…Last night I screened Salesforce.com (CRM) a former member of the MSW weekly screens dating back to August. The stock made three consecutive weekly screens and we liked the potential of the stock as it tried to form a base and breakout to new 52-week highs. We knew that the overall market was starting to head lower but we were still confident in the stock. Eventually, the stock fell more than 10% from our entry area so we were forced to cut the stock from the weekly screens. It went as high as $25 but then corrected back to the 40 week moving average near $18.63. The three weekly screens are listed below with their prices at the close of each week while it was covered on MSW:

8/06/05: CRM 23.68
8/13/05: CRM 23.53
8/20/05: CRM 20.48

The stock has not make another weekly screen since it was cut back in late August. It has made several daily screens since it started to make new 52-week highs once again in the mid $20 range in October. Other than a few daily screens, the stock has not made its way back onto the MSW index but that is okay. It made another daily screen last night and this is what was said:

“CRM – 35.63, the stock was a former weekly screen member and was first covered at $23 but then was cut when it gave us a 10% loss at $20. We had the right stock sat the wrong time. The stock is now up over 78% since we took a loss. This happens in life and the market and I am fine with it. Nine consecutive up-weeks from $22 to $35.”

Sometimes you may select the right stock but then find out that your timing was off. Sometimes you may get back in at a higher level like we did with LMS but sometimes you may miss the move altogether due to any number of reasons. In the case of CRM, we did not get back in and the stock has gone onto gain almost 80% since we took a small loss. I am proud of the small loss because at the time, I did not know if the stock would continue down and I wasn’t going to break key sell rules and find out the hard way.

A quote from Martin Zweig should sum up this theory of cutting losses the best:
“A loss never bothers me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does damage to the pocketbook and to the soul. Of all the speculative blunders there are few greater than trying to average a losing game. Always sell what shows you a loss and keep what shows you a profit.”

We sold and it was the right thing to do at the time. We could have gotten back in when it jumped above $25 and moved to new 52-week highs but other stocks had our attention once October rolled around (stocks such as LMS, AAPL, GMXR, SSAG & CTRN). Don’t get frustrated if you sometimes find the right stock but get in at the wrong time, this will happen over and over throughout your trading career because timing is quite possibly the toughest aspect to investing. Currently at $36, CRM is too extended to be on our radar for the MSW Index but it has made a great run, a run that we anticipated in August but jumped in two months too early.
Piranha

…Listed below are the appearances Lamson and Sessions (LMS) has made on the MSW weekly screens, now titled the MSW Index. As you can see, LMS has made a total of 13 weekly screens since August 2005. The stock was removed during the month of September to protect against further losses as it slid lower. As September started to fade, the stock picked up steam and gained strength so we added it back to the weekly screens and have kept it there ever since. From October 1, 2005 until November 5, 2005, the stock only moved $1.50 or 8%. It wasn’t until late November when the stock started to make the advance that we had been anticipating since early August. The patient investor has been rewarded very handsomely if they kept their cool and only sold on major red flags, similar to the ones in September. Since October, the stock has not flashed any sell signals and has been positive across the board.

Notice how we originally covered the stock at prices between $13 and $15 in August and then removed the stock from the screen, only to bring it back at higher levels in October. Let this serve as an important lesson that you can buy stocks at one level, only to be forced to sell and then buy them again later at a higher level to make the anticipated profit. We did not think twice about bringing the stock back onto the screens above $18 because our original analysis was still the same. In August, we were off a bit with our timing but had the right stock. We protected ourselves when it dropped and grabbed it again when it showed strength. It is so important to play the odds while investing because it is the only way you can continually succeed in the market.

Last night (12/12/05), the stock closed at $30.80, a 103% gain from the original weekly screen on August 13, 2005. Using the later weekly screen entry point of $18.32, the stock has still made a 68% gain since October 1, 2005 (this comes in less than three months). We confirmed the rally on October 22, 2005 when the stock closed at $18.19, giving us a gain of 69% during this stretch. I noted on the most recent weekly screen to start protecting profits in this stock as it becomes extended. The area of $28 will provide some support and can be used as a sell point or you can start to cash in partial profits at current levels.

If you originally bought 100 shares at $15.16 ($1,516.00) and sold for a 10% loss ($151.60) and then repurchased 100 shares at $18.32 9 ($1832.00) and sold last night at the close ($30.80 or $3,080.00), you would have realized a gain of $1,096 but would have a win/loss track record of 50%. One winning trade and one losing trade but a profit above 50% on the original stake invested (NOTE: taxes and commission have not been included in the calculations). This is how you play the odds and what I mean by saying “cutting losses short” and “letting winners run”. Many times this scenario will happen with different stocks but in this case it happened with the same stock. Below is the record of the stock on our weekly screens, showing you how any member of MSW had numerous chances to capitalize on the recent advance in LMS.

