More reflections

Investment Analysis Clubs Saul’s Investing Discussions
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I think that last week was a well warranted rest with a bit of profit taking for some of our stocks after eight weeks of up. There are a few I’ve had a bit of concern about though.

First of all, there’s CALL. There’s certainly no bad news. They came out with their new product and advertising campaign exactly on time, just when they said they would. The product looks good and the offer seems good. The PE ratio is way under 10. So why hasn’t the stock bounced? That worries me. I know the earnings and revenues have been decreasing somewhat for a couple of quarters, and that this quarter will be down too, of course, given that they didn’t start their new program until the end of the quarter, but we knew that when we started. I feel ambivalent, wondering if insiders know something that I don’t know, or whether the problem is that they have a great product in a vanishing universe. However I don’t want to sell out of a stock with a great new product and orientation, and a PE which is currently about 5(!!!), without waiting to see what happens.

Then there is AFOP. I’m not actually worried about them. I just wish the price would quit yo-yoing the way it does. They provide fiber-optic cable. I first bought some at about $17 a year ago. In two months the price went up to $23, and five months after that I was buying a bunch more at $11.75 or so!!! Then two months ago they were at $22.50 again, and now they are at $17. Wow! From those price swings you’d think their results had been very variable and lumpy. But no, there’s been nothing but good news. Every quarter is up year-over-year, and ACCELERATING. Here are their running 12-month trailing earnings, starting two years ago with June 2012. By the way, they split 2-for-1 six months ago and I took that into account, which is why you have some half cents in the earnings totals (odd numbers divided by two). Look how trailing earnings have been jumping recently compared to two years ago. Results are in cents.

06 2012 30.0
09 2012 32.5
12 2012 37.5
03 2013 43.0
06 2013 61.5
09 2013 83.5
12 2013 102.0
03 2014 120.0

I suspect people are afraid their business may be cyclical and may taper off in a year or two, but the CEO says no way.

Finally, there is SZYM. They were recently attacked by a misinformation campaign, attacking them from a “genetically modified” point of view. There’s an excellent MF article about this by Maxx Chatsko. http://www.fool.com/investing/general/2014/06/14/why-are-ant…

Definitely worth a read. At $10.25, I’d definitely still be looking for a position if I didn’t have one, as this company could become a real powerhouse.

Saul

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Another really excellent article on SZYM, this one by Kevin Quon, and dealing with SZYM’s foray into the oil fields.

http://seekingalpha.com/article/2311705-solazyme-why-this-gr…

Saul

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I feel ambivalent, wondering if insiders know something that I don’t know, or whether the problem is that they have a great product in a vanishing universe.

Saul, I’ve been thinking this for several weeks now. This is the one stock I own that I have been seriously thinking about reducing or cutting completely. I have a 2.4% position and am sitting on a 21% paper loss (although the loss is irrelevant to my decision where to cut it or not). It is possible that the business may turn around and the profit would be nice, but there are several other companies I could add to whether I think the probability of success are way high. For example, I have a 3.2% in AIOCF and a 2.8% position in PFIE. I think these allocations may be a little low and my allocation to CALL a bit high given the risks and the upside. I’m happy with the levels of all my other allocations. Seems like I’m starting to talk myself into cutting or reducing CALL…

Chris

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First of all, there’s CALL. There’s certainly no bad news.

Saul,

In case you had not seen this:

http://www.bloomberg.com/news/2014-07-11/magicjack-gains-eva…

Chief Executive Officer Gerald Vento is revamping MagicJack’s smartphone application to remake the company as a provider of cheap mobile number and voice services in the model of WhatsApp, which Facebook Inc. bought for $19 billion in February. The company’s new product offering, the MagicJackGO, failed to reach the shelves of all its retail partners this week, prompting Oppenheimer & Co. to cut its earnings forecast for 2014 to 2016.

“Management is expected to deliver on certain initiatives and is coming up short of expectations,” Yousef Abbasi, a market strategist at JonesTrading Institutional Services LLC in New York, said in an e-mail. “We’ve seen a slower than expected launch for their MagicJackGo product, and the mobile application is still not as robust as some had expected.”

I have been watching CALL for a couple of months and wrote $15 puts a few weeks ago hoping to get a better entry point. I may take assignment this week at $14.20. I remain cautious, but interested.

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Saul;

Good to see you back. Some thoughts on the 3 stocks you mentioned.

Call: for the upcoming earning report the key is how much the growth in their App users, and what they say about the new product rollout. Revenue is not going to be there.

