Sskillz, great job this year!! Your discipline in trading and portfolio construction is fantastic and the results show it. Keep up the comments and good work!

Wade, I think that forward PEs of 9-10x are possible for homebuilders. IMHO, WLH's analyst estimates are a bit high, so my estimate for FV is a bit lower.

Based on this assessment, LGIH and WLH have at least 25% upside over the next 6 mos.

WLH is cheaper looking at book values; while LGIH seems to execute their business model more efficiently, demonstrated through higher margins.

For me, CCS is the cheapest homebuilder based on forward PE for FY16. I'd overweight that one a bit more than the other two, but I don't think you can go wrong with any of the three. Diversification within the sector is not a bad thing. I own four homebuilding stocks, and there are others that I'd like to pick up on more pullbacks.

Ranking them:

1. CCS
2. WLH/LGIH
3. KBH

Cliff, you should listen to the CC when you get a chance (or find the transcript on SA).

They handled a number of questions about TX and the possible fallout from oil shocks on the call....seems like any issues there are baked into the guidance already. They are simply not seeing a slowdown in demand right now for their starter homes in that region. If anything, there is a lack of inventory right now and they have completely sold out 2 formerly active communities. A lot of shorts caught leaning the wrong way on this one, IMHO.

I give LGIH top marks when it comes to managing their business. They are among the leaders in the homebuilding sector in terms of revenue growth and margins (pretax and adj GM). Sometimes the one month closing figures they provide create a bit of drama, but for the most part I like seeing where things are during the quarter. They are the only homebuilder I've seen that does this.

My guess is that they will exceed the top end of their guidance comfortably, as they did in FY15. (Barring any severe meltdown in the economy.)

Re-initiated a position in the low 22s and will add on further weakness.

Among the homebuilders, I also like CCS, WLH, and KBH.

On CCS, pretax margins were 8.2% for FY15, which was a decline y/y from 8.5% pretax margins in FY14. I don't think you can annualize Q4 margins since the business is very seasonal, so I look at the full year numbers as a better guide. I hope the company can continue to hold on to its margins and increase them too, but I'm not counting on it, for the reasons I cited. I assume that tax rates are similar at 35% for FY16.

I think we just disagree on the upside here, but I agree its undervalued at current levels.

Sskillz is probably right on the low forward PE multiple that homebuilders will trade for, esp in this current market environment. This time, I do think its different for the homebuilding industry in that there hasn't been a huge surge in inventories (i.e. supplies are still fairly tight) and with interest rates so low and unemployment trending in the right direction, the demand should be fairly stable with some pockets that will be impacted by the oil industry.

As a sector, homebuilders are one of the few groups that are projecting decent growth in 2016, but that hasn't met with much buying interest from investors...yet. That is troubling to me, as there should be more volume and the stocks should be trading closer to their highs given their trailing multiples AND decent forecasts. So, the macro concern is lack of faith in the economy and perhaps with CCS, the slight decline in communities where they project to be selling houses as they exit 2017. But that's finding the wart in the report and unduly emphasizing that.

I also think the consensus earnings forecasts are still a bit high for CCS, based upon the pretax margins from 2015 and the continued labor/contractor cost pressures that will impact them going forward. Still, I expect growth in eps of close to 20%, based on management's guidance and taking the midpoint, so my personal numbers are much closer to the low end of the analyst range for FY16:
https://finance.yahoo.com/q/ae?s=ccs&ql=1

Hi Cliff, my comment was in regards to FY17 estimates, not FY16.

You can find earnings projections going past next year on WSJ.com, although they often don't poll the same number of analysts that Yahoo provides.

If I felt FY16 was shrinking I would have sold the entire position immediately. As it is, the growth in the portfolio is tepid and the pretax margins are dropping from higher charge-off rates....so its not a good combination for sustainable earnings growth going forward. In other words, I can understand why the forward estimates are coming down.

