Opinion on  Headwaters Inc (HW)     Sector: Energy  >  Industry: Coal
A Reader Writes "...do you think hw is a buy?"

One of my favorite things about blogging is getting feedback from my readers. This sometimes comes in the form of comments on entries and other times comes in as questions or comments in emails. If you would like to leave a comment on anything I have written, please feel free to do so. I shall delete spamming and commerical comments but otherwise I am pretty accommodating to other ideas. You can contact me by email at bobsadviceforstocks@lycos.com. I read all of my emails, but can only comment on or respond to just a few of them. Please do leave your first name and your general location when you write.

A few days ago I received a nice email from Tony who wrote:

"hello, i hope you are still active i am following hw and i only found your blog online, do you think hw is a buy at these prices or do you see it trending lower a stock club i'm in has recently started buying GD i don't know if you are interested in that stock but you may want to check into it. if you can email me and let me know what you think of hw. thanks and have a great day. tony"

Tony, first of all thanks for writing. I am not currently following Headwaters, Inc. (HW) but did write about it way back on October 22, 2003 , when the stock was trading at $17.41. For reference, Headwaters closed yesterday, June 6, 2007, nearly four years later at $18.48/share, which is $1.07 higher than my post or a gain of 6.1% since writing up the stock. I do not own any shares or have options on this company.

Let's take a look at a few basic things on this stock to see whether I can still suggest it deserves a place on this website: the latest quarter , the Morningstar.com report , and the chart .

First of all the earnings:

Headwaters (HW) announced 2nd quarter 2007 results on May 1, 2007. Total revenue for the quarter ended March 31, 2007, came in at $274.1 million, up 2% from $269.7 million in the same quarter last year. Net income for the quarter came in at $27.2 million or $.59/diluted share, up 48% from $18.4 million or $.40/diluted share last year. So far so good.

What about the Morningstar report?

Checking the Morningstar.com "5-Yr Restated" financials on Headwaters, we can see the nice rise in revenue from $119 million in 2002 to $1.12 billion in the trailing twelve months (TTM). However, earnings, which peaked at $2.79/share in 2005, dropped to $2.19/share in 2006 and $2.15/share in the TTM. We know that the latest quarter was quite good, but the last couple of years prior to that weren't.

The company has increased its shares significantly from 24 million in 2002 to 42 million in the TTM. However, during this period, revenue is up over 800% and earnings are up over 100%, so this dilution isn't excessive.

Free cash flow is positive and the balance sheet is acceptable.

What about the chart?

Reviewing the "Point & Figure" chart from StockCharts.com on Headwaters , we can see how the stock climbed strongly from the $17.50 level in 2003 when I first wrote it up to peak at $45/share in August, 2005. Since that time the stock has been trading very weakly and has broken through "support levels" (the 'blue line') and well below "resistance levels" (the 'red line'). It does not look encouraging at all, although I am certainly not qualified as a technician.

Thus, because of the excellent latest quarter, I would not place this as a "sell", but because of the mediocre last couple of years on Morningstar.com and the poor appearance of the chart,

HEADWATERS (HW) IS RATED A HOLD

I haven't looked at General Dynamics (GD) recently, so I haven't any comments on that stock at this time. Thanks so much for stopping by, visiting, and writing. I hope my comments are helpful.

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

As one of the weekend "tasks" of this website, I like to look back on stock picks from the past.  Starting about a year out, I have missed enough weekends of review that I am now 1 1/2 years out on reviews.   On June 17, 2007, I reviewed stock picks from the week of January 16, 2006.  Moving ahead a week, let's take a look at the picks from the week of January 23, 2006!

As I have frequently pointed out, these reviews assume a 'buy and hold strategy' of investing, where equal dollar amounts of each stock are purchased and held regardless of subsequent price action.  In practice, I advocate and employ a very different strategy that sells stocks quickly on small losses and slowly as the stocks appreciate.  However, for the ease of this review, this analysis assumes a simpler buy and hold approach to all of these stock picks.  The difference in this approach would certainly affect the outcome of the performance.

Enough of the introduction!  Let's take a look at the four stocks that were "picked" on the blog during the week of January 23, 2006.  Please note that all charts are posted from StockCharts.com.

