Ouch! (FORM and WFR)
I suppose it's not the most elegant phrase, but today's glance at my portfolio makes me feel as though I'm really getting pantsed.
Now, those of us who are investing for the long term with a multi-year horizon should love days like this -- as Warren Buffett says, we should want to watch our stocks go down to the depths. After all, in general we're buyers, not sellers -- we should want to watch a sea of red while we're in our investing years, and a sea of green as we approach our divesting years. But investor psychology doesn't work that way, and I'm not wired any differently than anyone else.
So it's hard to watch the companies you own go through some troubles, even if they are (hopefully) relatively minor. Netease (NTES) and Shanda (SNDA) both fell a bit today thanks, I expect, to Baidu's problems -- good thing I didn't ever get too interested in that one, though I'd still buy it at the IPO price of $20 if anyone offered. I did even note today that, as usual, my morning investment was a great contrary indicator for the stock's performance for the rest of the day, as Intuitive Surgical (ISRG) has continued to fall another percent or two since my purchase. So I try not to care about these short-term blips, but I certainly do notice.
Two in particular are of note today -- MEMC Electronic Materials (WFR) and Formfactor (FORM). It seems to be a coincidence that these two are in the semiconductor industry and are both moving down at the moment -- the big guys in the industry like AMAT, INTC, and TXN are all down, too, but just by a hair or two. WFR and FORM have fallen significantly, and for specific reasons.
WFR's earnings report was a little disapointing the other day. I came away from it feeling reasonably well because the forward guidance and their expectations for sales and margins were better than I or the analysts were expecting -- good news. But they also announced that they were being forced to restate earnings for earlier in the year due to a tax problem. Nothing serious, in my opinion, though it does make them look a little silly. The operating earnings for this quarter were a little bit light, too, but again -- pretty close to expectations, and nothing I would normally worry about.
It seems to me as though people are overreacting to this restatement of 1Q and 2Q earnings -- I have not heard any evidence that this is a result of accounting shenanigans, which often is a reason to sell, or of any other malfeasance. The company's explanation, that they received some new opinions from experts and decided they needed to revise their tax deductions for those quarters on a complex transaction, seems perfectly valid to me even as it is unfortunate. The impact on earnings, having to revise the per share number down by 8 cents for this year, does not seem all that bad. I've always believed that we should price stocks based on expected earnings, which in this case look like they might be significantly improved from this year even if you include that 8 cents -- this is not a high-flying growth superstar that ought to move more than 10% on news like this, in my opinion. The forward PE is still 12, give them some slack.
The good news, beyond the solid projected numbers going forward (both significant sales growth, which is not a surprise given the rampups of capacity in the semi industry, and, significantly, margin improvement due to better pricing), is that they are also getting some pretty good business with the solar folks. I hadn't expected MEMC to sell polysilicon or wafer products to the solar power industry, but they have begun to, and in pretty significant volumes. The need for polysilicon in the solar power industry is one of the things driving prices higher overall for this material, and I'm glad to see that it may also help WFR to expand it's product line and diversify it's earnings a bit if we do see another semiconductor downturn in the coming years. And the bottom line? I'll take minor restatements or slight earnings misses and raised guidance over hitting the numbers and lowering guidance. It's all about what these companies and stocks are going to do for us over the coming years, not what they've done for us this quarter.
Formfactor may be another story, and this is something we'll have to keep our eyes on. I still like the company's product line and leadership position in the semi testing industry, but they had some significant bad news today -- though not as bad as it may have first looked. FORM has been in a patent dispute with Phicom for a long time in both the US and South Korea, and they have recently won several disputes and had their patents validated. Today the Korean court ruled in favor of Phicom for two of the four patents in question, which apparently does not impact the other two patents or any of their US patents (some of which are also in dispute, again with Phicom).
I am not a patent attorney, nor an engineer. My concern is that I know how critical the unique nature of Formfactor's microspring technology and their other testing advancements are to their continued perch at the top of this particular food chain. The company has issued a press release on this and is trying to explain why it is not particularly critical, at least in the short term. You can see from a daily chart this the market accepted that explanation to some degree -- they very briefly sold down on the breaking news by about 20%, but that was for just a few minutes and they remain, for now, down about 5% on the news. That seems fair, and this is certainly something we'll have to watch.
So some bad news across the board on the nasty declining day in the market, but nothing that I would consider a reason to sell any of my holdings (except Cendant, which I should have sold when I first made that decision a couple days ago ... it keeps trickling down and now I'm just being stubborn hoping for a fairer price to sell)
One of these days I'll be selling Cendant and choosing something else to take it's place in my portfolio -- at this point, I'm thinking it will probably be one of my existing holdings. Exelisis (EXEL) is looking solid and should have some clinical trial news out in the next few weeks, with much more to come in the months to follow. SpaceDev (SPDV) just came to a merger agreement with Starsys that I think might be really big -- they're getting closer to their goal of becoming large enough to list on the exchange, which I think would be huge news, and, more importantly, this opens up a wider door to them in the space industry with a much broader array of products and capabilities. Or perhaps I'll settle on something completely new that's still percolating in the back of my mind ... I'll let you know.
