3 January 2011 Looking for "Leakers"
Pick of the day.
If you haven’t noticed, commercial aviation is taking off. Travel seems to be making a comeback and there are many ways to play it. You can do airlines if low margins do not frighten you, you can do aircraft manufacturers (WE DO OWN BA BOEING IN A FEW PORTFOLIOS), or you can look at some of the suppliers to those industries. That is where our homework lead us today. We were pointed in this direction by a great column in Stansberry’s Investment Advisory. (A great subscription based newsletter.) The are the people behind the video aka the End Of America Video. It is very depressing and bearish and scary, but is supported by actual facts.
Anyway in their recent newsletter they were pimping a stock which I cannot share with you as it is part of their service. The company provides allow products to the aviation industry. We were not impressed with the stock, but discovered one you might want to do some homework on.
GTI GrafTech International Ltd. manufactures graphite and carbon material science-based solutions. The company operates in two segments, Industrial Materials and Engineered Solutions. The Industrial Materials segment manufactures and delivers graphite electrodes, refractory products, and related services. Its graphite electrodes enable thermal management solutions for the electronics industry and fuel cell solutions for the transportation and power generation industries. Graphite electrodes and are used to produce electric arc furnace steel and various other ferrous and nonferrous metals. This segment also manufactures carbon, graphite, and semi-graphite refractory products, which protect the walls of blast furnaces and submerged arc furnaces. The Engineered Solutions segment offers advanced graphite materials that are used in the transportation, solar, metallurgical, chemical, and oil and gas exploration industries. This segment also provides natural graphite products, including thermal management solutions used in the electronics, automotive, petrochemical, and transportation industries; fuel cell components; and sealing materials. The company sells its products through direct sales force, independent sales representatives, and distributors in North America, South America, Africa, Europe, and Asia. The company was founded in 1886 and is and is headquartered in Parma, Ohio. (I used to go to great Italian Restaurant in Parma and can’t remember the name of it. But I digress.)
The fundamentals are pretty strong. They have had sporadic EPS reports, but in light of the industry, that may be expected. Again we are talking about playing a return of the aerospace industry. In looking at the October earnings report, they had very little guidance as to costs and sales for 2011. We could surmise by what they reported, that they should beat estimates when they report the 23rd of February. UNLESS needle coke, the raw material used in graphite electrodes, has jumped much higher than expected. My guess is they will report well and have some positive forward looking comments for 2011.
We are going to put this on the watch list and confirm it was a cup w handle and look for one more day of positive high volume and then get in via a long position or possibly a slight out of the money call option 30-60 days out. We’d like to get in before their reporting on the 23rd.
A little Tip to keep YOU honest.
We do not have the exact number, but we would guess we hold our stocks for about 6-9 months. We have a couple we have had for more than a year. (This is not counting the flash crash debacle that closed us out of almost everything.) We have also held stocks for under minute. (Fat finger trades I call them.) But when we have had a stock a while, say more than 3 months, it’s hard to tell how the stock has done in the last several weeks. If you don’t use trailing stops (and we can argue on bother sides of that coin) it is real easy to see a 40 % gain slide into a 30% gain and you would still think you are doing well. Here is what we have started doing (Thanks to the O Neil Book, “How to Make Money In Stocks”). We go back to the last full month and look at what the close was on that day and compare it to where the stock is now. In other words pretend you just recently bought the stock and see if you would still be happy. For Example, today CVX closed about 164. On January 3 the stock closed at 147. That is an 11% gain. We have another stock MDR, Mcdermott that we are enjoying a 43 % gain on. When we look at the Jan 3 comparison we only see a 5.3% gain. If you do this on all of your stocks, you can spot a “LEAKER” as we call them. They might be leaking profits. Then you can make a decision. Keep leaking or take the profit. Seems like a no brainer to me.