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Q4 Press Release
-revenue $64.6M (+99.5% y/y) vs. $64.04M est. (in-line with 3/7/11 upside pre-announcement Link)
-SSD revenue $58.2M (+380% y/y, +40% q/q)
-$94M in net proceeds from April public equity secondary
-non-GAAP operating profit of $0.1M including $1.7M operating loss from discontinued memory products
-EPS –2c vs.-3c est.

Guidance
-re-affirmed FY2012 revenue guidance $300-330M (+60-75% y/y) vs. $319.4 est (in-line with 3/28/11 upside pre-announcement Link)
-Indilinx SSD controller acquisition will increase gross margins 200-400bps within 12 months
-recent April capital raise will improve profitability and support increased OEM sales
-long-term non-GAAP model of gross margins 28-32% and operating income 13-17%

Conference Call
-seeing increased SSD design-in activity at an “inflection point.” Considerable success in new PCIe enterprise SSD design wins
-3 new OEM design wins that are “incremental” to current guidance: 1) large Asian telecom service provider 2) major cloud computing service provider 3) single-source product design win at “well known” Tier-1 enterprise storage company
-Because there is so much activity on SSD design wins, capital raise, SSD controller design wins they decided to wait and update fiscal year guidance to the “upside” next quarter
-currently at 100% utilization they have $40M/month of SSD manufacturing capacity. Due to significant orders they will double manufacturing capacity in the next 90 days
-gross margins will go directionally up going forward (discontinuing memory business + higher margins from using internal Indilinix SSD controllers)
-they have new design wins for their Indilinix SSD controller business which is not in guidance
-regarding competition in the PCIe SSD market “the whole field is us [OCZ] and Fusion-io. 1/2 their Q4 enterprise revenue was PCIe SSD (OCZ is Fusion-io Lite!)
-“enormous, enormous demand for Vertex 3” “Demand was 3X their ability to ship” Sees considerable upside to Vertex 3 starting in June

Net-net
OCZ printed the Q4 numbers they pre-announced in March at +99.5% y/y revenue growth, +380% y/y SSD revenue growth, and an operating profit ex-the now discontinued memory DRAM business, but that is not the story. The story is the conference call talking about the future, which was incredibly bullish.

OCZ said on the call they are doubling their current SSD manufacturing capacity within 90 days. Today at 100% utilization it is $40M of SSD manufacturing revenue capacity a month ($120M a quarter). In 90 days, they will have manufacturing capacity of $240M of SSD revenue a quarter at 100% utilization. They just did only $58M of SSD revenue in Q4.  Think of the revenue upside potential.

All this doesn’t mean anything unless there is demand. Fortunately OCZ’s core new SSD product Vertex 3 is selling like hot-cakes. Management said Vertex 3 has “enormous, enormous demand” 3X (yes 3X!) more than they can ship. They will be able to ship more upside starting in June (presumably when new manufacturing capacity comes on-line).

OCZ said current full year guidance doesn’t include all the design win activity. They want to digest it all before updating the guidance to the “upside” next quarter. This design win activity that is NOT in the current full year guidance includes 3 big OEM design wins (large Asian telecom service provider, major cloud computing service provider, single source product win at “well-known” Tier-1 enterprise storage company) and new SSD controller design wins.

Given the tremendous demand for Vertex 3, all the incremental design wins not included in guidance, and doubling of SSD manufacturing capacity, it looks very likely OCZ will crush the current $300-330M (+60-75% y/y) revenue guidance for FY2012. If I assume 75% utilization of the next 4 quarters SSD manufacturing capacity, I calculate full year SSD revenue of $630 MILLION.

Bush administration officials have been clear that one of the key reasons for invading Iraq was to establish a significant democracy in the Middle East. The thinking was this would spread democracy in the region, lead to hope and prosperity, and provide an alternative to radical Islam for the hearts and minds of the youth in the region.

The irony is democracy is now spreading in the Middle East not due to Iraq, but through the power of the masses using the internet enabled by American Silicon Valley start-ups like Twitter and Facebook.

So as we celebrate the victory against Al Qaeda today with the passing of Osama Bin Laden; let us remember that we’re winning the war on terror not by military might alone, but by the entrepreneurial ingenuity of American capitalism.

