AAOI

[RaptorD2]

It’s been a busy time for me lately, especially for being retired, but isn’t that the way it goes. I finally started to dig into my list posted here last week (you know, the one no one liked) but I got bogged down on the very first (#1 ranked) company because … well, I like it. So I spent the time I allotted for going through the entire list, studying just the first company. Since I’m new here, let me ask you: have you guys heard of it, or discussed it, I wonder?

I hadn’t heard of it. Maybe because 49% of the shares are owned by institutions. Anyway it has some of the characteristics favored around here. It’s a fast grower. It’s tech, but not real high tech, although they do build lasers and fiber optics components. It’s kind of new, started from scratch in 1997. It’s growing faster than Superman’s dog chasing WonderWoman’s kitty. It has gained a bit this year, about 500% give or take, but it’s been a violent ride on the old stock chart. I think because 1) the institutions got to this one before we did and the float is wee, and 2) I suspect, but don’t know, that the shorters have an entire sport built around AAOI shares. The good side of that is that share price has dropped a bit (along with all my holdings) in this … what do we call it … this Tech Share Shuffle maybe? I also suspect, but can’t prove, that a severe short squeeze may be in the cards in the near future. I wouldn’t own a company for that reason only, but it does my little heart a big favor when I see short squeezes erupt, whether I own the company or not. (OK, yes, I’d rather be one of the owners when the juice gets squeezed, but still, I’m a pretty nice guy.)

But I look at prospects a little different than most. I find lots of companies that I like, so what I really look for are things I don’t like. I look for things I can’t live with while being an owner of a company. Things I avoid like VOTE FOR SO’N’SO bumter stickers. I’ve only found a couple here so far, but maybe you folks can help look under the hood a bit more and see something I’m not smart enough to see. The company’s based in Texas, but the management team, going by names and photos (which I realizes sounds racist but again, I’m not, I’m a nice guy) all look Asian to me, and they have a sweetheart deal with the Chinese for income taxes and 2 subsidiaries are in China and Taiwan. Chinese people are great! I just don’t like their country’s securities practices and their securities laws. And you know how I hate to invest in Chinese companies. So is this one, or not? I Chinese CEO in panda-hide cowboy boots in Texas with a Colt 45 in his holster is still a Chinese CEO, am I right?

The second question stems from 29% of their revenue coming from the cable tv industry. Is cable (meaning actual fiber-optic cable, not the cable tv industry) dead, or will the continued explosion of internet traffic mean the continued explosion of the use of fiber-optic cable? While I could make an uneducated guess and be comfortable with it, in fact I don’t know. The good angle on the question is that their applications and design expertise for data centers appear to be taking over sales from the sales to the ctv industry. I suppose someday something will replace light as the fastest and most accurate mode of transmitting data too, but what is it? And when? Again, I’m not a comms engineer and I simply do not know. Some nano-critter-something, I suppose?

So please surprise me, whack me upside the head with bad news, rumors, dirt, scandals, hooker stories, something I’ve missed. Otherwise, I’m in. “Yeehaw!” or whatever they say in China or Taiwan. (Maybe “Yeehaw!” but I’m just guessing here.)

Anyway, on to the show:

AAOI Cpplied Optoelectronics, Inc.
Sugar Land, Tx
Founded: Febr 1997

Website: http://ao-inc.com/

What they Do
Design, develop and manufacture advance optical devices, packaged optical components, optical subsystems, laser transmitters, and fiber optic tranceivers.
These products are used in fiber optic communications equipment for FTTH (Fiber-to-the-Home), point-to-point telecom, datacom and access networks, and systems supporting cable television (CATV), network infrastructure.

Engineering and manufacturing plant locations:
• Sugar Land, TX [HQ] - Laser chips & optical components
• Taipei, Taiwan - Optical components & sub-assemblies
• Ningbo, China - Optical components & optical equipment

Markets
• CATV
• Data Center
• FTTH
• Telecom
• Sensing

Components
• Digital
• CATV
• Wireless
• Photodetectors
• FTTX
• Sensing
• Transceivers
• Pluggable Modules
• Lasers
• Photodiodes
• Wireless Analog lasers
Sensing
• Methane
• Ammonia
• Carbon Dioxide
• Hydrogen Flouride
• Hydrogen Sulfide
• Moisture

