My Stock Winners

The bigger they are, the harder they fall.” This old saying sums up the worst nightmare of every Amazon investor, and every investor in today’s market. Dare ye buy at the top?

Every day, Nasdaq.com publishes a list of the market’s top stocks — the companies whose shares have just hit their highest intraday price of any time in the past 52 weeks. Every day, investors read this list and tremble — some with greed (big mo’, baby!), and others in pure, unmitigated, acrophobic terror (whatever you do, don’t look down).

You could heed them. You could ignore them. You could take the stock tickers and construct anagrams from ‘em. For my money, though, the best course of action is to use the “52 week high” list as just a starting (or selling) point for further research. After all, stocks can go up for many reasons, and it’s up to you to decide how worthy those reasons are.

With that said, let’s meet recent list of contenders, drawn from the latest “52 week high” list at Nasdaq.com. What does our panel of more than 65,000 stock gurus (and counting) have to say about them?

Sell Amazon (AMZN)
Use that profit to buy (HIMX)

AMZN is at a very high rick level, with a PE ratio of 100, month then double of GOOG and YHOO.

Legg Mason/miller and other funds chose to sell significate amounts of stock prior to June 30, 2007 as reported last week. Of course when it went to $89.00 in late July we do not know yet if these institutions completely liquidated, or not.

All of the millions of shares they sold, of which in most cases have been held for over twn years were sold below $68.00 per share, as this was the highest PPS prior to 6/30/07.

If these major holders of the stock believe that amzn is a sell @ $68.00 what would lead you, as a long to believe that the stock is worth more than this price.

Everyone should know that AMZN is overvalued and carries tremendous risk at these levels. But this stock can also go higher because it was never rational to begin with. I think that there is a good chance that we head into the 60s next week. The market should resume its selloff and AMZN should participate.

There are too many reasons to be on a short position on AMZN
1)This stock is not driven by reality, it’s driven by fantasy. AMZN has a P/E near 100 and PEG of 3 and it is propped up by institutional money. The shorts should just hold on and leave for the summer. After next Christmas AMZN will 50% off from today’s price.

2)NYtime also says that “Online Sales Lose Steam” in a story published over this past weekend.

3)Forrester Research, a market research company, projects that online book sales will rise 11 percent this year, compared with nearly 40 percent last year. Apparel sales, which increased 61 percent last year, are expected to slow to 21 percent. And sales of pet supplies are on pace to rise 30 percent this year after climbing 81 percent last year.

4)I will share the technical analysis on AMZN in tomorrow’s edition.

Don’s stop trading!

Citigroup $67
Morgan Stanley $56
Merrill Lynch $53
JP Morgan c.$45
Morningstar $40

What does this tell you?

AMZN is so overly bought, and it is heading down.

Using Amazon’s upper end EBIT guidance for FY07 ($563M) gives us a forward valuation of 48x/EBIT. In addition to being an absurd multiple on its own right, this is well above EBAY (20-25x) and GOOG (25x-30x), both of whom I would argue have more sustainable competitive advantages, more attractive margins, and as good if not better growth prospects than AMZN. Even if we assume AMZN is worth the high end of GOOG’s EBIT multiple, the stock would be worth about 40% less than it is now. If use consensus forward P/Es rather than EBIT, the numbers look even worse: 70x 2007 for AMZN, 33x for GOOG, and 23x for EBAY. Using GOOG again as the upper end of a market valuation would result in a drop of 0ver 50% from current levels. Using EBAY (arguably a more fitting comp) would result in 67% drop.

Here’s my take on AMZN.
Stock is near its March 2000 glory and has almost doubled in recent months. Currently trading at 123 times earnings and 57 times foward earnings. This far exceeds EBAY (20 times earnings) and GOOG (27 times earnings).

The price now exceeds even the most optimistic analysts. The next earnings release must WOW to the upside or the stock will tank. Now is may be a good time to lock in some profits
It is obviously grossly overvalued, and over the long term will have to fall back down. The fundamentals always win long term but short term anything can happen. The problem is that it is also one of the most manipulated stocks that I have ever traded and is being pumped so much that calling a top can be extremely risky. If you have the ability to ride out the short term when it corrects I believe you will come out ahead but it can be a bumpy ride until it does. If you do want to build a short position I would highly suggest getting in small so you can not get squeezed out and add more as it moves up or down over time(again in small increments). Don’t get in highly leveraged where you will have to cover on short term rises. That can force you to loose it all, and will push up the price more for everyone else. I can afford to ride this baby up over 100, if I have to, averaging up the entire way. I really don’t think it will ever get there but I am prepared if it does. I am fairly confident that in a years time it will be in the 50s or lower, but I do not know where the top is or how long it will take to get there.

