Editor's Note: Richard Suttmeier is a columnist for TheStreet.com whose Tech Trading Diary appears every Tuesday on TheStreet.com. He is also the author of TheStreet.com Technology Report newsletter.
I am wondering how do you decide the risky level, weekly risky level and semiannual risky level? How do I determine the selling point? Say I bought Yahoo! (YHOO) at $32.88, at what level I should get out? Thanks.
YHOO at $33.53 is 34.1% undervalued with a negative weekly chart profile. I would add to a long when the stock is 40% undervalued. I would book profits on strength to my semiannual risky level at $37.28.
I read your article with interest but you missed mentioning the value and risky levels for Google (GOOG) - Get Report. Is that because the stock is fluctuating rapidly?Last week was a good week for me since I am long on both eBay (EBAY) - Get Report and SanDisk (SNDK) . Both gained for a little different reason, which had me wondering if you address the business category and industry medians in your calculations.Also, you mentioned estimates by analysts and, having once been bitten by the likes of Blodget, I am wondering if you look at estimates from specific analysts or averages?Thanks.
I need the stock to have nine years of data to provide value and risky levels for the long term -- Google has not been around long enough. My models evaluate all sectors and industries, but I concentrate on technology on
My model price uses 12-month historic and forecasted EPS values and the current 30-year Treasury yield as primary determinants. In calculating risk/return values such as the Sharpe ratio, the historic or forecasted EPS periods are five years. Overly simplified, when the yield on the 30-year is declining, the model price of the stock increases. When the current or projected earnings per share increase, the model price increases. When the yield on the 30-year is rising, the model price decreases.
I get my data from ValuEngine, which uses three data vendors: 20-minute delayed quotes come from Data Transmission Network; analyst data and estimates come from IBES, a division of Thomson Financial; and other fundamental data comes from CapitalIQ. As the data enter, my models are immediately updated.
I would love to hear what affect last week's price decline in VeriSign (VRSN) - Get Report had in your valuation model. Presumably it has greater attraction. It always strikes me as amusing how much of this Wall Street thing is so much a game of chasing the current earnings machine. A little hiccup and we run for the hills. Hope to hear your evaluation of the situation.Regards,
-- Scott Johnson
VRSN is a great example of how my models work. The morning after it reported earnings, shares opened at 40% undervalued according to my fundamental model, which prompted me to add VRSN to the model portfolio in
TheStreet.com Technology Report
at $24.06. This was not a member of the portfolio before because its weekly chart profile was negative from the close of $30.47 on June 24. The stock has weekly close below the 5- week modified moving average and declining 12x3 weekly slow stochastic. Now that it's a core holding, I will be looking to buy more at a lower level. I have a price target posted in the newsletter.
I think the volatility following earnings is caused by two factors. One, the hedge funds have become reactionary -- the herd syndrome. Two, Wall Street analysts are still Wall Street analysts.
Could you please tell me where we will be byend of this year and next? Which secter willdo better by the end of next year? Specificstocks that are undervalued? How aboutdividend stocks, are they good to buy in thismarket?
My newsletter, TheStreet.com Technology Report, presents the risk/reward for tech, which is the cheapest sector. My
target is 2380, and my model portfolio gives you the best stocks.
While primarily being a daytrader, I do have longer-term positions in EMC (EMC) and Cisco (CSCO) - Get Report. I'm still of the mindset that EMC will break out eventually past the $15 area. I remember several years back when it traded $15 to $18. I am also frustrated with CSCO's inability to hold $20. I also wonder how the techs will do going into the seasonally strong end-of-year timeframe since already having had a nice move. Your thoughts would be appreciated.
Both CSCO and EMC are in my model portfolio, so I agree with you.
As you look to cover tech stocks potentially tied to the cyber-security aspect of Homeland Security, I'm sure you have your own short list of companies to watch. If I may, I wanted to flag Internet Security Systems( ISSX) for you. Might be one to watch. It is deeply involved at the vulnerability research, information gathering/sharing level and the product/solution levels of protecting the national and global critical infrastructure.
-- Roger Fortier
Internet Security Systems is expected to report EPS of 20 cents. My model shows ISSX 33.2% undervalued with a positive weekly chart profile. A negative reaction to earnings should leave shares below my quarterly value level at $22.05. A positive reaction to earnings should result in a test of my quarterly risky level at $25.04.
( RSAS), which is in my model portfolio.
IWOV is a good choice, as it is more than 40% undervalued. IWOV should start to gain price momentum on a close this week above the $7.67/$8.11 range, which are the stock's five-week modified moving average and monthly risky level, respectively.
With HLTH 18.9% overvalued, I would be booking profits between my monthly pivot at $10.85 and my semiannual risky level at $11.23. CAT is 3.6% overvalued. I would book profits with the stock between my monthly pivot at $51.34 and my monthly risky level at $52.81.
Does your work give any indication about the period of time one can reasonably expect GOOG to be in correction mode? Short? Intermediate? Long? Also, any downside target where it could reasonably be expected to have worked off its overbought condition?Thank you.
