JPM, GS: Upside continues to exist.

Two of our financial names, GS and JPM, have been stagnant a bit lately but I think these two companies are poised to deliver healthy earning surprise for the next earning period. As a result, I continue to see a healthy upside in the stock price.

GS is a pure play on this hot equity environment. Everyone thought that the bull run in the stock market is over in 06 and 07 will be a more challenging year; many economists predicted slowing economy that will limit GDP growth rate below 1 to 2 % level. Earning growth rate of GS has been perceived to flatten out and consequently, investors have been very stingy with awarding correct market multiple for GS. GS is now trading with PE of about 10. Because I think there is substantial EPS revision for 07 and 08, I believe that real PE of this company is less than 9. In my opinion, GS could deliver blow-out Q in June again. EPS estimate of GS for 07 could be as high as $25 to $26 level, outstanding 25% upside from what the current consensus number predicts. With stingy PE multiple, this stock is still worth $260. But if the market multiple expands as I anticipate, then GS could trade to the level near $300 a share. While the stock has been a bit stagnant, I think earning in June will be a great catalyst for this stock to win investor recognition. The equity market environment is simply too vibrant, far beyond what the market was expecting. Private equity is taking the companies out of the market left and right. The companies are buying back shares, reducing the overall float of the overall shares. Yet there are still plenty of cash sitting on the side line to push share price higher. GS's trading business is generating incredible return from hot commodity and emerging markets, which GS has a heavy exposure. Private equity side of GS has been on a roll as well. I expect continued strength in the market in 07 and GS still has plenty of fuel left to make additional advances. I really like the stock at a current level.

JPM also has been a bit stagnant. The bank sectors are still perceived negatively given the possible fallout from the sub-prime mortgage sector. While JPM is not without the exposure to this sector, it has a manageable sub-prime loan exposure. While other investors feel that bank¡¯s story of improving the overall operational efficiency is over, I believe that there are still room for the company to make further improvements especially in the retail side. Others feel that JPM will make a large acquisition and hence sees stock unattractive, given that JPM is trading with higher stock multiple compared to other banks such as C and BAC. I continue to believe that Jamie Dimon will make deals that are accreditive and he will focus more on generating higher return for investors. After all, high stock price is extremely attractive currency to use if he decides on future acquisitions to grow the bank to another level. Also roughly half of JPM revenue comes from Investment Banking and this sector has been tremendous for JPM. I see current EPS estimate is too low for the bank and sees bank making nearly $5 in 08. If yield spread between long and short term yield continues to steepen as it has been in recent times, there is also an upside in the retail business. Given this vibrant stock market, I don't see the economy heading into the recession. I also expect energy price to stabilize after this summer driving season, supporting consumer spending trend. I strongly feel that JPM has solid upside at least to $60 level. Recent Smith Barney upped the bank TP to $62 and I have seen some analyst TP bumped upto low $70 level. I think if you stay patient with this company, you will be richly rewarded.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

CTRP: another solid Q, 08 estimate now in play.

CTRP is an online travel consolidator in China. We have initiated this stock in March of 06 at the price of $39.5. At today's closing price of $78.07, the stock is posting a great return of roughly 100% gain in 14 months. As you recall, this stock is the top pick for our group for 07. And in every ways, I am very pleased with its performance.

Previous investment comment on CTRP is available in these articles. http://www.investorhives.com...
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Essentially our investment thesis on CTRP is the rapidly growing Chinese travel market. Currently online travel consolidators are getting less than 5% of the travel market in China. As the market grows and as online travel consolidators start to command larger percentage of the overall market, we saw big opportunity in CTRP. As I have stated in above articles, I have been very bullish on the company with my last statement outlining possible $88 TP.

Yesterday's solid earning does nothing but to reinforce this belief. CTRP reported impressive revenue growth in all business lines. Considering that Q1 is a traditionally slower Q for CTRP, given the Chinese holidays shutdown, the company still generated 40% YOY growth in Hotel business. Hotel business is now heading into seasonally strong Q2 and Q3 so CTRP is likely to undergo brisk growth in this line of business. CTRP's air-ticketing business grew by eye popping 75% YOY and 6% QOQ growth. With transition to e-ticketing largely behind the company, this business segment growth could accelerate. Packaged tour business is currently a very small portion of the overall CTRP business, accounting for only 6% of the total revenue. But the growth is nevertheless at very healthy rate of 73%. Gross margin inched now to %79.1% from 79.9%. Over last 4 Q's, the gross margin seemed to have stabilized between 79 to 80% range.

