Sell #1 -- Taser (TASR)

I've written over the past two days about deciding on a few stocks to sell. Today, one of them helped make the decision for me.

I had been close to ready to sell Taser anyway ... but today's notice that they have further accounting problems was enough to push me over the edge. It doesn't sound on its face as though the problems are nefarious or terribly serious, but Taser management doesn't have a huge well of trust built up that will allow me to take their word for it that the problems were minor clerical errors.

I sold Taser (TASR) this morning at $9.25 -- a bit lower than I might have sold them had I thought more quickly and put my sale through yesterday, but on the whole I'm happy to be rid of this one.

Taser was one of my smallest holdings, partly because I never put very much in and partly because it has fallen by roughly 50% from my purchase price (average cost was about $17). I wrote a few times about Taser last year when they were busy crashing and burning, and I did believe that the panic which sent shares to $6 was an overreaction.

But now shares have recovered somewhat and no longer seem like too much of a bargain to sell .. and while I think the product is valuable and I like that it's getting used instead of firearms in some situations, I don't think the growth will return to the heady days of 2004. I expect slow growth from the company as they recover from their scandals and from the bottom falling out of their market (that's if they ever recover their sales growth, who knows what will happen with this latest accounting restatement) -- but I don't think they're going to be catching lightning in a bottle again and selling hand over fist to every police department in the world.

I'm not selling this because of the nature of their product, or because I think the company is worthless ... but with a new scandal brewing (that's probably a premature thing to say, but this is definitely more evidence that management is having trouble keeping track of the business), and what I see as a period of slow growth ahead, I'm no longer willing to hold this company at a high PE that assumes dramatic future growth.

So one down, at least three to go. TASR is off the board, and I feel better for it.

Keep up with One Guy's Investments, Free Subscription
Enter your email address:

Delivered by FeedBurner

Earnings updates

It's a very busy earnings week for me, and as luck would have it I'll be traveling for a week or so and won't be able to post for a while. Here are my quick thoughts on the companies that have reported recently:

Taser (TASR) this morning finally finished filling in and sealing over the hole they had dug for themselves over the past year or so. They are now building sales again, and you can practically taste the market's relief. Lawsuits are becoming a non-issue since Taser is handily winning all of them or having them summarily dismissed, but that's not enough to boost the shares -- what they need is a return to significant sales growth. It seems to finally be starting, so even though they missed estimates slightly the shares are rallying a bit on 30% sales gains and hopes for a return to TASR's perch as a fast-growing company with a monopoly on its core products. I've been patient with Taser even though it's well underwater for me, and I plan to continue to patiently watch as it returns to sales growth, hopefully some earnings growth, and a recovery of the stock's valuation.

Keppel Land was a little bit light on earnings yesterday, which brought the shares down and depressed parent Keppel Corporation (KPELY) , which I own, a bit as well. I just bought these KepCorp shares at pretty much their recent highs, and I knew it was earnings season so I was taking a risk ... the real news for Keppel, however, will come with tomorrow's release of earnings for the parent company and any updates to their guidance about yard expansion, size of the order book, or other commentary on the great market they're seeing for their deepsea drilling rigs. Could move either way on these earnings tomorrow, but in the long run I expect the shares to do very well even though they're not in the bargain bin.

Rayonier (RYN) reported earlier this week, and a quick look at the numbers made shareholders very nervous. Nothing to worry that much about, earnings were down fairly dramatically due to the timing of some land sales (they're not selling as much wholesale land now, they're trying to move up the development chain and get more value, which is taking more time), and to some other seasonal weakness in the business. RYN's earnings have never been all that consistent, but in the long term I'm happy to have a strong position in my portfolio in Rayonier as it represents investments in land and timber which should remain a good diversifier for me.

Radyne Corporation (RADN), which I bought about a year ago as Radyne Comstream, reported continued earnings growth as well -- I have some nervousness about holding this one because it has grown so fast, but I have to remind myself of what a bargain it was when I initially picked up shares. The Xicom merger is clearly working very well -- it might have nibbled at their margins a little, but sales and earnings growth have been very good, they're getting paid (receivables are dropping), and their order book has grown dramatically so they have a very solid backlog to supply. I'll be watching RADN to see if there's any weakness or overvaluation that might make me want to lighten my holdings a little, but I don't see that yet -- and even after this big merger and a year of torrid growth this is still a tiny $300 million company with a lot of room to grow its presence in the satellite telecom business.

And Gol Linhas Aereas Inteligentes (GOL) released earnings a couple days ago, too -- they beat the estimates of the Street by a little bit, though it didn't really impact the share price since expectations had been steadily gaining. The big impact of Varig's problems probably won't show on their earnings for a quarter or two, assuming they continue to gain market share as I expect, but they are still showing good steady growth in income, cost cutting, route expansion (just opened up to Chile), and they're getting more attention from US investors. GOL continues to look like a great long term story to me, though I wouldn't be surprised to see them temporarily lose altitude at some point after the remarkable six months they've had.

