Monday, December 30, 2013

Investing in Railroad Earnings Growth

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As the economy has come back, many cyclical sectors have seen impressive strength. This is especially true in the transportation industry, as surging demand has greatly helped this key market sector.

While many investors have likely keyed in on companies like Union Pacific (UNP) or CSX (CSX) to play this trend, some smaller rail firms might also be interesting plays. One such company is Kansas City Southern (KSU), a $13 billion railroad operator that has a focus on the Midwest and South.

KSU in Focus

Beyond its focus on the middle part of the U.S., KSU also has a heavy presence in the Mexican market. In fact, the company has a rail passageway between Mexico City and Laredo, Texas, serving several Mexican industrial cities, as well as a few of Mexico’s important seaports as well. And given how dependent Mexico is on America for trade, the resurgence in the U.S. market has been great news for both Mexican industrial production, and KSU as a shipper of these products.

Add in reports that Mexico is beginning to beat out China in terms of productivity-adjusted wages, and it becomes pretty obvious that industrial production in Mexico is going to continue to grow. Given this, it seems pretty likely that companies with the ability to get these finished goods to other markets, such as Kansas City Southern, will benefit immensely.

Thanks to this trend in KSU’s key market, and the broad positive environment for railroad operators heading into the coming year, it shouldn’t be too surprising that many analysts have been raising their estimates for Kansas City Southern’s earnings. Earnings have modestly increased for both the current quarter and the current year period, but the real story for KSU is the growth.

The company looks to deliver nearly 25.9% earnings growth (yoy) for the current quarter, and EPS growth of over 22% for the current year. Meanwhile, for the next year time frame, EPS growth is expected to come in just below 25%, suggesting that if anything, earnings growth is accelerating for this often-overlooked railroad operator.

And, as we alluded to earlier, KSU has some great company in the railroad space, as the Zacks Industry Rank for the segment is in the top 10% of all industries studied. In fact, no company in the space receives a Zacks Rank below #3 (Hold), meaning that there aren’t any bad picks in this strong segment.

Bottom Line

With that being said, KSU stands apart, as it is the only firm, at time of writing, in the railroad space that has a Zacks Rank #1 (Strong Buy). Plus, its Rank was #2 a week ago, suggesting it is surging up the charts, and is an interesting choice for investors seeking some rail exposure right now.

The company also has a bit of a competitive advantage in the crowded rail market, thanks to its solid position in the Mexican industrial space. This allows KSU to benefit from the surge in Mexican production, and to not be as concerned by American Heartland issues relating to commodities as many of its peers.

So if you are looking for a great choice in the railroad market heading into 2014, consider Kansas City Southern. You have probably overlooked this one in favor of some of its larger counterparts, but it could be well positioned to benefit from some of the strong trends in the market, and it is currently the only Zacks Rank #1 Stock in the space, meaning that good days may still be head for this overlooked rail operator.

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Monday, December 23, 2013

Investing in Real Estate Development Earnings Growth

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The St. Joe Company (JOE) is a real estate developer with more than 500,000 acres of land, concentrated primarily in Northwest Florida between Tallahassee and Destin.

Over the years, the company has developed successful residential and commercial projects and related infrastructure and is currently focused on growing its resorts, leisure and leasing operations.

JOE has five reportable operating segments: (1) residential real estate, (2) commercial real estate, (3) resorts, leisure and leasing operations, (4) forestry and (5) rural land. During Q3, about 50% of revenues came from resorts, leisure and leasing operations.

Solid Third Quarter Results

Joe reported its third quarter results on November 7, 2013. Net Income for the quarter came in at $4.2 million, or $0.05 per share, significantly ahead of the Zacks Consensus Estimate of $0.01 per share.

The resorts, leisure and leasing operations had a strong third quarter, with revenue up 30% from the same quarter of last year. Increased occupancy rates for JOE’s vocational rental program and overall cost management led to the improvement in the bottom-line. However timber sales for the quarter were impacted by unusually high amounts of rain over to summer months.

