Tuesday, June 30, 2009

Trade: Added Agrium

Bought Agrium (AGU) today for all 3 portfolios. AGU provides an investment for the portfolios that is tied into the agriculture market. A sector that has been greatly lagging and the prices are finally right. The Growth Portfolio is invested in FCStone (FCSX) that benefits greatly from the ag market, but AGU gives the portfolio its only real investment in the sector.

Agriculture is a great place to invest now since stock prices have fallen greatly but the end user demand has only fallen in the short term. Low inventory levels of corn compared to long term fast growing demand especially from China and India and even renewable fuels such as the ethanol mandates in the US should considerably increase the demand for the fertilizer products of AGU.

Agrium engages into retailing of agricultural products and services. It also produces and markets agricultural nutrients and supplies fertilizers in North America. Agrium operates through three segments: Retail, Wholesale and Advanced Technologies. The products that are produced and marketed by the company are nitrogen, phosphate, controlled-release fertilizers, micronutrients and potash. The materials produced by Agrium find applications in household products, mining explosives, pulp and paper, fiberboard, and aluminum. The markets served by the company’s products are specialty, international, industrial and agriculture.

More to come no this investment.

Trade: Swapped More CSX for UPS

For transporters, the cost of gas will be a 'driving' force in future profits and the ability to transport more commodities and less retail products will be beneficial. For that fact, Stone Fox has decided to swap shares in UPS for a bigger focus on CSX. Both were favorites of the NetPayout Yield Portfolio for decent dividends and a history of buybacks.

Unfortunately for UPS whether public perception or reality, the cost of fuel will likely continue to hinder the amount of products shipped going forward. Even if it doesn't, its likely to hold the price of the stock down and competition with FedEx and USPS is likely to hold down profit growth regardless. Not to mention that legal documents that used to be delivered via Express services will likely move to a sort of digital format reducing the need for UPS services because it can be done cheaper and is more economical and even greener.

Fortunately for CSX, the increasing cost of gas and likelihood that it will stay higher increases demand for the cheapest shipping method and most fuel efficient. Also, CSX greatly benefits from the demand for commodities such as coal, fertilizers, and ethanol. These goods can't exactly be shipped via a digital format. Railroads also face less competition and pricing power as new rails are almost impossible to get built.

In the end, its just a call that railroads have a better mix of products to ship and less costs from fuel. Either way, both CSX and UPS will move with the ultimate growth of the world markets, but we think CSX will move more.

Monday, June 29, 2009

Gafisa Technicals Turn Bullish (For Now)

At Stone Fox, we're not huge technial analysts, but this market has gotten to the point that pays to check them out. Gafisa (GFA) has been one of our favorite picks so a while due to booming demand in Brazil for homes due to GDP growth and a huge lack of housing. As of close today, GFA as a very interesting technical setup. We're looking at a rare situation where the 20 EMA and 50 EMA are convering on the 200 EMA from opposite directions so this is about to make a very bullish or bearish move. At a closing price of $16.52, GFA now sits on the bullish side above all the moving averages with the 50 EMA now within reach of making a bullish cross of the 200 EMA. Unfortunately, the 20 EMA has come back down and any turn south could threaten to make this bullish scenario today very bearish. With the underpinnings of the world economy starting to show growth again and China being bullish on all things commodity related it seems so unlikely that a stock like GFA would suddenly turn bearish.

Either way, it might pay to be nimble on this play, but for now we're expecting a breakout to the upside with the chart leading the way to a huge load of hedge fund buying.

Thursday, June 25, 2009

Tween Brands Merges with Dress Barn

Tween Brands is up 30% today on news of the all stock deal with Dress Barn (DBRN). Its interesting that DBRN is up 10%+ on the news. Its very uncommon for an acquirer to increase on news of a purchase. Our take is that the market sees this as a steal by DBRN considering they were able to buy a premium brand for about 85% lower then its peak valuation. My only concern is that TWB has some stuff hiding in the closet for their BOD to agree to such a minimal price of $137M when they still have sales in the $1B range. Being that its an all stock deal they do still get the opportunity to participate in any further market rallies and to any rebound in the Justice line, though on a very diluted basis. In general your getting mostly an investment in DBRN going forward.

Highlights of the deal:

  • Stock-for-stock merger expected to be neutral to earnings in the first full year of combined operations and accretive thereafter
  • Dress Barn, Inc. to add 908 Justice stores, the leading specialty apparel retailer to tween girls
  • Combined company to operate 2,465 locations, generating $2.4 billion of pro forma net sales
  • Pro forma consolidated balance sheet, after repayment of Tween Brand, Inc.’s bank debt, expected to have over $200 million in cash and investments

Our take is to step to the sidelines and cash in the investments made for our clients and personal accounts. TWB appears to have a much more valuable brand, but if management is willing to sell at these levels then they must have a reason such as a horrible Q2. DBRN is an interesting value with TWB folded in, but we'll follow from the sidelines until we better understand the reasoning for the deal.

Tuesday, June 23, 2009

Alvarion Signs Another Big Contract

This time they've one a deal in Italy. Aria owns a nationwide network so this is likely one of the $20M+ deals that ALVR management continuously discuss. ALVR continues to remain a very cheap stock especially now that they've announced 2 major contracts.

  • Aria currently holds nationwide WiMAX licenses at the 3.5 GHz frequency bands in Italy. By using Alvarion’s Open WiMAX solution, Aria will be able to build a state of the art network with exceptional coverage to meet the growing demand for broadband services in the country.
Analyst from CL King provides his view. While we agree the deal is likely worth more then $20M, we don't agree in how the analyst only comes to a target price of $5. Its easily worth $5 now with a target price more in the range of $10.

