I cashed out above $6 this morning - as previously mentioned on this board, OCLS was my one "penny stock" which I always have in my portfolio - this is a "cheap" long term risky investment that requires patient capital, but where there is growth potential. Of course, I'm delighted that my patient investment paid off so handsomely, since I had been accumulating shares on weakness even when the pundits and short pumpers were trash-talking the stock. My OCLS exit officially brings my 2013 investment return to 56% which is consistent since I earned 55% in 2012.
A Seeking Alpha article rehashes the Humira expiration - no new news, just the same old worries about Humira expiring as if ABBV has no other large revenue replacements/contributors. The real elephant in the room is the potential Hepatitis C cure which is really significant. Celebrities as famous as Naomi Judd and Pamela Anderson have this disease and if the ABBV treatment cures them, it will generate huge PR for the company and an enormous revenue contribution treating existing and new Hep C patients. According to reports, ABBV has SEVERAL treatments in trials and the first reported result showed 96% showed NO traces of the virus after treatment. This is a big deal and they also said additional reports on the other trials will be forthcoming so this is something to watch for.
Have to admit, I was really pleased to pick up more UA at 76.35. Buying on weakness, very happy to do so. The stock price recently was depressed by: 1) market decline yesterday, 2) management team cashing in options which is smart for them but not negative for investors, and 3) the Twitter IPO drained some capital. The fundamentals are what they are. The valuation is based on momentum and there is nothing to show that UA's momentum is slowing. They recently opened new showcase stores in China (read about the Shanghai store - great marketing) and New York. I am seeing people wearing UA products everywhere now and am a customer myself (I like the fitness wear for the gym). They are moving into high tech monitoring bracelets - and offered a $25K prize for ideas from the public. I keep saying I'm a patient investor. This is how I made 55% last year. UA at $76.35 and hopefully lower if there is a market correction, is very appealing. I would like to see a market correction after all the earnings are out so I can accumulate more.
The recent billion dollar settlements are warning signals - these massive settlements will be reflected in the financials going forward esp. if there are more lawsuits to come which is hinted at in the analysis. JNJ had a nice run but if the market corrects in the next 60 days, or when tapering kicks in, JNJ will take a hit.
Wedbush increased their price target on UA from 74 to 85 (Oct. 25); Morgan Stanley has an "equal weight" rating on UA; about a dozen analysts have a "hold" rating on UA; 8 analysts have a "buy" rating. Some articles and reports list analyst ratings with incorrect price targets or obsolete numbers from last summer, so read the dates carefully. In recent days the stock in a range from 71.80 to 82 - trying to form a new base to push through 82. UA management has provided extremely detailed and candid forward guidance including full year and multi-year targets for several key financial metrics - always a great sign when a management team is confident enough to do this. December sales could benefit from the seasonal fad among teens and twenty-somethings who will ask for Under Armour products for Xmas and Hannukah, as well as basketball season coming up. Not unusual to have a trading range after a beat the street earnings report. If the market drops after all the quarterly earnings are out, this could provide a buying opportunity - which could be followed by strength in Dec. or Jan. if retail sales of athletic-wear are strong, as expected. I am long on UA.
Sentiment: Strong Buy
I didn't read the Motley Fool posts - actually I originally invested in Nike when it was added to the Dow - which was a good investment. While reading about Nike I noticed everyone was talking about UA breathing down their necks, competitively - then saw that Nike and UA dominate the space which someone as called an athletic-wear "duopoly."
So then I checked UA's financial track record and saw the momentum and saw that the numbers, growth, fundamentals, etc. were strong. Finally, my wife's younger brother who is 25 asked for UA fitness clothes for his birthday and Xmas. I saw the brand in #$%$ and other stores and bought a few items for myself. That's the personal research that brought me to this stock.
I bought in the 70s and have sold some covered call options which were quite profitable. I'm now mostly long in the 70s. I also discovered some nice message sites where brokers chat about stocks and there was a consensus that UA tends to drop after earnings and this time it bounced back faster than usual which is a good sign. The earnings report and management comments raising 2013 and 2014 guidance was icing on the cake.
For me, this was a very good straight line decision based on following the threads and doing personal research - love the Internet. This kind of research couldn't be done 20 years ago!
Sentiment: Strong Buy
Traders familiar with UA have mentioned that UA often drops immediately after earnings, then recovers, even if the earnings are outstanding as they were this quarter. I am long and held my position during this blip on the radar - expect to see the stock return to the mid-80s and that will be helped by short covering by those who rushed to sell thinking this is a trend instead of a radar blip.
Lots to fuel the momentum. Can't argue with the fundamentals and underlying financials. Can't argue with the brand or China strategy just unfolding. Also, the terrific comments and guidance by the very strong management team is beginning to find its way into the news reports - ready the full commentary if you haven't yet. Very encouraging and positive and extremely detailed, financially.
