Check out this week’s updates on the INX2. It is consistently beating its newspaper benchmark and is shaping up to be an improvement on the original INX.
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On July 4th last year, I wrote a fairly lengthy piece about Liquidity Services Inc (LQDT). That piece is still worth reading as background, as most of my comments still apply. In that piece I wrote:
Pricing on LQDT? Clearly if I had the definitive answer to that I would not make my closing disclosure. The current Fibonacci retracement it is sitting on is quite a strong one that is roughly at an area that offered previous resistance. We may see the stock hold around this ~$40 level for a while. While some analysts continue to shamelessly pimp $60 and $70 targets I would be surprised to see the stock overcome its recent sellfest to that extent. If it does recover, I would expect significant resistance at around $45. To the downside, if $40 doesn’t hold then next stop looks like $33-$35 with a 52-week low of about $20 as an absolute worst-case (I would be amazed to see that price but who knows?).
This quote from a former employee on Glassdoor.com in 2011 still rings loud: ” Company is a one trick pony, and that one trick can easily be made obsolete.” Actually, not so much since the GoIndustry acquisition, but the integration of that isn’t done yet.
Well, I guess the pricing comments were fairly prescient:
I have followed LQDT from its IPO. I have found it to follow Fibonacci retracements and projections very reliably, and its price has an affinity for round $5 numbers. It is currently ranked #4 at Zacks, underperform, sell. Marketclub has it at three red triangles, -90. It closed at $30.19 on Friday off its low for the day. The shape of Friday’s candle shows that maybe it will put up a struggle at the $30 mark. I don’t think things look good though. Money flow hasn’t hit prior lows, it’s running away from its 10day-SMA and MACD looks to be rolling over to the negative again. I am not calling this a short but $25 looks like a distinct possibility. Historically, LQDT’s options have been expensive, but just now the June contract in-the-money $40 and $35 or close-to-the-money $30 could reward those with a speculative bent, if the fight at $30 fails — which I think it has a good chance of doing. I believe the real support was at $33 with next at $25.
What I said last July is still true: I do not presently hold any long or short stock or options positions in LQDT nor do I currently plan to make any. I have not held any long or short stock or option position in LQDT since early May 2012.
I subscribe to several for-pay services. Some I like more than others. Ones that consistently rank high with me are Marketclub/INO, Zacks and Bespoke Investment Group (“BIG”). BIG is rather different to the other two. If you like data-driven analysis, you’ll like BIG. BIG is invariable professional. You may see them frequently quoted in the financial press. They recently reported the results of their first voluntary members’ survey, which is what piqued the impetus for this article. The survey covered both individual and institutional investors. Self-serving it may be, but I happen to think the paying customers of BIG are smarter than the average bear. Key point for this article is that both the individual and institutional investors liked Technology as the best sector for the next six months.
As an investor with my own money, I tend to using ETFs, although I will take individual equity positions. It depends on the term and portfolio I’m investing in. I considered four broad-based technology ETFs to play a possible positive ride in the technology sector (click on the chart to enlarge):
The Rydex equal-weight ETF has romped away from the others, due largely, one supposes, because it has way less exposure to that laggard du jour, AAPL. The AAPL percentages, BTW, are at 3/8/13 for RYT and 12/31/12 for the other ETFs. The latter percentages may have changed some since 12/31 due to AAPL’s sell off and and increase in other portfolio stocks. Be that as it may, some folk might think that with AAPL changing hands at a P/E of about 9, that as it hovers at a price somewhat above $400 it may be worth considering. In which case, depending on your loving or loathing for all things AAPL, you may wish to consider which tech ETF best suits your purpose. If you think AAPL will continue to be a loser then RYT is the way to go despite a healthy expense ratio of 0.5%. Were I to want some AAPL exposure I would probably lean to VGT. An alternative approach, trading costs be damned, might be to blend the two ETFs depending on how you love or loathe AAPL. Your intended holding period would impact your decision, too.
The BIG members offered pretty mixed insight. AAPL was the biggest long position in the portfolio of by far the most respondents. On the other hand, it was also the stock that by far the most respondents were most bearish on. Go figure. But, that probably sums up market sentiment on AAPL too. You can check out free stuff (and there’s a lot of it) from BIG HERE.
Although value investments aren’t a field we cover much, we do keep our eye on opportunities. It seems to us that this may be an area where an individual can do a little better with some of his or her investing dollars that have an intermediate or longer time horizon attached to them. Such reviews are not trading suggestions. Personally, I am looking at around a one-year holding period as a general guide.
