Sunday, June 29, 2014

Solarwinds Inc. Double Down - Pullback Breeds Opportunity, ~30% Upside Potential

This past Friday we doubled down on Solarwinds Inc. buying 78 shares at 38.23.  With strong support at $37.00 confirming upward momentum the short-term technicals validate an entry while the long term fundamentals remain intact. We see appreciation potential of over ~30% from current levels.  Solarwinds continues to generate outsized free cash flow to fund M&A activity. Notably they recently acquired Pingdom, which will allow the company to shift performance management from on-premise technology to the cloud. With strong focus on international sales expansion and management actively seeking acquisitions to expand its product portfolio Solarwinds offers opportunity at these current levels. Compelling historical revenue growth rates, margins and a deep loyal customer base of Information Technology professionals help us confirm the assertion. As we look for EBIT to normalize in 2014 after considerable investments were made in the business during the past year we believe further revenue streams will be unleashed. Particularly regarding cloud security management. Furthermore, Solarwinds continues to drive deeper penetration with its existing client base as most of its revenue, 62% is reoccurring. Solarwinds is a strong company with a compelling growth story. We are maintaining a $52.00 PT, which represents a 29x multiple to our FY14 EPS estimate of $1.70 vs street consensus of $1.64. Currently the stock is trading at 33.5x times, slightly cheaper than historically at 36x times. In conjunction with the company’s profitability and earnings potential we see significant upside appreciation and reiterate a BUY rating.

Tuesday, June 24, 2014

ROSE -5.15%

With the energy sector as a whole being down almost 2% today, Rosetta Resources took a 5.15% hit in todays trading. This was expected out of energy stocks sooner or later, and especially E&P companies. One reason is the recent "tear" this stock has been on due to turmoil around the world specifically in Iraq, with oil prices spiking over the last weeks companies like ROSE are inclined to pump out more oil than normal which attracts investors. We saw an example of this with the recent large appreciation in stock price. With no overwhelming bad news on the stock, I believe this 5% dip is just investors collecting their profits with the recent upside we've witnessed. With this being said, our investment thesis is still in tact and theres no urgent action to be taken on the stock.

Sunday, June 15, 2014

Double Down On Citigroup

     Back in March I decided to cut Citigroup to a half position because of the uncertainty regarding it's capital plan rejection.  Although a raise in dividends isn't likely until 2015, it's rejection has largely unaffected the stock, and now there is an opportunity to regain the full position.
On Friday news came out about the pending investigation into Citigroup's part in writing shoddy mortgage backed securities.  Citi offered $4 billion to resolve the allegations, but the justice department is looking for $10 billion.  They also disagree on the severity of Citi's involvement.  Citigroup claims it shouldn't owe nearly as much as the other large banks (BAC, JPM) because it's net dollar amount of sub-prime MBS was a fraction of the amount written by the other large banks (a couple hundred billion less).  The stock dropped 1.4% representing a nice buying opportunity.

Although there are a few headwinds in front of Citi (Mexico fraud, MBS allegations) none of this has affected the ongoing business of Citigroup.  Also, my thesis is intact. Citi performed well in Q1 posting earnings which beat estimates, and cut back expenses above my expectations which should continue moving forward.  They've continued to decline their bad assets in Citiholdings, which has been a drag on earnings.  And volatility has returned to recently calm markets, so trading revenue for the big banks shouldn't decline as much as expected.  Citigroup is set to outperform.

For these reasons, along with the stock being at $47.59, (two cents above original buy-in) I believe we should initiate a full position.

Monday, June 2, 2014

NOV -9.5% premarket

After completing its spinoff of its independent distribution business, ticker DNOW, NOV took a hit in pre market trading this morning, down as much as 9.5%. Clay Williams now holds the executive chairman position with NOV being that Merrill Miller Jr., the previous executive chairman stepped down and holds the same position with the new publically traded company DNOW. Today is the first day NOW will be traded on the stock exchange. As for NOV being down quite a bit in pre markets, I believe it is a over reaction by the investors with the change that is taking place today. I don't think this is a reason to get out of the position just yet and am expecting a quick recovery of the stock price. I will report back to the group when I have more information about this situation for any further action. Thank you.