Infinera Corp. (NASDAQ: INFN) Q1 2011 Analysis

Recent price: 7.34$

P/E Ratio: -

3 month Target Price: 11$

Company Description

Infinera has developed a solution that we believe will change the economics, operating simplicity, flexibility, reliability and scalability of optical communications networks. At the core of our Digital Optical Network architecture is what we believe to be the world’s only commercially-deployed, large-scale photonic integrated circuit, or PIC. Our PICs transmit and receive 100 Gigabits per second, or Gbps, of optical capacity and incorporate the functionality of over 60 discrete optical components into a pair of indium phosphide chips approximately the size of a child’s fingernail. We have used our PIC technology to design a new digital optical communications system called the DTN System. The DTN System is designed to enable cost-efficient optical to electrical to optical conversion of communications signals. The DTN System is architected to improve significantly communications service providers’ economics and service offerings as compared to optical systems that do not use large-scale photonic integration. We refer to these optical systems as traditional systems. Our carrier-class DTN System runs our Infinera IQ Network Operating System and is integrated with our Infinera Management Suite software, which together enhance and simplify network monitoring, management and control.

Confidence Margins

Strong resistance $12.90 (+76%)

Light resistance $11.15 (+52%)

Light support $6.23 (-15%)

Strong support $5.70 (-22%)

Recommendation

Here is another company that provided a weak earnings guidance when they released their last financial statements, compared to what analysts were estimating. This situation brought the company to be undervalued from a technical standpoint. The company should yield good results for investors that will be patient enough.

Entry strategy

For the cautious investor:

Buy the stock for 7.50$ or less.

For the risk-taking trader:

The April 2011 8$ call option contract seems to be the right position to take, they can be acquired for 40$ per contract.

Exit Strategy

For the cautious investor:

Sell when the stock reaches 11$, or keep it until 12.50$ if the stock crosses the light resistance level.

For the risk-taking trader:

The contracts should be kept until the underlying reaches around 11$, as for the cautious investor.

Westport Innovations Inc. (NASDAQ: WPRT) Q1 2011 Analysis

Recent price: 15.77$

P/E Ratio: -

3 month Target Price: 19.50$

Company Description

As it can be seen on their website, Westport Innovations is a global leader in alternative fuel, low-emissions transportation technologies. Leveraging a capital efficient business model to develop and commercialize natural gas engines in key vertical markets, Westport has grown substantially in revenue and stature. Helping drive the underlying value for Westport is a set of unique characteristics including:

strong market fundamentals including environmental benefits and savings in fuel cost between diesel and natural gas driving growth of natural gas engines; 

valuable strategic and business alliances with some of the world's largest engine and vehicle manufacturers creating significant barriers to entry; 

a highly capital efficient business model leveraging the manufacturing capabilities of our strategic partners; 

a deep and rich intellectual property base establishing a leadership position and licensing capabilities; and 

a solid and experienced senior management team.

Confidence Margins

Strong resistance $21.34 (+35%)

Light resistance 19.77 (+25%)

Light support $14.94 (-5%)

Strong support $13.39 (-15%)

Recommendation

From a fundamental perspective, this company is pretty overvalued. It is part of the wave of clean energy companies that have been sweeping the market over the past decade. It is interesting to note that the technicals point to an uptrend in the coming months and that there is some serious upside potential for this company.

Entry strategy

For the cautious investor:

Buy the stock for 16$ or less.

For the risk-taking trader:

The April 2011 17.50$ call option contract seems to be the right position to take, they can be acquired for 80$ per contract.

Exit Strategy

For the cautious investor:

Sell when the stock reaches 19.50$, or keep it until 21$ if the stock crosses the light resistance level.

For the risk-taking trader:

The contracts should be kept until the underlying reaches around 19.50$, as for the cautious investor.