Of course, they could do an accretive acquisition (probably NOT with stock however!), or aggressively repurchase stock during FY16, anything to help out with forward eps growth into FY17. Does it deserve to trade at <5x forward estimates? and below book value? That's what investors who own it are wrestling with in terms of answering the question of whether to buy more. I think its probably likely to bounce higher from these very depressed prices, but my sense of the upside is a lot lower after digesting the earnings report and looking at forward estimates.

The upside on CPSS is limited IMHO because current LT growth expectations have shrunk. With the stock trading below book value it seems this should be a big wake up call for management to do something beyond what they have been doing. This is all natural selling as the short interest has really shrunk in the past few months.

CPSS is not the usual situation I like to be in with earnings likely to contract in FY17, so I'm looking to sell on a pop. I did sell a few at 5.80 but think its too cheap to sell down here.

In the 4.90s CPSS is trading right at book value. Even with flattish earnings growth possibly in FY17, I still don't see why this can't be worth at least 6/sh right now.

The selling on Friday seemed largely technical in nature, i.e. traders who had loaded up looking for a break over 6.00 after an earnings beat......and when they didn't get it they turned around and dumped the stock into very little buying support.

Management seems a bit clueless about how to institute a proper buyback. They can file a 10b5-1 repurchase plan that enables the company to trade even during periods they would normally be restricted. They should be buying very aggressively around 5.00/share if they are truly committed to increasing shareholder value.

R59, I agree with you on HUN, but my goodness, is it a hated company. Looking at pure technicals, its about as oversold in the short term as it has ever been in its history including the 2008-09 period when it got sold off down into the 3s.

Another dirt cheap company that I don't know where the catalyst for buyers will come, other than short covering.

Yeah, I concede the point. Why not just buy back 15% of your stock since its trading at a much lower valuation than what you just paid? (based upon annualized gross premiums)

Of course, that's a one time benefit and I guess the hope is that they have better growth possibilities in HA over the long haul.

Even still, the stock is just dirt cheap. Not sure what the catalyst will be to get some buyers to take a chance on it again.

Any thoughts on the HRTG acquisition announced this AM?

http://finance.yahoo.com/news/heritage-insurance-acquire-zephyr-insurance-124200479.html

The all-cash transaction is expected to close in the fourth quarter of 2015, subject to regulatory and other customary closing conditions, and is valued at approximately $120 million. For the period ended June 30, 2015, Zephyr's inforce premium was nearly $68 million, its statutory surplus was $58 million, and ZAC's unaudited GAAP equity as of June 30, 2015 was $63 million. The Company believes the addition of Hawaiian-based Zephyr is a great strategic fit for Heritage and expects the acquisition to be immediately accretive to earnings per share.

Heritage Chairman and CEO Bruce Lucas said, "We are extremely excited to announce the transaction with Zephyr. The acquisition creates significant reinsurance synergies and enables us to expand into an attractive geographic market. We intend to fund this transaction with current capital and do not intend to pursue a new capital raise at this time, which allows us to deliver maximum shareholder value without dilution. The combination of our complementary business models will be immediately accretive to earnings, book value, and return on equity.

---------------------

Perhaps if the company can show some earnings growth for FY16, it might be a catalyst for buyers. If they can achieve the same net profit margins of 20%, this could add about 13.6MM in net or roughly 0.45 in eps over the full year. Not bad for a company projected to earn around 3.00 this year and next. Company trades at approx 6x earnings right now.

Need to see more details I guess.....

I speculated on the reasons and possible sources behind the persistent selling in CPSS a while ago:

http://investorshub.advfn.com/boards/replies.aspx?msg=115488726

See reason #2. I think its the primary reason for the selling right now.

I'd also point out that analysts have CPSS earnings peaking next year and declining slightly in FY17. Having said that, the stock is really cheap and could be a good candidate for being taken private.

ECPG announces another $50MM share buyback. At its current price of $40/sh they could potentially purchase 1.25MM shares or nearly 5% of outstanding fd shares.

