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The Oxen Report: Another Batch of Strong Earnings Leading Market Higher

Good Friday to all. Hope you had a fantastic week. Only big news for updating is that we got out of Reliance Steel & Aluminum (RS) yesterday morning for a solid gain. We had no new positions yesterday as I took the day off to recover some health. We got involved with RS for an Overnight Trade at 36.80, and we exited at 37.75, giving us a solid gain of 2.55%. 

Good luck today!

 

Buy Pick of the Day: DENTSPLY International Inc. (XRAY)

Analysis: DENTSLPY International (XRAY) is a dental products supply company. The company should be getting a very nice boost today to its share prices after similar company Align Technology (ALGN) reported some shattering earnings. ALGN reported a 41% increase in revenue and beat earnings by 50% with an EPS of 0.21 vs. the expected 0.14 and tripled EPS from one year ago. The company is seeing a renewed buying of their Invisalign braces and other dental products that disappeared over the past two years.

DENTSPLY is set to report earnings next week, but the ALGN earnings are definitely reason to believe that a buying of XRAY will occur today. ALGN is up over 15% in pre-market earnings, and a lot of those buyers are going to be looking to other dental product companies with similar structures as well. DENTSPLY is one of the other leading orthodonics suppliers, so the fit is there.

XRAY is also a great pick on a day that appears to be a bullish day because it is undervalued. Since May, the stock has lost over 25%, and it has not had too much to be excited about for buying. Yet, today, this news could really boost up the share prices. The stock is well below the 50 mark on RSI that shows fair valuation. The stock is heavily oversold on stochastics, and it close to its lower band. The stock has a beta of just 1, so it will be a slow mover. 

We want to get involved this morning at the highest 29.50. It is not a stock that is open in pre-market, so I will take anything below that at the start. Otherwise, we may have to pass.

Entry: We are looking to enter at 29.30 – 29.50.

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

Stop Loss: 3% on bottom.

 

Short Sale of the Day: Skyworks Solutions Inc. (SWKS)

Analysis: Skyworks is a much different story from DENTSPLY. This company has been on fire as of late. Since May, this stock has gained over 20%. Skyworks is the Apple iPhone supplier of a number of parts, and it goes how Apple goes. SWKS just reported a very solid earnings last night, but I do not think it was nearly good enough. They only beat earnings estimates by 0.02, but investors were expecting more as they ran the stock up yesterday 6%. When a stock moves that high before earnings…it tends to disappoint.

The stock is down in pre-market, and it is not being helped by the fact that the stock was downgraded this morning after earning by Charter Equity. With the high valuation the stock has, coupled with a downgrade and disappointing earnings, I would venture to guess that profit taking will occur. Even though there are solid earnings out there today, the market is not reacting quite as well, and we have seen future decline since around 8:30 AM.

If we can get into SWKS at a relatively decent price, then we will take it. I do not want to go much lower than 17.70, but watch for the Morning Levels Alert to see any changes. 

Good luck!

Entry: We are looking to get involved at 17.85 – 17.70.

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

Stop Buy: 3% on top.

 

Good Investing,

David Ristau

This entry was posted on Friday, July 23rd, 2010 at 8:59 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
    July 23rd, 2010 at 9:21 am | PermalinkIgnore this user

    Oxen Alert – Morning Levels/New Positions   

    Good earnings across the board this morning, but futures continue to decline. We may have a bit of a neutral day ahead of  us with a slight lean towards bearishness. We have two new positions with a Buy in DENTSPLY Intl (XRAY) and a Short Sell in Skyworks Solutions (SWKS).

    XRAY – Still no trades in pre-market, so we will keep our range set at 29.30 – 29.50. I would get in if it opens lower than that as well obviously.

    SWKS – The stock has moved up in pre-market. I am going to raise the range to 17.95 – 17.75. I think this will better position us for a small pop to start the morning.

    Good Investing!