In this post, I will lay out my response to the two most serious claims in Copperfield Research’s OCZ report. Then I will show why the current and future fundamentals of this AMERICAN company are strong with real revenue and real products, nothing like the Chinese reverse mergers with phantom revenues and vapor-ware products that Copperfield Research compared OCZ to. Moreover I will also show why OCZ will “highly likely” post fantastic financial numbers and guidance on their May 3rd, 2011 earnings report.

1) Copperfield Research is “shady, suspect, and deceitful” in manipulating the media

On March 22, 2011 Copperfield Research issued a report on EBIX with the title “Not a Chinese Fraud” to get attention. Using the sensationalistic keyword “Chinese Fraud”, even though it had nothing to do with the substance of the report, it got the publicity they wanted to drive down the stock and profit from their short position.

On April 20, 2011 Copperfield Research did the same saying OCZ “may just be the American version of the story above [a Chinese reverse merger stock implosion example]. This time Copperfield Research never uses the word “fraud” anywhere in their post or report. However that didn’t stop the media, bloggersphere, and Twitterati from using the “fraud” word over and over again spreading the Copperfield Research OCZ report story WITHOUT DOING ANY ANALYSIS on the veracity of the report’s claims.

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2) Irreconcilable Financials Claim

10Q Filing – 1/14/11

8-K Earnings Press Release – 1/10/11

Amended “Fixed” 10Q Filing – 4/21/11

Copperfield Research noted that the November 2009 quarter revenue segment table category numbers in the 8-K earnings filing and the 10Q filing did not match up and appear flipped. Instead of accepting the easy explanation of a typographical error by some poor first-year accountant who couldn’t copy/paste correctly, Copperfield Research alleged OCZ is deliberately trying to mis-lead investors by over-stating 325% y/y SSD growth because obviously the 10Q filing number has to be correct right? Wrong. [of course Copperfield Research insinuates the worst possible scenario, they are short OCZ stock]

OCZ filed an amended 10Q Thursday afternoon fixing the “typographical error” in the 10Q filing to MATCH the 325% SSD growth rate in the 8-K earnings filing. Here’s a quote from the OCZ press release [Link]:

“This morning the Company filed an amended 10Q for the period ending November 30, 2010 that corrects certain typographical errors in line item data related to product group revenue… The totals in the historical financials as previously presented were correct and no restatement of the financials is necessary.”

Yes I will repeat “no restatement of the financials” is necessary. The OCZ bears will have you believe a simple typographical error of a revenue segment table [remember the revenue totals were accurate, it was just the segment categories with the 325% SSD revenue growth y/y number actually being CORRECT] is the same thing as a Chinese reverse merger company mis-stating revenue by hundreds of millions of dollars, that is like saying Roseanne Barr is as beautiful as a Victoria Secret super-model. That just isn’t right!

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3) CEO’s past criminal record

Copperfield Research’s alleges that the company withheld information about the CEO’s criminal background to investors during the recent equity secondary capital-raise. Here is Needham [one of the under-writers] analyst’s response:

“Information Withheld On CEO’s Past: FACTUALLY INACCURATE. The buyside was made known of the CEO’s youthful indiscretions many years ago through the filings as well as throughout the roadshow, and our own conversations suggest that investors were not concerned with something so old and irrelevant to current product roadmaps and the future of the company.”

And Craig-Hallum [one of the under-writers] analyst’s response:

Here are the facts. The OCZ CEO has publicly admitted that his only felony conviction was in 1998 for “trafficking in stolen property in exchange for marijuana,” which was later reduced to a misdemeanor.

SEC Rule 401(f) clearly states a company must disclose if an executive “was convicted in a criminal proceeding or is named subject to a pending criminal proceeding” in the past 10 years. It is clear the company has gone above and beyond their legal obligations from the responses above.

That being said, it isn’t great that the CEO of OCZ tried to exchange stolen property for pot when he was younger even if it was many years ago. One must remember though when Steve Jobs was younger he once built and sold “blue box” whistles that let you steal from the phone company and make calls for free.

Steve Jobs also lied and basically stole money from his partner Steve Wozniak over payment from the work they did in making Breakout for Atari. People makes mistakes, would you short Apple today just because Steve Jobs did some bad even criminal things when he was younger? Of course not, you would research Apple’s products, reviews, how products are selling, and future fundamentals.

