DUMPING CHEMICALS

NCX

Nova had a monster quarter, and it was sold off (what else is new!). If you strip the one-time gains, my calculation of its Q4/04 EPS is $0.73, four cents shy of consensus of $0.77. So it was a miss! The management did not provide any guidance in the announcement. I am getting really frustrated with this one and it appears that I could not make any money out of this account. The chemical prices appear to peak at this point. I think I will get out of this position this afternoon after the conference call. So far, this quarter’s reports have no been nice to me. There have been three misses among my approximately 30 holdings (10%). That is a rather alarming number.

On the conference call, Jeff Lipton (CEO of Nova) seems to suggest that the recent price weakness was due to normal seasonality, instead of weakness of demand, and he believes the price will recover by the mid of February after Chinese New Year. While no guidance is provided, Lipton suggests that additional 0.09 from non-recurring items, which will not occur in Q1/05 and pricing increases of 0.05-0.09, starting in February 1, 2005. Based on my back-of-envelop calculation, this would suggest a Q1/05 ESP of 1.10-1.20, significantly greater than the consensus of 0.90-0.95. The tone of the conference call is rather bullish and management seems very confident. This, combined with the very strong Q1/05 number, seems to suggest today’s selloff is not warranted. Part of the selloff may be due to the fact that NCX has run up so much and there are a lot of profits on the table. Should I hold the position for Q1/05’s results, despite the selloff?