This Issue looks at: Recent IPOs INVN, KORS

General Market Outlook: The market is in a continued uptrend. Institutional money is finding its way into the market as evidenced by the number of accumulation days this year. Last week the Nasdaq rose 2.8%, the S&P 500 rose 2.0 %, and the Dow rose 2.4%. Earnings season in underway and the market is rewarding and punishing companies based on their own merits. The “macro risk-off” trade appears to have abated, quality stocks are being rewarded.

The technical view: Two to three weeks ago we were looking for the Nasdaq and the S&P 500 to overcome potential resistance areas. Thus far the Nasdaq composite has been able to overcome its 200 day moving average to the upside, also the Nasdaq has been able to decisively take out the October high of 2753 and continue to move higher along its ten day moving average for the last 4 weeks, the next zone of resistance for the Nasdaq will be the 2800 to 2890 level. If it can take out the 2887 level and move higher we may be truly in another bull run (please see chart below) . The S&P 500 has also taken out is October high of 1292 and is climbing along its 10 day moving average. The S&P 500 is in its zone of resistance to where it spent the last year bounding around from 1300-1370 area, thus we are watching to see if the S&P 500 can get above the upper range of this level at 1370 (chart not shown).

The Fundamental view: The Federal Reserve remains easy, corporate profits are still at record highs, earnings are still robust but have slowed down a bit. Economic numbers keep supporting a positive environment for stocks. Recent economic numbers such as the ISM manufacturing and non manufacturing have show expansion. Housing starts are at their highest levels since 2008. Unemployment keeps dropping, private payrolls keep increasing and overall retail sales are up as are auto sales.

Stocks are still cheap below is a table form www.decisionpoint.com showing the various valuations based on PE for the S&P500.

It is also worth nothing that a few quality IPO’s keep moving higher, this is what is needed for supporting a new bull trend. Recent IPOs such a KORS, INVN, and RNF, continue to move higher.

Last week we changed our signal to a continued uptrend, and the same signal persists, new highs are being made nad breakouts of leading stocks are holding, at this point we are willing to commit more money to certain stocks. In this Issue we give a brief picture of INVN and KORS. At the time of this writing I do hold INVN and KORS, however this may change at anytime based on market conditions. Although we are willing to commit more money to stocks, we will continue to monitor for any evidence of increased institutional selling and adjust accordingly.

Earnings season continues this week, so we will watch how the market reacts to the numbers. Please contact us at 1-866-903-1822 for help or if you have any questions on anything we put in the letter.

(INVN) Invensense Inc. Manufactures motion processing ICS and related software for consumer electronics devices for the video gaming industry.

The Story: Invensense is the pioneer and a global market leader in intelligent motion processing solutions that enable a motion based user interface for consumer electronics. Chips are designed for use in smartphones, tablets, gaming (Wii and Nintendo) , smart TVs and image stabilization for cameras. Goldman Sachs believes sales are expected to grow at 35% compounded annual growth rate.

Recent News:

1/9/2012: InvenSense, Inc. (NYSE: INVN), the leading provider of MotionTracking™ devices for consumer electronics, today announced the availability of the MPU-9150, the world’s first fully integrated 9-axis MotionTracking device for mobile devices, which will be showcased January 10-13 at the 2012 Consumer Electronics Show

1/5/2012: InvenSense, Inc. (NYSE: INVN), the leading provider of MotionTracking™ devices for consumer electronics, today announced availability of the MPU-6150, the world first and only single chip 6-axis MotionTracking device designed for the low power, low cost, and high performance requirements of smart-TV, set top box, and gaming console remote control applications.

Fundamentals

Last 3 quarters earnings have been triple digit +160%, +999%, +275%

Last 3 quarters of sales have been +78%, +62%, +83%

After Tax margins have increased from 18.7 to 26.6

Technicals: The stock is extended now from two pivot points; one that formed at 10.25, and 11.95 a standard pivot point from a short IPO consolidation. Volume has been coming into the stock on the buy side. The stock is too extended to buy now, however this should be observed for another low risk entry in the future.

(KORS) Michael Kors Hldgs Ltd. Markets Luxury apparel, accessories and footwear under the Michael Kors name.

The Story: Michael Kors first launched in 1981 has grown and now sell in 74 countries. The company started out as a luxury sportswear brand, then later branched out into shoes and accessories. In the last five years the company has branched out from selling wholesale to department stores to opening 184 stores in North America and 34 in Europe and Japan. The company is looking to a potential market of 400 locations in North America and 100 in Europe and Japan. One cautious and important note is that all the money from the IPO went to selling shareholders and will not go to the company’s expansion.

The Fundamentals:

Last 2 quarters have seen triple digit growth at +183%, +113%

Technicals: The stock traded very well since its initial IPO, The stock then formed a short consolidation formed a short 2 1/2 weeks base then broke out past the 27.58 pivot on volume and has continue to do well. It is too extended from its buy point, but should be monitored for another low risk entry.

The technical view: January is always a tricky month for the market, so we try not to make too much out of what has happened so far. However, one cannot ignore the generally positive action in stocks for the last 2 weeks. In the 9 trading sessions we had so far this year the market opened lower on 6 occasions and was able to close higher for the day, rallying into the close (see chart below). Also we observe that the Nasdaq has held up well above its 200 day moving average, something with which it struggled last quarter. The S&P 500 is holding well above its 10 day moving average, and still trying to take out its October 27th high of 1292. The Dow Jones Industrial is also holding above its 10 day moving average.

Adding also to the positive tone is the action in leading stocks, a few breakouts are holding and stocks are moving into higher ground. Last 2 quarters we would see breakouts in quality stocks only to see them fail and fall back into their consolidation. While this still has not given us a raging bull market, the action is improving and we are seeing new highs in quality stocks, in the retail, medical, energy, banks and technology.

Fundamental view: While we keep getting mixed economic numbers, generally speaking economic numbers are improving more than the pessimist care to admit. In this environment it is easy to be cynical and negative. Politically speaking the Democrats keep telling us how bad it is so they can ask for more money to spend, Republicans keep telling us how bad it is so they can boot Obama out of the White House. Really – we just need to get Washington out of the way. So all this political posturing and headlines from Europe can cloud one’s mind, but one way to get a real picture of what is going on is to take a look what is really going on in the market and if there is a theme building underneath the surface.

I do believe a theme can be uncovered by looking at the performance of Industry groups in IBD’s 197 Industry group rankings. Groups that have climbed into top spots quickly over the last few months include Retail-Wholesale Building Products, Building Construction Products, Building Wood Products, Regional Banks, and Building-Residential/Commercial. The movement of these groups tells us that the economy is recovering and this should do well for the general market. Furthermore, we are seeing leadership in many groups of healthcare, retail, oil & gas, and some technology.

