Tag: 10 bagger

Continuation from yesterday……..Yet, Best Buy’s story is best told by the number of stores they operate and the margin expansion the company was able to squeeze out of its existing stores.  Leading into its 1997 stock price bottom, the company had increased its store count by 13% with a net addition of 33 new stores.  As of December 31st, 1997 the company was operating 284 stores from coast to coast.  At that time the rate of expansion was significantly slower than the previous three years when the company opened a total of 140 stores.

Further, at the time the company believed that it needed to slow down its store growth in order to re-focus on improving the company’s operating and financial performance. Planning to open just 25 new stores in fiscal 1999, bringing the store count to 309. In other words, prior to 1997, the company over expended its store base by growing too fast and by compressing margins in their existing stores. As a result, the company was going through a rough time. Forced to cut its new store growth and to find a new way to attract and to keep customers.

Hence the lower stock price. Between 1994 and 1997 Best Buy’s stock price declined by over 75%, dropping from $4.50 (split adjusted) to $1 a share. The company was going through a transition during the time. As was mentioned above it was forced to slow down its new store growth from about 47 in the years prior to 1997 to just 25 in 1999. Further, it was searching for a new store concept “Concept III” that would work and that would allow the company to expand their net operating profit margins.  While being able to compete effectively in a cut throat business of electronics retail. Basically, by 1997 the future was anything but certain for Best Buy.

Yet, by 2006 the company was growing rapidly once again, with 822 stores under its belt. Increasing their store count by 290% between 1997 and 2006. The company was able to improve its operating margins from 2.2% in 1997 to 5.6% in 2006. Finally, the sales per retail square foot went from $720 in 1997 to $936 in 2006.

So, Best Buy’s fundamental performance during this time can be summarized in the following fashion.

• Best Buy’s stock price declined due to the margin compression and a slowdown in the new store growth. The company was going through a transitional period as it was trying to find a store concept that worked.
• The company was eventually successful in improving their concept and making it work. Leading to a substantial 150% improvement in their net operating margin.
• The company was then able to accelerate its new store growth, once again, increasing it by 290% over the next 9 years.
• Best Buy was able to cannibalize competition with their better concept and bigger stores, forcing a number of competitors, including Circuit City into bankruptcy (*2008).

When we combine the factors above we begin to understand why Best Buy’s stock was selling at a discount in 1997 and why it started to rally once the performance improved and the company began to grow at a rapid rate once again. Would investors be able to forecast such changes all the way back in 1997 from the fundamental perspective alone? Not really as the developments above took years to develop.

In addition, a few questions remain. While company’s initial undervaluation and subsequent growth can explain the first 1,000% to 2,000% increase in Best Buy’s stock price, it cannot explain why Best Buy’s stock price went up 4,000% during this period of time.  Perhaps technical analysis can offer us a better answer.

To Be Continued On Monday 

How You Could Have Made A Fortune With Best Buy  Google

FUNDAMENTAL ANALYSIS:

As mentioned above, by 1997 Best Buy had a decade of excellence under its belt. In both, the stock price appreciation and the growth of its retail business.  Between 1986 and 1997 the company’s stock price had already appreciated by 1,900% (a 19 Bagger). Yet, things were about to get a whole lot better for Best Buy and the company’s shareholders.

To establish a clear picture of what had happened between 1997 and 2006 must first study the fundamental growth of the company at the time.

As we analyze the data above, one thing becomes evident. Best Buy’s fundamental growth during the time did NOT match the growth in the company’s share price. While the Best Buy’s stock price appreciated 4,000%, shareholder equity and book value grew by only 1000%, net income and earnings per share grew by 1,380% and the revenue base increased by only 333%. While an admirable performance, the numbers above do not justify the rise in the stock price from the fundamental perspective alone.

We must now go back and study the 1996-2007 period in greater detail in order to determine why the company was selling at such a discounted level and what fundamental changes would occur to propel the stock price higher.

In 1995 the company began enhancing its store format into the so called “Concept III”.  The concept featured a larger redesigned store format created to produce a more informative and exciting shopping experience for customers.  The standard size of the Concept III stores was increased to 45,000 square feet and it was intended to be as good as or better than the selections offered by Best Buy’s competitors in each of its principal product categories.   In other words, Best Buy was starting to focus more on hands on demonstrations, bigger stores and providing customers with the most desirable shopping experience possible.