In November, the company announced an agreement to sell approximately 382,834 acres of non-strategic timberland. According to the management “this transaction will help the company concentrate on its core business activity of real estate development in Northwest Florida. The proceeds from the sales will provide the company with significant liquidity and numerous opportunities to create long term value for our shareholders".

Earnings Estimates Revisions/Recommendation Upgrade

After the strong results, analysts have revised their estimates for JOE. Estimates for FY 2013 and FY 2014 are now $0.04 per share and $0.02 respectively, up from ($0.01) and $0.00 share, 60 days ago.

Zacks upgraded the recommendation on JOE to “Outperform” from “Neutral” following its better-than-expected quarterly results. Also, “the company’s concerted efforts toward improving its bottom line by focusing on value enhancement of its resort communities, timberland sales and expense saving initiatives bode well going forward”.

The Bottom Line

JOE is a Zacks Rank#1 (Strong Buy) stock. It also has a longer-term Zacks recommendation of “Outperform”. Further improved outlook for resorts and leisure activities suggest strong chances of outperformance in the coming months.

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Friday, December 20, 2013

Profiting from Trading Bitcoins

Bitcoin was created in 2009 as an anonymous and secure way of exchanging money on the internet. It is an electronic currency that is completely decentralized - it isn’t backed by a government or other central authority – and is minted and exchanged entirely within a massive network of users.

Anyone with an internet connection can send and receive Bitcoins directly and privately with no transaction fees.

New Bitcoins are created with highly time-intensive computer-based algorithms which limits the rate at which they enter the market. The total amount of Bitcoins that will ever be issued is 21 million – making it a finite commodity like gold or oil.

As a result of its innovative structure and the hype surrounding it, Bitcoin is extremely volatile, making it an excellent currency to add to your portfolio.

With Bitcoin trading you can make a Long (Buy) or Short (Sell) trade instantly, 24 hours a day during the trading week, giving you the opportunity to trade your market view no matter which way the currency is heading

December 05, 2013 - China Bans Financial Companies From Bitcoin Transactions by Bloomberg

China’s central bank barred financial institutions from handling Bitcoin transactions, moving to regulate the virtual currency after an 89-fold jump in its value sparked a surge of investor interest in the country.

Bitcoin plunged more than 20 percent to below $1,000 on the BitStamp Internet exchange after the People’s Bank of China said it isn’t a currency with “real meaning” and doesn’t have the same legal status. The public is free to participate in Internet transactions provided they take on the risk themselves, it said.

The ban reflects concern about the risk the digital currency may pose to China’s capital controls and financial stability after a surge in trading this year made the country the world’s biggest trader of Bitcoin, according to exchange operator BTC China. Bitcoin’s price jumped more than ninefold in the past two months alone, prompting former Federal Reserve Chairman Alan Greenspan to call it a “bubble.”

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Wednesday, December 18, 2013

Profiting in Stocks from the January Effect

The January Effect — Another Strategy That Works (With a Twist)

By Dr Van Tharp Trading Education Institute

The Christmas season is a time of year that has a different vibe, regardless of one’s spiritual leanings. The pace around us quickens, expectations rise, and for those of us who can see past the blatant commercialization that seems to accost us from all directions, some of the joy and love of the season seeps in. I’m looking out my window right now at almost a foot of snow — that certainly seems seasonally correct. Family members are calling to arrange visits for later in month. And we have a few decorations set out that provide a pleasant reminder for our personal reason to celebrate. My kids are coming home from college in just two days; so when combined, I can say that I’m certainly in a state of joy. It’s a nice place to be.

The markets usually manage their own form of “joy” at this time of year as the optimism of the populace seems to bleed over into stock prices. This observation is backed up by the fact that the S&P 500 index has provided positive returns in December in 48 of the last 63 years for a win rate a little above 76%.

