The One Stock to Buy for the Next Ten Years

By Travis Johnson, Stock Gumshoe, December 9, 2008

The Motley Fool is sending out an ad that claims to have chosen “The Only Stock to Own 2009-2019.”

Now there’s a promise, no? The assumption of almost all pundits and pontificators, myself included, is that this awful market might represent a remarkable buying opportunity — at least, an opportunity for those who make the right decisions, and have a long time to wait for that “rightness” to emerge from the ashes of this recession.

But what to buy? What company represents the “right” decision right now?

Dave and Tom Gardner at the Motley Fool have the answer for you — the “one stock to buy for the next ten years,” which of course doesn’t sound much different than other predictions that have been seen in this space over the last few years, almost all of which would have been awful if you marked them to today’s market price.

They’d like you to sign up for a subscription to their Stock Advisor newsletter, and in return they’ll tell you about the best stock to buy right now, the stock that will perform better than the others from 2009 to 2019.

Or actually, they’ll tell you about the best two stocks to buy right now, since each issue of the newsletter is essentially a competition between the two brothers to see which of them can make the best recommendation. Stock Advisor, by the way, is the flagship newsletter of the Motley Fool, and by far their best long-term performer, though it doesn’t take remarkable returns to be a top performer these days (according to them, it’s the only one of their newsletters that currently has a positive lifetime return, probably in large part because it is their oldest newsletter — Hulbert hasn’t covered them for as long, but his numbers generally agree that they’ve slightly beaten the market and have a long term positive return).

So whether or not you think their advice is worth buying, what are they talking about when they tease us that they have “Your First Stock of the Next Bull Market?”

Here’s the promise:

“… stocks that are right now coiled like a spring, that will shoot upward in the not-too-distant future… dropping a long and substantial string of profits into your account. And they’re detailed straight ahead!”

Now, you can go ahead and subscribe to the Stock Advisor if you want their full writeup … but if you just want to know about these two companies, well, you know the drill: Read on, and the Gumshoe will provide.

We start with Tom Gardner — the brother who has more of a value focus. Dave Gardner has been running the Rule Breakers newsletter that looks for breakout growth stocks, and before that was a big cheerleader for many of the 1990s tech titans (including some incredible returns); Tom Gardner has been in charge of the Hidden Gems newsletter, which looks for “hidden” small cap value companies, and generally looks more for the Warren Buffett-type buys. That’s an exaggeration of their stock-picking history, but it’s generally true that Dave is the growth guy, Tom is the value guy.

And Tom has this for us:

“First, let’s take a look at my top recommendation for 2009 and beyond…

“To tell this story, we need to go back 35 years to 1973. To a period of crisis and opportunity… a period like what we’re experiencing today.

“In 1973, a company called Scientific Atlanta planned to sell portable satellite earth stations to companies in the rapidly growing cable television field. Yet at the time, many of the so-called experts of the day thought satellite transmission of cable television would take place only in the way out distant future.

“As is often the case when a bunch of “experts” prognosticate in unison on a subject… their prediction proved dead wrong! And cable television boomed in the mid- to late 1970s, and Scientific Atlanta grew with it…”

OK, so this stock is somehow a bit comparable to Scientific Atlanta 35 years ago (they’re owned by Cisco now, just FYI), in that it apparently is undervalued and hidden, and under-appreciated because it wasn’t obvious to everyone that their business would be a success.

“The company’s profits ballooned by 40% a year from 1972 on, as Scientific Atlanta came to dominate a mundane niche inside a larger communications revolution!

“As a result, Scientific Atlanta’s stock soared. And keep in mind, this happened during the brutal economy of the 1970s!”

So that sounds pretty good, right? Unfortunately, we’re bereft of a time machine at the moment, and even if we were willing to relive 1973, we can’t go back and buy Scientific Atlanta and make our millions.

So what is the stock Tom’s teasing today?

“Right now, I’m recommending you stuff your portfolio with shares of a 2009 opportunity I see as having similar characteristics and potential as Scientific Atlanta had in 1973! We’re talking a company with:

“Unique and proprietary products that give it strong pricing power and outstanding margins (just as Scientific Atlanta had )

“The high end of a tech infrastructure-type market that’s a brutal place for new competitors (like Scientific Atlanta had )

“Expert management (you guessed it… same as Scientific Atlanta had back in the day )

“In fact, the company I’m recommending has a CEO with more than two decades of experience and a chairman and co-founder who’s been in the industry for 40 years!”

