All posts by Tate Dwinnell

IPO's

Top IPO’s of 2009 (Part I): BPI, CYOU, SWI, DGW, RCON

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The first half of 2009 brought us some memorable IPO’s, but for the most part is was forgettable.  As we approach the final quarter of the year with a flurry of IPO’s expected to price in the coming days, I thought I’d rank what I think are the top IPO’s of 2009.  Please note that these are not ranked solely on performance, but rather on fundamentals such as earnings and sales growth, ROE and margins.  No, this is not an extremely scientific ranking.  You data junkies can crunch the numbers and run through your algorithms elsewhere 🙂

1. Bridgepoint Education (BPI):  Since turning its first yearly profit in 2007, this provider of online education to over 30K students has been on a tear.  In 2008, its EPS rocketed to .51/share vs just .06/share the year before and here in 2009 it’s expected to double to a little over a buck a share.  Sales growth has been equally impressive with quarter over quarter growth in the last 4 quarters of 183%, 175%, 163% and 127%.  Technically, it’s in the process of carving out a new base after more than doubling from opening day.  Get more BPI analysis here.

2. Changyou.com (CYOU): Sohu.com (SOHU) spinoff Changyou.com probably carries more risk than most of the IPO’s coming to market in 2009 because more than 90% of its revenue comes from one online game – the martial arts game Tian Long Ba Bu.  Ah, but with risk comes considerable reward and CYOU hasn’t disappointed.  It too has more than doubled since opening day and is now in the process of carving out a new base.  Growth really ramped up in 2008 following the launch of Tian Long in May of 07, vaulting from an EPS of .10 in 2007 to 2.16 in 2008.  That growth has been tailing off quite a bit, but remains strong.  Quarter over quarter EPS growth in the past 4 quarters was 999%, 200%, 97% and 19% last quarter.  The company hopes to get the growth going again with some new games which it has in the pipeline.  Get more CYOU analysis here.

3. Solarwinds (SWI): No, this isn’t a solar company.  Indeed, it’s a strange name for a company that provides network management software, but it certainly hasn’t stunted the growth of this Austin, Texas company.  This is a company that has been around for more than 10 years and boasts more than 80K customers.  After stumbling a bit in 2006, the company got back on track and has posted an EPS of .21/share in 2007 (400% growth over 2006), .38/share last year and is expected to post an EPS of .56 this year.  Technically, this is a stock that has broken out twice this year – the first time above 15.96 on June 29th and then again on Sept 4th from a bullish triangle formation.  It’s too extended for entry at this time.  Get more SWI analysis here.

4. Duoyuan Global Water (DGW): I think investors would be wise to take a close look at Chinese companies in the water management/treatment/infrastructure areas and DGW has to be one of those.  Guo Youzhi, general secretary of the China Desalination Association, has said that only 20 percent of industrial wastewater in the country is efficiently re-utilized and 80 percent is being simply discharged.  According to a March 2009 study by China Research and Intelligence, over 70% of Chinese rivers, lakes, and seashores, and 90% of its underground water supply in urban areas are polluted.  The lack of clean drinking water and pollution in general could very well stop China’s growth in its tracks but with crisis comes opportunity.  Duoyuan EPS growth nearly doubled in 2007 and 2008 and is expected to more than triple this year before flattening out next year.  Get more DGW analysis here.

5. Recon Technology (RCON): China + IPO + commodities = hot stock and Recon Technology is no exception.  This off the radar China IPO rocketed out of the gates on July 30th, carved out a bullish triangle formation, then broke out on Sept 3rd.  It’s up about 50% following that breakout.  They provide computer software to mining and petroleum companies in China (which include behemoths CNPC and Sinopec) which aides in extraction.  One caveat is that the company is very small with just over $10 million in revenues in the past year.  So while growth remains robust, it comes from a small base.  It will be interesting to read their earnings report on September 28th.  Get more RCON analysis here.

I’ll be back later this week with part deux and another 5 top IPO’s from this year.

News, Weekly/After Stock Market Review Archives

A Summer Hiatus Begins..

