Since I bought the additional shares with the whole intention of selling once the share price recovered I sold some of those shares today for a quick 4.49% gain and will most likely buy again if the the price drops significantly again.

Again, I am still keeping the bulk of my position, which is still my largest position.

Since I bought the shares on 11/10 with the whole intention of selling once the share price recovered I sold those shares today for a quick 41% gain.  The stock recovered much faster and better than I would have expected.  I am quite happy with this trade.  However, at this particular price, I see more risk in this company than reward and will evaluate better opportunities for investment at this time.

I certainly plan to continue watching the price of of GMCR and look for a reentry if the price drops enough again. I suspect that the current news of pending class action lawsuit investigation will cause downward pressure on the stock in the short term, especially considering the volatile nature of the stock price, which my yet again provide another good entry back into the stock.

However, after this morning’s price crash of the stock, I reviewed the numbers, business information, and analyst reports and I believe that at the current price, the stock looks attractive.

The sell-off seems to be due to the company missing some sales numbers, particular wholesale order sales, but their explanation makes sense in that they had announced price increases previously so their wholesale customers stocked up in the previous period, therefore not needing to buy as much in the current period.

Makes a lot of sense to me. I would expect the miss to be worse than reported under the circumstances.

In our own business, ChamplainCoffee.com, we announced an increase of our low acid coffee and that month we had strong record sales and the next month sales fell flat. That was expected… we encouraged our repeat customers to stock up while the prices were low and they did.

The two real lingering issues with the company are expiring patents and accounting irregularities.

The Expiring Patents:

GMCR’s patent on K-cups expires in September 2012, which could allow competitors to make pods for GMCR’s Keurig machines, undercutting profit margins. GMCR has been making aquisitions and positioning their products to continue to thrive despite the patents. Starbucks, Dunkin and Smuckers have also struck deals with GMCR to produce K-cup based products for their companies, which means they will continue to have this revenue past the patent expiration. If they intended to produce their own it wouldn’t seem they would have made these deals within a year of the expiration.

Also, I don’t believe that the Starbucks and Dunkin deals have had time to impact earnings yet so these earnings could easily make up any loss due to the patent expiration.

The patent expirations also could help expand the market for k-cups as more companies make them to their standard, meaning more demand for Keurig brewers.

Accounting Irregularities:

Some mistakes have been made with accounting for costs. GMCR has been accused of accounting fraud. The SEC has investigated GMCR and has not uncovered much of anything in over a year of investigation.

If something serious should be uncovered, this could have a negative impact on the perceived value of the business and there will be serious trust issues with management.

Current valuation:

We initiated a small position today at $40.23 and may buy more if the price continues to fall and no real negative news comes out. Again the reaction to today’s news is overblown, psychological. Nothing has changed in the business just a shifting of buying habits that makes a lot of sense.

At the closing price of $40.89, the company has a Foward PE of 15.61 and PEG of 1.14.

Even some of the strongest critics of the stock previously would consider the price fair at today’s price.

Final thoughts:

The current valuation would be pretty good without any big threats to current income. Again, the patent expirations and accounting irregularities are the biggest threats to investing in GMCR, which makes this position a little more speculative than my other investments.

Therefore, I would suggest investing with caution.

I may use this as an opportunity to make a quick trade. It should be only a matter of time before the price pops up to a more unreasonable price again, at which time, I will probably sell to book a quick gain, but at this price or even lower prices and new threats, GMCR is good buy.

I added more to my position in HP (HPQ) today at $35.99/share. Took advantage of the recent drop in price.

My opinions on this company have not changed.

Recently, I’ve made purchases of Cisco (CSCO), which I believe fits my strategy, not as strongly as I would like, but enough to be considered.

I then determine what I believe the value of the business based on a variety of factors. Then I wait for the price of business to drop below this value I’ve determined. Once reaching a target price below the business value that reflects the risk or uncertainty of my value of the business I buy if my assumptions have not changed.

Because my target prices are usually quite low to the current market price, most of the time my purchases are made upon a severe pullback in the market or some overreaction to current news for a particular stock, which is the case with CSCO.  The price has continued to drop since I bought my original purchase and additional blocks.  I am reluctant to add more, as with any purchase, I must allow that my assumptions could be wrong about a business, which is why I try to diversify enough to allow for some error.  In the case of Cisco, at the current price, I would definitely be adding some more if wasn’t already such a large percentage of my portfolio.  It’s a great price to initiate a position if you don’t already have one.

