Where there
is smoke, there is fire: DAGM
By Duru
January 8,
2005
(Click here
for disclaimer that applies to this market analysis)
DAGM
I stumbled
upon DAGM sometime last year while looking over small cap stocks that had
recently gotten a lot of action (spring of 2004). I was amazed to find a stock
that seemed to have good financials, generated lots of cash, paid a
great dividend, and, best of all, was selling for what appeared to me to be a
bargain basement price. Unfortunately, when stocks with small floats garner
lots of attention, every good and bad character jumps on the opportunity. In
this case, the bad characters eventually won out and soon enough DAGM became
just another deflated, over-hyped, hedge fund plaything. And once the buying
interest faded away, DAGM slowly and surely punched out new 52-week lows. I
actually managed to get out with the rest of the short-term folks in order to
wait for another golden buying opportunity.
While DAGM did
not begin to recover until August, I did not get interested again until
November as the stock peaked above the 50DMA again. It turned out to be very
timely as out of nowhere the vapors of the market decided to reflate DAGM. Needless to say I sold into the frenzy and
looked for a new entry. I jumped right back in this time after the excitement
had died out but support looked likely to hold up. I also planned this time to
just hold on, so I only bought a small basket of paper to start. Sure enough,
after a bit of chop, the stock began to falter and slide and ended December on
another low note. But given my new conviction on the stock's longer-term
prospects, I prepared to buy my second basket of paper, and looked forward to
some popcorn "January-effect" action.
I got my first
jump in volume on the first trading day in January. Yet, I hesitated. Don't ask
why, I just did! I got distracted by some other opportunities. Just as quickly
the stock returned to the lows of December, and I revved up the engines again.
This time, the continued malaise and selling in the general market made me
hesitate one more time. The market gave me one chance, a second chance, but not
a third. I was quite shocked to see that volume has spiked on Friday, but the
stock did not go anywhere. After the market closed, DAGM announced it will be
selling some unprofitable businesses, will increase its dividend, and look to
use the rest of its cash to buy some other business. The whole thing is
promising but a bit vague. No matter. The stock popped in after-hours back to
my original buying point.
Assuming the
post-market action holds, *poof* went my second buying opportunity. Yet, a very
curious situation has been set up. Many folks who also bought around my first
levels will be looking to get out now. I am inclined to look for one last,
albeit more expensive, buying opportunity and then hang on as much as the
market allows. For now, I am assuming that this company's proper valuation
belongs somewhere around the highs it hit earlier in 2004…or even higher.
I present two
charts below to summarize the madness.
The madness
continues, so be careful out there!