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Minyan Mailbag - Brown is the New Black


Thanks Adam!


Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.

Editor's note: The following was submitted to us by Adam Katz, Managing Director at M.S. Howells & Co. At the time of publication he did not have any positions in any of the stocks mentioned.

Brown is the new black... up is the new down... right is the new wrong... or was that the other way around? I continue to see some companies get punished for better than expected earnings and better than expected guidance.

Most recently, Interwoven (IWOV; IWOV is a subject company of our Research Department) reported their 4th quarter earnings of $0.07/ share. That's 2 cents better than the analysts' consensus estimates. IWOV's mildly conservative management team also raised its Q105 guidance. While companies like Ultratek (UTEK) have watched their annual net income erode by 92% on a sequential basis, their next big contributing product will likely be the anneal process they acquired in their purchase of Verdant, which is applicable to 45 nm process tools. Maybe I was asleep, but I'm still waiting for 65 nm process tools to bear fruit. And yet, the knee jerk reaction was to take the stock up 11%, that's with less than 7% short interest.

Now, it appears IWOV has bounced nicely off the lows and UTEK is trading back to the levels it was at before their earnings announcement. These are simply two of my low-lights within the last 30 hours and the list goes on. Frustration is moving this market both ways.

As a student of Professor Brian Reynolds, who is our Chief Market Strategist, I'm inclined to think this market should be traded with a long side bias and disciplined entry points. While I recognize that sound arguments could be made for both the bull case and the bear case, I am not a big fan of top down investing in range-bound, nervy markets. I feel that the bottoms up investors have been treated unjustly, the tides will likely turn.


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