Afop: the volatility is probably due to 1) very small cap; 2) profit taking as it ran up quite a bit before tanking to $17. It has 13M floating and 3m short as of may. Insiders hold 34m and there is 2.9% shares sold by insiders in the past 6 months and no transactions since June according to Yahoo/Nasdaq. The risks are customer concentration and cyclical nature of the business. But as the economy is in an uptrend and internet traffic keeps going up driven by big trends like online shopping, music and video streaming, and smartphone web surfing, I think the down turn in capital spending cut is not imminent. We way get some idea when companies like ATT reports.

SYZM: I definitely thought this one should be in the teens. But I feel the genetically modified argument (rightly or wrongly) may hurt its prospect in food/nutrition segment or put it differently, it may add some hurdles for it to overcome when it develops the food/nutrition market. But I believe the company will figure it out and most likely it will win the argument at the end of the day. Additionally, food/nutrition is just one of its many promising business lines. I agree SZYM has the potential to become a big powerhouse. May I say this: AFOP may be a tactical holding but SZYM could be a strategic holing.

Just some thoughts.
Regards.
-M

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Chief Executive Officer Gerald Vento is revamping MagicJack’s smartphone application to remake the company as a provider of cheap mobile number and voice services in the model of WhatsApp, which Facebook Inc. bought for $19 billion in February. The company’s new product offering, the MagicJackGO, failed to reach the shelves of all its retail partners this week, prompting Oppenheimer & Co. to cut its earnings forecast for 2014 to 2016.

This could be a game changer, assuming they get it launched before WhatsApp gets their voice service integrated. I might pick some CALL up after the next earnings report on this news alone.

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More about SZYM

For the upcoming earning report, the revenue may not see meaningful uptick and the loss may actually widen as all the plant opening cost will show up.

The focus will be on the progress in their plants, IMHO. Additionally any reference to potential partnerships, new customers, new products would go a long way to support the stock. In Maxx’s post (referenced by Saul in his original post), he mentioned

In fact, the company is already in talks with potential feedstock partners that represent an annual renewable oil capacity of over 1 million MT, which represents an estimated $2 billion in annual revenue.

Coupled with SYZM’s secondary offering not too long ago, it is not crazy to think that SYZM might be working on further capacity expansion.

SZYM is a long-term hold. I am interested in seeing concrete progress/improvement in its business.

Regards.
-M

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Hi Saul,

Thanks for the musings. My thoughts are exactly the same for the 3 stocks you mentioned except I have an additional worry about AFOP. I sold when it was decently price (19) and put some money in the bank. When I read about them, what concerned me was they looked more like a Chinese company with very

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Hi Saul,

Thanks for the musings. My thoughts are exactly the same for the 3 stocks you mentioned except I have an additional worry about AFOP. I sold when it was decently price (19) and put some money in the bank. When I read about them, what concerned me was they looked more like a Chinese company with a very short tether. That isn’t by itself a problem except it made me think they were not in the game as we might expect but, due to the heavy Chinese influence and different ways of doing things (read different culture), they appeared to be an extension of the 2 manufacturers, who are also 2 of their largest customers.

This led me to surmise that if anything happened to those special relationships, this company would vaporize and so I termed it a short term investment. I worry about things like the home company saying; “OK, now you will give us a bigger cut of your profits since we are facing stiffer competition here.” This is all fantasy conjured up by an overactive imagination but that’s what welled up after reading about the company in more detail than I usually do.

Please disavow me of those concerns since I do believe my take could be pure paranoia or brilliant intuition. You are the voice of steady reason.

Since I can’t defend my feelings on AFOP I am not trying to dissuade anyone else from buying it or selling it. And like you say all the time, “I may be wrong”. I’m just looking to see if that particular component bothers anyone else.
Mykie

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a 2.8% position in PFIE. I think these allocations may be a little low and my allocation to CALL a bit high given the risks and the upside. I’m happy with the levels of all my other allocations. Seems like I’m starting to talk myself into cutting or reducing CALL…

Hi Gaucho,

I’m waiting until September (or thereabouts) on CALL. If they haven’t got their sushi together by then, I’ll move on. What sushi do they need? I want to see a reduction in churn, a super increase in app subscribers and monetization of the app subscribers beginning to bloom.

On the other hand, I have a stock like TCS which I bought in the rush of wanting to adopt all TMF recommendations and before I began running my own game, that IMHO is definitely and indubitably down for the count for several years. That and COH which I just got assigned early on an August put (*#@!!). I’m presently wrestling with selling those now at nice big losses and using that money to buy more PFIE, CELG and SYNA.

I’m going to give CALL a bit more time and, at least in September, I would expect the price to be higher than here so better selling into strength.
Mykie

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Wow, what happened to the balance of my AFOP post? That post was 4 times as long.

