Online Stock Trading: JLG Industries (JLG)

1. What does the company do?

According to the Yahoo "Profile" on JLG, this company

...provides access equipment and highway-speed telescopic hydraulic excavators. The company operates through three segments: Machinery, Equipment Services, and Access Financial Solutions."

2. How about the latest quarterly result?

On February 22, 2006, JLG reported 2nd quarter 2006 results. Revenue in the quarter ended January 29, 2006, grew 40% to $494 million, from the prior year same period. Net income was up 265% to $27.4 million from $7.5 million, and per share this year the company reported $.52/share, up over 200% from last year's $.17/share.

3. How about longer-term results?

The Morningstar.com "5-Yr Restated" financials on JLG shows that revenue actually declined from $1.0 billion in 2001 to a low of $751 million in 2003. Since 2003, however, revenue has resumed its steep climb to $1.2 billion in 2004, $1.7 billion in 2005 and $2.0 billion in the trailing twelve months (TTM).

Earnings also have been a bit erratic dropping from $.40/share in 2001 to a loss of $(1.18)/share in 2002. However, the company turned profitable at $.15/share in 2003 and has been steadily improving this number with $.60/share reported in 2005 and $1.14/share in the TTM.

The company does pay a small dividend which was $.02/share in 2001, $.01/share in 2002 and the same since then. The company has been expanding its float somewhat with 84 million shares outstanding in 2001, growing to 93 million in 2005 and 106 million in the TTM.

Free cash flow, which was a negative $(121) million in 2003, improved to $(24) million in 2004, turned positive at $96 million in 2005 and grew to $99 million in the TTM.

The balance sheet looks solid with $183.3 million in cash and $700.4 million in other current assets, which, when balanced against the $360.4 million in current liabilities, gives us a 'current ratio' of 2.45. In addition, JLG has $325.3 million in long-term liabilities. Thus the current assets are sufficient to easily cover the current liabilities and are enough to also pay off all of the long-term liabilities as well.

4. How about some valuation numbers on this stock?

Reviewing Yahoo "Key Statistics" on JLG, we find that the company is a large cap stock with a market capitalization of $3.12 billion. The trailing p/e is a moderate 27.20, with a forward p/e even nicer at 16.50 (fye 31-Jul-07 estimated). Thus, with the steady growth, the PEG ratio (5 yr expected) comes in at 1.27.

According to the fidelity.com eresearch website, JLG is in the "Farm/Construction Machinery" industrial group. Within this group, JLG is moderately priced with a Price/Sales ratio of 1.5. Topping this group is Joy Global (JOYG) with a ratio of 3.9, next are JLG and Caterpillar (CAT) both with ratios of 1.5, Deere (DE) at 1.0, Terex (TEX) at 1.0 and AGCO (AG) at 0.5.

Returning to Yahoo, we find there are 105.51 million shares outstanding and 103.60 million that float. Currently 6.99 million shares (4/10/06) are out short representing 6.9% of the float or 5.3 trading days of volume. Using my own 3 day rule on short interest, I think this level of short sellers is significant and may add to a move higher in the stock especially if the upcoming earnings are good.

Yahoo reports the estimated forward dividend is $.02/share yielding 0.2%. The last stock split was a 2:1 split on March 28, 2006.

5. And what does the chart look like?


If we look at the "Point & Figure" chart on JLG from StockCharts.com:

We can see that the price dropped from $8.50 in April, 2002, to a low of $2.00/share in March, 2003. However, starting with a sharp rise in April, 2003, from $2.25 to $8.00 in January, 2004, the stock has been moving strongly higher to its current level of $29.54. If anything, with the stock flying high above its "blue support line" the stock looks a bit over-extended in price.

6. Summary: What do I think?

First of all, I am terribly biased about this stock as I own shares! But reviewing this analysis, the company had a terrific earnings report and has another one coming in a couple of weeks. Hopefully that report will be well-received. The Morningstar.com page looks nice for the past few years, after a couple of years of week results between 2001 and 2003. Earnings have been growing, the company pays a small dividend, and free cash flow is positive and improving. On a negative not, the company has been issuing shares, with a small amount of dilution effects. Finally, the balance sheet is solid and the chart looks strong. On a valuation basis, the forward p/e is under 20, the PEG is about 1.25, and the Price/Sales ratio looks reasonable within its group.

