April 22, 2008
I usually don’t dwell much into small cap company investments, but one exception is Flowtek Industries (FTK). Flowtek is a supplier of drilling products to the energy and mining sector. Their core business revenue comes from specialty chemicals that they sell to the oil services industry. These specialty chemicals help soften up the hard layers in the earth that prevent oil and gas companies from extracting the most amount of oil out of each oil well. Some of their big name customers include Schlumberger (SLB) and Haliburton (HAL), who uses Flowtek’s drilling products.
The reason for their dropoff from a high attained in October of $55/share to their current valuation of around $17/share is due to two straight quarters of missing analyst expectations. They missed expectations by $0.02 last quarter and $0.05 the previous quarter. Four analyst currently expect a $0.32 per share earnings during their next earnings release and a 39% increase in revenues in the same quarter from the previous year.
With oil prices at an all time high, Flowtek is poised to be able to rebound in the next half a year and should show some promising results as their specialty chemicals are their bread and butter product.
Notable Signs of Rebounding
- 2 analysts have initiated this stock as a buy in the last 2 months
- 3 straight years of increasing operating cash flow (note this company has been around since 1983)
What May Keep it Down
- they have missed earnings two quarters in a row and being a small cap company, may take longer to recover toward beating estimates
- any negative news hurts small cap companies much more than larger companies
All in all, I believe a lot of downside has been factored in and it’s a good opportunity to make 20-30% easily (especially at entry levels below $15). I have made 30% on Flowtek in the last month and so can you! I currently don’t own shares in Flowtek.
January 22, 2008
Investors are scared, people are trying to figure out if we’re really in a recession, and even President Bush is doing his part to help stimulate the economy. Instead of getting scared and jumping off the investing boat, just make sure that you have a diversified portfolio that can perform as well as possible because past recessions have not lasted longer than about a year and stocks are still going to do well in the long run. Five years from now, we will not be scared of subprime mortgages, credit crunch, or oil prices hindering consumer spending. Ten stocks that I am trying to buy or have already bought (every stock with exception of Aluminum Corp and Schlumberger) that I believe will do well in the long term are as follows (in no particular order):
1. Las Vegas Sands (LVS)
2. Wynn Casinos (WYNN)
3. Aluminum Corp of China (ACH)
4. Schlumberger (SLB)
5. Cemex (CX)
6. Wachovia (WB)
7. Trinity Industries (TRN)
8. Sandisk (SNDK)
9. Broadcomm (BRCM)
10. Valero (VLO)
With the list above, I believe I have a good combination of large cap companies, companies in various sectors, and most importantly, companies that have the capability to weather rough times. A truly diversified portfolio would require at least 25 different stocks (mutual funds must have 20 different companies in their investments according to the SEC) but not all of us have enough money to purchase that many different companies.
Also foreign revenue on average accounts for 30% of companies revenue and a good number of the above companies have healthy international exposure. It’s never a guarantee that they will all make money from this point in time, but I think it’s a portfolio with a lot of upside. At this point in time, Wachovia is the riskiest investment, but assuming they don’t cut their dividend, I’ll take their 8.3% dividend. Also I prefer Las Vegas Sands and Wynn Casinos over MGM because I believe their casinos are stronger and the growth in other countries are much better for the former two.
Speculation play: If Wynn Casinos is able to acquire a gambling license to build a mega casino hotel in Tokyo, it’s going to blow through the roof.