Sunday, August 19, 2007
BRCD or BRLC? That is the Question!
As I mentioned in my last post, I am deciding between two covered call positions to take with the extra cash in my stock account. Here I will discuss the numbers and facts of both positions and state my decision.
BRCD - The first idea I am considering is Brocade Communications (BRCD). BRCD is in the computer storage devices industry in the technology sector. They design, develop, market, and sell data storage networking and management solutions. BRCD closed friday at $6.49/share. In the news is the SEC charging BRCD's ex-CEO and CFO with options backdating and fraud. This case has dragged the stock down considerably and will continue to be a drag on the stock until resolved even though these execs have been removed from thier powers. BRCD has quarter 3 earnings expected at .11 per share. Earnings are expected to be released this coming Wednesday. BRCD however, has announced that they have revised quarter 3 revenue guidance below analyst estimates. Usually a bad sign. BRCD has a PE of 23.1, a PB of 4.4, PS of 2.7. ROE is 8.4%, ROA 5%. They have a debt/equity of .14, current ratio of 2.07 and quick ratio of 2.02. Analyst rate BRCD at 2.39 which is slightly better then the 2.47 and 2.63 ratings from 4 and 12 weeks ago respectively.
BRLC - The next idea is Syntax Brillian (BRLC). BRLC is a designer, developer, and distributor of HDTV's in LCD format. They sell under the brand name Olevia. BRLC also sells Vivitar cameras. I currently own 100 shares of BRLC. In the news, BRLC recently added new sales channels in Chile, Columbia, and Mexico. Earlier in the year they expanded into Brazil and Venezuela. Quarter 4 earnings, to be released on Wednesday, are expected to be 0.08 per share. On July 16, management reaffirmed Q4 revenue guidance and raised 2007 calendar year guidance. BRLC has a PE of 24.9, PB of 5, PS of .9. The ROE is 14% with ROA at 6%. Debt/Equity is at .48, current ratio of 1.33, and quick ratio of 1.17. Analyst rate BRLC a buy at 1.17. Four weeks and 12 weeks ratings were 1.43 and 1.5 respectively. Analysts are getting more bullish on this stock.
After doing my research, I have chosen to put my money in BRLC. They have more positive news coming out. Thier numbers aren't quite as good as BRCD but close. They have a higher ROE and ROA which I like. Another reason I like this position is because I can sell two of the same calls for less commission. The main concern I have on this position is having most of my account in this one position. After entering this position, I will have about $300 to put into another position that is not a covered call. I'm not sure yet where this will be. Possibly sitting in cash for awhile.
Disclosure: I don't own BRCD and do own BRLC. As always, do your own research and don't just go by my opinions. From my past performance, I'm not a very reliable person to listen to for stock advice.