I love these stocks, in fact, I spend most of my time at nights and in weekends searching for these stocks: “The undervalued stocks”. SEAC is one of them, it dropped 15% on Friday, and it will probably drop more next week, before an imminent rebound. Why do I believe that there will be an “imminent” rebound?

Let us examine the company, it has a viable business model, it is not losing money (EPS is 60 cents), and the P/E is a low 12. The book value of the stock is $6.22, so the stock has closed at just 16% above its book value ($7.20 in the after hours), bullish, but not extremely bullish. An extremely bullish price is below book value of a few percent points above the book value. I think the stock has still room to drop, but not too much.

Another 50 cents drop in the stock price ($6.70) would be a great entry point, and I would buy half my position at this point (maybe around 200 shares), and then buy another 200 if the stock still goes down more after a week from my purchase.

Now why did the stock god down 15.57% on Friday? No reason whatsoever, in my opinion, with the exception that apparently analysts expected them to beat their expectations, but they did not.

Such stocks, once they fall, have huge potential in my opinion, and if you keep your investment small (like less than $3,000), you’ll be able to reap some great benefits, with very little risk. Remember BIOS, MLNX, and MAS?

And to answer this question we need to look at the politics inside the United States (Note: I’m not siding with anyone here, this post is purely financial). As you may already know, in almost exactly 2 months from now, there is an election in the US. The economy is the hottest issue.

The economy, in short, means jobs. The Obama administration is trying its best to focus on the good news, while republicans are focusing on the bad news. This is very natural and part of the politics game. Everyone reads every report coming out differently (whether it’s generally good, like today’s job numbers, or bad, like the housing numbers late last month).

Democrats insist that we the economy is healing, while republicans say that the economy is heading for a double dip. The feds are somewhere between, claiming that the economy is healing, but moderately, and it may or may not need assistance.

Hmmm…

People are being bombarded with propaganda from both camps, and I’m sure that they are confused. Wall Street people, on the other hand, are not confused. They do not like Obama, and Obama does not like them, so we know who they’re voting for. But again, Wall Street people are a minute percentage of the US population, and probably most of them do not vote.

So in order for the Democrats to win, they have to gain the mainstream population by injecting more money into the economy (and therefore increasing the debt), while all it takes for the republicans to win is for the democrats to fail as stimulating the economy (or at least fail in the eyes of the people). Printing more money, further devaluing the dollar, and increasing the debt are not easy steps, but may be necessary for the democrats to win, or else they might risk losing both the house and the senate.

I’m not sure if democrats still have more time to stimulate the economy, and I’m not sure that the republicans would like to win if the economy is that bad.

Whatever it is, it’ll be an exciting race, and expect the markets to experience huge swings until November…

Looking back at last week, when the market was horrible, I have spotted many opportunities, but unfortunately I didn’t have the money to buy the stocks, including:

AAPL: The stock went down to less than $240 last week. Anyone who had the money and knew the stock and did not buy it at this point must’ve been insane. AAPL is always a buy below $250, regardless of the antennagate and other scandals.

BAC: If there’s a stock that I really hate, it’s this one, at one point last week I felt that the stock was in a freefall, it almost touched the $12 level. I own BAC, and when I sell it (I hope soon), I will try not be seduced to buy it at ANY price (I don’t think I’m going to be able to do this though…). I do think though that BAC was an obvious buy once it was below the $13.

BP: BP has HUGE support at the $35 level, there are lots of buy orders that are automatically executed once it reaches this level. The stock reached $34.20 last week and it closed today at $37.43.

C: Citi is ALWAYS a buy below $3.70, and it went down to below that level last week. I do own Citi, but I’ve bought the stock at a much higher price (Lesson learned for me: Never buy your full position in one shot, just buy 1/3 of your position when you feel the stock is worth it, and if it goes down buy another 1/3, and if it goes down again buy another 1/3, try to leave a few days between buying, and always look at the volume).

GOOG: Google went down to the $450 level just based on the bad news about the economy. Google, in and for itself, is doing fine, and is always a buy under $480. I have to say though, that the margin with GOOG is pretty small, and the stock is very expensive, and I don’t have an unlimited supply of money. I have never traded Google.

MAS: I owned MAS and sold it before, and I think it’s a very solid stock, the stock has a solid support at $10 (the stock was heavily bought in a very bad day last week when it reached $10). MAS, along with BP, and C are on my watchlist.

