The Deipnosophist

Where the science of investing becomes an art of living

My Photo
Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

17 March 2006


Okay, despite the many examples readers provided of the described intermediate term base I am left feeling under-nourished. But then I am a glutton anyway! So let's try this again...

Thanks to reader, Marty Safir, for the heads-up re BBSI in October 2005.
When Marty had requested my opinion, I quickly noted how high the shares had risen, and in a comparatively brief period of time (to $29 from $2!) almost without hesitation. Certainly, the shares were due for a correction.

[click on image to enlarge]

(Let's zoom in on area 1...)

[click image to enlarge]

And a correction is precisely what has occurred since its intra-day reversal on 11.3.05 (#1). But note how the low (#2) of the presumed base, at least the low so far, comes three months later -- almost to the day (2.10.06). A huge reversal occurred on that day, bouncing off the crucial support represented by the 200 day sma on massive volume and closing on the high trade of the day. This occurred because the company reported the evening prior net income of $4.3 million for the fourth quarter ended December 31, 2005, an improvement of approximately $1.8 million or 72% over net income of $2.5 million for the fourth quarter of 2004. Diluted earnings per share for the 2005 fourth quarter were $.37, as compared to diluted earnings per share of $.27 for the same quarter a year ago. For 2005, diluted earnings per share were $1.21, as compared to $.79 for 2004. Net revenues for the fourth quarter ended December 31, 2005 totaled $58.0 million, an increase of approximately $6.0 million or 11.5% over the $52.0 million for the same quarter in 2004. For 2005, net revenues were $231.4 million, an increase of approximately $36.4 million or 18.7% over 2004.

Moreover, positive guidance was shared with respect to its operating results for the first quarter ending March 31, 2006. The Company expects gross revenues for the first quarter of 2006 to range from $232 million to $234 million, an increase of approximately 48% over the first quarter of 2005, and anticipates diluted earnings per share for the first quarter of 2006 to range from $.10 to $.12 per share. This range of expected earnings per share equates to an approximate increase in net income of 39% over the first quarter of 2005.

(Barrett Business Services/BBSI principal activity is to provide staffing and professional employer services. It provides a range of services and expertise in human resource management encompasses five major categories. It includes payroll processing, employee benefits and administration, worker's compensation coverage, effective risk management and workplace safety programs and human resource administration. It includes functions like recruiting, interviewing, drug testing, hiring, placement, training and regulatory compliance. It operates through a network of 30 branch offices in Washington, Oregon, Idaho, California, Arizona, Maryland, Delaware and North Carolina. The customers of the company include electronics manufacturers, light-manufacturing industries, agriculture-based companies, transportation and shipping enterprises, food processing, telecommunications, public utilities and professional service firms.)

Having risen in price by ~1300% (is that calculation correct?), is the worst of the price decline to be only ~$8, or ~27% (from the high)? Yes, if this proves to be a correction of time rather than price.

This means the upside breakout should occur between now and mid-May (to complete the 6 month intermediate term base, and to set up the Upside Squueze). Because that possible breakout could occur within the next 8 weeks, I move it up to the list of stocks nearing their inflection points. And, because it is unlikely the shares will again pull back to ~$21, the inflection point I seek would be the upside breakout. A trend line of declining tops identifies a spot immediately above $26. Because its trend is gently lower, it will still be $26 many weeks from now.

If and when that eventuality occurs, volume should expand explosively. I would expect the shares to rally strongly to the upper-20s (or low 30s) before hesitating for 1-3 weeks, as it builds its handle. Yes, this base of the past 4½ months is a picture perfect cup (of the afore-mentioned cup & handle pattern). How ever did you all miss it? :-)

Questions and comments welcome.

-- David M Gordon / The Deipnosophist

who's online