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It’s been more than five years now running Self Investors and it’s time for me to reflect and revitalize.  Blogging, researching and trading the markets can be incredibly demanding at times, particularly over the past two years and quite frankly, I’m exhausted and need a break.  I’m not breaking 100%, but am scaling back for a stretch, so likely no posts here at the Self Investors blog until after Labor Day.  Until then, good trading!

News

Amazon (AMZN) Goes Shopping: Gets Zappos.com For $930 Million

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Amazon (AMZN) just made a terrific move after the bell today, making its largest purchase ever.  It’s acquiring Zappos.com for about $890 million in stock (based on today’s closing price) plus another $40 million in restricted stock and cash.  Zappos.com is the leading online shoe retailer that did a billion bucks in revenue last year and continues to grow at an exceptional pace despite a slow economy.  Considering the kind of valuations that are placed on the likes of Facebook and other social media sites that have trouble monetizing, $930 million looks like a good deal for Amazon. As for Zappos.com, you have to wonder why they didn’t attempt the IPO route with the market improving.  If the margins are thin at Zappos then perhaps this is a better deal for them.. we shall see.  It will be interesting to see a breakdown of the financials of Zappos.com in future earnings reports of Amazon. 

I’m a big fan of Zappos.com and won’t buy shoes anywhere else.  Great customer service.  Free shipping both ways and a huge selection.  They will continue to operate independently as a wholly owned subsidiary of Amazon with current management in place.  If Amazon is smart, they’ll let keep it that way. 

Both companies are big on customer service, making the purchase a good fit.  Here’s a video that Bezos did for Zappos employees discussing the importance of the customer.

>>> Click Here For Your Free Amazon Analysis

Oil

Investing In Offshore Oil Drilling Companies

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By Guest Author: Robert Williams, PhD, P.E.

This oil and gas industry perspective highlights only US-quoted drilling companies that provide offshore drilling activities in the ongoing search for that elusive black gold. There are a staggering number of different types of drilling rigs in operation around the globe and this summary is only for major US companies and does not include the independent drillers. Other UK, Norwegian, Danish, Japanese and many other countries have similar quantities of drilling rigs in operation on a global basis.

Check out our new Oil Etf site!

Before drilling begins, oil/gas companies will conduct geological surveys of an area to determine the potential for oil or gas deposits and to identify specific drilling targets. Geologic survey companies will be the subject of a future oil/gas industry perspective.

The oil/gas company chooses the location and supervises the operation, which may take as little as 15 days or as long as 12 months, of round-the-clock, seven-days-per-week operation to drill a single well depending on the complexity of the project. Drilling is for two basic types of wells—exploratory (to find new oil or gas deposits) and development (to prepare the discovery for production). Water depths range from 20 to 400 feet for jack-up rigs to up to 10,000 feet for semi-submersibles and drill-ships

Drilling rigs generally consist of engines, a draw-works, a derrick (tower), and pumps to circulate the drilling fluid (mud) under various pressures, blowout preventers, drill string and related equipment. The engines power the different pieces of equipment, including a rotary table or top drive that turns the drill string, causing the drill bit to bore through the subsurface rock layers. Rock cuttings are carried to the surface by the circulating drilling fluid. The intended well depth, bore hole diameter and drilling site conditions are the principal factors that determine the size and type of rig most suitable for a particular drilling job.  Draw works is the mechanical section that contains the spool, whose main function is to reel in/out the drill line to raise/lower the traveling block.

The following is a brief summary of the types of drilling rigs involved…

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Weekly/After Stock Market Review Archives

Head Fake Head And Shoulders Top, Indices Break Out

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Wow, now that’s what I call an oversold bounce.  I was expecting some retracement of the selling off oversold conditions last week, but not of that magnitude.  The recovery was such that the much discussed head and shoulders top has failed as all the indices broke out from 4 week long down trends.  Of course, those that dismiss chart reading as voodoo are using the move as proof that technical analysis doesn’t work.  What they forget to include in their argument is that technical analysis is used as a probability tool to increase your odds of success.  The patterns don’t always work and some work better than others.  In this case there may have been so many people calling this top (myself included), that it was setup for failure.  After all, the market generally moves against the herd. Just about every hour over the past couple weeks, the H&S top was discussed on CNBC.  It’s something I discussed last week and was a bit concerned about, but the move of last week still surprised me.  That was some serious resistance to work through and the market sliced through with ease as shorts scrambled to cover positions.   