Now, those of us who are investing for the long term with a multi-year horizon should love days like this -- as Warren Buffett says, we should want to watch our stocks go down to the depths. After all, in general we're buyers, not sellers -- we should want to watch a sea of red while we're in our investing years, and a sea of green as we approach our divesting years. But investor psychology doesn't work that way, and I'm not wired any differently than anyone else.
So it's hard to watch the companies you own go through some troubles, even if they are (hopefully) relatively minor. Netease (NTES) and Shanda (SNDA) both fell a bit today thanks, I expect, to Baidu's problems -- good thing I didn't ever get too interested in that one, though I'd still buy it at the IPO price of $20 if anyone offered. I did even note today that, as usual, my morning investment was a great contrary indicator for the stock's performance for the rest of the day, as Intuitive Surgical (ISRG) has continued to fall another percent or two since my purchase. So I try not to care about these short-term blips, but I certainly do notice.
Two in particular are of note today -- MEMC Electronic Materials (WFR) and Formfactor (FORM). It seems to be a coincidence that these two are in the semiconductor industry and are both moving down at the moment -- the big guys in the industry like AMAT, INTC, and TXN are all down, too, but just by a hair or two. WFR and FORM have fallen significantly, and for specific reasons.
WFR's earnings report was a little disapointing the other day. I came away from it feeling reasonably well because the forward guidance and their expectations for sales and margins were better than I or the analysts were expecting -- good news. But they also announced that they were being forced to restate earnings for earlier in the year due to a tax problem. Nothing serious, in my opinion, though it does make them look a little silly. The operating earnings for this quarter were a little bit light, too, but again -- pretty close to expectations, and nothing I would normally worry about.
It seems to me as though people are overreacting to this restatement of 1Q and 2Q earnings -- I have not heard any evidence that this is a result of accounting shenanigans, which often is a reason to sell, or of any other malfeasance. The company's explanation, that they received some new opinions from experts and decided they needed to revise their tax deductions for those quarters on a complex transaction, seems perfectly valid to me even as it is unfortunate. The impact on earnings, having to revise the per share number down by 8 cents for this year, does not seem all that bad. I've always believed that we should price stocks based on expected earnings, which in this case look like they might be significantly improved from this year even if you include that 8 cents -- this is not a high-flying growth superstar that ought to move more than 10% on news like this, in my opinion. The forward PE is still 12, give them some slack.
The good news, beyond the solid projected numbers going forward (both significant sales growth, which is not a surprise given the rampups of capacity in the semi industry, and, significantly, margin improvement due to better pricing), is that they are also getting some pretty good business with the solar folks. I hadn't expected MEMC to sell polysilicon or wafer products to the solar power industry, but they have begun to, and in pretty significant volumes. The need for polysilicon in the solar power industry is one of the things driving prices higher overall for this material, and I'm glad to see that it may also help WFR to expand it's product line and diversify it's earnings a bit if we do see another semiconductor downturn in the coming years. And the bottom line? I'll take minor restatements or slight earnings misses and raised guidance over hitting the numbers and lowering guidance. It's all about what these companies and stocks are going to do for us over the coming years, not what they've done for us this quarter.
Formfactor may be another story, and this is something we'll have to keep our eyes on. I still like the company's product line and leadership position in the semi testing industry, but they had some significant bad news today -- though not as bad as it may have first looked. FORM has been in a patent dispute with Phicom for a long time in both the US and South Korea, and they have recently won several disputes and had their patents validated. Today the Korean court ruled in favor of Phicom for two of the four patents in question, which apparently does not impact the other two patents or any of their US patents (some of which are also in dispute, again with Phicom).
I am not a patent attorney, nor an engineer. My concern is that I know how critical the unique nature of Formfactor's microspring technology and their other testing advancements are to their continued perch at the top of this particular food chain. The company has issued a press release on this and is trying to explain why it is not particularly critical, at least in the short term. You can see from a daily chart this the market accepted that explanation to some degree -- they very briefly sold down on the breaking news by about 20%, but that was for just a few minutes and they remain, for now, down about 5% on the news. That seems fair, and this is certainly something we'll have to watch.
So some bad news across the board on the nasty declining day in the market, but nothing that I would consider a reason to sell any of my holdings (except Cendant, which I should have sold when I first made that decision a couple days ago ... it keeps trickling down and now I'm just being stubborn hoping for a fairer price to sell)
One of these days I'll be selling Cendant and choosing something else to take it's place in my portfolio -- at this point, I'm thinking it will probably be one of my existing holdings. Exelisis (EXEL) is looking solid and should have some clinical trial news out in the next few weeks, with much more to come in the months to follow. SpaceDev (SPDV) just came to a merger agreement with Starsys that I think might be really big -- they're getting closer to their goal of becoming large enough to list on the exchange, which I think would be huge news, and, more importantly, this opens up a wider door to them in the space industry with a much broader array of products and capabilities. Or perhaps I'll settle on something completely new that's still percolating in the back of my mind ... I'll let you know.
This article posted by One Guy @ 10/27/2005 03:52:00 PM 0 comments
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