Since our follow-through day of December 20th, the continued uptrend of this market, and evidence that some new highs are being made, at this point we are willing to commit more money to certain stocks. Although we are willing to commit more money to stocks, we will continue to monitor for any evidence of increased institutional selling and adjust accordingly.
Earnings started last week, so we will watch how the market reacts to the numbers. Please contact us at 1-866-903-1822 for help on this matter.

Market Condition: → Cautious uptrend

The technical view: The general indices were positive for the week, however there still is a lack of huge institutional buying of top stocks sending them higher. Currently it looks more like seller exhaustion, vs. buyers strongly accumulating shares. However, there was a fair deal of positive action looking at all the indices. The Nasdaq stayed above the 2600 level and also reclaimed its 200 day moving average on Thursday as the volume picked up from the day before. The S&P 500 stayed above the 200 day average as well and looks like it will test its October 27^th high of 1292. The Dow is leading for now and did overcome the October 27^th high of 1284 and stayed above this level all week. Perhaps most interesting is that on Wednesday, Thursday and Friday the Nasdaq traded lower at the start of the day, however managed to closed higher all 3 sessions. This was a welcome event and something we have not seen for a while.   Critical right now is to see if the Nasdaq can hold the 200 day moving average around 2660, and look to see if we get more new highs in leading stocks.

Fundamental view: This last week we saw good economic reports in the US. The ISM Manufacturing has show now that the manufacturing sector has grown now for 29 straight months.  The ISM services index has shown growth for 25 straight months.  Private payrolls increased 212,000 and the unemployment rate came down to 8.5% the lowest since March 2009. The average workweek increased to 34.4 from 34.3.

We still have great corporate profits and a very accommodative fed. Starting this week we have earnings season kicking off.  So we will see how the earnings come in and more importantly how the market reacts to these numbers.

I believe one important sector worth noting is the financial sector. It is worth noting what is taking place in regional banking shares, they are starting to move. This may also serve as an economic indicator.  Looking at IBDs industry group ranking of 197 industry groups, (the lower the number the stronger the group):

• Banks-Midwest are now at the number 10 spot up from 141 (7 months ago).
• Banks –Southeast are now at the number 19 spot up from 124 (7 months ago).
• Banks- Northeast are now at the number 20 spot up from 69 (7 months ago).
• Banks- West/Southwest are now at number 24 spot up from 93 (7 months ago).
• The large Banks (GS, MS, JPM etc,  are still lagging the market near the bottom ranked at 176 by IBD out of 197 Industry Groups (the lower the number the worse groups performance).

Notable stocks we are looking at in the regional bank space are Signature Bank (SBNY) in Bank-Northeast Industry group, and Texas Capital Bancshares (TCBI) in the Banks-West/Southwest industry group.  We will try to cover these in future reports.

Since our follow-through day, of December 20^th at this point we are willing to commit small positions to certain stocks although we still do view the risk being high due recent market action. Earnings season starts this week so strap in!  Please contact us at 1-866-903-1822 for help on this matter.

We do not own shares in SBNY or TCBI but we may initiate positions in these stocks at any time if we view them still as playable and if the market continues to improve.

Market Condition: → Cautious uptrend, distribution builds

This post looks at:  CELG, BIIB, SLXP

The Technical View: Last week’s light trading volume did not tell us much as to where the market would like to go. However, during this week the SP 500 experienced a stall day (slight pickup in volume with no further price progress) followed by two days of increased volume on the downside. This type of action was not particularly encouraging looking forward. However, one can make an argument that last week’s trading may have been skewed due to the low volume holiday trading. On the positive side most leading stocks did not suffer any great selling, and the SP 500 was able to stay right around its 200 day moving average.

The Nasdaq Composite was able to stay above the 2600 level but still below is 200 day moving average (2660). Thus what we are watching for is how leading stocks perform, and watch to see if any new highs are being made. Also we are watching if the SP 500 can overcome its 200 day moving average (1258), as well as if the Nasdaq can rise above this level (2660).

The Dow Jones Industrials are faring a bit  better at 12217, well above the 50 and 200 day moving average, and in fact it looks like the 50 day moving average (11934) is about to cross the 200 day moving average of (11946), a positive sign a “golden cross”.

Fundamental View: Corporate profits are still rich, market is well priced. The SP 500 earnings are forecasted to rise an average of 8.3% according to S&P Capital IQ, vs. a 16% average gain for 2011.

The world is giving the market many things to worry about,  European debt issue, possible conflict in Iran, US politicians unable to work together, socialists in the white house preaching class warfare.. you get the picture.

Historically, governments around the world try to meddle in the markets and just cause havoc, just as we have seen in this past financial crisis. It looks like this meddling will continue through regulations and other orders. However, on the positive side, at least in the United States, the free markets and entrepreneurs of US companies  have always been able to overcome the government meddling and the US economy has been able to continue to grow. So it is not different this time, take the news with a grain of salt but keep your eyes on the price and volume action of the market and leading stocks.

In this post we are going to look at some biotech and pharmaceutical stocks. This sector has shown some leaders thus far through the action of Questcor (QCOR) and Alexion Pharmaceuticals (ALXN). Medical device maker Intuitive Surgical (ISRG) also acting well. Other big Pharma has acted well as of late Bristol-Myers Squibb  (BMY) and Pfizer (PFE) and Amgen (AMGN) also showed some movement. Others we hope to cover in the future are CBST, VPHM, SPPI and ENDP. This week we will look at CELG, BIIB and SLXP.

Stocks that we are looking at does not consititute a buy or sell recommendation.  Please refer back to the last few reports as well. As of this writing we are long small positions  DG, GNC, CXO, NUAN,  CJES, CATM, BIIB, SLXP. We may initiate postions in  other stocks mentioned or others, at any time depending on the market environment.  Also we may sell existing positions at any time due to market conditions.

Since our follow-through day, at this point we are willing to commit small positions to certain stocks although we still do view the risk being high due recent market action. Please contact us at 1-866-903-1822 for help on this matter.

(CELG)  Celgene, develops therapies to treat cancer and immune –inflammatory related diseases by regulating cells, genes and proteins.

The story: There are more than 300 clinical trials at major medical centers using compounds from Celgene. Investigational compounds are being studied for patients with incurable hematological and solid tumor cancers, including multiple myeloma, myelodysplastic syndromes, chronic lymphocyte leukemia (CLL), non-Hodgkin’s lymphoma (NHL), myelofibrosis, small cell lung cancer and prostate cancer. Earlier this fall the European Medicines Agency (EMA) concluded that Revlimid’s benefit for patients with multiple myeloma outweighed its risk. Revlimid is used to treat multiple myeloma after other treatments have failed. Revlamid contributed to $820 million in global sales last quarter, or 66% of Celgene’s total. Celgene has been trying to find broader uses for Revlimid, the EMA’s decision paves the way for Celgene to file application for more Revlimid use. Celgene has a host of other drugs with the other big ones being Vidaza to treat myelodysplastic syndrome and Abraxane to treat breast cancer.  Celgene has a development pipeline of 25 phase three clinical trials and around 20 compounds in early preclinical stages.