Excel Maritime Carriers Ltd. (NYSE: EXM) Q1 2011 Analysis

Recent price: 4.64$

P/E Ratio: 1.36

3 month Target Price: 6.00$

Company Description

Excel is an owner and operator of dry bulk carriers and a provider of worldwide seaborne transportation services for dry bulk cargoes, such as iron ore, coal and grains, as well as bauxite, fertilizers and steel products. Excel owns a fleet of 41 vessels, among which one Capesize vessel is through a majority joint venture and, together with seven Panamax vessels under bareboat charters, operates a total of 48 vessels (6 Capesize, 14 Kamsarmax, 21 Panamax, 2 Supramax and 5 Handymax vessels) with a total carrying capacity of over 4.0 million DWT. Excel’s Class A common shares have been listed since September 15, 2005 on the New York Stock Exchange (NYSE) under the symbol EXM and, prior to that date, were listed on the American Stock Exchange (AMEX) since 1998.

Confidence Margins

Strong resistance $6.63 (+43%)

Light resistance 5.79 (+25%)

Light support $4.56 (-2%)

Strong support $4.00 (-14%)

Recommendation

As for many Greek shipping companies trading on american stock exchanges, Excel Maritime Carriers Ltd, suffered quite a downturn in the recent months. This company has been the prey of many short sellers as it filed for a $250 million notes offering. This should be seen as a temporary offset since the company is still in a financially acceptable shape. As the stock is close to it's resistance, one should see a buying signal for the upcoming uptrend.

Entry strategy

For the cautious investor:

Buy the stock for 4.80$ or less.

For the risk-taking trader:

The March 2011 5$ call option contract seems to be the right position to take, they can be acquired for about 25$ per contract.

Exit Strategy

For the cautious investor:

Sell when the stock reaches 6$, or keep it until 6.50$ if the stock crosses the light resistance level. There is little downside potential for this stock but one has to keep cautious in case the stock crosses the light resistance.

For the risk-taking trader:

The contracts should be kept until the underlying reaches around 6$, as for the cautious investor.

Fairfax Financial (TSE: FFH) is a Buy Once Again

For people who have ha the opportunity to follow my posts: my first report on the company, when I commented on the company taking it's subsidiaries private or on a recent acquisition over the past two years, know how much we are fond of Fairfax Financial Holdings limited. This Canadian based insurer has provided great returns for it's shareholders through astute acquisitions and massive gains on credit default swaps derivative contracts in 2008. I am very pleased with it's performance for the past two years I have held at the company's stock.

The company announced on January 18th 2011 that the 99% of the shareholders of First Mercury Financial Corporation that cast their vote had visibly almost unanimously voted in favor of the friendly takeover bid proposed by Fairfax Financial. This acquisition is very typical of the way the company's CEO, the great investor Vivan Prem Watsa manages these operations. For those who are not accustomed to the company, it's name stands for Fair and Frieldly Acquisitions and should not be mistaken with Fairfax county in Virginia. The company will generally come with a bid for a company that is usually higher than the target's current price and win the approval of shareholders.

It is interesting to note that acquisitions and major investments are managed at the holding company level by  Vivam Prem Watsa and his small team. As of the last quarterly earnings release, the company stated that it had $32.5 billion of assets and close to $8.9 billion of shareholder's equity or 416$ per share and this is certainly the first reason to buy the stock. We also know from the 2010 annual meeting slide presentation that when current management took over in 1985, the company's book value was 1.52$ per share. They have to be doing something right in the tough insurance business.

Many other factors have to be taken into account, but I have noticed that when the company is trading under book value per share, it tends to rally back to this value. At the current price of 383$ per share, that implies at least an 8.3% return if book value doesn't change by the next quarterly filing on February 17th 2011.