Akamai(AKAM) , Formfactor(FORM) , and MEMC Electronic Materials (WFR) are all reporting today, and Intuitive Surgical (ISRG) tomorrow -- all very strong performers over the past year with gains of well over 100% (though not all have gained quite that much for me, I bought ISRG fairly high). These companies have pretty huge expectations built in, but it seems to me that their markets are booming and they should have no trouble meeting those high expectations, or at least coming close. All still look like long term winners to me, though I am a little concerned about valuation with Akamai and, to a lesser degree, Formfactor. Not enough to sell out yet, but I will be looking closely at their results to see if I'm still willing to be that their growth is going to continue at these rapid rates.

Keep up with One Guy's Investments, Free Subscription
Enter your email address:

Delivered by FeedBurner

The Three Horsemen (SNDA, TASR, OSTK)

I wanted to take a moment to post a few thoughts on a few of the worst investments in my portfolio.

First, a moment for brief celebration. All three of these stocks, which for quite some time have been the poorest performers in my portfolio, are now ONLY down on the order of 50% from my average purchase price.

OK, so that's not that impressive -- but one of them, Taser, was down by close to 80% at one point -- so there is indeed at least a little cause for celebrating.

Taser (TASR -- click to register for free RT streaming quote), Overstock (OSTK), and Shanda Interactive Entertainment (SNDA) are all former stock market darlings.

Taser was going to revolutionize law enforcement with their "less lethal" stun guns.

Overstock was going to bring the best of closeout merchandising to the web and drive high volume sales and great customer loyalty that would make Amazon blush.

and Shanda was ... well ... big in China. And there are a lot of people there. And they play these online games, for a few cents an hour, and Shanda sells them the game time. Did I mention that they're in China. And they're on the Internet. Do you know how many people live in China? Wow, it's a lot.

Now that was just the prevailing sentiment on all of these stocks at or near the time when I first bought them, and I fell victim to the exuberance as much as anyone else.

But you know, these businesses are all pretty solid if you strip away the short-term messes they find themselves in. I regret that I've lost money on all of them, but they seem to have a lot of potential long-term upside at today's prices ... which is why I haven't sold them yet.

I have sold companies whose stocks have declined, but I have sold them becaue the business lost it's way or because I lost faith in the business' ability to grow or earn money. That was the case with Great Wolf (WOLF), and with Design Within Reach (DWRI) -- click on the tickers on the top left for those takes of woe.

Taser has recovered pretty remarkably -- I still am a little uncomfortable with the level of hucksterism we see from the Smith brothers who run the company, but I think now that the furor over wrongful zapping has died down and the press releases about every positive instance of Taser use flow freely from the company's flacks, things look a bit more positive. I have always believed that they sell a useful and important product that ought to be carried by every policeman, but now it looks like we're finally concentrating on the upside of the product instead of the downside and the market has really enjoyed that. Earnings are still lagging behind thanks to their well-publicized troubles, but I expect them to return in time ... hopefully no one will notice and we'll get to enjoy TASR chugging back to respectability for several years to come.

Overstock I am really having a hard time understanding. I am very pleased that Patrick Byrne brought in his dad to be chairman, and I still do think that the business model they're running has a lot of promise -- and their sales growth reflects some of that promise. This is the one of the three that I'm closest to considering selling, however -- and one more thing that makes me question management's ability to handle this business may send me over the edge. I think they're a little bit chastened by their huge mistakes from the last six months, and I hope Byrne will leave the short sellers alone and let his lawyers argue his points -- he must realize by now that his bully pulpit has ceased to have any impact on public opinion and now merely calls attention to what the press seem universally to acknowledge is his megalomania or, at worst, his lack of focus on the business. Hopefully daddy Jack can help him right this ship and get growth going -- they've now got the technology infrastructure in place, and the sober leadership on the board, and I like Patrick Byrne as long as he's using his energy to build the Big O, not detract from it. I'm still very much on the fence.

And several people have recently posted questions for me about Shanda here on the blog and at ADVFN. I'll give you the short answer: I don't know what's going on, but I think the next year will be better, not worse, than this past fall.

What it really comes down to now is how well Shanda's EZ system of home and portable devices performs and whether they can really establish a distribution pathway for all entertainment to the consumer, and whether their next wave of MMPORPGs gets to market in good time and to a good reception. I think the market is pricing in negative news for all of that, and I would not be surprised to see pretty weak earnings for this past quarter given their massive changes to their business with free game play and the new focus on the EZ system. That said, I think bad earnings are priced in, and although they don't really provide guidance I expect the news we hear about sales of EZ and advancement of the new games, as well as about the effectiveness of the new free play model for their older games, will be the determining factor for the short term stock price. It could be a wild one, but barring more bad news I'm holding on to Shanda for potential appreciation over the next several years as their market continue to grow by leaps and bounds.

So there you have it -- one company on a serious rebound in Taser, one that the Street and I both have an itchy trigger finger on in Overstock -- a business that should work but that has been beset by management mistakes and bad press, and one in Shanda that seems completely shrouded in mystery in the short term but still with great potential if they can successfully navigate their new business plan.

This is what makes things interesting.

Keep up with One Guy's Investments, Free Subscription
Enter your email address:

Delivered by FeedBurner