Wednesday, April 29, 2009

3 New TVs per China Urban Household?

Interesting news from China today. Not sure where the original feed is, but this Stop Trading with Cramer highlights his views on the news. That is mindboggling that China would urge the replacement of that many TVs, but I guess the issue is that without the US and Europe buying they need to create domestic demand.

Not much more to add. Just watch the video.....

Tuesday, April 28, 2009

Coventry Health Soars on Earnings

Coventry Health (CVH) jumps today on better then expected earnings. This has been a continuing theme in the health insurance sector. Just yesterday Humana (HUM) strong on much stronger results. This sector in general trades at very low PEs so it isn't that surprising that they've jumped on earnings. This doesn't erase the fears that the Obama administration will continue to look at ways to wring profits from this group, but they remain very cheap at current levels.

CVH forecasts a average eps of $1.8 for 2009 placing it's PE at 8. This sector may not see the 15+ PEs of the past decade, but I'd expect some expansion to the 12 range or a 50% gain. CVH is now the 5th largest position of the Growth Fund at 4.2% of the portfolio following an added purchase yesteday on the HUM earnings.

CVH was a $60 stock when 2008 began so getting back to $15 isn't that exciting, but I wouldn't expect this sector to return to its old highs. Too much scrutiny over the next 4 years will be placed on the profits of this sector for it to regain the luster of the last 5 years. Regardless, Stone Fox would expect a stock like CVH to either get a bid or at the very least expand its multiple as the market realizes that earnings won't be depleted to the drastic levels feared.

  • Revenues increased 21.5% from the prior year quarter
  • GAAP cash flows from operations of $358.2 million
  • Operating revenues totaled $3.6 billion for the quarter with net earnings of $44.2 million, or $0.30 per diluted share.
  • Earnings per share (EPS) on a diluted basis of $1.70 to $1.90

6:46AM Coventry Health Care beats by $0.05, beats on revs; guides FY09 EPS in-line, revs in-line (CVH) 14.21 : Reports Q1 (Mar) earnings of $0.30 per share, $0.05 better than the First Call consensus of $0.25; revenues rose 21.5% year/year to $3.57 bln vs the $3.39 bln consensus. Co issues in-line guidance for FY09, sees EPS of $1.70-1.90 vs. $1.79 consensus; sees FY09 revs of $13.59-13.99 vs. $13.49 bln consensus.

Stat of the Day: Consumer Confidence Soars

The Conference Board reported today that Consumer Confidence soared in April to 39.2 from 26.9 in March. Some how expectations were only 29.5 which seems incredibly low considering the huge market rally and stabilization in the economy in general. Considering the index remains below the year ago levels of 62.8, consumers have a long way to go just to get to those depressed levels.

Though this report typically has little value because it measures how consumers feel and not how they spend it is encouraging that the Expectations Index soared showing that consumers have become a lot more confident about the future.

  • The New York-based Conference Board said Tuesday that its Consumer Confidence Index rose more than 12 points to 39.2, up from a revised 26.9 in March. The reading marks the highest level since November's 44.7 and well surpasses economists' expectations for 29.5.
  • The huge jump in confidence follows a small increase in March, following a freefall in February. Still, the index remains well below year-ago levels of 62.8.
  • The April gains were fueled by "a significant improvement in the short-term outlook," Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement.
  • The Present Situation rose slightly to 23.7 from 21.9 last month. The Expectations Index, which measures how shoppers feel about the economy over the next six months, skyrocketed to 49.5 from 30.2 in March.

Saturday, April 25, 2009

Zacks on Gafisa

Zacks posted a bullish report on Gafisa (GFA) picked up by the wires. GFA is one of our favorites for the Growth Fund because of the shortage in Brazilian homes. This homebuilding stock has also been a favorite investment of Sam Zell.

The report by Zacks was very bullish for the company, but oddly they provided a conservative guidance for the stock with a target of only $16. Typical of conservative firms like Zacks and S&P is that they completely provided low multiples for high growth stocks. A 10 PE? Are they serious? The historical PE for the SP500 has been around 15. This stock is a decade or so away from being SP500 like. So really, a 10 PE???

Ironically the stock soared 12% on Friday to $15.66 or close to the target already. Clearly signs that Zacks has lowballed yet again.

