I purchased WSTL yesterday for many of the reasons you mentioned. (Stellar balance sheet, etc.) I also believe that they have a strong presence in the DSL market that could be expanded with new applications. The stock is currently rated an A by Schwab.
As an aside, there was an interesting article in Barrons outlining the components to how Schwab rates stocks. Below is an excerpt about their track record.
Since 2003, the model portfolios of Charles Schwab (ticker: SCHW) have dominated the long-term rankings compiled by Zacks Investment Research, which compares the focus lists of about a dozen major Wall Street brokerages. Schwab has been first in either the three- or five-year period in each ranking, except one, when it finished second over three years.
Greg Forsythe created the system and I agree with many of the principles he has incorporated. Here is what he says about analysts.
Forsythe points to a study his team did of Wall Street earnings projections and stock recommendations, as compiled by Zacks. (See chart). From 1995 through 2004, the stocks with the lowest earnings- growth forecasts and worst ratings beat those with the highest. Street analysts are capable, says Forsythe, but it's a "perverse" capability. "You are better off doing the opposite of what they do. I am not saying these aren't smart people. My explanation is a misplaced research focus," he says.
He rates free cash flow and cash on the balance sheet as very important elements of his rating system and he considers "short sellers" to be the smart money. I have found that the odds are usually against you if you are investing in a stock with high short interest.
Getting back to WSTL, I think it is a good "January effect" candidate. I bought yesterday because the "January effect" stock run might start in December this year because of the strong market action. Technically, I also like the strong on-balance volume ratio that WSTL is showing and the cup and handle formation it has developed since the last dip. |
