• 12 Jul
    IRBT is setting up for a bullish pop

    IRBT is setting up for a bullish pop

    Despite the uncertainty that has dominated the market for most of the year, its bullish long-term trend remains in place and has continued to provide strong support to mute any drawdown. As of this writing, the S&P 500 Index looks set to push above short-term resistance and could start testing the all-time highs it set back at the beginning of the year. That should be a positive indication for stocks in general, and even while trade war risk persists, there remain interesting opportunities to be had.

    iRobot Corp (IRBT) could be one that is setting up for a good bullish trade right now. The stock’s short-term trend is up about 45% since the beginning of May, with room yet to move up another 15% if its current momentum holds. This is a small-cap stock in the Household Durables industry that is a bit of a niche play; its products won’t appeal to every consumer, but they have a strong, building customer base, and while their focus is primarily geared toward consumer robot use, it includes forward-thinking technologies like mapping, navigation, mobility and artificial intelligence. If you’re a geek like me, you can’t really walk into a Best Buy store without at least checking out the section that includes IRBT’s products, which also means that sooner or later you’re likely to buy one of your own.

    IRBT is another stock in the Household Durables industry that could also provide some protection in the event of a trade war. The company markets their products across the globe, and so incurs some financial risk; however, as of the last quarter, international sales accounted for only about 11% of the company’s total sales. They also manufacture their products entirely within the U.S., relying on international distributors to market and sell the products abroad. What financial risk exists from their international exposure is related primarily to foreign exchange rates above all else. Their last quarterly report indicates they actively use foreign currency forward contracts and swap to hedge and minimize this risk.

    Fundamental and Value Profile

    iRobot Corporation is a consumer robot company, which is engaged in designing and building robots. The Company’s portfolio of solutions features various technologies for the connected home and various concepts in mapping, navigation, mobility and artificial intelligence. The Company sells various products that are designed for use at home. Its consumer products focus on both indoor and outdoor cleaning applications. The Company offers multiple Roomba floor vacuuming robots. Roomba’s design allows it to clean under kick boards, beds and other furniture. It offers the Braava family of automatic floor mopping robots designed for hard surface floors. The Roomba 600 series robots offer a three-stage cleaning system. The iRobot HOME Application helps users to choose cleaning options for their home. Its Mirra Pool Cleaning Robot is used to clean residential pools. The Company’s trademarks include Scooba, ViPR, NorthStar, Create, iAdapt, Aware, Home Base, Looj, Braava, vSLAM and Virtual Wall. IRBT has a current market cap of $2.3 billion.

    • Earnings and Sales Growth: Over the last twelve months, earnings increased almost 27%, while sales increased nearly 29%. These are healthy numbers that indicate their business is growing aggressively. The company’s margins are a bit narrow at around 5% for the past year, although in the last quarter this number did increase to almost 10%.
    • Free Cash Flow: IRBT’s Free Cash Flow is healthy, and since they have no long-term debt, their operating profits can be directed almost completely to facilitate growth and continued innovation.
    • Debt to Equity: IRBT has a debt/equity ratio of .0, which as already mentioned means they have no long-term debt. Any short-term needs can be covered by their operating profits, along with more than $100 million in cash and liquid assets.
    • Dividend: IRBT does not pay an annual dividend.
    • Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value, which for IRBT is $17.69 per share. At the stock’s current price, that translates to a Price/Book Ratio of 4.58. The average for the Household Durables industry is 5.9, while the historical average for IRBT is only 3.3. Comparing the current Price/Book ratio to its historical average means the stock is overvalued, however in this case the industry average is also constructive. A move to par with the industry average would translate to a stock price of more than $104 dollar per share, which is near an all-time high which the stock reached temporarily a year ago.

    Technical Profile

    Here’s a look at the stock’s latest technical chart.