  2. David Ristau
    July 23rd, 2010 at 9:34 am | PermalinkIgnore this user

    XRAY – I am in at 29.05.

    SWKS – Continuing higher since open. I pulled the trigger at 18.

  3. David Ristau
    July 23rd, 2010 at 9:38 am | PermalinkIgnore this user

    Oxen Alert – Entry/Exit

    XRAY – We are in at 29.05. We are looking to exit for a 2-3% gain, but I am not sure how far we will get. I may take a 1% gain, so watch for 29.34 – 29.63 in reality.

    SWKS – Coming down after a nice pop as I expected. We got in at 18, and we are looking to exit at 17.64 – 17.46. 

     

    Good Investing!

  4. nicha
    July 23rd, 2010 at 9:41 am | PermalinkIgnore this user

    In XRAY at $29.11

  5. David Ristau
    July 23rd, 2010 at 9:48 am | PermalinkIgnore this user

    Nicha -

    May look for only a 1% gain or so…slow mover here.

  6. David Ristau
    July 23rd, 2010 at 9:49 am | PermalinkIgnore this user

    I’m DD my Short Sell on SWKS here at 18.50 for a average entry at 18.25. The upper band is at 18…er

  7. dbarakat
    July 23rd, 2010 at 9:51 am | PermalinkIgnore this user

    bail on swks?  It hit 18.54 very briefly.

  8. dbarakat
    July 23rd, 2010 at 9:58 am | PermalinkIgnore this user

    It is hard to believe that SWKS will hold these levels with such a lackluster day.

  9. jeanc
    July 23rd, 2010 at 10:06 am | PermalinkIgnore this user

    also in XRAY at 29.11

  10. David Ristau
    July 23rd, 2010 at 10:07 am | PermalinkIgnore this user

    Dbar -

    I DD at 18.50 because that is just uncalled for. Stick with it…I think the market is going to not be able to sustain much more after this morning.

  11. amatta
    July 23rd, 2010 at 10:07 am | PermalinkIgnore this user

     Damn what happened with JCI…!! Should have sold some calls as I thought yesterday! 

  12. David Ristau
    July 23rd, 2010 at 10:09 am | PermalinkIgnore this user

    Amatta -

    Earnings missed expectations even though they were records…haha. Longterm bud. Hang on.

  13. dbarakat
    July 23rd, 2010 at 10:22 am | PermalinkIgnore this user

    David, when you DD do you also move up your stop?

  14. David Ristau
    July 23rd, 2010 at 10:27 am | PermalinkIgnore this user

    Dbar -

    Yep…stop is at 18.79. This is crap though. So much for technicals and downgrades.

  15. David Ristau
    July 23rd, 2010 at 10:33 am | PermalinkIgnore this user

    Lflan -

    I cannot recommend a penny stock in any capacity. There is absolutely no predictability in them.

  16. dbarakat
    July 23rd, 2010 at 10:34 am | PermalinkIgnore this user

    apparently, the company’s own guidance is all that anyone cares about.

  17. amatta
    July 23rd, 2010 at 10:40 am | PermalinkIgnore this user

     David, 
    Before I read your post I had also DD my basis is 18.13. Let;s hope for a bad EU report!!! I got in with too many for comfort from the beginning… I always seem to do the opposite on the winning trades. 

  18. nicha
    July 23rd, 2010 at 10:42 am | PermalinkIgnore this user

    Out of XRAY at $29.25 for half a percent.

  19. David Ristau
    July 23rd, 2010 at 10:44 am | PermalinkIgnore this user

    Dbar -

    Looks like SWKS is a dud.

    Nicha -

    Hope you saved some…we are still moving up.

  20. dbarakat
    July 23rd, 2010 at 10:53 am | PermalinkIgnore this user

    Yep, I’m out on swks.  nearly a 3% loss :(

  21. David Ristau
    July 23rd, 2010 at 10:59 am | PermalinkIgnore this user

    Dbar - 

    Very unfortunate…completely went against fundamentals and techs. I apologize.

