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While researching GPS maker Garmin Ltd (NASDAQ: GRMN) -- whose stock has lost two-thirds of its value in the last six months -- I can't help but pity those long-term shareholders who reject trend following and technical analysis in favor of investing for the long term. To them, it seemed like only yesterday that GPS was one of the hottest technologies around and this industry leader could do no wrong.Well, that's usually the time to sell, just as I posted on Apple Inc (NASDAQ: AAPL) in January this year and on Google Inc (NASDAQ: GOOG) in November last year, both before they each dropped 40% in just a few months. Because the truth is these popular technology stocks are all expectations. We're not talking Berkshire Hathaway (NYSE: BRK.A)-type value investing here.
Sure, GPS is still hot, somewhat, but due to intense competition, margins have been evaporating, forcing analysts to lower their earnings estimates. In their latest quarter, Garmin further strengthened the bear case with spiking inventories and accounts receivable. None of that looks to change anytime soon, and even though it's got a P/E of 10, book value is all the way down near $11 per share!
I couldn't help but wonder where I'd seen this 2-year chart pattern before and then it hit me. Garmin's downfall is eerily exact-not just similar-to the Nasdaq's 2-year chart of 1999-2001, before it tanked another 50%. Obviously, that's comparing apples and oranges, but with so many stocks out there, why would you ever put yourself into one with such a reliably bearish pattern?
Basically this stock has nothing going for it. I hate buying into margin-battling companies with tons of bitter shareholders who are willing to sell into any bounce. I hate gradual downtrenders-for buying at least-and I hate people asking me what to do when they are down so much already. Not because I'm mean, but because as I stress on my blog every day-and what's helped me earn 47% over the past 6 months-is that investors need to cut their losses quickly.
Sure this stock could always come back-miracles have been known to happen--but given all these nasty variables, the odds of a big rebound anytime soon aren't there.
Timothy Sykes writes the blog timothysykes.com, is a former hedge fund manager, star of the TV show Wall Street Warriors and author of the book, An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund
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Reader Comments (Page 1 of 1)
5-05-2008 @ 4:31PM
John said...
boring... zZzZz... I'm still long and strong fundamentally for GRMN... if it goes down more I'll just buy more...
This guy is smart... he wants you to sell GRMN so he can buy more... no wonder he said "I stress on my blog every day-and what's helped me earn 47% over the past 6 months"
5-05-2008 @ 4:44PM
John said...
Boring... zzz... I'm still fundamentally strong about GRMN. I'll just buy more if it goes down another 50% that would make me happier. Sorry but I'm not interested in Mr. Market as you probably mentioned it in your blog.
This guy is smart... he wants you to sell GRMN so he can buy it at cheaper price... no wonder he could earn 47% over the past 6 months.
5-05-2008 @ 7:09PM
Sheldon L said...
Garmin not coming back. It is exactly the kind of tech company Buffett hates. They have to work like demons to stay in the same place, inventing new products while cutting prices and earnings on exisiting poducts. Competition crushing their margins going forward as the product(s) is commoditized.
5-06-2008 @ 10:42AM
david doane said...
Although I missed your brilliant advice on selling Apple in January, I am up more than the 40% that I lost now having held on through the storm. Long term investing is more important than short term panic for gains or losses - ask any day traders and they will admit that if they are honest.