Has the January Effect Been Affected by Recent Events?

Many readers will have heard of the January effect where small capitalization stocks have historically outperformed their large cap brethren during the month of January. This was very clear in the second half of the 20th century with Hirsch and Hirsch reporting in the Stock Trader’s Almanac that small caps far outperformed big caps during January in 40 out of 43 years between 1953 and 1995. During that time, small caps gave a staggering absolute performance improvement. The Wall Street Journal reports that small cap outperformance of 5.1% vs large caps during the decade of the 1970s. To say it another way, a $100,000 portfolio invested in small caps would return $5,100 more than one invested in only large caps during the month of January. That’s a huge edge.

Since then, it seems like everyone has jumped on this band wagon and the edge has steadily diminished down to only a 1% edge in the 1990s.

However, there is good news (that is coming up fast upon us) on the small cap outperformance front. The Hirsch father and son team have reported that January effect is still working, it’s just working earlier. Since the 1987 crash, moving the entry date back to December 15th has worked wonders. The numbers show a small cap outperformance from 12/15 to 12/31 of 85% (3.5% vs. 1.9%). The effect remains viable, though weaker if held through the middle or end of January.

And the last two years have built on that outperforming tendency with December of 2012 having a very strong showing for the small caps vs. large caps.

In short, this is a seasonal tendency with a strong track record that is built on a broader foundation of overall market strength in December. Like all seasonals, it won’t work every year, but this one merits a close look and perhaps a trade with your normal risk parameters attached.

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Monday, December 16, 2013

Investing In Airlines Earnings Growth

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With a strong consumer, rising business confidence and stable oil prices, it should come as no surprise that the airline sector has been performing extremely well this year. In fact, many companies in this segment have more than tripled the market’s return from a YTD look, with gains in excess of 80% not uncommon.

The surge has been pretty widespread too, with both so-called legacy carriers and discount airlines seeing strong performances. One company in the legacy space that has been especially impressive and a great example of this incredible trend is undoubtedly Delta Airlines (DAL - Trend Report).

Delta in Focus

Delta is, following the merger between American and US Airways, the second biggest airline in the world. The firm is probably most famous for its hub at Hartsfield-Jackson airport in Atlanta, though it has a big presence in Detroit, Minneapolis, and New York City as well.

The stock was cleared for takeoff at the start of 2013, and it really hasn’t looked back besides some minor turbulence in April. DAL has actually more than doubled so far this year, putting up a 130% gain YTD, including a 50% move higher in the past six months alone.

This is obviously a huge move, and especially so for a company in a pretty cutthroat industry, but there is plenty of reason to believe that this can continue as we head into 2014 if you look at the company’s profit and growth outlook for the coming year.

Delta Earnings Outlook

Thanks to the strong industry outlook and the pressure that is currently on oil prices, many analysts are looking for DAL to continue to grow earnings in the months ahead. Current estimates peg this quarter’s earnings growth (yoy) at 121%, while current year growth is expected to be in the high double digits, hitting 70% year-over-year.

These figures also represent how bullish analysts have become on DAL’s earnings prospects in just the past few months. Estimates for the current quarter have surged from 50 cents a share 90 days ago to 62 cents a share today, while current year estimates have jumped by 11% over the same time period.

While this increased expectation might be troubling to some, DAL does have a pretty good track record in earnings season. This includes a pretty solid history of earnings beats—three straight beats and only one miss in the last eight reports—so there is plenty of reason to believe that DAL will have no trouble matching estimates once again next year.

Thanks to these factors and the impressive trend in the economy, DAL has earned itself a Zacks Rank #1 (Strong Buy). And since DAL was just added to the #1 Rank group on Friday December 13th, investors shouldn’t worry that they have missed their flight to profits with this impressive stock.

Bottom Line

The economy is humming along and cyclical sectors have been a prime beneficiary from this surge in sentiment. One segment that has really been a winner from a stock perspective is the airline industry.

