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Michael Bryant
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Investor. Mission: Help people make money. Degree: Chemistry from NC State University. Featured author of Momentum Options Weekly Wrap (http://momentumoptionstrading.com/ ) Follow me on Motley Fool Caps at http://caps.fool.com/player/modestus1.aspx . For short-term ideas about big movers, follow... More
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  • Fast Money

    The odds of finding a stock that yields 9700% in a few years is very slim.  But it is possible.  Kingold (NASDAQ:KGJI) was up 9,200% this year.  Some other thousand percent gainers include China Agritech (OTCPK:CAGC), up over 2000% is two years; RINO International (OTC:RINO), up over 1000% in two years; and  Dollar Thift Automotive (NYSE:DTG), up over 1000% in one year. 

     

    How do you find these winners?  All of these companies were small and had great growth potential, regardless of fraud charges on CAGC and RINO.  (None of these charges have been proven.  And three of the four companies, Kingold, CAGC, and RINO, were transferring from being listed on either the Pink Sheets or the OTC (Over-the-Counter exchange) to a major exchange (AMEX, NASDAQ, or NYSE).  So, find a small company with a good track record, growth story, and a catalyst like being promoted to a major exchange or getting institutional buying.

     

    Dollar Thrift was left for the dead among the auto industry at the peak of the credit crisis.  Shares were cheap, allowing investors who believed the auto industry will return to snap up shares.  Later it became in the middle of a bidding war between Hertz and Avis.

     

    Another way to make large gains is to time the market and make speculative trades.  This is far riskier than the above strategy.  What happens when you make the wrong trade?  You can loose your shirt.  So just don’t make the wrong trade.  Easier said than done.

     

    Plus, there are accumulated transaction costs.  Using an excel sheet, it takes one to make 30% moves 35 times to equal a 9700% return.  That is 70 trades, buy and sell.  Assuming you pay $4 per trade, that is $280.  Using an E-Trade account which charges $15 per trade, that is $1,050.  If you pay $80 per trade (which some banks charge), that is a whopping $5,600 in transaction costs.  So keep transaction costs into mind when trading frequently, and always try to make more money than what is taken away by transaction costs.  To quote Warren Buffet, “Rule #1:  Never loose money.  Rule #2:  Never forget rule #1.”  The thing, it may look like loosing a few bucks here and there, but it can add up fast.

     

    Okay, the easiest way is to gain a quick 30-40% is to identify a takeover battle.  This is easier than identifying a takeover candidate.  3Par was in a long takeover battle between Hewitt Packard (NYSE:HPQ) and Dell (NASDAQ:DELL).  HPQ, being the larger and more profitable company, won.  But Dell was dying and was desperate for the company so they wouldn’t let go soon.  HPQ wanted the company to retain its competitive edge and open new areas of growth.  This is a classic “big guy vs. little guy” battle.  And the “big guy” won.  Meanwhile, 3Par gained an extra 40% during the battle.  However, Potash (NYSE:POT) was also in a takeover battle, but there was no sale.  This could have been predicted by studying Canadian law, which tends to dismiss anything which might hurt Canadian jobs or hurt the country as a whole.  I made that mistake, thinking the POT could go higher seekingalpha.com/author/michael-bryant/i... .  That is the only real risk involved when doing this.

     

    So the flip side would be to identify a takeover target.  Takeover targets usually are small companies, but some can be large companies.  A suitor doesn’t buy a company unless there is something it wants.  CF Industries (NYSE:CF) bid for Terra Industries was ideal, not just because CF was trying to fend off a bid from Agrium (NYSE:AGU), but both companies made nitrogen for fertilizers.  Many small biotecs with a successful product are snatched up by major pharmaceuticals that need them to grow.

     

    Another way is to do Telsa Rowe’s strategy of predicting FDA approvals.  That is not that easy to do this, as the FDA has been very stingy this year.  It takes a lot of research, guts, and risk, but can be done.  One idea, if you assume all the drug approvals will be rejected, you can probably win more than you loose, assuming that the FDA won’t change their stingy habit.  But when doing this, it is least risky to buy just before the FDA decision and sell after the decision.

     

    Take JAZZ Phamacuiticals (NASDAQ:JAZZ).  Telsa probably knew the drug wouldn’t be approved long before the FDA meeting.  After all, it’s main chemical a well-known date rape drug.  However, the sentiment was up, and the stock was likely to continue climbing up till the meeting.  The FDA ditched the drug and the stock plummeted by 28% the very next day.

     

    But where he failed was that JAZZ was already making money without their new drug.  Plus, the possibility that the drug may still have hope caused the price to rise, not continue dropping as he predicted.  May JAZZ fall in the future, I don’t know.  What I can say, unless you are positive that it will fall, take profits if you made any.  Good economic numbers that have recently come out could work against you.  And there was the Presidential Cycle.

     

    Third thing that drives a stock price up over a very short time is earnings reports.  The gains can range from 5%-60% in a few days with a positive earnings report.  This is probably the most fun, because there are thousands of earning reports to play with each quarter.  And there is somewhat less risk than identifying takeover targets, because you know exactly which company is reporting.  The risk is that there are many variables to make a positive report.  Plus, the forecast tends to have priority over the earnings report, so if the company issues a negative forecast, the stock will go down.  This happened to Apple (NASDAQ:AAPL) in 2006-2008, which was known to give a very conservative forecast.  But after a few days, the stock kept rising again, due to high expectations for next quarter.