As far as options, I find them harder because not only do you have to be right, you have to be rigt within a time deadline. I don’t know when that deadline is. So in this case I’d rather be a long term short. Happy shorting

Standard and Poor’s rating is at a “Sell” as well….

We all know Amazon (AMZN) reasonably well and have tried its services; it is clearly one of the e-commerce success stories. The recent earnings announcement pushed the stock up to $63. But is this stock worth a $24 bn market cap?

Amazon started by selling books online. Great brand, broad catalogue and efficient business model. But after reaching a very high penetration rate in North America and the Rest of the World it is getting harder and harder to find new ways to maintain the high growth rates expected by the market. Amazon Prime is a very good initiative in order to maintain and even grow its market share; however it comes to a price in terms of reduced profitability. And we are talking about a company whose operating margin in 2007 will be in the mid single digit.

Competitors are catching up. When it first entered the market Amazon was offering products at a huge discount to its competitors. And it became a benchmark. It took them a lot to react, but, in order to survive, they had to cut prices and gain efficiency. The gap between Amazon and all the other players is reducing and the trend cannot be but in one direction.

Given the difficulties in its core business, Amazon diversified over time and became a retailer of a larger range of items. Most of these new revenues come from consumer electronics, audio & video, cell phones, etc which are not exactly the easiest products to deal with (they have low margins and become obsolete very soon).

Working capital is a source of cash for Amazon: it receives the money from the client before it has to pay the suppliers. This is a very good situation while the business is growing at 20% p.a. BUT will become an issue (declining cash flows) in the near future when growth rates will gradually slow down.

The company gradually improved its ROIC from 2001 (-20%) to 2004 (+44%); but the environment worsened in 2005 (ROIC of 35%) and in 2007 (32% in the IQ). Couldn’t this be a sign that the competitive landscape is getting tougher for Amazon?

Think about the different phases in the low cost airlines industry: 1) only traditional airlines and high fares, 2) introduction of a different business model (low cost and low fares), 3) low cost airlines increase market share while traditional airlines are looking for ways to catch up, 4) traditional airlines adopt a segmentation strategy and gain back price sensitive customers. Are we far away from seeing something similar happening to e-commerce?

Now, all these issues could be “business as usual� for a value company. The problem here is that we are talking about a company whose market cap is $24bn and with a consensus GAAP P/E ratio of over 50 for the year 2007.

We do not consider the high multiples at which the company is trading sustainable over the medium- to long-term.

Therefore we are shorting the stock. If implied volatility goes up from the current levels (30%) it could be possible to sell out of the money put options in an equal or lower proportion. In this way one can benefit from a decline in the stock price (up to the strike price of the option) while limiting the losses in case the stock goes up a little bit more.

Taret Price is $35 by the end of the Summer.

Summer is here!
It means to buy healthcare stock, becuse of market rotation. Dows and high tech stocks is near top and we have a sector rotation ahead of us.

My pick for the summer is HLS.

Sector: Healthcare
Industry: Specialized Health Services
Full Time Employees: 21,000
HealthSouth Corporation provides ambulatory surgery and rehabilitative health care services in the United States.

Here are some technical analysis:

Composite Indicator
Trend Spotter TM Buy

Short Term Indicators
7 Day Average Directional Indicator Buy
10 - 8 Day Moving Average Hilo Channel Buy
20 Day Moving Average vs Price Buy
20 - 50 Day MACD Oscillator Sell
20 Day Bollinger Bands Hold

Short Term Indicators Average: 85% - Buy
20-Day Average Volume - 483420

Medium Term Indicators
40 Day Commodity Channel Index Hold
50 Day Moving Average vs Price Buy
20 - 100 Day MACD Oscillator Buy
50 Day Parabolic Time/Price Buy

Medium Term Indicators Average: 90% - Buy
50-Day Average Volume - 523322

Long Term Indicators
60 Day Commodity Channel Index Hold
100 Day Moving Average vs Price Buy
50 - 100 Day MACD Oscillator Buy
Long Term Indicators Average: 67% - Buy
100-Day Average Volume - 457075

Overall Average: 86% - Buy

Follow the insiders!

