NSOM Challenge – rationale for my picks –
AEY – 7.18 has risen sharply this year but continues to look cheap given the strong earnings growth and continued excellent prospects. EPS of $0.19, fully taxed and diluted, in the latest quarter, up from $0.15 sequentially, and $0.11 in the year ago period. New growth initiatives with Scientific Atlanta and JDS Uniphase should boost results going forward. PE is under 10 based on the latest quarter for this Nasdaq listed stock.
AFAM – 15.73, is well off its 52wk high of 26.59 even as the company has continued to deliver outstanding results. EPS of $0.35, fully taxed and diluted, in the latest quarter, up 13% sequentially and over 100% y/y. Evidently the stock has been weak on concerns about medicare cutbacks for 2008, which may take 20% off earnings, but given the strong internal growth and acquisitions, EPS may continue to rise. Furthmore, visiting nurse services and healthcare is general could become more favored market sectors as a hedge against a possible recession.
BAAM – 12.51, Books-A-Million has been a solid growth story for several years, but currently trades near a 52wk low, and down nearly 50% from the 52wk high. EPS of $0.19 in the latest quarter was up 27% y/y. However the book business is very seasonal and typically the company generates most of its profits in February Q4, with Q3 being seasonally weak. Company paid out a $3 cash dividend a few months ago, and has also been buying back shares. Stock looks cheap and chart looks like the stock is making a base with solid support at around $12. Trailing PE is about 10, a deep discount to the sector, but beware the large dividend means interest expense will rise going forward.
BTJ – 36.91 is an outstanding growth story in the oil services sector. EPS, fully taxed and diluted, of $0.60 in the latest quarter, was up 20% sequentially and over 100% y/y. 70% of the company’s business is international with heavy offshore exposure, so not too vulnerable to weak domestic natural gas prices. A recent acquisition should boost results going forward. This former long-time IBD #1 stock is well off its 52wk high of near $60 and appears to be forming a base at this price level.
SNEN – 2.82, Sinoenergy reported EPS of $0.07 in the latest quarter, up from $0.01 y/y. This China natural gas company is guiding for 70% y/y revenue growth both for 2008 and 2009 …. that’s equal to nearly 200% over the 2 year period. A recent financing raised $30M, but was only modestly dilutive to EPS, with only $14M of the new debt convertible into stock at $3.17 per share, very favorable terms for existing shareholders considering the huge discounts often associated with such private placements.
UVE - $5.57, Florida homeowner's insurer reported EPS of $0.43 in Q2 and $0.73 for the first half. If hurricane season remains quiet for Florida for another 6 weeks, this stock should move substantially higher. Only other wildcard are increased reinsurance rates that took effect on 6/1, but that sure didn't hurt Q2 results ! Company continues to take on new business which should further boost results going forward.
