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  • Clearfield: Unloved Beauty 8 comments
    Jan 6, 2013 1:38 PM | about stocks: CLFD

    Everyone knows that actions speak louder than words. At insider-alerts.com we watch those actions daily (with the assistance of a custom developed system) and interpret them to give us an advantage in finding companies to invest in, or stay away from. When the insiders paint a picture that shows the market is missing something important, we act on it. We fully reject the Efficient Market Hypothesis. We've found frequently enough, even after an insider makes a telling purchase or sale that there is pricing inefficiency in the markets. We act to capitalize on those situations.

    Clearfield caught our attention last year, we bought shares at what we believed was a bargain price. Recently, we increased our holdings significantly during the year end tax selling period as many investors wanted to unload before potential changes in the tax code were scheduled to take effect.

    Our belief is that the market is ignoring the company, and simply sees it as dead money. We see a company that has turned itself around, is on a growth path, has strong fundamentals, continued insider purchasing, and represents an extremely solid investment. When investing in the technology sector, there's always an added level of risk. However, with Clearfield we believe that it is a safe, measured, conservative story.

    I won't go into all the business aspects of Clearfield and what the company does. A previous SA article by C. R. Tarbert provides a wonderful detailed discussion - so there's no reason to rehash it. I want to jump to the insider purchasing and review of the current fundamentals which leads to our bullishness.

    We were alerted to Clearfield (CLFD) last year through multiple purchases by Ronald Roth, Chairman of the Board. If you take a moment and review the history of Roth's purchases over the years, it's very obvious he regularly purchases shares quarterly at the same times every year. So, by itself, the purchases by Roth don't present any important new information.

    At the time of Roth's latest purchase in mid-November, Director Charles Hayssen purchased a total of 26,288 shares between $4.10 and $4.40. This purchase is of particular importance because the last time Hayssen had a transaction was when he bought shares in August 2009 with the stock at $2.40. With the latest purchases less than 10% from the $3.90 52-week low and well off the $7.33 52-week high, coupled with the 2 year lag from the prior purchase, Hayssen's purchases further attracted our attention.

    Having the insider purchases which led us to Clearfield, we then turned to a review of the fundamentals. The reader should take a few minutes and review the income statements and balance sheets for Clearfield for the past few years.

    Looking at the financials, we see dramatic growth having begun in 2010. Top line and bottom line growth is very good. On the balance sheet, we see absolutely no debt, about $1.15 per share in cash, increasing shareholder equity with book value at $2.70/share, a current ratio approaching 8, and a PE of 8. For a technology company in Clearfield's segment, this is all extremely good.

    It is worth noting that a modest amount of income over the past two years is a result of income tax credits. However, even backing out those credits, we see income growth of more than three times from 2010 through 2012.

    With the last earnings announcement, CEO Cheryl Beranek gave upbeat remarks regarding the 2012 fiscal year performance as well as an optimistic view of the business going forward.

    Clearfield has about 13 million shares outstanding with average daily trading volume of only about 13,000 shares. As a result, being thinly traded, the bid/ask spread can be large at times. Anyone who considers purchasing or selling the stock should do themselves a favor, and before trading, review how the stock trades on a day to day basis, always place a limit order, and even go so far as considering buying/selling in small batches and/or utilizing All or None (AON) on your orders.


    In general, we believe in never buying your entire position all at one time. Buy a half, a third, or a quarter of what you really ultimately want. If the price goes lower and the investment thesis still holds, then buy more. In most cases, based on what we look at when deciding on an investment, the probability is that we aren't catching the stock at the absolute bottom where it's immediately going to take off after we buy. That being the case, we've learned to never take a full position with the initial purchase. No matter how low the price, it can always go lower. So, instead of possibly being unhappy about a losing position right after purchasing, it becomes an opportunity for continued close monitoring and getting in to your desired position at a lower cost.


    Insider-Alerts does not make any buy or sell recommendations with respect to the stock or companies we write about. The reader accepts full liability and responsibility for acting on information we provide and any losses which may result.

    Insider-Alerts does not receive any compensation whatsoever for the articles we write and research we publish. We have no relationship of any kind with either the companies we report on, or the forum which we provide our research.

    Insider-Alerts may hold positions in the securities of the companies we write about, and if so, that position is disclosed.

    Insider-Alerts provides a free daily report of the top insider trades and is available via the Subscribe link on our homepage at insider-alerts.com

    Disclosure: I am long CLFD.

    Themes: Insider Ownership, Long Ideas Stocks: CLFD
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Comments (8)
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  • Thank you for your holistic approach. As an apprentice,
    I learned much from your expose, particularly that a
    higher return can be gained with more pro-activity ,
    patience, and discipline in a time-frame, projected
    by the activities (or non-activities) of the stakeholders.
    8 Jan 2013, 03:02 PM Reply Like
  • Author’s reply » Thanks for the feedback.

     

    You've summed up exactly what we do.
    8 Jan 2013, 04:28 PM Reply Like
  • Hayssen recently bought more and I expect Roth will buy again before month's end as he typically does. I think they will post strong year over year growth this quarter. Future looks bright.
    8 Feb 2013, 11:14 PM Reply Like
  • Author’s reply » Thanks C.R., we picked up on the recent Hayssen purchases as well.

     

    Your article was really excellent. We believe Clearfield will do well also. As far as the stock, it's just a matter of if/when the company/shares will attract more attention.
    9 Feb 2013, 05:53 AM Reply Like
  • Clearfield: Unloved Beauty ~ i should say this stock has turned into a well loved treasure ~ une belle chérie ~ thanks for the article ~
    28 Jul 2013, 05:55 AM Reply Like
  • Author’s reply » Thanks clarke.

     

    With the current pullback, the market is giving another opportunity to acquire shares. As you know, the company just posted very strong results for the last quarter with a rapidly growing backlog as customers are showing very good acceptance of their products. Even so, the shares have sold off about 25% from their recent highs.

     

    Just yesterday there were new insider purchases by Roth and Hayssen as well as options exercised by Beranek and Hill. Considering the prices at which Roth and Hayssen have been acquiring shares over the past year or so, the continued purchasing is a very strong/important indicator. Also, the shares acquired through the option exercises were not sold, but are being held - again, in our view these are very strong/bullish indicators.

     

    We believe shares will continue higher and any purchase price below $11 is a very good entry point at this time.
    1 Aug 2013, 07:06 AM Reply Like
  • While Roth and Hayssen's purchase were great - Cheri's vest without selling speaks volumes. Obviously she thinks stock is going much higher.
    1 Aug 2013, 03:11 PM Reply Like
  • Author’s reply » Last week Hayssen purchased another 10,000 shares, half at $16.50 and half at $16.60.

     

    As bullish as we've been on CLFD this entire year, folks who have monster gains at this time might consider selling a portion of their holdings. We were purchasing shares in the $4 and $5 area late last year and early this year, and could never forgive ourselves if we let it all ride at this time and the shares headed lower. As much as I stay away from timing the market, as I see the continual articles and stories about how the markets will go much higher, Average Joe is just getting back in, markets pushing to new highs almost daily, etc. the contrarian in me is saying to lock in some of those monster gains.

     

    CLFD shares are at levels not seen in over a decade, and making new highs almost weekly. The shares are up 50% since our last posts here three months ago. The only time in history when the shares were higher was during the first internet bubble back in 2000 and that run only lasted a few months.

     

    Investors should take a step back, look at things objectively, and reassess their CLFD holdings at this time. I'm not trying to convince anyone to sell, only that they review their holdings, as any good investor should do periodically.
    18 Nov 2013, 08:27 AM Reply Like
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