It looks like CTRP is now growing at a rate between 35 to 40%. Thus, many analysts are starting to bump up the 08 revenue estimate to $180 to $190 mil range and EPS estimate to $2.2 to $2.4 level. As we are heading into the second half of 07, 08 estimates will be in play for CTRP for determining the proper stock valuation. Given that CTRP has duopoly in huge China online travel market and continues to gain market share from eLong, PE multiple of 35 appears to be reasonable. Based on the fact that revenue growth rate is expected to be in the range of 35% over next 2 to 3 years, this PE multiple assumes PEG ratio of roughly 1. This valuation model continues to point to the further upside of the stock price to near $90 level. I continue to stock with my most recent TP of $88. Smith Barney this morning bumped up its TP for CTRP to $84 from $62 after solid earning call yesterday.

I continue to believe in the business fundamentals for CTRP and I continue to see upside for CTRP despite stunning percentage rise in CTRP share price.


The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

Market: Bull run is not over.

The market has been hot lately. Dow has been setting record high, advancing 25 times out of last 28 trading sessions. It has been an incredible run led by many industrial, commodity, biotech, energy as well as multi-national conglomerates which have been benefiting from weak dollars. Lagging financials also have caught up with the rest of the market as well.

Traders are very nervous after this run-up. Pressure to sell has been building and today many use the weak consumer spending data as an excuse to sell. Some claim we are due for a correction with maginitude worse than the one that we saw in Feb. Many bears point out that weak housing, auto, and high energy price will weigh on the consumers. As they tighten their purse, the economy is in for a steep deceleration. The recession is imminent and the market is in for a nasty downside surprise.

I am very optimistic about 07. As I stated early this year, I see 07 as a very nice year for bulls. The economy was getting too hot last year. But it is now in check by the declining housing and auto sector. I believe that the economy is slowing but the growth will still be there. This moderation will allow Fed to ease towards the end of this year. At worst, Fed will stay with rate policy unchanged as the economy continues to pour our mixed batch of economic data. Fed is unlikely to be a negative catalyst in 07. As the economy makes transition from an expansion mode into a moderate growth mode, there will be a moment when people may perceive the weak incoming economic data as looming sign that the recession is around the corner. This is precisely why the current market sentiment incorporates plenty of pessimism that can serve as fuel to sustain further rally.

Currently there are massive amount of infrastructure investment by the emerging economies such as China, India, Brazil, Russia, other Pacific Rim nations. This phenomena still has legs and the economic growth in these nations is likely to persist for next a few years. Major US multinational companies will continue to show steady earning growth. This earning growth will continue to surprise the market as many traders expect slowing earning growth momentum in the US. I think with plenty of the cash sitting aside and with many bears pleading for possible recession, the market will trend higher as it climbs a wall of worry.

We may see a short pullback in the market as the selling pressure has been building and people are seeking excuses to sell. However, I think if there is a sell-off, it will be much short-lived than the correction that we saw in middle of March. I think sell-off presents a good buying opportunity for our group.

I continue to recommend buying financials which will eventually benefit from fed easing. JPM and GS shouod be the names to focus. I see JPM bleaching above $60 long term. I am sticking with my TP at $270 for GS. I like China names. CTRP and FMCN should be bought upon weakness. My TP for CTRP and FMCN is $80 and $50 respectively. I also like AMR which has been lagging the market and its earning power is underestimated and underappreciated by the market. When the sentiment improves in the aieline sector, AMR should trade in mid $40's. Biotechs are good because its earning growth is less dependent. GENZ, PDLI, and CELG should be good names. AMGN has seen so much selling. But I stand by my convinction that it will see light at the end of the tunnel. IBM is a great multinational company to focus on. RIMM has been killing us because it is defying gravity. I have been wrong about this company and the company could go even higher from this level and even I am getting more bullish on the company but have not yet decide to change my view yet.


The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

AMR: Technical support chart

With recent decline in the share price, the share has broke down below 200 DMA long term support. With everything broken down (20, 50 as well as 200 DMA), long term support can be found by considering 2 to 5 year stock price trend line. I have attached simple 5 year Yahoo chart on AMR. If you draw the bottom out levels for last 5 years and draw the support line, you will find that the current stock price has reached near long term downside support line. Doing the same for the uptrend line shows that the stock can trade to near $50 level if the fundamentals improve.

Chart: http://www.investorhives.com/big_pic.php?fname=uploaded_files2%2Fjongyoo269.png&caption=AMR%205%20year%20trend%20line&msgid=451


The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.

AMR: Negativities baked into the share price.