What follows is not a recommendation. It is a suggestion to you as a stock worthy of your examination and research. It may or may not fit your own investing criteria. On the disclosure side you should consider it likely that we will take a long position in this stock within the next forty-eight hours. As a result of a screen we carried out yesterday, we believe that ticker JBSS is worthy of your review. Prices shown in the tables are as of yesterday. At time of writing, JBSS closed at $18.65. A weekly chart of JBSS is:
Our initial screen, performed in Zacks Research, was to look for stocks with a price to book less than one, and a PE ratio of less than ten. We then matched the list to current Zacks #1 rated stocks. This is the table of stocks that passed that screen:
We then used VectorVest provide additional data. Following that review we selected JBSS as the candidate of choice. For what it is worth, “honorable mention” here would be Blackstone Group, BX, but that is largely because we like its real estate holdings as an inflationary hedge. JBSS is in the packaged foods business, principally in nuts. This is how some valuation metrics stack up against its peers:
We find the numbers attractive for JBSS. It also has growth numbers that exceed its peers. Using our TDAmeritrade Apex account we ran through the research notes and found as follow (the VectorVest and Zacks recommendations are our addition):
We find the numbers and outlook encouraging for JBSS. Were its price to reach $25, we would re-evaluate the position but a sale at that price would be a 34% profit. Who knows if it will get there? I would personally set a hard stop at $16.50 which would be about an 11.5% loss. The stock is consolidating some now and may hit resistance just shy of $20 — you may get it a bit cheaper, but our thinking is that is fairly priced at $18.65 with a potential one-year holding period. Your thoughts??
Liquidity Services Inc., LQDT, has suffered two significant sell-offs in the last couple of weeks. The latest was the largest, and supported by massive volume. These sell-offs have been attributed to comments by CFO Jim Rallo on future profit growth, insider sales, notably by CEO Bill Angrick, and latterly by less than complimentary comments from Jim Cramer and now, research firm Off Wall Street. I would love to see the Off Wall Street comments to see if they have hit the mark, but I have been unable to locate them.
I have now twice said that, at best, I think LQDT is fairly valued as a $40 stock. It closed today at $40.17. So, what should investors really be focusing on at LQDT? These are my opinions based on educated observation and experience. Anyone could figure this out if they tried hard enough, and I must say the bleatings from the analyst community reminds me exactly what most of them are. Sheep who don’t know much and are easily led. Which also ignores who actually makes a market in LQDT’s stock and might be concerned about their inventory.
If one is educated about LQDT, the insider sales shouldn’t really worry you. The senior execs all have quite decent option plans, even if those plans may have seemed parsimonious when they were issued, and the option holders don’t demonstrate any reluctance to cash in. But that has always been the case, nothing new there. As a reminder, actual stock sales are mostly activated by 10-5b1 plans, so they are price-actuated not a result of conscious decisions to sell stock. As to Angrick and his wife, cut them some slack, please. The LQDT stock has been very kind to their fortune but it makes up way too much of their personal estate. No-one should begrudge Bill cashing in some, bearing in mind this stock IPO’d (if that’s a verb) at $12. Entirely normal and sensitive behavior. While, in the past, Bill Angrick and his friend and co-founder Jaime Mateus-Tique have, in my opinion, killed rallies by selling into them (when volume was much lower), this time around, I think the angst about insider sales is misplaced.
Moving on to reports of CFO Jim Rallo’s comments of potentially lower profit margins. Jim is a straight shooter who is properly concerned with giving accurate guidance. If he in fact made such comments, I would say they are well placed. However it is very hard for investors to model likely outcomes. LQDT’s financial reports (e.g., ANNUAL REPORT and their latest investor slide deck) make much of GMV (gross merchandise volume) growth by macro business segment but there is no commentary or guidance of EBITDA percentage by subsidiary or business segment. Investors might be surprised to know how much profit some segments or subsidiaries contribute or don’t (or maybe not). This is pertinent information since the LQDT annual report discloses that both of its contracts with the Federal Government are in discretionary annual renewal options and will be up for re-bid in a few short years. While it is my opinion that it would be hard for anyone to take these contracts away from LQDT, that does not mean it cannot happen or that the renewal terms will be as advantageous to LQDT as they are now. The educated investor should focus on segment profitability very closely at LQDT.