2017 Q1 Results
Revenue increased to $96.2m, up 91% from 2016 Q1 and 13% from 2016 Q4.
GAAP Gross margins increased to 43.1% from 28.3% in 2016 Q1. Non-GAAP GM increased 43.2%, up from 28.3% in 2016 Q1 and 38% in 2016 Q4.
GAAP net income increased to $19.8m ($1.00 / dil sh) compared to net loss of $1.3m ($-0.08 / sh) in 2016 Q1, and $14.2m ($0.77 / dil sh) in 2016 Q4.
Non-GAAP net income increased to $21.8m ($1.10 / dil sh), compared with non-GAAP net loss of $0.6m ($0.04 / sh) in 2016 Q1, and non-GAAP net income of $15.5m ($0.84 / dil sh) in 2016 Q4.

2017 Q2 Outlook
Revenue $106-$112m
Non-GAAP gross margin 41%-42.5%
Non-GAAP net income $22.2-$24.3m, non-GAAP fully diluted earnings per share $1.09-$1.19, income tax rate of approx 20.5%.

AAOI owns Global Technology, Inc. in China as a wholly owned subsidiary which has been granted by China, preferential tax concessions for 3 years as a national high-tech enterprise in 2008, which has been extended 3 times to date. The latest extension expires in September 2017.

Revenue Growth
2013 23.8%
2014 66.7%
2015 46.2%
2016 32.1%
2017 Q1

Revenue is recognized when the product is shipped and title has transferred to the customer. (I like Simple.)

Revenue Segments (2015)
CATV 28.3%
Data Center 64.9%
FTTH 1.3%
Other 5.5%

eps
2012 -3.56
2013 -0.14
2014 0.3
2015 0.69
2016 1.82

FCF/S
turned positive in 2016 $0.40
2016 Q4 FCF/S $1.11

Balance Sheet Highlights
Cash $61m
Working Capital $127m
Total Assets $368m
Total Debt $29m

CAPEX
2016 $49m ($25m in Building)
2017 Q1 $6m ($1m in Building)

Coverage
7 analysts, none from huge firms

Risks & Concerns

• 28% of revenue is from Cable. What is the lifespan of the ctv industry?
• R&D cost is expected to increase in dollars (but decrease as % of cost)
• Demand is seasonal with Q4 demand highest and Q1 demand lowest.
• Foreign currency risk - sales in China and Taiwan subsidiaries are made in respective local currency

Dan

[Oforfive]

BWS Financial initiates coverage on Applied Optoelectronics (NASDAQ: AAOI) with a Sell rating and a price target of $25.00.

Analyst Hamed Khorsand commented, “AAOI has benefited from an elongated tailwind related to data centers using 40G interconnects in their network while upgrading to 100G. This brief delay in the upgrade cycle to 100G is purely a timing issue and one that could lead to a series of disappointments for AAOI shareholders.”

I saw something on this yesterday on one of my brokerage sites, but could not find it just now. Found it via Google, though. Seems rather drastic price target for a “brief delay”. However, $25 takes AAOI back to only January price levels.

AAOI has come through my screener several times but I didn’t buy a mini-starter and conduct DD, so I missed a pretty good pop.

KC

[PaulWBryant]

Dan,

I’ll admit I didn’t go very deep, but that’s largely because the hairs were standing up on the back of my neck due to how much this reminds me of Infinera. A bunch of optical products I will never understand, and they’re selling TONS more than last year. They also expect to sell tons more in the future, which I’m sure they will, until they don’t.

First flag: Lumpy growth

Why was the stock price doing nothing until ~12 months ago? Well among other things, growth was lumpy at best:

Year   Q1    Q2    Q3    Q4   Tot
2014                     36   130
2015   30    50    57    53   190 (46%)
2016   50    55    70    85   260 (37%)
2017   96                     449 expected (72%)

So in Q1 of 2016 they grew revenue 80% YoY. The next quarter, 10%. Then 23%, then 60%, and now 91% in Q1. What is going on???

Another way to look at is that they were hovering around 50M / quarter from Q215 through Q216 and then suddenly started climbing, and are expected to continue in 2017. Why?

