Added AZZ

I added AZZ with the proceeds from trimming SSYS, DDD and selling FARO. I'm also keeping a close eye on OSIS (my #1 stock pick for the year...whoops) which is down big after revenues came in light and they guided to the low end for next quarter.

AZZ has solid growth potential with EPS and Sales growth expected to be over 25% in the upcoming quarters. It currently trades at an FPE of 15 and is making all time highs after basing after earnings.

Trimmed DDD and SSYS

I took 1/3 off of DDD and SSYS each today as earnings are approaching and the stocks are quite extended. I will take a little more off before earnings and then look to add it back if the stocks base and breakout again. With the proceeds I am planning to play the breakout in AIG above $36.25 and AZZ above $42.

$FARO out

Sold all $FARO, too many good stocks running to own this weakling.

Added to $SODA

I purchased more $SODA on the breakout of $50. With 40% short float and solid fundamentals I think this stock can explode back to all time highs of $80. The portfolio is now 100% invested but I'm looking to sell FARO on further weakness and trim about 33% each from SSYS and DDD before earnings.

Current Portfolio
AIG
ALGN
DDD
FARO
ONVO
OPEN
OSIS
PRLB
SIRO
SODA
SSYS
XRX

Switched BWLD for PRLB

I sold out of BWLD on the weak earnings on other restaurants which caused the stock to break back beneath its 50 day, and reallocated the funds into PRLB on the breakout over $40. Currently the portfolio is 24% cash as I wait to add to OPEN on a move above $55 and SODA above $50.

Mixing Drinks with SODA

I just put some of the proceeds from the AIG and ACI sells to work in SODA at $49 and will add on above $50 (stops beneath $45). I love potential for this move because the stock seems undervalued with a PEG of .8 and it has a short float of 40%. The reason for this is that no one understands the story, which is not making sodas for kids, its making mixed drinks for adults. This Christmas several of my friends requested Sodastream for one reason, vodka mixed drinks. With over 60 flavors, every hipster and wannabe mixologist has to have one of these for entertaining. I think we are starting to see investors recognize this demand which will  squeeze shorts for the next 43 days until earnings on Feb 27. If earnings are what I believe they could be, this stock could be back at all time highs ($80) before the end of the 2nd quarter.

Sold 1/2 of AIG

Sold half of AIG position as it failed to hold breakout of 36.00. Kept half because AIG is still above 50 and 200 moving average, will look to add on break and base above 36.00. Will sell the entire position on break and consolidation below 32.50. 

Goodbye ACI

Closed out ACI for a 13% loss on the position. Held this position for several months and it could never hold a rally. Time to cut the losses and free up some capital for healthier stocks such as OPEN and SODA.

Book Club: How I Made $2,000,000... by Nicolas Darvas

How I Made $2,000,000 In The Stock Market by Nicolas Darvas is a fantastic book that all traders/ investors should read. It is easily read and the message is simple: The only reason to own a stock is that its price is rising and there is no reason to sell a rising stock.

Darvas outlines his trading plan as this:

1. Find Relative strong stocks (52 week highs, stocks holding steady while market sells off, so on...)
2. Buy starter position in stock as it rises above a basing pattern with heavy volume.
3. Let stock base again.
4. Buy more stock as it rises above new basing pattern, repeat.
5. Sell all stock if it falls into lower previous basing pattern range using stop order.

This method allows you to cut your losers short, ride a trending stock and built big positions in stocks that are working, and have a defined exit to secure profit.

There are a million books that outline this same trading plan, but this may be the most effectively written because it provides a story of how Darvas came up with his trading plan and why it works. This type of writing is more powerful than textbook writing and will allow the reader to naturally absorb the trading methodology.

This book is highly recommended for everyone!

Back from the Dead and to Work

Back in the office after having the flu all week. FARO and ALGN have gotten hit hard. FARO on news its Senior Vice President was being eliminated. No news on ALGN but definitely don't like to see so much weakness on a failed breakout of the $29 level. I will have a tight leash on these positions if I don't see significant strength in the next day or two. I still like the story of these stocks, but obviously the price action is telling me I'm wrong for now. I will look to reallocate assets into OPEN which is performing well on its breakout of $50 and SODA which looks ready to breakout above $50 as well.

