Wednesday, November 29, 2006

What should I buy?

Over the last few weeks, I have not been able to do much stock analysis. I've unfortunately been very busy at my full-time job as a software engineer. In my defense, there hasn't really been much to do as the unusual bullishness of the market has priced me out of a lot of opportunities. The gambler in me wanted to buy puts on QQQQ last week, but the chicken in me set the limit order too low to execute before Monday's fall. Such is life... It also doesn't help that APOL, OC, LM, WU, and USG have all gone up from when I first started looking at them.

I expect that I will be relatively busy until after the holidays. For my occasional readers, here's what to expect from me before the new years. I'll post a book review with key take-aways from Phil Fisher's Common Stocks and Uncommon Profits. Then I'll polish up my DCF calculator and publish it for everyone to use. I use this DCF calculator as a preliminary screen of stocks that have caught my eye. By publishing the tool, I'll be able to keep a history of what stocks are being screened by my well-informed readers. Hopefully I can get some good ideas from you =). Finally, I would like to work on providing podcasts of relevant earnings calls for my readers. I spend about an hour commuting every day, so podcasts would be very helpful for me to keep an eye on my basket of stocks.

As an update, Western Union and USG are two opportunities that I would jump on if the price ever came down to my current target buy-below prices of $21 and $47 respectively. In order to lock-in these prices, I sold Feb 07 puts on both stocks. Before Thanksgiving, I sold a Feb 07 $22.50 strike WU put contract for $1.10 per share. Because of Monday's drop, I am sitting on a loss with this position. I also sold a Feb 07 $47.50 strike USG put contract for $1.75 a share. For a good description on my view of writing puts, please refer to Million Dollar Countdown's post on 10 ways to minimize risk when selling put options.

In the blogosphere, I've found two other articles singing praises for USG. Whitney Tilson, a former Motley Fool columnist and now fund manager calls USG, the little stock that beats the market, while Evan Vanderveer likes USG the best. It's nice to be in good company. For those interested in Owens Corning, I would take a look at USG first. The situations are similar, but there are more gurus invested along side you with USG.

I am currently looking at increasing my position in First American Corporation (FAF), which has retreated about 5% below my original cost basis. It reported tentative third quarter results that missed analyst's estimates and may need to re-state its financial statements due to possible option-backdating. Since options back-dating usually does not impact cash flows, I view this as a temporary issue. I will need to review this past quarter's results before I make a move. I'm also considering increasing my position in Home Depot (HD). This week I made two small mechanical purchases of Advance America Cash Centers (AEA) and John B Sanfilippo and Son (JBSS). Should I buy more? I will need to do more due diligence before I increase the size of these small positions.

This blog doesn't really have that many readers, but I'd be interested in your opinions. What do you think I should buy? In times like these when undervalued stocks are hard to find, we really need to band together and share our results.

Good luck and be careful out there. The bulls are in control, but there are still a lot of uncertainties that everyone seems to have forgotten about.


Anonymous Tim said...

Of all the companies you mentioned, I like WU the best. It seems to be in the best shape for the price. It really doesnt have any looming problems hanging on it.

I am kind of comparing it to MA when it first went public. The stock didnt do anything until its first quarterly update and then it took off.

I think investors are waiting to see what WU's quarterly performance is going to do before we get any real movement.

Keep writing, I enjoy your blog. If you write they will come.

4:54 AM  
Anonymous Serge said...

Well, I decided to bite on OC.

According to:

Insiders have been quietly making purchases of stock at market prices up to around $29. (see SEC filings under Owens Corning - not Owens Cornings Sales which comes up in Edgar when you input OC seach symbol)

I believe that Peter Lynch once said that there are multiple reasons why insiders sell stock, but only one when they purchase: to make money.

USG has gone out of my range as well (I picked up a position at $50, but would have loved to backed the truck up on this one).

The three candidates I'm looking at for my next purchase are:


I also added PFE to my watch list which currently trades at 14x earnings with close to a 4% yield.

I loyally stop by almost daily to check your blog. I find your posts informative and well articulated. Keep up the great work!

disc: I own OC and USG, please do your own due diligence.

7:44 AM  
Blogger wcsinvestor said...


I really hope WU will be another MA. Mastercard was one of my biggest errors of omission this year. I was considering making a purchase at $44, it popped up to $45-46 and I got anchored to the $44 price. Of course, it never saw $44 again.

With Mastercard, there was litigation risk, but there was a high probability of a settlement. Western Union's problems are business-environment related, which are probably a little worse. The slowdown in growth of US-Mexico transactions is something to keep an eye on and may continue to depress the stock. Let's hope the masses forget about the immigration and possible terrorist money-laundering issues too.

It's all perception until we get blow-out numbers. This gives us an opportunity to load up. I'm considering writing the May07 $22.50 put to possibly get shares around $20, but I'm already short the Feb07 put. I'll probably wait to see if the stock falls back to $22.50.

Thanks for the kind words.

11:12 PM  
Blogger wcsinvestor said...


Good to know that you find my blog useful. I'll try to start bringing you more content in the coming months. I'm on a business trip right now, but when I get back I'm going to listen to the Q3 webcast to see if I can find definitive answers to my questions. About the stock purchases, I would investigate whether or not managers willingly bought the shares or if it was part of their contract. I've heard of clauses where management has to have a certain amount of interest in the company.

I like all your picks for your next purchase. I actually started a WMT position at $45.60 for my girlfriend. I would buy more, but there's a better deal today. As you may already know, PFE dropped over 10% because of the loss of torcetrapib.

Although the loss of a potential blockbuster will lower my valuation of the company, I view it as temporary. PFE with its recent cost-cutting looks ripe to start acquiring more potential blockbusters to fill its pipeline. I also think we haven't seen the last of torcetrapib. Torcetrapib probably has huge benefits without much risk for a majority of the users. PFE just needs to do more research into which users are at risk. I was really surprised at the sudden halt of the trial. A company doesn't just write-off its most valuable option without a fight. I think this is partially a PR move to prevent Vioxx-like litigation in the future, when it does release torcetrapib with a warning label. I have no evidence, so this is just an opinion.

In the coming week, I will either buy shares outright or buy in-the-money calls. Jan 09 $20 calls at $6 don't seem too expensive.

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