  • We are reiterating our Buy recommendation on Gafisa S.A. (NYSE: GFA - News). We have been encouraged by the stimulus package and the new value-added tax relief recently announced by the Brazilian government.
  • Fourth quarter 2008 results were lower than expected, which is a clear indication that the international crisis has reached Brazil's construction sector. The recent acquisition of Tenda will enhance the company's presence in the low-income segment, which will be the focus of the Brazilian government. Thus, we expect Gafisa to benefit from the announced program in the following quarters.
  • Currently, Gafisa is trading at 7.7x 2009 revised EPS estimate. We reiterate our Buy recommendation on Gafisa, with a target price of US$16.25, representing a valuation between 9x and 10x our 2009 P/E, closer to the Bovespa benchmark for Brazilian stocks.

Hedged Growth Fund Back to Breakeven

The Hedged Growth Fund was only started on October 1st, 2008 so being breakeven after nearly 7 months might not seem impressive, but the market is down 24% since the inception. So being breakeven means beating the market by a whopping 24%. It's not too surprising that this fund has outperformed the market during a down period since its mandate is to be 1/3 short or cash. Definitely only 2/3 long at most. The astonishing amount of the beat is surprising to us not to mention the fact that the fund is nearly flat with the SP500 during April. A month when the market is up over 8%.

As of last week, the fund currently has no shorts and $333K in cash which has allowed the fund to keep up with the market with a lot less risk having so much in cash. The fund will likely keep the short portion in cash until the 900s are breached on the SPs.

Over the 6 month period ending March 31st, the fund outperformed 98.6% of all funds on Marketocracy. Not too bad considering the site doesn't allow pure shorts somewhat limiting the shorting aspect of this fund. Currently the only option is too use ETFs. Not ideal, but probably good enough to get the hedge that we wanted.

Capital Growth Fund up 21% for April

As recorded on Marketocracy, the Stone Fox Capital Growth Fund is up 21.33% MTD versus 8.72% for the SP500. Over a 14% out performance. YTD the fund is up over 10% and has out gained the SP500 my nearly 14% as well. For a very aggressive long fund, we're proud that the performance has been this strong with the market down 34% since starting on Marketocracy in June last year. The fund is now basically flat and has extremely outperformed in the strong market in March and April.

Friday was a huge day for the fund as the biggest holding, Riverbed (RVBD) surged over 20%. At its high around $18, the stock appears short term overbought so we trimmed 1,000 shares to bring our holdings to 2,750 or about 7.5% of the fund. Apple (AAPL) is now slightly the largest holding and it's had a stellar year as well. The 3rd largest holding, Millicom (MICC), appears to be breaking out as well. MICC has huge room for advancement and might be one of the biggest winners over the next month. GMarket was another huge winner in April that we recently sold on the EBay buyout. Combined with the RVBD sells, the fund now has nearly 15% in cash which is an extremely high amount. We're looking at some financial instritutions like adding to the minor Regions Financial (RF) position or Hartford Insurance (HIG). Both have tremendous upside if they can get past the stress test situation. HIG particularly could surge if the market continues to move up. The SP500 above 900 brings HIGs book value to around $50 back into reality.

Stayed tuned to Capital Growth. It's designed for growth to take advantage of the average market gains. Being break even in an extremely negative market puts this fund to greatly exceed by the time this market gets back to break even down the road.

Thursday, April 23, 2009

NYSE Euronext supposedly jumps on merger news

Doesn't really add that this merger rumor with Deutsche Boerse would make the stock jump nearly 14%. This isn't the time for NYX to merge with anybody especially somebody trading at more then 100% its value. We know that DB isn't buying NYX for regulatory reasons so the price jump seems unjustified based on that reason. Another reason for the jump might be CME earnings report and a nice jump off the 20/50ema on a technical basis. We'll see if the rally lasts. We're long the stock but not counting on this move.

Edit: though not posted yesterday we luckily added stock to the Net Payout fund because of the wonderful 5.5% dividend and the technicals.

Wednesday, April 22, 2009

Trades: Sold Dicks Sporting and Morgan Stanley

Stone Fox Capital used the jump in DKS share prices this morning on the back of the JCP bullish news to lighten up on 40% of our shares at $20. The stock is overextended having run roughly 20% above the 20ema. The story is still strong so this is definitely just a trading move. At this point, we'll likely look at the $17 range to re enter a full position.

