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Strategies & Market Trends : Dave Gore's Trades That Make Sense -- Ignore unavailable to you. Want to Upgrade?

To: Dale Baker who wrote (4557)	3/27/2002 7:25:08 PM
From: Dave Gore	Read Replies (2) \| Respond to of 16631

Dale/ALL - Let's talk about ESST. Here's their up-guidance. You say the tape doesn't lie, I say the tape can often be deceptive. This stock is a great example of the waiting game that often goes on with fundamentally sound stocks. It's an interesting game, too. First the upgrade announcement from Briefing.com today: ESST strong guidance - 07:37 ET ESS Tech increases Q1 guidance; Q2 also looking stronger (ESST) 21.00: As reported yesterday, ESST raising guidance again for the second time in less than a month. For Q1, co sees EPS of more than $0.27 a share vs previous guidance of $0.22-$0.25 (consensus $0.24). ESST sees revenues exceeding $75 mln vs previous guidance of $68-$70 mln. Says Q2 is also looking stronger than previously expected. "We believe the market for DVD players is larger and growing faster than previously estimated and that our market share is continuing to grow." So why is this stock climbing and then faltering a bit? It's certainly not the high growth DVD sector niche they're in. A smaller competitor, ZRAN, has been afforded almost the same market cap with only about 1/3 the sales and it's PE and PEG are about twice as high. So what's with that? Perhaps the smaller float makes ZRAN easier to manipulate and therefore more appealing to the power traders for now, but I think there is a simpler reason that I have seen over and over. It's the game I call "Rewarding the Patient". Personally, I don't think this stock is behaving any different than KG, SGR, ACF or any number of stocks that had, in effect, been held down through some subtle and not so subtle manipulation and rumor-mongering until the hedge fund managers and power players decided to move it up. After all, they know the very short term trader frustrates and worries themselves out of strong stocks as well as weak ones. EXAMPLES OF OTHER SOUND STOCKS HELD DOWN FOR AWHILE KG hovered near $29-32 for a few weeks before finally moving up over $37 recently. SGR, a very low PE stock, mysteriously went as low as $17 and stayed near there, with multiple false starts upward. It finally climbed over $28 today. Once it got going it really went. ACF was hovering as low as $18-22 for a few weeks until it ran to $40. You've got to see the chart to appreciate what I'm saying. ACF CHART EXAMPLE siliconinvestor.com Basically, it's the same ol' record. The fundamentals are good, most everyone thinks the stock is undervalued, but when it falters on a couple occassions to really go up, the small guy figures "Something must be wrong." or "I'll move on, this is going nowhere." I think this stock deserves some patience in either holding or watching. I bet it is much like the ACF's, KG's, and SGR's. I think there is an attempt to worry and frustrate the small daytrader and get the stock down as low as possible. Then suddenly, when its get low enough, the big boys will move in, followed by the momo players, some longer term investors, and then the shorters. Often they even set traps for shorters and get the stock to run like they did with ACF recently. BOTTOM LINE: ESST may go up or down tomorrow, but I am betting this stock breaks through its recent high of $24 in the not too distant future and could run a lot higher once it gets going. Again, that's based on no fundamental change in their outlook. This is purely an educated guess based mostly on the fact that ESST has given us one of the best up-guidances of any tech stock, and PEG and PE are both reasonable.