Monday, September 29, 2014

Cantel Medical fiscal Q4 results

This morning Cantel Medical (CMN) reported fiscal q4 results (quarter ended July 31). Revenue set a record and EPS was good if you account for acquisition related charges. I was going to write an article for Seeking Alpha, but last night and this morning my older (6.5 years) computer started acting up. So I am spending the day changing over to an AMD A10 based computer I built that runs Windows 8.1. Also, I have been running software even more ancient than my computer, and I have to do major upgrades. Those come over my slow rural Internet connection. So ... best get on with it.

See my notes on the Cantel Medical Q4 2014 analyst conference

Friday, September 26, 2014

Bought Opexa, Merrimack

This is just to note that I added to my Opexa Therapeutics (OPXA) position yesterday because the stock price plunged after it withdrew an attempt to raise cash by selling shares. Clearly Opexa is a long way from FDA approval, but my guess is that cash will be found, so if clinical results remain positive some day, years from now, I'll wish I had bought more at this price. On the other hand it still represents far less than 1% of my portfolio, which is appropriate for such a risky stock.

I was researching Seattle Genetics (SGEN) and Merrimack Pharmaceuticals (MACK) to add to my coverage at and to write about for Seeking Alpha. Look for articles, maybe, next week. I went ahead and bought a small position in MACK. Wish I had bought it a year ago! Since SGEN seems to have prices in a lot of pipeline success, I'll probably just add it to my watch list for now.

I'm a bit cash constrained. If Gilead (GILD) continues to rise I will at some point sell some to generate cash to diversify into smaller biotechnology stocks. Or maybe I'll buy myself a box of cigars and pretend that I am finally a Capitalist instead of a Worker.

I like Cyclacel (CYCC), and think it is vastly undervalued, but few people agree with me. Yet.

Wednesday, September 24, 2014

Sources of Randomness in Stock Prices

When we follow an individual stock, or a stock market average like the Dow or Nasdaq 100, most of the time most of what we see is random movements. At one extreme the entire market can be seen as random, as espoused in A Random Walk Down Wall Street and elsewhere.

As an approximation that might be true, and so it may not be a bad suggestion that anyone who wants to participate in stocks, but does not want to be hassled by doing their own research and analysis, should just invest in index funds.

Of course we know the real world of corporate profits is not just random. Apple's stock rise is not just the result of randomness, nor is Blackberry's fall. You can make a fortune investing in the right companies when they are small and (hopefully) watching them grow.

Here I want to take a preliminary, non-scientific, look at some of the causes of "random" stock movements caused by buying and selling that are not driven by the anticipation or demonstration of increased or decreased earnings.

I began thinking about this back in the 1980's, when I was starting my own business while still working as a paralegal. I worked in a probate office, and this is what happened on an almost daily basis: stocks were sold. The stocks had typically been accumulated during a lifetime, then the owner had died, and then the estate was tied up in probate for a while. The "kids" -- often they were in their 60s -- had been waiting to inherit most of their lives. The moment it was legally possible the stocks were sold, converted to cash to be distributed.

It was rare to see anyone say, "hey, I'll sell all the stocks but Apple". Or "wait another month, the market is down today, we'll get more money if we wait a month." In fact that never happened that I recall.

So did your stock from $2 a share in an hour today? It could be bad news is circulating you have not heard about; it could be someone manipulating the price; or it could be that Wasp Savemoney, deceased, had a chunk of the company and it was dumped all at once.

Two seasonal times of selling stand out. College funds are also saved over a decade or more, only to be dissolved rather quickly starting with the first Freshman year tuition payment. When taxes are due, leading up to mid-April, so selling or failing to buy will be due to that.

When a house is bought, it may require cashing out stock to make the down. That, again, is timed to the escrow, not the ideal timing for maximizing stock value.

The financial news often accounts for stock market movements with bland terms like "profit taking." If selling is profit taking, is buying profit giving away?

A big factor in selling is portfolio limits. Wise investors do not allow themselves to become too concentrated in any particular stock. This is particularly true of professionally managed money. In my personal portfolio I am not supposed to have more than 10% in any one stock. In a large pension fund or mutual fund the percent might be 5% or even 2%.