Morgan Stanley (MS) on the other hand had a rather disappointing Q. After the strong results from Goldman Sachs (GS) we had expected MS to report strong numbers. Instead they missed by a huge margin. This was partly due to credit costs, but the CEO also mentioned cautious trading operations that evidently missed the market opportunities gained by GS and the ML unit of BAC. We didn't buy this stock for them to be cautious so we exited the position as the stock looks like it wants to breakdown.

Alpha Natural Resources Option Volume Surges

Not that we head much weight into buyout rumors. They do peak our interests when its followed by options volume. Somebody is 'betting' that the rumor has some validity. Alpha Natural Resources (ANR) is a metallurgical coal play or basically a play on China demanding steel as this type of coal is used in production of steel. It has been one of our favorite picks since it bottomed out in the $15s from a high of $120. Anybody buying them now would likely get a huge steal if steel demand comes back strong.

Details on the rumor from OptionSizzle. We think this stock has huge upside so we're not in favor of a buyout at these levels, but if a China firm wants to offer a huge premium we could definitely redeploy the capital in another stock.

  • Appalachian coal supplier Alpha Natural (ANR) is seeing an unusual spike in call options traded. Shares are higher by 4.5% at $18.09 on an increase of average stock volume traded. Just yesterday UBS lowered estimates on the coal sector citing reduced coal volume forecasts but, call options are seeing interest on chatter that China Shenhua Energy Company, which is the second largest coal mining enterprise is interested in making a bid for the company.
  • According to our Option Sonar, call options volume is 9 times the expected to trade with 18,000 calls vs 1,200 puts traded. Seeing the most interest is the May 22.50 call strike where 9,000 calls have traded exceeding the current open interest of 950. We see that only 51% of the calls traded so far have taken place on the offer and that implied volatility is at 94 but, below the 6 month average of 109, telling us that there is not much conviction to this rumor.
  • (ANR) been in a tight range from $13.15 to $24.20. Currently the 50 SMA is flat not indicating a dirction for shares to go and likley continue in that channel.

Tuesday, April 21, 2009

The Lagging Tween

Maybe this Tween just isn't that good in school or maybe the market knows something that we don't. Tween Brands (TWB) has greatly underperformed the market in this huge rally. Both pre-tween retailers GYMB and PLCE have both rebounded strongly over their 200ema and even hated retailers like SHLD, JCP, and M are all above those marks as well. Then why is TWB now even below the 20/50ema's? On a valuation basis, this stock provides a compelling story. Even on a business plan basis, this stock seems much more attractive then the other mentioned stores. Just using the most common comparisons of GYMB and PLCE, the movement away from the mall seems to give them a leg up. Maybe the market seess execution risk in moving from the Limited Too mall brand to just a Justice only brand. The Q4 margins were probably a good reason to pause, but most of that issue was related to the sell out of the Liimited Too clothing line.

TWB has been a very well run company for a while now so it seems illogical to think they'll struggle to escape this downturn worst off then others. They seem like a good bet with support at $2. We purchased shares in our fund unfortunately prior to the huge selloff on Monday and we are looking to add more at these levels.

Monday, April 20, 2009

Negativity Reigns on the Street

Very interesting that the current market rally only made it to the level prior to the big early March sell off that lead to the March 9th low of 666. Yes the negativity reigns on Wall Street. I'll agree that the rally has been significant and a slight pullback is warranted, but I wouldn't expect any break of 825 on the SP500 which is only slightly lower then today's close of 832.

CNBC did a nice job of summarizing the negativity of pros on their show today. So called expert after expert expect a huge drop in equities for a retest of the lows or at least a 50% retracement to the 740 to 760 range. Only a handful of experts like Cramer and Kass have talked about the rally sustaining without a sizeable pullback. Today Kass talked about a 6% decline which would place us at the 820 level. Too many investors are focused on a bear market rally and are completely missing the turn in the economy. If you read the news today you'll be overwhelmed by the continuing credit losses at the big banks like BAC that reported today. This isn't new news, but for some reason the market is fascinated with the concept today and has decided to completely throw away the revenue side of the equation. After all, most big banks like GS, WFC, and C reported nice proftis last week because revenue overwhelmed credit losses. So the markets focus today on credit losses seems unwarranted and likely to pass quickly.

Maybe the bank stress tests will cause dislocation in the markets. If as I expect the drops today in financials like Regions Financial (RF), Morgan Stanley (MS), and Hartford Financial (HIG) appear to be great buying opportunities.

