I am excited about a paper company. That’s right. Humans have been felling trees since God knows when, and here I am, buying a paper company, with the thousands of i-Drool, Blueberry stocks out there. I the tradition of my late father, the stock wiz, Ben Graham incarnate, try as I may, I cannot turn my back on value like this. Which leads me to . . .
Valuation
This stock comes in at the low end of the spectrum for all my valuation metrics, which include:
• Price/Earnings
• Price/Forward Earnings
• Price/Book Value
• Price/Cash Flow
• Price/Sales
• Price/Free Cash Flow
• Price/Earnings Growth
For every one of these “low” thresholds, this humdrum company comes in at the low end of the spectrum. And compared to its peers, BZ is also a steal. Current P/E is one-third the industry average 9 and the best of its direct competitors. PEG ratio at .7 is a just over half the industry average at 1. I don’t usually care about price/sales (so much can happen between the time you take in a buck and actually produce results), but it looks pretty good as well. Now you may be looking higher in the competitor chart and saying, “Hey! Wait a minute! These people are running their company sub-optimally compared to their peers.” Well, you’d be right. I’m not buying BZ because it’s a great company. In fact, it appears when you look at operating margins and revenue growth that they’re getting the pants kicked off them by their competitors. The play here is not that this is a great company. What is happening here is that the market has given this stock the chair when it really only needed a few months in solitary. So there’s an overreaction to the downside.
Technical – Weekly
OK, just to say it, there is no breakout or uptrend here, which is almost against m
y religion of only buying uptrends or breakouts on the long side. The value proposition is a bit too compelling, though, and there is a slight redeeming factor in the daily chart in that there is a breakout there. Daily charts tend to be weak signals for my 3-month investment horizon, but it’s something. As I said above, I’m really looking at the valuation. I like the RSI a bit because there was never divergence before the stock started to level off. By the way, this thing is already up 2,000% since it bottomed at a quarter in March, coinciding with the broad market lows. The RSI has also been bouncing off traditional resistance at 50—a good sign. Going to the price action, what I like about this stock is that it’s been doing the mating dance with the $5 level. The significance of the $5 level is that it’s the last bastion of hope before a stock becomes a “penny stock,” which is the traditional trash category for stocks. Never buy anything below $5. So there are crowds of fund managers here betting one way or the other that this stock will either rise above or remain below $5. Look at the volume. It appears that there is a break out, not of the cup-with-handle chart pattern you can see, but rather at the $5 level. Look at the explosive volume the last two weeks as the stock lifts out of pauper status into the realm of the investable again. Managers are buying into this story. Stochastics and price relative to the Wilshire 5,000 tell me nothing, but look how explosive the accumulation/distribution line has been compared to the price action. Compare the last peak in the price to the current level, and then do the same to the A/D line. The A/D line has out-advanced the price.
y religion of only buying uptrends or breakouts on the long side. The value proposition is a bit too compelling, though, and there is a slight redeeming factor in the daily chart in that there is a breakout there. Daily charts tend to be weak signals for my 3-month investment horizon, but it’s something. As I said above, I’m really looking at the valuation. I like the RSI a bit because there was never divergence before the stock started to level off. By the way, this thing is already up 2,000% since it bottomed at a quarter in March, coinciding with the broad market lows. The RSI has also been bouncing off traditional resistance at 50—a good sign. Going to the price action, what I like about this stock is that it’s been doing the mating dance with the $5 level. The significance of the $5 level is that it’s the last bastion of hope before a stock becomes a “penny stock,” which is the traditional trash category for stocks. Never buy anything below $5. So there are crowds of fund managers here betting one way or the other that this stock will either rise above or remain below $5. Look at the volume. It appears that there is a break out, not of the cup-with-handle chart pattern you can see, but rather at the $5 level. Look at the explosive volume the last two weeks as the stock lifts out of pauper status into the realm of the investable again. Managers are buying into this story. Stochastics and price relative to the Wilshire 5,000 tell me nothing, but look how explosive the accumulation/distribution line has been compared to the price action. Compare the last peak in the price to the current level, and then do the same to the A/D line. The A/D line has out-advanced the price.Technical Analysis – Daily
This is a story of capitulation and breakout. RSI diverged at the bottom, but that’s really history at this point. The chart pattern is a really good sign. Look at the capitulation the last week in February. The stock retraced back through resistance at $4.85, but too many people panicked and got involved. Who knows? Since the stock moved very little that day, it may have been a huge institution that just made a quick decision, or a quant, for that matter. Fact still remains that volume is volume and every seller you could imagine came out that day and pounded the stock. That was the highest volume day in 3 years. You have to respect that. Then, the stock reversed, and 3 days later, marched toward resistance at the $5.20-ish level and then broke through on, unfortunately, tepid volume the next two days. Nonetheless, it’s through. Stochastics say not much of anything again. Price relative tells a story of outperformance over the last week-and-a-half, which is great in light of the fact that the stock faced resistance during that time. I would have liked to see the A/D line make a higher high, but we’re not at that point yet. The last day on the chart, by the way, was spent breaking through the 50-day. Now that was on low volume, though. I expect it to probably fail and make another (number of) try(ies).
So, the valuations are primary here, with the technicals secondary. But the valuation is so compelling that this stock is buoyant, at the least, and I am very confident in its prospects.
So, the valuations are primary here, with the technicals secondary. But the valuation is so compelling that this stock is buoyant, at the least, and I am very confident in its prospects.
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