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4) OCZ SSD Drives are the best reviewed products in the industry and are selling like hot-cakes

I recommend everyone to ask their computer nerd friends what is the best reviewed SSD drive on the market. If he or she knows anything, they will say OCZ Vertex 3.

Storage Review OCZ Vertex 3 Review [Link]:

“In one generation OCZ has managed to nearly double its speed in synthetic benchmarks and blow the socks off older drives in real-world scenarios. Given the intended market of performance enthusiasts, the Vertex 3 will no doubt be a huge success..”

“Puts other SSDs to shame in our real world benchmarks.. Pricing makes top-tier performance available for only a moderate premium.. The OCZ Vertex 3 spanks the competition with up to 69% faster speeds in real-world conditions and has firmly established itself as the fastest SATA SSD we’ve seen.”

Anandtech on OCZ Vertex 3 [Link]:

“If you were excited about the performance of the Vertex 3 Pro but were put off by the price, it looks like that’ll be a non-issue thanks to the Vertex 3. The performance of this second generation of SandForce based SSDs is nothing short of astounding.”

Sure the reviews are great for the new OCZ Vertex 3 SSD drives, but how is it selling? Newegg.com is OCZ’s largest customer. I have been checking OCZ Vertex 3 product listings on Newegg.com in recent weeks and have noticed EVERY TIME the product goes in-stock it sells out WITHIN HOURS.

I’m not the only one noticing this, here is an internet post on the OCZ Vertex 3 sell-out mania [Link]:

End market customers are also gushing over the performance of the OCZ Vertex 3. Read the customer reviews on Newegg.com with quotes like this:

“Absolutely mind-blowing load performance” “This type of speed will spoil you!” “Rating: 5/5 Very Fast – Best Hardware Purchase” “Blisteringly fast! Works flawlessly”

With great reviews, high demand, and happy customers, I am extremely confident that the newly released OCZ Vertex 3 SSD drives will sell like hot-cakes for at least another 2-3 quarters. SSD drives are definitely one of the hottest secular growth stories in technology for 2011 and OCZ is the leader of this tech sub-sector.

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5) OCZ will “highly likely” post fantastic financial numbers and guidance on their May 3rd, 2011 earnings report

On 3/7/2011 [Link]: OCZ pre-announces upside for Q4-2011 ending on February 28th, 2011. Revenue will approximately be $64 million up +97.5% y/y. SSD revenue will be +380% y/y and +40% q/q.

On 4/21/2011 [Link]: OCZ announces May 3rd, 2011 earnings date for Q4 earnings.

Why is it highly likely OCZ will post fantastic Q4 numbers and guidance when they report earnings on May 3rd, 2011? Because they ALREADY PRE-ANNOUNCED fantastic Q4 numbers and guidance. On March 7th, 2011 they pre-announced amazing +97.5% y/y revenue growth and +380% y/y SSD revenue growth. On March 28th, 2011 they guided FY2012 revenue growth to +60-75% y/y.

In the past when OCZ reports earnings, they report the quarter and give guidance for the full year. Both revenue for the quarter and guidance for FY2012 have already been announced in recent weeks, so I believe it is highly unlikely especially just after raising $94 million capital a week ago, the company would change full year guidance for the worse.

So after all this above let’s look at the current situation. According to Yahoo Finance, 19.7% of OCZ’s float is held short as of March 31, 2011. It is highly probable this short interest has increased significantly in the past 2 trading days in the after-math of Copperfield Research’s OCZ report by short-term term traders who haven’t done any in-depth research on the truth behind Copperfield Research’s misleading innuendo and claims. Do the shorts really know the fantastic fundamentals of OCZ’s “best in class” SSD products, how big demand is, and how fast Vertex 3 is selling out? I doubt it.

How many companies in the technology market have revenue growth of +97.5% y/y today? How many companies have a product segment like OCZ’s SSD that has had a revenue growth ramp of +27% y/y, +81% y/y, +325% y/y, and +380% y/y in the past 4 quarters [amazing accelerating growth]? Not many.

Even Copperfield Research admits OCZ may have potential design wins from the likes of IBM, EMC, and HP. Will the shorts really want to be short when those tier 1 customer names are revealed? Will the shorts really want to be short when OCZ continues to post blockbuster growth numbers?