    • Current Price Action/Trends and Pivots: The red diagonal line traces the stock’s decline from its all-time high at nearly $110 per share to its downward trend low in early February around $56. The stock finally picked up enough bullish momentum to sustain a strong upward trend beginning in May, driving from that low point to its current price. Since that time, the stock has moved in a nice stair-step pattern, with a recent pullback to support at around $75 before bouncing higher to its current price. The green horizontal line marks previous pivot points that I think could act as an important test of the upward trend’s longer-term strength if its current bullish momentum tapers off; an upward bounce from that level should provide a good catalyst to keep the stock moving higher. The red horizontal lines on the right side of chart mark Fibonacci retracement levels of the downward trend that could provide resistance to a sustained move higher. If the stock breaks above the most immediate resistance around $83, for example it should easily test its short-term pivot high above $90, with a longer-term target around $103 possible from there.
    • Near-term Keys: Watch the $83 level; a break above that resistance should provide a good signal to enter a bullish trade, either by buying the stock outright or by working with call options. If the stock begins to retrace from its current price, pay attention to support around $72. A bounce higher from that level could also provide a good bullish trading set up at a lower price point. If the stock breaks below $72, on the other hand, the stock’s mostly downward longer-term trend would be reasserting itself, and the stock would likely see little support before dropping back into the $56 to $60 level to retest its 52-weeks lows. That could translate to a decent opportunity if you like working with put options or with short sales.

  • 28 Jun
    DISH: Dead cat bouncing, or incredible bargain?

    DISH: Dead cat bouncing, or incredible bargain?

    Consumer trends can be a fascinating thing to watch, despite the fact that sometimes they are fickle. That’s because sometimes those trends can give you important clues about the viability of certain products or ways of approaching business. It’s easy to get caught up in the excitement of a new, groundbreaking technology, for example, but if the buying public doesn’t buy it, it doesn’t matter how great the tech is; it isn’t going to stick around for very long.

    In the 1980’s, my parents bought a video tape player for the family. We were excited because we could finally watch movies in our home without having to wait for network TV to broadcast them for us. The player was a Betamax player, and my dad went to great lengths about why Betamax players were superior to the VHS players we had been hassling him about. And it’s true, it was a terrific piece of machinery, and I thought that the quality of our home recordings, and of movie tapes in general, was far better than any comparable VHS tape.

    The thing was, not many other people felt the same way – or cared enough to make Betamax more than a passing fad. By the beginning of the 1990’s, Betamax was a thing of the past. We still had our player, and the tapes with our home recordings, but guess what we had sitting right on top of it? You bet – a VHS player, and all of the movies we bought to keep at home were VHS tapes. If you invested back then in Betamax development, you probably lost a lot of money.

    The same idea can be applied to very mature businesses as well; the advent of one kind of new technology often means that a previously lucrative and growing technology becomes obsolete. That is especially true if the new technology is widely adapted and erodes the consumer base the older technology relied on. Cable and satellite broadcasting is one of those mature technologies that consumer trends show may be looking at the end of its usefulness in the not-so-distant future. More and more customers of all ages are “cutting the cord” with traditional television viewing in favor of on-demand, web-based streaming services. It’s a trend that has built Netflix (NFLX) into a media powerhouse with a market capitalization larger than the Walt Disney Company (DIS) and has traditional broadcasting networks scrambling to find ways to evolve and survive.

    Dish Network Corporation (DISH) is among a number companies in the Media industry that finds itself at a crossroads, with a still large, but dwindling subscriber base that requires attention and a high level of service and quality, but a desire to redirect its business to evolve with the needs of a changing business landscape. The market has seen the numbers about their eroding customer base and has treated the stock accordingly, driving it into a clear downward trend for the past year that has seen it lose approximately 50% of its value over that period. A clear loser in the scope of broader market performance, the stock has actually rebounded almost 16% since the beginning of June. Contrarian, value-oriented investors might be tempted to bet on a reversal of the stock’s long-term downward trend, but others would be more cautious.

    “Dead cat bounce” is a term that investors like to use to describe what happens sometimes when a stock in a long, downward trend finds support and starts to rally higher. Generally speaking, the only way a long-term downward trend can manage a legitimate reversal is if the market sees a very strong fundamental reason to start buying the stock. Often, a stock experiences that downward trend for very good reasons, and in the case of DISH, an eroding customer base is one of those very good reasons. The problem the company has in reversing the trend is that the erosion isn’t to competitors in the same business; it’s coming from a “sea change” in consumer habits and preferences that typically marks the death of one business model in favor of another. The “bounce” comes when technical traders start to buy the stock at a low point, hoping for a quick, short-term gain in the stock’s price; but since there is no fundamental reason for other investors with a longer-term perspective in mind to jump in, that gain is extremely limited in both size and duration.