Recent News : 12/13/2011 2011– Celgene International Sàrl, a subsidiary of Celgene Corporation, (NASDAQ: CELG), announced final results from a phase II investigational study evaluating the combination of REVLIMID^® (lenalidomide) and rituximab in 59 patients with relapsed or refractory chronic lymphocytic leukemia (CLL)

10/27/2011 Third-quarter profit rose 33% to $1.02, 7 cents above Wall Street estimates. Revenue jumped 37% to $1.25 billion, just above views for $1.2 billion.  Sales of Celgene’s dominant drug Revlimid — which treats blood cancer multiple myeloma — came in slightly under views at $820 million, up 28%.

Fundamentals:

• Last 3 quarters consistent earnings growth of +32%, +29%, +36%
• Last 3 quarters of sales +42%, +39%, +37%
• After tax margins improving from the 35%  level to 37.5%
• ROE of 25%
• Fund sponsorship dropped off a few quarters ago up in the most recent quarter
• Strong Forward estimates for 2011 and 2012 +36%, +19%

Technicals: Celgene has basically moved in a choppy fashion for the last two years, it has attempted to breakout many times, but just fails and comes back in.  Recently it is now working   on a new base above the 60 dollar level, volume has been strong on the right side of the base, we are watching to see if it can breakout past the 68.25 level. So we are watching to see if we can get a volume breakout above this level.

(BIIB) Biogen Idec Inc., develops Treatments for Multiple Sclerosis (MS), Cancer and Autoimmune/inflammatory diseases.

The Story: Search for an effective, safe and tolerable MS treatment has brought a lot of focus on Biogen’s BG-12.  Recently  its experimental multiple sclerosis drug, BG-12, met its goals in a second, late-stage clinical trial and worked better than Teva Pharmaceutical’s (TEVA) Copaxone, the current leading treatment for multiple sclerosis.   The Problem with MS is that no one is really sure what causes MS and why it manifests itself differently in individuals.  Although in all patients the immune system attacks the Myelin sheaths (fatty layers around nerve cells) eventually distorting nerve signals and damaging the nerves, producing a variety of symptoms. At this time BG-12 looks very safe management has said it expects to file for FDA approval in the first half of 2012. Analysts estimate sales could peak at $2 billion to $3 billion.

Recent News:

12/9/2011 Biogen Idec (BIIB) was given a top rating by Barclays Capital, which initiated coverage of the biotech firm. In Oct., the firm, which develops treatments for multiple sclerosis, cancer and other diseases, posted better-than-expected Q3 results, but declined to raise conservative guidance

11/29/2011 Biogen Idec (BIIB) received U.S. antitrust clearance to go forward on a deal with Portola Pharmaceuticals to develop and commercialize a drug for the treatment of rheumatoid arthritis and lupus

10/28/2011   The biotech beat Q3 expectations and said its experimental multiple sclerosis drug outperformed the current leading MS treatment in trials. Biogen Idec (BIIB) earned $1.61 a share, above views ($1.51 per share). Revenue rose 11% to $1.31 bil, boosted by its multiple sclerosis drug Tysabri. Higher-than-expected sales of Biogen’s two leading drugs, Avonex and Tysabri, drove the results. Both of them treat multiple sclerosis, and together they account for more than half of the company’s revenue.

Biogen’s full-year guidance was the same as last quarter, except it refined its sales-growth estimate from “low to mid-single digits” to simply “mid-single digits.” Profit guidance, however, appears to be very conservative compared with what analysts expect; EPS is forecast “above $5.70″ while analysts’ consensus is $5.88. Biogen’s next MS drug, BG-12. That product, which unlike the previous drugs is taken orally, has had analysts seeing blockbuster potential. On a conference call with analysts, CEO George Scangos said Biogen plans to file for official FDA approval of BG-12 in the first half of next year.

10/26/2011  The biotech said its experimental multiple sclerosis drug, BG-12, met its goals in a second, late-stage clinical trial and worked better than Teva Pharmaceutical’s (TEVA) Copaxone, the current leading treatment for multiple sclerosis. Biogen Idec (BIIB) reported similar results from a separate clinical trial Fri.

Fundamentals

• Last 3 quarters earnings have been sporadic, +32%, +4%, +19%
• Last 3 quarters of sales have been +9%, 0%, 11%
• After Tax margins have increased from 28.6 to 30.1%
• ROE of 23%
• Fund sponsorship has increased over the last 4 quarters,
• Forward estimates for 2011 and 2013 of +14% +7%
• A lot of faith is being placed in the BG-12 blockbuster potential, as well as other discovery in neurodegenerative disease.

Technicals: Since the pop on news on trials of BG-12 the stock has been consolidating the range lately has been very tight indicating institutional accumulation. The stock can be tested here or we can wait to see how the base develops and if we get any pop out of the base on volume.

(SLXP) Salix Pharmaceuticals develops branded prescription drugs for the treatment of gastrointestinal diseases.

The Story:  Salix focuses on niche products in gastroenterology. Xifaxin 200 mg form is used to treat traveler’s diarrhea, Xifaxan 550 mg an (orphan drug) is used to treat hepatic encephalopathy which also gives it seven years of market exclusivity. The company believes this could deliver 1 billion in revenue at their peak in 2017.  Most of Salix’s gains this year come from the new Xifaxan indication for hepatic encephalopathy and from growing off-label use of the 550 mg dosage for treating irritable bowel syndrome (IBS). Salix is seeking approval of Xifaxan 550 mg for treating IBS, but in the meantime doctors are using it off label.  Estimates are that Xifaxan 550 mg sales from treating IBS could reach $620 million by 2016. Further out, Salix’s  management expects peak sales of $2 billion. Credit Suisse estimates that Salix’s revenue from all indications and dosages of Xifaxan will total $370 million this year, up from $250 million in 2010. Of Salix’s $146.2 million in third-quarter revenue, Xifaxan made up $96.7 million, a gain of 48% over last year.

Another  important drug is Relistor, which is being developed in a pill form to treat opioid-induced constipation. The drug is now only an injectable, used mostly in hospitals. It generated about $8 million in sales for Salix in the third quarter. The oral form could be used chronically outside the hospital and could potentially have much greater sales. Two new drugs were added by the acquisition of Oceana which include Solesta and Deflux. Solesta  is the only nonsurgical FDA-approved treatment for fecal incontinence in adults who fail conservative therapy. Management expects peak sales of more than $500 million, with modest earnings contribution in 2012. Deflux, treats kidney infections in children and logged $26 million in worldwide sales in the first nine months of 2011.

