What is Corporate America Trying to Tell Us?

A recent blurb in a CNN article caught me off guard claiming that, "Despite the hike in energy prices and the slump in housing, the US economy remains resilient--especially consumer demand." I too would agree that the economy certainly looks strong from a superficial glance. The stock market is nearing all time highs, inflation is moderate and for the 4th quarter of 2006 the US gross domestic product grew by 3.5%. Quite impressive for a fiscally indebted nation hindered with soaring energy prices (petroleum) and a declining housing market.

The importance of these issues in relation to the global economy all depend upon perspective and timeframe. With most Americans the timeframe is right here and right now, but with multinational corporations this type of myopic indifference will not suffice. For this reason successful corporations establish quarterly, annually, 5 and even 10-year business prospectuses. For them to successfully strategize they must systematically reorganize their hierarchy and business objections so that they synchronize with the economy. It doesn't make sense for DaimlerChrysler AG to maintain current production levels if they foresee consumers making fewer purchases of durable goods like cars or computers. Therefore they cut production prior to an economic downtrend, so as they are lean and capable of surviving the changing economic environment.

Due to the survivalist natural of these entities, observing the actions of corporations can often paint an accurate preview of coming economic attractions. Through the next series of posts I will examine in detail the current concerns facing our economy while simultaneously exploring the predictive behaviors of these multinationals.

IPO Spotlight - Salary.com Inc.

According to a recently filed S-1 with the Securities and Exchange Commission, Salary.com Inc. a Waltham, Mass.-based company plans to offer 5 million shares in the price range of $8-10.00. Founded in 1999, Salary.com provides on-demand compensation management products for business of all sizes.

Per company's website: "The attraction, motivation and retention of employees is a leading strategic priority for most companies. Moreover, compensation ranks as one of the largest expense categories for most employers." The company continues with a quote by the U.S. Bureau of Labor Statistics, which totaled employee compensation in the United States at $5.4 trillion for 2005.

While I will agree that attracting and securing skilled employees should rank high on a company's to-do list, I fail to see how Salary.com intends to capture continued growth in this highly competitive industry. Salary's flagship product, CompAnalyst, boasts an extensive database of salary scales and third party surveys. Unfortunately, so do such popular portals as Monster.com, Payscale.com and Salaryexpert.com. To grab market share and improve brand equity, Salary.com would need to differentiate itself from the wildly popular and more trafficked sites like Monster.com.

For the year ended March 31, Salary.com's revenue totaled $15.3 million, up from $10 million the previous year. Despite the healthy increase in revenue, the company continues to burn cash and recorded a net loss of $3.1 million compared to $2.3 million during the previous year. It may just be me, but for a company with $15.3 million in revenues and $21.8 million debt it seems slightly egregious to coax $50 million out of Wall Street.

Speculative Long

NVBF - $3.55

Nova Biosource Fuels, Inc. is a development stage energy company with the goal of refining and marketing ASTM standard biodiesel and glycerin. Currently, Nova is involved with the initial stages of pre-construction for 2 out of 3 planned wholly owned biodiesel refineries with an expected capacity of between 160 to 240 million gallons annually. Despite being a rather small company with a market capitalization of only $412 million, Nova has been busy signing feed stock supply agreements with Conagra Trade Group, courting prestigious board members and finalizing the construction of 3 independently owned biodiesel refineries.

What makes Nova desirable is the types of feed stocks the refineries will utilize. Current commercial scale biodiesel operations use crude oils such as those derived from soy beans. Inversely, Nova intends to use 21 different feed stocks including those rendered from fats such as brown and yellow grease. Why the importance of proper feed stock selection? Since 60-75% of the cost to produce biodiesel is tied to the various feed stocks used, it is essential for producers to use inexpensive feed stocks. Given that soy bean oil is roughly $.25 per pound compared to the paltry $.12 and $.05 for the same quantity of yellow and brown grease it doesn't take a mathematician to determine the more economically attractive feedstock.

The catch here is can Nova successfully commercialize the production of biodiesel using difficult to process, lower cost feed stocks? Interestingly, the company has been producing 80,000 gallons annually at their pilot facility in Butte, Montana for the past 4 years. If former oil executives from Texaco, Halliburton Energy Services and and Mobil have faith in this technology, then maybe Nova might be on to verge of something huge. Commercially viable production of biodiesel from waste streams? Sounds good to me.

On December 19, 2006 the company raised $47 Million through placement of common stock and warrants. Nova intends to use these funds as working capital for operating expenditures.

Mastering the Art of Bullish Trend Discovery.