We have two material contracts with the DLA Disposition Services under which we acquire, manage and sell surplus and scrap property of the DoD. If our relationship with the DoD is impaired,we are not awarded new DoD contracts when our current contracts expire, any of our DoD contracts are terminated or the supply of assets under the contracts is significantly decreased, we would experience a significant decrease in revenue and have difficulty generating income. The Surplus Contract accounted for 32.8%, 29.9%, and 30.3% of our revenue and 21.8%, 19.9%, and 18.5% of our GMV for the fiscal years ended September 30, 2009, 2010 and 2011, respectively. The Scrap Contract accounted for 21.5%, 25.0%, and 25.5% of our revenue and 14.2%, 16.7%, and 15.4% of our GMV in fiscal year 2009, 2010 and 2011, respectively. We believe that these contracts will continue to be the source of a significant portion of our revenue and GMV during their respective terms. The Surplus Contract has a three-year base term that expires in February 2012, subject to the DoD’s right to extend for two additional one-year terms. The DoD has exercised its first extension option. The Scrap Contract has a seven-year base term that expires in June 2012, subject to the DoD’s right to extend for three additional one-year terms. The DoD has exercised its right to extend the performance period of the Scrap Contract by one year to August 2013. The contracts were awarded by the DoD through a competitive bidding process, and we be required to go through a new competitive bidding process when our existing contracts expire.
The final matter that should be discussed is merger integrations. In my opinion LQDT’s recent acquisition of GoIndustry Dovebid is probably its most crucial acquisition to date, although it has not received the attention it deserves. Kudos to Bill Angrick for the price he paid, too. (Side note: Although GoIndustry was listed in London it is not really a UK or European company as some have said. It is the old SF-area Dove Bros auction/liquidation company that could never get out in the USA, hence the London listing). LQDT has been trying to break out in the capital goods market aside from its Federal and Network Intl businesses for some time. In my opinion, the sales side of GoIndustry is its ticket to success in this area, however as anyone with a whit of experience in mergers and acquisitions will tell you, such a successful integration is not a slam dunk. LQDT is a company deeply reliant on technology. Its CTO apparently left the company earlier this year and has not yet been replaced, at least so far as one might ascertain from its website. Let us hope this does not adversely impact the integration of GoIndustry with LQDT’s other operations.
Pricing on LQDT? Clearly if I had the definitive answer to that I would not make my closing disclosure. The current Fibonnaci retracement it is sitting on is quite a strong one that is roughly at an area that offered previous resistance. We may see the stock hold around this ~$40 level for a while. While some analysts continue to shamelessly pimp $60 and $70 targets I would be surprised to see the stock overcome its recent sellfest to that extent. If it does recover, I would expect significant resistance at around $45. To the downside, if $40 doesn’t hold then next stop looks like $33-$35 with a 52-week low of about $20 as an absolute worst-case (I would be amazed to see that price but who knows?).
In the June 23rd issue of Barron’s magazine, Michael Santoli wrote in his “Streetwise” column:
THE GENERAL MOOD OF ECONOMIC SOBRIETY has wrung growth premiums out of emerging-market equity plays and commodity proxies, forcing growth-chasing capital into an ever-narrower group of stocks beloved for a hoped-for ability to expand organically and indefinitely. A cluster of consumer stocks with generous valuations that imply aggressive growth expectations looked bulletproof near the market’s April highs, but one by one are succumbing to softening growth outlooks.
I thought at the time that this was a remarkably canny comment from Santoli, which may have been prescient about LQDT, as it turns out.
In closing, perhaps the real scandal here, if there is any at all, was Investors’ Business Daily readiness to pop LQDT back into its IBD50 after a week’s absence at the #5 spot. Good call, guys. Good call. Not.
I do not presently hold any long or short stock or options positions in LQDT nor do I currently plan to make any. I have not held any long or short stock or option position in LQDT since early May 2012.
Our IntersectionX watchlist and its related Superpicks has been updated. It may be viewed on its page : http://paladinmoney.com/intersection-50/intersection-50-list/
Last week was the first week in seven when the four-week weekly average of profits and losses on the IBD50 and ST50 turned positive. The broader lists both did better than their top-10s too.
If you had asked me two days ago, I would have told you that I thought recent bullish days were driven largely by speculation driven by expectations of more easing by national banks. I may still have been right. However as I write this it appears that the pro-bailout parties in Greece will get the first chance to form a government. If this hint of stability is viewed bullishly, which I expect it to be, then we may see a short period of rising prices, particularly in the so-called “leading stocks” on our watchlists.
Be that as it may, the underlying situation in Europe remains troubling leading me to believe that caution should continue to be the watchword.