Online Stock Trading: Stock Pick - CNS, Inc. (CNXS)

I looked through the list of top % gainers on the NASDAQ and came across CNS (CNXS) which was having a great day, and actually closed at $24.14, up $2.65 or 12.33% on the day. Earlier in the day I purchased 240 shares for $24.395. I moved my portfolio up to 23 positions, two under the maximum.


1. What does this company do?According to the Yahoo "Profile" on CNS Inc., the company

"...engages in developing and marketing consumer health care products, including Breathe Right branded products focused on better breathing and FiberChoice branded products focused on digestive health."

(Does anyone else see the irony of selling shares in a company treating sleep apnea machines, and buying shares in a company that makes nasal strips and sprays to treat snoring?)

2. How about their latest quarterly result?

In fact, it was the announcement of 4th quarter 2006 results Thursday, after the close of trading, that pushed the stock higher on Friday! As reported:

"Net sales for the fourth quarter of fiscal 2006 were $32.1 million, up 13% compared to $28.4 million in the same period last year. Net income for the fourth quarter grew 14% to $4.7 million, or $0.32 per diluted share, compared to $4.1 million, or $0.28 per diluted share, for the fourth quarter of fiscal 2005."

As an added plus, the company boosted the quarterly dividend 17% from $.06/share to $.07/ share for shareholders of record as of May 26, 2006.

3. What about longer-term results?

Regular readers of this blog will know that this is my critical part of an assessment of a stock. Consistent good results = quality. At least that is my perspective!

Reviewing the "5-Yr Restated" financials from Morningstar.com, there is a gap for the 2002 results (? changing fiscal years?), but the company had revenue of $84 million in 2001, dropping to $79 million in 2003, but then increasing steadily to $94 million in 2005 and $109 million in the trailing twelve months (TTM).


Likewise, earnings which were $.01/share in 2001, climbed to $.46/share in 2003, $.59/share in 2004, $.93/share in 2005 and $1.11/share in the TTM.

The company initiated dividends in 2004 at $.12/share and has raised dividends each year since. The number of shares outstanding has remained stable at 14 million.

Free cash flow, while a bit erratic, has been positive with $19 million in free cash flow in 2003, $15 million in 2005, and $13 million in the TTM.

The balance sheet is quite solid imho, with $59.7 million in cash alone, enough to cover the $18.3 million in current liabilities more than 3x over. Added to the $29.1 million in other current assets, the current ratio works out to 4.9. (over 1.5 is generally considered 'healthy'). Morningstar shows NO long-term liabilities at all!
4. What about some valuation numbers on this company?

Looking at Yahoo "Key Statistics" on CNS, we see that this is a small cap stock with a market capitalization of $341.92 million. The trailing p/e is a very moderate 21.81, with a forward p/e (fye 31-Mar-07) estimated at 18.86. Thus, the PEG (5 yr expected) is quite nice at 1.16.

According to the Fidelity.com "eresearch" website, CNXS is in the "Medical Appliances/Equipment" industrial group, and its Price/Sales ratio of 3.3 places it on the low side with St. Jude (STJ) topping the list at 5.1, Zimmer (ZMH) at 4.6, Biomet (BMET) at 4.5, followed by CNXS at 3.3, Edwards Lifesciences (EW) at 2.8.

Yahoo reports 14.16 million shares outstanding with 12.98 million that float. Interestingly, as of 4/10/06 there were 1.77 million shares out short representing 11.60% of the float or 12 trading days of volume (the short ratio). With the sharp rise yesterday on good earnings results, we may have been observing a bit of a squeeze on the short-sellers scrambling to cover their bet against the company.