The stock has been hit because of actions the CFPB has taken against WRLD, which is in a completely different line of business and has been a particularly bad actor in a troubled industry of aggressive payday and sub-prime lenders.

ECPG has its own case before the CFPB and the shorts are hanging their hats on that being settled in such a way that hurts the company's business model going forward.

ECPG has been a steady 15% fd eps grower in the past. The specter of regulations has caused some legitimate concern that they can maintain that pace of growth in the future....but I think the stock has over-corrected.

RM is another one that looks cheap around 17 and has been hit by WRLD as well. I wouldn't touch WRLD with a 10 ft pole, but RM is a more conventional sub-prime lender with reasonable interest rates charged to borrowers and longer-term loans that don't get refinanced every 12-18 mos with added fees. In short, I think RM would be considered more of a model lender in the eyes of federal regulators.

ECPG (42.90) earns 1.27/sh in Q2, beating estimates by 0.01. FD Quarterly eps were up 15% y/y. Trades at 8x FY15 estimates. Its a debt collector, so not high PE worthy, but a very solid performer. Typically grows its earnings at 15%+ on an annualized basis.

http://finance.yahoo.com/news/encore-capital-group-announces-second-120000503.html

Don't see why this can't be worth at least 12x forward eps?

Very high short interest too....

Depends. If management announces a stock or convertible debt offering that is to be used to fund an accretive acquisition that will positively impact FY16 eps, then it could be seen as a good thing even if its slightly dilutive in the short run.

If its just to be used for general corporate purposes, then it will probably sink the stock....but that also depends on the size of the offering too.

I would hope that management has learned from the poorly received convertible debt deal how NOT to raise capital. Like everything, how its communicated and explained will impact the short run.

TSEM reported decent earnings this AM. Its a messy report, with a lots of non-cash charges, so if you aren't comfortable with Non-GAAP numbers don't bother looking....but they have done a nice job at improving margins, cash flow, paying down debt, etc.

Adjusted FD eps (even using a more realistic 87.5MM fds number) was quite good in my view.

I think the stock is worth at least 19-20/share, but there are lot of moving parts here and that includes some newly freed up stock from debt conversions.

Thanks Hweb. LGIH is one of my biggest holdings and I'm still tempted to add here at 19 or below. Its really cheap IMHO, if you think they can or should get a forward multiple of 12-13x. Another one to look at in the homebuilder sector is CCS.

LGIH management does an outstanding job on managing its margins and has been fairly conservative in its forward guidance on closings. Avg sales price increase was stellar in the quarter.

I think the analyst estimates are currently too low, even if you use 21 - 22MM fds. I think you can expect to see estimates go up to at least 2.15/sh for FY15.

The one cautionary note on LGIH (besides its reliance on TX market) is the 300MM shelf they filed for a month ago. That could become effective any day now and the company in theory could look to raise capital for an acquisition or to acquire new land lots. It could also be used to add more debt, which I hope they would choose to do at current stock prices.

You're definitely not alone cliff. Here's what noted value investor and hedge fund manager David Einhorn had to say on his recent performance and the current market environment:

http://www.businessinsider.com/einhorn-says-investors-shunning-value-for-momentum-2015-8

I thought the BELFB report sucked. Adjusted for non cash items, Pretax income was down y/y; the only reason they had a gain in eps is because of that aforementioned tax benefit. I was a seller today as well. Stock would have been pummeled had it reported a fully taxed net on an apples to apples comp.

Clearly some traders playing this one. On the surface it looks cheap, esp when you look at the analysts' estimates....but the reality is that they will have to start reporting much higher tax rates in the near future. They should be paying closer to a 27% tax rate, which is what they reported in FY14 for adjusted non-GAAP net income.

Of course, when reporting non-GAAP numbers, you can sort of make it up a bit as you go along in terms of what to include or exclude. That's the biggest criticism of it and justifiably so.

Yes, I'm still holding although underwater at present. I had recently added at 18.00 and think HUN is still a solid buy at current levels.

