September 5th, 2010 by miket
Photo by lilmsmrtas
Think back to when you were a kid and rode on a teeter-totter. You went down, and you went up. However, in order to get off of it, you had to wait until it was level.
Often times in the investing world, we see people try to get out of the market when it is either too high or too low. For purpose of example, we are going to assume that everyone is a long only investor. It is not that we are against being short, we just want to keep things simple.
Let’s say that you are at the top of the “toy range”. If you try to get out there, you will obviously fall and possibly hurt yourself (although my 3 year old son tends to disagree as his hobbies include jumping off of bunk beds…but I digress). It is difficult to get out at the top of the market. However, people try to do it every day, and there are a lot of skinned knees because of it.
When you go down, and your butt is about an inch off the ground, it is also very difficult to get off of it without hurting the other person. As soon as your weight comes off, the other person is in for a fast drop. Not only does it endanger the other person, you may not be quick enough to avoid your side coming up and smacking you on the butt. It is difficult to get into a trade at the bottom of the market.
With that in mind, the best way to do this is to make sure the board is level and get on at the exact same time. As a father of a 1 and 3 year old, I understand that is easier said than done (for kids my age anyway). However, my son loves it, and I accept his imperfection in getting onto playground equipment. It isn’t pretty when we get on to ride, but we make it work. The end result is my son screaming with joy (my daughter is still too young).
In the investing world, you will very seldom buy the bottom or sell the top. I’ve seen many people try to do it through the years, and they typically get burned. I’ve never been able to buy the exact bottom or sell the exact top.
The lesson here is simple. Accept your imperfections as this still can be a very exciting ride.
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July 22nd, 2010 by Michael Cavanaugh
7/22/2010 11:25 AM (cst)
Stock: AMED
Current Price: 25.11
Lets take a look at AMED. As recently as April 14th, AMED was trading above 64.00 per share. Since that time, there has been some negative news on the stock, including a class-action law suit*, an SEC investigation **an earnings miss *** and overall weakness in the home healthcare industry.
With such an onslaught of negative publicity, it’s no wonder that AMED has sold off significantly. Has AMED sold off too much? We will let you decide. Lets look at both fundamental and technical metrics.
Examining the fundamentals, AMED is currently trading at a Forward PE of 5.85, which can be considered cheap relative to the rest of the stock in the Home Healthcare Industry (as of close on 7/21):
Since AMED was at its April peak, analyst earnings estimates for next year (12/11) have been cut approximately 20% (from 5.35 to 4.30) while the stock has depreciated over 60%. This has caused AMED to go from being one of the more expensive home health care stocks (with a forward PE over 12) to one of the cheapest and a compelling value at its current levels.
| STOCK |
price |
EPS est |
FWD PE |
| AHCI |
2.35 |
0.34 |
6.91 |
| AMED |
25.73 |
4.30 |
5.98 |
| GTIV |
20.05 |
2.50 |
8.02 |
| CHE |
53.02 |
4.12 |
12.87 |
| LNCR |
23.40 |
2.12 |
11.04 |
| LHGC |
21.74 |
2.69 |
7.98 |
| AFAM |
24.74 |
2.94 |
8.41 |
There is also a lot to like from a technical standpoint with AMED trading around $25.00. After being in free-fall for the past few months, AMED seems to have stabilized around this level over the past 7 trading days (low of 24.41 on 7/20/10). This is important because of the long term significance of this level. Looking at 2 year chart on the stock, we can see that AMED bottomed out right around $25/share in early March 2009 when the market was trading at its lows. Additionally, going out 5 years, we can see AMED also holding in the 23-25 range back in February/March 2006
* http://finance.yahoo.com/news/Federman-Sherwood-Announces-iw-1532493764.html?x=0
** http://www.reuters.com/article/idCNSGE6600JD20100701?rpc=44
***http://www.reuters.com/article/idCNSGE66B0JA20100712?rpc=44
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Tags: AMED, Fundamental Analysis, PE ratio, Stock Valuation, Technical Analysis
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July 9th, 2010 by Michael Cavanaugh
A pairs trade is when you are long one security, and short another. The variety of a pairs trade can differ in terms of dollars, number of shares, or differing ratios on either dollars or shares. There are many criteria one should consider before a pairs trade is placed, there are also several risks that must be addressed beforehand. This educational piece addresses some of the criteria. Due to the educational theme, please do not construe the information to follow as a reccomendation to buy/sell any security mentioned.
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Tags: AHII, Bear Stearns, IPO, MWIV, pairs, short
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