Phil Town

Phil Town on Game Stop (GME)

Take a look at GameStop (GME) with Juergen (see letter below) for the last year.  Assuming he's right about the 4Ms and the price being at or below MOS, how would you do trading it?  The price dropped from $55 to $30, a loss of 46% if you bought and held.  Instead, moving in and out, you would have done pretty okay.  Not great, but a whole lot better than a 46% loss. 

Now go play.

Phil Town

Phil Town Question of the week

A lot of Rule #1 readers are writing in with variations on the same question:   if the MOS is good but the tools say Sell, now what?

Here's how Steve worded it:

Question:

Hi Phil Town,

RULE #1-Great book. I'm still going thru it and have a question about when two factors collide. For example, I'm running the Big 5 numbers for NBR and they all look really good. Using your calculator, the MOS is really, really high, but I think my last calculation had the MOS around $450+ and the stock is under $40. This seems like a really good buy, but when I look at the chart tools, many of the signals are saying SELL (e.g. MACD just turned negative, RSI is approaching the 50 mark, moving averages are about to cross, STO going below the 80 line).

So my questions:

Is my MOS incorrect?

What to do when two factors collide?

Thanks for any input,

Steve

Answer:

The big guys -- the institutional investors -- control 85% of the money in the stock market, and they don't play the game the way we do.  The game they play is "How did I do this quarter compared to my peers?"

For that reason, they may sell a stock that is well under the Sticker simply because others are selling it... and someone started the run just because they wanted to take profits to make the quarter look better.

YOUR HOMEWORK: SONC (SONIC)

This question comes from Tom in Edmond, OK:

Hi Phil Town. I am just beginning this venture and am paper trading at this time. I have ran the numbers 3x for SONC and I think I finally got the correct MOS ($19.50).  However, I am not 100% sure how to calculate this stock as it just went thru a 3 for 2 split about 2 weeks ago. What is the correct method to do this?

Thanks for the book.

Here's my response:

Hi Thomas,

Stock splits do not change the size of the pie, as you know.  They only slice the pie into more pieces. 

When a business splits its stock, all the services that tabulate the data and provide it to websites like MSN Money and Investools recalculate all the old numbers all the way back to reflect the new number of shares.

Time to Back up the Truck on ACF?

You pay a hefty premium for a cheery consensus.  And you get a hefty discount for a gloomy one.  We’re a long way from a depression-era stock market, or even a recession-era market (like 1973, 1983), but in one industry we’re tapping along at the bottom and that’s where you want to be looking for a great business that is on sale.

Here’s an example for you to consider: Americredit Corporation (ACF).

It's a pretty simple business.  They lend you the money to buy your car, particularly if GMAC isn’t interested because your credit kind of sucks.  You put a pile down and Americredit puts up the rest.  They do about 400,000 a month.  You pay, everything is good.  You don’t pay, they come get your car and resell it.  Simple business.

Rule #1 Question of the Week: What About Apple?

This week's question for Phil Town comes from Dave, about Apple (AAPL):

Dear Phil Town,

A coworker recommended your Payback Time book to me as a smart way to get into the market.  I must say I agree with her, the book as fantastic and I've learned a lot about how things work out there. That being said, I've started analyzing some companies and one in particular has me stumped. The company in question is Apple. As for the 4 Ms, Apple has meaning for me (I own several of their products and I work in the tech industry), has a moat based primarily on Brand, has exceptional management (Steve Jobs), and appears to have a good MOS.

Here are the numbers I've gathered to this point (straight from MSN):

YOUR HOMEWORK: JABIL (JBL)

Here's another homework, from long time reader Michael L.

Phil Town,

Thank you for the audio version of your book.  It has been wonderful to listen to it over the past two days. 

Although I attended the seminar and have been a subscriber to Investools I have made some trades that were not Rule #1 trades and did lose money.  In one case, 30% in one open!  Check out DESC and look at the day it dropped significantly.  I have a fellow co-worker who has been in the stock since it was at 2 dollars.  He convinced me to buy the afternoon before they were to give their 1st quarter results.  The con-call was after the market closed and needless to say, it was not good and I lost 30% of my total value at the open.  Fortunately it was not 100% as I pulled out, licked my wounds and kept my cash until I followed the Rule, all the way or no way.