Recent news:

12/20/2011 Salix Pharmaceuticals announced the successful outcome of the Phase 3 trial to evaluate the efficacy and safety of oral methylnaltrexone (Relistor) for the treatment of opioid–induced constipation (OIC) in subjects with chronic, non–cancer pain

12/20/2011 – Salix Pharmaceuticals and Oceana Therapeutics, LLC today closed a transaction whereby Salix acquired all of the outstanding stock of Oceana Therapeutics, Inc., a privately–held global provider of gastroenterology and urology therapeutics.

11/29/2011 the FDA issued guidance believed to keep Xifaxan safe from  generic-drug companies.

On 11/17/2011 , a Food and Drug Administration panel issued positive comments on the company’s proposed clinical design study of Xifaxan 550 mg for treating IBS.

Fundamentals

• Last 3 quarters earnings have grow +203% , +125%, + 450%, which will slow down going forward
• Last 3 quarters sales +140%, + 42%, + 81% this will slow as well
• After Tax margins have increased over the last few quarters from 24.7% to 33.3%
• ROE of 12%
• Fund sponsorship has been steady over the last few quarters between 450-480 funds
• Strong forward estimates for 2011 and 2013 of +264% , + 10%

Technicals: SLXP reached a high around 49 1 year ago and has formed a large base since then, recently due to all the news the stock started forming the right side of the base, it already had a breakout on 11/29/2011 recently it staged a buyable gap up on 12/20/2011, thus it is in a buyable range now using the low of the gap up day as a stop.

Market Condition: → Late follow-through, cautious uptrend

This post looks at:  NUAN, V, LKQX, CATM

The technical view: The market staged a follow-through day on Tuesday. However on Wednesday the Nasdaq suffered from a distribution day.  The importance of these events goes as follows (credit to my friends at Investor’s Business Daily, IBD, who throughout the years have studied and crunched the data): Since 1880 every market rally started with a follow-through day, however not all follow-throughs lead to a sustainable rally. Furthermore, if you get a distribution day as we did the first day after a follow-through, the probability for a rally failure is at 95%. The distribution day was observed only on the Nasdaq market and was driven by Oracle’s (ORCL) disappointing outlook.  Oracle’s volume was 7 times higher than its average volume, contributing to the volume surge on the Nasdaq also Oracle dragged down the other tech stocks with it.

On a positive note, on Friday the Nasdaq closed above the 2600 level and also closed above the 50 day moving average (of 2617). The SP 500 well above its 50 day moving average (1233)  and also on Friday able to close above the 200 day moving average (of 1259). Volume as expected was low due to the Holiday environment. One stock CATM did pop out of a short consolidation on Friday (please see attached sheet on CATM)

There are still only a few breakouts since the follow-through and investors willing to commit money to the markets at this time should look for sound stocks popping out of sound bases and ease into the market as it improves.

Fundamental view: Last week’s issue I listed approximate values for the SP 500. This week I would like to present some compelling data by one of my favorite economist Brian S.  Wesbury,  Chief Economist for First Trust Portfolios. Brian uses what he calls a capitalized profits model to value stocks, dividing corporate profits by the 10-year Treasury yield.  They compare the current level of this Index to that from each quarter for the past 60 years to estimate an average fair value. Right now 10-year yields are below 2% and corporate profits are growing strongly.  As a result this model says that fair value for the Dow is currently 40,000!

Of course Brian realizes that the bonds are in a bubble so the yields will rise and using a more conservative discount rate of 5% for the 10-year Treasury generates a “fair value” of 18,500 on the Dow and 1940 on the SP 500.  But again trying not overstate things corporate profits are one of the highest (12.9% of GDP) so if they come down to the historical mean of 9.5% of GDP and assuming a 5% yield on the 10-year Treasury you get a fair value of 1430 for the SP 500 and 13,700 on the Dow (this is taking in the worst case scenario for both profits and increased yields).

Thus, once we can get out of this current fear scenario stocks could do nicely. I would recommend you to read Brian’s book “It’s Not as Bad as You think” which was published  in 2010.

Again the following pages covers some stocks we are looking at. Stocks that we are looking at does not consititute a buy or sell recommendation.  Please refer back to the last few reports as well. As of this writing we are long  DG, GNC, CXO, NUAN,  CJES, CATM. We may initiate postions in  other stocks mentioned or others, at any time depending on the market environment.  Also we may sell existing positions at any time due to market conditions.

Since our follow-through day, at this point we are willing to commit small positions to certain stocks although we still do view the risk being high due recent market action. Please contact us at 1-866-903-1822 for help on this matter.

(Nuan)  Nuance Communications develops embedded speech and digital imaging software

The Story: Nuance’s strategy is to keep acquiring patents and other companies in the field. Nuance is the front-runner in speech recognition technology and imaging products. Nuance made five buyouts this year and has bought up over 25 firms over the past five years.   Siri uses Nuance technology, Siri voice recognition software in used in Apples’s latest iPhone 4s. Nuance’s FlexT9 keyboard is available on Google’s Android-based phones. Nuance’s health care business account for its largest revenue (about 40%), mostly doctors multitasking and getting access to fast and accurate information. Doctors use Nuance’s speech products to transcribe patient data into computer files. Nuance acquired health IT firms Dictaphone in 2006, eScription in 2008 and Wedmedx in June.

The company is expected to keep growing its presence in next generation devices and keep pursuing buys.

Recent News: 12/20/2011: Nuance said it will buy rival Vlingo, it’s fifth acquisition in the year, to beef up its voice assistant offerings for mobile devices and automobiles.  In August, Nuance bought Loquendo, a unit of Telecom Italia. In October, Nuance bought Seattle-based Swype, a developer of touch-based tech used on many Android phones. In June, Nuance bought German speech company SVOX for $81 million. SVOX’s customers include German carmakers.

Fundamentals:

• Last 3 quarters earnings have accelerated to +14%,+17%, +27%
• Last 3 quarters of sales steady, +17%, +20%, 18%,.
• ROE of 18%
• 4 quarters of increasing fund sponsorship
• Forward estimates for 2012 and 2013 +17%, +11%

Technicals: Nuance  sold off with the market on weaker volume, a welcome sign, then recaptured its 50 day moving average on increased volume and has found support around this area. Nuance may offer a low risk entry here as it springs off its 50 day line

(V)  Visa Inc. Provides global payment solutions in support of the credit and debit payment programs of financial institutions.

The Story: Visa’s innovations, however, enable its bank customers to offer consumers more choices:  Pay now with debit, ahead of time with prepaid or later with credit products.  In fact, approximately 70 percent of Visa payment transactions in the United States are debit and prepaid, not credit. Visa’s global strategy is to provide the next generation of payments solutions, enabling consumers to transact wherever and whenever they choose, using a card, a computer or a mobile device with Visa’s reliability, security and global acceptance.