  • The order is from Aria SPA, an Italian wireless Internet service provider. Financial details were not disclosed. However, Lawrence M. Harris, an analyst with CL King & Associates, said in a note to investors the value of the deal is more than $20 million over the next two to three years.
  • "The Aria announcement does not change our near-term forecast for Alvarion, but adds to our confidence in the company's outlook," wrote the analyst, who rates Alvarion "accumulate" with a target price of $5.
  • Harris said he expects a profit of 2 cents per share for 2009. He said the Aria deal represents "the second major contract reported by Alvarion in the past week."

Stat of the Day: Richmond Fed Manufacturing Up Again

For all the noise about whether the economy is recovering or not. Whether we're seeing actually good news or just less bad. The regional manufacturing report is actually seeing good news. The report for June came in at +6 which means they are actually experiencing growth. Heck, I didn't even catch that they reported growth in May as well since this isn't one of the major regionals followed. Accounting for 9% of the manufacturing base it covers the central Atlantic and includes states such as the Carolinas and Virgina.

This is much more then a 'green shoot'. This is actual recovery. Looking at the graph you actually can see a V shaped recovery which is exactly what most experts say isn't going to happen.

The main highlights are that new orders increased at a fast clip, employment improved dramatically especially the hours worked part, and backlogs were up for the first time since Aug 2007. Now we just need the other regions to join in the recovery.

Manufacturing activity in the central Atlantic region
advanced somewhat faster in June, according to
the Richmond Fed’s latest survey. Looking at the
main components of activity, new orders expanded
further, while factory shipments grew at a slightly
slower rate and employment exhibited more
moderate weakness. Other indicators were mostly
positive. Backlogs increased for the first time
since August 2007, while vendor delivery times
stabilized and capacity utilization edged higher. In
addition, manufacturers reported somewhat
quicker growth in finished goods inventories.

Monday, June 22, 2009

Growth Portfolio Ends First Year with 10.5% Outperformance

After a wild year that saw the market drop nearly 30%, Stone Fox is pleased to report that our Growth Portfolio outperformed the market by over 10.5%. The figure below includes 2% fees while Stone Fox only charges 1% hence the difference. Considering the Growth Portfolio typically outperforms in up markets it is encouraging that it did relatively well this last year. In fact, over the last 3-6 month periods it is up 30% more then the market.

In real terms though, it was a disappointing year as nobody wants to lose 19% of their money no matter what the market does. We look forward to a much better 2nd year though it's started off just like last year considering the markets dropped 3% today. Lets just hope this isn't a repeat of last year.

Last Week -1.17%
Last Month 7.57%
Last 3 Months 52.41%
Last 6 Months 35.44%
Last 12 Months -19.98%
Last 2 Years N/A
Last 3 Years N/A
Last 5 Years N/A
Since Inception -19.98%
(Annualized) -19.93%
Last Week -2.62%
Last Month 2.16%
Last 3 Months 20.60%
Last 6 Months 5.25%
Last 12 Months -29.53%
Last 2 Years N/A
Last 3 Years N/A
Last 5 Years N/A
Since Inception -29.53%
(Annualized) -29.46%
Last Week 1.46%
Last Month 5.41%
Last 3 Months 31.82%
Last 6 Months 30.19%
Last 12 Months 9.55%
Last 2 Years N/A
Last 3 Years N/A
Last 5 Years N/A
Since Inception 9.55%
(Annualized) 9.53%

Shifting of the Financial Center to Asia

Interesting comments from Jim Rogers. He has been a big proponent of the shifting landscape of the world for a while now and even moved his family to Singapore in 2007. Asia is the likely candidate if the emergence of China, India, and even Indonesia continues. In general though, its all the BRIIC locations that will cause the shift. Likewise Stone Fox has been heavy investors in BRIC countries for a while now. The shift is inevitable due to the sheer size of the populations in these countries. His quote below:

Throughout history, the center of the world has shifted to where the capital is, where the assets are. You don't see any period in history where things are shifting to the debtors, and America's the largest debtor nation in the history of the world. Unless something's different this time, unless the world's changed very very dramatically, the center of the influence, the center of the power, the center of the earth, the center of the globe, is going to be shifting towards Asia, because that's where all the money is. Have you ever heard of anybody saying, 'Let's go to where all of the debtors are'? It just doesn't happen that way.

Oversold Market

Unfortunately our portfolios weren't set up for an oversold condition in the market, but when the indicies drop 2.5% because the World Bank declares that the world GDP will be worse then they expected back in March you know the market has reached near term lows. More likely the market just wanted to take the path of least resistance down to the 50EMA around 897. Moving below 900 scares alot of people but it typically means nothing. Just about anybody following the market knows that the world economies have stabilized dramatically since March so any group claiming worse numbers now is because their system is using lagging indicators for prediction. Most leading indicators are up dramatically.

Just over a week ago, we were looking for a breakout on the SP500 above the 940 range to signal a opportunity to make a bullish run to the 1,200 level. Well that didn't happen and looking back it probably isn't that surprising that the market took this chance to retest some levels and 'hopefully' suck in the shorts. Many an expect has been clamoring for a huge selloff and this likely will pull them more into the fray. We see this as a buying opportunity. If anything the news of late continues to be more bullish. The Leading Indicators came in at 1.2% and is now up over the last 6 months. The Beaish case just doesn't add up. The market being up 30% isn't that great of an argument. I remember the claims last year that the market should be bought because it was down 30%. Well, we all know that those loses doubled in a hearbeat to 60%. The reverse could be true this time.