On the call, the CEO expressed some degree of frustration with the stock price....but he hasn't purchased stock himself and the company hasn't initiated a buyback yet either. Talk is cheap. I guess they are more focused upon generating free cash flow to reduce their debt levels, although at some point they have to consider whether it makes more sense to buyback stock at 6.5x earnings (using 2016 estimates)

Its a difficult operating model to dissect and fully understand all the moving parts. Lots of commodities and their inherent pricing and demand unpredictability. Low PE expected, but I think this is pretty cheap at under 9x estimates and growing its adj fd eps by 12%+

Also pays a dividend that amounts to 2.7% at current prices.

Cliff, you won't see a deferred tax asset for AAL because the accountants don't believe there will be enough profits in the future to fully use up all of those NOLs that have been created in the past. If AAL continues to make record net profits, it will be harder to defend that view.

Once they DO feel that the NOLs will be used up, then the company must convert them into a deferred tax asset. Sometimes this happens all at once, and sometimes it happens over time....but either way, the company will have to start recognizing taxes on their income statement that are closer to statutory rates and they can't simply use the excess valuation allowance to wipe them out dollar for dollar.

Even though you have projected the NOLs to last another year, they may have to start paying taxes a lot sooner than that IF the accountants change their analysis on the valuation allowance....and so I generally ignore all the valuation allowances and assess a proforma tax rate that is closer to statutory rates....especially if these NOLs will be exhausted within the next 2 years or so.

I haven't read the analyst report, but if they aren't assuming taxes, why are they projecting such a huge drop in net eps?

I don't own any airline stocks at present, but I have owned AAL in the recent past. It is getting cheap again, but I am ignoring FY15 and focused upon FY16 numbers for AAL. Jet fuel costs are a huge part of their profits, and AAL hasn't hedged in the past. They also have a pretty big buyback in place.

I think the key concern is the health of the global economy and competition within the industry that could start driving fares down again. Its a fine line between price discipline and collusion!

Cliff, for AAL and any other company that reports very low statutory tax rates because of the "valuation allowance" accounting treatment, the key question is this:

Will their accountants decide that it is "more likely than not" that they will be able to use most if not all of their unused NOLs and bring the deferred tax asset on to the balance sheet?

Creating this "new" asset results in a huge one-time gain on the income statement and then it must be charged off at the statutory rate under GAAP even though the cash taxes are still minimal.

So, using PE when the "E" is artificially high because of a low tax rate can get you caught in a value trap.

Its the use of the valuation allowance that drops the GAAP tax rate far below the statutory rate on the income statement.

Cliff I agree with all the reasons you cited for the growing short interest and the declining stock price in CPSS.

Some other possible reasons:

1. Five large holders of stock were very active sellers during Q1. The good news is that most of them are either completely out or will be out very soon based upon the selling volume we saw on the day after earnings were released.

2. Cheap warrants that were issued to CPSS' lenders back in the 2007-2009 time period are now being exercised and sold. (Look at the 2014 10K) That was when the company nearly went under and they were desperate for funding. Its another silent overhang of shares that will weigh on the stock until these sellers are largely done. Could take months to slowly unwind all of those low basis, newly created stock positions. My guess is that you've had approx 4MM newly created shares from these cheap warrants in the past two years. From the company's perspective, it was necessary to do this for survival...but they really should be cleaning up these old warrants now through significant buy-backs. It appears that they are getting serious now, which is a welcome sign. Sure took them long enough!

Swick, what did you think of HRTG's reinsurance plan?

https://finance.yahoo.com/news/heritage-insurance-announces-completion-2015-131500483.html

Understand the desire to lock in a quick gain, but I think you're leaving a lot of potential profits on the table.

I'm going to be a bit more patient with this one. WLDN could easily reach 14.50 - 15.00 in the next 3 mos.

I think its in the process of transitioning from the one type of stock holder to another. It has moved up pretty fast so you may be nimble enough to get another crack in the low 10s.....who knows?