OK, so that sounds lovely — but of course there are precious few actual clues in there … let’s dig in for a few specifics:

It builds analog integrated circuits that “deal with features such as pressure, temperature, and voltage that are difficult to break down into digital components. Put simply: They do what digital can’t.”

They target the high end of the analog market.

They have consistentlyr eported net margins “near 40%” whcih Tom says is “astounding for a circuit manufacturer”

Their CEO recently explained that “a new company is not going to get a lot of funding to address the ‘relatively small amounts of customers and relatively low unit sales’ involved in this space.”

Some numbers:

More than 15,000 customers, none of which accounts for more than 10% of sales.
US is 32% of sales, Europe 18%, Japan 12%, rest of Asia 37%. Tom says that “this strong diversification helps the company ride out economic downturns in any one industry or geographic area.”

(He doesn’t mention that those 37% of sales to “rest of Asia” may largely be to assemblers who are building stuff that’s sold to Europe, Japan, and the U.S., but that’s neither here nor there.)

What does Tom see for this one ahead?

“20% annualized returns for shareholders over the next five years.”

Now, that may not sound like an awesome return compared to the incredible “500% gain in a year” promises that we often see in this space. And one might hope for a bit more, especially coming out of the trough that we’re living in right now, but it is admirably both reasonable and exciting — after a year of 80% losses for many shareholders, 20% a year on the positive end sounds pretty good, even if it will take all five of those years at that rate of return, plus four more, to make back that 80% loss (this awful year in the market isn’t Tom’s responsibility, of course, just making the point that 20% returns may sound both unattainable and conservative at the same time to shell-shocked investors). Stock Advisor is down about 40% over the past year, which is better than the S&P 500 and about the same as the Wilshire 5000.

Tom calls this “The One Niche Tech Stock for 2009 and Beyond.”

So what is it?

Linear Technology Corp (LLTC)

The shares are flying this morning, probably in at least some measure because of the big ad campaign behind this teaser — they must be getting a fair number of folks excited by this stock, who are then signing up for the newsletter (or gumshoeing it on their own — don’t do this at home!) and throwing down their cash for a few shares. Then again, does a stock really need a reason to move by 7% anymore?

This is indeed a big ($5 billion or so) analog circuit maker, competing with companies like Analog Devices and National Semiconductor. And at this point, at least, they seem to be doing quite well — their margins are significantly better than those of Analog Devices, which to an inexpert eye like mine (I know this business almost not at all) looks like the closest comparable company. That could certainly be because Linear is a bit higher up the food chain, selling into higher end products with more differentiated chips, but I don’t really know for sure — LLTC has operating margins that are twice that of Analog Devices or National Semiconductor, so there is clearly a difference to their business … at least so far. They also have better sales growth and a significantly higher PE, though of course a year ago no one would have been able to say “high” about a Price/Earnings ratio of about 11, which is where LLTC stands now, with very similar valuation metrics to the much larger Intel (though with higher margins).

Is this going to be a company that can survive a big recession? Clearly if sales of electronic gear go down, so will LLTC’s sales — that’s why the shares of all chipmakers are inexpensive right now. LLTC has minimal debt (though unlike some in the business, they do not have a net cash position — they do have a slight amount of net debt), and they pay a decent and growing dividend (over 4% — it’s still hard to believe that chip companies pay real dividends now, even Intel has a similar yield above 4%, too).

I can’t give you an expert opinion on where their products stand, or what their competitive position is, but I can tell you that Tom Gardner’s anointing this as the top stock for the next ten years … and there is nothing in the valuation or in their numbers that would necessarily make you run screaming from the room. They’ve had their share of downgrades and estimate cuts from analysts this quarter, and are currently, as with most stocks that are enjoying a bit of a December rally, up a bit from the lows of last month. They report their second quarter on January 13, and analysts think they’ll earn about $1.50 a share this year (which ends in June for them), and they’re factoring in almost no growth for the year following.

If you’ve got something to share about Linear Technology, feel free to spread the knowledge with a comment below — I’m intrigued, but don’t know enough about them yet to really think about buying.

And I said there would be two goodies for you today:

Tom’s brother, David, also has his pick for the next ten years — and this one we’ve seen before. He’s been selling this idea as an investment in “The New Silk Road” for a few months now, and I wrote a piece decoding that original ad back in October — you can read that New Silk Road article here, or if you just want the short answer …

This second one is Canadian National Railway (CNI)

I don’t have any other exciting news to share about CNI, though the shares are down about 10% or so since I last shared some thoughts. Certainly, railroad investing has enjoyed a real renaissance in the last several years, thanks in large part to high oil prices, commodities, and the increase in the container trade. Before that, and before Warren Buffett’s big railroad purchases in recent years, the shares spent many decades being solid performers that most investors had never heard of … will they go back there?

