Invensense (INVN) Update

June 17, 2012 by Chris 2 Comments

I’ve been asked the following question (one way or another) numerous times:

“Why do you like Invensense so much?”

My answer: It’s an investment in the technology and I believe this is the company to take that technology to the next level. I always follow that response by emphasizing this: Do your own due diligence and NEVER make an investment based off of what I do.

I am not a short term trader but I do follow rules while making trades and one of the most important of these rules is: CUT LOSSES!

As several of my twitter followers have pointed out, I have violated that rule with INVN. That’s true, I didn’t cut the loss when is violated my mental stop. In fact, I dollar-cost averaged my original position. The follow-up purchases have taken my original position to a maximum position size. Now, I sit here writing this post stating that I DO NOT violate “position sizing” within my portfolio. That may be difficult to believe if I just violated another rule but as of today, I have not violated that one. My cost basis is higher than Friday’s closing price for INVN and it took a lot of strength not to buy another block of shares when it dropped below $10 (as low as $9.06 to be exact).

Think about it, a purchase below $10 is showing a gain anywhere from 10%-20% in two weeks. I knew it was a fantastic level to enter and my cost basis would have dropped but I am maxed out – I CANNOT increase my risk against my overall portfolio. That’s how you GO BROKE (especially if you turn out to be wrong – and I may be wrong with Invensense).

That’s the beauty of trading and investing. Your ideas prove to be right or wrong based on making money or losing money. As of today, I show a loss in INVN. So why do I still hold on?

Two reasons

The technology: INVN is a leading provider of MotionTracking™ devices for consumer electronics products such as smartphones, tablets, game controllers, smart TVs, and wearable sensors. I see a big future here and I’m betting that INVN is the leader or one of the leaders.
The fundamentals (specifically: sales and earnings growth)

I am a technically based trader on a longer term time-frame but for now, I am not trading the chart. Although one may argue that the recent price action suggests that support has been established – it’s still debatable based on the number of shares sold short. The IPO lock-up period has passed, the lawsuit is open knowledge, supplier product shortages have been discussed and the market has not performed well so INVN has paid consequences. I’d like to believe that all of that BAD news is priced in.

The pending lawsuit from their main competitor, STMicroelectronics, does keep me a bit worried on the fringes but I have no control there, other than to sell (that can screw up everything, regardless of fundamentals and technicals).

Let’s take a look at the numbers:

Earnings (YoY):
2008: -0.09
2009: 0.01
2010: 0.19
2011: 0.13
2012: 0.47
2013: 0.61 estimated +30%
2014: 0.85 estimated +39%

Earnings (QoQ):
June 30, 2011: 0.11 vs. -0.01
September 30, 2011: 0.15 vs. 0.04 | +275%
December 31, 2011: 0.13 vs. 0.06 | +117%
March 31, 2012: 0.07 vs. 0.03 | +133%

INCOME STATEMENT | FY2012 (April 1, 2012) vs. FY2011 (April 1, 2011)

	Current Period	Prior Period	% Change
	4/1/2012	4/1/2011
Sales (Income)	$152,967,000	$96,547,000	58%
Cost of Sales	$67,246,000	$43,386,000	55%
Gross Profit	$85,721,000	$53,161,000	61%
Gross Profit Margin	56.04%	55.06%	2%
Net Operating Income	$47,014,000	$21,478,000	119%
Net Operating Income Margin	30.73%	22.25%	38%
Income Available to Common	$16,329,000	$1,631,000	901%

BALANCE SHEET | FY2012 (April 1, 2012) vs. FY2011 (April 1, 2011)

	Current Period	Prior Period	% Change
	4/1/2012	4/1/2011
Cash	$157,772,000	$38,075,000	314%
Accounts Receivable	$11,931,000	$10,678,000	12%
Inventory	$12,240,000	$15,208,000	-20%
Total Current Assets	$186,131,000	$65,297,000	185%
Total Assets	$193,318,000	$70,746,000	173%
Accounts Payable	$13,172,000	$10,786,000	22%
Total Current Liabilities	$13,200,000	$11,012,000	20%
Total Liabilities (Total Debt)	$16,441,000	$11,605,000	42%
Total Equity	$176,877,000	$59,141,000	199%

INSTITUTIONAL ACTIVITY (as of May 28, 2012):

	Institution Type
	13F (Money Market)	Mutual Fund	Other
Number of institutions	100	101	7
Number of new positions	47	61	5
Number of positions sold out	11	4	1
Shares held	15,879,598	8,357,405	118,315
Shares held previous period	11,958,005	1,790,387	62,656
Shares bought	9,209,721	6,724,972	84,315
Shares sold	5,288,128	157,954	28,656
Value of shares held	$159,431,164	$83,908,346	$1,187,883
Value of shares bought	$92,465,599	$67,518,719	$846,523
Value of shares sold	$53,092,805	$1,585,858	$287,706

Two things stick out:
1. The increasing number of institutional investors (including large quantities of shares bought)
2. Increasing earnings, year-over-year and quarter-over-quarter.

Time will tell and my account balance will let me know if I am right or wrong. As for now, I am long $INVN – betting on the technology, industry growth, earnings growth and sales growth. In addition, I would like those institutional investors to continue buying!

