 |
 |
New
Investment Idea Surfaces |
|
Despite
how seasick a market like this can make you, there's actually an upside
to it - some really good investment ideas rise to the top of the
pile in the shake up. We've got one for you today.
 Here's
the long and short of it....this latest batch of marketwide earnings hasn't
been great. Some upside surprises, but a lot of downside surprises.
The
market also somewhat 'predicted' this trouble starting in June, by sending
the whole market south. No big deal for those companies who have enough
cash to weather the storm. But, if a company needed to raise some
funds in this environment, yikes.
Almost
needless
to say, those are the two items that stuck out about today's company (a
security/identification tech company, by the way). Of course, that's hardly
the entire story. See what you think.
Above
all else, just bear in mind we view this company as an investment
rather than a trade. That's not to say you can't make a short-term
trade of it, but the stock's highlights are the kinds of things long-term
owners tend to think about.
 Here's
the deal - Cogent
Incorporated (NASDAQ: COGT) has topped analyst earnings estimates
in three of the last four quarters....and by more than just a little.
They've
got last quarter's earnings coming out on Thursday, August 7th, at 4:30
p.m. EST. Analysts are estimating earnings of 8 cents per share. That expectation
is one cent less than last year's Q2 estimate,
yet also four
cents less than last year's Q2 actual.
I don't
know about you, but based on history, I have to wonder if yet another
upside surprise is looming.
Of
course the next question is, are shares worth Friday's closing price
of $10.09? Beating the street is only a half-victory if the
street didn't expect much in the first place.
In
a nutshell, yeah, it looks like Cogent more than stacks up. From a capitalization
perspective, the price/sales ratio of 9.0 could seem lofty. That sizeable
price tag is completely offset by more-important earnings though - the
P/E ratio is a respectable 26.0. And, earnings growth is expected to
drive the P/E metric lower by the end of 2009...to 18.35.
How's
that gonna' happen? If we had to pick the best thing Cogent does, it's
this....the company can generate some beefy margins. Over the last
twelve months, operating margins have totaled up to 42%, and net margins
have come in at 36.7%.
 The
piece de resistance, however, is this - Cogent is sitting on $313 million
in cash. Folks, the market cap is just a hair under $900 million, meaning
a
full 1/3 of the investment in COGT shares is currently backed by liquid
assets. The price/earnings ratio of the amount of the share price actually
'at risk' is more like 16.9, making the risk/reward ratio highly favorable.
Why
they're sitting on all that money is up for debate; they've had it for
a few years now. Frankly though, I kinda' like the fact that they're not
in a hurry to tap into it, which brings me back to an earlier point....
I hope
all of you are using this bear market to accumulate long-term, undervalued
investments. To do so, however, you'll need to have some cash set aside.
Well,
the same principle applies to public companies - they could buy or enter
new ventures right now, but they've got to have cash to do it. The problem
is obvious though...how impossible is it going to be to raise funds
(by selling stock) in this environment? If you don't have cash right
now you're basically out of luck, because any IPO effort is likely to be
mediocre at best.
That's
not the case for Cogent though; they've got lots of cash, and therefore
lots of flexibility. As I said, I've heard the stash is ear-marked
for several things (all of them just rumors, by the way). It doesn't really
matter what it's for though ....Cogent's going to have it when they need
it.
Long
story made short, we like the current fundamental snapshot.
I know
for most of our trading ideas we suggest a specific target and stop. And,
while I'm going to do so for Cogent as well, I do so hesitantly.
Like
I said earlier, we view this more as an investment than a trade. In that
light, the amount of time you hold it may well determine how well you
do with it. Since it's one of those 'big idea' investments, you may
find the stock rises for years while the company blooms.
If
that's your line of thinking, then the rest of the newsletter may not mean
much to you. If instead you're just looking for a short-term idea, you'll
probably want to keep reading.
 We
could justify all kinds of big expectations for the stock. You know
what though? Let's just be ultra-conservative and suggest a target
of $12.77. That's June's peak level. Just keep in mind we came oh-so-close
to using November's gap level of $13.89 as a target...and we may well
regret not doing so. You may want to consider doing so anyway.
As
for a stop, we think $9.28 represents enough wiggle room without giving
the stock too much berth. Don't forget though, as any trade progresses,
the stop should be raised to defend any profits.
A couple
of final thoughts...the short interest of 18.4% could set up a small short-covering
rally. At the same time, the institutional ownership of 41.9% is a little
low.
A lot
of investors interpret strong institutional ownership as a positive (and
we do too), though that doesn't always leave much room for additional
institutional buying that can really drive gains. The fact that
many pensions and funds haven't yet found this cash-heavy company
means they may well do so in the future. That's when the fireworks could
start.
Your
call; we just thought it was one of the better opportunities in an environment
where there are few decent opportunities in the first place. Don't forget,
earnings come out Thursday. Depending on your particular strategy and expectation,
you may want to be in or out of a trade at that time.
| |
|
|
| |
 |
Got comments, questions or suggestions?
Send 'em on over: Email
the Editor
If you wish to send a written request
or inquiry, please send it to our physical address:
TGR Group, LLC
4653 Carmel Mtn Rd Suite 308 #402
San Diego, CA 92130 |
|
|