As already noted, the company pays a dividend of $.28/share with a forward estimated yield of 1.3%. According to Yahoo, the last stock split was a 2:1 split on June 23, 1995.

5. What does the chart look like?

Looking at the "Point & Figure" chart on CNXS from StockCharts.com, we can see the stock consolidating between $4.75 and $3.00 between February, 2001, and September, 2001. In December, 2001, the stock broke through resistance at $4.75 and has been moving higher since. Recently the stock has pulled back from the $31 level, dropping to the $20 level. However, the stock appears well above support levels and does not appear to have broken down in terms of price momentum.

6. Summary: What do I think?

Let's try to put this all together. First of all, I do own some shares (as of yesterday) of this stock. But I first wrote this one up a year ago and it subsequently appreciated 30% in price. The stock made a good move yesterday on a solid earnings report. Nothing spectacular but just the usual steady earnings growth, steady revenue growth, and an added plus of a raised dividend. The past several years have also seen steady growth.

The valuation is quite reasonable with a p/e at 21 with a PEG just over 1.1. The Price/Sales ratio isn't too rich on what appears to be a rather arbitrary group assignment. The company is generating free cash and has a beautiful balance sheet with lots of cash and NO long-term debt. The company even pays a dividend and is raising it as well. The chart looks pretty strong. And there are lots of short-sellers that need to cover if the stock continues to move higher.

On the downside this may be a "two-hit wonder" with just two main products, the nasal strips and the fiber tablets. However, the products are well-regarded and the management appears able to continue to manage these assets in a productive fashion.

Online Stock Trading: e-mail from reader

I received a nice letter a few days ago from Isaac N. who wrote:

"I just wanted to get some advice from you concerning a stock I own.
I know you advise to sell partially after 30% gain is attained. I bought ADM at 22.65 (44 shares) and now is at 36.67, a 61.9% gain. Is it wrong for me to hold this stock as it has crossed the 30% gain value? This is one of three stocks I own. I am also looking into buying one more stock. Which sectors do you think will be hot in the future. I'm very patient so I'm not necessarily looking for a stock that will have immediate gains.

Thanks, Isaac N"

Isaac, thanks so much for writing!

I want to try to take a look at several of the points that you raise in your comments. First of all, is ADM a good stock to own? And should you sell some shares now that you have 60% gain? And what sector do I think will be hot in the future?

Let me comment briefly on these things.

First of all Archer-Daniels-Midland (ADM). The stock closed at $36.34 on 4/28/06, up $.15 or .41% on the day. Currently ADM appears to be riding the ethanol bandwagon.

Latest quarter:

On January 31, 2006, ADM reported 2nd quarter 2006 results. Sales grew 3% to $9.3 billion from $9.06 billion the year earlier. Net income for the quarter ended December 31, 2005, increased 17% to $367.7 million or $.56/share, up from $313.5 million or $.48/share the prior year. So far so good. Better yet than the results themselves was the fact that the company exceeded estimates:

"Analysts surveyed by Thomson Financial had expected the company to post earnings of 42 cents per share on sales of $9.18 billion."

So this was a nice report!

How about longer-term? Looking at the Morningstar.com "5-Yr Restated" financials, we can see that revenue grew strongly between 2001 and 2004, then flattened out in 2005 and the trailing twelve months (TTM). Meanwhile, earnings have skyrocketed between 2004 when they were $.76/share and 2005 when earnings came in at $1.59. Dividends have also been increasing steadily throughout this period. In addition the number of shares outstanding has been shrinking from 661 million in 2001 to 653 million in 2005 and 654 million in the TTM.

Free cash flow has been a bit erratic, but overall appears to be strongly positive (except for a negative $(476) million in 2004). The balance sheet also looks reasonable with a current ratio of about 1.5. The company does have a bit of a debt load with $5.2 billion in long-term liabilities. But the finances overall look just fine.

