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Showing posts from September, 2009

Stat of the Day: Conflicting Data Points

As the market as seen the last couple of days, the economic reports have been very conflicting to the market. Typically improvements from last month or quarter, but below expectations. Thats typically short term bad for the market, but sometimes they provide the best buying opportunities. Below we'll review the major data points this mornings and as you'll see the numbers aren't as bad as the market reacted with the 1%+ sell off:


Chicago PMI
This number that mostly measures the manufacturing activity in the Chicago region came in much weaker then expected and actually weaker period. It's a confounding number because no indication exists that September was a weak month. Think Mr Ghriskey summed is up pretty well.

The Institute for Supply Management-Chicago business barometer fell to 46.1 in September from 50.0 in August. Economists had forecast the index at 52.0. A reading above 50 indicates expansion in the regional economy. "Don't know why it looks so weak, when…

Favorites Hartford Financial and Terex Close at Recent Highs

Hartford Financial (HIG) is now the top position in our Growth portfolio and Terex (TEX) is a long term holding. Both companies closed today at highs not seen since the market blewup late last year. Being that they both broke thru closing highers from the last couple of weeks, they are likely to surge even higher.

HIG: with 2010 estimates now approaching $4, HIG is likely to surpass a 10 PE sooner rather then later. I'd place at least a $50 target on this stock as the SP500 stays above the 1,000 level. So the closing price above $28.5 is still only a 7 PE.

TEX: this construction company is more difficult to value with some analysts placing the trough sales not until 2011. TEX once traded close to $100 so it seems unlikely that a price just jumping above $20 would be anywhere near a top. The way China and India have returned to growth and the demand for housing in Brazil is seems overly pessimistic that demand won't pick up much sooner then expected. MTW has also broken out and i…

Trade: Bought Synovus Financial

Bought an initial position in Synovus Financial (SNV) for the Growth Portfolio. SNV is a Georgia based banking institution hard hit by non performing loans. SNV recently did a $600M equity offering at $4 so the purchase around $3.8 is a 5% discount to that offering. As we've seen on most of these banking deals, the offering eliminates the 'going out of business' fear and allows for the stock to eventually trade more based on normalized earnings down the road in 2011. The extra cash also gives SNV the opportunity to snap up some of the banks that seem to fail every week in GA.

The other reasons to buy are based on the analysis by banking expert Tom Brown and the technicals suggesting prices above $3.8 are support. Do your own homework but don't take too long.

Recovery or Not?

Alot of debate in exists in the financial community regarding whether the recovery is for real and ironically whether the market has already topped for the year. Its very interesting that the debate is so fierce. It seems so unlikely that the market would've topped out already with so many individual stocks that we follow still trading at upsurd levels. Heck our favorite play, AerCap (AER) has a roughly 4 PE. Plenty of other stocks still trade below book value.

Now its important that an investor doesn't just try to find a story that fits his thesis so that's always a concern that we're worried about. To us though, that seems to be what the shorts are doing these days. Check out this article from Minyanville.com. They are typically in the bear camp so it isn't too surprising to find an article suggesting a top, but all the jumbled up technical jargon in this report just seems like a stretch. Its been shown plenty of times that markets don't correct during a recov…

Tom Brown on Regions Financial

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Tom Brown from Bankstocks.com has some interesting points about Regions Financial (RF) and the banking industry sector as a whole from the Barclays conference. Tom is well known as one of the top banking analysts in the industry. Hes also known for being too positive and upbeat about the crisis that took place the last couple year. Whats interesting is that based on the information presented about RF, it may turn out that he wasn't that far off base. What it turns out is that the government and the naysayers were way off base in their worst case estimates. Estimates that just about brought down the global economy.


Government “stress test” loss estimates are way too high. I’ve said this ever since the test results were released back in tk. Now, two quarters into the eight quarters the tests cover, and with high visibility into a third quarter, the tests’ excessive pessimism is more obvious than ever. None of the 19 big banks that were tested will come anywhere close to reaching the …

Stat of the Day: Consumer Confidence Hits Jan 2008 Highs

The University of Michigan September sentiment numbers roared ahead this month easily surpassing consensus and sharply above early August numbers. These numbers are always very volatile and not always in tune with actual consumer spending. The impressive part of this report was the future expectations continue to reach levels not seen until prior to the financial collapse.