Well, here I did look ever so slightly deeper, and found that on April 18th 2016 they gave preliminary guidance, coming in on the bottom side of their range for Q1 2016. In Q2 they beat, and then on Sep 6 they raised Q3 guidance. It seems since that raise, things have been going really well for them. But the fact that they had to alter guidance twice last year doesn’t instill confidence. The fact is, like any company that makes products, guidance is difficult. Whether they hit, miss, or beat depends on how much customers decide to buy in a 90 day period.

Second flag: The market doubteth

The 2017 full-year EPS (non-GAAP, I assume) is estimated on Yahoo to come in at 4.71, so their Fwd PE is ~13.4. Companies growing revenue 91% don’t have PE’s of 13.4. I’m pretty sure what it means is that a lot of the market is highly concerned that this story will come to an end sooner than later.

Third flag: Small base

I’ve seen a lot of companies have a MUCH easier time going from 100M in annual revenue to 200M or 300M than they’ve had growing after that. I realize these numbers are fairly arbitrary and depend on the type of business and zillions of other factors, but that’s what I’ve seen. Small companies grow until they don’t. That’s why it’s so important to know what’s driving the growth. Of course figuring out all the factors that go into that is the hard part, and I certainly don’t know what they are, but the only way I can possibly imagine they’ve been able to grow like they are growing right now is that the competition hasn’t caught on yet. In my opinion, there’s no way it’s anything but a matter of time. Of course, even if I’m right, I certainly don’t know when the ride will end.

Conclusion: I’m not interested in looking further.

I didn’t even look into customer concentration, SBC, how much of the growth is organic (hopefully all of it – I didn’t see any acquisitions but I suggest confirming this if you continue to investigate), and a bunch of other stuff, because I’m just not interested in this type of business. I may be missing out on something great, but how would I know? I don’t feel qualified to evaluate the ins and outs of the market for these products, nor inclined to attempt it. I’ll stick with what I know.

Bear

[RaptorD2]

Hey, Bear,

(That’s what I always say when walking through deep woods without a weapon. “Hey, Bear, hey bear!”)

Thanks for your thoughts. Lumpy growth. Yes, it’s there, I’m not quite sure what the factors flowing into that one are other than partially due to seasonality I believe. Flag 2, as I mentioned, I believe the short is sizeable. That’s one thing I’d like to know more about, as in “Why?” But the one that surprises me is your flag 3, Small base: Actually, that factor excites me as much as anything else about the company, and I find that often when a newer, small company like this gets to the point where their sales go through the $100m barrier, the chances of them making it to the next stage and beyond are fairly high, all else being equal (which it never is.) Coupled with the fact that they have invested in decent-sized but not humongous production facilities, signifies that they believe they are positioned for carving a longer term edge in the niche.

My other concerns I’ve already mentioned but I’ll add one more I was hoping someone would raise. Their revenue is not recurring at all by Saul’s (or my) definition, and I really like Saul’s thinking on recurring revenue.

So far I see this as a possible money maker for a somewhat limited time period but not truly disruptive as would be my first choice. I’m in the process of transferring another sizeable cash shipment from my bride’s pension plan into her IRA and need some fresh ideas to put it to work. This could work, but does not fit my goal looking forward to long-term holdings with strong growth. As far as TAM, again I’m not sure what the market is expected to be for Fiber-optics. While data centers should be a growth are for the next few years, again, I have no idea how long that will last. More dd to perform.

Thanks again,

Dan

[TMFDatabasebob]

Hi Dan.

I took a quick look through the last three years of Laser Focus World’s annual market review and turned up nothing about AAOI. I knew it was a long shot. There will always be a mention of the big boys in the laser industry and some number of smaller companies get mentioned too. I don’t think that lack of mention is an indictment, although a mention probably means that something interesting is happening at (or to) the company.

I just wanted to let you know that I had followed that path and turned up nothing. I’m probably not going to research the company any further, but I figured Laser Focus World is a resource that most investors wouldn’t think to utilize. I’ve gleaned useful info from those annual market reviews in the past, so I thought they were worth a quick scan.