MSW Weekly Screen Appearances:
8/13/05: 15.16
8/20/05: 13.96
8/27/05: 14.40

10/01/05: 18.32
10/08/05: 19.83
10/15/05: 18.13
10/22/05: 18.19
10/29/05: 20.00
11/05/05: 19.88
11/12/05: 21.35
11/19/05: 22.24
12/02/05: 27.41
12/09/05: 30.14

12/12/05 – $30.80

Piranha

Today is a question that I received during the day Last Wednesday (one week ago today – 11/23/05).

E-mail Question:

Dear Chris,
Yesterday was a mixed feeling day for me in the market. I tell you the story as I needed someone to cry on!!!

I took a position after a month break as I was moving apartments. I bought shares in CMED an IPO that looked good and was on a strong upward trend. I bought at $37.40 on Monday and it closed slightly off that at day end. Tuesday it starts a big rise and hit $42.6 at which stage I was up 14%!!! In Gib we are 6 hours in front of you so when I checked my position at 7pm here 1pm there I was doing well, I think the price was at $40 approx and the up trend continuing. So I went home with a high – I have not got a computer at home yet. Come into the office this morning open my screen and check the position and it has slumped to $34.18!!! and with a further slump after hour close to $33.43!!!! I am now in a 10% loss position.

What could have happened? Was the news that a new Chinese IPO had postponed its entry as reported on Reuters that negative?

Well I am licking my wounds now and quite depressed, back to the drawing board I suppose. Greed again got the better of me and I should have closed my position before going home.

Take care and talk to you soon.

Regards,
(Actual name will be anonymous to protect the privacy of our members)

My Answer:
Dear Anonymous,

On Monday night, I gave this analysis for CMED:

“11/21/05:

Medical:
CMED – 36.92, three consecutive days of big gains with two gap-ups (possibly a climax run) that may result in a harsh, quick correction.”

Well, that quick harsh correction came at the end of the day yesterday.

You should never try and chase an extended stock. I will still place a stock on my daily screens if it is hitting new highs but I never put CMED on the weekly screens because it was too extended for a buy (in my opinion). The gap-ups and quick gains resembled a climax run which usually results in a harsh correction, similar to what we are now seeing.

At this time when I am not sure what is going on and the position is moving against me, I sell and sell it all immediately! After I sell, I sit back and take another look without any emotion involved and reassess the situation. It is ok, just sell for a small loss and move on.

Good Luck,
Chris

…I wrote an article this past summer (July 2005) for a major financial website that will remain nameless but have since been informed that the article will not run so I now have the authority to post it here. I was going to post the article on this site after it was released for publication. As you may notice, the style of writing in this article is slightly different from my “to the point” writing on typical case studies (it contains more fluff than I like). Sometimes the mainstream media and financial publications need a certain appeal for their audience. I typically write what I think and what I see and worry about political correctness and proper article layout later. As long time members of the community already know, LaBarge (LB) was a major part of the screens throughout the first half of the year before hitting sell points and red flags (it is an MSW All-Star with a 134% gain in eight months). Enjoy the breakdown of LaBarge from my July 2005 article analysis:

The Breakdown of LaBarge
by Chris Perruna
Founder and President
MarketStockWatch.com
MSW Financial, LLC Company

Whether you are launching into space, cruising through the dessert or swimming in the artic, harsh environmental conditions will try to stop you in your path. High performance electronics and interconnect systems will allow you to continue your journey but where do we find such awesome devices. Just ask your local government, phone the nearest military base or walk on over to NASA.

Incorporated in 1968 and based out of St. Louis Missouri, LaBarge (LB) provides the military, NASA and private companies such as Boeing (BA) and Raytheon with these types of complete electronic systems solutions, circuit card assemblies and high-level assemblies for specialized applications. The majority of Labarge’s customers belong to the defense, aerospace, natural resources and industrial industries. Its products are used in various technology applications, including military communication and radar systems, military and commercial aircraft, satellites, space launch vehicles, down-hole instrumentation in oil and gas wells, and mail sorting equipment. In fiscal year 2004, 48% of LaBarge’s revenues were generated from defense customers, 14% from natural resource customers, 13% from industrial customers and 10% from customers in the government systems market.

With a market cap of $313 million and 980 employees, CEO Craig LaBarge has guided the stock to new 52-week highs by increasing sales and earnings year over year. Revenues are up over 67% versus the same quarter last year while net income has advanced by 93% during the same time period. Mr. LaBarge gives his investors a good feeling by producing a return on equity of 19% while jump-starting earnings per share by almost 89% versus the same quarter one year ago. This year (2005), LaBarge is expected to report EPS of $0.67, $0.82 next year and just short of $1.00 at $0.98 in 2007. Building on the past (2003: $0.23, 2004: $0.45), it is evident that LaBarge is on track to sustain growth for many years to come especially with its new memberships to the Russell 3000 Index, the Russell 2000 index and the New Russell Microcap Index.