That’s hard to answer, but I think we should at least call some attention to one thing: Of the two Gardner brothers it’s the growth-crazy, AOL and Nvidia-loving Dave Gardner who chooses a railroad, and the cautious, tepid value-seeker Tom Gardner who selects a semiconductor company.

In a topsy turvy world like this, I guess that kind of switcheroo should be expected … but it still makes one take pause. What do you think?

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48 Comments on "The One Stock to Buy for the Next Ten Years"

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Cool Soupy
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Cool Soupy
December 9, 2008 12:10 pm

Their one stock for your life was Whole Foods!!!!

Nuff said?

womanwithportfolio
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December 9, 2008 1:07 pm

I’m not sure we can attribute the rise of LLTC today to the infinite wisdom of the G. Bros. Competitors Broadcom and ADI are both up about the same amount. Semiconductors are having a good day today, which is like saying the dogs in the pound are having a good day today. (Broadcom just cut 4th quarter guidance.)

SageNot
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SageNot
December 9, 2008 3:18 pm
Unless the Gardner boys know something not reported, it makes more $en$e to purchase 2011 Leaps & roll them before expiration if the expected gains have been attained. You can do this 5X in the next 10yrs & if either one of them is correct, you wind up being a millionaire! I doubt that I’ll have 10 more years on earth, so something like the replacement of crude oil for our world’s energy needs would interst the heck out of me. The experts are looking into pond scum & other forms of algae for the new bio-feedstock. It’s cheap, plentiful… Read more »
SRS
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SRS
December 9, 2008 3:33 pm
Linear Tech was about the best company in the IC business until about 2005. Since then, they’ve had trouble growing and generating shareholder value from growth (as opposed to financial engineering). Analog design, as opposed to digital design, is almost as much black art as it is science, and LLTC has the best people in the business, bar none. Linear’s model is to go for only the very highest-value opportunities that fit with their 80% gross margin model. They will NEVER EVER fight on price, and sell ONLY on value. Their closest competitors would be Maxim, TI, Analog Devices, National… Read more »
womanwithportfolio
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December 9, 2008 4:02 pm

Superb post, SRS.

Circuit Slob
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Circuit Slob
December 9, 2008 5:03 pm
Hi. I am a circuit designer in the analog field. LTC is indeed a leader as are National Semi, Texas Instruments, Analog Devices, and Maxim–the latter 2 being more so. LTC’s advantage is enforced pricing through distributors–nobody gets a discount–and the prices are high. But, if you need what they have got–and you’ll be hard pressed to find a better choice unless it was so popular that someone knocked it off–then you will pay. My own business has payed dearly ($3 for a part that has competition under $1) for many years because–it was the best. Maxim is also phenomenal… Read more »
Gravity Switch
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December 9, 2008 10:02 pm

SRS and Circuit Slob, thanks very much for the excellent comments — always great to hear from folks who clearly know their stuff. Interesting perspective on LLTC, I wonder whether they’ll be able to keep this nice margin buffer in the years ahead.

allen l smith
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allen l smith
December 9, 2008 10:37 pm

Even with this terrible COLD that I have,Iam still getting a HUMMMMmmmm in my ears, Thanks for the insight.

Circuit editor
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Circuit editor
December 10, 2008 1:33 am

The problem with the IDMs and fabless chip companies is that wafer starts are way down 30-40%. As a result assembly and testing will be down in 6 months time. So 2009 is not looking good from where I sit. I would buy TI before I buy Linear.

Topher
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Topher
December 10, 2008 6:55 pm

Yeah, my portfolio would be okay if I had NEVER followed their sucky advice on Whole Foods.
I’m burning all their literature.

stefano
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stefano
December 11, 2008 7:35 am

dont trust nothing from motley fool
they could say virtually all about every stock
i looked this period at a lot of their spam for drybulk a sector i like very much
and they said yes buy no sell oh buy again o sell it
every week
they really dont know what to say soo simple say everything so in future they ll say “oh we have saied that”
mootley fool is rubbish
hi travis tank a lot for gumshoe
i like it very much!

david sala
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david sala
December 13, 2008 3:37 pm
In early 2007 (after several years of reading Motley Fool on a daily basis) I cancelled my MF subscriptions (Champion Funds and Income Investor) after having become convinced the whole Motley crew (yeah, I know) was far too optimistic (mainstream thinkers.) I had discovered Nouriel Roubini, Meredith Whitney, Louise Yamada, Bill Fleckenstein (and the whole Minyanville gang) and had reached the conclusion that things were going to deteriorate from there. If I may say so…moving into Treasuries and occasional short positions has saved me tens of thousands (I must add that having owned Worldcom was one of the most painful… Read more »
david sala
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david sala
December 13, 2008 3:45 pm

One more thing (sorry!)