Fool on!
Thanks and best wishes,
TMFDatabaseBob (no position in companies mentioned)
See my holdings here: http://my.fool.com/profile/TMFDatabasebob/info.aspx
Peace on Earth

[PuddinHead42]

IBD rankings are top notch

Checklist Rating
Composite Rating 99 Pass
EPS Rating…99 Pass
RS Rating…99 Pass
Group RS Rating A+ Pass
SMR Rating…A Pass
Acc/Dis Rating B+ Pass

Demand from Chinese data centers (which is why a Chinese CEO is good to have).
http://www.investors.com/news/technology/applied-optoelectro…
5/22/17

Applied Optoelectronics (AAOI) will get a boost from tech companies like Amazon.com (AMZN) and Facebook (FB) that are upgrading data centers to superfast communications for cloud-based services, says Needham & Co., which initiated coverage on the optical parts maker with a buy rating.
…
Applied Optoelectronics is well-positioned in the data-center market, Henderson said in a report. “We expect very strong demand growth over the next several years as the Web 2.0, Big Data, social media and (cloud) companies drive efficiencies through their current and new scaled-out data-center footprints,” he said.

Applied Optoelectronics’ biggest data-center customers are Amazon, Facebook and Microsoft (MSFT), analysts say.
…
Tech firms are upgrading to 100-gigabit-per-second technology in data centers packed with computer servers. They’re upgrading gear that connects server racks to high-speed network switches as well as links between data centers.

“We think Applied Optoelectronics will materially exceed Street estimates in 2017 as the industry rolls through the steep ramp phase of the data comm upgrade to 25/100 Gbps,” added Henderson.

From 6/13/17:

One of the hotly followed fiber optic telecom plays, Applied Optoelectronics (AAOI), had weathered skittishness in the industry’s investors better than some others. The stock rallied 176% from a Jan. 12 breakout to a high June 6.

Shares pulled back and tested the 10-week line, rebounding in strong trade, but not scoring a gain for the day. The stock staged a weak attempt to climb Tuesday, then fell back to close lower.

Unless it moves higher, the stock is not yet offering a buying opportunity. And it’s important here to note that it’s prior basing attempt dived 33%, then recovered without ever offering a valid buy point. So caution, and protecting capital, is the name of the game here — until it becomes clear whether the stock can hold things together to form a proper rebound or a base.

Ranked #1 in its group.
#2 = LITE
#3 = CIEN
#4 = FNSR
#5 = VIAV

EPS Rating 99
EPS % Chg (Last Qtr) 2850%
Last 3 Qtrs Avg EPS Growth 1042%

Qtrs of EPS Acceleration 4

EPS Est % Chg (Current Qtr) 612%
Estimate Revisions
Last Quarter % Earnings Surprise 12.2%
Annual Earnings
3 Yr EPS Growth Rate 90%
Consecutive Yrs of Annual EPS Growth 4
EPS Est % Chg for Current Year 239%

SMR Rating A
Sales % Chg (Last Qtr) 91%
3 Yr Sales Growth Rate 46%
Annual Pre-Tax Margin 10.1%
Annual ROE 12.5%
Debt/Equity Ratio 15%

Very strong stuff but had a great run. Maybe buy a “trial” position like Saul would and watch and learn. After the last week, we might get a decent pull back soon.

[PaulWBryant]

a possible money maker for a somewhat limited time period but not truly disruptive

Hairs on neck standing up again.

Bear

[RaptorD2]

FYI

Relax

Life’s too short. I’m having my post above trashed. Don’t know if they’ll do it on a Sunday but one can hope.

Dan

[SaulR80683]

Companies growing revenue 91% don’t have PE’s of 13.4. I’m pretty sure what it means is that a lot of the market is highly concerned that this story will come to an end sooner than later.

Hi Bear,
I certainly agree about this and it would give me pause about investing in the company. However I also know the market can be wrong. (Look what happened with LGIH!)

I also agree that it’s easier to grow large percentages off a small base. (Law of Large Numbers).

I’m just not interested in this type of business.

I agree with this thought too. I recognize that it may work out very well, and that someone else might make a lot of money off it. But I can’t invest in all the stocks that go up. I have to pick the ones that sing a special tune to me.

Saul

[PaulWBryant]

I have to pick the ones that sing a special tune to me.

Very well put, Saul. After a weekend’s rumination I’ve decided that the takeaway for me personally is that recurring revenue is not an option at this point in my investing journey: it is a requirement. It can be had, as we have seen, and it has worked very well thus far.

Hope everyone else has had a pleasant weekend, spent doing things you like with people you care about.

Bear

[RaptorD2]

Very well put, Saul.

Damn, I’ve been set up again. When will I ever learn?

