Rhody Trader

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I came across NVR this morning while flipping through some stock charts. As you can see by the daily below, it’s recently broken down below $600 area support.

OK, that’s not a huge deal. Sure, we could be looking at about a 10% drop down to the $520 support area from the March lows. Could be a decent swing trade short.

Here’s the really interesting part, though. The stock has traded at a PE of between 3 and 11 on a trailing basis over the last five years. Right now the trailing PE is about 8. On a forward basis, though, that PE is more like 15. That’s because estimates for earnings this year are in the $30s. In order for NVR to be stay within that PE range, it would have fall to about $400 by year-end.

This would be an awesome put play situation. Unfortunately, there aren’t any options on NVR so you can make that trade. You’d have to do a straight short.

It’s taken about 6 weeks and a bit of a sell-off in between, but apparently some folks have finally seen what I was looking at - fundamentally - in ESEA. Word has it that Zacks Investment Research put out a note yesterday saying the stock was undervalued. They missed getting in at $11-$12, but I won’t get on them too much for that. I was a bit early with my own analysis. 

The bottom line is they’ve driven a lot of volume into the stock and pushed the price up nearly 10%. Naturally, the options have jumped considerably as well, and that’s where I’m making my own play.

Insight Enterprises (NSIT) presents an interesting future buying prospect for position traders.

On Friday NSIT out its March lows at about $16.50 and looks likely to continue lower to $15.50, or perhaps a bit lower. That level should be important support as it is basically the bottom end of the range of the last few years. Further down is the 2004 lows near $14.

The technicals is where the negatives end, though.

NSIT is expected to make $1.83/sh in FY08, and $2.08/sh in FY09. Those are 12% and 14% gains respectively. There have been 5 analysts expectation increases over the last three months against none to the downside.

On the valuation side, NSIT is trading at at trailing PE of 10, which is at the low end of the 5 year range of 9-26 (average is 16). At a sub-10 forward PE, NSIT is below the 5-year average of 14, and the forward PEG of 0.6 is well below the 1.0 average.

Over the last 6 months company insiders have been net buyers of over 90,000 shares. A total of 243k were bought against 153k sold. Funds currently own about 40% of the shares.

Price targets among the analysts are in the $19-$26 range.

In general terms we like the upside prospects for NSIT. It’s just that in the near-term we have to likely sit through some price declines. After that, though, if the earnings results hold up as expected, it would be no surprise at all to see this stock back in the middle $20s.

Drops like this one just started, generally play out over 2-3 weeks. That gives us a basic timeframe in which we can look for a potential bottom in NSIT, meaning a good long entry point. Keep and eye out, though, for strength showing up in the market - or at least a lack of weakness. That would likely be an indication of a trend stalling out. If the fall underway doesn’t run the full course, it would be a sign of underlying strength, meaning one could be that much more aggressive taking on long positions.

My mentor told me about an interesting stock that he’s in. It’s LPHI, Life Partners Holdings, a company that basically buys life insurance policies from individuals, providing them current cash (at a discount, of course).  It’s a company that was making $0.10-$0.22 for a few years (2003-2006), and trading  in the $2-$8 range during that time, but it exploded in FY07. The company only made $0.29, but traded as high as $42 back in the second half of 2007. A sharp sell-off has ensued, knocking the stock down to as low as $12 a few weeks back. It’s been rallying back since, as the chart shows.

From a purely technical perspective, recent developments in the chart are fantastic for the bulls. As the market bottomed out the volume totally disappeared, Then, on the rally from the lows, it really picked back up. As you can see, the Bollinger Bands got narrow, and they began widening on the move up - a good uptrend indication.

Here’s the fundamental argument. The company just finished FY08 in February with $1.59/sh earnings. The expectations for FY09 just started are between $2.50 and $3.00. My mentor, who is very well informed, thinks that if they really screw things up they’ll still do $2.

Want to hear the really fun part? There are about 1.3 million shares short on about a 3 million share float and the company is tossing around ideas for ways to burn them. In other words, this stock could go very, very quickly. A PE of 20 on FY09 earnings puts LPHI in the $50 to $60 price range.

Check it out. Keep in mind that it’s a small cap stock, though.

ESEA, a drybulk and container shipper, came out with better than expected $0.51/share earnings Thursday after the close. They also announced an increase in their annual dividend from $0.79 to $1.08 per share. At least one broker has upgraded the company from Hold to Buy and given it a $20 price target. It closed Friday at right about $14.

ESEA bottomed at $8.33 during the January sell-off and has been climbing fairly steadily ever since. The first spurt took the stock to $12.50, which was an important level from before the January fall. After a short pull-back, the next surge took that point out too then settled in for a consolidation in the $13.00-13.50. Friday ESEA has broken through the top of that range, which is a very positive development. The next significant level for the stock is near $16.75 where a quick rally in late November stalled out.

The interesting part of this whole picture is the valuation side of things. ESEA is trading at about 8 times trailing earnings. Current estimates put 2008 EPS at $1.87. That will likely be adjusted up soon as analysts work the strong future outlook expressed by the company into their forecasts. Even at current levels, though, we’re talking only about a 7 forward looking EPS. The five year average is 5-12, so with slightly better than currently forecast earnings and a little multiple expansion, the aforementioned $20 target certainly looks reachable.

Oh, and it’s currently yielding right about 8%. Talk about an attractive outlook!