Sorry, just ignore it. I sold AFOP back when it was $19 for several vague reasons that added up to anxiety re: the total picture. They look IMHO like a lackey of 2 suppliers/customers (plus FoxCom owns 17%) they have in Taiwan (I think or maybe 1 in China and 1 in Taiwan, but in 2013 those 2 bought 35.3% and 10% of all products).

I hope I am being paranoid and not intuitively brilliant but when I saw the concentrated list of customers and they were both over “there”, I got nervous. Over “there” is where the cheap stuff is so how does this figure, ship it over here then sell it back over there?

In that lengthy post, I asked Saul to disabuse me of that notion since I really didn’t understand their business with money and products flowing back and forth rapidly. Give me some stability, guys!
Mykie

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Wow, what happened to the balance of my AFOP post? That post was 4 times as long.

Ok, now you have several of my posts to ignore.

I guess, in a way, this is a good thing as it makes up for the unusually low traffic on this site most recently. I figured if I post a partial comment, then a full comment then a rebuttal of my partial comment with another full comment (but not as long) then I have done the board a service.

So don’t judge me on the quality of my posts today, but rather, on the quantity. :slight_smile:
Sorry
Mykie

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Thanks Mykie for doing the research. I’ll have to read more about AFOP but I haven’t heard that particular worry mentioned in any of the conference calls by any analysts.

Saul

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On the other hand, I have a stock like TCS which I bought in the rush of wanting to adopt all TMF recommendations and before I began running my own game, that IMHO is definitely and indubitably down for the count for several years. That and COH which I just got assigned early on an August put (*#@!!). I’m presently wrestling with selling those now at nice big losses and using that money to buy more…

Mykie, Just a bit of advice. In making a decision to sell, it doesn’t matter now what price you bought it at. What matters is what you think it will do from here. If you think it’s down for the count for several years, don’t focus on what you paid for it. (You can’t make it go back in time to where you bought it.) I’d suggest you put the money into something better.

Best,

Saul

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Mykie, Are you saying that their two big customers are also stockholders, or are you just worried because they are so concentrated (45%) on two Chinese customers? You mentioned that FoxCom is a stockholder. Are they also a customer?

Best,

Saul

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Saul,

R u buying more UBNT and SYNA at these prices?

R

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Rizz, those are my two biggest positions and they are too big to add significant additional amounts, but I did add a tiny bit of SYNA to a small account near the end of last week, in spite of my very large position.

Saul

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Mykie, Just a bit of advice. In making a decision to sell, it doesn’t matter now what price you bought it at.

Thanks Saul,

That’s exactly what I have been wrestling with and your logic is spot on. To put my problem in investor parlance, I was anchored on my buy in price.

I’ll remember that. I’m motivated to push through one of the biggest barriers I have.

I’m thinking CELG at today’s price or LBTYK (doubling my position there) or CMG which is down 8 points today and which I have none of (this is anchoring on the high PE…another battle to be fought later.

Gracias you are most generous and most helpful,
Mykie

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Mykie, Are you saying that their two big customers are also stockholders, or are you just worried because they are so concentrated (45%) on two Chinese customers? You mentioned that FoxCom is a stockholder. Are they also a customer?

OK, for sure I am worried about their two biggest customers being so concentrated. But I have to go back and read the Annual Report again as my notes are sloppy at best and my short term memory is almost non existent. I thought those two customers were also suppliers or there was some other relationship that didn’t jive with me.

I do remember that FoxComm is their largest investor.

What I will do this weekend is go back to the annual report which I labored through (really, it took me hours to slog through it) and check for the specific news that made me very nervous. I read it, felt nervous, went and sold the stock which duly went down so sort of confirm my concerns in a nebulous way. (I know the pricing is to be disregarded so I suppose that was just a coincidence.)

Since I made a nice profit on it, I wasn’t too worried about the details, but now I’m thinking of buying back in at $16 so I had better check my original premise. Long way of saying stay tuned until my next AFOP post.
Thanks,
Mykie

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Rizz, those are my two biggest positions and they are too big to add significant additional amounts, but I did add a tiny bit of SYNA to a small account near the end of last week, in spite of my very large position.

Saul and Rizz,

Seems there’s a rumor they lost a big account but this analyst thinks they will still increase their numbers…I’m thinking it’s a buying opportunity, (like Saul) before the street realizes it has only slowed them down temporarily.
FYI
M
PS I believe I will double down at this price though maybe half at a time to make sure it has stopped dropping. (I screw around with technical readings sometime and according to that particular crystal ball, it has further to fall…maybe below $80 and what a buy it would be then!)