Insider Purchases - Last 6 Months
Purchases 10,000
Sales 0

Trading
Date Name Title Shares Price
03/29/07 MCLAUGHLIN JOHN PETER Chief Executive Officer Gift 50,000 $0.00
02/06/07 BRODERICK PATRICK A Vice President & General Counsel Gift 8,000 $0.00
02/06/07 HUANG JAMES Z President Gift 12,000 $0.00
12/04/06 HUANG JAMES Z President Buy 200 $6.72
12/04/06 HUANG JAMES Z President Buy 800 $6.77
12/04/06 HUANG JAMES Z President Buy 800 $6.40
12/04/06 HUANG JAMES Z President Buy 200 $6.44
12/04/06 HUANG JAMES Z President Buy 1,000 $6.41
12/04/06 HUANG JAMES Z President Buy 600 $6.37
12/04/06 HUANG JAMES Z President Buy 400 $6.40
12/04/06 HUANG JAMES Z President Buy 2,700 $6.38
12/01/06 HUANG JAMES Z President Buy 2,000 $6.66
12/01/06 HUANG JAMES Z President Buy 300 $6.65
11/30/06 HUANG JAMES Z President Buy 1,000 $6.65
08/22/06 HUANG JAMES Z President Buy 1,000 $6.77
08/21/06 HUANG JAMES Z President Buy 400 $6.74
08/17/06 HUANG JAMES Z President Buy 1,000 $6.73
08/15/06 POWELL MICHAEL F Director Buy 1 $6.86
08/15/06 SOFINNOVA VENTURES INC Buy 1 $6.86

Today, we got the fourth quarter results from Nokia’s cellular telephone sales, which can be added to the previous results from Sony Ericsson and Motorola. We also know how many Wiis were sold by Nintendo.
The OEM supplier for microSD cards is SanDisk and we know that SanDisk also supplies SD cards for Nintendo which makes the Wii. All the Nintendo Game Boy cartridges are delivered on the SanDisk flash product.
Therefore, we can estimate with reasonable accuracy, how many flash cards were supplied by SanDisk to these customers.
The three cell phone manufacturers noted above, delivered 200 million new cell phones this quarter. Let us assume that 10% of them, were the high end phones that use microSD cards. That makes 20 million phones. When you multiply that by an OEM price of about $25, that equals $500 million. You can then add 30% of the 3.2 million Wiis that were sold, which equals 960,000 units. You can multiply that by $50, which gives you a total amount of $48 million.
We now know that just those two end products equal $548 million of revenue.
We still have to add in the revenues from all the other flash products, as well as the MP3 products.
It is easy to see that SanDisk will have well over $1 billion of revenue. This is not even counting M-systems contribution.
I reviewed Daniel Amir’s last report for WR Hambrecht dated January 22, 2007,where he estimates that SanDisk will earn $977 million.
Therefore, I think that he is seriously underestimating SanDisk’s fourth-quarter revenue and we will have a marked positive earnings surprise, which should not be a surprise, if you do the calculations.
Therefore, fourth quarter estimates of $.69 per share are too low and we probably will see $.89 per share fourth-quarter earnings. That is my estimation.
You can clearly see that there will be blow out earnings. Now is the time to get into this stock at a discount.

Conclusion
SNDK is a long term buy at this price level

SanDisk
Despite the pathetically low price,it will have a breaks up at this level. The stock is in a deeply deeply oversold state,only much more so now because many great things have happened since then.

The m-systems merger was completed. 2 top executives, Judy and Eli, noted and confirmed guidance of (for 3 yrs) 25-40%–WHILE THEY KNEW THE DETAILS about the flsh merger that was synergistically on-going but technically completed. They would not have confirmed guidance if they thought for a second that the move would be long-term dilutive. It is, in real terms, barely even short-term dilutive. In no case in the history of this company, has Eli given long-term projections that have turned out to be false. They have in fact always turned out to be conservative.

The 37 PPS has become a meaningless standard of measure at this point - even if just for the fact the two Qs have gone by. And remember when it hit 37? It was there for a blink of an eye, in forties the day of ER, and 50s within days of ER. And yet the shorts, in their euphoria fail to see the lofty reverse peak they are balancing on right now. Typical Mob psychology is what is at work here - classic case of “irrational exuberance.”

At this point, the shorts are thinking that the stock will move “15% either way” at ER. Not a chance. SNDK would have to miss by 15% and project seriously shrinking profits and GM’s to go down at all from here. This stock will relief rally just by virtue of the fact that Judy shows up on time at the CC. And what will happen? She will report great results, give firm carefully laid out guidance, and everyone will say, “Gee, there was nothing wrong after all.” Then the analysts will all raise guidance, but not ratings, and the stock, after the pop, will level off ans settle. Probably in the upper 40s at first but then the fifties. And still none of the shorts will cover, and Guana will be flirting with a sell rating like a old whore who flirts with underage boys. And he just might do it. And you know, I don’t care of he does, since SNDK is going blow WS and all their ridiculous misunderstandings and misstatements to hell this year. It doens’t matter what they say; action is character. Not meaningless words, and worse, lies. Yet, even these bastards will be forced to tack a buy rating on SNDK by the year’s halfway point, after they’ve cost their loyal clients a 50% run at least.

SNDK going much higher in 2007. All you need is more than 1-2 months foresight. This is an easy trade.