China Automotive Systems Releases Impressive Q1 08 Results

CAAS - China Automotive Systems (NASDAQ) - (Closing Price - $6.85) 

China Automotive Systems announced impressive first quarter results today and the stock price responded by trading up 25% on the news.

China Automotive Systems reported revenue of 41.47 million and diluted EPS of 0.18. Revenue improved 46% year over year and 10% sequentially. Diluted EPS improved 157% year over year and 100% sequentially.

Even with the big jump today China Automotive is only trading at a trailing PE ratio of 14. That is very cheap considering the strong growth in revenue and earnings. If China Automotive Systems can continue to show both top and bottom line improvement in future quarters China Automotive Sytems will reach a much higher share price. I think the share price could easily retest its highs of the past few years ($12 - $14 range) in the next few quarters. Therefore, I think it would be wise to be patient and hold onto your shares.

Short term I also think the share price will see more upside. Over 7% of the float is short and I think the shorts will continue to be squeezed over the next few days.

I don’t see any reason to sell I would continue to hold your shares of China Automotive Systems.

Disclaimer: I have no position in CAAS.

SWC Cover Recommendation

SWC - Stillwater Mining Company (NYSE) - (Closing Price - $13.19) 

In my last update I wrote that I thought SWC was going to continue to decline and that you should continue to hold your short position. However, if you shorted SWC at my initial recommendation you are sitting on a big gain and I think now would be a good time to cover.

SWC reported lousy first quarter results last Thursday and the stock price has managed to hold up. Also the price of platinum is starting to creep back up again. Therefore, I am going to give a cover recommendation at today’s closing price.

Disclaimer: I have no position in SWC.

AMR Sell Recommendation

AMR - American Airlines (NYSE) - (Closing Price - $8.57)

I recommended airline stocks, American Airlines in particular, as a play on oil falling in price from its highly speculative levels. I figured oil would pull back quite a bit after the Fed announced it would halt future rate cuts since oil has been rising mainly as a hedge against the falling dollar. However, after a very brief fall speculators have sent oil right back up in spite of bearish reasons for oil to go down.

Today it was reported oil inventories rose 5.7 million barrels last week and supplies of oil have now climbed a total of 11.9 million barrels over the past three weeks. However, oil continues to go up for reasons such as supply disruptions in Nigeria that only affect a few thousand barrels.

Due to the nonsense that is going on in the oil market I am going to recommend selling American Airlines essentially at the price I recommended it at. I should have recommended selling the news after the Fed meeting but I didn’t think oil would surge up from its bubble like levels in the face of bearish news. I will throw in the towel for now but this is a trade I will keep an eye on.

Disclaimer: I have no position in AMR.

Free Stock Picks - May Report

SWC - Stillwater Mining Company (NYSE)
I forgot to update Stillwater Mining Company so here is my take on SWC. I still think the stock price of SWC is going to continue to decline. The stock price of SWC was trading in the ten dollar range before it had its huge run and I expect the stock price to go back to that range as platinum and palladium prices continue to correct. I would continue to hold your short position.

Disclaimer: I have no position in SWC.

Free Stock Picks - May Report

AIXG – Aixtron (NASDAQ)
Aixtron has announced a couple of new orders since my initial recommendation and the stock price is already up 11%. A dividend will most likely be approved at the shareholders meeting on May 14 and this should provide a boost to the stock price. Aixtron reported Q1 results last year on May 8 so they should report earnings pretty soon.

AMR – American Airlines (NYSE)
All airline stocks had a strong rally since my initial recommendation but they pulled back on Friday due to profit taking and a rise in oil prices. AMR was already close to my price target but I didn’t give a sell recommendation because I think oil is going to continue to go down short term. I think the dollar will continue to strengthen and the demand for oil is going to decrease. This should push down oil prices and help airline stocks.

CAAS – China Automotive (NASDAQ)
China Automotive reported decent results in March and the stock price initially went up but has sold off since. They are set to report Q1 results this month so I will provide an update then. (more…)

AMR Update

AMR - American Airlines (NYSE) - (Closing Price - $9.90) 

The entire airline industry has rallied just as I predicted and American Airlines is already close to my price target. However, I think airlines have more room to run and I wouldn’t recommend selling yet. Oil is still way overpriced and should continue to correct. Also, there may be more merger/alliance announcements released.

One of the reasons I was able to make such a great call on airline stocks is I like to keep track of the price of oil. However, for the past couple of years I have been disturbed by the obvious bias that is not disclosed in stories about the price of oil. If you read ten stories about the price of oil maybe one will mention the actual supply and demand of oil compared to normal levels. Most stories will have some obviously biased clown talking about potential supply disruptions, the falling dollar, or some other speculative nonsense. To make matters worse there is never a disclosure at the end of the article. If the clown who is being quoted has a position in oil futures then this should obviously be disclosed.

