John Czerw

Did I step on a landmine with NIHD?

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If you'll recall I dumped my VLO position and put it into NIHD on 9/28. I selected NIHD after completing a screen looking for higher margin, high growth stocks. NIHD was the winning candidate off that entire list of about 40 stocks. Telecom in emerging markets looked like a winner.

A few days after my initial purchase the stock price began to fall. No news was reported, so I added again. The first purchase was at 81.66, the second at 73.65. The price continued to fall.
It wasn't until Monday evening that news came that S's CEO was resigning. But so what? NIHD was spun off from S in 2003. And in the last two years NIHD has advanced 80% while S has only advanced 20%. And they are different businesses. So on 10/9 I added again at 69.86. My cost basis is now 79.63.

The interesting thing is that the price of NIHD fell from a forward PE of 22 to 19. S's forward PE is also 19. But NIHD's margins and growth rate are 12 and 40. And S's margin is less than 1 and their growth rate is low single digits. It looks to me like there was knowledge of the CEO resignation at S, prior to the announcement, and that some institutional players took the NIHD premium off the table in advance of the news.

So, did I step on a landmine? Not really. I certainly would have rather made my move a week later, but the fundamentals of NIHD remain strong and there isn't a strong linkage to S. I think
some institutions got nervous. A conference call on the 25th by NIHD should help.

So, I didn't step on a land mine, but I did stumble into a hole. VLO is up 10% since I sold it, and NIHD has fallen 10% since I bought it. The move hurt my portfolio in the short term, but I'm confident it will play out positively by the end of the competition.