Top Stocks for 2013: #1 OSIS

OSI Systems provides the screening equipment for baggage, parcels, people and trucks to airports, docks and truck stops across the world. As travel and dangerous technology becomes more available to the world, there will need to be many more places incorporating screening equipment such as schools, stadiums, malls and so on.

The stock has recently sold off from around $80 to $50 due to an accusation of malfeasance made to the TSA about machine performance. The safety performance is not the issue (3:00 mark), it was the privacy software that turned the full body scan images into stick figures. During the hearing, the TSA agent says that he suspects OSIS manipulated the operational test but confirms that there were independent studies conducted that verified OSIS claims (2:10 mark). Even if TSA does eventually find proof, both Oppenheimer and Benchmark believe the impact on OSIS would be minimal.

OSIS has a FPE of 16, PEG of 1, little debt, and an EPS expected growth rate of over 25% for the next 5 years. With these fundamentals and being the leader in an industry I expect to grow significantly this year and the next several years, I think OSIS has potential to be a 10 bagger in the next decade from its current valuation of $1.3 billion. 2013 end of the year target is $120, an 85% rise from current levels. Stop beneath $60 then look to reenter.

Top Stocks for 2013: #3 SIRO and #2 ALGN

I love the dentist!  Not because it is an enjoyable experience (though it is vastly improving every year) or because it makes me healthier and more attractive. No, I love the dentist because the dental industry is an industry that is going to explode with the improvement in life quality for billions of people worldwide. As billions of Chinese and Indians join the middle class they are first going to try and improve their appearance and their health. The dental industry, and specifically SIRO and ALGN, are perfectly positioned from this boom.

Sirona Dental Systems, SIRO, provides the dental equipment, while Align Technology created Invisalign. Invisalign is the next generation of braces where they 3D scan your teeth and 3D print clear molds for your mouth to gradually straighten your teeth. Millions of teenagers world wide will owe ALGN their eternal love for saving them from mangled cheeks, excrutiating braces tightening at the dentist office, and walking around with half your lunch stuck between your braces.

SIRO has made a significant move this year, but with a FPE of 17 I think this stock can trade to $95 (FPE of 25). This would indicate an upside of 46%. I would place a partial stop beneath 60 and another full stop beneath 55, risking about 10% on the first half of your money and 15% on the 2nd.


ALGN missed earnings and sold from $40 to $25. I like buying in the $25-$28 range with a stop beneath $22, risking about 17%. With a FPE of 23, I think this stock can easily return to its high of $40 and even reach $50 by end of year for a return of 75% from current levels.


I see SIRO and ALGN as major long term positions (several years) and part of a major theme I want to be invested in long term. I think 2013 is the year to begin building positions in the dental industry and as of now these two stocks are my favorite.

Portfolio Update: OPEN, PRLB and BWLD Purchased

I began building a position in OPEN today on the recapture of the $50 level. My plan is to build this position by scaling in on pullbacks to the 50 day, looking for a major move this year as the heavy (33%) short float gets squeezed and investors see the massive potential for this business model.

I made a support level buy of BWLD with a stop beneath recent support only to be immediately poleaxed by the descending 50 day moving average as the stock touched this resistance and sold off 3% to be one of the 7% of stocks that were negative half way through the day. 2013 may be my lucky year because I may be bailed out of this weak stock due to the after hour announcement that SAC Capital has acquired a 5% position. My target for BWLD is $90, but I definitely believe this company has the fundamentals and brand name to trade well over $100 in the next two years.

I bought a small amount of PRLB due to it showing up on my fundamental finviz screens, breaking above the $40 resistance and also being related to the high PE expansion being seen in 3D printing stocks. Once again I instantly regretted this decision as the stock knifed lower and went negative on the day. This doesn't concern me like BWLD did since PRLB has run so much so fast and is due for a price or time correction. I am a buyer of PRLB in the 30s, especially the $34-36 range.

Current Portfolio
ACI
AIG
ALGN
BWLD
DDD
FARO
ONVO
OSIS
PRLB
SIRO
SSYS
XRX

Welcome to 2013, You're Rich!

Futures are opening at major resistance and I'm a seller up here. I'll look to scale out of positions and build cash for breakouts in OPEN, SODA and AIG in the next few weeks. This 60 handle rally in SP Futures is over done.

To Excel At Something, You Must Consume Yourself In It

Phil Pearlman has a great post at philpearlman.com

Here’s a quick note to young traders who are taking it seriously and attempting to carve out a profitable career.