And with some of the other factors at play in the economy—such as surging consumer confidence and lower oil prices—a play in this sector seems like a no-brainer. This is particularly true when you consider that the Zacks Industry Rank for the airlines is 27 out of 260, putting it within the top 10%.

Yet, while a broad play on the airline space could be a very interesting idea, a look to DAL could be even better. This has been one of the best performing airlines so far in 2013, and with its strong competitive position and huge scale, this could be a big winner—and top pick—for 2014 too.

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Wednesday, December 11, 2013

The Art of Selling Stocks

By Market Authority

Please note – this is not a missive to advise you to sell all your stocks. If you read my thoughts on the taper yesterday, you’ll know that I believe any selloff on taper fears is a buying opportunity.

Today we’re going to talk about the “art of selling.” No, not the Donald Trump art of “selling” – I’m referring to the art of selling your stocks at the right point to maximize profits and minimize losses.

Trading is about honesty. It’s about finding the truth within ourselves through a constant process that forces you to make difficult decisions about your future. You are deciding on your future because the decisions you make as a trader impact your lifestyle.

The main difference between a losing trader and a “master of the universe” is that the winning trader is skilled at knowing how (and when) to sell for a loss or a gain. In the same way expert poker players know when to hold’em or when to fold’em. I don’t believe this to be an innate skill, but can be learned by anyone with plenty of practice and a willingness to change their approach.

For now, let’s focus on taking losses…

The importance of taking a loss and moving on is neatly summed up by trading legend Larry Livermore in “Reminiscences of a Stock Operator…

Losing money is the least of my troubles. A loss never troubles me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does the damage to the pocket book and to the soul.

As price starts to decline, rationalizing starts to increase, and the “troubles” compound into worse problems. And that’s why it’s psychologically more difficult to sell for a large loss rather than a small one. Bad traders will continue telling themselves, “Well, I held for this long. Might as well see it through now.”

Bad traders are not only unable to see the truth, but also afraid to face it. They begin to justify price action and hope that the stock miraculously comes back.

My old boss at Salomon Brother once told me, “If you feel yourself hoping the trade comes back in your favor, immediately sell half.” Hope is a trader’s worst enemy.

Selling early and often for a loss will leave you in a better position to make better decisions. If you’re holding and hoping, you are allowing emotion to overcome your decision-making process. Stop making excuses for bad behaviors.

Another understanding of why selling for a loss can be difficult comes from BF Skinner’s work on positive reinforcement. We buy something, it goes higher, and you get a reward for holding. If investors are rewarded for holding, they are more likely to try and hold again in another trade.

Let’s look at how this applies to stocks…

This is a 2 year chart of AAPL. You can see on the left side of this chart how AAPL went straight up from $400 to $650. Investors were rewarded for holding.

Now look at how much longer the selloff back to $400 took. Buyers of AAPL didn’t give up hoping that the stock would return to $700 because they were so heavily rewarded on the way up. They rationalized price action on the way down, in lieu of observing stop-losses. This led to a longer drawn-out period of sell-offs and bounces.

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Monday, December 09, 2013

Investing in Railroad Earnings Growth

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With decent levels of growth both in the U.S. and abroad, many cyclical sectors have rebounded quite strongly in 2013, with transports leading the way in this regard. This shouldn’t be too surprising to many investors, as this important market segment has a history of leading stocks out of sluggish market environments, and this recent rally has been no different.

However, as stocks have stabilized in recent sessions, some investors might be looking to other sectors for the next round of gains. While this could be a good strategy overall, investors may not want to give up on all the transports just yet, as Canadian Pacific Railway (CP) may still be a great pick going forward.

CP in Focus

Canadian Pacific Railway operates a transcontinental railway across over 14,400 miles in North America. The system stretches from Vancouver in the Pacific to Montreal in the East, and then down into the Midwest region of the U.S. and key parts of the Northeastern United States as well.

