|Company Name||Date Posted||Price at Close||Price on 9/30/2005||% Gain/Loss||Under Valued||Weekly Chart||Value Level||Pivot||Risky Level|
|Stocks Between $1 and $3|
|Actuate||8/22/2005||$2.38||6.30%||56.80%||Pos||2.14 Q||3.17 Q|
|Lucent||8/22/2005||$2.87||$3.25||13.24%||55.00%||Pos||2.62 M||4.47 Q|
|Stocks Between $5 and $10|
|Interwoven||9/6/2005||$8.40||$8.17||-2.74%||75.00%||Pos||7.63 Q||10.17 Q|
|Stocks Between $3 and $5|
|Intellisync||9/7/2005||$4.05||$4.44||9.63%||55.80%||Pos||4.03 M||4.64 M||10.36 A|
|Terayon||9/7/2005||$3.40||$3.90||14.71%||29.40%||Pos||3.45 M||4.16 Q|
|Office & Computer Equipment|
|Ditech Comm (DITC:Nasdaq)||9/21/2005||$6.79||$6.74||-0.74%||39.10%||Neg||4.25 M||11.75 S|
|Tellabs||9/21/2005||$9.50||$10.52||10.74%||34.30%||Pos||8.15 M||10.37 M||11.11 Q|
|Tut Systems (TUTS:Nasdaq)||9/21/2005||$3.10||$3.25||4.84%||75.00%||Neg||2.62 M||3.61 M||4.68 S|
|Westell Tech (WSTL:Nasdaq)||9/21/2005||$3.64||$3.64||0.00%||36.10%||OS||3.50 Q||5.69 S|
|Computer Makers & Electronics|
|Gateway (GTW:NYSE)||9/21/2005||$2.60||$2.70||3.85%||74.90%||Neg||2.23 M||2.80 Q||5.47 Q|
|SunMicro (SUNW:Nasdaq)||9/21/2005||$3.94||$3.93||-0.25%||24.20%||Pos||3.66 Q||5.14 Q|
|SkyWorks (SWKS:Nasdaq)||9/21/2005||$6.84||$7.02||2.63%||60.10%||Neg||6.07 M||7.74 Q||10.53 Q|
|Entrust (ENTU:Nasdaq)||9/21/2005||$5.51||$5.60||1.63%||0.40%||Neg||3.76 Q||5.44 M||6.17 M|
|BEA Systems (BEAS:Nasdaq)||9/23/2005||$8.43||$8.99||6.64%||47.20%||Neu||8.40 Q||9.28 W|
|Sapient (SAPE:Nasdaq)||9/23/2005||$6.37||$6.25||-1.88%||45.60%||OS||5.70 W||6.71 M||9.97 Q|
|WebMethods (WEBM:Nasdaq)||9/23/2005||$6.45||$7.07||9.61%||36.30%||OB||6.38 Q||7.17 W|
|Source: Global Market Consultants|
Managing Risk/RewardOn Aug. 22, I wrote that Actuate was 62.9% undervalued and showed a monthly value level of $2.20. This price held on weakness Aug. 29. The shares are currently 62% undervalued. My quarterly value level at $2.14 should hold on weakness, and the upside is to my quarterly risky level at $3.17. Lucent is 55.0% undervalued vs. 73.4% on Aug. 22. My monthly value level of $2.62 should hold on weakness, and the upside is to my quarterly risky level at $4.47. Ciena has been weak since Aug. 22, but it held my monthly value level for August at $2.16. The stock remains 75% undervalued. My quarterly value level is $2.13, and I don't have a risky level at this time.
Guidelines for Price LevelsLow-priced stocks, those trading for less than $10, are particularly attractive to individual investors, because it's easier to establish a large position in these stocks with less capital. But before you invest in any of the stocks that fall into any of the four categories I've outlined, please consider the amount of risk you can tolerate, and be aware that all of the stocks in these groups should be considered speculative. Options on Survival: This group includes stocks trading in the $1-to-$3 range. Stocks in this category are option plays on the company's survival. Buy them only if you can afford to lose 100% of the investment, because stocks become worthless at bankruptcy, which is a high risk for companies with stocks in this price range. Margin Threshold Stocks: Stocks in this group trade for less than $5 but more than $3. Many brokerage firms will not allow their clients to buy stocks trading for less than $5 on margin. Keep in mind that these stocks trade below $5 for a reason, like their Options on Survival kin; these companies are at risk for bankruptcy. However, unlike members of that lower-priced group, stocks that trade between $3 and $5 have a better chance of survival. Five-and-Dimers: This class of stocks, those that trade between $5 and $10, tends to stay in that range. Many mutual fund managers, according to their fund guidelines, may not own stocks trading below that upper level. If there is a reason for a stock to fall below $10, expect to see selling pressure from the mutual fund managers. Once the selling subsides, and if the stock stays above $5, some speculation is merited in stocks that still have positive profiles. A good strategy for members of this group is to buy tech stocks trading for less than $10, but to keep a sell-stop in case the stock breaks below $5. Stocks from the Five & Dime should be considered speculative. But they can be rewarding if you find the ones that can get back above $10 before they break below $5. A positive chart profile is a good indicator for stocks trading in this range.
My Keys to TradingFundamental Screens: I calculate a fair value for every stock, which is the price at which the stock would trade at in a perfect world. Fair value is not a price target. Fair value is based on the stock's past data and projections for the future. Fair value is based on the trailing 12-month EPS, the forward 12-month estimated EPS and the yield on the 30-year Treasury. These data points are weighted on the basis of a historical analysis of the stock's price history, and 17 other variables influence the calculation, according to the stock's sector and industry group. Weekly Chart Profile: A stock with a positive profile has a weekly close above its five-week modified moving average with a rising 12x3 weekly slow stochastic, which is a measure of momentum on a scale of zero to 100. A reading below 20 is oversold, while a reading above 80 is overbought. Value Levels, Risky Levels and Pivots: A value level is a price at which buyers should emerge on share-price weakness. A risky level is a price at which sellers should reduce holdings on share-price gains. A pivot is a value or risky level that was violated in its time horizon and that acts as a magnet during the remainder of that time horizon. These levels are calculated in weekly, monthly, quarterly, semiannual and annual time horizons, on the basis of the past nine closes in each time horizon. My theory is that the closes over a nine-year period are the summation of all bullish and bearish events for that market or specific stock.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider Ditech Communications, Tut Systems, Westell Tech and Entrust to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.