Now is the time to execute some trades from your buy list assuming the market doesn't break the 50EMA.

NOTE: The last 30 minutes of trading were brutal with the market falling to a greater then 3% loss. Guess we shouldn't be overly surprising as the market tends to take out technical levels in order to leave traders in a quandry of what to do. Tomorrows action will be telling as today's move had nothing to do with the news flow. Or if it did, the market will easily rally as the news from the World Bank was a huge head fake. Global growth stocks were sold big time today and they should be bought on weakness. Global growth is the key to all future growth, not the US or Western Europe.

Friday, June 19, 2009

Growth Portfolio Closes out 1st Year on Marketocracy.com

Its been a wild and crazy year trying to track my investment concepts on marketocracy.com. On June 19th last year, I decided to start using that site to track my results to provide independent 3rd party verification to potential investors. If I'd known the market would be done 30% in that time period I might have found another job. The year started out with the portfolio underperforming, but it has ended much stronger. Constant reallocation into stocks that would benefit on an eventual rebound has finally paid off. On a relative basis, the Growth Portfolio should exceed the SP500 by 10% points. Not bad, but the results are still disappointing considering a loss that should be around 20%. In the industry we typically compare results to benchmarks, but losing money is losing money not matter how much better then the markets.

I'll have updates this weekend on all 3 Portfolios including the Hedged Growth Portfolio that is up for the 9 month period of tracking. An incredible feat for this market. Long term, the Growth Portfolio should outperform, but the Hedged Growth provides for far less volatility and opportunities for huge out performance in volatile markets.

How to Avoid Too Big Too Fail

Really seems incredibly simple. The answer is clearly to prevent banks from getting 'Too Big" or making the requirements that bigger banks have more capital or take less risk. This plan by Vernon Hill or at bankstocks.com seems too simple to ever be approved. My only concern is how to prevent these huge banks from taking on more risk ala AIG when they must have a larger percentage of capital. In a perfect world the regulators would prevent that by time and time again they are asleep at the wheel.

Posted in its entirety since it isn't that long or complicated.......

The financial crisis has proven yet again (as if anyone should need further convincing) that U.S. financial institutions implicitly deemed “too big to fail” tend also to be too big to manage. That creates an unacceptable systemic risk. Citigroup, AIG, Wachovia, Washington Mutual, and Bank of America all provide good examples of the bad things that can happen when an institution becomes so large that managements can no longer keep track of all the mischief going on.

The solution? I believe these institutions should be broken up, so that they can once more be effectively and prudently managed. That would reduce systemic risk, increase competition, and, in general provide better services to customers at a lower cost.

But might such breakups be effected? Well, the government might:

- Enforce the now-unenforced national deposit limits.

- Create an insurance fund with premiums and oversight for all major financial institutions.

- Or just order the breakup of the biggest banks.

But a better solution, I believe, would be to allow the market, not the government, to solve this problem. In particular, as institutions grow larger, regulators should take account of the growing risk they pose to the system by imposing higher capital requirements on them. For instance, once a financial institution passes, say, $100 billion in assets, its minimum tangible equity capital should be increased. Then as the institution keeps on growing, minimum capital levels should be steadily increased, as well. A $1 trillion bank, after all, is inherently more risky to the system than a $100 billion bank.

So, for instance, if the minimum equity for a $100 billion institution is 5%, its required minimum capital might rise by 20 basis points for every addition $100 billion in assets it adds. A $1 trillion bank's minimum equity would then be 7%, versus of the base minimum of 5%.

Then the market would work its magic. As a bank’s minimum capital levels rose, its returns would fall—and its growth would slow. Management would then be motivated to spin off units—which would reduce the size of the institution, and make the spun-off units better, more focused competitors. As all this occurred, institutions would stay small and manageable—as would the risk they’d pose to the system overall.

Thursday, June 18, 2009

Stat of the Day: Philly Fed Index Outlook Surges

As this economy has seen in many other reports, the outlook for the Philly Fed Index surged to 15 year highs. The last time this Index saw these same levels for the 6 month outlook was at the end of the 2003 recession. The current activity was also one of the highest seen in the last 19 months. And many a analyst has claimed that 'green shoots' are becoming 'yellow weeds' well the outlook data just doesn't support that theory.

  • Broad indicators of future activity showed significant improvement this month. The future general activity index remained positive for the sixth consecutive month and increased markedly from 47.5 in May to 60.1, its highest reading since September 2003
  • The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, increased from -22.6 in May to -2.2 this month, its highest reading since September 2008 when the index was positive for one month (the index has been negative for 18 of the past 19 months, a span that corresponds to the current recession;
  • Summary: According to respondents to the June survey, declines in the region's manufacturing sector diminished significantly this month. Indicators for general activity, new orders, and shipments are suggesting steadier levels of activity, in contrast with the series of continuous large declines suggested in previous surveys. Indicative of overall weakness, however, firms still reported declines in employment and the prices of manufactured products. A growing number of firms expect conditions to improve over the next six months, and for the second consecutive month, more firms expect to expand employment over the next six months.

