Stock Buy: SanDisk Corporation

 

SanDisk Corporation (SNDK: 44.1601 +0.6301 +1.45%) keeps defying skeptics expecting a tech slowdown as it once again surprised on the Zacks Consensus Estimate for the fourth quarter in a row.

SanDisk manufactures flash memory cards for mobile phones, digital cameras and camcorders, embedded memory for mobile devices, and USB flash drives for consumers and enterprises.

On July 22, the company announced that its founder and CEO Eli Harari would retire on Dec 31, 2010 and will be an advisor to the company for two years after the retirement.

The announcement seemed to cause a ripple amongst investors, but the current President and COO, Sanjay Mehrotra, who was also a co-founder along with Harari, will be stepping in which seems to ensure a smooth transition.

SanDisk Beat By 25.6% in the Second Quarter

On July 22, the company reported its second quarter results and posted yet another big beat of the Zacks Consensus.

Earnings per share were $1.08 compared to the Zacks Consensus of 86 cents. This also bested the second quarter of 2009 which was just 23 cents.

Revenue jumped 61% to $1.18 billion boosted by OEM demand driving record unit and gigabytes sold.

The company is also cash rich, with a cash balance of $3.7 billion. Subtracting company debt, cash on hand still stands at an attractive $2.6 billion.

For the second half of the year, SanDisk sees strong demand from its customer base. Half of all revenue now comes from outside the United States.

Zacks Consensus Estimates Jump

Given the 22 cent surprise in the quarter, it's not surprising that analysts are full year estimates.

For 2010, 5 estimates jumped in the last 7 days as the Zacks Consensus rose by 22 cents to $3.80 per share. Analysts now expect earnings per share growth of 135%.

Things get a bit more dicey for 2011, however. Analysts are skeptical about whether the demand can continue.

They expect earnings to decline 6.2% in 2011. The Zacks Consensus stands at just $3.56 per share, with 3 estimates moving higher and 1 going lower in that time period.

Value Fundamentals

SanDisk is a value play with a forward P/E of just 11.2. Its industry trades with a P/E of 15.3.

The company has an attractive price-to-book ratio of 2.1 which is just slightly under the industry at 2.3.

Its return on equity is an excellent 22.2%, easily crushing the industry's average of 11.8%.

SanDisk is a Zacks #1 Rank (strong buy) stock.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.

Stock Buy: Alaska Air Group, Inc.

 

Alaska Air Group, Inc. (ALK  51.34 +0.38 +0.75%) is once again pressuring its all-time high after reporting excellent Q2 results on July 22 that saw income double from last year. With the current-year estimate pegged at $6.59, a 168% growth projection from last year, analaysts are looking for a strong finish to the year.

Company Description

Alaska Air Group, Inc., through its subsidiaries Alaska Airlines and Horizon Air Industries, operates as an airline company serving the Western United States, Canada and Mexico. The company was founded in 1932 and has a market cap of $1.81 billion.

Alaska Air Group's share price has been on fire for the last year, more than tripling in price after bottoming out just below $15 in May of 2009. More recently, shares jumped higher on the company's solid Q2 earnings surprise from July 22 that included an 8% earnings surprise.

Second-Quarter Results

Revenue for the period was up 16% from last year to $976 million. Earnings also came in strong at $2.29, 8% ahead of the Zacks Consensus Estimate.

Alaska Air Group noted that its results were driven by a 10% increase in traffic and a slight improvement in prices, where its yield on Alaska Airlines flights was up 6% from last year. The company also noted that its "First bag fee" generated an additional $25 million in revenue during the quarter.

When you add up a bunch of small changes, the impact is significant, fueling a $200 gain in operating cash flow from last year to $334 million.

Balance Sheet

That dynamic enabled Alaska Air Group to strengthen its balance sheet, with its cash, equivalents and short-term securities increasing more than $128 million to $1.171 billion against total debt of $1.8 billion.

Estimates

We have seen some pretty sharp movement in estimates over the last few months, with the current year up $1.31 to $6.58 and the next-year estimate up $1.07 to $6.86, a respectable 4% growth projection.

Valuation

In spite of the strong profile and big gains of the last year, ALK still has value, trading with a forward P/E multiple of 10X against its peers 17X.

2-Year Chart

ALK found a short-term bottom on July 2, having since posted a solid rally to move back within striking distance of the all-time high at $52.91. Take a look below.

