Selection for the week

Good morning,

We are now into the second week of the New Year and once again it’s time for the new stocks selected by KUTE. My friend asked me today what exactly does KUTE stands for. Well, KUTE is KONCEPT UNIQUE TACTICAL EXECUTION method for stock selection. It is a system to screen the fundamentally strong companies and the application of the technical to determine the entry and exit strategies. Stocks are selected with a stringent list of criteria to shortlist companies with strong financials and good growth potential before cycle trend and candlesticks formations are used to decide if the stocks should be traded for the week. The criteria for the selection include PE ratios, Growth, Debt/Equity ratios, PB ratios etc, to name a few. The idea behind KUTE is that if the company is fundamentally good, there’s nothing to be worried even if the entry price is wrong. After all good companies with the stringent criteria should appreciate in value over time and if the money management is applied with discipline, there should not be any losing trade over time. I am planning to conduct my 1st stock seminar in 2010 to share KUTE’s methods and I look forward to another interesting sharing lesson with new participants.

Let’s first see how the macro of the markets will be this week. The coming week will see the start of the new earnings season with Alcoa, Intel and JP Morgan reporting their last quarter’s earnings. It will be interesting since these 3 companies represents metals, semiconductor and banking and it will be a good gauge to see if the economy has recover as expected. There will also be 3 economic reports this coming week, i.e. the trade balance, the Fed’s beige book and the retail sales for December. I am expecting the earnings report to be good, and monitor closely the 3 economic reports. On the technical, the weekly cycle trend is indicating a upside potential using bartel trend and the weekly candle is indicating a white opening marubozu and bullish engulfing formation. With the expected good reports and the candle stick formation and cycle trend, I believe the markets will be trading up this week. My macro decision will be to buy and sell at higher target returns, allowing the stocks to ride the trend of the current markets.

The KUTE’stocks selected for this week with good fundamentals are: DOX, NOV, NE, DSX, PDE, SAB and RDC.

Rowan Companies, Inc. (RDC) is a provider of international and domestic contract drilling services. Rowan also owns and operates a manufacturing division that produces equipment for the drilling, mining and timber industries. During the year ended December 31, 2008, the offshore fleet consisted of 22 jack-up rigs, featuring two 84 class jack-ups and one 116 class jack-up, seven 116C class jack-ups, three Gorilla class jack-ups, four Super Gorilla class jack-ups, four Tarzan Class jack-ups, and one 240C class jack up. The company’s revenues and operating profits for the last 5 years are consistent and positive and its operating cash flows have increased for the same period. However, it has not register a positive free cash flow for the past 3 years because the company has invested heavily in the purchase of fixed assets during this period. Hopefully the increased in fixed asset will add value to the company’s operations the next few years to ride along with the economy recovery. For the technical, the weekly cycle trend is appreciating and a candle formation is a ‘wait’ formation. My tactical for this stock is to place a market order at 0.3% above last Friday closing price of $25.25.

Grupo Casa Saba, S.A.B. de C.V. (SAB) is a multi-channel, multi-product national wholesale distributor in Mexico. The Company distributes pharmaceutical products, health, beauty aids and consumer goods, general merchandise, publications and other products. The majority of these products are distributed by the Company on a non-exclusive basis. The company’s operating income, operating cash flow and free cash flows are positive and acceptable. The cycle trend is indicating a strong upside for both the weekly and the daily curves and the candlestick formations are white opening maruzbozu and its daily is a black spinning top with a “wait” indication. This is another stock that I may place a market buy order at 0.3% above its last Friday’s closing price.

NOV weekly cycle trend is showing a continuing of its recent upside price movement for the week but its weekly candle stick is a “sell-if” formation. I will stay away from this stock for once. NE weekly cycle trend indicates a slight decline and its weekly candle formation is a long white candle calling for a “hold” recommendation. DSX weekly cycle trend is flat with no clear direction but its weekly candle stick forms a white opening marubozu. Combining with the last 2 and 3 weeks candles, it forms a bullish kicking and bullish morning star pattern. The only concern I have is the flat cycle curve so I will continue to observe this stock and wait for a buying opportunity. DOX weekly candle and cycle trend are both calling for a sell signal so I will not do anything with this stock and PDE weekly cycle and candle is also bearish without a strong buy signal.

Have a great week!

Francies Cheng
BBus MAppliedFinance