posted on Monday, June 14th, 2010 at 8:54 am and is filed under Uncategorized. You can leave a response, or trackback from your own site.

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Comments



  1. David Ristau
    June 14th, 2010 at 9:31 am | PermalinkIgnore this user

    In at open at 3.96.

  2. David Ristau
    June 14th, 2010 at 9:33 am | PermalinkIgnore this user

    Oxen Alert – Entry/Exit, New Position

    We started this week with no positions open besides our Long Term Portfolio. We have a new position to start today, and we will be adding another for our Play of the Week and a third position to the Long Term Portfolio later in the day.

    AVNW - Our Buy Pick of the Day is a communications company that specializes in 4G networks. We entered at 3.96, and we are looking to exit at 4.06 – 4.14 for a 2-4% gain. 

    Check out the story here.

    Good Investing!

  3. David Ristau
    June 14th, 2010 at 11:40 am | PermalinkIgnore this user

    The Oxen Report: Play of the Week

    Over the past few weeks, we have had some pretty good success with our Plays of the Week. I am hoping that this week we will have another successful one. It is a slow week in earnings, which is usually what I use to help propel my weekly picks. Therefore, as a preface, I am going out more on a limb this week with my Play of the Week. I think it is a great play, and it matches the criteria I use. Yet, it is definitely still a riskier play simply because of the problems this industry has had. 

    Let’s get into it…

     

    Play of the Week: Winnebago Industries Inc. (WGO)

    Analysis: One of the industries most hurt by the recession was recreational vehicles and large motorized vehicles, in general. Most consumers have throughout the recession tried to avoid a large amount of big-ticket purchases due to the uncertainty in the economy and job market. One of the industry’s leaders, Winnebago Industries Inc. (WGO), lost nearly half of its market value since the beginning of 2007. The company, from the end of fiscal year 2007 to 2009, lost nearly 75% of its revenue, moving from just over $800 million to just over $200 million. The company had profits of just over $40 million in 2007. While in 2009, the company settled for a loss of $78 million. The last few years have been rough on the industry certainly, but it may be time for the RV industry to start making money again.

    In Q2 of 2010, the company reported its first profit since 2008. The company just got by with a $760,000 profit, but it was definitely a great sign for the company that recovery is on the way. The company is projected for this quarter to hit a profit per share of 0.04. Over the past two quarters, however, the company has produced surprise earnings, and a third one could be on its way for a number of reasons. Last quarter’s turn to profit and 120%+ surprise profits is definitely going to give this company some buzz over the coming week, and I expect it will grab some buyers that will help move this into our weekly 4-6% gain range.

    WGO, for this year, has revenue estimates over $400 million, nearly doubling their revenue from one year ago. The increase in consumer spending and slow recovery is being seen most directly in a company like WGO. Some of the numbers from Q2′s report are outstanding. The company made a 247% increase on revenue from Q2 2009 to 2010. The drive in this increase was from motor home unit deliveries. The company, additionally, is selling most of their motor homes in the Class A category, which are the smaller motor homes that allow the company to have large production and efficiency. Operating income was still at a loss, but it improved $18 million from one year ago. The company increased its revenues through the first six months of fiscal 2010 year 89%.

    The following comment from the Chairman and CEO Bob Olson gives a nice overview of how things are going:

    "We are pleased to see a continued trend of sequential growth in revenues and gross profit. After hitting our lowest shipment levels in decades during the second quarter last year, we have seen improvement in revenues and gross profit each quarter since that time. We also saw a sequential increase in dealer inventory this past quarter for the first time in two years as we increased our production levels to satisfy our sales order backlog. While we are encouraged with these improvements, the economic outlook remains uncertain and we believe retail sales will be the key driver to sustain our recovery and for continued growth going forward."

    Olson mentions the backlog, which is extremely important to any company that takes orders before production or has orders that are being filled. The backlog is a great measure of future success for construction companies, large motorized vehicle makers, and cargo companies. WGO’s backlog at the end of Q2 2010 was 1,159 motor homes, which is an increase of 246% at the same time in 2009. That backlog means that orders are coming in at very strong rates, and it will help the company to produce more and more revenue moving forward. As a whole, companies have all been seeing rising revenue rates, and it is no different in the RV industry. The difference is that this industry has so much to recover…

    The industry, as a whole, has been doing very well. Coachmen, the bankrupt company, saw a 90% increase in their quarter-over-quarter net sales despite being bankrupt. Thor Industries, while having some accounting problems on previous reports, had an surprise EPS increase of 10%. The recreation companies, as a whole, are starting to see a nice pickup throughout the sector, and that should play into WGO throughout the week.

