UTA (Long)...

So it's New Year's Eve and I'm off until the end of the week. I figured I'd put out another pick this week to help get this blog rolling for 2010. Today's pick is Universal Travel Group (UTA). This is a Chinese travel website (think of a smaller market cap version of CTRP without the ridiculous valuation). In my opinion, CTRP is the better website/product (and the better chart if momentum trading is your thing), but UTA looks to me to be the better fundamental buy right now.

Why do I say UTA's a good fundamental buy right now? Because UTA passes with flying colours on one of the screens I use while scoring very favourably on two others (I run about 15 or so screens after the close each day). Generally, in order for me to even look at a stock, it has to, at the very least, score favourably on one screen. This is my way of ensuring that I don't get burned by stocks with questionable fundamentals. Maybe as part of my lessons posts, I'll do some on technical analysis and some on the screens I use (many of which can be found in John Reese's books, "The Market Gurus" and "The Guru Investor").

UTA passes the Joel Greenblatt screen at 100%. This screen is detailed in John Reese's "The Guru Investor" and I use it as it is described there, which is based on Joel Greenblatt's "The Little Book That Beats The Market." I will write more about this screen in a later post, but for now, UTA has an earnings yield of 18.14% (ranked 25th among the 3,500 largest US companies excluding utilities and financials) and a return on total capital of 56.08% (ranked 87th), for a total Greenblatt score of 112 (25+87=112 for the 8th lowest Greenblatt score, which is good because the lower the Greenblatt score, the better). UTA also did well on the Peter Lynch screen at 74% and it did well on the Motley Fool screen at 76% (both screens are described in Reese's "The Market Gurus"). I'll describe these in a later post, as well.

So, we know this company is fundamentally solid, so how do we play it? Let's go to the chart. Since mid-July, UTA has consistently held the $9 level, telling us that $9 is a strong support level for this stock, including once earlier in December. This is the green dashed line I've drawn. You can also see a pretty powerful downtrending resistance line that has capped rallies for the past couple months, which is the purple dashed line. I expect support to hold, but this stock is nearly 15% above that support level and it just recently tagged the resistance line. So, my plan is to look for UTA to fade closer to $9 before getting long. This looks like a volatility squeeze. The price action in the stock is narrowing, which often happens before a breakout (or breakdown). Think of a coiled spring. This is a triangle pattern, and typically with triangle patterns, the resolution needs to occur ~2/3 of the way into the triangle in order for it to be a meaningful move (you can see the purple and green lines would eventually intersect).

UTA is optionable. Its options chain isn't the best I've seen, as it's very thinly traded, the bid/ask spreads are much wider than I normally like, and the strikes are also wider than I normally like. I'm undecided right now about whether I would play this stock using common stock, buy-writes (the purchase of common stock with the sale of covered call options against the common stock), or call spreads (the purchase of calls with the sale of different covered calls against the purchased calls). The May $5 calls look promising should the stock pull back towards $9 as I expect it to.



Position: none

Disclaimer: This is not a recommendation and is presented for informational purposes only.

CRE (Long)...

For the first pick, I'm going after Care Investment Trust (CRE). This is a special case. Leave it to me to make my first pick to be something exotic. :-p Ok, here's the situation. It's a REIT that invests in medical properties and mortgages, particularly long-term care and Alzheimer's facilities. I'm bearish on commercial real estate, but I'm willing to suspend that bias here because this is a liquidation case. CRE announced earlier this month that they will be liquidating their trust following their strategic review.

Since this is a liquidation case, it's all about the balance sheet. Right now, CRE is trading at around $7.50 or ~0.64x book value or a market cap of ~$153M (however you prefer to think of it). It's very unlikely in my opinion that this liquidation would occur at anything below book value (presently equivalent to ~$11.65 per share or ~$233M in total equity). This is because CRE has way more in assets than it does in liabilities (it has $322M in assets and $89M in liabilities, with $233M in total equity). So, whether you look at it in terms of share price, book value, or market cap and net equity (ultimately, all three are interrelated, of course), we're looking at a potential 50% gain once the liquidation occurs, within probably the next year or so. Realistically, it's probably more like 6-9 months. Either way, by this time next year, I suspect CRE will be fully liquidated and will have made some good money. Furthermore, note that CRE has been paying a pretty consistent quarterly dividend of $0.17/share, which translates into an annual yield of ~9%

CRE is not optionable, so we're playing with straight common stock here. So, what's our gameplan? As you can see, CRE got mauled by the bears earlier this month and it took some significant technical damage. It broke down hard below the 50-day EMA on very heavy volume, but held at the 200-day EMA for now. It's now hanging around between these two key moving averages. So, the plan for now is to take a small starter position ideally as close to the 200-day EMA as possible (currently ~5% lower around $7.25).

From a strictly technical perspective, this is a chart in trouble. High-volume breakdowns like this usually lead to further downside (it's a bearish fin or wedge set-up). If CRE breaks down further, which is the more likely outcome right now, it must be reevaluated. Likewise, if CRE holds the 200-day EMA and is able to reclaim the 50-day EMA, it will have to be reevaluated. This indecisive set-up is the reason to start small.



Position: none

Disclaimer: This is not a recommendation and is presented for informational purposes only.

2010 Restart...

I'm bringing the blog back, but at a new place and with a new objective. I learned before that it's very hard to do quick moves in a blog format, moves where the timeframe is measured in days or less. So, the purpose of this blog will be to focus more on longer-term moves, positions I intend to be in for weeks, months, or even years. I will also be using a hybrid approach that combines fundamentals and technicals. Despite 2009's epic run higher, there are still plenty of great opportunities for longs and shorts.

I intend to keep the shorter-term stuff out of this blog except for when I am looking to make moves in these longer-term positions. This includes buys, sales, covers, and shorts of common stock as well as options-related moves (such as covered calls/puts and spreads). My intent is to use options except when we are dealing with a company with at least one of the following:

1. A big dividend. You don't collect the dividend if you're holding options.
2. A thin or non-existent options chain.

I will try to put up at least one post a day detailing the day and any actions I took. I'd also like to put out a new pick each week and maybe even a new lesson.