Still Bullish on Graham Corporation

In spite of Friday's miserable trading environment, my shares in Graham (GHM) enjoyed a nice move higher, closing at $101.97, up $12.97/share or 14.57% on the day.

I acquired my original 105 shares of Graham (GHM) 5/30/08 (just two months ago) at a cost basis of $64.48/share.  Two weeks ago, I sold 15 shares of Graham (1/7th of my holding) at $85.46, representing a gain of $20.98/share or 32.5% since purchase.

The 30% appreciation level is, as you may know, my first 'targeted' appreciation level at which time I sell 1/7th of my holding and use this as a "signal" to be buying a new position.  The next appreciation target is at a 60% appreciation level.

On Friday, after announcing first quarter 2009 results with sales climbing 38.3% to $27.6 million from $20.0 million in the year-earlier same period, and net income up over 100% to $5.7 million or $1.11/diluted share compared to earnings of $2.7 million or $0.53/diluted share the year earlier, the stock literally exploded on the upside.  And that is in the midst of a nasty market environment.

With the stock climbing to the 60% appreciation level, I sold 1/7th of my now 90 share position, which when 'rounded down' worked out to just 12 shares, at $104.45.  With my cost basis of $64.48, this represented a gain of $39.97/share or 62.0% since purchase.  Even though I personally have sold shares today on what I call 'good news,'  I am still bullish on this company and GRAHAM (GHM) IS RATED A BUY.

When would I sell shares next?

Going along with my system of selling small portions at targeted appreciation levels, my next sale point would be at a 90% appreciation level from my original purchase price which would work out to 1.90 x $64.48 = $122.51.  On the downside, having sold a portion of Graham (GHM) twice, both at the 30 and 60% appreciation levels, my sale would be at 1/2 of the highest appreciation percentage or at a 30% gain.  (NOT at 1/2 of the highest appreciation PRICE, you can see the difference).  This would work out to 1.3 x $64.48 = $83.82.

There is on other thing I would like to mention. My 'portfolio management system' generates buy and hold signals upon the sale of my own holdings.  In other words, when I generate a sale on 'good news' like this Graham transaction, I generate a 'permission slip' to be adding a new position.  When I generate sales on declines, I simply am required to 'sit on my hands' unless I am at the minimum, which for me is five positions.

Since I was at six positions, not at the maximum (20), this sale on good news generated a 'buy signal' and that nickel started burning a hole in my pocket immediately.  I did find a stock to buy, but THAT is a discussion for another blog entry entirely!

Disclosure:  The author owns GHM.

Comments

[the details:]

Sorry, I can't learn a thing from your article. You do not even mention what is Graham doing, in which sector, why is it so successful and why would it see such a bright future in a downturn economy. I am much more interested to know how did you pick your long position in Graham two months ago.

2008 Aug 13 05:24 PM

[Questionabl...:]

Robert, it's now over a month later, and what is your current position on GHM? I did follow your advice , did some DD, decided it was a good investment, & bought at $100. And then the bottom fell out....Are you still long? If not, when & why on your decision making process?

2008 Sep 17 01:38 PM

[opie:]

yeah, jump on in when the stock had already tripled in under a year. exactly what did your dd consist of? considering the scale of the move why no analyist coverage? why no forward guidance? why the huge selling spree by insiders as the stock went north of $70? i'm glad you're not managing my $.

this company has issues, well beyond what i've already listed.

2008 Sep 23 04:33 PM

[Robert Free...:]

If you followed my other articles you will see that I sold my own GHM when it declined along with the plunging oil market. I view that as a 'fundamental' problem. Unfortunately, stocks that are associated with the oil industry are trading lower without any fundamental problems beyond the price of a barrel of oil. That is no small matter for stocks like this. In general, I stick with my own 8% loss limit after an initial purchase regardless of how much I like a stock. I have adopted this strategy from the CANSLIM approach.

Please read my September 3, 2008 post on Seeking Alpha....I sold my own shares at $87.02 shortly before the post was picked up. You can also read my own blog directly.

User268062---I don't manage anyone's money. I am an amateur investor and enjoy sharing some of my own observations with all of you.

2008 Sep 27 08:20 AM

[Robert Free...:]

Excuse me that was "Opie" not user I meant to respond to.

2008 Sep 27 08:21 AM