========================================================================
http://discussion.fool.com/Message.aspx?mid=32744531&sort=wh……

I don’t know what their story is but …

Sorry, Bear, you never will.

… and your own suggestion brings on the forth #1 ranking that we know of.

I do appreciate your comments, Paul. And I will defend with my last breath your right and Saul’s right and the right of everyone here to voice their opinions and by all means, if it comes down to it, to flat out disagree with me. As stated, that’s what I was looking for. But the way you did this … the way you told an admittedly new investor to come here to learn to invest by studying your portfolio (and I thought this was the Advanced Class!) and the way you chose not to disclose your previous discussion –that you prompted by promoting your portfolio here—plus the fact that 100% of your portfolio is broadband-dependent and data centers (yes, 100%) but you no nothing about fiber-optics, Data Centers or the longevity of either, so you will stick with “what you know” I have decided I won’t be needing your advice again.

I’m sure you are pleased about this, but no need to thank me. “You’re welcome.”

Dan

[buynholdisdead]

Hi Dan,
I am sorry but that post is confusing. Just what are you trying to say? I read the post you highlighted and it just didn’t have anything to do with this thread.

Andy

[PaulWBryant]

Damn, I’ve been set up again. When will I ever learn?

Wow, Dan, I’m sorry to see you’re offended…I must say I don’t understand your post or what I’ve done that has upset you, but no harm intended!

Bear

[TMFDatabasebob]

I’m not Dan, but I can guess where he’s coming from. Dan, if you’re still out there, I hope you’ll help us better understand…

Dan did a HUGE amount of work, vetting more than seven hundred stocks across something like eight or nine metrics. Even if the task was largely automated, he worked to build the automation. He got some favorable response for that, but nothing overwhelming.

Next, he chose a top-rated stock for a much deeper dive, hoping others would contribute and create a really good vetting of that company. Again, he got some support, but nothing overwhelming. I take some blame. I did a little research, which turns out not to have contributed anything useful, and then backed off. Why? To borrow Saul’s parlance, the company didn’t “sing” to me. And apparently I wasn’t alone in that reaction.

I think some people may have been turned off by the similarity to Infinera, which many felt “burned” by. They’re different businesses targeting different parts of the market, I can assure you, but they both play in related spaces. I still own Infinera, and have a large position in a laser manufacturer, and that is part of my lack of interest in owning this company. Also, Saul has made it clear that he doesn’t care to invest in Chinese companies. Although this isn’t one, literally, Dan’s description introduced enough of a connection for some of us to consider the possibility of a “wolf in sheep’s clothing”.

My suggestion, Dan, if you’re still with us…

Rather than investing a large effort into one company, which may or may not resonate here, invest a MUCH smaller effort into a handful (say, four, and I’ll explain that number in a moment). Create a thumbnail sketch for each of the four. But instead of a post to explain the companies, create a poll. The Motley Fool’s polling mechanism allows for five choices. You might ask: For which of the following companies would I be willing to contribute some research? List the four companies, and the fifth choice would be “none of these resonate with me”. If the clear winner is “none of the above”, at least you won’t have invested too much in the four you chose, and if you’re feeling as if there still might be hope for us, you could thumbnail another four. To increase your odds of finding a “hit” early in the process, I’d suggest looking for companies with recurring revenues, or at least revenues that don’t exhibit lumpiness and seem to have a powerful growth trajectory.

If you’ve read my earnings analyses on this board, several of them contained a “1000 Days of Ratios Analysis” – a process I developed myself (based on inspiration from some very smart message board posters). I created a message board hoping that some others would take an interest in the methodology and be willing to do the work for a few companies themselves. As they say, “Many hands makes light work.” I was disappointed when there was some interest in my methodology, but no interest in taking on some of the workload. I suspect Dan is coming from a very similar place, feeling as if he’s built something valuable, is looking for some support to take it broader and deeper, and is hearing mostly crickets instead of applause. I have that T-shirt.

If I’m right, I’m sorry for your disappointment, Dan, but I think it’s the nature of the beast (and now I have a sample size of two to prove it!). As I alluded to, though, your choice of AAOI as a starting place may not have helped your cause because it hit too many negative points for the group assembled here. Hopefully my suggestions can help you find another company that resonates better. There are any number of instances where Saul has credited someone on this board for bringing a company to his attention that ultimately made it into his portfolio. Just because AAOI isn’t going to be one of them, I hope you don’t stop trying.