This network and strong demand for the movement of goods has really helped CP perform well so far in 2013. The stock has added more than 43% YTD, and has soared by nearly 25% in the past three months alone, suggesting great momentum.

And while some investors might be put-off by this recent surge, the stock’s forward PE of 24 suggests that earnings have kept pace for the most part. Plus, current earnings estimate revisions have been moving significantly higher as of late, implying that analysts believe this story is getting even better.

Estimates in Focus

For the current quarter, nine estimates have gone up in the past 60 days compared to zero lower, while 14 have gone up for the current year compared to zero lower. These figures have also pumped up the consensus estimate by a solid margin too, with the current year seeing an increase of about 4.6% in the past two months.

This has also translated into an amazing level of expected growth for this railroad company, with current quarter figures coming in at just under 47% (yoy) earnings growth projected. Meanwhile, current year figures are also quite good from a projection standpoint—45.5% (yoy) growth is expected—while next year’s numbers look to come in with growth of close to 29%, meaning that this doesn’t look to just be a phenomenon that lasts for a couple quarters.

Clearly, CP is growing quite strong and analysts are feeling great about the company’s prospects in both the near and long term. Recognizing this, we have given CP a Zacks Rank #1 (Strong Buy) and are thus looking for more outperformance out of this company heading into 2014 as well.

Bottom Line

CP has some impressive stats and a great network across Canada and into some of the key parts of the U.S. rail market. Add this in to the strong industry position and investors could have a recipe for success.

This is especially true when you consider that the railroad industry is currently in the top 20 (out of roughly 260) industries from a Zacks Rank perspective. So make sure to climb aboard this freight train before more gains are had, as it doesn’t look like anything will be putting the brakes on this growth story any time soon.

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Friday, December 06, 2013

The Burning Building Stock Investing Method

Buy, Buy, Buy: The “Burning Building” Theory by Ian L. Cooper Speed Retirement System

“Never buy a stock hitting a 52 week low…”

“Stocks in downtrends tend to stay in downtrends…”

“It’s too risky. It’s not safe…”

“Any stock hitting a 52 week low will always be weak…”

Or, “nothing is more destructive to amateur investors than thinking that a stock trading near a 52 week low is a good buy.”

I’ve seen it all before. And none of it makes much sense to me.

Amid the mind-numbing chatter of the alleged pros, I’ve been quietly buying up some of the biggest names on Wall Street at 52-week lows…before they pop.

When Apple (AAPL) hit a 52-week low under $400 a share, it was stuck in a solid downtrend, it was risky, and it looked weak.

But only a fool would ignore it just because it hit a 52-week low.

Using the above logic, here was a stock stuck in a downtrend that should have stayed in a downtrend. “Any stock hitting a 52 week low will always be weak.”

That’s stupid…

You’d actually pass up a monumental opportunity just because it hit a low?

Come on.

At least a dozen people have told me they absolutely knew a stock like Outerwall Inc. (OUTR) would run much lower, but a funny thing happened after each and every know it all told me that…

Outerwall surged.

The herd, and the experts, had it all wrong.

Every single time Outerwall plunged to new lows, investors ran scared.

We, however, knew better. We ran into the burning building and waited. We knew the stock would come back.

It was too big to fail – it was never going out of business.

I’ve learned over the years that the time to buy is “when blood is running in the streets…even if that blood is your own.”

Those were the very words of Baron Rothschild, whose family is now worth a staggering $400 billion. Time and time again, the family kept cool heads during times of absolute panic. They made a fortune from the Battle of Waterloo and countless other events.

I’ll admit it’s a hard maxim to follow – your instinct is to follow the herd.

It’s counterintuitive to run into a burning house not knowing if you’ll come out alive.

Investors run scared. They don’t know it but they’re selling everything at the wrong time. As Warren Buffett will tell you:

“Be fearful when others are greedy and greedy when others are fearful…”

Every one is afraid of the burning house.

