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Stock Pick - ALDA

(August 19, 2004)

Before I go on to discuss the latest stock on our watch list, I want to announce to my subscribers that our Dow Industrials Trading System established a 100% long position in the Dow Industrials at 10,022 earlier this afternoon.  This was announced in our Special Alerts Discussion Forum in real time.  The author believes that we are currently still in a cyclical bull market – with the top probably at least months away.  More details to come sometime this weekend.

A designer and maker of graphite golf shafts.  ALDA was initially featured on our June 28 individual stocks watch list.  As I noted earlier, the stock started tumbling earlier in June when Callaway (ELY), a designer of golf balls and golf clubs issued an earnings warning – presumably because they missed the recent trend of big-head clubs and oversized golf balls.  Please keep in mind that Aldila, Inc. is a designer and manufacturer of graphite golf shafts and is not in the specific business of making shafts for specific size clubs.  In the last three years, Callaway has historically accounted for 20% of the company’s sales, but the recent decline of Callaway’s business has mostly been about its money-losing operations of its Top-Flite golf ball operations and in no way is it a reflection of ALDA’s operations.  Moreover, the tough competition that is cutting into the high-margin woods business of Callaway is mainly coming from TaylorMade, which is another one of ALDA’s significant customers.

The recent positive earnings announcement from ALDA strongly reflects my bullish stance on the stock.  The stock had a significant run up in the subsequent trading session, but quickly fell back as the broad market tumbled.  The company has a high cash position ($2.30 a share) and has no debt whatsoever.  Moreover, a director has recently just bought 13,000 shares of the stock on August 5 and August 6, 2004.  From a valuation standpoint, the general P/E of the industry is around 19.  It is interesting to note that even if Aldila, Inc. only breaks even in the two upcoming quarters (which is seasonally a slow time for gold equipment manufacturers), the trailing P/E would still be a lowly 13.  This compares favorably with the industry average.  Since the author is also now bullish on the general market, ALDA definitely represents a compelling buy.  Following is a daily candlestick chart of ALDA:

ALDA - 1) Started declining in sympathy with Callaway. 2) Huge run up the day after earnings!

ALDA is now sitting right at its 50-day moving average – a level which has recently acted as very strong resistance.  Given the recent reluctance of ALDA to break through resistance and to maintain a sustainable uptrend, cautious traders may want to establish a long position after ALDA has maintained above its 50 DMA (around the $11.50 level) for three consecutive trading days.  The stock should quickly be sold if the stock price subsequently falls back decisively below its 50 DMA again.

Happy Trading/Investing!

Henry To, CFA

P.S. Please discuss this stock in our individual stocks discussion forum.

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