Tuesday, May 26, 2009

NASDAQ Composite

Let's use the PVI for the NASDAQ composite. What is more interesting is that in this index, we have the same pattern as in 2003. The divergence in this indicator with the other indexes such like the Dow Jones Transport, Dow Jones Industrial and S & P 500 is something to analyze.

In 2002 - 2003, this indicator give the buy signal on october 2002, 6 months before than the buy signal in the DOW JONES. Then, we could expect the same now, although the markets never behave the same way.


NASDAQ 2003:




NASDAQ 2009:

Monday, May 25, 2009

DOW JONES INDUSTRIAL



We will compare the 2003 bottom, with the 2009 lows (we do not know if we have a bottom yet). For the comparison, we can use the MACD combined with the Positive Volume Index (PVI, with the 200 SMA in red), and the 200 SMA in the Dow Jones (in yellow). For those who are not familiar with the Positive Volume Index:

Calculation:

1) If today's Volume > yesterday's volume then:

PVI = yesterday's PVI + (today's close - yesterday's close)/[yesterday's close × yesterday's PVI]


2) If today's volume < yesterday's volume then: PVI = yesterday's PVI Interpretation:
This indicator links the behavior of volume and price.
It can identify a rise in volumes synchronized with a rise in prices. The PVI or Positive Volume Index, detects only the rising signals contrary to the Negative Volume Indicator.
Less informed investors follow the rise in volumes and are in the market.
On the contrary when volume decrease the more informed investors are in the market.
The market is bullish when the two indicators rise above their moving averages.

Now, let´s see how this indicator worked out in 2003:

DOW JONES 2003 bottom:


DOW JONES 2009 lows:


Could it work in the 2009 lows?

Sunday, May 17, 2009

MRK - Merck & Co Inc.

MRK - Drug Manufacturers - Major
MRK is one of my favorites. Look the daily chart. It seems like a H & S bottom. Look at the volume, the neckline and the technical indicators.


On the volume, this is what we can expect in a H & S bottom pattern:
Volume levels during the first half of the pattern are less important than in the second half. Volume on the decline of the left shoulder is usually pretty heavy and selling pressure quite intense. The intensity of selling can even continue during the decline that forms the low of the head. After this low, subsequent volume patterns should be watched carefully to look for expansion during the advances.
The advance from the low of the head should show an increase in volume and/or better indicator readings, e.g., CMF > 0 or rise in OBV. After the reaction high forms the second neckline point, the right shoulder's decline should be accompanied with light volume. It is normal to experience profit-taking after an advance. Volume analysis helps distinguish between normal profit-taking and heavy selling pressure. With light volume on the pullback, indicators like CMF and OBV should remain strong. The most important moment for volume occurs on the advance from the low of the right shoulder. For a breakout to be considered valid, there needs to be an expansion of volume on the advance and during the breakout.