Why You Should Have Bought Best Buy’s Stock Instead Of Windows 95  Google

Company Description: Best Buy Co., Inc. operates as a multi-national, multi-channel retailer of technology products in the United States, Canada, China, and Mexico. Its stores offer consumer electronics consisting primarily of television and home theaters; digital cameras and camcorders; DVD and Blu-ray players; portable electronics, such as MP3 devices, headphones and speakers, car stereo, navigation and satellite radio; and all related accessories. The company’s stores also provide computing and mobile phone products, including notebook and desktop computers, tablets and e-readers, mobile phones and related subscription service commissions, and related accessories; entertainment products, such as video gaming hardware and software, DVDs, Blu-rays, CDs, digital downloads, and computer software; and appliances, including large and small appliances, and kitchen and bath fixtures, including faucets, sinks, toilets, and bathtubs. It also offers extended warranty service contracts, technical support, product repair, delivery, and installation services, as well as offers snacks and beverages

Quick Trading Overview & Objective: While Best Buy’s stock price has appreciated over 44,000% (440 bagger) since the company first went public in the mid 1980’s, we will be concentrating our attention on a more recent period.  We will initiate our coverage at 1997 bottom of around $1 a share (split adjusted) and see what had caused the company to appreciate over 4,000% between 1997 and 2006.

We will now go back in time and take an in depth look at the company in order to determine if we could have taken a long position at that time. More importantly, we will look at Best Buy’s fundamental and trading patterns over that period of time in order to ascertain if we would have been able to maintain our position over a 9 year period of time while getting out at the top.

Best Buy That Stock  Google

Continuation from yesterday…..

In the case of Apple, if you were fortunate enough to take a long position in 2003 it would not have been an easy ride up.  As suggested above, the stock had suffered a 60% drop in 2004, another 60% drop during the financial crisis of 2007-2009 and a 45% drop in 2012-2013.

Would most investors be able to hold on to their Apple stock while going through such massive sell offs?

It is highly unlikely. Most of us would not be able to sustain such massive drops without first getting out. Most likely at exactly the wrong time.  Well, that is unless you were in a comma during the time or if Apple Inc represented only a small portion of your overall well diversified portfolio. For the rest of us, neither one is likely to be the case. That is why a proper application of set trading rules becomes so important. So much so, that in many cases it can easily double or triple the overall return on the underlying stock.  Easily turning Apple’s 37 bagger into a 60 bagger over the same period of time. Once again, please check our Tenbagger Trading Rules & Maximizing Returns chapter for more information.

CONCLUSION:

Apple, Inc gave us plenty of signs that its stock price was about to stage a substantial rally from its 2002-2003 bottom. Why we would not be aware of the extent of the rally at the time, it would have been wise to ascertain that the rise would be substantial.  Here is why.

First, as our fundamental analysis above showed, an analyst working with Apple would be aware of iPod’s growing popularity and the real possibility of iPod becoming a runaway hit for the company.  And while iPod’s parabolic growth trajectory was still unknown, it could have been anticipated as one of the possible growth rates.  Further, while the rest of the Apple’s revolutionary products where at least 5-years away at the time, investors could have assumed that Steve Jobs’s insatiable drive for innovation would ensure that Apple will continue to introduce new revolutionary products well into the future. While not a clear cut case for a guaranteed future success, it provided a positive fundamental framework for investing in Apple at the time.

Our investment case for Apple gets even stronger at the 2003 bottom and after the realization that Apple’s stock price is selling at a multi-decade low. Primarily due to the Nasdaq’s collapse and a slump in the tech sector.  An analyst familiar with the cyclical composition of the overall stock market would know that the bear market of 2000-2002 was over and that the Nasdaq was about to stage a multi-year rally. Since Apple’s stock price has synchronized with the overall market, it would have been safe to assume that Apple’s stock price would push higher as soon as the market does.  Suggesting that investors should seek out a good entry point.  A point that was clearly defined on a chart in April and May of 2003.

Separately, neither fundamental, technical nor timing analysis would allow us to take a position in Apple’s stock. Yet, when we combine all of these factors together we get a high probability setup as it becomes evident that Apple’s stock price is likely to outperform the market by a large margin. From both the fundamental and the technical side. While not a sure bet, this case presents us with a clearly defined low risk and a high ROI opportunity.

Final Prescription: Fundamental Analysis + Technical Analysis + Timing Analysis = A Massive ROI. 

How You Could Have Made A Fortune Investing In Apple (AAPL) Google

Continuation from yesterday…..For our purposes, we must now ascertain if it would have been possible to predict this meteoric rise and take position in the stock around 2002-2003 from the fundamental perspective alone.

The short answer is NO.