Recent news:  Nov. 16, 2011– In an effort to simplify and accelerate the development and adoption of innovative payment products globally, Visa Inc. (NYSE: V) today announced the launch of its new Visa Developer Center. The primary purpose of the center: to provide approved application developers with easy access to tools needed for the rapid creation and deployment of payment applications.

Fundamentals:

• Last 3 quarters of earnings accelerating +28%, +30%, +34%
• Last 3 quarters of sales + 15%, +14%, +13%,
• ROE of 14%
• 3-5 year growth rate of 46%
• Consensus forward estimates 2012 and 2013 +17%, +16%
• 4 quarters of increasing fund sponsorship

Technicals: Visa broke out of a flat base on 10/28/2011 pulled back with the market, recently formed a 3 weeks tight pattern and this week has moved past the high of this pattern of 98.60 on volume. Showing a lots of strength in this market RS line leading the price a very bullish sign

(LKQX) LKQ Corp. Distributes aftermarket replacement parts to collision repair shops and mechanical repair shops throughout the U.S.

The Story: LKQ  strategy consist of acquiring other companies as it consolidate the wholesale parts supply business for auto body and commercial auto repair shops. Earlier this year LKQ spent $100 million for seven companies consisting of parts distributors, a heavy duty truck salvage operation and a do it yourself parts recycler. In this environment consumers and insurance companies are looking to save money on replacement parts, and drivers are holding onto their cars longer in this economy, which is good for parts dealers.

Recent News.  This fall LKQ spent $347 million for its first overseas acquisition, the UK based Euro Car Parts chain, the number 1 commercial distributor of aftermarket auto parts in the UK.  On 10/27/2011 LKQ saw Q3 EPS rise 36% to 34 cents, 2 cents above views, revenue surged 29% to $783.9 million, above views.

Fundamentals:

• Last 3 quarters earnings accelerated +14% +23% + 36% estimates for the next 2 quarters at .37 and .51 an increase of 32% and 24%
• Last 3 quarters sales +30%, +30% +29%
• 3-5 year growth rate of 28%
• ROE of 13%
• 4 Quarters of increased fund sponsorship
• Forward estimates for 2011 and 2012,  +25% +27%

Technicals: The stock is forming a base on base pattern it broke past the 28 level which now appears to be a level of support. One can try a  low risk entry near the 50 (near 29) day average selling a few % points below this if it slips or wait to  it see if it can take out the high of 31.25  on big volume.

(CATM)  Cardtronics Inc. Operates 42,000  ATMs via a network of merchant locations throughout the U.S., Canada,  U.K., Mexico and Puerto Rico.

The Story: Cardtronics is the top ATM operator with double digit revenue and profit gains. Cardtronics kept growing through 17 acquisitions over the last 11 years.  According to the CFO Chris Brewster, current data says that the use of cash is growing.  Some analysts believe that Cardtronic’s cash trade will likely benefit from new debit-card regulation and growth of pre-paid cards.  There are about 400,000 ATMs in the U.S., half are owned by banks, the other half by independent vendors, of which Cardtronics is the largest.

CATM Daily Chart

Recent News: 12/8/2011 Cardtronics  announced a long-term ATM placement agreement in Puerto Rico with National Lumber & Hardware, covering 38 locations for the home improvement and interior design retailer. National Lumber & Hardware is a division of Pitusa, the island’s largest Puerto Rico-based retailer.  11/7/2011, Cardtronics said Q3 EPS rose 39% to 39 cents, beating by 2 cents. Sales rose 21% to $165.1 mil. It sees Q4 EPS of 37 cents, 5 cents above views.

Fundamentals:

• Last 3 quarters earnings  +42%, +31%, +39%
• Last 3 quarters of sales, +8%, +11%, +21%
• ROE of 208%
• 8 Quarters of increasing fund sponsorship
• Forward estimates for 2011 and 2012 +37%, +19%

CATM Weekly Chart

Technicals: Daily and weekly charts show a lot of institutional accumulation with high volume buy days. On 12/23/2011 CATM broke out of a three weeks tight pattern on a 76% surge in volume despite the holiday trading session. If the market hold this may be a leader. Please see daily and weekly charts.

Market Condition: → Late follow-through, cautious uptrend

The technical view:  After last week it looked like the chance of any meaning follow-through faded. Today however the market was able to stage a follow-through day. This occurred on day 17 after the first rally attempt. Typically, follow-throughs occur usually day 4-10 after the first rally attempt. It still is possible for a sustained uptrend to occur even with a follow-through this late in the cycle. This however does not give a clear go-go green signal as the indices still have some work to do. The SP 500 is still below the 200 day line which was a point of resistance, although as shown on the chart the SP 500 did reclaim the 50 day moving average. The Nasdaq Composite closed above the 2600 level which has been an area of support/resistance in this recent past. The Nasdaq however is still below the 50 day and 200 day moving average.

Investors who are willing to commit some money to this change in market should proceed with caution, and look to some of the leading stocks that have bucked the trend in this market. At the same time investors should be aware if any new distribution days start popping up, distribution days after a new rally tend to derail the rally.  If this new rally is sustainable it should not take too long for many leaders to emerge and breakout of solid consolidations to near new highs. We will be watching for this.  Please contact us if you have any questions, and as always refer to past reports for more on the fundamental view.

The Market is still in a correction, and this week’s action makes the chances for a  follow-through more elusive.  Indications are that funds are selling into the rallies, and this is still a headline driven volatile market.

This post looks at: HIBB, RAX, BWLD, MA

Market Condition: ↓ In a correction attempted rally failing

The technical view

This week on Tuesday and Wednesday the market suffered back to back distribution days indicating fund selling. On Wednesday, the SP 500 broke down through the 50 day moving average an area that offered some glimmer of hope and support. On Wednesday, Thursday and Friday, stocks on the SP 500 index closed on just about the lows of the day indicating that funds again took advantage of early morning rallies to sell.   Friday we saw a burst of volume due to quadruple witching option expiration, and as mentioned stocks pretty much closed near the bottom.

At this point it looks like the probability of a follow-through day is dwindling it has now been 15 days since a rally attempt with no follow-through, and only added distribution days. A follow-through after this many days would be considered suspect.   Please see last week’s report for an extended conversation on this. Despite this as mentioned there are quality stocks that are setting up in consolidations so it is worth always keeping an eye on them if by chance the market turns.

Right now the better plays may be on the short side looking at past leaders that are breaking down.  We already saw what happened to GMCR, and NFLX, stocks like AMZN, BIDU and possibly AAPL might be in this category of leaders from this past cycle that are failing and playable on the short side.

We will still highlight stocks that are holding up fairly well in this environment, since they should be  part of your watch list.