I actually called OCZ on Thursday to ask them if they would defend themselves point-by-point against the Copperfield Research report. What OCZ said was very telling: “We will let our numbers do the talking.” I don’t know about you, but I wouldn’t want to be short OCZ on May 3rd, 2011.

If you want more details on the OCZ growth story, I highly recommend their PowerPoint presentation the company gave at the Roth Growth Stock conference in March 2011 which can be found here: [Link]

Disclosure: At time of writing, the author is long OCZ stock which he initiated during the sell-off on the April 20th.

As many of you know, Copperfield Research released a bearish report on OCZ today that had a detrimental impact on the stock price. I’m not going to do a point-by-point analysis of the ridiculous innuendo and claims in their report. The sell-side actually did a good job today refuting it (call your Stifel or Needham broker to get the defenses).

Copperfield Research has a history of putting in sensationalist key-words (“House of Cards” “Chinese reverse merger” “Not a Chinese Fraud”) in their reports and head-lines to get attention that have nothing to do with the companies they are covering. Shameful in my opinion, but it shows you the kind of character they have.

I bought shares in OCZ today as I believe the company makes the best performing SSD drives in the world today (read the customer reviews on Newegg, reviews by leading tech enthusiast sites like Storage Review), has tons of cash (they just raised $94 million last week), and many quarters of amazing growth ahead in what I believe is the best secular growth product cycle in technology today (SSD drives). There is no way this company is a fraud as Copperfield implies; I would bet my left arm on that, but that is neither here nor there as the fundamentals will come out and the stock price will reflect this in time.

I just want to point out this below.

On Copperfield Research’s Seeking Alpha profile page they explicitly say they do not use options to establish positions prior to a report’s publication. Moreover they do not discuss unpublished reports, or provide advanced warning of future reports to others.

Yet on 4/19/11, the day before the release of Copperfield Research’s bearish OCZ report, Minyanville’s Steve Smith noticed large put option activity on May $7.50 strikes, when OCZ stock was trading in the mid $9 range. Since Copperfield Research doesn’t let anyone know about their reports ahead of time, that put option volume must have happened by magic right? Pure coincidence I’m sure.

Disclosure: At time of writing, the author is long OCZ stock.

One of the hardest things for me to learn over the years is taking small losses (1-2%) isn’t a bad thing. Trust me I know it’s hard to do. The worst thing is to get run over with a huge loss when you are wrong. You should do your utmost to protect against that scenario.

The way the compounding math works is if you have a big draw-down from a huge loss, it takes a LOT more work and return to make that loss back.  For example when you lose 50%, you need to make 100% from there to get to break-even.  Thankfully compounding also works in a positive way; if you eek out positive gains upon positive gains, you get huge long-term returns. Just try it with a spreadsheet.

My point is I don’t mind taking lots of small losses or gains and then keep plugging away with smart rational fundamental idea setups because eventually I’ll hit some homers like GMCR 1-day 27% gain, BGP bankruptcy pin action trade idea, OVTI on EB+ earnings, and buy NFLX on price increase winner, etc. (all previous big FA Alert winners).  The key is to stay in the game for those big home-runs and not lose much on the other trades. Have a good day guys.

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If you like what you see above, be sure to check out my two paid services below as that is where you can exclusively find my fundamental trading idea flow now:

1) FA Alert – email trade alerts: http://www.firstadopter.com/fa-alert/
2) FA Chat – trading chat room: http://www.firstadopter.com/fa-chat/

Who says you can’t find good stuff on Twitter. Here are my 5 best fundamental tweets from my Twitter feed in the last 4 months.

1. GMCR on March 9, 2011

The Tweets: I tweet that the only logical move for Starbucks (SBUX) is to do a partnership or buyout deal with Green Mountain Coffee (GMCR). I then send out an FA Alert to buy GMCR to put my money where my mouth is.

Result: The next day Starbucks announces a partnership deal with Green Mountain Coffee and FA Alert subscribers make a 27% gain in one-day (Trade screenshot Link)

2. SINA on March 2, 2011

The Tweet: I tweet that SINA is the best public stock market vehicle to play the web 2.0 internet bubble due to their ownership of the Chinese Twitter.

Result: Although I wasn’t smart enough to buy it myself, the social networking valuation bubble went into over-drive with SINA moving up from $77.15 on March 2nd to $119.35 on April 8th for a +55% move in 5 weeks.

