Saturday, April 30, 2011

Under Armour - 7.5%

Started by a former university of Maryland football player in 1996, Under Armour epitomizes the type of product all good businesses are founded upon.  An unbelievably strong product with unique characteristics, Under Armour was selling out before the owner had a factory secured solely based on word-of-mouth.  By 1999, UA was fully functioning and showing a profit.  Now, a stalwart of professional, college, and high school athletes, even the casual weekend warrior swears by Under Armour.

I started tracking Under Armour last April and tracked it for a couple of weeks.  It went from about $32 to $36 during that time.  Despite not being a typical stock I own or would purchase, i.e. a "retail stock", Motley Fool had given it 5 stars and it had a lot of qualities I liked.  Furthermore, my wife had pointed out that the ladies on the Real Housewives of New York were all wearing it, demonstrating its clear market expansion beyond professional athletes.  This was a high quality product and the people who used it tended to abide by it.  Although all important considerations the most important and interesting aspect of this purchase  has to do with my tracking.

Under Armour had gone from $32 to $36 during a 2 week period then all of a sudden, one day it dropped to $30.  Did it drop because it missed earnings?  Did Goldman or Merril come out with a downgrade?  No.  Greece had a financial calamity and it looked as if it's debts couldn't get paid.  So, what does this have to do with Under Armour?  Absolutely nothing.  The Dow lost over 200 points because of problems in Greece and took Under Armour with it.  Nothing about a $36 Under Armour had changed except now it was $30.  I pounced figuring I had an easy 18% profit.  The market would clear up after panicking about Greece and UA would go back to its true worth of $36.   And this, my friends, is one of the easiest things I would do when developing a private portfolio.  Wait for the market to tank from some political reason that has nothing to do with the company you want to buy, and buy then.

Within days, Under Armour was back at $36 and then shot beyond.  Now trading at around $70, UA has made it to the top 5 in my portfolio.  This after a huge recent drop due to inventory concerns  As early May is the one year anniversary of my purchase and it may be overpriced, I may dump it after having it for the requisite time to qualify as long term capital gains (one of my rules - I hold for at least a year and a day).  However, I like the company so much it may also be a long term holding.

Monday, April 11, 2011

Mitek - 7.6%

Mitek is a company I discovered by stumbling across an amateur blog, pretty much like this one.  It was what I think of as a "low risk/high reward" stock.  Mitek, listed as "MITK.OB" is, as its name suggests, an "over-the-counter" stock.  I amassed a large number of shares over the years at prices between 0.50 to a $1.00 a share.

Now, I do not advocate the "penny-buying" stock strategy by any stretch.  Indeed, I was weary of Mitek at first.  The philosophy of such buyers is simple - a $0.40 stock fluctuates to $0.50, and viola, an easy 20% increase.  This strategy has many flaws, but the first and most simple one is a lesson I learned with Mitek.  Generally, when I place an order, I type "market" for my price, and by the time I've switched from the trade screen back to my portfolio, the stock is already listed as having been purchased at the current market price.  With a smaller, over-the-counter stock, there is a "bid" price and an "ask" price.  So, if the ticker says the price is, say, $0.50, the bid price may be $0.35 and the ask price may be $0.65.  When you place your order, listing "market" as your price isn't an option.  You list the price you want to buy it at (usually the ask price) and hopefully, the trade will go through.  This where my lesson was learned - I was under the impression I had bought about 40% more of this than I did, but, evidently, 40% of the time, my bid price wasn't good enough.  Obviously, someone with dreams of making an easy 20% based on random fluctuations of a $0.50 stock can't make these dreams a reality as a $0.40 market price means you pay $0.55 to buy, and when it goes to $0.50, you might sell at $0.40, so - you lose. Fortunately, my plans for Mitek were more long term.

Mitek, despite being a "penny" stock had been around since the early 1980's. In fact, formerly listed on NASDAQ, Mitek lost its listing priviliges in 2004.  Based in La Jolla, Mitek makes visual recognition software, such as for identifying handwriting.  I figured they did things for UPS and the like, for recognizing the electronic signature when you received a package.  And so Mitek, labored between $0.50 and $1.00 for awhile and I just let it sit there in my portfolio, not paying too much attention to it.  Suddenly, it popped.  It went from having NO analysts covering it to 3 and had a price target listed at $3.25.  The price slowly but surely made its way towards that point.  So what happened?  This:

That's right: Mitek, patented the technology that allows smart phones to digitally capture check images to be deposited into your bank.  I believe at this time, they currently have licensed that technology to 5 of the 10 largest banks.  Mitek currently trades at around $5.00 a share and still listed as over-the-counter.  Still as a small cap stock with lots of room to grow, smart phones and uses for imaging technology in their infancy, I hope to hold this one for awhile. I'd like it a lot more if it wasn't based in California, the cost of doing business there being extremely restrictive.

Wednesday, April 6, 2011

Continucare - 7.8%

When I first heard of Continucare, it hit me like a thunderbolt.  I started reading about this company everywhere one night. Everyone loved it, its numbers were very appealing, small cap, good cash/debt ratio, strong earnings.  Priced in the min 4's, I saw it going to $5.50 very soon and bought up a block.  Almost immediately it dropped to $3.60.  I had a flash of irrational paranoia regarding conspiracy theories, articles planted to scam poor suckers like me, and the cast of "Boiler Room" laughing at me behind my back. However, seconds later, cooler heads prevailed and I bought a second block twice as large as my first.  More than a year and a half later, Continucare trades in the $5.30 range and I see it hitting $6 quite easily in the mid to short term.

Based in Florida (another selling point - low tax base), Continucare operates 18 primary care facilies, offering outpatient services to Florida's aging population.  Having gone public in 1996, Continucare recently switched from being listed on the AMEX to the NYSE. 

At my time of purchase, "Pelosi-care" was being pushed down our throats, and it wasn't clear whether it would make it through or not.  Health care stocks were, in my opinion, under-priced because of the uncertainty, and Continucare was positioned to be unaffected regardless of the outcome.  Since that time, the company has used its excess cash to purchase sleep research facilities throughout the U.S. which does not really excite me, but I still believe this stock is on an upward trajectory.