Doctor Jack's Stock Medicine

[Lyehopper]

Covered at 17.98

I know a fella who lives in the Silicon Valley who trades much like you do Doc. He daytrades Mega Caps for about 1/2%+ per trade.... He trades with about a million dollars plus margin. He does very well too. He's a Dan Zanger follower.

[Lyehopper]

Doc.... Keep an eye on basic steel. I'm short AKS right now.

Look at X.... There's a 2% short play today for ya dude.

[Jack Haddad]

Doc.... Keep an eye on basic steel. I'm short AKS right now.

Look at X.... There's a 2% short play today for ya dude.

Of steel, I used to trade Zeus heavily... But, it was too chaotic. The entire sector had a tremendous run and is due for a pullback.

[Jack Haddad]

The case for Google!

Google is relatively inexpensive based on several measures of value:

A. The stock is trading at 38 times the 8.89 dollar per share that analysts on average expect the company to earn in 2006 and 28 times 2007 earnings of 12 dollars per share! Compared with Yahoo's price-earnings ratio of 57 for this year and 42 based on next year's, Google is cheap! Market leaders such as Google can justifiably trade at P/Es ranging from 50 to 60. For example, a 600 dollar one year target price assumes 2007 earnings per share of 11.98 and a P/E ratio of 50.

B. PEG ratio is another manner in which Google's value may be measured. The faster the growth, the more justifiable a high P/E. In Google's case, the expected growth is 31% per year for the next 5 years. So its PEG is 1.2 based on this year's earnings forecast and 0.9 based on next year's. Generally, a PEG ratio close to 1 is considered cheap! A leading growth company like Google should trade at a PEG of 1.5 to 2.0. For example, a 600 one year target is based on a PEG of 1.6. By contrast, Yahoo's PEG is 2.5 on 2006 profit estimates and 1.9 on next year's.

C. If you want to take your analysis to a higher level of sophistication and complexity, forget the P/E ratio. Because various accounting maneuvers can distort reported earnings, many analysts rely on purer measure of profitability that goes by the acronym EBITDA (earnings before interest, taxes, depreciation, and amoritization).

D. Also, enterprise value (a company's stock market capitalization plus outstanding debt minus its cash holdings) is a better measure than a stock market value alone of how investors value a company; that said, if you describe Google's enterprise value by its Ebitda based on 2006 estimates, you get 23. The number by itself is meaningless, but compared with Yahoo's 34, it seems to suggest once again that Google is reasonably priced.

[Rob]

Google

Jack, again I agree whoeheartedly! Which is why I am also long GOOG. It's just a matter of time.

Thank you for posting that.

[Jack Haddad]

Jack, again I agree whoeheartedly! Which is why I am also long GOOG. It's just a matter of time.

Thank you for posting that.

And the larger the short float, the better for longs.

[sisterwin2]

You seem lonely IIC, I'll converse with you. You like riddles don't you? Now speaking of active communication, can you tell me a four letter word meaning intercourse?

and i worried about my pic

[Jack Haddad]

Intc

Folks, today, INTC is erupting higher against the Dow!!! When I couple the last few days's behavior, it appears that INTC is silently being accumulated... and is about to smike the short float. I have witnessed this behavior in the past (when a stock trades against market sentiment), and it has resulted in massive short covering propelling the stock higher.

Other factors playing role are the release of their Woodcrest Core duel server patform which is not only better than AMD's but 120 dollars cheaper. Shorts, please be aware.

[Jack Haddad]

Amd

Bought at 30.61

Wrote 100 June 30.00 calls at 1.55/contract to hedge against my shares which I nought earlier at 30.61

[Jack Haddad]

Hom

HOM just took a dump; thank goodness my shares were hedged with the June 10 calls!

[IIC]

First thing that pops into my mind when I think of HOM is....zzzzbest carpet cleaning...IIC

[Jack Haddad]

Everyone, have a wonderful weekend and be safe!

[IIC]

Stocklemon on HOM:

http://www.stocklemon.com/

Not sure how long that stays up...so here is a copy FWIW:

June 2, 2006

Stocklemon Reports on Home Solutions of America



Is Home Solutions a Natural Disaster Waiting to Happen? Stocklemon Reports on (Amex:HOM)

What is Home Solutions?

Home Solutions was a dormant company and had no operations during most of 2002. Between then and the present, they have spent $50 million in cheap stock and expensive debt to acquire 5 small building services companies – $1.5 to $16 million apiece. These 5 companies comprise 100% of the present day HOM, which, in an astounding feat of new math, is now conferred a fully diluted market cap of over $440 million!

Over the past year, the stock has made a major move as investors flocked to it as a potential benefactor of the Hurricane Katrina clean-up. Yet, Stocklemon cautions investors, that they not worry about the potential for another hurricane but rather they should be concerned about a tsunami of insider selling and a business model that has an ominous sense of déjà vu’.

Lets Get To the Nitty Gritty

While the stock is up from $2 in a year, let us see if the business has improved equally as well.

In June of 2005, the quarterly revenue was $16 mil and the stock was $1.36. In March of 2006, a scant 9 months later, the revenue was $19 mil and the stock has visited $14 and is now $11.

