The Deipnosophist

Where the science of investing becomes an art of living

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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!

02 February 2007

Cotard delusion?

What can I say? The US$ trades creakily, interest rates have climbed, former leaders such as Apple/AAPL, Google/GOOG, and Under Armour/UA (to name but three) each trades lower... as 'predicted'. And yet the market proves its resilience yet again, as it hovers at all time highs for several averages and indices. Here is a snippet of this morning's commentary by Tim Villano...

The stock market defied negative intraday patterns and traded out above the mentioned (SPX 1432) level on Wednesday. In our last comment, we stated that above this stop, "something different is happening" -- which in this case proved to be a surge to new highs...

And so the continuum... continues. I noted this market move on Wednesday as it unfurled, and shared it with you real time. Certainly risk remains; as always, however, the responsibility remains to focus on specific opportunities. For example, previously recommended and held through thick and thin are...

[click on each chart to enlarge]

Hologic/HOLX (above) looks especially sweet; a big base breakout that forecasts higher highs.

Intuitive Surgical/ISRG
(above), another previous recommendation, likely will bust out (up) big time today. (I write this post ~1 1/2 hours before the market opens.) Note the three tests at ~$85 (the top end of gap support) as well as the line of declining tops, which appears set to be breached today. So much elapsed time building the base has turned sentiment wholly bearish. There are many short side plays that will be unravelled as trading begins. Talk about a short squeeze! Ah well, their loss is my gain.

Some reserach comments following Intuitive Surgical's blowout quarter (via Briefing)...

Wachovia notes that ISRG reported Q4 results above consensus, and placed 50 new da Vinci Systems during the quarter, with 34 to new accounts and 16 to established accounts. Furthermore, da Vinci procedures achieved penetration rates of at least 35% in the domestic prostatectomy market and at least 2% in the domestic hysterectomy market. Gross margin rebounded to 66.6%, up 170 bps sequentially but down 70 bps yr/yr. Firm believes that repeat sales are a bullish sign. ISRG placed 16 systems at established accounts and at present has 14 accounts with 3 or more systems installed and 39 with more than 1 system installed. Firm believes that this demonstrates that hospitals with da Vinci systems have seen favorable returns on their investments. Reits Outperform...
Piper Jaffray notes that ISRG beat expectations again with strong robot sales and procedure growth, and issued 2007 guidance in-line with consensus. Firm says ISRG will not be delivering much operating leverage in 2007, as it plans to expand its operating expenses at the same rate as forecasted rev growth, and margins are shrinking due to the new H.D. system. The company is investing in a new European HQ in Switzerland which will help lower the tax rate in 2008 and beyond. Operating leverage should resume in 2008 with lower tax rates and infrastructure costs behind it. Reits Outperform and $130 tgt.
A new recommendation today is Triumph Group/TGI.
Triumph Group, through its companies, design, engineer, manufacture, repair, overhaul and distribute aircraft components, such as hydraulic, mechanical and electromechanical control systems, aircraft and engine accessories, structural components and assemblies, non-structural composite components, auxiliary power units (APUs), avionics and aircraft instruments. It serves a spectrum of the aerospace industry, including original equipment manufacturers (OEMs) of commercial, regional, business and military aircraft and components, as well as commercial regional airlines and air cargo carriers. It offers a variety of products and services to the aerospace industry through two groups of operating businesses: Aerospace Systems Group and Aftermarket Services Group.

For the nine months ended 31 December 2006, Triumph Group, Inc.'s revenues increased 26% to $691.3M. Net income increased 39% to $32.8M. Revenues reflect increased sales from Aerospace systems and higher income from Aftermarket Services segment. Net income also reflects improved operating margins.

On the monthly basis chart above, please note the 10 years high level consolidation whose trading range was $30! (From ~$20 to ~$50.) The shares finally breached the high end of that range in May 2006, rising a fast ~10% before retracing and building a powerful base atop a base (chart below)...

Only this week have the shares successfully and finally breached final resistance at ~$55. Add the previous trading range of $30 (the 10 year high level consolidation) to the recent breakout at $55, and you arrive at an intermediate term target of $85. Dorsey Wright (a subscription service that specializes in Point & Figure charting, and that has my highest recommendation) comments...
TGI is a member of the Favored Aerospace/Airlines sector; this particular group also remains on offense with respect to its bullish percent. So in all, this is a sector to look to for new long ideas. TGI is one such stock to consider, as it is trading in an overall uptrend and has recently upticked to a 3 for 5'er after its RS chart vs. the market reversed up into X's. As well, the stock just gave a triple top buy signal at 56 to move to new highs after holding twice at 52. The upside target is 84, and the weekly momentum has just turned back to positive after having been negative for six weeks. TGI is one to consider here for a trading move, and we would then set an initial stop loss point of 51, a triple bottom sell signal.
All questions and comments welcomed, as always.
-- David M Gordon / The Deipnosophist


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