WLDN. If there were one "fundamental" reason for the drop in WLDN I'd point to the drop in fd eps that analysts are showing for FY15 vs FY14....but if anyone does any digging, they'd see that is very misleading because the company is now paying a full tax rate.

Pretax margins are improving nicely, and that even includes a lot of non-cash expenses from stock comp and acquisition amort charges.

Back those out (yes, I know its non-GAAP) and you'd get a higher adjusted eps figure. Company also very cheap on comps when looking at EV:EBITDA ratio.

In short, I like this one a lot at current levels. Technically its wildly oversold and due for a bounce soon. The drop in earnings has nothing to do with their business and is masking what are impressive improvements in margins that will eventually show up next year.

I'd agree this is probably one or two funds/traders dumping a position. Could play out a little further down as some might be looking for a gap in the chart to fill (High 7s). I'd be shocked if it got down there, but I'll take the ST hit and keep adding if it does.

Just to be clear, ECPG is not a competitor to CPSS.

ECPG is a debt collector, that buys distressed receivables from banks and other financial institutions and tries to recover as much money as they can. Some of these players have come under fire for robosignings and aggressive legal tactics and that is what the CFPB is focused on. I think this is a fixable problem that shouldn't impact the core performance of the business, but it is a HUGE distraction because things haven't been resolved yet and the uncertainty is killing the institutional interest in the stock.

CPSS is a subprime lender to borrowers who are trying to purchase new or used cars. They charge high interest rates and have to manage their defaults and loan charge-offs to make profits for shareholders. They also rely on the credit markets to function smoothly in order to securitize and resell their loans to get the cash to make new loans. They also have been hurt by allegations of aggressive or deceitful tactics. CPSS has refuted many of these allegations on past CCs, but they get lumped in with the bad apples in the sector.

To me, the worst of the industries that CFPB has been trying to reign in are the payday lenders and other credit companies that extend small loans to sub-prime lenders. The fees and interest rates that get charged vary by state to state, and are often confusing and designed to get around existing laws that cap extremely high interest rates. Not saying that none of this is the borrower's fault, but many of these poor individuals aren't exactly dealing with honesty on the other side of the table either.

ECPG Has seen a cluster of recent buying from management (CEO, CFO, etc) in the 39s. Stock closed yesterday at $39.87

http://www.openinsider.com/screener?fd=0&fdr=&td=0&tdr=&s=ecpg&o=&t=&minprice=&maxprice=&v=0&sicMin=&sicMax=&sortcol=0&maxresults=500

Analysts have recently raised estimates. The company has been buying back stock (close to 3% of the shares outstanding in the current quarter alone.)

Stock trades at less than 8x forward PE for 2015 estimates; its a pretty steady grower at 15%/yr. However, short interest is extremely high - What's the catch? Its a debt collector in a part of the financial world that has been under close scrutiny from the CFPB. Also, a lot of their US business is collecting written off credit card debt, and a lot of that has dried up as credit card companies and banks have been reluctant to sell to third party collectors. In response, ECPG has expanded internationally in the past two years and has been able to maintain a solid record of eps and rev growth.

Interesting 8K just filed by KINS. One of the directors and indirect owner of approx 6% of the company just resigned over a stock sales issue:

On June 5, 2015, Michael Feinsod resigned as a director of Kingstone Companies, Inc. (the “Company”). Mr. Feinsod was a member of the Company’s Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee and he served as Chairman of the Company’s Insurance and Finance Committee.

Mr. Feinsod’s resignation followed email correspondence and a phone call between Barry Goldstein, President, Chief Executive Officer and Chairman of the Board of the Company, and Mr. Feinsod with regard to the contemplated sale by Infinity Capital Partners, LP (“Infinity”) of 70,000 shares of common stock of the Company. Mr. Feinsod is the Managing Member of the general partner and investment manager of Infinity. Mr. Feinsod beneficially owns 463,775 shares of common stock of the Company, including 446,780 shares held by Infinity. Between December 26, 2014 and January 2, 2015, Infinity had sold an aggregate of 40,715 shares of common stock of the Company.