Last but not least - many retail analysts and news commentators have observed that athletic wear will lead retail sales this Xmas and UA will benefit from this - even if retail sales overall are weaker or flat. Lots of Xmas presents will be athletic wear this year and partly because UA products are stylish, high tech and a bit pricey so kids, teens, 20 somethings ask for them as gifts exactly because they are premium products.
My advice as always is to read the financials, the management commentary, the forward looking guidance, and decide if you feel the valuation is fair (yes, UA does have a high PE but so do many other well known momentum stocks) and decide for yourself if you feel the momentum will continue. I would NOT want to be short the stock of this very strong trendy, financially sound and well managed company.
The runup required a profit taking sell-off before it can establish and hold the recent highs (mid-80s). This sell-off on such positive news can be VERY misleading. Sometimes there is a sell-off followed by a recovery and run-up, so this drop could be a consolidation of the new bottom - or it could be followed by a return of buyers after the sellers are shaken out. Unexpected by many investors I'm sure but technically healthy.
We're just washing out the "sell on the news" crowd - providing a short term buying opportunity. Technically it helps a lot to wash out the sellers. Don't forget - the earnings/revenues are higher than the last quarter which most analysts agree was a "blowout" quarter. There is absolutely nothing negative in the UA earnings report, including the fact that management has RAISED guidance for the full year above their previous upper limit. Nothing but good news here. Technical washout is good for the stock price, long term. I'd rather have the price stay low until January so I can keep the stock plus the call option money but I have a hunch the news and fundamentals will drive the stock back to the mid-80s and higher after the sellers leave the playing field.
The recent runup provided a perfect opportunity to write covered calls - that strategy locked in the higher stock prices and I'll probably wind up keeping the stock and the option money. Very cool.
UA only grew 23% in the last quarter - this quarter they grew 26/26%. Prefer steady growth to explosive growth which could be boom and bust. Only 6% of revenues come from overseas so plenty of room for growth. PEs have been all over the map for companies ranging from Netflix and Outerwall to Under Armour. Selling on the news isn't unexpected - technically, it's needed to shake out the profit-takers and sellers, a technical requirement to move higher.
Oct. 24 - UA announced Q3 revenues increased 26% to $723M. Net income grew 27% to $73M. EPS were .68 against .54 in the same quarter last year. CEO Kevin Plank said this was the FOURTEENTH straight quarter showing net revenue growth of 20% or more. Cash increased 19%. Inventory increased to 59% going into the Christmas season. Long term debt decreased. New stores in China, Japan and Mexico are expected to drive future growth. All in all, a strong report.
This kind of analysis and thinking - based on traditional valuation metrics, not momentum valuation - has encouraged a lot of investors to short the stock so if the company does well in its earnings report tomorrow, there is also a likelihood that short sellers will be forced to cover and this would spike the price. Another consideration that bears attention.
A CNBC commentator today mentioned that athletic wear will be a hot gift category this season so even if retail sales are down, athletic wear could be the star outperformer. Having said this, it is also possible that the 4th quarter will be down overall seasonally because of the 800,000 government workers who had to spend on credit for a few weeks, and the other million contractors, vendors, restaurant workers and others who lost income during the shutdown - and cannot recover that lost income because they weren't technically government workers. Honestly, the 4th quarter could go either way - a down retail quarter pulling everything lower - or - a down retail quarter with athletics outperforming.
But the posts I'm referring to are referring to target prices established before or after results reported last summer and never updated. Those posts are presenting these old summer targets as current targets and make it look like those old targets were freshly issued which is misleading.
It's amazing how some legitimate sites allow contributors to post old news as current news - which can mislead investors and actually panic some people to sell their stock. It looks like some investors started selling after two misleading posts were published with analyst targets below 80 which could be scary of course. The real news is that US is poised to hit an all time high stock price and the news seems to be good on the fundamentals as well - read the story on their "stealth strategy" to expand their China market. Here is the CURRENT headline that is garnering attention today:
Canaccord Genuity Increases Under Armour Price Target to $92.00 (UA)
Today someone posted a misleading post saying that several analysts had "upgraded" UA to $77 a share - and since the stock is already at 85+ it makes it look like the stock is actually downgraded. This looks like a misleading and possibly fraudulent attempt to manipulate the stock a few days before earnings. Some investors may see the headline and misread it as current news. I noticed that the stock dropped a few points as soon as this post was listed in the UA news list. Be VERY careful what you read - read very closely. Analysts don't upgrade a stock to a price that is lower than today's price, which is how you know that someone has posted old news making it look current, to disrupt and mislead the market.
I bought NIKE and Under Armour at much lower prices and happily so. I don't see an "either-or" choice between these, since they are leading the sector as a pair. Nike is in China already, Under Armour has a "stealth" strategy underway in China (according to news reports). Lots of growth potential for both companies. If retail sales this Xmas are lower due to the one month government shutdown, NKE and UA would seem to be safer plays in retail since they are sectors that are favored by families for gifts.