Reviewing Yahoo "Key Statistics" on ADM, this is a large company with a market cap of $23.76 billion. The trailing p/e isn't bad at 17.73, but the PEG is a bit rich at 2.11. However, with the latest strong earnings, this may well be adjusted downward. The Price/Sales at 0.66 appears reasonable as well. There are a lot of shares out at 653.8 millio outstanding with 633.22 million that float. Only 5.65 million shares are out short, representing 0.9% of the float or 1.3 trading days of volume. As noted, the company pays a 1.1% dividend and last declared a 5% stock split in August, 2001.

The chart? Taking a look at the "Point & Figure" chart on ADM from StockCharts.com:

Clearly, this stock has been 'on a tear' recently. The stock broke through resistance at $14 in August, 2004, and has skyrocketed to its current level of $36.34. If anything, the stock price appears a bit over-extended. This is something that I describe when the price elevates far above the "blue" arbitrary support line. Overall the chart looks very strong.

Anyhow, insofar as ADM is concerned it is an interesting play especially on the Ethanol business. The numbers basically look fine except for the relatively stagnant growth in revenue. Earnings, however, have climbed.

Should you sell 1/6th? You probably know my answer. But that is just what I do. Doesn't mean you need to do it. I believe in selling my gaining stocks slowly and partially and my losing stocks completely and quickly. It is this bias that will keep your overall performance maximized imho.

What stock or industry should you consider? I am biased towards the medical technology firms but I still depend on what I call my "zen" approach on investing. I buy stocks that are climbing strongly on the day that I have my "permission" to add a new position. So my choice of industry, although I do have my own bias, depends on which stocks show up on the top % gainers list and also meet my own criteria.

I will refrain from naming a particular stock as I am sure you are more than capable of selecting a stock for consideration. If you would like, scan through my past entries, take a look at current information, and you will have hundreds of stocks to choose from!

Good luck and keep me posted. Thanks so much for taking the time to write.

Online Stock Trading: Stock Picks

I received a nice email from Bret M., who is a friend of my son Ben.Bret wrote:

"Ben told me about your blog a few weeks ago and Ive been enjoying reading it.
Your strategy is very interesting and I really like the way it automatically
keeps you in a bull market and pulls you out of a bear.
I've got a couple of stocks that I would love to get your opinion on.
My dad is an optometrist and he owns a little stake in Advanced Medical Optics (EYE). It has done very well and I know you would say to peel off a small chunk of it. Have you heard anything about it posibly being bought
out by J&J? Do you suspect that would that be good for EYE stock?
Another stock that my dad and I have been in and out of a little is DXPE. We found it on a Yahoo "top 10 stocks under 10 bucks" list last summer
and it then shot up after Katrina. We rode it from like 10 to 18. It is extremely volitile, but has made its way up to 38. What do you think about its fundementals? Is it too late or too expensive now to get back in?

Thanks for the help. I look forward to hearing back from you. Thanks.

Bret M."

Brett, thanks so much for writing. First of all, I am not privy to any inside information. I do not know if EYE might be an acquisition target. It is a general rule that acquisitions are favorable for the acquired company which generally sees a significant increase in its stock price. Should you be selling a little bit of your holding as the company's stock price rises? You of course know my answer. If it is wise to sell your losing stocks quickly, it is also wise to sell your gaining stock slowly. It is often hard to both sell a stock that has dropped and it is equally hard to justify selling a stock when you are in the midst of feeling so good about it. I am sure you understand this.

This past Thursday, April 27, 2006, EYE announced 1st quarter 2006 results. Sales increased nicely to $238.2 million for the quarter, a 23.7% increase over the prior year same quarter. However, first quarter net income came in at $2.6 million or $.04/share, down sharply from $13.8 million or $.35/share last year. The company had a lot of excellent reasons and did provide reasonably strong guidance for future results, but I am always looking at the 'bottom line'.

I also have a tough time with the EYE Morningstar.com "5-Yr Restated" financials, which, while showing strong revenue growth show that the company dropped from $.35/share in 2003 to a loss of $(3.89)/share in 2004 and $(8.28)/share in 2005. In addition, free cash flow which was $22 million in 2004, dropped to a negative $(2) million in 2005.