3. NVDA and MMI on February 7, 2011

The Tweets: I tweet that Nvidia Tegra 2 tablets will flop and Nvidia is a short as that flop news comes out. I also say Motorola Mobility’s Xoom tablet will flop hard vs. Apple iPad.

Result: Nvidia Tegra 2 tablets including the Motorola Mobility Xoom flop. Nvidia (NVDA) trades from $25.32 on February 7th to $17.55 on April 8th for a decline of 30.7%. Motorola Mobility (MMI) trades from $30.88 to $24.03 in the same time period for a decline of 22%.

4. Short BGP, Long BKS on January 28-31, 2011



The Tweets: I tweeted a prediction that Borders Group will declare bankruptcy in the coming weeks and BGP will go down and BKS will go up on the news.

Result: Borders Group did declare bankruptcy and their stock BGP got de-listed. Moreover BKS did go up on the BGP bankruptcy news and FA Alert subscribers were able to bank huge gains (Trade screenshot Link)

5. Buy oil, gold, farmers, and web 2.0 holding companies on December 5, 2011

The Tweets: After ranting against Bernanke money printing, I lay out the plan on how to play QE2. Buy oil, gold, farmers, and web 2.0 internet vehicles.

Result: From December 5th to April 10th, oil trades up 27%, gold up 4%, MOO up 8%, and web 2.0 private internet valuations go up a gazillion percent (Facebook, Zynga, Groupon, etc.)

If you like what you see above, be sure to check out my two paid services below as that is where you can exclusively find my fundamental trading idea flow now:

1) FA Alert – email trade alerts: http://www.firstadopter.com/fa-alert/
2) FA Chat – trading chat room: http://www.firstadopter.com/fa-chat/

WPRT – Congressmen introduce tax credit bill for natural gas vehicles. Link

According to a report, Nintendo sold only about half of its 3DS shipments in Japan. Link

OCZ – OCZ raises $81.3M with a secondary offering of 10.2M shares at $8.50. Link

NVDA – Nvidia expected to land Tegra 2 orders from Samsung. Link

CAT – Caterpillar executive warns of a tire shortage by the end of this year. Link

NXPI – Reuters reporting that a Dutch newspaper says NXP Semiconductor is in take-over talks with Intel, Qualcomm, and Broadcom. Link

EXPE – Expedia announces it is spinning off TripAdvisor. Link

BKS – Barnes & Noblie to open up Nook Color to Android app developers. Link

ADS – Congress is investigating the Epsilon email data breach. Link

STX – Seagate guides up Q3 revenue to $2.7B vs. $2.62B est. and raises their dividend to 18c a quarter. Link

“Niederhoffer said the buy-the-dip “risk-on” trade is the only one that’s currently working in the hedge fund industry. That’s left most managers’ returns highly correlated with the equity market.” Link

Frank Quattrone returns as the top tech investment banker. “Mr. Roux said the mystique around Mr. Quattrone had been overblown. It’s simple, he said: “Frank’s a very likable guy who knows what he’s talking about.” Link

EB+ TPX
Sell-side: SunTrust initiates FFIV with a Buy.
WSJ: MMI should merge with another hand-set maker to get better scale.

Trading Radar: TPX
Today’s POMO: 0

From 10K filing FY2010: Link

“A significant portion of our revenues are derived from a single customer. Revenue growth in fiscal 2009, 2008 and 2007 was driven largely by our AMSC Power Systems business unit. Our largest customer is Sinovel in China. Sinovel accounted for a majority of our total revenues during these periods. Revenues from Sinovel are supported by purchase orders and contracts for electrical system core components as well as development contracts for the design of wind turbines. If Sinovel cancelled purchase orders or development contracts, or discontinued future purchases from us, we would likely be unable to replace the related revenues. This would have a serious negative impact on our operating results and financial position.”

“A substantial portion of our revenues are derived from one customer, Sinovel Wind Co., Ltd., a manufacturer of wind energy systems based in China. Sales to Sinovel represented 67% and 51% of our total revenues for fiscal 2008 and 2007, respectively.”