10 year target price: 910$

Disclosure: The author is long FFH.TO

Constellation Brands, Inc (NYSE: STZ) Q1 2011 Analysis

Recent price: 19.14$

P/E Ratio: 20.19

3 month Target Price: 21$

Company Description

According to their investor relations website, Constellation Brands, Inc. (NYSE: STZ and STZ.B) is the world's leading premium wine company that achieves success through an unmatched knowledge of wine consumers, storied brands that suit varied lives and tastes, and talented employees worldwide. With a broad portfolio of widely admired premium products across the wine, beer and spirits categories, Constellation's brand portfolio includes Robert Mondavi, Hardys, Clos du Bois, Blackstone, Arbor Mist, Estancia, Ravenswood, Jackson-Triggs, Kim Crawford, Corona Extra, Black Velvet Canadian Whisky and SVEDKA Vodka. Headquartered in Victor, New York, Constellation is an S&P 500 Index and Fortune 1000® company with more than 100 brands in their portfolio, sales in about 150 countries and operations at more than 40 facilities. The company believes that industry leadership involves a commitment to their brands, to the trade, to the land, to investors and to different people around the world who turn to our products when celebrating big moments or enjoying quiet ones.

Confidence Margins

Strong resistance $22.52 (+31%)

Light resistance 21.00 (+10%)

Light support $18.85 (-1%)

Strong support $17.35 (-9%)

Recommendation

The recent Q3 fiscal report of the company generated a buying opportunity for a cash flow rich company. In it's recent filing, it seems the company had lower sales than analysts expected. In our opinion, this doesn't account for a 14% drop of the stock over the last month. There is only little downside left (the company is planning to sell some non core assets), so one could take advantage of the current situation on expose oneself's portfolio to this wine maker.

Entry strategy

For the cautious investor:

Buy the stock for 19.50$ or less.

For the risk-taking trader:

The April 2011 20$ call option contract seems to be the right position to take, they can be acquired for about 60$ per contract.

Exit Strategy

For the cautious investor:

Sell when the stock reaches 21$, or keep it until 22$ if the stock crosses the light resistance level.

For the risk-taking trader:

The contracts should be kept until the underlying reaches around 21$, as for the cautious investor. There is a lot of potential upside in this stock, but one has to keep an eye is the stock goes under current levels.

Macy's, Inc (NYSE: M) Q1 2011 Analysis

Recent price: 23.45$

P/E Ratio: 21.56

3 month Target Price: 25$

Company Description

Macy's, Inc., with corporate offices in Cincinnati and New York, is one of the nation's premier retailers, with fiscal 2009 sales of $23.5 billion. The company operates about 810 Macy's department stores and furniture galleries in 45 states, the District of Columbia, Guam and Puerto Rico, as well as macys.com. The Bloomingdale's brand includes 40 stores in 12 states and bloomingdales.com. Macy's, Inc.'s diverse workforce includes approximately 161,000 employees. Prior to June 1, 2007, Macy's, Inc. was known as Federated Department Stores, Inc. The company's shares are traded under the symbol "M" on the New York Stock Exchange.

Confidence Margins

Strong resistance $26.13 (+11%)

Light resistance $25.06 (+7%)

Light support $21.90 (-7%)

Strong support $19.07 (-19%)

Recommendation

This popular retailers saw it's stock price stumble because of disappointing holiday season sales figures. Indeed those came below of analyst's expectations. A nearly 10% intra-day drop is however unjustified, since the profitability of the company should remain strong.

Entry strategy

For the cautious investor:

Buy the stock for 24$ or less.

For the risk-taking trader:

The May 2011 25$ call option contract seems to be the right position to take, they can be acquired for about 115$ per contract.

Exit Strategy

For the cautious investor:

Sell when the stock reaches 25$, or keep it until 26$ if you are more bullish. If the stock came to drop significantly under current levels, it will be better to close the position since the light support level would incur a near 7% loss.