Time and price are difficult to predict. My work suggests a risk/reward profile that indicates GOOG may have seen its high for at least the remainder of this quarter. Looking at the daily chart, the next support is the 50-day MA at $283.40. The weekly chart profile could stay overbought for another three to five weeks, with a weekly close below the five-week MMA at $283.48 needed to pull the stock out of overbought territory. Fair value is $276.78, and there are several price gaps, with the first major one around $266.
I currently am a Pre-SiliconVerification Engineer at Intel for the StorageComponent Division (SCD) of the Storage Group (SG) -- myconcentration is on I/O Processors (part of the I/OAcceleration Platform). I have also worked inFront-End Design for the Network Processor Divison ofwhat used to be ICG, as well as Post-Si Debug ofItanium products. If you have any questions withinthese products groups, as in clarifications ofproducts or platforms, let me know. Millennium Cell( MCEL) has made a nice little run, a nice little 20%jump over the last week or so. What a volatile marketright now in fuel cells: Ballard Power Systems (BLDP) - Get Report, Plug Power (PLUG) - Get Report, MCEL and FuelCell Energy (FCEL) - Get Report arestocks I have been tracking/buying/selling).Which of these four companies (that I listed above) doyou feel are best positioned for further growth overthe next couple of years? Thanks.
Thank's for the info, sounds like exciting times for Intel and the chipmakers after being in the doldrums for a while. I would avoid BLDP. PLUG and MCEL are more than 40% undervalued. FCEL is trading around fair value, but with the best weekly chart profile.
What do you think of XTO Energy's( XTO) valuation? Is it time to buy or to sell this stock?
Energy is the most overvalued sector, so I am looking to book profits in energy. XTO is 7.8% overvalued with monthly and semiannual risky levels at $36.55 and $36.62, and the 52-week high at $37.73. I would book profits in this price zone. A weekly close below my monthly pivot at $35.21 provides a first warning that shares will not trade to a new high.
Is Emulex's (ELX) recent pullback temporary or the beginning of a downtrend? What do you think of this stock in comparison to Western Digital (WDC) - Get Report and Seagate Technology (STX) - Get Report?Thank you very much for your response.
ELX is the cheapest fundamentally at 39.6% undervalued, but the weekly chart shifts to negative on a weekly close below its five-week modified moving average at $18.86. WDC is 16.7% overvalued and a weekly close below my monthly pivot at $14.50 is a warning. STX is 17.8% undervalued, but a weekly close below my quarterly pivot at $18.37 is a warning.
I liked Sirf Technology( SIRF) at about $16 and now it's up 5 points after its quarterly report. What's a good point to buy in now?
SIRF is too new to give a detailed profile. Based upon the limited data available to me, the stock is 47.6% overvalued with an extremely overbought weekly chart profile. With such strong momentum, entering now would be extremely speculative, but if you decide to do so, employ a protective sell stop (limit loss to 10%). If you wish to have a level at which to buy on weakness, I would use the $19/$18.75 range.
Perhaps you could clarify your analysis. In today's piece you wrote that Corning (GLW) - Get Report is 45.5% undervalued, and beat earnings estimates by 2 cents, so selling is a better action than buying. That seems contradictory. Why wouldn't you want to buy a stock that you believed was 45.5% undervalued? Seems like a significant amount of upside price growth to me. Thanks.
Let's access the risk/reward for GLW. Normally when a stock gaps above a level it comes back down to it, where you can buy, and that level is $17.98 this week. Next week the level may be $18.51. After yesterday's rally, GLW is now 37.1% undervalued.
Longer term (over the past two years) GLW has been undervalued by enough to be a core holding in a portfolio. The weekly chart profile shifted to positive from $12.32 on April 22, 2005, justifying adding to a position. With the stock now overbought on the weekly chart profile, there is nothing wrong with booking a profit on the positive earnings report, to buy back lower.
This is part of my
buy and trade strategy.
Nortel( NT) is to report on Aug. 3. Is it a value buy? What's your target in three to six months? Thank you.
My database shows that there are some financial data not available for NT and hence no calculation for fair value -- that's a red flag. The weekly chart profile is no help as shares have just moved sideways for so long. I would not buy NT as a core long until these data points are cleared up. If you are a disciplined trader, consider buying at my monthly value level at $2.52 and sell at my quarterly risky level at $3.15.
Richard Suttmeier is president of Global Market Consultants, Ltd., chief market strategist for Joseph Stevens & Co., a full service brokerage firm located in Lower Manhattan, and the author of
newsletter. At the time of publication, he had no positions in any of the securities mentioned in this column, but holdings can change at any time. Early in his career, Suttmeier became the first U.S. Treasury Bond Trader at Bache. He later began the government bond division at L. F. Rothschild. Suttmeier went on to form Global Market Consultants as an independent third-party research provider, producing reports covering the technicals of the U.S. capital markets. He also has been U.S. Treasury Strategist for Smith Barney and chief financial strategist for William R. Hough. Suttmeier holds a bachelor's degree from the Georgia Institute of Technology and a master's degree from Polytechnic University. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he invites you to send your feedback --
to send him an email.