Weekly Chart:
MRK need a little help of the Dow Jones to take-off. I am considering going short on the Dow and Long on MRK. Cover MRK with an inverse ETF. A good entry point could be after the brake of the neckline (30 USD) or any price on the dynamical support. In case of confirming the head & shoulders, the objective is the level of 40 USD.
Fundamentals:
Merck & Co., Inc. (Merck) is a global research-driven pharmaceutical company that discovers, develops, manufactures and markets a range of products to improve human and animal health. The Company's operations are principally managed on a products basis and comprises of two business segments: the Pharmaceutical segment and the Vaccines and Infectious Diseases segment. The Pharmaceutical segment includes human health pharmaceutical products marketed either directly or through joint ventures. These products consist of therapeutic and preventive agents, sold by prescription, for the treatment of human disorders. Merck sells these human health pharmaceutical products primarily to drug wholesalers and retailers, hospitals, government agencies and managed health care providers, such as health maintenance organizations and pharmacy benefit managers. In March 2009, Insmed Incorporated closed the sale of its assets related to the follow-on biologics business, to a subsidiary of Merck & Co., Inc.
Valuation Ratios:
Price/Earnings (TTM) 9.14x - (MRK reported 1st quarter 2009 earnings of $0.74 per share on April 21, 2009, down 17% from $0.89 per share in Q1 2008.) Analyst expects $0.78 per share for the Q2 2009.
Price/Sales (TTM) 2.29x
Price/Book (MRQ) 2.75x
Price/Cash Flow (TTM) 7.05x
Book Value Per Share (mrq): $ 9.277
Because MRK is in the Major Drugs industry and has positive earnings, the PEG, PE, and Price to Book ratios are the most appropriate valuation measures. The Price to Sales ratio is less instructive than the PEG or PE since the company has positive earnings. Therefore MRK seems expensive with a PEG value of 2.0119, above the Major Drugs industry median PEG of 1.44, however their PE is only 9.1408, among the lowest in the industry.
Solvency:
MRK's debt to total capital ratio, at 23.45%, is in-line with the Major Drugs industry's norm despite its increase over the last year. The company's balance sheet shows that liquid assets are plentiful enough to service current liabilities in the event that operating earnings are unable to.
Profitability:
MRK is one of the more profitable companies in the Major Drugs industry with a net margin of 25.33%. Its operating margin and net margin are among the strongest of any peer while its gross margin is above the industry median.
Dividends:
MRK pays an annual dividend of $1.52 which, at its current stock price, produces a yield of 5.84%%, above both the Major Drugs industry average of 4.38% and the average stock in the S&P 500 Index at 3.00%. This is even more impressive since most companies in the Major Drugs industry do not pay a dividend.
Revenues:
MRK grew earnings in the face of decreased revenues over the past twelve months. This is a trend that is not sustainable if profits are to continue to grow at this rate. However, this result was better than that of the average company in the Major Drugs industry.
MRK is overall quite efficient in comparison to it's peers with a Return on Assets, Return on Equity, and Revenues Per Employee of 12.67%, 30.35%, and $424,154.00 respectively. Despite average performance at managing their resources, the company is among the best at managing their owner's equity and at generating revenues from employees compared to other companies in the Major Drugs industry.
Financial strength:
MRK's debt to total capital ratio, at 23.45%, is in-line with the Major Drugs industry's norm despite its increase over the last year. The company's balance sheet shows that liquid assets are plentiful enough to service current liabilities in the event that operating earnings are unable to.
INSIDERS:
There is no important insider activity, but they are buying.
http://finance.yahoo.com/q/it?s=MRK
http://www.insider-monitor.com/trading/cik64978.html
NEWS:

Drug Industry hits back as EU finalizes probe

http://www.reuters.com/article/marketsNews/idINLE91694420090514?rpc=44
Health-Care Reform and the 'Innovation Test'
http://online.wsj.com/article/SB124227053842018311.html
Cramer: Prepare for Sector Rotation?
http://www.cnbc.com/id/30726780/site/14081545?__source=yahoo|headline|quote|text|&par=yahoo
Principal sources: Reuters, TD Ameritrade, Yahoo finance and Finviz.com & Stokchcharts.com.

Monday, May 11, 2009

MTSC - MTS Systems Corp


NASDAQ: MTSC
Small Cap Blend. Sector: Technology / Scientific & Technical Instruments
In today’s market it is very difficult to find companies with a good risk / reward ratio. Then, you should not expect to find the perfect company in today’s market situation…..But I think that this company would outperform the SP500 the next weeks.
Be careful with the average volume, which is very low.
Daily chart:



We can see that MTSC is moving, like NRG, within a channel with support in 20 and a resistance in 26. Also, the chart pattern looks like a wedge. If we look for the divergences, supports and resistances in the chart, it seems to have high possibilities to be broken to the upside.
Weekly chart:



Bullish signals: Watch the big divergence in the Money Flow indicator and the MACD. The Stochastic looks like it is ready to overcome the 20 level, which is very bullish. The 13 SMA is the resistance moving average.
Fundamentals:
MTS Systems Corporation supplies mechanical testing systems and industrial position sensors in North America, Europe, and Asia. The company’s Test segment offers road and track simulators, tire performance, and transmission test systems for automobile, truck, motorcycle, construction equipment, agricultural equipment, and off-road vehicle manufacturers and their suppliers. It also offers systems to test wear and performance of implants, prostheses, and other medical and dental materials and devices for bio-mechanical applications. In addition, this segment provides products, systems, and software for structural tests on aircraft and space vehicles, as well as to test sub-systems, components, and materials primarily to the manufacturers of commercial, military, and private aircraft and their suppliers. The company’s Sensors segment offers products based on magnetostriction technology to the manufacturers of plastic injection molding machines, steel mills, fluid power, oil and gas, medical, wood product processing equipment, mobile equipment, and alternative energy; and products used to measure fluid displacement, such as liquid levels for customers in the process industries. MTS Systems sells its products and systems through a direct sales force, independent sales representatives, and independent distributors, as well as through the Internet and catalog. The company was founded in 1966 and is headquartered in Eden Prairie, Minnesota.
On 4/22/09 MTS Systems Corporation reported fiscal second quarter earnings per share of $0.44, a decrease of 42 % compared to second quarter fiscal 2008, on net income of $7.5 million. (MTSC Fiscal Year ends in September).
When MTSC reported 2nd quarter 2009 earnings of $0.44 per share, it met the consensus estimate of the 2 analysts covering the company.
The analyst's estimates ranged from a high of $0.48 to a low of $0.39, with a median estimate of $0.42.
MTSC is expected to announce 3rd quarter earnings the week of July 20, 2009. For the coming quarter, analysts estimate MTSC will earn $0.28 per share, a 56.92% decrease over the prior year 3rd quarter results.
Key Statistics:
Market Cap: 353.80M
EPS: $ 2.49
P/E: 8.48 - Industry Average: 22.84.
Forward P/E (fye 27-Sep-10): 12.95
Share Price: $ 21.11
Book Value Per Share (mrq): $12.057
Price/Book (mrq):1.75 – Industry average: 2.67.
Enterprise Value/EBITDA (ttm): 4.147
Profit Margin (ttm): 9.17%
Operating Margin (ttm): 13.12%
Beta:0.87
Competitors: ITW Illinois Tool Work Inc.
MTSC is one of the more profitable companies in the Scientific & Technical Instr. industry with a net margin of 9.17%. Its net margin and operating margin are both among the strongest of any peer, while its gross margin is inline with the industry median.
Total DEBT Evolution (values in thousands):
Q3 2008 $8,146 / Q4 2008 $26,646 / Q1 2009 $42,692 / Q2 2009 $41,434
I do not like that the level of the debt is increasing Q over Q. But, MTSC's debt to total capital ratio, at 17.02%, is in-line with the Scientific & Technical Instr. industry's norm. With an Interest Coverage ratio of 46.62 and a Quick ratio of 1.31 the company should be able to comfortably repay its debt.
Total revenue evolution (values in thousands):
Q3 2008 $ 116,886 / Q4 2008 $ 124,069 / Q1 2009 $ 116,609 / Q2 2009 $ 107,652
Revenues are decreasing Q over Q.
Income Available to Common Excluding Extra. Items (values in thousands):
Q3 2008 $10,985 / Q4 2008 $14,499 / Q1 2009 $9,751 / Q2 2009 $7,448
Incomes are decreasing Q over Q.
Cash Flow (values in thousands):

Q3 2008 15,530 / Q4 2008 9,754 / Q1 2009 (9,313) / Q2 2009 (14,750)
Cash is decreasing Q over Q.
I would like to note that, the company is very dependent on the economic activity, since it is the supplier for construction equipment, agricultural equipment, and off-road vehicle manufacturers and their suppliers.
If we expect an estabilization on the economic situation, MTSC is a good bet, since It is underestimated by the market.
We can wait to buy on the rupture of the wedge to the upside. If this is the case, do not forget your STOP LOSS.
Other interesting matters:

Insiders:
http://finance.yahoo.com/q/it?s=MTSC
http://insidercow.com/history/company.jsp?company=mtsc&B1=Search!
Recent news and articles:
Five Thinly Traded Stocks with Plenty of Upside



Sunday, May 10, 2009

NRG Energy



LAST UPDATE: MAY 20

NRG is moving within a channel. Now that It has made a multiple bottom and recently broke the dynamical resistance on May 8, it is struggling with the (100) Exponential Moving average. Especially, look at the positive divergence on the Money Flow indicator and the ROC, rate of change (green line). We could expect a pullback to the support at 19.5. We could wait for the bottom on the 19.5 level to buy with stop loss at 19.

Supports and resistances on the chart:

Daily Chart:







Weekly Chart:







Fundamentals:



Investor relationships:



http://phx.corporate-ir.net/phoenix.zhtml?c=121544&p=irol-IRHome



NRG Energy, Inc., together with its subsidiaries, operates as a wholesale power generation company. The company engages in the ownership, development, construction, and operation of power generation facilities. It also engages in transacting in and trade of fuel and transportation services, as well as trade of energy, capacity, and related products. As of December 31, 2008, the company’s power generation assets consisted of approximately 10,495 megawatt (MW) of gas-fired; 7,540 MW of coal-fired; 3,715 MW of oil-fired; 1,175 MW of nuclear; and 195 MW of wind generating capacity in the United States. In addition, NRG Energy also owns approximately 115 MW of thermal capacity domestically, as well as 1,080 MW of power generation capacity overseas in Australia and Germany. The company was founded in 1989 and is headquartered in Princeton, New Jersey



Market Price: 21.19



Book value: 26.5

Trailing P/E: 4.47

Price/book: 0.8


Beta: 1.1


Average volume: 3.3M.

EPS: 4.02

Total Debt/Total Capital: 60%. Industry: 56%



NRG
has a debt to total capital ratio of 60% which is in-line with the Electric Utilities industry's norm. With an Interest Coverage ratio of 5.3 and a Quick ratio of 1.29 the company should be able to comfortably repay its debt.

Operating Profit Margin: 36%. Industry: 11%.



Based on its gross margin, operating margin, and net margin, NRG converts a larger percentage of its revenues to profits than most other companies in the Electric Utilities industry. Furthermore, the company is profitable with an operating margin of 36.43%.



Net profit margin: 16.1 %. Industry: 2.76%.



INSIDER Activity:

In 2009, insiders were aggressively buying NRG.

http://www.insider-monitor.com/trading/cik1013871.html



Most recent news and articles:

Berkshire-Hathaway's Warren Buffett portfolio update Q4 2008

http://seekingalpha.com/article/121409-berkshire-hathaway-s-warren-buffett-portfolio-update-q4-2008



NRG starts Texas Cedar Bayou 1 natgas unit.


http://www.reuters.com/article/marketsNews/idAFN0845225320090508?rpc=44

Investments basics

In the first post, I would like to share with you my investments basics, the ones that will guide this blog. May be, you will find that them are not suitable for you. That is good, because you should have your own guidelines. They are very common, but I always try to keep in mind these ones:

  • Always wait for the setup. Know when to sell before you buy. Set up exit strategies. Cut your losses, let your profits run.
  • Develop your investment philosophy.
  • DISCIPLINE is the key to successful investing.
  • Big profits do not involve big risks. It is not risky to buy securities for a fraction that they are worth.
  • Define your circle of competence.
  • When there is nothing to do, do nothing.
  • Admit and learn from your mistakes.
  • Survive first, and make money afterward. Invest first, investigate later (listen to the market).
  • Diversification is a protection against ignorance.
  • If you do not understand it, do not do it.
  • Follow your own system religiously.
  • Invest for stimulation and sell-fulfillment, not only for money.
  • Enjoy the process of investing.
  • Lives and breathes investing 24 hours a day.

Visits

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