First, most of you will not make it. So sad…

Second, most of you will not listen to what I am about to write. Whatever…

If you are one of the first or the second, well, you can stop reading now and move on or keep reading but just be aware that this is not going to help you so youre just wasting some minutes of your holiday.

If you are a part of a third group though, the minority, well then these words might just serve you well.

Successful market participation is a grueling process, a marathon. There are so many components and it is such a complex challenge that you must spend years improving while facing serious stress and financial setbacks. You will need to master multiple skills and it will take time.

For 2013, you will not need to or  be able to conquer it all.

Instead, choose one critical aspect of this craft to improve on and then make it your mission to crush that one thing.

For some of you, this will mean risk management but it may be something else like managing trades once you are in them or trade selection.

But whatever you choose, that one important thing, devour it, become it, crush it…

Focus on that one thing with religious fervor. Learn everything you can, seek guidance from those who have been successful, read about it everywhere, consume yourself in it, think about it when you should be doing other things and cultivate your own process.

Then practice practice practice that one thing you will improve in your trading until it becomes so automatic and so much a part of your routine that you do it every single solitary time as a function of habit.

Then read this post again next Jan 1, or in six months if you are a fast learner, and choose another critical skill to master.

Book Club: The Little Book of Bull's Eye Investing

I read John Mauldin's The Little Book of Bull's Eye Investing over holiday break and found it a great intro to value investing for those looking to build long term portfolios. Mauldin examines studies on historic PE ratios in bull and bear markets to determine the average bear market lasts about 17 years. Mauldin believes our current bear market still has about 5 years and at least 1 recession left to go before we are in for another bull market led by PE expansion, not necessarily earnings growth. Mauldin expects GDP growth to be in the 1.5% range for the next several years, and uses studies to conclude that earnings growth cannot exceed GDP growth. Therefore, his argument is PE expansion is the only driving force for stock prices increasing in the near future and this is not likely as the current market PE of

Mauldin also argues against investing in established tech companies as their high growth periods are far behind them. He believes investors should focus in emerging technologies like biotech, wireless communication, fusion power (or some other new energy source), robotics and artificial intelligence.

Mauldin's key points to investing in the next five years are:

- Find value stocks (Graham number)
- If you invest in bonds, short term only (1-5 year maturity).
- Start an investment club to spread around research responsibilities (wingSTIR note: Highly Recommended!)
- Stay away from established technology stocks and look for value in mid cap companies in emerging technology sectors.

Books Mauldin recommends
Stock Cycles by Michael Alexander
The Roaring 2000s by Harry Dent
Irrational Exuberance by Robert Shiller
The Fourth Turning by Neil Howe
Yes, You Can Time the Market! by Ben Stein
Triumph of the Optimists by Elroy Dimson, Paul Marsh, Mike Staunton
Fooled by Randomness by Nassim Nicholas Taleb
Security Analysis by Benjamin Graham and David Dodd
The Intelligent Investor by Benjamin Graham
The Millionaire Next Door by William D. Danko
The E-Myth by Michael Gerber

Books Mauldin Avoids
Stocks for the Long Run by Jeremy Siegel

Top Stocks for 2013: #4 FARO

FARO Technologies design, develop, and market portable, computerized measurement devices like measuring arms, laser scanner and laser tracker and software. FARO's products allow manufacturers to perform 3-D inspections of parts and assemblies on the shop floor.

FARO is in a high growth industry and seems fairly stable fundamentally with no long term debt and quick and current ratios above 4.5 and 5.5. It also has $8.50 in cash/share. The FPE of 22 and PEG of 1.25 indicate that his stock is fairly valued for its growth. However, with the inflated PE and PEG ratios the market has given other 3D printing plays, I expect to see this stock trade significantly higher from the current level of $35. The market cap is $600 million and I can see this being $1.5 billion within 2 years. 

My conservative price target for FARO at the end of 2013 is $45 a share, a 28.8% increase from current levels. Since the stock is still below 50 and 200 moving average I would not purchase at this time, as consolidation still needs to occur for a healthy break from the base with moving averages beneath. The 52 week low and double bottom is at $31.98 a share and where I would place my stop for this investment. I am a buyer in the $33-$35 range once the 50 day moving average flattens out, or I am a buyer on a break above the 50 day and a retest.