…But it gets better

In just under 15 months, the shares outstanding have gone from 16 million to north of 40 million. Therefore, during that same 15-month period, the market cap is up from $27 million to $440 million, a 1600% increase!

Stocklemon notes that during the last 4 reporting periods, a problem with accounts receivable is emerging. Consider the following table:


Mar-06
Dec-05
Sep-05
Jun-05

Revenues
19,280,000
22,342,000
20,376,000
16,055,000

Receivables
20,857,000
20,585,000
16,742,000
9,501,000

Days sales in Receivables
97.4
82.9
73.9
53.3




Receivables compared to sales has marched steadily higher – one common measure, days sales in receivables, is up over 97 from a too-high 53 in the most recent quarter. That’s over a full quarter’s revenue. The company commented in its 10-K (period ending December) that 52% of that receivable came from one (unidentified) customer. There was no further comment in the March quarter, but any exposure buried in that receivable number could negatively impact reported earnings.

Additionally, the profits reported in the last quarter are “cashless” – that is, the cash flow statement ate up 80% of the net income. If that receivables ratio doesn’t clean up, and quickly, some serious questions are going to be asked about whether HOM is in fact truly profitable or not.

On Balance

HOM’s balance sheet looks more like a $40 million company than a $440 million one. Absent the goodwill and intangibles, there’s about $40 million in assets and $10 million liabilities.

With competition from other vendors both larger and smaller, the company’s success depends entirely on dramatically expanding both revenues and margins in a market space that by its nature is low-margin and highly competitive. Barriers to entry, anyone?

This is Our Favorite

On May 15, 2006 HOM stated that their 2006 revenue guidance is $160-$165 million. http://biz.yahoo.com/ap/060515/earns...rica.html?.v=1



To meet the guidance that the company just issued, they are going to have to average $46.6 million for the next 3 quarters. Meeting that guidance requires each of the next three quarters to rake in revenues more than double the highest revenue quarter in the company’s history.

Then, just two weeks after this “lofty” guidance comes out, the CEO “sold” (or should we say dumped) over $6 million worth of stock, the President of the company sold $5.3 million, and the President of one of their largest subsidiaries filed to sell 200,000 shares as well.

http://finance.yahoo.com/q/it?s=HOM

Home Solutions CEO is Frank Fradella

Prior to being the CEO of Home Solutions Mr. Fradella was the Chairman/CEO and COO of American Eco-Corp.

http://www.homcorp.com/index.php/investor/details/frank_fradella

American Eco was also a roll up in the outsourcing of services to construction management industries.. They built the company through acquisitions as well.

http://www.highbeam.com/library/docfree.asp?DOCID=1G1:17648183&ctrlInfo=Round20%3AMode20b%3ADocG%3AResult&ao

http://www.findarticles.com/p/articles/mi_m0EIN/is_1996_March_14/ai_18092447

American Eco was a rollup just like Home Solutions

American Eco also put out lofty revenue targets and announcements about big revenue deals

http://www.highbeam.com/library/docfree.asp?DOCID=1G1:17793216&ctrlInfo=Round20%3AMode20b%3ADocG%3AResult&ao

http://www.highbeam.com/library/docfree.asp?DOCID=1G1:18544053&ctrlInfo=Round20%3AMode20b%3ADocG%3AResult&ao

American Eco is now Bankrupt and trades at $.0001

http://finance.yahoo.com/q?s=ECGOQ.PK

CEOCast

The main “promoter” behind HOM seems to be CEOCast who touts the stock in a series of emails that it sends to its subscribers. For its investor relations emails, CEOCast receives $7500 a month plus 50,000 shares of stock. Stocklemon first introduced our readers to CEOCast as they touted World Information Technolgy as their special situations alert.

http://www.stocklemon.com/articles/02_04_04.html

The following month that stock was halted by the SEC.

The spokesman for CEOCast is Michael Wachs. His actual role in the company is understandably a topic of debate -- Mr. Wachs has pleaded guilty to bank fraud in the past and served 11 months at Club Fed. He has reinvented himself as an IR Guru -- with 50,000 shares plus $7.500 a month, he is obviously doing something right. http://www.federalreserve.gov/BoardD...Attachment.pdf

Conclusion

At the very least, the insider's run to the bank with mountains of cheap stock seems premature. If the company is truly just now perfectly positioned to reap the benefits of massive hurricane-related remediation work, what’s their hurry? If, on the other hand, the business has been “groomed” for the appearance of growth – rolling up low margin companies into a huge ball of cashless profits, the worst case scenario is far more ominous.

Mania and hysteria are not sound reasons to buy a stock. Just because you believe that the word “hurricane”, “bird flu”, or “China” is attached to a stock, there is no substitute for good homework. Before running up the market cap of this company above half a billion dollars, investors should consider doing their own HOMework.

Cautious Investing To All.

[Runner]

Doug, I watched the Enron story last week…

[billyjoe]

Doug,
That is bad news. A person could have made a fortune shorting IIG after the stocklemon expose. At the same time it was really hot on the IBD boards and some here liked it as well. It might be time to cash in my HOM or maybe I'll give it another week.

billyjoe