    When we do a weekly play, we want a company that can have reasons for expectations moving into the earnings rather than not having much expectations before earnings and then moving into earnings date we can buy right before and make large gains. The technicals are superb for this. WGO is well below the mid-50-point on RSI. It is oversold on slow stochastics, and it is riding its lower band. On fast stochastics, the stock is starting to see a lift off its oversold floor, which points to a short-term buyer interest starting to prop up.

    The market looks very healthy right now, and it is all pointing in the right direction towards a great week for Winnebago. 

    My final comment is that if you do not believe me…here is Robert W. Baird’s take:

    "Winnebago reported a smaller operating loss – suggesting lower breakeven levels than previously thought – a good sign. The backlog is robust (+246%), but better shipments reflect strong orders and inventory replenishment – not a recovery in retail (-2%). We raised our estimates to reflect lower breakeven levels and a good mix of diesel units, driving our price target to $15."

    Entry: We are looking to get involved at 11.20 – 11.30

    Exit: We are looking to gain 4-6%.

    Good Investing,

    David Ristau

  4. mike_t
    June 14th, 2010 at 11:43 am | PermalinkIgnore this user

    Hi David,
    What’s the stop on this one…it’s reversing now.
    Mike

  5. David Ristau
    June 14th, 2010 at 11:47 am | PermalinkIgnore this user

    Mike -

    AVNW – Our stop is at 3.85.

  6. David Ristau
    June 14th, 2010 at 12:03 pm | PermalinkIgnore this user

    Oxen Update – Positions

    AVNW – We got involved this morning at 3.96 at the very open, and I was able to exit right away for a 3% gain at 4.06. The movement was very quick, and so, I am assuming most are still holding. If you are, then you are down just slightly right now at 3.94. This one will probably not get much help over lunch, but it could get a nice bounce as the market makes a move after lunch higher. Otherwise, if it doesn’t get much at 1 PM, then it most likely won’t get anymore. I would say take an even exit. Stop loss is at 3.85.

    WGO – I am looking to get involved at 11.20 – 11.30 on this one…waiting for a pullback before pulling the trigger. Hopefully, it will lost a bit of ground over lunchtime.

  7. David Ristau
    June 14th, 2010 at 12:07 pm | PermalinkIgnore this user

    Also…World Cup Update

     

    My World Cup teams are Slovenia, Chile, Honduras, and Nigeria….plus the USA.

    So far,

    Slovenia won over Algeria 1-0, and it holds the top spot in Group C over the USA, England, and Algeria. They play the USA next.

    Chile and Honduras are in the same group – Group H. They both play each other on Wednesday. I guess I want a draw?

    Nigeria lost their opener 0-1 versus the tough Argentina. The team will look to rebound on Thursday versus Greece.

  8. brooklyn
    June 14th, 2010 at 12:14 pm | PermalinkIgnore this user

    David – what do you think of the medium and long term prospects? Does entering by buying a July $10 call and reducing the cost  by selling an October $10 put for close to a $1 make sense?

  9. David Ristau
    June 14th, 2010 at 12:20 pm | PermalinkIgnore this user

    Brooklyn – Well, the stock is already above $10, so a call on $10 would not make so much sense. Why not look at the 12.50 calls?

  10. brooklyn
    June 14th, 2010 at 12:30 pm | PermalinkIgnore this user

    The value of the $10 call goes up as the stock moves up so the % increase would be greater than the 4-6% on the underlying. Need to look at the options delta to see how much it would move with the stock’s move. What about October at $9?

  11. David Ristau
    June 14th, 2010 at 12:48 pm | PermalinkIgnore this user

    Brooklyn -

    I don’t know a ton about options. I didn’t see a $9 call, so I think the $10 would be good.

  12. brooklyn
    June 14th, 2010 at 1:23 pm | PermalinkIgnore this user

    It’s a 10 sold for $1. My question is really about where WGO settles out the next 6 months..

  13. David Ristau
    June 14th, 2010 at 1:36 pm | PermalinkIgnore this user

    Brooklyn -

    I would have to an entire discounted cash flow for that. This is just a one week play. I am expecting it to hit close to 13 by the end of this week.

  14. David Ristau
    June 14th, 2010 at 1:37 pm | PermalinkIgnore this user

    In WGO at 11.25. 

  15. David Ristau
    June 14th, 2010 at 1:41 pm | PermalinkIgnore this user

    Will be working on my long term story for the next hour or so, I will be checking message board sparingly.

  16. David Ristau
    June 14th, 2010 at 4:55 pm | PermalinkIgnore this user

    New Position – CAAS

    I have a new post in China Automotive Systems Inc. (CAAS) as a long term position. 

    You can read my analysis, entry, exit, and valuations here.

    Good Investing!

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