Successful investors all understand how due diligence works. We hear of a stock on CNBC or some other financial news source and the story intrigues us. However, since this isn’t Atlantic City and were not gambiling, we don’t risk our capital on the first pretty face we see. Instead, time is taken to grasp and understand the core fundamentals backing the company of interest. Essentially, this is composed of all the quantitative information pertaining to the economic viability of the company. This can include such items as brand equity, market share, liabilities vs. assets and earnings. Once the appropriate time has been taken to grasp the inner workings of the company, we the investor can make the decision to purchase shares.

However, simply because the fundamentals of a company appear immaculate doesn't dictate that Wall Street will reward the stock accordingly. This concept has confused me on many occasions. If the company is performing so well, why then is the stock languishing in 52 week low la-la-land? The reasons for this phenomenon are difficult to pinpoint. It could be as simple as a company’s lack of exposure to Wall Street. If the market does not realize the company’s success then is cannot respond accordingly. Other issues such as political legislation may present difficult obstacles for the company to achieve adequate growth. This was seen on April 1, 1970 when President Richard Nixon signed the act to ban all tobacco advertisement on TV. Despite this laughable set back, we all can rest assure that our friends down at the Altria Group Inc. (MO) have done just fine. Regardless of the reason, what’s important here is that the company’s stock and the underlining company’s economic performance don't always parallel. Due to this phenomenon, investors may come across a successful company, buy shares, and then watch as the price-per-share (PPS) dwindles.

So what is the solution? How can we accurately time market entry in our favorite stocks without missing the big moves? The key is patience and observation. I've had difficulty with this task and was deservingly punished. However, there is hope for us all. Within a stocks chart hides valuable alarms which can signal an underlining change in market sentiment. Finding and capitalizing on these signals is the solution to proper market entry. Although not all investors practice or grasp an adequate understanding of technical trading or trading through the utilization of charts, a basic understand of moving averages and the importance of volume and price development will suffice.

Power Spike

In his 2001 book The Master Swing Trader, Alan S. Farley signifies the importance of volume in relationship to price development. Common trading knowledge dictates that volume precedes price. Without adequate market participation a stock can't sustain a rally. It is in these moments of high volume that emotions and market participation reach an unprecedented level and allow stocks to run.

Every stock creates an average daily participation which oscillates through price development. Instances of volatility, external events and surprise press releases have a high percentage of shocking this harmonic average, which in turn can propel the stock into a new trend. When previous levels of resistance are tested on high volume, more often than not, that established barrier can be broken; allowing the stock to move higher uninhibited. Identify these events when volume exceeds 150% of the daily average. These instances can be the catalyst required to grab the attention of the market and generate higher participation during the days, months and even years that follow.

Some words of caution. With increased volume comes increased volatility. Be aware of an exhausting power spike that can deplete the potential supply of buyers. In these cases the volume spike may be so intense that there is no one left to carry the stock higher. Be sure to rule out potential mergers and acquisitions as the reason for the move. These events will generate high volume movement, but leave little or no room for upward PPS development. Finally, if the shocking event comes in the form of a press release, read the news and determine if it is in fact worthy of the excitement that Wall Street is giving it. There is nothing worse than being stuck with a long position after a company has released some superfluous news that draws in participants and leaves them holding a very large, overprice bag of worthless shares.

The Golden Cross

For those of us with little knowledge of technical trading, I will give a brief description of moving averages. There are many types of moving averages such as simple, exponential and linear weighted. For the sake of simplicity we will use and discuss the simple moving average as the basis for this post. According to StockCharts.com, "A simple moving average is formed by computing the average (mean) price of a security over a specific number of periods." Basically this means that if we are calculating a 200 daily moving average (200 DMA) we take the sum of the closing prices for the last 200 days and divide that number by 200. Nevertheless, we shouldn’t have to calculate these numbers ourselves because modern charting programs such as Stockcharts.com already have this feature built in.

These moving average ribbons smooth price action out over the duration of the average. The longer the moving average, the more smooth the price action and the more weight it carries. Thus the 200 DMA is viewed as the best indication of long term market sentiment. As the shorter term 50 DMA crosses the longer term 200 DMA, the underlining market sentiment of the stock changes from bearish to bullish. Stocks trading above their 200 DMA often continue to trade higher, while stocks trading below continue to drift lower.

The idea behind The Golden Cross stems from the interaction between the 200 and 50 DMA. In the instance of Microvision Inc. (MVIS), the stock was trading below its 200 DMA in September of 2006, but as the pps began to move higher the shorter term moving averages such as the 20 and 50 DMA began to move higher as well. Eventually, in December of 2006, the 50 DMA crossed over the 200 DMA forming a golden cross. This point in conjunction with the power spike on November 4, 2006 sent strong buy signals, which if acted upon would have resulted in substantial gains.