Wednesday, June 17, 2009

Alvarion Signs Largest Contract in History

As hinted at yesterday including on my instablog, Alvarion (ALVR) officially announced a deal that will exceed $100M over 5 years. Now the deal is with Open Range instead of Clearwire which is a company I've never heard of so I was skeptical at first. After reading up on them and understanding that a large part of the funds is coming from the Rural Broadband portion of the stimulus plan, I'm a lot more comfortable like the market that this is a solid deal. Not to mention that ALVR has a history of being conservative.

Oddly I was planning on doing a writeup about the $7M Nigerian deal that they announced a few weeks back. That deal was important to me because of the growing importance of Africa and specifically Nigeria. It also had the potential to ba a $20M deal down the road. This deal though trumps that in a large way. It also gives ALVR some exposure to the US market which always seems what the stock market wants. Odd, considering that the emerging market story has been huge for most stocks, but it never seemed to help ALVR. People were always more focused on them not participating in either the Sprint or Clearwire deals.

Globes reports that the deal could actually approach $150M. An amount that would easily make this the largest deal by far in their history. From looking at Open Range's website it appears that they have over $350M in funding so that amount is clearly possible. It would also provide ALVR more 'recurring' revenue that always concerns analysts wanting predictability.

  • Alvarion said the deal is worth $100 million over five years. However, market sources estimate it may reach as high as $150 million. It is the largest contract in Alvarion's history.
Analysts have already rushed out to raise estimates.
  • Alvarion ests and tgt raised to $6.20 at Morgan Joseph following rural broadband contract (4.17 +0.56) -Update : Morgan Joseph raises their FY09 EPS estimates to $0.01 from $(0.03) (consensus $0.01), as well as their FY10 EPS ests to $0.40 from $0.25 (consensus $0.20) and tgt to $6.20 from $4.70 following news that the co received a contract for over $100 mln over five years from a U.S. broadband operator for a Rural Utilities Service funded deployment across 17 states and 546 rural communities. The firm believes this contract may be the first of several contracts in which ALVR competes related to the $7.2 b bln U.S. stimulus package for rural broadband given the company's "Buy American" status for two of its BreezeMax base stations.
  • Oscar Gruss raised their tgt to $6 from $4, and views ALVR's $100 mln win as a major cornerstone for the company. Firm believes The Rural Utilities Service project, one of the largest WiMAX deployments to date, endorses ALVR's rank among the top three brands in the industry. Open Range plans to deliver broadband into 546 rural communities in 17 states, reaching up to 6 mln people. Firm anticipates initial shipments in Q3, and a stronger build-up in q4. Thus firm expects a direct bearing of $20 mln in revenues for 2010, with a minor markup in OpEx. Firm expects the revs distribution to be broadly maintained at $20 mln sales per annum, over the remaining 4 years. Firm continues to view the stock as a compelling long term risk/reward opportunity.

ALVR is up roughly 35% in the last 2 days, but at just over $4 the stock is incredibly cheap even without this deal. Not sure I'd rush in today as it'll likely pull back some depending on the overall market. Luckily Stone Fox Capital has already positioned clients in this stock and we'll likely hold those stocks for much higher prices. This could be the first of many rural US contracts.

Tuesday, June 16, 2009

Savient Pharma gets Thumbs Up from FDA Panel

Savient (SVNT) got an overwhelming 14-1 approval from an FDA Panel today that reviewed their new gout drug named Krystexxa. This approval should alleviate most of the concern surrounding the feared side effects and allow for approval of the drug on 8/1/09. The stock was trading up some 25% in AH around $11.75.

  • Savient Pharmaceuticals, Inc. (Nasdaq: SVNT - News) announced today that the Arthritis Advisory Committee appointed by the U.S. Food and Drug Administration (FDA) recommended by a vote of 14 to 1 that KRYSTEXXA(TM) (pegloticase), a biologic PEGylated uricase enzyme, be granted marketing approval by the FDA for the treatment of refractory chronic gout. Refractory chronic gout or treatment failure gout (TFG) is gout in patients who have failed to normalize serum uric acid and whose signs and symptoms are inadequately controlled with conventional urate-lowering therapy at the maximum medically appropriate dose or for whom conventional urate-lowering therapy is contraindicated. The current target Prescription Drug User Fee (PDUFA) action date for the FDA's decision as to whether to grant marketing approval for KRYSTEXXA is August 1, 2009.
The trading tomorrow will likely be dictated by analysts comments tomorrow pre-market and the Conference Call with management. Stone Fox would expect the stock to trade higher before the week ends as this stock had been under serious pressure since Sept last year when the stock was in the mid $20s and all the fears came to light over the approval of this drug. We'll likely hold shares unless it jumps dramatically above the AHs trades. A move to the $17-19 range might warrant a quick exit to book profits. Otherwise, the stock is drastically undervalued in the AH range and warrants holding onto the stock.

Monday, June 15, 2009

The Next BRIC: Indonesia

Most investors are familiar now with the BRIC notation standing for Brazil, Russia, India, and China as standing for the 4 economies with huge populations living on sub-standard per capita earnings, but huge political desires to lift themselves up to European or US standards. Based on the list below, all 4 countries have populations in the Top 10 in the world so its not surprising that a big movement in their per capita earnings combines with the population size could have a huge impact on the world.

What is surprising is that several other countries like Indonesia, Pakistan, Bangladesh, and Nigeria appear on the Top 10 list, but aren't global economic powers. Morgan Stanley thinks that at least one of them should belong with the other growing global powers based on this snippet on Bloomberg. The country is Indonesia and to most peoples surprise they are the 4th most populated country in the world yet they only have the 19th largest economy.