Filed Under: 2012 Stock Watchlist, IPO, Stocks

Corrections Take Time, Be Patient

May 20, 2012 by Chris 7 Comments

As I surf the twitter and blog world tonight, I see an unusual number of people claiming a market bottom based on “historical readings” among many of the secondary indicators.

Several of my indicators are also starting to enter those same levels but what many are failing to realize is that the market can take several months to complete a full correction and reach a bottom.

See below for the most recent two year chart with individual corrections for both of the recent bottoms in 2010 and 2011 (highlighted below the 20% figure).

As you can see in 2011, the secondary indicator started to flash “bottom” signals in June but the market didn’t complete its volatile correction until September.

In the summer of 2010, the secondary indicator started to flash “bottom” signals in May but the market didn’t complete its correction until July, two full months of up-and-down action.

The lesson: 2012’s secondary indicators started to FLASH a market bottom last Friday, for the FIRST time. Based on past corrections (going back a decade), this will only be the start of a volatile period of up-and-down action that could last several months (the swings can be greater than 10%). Be Patient!

Filed Under: General Market, Stocks, Technical Analysis

When to Buy – Low Risk & High Reward

May 13, 2012 by Chris 12 Comments

This post contains three simple charts that will give all investors a fantastic risk vs. reward setup/ signal. By following these simple charts, any investor should be able to consistently outperform the market (buy when the market is deeply depressed and sell when it becomes over-bought). Please keep in mind that these signals are for longer term investors as they only appear once every year or so.

The three charts represent the % of stocks above the 50-day moving average for the NASDAQ, the % of stocks above the 200-day moving average for the NASDAQ and the % of stocks above the 50-day moving average for the S&P 500.

The recent sell-off has been steep (points only) but unfortunately, we haven’t come close to historic bottom signals. This simple fact (using the charts below) suggests that the market has further room to consolidate so be careful with your buy and sell decisions.

Filed Under: General Market, Technical Analysis

Ten Must Read Stock Market Books for 2012

March 6, 2012 by Chris 5 Comments

I highly suggest that all new swing and/ or trend “traders” begin with William O’Neil’s book based on the CANSLIM acronym.

1. How to Make Money in Stocks (4th edition) by William J. O’Neil (1988)
2. Reminiscences of a Stock Operator by Edwin Lefevre (1923)
3. The Nature of Risk by Justin Mamis (1991)
4. Trader Vic: Methods of a Wall Street Master by Victor Sperandeo (1991)
5. Trade Your Way to Financial Freedom by Van K. Tharp (1999)
6. The Battle for Investment Survival by Gerald M. Loeb (1935)
7. Martin Zweig’s Winning on Wall Street by Martin Zweig (1986)
8. How to Trade in Stocks by Jesse Livermore (1940)
9. Market Wizards: Interviews with Top Traders by Jack D. Schwager (1988)
10. When to Sell: Inside Strategies for Stock-Market Profits by Justin Mamis (1994)

**Original copyright dates are listed even though many of the books linked are newer editions**

Filed Under: Books

Market Pullback and Energy Opportunities in COP and BP?

February 20, 2012 by Chris 5 Comments

Set stops and look to take some profits at sign of weakness – a couple of signals are popping up for a slight brake right now $$ – 11:25 AM – 9 Feb 12 via web

That was my tweet from Thursday, February 9, 2012.

The signs that I was referring to are located in the following two charts. The divergence over the past month is very clear on the charts below as the transports are showing weakness in comparison to the industrials. I am not calling a market reversal or downtrend but I am seeing some exhaustion among the leaders and major market averages. Recent gains need to be digested before moving higher (if that’s where 2012 is headed).

Oil has become a topic of interest with gasoline prices across America making headline news on a daily basis. With crude oil pushing higher, above $100, I have become interested in two dividend plays that also present solid technical charts.

ConocoPhillips ($COP – $73.36) operates as an integrated energy company worldwide. The company’s Exploration and Production (E&P) segment explores for, produces, transports, and markets crude oil, bitumen, natural gas, liquefied natural gas, and natural gas liquids.

The company has a market cap just shy of $100B, an annual dividend of $2.64/3.60%, 65% held by institutional investors and a P/E of 8.17x. A move to new highs could catapult the stock well into the $80 range (along with that dividend). The company has been experiencing an increase in net income, year over year revenue growth and a solid record of earnings growth. One could argue that the ideal entry is closer to the 50-d moving average.

BP p.l.c. ($BP – $47.62) provides fuel for transportation, energy for heat and light, retail services, and petrochemicals products. Its Exploration and Production segment engages in the oil and natural gas exploration, field development, and production; midstream transportation, and storage and processing; and marketing and trading of natural gas, including liquefied natural gas (LNG), and power and natural gas liquids (NGL).

The company has a market cap of $150B, an annual dividend of $1.92/4.03%, 10.68% held by institutional investors and a P/E of 5.90x. A move to new highs could push the stock back towards pre- “Gulf of Mexico” disaster levels (along with that dividend). The company has been experiencing increasing net income, growing revenues, reasonable debt and future potential with new contracts and repaired brand image.

As with $COP, an ideal entry for $BP is closer to the 50-d moving average but we are targeting these stocks as value plays considering their dividends and low PE’s.