The fundamental view

Yes the market is very cheap now, (fair value for the SP 500 could be 1340)  corporate profits are at record highs, and economic reports in the US continue to improve, however the market action tells us something is not right, or maybe just not ready today!

The Table below is from www.decisionpoint.com which gives approximate SP 500 values

Based upon projected GAAP earnings the following would be the approximate S&P 500 values at the cardinal points of the normal historical value range.

They are calculated simply by multiplying the GAAP EPS by 10, 15, and 20:

Until we see a trend develop the risk of being long stocks is very high, and any stock we mention at this point  may be good candidates for selling calls and/or puts to collect premium being offered. Please contact us at 1-866-903-1822 for help on this matter.

Hibb Sports

(HIBB) Hibb sports operates 815 stores in 26 states

The Story

Sporting goods and athletic apparel outpaced overall retail sales this year by about 1.3% rising 4.9% through the first 3 quarters. Hibb operates 815 stores in 26 states. It opens smaller 5000 square foot stores in small counties that typically have one main shopping center. CEO Rosenthal states HIBB could easily grow to 1200 to 1500 stores in underserved areas. According to the CEO they are about full price and full service carrying mostly high quality brands like Adidas, Nike and Under Armour.

Recent news

11/18/2011 Hibbett Sports (HIBB) said Q3 EPS grew 34% to 59 cents, beating views by 8 cents. The retailer’s sales rose 11% to $185 mil, topping estimates

Fundamentals

• Last 3 quarters of earnings, 29%, 50%, 34%
• Last 3 quarters of sales, 10% 10% 11%
• 3-5 year growth rate of 12%
• ROE of 25%
• Consensus forward estimates for 2012 and 2013 are + 33% +15%
• 4 quarters of increasing fund sponsorship

Technicals

On October 27 Stock broke out to near the 43 area past 40 dollar buy point, it has since rallied up then retraced with the market finding support near the $43 dollar area, One of the leading stocks in this market within a leading industry group.

Rackspace Hosting Inc.

Technicals

(RAX)  Rackspace Hosting Inc.  host websites, web-based IT systems and computing  to customers across a wide range of industries and around the world.

The Story

The company operates data centers for more than 130,000 customer. It’s now looking to cut costs by leasing data center space instead of building new ones, hoping to boost profit in a low-margin business. The company is hoping it can continue to grow by expanding in fast-growing European and Asian markets and by luring more big business customers. With phone companies Verizon and CenturyLink recently acquiring cloud companies, some analysts view Rackspace as a takeover target.”There is a good chance that one of the large telcos or systems integrators will try to acquire Rackspace in the next few years,” said Oppenheimer analyst Tim Horan. (From IBD)

Recent news

11/7/2011 Rackspace, which has expanded into cloud computing services, earned 14 cents per share in the third quarter, up 56% from a year earlier. Revenue rose 32.5% to $265 million, ahead of estimates for 31% sales growth. Rackspace garnered 19.1% of its revenue from cloud computing services in the third quarter, up from 13.4% in the year-ago period and 9.4% two years ago.

Fundamentals

• Last 3 quarters of earnings growth 43%, 63%, 56%
• Last 3 quarters of sales 29% 32% 32%
• 3-5 year growth rate 25%
• ROE of  12%
• 8 quarters of increased fund ownership
• Consensus forward estimates for 2011 and 2012 +51% +51%

Rax has held up very well in this market. The RS line is leading price a bullish sign, it is loking to take out the 44.50 price on volume this may work if it happens on volume. Previous breakout attempt failed with the general market however quickly recovered to near its highs.

Buffalo Wild Wings Inc

Fundamentals

(BWLD) Buffalo Wild Wings Inc operates franchises 732 quick casual restaurants in 44 states with plans to open 95 more in 2011

The story

Earnings growth has been steady BWLD earnigs per share popped 20% in 2007, then 25%, 23% and 24%. The Street expects 27% growth this year and 22% growth in 2012. Very steady growth.  According to the 10Q, Buffalo’s long-term target is for 1,500 units in the U.S. and Canada — roughly double the current count.

Recent News

Buffalo Wild Wings recently announced the opening of its 800th restaurant. Watchers figure that number can go much higher. “I think they could double that by the time they finish expanding in the U.S. and Canada,” said Mark Smith, analyst at Feltl & Co. “They have a really strong growth story. ”

• Last 3 quarters of earnings +40% + 16% +30%
• Last 3 quarters of sales 20% 26% 31%
• 3-5 year growth rate 24%
• ROE of 16%
• Consensus forward estimates 2011 and 2012 +27% +22%
• 5 quarters of increasing fund sponsorship

Technicals

BWLD is struggling with the general market, however on Friday it was able to recover past its 200 day moving average line on a 84% increase in volume it should be watched to see if it can hold this lime

Mastercard Inc

(MA) Mastercard Inc  provides global payment solutions in support of the credit and debit payment programs of 22,00 financial institutions;

The Story

MasterCard is profiting from a switch to cashless payments,  those made using credit cards or debit cards, at retailers, gas stations and online.   85% of global transactions still taking place in cash, thus there’s room to grow, especially in fast-developing markets in Asia, the Middle East and Latin America.   Mastercard is expanding in mobile banking services, which lets consumer pay for goods and services using  their mobile phones.  Mastercard believes a big market is the Generation Y 18-29 age group, the leading users of mobile phones,

Recent News

MasterCard on Dec. 1 announced a pact and strategic investment in mFoundry, a provider of mobile banking services for financial institutions and retailers. The move lets consumers pay for goods or services with their mobile phones by using MasterCard’s PayPass technology and mFoundry’s mobile financial services platform.

On Nov. 29, MasterCard unveiled a separate tie-up with Western Union (WU) that expands the use of prepaid card services between the two firms worldwide. The expanded partnership makes MasterCard the preferred brand for Western Union-backed prepaid card programs and makes Western Union the preferred money transfer service for MasterCard.

And on Nov. 14, MasterCard said it was joining with chipmaker Intel (INTC) in payments technology. The collaboration is designed to provide more options for secure and easy processing for retailers and consumers using Ultrabook notebooks and future generations of Intel-based PCs.

Fundamentals

• Last 3 quarters earnings accelerating +24%, +36%, +43%
• Las 3 quarters sales accelerating +15%, +22%, +27%
• ROE of 42%
• Forward consensus estimates for 2011 and 2012 +33%, +16%
• 4 Quarters of increasing Fund sponsorship

Technicals

Mastercard has emerged from a short consolidation at the 362 level and despite market volatility lately has been able to hold its 50 day moving average and continue to drift higher.

The Market is still in a correction, and we are still waiting for a follow-through day which would confirm serious institutional commitment of money into the market. Any new market rally (as past sustainable rallies) needs this type of institutional support to have some staying power.