For the risk-taking trader:

The contracts should be kept until the underlying reaches around 25$. This should provide a satisfactory return if the underlying reaches the target price.

eHealth Inc (NASDAQ: EHTH) Q1 2011 Analysis

Recent price: 12.13$

P/E Ratio: 21.56

3 month Target Price: 14.50$

Company Description

eHealth, Inc. is the parent company of eHealthInsurance Services Inc., the leading online source of health insurance for individuals, families and small businesses. Their ecommerce platform enables individuals, families and small businesses to research, analyze, compare and purchase health insurance products that best meet their needs. Their technology also enables them to communicate electronically with their insurance carrier partners and process consumers’ health insurance applications online. As a result, they simplify and streamline the complex and traditionally paper-intensive health insurance sales and purchasing process.

eHealth generates revenue primarily from commissions they receive from health insurance carriers whose policies are purchased through them by individuals, families and small businesses. They typically receive commission payments on a monthly basis for as long as a policy remains active. As a result, much of their revenue for a given financial reporting period relates to policies that were sold prior to the beginning of the period and is recurring in nature.

Confidence Margins

Strong resistance $16.00 (+32%)

Light resistance $14.83 (+22%)

Light support $11.70 (-4%)

Strong support $9.33 (-23%)

Recommendation

There is no apparent reason for the recent slump of stock price of eHealth. An interesting fact is that there has been a significant increase in the volume of shares transacted per day. Except for that irregular fact, the company should be valued higher.

Entry strategy

For the cautious investor:

Buy the stock for 13$ or less.

For the risk-taking trader:

The February 2011 12.50$ in-the-money call option contract seems to be the right position to take, they can be acquired for about 60$ per contract.

Exit Strategy

For the cautious investor:

Sell when the stock reaches 14.50$, or keep it until 15$ if you are more bullish. It is highly recommended to keep the position on check if it goes sour.

For the risk-taking trader:

The contracts should be kept until the underlying reaches around 13.50$. This should provide a satisfactory return if the underlying reaches the target price.

China Valves Technology, Inc. (NASDAQ: CVVT) Q1 Analysis

Recent price: 7.66$

P/E Ratio: 4.87

3 month Target Price: 11$

Company Description

As you can determine from the name, China Valves Technology, Inc. is part of the recent wave of Chinese companies listing in the US. As described on their website, the company develops, manufactures and sells metal valves. The Company’s products are essential to the thermal power, water supply, sewage disposal, oil and chemical, metallurgy, heat power, and nuclear power industries.

The Company is headquartered in Kaifeng, Henan Province, in the People’s Republic of China.

China Valves is an industry leader that sells its products throughout China and recently began exports to Europe and rest of Asia. The Company has internationally recognized certifications for a number of its products.

Confidence Margins

Strong resistance $12.64 (+65%)

Light resistance $11.46 (+50%)

Light support $6.10 (-20%)

Strong support $5.00 (-35%)

Recommendation

The recent price drop of the company's stock is easily attributable to the controversy surrounding their auditors, Frazer Frost, LLP. A lot of the companies that were audited by them were delisted from major exchanges in the recent weeks because of their lack of rigor in the auditing process. Even if this manufacturing company has a lot of intangible assets on their balance sheet, these can't be overvalued to the point of justifying such a drop in the stock price. As it can be seem on the graph, the stock has already recovered a bit one day after we found it but there is still room for growth in the coming months.

Entry strategy

For the cautious investor:

Buy the stock for 8$$ or less.

For the risk-taking trader:

The June 2011 10$ call option contract seems to be the position to take, they can be acquired for about 95$ per contract.

Exit Strategy

For the cautious investor:

Sell when the stock reaches 11$, or keep it until 12$ if you are more bullish. It is highly recommended to keep the position on check if it goes sour.

For the risk-taking trader:

The contracts should be kept until the underlying reaches 11$. Keep in mind the daily theta since the value of the contract will decay as the maturity approaches. The investor must keep a look for any drop in the stock price that would cross the light support line as it will have a disproportionate affect the option prices.

Investing Performance for 2010

2010 proved to be a very favorable year for me and as I will explain a little further, it is mostly due to the high concentration of almost half of my holdings in one specific company and the use of options contracts that were severy undervalued. More on that later.