Then your book came.  I had some stocks on the radar, but being very trepidations about trading I wanted to read/listen first to figure out what I had been missing.  One particular stock I did the 4 M's on is Jabil JBL and I was hoping you could check out my information and if you had the time, let me know what you think?

Jabil-JBL

Basic information- Jabil is an electronic products solution company providing basically electronics products to the market faster and more cost efficient by providing complete electronics products supply chain.  In short, they make electronic components for items I know I use every day.

Answers to Your DNA Questions

Well, I’ve been doing what ever I want these last four weeks.  Pretty much ignoring the market.  I was on Maria Bartiromo’s show a while back and suggested that you mutual fund buyers get out because the big guys were heading for the door.  Hope you did it.

By the way, this is one of the great perks of Rule #1 investing: doing what you want, including hanging out in cash.  You can take time when you want.  Trust me on this: It's worth the trouble learning to invest well to be able to take time with your kids, read a novel, snowboard, fly in friends and family for the holidays.

I spent part of the holidays rehabbing an injury that I got by falling off my horse.  I took Cowboy up a hill and asked him to jump up a couple of feet over embedded railroad ties onto a flat table top landing.  A dog ran under his feet on the landing, Cowboy shied to the right, and I went spinning out of the saddle.  I did manage to stick the landing like some 18 year old gymnast, but the impact cracked my L-3.  Put me in a brace for a while.

I was feeling pretty good a couple of weeks ago and Jackson Hole was getting huge powder dumps every night, so I took off the brace, got out the snowboard and went up in the deep stuff, and it was good.  Real good.  Too good.  I got carried away, popped a small jump on the Jackson Faces, and landed with my right butt cheek on a rock that was about 8 inches under the snow.  Lit me right up, but after x-rays it was nothing a shot of morphine wouldn’t take care of.  But it's still got me limping around, so here I am at home with a sore ass and time on my hands and I just don’t have any excuses left to keep me from answering all those really good questions about Genentech (DNA).  So here we go -- answers to your comments:

Phil Town-Rule #1 Look at DNA

You know that Phil Town would want you all to invest in businesses you understand.  I'm a river guide.  What I understand well is pretty much limited to burgers and Harleys, but I do like to venture into things that have a lot of potential from time to time.  And I get tips from friends.  It's the tips from friends thing that gets me sometimes.  You know, friends who are insiders someplace or at least they know people.  My kid knows her friend whose mom used to work there.  That sort of thing.  Stuff you can really trust.  Right.  But still.

So here we go on DNA -- Genentech -- which came highly recommended by friends who built a nice life by getting DNA stock before it went public and selling a bit here and there as it went up to $100.  Now it's dropped down to $70, and unless Genetech is about to hit a wall, it's looking pretty much like a very good business that is on sale.

Here's how I looked it over this morning (and I'm using Investools here, just for time's sake):

Update on WAG

Note: I wrote this on Oct. 23 (so noted because I cite a price from the 23rd below.)

Some of you have written in to ask what's going on with WAG.  Hopefully you guys are using good tools like I taught you in Rule #1.  Those tools and price strategy will have put you in WAG at $45 and out of WAG at $41.  It's now at $38.

First question: Is WAG a wonderful business to own for the future?  You have to answer that yourself, but there is no question that it has been the best run drug store business for many years.  It has a consistent growth rate at 15% for two decades, and that is unchallenged in the industry and almost without peer in the market. 

It's got issues with generic drugs cutting into profits, but that may not be that big a deal.  You need to do your homework and decide what you think because you have to know if you can price this thing. 

NTRI's Moat

Some of you wanted to know if I'm in (or have been in) NTRI. Here's the comment I left on the blog a little earlier today:

I'm not an owner of NTRI, gang. I don't know the diet business well enough to make a call on the moat. I have students who are trading this thing and have just killed it so I used this as an example in the talk I do to show how important the arrows are, even if you think you have a wonderful business at a great price. And it really is a great example.