  22. gel1
    July 23rd, 2010 at 11:02 am | PermalinkIgnore this user

    Hi David
    I’m with you on XRAY – Sold August puts, figuring the worst scenario is I will own a stock I like at a discount… If it pops, I’m out.

  23. David Ristau
    July 23rd, 2010 at 11:15 am | PermalinkIgnore this user

    Gel -

    Good plan bud.

  24. David Ristau
    July 23rd, 2010 at 11:41 am | PermalinkIgnore this user

    Working on a long term investment story on SunPower.

  25. David Ristau
    July 23rd, 2010 at 2:07 pm | PermalinkIgnore this user
    The Oxen Report: Long Term Investment in Most Efficient Solar Company
     
     
    Thesis
     
    Solar energy continues to remain a challenging yet growing industries. 2010 has continued the significant growth of the solar market. The market is overcrowded with too many companies, offering mostly similar silicon photovoltaic modules, and subsidies from various governments that have helped to establish the infant solar industry are being cut. Yet, among all these risks, a handful of companies have established themselves as the market leaders with continual growth, diversification across several markets, and the most efficient products. One such company has proven itself as the leader in solar efficiency but has struggled to make a less expensive marketable solar panel.
     
    Sunpower Corp. (SPWRA), based in Silicon Valley, has become a market leader in this competitive industry in solar efficiency. The company, though, has not been able to move into a market leader yet due to its high costs. Yet, the company still has significant growth potential with the rest of the solar industry, and even as Sunpower is not the market leader, it still has built a small ecnomic moat by building the most efficient silicon-powered solar cells. Sunpower, even despite not being a leader, has still seen growth of operating income inconsistently. The solar market is starting to become a larger part of the energy picture with the USA looking at solar more considerably vis-a-vis the California Solar Initiative. The company offers the-most efficient photovoltaic cell among all its peers, which has helped it to create a minute economic moat. Additionally, with Sunpower’s recent Serengeti, a cheaper cell, being produced, the company can now compete on a major scale.
     
    The company is able to produce solar cells with efficiency at 19% to 20%. The majority of cells only have an efficiency at 15%. This is the edge that makes Sunpower attractive to me. While some companies and projects will obviously want a cheaper panel, the efficiency to price of Sunpower is attractive. In just the last three months, Sunpower has taken on a number of new projects: three power plants in Italy are being powered by the new Seregenti line, a PV power park in Italy, and compeleted a solar power plant in Shelby, NC for Duke Energy. The Sunpower line is very vibrant and continues to grow.
     
    Solar, overall, is growing each year. The 2010 industry is supposed to reach 12.9 GW of energy produced, which will be an 80% growth in GW of energy from 2009. Those numbers are supposed to continue even higher into 2011 and beyond. Germany will see 100%+ growth and the rest of the world near 50%. In 2008, the demand was just 6 GW and was just 1.7 GW in 2006. This industry is growing very rapidly, and the solar shares are extremely cheap compared to where these could go in the next five years.
     
    For the near future, though, price declines are on the way for all solar companies as feed-in tariffs are expected to be cut in all of the leading nations: Germany, Spain, and Italy. Yet, the USA and China are two markets that are set to replace them in time. The cuts are mostly priced into the stocks. Cost structure remains very important and efficiency, which is where Sunpower has competitve advantage. Yet, the company needs to prove they can compete with standard cells as well.
     
    Sunpower faces stiff competition in the solar energy market. There are over 35 public solar energy companies on the NYSE that are competition with Sunpower. Most of these companies are smaller and do not compete on the same level as SPWRA, but the competition is there. With a focus on diversifying into America, Sunpower will be able to hedge some of the losses they may see in the future in Germany and Italy. The company in the latest update from the CSI noted that they are seeing a great deal of business in California and the rest of America.
     