This post looks at: DG, GNC, CXO, GPOR, CJES, MA, V, UA, RHT, TCBI, SBNY, BWLD

Market Condition: ↓ In a correction attempting to rally

The technical view

On 11/28/2011 the market had an initial rally attempt with the SP 500 rallying 33 points, 2 sessions later on 11/30/2011 the market staged a huge rally SP 500 climbing 52 points on an increase of volume 53% higher than the day before. Naturally, if you are long this was a welcome event, however this type of follow through so close (day 3) after a rally attempt does not convince us that this is new money coming into the market and may be more of a short covering bounce from an oversold situation. Since this day the market has whipsawed back and forth following the headlines out of Europe. Perhaps most troubling was that on many of these days, individual stocks were making new highs in the pre- market or early morning trading, and closing on the lows of the day. Action like this may be indicating that the funds may be taking the opportunity to sell into the rally. Last Friday 12/9/2011 the market staged an impressive rally rising 21 points on the SP 500, however volume was low, again just keeps us wondering if the big money will participate in a possible new rally.

At this point before committing any new money we are looking to see if the SP 500 can get above its 200 moving average, of which it butted up against 3 times this week unable to cross up past it, this is the same level that the market has risen above 2 times since October 27th and unable to hold it, (note circled areas on the chart) failing twice. For a confirmed follow-through we are still waiting to see if we can get an increase of about 1.5% in any of the indices on a day of increased volume, indicating a rally with conviction.

On the positive side there are many quality stock setting up in bases and if the market continues to run these are stocks that should be considered, some offer attractive entry points, some are extended away from their bases (areas of consolidation) and others may still need a bit more time.

The fundamental view:

Yes the market is very cheap now, (fair value for the SP500 could be 1340) corporate profits are at record highs, and economic reports in the US continue to improve, however the market action tells us something is not right, or maybe just not ready today!

Until we see a trend develop one way or another many of these stocks can be tested and also may be good candidates for selling calls and/or puts to collect premium being offered. Please contact us at 1-866-903-1822 for help on this matter.

Dollar General

(DG) Dollar General operates 9,496 Discount Merchandise Stores in 35 states; plans to open about 625 more in 2012.

The Story:

The big story here is that dollar stores store are now part of a national shopping habit. As of mid year 2011 the combined store count of the four major dollar stores chains -DG,DLTR,FDO,NDN,-has surpassed that of the three biggest national drugstore chains – WAG, RAD, CVS, according to a new study by Colliers International.

Recent News:

On 12/5/2011 DG reported net profit of 171.2 million or 50 cents a share (beating expectations of 47 cents). Revenue grew 11.5% to $3.6 billion, driven by growth in the average transaction amount. This means that not only were more customers in stores but they were spending more on Dollar’s discounted products. Operating profit increased 13% to 311 million, or 8.6% of sales.

DG also announced the repurchasing of $500 million of its common stock.

The Fundamentals:

• Accelerating earnings over the last 3 quarters 14%, 24%, 28%
• Accelerating sales last 4 quarters 9%, 11%, 11%, 12%
• 8 Quarters of increasing fund sponsorship ROE of 17%
• 3-5 year EPS growth rate of 110%
• Earnings consensus estimates for 2012, 2013, + 23% +15%
• Fund Sponsorship; Fifteen Fidelity funds started or added positions to DG, funds such as Fidelity Balanced, Fidelity Contra fund , as did T Rowe Price funds.
• Warren Buffet bought 1.5 million shares (in August).

The Technicals:

Price has steadily increased about 30% from the lows of August despite market volatility. Price is now consolidating in a flat base, and trying to break out. Price held up very well despite a recent secondary offering. Please see chart.

GNC Holdings Inc.

(GNC) GNC Holdings Inc. has 7400 worldwide nutrition and wellness stores.

The Story:

As of September 30, 2011, GNC has more than 7,500 locations, of which more than 5,800 retail locations are in the United States (including 919 franchise and 2,103 Rite Aid franchise store-within-a-store locations) and franchise operations in 52 countries (including distribution centers where retail sales are made). The Company – which is dedicated to helping consumers Live Well – has a diversified, multi-channel business model and derives revenue from product sales through company-owned retail stores, domestic and international franchise activities, third party contract manufacturing, e-commerce and corporate partnerships. The Company’s broad and deep product mix, which is focused on high-margin, premium, value-added nutritional products, is sold under GNC proprietary brands, including Mega Men, Ultra Mega, GNC Wellbeing, Pro Performance and Longevity Factors, and under nationally recognized third party brands. Management expects to open around 200 new stores a year in and outside the U.S. both company and franchised. International presence is growing. Franchises operate 1,500 international units with Mexico and South Korea leading the way. China is a key focus for company initiatives. Las year GNC opened around 70 store within a store locations in China and has been looking to partner with other retailers there.

Recent news:

12/8/2011, (GNC), the nutritional health supplements retailer, announced a $70 mil share repurchase authorization. 10/21/2011 the nutrition store chain said Q3 earnings rose 69% vs. the same quarter last year, to 44 cents per share, beating estimates by 8 cents. It was its first quarterly report since completing an IPO in April that raised about $414 mil. GNC (GNC), which sells vitamins, minerals, and herbal and other specialty supplements in more than 7,400 stores worldwide, said sales grew 16% to $538 mil, topping Wall St. expectations. It revised full-year guidance, implying Q4 EPS of 28 cents, 2 cents above views.

Fundamentals:

• Accelerating earnings over the last 3 quarters of 36%, 56%, 65%
• Sales Accelerated 9%, 14%, 16%
• Recent IPO fund sponsorship increased over the last 2 quarters
• 3-5 year growth rate of 83%
• Forward estimates for 2011 and 2012 are +55%, +18%
• Fund Sponsorship owned by several of the Fidelity Funds (Contra Fund, Advance Insights, Growth Discovery)

The Technicals:

the stock has climbed about 40% since the low of October, up 9 of 10 weeks showing superior stock power, tested and bounced off the 50 day line.

Concho Resources

(CXO) Concho Resources Engaged in the Acquisition Development and exploration of Oil and Natural Gas in the Southeast New Mexico and West Texas.

The Story:

The midland Texas based company is the largest Oil Producer in the Permian Basin in Western Texas and New Mexico which in turn is the largest oil basin in the U.S. Because the company’s wells are on land, they’re safer than offshore wells. Concho resources earns more than two-third of the revenue from oil , the price of which has risen to around $100 a barrel. Concho CEO Tim Leach states that the company is profitable at $30 to $40 per barrel.

The Fundamentals:

• Last 4 quarters of earnings 21%, 34%, 73%, 48%
• Sales for the last 4 quarters 89%, 81%, 124%, 101%
• ROE of 14%
• 3-5 year growth rate of 76%
• Forward estimates for 2011 and 2012 + +50%, +31%

The Technicals:

The stock is under accumulation continues to break to the upside on volume however retraces with the general market. Pullbacks have come in lower volume a positive sign.

