A good strategy

I believe a solid long term strategy should be followed until the end without change. My portfolio is heavily made up of semiconductor stocks. Recently semiconductor stocks have been acting strangely and have not followed along with the markets recent rally. I will expand with another post about the semiconductor stocks in my portfolio and the rational behind the investment. I believe the current prices of the semiconductor stocks in my portfolio offer a good entry point for new investors to jump in.

At the moment I believe gold is poised to get hot again as worries over terrorism persist. I still expect to see some minor fluctuations before gold really takes off to $600 and above. I expect to see a few rounds of profit taking by institutional investors, unless we see a major global catalyst such as a pandemic or terrorism that will create enough public interest needed by gold bulls to market the metal as a safe haven investment. As with all bull runs we must carefully look at what cycle we are in to predict how global events will affect the psychology of the general public. Gold has seen a steady build up and I believe we are about to exit the second phase of gold’s bull run and enter the third phase that will send gold to amazing new heights. My prediction of Gold passing $500 last year was the first key psychological event to push gold in the eyes of mainstream investors. I believe now that gold is carefully being watched, the gold bulls are waiting for an opportunity to create the herd mentality that will drive individual investors to look at gold as an alternative currency investment or appreciable long term asset. I intend to invest in gold mining stocks again, if the metal drops below $530.

Watching Dell, Inc.

I’ve added DELL, Dell, Inc. to my watchlist. The company and its subsidiaries engage in the design, development, manufacture, marketing, sale, and support of a range of computer systems and services worldwide. DELL has dropped on the company’s announcement that it expects to match the low end of its forecasted 1st quarter, 2006 revenues. DELL is currently trading at $30.40, off $11.59 from its one year high of $41.99. Without any catalyst driving demand for new equipment purchases, I expect that DELL will continue to trade at or slightly below current levels. I expect that following the Microsoft Windows Vista launch, Microsoft’s most important OS introduction since Windows 95, demand at Dell will surge from both retail and small business customers. Demand is seasonally slow during the first quarter for enterprise customers to upgrade hardware, servers and software applications. I expect things to slowly improve during the second half to end of 2006. The launch of Windows Vista will bring multicore CPU support on the OS level and a number of enhanced GUI and performance features for Windows users. Following along with INTC, Intel Corporation and AMD, Advanced Micro Devices, Inc. roadmap’s we see that both companies are concentrating on introducing multicore CPU products to the mainstream and enterprise markets.

Why is this important to Dell? We can draw historical references from the introduction of Windows 95 and the Intel Pentium architecture. The release of Windows 95, Windows NT 4.0 and Pentium line of CPU products from Intel created significant demand from retail and enterprise consumers. In the mid 1990’s the new resource intensive OS paired with a new hardware architecture meant users would be forced to upgrade to take advantage of emerging new 32-bit software applications. What I believe we are seeing with Windows Vista and multicore CPU products is a repeat of the Windows 95 and Intel Pentium architecture combination. With multicore OS level support and nearly all new CPU products from Intel and AMD being multicore products, the end user and enterprise user will be forced to upgrade to obtain an acceptable level of performance or to take advantage of new applications available on Windows Vista. We can extrapolate from looking at the minimum recommended system specifications, that Windows Vista is the most resource intensive OS introduction since Windows 95. For a mature and well known computer systems manufacturer this can only translate into higher sales due to new demand. I see the current drop in DELL price as an opportunity to pick up shares before demand starts to pick up in mid to late 2006. I expect to see DELL top $40 again within 6-12 months. I like DELL at under $30. If my prediction works out this would mean a gain of 33% or greater within 1 year.

Raw Greed morning update

Good Morning, let’s get started. Today I am watching FLWS, 1-800-FLOWERS.COM, Inc. The company was mentioned by Jim Cramer in an article about stocks that should be included in creating a Valentine’s Day portfolio. Usually when Jim Cramer mentions a stock in a positive light, you can expect that stock to see a slight jump up. I believe the market will have a hard time continuing yesterdays rally. Investors will be tempted to lock in profits. If 1-800-FLOWERS.COM, Inc. can produce excellent Valentine’s Day sales results we should see the stock jump up close to $7 very quickly.