-Sinovel Wind in China is by far their largest customer representing up to 67% of their annual revenue

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From 10Q filing 2/3/11: Link

“In November 2010, the Company issued 4,600,000 shares of common stock at a price of $35.50 per share in a follow-on public offering, which resulted in net proceeds to the Company of approximately $155.2 million, after deducting the underwriting costs and offering expenses of $8.1 million”

-The company raised $155 million of new capital through an equity offering at the share price of $35.50 (stock is trading at $14.69 right now)

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From Q3 earnings 2/1/11: Link

"Until recently, our longer term plan has been to achieve $1 billion in total revenues with operating margins in excess of 20 percent in our fiscal year 2015," Yurek said. "However, with the capital we raised in our November 2010 equity offering, the strong global business and technology platforms we have built in the wind energy and power grid sectors, and the new growth strategies we are implementing, we believe we will be able to accelerate achievement of this objective by at least one year."

-The company guided to $1 billion in annual revenue by FY2014

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Now today just TWO MONTHS LATER

From Q4 update press relase 4/5/11: Link

“On March 31, 2011, Sinovel Wind Group Co., Ltd. (Sinovel) refused to accept contracted shipments of 1.5 megawatt (MW) and 3 MW wind turbine core electrical components and spare parts that AMSC was prepared to deliver.”

-Their largest customer refused shipment

“AMSC currently expects total revenues for its fourth fiscal quarter will be less than $42 million and that it will generate a net loss for the fourth quarter on both a GAAP and non-GAAP basis. As a result, AMSC currently expects its full year fiscal 2010 revenues to be less than $355 million. This compares with the company’s prior forecast for fiscal 2010 revenues of $430 million to $440 million. AMSC also expects that its GAAP and non-GAAP earnings for full year fiscal 2010 will be well below the company’s previous forecasts.”

-The company cuts guidance for Q4 to less than $42 million in revenue. Wall Street estimate was $119 million. That’s a 65% or more miss. The company cuts FY2010 guidance to less than $355 million in revenue. Wall Street estimate was $432 million. That’s a 18% or more miss.

“AMSC estimates that its balance of cash, cash equivalents, marketable securities and restricted cash as of March 31, 2011 was approximately $240 million. This is down from $260.5 million as of December 31, 2010. AMSC’s cash balance was negatively impacted by an increased inventory level related to the refusal of shipments by Sinovel, and Sinovel’s failure to pay AMSC for certain contracted shipments made in fiscal year 2010. As a result of both accumulated aged accounts receivable due to payment delays and Sinovel’s recent refusal to accept March deliveries, AMSC is reviewing the appropriateness of the timing of its revenue recognition on approximately $56 million of unpaid shipments in the second, third and fourth quarters of fiscal 2010.”

-The company raised $155 million in November 2010 based on the numbers presented at that time. Now the company says they may have to change the revenue recognition for $56 million of unpaid shipments in Q2, Q3, and Q4.

Net-net: The company’s largest single customer (huge % of their revenue) hasn’t been paying bills on past shipments and is refusing delivery on new shipments.

For those that don’t know, EB is the name of my core trading strategy that has made me the most money over the years. EB stands for “earnings breakout” (Yes I made the name up). EB+ is short for when a company beats and raises earnings guidance significantly vs. Wall Street expectations. EB- is the opposite when a company misses and guides down significantly vs. Wall Street expectations.

I’ve found that EB+ stocks tend to outperform the market significantly after EB+ earnings and EB- stocks under-perform. Obviously this isn’t rocket science. Stock prices are all about supply and demand. If a company has awesome earnings and guidance, investors are less likely to sell their shares and more investors may be attracted to buying the company, which means the stock price will likely to go up. If a company has horrible earnings and guidance, the opposite is true.

It’s amazing how well this simple idea works. I decided to periodically write this “EB Report” on the best EB+ and EB- ideas in the recent past as it will be a good exercise to remind myself how well it does work and a good “hindsight” teaching material for all of us, so we can better take advantage of EB ideas in the future.

The other great thing about EB trading is you don’t have to predict anything. You can still make great returns AFTER the big earnings come out. This is because large funds take days if not weeks to build or sell a position after good or bad earnings. This is one of the benefits of being a small investor vs. the big guys.

