Josh wanted my thoughts on Doral’s chart. My initial thought was “that’s one fugly chart!” 
It’s one of those charts that I would just skip — too far down to short and too ugly for me to consider buying. But that’s just me, I’ve never been much for counter-trend trading. And when I do go counter-trend, 99% of the time I’m shorting something that’s had a ridiculous run on little, or no news. In a news-driven situation like this it’s likely to be news, as opposed to a technical pattern, that triggers a reversal.
DRL reports earnings on the 21st. Perhaps the earnings, guidance, and/or what’s said in the conference call will change things drastically. Right now there’s no shortage of differing opinions on the stock. Here are some recent notes on DRL from Briefing.com:
14-Apr-05
Doral Fincl downgraded to Sell at Merrill Lynch (DRL) 19.31 : Merrill Lynch downgrades DRL to Sell from Neutral, saying they think the stock could continue to witness weakness due to uncertainty surrounding the co’s 1Q05 earnings and the potential for significant changes to the co’s business model.
07-Apr-05
Doral Fincl mentioned favorably in Business Week (DRL) 19.16 -1.32 : BWeek highlights Doral Financial (DRL), which shares have plunged from $38 in late February to $21 on March 15, when it filed a 10-K for 2004. That report raised concerns about the quality of earnings in 2005—as analysts questioned the assumptions Doral used to value $879 mln worth of certain securities — in light of the rise in interest rates. Some pros took advantage of the drop: At Carret Asset Mgmt, Donald Gimbel doubled Carret’s stake, to 850K shares. He first bought last year, when the price was $30. Despite the grim forecasts, Gimbel sees earnings of $5 a share in 2005 and $5.50 to $6 in 2006, vs. 2004′s $3.95. Gimbel says Puerto Rico’s housing shortage will keep mortgage demand strong, so the stock should bounce back to $49 in a year. Joe Gladue of investment bank Cohen Brothers, who rates the stock a buy, says it’s fallen far below what is reasonable for a company originating $8 bln in mortgages a year. The business remains robust, he says, and Doral plans to sell the controversial securities. (Briefing.com note: DRL’s mkt cap is $2 bln.)
30-Mar-05
Puerto Rican banks may catch fire again – Barron’s Online : Barron’s Online discusses Puerto Rican banks, saying that in recent years, Puerto Rico has sported some of North America’s best performing bank stocks. Popular’s (BPOP) shares, for instance, have soared by 107% in the last 5 years, while Doral Financial (DRL) has skyrocketed 311%, easily topping the S&P’s diversified bank index’s return. But questions about Doral’s earnings quality, combined with fears that the Commonwealth’s govt will tax financial institutions’ earnings, have hit these stocks hard of late. Now, as valuations have become more reasonable, some investors see an opportunity to invest in the Caribbean island’s most profitable business. Puerto Rico “boasts an educated workforce, a stable political environment and close ties to the US economy [that make] its overall economic environment look favorable,” says Joseph Gladue, an analyst with Cohen Brothers. More recently, Europeans have taken advantage of the weak dollar by visiting there, too. Meanwhile, Doral Financial’s stock has lost almost half its value since it disclosed last month that it may be valuing certain financial instruments, known as “interest only strips,” too aggressively.
