It’s been a good first few months for the recommendations I have posted, but the entire market has been in a sharp rally mode. Sometimes it's better to be lucky than good. A brief update on each of the long positions I have outlined is as follows:
- Opnext Inc. (OPXT): Up 24% since 2/4/10
A big part of this gain has come in the past couple of trading days, seemingly in reaction to news about a successful test of their technology, coupled with a similar announcement by Cisco (CSCO). (I believe these were two different tests, but the timing of the announcements on the same day was puzzling.) Volume has been very large on the increase, leading me to believe that people are looking at this as a derivative play on Cisco’s new products. All good news, but I haven’t seen anything about how soon this translates into sales/profits, so I’d look for an exit around $3 when the gap to fair value is closer to the 25%.
- Gymboree (GYMB): Up 15% since 1/31/10
Earnings come out today after the bell. Market sentiment has improved towards this company, and their incremental earnings guidance seems to have meet expectations. Nothing yet changes my calculation of long-term intrinsic value of $60 or higher based on their strong balance sheet, high return on capital and reasonable growth (especially at the lower-price points). I’m still long unless something changes, and looking for an exit somewhere in the $55 range when the gap to fair value is closer to 10%-15%.
- FreightCar America (RAIL): Up 24% since 1/25/10
Current operating results are still dismal, but the company did report new orders (after a quarter with literally zero orders previously) and the pending sale of some of the cars held on their balance sheet. The management change seems to have been a positive move, and the CEO recently purchased shares in the market as a show of confidence.
I’m speculating that the momentum is from buyers looking for an early way to play the commodity/coal cycle with a company that will be showing sharp earnings increases going forward. My valuation methodology on this was very long-term, so hard to see anything short-term changing my outlook. I’ll be looking for an exit somewhere in the $27-$28 range when the gap to fair value is closer to the 10%-15%.
Disclosure: Author long OPXT, GYMB and RAIL