    The argument long-term investors might have for DISH, and that the company is absolutely trying to communicate to the market, is the way they have decided to evolve their business. Since 2008, the company has spent more than $11 billion buying wireless spectrum frequencies in order to build their own 5G wireless network. Their founder and CEO relinquished his role as chief executive at the end of 2017 to focus on developing that part of the business. The challenge is that the company is generating zero revenue from the licenses they hold, and they won’t begin to see any return on their already large and ongoing investment until they complete the buildout of their network sometime in 2020. So is DISH a “dead cat bounce” that only a fool would try to work with, or a real bargain opportunity? Here’s a few numbers to consider that might help you make your own decision.

    Fundamental and Value Profile

    DISH Network Corporation is a holding company. The Company operates through two segments: Pay-TV and Broadband, and Wireless. It offers pay-TV services under the DISH brand and the Sling brand (collectively Pay-TV services). The DISH branded pay-TV service consists of Federal Communications Commission (FCC) licenses authorizing it to use direct broadcast satellite and Fixed Satellite Service spectrum, its owned and leased satellites, receiver systems, third-party broadcast operations, customer service facilities, a leased fiber optic network, in-home service and call center operations, and certain other assets utilized in its operations. The Sling branded pay-TV services consist of live, linear streaming over-the-top Internet-based domestic, international and Latino video programing services. The Company markets broadband services under the dishNET brand. The Company makes investments in the research and development, wireless testing and wireless network infrastructure. DISH has a current market cap of $7.7 billion.

    • Earnings and Sales Growth: Over the last twelve months, earnings and sales both declined modestly, with earnings decreasing at a slightly greater rate (almost 8%) than sales (6%). In the last quarter EPS actually increased almost 23% while sales declined about 1%.
    • Free Cash Flow: DISH has very healthy free cash flow of more than $2.2 billion over the last twelve months, despite its decline from a little over $2.4 billion in late 2017.
    • Debt to Equity: the company’s debt to equity ratio is 2.07, which is high; levels at 1 or below are preferred. However, the company’s balance sheet indicates operating profits are more than adequate to service the debt they have, with adequate liquidity from their cash flow to provide additional stability and flexibility. High debt to equity ratios are also pretty normal for this industry.
    • Dividend: DISH does NOT pay a dividend, which is normal for stocks in the Media industry.
    • Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value, which for DISH is $15.69 per share. At the stock’s current price, that translates to a Price/Book Ratio of 2.14. Ratios closer to 1 are usually preferred from a value-oriented standpoint, however higher multiples aren’t that unusual, especially in certain industries. The average for the Media industry is 2.2, and the historical average for DISH is 6.53. The stock would have to move above $100 to be at par with the its historical average. While I believe that is an over-optimistic target on even a long-term basis, it does suggest that the stock’s 52-week high, which was $66 in July of last year, is useful and within striking distance over time.

    Technical Profile

    Here’s a look at the stock’s latest technical chart.


    • Current Price Action/Trends and Pivots: The red, dotted diagonal line traces the stock’s decline and concurrent downward trend for the past year. The stock has been rebounding since the beginning of this month but is now pushing directly up against that downward trend, which should push the stock back down to retest its recent pivot low around $29. A drop back down from that line, to around $31 would be a good sign that the “dead cat bounce” effect is at play. On the other hand, a push above the line to the $35 level, or better, $36 should give the stock some good short-term momentum to push up to the $40 level. That’s a range that short-term traders could find useful for a bullish trade. The stock would have to break above $40 to mark a legitimate reversal of the long-term downward trend.
    • Near-term Keys: Look for the stock to break above $35 per share. A move above this level could be a good opportunity to enter a bullish trade, either by buying the stock or working with call options. A move below $31, on the other hand could suggest the stock’s downward trend will reassert itself and push the stock even lower than $29, which could be a good opportunity for a bearish short-term trade by either shorting the stock or working with put options.

  • 21 Jun
    STX is up 37% for the year. Will it keep going?

    STX is up 37% for the year. Will it keep going?

    Investing in the year 2018 has been markedly different than it was in 2017. Where it seemed like last year you practically couldn’t miss the mark – everything was going up – this year has seen a lot of uncertainty bring volatility back into the marketplace. A lot of well-known stocks have been fortunate to tread water, and if the last week is any indication there could be more pain ahead.