Stocks of semiconductor fabricators are acting a bit strange. Both TSM, Taiwan Semiconductor Manufacturing Company Limited and UMC, United Microelectronics Corporation are down after announcing strong 4th quarter, 2005, revenues. Both companies are expecting a smaller decline in 1st quarter, 2006, revenues compared to a year earlier. Utilization at both semiconductor fabricator plants has improved on a YTD basis. Revenue and utilization rate point towards improving fabrication demand in 2006 for both companies. With such positive business prospects for either company, I expected TSM and UMC to rally along with the rest of the market. Current long term fears surrounding INTC, Intel Corporation may be to blame. I would look at the current drop in price for TSM and UMC as a purchasing opportunity.

I plan to get back into gold stocks, but not just yet. I expect to see gold drop around low $530’s before the metal resumes its jump up to $600. Gold is currently trading at $541.50.

Raw Greed requests, AMR Corporation

Terry writes:

Is it time to short AMR or should I wait?

AMR, AMR Corporation has seen a phenomenal run up. I believe the jump in stock price is a little overdone. Oil prices have not eased up enough to warrant such a large increase in AMR’s stock price. There are still terrorism fears that loom and any negative news about a nuclear threat by Iran or speculation about possible terrorist attacks, has the potential to drive crude prices up and airline stock prices down rather quickly. Investors appear to be comfortable with the situation and AMR should continue to rise for sometime. I would wait until we see some reason and momentum behind a surge in crude prices before shorting AMR. I am watching AMR and will report back if I do decide to short shares of the company.

Read this book

While I was in Hong Kong I read this book. I highly recommend that Raw Greed readers pick up a copy. The little book that beats the market covers investing in stocks based on a company’s return on capital and earnings yield. It took me two hours to read the 155 page book and it makes tremendous sense. I clearly remember one quote from the book, “Stock prices move around wildly over very short periods of time. This does not mean that the value of the underlying companies have changed very much during that same period.” This quote resembles my own theories about the effects of greed and speculation in the market. I’ve written that the psychology of the market and the ability for the market to overreact is what creates investment opportunity. I believe greed and speculation can also overtake all logic as evident by the .com bull run. The little book that beats the market will teach you a fundamental way of finding bargain investment opportunities as defined by the books “magic formula”. The author Joel Greenblatt is the founder and a managing partner at Gotham Capital. The fund has grown at an average annualized rate of 40%, for over 20 years. I believe the book makes so much sense that I announced plans in an earlier post to create a separate portfolio using my IRA account to invest in stocks produced by the books criteria and then further narrowed down by my own Raw Greed criteria. If you decide to purchase the book please use the link above or in the sidebar to do so. A small Amazon referral fee will be credited to Raw Greed. I believe the two hours you spend reading the book will open your eyes to a basic and well reasoned method to investing in the market.

The Raw Greed request line is open

E-mail me your stock picks and if I know anything about them I will report back with a post or analysis.

Maidenform Brands, Inc. speculation

MFB, Maidenform Brands, Inc. announced that FY 2005 results would come in shy of analysts expectations. The company expects 2005 net sales to range between $381 million and $383 million. The company had previously projected net sales to range between $385 million and $390 million. Analysts on average were expecting $387 million in net sales. This is shy $9 million or 2.3%, if you take into account the high end of the company’s original projection and the low end of the current projection. The company also revised its 2006 net sales growth projection to a range of 5%-7% down from 7%-10%. MFB closed yesterday at $10.86 and traded as low as $8.49 in today’s morning trading. If you consider that the market fairly valued MFB, with the shares trading in the range of $10-$12 with the expectation that the company would match its original projections, you would consider it outrageous that the stock has lost as much as 21.8% in today’s trading. This is a clear example to me of the market overreacting and sending a stock price tumbling. The news of the company dropping its projected 2006 net sales growth by 2%-3% and the existing drop in 2005 net sales of 2.3%, should not be enough to cause MFB to shed 1/5 of the market cap of the company. I believe the current drop is fueled by strong speculation and short selling interest in the market. I believe this is what also creates valuable purchasing opportunities. I will keep a close watch on MFB and I will likely take a position in MFB if the market continues to push the price of the stock down below $8.

Purchasing additional shares of 1-800-FLOWERS.COM, Inc.

Today I purchased 1000 shares of FLWS, 1-800-FLOWERS.COM, Inc. at $6.28 I currently own 3000 shares of FLWS with an average purchase price of $6.39. I like FLWS at under $6.50. You can click the predictions link at the top of the page to view my price targets for FLWS.