But the best time to rush a burning house is when things look grim for big companies that will never see the inside of a bankruptcy courtroom.

Never listen to any “pro” or trusted analyst that tells you to run from, or avoid stocks at 52-week lows. They haven’t done their homework.

We have…

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Wednesday, December 04, 2013

Thank a Baby Boomer for this Stock Market Boom

By Ian L. Cooper Speed Retirement System

I’ve been buying this since $70 in 2007.

It just now hit a new high of $224… and likely to run higher after healthy pullbacks.

By the middle of 2014, the IBB will hit $255. Mark these words…

And much of this is because of baby boomers…

October 15, 2007

It was the day the very first baby boomer filed for social security benefits… with another 80 million waiting patiently behind her.

Baby boomers would begin retiring by the thousands shortly thereafter, clearing out their retirement accounts, spending trillions of disposable income just to keep their bodies going another 30+ years.

Every one knew this was coming…

But very few knew how to really trade it. For me, though, that was the easy part.

I was going to buy all of the biotech and pharmaceutical stock I could for just $70 a share.

And I think I did pretty well… because six years later, my $70 shares now trade at $224.

We all knew it was coming – the “silver tsunami.”

But what many don’t realize is that this major formidable, 20-year event will change just about everything. Not just because this generation holds trillions in wealth… not just because they’ll force massive changes in Social Security and health coverage…

But because this group expects to have longer, more active lives…

And that means they’ll spend heavily – at any cost – to keep their bodies in tip-top shape.

More than 10,000 baby boomers will hit retirement age every day over the next 20 years. And nearly 75% of them expects to live well into their 80s… even 90s.

Together, they’ll control 70% of the disposable income in the United States.

What’s more, they stand to inherit more than $15 trillion over the next 20 years. That’s trillion with a “t.” Retailers, marketers, doctors, gym equipment companies, and hair experts alike have already picked up on this very trend, as 80 million baby boomers spend whatever it takes to keep their bodies up to par.

GNC Holdings – a national retailer of supplements – just announced that baby boomers are one of its biggest buyers of its products for high blood pressure, digestion, eye and brain health, and muscle and bone density.

The market for skin care and anti-aging products is expected to balloon from around $80 billion today to more than $114 billion by 2015, according to Global Industry.

Companies and clinics are promoting hormone replacement drugs as a way to slow the aging process, too. Some cost as much as $15,000 a year. In 2011, consumers spent $1.6 billion on prescription testosterone therapies, almost triple the amount spent in 2006.

Even hair restoration – a $3 billion business on the rise — is popular among the baby boomer generation. Nobody wants to go bald or lose hair, but many of us will any way. In fact, according to the International Society of Hair Restoration Surgery (ISHRS), more than 800,000 men and women sought surgical or non-surgical help for hair loss in 2008 alone.

Bottom line – the baby boomers and the biotech indexes are screaming for us to buy in.

Forbes just reported that the global market for pharmaceuticals could soar from $950 billion to more than $1.2 trillion by 2016. Even the big boys are finally starting to catch on. Fidelity, Goldman Sachs, Black Rock, Vanguard and dozens more increased their holdings in biotech by more than $4 billion.

And if you’re in the right place at the right time, the windfall profits are endless. Because — let’s face it — making money from this solid, unbreakable couldn’t be any easier.

We’re seeing seismic shifts in a demographic that will change the face of biotech and pharmaceutical companies as we know it.

So why not profit from it?

With our economy in a constant state of flux, the opportunity to make great money from biotech has never been greater. Investors would be foolish to ignore the coming, massive demographic shift and growth that’s sending biotech and pharmaceutical companies to the moon.

The sector is even recession proof.

You can’t stop people from aging, from staving off death, or from visiting hospitals, right? Look, explosive gains are already being realized as revolutionary drugs are being developed. And there’s still plenty of time to jump on the wagon.