On January 25, 2006, I picked Trimble Navigation (TRMB) for Stock Picks Bob's Advice when the stock was trading at $41.76.   On February 23,  2007, Trimble had a 2:1 stock split making my effective pick price actually $20.88.  TRMB closed at $32.50 on July 6, 2007, for a gain of $11.62 or 55.7% since posting.

On May 3, 200, Trimble reported 1st quarter results.  Revenue for he quarter increased 27% to $285.7 million from $225.9 million in the first quarter of 2006.  Net income came in at $28.7 million, up 11% over net income of $25.8 million in the same quarter in 2006.  Earnings per share came in at $.24/diluted share, up from $.22/diluted share during the 1st quarter of 2006.

With this great earnings report, a solid Morningstar.com "5-Yr Restated" financials, and the nice chart,

TRIMBLE NAVIGATION (TRMB) IS RATED A BUY

On January 26, 2006, I posted Headwaters (HW) on Stock Picks Bob's Advice when the stock was trading at $35.00.  Headwaters closed at $17.54 on July 6, 2007, for a loss of $17.46 or (49.9)% since posting.

On May 1, 2007, Headwaters (HW) announced 2nd quarter 2007 results.  Revenue increased 2% to $274.1 million from $269.7 million in the same quarter in 2006.  Net income came in at $27.2 million or $.59/diluted share, up 48% from the March 2006 quarter results of $18.4 million or $.40/diluted share.

With the relatively strong quarter, an examination of the Morningstar.com "5-Yr Restated" financials shows that earnings have been dipping after peaking at $2.79/share in 2005.  Earnings were rported at $2.19/share in 2006 and $2.15/share in the trailing twelve months (TTM).  Thus, with the weak chart, unimpressive Morningstar report, even with the good latest quarter report,

HEADWATERS (HW) IS RATED A HOLD

On January 26, 2006, I posted National Instruments (NATI) on Stock Picks Bob's Advice when the stock was trading at $36.81/share.  NATI closed at $32.31 on July 6, 2007, for a loss of $(4.50) or (12.2)% since posting.

With the satisfactory price chart, a solid quarterly report, and a still good Morningstar.com "5-Yr Restated" financials, 

NATIONAL INSTRUMENTS (NATI) IS RATED A BUY

 On January 28, 2006, I posted Packeteer (PKTR) on Stock Picks Bob's Advice when the stock was trading at $12.15.  Packeteer closed at $8.16 on July 6, 2007, for a loss of $(3.99) or (32.8)%.

On April 19, 2007, Packeteer (PKTR) announced 1st quarter 2007 results.  Revenues came in at $34.7 million, up 7% from the $32.3 million reported in the first quarter of 2006.  However, net revenues declined sequentially from the $42.7 million reported in the 4th quarter of 2006.  The company reported a net loss of $(6.1) million or $(.17)/diluted share, down from a net gain of $4.5 million or $.13/diluted share in the prior year same period.

With the weak latest quarterly report, a very weak price chart, and a Morningstar.com "5-Yr Restated" financials page showing decreasing earnings for the third straight year,

PACKETEER (PKTR) IS RATED A SELL

So how did I do with these four stocks from about 18 months ago?  In a word, mediocre.  The four stocks had an average loss of (9.8)%.  

This once again has a few important take-home lessons.  First of all, the Packeteer chart looked awful even when I  posted it.  I even made note of the weak chart in the post.  What was I thinking?  Above all, this shows the importance of limiting losses so that small losses don't become huge and that small gains are allowed to run as much as possible.  

Anyhow, thanks again for stopping by and visiting!  If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.  I have a few reminders for you as well!  Remember to visit my Stock Picks Bob's Advice Podcast Website, where you can listen to me discuss some of the many stocks I write about here on the blog.  To review the performance of my stock picks since January 22, 2007, (my blog goes back to 2003 but I signed up with Social Picks this year), you can visit my Social Picks Stock Picks Bob's Advice Website.

More exciting, in my opinion,  is the possibility to follow my actual trading portfolio on Covestor where you can visit my Stock Picks Bob's Advice Covestor Page.  This site monitors my actual holdings, my actual trades, and my actual performance.  It will be interesting to let you know how I am doing with actual third-party evaluation numbers.

Thanks again for dropping by!  Remember that I am truly an amateur so check with your professional advisers, please.  Have a great weekend and a great week trading next week!

Bob