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Weekly Outlook, 12-4

|Includes:CTRP, DIA, First Solar, Inc. (FSLR), GMXRQ, MFA, MRK, SPY, SYK

 This week was very bullish, but not surprising. My bullishness remains undaunted. The stochastics, VIX, and volume indicate that the breakout should be coming. Before that, however, a few days of consolidation will be necessary at the beginning of next week. I’ll be looking for a breakout in the S&P 500 [above 1230] and volatility index [below 18] later next week.
In the reading I have been doing lately, the author provides three reasons to sell a stock:
1. A better opportunity is available. This is not usually a good reason.
2. An error was made in the initial analysis.
3. The company no longer qualifies under your investment philosophy.
MFA fell into the second category. I got tricked with an accounting gimmick when I bought it. How a company that is leveraged practically 4-to-1 has a Debt-to-Equity ratio of 0 is beyond me. This realization coincided with a technical top, so I sold yesterday for an 11% gain.
CTRP is moving more slowly than I had hoped, but I’m being patient with it. With an average 5-year Price-to-earnings ratio of 50, and the current ratio around 33, I’m looking for a good pop. After a painful drop into negative territory on this trade, the price started to rebound later in the week.
GMXR is another company I’m looking to unload once the price is right. This “right price” could be anywhere from 5.75 to 10 or 15. It’s another company that, upon further analysis, is a bad investment. It is a natural gas driller based in east Texas. When the rush to the Haynesville shale in Pennsylvania began, GMXR used its sound financial footing to expand into the new arena. Now it’s leveraged 2.5:1. This investment has been huge, and it has resulted in collapsing margins and profit for the company, and thus a collapsing stock price. The market has yet to realize, however, that these investments are well made. This is a necessary expansion for the company, and it has made the investments strategically. Long-term leases and owned infrastructure will help the company for years to come, and they’ve inflated the book value to 1.5 the share price. Despite these potential strengths, the company faces enormous hurdles to profitability. High debt, low gas prices, no competitive advantage besides owning good property for the foreseeable future, and mediocre management are just some of the problems.
The technicals, however, scream for a pop in the meantime in spite of these weaknesses. In short, this has turned into a technical play, not a fundamental one. I’m looking to sell.
Selling MFA [last week] and GMXR [in the coming weeks] will leave me with a lot cash with which I’m looking into First Solar [FSLR], Merck [MRK], and Stryker [SYK], which I will write about if and when I invest in them.

Disclosure: Long CTRP, GMXR