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 May 2007

A two-edged sword

Well, the earnings report for Under Armour/UA was magnificent... and the market decided yesterday to spank the shares for the company's audacity to spend money growing the business. Imagine that!

However, yesterday's trading activity was all about traders exercising their might in the short term, but underneath the surface were investors quietly buying the shares. I agree with the investors. It should surprise noone, and certainly not me, were the share price to be back at its all time highs in as few as 3 months, when its next earnings report could cause the bullish breakout. All of which causes me to rate the shares a buy, right here, right now.

On the other hand are two big movers set to occur today from among my oft-recommended and core 9 opportunities.

1) Chipotle Mexican Grill/CMG
notes CMG reported 1Q07 EPS of $0.38, easily outpacing its and the Street's estimate of $0.31. SSS growth of 8.3% was well ahead of low single digit Street expectation, even more impressive considering CMG was lapping last year's19.7% comparison. Firm says unit development is picking up pace with CMG bumping '07 unit opening guidance range by 15 to 110-120. In addition, CMG also acquired all 8 of its franchise units. Firm raises their EPS estimatess to reflect continued top & bottom line momentum with '07 moving to $1.72 from $1.58 and '08 to $2.16 from $2.00. Firm raises their target to $82 from $76.

Today's activity should highlight a huge breakout from a massive base. I note minor, and ephemeral, resistance at ~$73+ (perhaps the inception of the handle of its cup & handle pattern?), with more meaningful resistance at ~$78.

So how many shares of this particular opportunity do you own...?

2) Master Card/MA
Also among my core 9 opportunities, MasterCard Inc., the #2 U.S. credit card company, said Q1 earnings were up 70% on a 19% jump in the number of transactions -- both profit and revenue were well in excess of analyst expectations. EPS were $1.57 ($215 million), vs. $0.94 ($126.7 million) a year ago; Wall Street estimated $1.16. It was the highest earnings quarter in the company's history. Revenue was $915.1 million, vs. $738.5 million last year; analyst estimates were $842 million. Gross dollar volume of transactions was up 16.4%. The company said growth in the South Asia/Middle East/Africa and Latin America regions was particularly strong. Total operating expenses climbed 8.2% as the company hired more staff to handle customers, while advertising and marketing expenses came down 2.3%. Timothy Willi of A.G. Edwards said, "We are bullish on the long-term prospects for MasterCard... Consumers, businesses and government are making cards their preferred method of payment... During the past 10 years, card-based payments have aggressively displaced paper."

The shares, which closed yesterday at $114.85, last traded in pre-opening activity at $123.

Despite today's price indications (each to new all time highs), there remain much higher prices yet to come. Which is why each company, and its stock (natch), qualifies as one of my 9 core opportunities.

And so it goes.
-- David M Gordon / The Deipnosophist

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