Pursuant to a June 5, 2015 email from Mr. Feinsod, he sought to obtain pre-clearance of the proposed sale from Mr. Goldstein, as the Company’s Chief Executive Officer, pursuant to the Company’s Officer and Director Trading Restrictions Policy and indicated to Mr. Goldstein that he was considering a “10(b)(5)1” plan. Mr. Goldstein stated that he would like to work with Mr. Feinsod with regard to the sales but indicated that repeated sales by Mr. Feinsod, a director of the Company, were “bad for the Company”. Mr. Goldstein stated that “it may be a good time for a change” and asked Mr. Feinsod to call him. During a telephone conversation between Mr. Feinsod and Mr. Goldstein, Mr. Feinsod asked Mr. Goldstein whether he wanted him to resign as a director. Mr. Goldstein indicated that he did. Following the conversation, Mr. Feinsod submitted his resignation as a director of the Company and Kingstone Insurance Company, the Company’s wholly-owned subsidiary.

In an email sent to Mr. Goldstein on June 6, 2015, Mr. Feinsod indicated his disagreement with Mr. Goldstein’s “asking [him] to resign from the board because [he] wanted to sell shares that [he had] held for seven years.”

Check out LGIH. Homebuilder with approx 50% - 60% of their sales revenue in TX.

They are trying to diversify away from TX and adding locations in other states.

One of the cheapest homebuilders out there, based upon forward eps estimates. Shorts are betting on the slump in the oil industry to hurt job and wage growth in TX. I'm guessing they are too pessimistic. The company has guided for strong growth in closings and new community starts, so if average home prices are up strongly, it merely adds to the top line growth. Definitely a battleground stock.

Cliff, I don't think you can just look at the 2015 estimates alone because AAL isn't paying any taxes...yet. My guess is that they are modeling those numbers on adjusted figures that don't include a tax rate.

The 2016 estimates show a drop of 23% to 7.47. Perhaps even that forward PE of ~6x is cheap in this market, but they could stay cheap for a long time because of the tough 2015 comps AAL will put up.

That could be due to a variety of factors, including pricing, demand, oil costs, and taxes. Historically, we know that airlines have been terrible LT stock investments, so investors are hesitant to stick around for long.

I'm not sure what to do here....it was really oversold and due for at least a ST technical bounce. Now its searching for a solid bottom in low 40s.

Agree on the pre-tax vs net after tax impacts of backing out the patron tax.

However, something is off in the non-GAAP fd share count that RICK is using in its eps presentation. Under GAAP, because of the net loss reported in Q2, there were some anti-dilutive shares that weren't added to the diluted share count. (Which is correct and proper.)

If you are reporting an adjusted profit, you should also calculate the full share dilution as you would if you had a GAAP profit. Hence, the adjusted shares number should be a bit higher, even net of the stock buyback.

In sum, the adjusted non-GAAP eps number should be a bit lower, IMHO.

I also wonder how the crappy weather in TX this quarter has impacted their business too.

RICK. About that patron tax....for their non-GAAP eps calcs, they've been backing out the patron tax since they disagreed with the state of TX that they needed to pay it. (even though expensing it for GAAP numbers)

Now, going forward, they have agreed to pay it.

So how will this impact the non-GAAP eps numbers? They should now have to expense it given that it is part of normal operating expenses. This amounts to 0.15 of the 0.96 non GAAP eps over the first 6 mos of 2015, unless the new 5/patron tax is less than what they had been expensing.

Totally agree with this view on CPSS Cliff. It also now becomes clear why they haven't been aggressively buying back stock yet either.

They'd be idiots to issue stock at these levels, so its likely they would hold off on that and primarily use this shelf for debt issuance. With the stock price so low, it doesn't make sense to use it for acquisitions either.