I guess what’s important is to have a strategy that you do really believe in and one that doesn’t cause you to be alarmed when your picks drop a lot.  When I first started investing in the 90s, that was the problem I had.  I liked a stock I bought when I bought it, but when it went down, I would get scared because as it turned out I didn’t really believe in the methodologies I was using.  The difference now, is I’m not scared with the fluctuations of stock prices… only with actual business decisions that I disagree with over time.

At this time, I believe that there are some nice possibilities right now in big tech… Hewlett Packard (HPQ), Intel (INTC), AMD (AMD), Microsoft (MSFT), and SanDisk (SNDK) are some potentials that I may consider initiating positions or adding to existing positions.  Big tech in general seems to be really out of favor right now due to temporary reduction in tech spending, which will rebound at some point, it’s just a matter of time. If you believe in the continual progress of technology, the internet, cloud computing, high speed internet, more services being offered online, you have to be bull on big tech in the long run. 
For example, I’ve held off from making extra tech purchases for some time now, due to economic uncertainties, but I will have no choice but to upgrade my computing equipment as it’s either wearing out or going obsolete and I imagine there are many other individuals/firms in a similar situation.

I believe the market is really overreacting on this one and taking a very short term view, creating some good opportunities for the long run.

Took advantage of the overall market selloff in equities.

Dividend yield on Merchant’s at this price is now 4.30%.

My opinions on this company have not changed.

Merchant’s Bank is our largest holding by far as we find the price attractive, especially at $26.85/share, which put the PE around 10 and the dividend yield at 4.17%.

As stated in the past, Merchant’s Bank is very stable, risk-adverse with a great history of dividend payments. Even during the recent economic problems, Merchant’s continued to thrive as many of their larger banking peers floundered.

This make for a very reliable income-producing investment, which makes it a great core holding.

This particular purchase will most likely be sold once the price hits $28-$29/share as we already have so much in the stock and would like to still keep diversified, but when the price dips this low it will most likely not stay there very long, which makes for a great trade.

And if the price should stay down, then the worse case scenario is you hold it and make 4.17%.

The Bad News

The selling today is an overreaction to the some negative news reported yesterday regarding their recent earnings report. They had a smaller gross margins (.90% less than expected) and the CEO’s outlook was more negative than expected.  Chambers sited concerns in weaker IT spending by local, state and federal governments as a major concern in the near future.

The Good News

However, the good news is:

1. Revenue and earnings beat estimates.

2. Revenue is still growing.

3. Cisco will be soon starting a dividend (1-2% projected yield)

4. With $40 billion in cash, which easily covers long term debt, the company isn’t going out of business anytime soon and has plenty of money to weather economic downturns and fund continued development.

5. One of the reasons their margins are down is because they are rolling out some new products and it’s typical to have some margin pressure in the beginning of any new production introduction.

6. There will be continued demand for internet/networking services and Cisco dominates the enterprise routing and switching market. The switching costs to other competitors is high giving them a good wide moat for their business. Long term demand oulook looks great as internet usage growth continues.

7. Therefore, I believe most of “Bad News” is already priced in to the stock at the current price.

Buy When Everyone Hates a Stock

When everyone hates a stock can be the best time to buy if the reaction to news is very short term focused and if the company is still strong with good long term prospects and the price is good compared to current earnings, which I believe is the case with Cisco.

However, because of the strong negativity right now, it’s very well possible the price will continue to go lower before recovering.

It may be a good idea to buy in stages if you are concerned about this. This way if you buy a 3rd now and if it goes down more you can buy another 3rd then and if it goes lower still, buy the remaining 3rd.

If it goes up at least you got some when the price was cheap.

I wouldn’t expect the price to go too much lower, possibly retouch the 52 week low of $19/share, but who knows how badly the market will overreact.

In the long run, I’m not very worried on this one.

Sold a portion of our position in Nathan’s (NATH) today.

The stock is trading at the higher end of the trading range and I believe that I can get these shares back later at a better price.  The PE is a little high right now at 26.58.

Would prefer to buy back the shares I sold today at $16.00 per share.

While I feel that eBay is still a very strong business with good potential going forward I think that the current price to earnings to growth is getting high at this point (PEG 1.6).

However, I don’t feel it’s high enough to sell my whole position, as I believe that eBay still has some good growth surprises in store, especially with it’s Paypal business. However, there are uncertainties with the eBay.com business due to the mounting competition from Amazon, Google and traditional stores that will be a continual source of pressure on them.

Therefore, I am keeping my core position, but any future amounts I will want to get a good discount to help reduce the risk. I will need to determine at what price I would like accumulate more shares again.