This only means more pressure on the limited commodity and resources of this world. Indonesia growth at 7% will quickly become a bigger player and have a much greater impact. At this point, I don't really have a good investment idea to profit from this growth potential other then inflation trades like ANR, FWLT, MTW, TEX, or X.

The other up and coming economy is Nigeria. With access to huge oil reserves, this country promises to be an up and coming economy with the worlds 8th largest population, but only the 41st largest economy. In reality, we could just lump Nigeria into Africa in general and add them to the list. Africa has a population approaching 1B and is similar to a India, but with huge resources as opposed to education. Indonesia and Nigeria combined have a population greater to that of the US.

One play in Nigeria is Alvarion (ALVR) which just signed a $7M deal to provide Wimax services in that country. ALVR has a pretty decent business in Africa in general and combined with MICC provide decent exposure to the growth in that country via there wireless services.

No matter how you slice it, the world economy will one day be controlled by forces outside the US or Europe if these other countries can continue to grow per capita standards. More to come on this subject as we explore the huge populations outside the industrialized world and its desire to join our ranks. So the BRIC could one day become BRIICN or BRIICA. After all Indonesia is larger then Brazil and Nigeria is larger then Russia. Those 2 countries have a long ways to go, but its likely only a matter of time especially with Indonesia.

Wikipedia Population List

Rank ↑ Country / Territory ↓ Population ↓ Date Last Updated ↓ % of World Population ↓ Source ↓
1 China[5] 1,331,115,200 June 7, 2009 19.77% Chinese Population clock
2 India 1,165,080,000 June 15 2009 17.17% Indian Population clock
3 United States 306,672,000 June 15 2009 4.52% Official USA Population clock
4 Indonesia 230,330,000 June 1, 2009 3.42% Indonesian Population clock
5 Brazil 191,299,948 June 15 2009 2.84% Official Brazilian Population clock
6 Pakistan 166,657,500 June 15 2009 2.48% Official Pakistani Population clock
7 Bangladesh 162,221,000
2.41% UN estimate
8 Nigeria 154,729,000
2.3% UN estimate
9 Russia 141,812,991 June 10, 2009 2.11% Russian Population clock
10 Japan 127,580,000 May 1, 2009 1.9% Official Japan Statistics Bureau estimate

Sunday, June 14, 2009

Savient Pharma Soars on FDA Note

Savient Pharma (SVNT) has been in the Growth Portfolio for several months after it and other small biotechs like Rigel Pharma (RIGL) didn't surge with the soaring market in March. Luckily both have been hot in June. SVNT had a positive note from the FDA today. See this AP note. SVNT has the drug Krystexxa up for FDA panel review on Tuesday.

Analysts have been very divided on the approval of this drug as it clearly helps treat gout, but fears exist over the potential severe side effects. The biggest support for Krystexxa is that the population largely impacted by gout typically has severe medical issues beyond the gout problem so it isn't all that surprising to have patients see these cardiac issues whether they take the drug or not. The FDA note seems to signal that the benefits of this drug out weigh the side effects. Logically they'd get approval with some sort of label warning so it has been perplexing that several analysts had such negative comments such as the stock dropping to $2. With a disease that hasn't seem new drugs in 20 years, it would seem improbable for the FDA to block a drug that clearly works just because a few patients had severe side effects.

Being a one trick pony, this stock will be volatile, but for now the odds appear to favor staying long.

  • "We are very encouraged with the FDA's listed items for discussion and believe they seem biased toward approval of Krystexxa," Kochnover wrote in a research note.
  • He said Savient's drug can likely win approval so long as the company agrees to limit its use to the target patient population and closely monitor negative side effects. The company is specifically seeking an indication for gout patients who are not receiving relief from other treatments.
  • Kochnover also noted that seven of the 16 panelists slated to vote on the drug are rheumatologists, specialists who treat gout and are likely to favor a new treatment.

Wednesday, June 10, 2009

Stat of the Day: Ratio Between Oil and Nat Gas Hits 18 Year High

CNBC has a little article on this ratio going back nearly 20 years. The ratio historically averages in the 6-8 range and anything outside that range suggests that one commodity has moved to much or the other is lagging. When ratio hits a 20 year high its something to take note of. Basically the use of oil is now so much more then natural gas that anybody possibly able to switch will whether using compressed natural gas in vehicles or such which in turn helps rebalance the price ratio.

It's important to note that the crossover of use is very limited. Natural Gas is a domestic fuel not widely transported beyond the borders of the US. Any pickup in demand will have to come from the US and the growth in compressed natural gas being delivered to the US has increased the worry that pressure will exist on prices. Oil on the other is a global product where the prices are determined by the demand in China and Europe and the US. Supply can also be more impacted by political issues in OPEC or Iran and fighting in Nigeria or Iraq.

So the supply and demand equation can be pretty different short term, but long term it still comes down to if demand in say China for fuel is picking up it'll eventually lead to world growth and demand in nat gas in the US. Or businesses will convert more and more to natural gas for fuel needs hence lowering the price of oil. Either way natural gas is probably the best bet now.

The article makes an interesting note on the companies likely to benefit from higher natural gas prices. More investigation would need to be done to understand whether their hedging positions would acutally help them or not. Considering that the stocks have already risen while nat gas is close to the lows for the year makes Stone Fox Capital favor the nat gas ETF (UNG). The producers like CHK or HK could actually be good shorts if the price doesn't recover. Right now we're bullish on the market so we're staying away from the short and just going long the UNG until prices correct.