Fool on!
Thanks and best wishes,
TMFDatabaseBob (long: INFN)
See my holdings here: http://my.fool.com/profile/TMFDatabasebob/info.aspx
Peace on Earth

[captainccs]

Totally off topic!

What do Niagara Falls and the Mona Lisa have in common? Both were tremendous disappointments for me. Both had a lot of positive PR and worldwide renown but when I went to see them I was underwhelmed. I didn’t stop to think that just because Nature took over a million years to create the falls or DaVinci years to create the painting I was obliged to like them and praise them. That thought never entered my mind. I was sorry I had wasted my time. At least the Louvre had other attractions to make up for it, not so Niagara Falls.

I’ve been posting for decades and the greatest benefit I get from posting is the work I put into the posts, they make me think and rethink what I’m saying. On a great many occasions I realized I was not making sense and I didn’t post but still learned a lesson. The second greatest benefit of boards is the variety of subjects that are brought up. One good investing idea is worth a lot. Eagles don’t flock, you have to pick your winners one by one.

I know this post is harsh by current PC standards but that’s how I was brought up. Or to paraphrase Guy Kawasaki: “Under expect and over deliver.”

Denny Schlesinger

Guy was very much NOT PC! At an Apple Developer’s Conference when asked what he thought of “look and feel” he replied: “Yes, look before you feel.”

https://en.wikipedia.org/wiki/Look_and_feel

[RaptorD2]

Hi Bob,

Regarding “The List.” Forget “The List.” I’m sorry if I whined so much that anyone would think that was some kind of problem; I sure didn’t mean to. Seriously, thanks for all your thoughts, but they aren’t necessary. Am I disappointed that few thought my efforts at screening were not helpful? Maybe I was surprised a little, at first, but it’s no big deal. It’s over. I haven’t thought much about it except that I’m personally working with the list now, and all that has little to do with this. The effort I made was for myself. No one asked me to do it. So call me greedy. I just thought I’d share it in case it helped someone else. I’m sure it could if I explained how it was built. But this is about Saul’s methods, not about mine. As it should be. And without knowing how I determined screening parameters, no one would know whether the effort made any sense, or if I pulled numbers out of my but … , er, hat, let alone had real value. I understand and it’s the same way I would feel. I wouldn’t expect, and certainly wouldn’t recommend, anyone to buy a stock based on that, and I should have kept the whole thing to myself. My hope was simply that it would be a catalyst for finding some good, new, unknown candidates. One, two, three, some stocks to talk about. For me, it’s happening just that way. For the board, nothing. That’s not unusual, unexpected or anything to be upset about. So … am I disappointed? Not for me, not at all. I’ve gotten a lot of good information from my efforts, learned quite a bit more about accounting since I had to grade 700 companies on financials, and my toolbox is all I have and growing. Plus I’ve found some interesting stocks to study. For me, what’s not to like?

As for the real point: Obviously I didn’t make it clear. My bad. But this isn’t a democratic board; it’s Saul’s board. He’s doing a fine job and doesn’t need this chatter to waylay progress. He has his own way of finding candidates. I have no idea what that is, but if I needed to know it’s my fault for not finding out. I’m sure the answers are here. But I’m the same way, I have my own methods of screening, and they’re . . . different.

As far as encouraging newbies to come here and study the board’s ports and methods to emulate? To start out with a couple of my rockets? Hey, if you think that’s good for investors, it’s really none of my business. But IMO it detracts greatly from the board’s integrity and value and if it gets too far out of hand, be assured I won’t be the last one you’ll hear from.

It’s funny, speaking of “The List,” different goals & methods, etc. Denny, whom I have invested beside for years and admire, said re: “the list:” “it’s too complicated. I don’t buy those kind of stocks that need so much dd. I use 25-year charts.” I think he got 437 recs for that one. If I remember correctly, other’s comments following his were similar for several reasons. Their reasoning didn’t seem to follow my goals. My immediate reaction was, “Huh? What are you doing here, and what does that have to do with screening for fast-growing, disruptive companies? You don’t even invest in them, and now you knock my attempt at finding them? Why comment at all?” But after less than 10 seconds of unfocused pondering, I realized that in my exuberance, I had overlooked a universal truth, something we all know. Everyone here has different methods and goals. And I want Denny and so many others here to bounce ideas off of and if they’re satisfied enough to hang around, I don’t care why they’re here. And they know that I won’t try to get them to invest just like me. And hopefully they know I want disagreement–friendly disagreement, mind you–or we have nothing to talk about and we learn nothing. But I might borrow a new thought or great idea from each person here to build and tweak my own methods. I do believe that’s how the human learns.