Watching Ford Motor Company

F, Ford Motor Company is part of my watchlist. I’ve written two posts about Ford concerning the company’s embattlement with declining SUV sales and rising gasoline prices. You can use the search function on Raw Greed to view the original posts. F is currently trading at low $8’s. Investors will look toward GM, General Motors Corporation for direction in the auto market in 2006. I expect sales to stay flat for GM and Ford and Japanese auto makers to increase their market share. GM and Ford must rapidly speed up production of energy efficient low cost vehicles to compete with Japanese automakers. I believe the share price of Ford is heavily influenced by speculation. I believe fears over terrorism and Iran’s nuclear ambitions will likely keep energy prices stable or rising for much of 2006. I’ve been watching the price fluctuation of the stock and I expect without any positive sales results the price of the stock will likely trade along with the price of crude oil. If the price of crude significantly drops, Ford’s long term prospects for SUV sales improve. I believe there are investors who consider Ford’s drop a bargain opportunity. I see further drops in F and I may purchase shares of the stock if it drops below $7.80. I expect that F will trade between $7 and $9 for much of 2006 until the price of crude drops or the company shifts its focus from SUV’s to a different segment in the auto market. I remain unsure if Ford can post strong sales results for 2006.

Raw Greed updated poll

I’ve updated the poll question to “Do you believe Google’s valuation is justified?”

Raw Greed poll results

Here are the results when Raw Greed readers were asked “Which Brokerage do you use?”

Scottrade led the poll as the leading brokerage with 32% or 65 votes. Ameritrade was 24% or 49 votes. E-trade was 16% or 33 votes. Other was 16% or 32 votes. Charles Schwab was 7% or 15 votes. Interactive Brokers was 2% or 4 votes. Ameritrade Izone was 1% or 2 votes.

A good time to watch Intel Corporation

INTC, Intel Corporation is currently trading at $20.66. It appears to me that the market is overreacting to the threat that AMD, Advanced Micro Devices, Inc. posses to Intel. Investors are forgetting that Intel has deep relationships with OEM’s and distributors that will take AMD some time to develop. With Microsoft Windows Vista around the corner and poised for a 2006 release, I believe Intel is in a better position to take advantage of surge in demand the new OS release should create. Intel’s share price is off 24.84% compared to it’s December 2nd, 2005, high of $27.49. Investors should remember that no company, especially a technology company, is capable of releasing hit after hit. Any company is bound to have a sour product release. For Intel, the company’s latest round of single and dual core processors are significantly slower than their AMD counterparts. I expect AMD to maintain a performance advantage, though quite minor, during the next round of dual core processor releases. If preliminary reports of Intel’s new dual core design are an indication of Intel’s future prospects, the performance advantage that AMD currently enjoys would become a defunct issue.

Here is a quote taken from Anandtech on Intel’s Core Duo processor.

But what about the bigger picture? What does our most recent look at the performance of Intel’s Core Duo tell us about future Intel desktop performance? We continue to see that the Core Duo can offer, clock for clock, overall performance identical to that of AMD’s Athlon 64 X2.

Please click the predictions link at the top of the page to view my target prices for INTC.

Purchasing W Holding Company, Inc.

I’m back in WHI, W Holding Company, Inc. Today I purchased 1000 shares of the stock at $8.15. I expect to sell WHI in 1-3 months for $9-$9.50. The company delayed its 4th quarter, 2005, earnings report until an audit committee reviews a few different accounting matters. It is expected that the review could amount to a cumulative non-cash accounting charge of up to $12.7 million, net of taxes. I sold my original position in WHI in order to free up cash to purchase BGO, Bema Gold Corporation and potentially short airline carrier stocks. Investors who follow Raw Greed and who purchased WHI, but did not follow my sale of the stock, will have made a good return on their investment. WHI split 3:2 on January 11th, 2005. In retrospect, I should have held onto my 2000 share position of WHI. My cost basis would have dropped from $8.44 to $5.62. At today’s current prices my gain would have been between 40-50%. My original post about WHI is located here.

Headed back home

I will be flying out of Hong Kong tomorrow morning and arriving Friday evening in New York. I will resume updates on Raw Greed next week.

Purchasing 1-800-FLOWERS.COM, Inc.

Today I purchased 2000 shares of FLWS, 1-800-FLOWERS.COM, Inc. at $6.45. I wrote a post about FLWS, on December 28th, 2005. Please click the predictions link at the top of the page to view my price targets for the stock.