American Airline (AMR) has seen huge selling pressure in recent weeks. When Dow is hitting all time high level every other day, seeing its share plunge by more than 30% from the high achieved in early Feb (low $40) has frustrated many long term share holders. FilthyRich hive initiated AMR into our core holding last Nov at the price of around $32 a share. The shares soon hit low $40 level in matter of a few months but since Feb of this year, share price has seen steady and at times fast decline to reach today closing price just below $27 level.

I believe current share price is a great buying opportunity. I believe patient investors could see the stock double from this level and I think current share price represents a great entry price for risk tolerant investors.

Let us look at what has been pressuring AMR to the downside. Single most important negative catalyst for the stock is the high fuel price (refined oil). Crude oil was trading at high $40 range in the beginning of this year. However, the crude has gone upto $65 to $66 level today. To make the problem worse, the refining capacity of the crude oil is undergoing temporary reduction due to several outages at various refinery locations. Political uncertainty surrounding Iran, Nigeria, and Venezuela is creating perception that crude oil supply will remain tight. In addition, with summer driving season approaching, oil traders are betting the price higher. Second negative catalyst is coming from Delta Air that will exit its bankruptcy this Thursday. Delta's exit from bankruptcy is seen to increase supply of airline stocks for the investors. Finally the economy is seen to slow down, reducing prospect of airline traffic among retail and business travelers. In summary, higher fuel price, slowing economy that leads to lower air traffic, and increased number of airline stocks are decreasing investor appetite for AMR shares. Multiple downgrades from analysts have occurred this week. With these events behind us, I believe AMR current share price has effectively is accounting for most of the negativity and downside is limited due to very low PE valuations.

So why am I bullish on AMR? I believe that high oil price is temporary and will come to level below $60 after the summer driving season. The fact is that oil inventory has been increasing (we will hear more on this tomorrow). Refining capacity shortage is short term in nature and is likely to abate after the summer driving season. If the economy is truly slowing as bears contend, then demand for oil is likely to be lower. It is granted that oil price this year has been a lot higher than my expectation. I expected that the oil would stay in the range between $45 to $55 in 07. But it is looking more likely to be in-between $55 and $65 but AMR can still make a plenty of profit even at these oil prices.

Economy is slowing but I expect slowdown will be gradual, still supporting healthy airline traffic volume. Housing and auto sectors will likely to show weakness for prolonged period. But the employment and industrial data looks still reasonably good. In addition, wage picture continues to look benign, supporting reasonable consumer spending pattern. Airline traffic volume will look reasonable as the economy will achieve soft-landing. While domestic air traffic may stall, international traffic could deliver healthy surprises. Weak dollar could encourage more foreign people traveling into the US and recent open sky pact between the US and Europe could spur healthy traffic volume for AMR in 07 and 08. Furthermore, 08 Chinese Olympic can also be a huge travel volume boost for AMR as it is likely to lead to increased travel volume among business travelers.

The fact of the matter is AMR continues to improve its operational efficiency. It is upgrading its plane fleet to new Boeing 737 from old MD-80 with the money raised from secondary offering in early this year. The cost saving initiatives are making the company lean and mean for generating nice cash flow from the operation. In fact, the company has cut its debt level by 2 billion to $17.5 billion. This reduction in debt level is likely to accelerate in 07 as the company now has the better cash generation model after so much business streamlining efforts.

Last April, the company has reported quarterly profit of 30 cents. This was first quarterly profit in 7 years. The company also hedged its 34% of fuel need for 07 at $65 and 27% of the fuel need at $63. According to some analysts estimate, AMR EPS estimate is seen to be about $4.5 with fuel price trading around mid $60 level. Should this oil price dip to low 60 to high 50 level, the EPS estimate can be hiked to $5.5 level. If more aggressive increase in RASM ( revenue per available seat miles) applied with oil price in the range of low $50, then EPS could skyrocket to the level exceeding $8 level.

Thus, AMR is trading with very low valuation. It is currently trading with PE of 6 based on 07 EPS estimate and lower than 5 on 08 estimate. Should more favorable oil price is seen towards late this year, this multiple could expand to 10, causing the share price to trade well above $55 level. I see possibly another 10% downside but see more than 100% upside. This is definitely favorable risk to award ratio.

In summary, AMR shares took most of the negativities into the share price and it represents great buying opportunity at the current price. I would be an aggressive buyer of the AMR share. Last week, I took some call option positions to reflect my belief that AMR stock has seen the bottom although recovery may not fast until investors become more confident that the economy is not heading into recession and the oil price will not skyrocket above $80 level.


The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.