MFC: MFC has rebounded this week from a low of $10.60 (imagine how much money you would’ve made if you bought at this level, but then again, it’s nearly impossible to be right everytime about these things, in fact, you seldom are). MFC is currently trading at $12.71, and I still think that it’s a good buy at this point.

I knew they were opportunities but I missed them. I’ve done the wrong trades back in July and I paid for them by sitting on the side for almost the whole month of August. I have to say though, I have learned a lot of lessons during that time…

This is the first week in a month where the DOW and S&P are closing significantly higher, and the S&P is closing over 1,100, which is is great! As a bull myself (I think you can see that in my writing), I’m exalted!

We had 3 terrible weeks in a row, where I’ve lost almost 20% of my portfolio (which consisted of mainly financials), but now this week was great. I was able to sell at least some of my stocks yesterday, and I’m looking into buying next week. I do think though that FAZ is a buy below $13, if it ever reaches this level, but again, FAZ should be bought carefully, and should be complemented with FAS at $2 minus your purchase price to protect your investment.

So this week brought optimism and bullishness back to the market (after hitting an 17 months low), and those who were skeptical and sitting on the side afraid of getting into the game will probably change their minds next week.

I hope that the momentum we have gained this week will continue into next week, and we can have another great week. Most of the stocks I’m trading were already hugely corrected back in 2008 and most analysts consider them as undervalued at the moment.

September 3, 2010 | In: Financial

MFC Rebounding

MFC (Manulife) is officially rebounding, the stock has been going up steadily for the last week as it hit a bottom of $10.60, currently it is trading at $12.67. The stock has the potential of huge up movements every day as shorters are beginning to cover at different resistance levels. The next resistance level for this stock is $12.86, and it has been already tested today. If the stock closes above this resistance, then expect it to skyrocket next Monday. The stock seems to be resilient to different news about the economy, and it seems to me that right now investors are finding that MFC is a great investment at this price, and is currently undervalued.

I bought MFC at the price of $14.40, and I will wait for the stock to reach the $15.50 to unload my stocks.

September 3, 2010 | In: Services

PSS: An Interesting Stock

I have just discovered a new stock, PSS, which is the stock of Collective Brands, a company with an ugly website essentially selling shoes and apparel. Once you get over the hideous website, and look at their numbers, you can see that this is actually a good business. They have an EPS of $1.52 and they’re trading at 8.24 times EPS (the stock closed at $12.51).

The company seems in a steady downward trend, with small peaks after every major down movement. The pattern is very easy to spot, and I’d probably wait till Monday to buy the stock, if it doesn’t bounce back tomorrow (it was down 9% today).

PSS is very bearish short, medium, and long term, and has an RSI of 33.44.

The stock is so disconnected from the company, which did well in the last quarter, but failed to meet the estimates of 45 cents EPS.

There were no insider sells after May, which means that executives at this company believe that the stock is undervalued. The last insider sell was at $22.38/share. Debt is decreasing every year.

The longer I dig, the longer I feel that this is a bargain stock for a long position (but obviously the stock’s movement this year does not reflect my feeling), and if you’re in for a short trade, then buying tomorrow (if the stock moves down again) would be a good move. Just buy a few hundred shares or so, sell it back the next day or the day after.

September 3, 2010 | In: Technology

RIP RIM?

I just sold my RY stocks and I was looking at TSE stocks to buy, and I was thinking, how about RIM (RIM is the TSE stock symbol of the company, RIMM is the NASDAQ symbol)?

The stock seems attractive at this price (closed today at CDN $46.50), and I might make a bit of money short term, but I think that the stock will continue its downward trend until the following things happen:

- RIM (the company) is no longer arrogant, and is willing to immediately accommodate requests from official bodies (such as countries).
- RIM’s new and innovative products are not copycats of Apple (the Blackberry torch is a great example)

See I think what RIM should worry about for the short term is its attitude and arrogance. If RIM kept a low profile during the negotiations with the governments, then RIM would have still been strong. But they have decided to make this fight (that they can never ever win) public, and worse, the world knew that eventually they lost, and they will have to accommodate the requests to grant access to the users’ data. Had they kept a low profile, then they would have the done the same (accommodated the requests), and nobody would have known, except for key people.