The usage of these market signals is important when determining the entry point of our favorite stocks. As I stated in my first point, the reason we buy and sell stocks is to make money, so what then is the purpose of buying fundamentally attractive stocks when the underlining market sentiment is bearish? Successful recognition of the technical indicators mentioned above and others can lead to more accurate price prediction and if used in accordance with sound fundamental analysis, can yield great investing returns.

IPO Spotlight - Accuray Incorporated

An Initial Public Offering (IPO) often generates a lot of attention from Wall Street. However, picking out the winners amongst the losers can be a daunting task. After all, most of the financial information held by private companies is in fact private and thus, not accessible by the public. Despite this difficulty, information on these newly public companies regarding their products, customer base, market share and corporate intentions are readily accessible through a little search engine called Google.

Even with this information it can still be difficult to anticipate how the company's stock will react once public, i.e. there is no chart marked with previous battles between bulls and bears. However, anyone with the power of observation can recognize the inherent sexiness of a newly public company. What product does the company sell? If its a new product what type of market can or does exist for it. If its a developmental state company, realistically how close are they to the commercialization stage?

MindRay Medical International (MR) a Chinese based
developer, manufacture, and marketer of
diagnostic medical equipment, patient monitoring devices and ultrasound imaging systems is up over 90% since October 2006. The success of MindRay and other medical device companies like China Medical Technologies Inc. (CMED) indicates strong demand for the stocks within this industry.

In America, where we are privy to the the world's finest medicine, demand for modern health care will continue to surge as America's largest generation, the Baby Boomers continue to age. Companies which supply medical facilities with technology capable of improving the effectiveness of existing treatment or decrease the mortality rate of difficult to cure pathologies should thrive as hospitals and clinics expand and revamp existing facilities and equipment to accommodate for the rising demand of health care.

Scheming the IPO calender early last week I came across a company which sparked my interest. Accuray Incorporated (ARAY), a Sunnyvale California based developer and manufacture of CyberKnife a robotic radiosurgery device, according to the companies website, "Is the worlds first and only commercially available intelligent robotic radiosurgery system designed to treat tumors anywhere in the body." The company boasts sub-millimeter accuracy as well as eliminating the need for invasive frames used to stabilize patients during traditional radiosurgery systems. The device received FDA clearance in 2001 to treat tumors anywhere in the body and approval in China to treat tumors of the head and neck in 2005. To date they have sold 140 CyberKnife systems and have provided treatment to 20,000 patients throughout the world.

Among other notable mile stones, the company signed an agreement with Siemens AG (SI), "To collaborate in the development of advanced imaging and software solutions targeted for use in both radiosurgery and radiotherapy." The companies will jointly work towards the integration of Siemens computed tomography(CT) system with the CyberKnife as well as to integrate Accuray's targeting techniques into Siemens radiotherapy product line. Given that Siemens is one of the worlds largest supplier of medical devices with sales of 7.6 billion, for fiscal 2005 this contract bodes well for the future prospects of Accuray. Not to mention they are flush with $288 million in cash from their wildly successful IPO today. For the 9 months ended September 30th, the company reported a net of $2 million on revenue of $33 million, compared to a loss $10.2 million on revenue of $4 million a year ago.

















www.en.wikipedia.org/wiki/radiosurgery

Construction Starts

Just getting familiar to this whole concept of blogging. So bare with me while the kinks are starched out. For starters, I will share the purpose of this site and how it fits perfectly with my personal goals. First, we need to be honest with ourselves. We invest money to make money. Instead of working for money, investors put their money to work for them. Capitalism at its finest. And what better place is there in our globalized economy for rapid wealth creation than stocks? The modern stock exchanges are by far the most efficient and liquid medium for rapid wealth creation or...over night bankruptcy.

Because of short term volatility most personal investors shy away from holding periods of a year or less. The problem with this is accurate timing can produce astronomical gains when compared to the tried and true buy and hold strategy. Why should we keep holding a stock when the underlining trend is obviously down? Why not buy back our favorite stocks once the underlining sentiment has turned bullish again? Why you ask? Because its frick'in hard. It takes great skill, research and most importantly patience to accurately time bottoms, tops, fresh breakouts and breakdowns.

However grizzly this task, I believe success can be achieved through the perfect combination of economic insight, proper due diligence(fundamental and technical analysis) and self control. And that is precisely the goal of this blog. I will use this editorial not only as a portal to relay relevant investing information, but also as a personal journal so I can monitor my own maturity towards becoming an accurate speculator. I will attempt to post as much as possible, although this totally depends on the other constraints in my life.