So You Think You Can Be A Portfolio Manager?

 

The task of managing portfolios isn't as easy as it seems. Not only do you have to think about issue selection, you also need skills like portfolio construction and trading. Over the years, I have seen very smart and experienced sell-side analysts who have had great difficulty making the transition to the buy-side and portfolio management.

David Merkel at Aleph Blog wrote a terrific series called The Education of a Corporate Bond Manager (see Part 1, part 2 and part 3) that addresses many of these problems. For example, Merkel discusses the problems of putting together a portfolio when time is limited and there is no time for analysis:

But when the market was hot, and deals would close within an hour, I would work differently. When the deal would come, I would put in for bonds, so that I would get some allocation. I would ask for the high end of what I would normally ask for, knowing that I would get scaled back considerably. Then I would send the details to my credit analyst, telling them that if they did not like the company, I would sell the bonds.

Eventually, most of my analysts during the times when the market was hot would come to me and say, "How can you put in for bonds without an opinion from us?" First I would reassure them, and tell them that I valued their opinions, and that I would not hold onto a bond permanently unless they liked it. I would sell all bonds they did not like, but when the technicals favored it, within a few months.

And the problems with trading:

But I started selling away, and began to learn the art of price discovery. When you want to sell a bond, you first have to look at what investment banks ran the books of the deal. There is an unwritten rule that if they play that large role in origination, they have to make a market in the bonds thereafter.

I also wrote a series called What do you do after you've made your picks that looks at the problems from the viewpoint of an equity manager (see Part 1, part 2 and part 3).

Go and read them and you'll get some perspective.

 

How Much Are You Paying For That Fund?

 

 

A few weeks back, I chastised a local financial commentator, Julie Jason, for her condescending demeanor toward Madoff investors. This week, I am happy to praise Ms. Jason for her intuitive nature and exploratory work on mutual fund fees and expenses.

All too often we hear asset managers touting their performance and investment expertise. I have hardly ever heard an asset manager addressing the fees and expenses charged for their so-called management expertise. To this end, I tip my hat to Julie Jason for highlighting this critically important topic in writing, Helping Figure Out the Fees:

You may have heard that mutual fund 12b-1 fees, part of the operating expenses of a fund, will be eliminated, which would imply that mutual fund shareholders could benefit from lower costs. Lower costs should mean higher performance.

Don't be so hasty! Wall Street does not merely allow fees to walk out the door.

Last week, the Securities and Exchange Commission issued a proposal to end 12b-1 fees, which first were introduced in 1980. However, in reading the 278-page proposal, I don't see the prohibition of fees to pay for distribution, the intended use of 12b-1 fees.

While some may disagree, I see a reframing of such fees as "asset-based sales charges" and "service fees," with the goal of helping investors better understand what they are paying for. The fees currently are shown in the prospectus as a separate expense of the fund, which together with other fund expenses, such as accounting and legal fees, are included in "total operating expenses" — also called the "expense ratio."

Fees? Asset-based sales charges? Service fees? Total operating expenses? Expense ratio? Are you kidding me? Do you feel like the Wall Street smoke and mirrors are working overtime here? You're right…and in the midst of that smoke, you're getting squuezed!! How so?

For example, a fund whose expense ratio is 1.5 percent per year might have a 12b-1 fee of 0.25 percent per year. Part or all of the 12b-1 fee might be paid to the stockbroker who sold the fund to you, and payable for as long as you stay with the fund and the broker. Consumers may not understand that funds offer different share classes with different pricing, and some share classes paying more to the broker than others.

I did a quick search on Morningstar's Principia's most recent database of mutual funds and found 4,301 funds with 12b-1 fees of 1 percent per year. Some 4,084 of these funds also had a deferred load ranging from 0.5 percent to 6 percent.

Deferred loads are payable when you redeem the fund and typically decline over time to zero — the longer you hold the fund, the lower the deferred load. A fund also could have a front load or sales charge, which is a one-time fee that comes off the top of your investment when you buy the fund.

Only one fund in this screen of 4,301 funds had a front load as well as a deferred load. That fund had a 12b-1 of 1 percent, a deferred load of 1 percent, a front load of 1 percent and an expense ratio of 3.3 percent.