Gulfport Resources

(GPOR) Gulfport Resources is engaged in the exploration and production of Oil and Natural Gas primarily in the Louisiana Gulf Coast and Permian Basin also Canadian Oil Sands.

The Story:

Thanks to new drilling and seismic technology, they’ve been able to squeeze new life out of properties that no longer interest bigger oil companies. At this point, 85% of Gulfport’s production, which is mostly oil, comes from its properties in southern Louisiana. Like other small exploration and production outfits, it has been able to squeeze new life out of oil properties that no longer interest the majors. “We go to a place where there is a tremendous resource in place. We use new technology to unlock this vast resource,” said Gulfport CEO James Palm. In Louisiana, Gulfport bought old fields from Gulf Oil and Texaco and with the use of new 3-D seismic technology has extended their life, Palm says. But those fields accounted for the bulk of Gulfport’s 5,400-barrel-a-day production last year. An added kicker: Gulfport’s Louisiana sweet crude commands a premium price, recently running as much as $15 higher than West Texas Intermediate crude. Palm believes he can continue to increase Louisiana output. “We can continue to grow 20% to 25% in annual production out of southern Louisiana,” the CEO said. But it’s the newer projects in Gulfport’s portfolio that are creating the real excitement. In Texas’ Permian Basin, where new horizontal drilling technologies have revived production, Gulfport has been snapping up leases. The Permian already accounts for 14% of Gulfport’s output, Mills says. Gulfport began buying into the Permian in 2007, early in the current cycle. It now holds more than 14,000 net acres there. Mills sees the area providing “most of Gulfport’s growth for the foreseeable future.” Also creating excitement is Gulfport’s large stake in oil sands acreage in Canada’s Alberta province. Gulfport believes it has exposure to more than 500 million barrels of oil through its 25% stake in the Grizzly Oil Sands venture. And that’s just based on an analysis of 34% of the acreage. So long as oil prices stay high, the oil sands venture should be a moneymaker. “You can make a good living in the oil sands at $75 oil,” Palm said. “In the 90s or 100s, it’s really great.” Production won’t begin until early 2013 in any case. But once it does, analysts say, production can continue for as much as 40 years. Some speculate that Gulfport will sell some of its Canadian assets. The major oil companies are attracted to these projects because they produce for so long.

Recent News:

Gulfport Energy (GPOR), an oil and gas exploration and development company, said its Q3 EPS jumped 104% to 57 cents, beating views by 5 cents. Revenue climbed 74% to $58.1 mil, topping estimates.

Fundamentals:

• Earnings growth came in last 3 quarters 104%, 138%, 104%
• Sales over the last 3 quarters grew 71%, 90%, 74%
• In Q3 after max margins was 49.9%, the best in 11 quarters
• ROE was 28% 8 Quarters of increasing fund sponsorship.

Technicals:

Bouncing off support on good volume

C&J Energy Services

(CJES) C&J Energy Services, provides hydraulic fracturing, coiled tubing and pressure pumping services to a variety of customers.

The Story:

More than half of U.S. drilling rigs are now horizontal rigs, up from less than 20% in 2007, yet there’s still heavy demand for fracturing equipment and expertise in key U.S. drilling regions. C & J is expanding work in the Permian basin, most of its work is concentrated in the Eagle Ford Shale. The company added a sixth fleet on October 24 when it announced a two year deal with Apache for a 32,000 horsepower hydraulic fracturing fleet in the Permian Basin in Texas and New Mexico. C& J is expected to have at least eight fleets by the end of next year. The company has run off six straight quarters of triple digit revenue growth.

The Fundamentals:

• Most recent quarterly earnings have been + 999%, 999%, 999%, +207%
• Most recent quarterly sales + 149%, +401%, +412%, +290%, +336%, +173%
• ROE of 37%
• Forward estimates for 2011 and 2012 + 369%, +33% and estimates for $4.90 a share in 2013

Note: Lock up expiration 1/25/2012
Noteworthy fund ownership is Lord Abbett Developing Growth and Fidelity Balanced Fund.

Technicals:

Company had an IPO July 29 less than a week before the stock markets crashed fell as low as 12.65, last few days has seen some high volume buying indicating a renewed interest in the company.

Other stocks also that we like and are looking at:

(MA) Mastercard

(V) Visa

(UA) Under Armour

(RHT) Red Hat

(TCBI) Texas Capital Bank Shares

(SBNY) Signature Bank New York

(BWLD) Buffalo Wild Wings

Photo by danielmoyle

The market headlines Monday focused on the failure of a large Financial firm- MF Global. Led by ex-Goldman Sachs Chief Jon Corzine, MF Global threw risk to the breeze and sallied forth with no care about risk management.

It reminds me of something I wrote to client back in October of 2008

Here is an excerpt:

1998
Late summer of 1998, there was a hedge fund called Long Term Capital Management that was on the verge of failing. The fund was headed by a highly respected bond traded (John Merriweather) and a globally respected Nobel prize winner (Myron Scholes). The fund had levered $5 billion over 100 : 1. The instruments and leverage they were trading was cause for concern and created the perceived possibility of causing great havoc on the financial system. Due to the apparent systematic risks a failure of this size would potentially create, action was taken.

The action was a meeting, called by the Federal reserve bank of New York and included the largest of the large investment banks on Wall Street. Lehmann, Goldman, Merrill, Citi, Bear Stearns…were among the big names. The outcome was an interest rate cut at the hands of Alan Greenspan, the pooling of large amounts of capital by the investment banks in attendance, and the forced unwinding of Long Term Capital Managements firm. These actions kept the LTCM positions from ‘blowing up’ the financial system, and the govt. intervention with the large investment banks was viewed as an unprecedented success. Never before had the large banks and govt. worked in unison so efficiently to avoid such a potential disaster.

The precedent set, however, may be the set-up for the current disaster that we have not avoided. The very banks in attendance at the emergency meeting learned that over leveraging and taking on catastrophic risk, as Long Term did, was possible, for if they were to get in trouble, the government would take a position to bail them out.”

Jon Corzine was one of the gentlemen in that room. (I wasn’t actually there, I am just going off of what I have read on that meeting in 1998) Mr. Corzine executed the recipe for disaster for financial firms:

• 1 cup of short term thinking
• 40 ounces of leverage
• ½ pound of greed
• A whole lot of self interest and greed

It isn’t difficult to understand that if you employ a strategy that does not focus on risk, but rather on reward, and you employ a lot of leverage, the first sign of trouble is going to leave you in a bad spot. You wonder why the occupy Wall Street people continue to picket the streets of our financial centers.

Maybe the question, instead of what have we learned, should be who should we trust?