    Seagate Technology PLC (STX) has been one of the rare exceptions, a star performer that is hovering just a few dollars below multi-year highs. After hitting a low point in October of last year around $30 per share, the stock has rallied to just below $59 as of this writing, peaking in April around $62 before sliding back to its current price. Perhaps that 60%-plus performance since that low point is fitting, given that the stock endured some pretty wide swings in price during 2017 to finish the year at a modest net gain of about 8%.

    Even as trade war fears roil the markets and spook investors, technology has generally remained one of the most in-favor sectors of the market this year. That has certainly played into STX’s favor, and of course that momentum could continue into the foreseeable future, especially as investors gravitate towards stocks with limited perceived exposure to tariff-exposed regions of the world. That could lead investors to keep buying STX, which is headquartered in California despite being incorporated in Ireland. There is some risk, however, since the last quarterly report indicates that only 29% of the company’s revenues come from U.S. sales. There is pretty big exposure to Asia, with 54% of revenues coming from that region (a deeper breakdown by country isn’t provided) and 17% from Europe. All told, approximately 71% of the company’s total revenues have come from regions that are being directly targeted by U.S. tariffs. I think there is far more downside risk than upside potential for STX right now, which I’ll outline below.

    Fundamental and Value Profile

    Seagate Technology public limited company is a provider of electronic data storage technology and solutions. The Company’s principal products are hard disk drives (HDDs). In addition to HDDs, it produces a range of electronic data storage products, including solid state hybrid drives, solid state drives, peripheral component interconnect express (PCIe) cards and serial advanced technology architecture (SATA) controllers. Its storage technology portfolio also includes storage subsystems and high performance computing solutions. Its products are designed for applications in enterprise servers and storage systems, client compute applications and client non-compute applications. It designs, fabricates and assembles various components found in its disk drives, including read/write heads and recording media. Its design and manufacturing operations are based on technology platforms that are used to produce various disk drive products that serve multiple data storage applications and markets. STX has a current market cap of $16.8 billion.

    Earnings and Sales Growth: Over the last twelve months, earnings increased by almost 33% while sales grew only modestly, at about 5%. It’s hard to grow earnings faster than sales, and in the long term isn’t really sustainable; even so, I generally take this as a positive sign that management is effective at maximizing their business operations.

    Free Cash Flow: STX has generally healthy free cash flow of a little over $1.5 billion over the last twelve months. This number has increased from a little under $1 billion in the last quarter of 2016.

    Debt to Equity: the company’s debt to equity ratio is 3.17, a high number despite its decrease from a little over 4 in the quarter previous. The company’s balance sheet indicates their operating profits are more than sufficient to service their conservative debt levels, with healthy cash and liquid assets available as well.

    Dividend: STX pays an annual dividend of $2.52 per share, which translates to an annual yield of 4.3% at the stock’s current price. Not only is that remarkable for a tech company, most of which don’t pay any dividend at all, but this is also well above the industry average.

    Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value, which for STX is $4.75 per share. At the stock’s current price, that translates to a Price/Book Ratio of 12.32. This is as clear a sign to me as any other of the stock’s overpriced status, since the stock’s historical average is only 6.0, and the industry average is only 4.5. The implication here is that the stock is priced more than twice as high as it should be under normal market conditions. Very few value-based investors would be willing to consider buying this stock at a price of more than $28 to $30 per share.

    Technical Profile

    Here’s a look at the stock’s latest technical chart.


    Current Price Action/Trends and Pivots: The diagonal green line traces the stock’s upward trend since October of last year. That trend has been providing solid support for the stock for the past month; however since March the stock has held within a range at the top of the trend. Support is in the $55 range, with resistance around $60. The stock is currently sitting approximately the middle of that range right now.

    Near-term Keys: The stock’s all-time high was reached late in 2014 at around $66.50 per share, which implies that even if the stocks breaks above its current range, its near-term upside is very limited. On the other hand, a break below $60 would probably not find immediate support until somewhere between $50 and $52 per share. Beyond that point, the stock’s 52-week low around $30 is not out of the question – especially if the company’s revenues and profits are negatively affected by extended trade tensions between the U.S. and its trade partners.

    By Thomas Moore Investiv Daily Technology