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Profit
Alert: UAPH Gain Peaks at 21.5% |
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Our
November 12th edition 'Will
Food Scarcity Feed Investors?' has already paid dividends to anyone
who listened and acted. One of the four stocks we mentioned was on the
beneficial end of an acquisition, resulting in a major stock appreciation.
UAP
Holding Corporation (NASDAQ:
UAPH) shares jumped 28% on Monday when Agrium (NYSE:
AGU) announced they'd be buying UAP Holding for about $2.1 billion
in cash.
The per-share
offer of $39 led UAPH to a close of $38.23 yesterday, which is $6.76 better
than the November 13th opening price. That's a 21.5% improvement for
any of our readers who got into a position shortly after we published the
write-up.
Yes, there's
another 77 cents worth of appreciation to be reaped here. However, we
suggest going ahead and locking down the 22% gain before the acquisition
is actually completed.
Why make
an exit now rather than convert to Agrium shares later? Two reasons.
The
first one is, there's no indication of how long it might take to finish
the buyout, which means this money is dead money in your portfolio.
The
second reason is, your broker may charge you a 'reorganization' fee...which
can be far greater then just a regular commission.
Unless you have
a specific tax reason for not doing so (consult your tax advisor), or unless
you have a specific reason you want to own Agrium shares later (and you
don't want to buy them later in the open market), the easiest course of
action may well be just exiting UAPH now - and enjoying your nice three-week
gain.
The other
'food' stocks we discussed last month haven't been quite as hot, but overall
the group has been fairly respectable.
The only disappointment
has been Cresud Inc. (NASDAQ:
CRESY)...the Argentine agricultural company. Those shares tumbled
pretty sharply in late November, though may have recently hit a bottom.
Balchem
(NASDAQ: BCPC)
is basically where it was in mid-November, so we'll call that one a break-even.
Monsanto (NYSE:
MON) is up 16.7% since November 13th, thanks to some news that
came out late last month. Monsanto - for lack of a better or more concise
way of saying it - is
producing better (i.e. higher yield) corn.
Two big wins,
one break-even, and one loss? That's not bad for a stock portfolio,
especially considering it's only been a little over three weeks since our
first look. Throw in the fact that the S&P 500 is only up 3.0% during
the same time, and the results are even more compelling.
We'll continue
to follow up with our food/agricultural theme as needed. The story has
just begun .
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Time
to Lock in CTFO's 44.5% Gain as Well |
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Speaking of
taking profits, it might be time to do the same for China Transinfo
Tech (OTCBB:
CTFO).
We
mentioned this stock about a month ago when we saw the bullish volume
outpacing the rally. Since volume is often a leading indicator, the idea
was simply that a rally may be on the way.
 Well,
rally
it did. CTFO shares made their way from the November 5th open at $3.84
to Wednesday's close of $5.55...a 44.5% gain.
Though it appears
as if things are just getting good here, we actually see a few red
flags we feel are worth heeding.
The biggest
oddity is the strangely-high volume we saw on Friday and Monday. It was
one of the highest volume days ever for the stock. The problem?
All too often we see volume spikes also act as pivot points for a chart.
Plus, we can also see volume has tapered off even though the stock has
continued to rally...a situation that can't persist for very long.
One of the other
big issues we take with the chart as of right now is the possible resistance
line at $6.00 (+/- a few cents). The last couple of times CTFO shares attacked
it, the line won, sending the stock lower again. Now may
be different, but we don't want to make that assumption - especially
when
volume is as skewed as it is.
Furthermore,
we'd like to see this chart make a cross above the $6.00 area when it wasn't
stochastically overbought (since being overbought doesn't make it any easier
to keep moving higher). As you can see though, the chart is nearly overbought
right now, which is likely to mean a serious challenge will kick in right
around the time the $6.00 level is met again. The stock will likely need
to cool off and make a more tempered breakout attempt.
With these three
potential burdens starting us in the face, we encourage anybody with a
China Transinfo Tech position to head for the door...at least in the
short run. Longer-term, we still like the upside potential.
Once the $6.00 ceiling is decisively knocked down, we think CTFO has a
chance at taking flight.
Needless to
say, we wouldn't be a bit surprised if you felt caught in the middle
- wresting with the 'trader or investor?' argument. It's ultimately
your call, but in our view, this is a time to be a trader and lock in the
gain.
Though we tend
to have a bullish slant on most of the stocks we discuss in this publication,
that's not a blind bias - we know full well that stocks can and
do fall. On the other hand, we've also seen how (sometimes) the
'best of the best' micro cap stocks can be strong performers regardless
of the environment. So, since anyone with a brokerage account can at least
'go long' on an equity, we attempt to focus on opportunities everyone
can
utilize.
Why do we
bring it up? It's something of a disclaimer - or at least a reality
check - for the rest of this segment.
Ever feel
like you're fighting an uphill battle when it comes to trading? Sometimes,
you may be. It's been estimated that 75% of stocks move the same direction
as the market. That's all well and good as long as you're on the right
side of the table, but what if you're trying to trade against the
bigger trend? On a per-stock basis, the odds of your portfolio doing well
are one in four.
What's that
got to do with micro caps, or any group for that matter? Just take
a look at the nearby chart. It's a simple graph of the percentage changes
(since the August 15th low) for all the major size-based categories...large
(blue), mid (yellow), small (red), and micro (white) caps. Clearly large
and mid cap stocks have been stronger, while small caps and micro caps
(in that order) have been lagging.
While this inspire
may some investors to consider sticking with large companies and steering
clear of smaller ones, that's not the intent. Our only goal is to
illustrate why things may have felt a little more frustrating than usual
lately within the small and micro cap world. Know this as well though -
when
it comes to the market, all things are temporary.
If that's still
not enough to keep you interested in the small and micro cap world, click
here to view the long-term chart of the same four groups. It should
be a nice reminder of why you're reading this newsletter in the first place.
Patience is
in order, especially now that we're entering the most bullish period of
the year for small caps.
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Updated: 8:15 pm PDT (03:15 GMT), November 2, 2010
