Stock Duel!

I received a request for a brief analysis on Cameco Corp. Cameco is the world’s largest uranium producer which stems from its controlling ownership of the world’s largest high-grade reserves and low-cost operations. The company operates in Canada and also trades on the Toronto Stock Exchange. The ticker for trading Cameco in America/NYSE is CCJ. You can find many details here.  Coneco operates and generates revenue by operating in 4 segments: Uranium, fuel services, Nuclear energy generation and gold.
Key Points to keep in mind and selected statements from the 6-K:

In short: Watch the respective commodities markets.  They don’t hedge gold yet, but seems they are hedging U3O8 (Uranium).

“Strong results from our uranium business boosted our earnings in the first quarter,” said Jerry Grandey, Cameco’s president and CEO. “Current uranium market prices are increasing our realized prices in the short term and providing the opportunity to lock in long-term contracts at prices higher than at any time in the company’s history.”

In the first quarter of 2006, our net earnings were $117 million, $91 million higher than in 2005, due to improved results in the uranium business, which were driven by a 29% increase in the realized price and higher volumes. Higher earnings in the quarter were also attributable to improved results from the Bruce Power Limited Partnership (BPLP). The higher earnings were partially offset by higher expenses for administration and income taxes. Due to the uneven timing of uranium and conversion deliveries as well as scheduled outages at BPLP, quarterly results are not a good indicator of Cameco’s annual results.

Outlook for Second Quarter 2006

We expect consolidated earnings for the second quarter of 2006 to be considerably lower than those of the first quarter of 2006, reflecting reduced uranium sales volume. In the second quarter, we expect uranium deliveries to be about half of what they were in the first quarter due to timing of customer requirements.

Cameco sells most of its uranium and fuel services in US dollars while most of its uranium and fuel services are produced in Canada. As such, these revenues are denominated mostly in US dollars, while production costs are denominated primarily in Canadian dollars. Here is a chart of the past few years of the foreign exchange activity between the USD and Canadian Dollar (CAD). The company does hedge for currency fluctuations.  You may find more details in the recent May Form 6-K

In 2006, Cameco expects consolidated revenue to grow by about 50% over 2005 due to improved uranium markets and the proportionate consolidation of BPLP revenue. On a consolidated basis, our gross profit margin is projected to improve to 32% from 23% reported in 2005.

It was an unusual first quarter, with uranium deliveries in the first quarter of 2006 more than double the level of the first quarter of 2005. Revenue is driven by deliveries in our uranium and fuel services businesses, and tends to be higher in the fourth quarter. Net earnings do not trend directly with revenue because past results are significantly influenced by results from BPLP.

In the end the chart tells me a lot.  Here is the 10 year, 1 year, and 6month chart. Simply put, I am bullish and would use the moving averages (and exponential) as times to add more shares but I would keep a solid stop.  I’m hoping this breakout of consolidation/ascending triangle will see some nice volume.  One triangle has been broken, reconfirmed and continued upward but the next triangle is also waiting to be properly pierced (with volume) and continue upward.  I like the diversification the business has and I see it prospering in the future as long as commodities remain bullish.

Have you ever been jittery about your positions?  On our journey to be better and better traders we learn by the mistakes we make.  As such I was speaking with a friend of mine known as croc and he explained a philosophy he’s followed and that he passes along.  It’s not difficult to do but in terms of capital preservation and responsibility it will go leaps and bounds to protect our investing/trading capability.
It goes as follows: Once I read, if a position scares you, scale it down until it no longer scares you. Sell 700 of your longs and 8 of your options, this means you lose most likely on your position, but you might sleep better. If your play is correct, you are already in and can add after earnings, if it goes against you, you lose a hand now and the other tomorrow, but otherwise it’s 2 arms you lose.

Well the time has come.  Viropharma reports Thursday morning 9AM EST.  We’ve seen a long consolidation and in my opinion Maribavir is discounted and free.  Plenty of cash available for business development activities and a solid pipeline.  Will I need tramadol? We shall see…

I’ve received a comment regarding the original positions from the stock duel. I’ll do a brief overview of my feelings.

YHOO: It’s been sitting sideways for quite some time on the long term chart. The range is tradeable but these recent island gaps are keeping me unsure of direction. I’m not one to play on hopes for gaps but a series of higher highs and higher lows is nice to see.

SIM: wonderful movement. I will continue to trade it at its range. As I stated in my previous post, i’ll be a seller up here and a buyer at 7.15 area. However if consolidation continues it may be another buy in a few days at this higher price level. Watch the volume for key indication of moves. Use the past as reference. I like using these and this as guidelines.

