April 23 column on
, I discussed my inclination to invest in battered stocks with my deep-in-the-money (DITM) call strategy. As I said then, the market tends to go to extremes, meaning share prices generally reach higher highs and lower lows than true fair market value would dictate.
Another example of this came Tuesday, when
, a supply-chain management company, plunged 30% in one day after releasing lower-than-expected earnings and announcing the retirement of CEO Michael McGrath.
This move is an overreaction. True, the company reported earnings of 13 cents a share on revenue of $65.6 million, falling short of analyst EPS expectations of 22 cents a share on $64.9 million in revenue. But although earnings per share missed by a lot, the revenue was largely there.
And after removing several one-time items, earnings per share climb to a more respectable 16 cents. Plus, when you consider the company posted just 4 cents in EPS a year ago, it's clear this company is growing. In fact, ValuEngine rates the stock a buy. Also, in doing my homework -- which includes a daily 4 a.m. telephone call to
contributor Richard Suttmeier -- I discovered that the stock has a fair value of $22.55, according to Suttmeier; it closed Wednesday at $18.10.
The growth in the past year should continue this year. With the earnings release, management did not change guidance for the 2007 fiscal year, which is a promising sign for a company that just got slapped. I find it appealing that i2 didn't bail out and guide lower, as this would have been the easy thing to do with its stock hammered.
I also appreciate that the company did not diverge from its 2007 full-year guidance. Moreover, if we read between the lines, i2 seems confident it will continue to produce in the remainder of the year.
Toward the end of the first quarter, i2 announced that it had reached a deal with
to use the i2 Freight Matrix product to improve Costco's performance and lower the retailer's transportation and distribution costs. This is a huge score for i2, because Costco's size and exposure should help i2 increase its own exposure and revenue.
At the very least, this company is due for a rebound from its 30% decline. The revenue and earnings growth were there during the first quarter, and the new deal with Costco provides a large, credible and valuable addition to i2's clientele. I want to give this stock plenty of time to get its legs, so I'll go all the way out to December for today's DITM trade, placing an order to buy 10 of the December 15 contracts (JQLC) using a limit order at $4.50 or better.
Game of Life
The initial month of the baseball season has been completed, with the divisional races and statistical leaders containing some surprises, as well as the usual suspects. The Braves and Mets continue to lead the NL East, as the Marlins and Phillies struggle to play .500 ball.
The Brewers continue to maintain a comfortable cushion in the NL Central, while the Diamondbacks and Dodgers battle for supremacy in the NL West, with Barry Bonds and the Giants nipping at their heels.
The Red Sox have created a little distance between themselves and the second place Blue Jays in the AL East. Meanwhile, despite A-Rod's incredible April, the Yankees continue to struggle to stay out of the cellar. To add injury to insult, Phil Hughes, the Yankees' 20-year old prized pitching prospect, injured his left hamstring on Tuesday in the midst of pitching a no-hitter into the seventh inning of his second career start.
The injury is expected to sideline Hughes for four to six weeks, and this is certainly unwelcome news to Joe Torre, whose job security is certainly in question at this point. Rounding out the AL, the Indians lead the Central Division, with the Angels on top in the West.
Not surprisingly, A-Rod's 14 long balls lead the majors. Perhaps also not surprising, a Philadelphia Phillie was leading the National League in homers with nine until Tuesday night. The surprise is that it was not the gargantuan MVP of last year, Ryan Howard, but his diminutive teammate, shortstop Jimmy Rollins. Chipper Jones has surpassed Rollins and now leads the NL with 10 dingers. Josh Beckett, who has emerged as the Red Sox's ace thus far, is off to an impressive 6-0 start.
In the NBA playoffs, the young Chicago Bulls showed no respect to Shaq Daddy, D-Wade and their elders as they turned off the Heat in a convincing four-game sweep. Thus, the defending NBA champs are gone after the first round. Amazingly, last year's other finalist, the Dallas Mavericks, are barely alive as a result of a monumental collapse by the Golden State Warriors, who somehow managed to blow a 9-point lead with under two minutes to play in Game Five on Tuesday night. Nonetheless, the Warriors still enjoy a 3-2 series lead with Game Six tonight at Golden State. Many considered the Mavericks the favorite to win it all this year, particularly in light of their incredible regular season, when they won 67 games.
This Saturday, the focus of sports aficionados will shift to athletes of the four-legged variety. Roses and mint juleps will be in abundance at Churchill Downs with the 133rd running of The Kentucky Derby, the gold standard of thoroughbred racing.
Undoubtedly, amidst all the excitement, there will be some sadness as the horse set remembers the magnificent Barbaro, last year's champion, who lost his life to laminitis, after a gallant battle.
The Players Club recognizes not only the magnificence of the horses but the athletic ability of those who are entrusted to steer them to victory, the jockeys. Giants in heart, jockeys are the symbol of under-appreciated talent. The Players Club appreciates all talent, regardless of the size of the individual who possesses it.
Therefore, by providing guaranteed recurring cash-flow through our strategic partner, The Players Club endeavors to take size out of the equation, and reward talent and ingenuity.
Always remember: Life is a journey, enjoy the ride!
At the time of publication, Dykstra had no positions in stocks mentioned.
Nicknamed "Nails" for his tough style of play during his Major League Baseball career, Lenny Dykstra was an integral member of the powerful Mets of the mid-1980s, including the world champion 1986 squad, and the Phillies in the early 1990s.
Today, Dykstra manages his own stock portfolio and serves as president of several of his privately held companies, including car washes; a partnership with Castrol in "Team Dykstra" Quick Lube Centers; a state-of-the-art ConocoPhillips fueling facility; a real estate development company; and a new venture to develop several "I Sold It on eBay" stores throughout high-demographic areas of Southern California.