Looking at a simple daily or weekly chart, you can see that LaBarge has almost tripled in price during the past year with a 100% gain in the past six months. Where should an investor enter a stock that looks to be extended from safer buying territory? Further analysis will provide us with a clue that LaBarge has received support at the 50-day moving average since March 2005 and the 200-day moving average since 2003. The stock has been recording higher highs and higher lows since the New Year and it has done so in convincing fashion. A breakdown of any of these long term support lines should concern you and raise a red flag as I like to say.

When buying a small cap stock, I prefer to see strong cash flow and LaBarge provides us with cash flow that exceeds the industry average by almost 98%. Belonging to the electrical equipment industry, LaBarge shares company with other names such as Agilent Technologies, Inc (A), Fisher Scientific International (FSH)., and Garmin Ltd (GRMN). The industry as a whole hasn’t performed extremely well but LaBarge, an undiscovered gem on Wall Street, still has room to growth and give investors a reason to smile. As of April 2005, only 27 institutional investors have placed a position in LaBarge, fifteen of them being money managers and 10 of them being mutual funds. To put the numbers of institutions into perspective, Boeing, a client of LaBarge, has over 1,750 institutional investors from Wall Street.

Is LaBarge undervalued? The price-to-sales ratios suggest that the company has room to grow since it is lower than the S&P 500 average and well below the industry average. The P/E ratio also suggests that the stock is undervalued compared to the industry average and evenly valued when compared to the S&P 500. I do raise an eyebrow when studying the liquidity of the company; it seems to be weak and may lack the ability to cover short term cash needs. If the company runs into revenue decreases or other financial difficulties, the lack of liquidity can hurt the company and the underlying stock price. The balance sheet can offer us a better look into the quality of the company and how management handles business. Total cash has decreased from Q2 2004 to Q2 2005 from 8.68M to 0.30M as debt has increased from 6.87M to 37.95M. However, total assets have increase from 75.39M to 124.49 during the same time period.

LaBarge crossed above $20 for the first time ever but pulled back at the end of last week. The 50-day moving average sits at $16.64 and support is holding strong at this invisible line. A healthy pullback to the moving average in below average volume could signal investors a new entry position or present an opportunity to add additional shares to an existing position. Eventually LaBarge will have to correct but I wouldn’t speculate when other small caps such as Hansen Natural Corp. (HANS) have moved from $5 to $105 in less than two years without a major correction. As a current shareholder in LaBarge, I will be staying put until I see any major red flags or warning signs to sell the stock such as a break of the 50-day moving average on above average volume.

As they say in poker, “Know when to hold them and know when to fold them” and I won’t be folding this hand anytime soon unless conditions change drastically. For a further look into the company, please take the time to visit their website (http://www.labarge.com/) and learn for yourself how LaBarge may someday lead us into further oil and/or space exploration. We now know that temperature doesn’t matter when it comes to their products, so take a break from the extreme summer heat of 2005 and aim to make some cold hard cash with this growth stock.

…Currently at noon, CB Richard Ellis Group Inc (CBG) is up over 6.62% to $49.14. CB Richard Ellis is the nation’s largest commercial real estate services company. Late Tuesday, CBG reported sharply higher second-quarter earnings on improved leasing activity, and raised guidance for the full year.

According to yahoo finance, net income surged to $50.4 million, or 66 cents per share, from $3 million, or 4 cents per share, a year ago. Excluding one-time items related to the Insignia acquisition and debt buyback charges, the company earned 70 cents per share, more than double last year’s earnings of 32 cents per share.

The results easily topped analysts’ expectations for profit of 42 cents per share, according to a Thomson Financial poll. Revenue grew 22 percent to $672.2 million from $550.9 million last year, fueled by a steady leasing recovery and continued investment sales strength.

MSW members have been aware of the company since the week of May 15, 2005 when CBG debuted on our daily screens. That same weekend on May 21, 2005, CBG made its first weekly screen at $37.20 and has not turned back. We established a breakout and/or pivot point of $38.95 and declared a strong support level near $33.00.

On June 23, 2005, we featured the stock as a highlighted case study when the price was at $41.03 and we detailed the setup and breakout of the pattern. The stock has made 11 consecutive weekly screens and has been a strong performer on the daily screens as well. If you were one of our members that purchased the stock at the pivot point, you would currently have a gain of 32% in less than three months (10 weeks to be exact). Keep up the good work and always stick to you buying and selling rules. Never let a solid gain slip away due to faulty system management.

Piranha