     

    Looking at a company’s earning trend can help you predict if it will outperform.  From my earlier article seekingalpha.com/article/235514-pricelin... , I correctly predicted that Priceline (NASDAQ:PCLN) would beat on earnings.  However, I mistakenly thought it would have hard time meeting revenue.  But if I look back at the chart, which I provided again below, you can see that the revenue gap increased between the 2nd and 3rd quarters each year.  (Chart from MSN Money)

     

    With this information, it could have been noted that the company will beat revenues $973.63 million.  My recalculation gives a revenue of $984.8 million, assuming the growth rate of revenue stays the same, as explained below.

    Growth from 1st to 2nd quarters:
    FY (12/08):  514.0 - 403.2 = 110.8
    FY (12/09):  603.7 - 462.1 = 141.6
    FY (12/10):  767.6 - 584.4 = 183.2

    Growth from 2nd to 3rd quarters:

    FY (12/08):  561.6 - 514.0 = 47.6
    FY (12/09):  730.7 - 603.7 = 127.0

    Growth year over year based on growth from 1st to 2nd quarters:

    FY (12/09):  141.6 - 110.8 = 30.8
    FY (12/10):  183.2 - 141.6 = 41.6

    Growth year over year based on growth from 2nd to 3rd quarters:

    FY (12/09):  127.0 - 47.6 = 79.4

    Assuming the rate for year over year of that from 1st to 2nd quarter is the same for the 3rd quarter, growth for the 3rd quarter (12/10) should be 10.8 + 79.4 + 127.0.  (41.6 - 30.8 = 10.8)  That equals a growth of 217.2.  Then going back to the actual earnings (from chart) for the 2nd quarter of (12/10), 3rd quarter earnings would be 767.7 + 217.2 = 984.8.

    Last is IPO’s.  Interestingly, a portfolio of the largest IPO’s is up 38% year to date.  Anyway, many IPO’s this year jump the first day, falls, then continues upward.  This happened to Tesla Motors (NASDAQ:TSLA) as shown in the graph below.  Graph provided by Yahoo Finance.

     

    Watch GM’s IPO this week.

     

    Some upcoming FDA decisions: http://www.fdacal.com/

     

    Some upcoming earnings (full list http://www.briefing.com/GeneralContent/Investor/Active/ArticlePopup/PagePopup.aspx?PageId=3273 ):

    Monday:  Lowe’s (NYSE:LOW), RINO International (OTC:RINO), and Nordstorm (NYSE:JWN)

    Tuesday:  Jacobs Engineering (NYSE:JEC), Home Depot (NYSE:HD), Saks (NYSE:SKS), and Wal-Mart (NYSE:WMT)

    Wednesday:  Netapp (NASDAQ:NTAP), BJ’s Wholesale (NYSE:BJ), Limited Brands (LTD), and Target (NYSE:TGT)

    Thursday:  Dollar Tree Stores (NASDAQ:DLTR), Ross Stores (NASDAQ:ROST), Sears Holdings (NASDAQ:SHLD), and Salesforce (NYSE:CRM)

    Friday:  AnnTalyor (NYSE:ANN)




    Disclosure: None
    Tags: KGJI, CAGC, TSLA, CF, JAZZ
    Nov 14 3:03 AM | Link | Comment!
  • Potash, a Quick Winner

    And the bidding war is likely to continue for Potash (NYSE:POT) if China bids for the company.  BHP Billiton (NYSE:BHP), the world’s largest miner, is not likely to back down without a fight.  China won’t, either.  It is noted that BHP could pay as much as $200 per share for POT, a 26% increase from today’s value of $148.  China may be able to win this war with the government on their side. 

     

    The only thing stopping China is politics.  Security issues prevented China Offshore (NYSE:CEO) from buying U.S. oil company Unicol.  Potash is a large company, the #1 potash producer in the world, and key to the security of the Canadian people.  Already, the government of Saskatchewan strongly opposes a deal with BHP.  I highly doubt they will accept a buyout from China.

     

    If any bid is placed for POT, the shares will jump.  I expect bids from both sides.  But be aware that there is limited upside.  If you can grab a quick 20% profit, by all means do it.  Good luck trading. 




    Disclosure: POT
    Tags: POT, BHP
    Sep 04 11:36 PM | Link | Comment!
  • Two Companies With Big Possible Gain

    As the bidding war continues for Potash (NYSE:POT) and 3Par (Par), each company is posed to jump if a new bid is made. 

     

    Dell is battling Hewitt Packard for 3Par, a database storage company.  Last week, Dell offered to buy 3Par for $1.3 billion.  A few days later, HPQ outbid Dell with a $1.6 billion offer.  Now, it is rumored that Dell is preparing a counterbid.  On each bid, 3Par’s stock rose about 40%.  Based of that, I predict 3Par will rise some 30-40% on a new bid.  Further, HPQ may not back down and propose a new bid.  However, with 3Pars market value of $1.59 billion and enterprise value of $1.53 billion, it is unlikely that they will bid more than $2 billion.

     

    BHP continues to try to buy Potash.  It is rumored that BHP could bid as high as $200.  At Potash’s current price of $150, that would be a 33% gain.  Plus, other bidders had entered the bidding war.  Brazil’s VALE has been suspected to place a counterbid for Potash.  With a market cap of $44 billion and an enterprise value of $47 billion, Potash can expect as high a bid as $60 billion, which would be about $200.  Potash may even ask for it’s all-time high of $250.



    Both companies poses big potential profits if one is able to get in on time.  However, there is always the risk that the bidders could back down.  But based on the similarities in the two companies market value and enterprise value, they seem fairly priced.


    All news, market values, and enterprise values are from Yahoo Finance.


    Disclosure: POT, PAR
    Tags: POT, PAR
    Aug 25 12:20 AM | Link | 1 Comment
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