The move of last week is a game changer with bulls now back in control, especially if this jolt higher is digested in an orderly manner.  Let’s keep in mind that we moved from oversold to overbought quickly last week with the market looking a bit tired Friday, so probably setting up for some kind of pull back. That would provide an opportunity to continue to lighten the load on the short side and add high quality breakout stocks on the long side. 

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Weekly/After Stock Market Review Archives

S&P, Dow Confirm Head & Shoulders; Nasdaq Close To Confirming Double Top

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It’s official.  I’ve been highlighting the possibility of a head and shoulders top confirmation on the Dow and S&P for several weeks and now we have confirmation of those formations as both broke through the neck lines this week.  While we’re oversold and could see a minor bounce, the momentum and trend is clearly down until proven otherwise. 

It’s interesting to see all the discussion about the head and shoulders formation on CNBC, who seem to be paying more attention to technical analysis.  Even Jim Cramer is turning to the dark side and displaying charts on his show.  It wasn’t long ago that charting was ridiculed and dismissed as voodoo by the mainstream media.

Let’s turn to the voodoo and take a look at the Nasdaq,

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Stocks

Green Mountain Coffee (GMCR) Head & Shoulders Top

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I’ve talked quite a bit about the head and shoulders top formations in the Dow and S&P500 in recent weeks and it looks like we might get confirmation of those topping formations soon, based on early trading action today.  What that means is that there is going to be an abundance of ways to play this market on the short side and I have one to keep an eye on today.  The company is Green Mountain Coffee Roasters (GMCR).

The maker of single cup coffee brewers has been on a tear in the last couple years with the stock vaulting from 8 to 60 in a little less than three years.  Earnings increased 60% in 2007, 48% last year and is expected to increase 81% this year.  Yes, the company isn’t showing any signs that the growth is slowing with 4 straight quarters of accelerating sales growth.  While this is a company that should continue to do well as more people save money by brewing coffee at home, it’s well overdue for a correction and the pieces are in place for a healthy downward move.

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Weekly/After Stock Market Review Archives

Market Divergence Remains – Nasdaq Strong, S&P Head & Shoulders Top Potential

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I’m short on time this week, so will move right into the charts.  Basically not much change in my analysis from last week as the indices continue to diverge with Nasdaq strength and S&P weakness.  The Nasdaq actually broke out of its two week consolidation on Thursday, closing the week above the 20 day moving average yet again.  Amazing.  I don’t think too many would have predicted the Nasdaq would close above the 20 by the end of the week after plunging Monday and Tuesday to test the 50 day moving average.  Support at 1800 is back in play, with 1750 now shaping up as strong support as well. 

62809_naz 

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Weekly/After Stock Market Review Archives

S&P500 and Dow Breaking Down, Nasdaq Remains Strong

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The indices are down but not out.  That was the theme of last week as the indices broke down out of tight, short trading ranges and are in the process of testing some key resistance levels which could soon tell us whether the rally will continue or enter a prolonged retracement.  Last week, I discussed the developing head and shoulders formations, but it’s much too soon to tell whether those topping formations will confirm.  For now, the Nasdaq remains remarkably strong and continues to trade above its 20 day moving average and actually looks poised to continue moving higher.  Contrast that with the Dow and S&P which closed the week below their 20 day moving averages for the first  time since the rally began in March.. so certainly some divergences and contradictions taking place that makes the current market a bit difficult to read.  I am leaning to the cautious side.  Tech and commodities have been the backbone of the rally and with commodities showing signs of cracking last week, perhaps they lead the market to the downside.  Let’s take a look at some key support and resistance levels I’ll be watching on the major indices next week.

Continue reading S&P500 and Dow Breaking Down, Nasdaq Remains Strong →