RSS feedI wrote up WFR in my blog on NestEggr. Little did I know it was likely one of my most prescient picks in a long time. Unfortunately, I didn’t set my buy until this morning and at that point the stock had already gapped up over 15%! No matter, this is just the catalyst that I believe is necessary to catapult the stock to higher and higher highs. The company continued its tremendous year over year earnings performance despite a fire damaging one of their plants earlier this quarter. It also announced another $8-9 billion in solar wafer deals proving that its serious about becoming a major player within an industry expected to have a CAGR of 30+% until 2010.
MEMC is trading at a forward P/E of 17 even after this pop. With longterm growth projections of 20% year over year, there would seem a case to be made for continued multiple expansion (to 20ish). It’s a growth story, but its a growth story with momentum and a more than reasonable price. This stock could fit in both Portfolio A and Portfolio B, but given that I’ve had Southwest dogging it up for nearly a year now, I’ve decided to book the loss in Southwest and move on.
Southwest Airlines has performed more than admirably this year as business. Q3 earnings were as strong as one can expect, and the airline industry as a whole has showed that its finally coming out of the post 2001 lull following last year with another profitable year industry wide. Unfortunately, I misjudged the level of growth priced into Southwest and even with this upturn in the broad industry, Southwest’s stock did not follow suit as it seems the stock is now being revalued due to multiple contraction and declining growth expectations. While I still like the company and the management, I see no catalyst for material appreciation in the stock price at this point especially given the company’s now more conservative approach to growth. Yes, a rally to $15-$16 per share may be plausible, but the relative merits of Southwest versus MEMC were just too much to ignore and thus I’ve moved on.
October 26th, 2007 at 2:26 pm
WFR is a stock you have been pushing for a while now on your blog and I am not startled to see taht your prediction actually played out. A bit disappointed you didnt get to reap the 15% gain. A stock im a little disappointed I didnt get into sooner and I had been a huge fan especially after the credit crunch in August was Countrywide (CFC). Their 30% gain today has startled me and has me kicking myself for not longing the mortgage market, but I still think its not to late to get in…views?
October 26th, 2007 at 4:57 pm
Countrywide is a stock you could have made big money on just playing today as it traded from lows ~15 and closed at its high around 17. It’s not a terrible play depending on how you see the market in the next 12 months. But, in my opinion, it is only safe as a longterm play. Or, potentially a short term momentum play right now, but given the jittery nature of the financial sector all around, I would be averse to playing such a game.
Countrywide stated the lofty expectation of a return to profitability by the end of next year. A few months ago, Bank of America showed their support with a $2 billion dollar preferred stock investment (or once could say CFC secured a BOA deal). It’s interesting that CFC is now pursuing a new strategy of focusing on its retail banking capabilities and trying to shift its risks away from capital markets. I still believe that the mortgage backed securities crunch and the housing market in general will dictate whether or not CFC ever returns to its lofty highs. But, trading at just a 4.95 PE (granted likely with continued negative earnings in the future), this is a stock which has the potential to be a homerun a year or two down the road. It all depends on how prescient your view of the mortgage markets ends up being. I, for one, know that I don’t have nearly enough knowledge to play that game. At least not right now. But, I’ll keep my eye on CFC and might participate in a short term rally should that materialize.
October 26th, 2007 at 5:03 pm
This seems to be a tangent from the initial post at this point, but that’s the beauty of comments and how they can add to the depth of the topics covered on this blog! Anyways, Chad Brand at PeridotCapitalist.com wrote up a great post which sums up my opinion of financials and mortgage players in a much more eloquent way. Check it out: http://www.peridotcapitalist.com/2007/10/countrywide-predicts-trough-shares-soar.html
October 30th, 2007 at 9:49 pm
WFR is a very interesting stock and company. There have been a huge amount of folks who keep saying this company simply cannot keep it up, and yet they have done just that.