Good Morning,
Time flies. It’s almost 2 weeks since the wonderful wedding dinner, and it seems like only yesterday. Anyway, Liverpool lost again on Saturday, and the goal Sunderland scored was funny. The shot by the Sunderland striker apparently struck a balloon on the pitch and deflected into goal. Very funny, that's what most of my friends said.
So did my portfolio performed badly like Liverpool did? Well, I didn’t make money with Citibank. In fact, I am in the red for this stock. So how can my Kute system go wrong? To be very honest, Citibank didn’t come into my screening radar for the past 1 month and as explained, I bought Citibank because I do not believe the company will fail and over time this counter should make money for me. So far I am happy that the stock didn’t crash after the earning reports, and since this stock is part of my 30% of the 30-20-50, I will continue to hold longer.
I did pretty fine with BHI though. The stock went south all the way to $46.25 last Friday. As what I had suggested, I bought at $46.54, and I am in the money now. The stock closed at $47.03. The rest of my recommended stock did well. CAH was up 2.76% to close at $28.68, OSG up 1.06% to close at $44.88, XTO up 0.22% at $44.87, PTEN down -1.77% at $17.19, EIX up 0.15% at $33.50, Forest Lab down 1.72% at $29.66 and BKS down 3.5% at $20.10.
Some had asked me why some stocks skyrocket on a positive earnings surprise while others fall off a cliff? Let me explain. The standard definition of an earnings surprise is when actual earnings come in higher than earnings estimates. But those estimates are the “published” numbers from the brokerage analysts. Quite often investors tend to develop their own unique set of expectations based on sentiment. If there is too much optimism ahead of the release, then actual earnings will need to be a blowout in order to appease the market’s inflated expectations. This is the most common reason why some stocks fall after a supposed earnings beat. Also, the highest quality earnings come from having robust revenue growth. This means that the company’s products or services are in high demand and should stay that way. However, most of the earnings being reported these days are generated from cost cutting and other accounting gimmick. The problem is that the benefits of these moves don’t last. When the market gets a whiff that the earnings are unsustainable, no matter how strong the beat, shares will most likely drop. Most importantly, when you buy a stock you are taking an ownership position. And what owners of companies care about is the stream of future earnings. So if a company beats earnings for the quarter just reported, but warns that future quarters will see lower earnings, then that stock will go down…and go down fast.
So how will this coming week be like? My screener showed these stocks that qualify within my filtering rules; PTEN, DRIV, GCO, CAH, WTS, EIX, XTO, OSG and MUR. Dropped from my screener this week are BHI, BKS and Forest Lab. Before we go into the stocks, let see how DJIA will be this week;
Time flies. It’s almost 2 weeks since the wonderful wedding dinner, and it seems like only yesterday. Anyway, Liverpool lost again on Saturday, and the goal Sunderland scored was funny. The shot by the Sunderland striker apparently struck a balloon on the pitch and deflected into goal. Very funny, that's what most of my friends said.
So did my portfolio performed badly like Liverpool did? Well, I didn’t make money with Citibank. In fact, I am in the red for this stock. So how can my Kute system go wrong? To be very honest, Citibank didn’t come into my screening radar for the past 1 month and as explained, I bought Citibank because I do not believe the company will fail and over time this counter should make money for me. So far I am happy that the stock didn’t crash after the earning reports, and since this stock is part of my 30% of the 30-20-50, I will continue to hold longer.
I did pretty fine with BHI though. The stock went south all the way to $46.25 last Friday. As what I had suggested, I bought at $46.54, and I am in the money now. The stock closed at $47.03. The rest of my recommended stock did well. CAH was up 2.76% to close at $28.68, OSG up 1.06% to close at $44.88, XTO up 0.22% at $44.87, PTEN down -1.77% at $17.19, EIX up 0.15% at $33.50, Forest Lab down 1.72% at $29.66 and BKS down 3.5% at $20.10.
Some had asked me why some stocks skyrocket on a positive earnings surprise while others fall off a cliff? Let me explain. The standard definition of an earnings surprise is when actual earnings come in higher than earnings estimates. But those estimates are the “published” numbers from the brokerage analysts. Quite often investors tend to develop their own unique set of expectations based on sentiment. If there is too much optimism ahead of the release, then actual earnings will need to be a blowout in order to appease the market’s inflated expectations. This is the most common reason why some stocks fall after a supposed earnings beat. Also, the highest quality earnings come from having robust revenue growth. This means that the company’s products or services are in high demand and should stay that way. However, most of the earnings being reported these days are generated from cost cutting and other accounting gimmick. The problem is that the benefits of these moves don’t last. When the market gets a whiff that the earnings are unsustainable, no matter how strong the beat, shares will most likely drop. Most importantly, when you buy a stock you are taking an ownership position. And what owners of companies care about is the stream of future earnings. So if a company beats earnings for the quarter just reported, but warns that future quarters will see lower earnings, then that stock will go down…and go down fast.
So how will this coming week be like? My screener showed these stocks that qualify within my filtering rules; PTEN, DRIV, GCO, CAH, WTS, EIX, XTO, OSG and MUR. Dropped from my screener this week are BHI, BKS and Forest Lab. Before we go into the stocks, let see how DJIA will be this week;
With earnings season in high gear with about 775 listed companies reporting their earnings and important reports on the economy and from the technical Cycletrend, DJIA should continue trading within the broad range this week with potential upside. So my macro tactical strategy for my stock will again be buying on dip and selling on achieving my targets.
-DRIV, Digital River, Inc. provides e-commerce solutions to a variety of companies in software, consumer electronics, computer games, video games, and other markets. The company has consistent operating income and its' operating cash flow and free cash flow are positive. The stock closed at $24.79 last Friday and most analyst target is about $28.50. However, my Cycletrend program indicated that the stock will be trending down with the price near its' bollinger band resistance, so it's better not to buy now.
-Genesco (GCO), has appeared in my radar for the past few weeks and I had recommended then at $23.52. It closed at $26.48. The company's fundamentals are still strong and Cycletrend indicated an upside movement. With the economy picking up, GCO could be a good buy and I will watch the stock this week to wait for the stock to dip along with the general market to buy.
-Watts Water Technologies, Inc. (Watts) is a supplier of products for use in the water quality, water safety, water flow control and water conservation markets. The company will be announcing its financial results on 27th Oct 2009 and though I like its fundamentals, I am uncomfortable with its shrinking operating income and its gain in cashflows from sale of assets and larger amortization and depreciation accounted. The Cycletrend chart also showed a sharp down cycle and with its price trading near its bollinger resistence, I will give this stock a miss.
-PTEN is a stock I have covered last week and I mentioned that I will choose BHI instead given that they are in the same industry. I was uncomfortable then with its earnings and cashflows. However, along with the improved economy, the operating profits and cashflows should improve. Since BHI is longer in my filtered stock, I will take profit and sell BHI and buy into PTEN this week since the technicals is still showing an up cycle.
-CAH should continue its run and with the confirmation from Cycletrend and candles, I will look into buying this stock. I am still holding on to OSG since the technicals are still strong, and giving XTO a miss as the chart indicated that it will correct from the last week's price. EIX has begin to show some interesting technicals and seems like it will be positive this week.
Have a great week ahead.
Francies Cheng
BBus MAppliedFinance
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