Wednesday, April 8, 2009

Pulte Homes buys Centex

More encouraging signs that CEO and BODs think the market has reached a bottom. Mergers are starting to fly in from even the beaten down sectors like homebuilding. FundMyMutualFund highlights the details of this merger so I won't go into the details. We sold the Centex (CTX) in the Growth fund on the 20% bump. Over the last year it's been costly to hold onto shares of buyout targets

The American Homebuilding sector hasn't been a favorite sector of ours though we've had a few shares of CTX and Toll Brothers (TOL). This sector is likely to have a slow few years due to high inventories and the negativity on the housing bubble. The more promising sector is international were demographics is much more pormising. The better plays today were Gafisa (GFA - Brazil) and Homex (HMX - Mexico). Both shot up on the news with GFA being up nearly 10% which I don't really understand. Guess they are somewhat related being in the same sector, but the markets in the US and Brazil are dramatically different. Brazil faces a housing shortage of nearly 1M units while the US basically builds new houses because people want a new place or a different location. It's hardly lack of supply or economics driven for the most part. For now, GFA has been the play in the Growth fund.

Also, Morgan Stanley (MS) would be a good play on the unfreezing of the capital markets. If homebuilders can merge, then that market is beginning to unthaw and MS along with Goldman Sachs (GS) are two of the few large players left. Blackstone (BX) is also another favorite from the unthawing of the markets. Shares were purchased in them for the Growth fund today.

In general, still stay away from the domestic homebuilders. They are still nothing more then short term trades.

Signs of Life in Housing

Apparently to great shock in the rest of the world, housing is actually showing signs of life this shouldn't be a big surprise to this blog as we've been noting the growing sales volume in places like California for months now. Apparently it is now spreading to FL and Las Vegas. The pattern appears to be that once prices are down roughly 40%, the investors and first time home buyers come rushing in. This article by BusinessWeek shows the disconnect between the main media outlets and reality.

With Housing Affordability off the charts, it shouldn't be surprising that volumes are picking up. It doesn't mean that prices will go up any time soon, but stability is huge especially for banks. Investors expecting a huge decline in the market might be caught off guard with this news.

  • For the Garvins, who weren't eligible for the government tax credit, record-low interest rates were a big enticement. With the rate on their 30-year fixed-rate mortgage at 4.75%, the payment on their $292,000 loan is around $1,600 a month. Nationally, the rate on a 30-year fixed-rate loan averages around 4.85%, the lowest on record.
  • In California, politicians are adding to the federal inducements. The legislature has passed a $10,000 tax credit available to anyone who buys a newly built home. (Existing homes don't qualify.)
  • First-time home-owners are suddenly entering bidding wars with real estate speculators from as far away as Spain and Germany. Sales in February outpaced those at the peak of the boom, with some houses getting more than 50 offers and selling above their asking price.
  • Plenty of caveats are in order, because there are peculiar bear-market factors at work. The fact that inventories are falling precipitously in California—to just 6.5 months' supply from 15.3 months a year earlier—would seem to augur well. Historically, "prices respond very dramatically to inventory," says William C. Wheaton, director of research at the Massachusetts Institute of Technology's Center for Real Estate.

Friday, April 3, 2009

BAC Pays TARP Dividends of $713M

You're not likely to see much positive press about these payments on mainstreet media. They'll still be talking about the reported $12.8T 'spent' so far on government 'bailout' programs. Not alot of the media outleets will mention that one of the most hated programs, TARP, is beginning to pay solid dividends plus the paybacks are becoming more and more likely. The government might just actually make money on this and other programs. Such much for all that debt!

Bank of America (BAC) has now paid over $1.1B in dividends and is solidly on pace to pay back all of the $45B TARP funds given to BAC/ML by maybe next year. That would mean that the government would get in the $47-50B range back from BAC on a $45B investment. Remember all the noise about the bailouts. Maybe they'll correctly be called prudent investments going forward. If one of the supposedly worst programs is starting to pay dividends from one of the supposedly worst recipients, then maybe the other programs will turn out better then expected as well.

  • Bank of America Corporation today said the Board of Directors has authorized approximately $713 million in dividend payments to the U.S. government under the Troubled Asset Relief Program (TARP).
  • As previously announced, Bank of America paid its first dividends totaling $402 million to the U.S. Department of the Treasury in February, reflecting the company's ongoing commitment to pay back taxpayers as quickly as possible.