The Reuters/University of Michigan Surveys of Consumers said its final index of sentiment for September rose to 73.5 from 65.7 in August.This was above economists' median expectation for a reading of 70.3, according to a Reuters poll.The index of consumer expectations rose to 73.5, its highest in two years, from 65.0 in August."Consumers reported that the economy had already begun to improve and anticipated further gains in the year ahead." The index of current conditions rose to 73.4 in late September from 66.6 in August.

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Terra Industries Announces $7.50 Special Dividend

Terra Industries (TRA) announces a $7.50 special dividend to be paid sometime in Q4 assuming they successfully complete some debt deals consisting principally of a $600M debt financing that pays for a portion of the special dividend.

4:17PM Terra Industries announces plans for $750 million special cash dividend ($7.50/share) and is commencing tender offer for 7.00% senior notes due 2017 (TRA) 36.49 +0.34 : The co announces that it plans to return an aggregate of approximately $750 million in cash to shareholders through a special cash dividend of $7.50 per share, expected to be declared and paid in the fourth quarter of 2009. Terra also announced that Terra Capital, Inc. is commencing a tender offer and consent solicitation to purchase any and all outstanding 7.00% Senior Notes due 2017 of the Company (the "2017 Notes") for cash at a price equal to 104.5% of par, including a consent fee. In addition, Terra plans to raise up to $600 million of capital through a debt financing…

Mobile Internet Tsunami

Back on August 11th, Jim Cramer promoted the Mad Money Mobile Internet Index. An index that tracks the upswing in mobile internet devices such as the iPhone from Apple (AAPL) and the Pre from Palm (PALM). Cramer thinks this is a multi-year move similar to PC revolution in the mid 90s and the internet revolution in the late '90s.

On-the-go Web is a trend equal to the mass adoption of the PC, he said, and it will be with us for some time to come. So Cramer today created the Mad Money Mobile Internet Index to track what he expects will be a years-long growth cycle.The index includes 21 stocks that for the most part don't interest us because most of the networking equipment and semiconductor companies margins tend to get squeezed by the big players such as APPL. Its hard to over thing this play and why not just go with the big boy benefiting from the theme. Index list by sector:

Smartphones
Apple - AAPL
Google - GOOG
Research in Motion - RIMM
Palm - PALM

Telecom Equipment
ADC Telecom - A…

Fast Money Halftime Negativity Fest 2

Watching the Fast Money Halftime show on CNBC today reminds me of how bearish traders still are these days. Back on May 13th, we hightlighted the same scenario [Fast Money Halftime Negativity Fest]. The SP500 was around 880 at that point and we all know how it rocketed to 1,080 just this week or roughly 200 points.

In a normal day after a few days of selloffs, traders would be going back and forth on whether to buy the pullback or sell more. Today though they are all jumping on the notion that this is the beginning of the big reversal and correction. All of this prior to the market even breaking the 20EMA or its uptrend. Seems more like signs of people that want or expect a certain action to take place and they are trying to will it to be. Its pretty surprising because all of these traders should be more on board with the trend of 3-4% drops to the 20EMA finding support. Spots where buying as been very profitable. None of that here and that makes me more bullish. We've been strong…

Has Local.com Turned the Corner with Top 10 Search Ranking?

After reporting Q2 numbers that we'll discuss in more detail later, Local.com (LOCM) showed signs of actually starting to turn the corner from a serial disappointing money loser to a fast growing money maker. Then on Sept 14th, Nielsen reported that little $60M market cap Local.com made the Top 10 Search Providers for August. Its hard to tell if this really adds up to much considering they just grew with the market at 2.9% MOM, but the extra attention might just help. Local.com has always had an interesting concept of delivering great local internet searches at an easy to remember website. Unfortunately they've never caught the attention of the mass market and especially advertisers. Making these Top 10 lists might help spur on media attention and with just 0.2% of the market share they've got plenty of room for gaining share not to mention growing with the market.
Table 1: Top 10 Search Providers for August 2009, Ranked by Searches (U.S.)
ProviderSearches
(000…

Performance Review: Hedged Growth Up 20%+ as First Year Comes to a Close

Stone Fox Capital originally started the Hedged Growth Portfolio on 10/1/08 to provide a more structured asset allocation that included at least 1/3 of the portfolio to be either short or in cash. This portfolio has performed above our wildest dreams having an annualized return of over 28.5%. Even considering that the tracking vehicle of marketocrazy.com doesn't allow short sells so the only instruments for executing that strategy are short ETFs.

