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December Pick

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By yttire
December 17, 2004

Posts selected for this feature rarely stand alone. They are usually a part of an ongoing thread, and are out of context when presented here. The material should be read in that light. How are these posts selected? Click here to find out and nominate a post yourself!

Time flies. It is already time to find another stock among the downcast, the fallen, or the ignored. The advantage to this technique is that you feel like an underdog. The disadvantage is that you are an underdog. Six months already? This is just an idle pastime, proving to myself that I can, indeed, beat the averages. Or if not that, at least beat the yield on a money market account.

I have been eyeing MRK, hoping for a huge piece of negative news to fall out on the legal front, to drive the price down to even more unbelievable levels. It has not come. At the time of its great crash I calculated with broad strokes that the loss of market capitalization was greater than the loss of revenue and even a healthy bite due to litigation costs. Now it has flying upwards. I don't know if it is worth jumping on or not at this point. However I do know that I have learned a good lesson- don't be afraid to miss the best price. If you wait for the best price, you might not get even a decent price. Personally I would think about a small stake in MRK at this point, but that isn't the pick of the month, despite this. It has climbed too far too fast. I didn't trust my broad stroke analysis- but perhaps I should have. Don't know. Discuss.

Lets look at the portfolio performance to date:

Historical picks:

6/15 SNDK $21.00 95 shares = $1995.00
6/15 LEXR $8.25 242 shares = $1996.50
8/26 AWGI $9.28 215 shares = $1995.20
9/17 TE $13.47 148 shares = $1993.56
10/6 ERES $14.28 140 shares = $1999.20
11/12 WIRE $13.05 155 shares = $2019.56

Total start $11,998


12/16 SNDK $22.82 95 shares = $2167
12/16 LEXR $7.71 242 shares = $1865
12/16 AWGI $10.39 215 shares = $2233
12/16 TE $15.01 148 shares = $2220
12/16 ERES $14.20 140 shares = $1988
12/16 WIRE $12.57 155 shares $1976

total present $12449

That is a 4% yield! That is double what you can get out of ING, with three times the risk. But seriously every stock in this pool has dropped since the time of the pick and rebounded- if only you had bought on those bottoms you would be rich, rich, rich beyond your wildest dreams.

SNDK and LEXR have to strut their stuff this Christmas, and earnings will be just around the corner for them. AWGI has shown some weakness in its margins but is still pulling off the interest expense reduction. TE is still moseying along, and ERES is recovering from the guidance drop. WIRE is still a big unknown with the price of copper, it will be exciting to see where it goes. I thought certainly that one of the picks by now would have skyrocketed, and another tanked. Or at least something- these companies all either have great revenue growth or some other catalyst, which could light a match. But nope, we are looking at money market yields here pretty much. I am a little less keen on WIRE after studying it closer and seeing that almost all of its earnings growth came from the differential of inventory and market price. Only 12% of their growth is real here. Not great. But still I am going to hold onto it here this is for fun and who knows maybe the price of copper will keep rising due to the Chinese building a billion golems from copper this Christmas.

But we still need a pick of the month. It is tiring to type in all those numbers above. Perhaps I will go to an abbreviated version where I just type in the current port value and you trust me not to fudge things a bit in my own favor. To let you get out of your seat and take a bathroom break if you desire it, the pick is:


12/16 LEIX $30.66 65 shares $1992.90
My monkey picked this one for me by spelling out the ticker in blocks. Sorry, I didn't mean to reveal my tip source. Disclaimer, I own some shares of this one.

Lowrance Electronics, Inc. is engaged in the design, manufacturing and marketing of a line of sound navigation and ranging (SONAR) and global positioning system (GPS) products

They are a niche player, making the "low end" product versions of what Garmin produces more expensively. Lets compare them briefly

GRMN P/E 28.22 LEIX P/E 13.75
GRMN Market cap 5.95 Billion LEIX Market cap 157 million

Yearly revenue went from 88.3 to 111.8 from 2003 to 2004 (about 26%). The year before they had 11% growth. If you wanted an underdog, here you have it. They are fighting against an entrenched player, yet have their ducks in a row. They have the sonar to find their ducks if they sink too. Their balance sheet is solid, with some debt but not much.
The stock just took a hit because the last quarterly numbers were down from the quarter before. The stock took a hit. This company is SEASONAL people. Hello? That is the perfect time to buy a stock, when idiocy takes hold and throttles it. The quarter over quarter from last year is up. Geez. "Sales for seasonally weakest quarter up 25%"
Of course, you would have been better buying this company at 20, or 25, which were both available in the last year. But you didn't. The disadvantages here are that the owner just gave himself a nice fat dividend and then sold his stock, basically cleaning the coffers out of a bunch of cash.

Another disadvantage here is that their product is an add-on for high expense boats- and the rising interest rates may put a damper on boat sales. We'll see.

They have introduced more than 50 new SONAR and GPS products recently- increasing sales and gross margin. They have increased the engineering staff (good for a company trying to break into new niches for their product line). They recently had a 25 million secondary offering to pay down debts and dilute the stock even further. This will protect them from rising interest rates, but also protect the stock from rising too fast due to this excess dilution. Probably a wise move really if they are paranoid about upcoming interest rates. Sell while the market is high, and collect this money at relative low interest rates compared to if the stock price were lower. Perhaps most companies with a chunk of long term debt will be doing this soon, pushing down all stock prices. Enough speculation.

They have new products, many of them with high price points, which are moving in the channel. This bodes well for the next few quarters. They are trading at a pretty good price range. They are the December pick.

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