So if a stock goes up enough, portfolio rules force managers to do some selling. They might think that the stock will continue to go up; they might have some power to make limited exemptions. But they are certainly not going to buy more of the stock, and at some point they must sell. For the manager this is not random, it is causal, but it appears random to the rest of the market.

If, like me, you manage your own investment portfolio, you want to know what is really going on. Mostly this is at the company level. You want to know factors contributing to next quarter's or next year's or next decade's profits.

But it is oh so much easier to while away the hours watching prices move. Perhaps even trying to outguess the other guessers.

Just keep in mind that people die on a daily basis, and some of them have substantial portfolios, and those almost always get sold and converted to cash. A bad flu sweeping through the more elegant nursing homes in December can cause the market to sink one day the following year.

To see a list of stocks I write about go here: William Meyers stock reports

To pick a stock randomly try my Random Stock Picker

Friday, September 19, 2014

Dot Hill Inflection Point Coming?

My newest Seeking Alpha article:

Dot Hill Nears Inflection Point

I have been invested in Dot Hill since 2004; the company has had some major ups and downs in that time. My first buy was at $7.18, and yesterday HILL closed at $3.84 and is down so far today. So you might think it has been one of my worst investments (if you don't follow me, I am known for being an early advocate for the Gilead, Celgene, Biogen triad that has been so successful since 2008).

In fact HILL has been one of my best investments. While my basic strategy is long term, buy and hold, I do sell stocks, or portions of my positions in them, when I think the market has become over-enthusiastic. And I  try to accumulate when the market is overly pessimistic. And I pay close attention: you can view a decade of my Dot Hill notes if you want.

Dot Hill is now, as a % of my investment, the third largest stock in my portfolio (after GILD and CELG). This is not just a bet on the future, it is a result of investing in HILL in the past, typically at $2 to $3 per share, but for instance I bought shares on 6/11/2012 at $1.13 per share. Others must have done better, because I recall HILL dipping under $1 briefly once or twice.

Of course I could be wrong, Dot Hill might not hit an inflection point, it might run into another rough spot. Competition is fierce in the data storage industry.

But what is interesting about opportunities like this is that so few people monitor these stocks. Not many professional analysts, not many individual investors. Of course there are thousands of micro cap and small cap stocks out there; who has the time to look at them all? I encountered HILL when I was researching another data storage stock for an investor, using it as a comparison to the company he ended buying into.

Data storage is pretty unglamorous, and since Dot Hill does not make consumer products, and most of its sales are through OEMs that rebrand the products, it has almost no name recognition.

And because Seeking Alpha pays contributors on a per-view basis, I seldom write about it. An article on a better-known stock takes about the same time to write, but can pay 2 to 10 times as much as an article on Dot Hill, or other micro caps I have in my portfolio or follow.

Wednesday, September 17, 2014

GlaxoSmithKline (GSK) and Gilead (GILD)

I remain optimistic about the stocks I invest in. I don't think the stock market is in a bubble, though a few select stocks are, but there are always a few stocks that are highly overvalued at any given time.

My article in Seeking Alpha, published today, is positive about both stocks:

Could GlaxoSmithKline Be A Better Investment than Gilead?

It does feel peculiar that Gilead Sciences has become such a large company in the past decade. But I can only think of one reason that Gilead is not already at $120 or even $140 per share: the vast amount of cash that would need to be invested to get it there. Rather than being in a bubble, in fact investors are rather restrained when it comes to the stock market. Despite federal bonds returning less than the rate of inflation, that is where the stupid money is. Stupid pension money, stupid 401k money. The foreign money in bonds may not be so stupid, given that some national bonds, for instance Germany's, return even lower rates.

Of course, if for some reason the U.S. economy should turn south later this year (perhaps a meteor will strike New York or Washington), markets will fall, and the doomsday specialists will say "I told you so."

I do believe the Federal debt is an overhang that will become an avalanche someday if taxes are not raised, and the earth's environment is in trouble, but those are long-term, not near-term problems for investors.

I currently own Gilead, but not GSK. Gilead is already over 10% of my portfolio, so I may sell some at any time, but my hope is to wait until it is at least $120 per share, and then sell as little as needed to bring it back in line with my portfolio guidelines.