    There is also worry about the ability of the company to combat the issues of the Euro. The company has not taken the full fledged approach to move a significant part of its revenue source out of Europe into America or China, which could have drastic effects on the company as the Euro continues to decline in value. The company is American-based, so the thought is that in time the company will be able to use its name and reputation at home to fulfill the growing demand here at home.
     
    The name of the game for Sunpower now is consistency. The company just started in 2005, and they were on their way up when the recession struck. Coming out of the recession, expectations are very low for this company. My own valuation is low at only $16.50, but I do believe that this is a very low expectation with only growth around 6-8% for operating income each year for the next five years. When Trina or First Solar were coming out of their fifth year, they were seeing growth at 40%+. As demand grows, those numbers could be much larger for Sunpower, so this estimate is a worst case scenario. The demand, though, has to pick up to see really significant growth for Sunpower.
    While questions remain about competition, diversification, and subsidy issues, Sunpower has established itself as the efficiency solar leader in this market. It is a company that has the fundamentals necessary to make a significant move in the industry if the company can lower its cost structure and diversify itself more carefully.

    Valuation
     
    My fair value estimate for Sunpower is $16.65 per share based on a discounted cash-flow analysis. The company has seen great growth in its operating income in the past five years at over 1500% for predicted 2010 opertaing income levels, and there is really no worry that the industry cannot continue to grow as demand continues to grow. Given the development of new markets, the company’s ability to offer a cheap product and most efficient product and continued growth of capacity of MW the company can produce per year, the company is continuing to offer growth in its income. My estimated available cash flow starts at -$127 million for this year, which is very cautious. I think that the company will start to be able to produce some free cash flow in 2011.

    Risk
     

    Risk is medium high with Sunpower Corp. The company, in the last five years, has been able to definitely develop itself as a leader, but it is in a commodities industry. Competition is high. Operating income has not shown necessary consistency needed to be highly successful, so that will need to occur. The company also has heavy risks because of an issue with the euro decline and cuts to feed-in tariffs. Upturn in the global economy would do wonders for solar energy. 

     

    Good Investing,

    David Ristau

  26. bobhu
    July 23rd, 2010 at 2:10 pm | PermalinkIgnore this user

    Thnaks, David,
     
    In XRAY for 29.11.

  27. David Ristau
    July 23rd, 2010 at 2:12 pm | PermalinkIgnore this user

    Bob -

    You out?

  28. David Ristau
    July 23rd, 2010 at 2:23 pm | PermalinkIgnore this user

    I am out of XRAY at 29.40.

  29. jeanc
    July 23rd, 2010 at 2:26 pm | PermalinkIgnore this user

    David, good paper on SunPower.
    Para on valuation, first line, you refer to Trina Solar, I presume this is a typo and you in fact mean SunPower
    Are you out of XRAY ?

  30. bobhu
    July 23rd, 2010 at 2:33 pm | PermalinkIgnore this user

    Not yet… only 1% to 29.40.
     
    Now it’s 29.28…. should I get out??
     
    Thanks.

  31. bobhu
    July 23rd, 2010 at 2:34 pm | PermalinkIgnore this user

    I have the same question about Trina Solar.
     
    Typo??  Thanks.

  32. David Ristau
    July 23rd, 2010 at 3:34 pm | PermalinkIgnore this user

    Jean and Bob -

    Yeah typo…my bad.

    I am out of XRAY at 29.40. I would get out at 29.34 at minimum.

  33. jeanc
    July 23rd, 2010 at 3:39 pm | PermalinkIgnore this user

    xray out at 92.21

  34. jeanc
    July 23rd, 2010 at 3:40 pm | PermalinkIgnore this user

    I wish, sorry 29.21

  35. David Ristau
    July 23rd, 2010 at 3:57 pm | PermalinkIgnore this user

    Jean -

    Hope you at least broke even?

  36. jomptien
    July 24th, 2010 at 12:16 am | PermalinkIgnore this user

    JCI/Amatta, the chart still looks good 27.50 or so would be a good stop. If you want to protect yourself sell some calls like you said.

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