What is remarkable about this portfolio is that it has kept up with the market with only 2/3s of the portfolio long the last 6 plus months. Stone Fox Capital has been right on to have most of that potential short exposure in cash during this period. We also we're pretty fortunate to have a decent amount of short exposure during the crash back in Oct and Nov of last year.

Some of the largest positions such as Apple (AAPl), CSX (CSX) and Baidu (BIDU) have had exceptional returns. In the case of BIDU, the stock is up 211% in this portfolio…

Stat of the Day: Leading Economic Indicators Hit 8.9% Annual Rate

For the 5th month in a row, the Leading Economic Indicators soared higher. All this time, the leading economists have dismissed the rally in the markets. Now the LEIs have reached a point of 8.9% annual growth over the last 6 months and still most of the 'experts' commenting about the numbers only suggest that the recession is over, but the recovery is questionable. The data suggests otherwise and its foolish to base your decision on the Lagging Indicators which seems to be the typical error.

The Conference Board Leading Economic Index™ (LEI)for theU.S. increased 0.6 percent in August, following a 0.9 percent gain in July, and a 0.8 percent rise in June. "Since reaching a peak in July 2007, the LEI fell for twenty months – the longest downtrend since the mid 1970s – but it has been rising since April and its gains have become very widespread," says Ataman Ozyildirim, Economist at The Conference Board. "The six-month growth rate of the LEI continues to accelerat…

Merger of Genesis Lease and AerCap

This expected merger was announced on Friday morning. Its expected to create the largest independent airplane lessor in the world with a market cap just over $1B. Its also expected to create a serious increases to the 2010 EPS estimates for Genesis Lease (GLS) shareholders per slide 9 of the merger presentation. The estimate goes from $0.77 to $1.75. That has to be the largest increase Stone Fox Capital has ever seen on a merger announcement. At the same time it also enhances the Leasing EPS for AerCap (AER) slightly. This is important because analysts and investors typically prefer a steady recurring revenue stream over the lumpy earnings that AER typically generates from airplane and engine sales. Adding in those earnings give the potential for an EPS total closer to $2 for 2010.

Whats amazing is that the stock for AER trades sub $9 at the close. This for a stock expected to earn $2 in 2009 and 2010. So why does the stock trade at a sub 5 PE? Its really difficult to answer that ques…

Performance Review: Growth Portfolio Positive

The Growth Portfolio has now turned positive since the tracking was launched on June 19th last year. During this time period the SP500 is still down nearly 18%. On a annualized basis the portfolio is now outperforming by over 17%.

Its been a very long roughly 16 months now and the total performance isn't that much to write home about, but the relative performance has been spectacular especially the last 6 months. Having survived the downturn slightly worse then the market, Stone Fox Capital has been able to pick typical fast growth companies to outshine the market lately. The Portfolio is up 95% the last 6 months.



RETURNSLast Week9.31% Last Month17.79% Last 3 Months29.62% Last 6 Months94.82% Last 12 Months21.03% Last 2 YearsN/A Last 3 YearsN/A Last 5 YearsN/A Since Inception2.29% (Annualized)1.83% S&P500 RETURNSLast Week3.45% Last Month9.29% Last 3 Months16.99% Last 6 Months40.65% Last 12 Months-9.54% Last 2 YearsN/A Last 3 YearsN/A Last 5 YearsN/A Since Inception-17.81% (Annual…

Foster Wheeler Upgraded by Goldman Sachs

Interesting timing by Goldman Sachs (GS) considering FWLT has nearly doubled over the last couple of months and we've already noted that its broken above key technical levels in early August when it burst above $23. Possibly time to take some profits knowing how these upgrades work. Long term though FWLT is likely to benefit big time from the push for LNG in Australia. The Gorgon Project is a huge. Stone Fox is still betting that FWLT returns to old highs in the $70s so the $41 target is meaningless especially from a company that watched the stock bounce from $23 to $34 recently without uttering a word.

