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
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 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.
Henry To, CFA
P.S. Please discuss this stock in our individual stocks