Ichor Systems and Air Transport Look Too Cheap but ANI Pharma and Smart Sand Show Some Cracks

The stock market continues to challenge investors. Outside of smaller, U.S.-centric companies, stocks are suffering a rough ride. The common theme I see is that the cheap get cheaper. We’ve seen this in a quite a few of the stocks I’ve recommended, a few of which I discuss below. A whiff of future weakness invites heavy selling.

While this selling can be disconcerting, it can offer investors valuable entry points in quality stocks. Of those mentioned below, Air Transport (NSDQ: ATSG) and Ichor (NSDQ: ICHR) are my favorites.

One might think short sellers are celebrating in this market, but nothing is further from the truth. Heavily shorted stocks like Wayfair (NYSE: W), Mallinckrodt (NYSE: MNK), Teladoc (NYSE: TDOC) are all up significantly after earnings and are up 36-81% year to date.

This market is not being kind to anyone. I don’t know enough about the business models of Wayfair, Mallinckrodt or Teladoc to be bullish or bearish, but I do know the bears have done their homework on these names and the group is up more than the rest of the market.

Alas, I’m doing my best to work with the volatility and issue options trade ideas and new stock trades that I expect to benefit from the unexpected news. Our trio of home-building supplier puts are doing well as of now, and the expectation is that Home Depot’s (NYSE: HD) earnings tomorrow (August 14) will highlight the slowdown in demand.

Keep your eyes posted for trade alerts as I often will suggest selling a winning option even if it doesn’t expire for a bit.

On deck for earnings this week:

Tuesday: AM: Home Depot call at 9 AM, Tapestry (NYSE: TPR) call at 8:30 AM
Thursday: AM: Despegar (NSDQ: DESP) call at 8 AM
Thursday: PM: Applied Materials (NSDQ: AMAT) call at 4:30 PM. *Note- we do not own this stock, but its outlook will influence trading in Ichor and Entegris (NSDQ: ENTG)

Around the Portfolio:

Air Transport Services Group saw its stock wilt despite what I think is a terrific quarter. An accounting change caused revenue to come in slightly less than expected but earnings delivered, and guidance remained robust.

The stock might be under pressure due to comments from competitor Atlas Air (NSDQ: AAWW) regarding the number of 767 planes available to be converted to freight planes. Air Transport seems to operate differently from Atlas in that it is always in the market for new aircraft and makes sure it has sufficient financing to buy used 767’s when they hit the market.

This plane is the “Goldilocks” plane for cargo delivery. Air Transport has the necessary number of planes in hand and is halfway towards its 2018 target of ten 767 planes for conversion. It already has five lined up for 2019 and is optimistic it can acquire more. Estimates remained flat, but the lower stock price makes it look like a bargain.

ANI Pharmaceuticals, Inc. (NSDQ: ANIP) delivered a bomb on Tuesday. Although the company’s progress on its generic corticotropin product is moving along, its generic and branded drug businesses declined in the quarter.

My reason for recommending the stock is the company’s development of a generic version of Corticotropin, a branded $1.2 billion drug without any competitors. Progress is on track for this product. However, I expected the company’s stream of income from its current portfolio of drugs to continue growing, albeit at lower rates than it had in the past.

The stock trades at 10x 2018 estimates, a super-low multiple which reflects investors’ lack of confidence in current numbers. I am putting a $52 stop loss on the stock.

Ichor Systems entered its reporting season in a sea of doubt. Investors sold the stock down on fears that management would dramatically lower future estimates. While it did reduce Q3 estimates, the drop was not as severe as expected. Also, management spoke quite confidently about an expected upturn in Q4.

CEO Thomas M. Rohrs, who by all accounts is transparent about industry issues discussed investor angst over semiconductor manufacturer suppliers, noted:

“ First, regarding our Q3 outlook. Our expected decline in revenue compared to the second quarter is consistent with all the relevant outlooks we’ve heard in the last two weeks. It’s pretty much the same sequential decline seen by our largest customer and the key semiconductor WFE component suppliers. So in fact, they’ve caught a cold, and we’ve caught the same cold, and that’s the extent of it. There’s no exaggerated impact due to inventory corrections or drive towards less outsourcing or anything else that may have caused people to think that we’ve caught pneumonia.”

Despite a small relief rally, the stock is currently selling with a P/E of 7 on this year’s estimate and six on 2019 estimates. This valuation seems absurd for a company growing earnings in the mid-teens. Ichor’s large customer Applied Materials reports this Thursday after the close. I eagerly await its outlook.

Smart Sand (NSDQ: SND) reported earnings and revenue that beat estimates but a revised plan to spend more capital integrating transportation solutions kept a lid on the stock. Exuberant demand for Smart Sand’s fine mesh sand should support the company’s plan to invest more in last-mile delivery to its customers.

The increased spend on delivery is a shift in strategy for the company. I am not thrilled with it investing more in fixed expenses but appreciate the competitive edge having that delivery function will give to the company. I’ll be monitoring it closely.

Stock Talk

Aaron Cavender

Aaron Cavender


I am reviewing my positions and I would appreciate some clarifications on SAND. Are you still sound on the target of $17? It would also help me if you could share any upcoming catalysts which might propel the stock to a new plateau. I am just trying to get an estimation of potential to decide if I should keep it in my holdings, or look for greener pastures.

Thanks again for your work in keeping this portfolio running tightly. I appreciate the critical eye you keep on all of the positions.


Linda McDonough

Linda McDonough

Ugh. I am not feeling so “smart” on Smart Sand right now. I still do believe the company has a unique and hard to replicate product that is in high demand. After the healthy numbers reported on August 9th, but the stock’s bounce petered out quickly.

I do not love the company’s pivot to investing large sums in transportation logistics for its sand but still do believe the stock is worth significantly more than its current $5 price. The company presents at an investor conference today (Monday) in the afternoon. I plan on reviewing the transcript for any new information. Other than that, the next firm catalyst is earnings in early November. I will keep subscribers posted on any other newsworthy events.


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