  • The ratio of crude oil to natural gas futures prices on the New York Mercantile Exchange reached their highest level since mid-July 1991 during yesterday's trading session. Oil closed the pit session at $68.09 / bbl and Natural Gas closed at $3.731 / million BTU for a ratio of 18.25 to 1 between the commodities. So far this morning, both commodities are trading up with the ratio roughly the same.
  • Looking at data going back to early June 1990, the average ratio of crude oil to natural gas futures prices stands at 9.256
  • Earlier in the session yesterday, this ratio hit as high as 18.55
  • The last time this ratio crossed above 18.55 was in July 1991

Tuesday, June 9, 2009

Petrobras Deploys Riverbed Equip on Oil Platforms

While Stone Fox Capital has never been that big about investing in a stock based on individual customer deals, this win by Riverbed (RVBD) made us take notice. Petrobras (PBR) has become the global leader in oil exploration and one of the most respected companies in the world. The Deepwater oil that they've found recently has set off a huge capital expansion program into Deepwater drilling. For them to use RVBD Steelhead appliances on 40 Off-Shore Oil platforms is worth noting. The data collected from these platforms is mission critical and they'd likely spare all costs to find the best equipment around. They chose RVBD over likely competition from Cisco (CSCO) and all others in the industry and alternative sources of just hooking up more bandwidth. Best of Breed companies typically used Best of Breed vendors. RVBD has clearly set themselves apart from the competition.

RVBD has been a favorite stock in our Growth Portfolio going back into 2008. They continue to shine and show every reason that this company will continue to grow and prosper. The stock continues to trade along the 52 week high and should be bought on all pullbacks.

From the press release:

  • Working closely with Decatron, an integrator versed in the implementation and support of Riverbed solutions and related consulting services, Petrobras deployed 43 Steelhead® appliances: 40 on the offshore platforms and three on the continent. The Petrobras IT organization also uses the Riverbed Central Management Console (CMC) for the configuration, upgrade and monitoring of these appliances. According to Lage, Petrobras deployed Riverbed WAN optimization rather than investing in expensive infrastructure, such as optical fiber undersea connecting offshore data to continent systems.
  • After installing the Riverbed appliances, the backup window for the offshore oil-drilling platforms, which had reached 34 hours, was reduced to an average of four hours. This reduction released significant bandwidth for end-users to conduct day-to-day operations, such as accessing remote data and applications and audio-conferencing.
  • Lage tested several WAN optimization offerings and chose Riverbed over its competitors because the Riverbed solution provided acceleration capabilities designed for not only improving end-user performance, but also accelerating the replication and backup of large amounts of data.
  • On average, after installing the Riverbed solution, WAN traffic was reduced by 65%, freeing bandwidth for routine daily activities. The combination of the reduction in WAN traffic, QoS and Riverbed's ability to overcome network and application latency has given remote users LAN-like application performance.

Rigel Pharma Target Set at $33

Rigel Pharma (RIGL) has been a investment for the Growth Portfolio for several months now. It's started to get some interest not that it's Arthritis drug is nearing the end of Phase II trials. This drug has blockbuster potential so it's amazing how cheap the stock got back earlier this year. Its also just about unheard of to see a price target suggesting a 230% gain and the stock only jumps 5%.

The following information about the upgrade from Rodman & Renshaw was posted here.

  • Rodman & Renshaw analyst Simos Simeonidis gave the stock an "Outperform" rating and expects shares to reach $33 over the next 12 months as the drug candidate R788 advances through development. It is currently in midstage clinical trials, with study data expected in July.
  • The drug candidate has the potential to "become a significant player" in the rheumatoid arthritis market, he said, in a note to investors, citing its effectiveness so far in trials and oral administration. He expects upcoming data in July to be positive, reinforcing the view that R788 is approvable and could take significant market share away from injectable drugs.
  • R788 would enter a market against several entrenched treatments for the condition, including Biogen Idec Inc. and Genentech's Rituxan and Amgen's Enbrel, both of which are injections.
  • A partnership for R788 is likely the next major catalyst for Rigel, Simeonidis said. Potential partners would likely prefer to wait until after the an FDA meeting before making a decision, he added, and expects a deal to occur in the fourth quarter or early in 2010.

Monday, June 8, 2009

Texas Instruments Raises Guidance

Texas Instruments (Txn) announced a very significant raise in guidance roughly an hour ago. They've gone from a very wide range to guiding at the very top if not higher then the previous range on revenue and earnings are now expected to soar beyond the prior estimates. They've evidently cut to the bone that any incremental increase in revenue will lead to sharply higher earnings. The new median range is 80% above the street estimates.

TXN is not a market mover like it was back in the 90s, but they still should provide some nice upside to tech stocks tomorrow. It had been one of the worst performing stocks in the NetPayout Yield Portfolio, but this should help jazz up its returns.

4:30PM Texas Instruments raises Q2 outlook (TXN) : The company currently expects its financial results to fall within the following ranges: Revenue: $2.30 - $2.50 billion, First Call consensus is $2.21 bln, prior guidance was in the range of $1.95 - $2.40 billion; EPS: $0.14 - $0.22, First call consensus is $0.10, prior guidance was in the range of $0.01 - $0.15.

