Sunday, September 04, 2005

RECIPE – stock fundamentals – investing in companies providing services to a booming industry – how-to guide

All companies operate in markets. Every company has supplier companies, facilitator-companies and service companies feeding on its ability to grow its business.
When you identify a company with extraordinary growth, it sometime may be too late for you to buy stock, as its stock technical analysis might not reveal any good pivot points and sound bases. When confronted with this – try looking for companies that “feed off” the success.

I first encountered this with synaptics (SYNA), a company that manufacturers touch pads for laptops and hand-held devices. The important thing to note, is that this company had a contract with Apple, to supply the successful iPods touch-pads. Naturally, the booming iPod sales had drove Synaptics stock price to the roof.

A lesson learnt, and, to be honest – later applied by me without intent.

aapl synaptics chart

SYNA (blue) and AAPL (olive) Jul 03 -Dec 2004 - both price grow over 200%.

During the last year, the oil prices sky rocket. There are many quoted reasons for that – although I must say none of them strike me as being the real reason for the oil prices jump. Personally, I feel that somehow, the surging oil prices are the way in which gulf region oil producing countries get back at the all mighty US. That’s my take on the matter, although – it might be hindered by my prolonged existence in the Middle-East.

I first got acquainted with Tenaris (NYSE:TS) through MSN’s strategy lab’s Viviam Lewis.  Tenaris is a foreign company manufacturing pipes for the gas and oil industry. The two key points are: Foreign, and oil-industry.

Here is a chart for the crewed oil prices 2004 to date:



Being a foreign company, Tanaris is conceived as a company less likely to get affected by events in Iraq or the U.S and is based in a fast-growing market – definitive strong points.

The war in Iraq, along with the surging oil prices, has driven expedited development of oil-fields and the need for transferring oil to, from and within fields has grown extensively.
Tenaris to Oil like Synaptics to Apple.

I bought TS on May 05, 2005 for 69.00, purchased a same lot (doubled my holdings) on 20 June 2005 @ 77.85, summing up to a total price of 73.42 a pop. Here is the graph of the stock from that time on.

tenaris chart

Graph generated from using their java based charting tool.

Interesting enough, this was a “by the book” position, as the technical analysis was just right: on May 05, TS broke out from a “cup with handle” base, on an extremely large volume.

These days, I am +60% (price @ 118) in the money – trying to decide weather I should try and sit out the 10-15% pullback which I expect to develop, or just move to cash right now.

Any suggestions?

Tags: stock market, investing, guide, howto


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