The balance sheet as reported on Morningstar.com shows the company with a bit of a heavy debt load with a current ratio of 1.84, which isn't bad, but also a $710.5 million in long-term liabilities.

And the "Point & Figure" chart on EYE from StockCharts.com:

Clearly this stock looks very strong on the chart-side of things. All the more reason to take some small profits. I do not invest based on stories or hypotheses. I did at one time in the past.

I like to look hard at actual corporate performance, with the limited tools at my disposal. I am not looking for what 'could be' but what is actually occurring. Basic stuff like earnings, free cash flow, valuation numbers, and balance sheets. This is how I approach my investments. That, along with careful tending of my holdings with partial sales of stocks as they approeciate and quick sales of stock posting losses. I have had several of my stocks acquired....most recently Sybron Dental (SYD) that I wrote up a month or so ago. But I believe they are getting acquired because others are examining these companies with the same perspective I am applying.

Now for that other stock you mentioned: DXPE....a stock that I don't think I am familiar with...so let's take a look.

According to the Yahoo "Profile" on DXPE, the company

"...distributes maintenance, repair, and operating (MRO) products, equipment, and service to industrial customers in the United States. It operates in two segments, MRO and Electrical Contractor."

What about the latest quarter? On April 26, 2006, DXPE announced 1st quarter 2006 results. Sales grew 49.6% to $62.5 million from $41.8 million in the same quarter the prior year. For this quarter that ended March 31, 2006, net income came in at $2.5 million or $.44/share, up 193% from $854,000 or .15/share in the prior year same period. I would have to admit that this was a fabulous report!

What about longer-term?

Except for a dip in revenue from $174.4 million in 2001 to $148.1 million in 2002, the company has been growing its revenue to $185.4 million in 2005.

Earnings have grown steadily during the past five years from $.21/share in 2001 to $.94/share in 2005. This is a very small company with 4 million shares in 2001, increasing to 5 million in the trailing twelve months (TTM).

Free cash flow has been deteriorating recently, dropping from $7 million in 2003, $3 million in 2004, and $(2) million in 2005.

The balance sheet is fine with $.6 million in cash and $55.6 million in other current assets, balanced against $28.1 million in current liabilities (giving us a 'current ratio' of 2.0) and $25.3 million in long-term liabilities.


And the chart: looking at the "Point & Figure" chart on DXPE from StockCharts.com:

Basically, this chart looks quite strong as well.

What about DXPE 'valuation'? Looking at the Yahoo "Key Statistics" on DXPE, we can see that this is a small company with a market cap of only $198.49 million. The trailing p/e is a bit rich at 42.48, but with the rapid growth in earnings, the forward p/e is much nicer at 21.68. There is no PEG available (probably no analyst with 5 yr results estimated). The Price/Sales is 1.03. According to the Fidelity.com eresearch website, DXP is in the "Industrial Equipment Wholesale" industrial group, and is priced midway between MSC Industrial with a Price/Sales ratio of 3 and CE Franklin (CFK) at 0.7. Thus, by this measure the stock isn't really overpriced.

So what do I think? I am a bit concerned about some of the things I have found and mentioned on EYE. However, the company remains optimistic. Being more concerned about actual results, I wouldn't be entering EYE at this point, but waiting for those results to happen. DXPE is a bit of a different story. The results in the latest quarter were fabulous.

Your question about "getting back in" is the problem of doing stocks "for a trade". Although I did the same in BOOM with 300 shares just yesterday :). But my core holding wasn't affected. It is better to just sell portions of stocks on large gains and sell ALL of your shares when stocks do poorly, not when they do WELL. Do you follow?

Should you enter now? I would if the stock hit the new high list and met my own criteria. I might pass on DXPE and miss a great company with their reported negative cash flow. There are just too many stocks to choose from and I go for perfect :). As for you, it is your call. I don't think this particular stock is so big it doesn't have any room to grow further. I would, however, establish sale points on any position you take, both on the upside and the downside. Forget the trades (except occasionally) imho. Generally think about managing your holdings instead.

Just my call.