This also goes for any story about stocks in general. If there is no disclosure at the end of the story you should complain to the people who wrote it. If they don’t do anything about it stop reading their stories and go to a more honest source.

Disclaimer: I have no position in airline stocks or oil futures.

New Stock Pick: AMR

AMR - American Airlines (NYSE) - (Closing Price - $8.53)

The stock prices of airlines have taken quite a hit in the last year as speculators sent the price of oil up to record levels. In the past few days oil has pulled back from its record highs and the airlines have started to rally. I expect oil to continue to sell off and I think buying airline stocks is a good short term play. There is also talk of consolidation in the airline industry so this should also bode well for airline stocks.

I think oil will continue to sell off for a couple of reasons. First, the Fed is expected to signal that it is going to stop lowering interest rates for a while. This will help the dollar strengthen and it takes away the major reason speculators have been bidding up oil (they have been buying oil as a hedge against the falling dollar). Second, the high price of oil and the sluggish economy is reducing demand for oil. I think future supply reports will show this.

I believe the entire airline industry is going to rally short term so you have a lot of companies to choose from. I am going to give a buy recommendation of American Airlines with a price target of ten dollars in the next month.

Disclaimer: I have no position in airline stocks.

SILC Q1 08 Results

SILC - Silicom Limited (NASDAQ) - (Closing Price - $9.50) 

Silicom Ltd. announced their first quarter 2008 results yesterday and reported an increase in revenue but flat growth in earnings. Amazingly, the stock price has dropped more than 25% since the news.

Silicom reported revenue of 7.70 million which was up 27% compared to Q1 2007 and up 3% compared to the prior quarter. EPS came in at 0.26 per diluted share. This was an improvement of 0.04 over last year but EPS has been flat the last few quarters.

I don’t think flat growth merited such a huge sell off considering the fact that businesses have been cautious in their spending due to the uncertain economic climate (flat growth could actually be looked at as a positive). Also, Silicom wasn’t trading at an expensive valuation before earnings so it shouldn’t have sold off so much after earnings.

I think the share price of Silicom may continue to trade flat or down for a quarter two if companies continue to cut back on their spending but the stock price will quickly rebound when the economic picture starts to look better. I think it would be wise to be patient with Silicom and I am going to recommend to continue holding your shares.

Disclaimer: I currently own shares of SILC.

The Fed and Commodities

The market is expecting the Fed to cut its key interest rate by a quarter-percentage point next week and then signal that it is finished cutting rates for the time being. However, I think the best action would be to leave the interest rate unchanged. This would help deter some of the rampant speculation that has been driving commodities to record levels.

The prices of commodities, especially oil, have veered away from supply and demand fundamentals for quite some time. The speculators in oil have seized upon the theory that oil should continue to go up as a hedge against the falling dollar, regardless of what the current supply and demand situation is. If the Fed were to take the unexpected move of leaving interest rates the same I bet oil would quickly fall to one hundred dollars, maybe lower. Other commodities that have reached bubble like levels would also pull back.

Leaving interest rates the same would be much more beneficial to the economy than another quarter point cut. The Fed has already caved into Wall Street demands and dramatically cut interest rates this year with a blind eye to the resulting surge in commodity prices. Another quarter point cut won’t do much.

However, I believe leaving interest rates the same with the threat of actually raising rates would send a strong message that the Fed is willing to strengthen the dollar to reign in commodity prices. This would change the sentiment of the speculators in oil and prices would pull back sharply. This would then provide much needed relief to the average American who is dealing with record high gas prices.

In my opinion leaving rates unchanged is the smartest and boldest option. However, I don’t expect the slow and foolish Fed to take it.

Disclaimer: I have no position in oil futures.

New Stock Recommendation: Aixtron (AIXG)

AIXG - Aixtron (NASDAQ) - (Closing Price - $14.22) 

Stocks that are related to “green” technology have been some of the biggest gainers over the past year. However, a lot of these stocks (think solar companies) have already had tremendous run-ups in price and they are trading at very lofty valuations.

I have found a “green” company that is experiencing strong growth, trades at a lower valuation than most “green” stocks, and even pays a dividend. That company is Aixtron (AIXG).

Aixtron is a German manufacturer of equipment used to make LEDs (Light Emitting Diodes). Aixtron’s equipment is also used for other applications but I think the growth in LEDs will be the catalyst for strong growth at Aixtron for the next few years. (more…)