I find it most interesting that your site contains an ad for Elliott Wave. I began a subscription several months ago (sensing what was up) and so far, Prechtor has been so correct that it is nothing less than uncanny. “Conquer the Crash” (2002) reads as if written last week. Needless to say, everything could change, but thus far, his prognostications from six years ago are startlingly accurate.

Charles Langley
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Charles Langley
December 16, 2008 8:01 pm

Travis,

The new format is neat and the artwork is gorgeous, but it is so prominent on the page that it obscures the message and makes it unreadable.

Sincerely,
Charley

Joe
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Joe
January 19, 2009 4:26 pm

the charts are starting to look good on this on the weekly and dailys. I don’t know much about this company or sector. I do think after we get a three day obama bounce in the market, that we are heading much lower. That may take every sector down with it so be very careful with good stops.

Rog Blake
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Rog Blake
January 22, 2009 3:02 pm

LTC made a bundle on sub-par engineers too lazy to design a cost effective solution. Every time I see a Linear Tech part on a schematic, it’s always a sign weak design skills.

dan
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dan
February 4, 2009 4:45 am
I have no idea whether or not LLTC is a great stock to own right now. BUT: To claim that a technology, and especially a chipmaker could be THE one stock to own for 7-10 YEARS (!!!) is as ridiculous as it gets. technology companies, by definition, operate in the most dusruptive business environment there is. Except for INTC and MSFT and now GOOG they have little to no moat and could be gone 2 years from now. heck, even any of the three mentioned might not be around in 5 or ten years! This kind of investment “ad-vice” is… Read more »
Darrell
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May 15, 2009 3:41 pm

CN has appoved a deal to haul oil from OILSANDS to the coast for shipment over seas and to lower 48 states. Announced a few weeks ago.

Tom
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Tom
May 16, 2009 12:59 am

LLTC a great stock? NOT!

Look at the balance sheet. In the last two years stockholder equity has gone from about 2.1 million to NEGATIVE 400,000. LLTC is not a company that’s growing stockholder equity.

I’ll pass on this one.

Truthpeeler
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May 16, 2009 6:54 pm

20% a year for the next 5 years for LLTC? Maybe. That’s what Morningstar thinks. Buy it now at about $20 and sell it later at $53. Not bad.

javier de León
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August 12, 2009 6:37 am
Dear Daily Crux Reader, Stop buying gold until you read this… No more mining stocks or gold mutual funds. One of the best analysts in America says there is one gold investment that’s better than all others and could have even turned a $5,000 investment into $1.6 million. Full write-up below… Sincerely, Brian Hunt Editor and Chief, Daily Crux ———————– Canadian Engineer Uncovers Secret to Making 4,500% From Gold—Without Owning a Single Mining Stock Forget mining stocks, mutual funds, and gold coins—there’s a much safer and more lucrative way to make a fortune in the gold industry over the next… Read more »
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August 12, 2009 4:20 pm
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longtime
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longtime
August 25, 2009 2:19 am

Well, I think that stock market is overvalued, so i sold this one too…

Steve O
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Steve O
May 5, 2010 12:44 am

We are in a correction of unwinding massive leverage where none has not taken place, once someone faces up to it and defaults we should get a domino effect and you can safely bet that GS will be short. These Fool picks are usually good shorts in normal times.

Jon Loren
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Jon Loren
June 21, 2010 7:46 pm

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Jon Loren
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Jon Loren
June 21, 2010 7:48 pm

Coal ash to Uariium by Andy Obermuller

Jon Loren
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Jon Loren
June 21, 2010 7:49 pm
If you read my article from late last week, you know about my family farm in Kansas. And you’ll also remember that I work out of the StreetAuthority offices in Austin, Texas. So what do those two places have to do with today’s investment idea? One word: Water. Allow me to explain. Being from a farm (and living in Tornado Alley), I started keeping an eye on the weather at an early age. Rain — or lack thereof — can make a big difference on the bottom line. Meanwhile, I now live in Austin. For those of you who didn’t… Read more »
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Jon Loren
June 21, 2010 7:51 pm
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Ken Fritz
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Ken Fritz
July 24, 2010 2:54 pm

I,years ago was a member of several Montly Fools Nes letters and investment clubs, if wich, I took a bath. One such, was The Montly Fool Millionair Investment, or such such name. I took a blood bath in that and other Montly Fool offerings. Do your own homework and don’t believe everything you read.Sincerely KJF

Joy
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Joy
July 22, 2014 11:44 pm

I’m amazed, I must say. Seldom do I come across a blog that’s both equally educative and engaging, and without a doubt, you’ve
hit the nail on the head. The issue is an issue that too few folks are speaking intelligently
about. I’m very happy I found this during my search for something regarding this.

