Most traders (if not all) have a list of stocks that are consider their “go to” trades. At certain price levels these stocks just seem to “find a floor” or after big sell-offs these stocks “always bounce back”. It just always seems like no matter what, whether it be a profit or loss on the trade, you at least had a chance to take profits at some point.
I can’t deny that I actually have a few of these list I constantly am browsing for opportunities. And given the current market conditions, one of my small “value play” lists has got my attention. Over the next few post I will share my thoughts on a few of these companies. There nothing flashy about these companies other than they are solidly profitable and carry little to no debt. The key to making money (and I made some $profits swing trading these stock in the past) is STALKING your ENTRIES. These trades only become interesting when their growth rate, value, or dividend trigger institutional and insider buying. That’s means waiting for bottoms and then buying on weakness. I have been patiently been waiting for the market to stabilize after the the last few months, and now I am actually rooting for a “little” weakness ( which I think we will get soon ) so I can build some positions in these stocks. When I say “buy and/or build” I don’t mean buy and hold forever, just buy with a longer time frame than say a few weeks. And I don’t buy all at once ( always using limit orders) because sometimes they smaller companies can lack trading liquidity. I refuse to over pay, and hence will stalk my entry down to the penny at time. When they make their move, Ill exit without hesitation in the same fashion…using limit order and selling ½’s or 1/3’s of my stake at a time.
For starts, one of my all-time favorites is GSB. They are a small company growing at about 20%/year sitting on about $12.5 million in cash with no debt! Read their latest Quarterly report here. They primary specialize in secure file transfer over the internet but have recently acquired small companies that specialize in Software that helps companies utilize “cloud” computing. I’ve been following/trading this small company for the past 5-6 years. Their management is very conservative ( they don’t issue shares ) and the have consistently grown profits and revenues through the last two recessions. Any time I see a significant sell-off (not due to a specific business event) and can get in this stock with an underlying P/E < 15 I’m looking to buy. Extrapolating their results for the next few quarters, EPS for this year should be in the range of .12-.14. First I calculating a “Value based PE” buy subtracting their cash from their Market cap 35M -12.5M = 23.5M . So as they stand now they are trading at approx. PE = 14. Historically they tend to trade with a PE = 30. So to me that means looks for a good entry…. STALK TIME.
Charts below are annotated to show my entry levels. Right now I hold a half position with an average buy-in @ 1.84.
I am looking to add to my current potion ( B-4 ) and am hoping to fill my remaining shares between $1.80-1.90. I expect that by years end I will get a chance to exit this trade some above $2.15.
