HLF (Herbalife Ltd)

Herbalife is a fast growing weight management and nutritional supplement company. They operate using a direct marketing setup as customers become sales reps reducing the marketing cost for the company. HLF has extended its footprint outside its US market by pushing into Mexico. It may continue to add new countries to its geographical service area.

Earnings have been exceptional quarter to quarter and the sales figures have grown rapidly as well. The stock took a hit as earnings dropped to a mere 25% QoQ level this summer. However, the stock has rebounded and at the same time, EPS have bounced back to 50% growth in the September quarter. The stock reflected this increase by trading back up to a new high in November.

I bought my initial position on a day when the stock broke out of a base pattern on strong volume. The day turned into a disappointment as the stock traded back down and actually closed lower on the day (see chart). Fortunately it was a small position (1.5% of the account) and I was able to have patience. Soon enough the stock rebounded and forged a new high. I added to my position twice since my initial purchase bringing it to a 4% position in December 2006.

The stock seems to be having a tough time maintaining trade above 40 but there is no significant fundamental change. One technical concern I have is that the RS line failed to break to a new high while the stock traded up and set a new record. This may indicate underlying weakness and I will be on the lookout for additional red flags.

Jan 5, 2007

The company came out with a press release overnight stating that sales were a bit lighter than expected, and estimating that next year revenue and eps would be in the lower end of the previous range given. The news was not extremely bad on the first look but investors paniced as the whisper numbers probably expected the company to beat and guide higher for next year. The stock sold off 20% right away and finished the day down almost 25%. This was obviously enough of a decline to stop me out of my position and leave me with a significant loss. I will continue to monitor the stock but technically it needs a lot of work to become attractive again.

Rough Night

Sometime last night i woke up to hear a clicking sound downstairs. I got up and walked into our front hallway and saw that the door to the basement was locked but someone or something was turning the handle trying to get in. The light in the stairway was on and I could see a shadow through the crack under the door.

I didn't have any kind of weapon but i knew if i didn't do something quickly, the guy would figure out how to pick the lock... After all, I think the key is above the doorway on the inside - that's a brilliant place to put it Zach!!! @!#%#@!$

So i figured I would try a move I saw on a movie once. I would crack the door and when he tried to come through it, I would lower my shoulder into the door and smash it into him - stunning him for a second so I can get his gun or whatever he has with him. I unlocked the handle and it slowly turned.

I waited for a few seconds but no one poked his head out or tried to move through the opening. I tried to yell at the person but all the sudden my throat was dry and I could barely breathe much less yell... Then it happened! I heard a 'clink' and then a scrape. Something was at my feet. I looked down and there was an empty clay flower pot. Stained with dirt. A hole in the bottom. Nothing else!

I swung open the door and looked into the lit stairway but there was no one there. There was no one behind me - no one in the kitchen - no one behind the door. I tried to yell again to see who was there. Still no sound.

Then i looked to my left and saw my alarm clock - it was 4:30 AM - I was in bed - sweating - wondering what the heck a flower pot was doing in my dreams.

CEP (Constelation Energy)

CEP came public mid-November at $21.00. I was able to get some shares on the initial deal and turned them out at a decent profit gradually.

After consolidating between 23 and 24 for quite some time, the stock made a strong move on the 18th and I picked up 5,000 shares at 23.55. This was about a 1.5% position in my account which is a normal size for a trading position. The stock continued to advance quickly over the next few days as expected. Volume left a bit to be desired but that is normal given the holiday season so I gave more attention to the actual price pattern. After making a new high on the 27th, the stock had 2 quiet days and I decided to take half of my profits off the table as the stock made a nice run and it is difficult to judge where the stock will move when the market opens for the new year in 2007.

The stock backed off significantly in early 2007 due to the overall energy market being punished. I went ahead and took the rest of my profits on the 5th as the sector now looks uncertain at best. Still i cleared $6,000 on the trade in a few weeks which is not a bad return.

BTJ (Bolt Technology Corp)

BTJ is a very niche type firm. It's primary product assists E&P firms in seismic exploration. The process uses ships to tow barges of sorts that are able to evaluate oil prospects on underwater potential drilling sites. The company does not have direct vulnerability to fluctuations in prices of oil, but benefits from trends in exploration - a trend that should continue to be healthy even after a peak in production.

The company is very small with a market cap of $124M and it's average daily volume of 155k makes it a bit difficult to put much size into the position. However with our small firm relative to other institutional investors, this gives us an advantage in that we can take a meaningful position without having too much of an effect on the stock.

My initial purchase was on Dec 4, 2006 at $21.02(see chart). The previous day, the stock had broken to a new high after a fairly well shaped pullback to test the 200 day average. Dec 4th gave me a pullback to get the position near the previous high on a day when there was adequate liquidity for buyers. I took 5,000 shares which was less than a typical initial position but given the liquidity, I wanted to take a conservative position to start with.

The stock subsequently ran higher for 2 weeks before pulling back to test the breakout level. Once this level had been tested and the stock began moving back up in healthy fashion, I purchased another smller lot of 3,000 shares a bit higher than my original purchase. (I like to average into winning positions but it is against my religion to add good money to a position that is not performing well). So far I have not seen any company specific news so it appears the stock is trading on technical merits and in line with industry trends until it reports earnings (presumably Jan 25th although that date is not confirmed).

JAN 3, 2007

Energy names took a beating today and BTJ was no exception. The stock now rests just above the 50 day average and I cannot find any company specific news so it appears to be trading in line with the group. The stock closed at 19.38 and if it breaks 19 I will have to close out the position for discipline sake as i will show a 10% loss. However, for the time being I want to stay involved if possible because the fundamental story still seems intact and the pattern is not broken, I just may have picked the wrong time to get involved.

Jan 5, 2007

The stock fell further as a result of the energy sector getting pummelled the first 2 days of trading this year. Out of discipline I had to cover my position as I lost the maximum 10% on the trade. The stock is very thin which made it difficult to get out of 8,000 shares in a declining market. I made the decision on the 4th to pull the plug but was only able to get 4,000 shares sold without pushing the price further down. I then used a bit of strength early on the 5th to unload the rest of my position. The sector has fallen out of favor and my timing in purchasing the stock didn't allow me much room to weather a storm. I am thankful that I had a smaller position in the name as the hit could have been much worse if I had been able to build a full 5% position.

One learning point I could take away is that when i added the additional 3,000 shares on strength, I could have declined to do so because of the lower volume on the rebound. Now this was during a holiday season so low volume would not necessarily be indicative of investor apathy but it may be a red flag that I overlooked.