While an analyst working with Apple back in 2002 could have predicted the popularity of iPods and the success of iTunes (in theory), it would have been impossible to anticipate future blockbusters.  No technology futurist at the time could have predicted the iPhone, the Apps Store or the iPad. It is not even clear if such products existed in Steve Jobs’s mind as far back as 2002-2003. And even if someone was able to predict the appearance of such products, it would have been impossible to predict if the market would have accepted them or not. The technology field is littered with dead products that were way ahead of their time.

The best any fundamental investor could do in the 2002-2003 time frame is as follows…

1. Analyze Apple’s rapidly growing iPod business and determine that iPod’s sales cycle and its popularity is just starting.  That it would be a massive hit for Apple over the next few years. It would be an educated guess, but it would be better than nothing.
2. Assume that Steve Jobs and Apple will continue to introduce revolutionary products (similar to iPod) over the next few years.  That could have been ascertained from studying Steve Jobs and understanding his drive for innovation. Still, it would have been a hit or a miss proposition. Just because Steve Jobs introduces a new product doesn’t mean it will be a huge success. He did have a number of large failures throughout his career.

Which bring us to the decision making time based on the fundamental analysis alone. Apple was not a clear cut case. The economy was in the dumps, the technology sector was devastated by the burst of the tech bubble and while Apple did have a hit product, it was not necessarily evident.  Plus, with the iPhone introduction being 5 years away, the best any investor could do at the time was to add Apple’s stock to his or her well diversified portfolio.  In hopes that the tech sector will recover and that Apple’s iPod business will continue to drive the company forward.  Yet, no one could have predicted that Apple would go up 3,700% over the next decade based on the fundamental factors alone.

TECHNICAL ANALYSIS:

Since the fundamental analysis did not necessarily yield a strong buy signal for Apple in our 2002-2003 time frame, we must now concentrate on the technical side of the equation to see if we would have had better luck there.

As you can see from the chart above, Apple’s stock price collapsed in conjunction with the Nasdaq in the fiscal 2000. Going from $20 a share to $2 a share in a matter of nine months.  Thereafter, the stock price remained, more or less, within a tight $1.80 to $3.60 trading range for two and a half years.  That is until the April of 2003.

What happened in April? Apple’s stock price bottomed at around $1.85 a share and then started its massive multiyear rally. What else happened around the same time? The Dow set a clearly defined secondary bottom in its bear market of 2000-2003 and started its 5-year bull market of 2002-2007. Essentially, Apple’s stock price bottomed at exactly the same time as the stock market. This transfers the burden of the rest of our technical analysis to our timing and mathematical work.

To Be Continued On Monday…..

How You Could Have Made Millions With Apple.  Google

Continuation of part 6….

FUNDAMENTAL ANALYSIS:

Apple’s story cannot be told without first concentrating on its founder and the driving force behind the company, Steve Jobs. As you probably know, Steve Jobs was forced out of Apple in 1985, only to return as Apple’s CEO in 1997. It was at that point that “Chapter 2” in Apple’s history began.  Steve was able to bring the company back from its near death experience by introducing a number of popular PC’s, cutting costs and by securing a large investment from Microsoft.  Immediate after his return Apple’s stock price started to surge, appreciating close to 1,000% by March of 2000 (A Tenbagger in 2.5 years). Then, the Nasdaq crashed and so did Apple’s stock price. Going from $20 a share to $2 a share in a matter of 9 months.

To establish a clear picture of what had happened over the last 12 years we must first study the fundamental growth of the company between 2002 and today.

As we analyze the data above, one thing jumps out at us immediately. Apple’s fundamental growth has been as impressive over the last 11-12 years as its stock price growth. During this period of time revenue grew by 3,733%, earnings per share increased by 22,846%, book value grew by 2,914% and shareholders equity jumped by 2,900%. More than justifying the rise in the stock price.

We must now go back to the 2001-2002 period in order to determine why the company was selling at such a discounted level and what fundamental changes would occur to propel the stock price higher.

While it might be hard to believe, back in 2002 about 80% of Apple’s revenue was generated through the sales of their Macintosh, PowerBook, iMac and iBook products.  And while they were already selling iPod’s (introduced in 2001), this revolutionary product hasn’t even began to gain traction yet.  In simple terms,  Apple was just another PC company in the midst of a massive Nasdaq/technology bubble bust. Yet, the company was already giving us a hint of what was to come.

From their 2002 Annual Report: The company believes that personal computing has entered a new era in which the personal computer functions for both professionals and consumers as the digital hub for advanced new digital devices such as digital music players, personal digital assistants, cellular phones, digital still and movie cameras, CD and DVD players, and other electronic devices.   