Buying Farmland Abroad

Very interesting article at Economist.com about the huge transactions taking place in Farmland mainly surrounding Middle Eastern or China buyers of affordable, unproductive farmland in Africa. Most striking is the deal where Saudia Arabia is leasing land from Ethiopia and shipping the food back home. Some day this trend will likely reverse as Ethiopia catches onto the game and grows the food themselves and ships it to the Middle East for huge profits. Food is likely to be more scarce then oil/energy supplies in the future. Not to mention that the World Food Program provides Ethiopia with food that could just as easily get from the land they've just leased out. What about using that money for it instead as well? Hmm...

All of these deals highlight the need for food in parts of the world and the available land in other parts. The investment increases in Sudan alone are enourmous. Stocks from farm equipment companies like Deere (DE), fertilizers like Potash (POT) and Mosiac (MOS), along with our favorite commodity risk manager FCStone (FCSX) are likely to benefit from the growth in global demand for food. The FCSX move to a global provider could prove huge. It also will indirectly benefit companies like Alvarion (ALVR) and Millicom (MICC) that provide broadband equipment and wireless servies in Africa that will undoubtebly grow from the worlds increasing need of the products that can be grown and mined in Africa. Not to mention that foreign buyers of this land will likely spend much more on telecommunication services then the locals. Air travel might benefit as well especially if China continues to employ Chinnesse workers. Our favorite airplane leasing firm Genesis Lease (GLS) could well benefit from this trend.

Will Africa one day get mentioned along with the BRIC countries as a place for huge growth? A few snippets from the article.

  • In total, says the International Food Policy Research Institute (IFPRI), a think-tank in Washington, DC, between 15m and 20m hectares of farmland in poor countries have been subject to transactions or talks involving foreigners since 2006. That is the size of France’s agricultural land and a fifth of all the farmland of the European Union. Putting a conservative figure on the land’s value, IFPRI calculates that these deals are worth $20 billion-30 billion—at least ten times as much as an emergency package for agriculture recently announced by the World Bank and 15 times more than the American administration’s new fund for food security.
  • Sudan is letting investors export 70% of the crop, even though it is the recipient of the largest food-aid operation in the world. Pakistan is offering half a million hectares of land and promising Gulf investors that if they sign up, it will hire a security force of 100,000 to protect the assets. For poor countries land deals offer a chance to reverse decades of underinvestment in agriculture.
  • EARLY this year, the king of Saudi Arabia held a ceremony to receive a batch of rice, part of the first crop to be produced under something called the King Abdullah initiative for Saudi agricultural investment abroad. It had been grown in Ethiopia, where a group of Saudi investors is spending $100m to raise wheat, barley and rice on land leased to them by the government. The investors are exempt from tax in the first few years and may export the entire crop back home. Meanwhile, the World Food Programme (WFP) is spending almost the same amount as the investors ($116m) providing 230,000 tonnes of food aid between 2007 and 2011 to the 4.6m Ethiopians it thinks are threatened by hunger and malnutrition.
  • The investors promise a lot: new seeds, new marketing, better jobs, schools, clinics and roads. An official at Sudan’s agriculture ministry said investment in farming in his country by Arab states would rise almost tenfold from $700m in 2007 to a forecast $7.5 billion in 2010. That would be half of all investment in the country, he said. In 2007, agricultural investment had been a mere 3% of the total.

Sunday, June 7, 2009

Hedged Growth Portfolio up 9% since 10/1/08 Inception

The Hedged Growth Portfolio has done exceptionally well. This portfolio outperformed nearly 99% of the portfolios on the marketocracy.com website thru the 6 months ending March 31st. As of June 4th, the portfolio is up 9% and over 27% better when compared to the SP500. It'll be interesting to see how it performed over the 9 months ending June 30th. Too many funds are either all long or all short and would've underperformed the market during parts of the last 9 months while Hedged Growth has consistently done better.

The concept of this portfolio is to keep pace with the market on up markets as it has in the last 6 months and to outperform during downturns which it did extremely well back in Oct and Nov. As you can see from the results posted from Marketocracy, this portfolio is on pace for a 38% annualized beating of the SP500. Not to shabby for just starting this concept.

Last Week 2.50%
Last Month 2.47%
Last 3 Months 28.45%
Last 6 Months 9.04%
Last 12 Months N/A
Last 2 Years N/A
Last 3 Years N/A
Last 5 Years N/A
Since Inception 9.03%
(Annualized) 13.57%
Last Week 2.33%
Last Month 2.51%
Last 3 Months 38.41%
Last 6 Months 8.85%
Last 12 Months N/A
Last 2 Years N/A
Last 3 Years N/A
Last 5 Years N/A
Since Inception -17.40%
(Annualized) -24.52%
Last Week 0.17%
Last Month -0.05%
Last 3 Months -9.96%
Last 6 Months 0.19%
Last 12 Months N/A
Last 2 Years N/A
Last 3 Years N/A
Last 5 Years N/A
Since Inception 26.43%
(Annualized) 38.10%

Thursday, June 4, 2009

Huge Reversal in Natural Gas

After what appeared to be a very bearish Nat Gas inventory report this morning, Nat Gas (UNG) plunged. Notice though that it hit right around the recent lows and rallied hard. This huge reversal is usually a bullish signal that the shorts are out of ammo. It signals the all clear sign for longs and provides a nice tidy point for a stop loss. Notice the highest volume for the month on this ETF as well.

Unfortunately we bought shares in the Growth and Hedged Growth funds yesterday instead of today. Even with the wild price swings our funds are up 2% on this position. Glad we didn't spend much time viewing them in the morning (down 10% might have depressed us).