Well now that the whole world knows that the users’ data might be exposed to certain governments, companies no longer see the advantage of giving blackberries to their employees. A fatal mistake that made RIM lose its most important niche, the corporate world.

Now for the long term, the problem is even worse, RIM is now a company with no innovation. They have tried to copy the iPhone 4 with their Blackberry Torch, unsuccessfully. They are releasing an iPad copycat called the BlackPad. Not only do RIM have a problem with innovation, they also have a problem with their marketing team. They couldn’t even come up with an original name for their iPad clone.

For all those who are saying that RIM is the next Palm, I agree… There is still time to save RIM from this fate though, but it’s going to take a lot of hard work, more humility, and a lot of innovation, the same innovation that created the blackberry in the first place. If not, expect the stock to trade in the low 30′s next year (RIMM almost touched $42 on August 31st).

On the very flip side, the stock is currently trading at less than 10 EPS, which makes RIM an easy target for a buyout (and it’s currently the season, apparently). Note that there are some rumors that Microsoft might be interested in buying RIM.

As I expected, DELL walked away from the bidding war with HP to buy 3 PAR. HP actually did a very stupid thing by outbidding a non-approved offer by DELL, as analysts believed that HP should have waited more before to see DELL’s reaction on their latest bid. Anyway, this proves that HP really wanted to buy the company, and was not doing this in order to increase the costs on DELL (when buying 3 PAR), a company 25% its size by market capitalization.

I have stressed before that DELL is definitely not the strongest of the two, and if HP really wanted the company, then there’s no way DELL would be getting it. DELL’s upper limit (according to my calculation when the bidding war started) was $36, and after that DELL had to get out, or face dire consequences.

In all honesty, HP was a real sucker in this deal, as DELL made them swallow a company with a negative EPS (-5 cents) for a very inflated price. The company is not probably not worth even 25% of the amount paid (in the current market), not matter how you want to see it.

Both DELL, and HPQ are rebounding after the deal is closed, but that doesn’t mean anything, because the whole market is generally bullish this week. I expect HP to suffer in the medium term from buying this company.

I feel bad for those who bought this morning at $33.60, just before DELL announced that is no longer interested in buying 3 PAR. But then, the stock was very risky above the $30 level. Some investors were betting that this bidding war would continue forever.

Just when you thought that Burger King is cheap, it gets sold for $3.3 Billion to 3G Capital, or $24/share, which is very close to the $23/share lowball offer possibility that I discussed yesterday, when I assumed that the company will be valued at 17 times EPS (so the offer was really valuing the company at about 18 times EPS).

BKC jumped 25% today, to $23.59/share. Volume was 80 millions shares, and it was 40 times the average volume.

Do I regret that I haven’t bought BKC yesterday (at least a few hundred shares), maybe. But then again, in this line of work, one has to accept the fact that he can never always get it right.

I still don’t like Burger King, but I do think that the business has huge potential and it was sold for a fair value.

September 2, 2010 | In: Energy

Another Oil Rig Explosion

An oil rig Owned by Mariner Energy exploded moments ago. I hope everyone’s OK.

This throws another question at the safety and the reliability of the oil rigs currently used in production. This is the second oil rig that explodes in 6 months, the first one was blamed fully on the owner of the rig (BP), but this one will probably be blamed on the manufacturer of the oil rig, regardless of the contract between the manufacturer and the explorer (or owner). It is unclear who manufactured this oil rig.

Both RIG and ME are experiencing very high volatility and very high volume (ME will probably be trading 20 times its average volume by the end of the day), but they’re still at decent levels as little information is known, and investors have still not calculated the aftermath of this tragedy on ME and the oil rig industry in general. I expect both stocks to be down considerably by the end of the week (RIG in the 40s, and I don’t know about ME).

All oil rig stocks will be affected, as this will probably mean that the ban for new oil rig exploration will be extended, and this time the regulators will investigate oil rig companies more than the owners of the rigs.

Whoever is buying RIG and ME at this very moment is, in my opinion, doing the very wrong thing. RIG will tumble this week. ME is even more dangerous.

Some of the things that investors have to keep in mind:

- Oil cleanup costs
- Payouts to affected businesses / individuals
- Legal costs
- More regulation

Not to mention many other little details. Mariner Energy is a tiny company when compared to BP, and this event may potentially bankrupt the company, even if aftermath costs are 10% of those of BP’s.