To Be Continued Tomorrow……

How ‘Bout Them Apples. (10 Bagger Book, Part 7) Google

Company Description:  Apple Inc. and its wholly-owned subsidiaries design, manufacture, and market mobile communication and media devices, personal computers, and portable digital music players worldwide. It also sells software, services, peripherals, networking solutions, and third-party digital content and applications related to its products. The company offers iPhone, a line of smartphones that comprise a phone, music player, and Internet device; iPad, a line of multi-purpose tablets based on Apple’s iOS Multi-Touch operating system; Mac, a line of desktop and portable personal computers; and iPod, a line of portable digital music and media players, such as iPod touch, iPod nano, iPod shuffle, and iPod classic.

Quick Trading Overview & Objective: Apple’s ups and downs over the last three decades are very well known and it would be impossible to account for all of its trading/investing history in this short overview. For our purposes, we will concentrate on Apple’s latest stock rally initiating in April of 2003. At that time, Apple’s stock set a multi years low of $1.87 a share. A low unseen since 1982. It was at that juncture that the stock proceeded to bottom  and then kick off a massive multi-year rally of 3,700% (as of 7/8/2014 @$95).

We will now go back in time and take an in depth look at the company in order to determine if we could have taken a long position at that time. More importantly, we will look at Apple’s fundamental/trading patterns over the last 11-12 years to ascertain if we would have been able to maintain our position over an entire period.

FUNDAMENTAL ANALYSIS:

Apple’s story cannot be told without first concentrating on its founder and the driving force behind the company, Steve Jobs. As you probably know, Steve Jobs was forced out of Apple in 1985, only to return as Apple’s CEO in 1997. It was at that point that “Chapter 2” in Apple’s history began.  Steve was able to bring the company back from its near death experience by introducing a number of popular PC’s, cutting costs and securing a large investment from Microsoft.  Immediate after his return Apple’s stock price started to surge, appreciating close to 1,000%,  by March of 2000(A Tenbagger in 2.5 years) . Then, the Nasdaq crashed and so did Apple’s stock price. Going from $20 a share to $2 a share in a matter of 9 months.

To be continued tomorrow…..  

How ‘Bout Them Apples. (10 Bagger Book, Part 6) Google

Continuation of Keurig Green Mountain (GMCR).

CONCLUSION:

Keurig Green Mountain Inc gave us very little evidence (in 1998-2000) that it was about to stage a massive 49,616% rally over the next 14 years. In fact, even the company’s own management was not convinced that Keurig Coffee Systems and Green Mountain’s K-Cups would revolutionize the industry.

There was only one way to take a legitimate position at that time. First, you would have had to have an in depth understanding of the company and the exiting potential associated with Keurig/K-Cups. That could only be done through fundamental analysis. Meaning, you would have had to study the company in great detail and then concentrate on the new technology associated with Keurig to fully comprehend the potential.

It is only after understanding the upside associated with Keurig would one be able to start paying attention to the technical side of the equation.  Otherwise, it would not had made any sense to take a long (or any) position in GMCR, regardless of what the stock price was doing.

It is only after the stock price begins to break out or set higher highs, an analyst familiar with the fundamental picture would note that the market is starting to confirm the fundamental potential and would consider taking a legitimate long position. Finally, one would have to be very patient with Green Mountain and hold it over an extended period of time.  Suffering through a number of 50%+ declines while adding to a long position at various bottoms.

Final Prescription: Fundamental Analysis + Technical Analysis + Patience = A Massive ROI.

Making Millions While Shrinking Your Waistline

Company Description:  Medifast, Inc. is engaged in the production, distribution, and sale of weight loss and weight management products and other consumable health and diet products. It operates through two segments, Medifast and MWCC and Wholesale. The company offers bars, bites, pretzels, puffs, cereal crunch, drinks, eggs, hearty choices, oatmeal, pancakes, pudding, soft serve, shakes, smoothies, soft bakes, and soups under the Medifast and Essential 1 brands and for private label customers. It also provides nutritional products; and meal replacements comprising vitamins and minerals, as well as other nutrients essential for good health.

The company operates Medifast weight control centers that offer programs for weight loss and maintenance, customized patient counseling, InBody composition analysis, and monitoring with a BodyGem that determines resting metabolic rates. As of December 31, 2013, Medifast, Inc. operated weight control centers in 75 locations; and 41 franchise centers. The company sells its products through various channels of distribution comprising the Internet, call center, independent health advisors, medical professionals, weight loss clinics, and direct consumer marketing. Medifast, Inc. was founded in 1980 and is headquartered in Owings Mills, Maryland.

Making Millions While Shrinking Your Waistline (10 Bagger Book, Part 5) Google