Is your head spinning yet? Do you feel that you are in the "you can pay me now, you can pay me later, or you can pay me now AND you can pay me later" merry go-round? Well, you are!! Let's cut through all the nonsense.

The average net expense ratio for the group of 4,301 funds was 2.08 percent. The median was 2.03 percent. Sixteen funds had expense ratios of more than 4 percent, with one at 11 percent.

An average net expense ratio of 2.08 percent. Wow! Do you feel like you are getting your money's worth?

Real sense on cents believes an average expense of 2 % is egregious, if not usurious.

Thank you Ms. Jason for highlighting this topic.

Watch Copper Prices To See Potential Turns In The U.S. Stock Market

 

In general, copper prices travel in the same direction as stock prices, as copper is an industrial metal that is sensitive to good or bad changes in the economy.

As such, we can watch copper prices to see potential turns in the stock market.  The S&P 500 is stuck under resistance at 1,100, just as copper is stuck at resistance at $3.200.

However, we've seen strong bounce over the last few days in copper - could that forecast strength in stocks?  Let's take a look at the resistance level to watch in copper prices and the JJC (JJC: 42.762 0.00 0.00%) copper ETF to see if we can pick up any clues.

First, Copper Futures Prices (Daily chart):

 

As seen in the continuous futures contract of copper (@HG via TradeStation), Copper prices face confluence resistance at $3.2000.

Why?

The 200 day SMA rests currently at $3.2126, so we'll need to keep a watch on that - a break above the 200 day moving average would be a bullish turn-around - so traders should watch that closely.

Also, the 50% Fibonacci retracement of the move down from the April high (along with stocks) is $3.2011 - right there with the 200 SMA and prior price high spike from late May.

Beyond the confluence resistance there, price seems to have broken upwards from a symmetrical triangle - notice the multi-day impulse move on the breakout (it's bullish).

If the triangle pattern completes its upside target, we could see a move up to the 61.8% Fibonacci retracement at the $3.3000 level.

That's the parameters on the daily chart - remember that stocks have their upside resistance levels too.

If you don't have access to watch copper futures prices - or want to trade a potential move here without using futures - you can study the JJC copper ETF.

Let's see the daily chart of the Copper ETF - symbol JJC (Daily):

 

I won't go into as much detail, but the chart structure is similar, though the key level to watch is $43.00 per share in the JJC ETF.

That's because the 200 day SMA rests at $43.22 and the 50% Fibonacci retracement lies at $43.06.

These will be the levels to watch for a potential upside break - $3.2000 in copper futures and $43.00 per share in JJC.

Either copper and stocks will fail to overcome resistance here and thus swing lower (continuing their downtrends), or the will likely break upwards together, sending both copper and stocks into an upward impulse above their resistance levels.

Stock Picks : Isilon Systems, THQ, OceanFreight,YRC Worldwide, Banner Corporation

 

Isilon Systems (ISLN: 17.64 0.00 0.00%) recorded a new high in the last trading session. Short-term outlook for the stock is bullish. If in the next sessions new highs don't happen, I expect to see a decline due to the overbought conditions. On the other hand, new fresh exposures on ISLN should be made only when the stock moves above 17.97. Stay tuned !!

 

THQ (THQI: 4.74 0.00 0.00%) - As I said in my last post about THQI, there were buyers in the stock on Thursday. On Friday, the stock rose 29 cents to $4.74, putting its jump last week at 12.4%. The stock was able to maintain its bullish nearest term bias and now seems comfortable stays above the 20 day MA indicating potential further upside recovery testing 5.11 ( 50-day moving average ). A Break above that area could trigger further bullish momentum testing 5.53 and 5.82 region.

 

OceanFreight (OCNF: 1.22 0.00 0.00%) - The stock had a significant bullish momentum on Friday, break above $1, topped at 1.29 and closed at 1.22. The major reistance has been violated to the upside, confirms the bullish continuation targeting 1.63 in nearest term. At this stage, I'm a buyer only once it breaks through Friday's high of $1.29 for the continuation move. Stochastics and the RSI are overbought but remain bullish signaling.

 

YRC Worldwide (YRCW: 0.338 0.00 0.00%) broke out Friday on strong volume and should continue all next week. From a technical perspective, the stock is in a short-term Bull Market with share price above 13, 20 and 50 daily moving averages. Let's see if next week the stock will confirm the breakout and continue uptrend to 0.384. Short-term investors can buy with a stop at $0.28 and long-term investors can hold with a stop at $0.22. Stay tuned.