I will post an opinion on the rest later.  in short: long WLP since 70.0 (i own shares); PAL is a metals play; we know how that works.  look for volume on a white candlestick as a clue to a break from consolidation.  I can see this go up more.  HRAY: bullish but…watch out for a bearish H&S pattern; too early to tell right now though.  MCD: slow mover.  More of an investment instead of a trade.  Bullish wolfewave it comes to 33.1 or lower very soon w/ a target of over 35.  HANS: When will it stop?  I love trading the trend but under pressure the stock may become gappy; careful with those stops.

Many presentations on trading, investing and cash-related activities that I have attended have stressed the idea of not falling in love with a particular security.  I believe this to be bad.  Love is what makes the world go ’round.  Of course, greed and fear are the primary movers of day to day activity but love is what drives us in life.  As a trader today I reissued my vows to Simec.  I believe the primary reason we’re told as a general populous to not fall in love with financial instruments is because most of the time we become greedy and refuse to accept any downside.  We become overweight in our allocation and biased in our reasoning.  Put together this sets the stage for a harsh brush with reality.  However, as I’ve gained experience in trading i’ve let my emotions run wild but confined them into a tiny cell where they wouldn’t affect my reasoning.  This little cell remains an important indicator when I trade.  If i’m feeling ecstatic, so must others.  If i’m feeling red, others must be on fire.  I sold half my position of SIM today.  True love is letting go.  If it comes back then it was meant to be; if not, i’ve got half left to let go when i’m sure it’s finally over.  SIM; you’ve been great, let the good times roll.

By far the most profitable time of my trading career was when I actively traded my positions and adhered to the short-term intent I started off with.  As many issues arise in life, such as work, family or errands, I’ve lost track of what was most profitable.  Trading is a discipline in which not many can succeed (estimates indicate over 90% who attempt trading give up).  It’s sheer brutality at times can send chills down the spine and numb the senses.  Of course here I am differentiating between investing and trading.  Investing like Warren Buffett works for the long run and buy and hold in value stocks is also worthy for capital appreciation or dividend gains.  However, I have found myself to enjoy watching the markets daily.  I feel comfortable being able to take my account flat at any time I like.  Sitting on cash is a good feeling when market whiplash is more than I can handle.  There is something empowering about being able to control my capital allocation in just seconds.  Is steel booming?  Jump in.  Is the yen changing directions drastically? go leverage the foreign exchange.  I always have some shares “invested” in my back pocket but at most 15% of my capital.  Perhaps one day I’ll settle down and “invest” but as of now; nothing beats the thrill of capital markets for the short run.

INTC’s morning volatility wave carried me to sell 2 call options at .50.  I have 8 left and all were purchased at a price of .10.  400% gain for 4 days hold time is not too shabby in my book.  Of course, this is one of those times where one wishes they put a lot more into the trade but I’m not complaining, profit is profit.

A good day for intc today.  It closed +1.02 or 5.35% at 20.08.  ~$19.90 seems to be the AH close.  The last trade for the options was $0.45.  This is up $.35 from my purchase.  Not bad for 3 days hold time.  I will look to sell 2 contracts at .5 tomorrow so that i can cover all the cost of the options and let 8 remaining contracts ride for free.

i picked up some intc may 20 calls at .10 yesterday. they traded at .20 today. it looks like a higher low in the recent candlesticks so i’ll continue to hold. I only bought 10 contracts so it’s an all or nothing trade.

intc options

I have unilaterally declared victory for this round of the stock duel! Today’s final executions included shedding off 600 SIM at a price of 5.99. The overweight position helped net the profits for this win but the lack of flexibility incurred by investing in a non-liquid, American Despoitory Receipt was not pleasant. However, this investment has shown the importance of following foreign exchange and currency trends/fluctuations as well as arbitrage opportunities generated by following the respective security on its native market. The 600 shares sold entered at an average of 5.51 and yielded 8.71% at 5.99. The gross profit was $288 - $3 commission = $285 net. PAL ended the day lower than the entry after a black candlestick was formed following the gap-up yesterday. Unrealized loss there of $50. To end the contest unclosed positions include 1000 SIM entered at 5.31 closing today at 5.94. Unrealized gain of $630 remains in this position.

• Contest Total (Realized): $606

• Contest Total (Unrealized): $580

• Total commissions: $27.

• Overall: $1186

I will be compiling my watchlist for the next stock duel starting soon!

UPDATE:  This is the reason SIM popped today.  I will keep this radar on my personal portfolio for entries and exits but I am very bullish on this stock for the short/medium term.  Good luck to any of you with positions in any of these stocks.