My guess is that management is using the shelf to register their newly minted options and recently exercised stock. Its a bit excessive and quite piggish of management to issue just over 1MM options to themselves and directors. Not only that, they have timed it a low point in the intermediate trading history. Look at where some recently exercised stock options were granted the last time they did this....around 1.5/share. They had to exercise those because of a looming deadline.

At least most of these options have to vest over a 5 year period. The directors get 150k options that can be fully exercised as soon as 11/19/15.

The exercise price for all these shares is 6.11. So, as of now they are all underwater....

None as much as I like AAOI. I own CIEN, but think its getting closer to FV.

Another tangential play on networking infrastructure is BELFB. I've been a recent buyer of that stock under 18.00, but its still cheap enough now to rate it a decent buy.

I think most here are probably familiar with BELFB. Its been discussed here before and also on the VMC board too.

Optical networking space and the component suppliers are quite active in M&A recently.

INFN buying out a Swedish optical network hardware supplier:
http://seekingalpha.com/news/2417696-infinera-makes-351m-bid-for-swedish-peer?app=n

Future consolidation in the optical network component industry seen as "only a matter of time" :

http://seekingalpha.com/news/2397426-further-optical-component-m-and-a-considered-a-matter-of-time

AAOI could figure in to someone's acquisition plans, especially since they provide quick exposure to the Asian market and big data center buildouts.

Wade, I don't think seasonality is the big issue going forward for AAOI revenues, esp in their data center business. They are primarily constrained by component shortages and once they get that solved (both internally and externally) I believe they have the potential to keep posting 40MM+ quarterly revs for as long as they can keep pumping out these transceivers and the book:bill stays well over 1.0

If I had to guess at seasonality, I'd say Q1 is their weakest because of the impact of Chinese New Year.

It will be interesting to see what they can do to improve margins. Q1's initial forecast had indicated a sequential drop in adjusted net margins, even before the revenue warning. Reading between the lines, I'd blame that on the costs and inefficiencies of quickly ramping up capacity to deal with the component shortages. Hopefully they'll get the margins back up to Q4 14 levels or better by Q2 15, but management was reluctant to fuel that expectation on the call.

Have to disagree with the pessimism here on AAOI. The key takeaways for me from the call were:

1. The supplier issue has been largely solved according to the company on the call. Production levels in the last few weeks of the quarter were finally at previously agreed levels. If the supplier had resolved its staffing issues earlier in the quarter, AAOI would have hit their guidance for rev.

2. Internal production capacity for the 40 G transceivers has been increased by a lot (40% ?) during Q1; this will enable them to produce up to 60% of needed production internally going forward. I take that as a good sign of the company's significantly enhanced ability to meet the full demand (book:bill = 2.4) before the end of 2015. Their internally produced transceivers have been fully qualified by their customers.

Perhaps AAOI will be in the doghouse in the short run, as some investors may want to wait until the company proves it can deliver....but the explanations for the revenue miss make sense to me. On the Q4 earnings CC, mgmt was much more guarded regarding the timing of resolving the component supplier issue. I didn't interpret their answers as waffling about this at all on this latest call. The supplier issue appears to be fixed, demand is really strong, these components are in such short supply and so few companies can supply them that AAOI's customers are willing to sit tight and wait. NO cancellations were received from the company. I see this stock as a solid hold for the next 3-6 mos.

Swick, I agree with your comments on HRTG and KINS. Insider selling is hurting HRTG right now, but my guess is that these sellers need money for taxes (April 15 is right around the corner.) They'll probably finish up in the next week or so and then the stock should push higher.

Either way, I'm happy to add at 21 or below. HRTG should be worth 10x forward estimates (at least). KINS is a similar comp and both represent excellent values in this market.

Check out LGIH, a TX homebuilder. Same back story as HRTG. One of the large shareholders (the father of the CEO) decided he needed some cash to pay his taxes and sold a bunch at the 14 level. Now, the stock is hitting 16 and is still quite undervalued IMHO. The stock had also sold off because of fears that low oil prices were going to cause layoffs in their primary markets, even though the company has been guiding for very strong closings and sales growth.