Gravity Switch
Admin
11
December 9, 2008 12:11 pm

shhhhh … you’re not supposed to remember that!

Cool Soupy
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Cool Soupy
January 19, 2009 8:34 pm

AMEN

Striata
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Striata
March 30, 2010 12:35 pm

What a bath I took on that!!!

TerryC
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TerryC
December 9, 2008 12:19 pm

What about SCSS which Tom Gardner made his Hidden Gem star by recommending it FOUR times over a period of time somewhere around $30 or $40. Guess what! ……… it’s now around $0.29. Yes that’s a bad one that you can seriously respect

Jan
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Jan
November 9, 2009 9:23 pm

I would have thought the Analog chip company they were talking about was ADI. But what do I know.

chris
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chris
December 9, 2008 8:53 pm

Every stock he recommended he sees a 20% annual growth. Stay away from the fools.

AJ
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AJ
January 7, 2009 3:28 pm

And FLML, now down 77% from where it was recomended. I think there was a second buy-in on that turkey, too.

mark
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mark
August 14, 2010 5:59 am

What you don't think there is a demand for a $4K bed in this economy? And like a goofball I bought some of this. But I also bought CTRP at the same time and it's been a big winner!b

Gravity Switch
Admin
11
December 9, 2008 9:58 pm

True enough, can’t say that I understand anything in this sector at the moment

Savvy Gran
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Savvy Gran
December 9, 2008 10:03 pm

SageNot: An up-and-coming company working to replace fossil fuel is Razer Technologies RZ. Google them and take a look.

SageNot
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SageNot
December 9, 2008 11:59 pm

Thanks Savvy Gran, I read “Seeking Alpha” most days & sure ’nuff one of their analysts puts the wood to RZ over too many years of promises with no profits. I was not aware that it is also a Green Company.
http://seekingalpha.com/article/68402-raser-technologies-all-talk-no-profits

SteverJ
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SteverJ
December 12, 2008 11:14 pm

I know next to nothing on this subject however I did observe one credible report from one of these companys that revealed a great deal of frustration in the arena of political favor and their urgent need for what he thought was their fair share of financial support and respect as a viable approach to our energy needs.

john e
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john e
January 20, 2009 2:57 am

Take a look at VCTPF, it has some very interesting technology. Website is : http://www.valcent.net/s/Home.asp

Steve Bell
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Steve Bell
January 19, 2009 6:59 pm

Thanks for the heads up.
What indicator, chart pattern, price action or _____________ (fill in the blank) makes you think that we will get a three day bounce and then head “much lower”?
And do you have a count objective for “much lower”?

bbqchickenrobot
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May 20, 2009 7:51 pm

I didn’t know that AMEN was a recommendation, well, outside the chuch that is 😉 hahaha, i’m SO funny!

WCroc
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WCroc
May 29, 2009 5:23 am

Not LLTC — THINK MSCC???
I googled the analog chip tip and came up with Micro Semi: Compare:
LLTC:
M Cap 5B; PE 14, FWD 23
Sales 1.1B; Growth 8.5; Current ratio 7.2; LT Debt 1.1B!!!
5-Yr Annual Growth: Inc 10%; Rev 14%; EPS 16%
MSCC:
M Cap 1B; PE 17, FWD 14;
Sales 514M; Growth 16.2 Current ratio 6.7; LT Debt 3.3M!!!
5-yr annual growth: Inc 15%; Rev 21%; EPS 41%!
I would not touch LLTC with 1.1B of Long Term Debt (1/5 of M Cap)!
Mayb the tout was 4 for Micro Semi?

normxxx
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May 31, 2009 8:35 pm

Hve you never heard of trailing stops!?!

Also, check out TradeStops: https://www.tradestops.com/how_it_works.asp

longtime
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longtime
August 22, 2009 3:18 pm

international royalty corporation?

http://www.internationalroyalty.com

What do you think? (I have already bought it. )

wpDiscuz