Different goals, different methods, different hopes, different fears, different needs. And isn’t that exactly as it should be? And that is my point. If that still makes no sense, then my bad x2, and I know you well enough to believe that you will get over it, as I will with this, and move on.

Every 2-3 years, I liquidate all of my wife’s employer’s retirement plan mutual funds and rollover the cash into her IRA. But for several of the last few years I had been investing more passively, and neglected to do it. This weekend, I finally got around to it. Whoa, it’s a x-figure pile of cash, the largest single influx of capital to our investments ever. So guess what, Bob. I need new investing candidates in spades! And with the market and my existing holdings at record highs, well, you know me. No darts, no dice, no copying someone else - just Deep dd, no matter what it takes.

Thanks again, Bob. And no more “list”, not here. Please, let’s move on.

Dan

[EdGrey]

What I like about this board is that there are so many good ideas. What this thread tells me is that looking more closely at Bob’s contributions will give me even more.

[captainccs]

It’s funny, speaking of “The List,” different goals & methods, etc. Denny, whom I have invested beside for years and admire, said re: “the list:” “it’s too complicated. I don’t buy those kind of stocks that need so much dd. I use 25-year charts.”

First of all, thank you very much for the kind words. Second, let me explain the “too complicated” comment.

I need about 12 stocks in my portfolio. A wish list with three or four times than number of stocks is more than enough to be prepared for trading. How do I know a stock is a growth stock? It has a history of growth, the price has been rising faster than the indexes for quite some time, at least ten years, more is better. That information is clearly visible in price charts. My initial triage has two hurdles, the stock must have a history of growth and I must like the business sector. There are very few stocks that pass these hurdles and I can’t find a reason why I should devote any more time and effort to the ones that don’t pass. Even if they got great scores in some grading scheme, I would still not buy them.

But that is not the end of the due diligence. I have all the reasons I need to buy the stock – a fast grower in a sector I like. What I need now is information for NOT buying the stock. Since there is a very limited number of stocks that make my wish list, I can spend a lot of time doing in depth analyses of these stocks.

I hope that clears it up.

Denny Schlesinger

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It has a history of growth, the price has been rising faster than the indexes for quite some time, at least ten years, more is better.

Beating the indexes for 10 years or more is a large hurdle for a company. That time period excludes a number of growth companies we discuss here, such as ANET and SHOP, not to mention FB or TSLA. After 10 years of growth, it’s really hard for a company to be growing at a high clip.

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Beating the indexes for 10 years or more is a large hurdle for a company. That time period excludes a number of growth companies we discuss here, such as ANET and SHOP, not to mention FB or TSLA.

That’s exactly what I’m looking for. Out of thousands of stocks in the market, I only need a dozen that will do the job for me.

After 10 years of growth, it’s really hard for a company to be growing at a high clip.

What determines the ability to grow is not the age of the company but the existence of markets for its products and services. I’ve written often about the “S” curve that describes the typical growth cycle. The best time to own a stock is during the middle third of the lifetime of a technology when it’s growing the fastest, after having gained recognition but before saturating the market.

For example, the pre EV automobile is a 100 year old technology. The best time to invest in GM and Ford would have been during the middle thirds of the 20th Century. Ride them for ten to fifteen years out of the thirty. Early on there were hundreds of car makers. The industry coalesced into the big three. At the end they had to go to financing gimmicks to try to keep selling cars.

Or take Sears, they started with the railroads and died with the Internet. In between there were several decades of growth. Right now we are in the middle of an obesity epidemic that is growing with the increasing number of people in the middle class – buy NVO. In the old days food preparation was a local activity and food poisoning at most would sicken or kill a few people in the vicinity. Today food poisoning can be spread at the speed of jet aircraft over entire nations – buy NEOG. At the end of the day markets are made up of people.

Denny Schlesinger