EB is not fool-proof however. A couple of caveats. When the markets crash and sells-off on macro news like Egypt, Libya, and the Japan earthquake, EB+ stocks will go down with the market. However I find when markets rebound, EB+ tends to out-perform on the way back up. Also be careful of investor sentiment reversals on fundamental news for EB+ names. For example JDSU (an optical company) had a great EB+ earnings report, but sentiment reversed when optical competitors FNSR and EXFO both had bad earnings reports. This is one of the benefits of the FA Chat room as the members can work together and inform one another on these big inflection news data-points that drive sentiment reversals.

Moreover I find EB+ works better with consumer technology and retail stocks as they often have more sustainable earnings product cycle stories over multiple quarters that investors are more comfortable with holding vs. energy or other commodity driven earnings plays which are more volatile due to the underlying commodity price trends. We want to look for earnings acceleration driven by a sustainable new product or service, not a one quarter earnings beat driven by the price of oil or another external driver the company has little control over.

The central tenets of EB are not new. The most famous and one of the most successful mutual fund manager of our lifetime, Fidelity’s Peter Lynch, said earnings more than anything (sorry chart monkeys) is the key driver of stock prices. Also one of the most successful technology hedge-fund managers, Dan Benton, said he wants to be long stocks with earnings acceleration and short stocks with earnings deceleration.

Q1 EB+ Stocks
OmniVision (OVTI) – opened at $28.74 on 2/15 after great earnings and guidance driven by camera sensors in smartphones and tablets. Closed at $36.19 on 4/1 for a 30.5% potential gain. FA Alert and FA Chat members made money on this name.

Vera Bradly (VRA) – opened at $35.94 on 3/16 after great earnings and guidance. Closed at $40.84 on 4/1 for a 13.6% potential gain. FA Chat members made money on this name.

Baidu (BIDU) – opened at $116.39 on 2/1 after great earnings and guidance. Closed at $138.83 on 4/1 for a 19.3% potential gain. FA Chat members made money on this name.

Priceline (PCLN) – opened at $466.61 on 2/24 after great earnings and guidance. Closed at $513.85 on 4/1 for a 10% potential gain. FA Chat member made money on this name.

Weight Watchers (WTW) – opened at $59 on 2/17 after great earnings and guidance driven by new ad campaign centered around Jennifer Hudson. Closed at $71.53 on 4/1 for a 21.2% potential gain. FA Chat members made money on this name.

Under Armour (UA) – opened at $56.14 on 1/27 after great earnings and guidance. Closed at $72.23 on 4/1 for a 28.7% potential gain.

Mad Catz (MCZ) – opened at $1.51 on 2/10 after great earnings and guidance. Closed at $2.10 on 4/1 for a 39% potential gain.

Universal Display (PANL) – opened at $41 on 3/16 after a great earnings report driven by OLED display patents. Closed at $55.53 on 4/1 for a 35.4% potential gain.

Q1 EB- Stocks
Cisco (CSCO) – opened at $19.65 on 2/10 after guiding down earnings vs. the street. Closed at $17.04 on 4/1 for a 13.2% potential short-selling gain. FA Chat members made money on this name.

Best Buy (BBY) – opened at $32.66 on 3/24 after guiding down future earnings vs. the street. This one was a bit tricky as they had a misleading earnings beat from not counting restructuring charges. Closed at $28.64 on 4/1 for a 12.3% potential short selling gain. FA Alert and FA Chat members made money on this name as they were able to see through the misleading earnings and focus on bad comp store sale guidance.

Finisar (FNSR) – opened at $25 on 3/9 after horrible earnings and guidance vs. the street. Closed at $23.64 on 4/1 for a 5.4% potential short selling gain. FA Chat members made money on this name.

Xyratex (XRTX) – opened at $10.34 on 4/1 after horrible earning guidance due to a slow down in 2.5 inch notebook hard-drive sales. Closed at $9.54 on 4/1 for a 7.7% potential short selling gain. FA Chat members made money on this name.

If you like this article, be sure to check out all 3 key FA services.

1) FA Alert – email trade alerts: http://www.firstadopter.com/fa-alert/
2) FA Chat – trading chat room: http://www.firstadopter.com/fa-chat/
3) FA Twitter – free real-time market news and earnings call data-points: http://twitter.com/#!/firstadopter

Source: Link

1. Always insist on a margin of safety
2. This time is never different
3. Be patient and wait for the fat pitch
4. Be contrarian
5. Risk is the permanent loss of capital, never a number
6. Be leery of leverage
7. Never invest in something you don’t understand