 

Banner Corporation (BANR: 2.16 0.00 0.00%) - The stock was technically a mess on Friday. Honestly, I think I will stand aside for now as nearest term direction is unclear. Looking at the technical chart above we can see that in longer term view price is consolidating in range area of 1.90 - 2.31 after a significant bearish momentum. Consistent move above $2.31 area could rigger further upside pressure testing 2.75. Initial support at 2.09.

Other stocks to watch:

New 52-week High stocks

MO - ALTRIA GROUP
GENZ - Genzyme General
MNTA - MOMENTA PHARMACEUTICAL
ARNA - Arena Pharmaceutical
SWKS - SKYWORKS SOLUTNS
XLNX - Xilinx, Inc.
ARMH - ARM Holdings, plc
VMED - Virgin Media Inc
NTAP - NetApp Inc
CRUS - Cirrus Logic, Inc.
BRCM - Broadcom Corporation
TIE - TITANIUM METALS CORP
INFA - Informatica Corp
LLTC - Linear Technology C
DE - DEERE & CO
RVBD - Riverbed Technology
RHT - Red Hat, Inc.
PTV - PACTIV CORPORATION
CTSH - Cognizant Technolog
PWER - Power-One, Inc.
HCP - HCP Inc
FNSR - Finisar Corporation
SO - SOUTHERN CO
TIBX - TIBCO Software, Inc.
CPX - COMPLETE PRODUCTION
CRM - SALESFORCE.COM INC
CMI - CUMMINS ENGINE CO INC
FFIV - F5 Networks, Inc.
ARUN - Aruba Networks Inc
INTU - Intuit Inc.
XEL - XCEL ENERGY INC
ISLN - Isilon Systems Inc
VMW - VMWARE INC CLASS A
AN - AUTONATION INC
VSH - Vishay Intertechnology
RSG - REPUBLIC SERVICES INC
CAVM - Cavium Networks Inc
TWTC - Tw Telecom Inc A
MENT - Mentor Graphics Cor
VTR - Ventas Inc
SAPE - Sapient Corporation
NZ - Netezza Corp
BLL - BALL CORP
NXTM - NXSTAGE MEDICAL INC
NHP - NATIONWIDE HLTH PRO
CTB - COOPER TIRE & RUBBE
NTY - NBTY, Inc.
CYT - CYTEC INDS INC
PNW - PINNACLE WEST CAP CORP
WBC - Wabco Holdings Inc
AME - AMETEK INC NEW
BJ - BJ'S WHOLESALE CLUB
ARBA - Ariba, Inc.
ADTN - ADTRAN, Inc.
UGI - U G I CORP HLDG CO
SLXP - Salix Pharmaceutical
ROVI - Macrovision Corpora
SVR - SYNIVERSE HOLDINGS INC
AAP - ADVANCE AUTO PARTS INC
CNQR - Concur Technologies
LCAPA - LIBERTY MED CP A
WEC - WISCONSIN ENERGY CORP
IGTE - iGate Capital Corporation
CPNO - COPANO ENERGY LLC UTS
VRX - I C N PHARMACEUTICAL
CHT - CHUNGHWA TELCOMM
SWSI - SUPERIOR WELL SERVICE
XXIA - Ixia

New 52-week Low stocks

TEVA - Teva Pharmaceutical
YHOO - Yahoo! Inc
WDC - WESTERN DIGITAL CORP
BEC - BECKMAN COULTER INC
WL - WILMINGTON TRUST CORP
RRC - Range Resources Corp
WOOF - VCA Antech, Inc.
BXS - BANCORPSOUTH INC
LPS - Lender Processing S
SWI - SolarWinds
HOLX - Hologic, Inc.
LEAP - LEAP WIRELESS INTL
AMED - Amedisys Inc

Disclaimer : This is not an investment advisory, and should not be used to make investment decisions. Information in AC Investor Blog is often opinionated and should be considered for information purposes only. No stock exchange anywhere has approved or disapproved of the information contained herein. There is no express or implied solicitation to buy or sell securities. The charts provided here are not meant for investment purposes and only serve as technical examples. Don't consider buying or selling any stock without conducting your own due diligence.