These are all trends that cannot be ignored.

Truth is – Americans are living longer than ever before because of medical care and new drugs on the market. As we age, we suffer from unwanted conditions, such as hypertension, diabetes, heart issues, arthritis, hearing and vision.

Take a look at biotech companies that are tackling Hepatitis.

The Centers for Diseases Control and Prevention has been calling for baby boomers to get tested for Hepatitis C. This came about because more and more seniors were testing positive for the disease. One in 30 baby boomers is thought to have it. Most don’t realize it.

Take a look at what’s been happening to the biotech stocks that are fighting for a cure.

Here’s Vertex (VRTX), for example.

When the company released its Phase II clinical trials, the stock jumped. The data had shown a 100% cure rate for patients treated with a particular drug over a period of 12 weeks. This meant that the drug stopped the virus from spreading and from causing any more damage to organs, like the liver.

Bottom line – the baby boomers and the biotech indexes are screaming for us to buy in.

For years, we’ve pounded the table for biotech. And the big boys are finally starting to catch on. Fidelity, Goldman Sachs, Black Rock, Vanguard and dozens more increased their holdings in biotech by more than $4 billion.

That’s the long-term view.

Ignore those that tell you biotech is highly speculative.

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Monday, December 02, 2013

Investing in Fiber Optics Earnings Growth

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Alliance Fiber Optic Products (AFOP) was profiled back on August 2, and since that time, the stock rose as much as 45%, but has fallen all the way back to the original price. The ride isn't over for this fiber optic play and it is again the Bull of the Day as a Zacks Rank #1 (Strong Buy).

More Broadband Required

Back in July I wrote about my "Best Tech Stocks For 2nd Half of 2013" and I discussed the idea of more devices coming soon and how they will create demand for more bandwidth. Since then, there have been several publications stating the same thing. What the others were missing is the idea that those devices will all drive the need for more bandwidth from the carriers.

Company Description

AFOP designs and manufactures components, modules, and subsystems that empower dynamic optical network, and facilitates the migration of fiber optics from the long haul through the last mile. That is all industry jargon for they make a fiber optic connection to your business or home a reality.

Earnings History

The most recent quarter was viewed by Wall Street as a beat of two cents. Zacks has the quarter and the two before it as a meet.

The main idea with a company the size of AFOP is to look at revenue growth. Revenues has started to increase, coming in at roughly $19M for the June 2013 quarters and $23M for the September 2013 quarter. That topline growth is likely to continue.

Stock Split

The company recently split its stock 2 for 1. Some investors like when this happens as the stock appears to be "cheaper". Savvy investors understand that the split is a mathematical equations that does nothing to the valuation of the stock or the amount of dollars invested in the stock before the spilt. The end result of a split like this is that there are more shares, and thus the divisor in the EPS equation requires more net income to move the needle in a meaningful way.

Earnings Estimates Adjusted

In March the Zacks Consensus Estimate for 2013 was calling for $0.49. The number bumped up to $0.53 in April and was again raised to $0.66 in May. The consensus now stands at $0.96.


The valuation has become much more attractive as the stock price has fallen. The forward PE moved from 18.6x to 26.6x and is not back to 15x while the industry average has held still at roughly 20x the next twelve months earnings. Price to sales also jumped from 5x to 7.4x and back again to 4.1x as the industry average has held still at 6x. One metric that stands out to me is the expected revenue growth rate. Estimates are calling for 21% growth compared to 12% for the broader industry. That sort of growth on the top line should lead to impressive earnings growth as well.

The Chart

The price and consensus chart for AFOP shows how the earnings movements have helped push the stock higher. Over the last year or so, the stock has seen a dramatic increase in price as estimates have risen. The estimates have not decreased while the stock has seen a healthy correction. The fundamentals and story look to still be intact and this recent move lower has presented a great buying opportunity.

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