Wednesday, June 3, 2009

Trade: Added Gafisa and Natural Gas

Quick update: Bought Gafisa (GFA) on the dip to $16.08 just around the 200EMA. See post on seekingalpha.com for more detials. Added to Growth Fund.

Bought United States Natural Gas (UNG) just above $14 on the 10% pullback today. The disconnect between oil and natural gas is very high. If the economy is in fact going to recover, then UNG is the better play at these levels. Huge cutback in drilling combined with more industrial use could squeeze the prices higher. Added to both ther Growth and Hedged Growth Funds.

Trade: Sold Coventry Health

Sold Coventry Health (CVH) shortly after the open and not long after the Aetna warning. Aetna is in the similar health insurance sector and warned of much weaker results. Based on this and the not so promising future for health insurance due to pressures from Obama Administration I'm not bullish on the sector. We originally bought CVH based on cheap PEs and the desire for exposure to the healthcare sector with the market still in crisis. Unfortunately, we should've pulled the trigger at $20 close to the 200EMA. Luckily though we got out with a nice gain around $18. This sector is still cheap so we'll look to re-enter if the market gets hit hard.

Edit 6/4: CVH initially rebounded yesterday making us wonder if the sell was prudent. Maybe Aetna wasn't that applicable to CVHs results. Maybe it'll hold the moving average after all. Well today, CVH sold off on a up 1% day and closed below the 20EMA at $18.10. This was a very bearish move and validates our sell. It's funny how the market will sometimes give you plenty of time to exit a bad position, but if you don't take advantage of it you will eventually regret it. Sometimes it just take the big Hedge and Mutual Funds days and weeks to exit positions. Now this might still turn around tomorrow and close back above the 20EMA leaving some hope. With Obama, the risk for now appears on the downside. This is an appealing name so we'll likely venture back as we already see the stock as cheap, but the market doesn't so we'll stay away for now.

Monday, June 1, 2009

Stat of the Day: Private Data Shows Building Soared in May

A private research firm names Sageworks published a report today picked up by Reuters showing that private firms increased building in May by a whopping 4.6%. It was significantly higher then the gains in March and April and let to the first 3 month increase in 6 months. Our great government was reporting construction numbers from April today. Aren't they efficient. Those construction numbers showed a larger then expected increase, but this report from Sageworks is even more bullish. One caveat though is that I know very little about the accuracy of this report or its history.

Its a very bullish data point for CAT, MTW, and TEX. It also shows how the naysayers have been so wrong about this rally. The momentum just continues to feed on itself. The stock market goes up so more people buy stuff, then more stuff needs to be built, then the government reports turn out bullish, then the stock market goes up. This pattern continues until the Fed makes monetary changes to slow down the growth. It also helps that the economy dropped so far so fast that the corresponding month over month changes provide more fuel to the momentum.

  • Sageworks Inc, a financial information firm that tracks the financials of thousands of privately held U.S. companies, said builders in its database reported their sales rose 4.55 percent in May after rising 2.94 percent in April and 1.66 percent in March.
  • That resulted in the first rise in Sageworks' measure of trailing three-month construction sales in six months.
  • Sageworks released the data after the U.S. Commerce Department reported that construction spending rose for a second straight month in April -- and posted its biggest increase in eight months -- as the private sector put money into both residential and nonresidential projects.

Cisco and Travelers Added to the DOW

Not much of a surprise to see GM removed from the Dow Industrial average today with their BK filing, but I was surprised to see Citigroup (CIT) removed and replaced with Travelers (TRV). Both were long overdue, but the additions could be debated for a long time and highlights the weaknesses in owning indexes. In both cases, Dow Jones editors waited until the stock being removed had cratered and replaced them with stocks that help up relatively well in this economy. Definitely selling low and buying high. Also, they tend to lack the future growth prospects that one would want.

Zacks has a good article about the better options for the index. Both Google (GOOG) and Monsanto (MON) would provide better growth over the next 10-20 years. We've been a big investor in Baidu (BIDU) instead of GOOG as it has the lions share of the China search market. Still both options are probably better for investors and give the index a better fill for the future economy instead of being so focused on the best stocks of the last decade.

  • CSCO has long been considered to be prime candidate for the Dow. Given its size and influence, it's difficult to argue against adding the telecom equipment company. However, the average already has Hewlett-Packard , International Business Machines and Intel -- 3 bellwethers of the tech sector.
  • Therefore, I think a better choice would have been Google . Adding GOOG would have given the Dow exposure to the ever-growing ecommerce sector AND the wireless communications sector. Phones using Google's Android operating system are slated to appear at multiple carriers this fall.

  • Travelers was clearly picked to give the average another financial company. The Dow editors continue to like Citigroup and almost appear to be keeping a spot for it.
  • Rather than staying focused on the financial sector, however, the editors should have gone with Monsanto . Though agriculture accounts for a smaller portion of the U.S. economy than it did in the past, food consumption is only going to rise in the future. Furthermore, the ongoing focus on biofuels means long-term demand for companies like MON.

Riverbed Surges to 52 Week High

Riverbed (RVBD) continues to move upwards as the market becomes more and more convinced that they have better products then new DOW component Cisco (CSCO) and Juniper Networks (JNPR). Only 50 or so NASDAQ stocks have hit 52 week highs today so its impressive indeed to be on that list. Though most companies like RVBD are still down 50%+ from the recent highs if not all time highs, RVBD was one of the first companies to bounce back.

Stone Fox continues to hold RVBD as a likely candidate to eventually return to its highs in the low $50s.