The broad rally experienced by stocks during the year is fundamentally attributable to the quantitative easing measures by the Federal Reserve in the US and the rising price of commodities. Because of the intricacy of the canadian economy with the US economy and also because the canadian economy is so greatly influenced by the price of commodities. Provident Energy Trust helped fairly while providing a nice 10% dividend yield during the holding period.

My biggest position was certainly Winalta Inc. The company was going through a tough restructuring process and the uncertainty surrounding the company got it's price gyrating at historic lows during the summer of 2010.

There is also something new this year, options were a fair part of the performance. I acquired them at the end of the month of august as it seemed to me that the investment community was pretty pessimistic about earning results that would be soon announced by several companies and two of them had unfair bearish sentiment surrounding them. I was greatly rewarded as those position took full advantage of the earnings surprise inherent to those companies. 

I also managed to commit some mistakes. My position in Le Chateau Inc. did not perform the way I expected and it ended up slowing my performance. I also succumbed to greed at some extent when I decided to hold my position in my November out-of-the-money call options of Dryships Inc. after the earnings announcement, which caused them to decay as their maturity was getting closer, this proved to be a great error since the stock started sliding  in the days following their earnings release. Ironically, I departed myself from my options on Microsoft, which went to get deeply in the money. 

Here are my positions for the year:

Long:

Provident Energy Trust (TSE: PVE.UN)

Winalta Inc. (CVE: WTA.A)

Le Chateau Inc. (TSE: CTU.A)

Call options long:

Dryships Inc. (NASDAQ: DRYS)

Microsoft Corporation (NASDAQ: MSFT)

Taking those positions into account, my performance in 2010 was a surprising 80.4%, and the S&P/TSX did 14.4%, so it makes it that I over-performed it by 66%. This is very encouraging but I remain cautious, this performance might be due a great deal to chance and it is very improbable that I will be able to replicate it in the future. The downside is that even if I showcased a better performance than this index, it will get harder in the coming year to find such attractive opportunities and repeat a relative performance of this magnitude.

Clinical Data Inc. (NASDAQ: CLDA) Q1 Analysis

Recent price: 15.51$

P/E Ratio: -

3 month Target Price: 19$

Company Description

Clinical Data’s mission is to develop first-in-class and best-in-category therapeutics. The Company is advancing its late-stage drug candidates for central nervous system disorders and cardiovascular diseases, to be followed by promising molecules in other major therapeutic areas including asthma, diabetes, and neuropathic pain. Our late-stage compounds include: Vilazodone, which is currently under review for marketing approval by the FDA for the treatment of major depressive disorder (MDD); and Stedivaze™ (apadenoson), a potential best-in-class coronary artery vasodilator for pharmacologic stress testing, which is currently in Phase III trials ( ASPECT-1, Apadenoson Single Photo Emission Computed Tomography).

The Company's PGxHealth division applies its experience in biomarkers and drug development to generate potential first-in-class or best-in-class therapeutics

Confidence Margins

Strong resistance $21.48 (+38%)

Light resistance $19.23 (+24%)

Light support $13.31 (-14%)

Strong support $10.87 (-30%)

Recommendation

This stock is currently in an uptrend and is still close to the the bottom of it's trading range defined by its light resistance and light support. This makes for a great entry point.

Entry strategy

For the cautious investor:

Buy the stock for 16$ or less.

For the risk-taking trader:

The June 2011 17.50$ call option contract seems to be the most advantageous position, they can be acquired for about 380$ per contract.

Exit Strategy

For the cautious investor:

Sell when the stock reaches 19$, or keep it until 21$ if you are more bullish and think the is strength in the trend. It is strongly advised to get out of the position as soon as the stock price breaks under the light support since the next support line will incur major losses.

For the risk-taking trader:

The contracts should be kept until the underlying reaches 19$. Keep in mind that with a daily theta of -0.01, the value of the contract will decay as the maturity approaches. The investor must keep a look for any drop in the stock price that would cross the light support line as it will have a disproportionate affect the option prices.

Coinstar (NASDAQ:CSTR) Q1 2011 Analysis

Recent price: 41.50$

P/E Ratio: 28.49

3 month Target Price: 59.29$

Company Description

As posted on their official website, Coinstar, Inc. is a leading provider of automated retail solutions offering convenient services that make life easier for consumers and drive incremental traffic and revenue for retailers. The company’s core automated retail businesses include the well-known redbox self-service DVD rental and Coinstar self-service coin-counting brands. The company has approximately 28,500 DVD kiosks and 18,900 coin-counting kiosks in supermarkets, drug stores, mass merchants, financial institutions, convenience stores, and restaurants.

Confidence Margins

Strong resistance $67.56 (+63%)

Light resistance $59.29 (+43%)

Light support $38.75 (-7%)

Strong support $35 (-16%)

Recommendation

Coinstar went down sharply recently after it announced a reduction for its fourth quarter earnings from continuing operations guidance to between $0.65 and $0.69 per share after the bell Thursday, from prior expectations of $0.79 to $0.85 per share. The company also reduced its forecast for the full year 2011, it is now expecting earnings from continuing operations to be between $2.60 and $3.10 per share, down from previously stated guidance of $3.00 to $3.50 per share. This should be seen as a temporary downturn. Even if the company is still in growth stage, a nearly 30% drop has to be seen as a short term opportunity to accumulate on this stock, it should be quickly back up in the 50$ levels.

Entry strategy

For the cautious investor:

Buy the stock for $42 or less.

For the risk-taking trader:

The best thing to do here is to purchase the April 2011 50$ call option contracts for about 135$ per contract. They should yield the highest return as the stock gets closer to it's target price.

Exit Strategy

For the cautious investor:

Sell when the stock reaches 59$, or keep it until 65$ if your own analysis is very bullish.

For the risk-taking trader:

The moment to get out of the position should be the same as for the cautious investor. The investor must keep a look for any drop in the stock price that would cross a support line as it will have a disproportionate affect the option prices.

Q4 Performance Review (DRYS, DSPG, DUK, ITRI, JOEZ, KLIC, MSFT, NDN, OCLR)

Since performance evaluation is an important part of investment analysis. Here is how our recommendations performed since they were issued, ordered by return for the cautious investor if they had been held until market closes at the end of 2010:

OCLR:   + 52.6% 

DRYS:   + 20.1% 

DSPG:   + 11.1% 

MSFT:   + 8.1% 

ITRI:      +1.3% 

DUK:     +0.9% 

KLIC:     -1.8% 

NDN:     -2.4% 

JOEZ:     -4.3%  

Some of the picks returned modest performance, but they showcased more impressive returns after the end of the quarter. Stay posted for forthcoming recommendations for Q1 2011.

Jim Chuong Investing Performance in 2010

A little over a year ago, I wrote an article about a young canadian investor who had been showcasing outstanding returns over the past decade. It seems than he fared very well since the last time I wrote about him.

As stated previously, Jim Chuong started seriously managing funds in 1998 with a staggering 68% return for the period. His objective was to beat the S&P 500 index and he has managed to do it 9 times since then. An investor who started with 10 000$ invested with him at the beginning of his career would have found himself with  a whooping sum of more than 66 000$ at the end of 2010.

As can bee seen in the chart below, his fund got hit in 2008, as many did, but Jim Chuong still managed to generate positive returns even for investors who got in at the beginning of 2008.

For those who have not done it yet, his website contains the annual letters he provides to explain his performance for the year. They are very insightful as he even adds explanations about the topics that prevailed during the year. He has not yet completed the 2010 letter but he will post it shortly. One can also find the rare copies available on the internet of the partnership letters of Warren Buffett and Benjamin Graham.