Foster Wheeler(FWLT Quote) upgraded at Goldman from Neutral to Buy. Company trades at a reasonable valuation and has leverage to Australia LNG growth. $41 price target.

Stat of the Day: Philly Fed Highest Since June '07

The Philly Fed Index reported a sharp increase for Sept of 14.3 above the consensus of 8. Making this the best report since June 2007 and the first 2 month increase since October last year showing that manufacturing has completely turned the corner. The interesting notes were that inventories and hours worked continued to decline showing that even with the corner turned, pent up demand is going to be huge. Profits as well will be strong with more shipments from fewer employees.

All of this news seems bullish for the market though not somewhat bearish for employees.

Genesis Lease Confirms M&A Discussions

In a rather unusual twist, Genesis Lease (GLS) confirms that they are actually in M&A discussions backing up a earlier story today. No guarantee that it will work out, but it's surprising to see that the article was at least partially accurate. In the past it tends to work out that such articles are only half accurate. The article suggested that AerCap (AER) was in the process of buying GLS for a 40% premium or a price that would work out to $9.60. So don't be surprised if it's actually another acquirer or if the purchase price is materially different.

The deal would still be way below the $14 book value of GLS, but Stone Fox Capital has argued that since AER also trades at a similar BV discount it'd be advantageous for GLS shareholders to take the 40% bump and then participate in any AER rally. A rally likely to be quicker with the attention such a deal would bring. In addition, we suggested just less then a month ago that AER was the best investment in the airpla…

Betting Big on Brazil's Housing Market

Stone Fox Capital is invested heavily in Gafisa (GFA) which is a large home builder in Brazil. Brazil is a market that supposedly has a 7M deficit in housing units something that bodes well for long term demand. The below interview is with the CEO of a division that GFA now owns. Tenda is the largest low income builder and I believe that GFA owns 60% (Now if I only had time to verify).









Einhorn on Moody's

Couldn't agree with Einhorn more. The rating agencies did a horrible job and shouldn't be allowed to get away with the fruad they committed. Moody's (MCO) is one of the stocks were looking to short when the market turns. Right now we expect a huge melt up so its difficult to go short during such a strong market.

Einhorn is the famous hedge fund manager of Greenlight Capital that repeatedly told people to sell/short Lehman Brothers before they collapsed last year. His best quote in the below clip is "it wasn't a question of modeling error, it was a question of taking market share." Based on that its difficult to see how MCO is able to attract new business much less keep what they have. What executive in his right mind would tell an investor that such and such debt product is rated by Moody's. I'd laugh them out of the room. At the least, they'll have to provide some other 'independent' source of ratings.







Savient Pharma Upgraded to $25

Savient Pharma (SVNT) has been one of our favorite biotechs this year. They are on the verge of drug approval for a gout drug that will have no competition and solves a problem that has had no cure for a long time. The stock has been weak after the FDA decided to not approve their drug after positive P3 trials due to a manufacturing issue. Its just about a no brainer for approval in that their drug provides a much needed cure regardless of some possible side effects.

Collins Stewart upgrades them on these facts. Including that a larger firm could come in and quickly wrap up the manufacturing issue and some other minor issues. The stock traded at just $14 prior to this upgrade today and continues to be an amazing bargain at these levels.

Savient Pharma: Collins Stewart believes SVNT is de-risked and attractive for any rheumatology company; tgt raised to $25 (14.21)

Collins Stewart raises their tgt to $25 from $21. Firm expects a Krystexxa approval for treatment-failure gout given the addr…

Disappointing Moves in Riverbed Systems

Riverbed (RVBD) has been stuck in a range between $19 and $20 ever since they reported a supposedly disappointing earnings report for Q2. The main reason the report was disappointing is that the hype in the analyst community had gotten pretty fevor pitched that RVBD would post a much better then expected Q. Instead they printed a below expectations revenue number and the stock quickly swooned from $26. Since then the market has been busy chasing the trash in the market and RVBD has been discarded as trash. With a healthy balance sheet and strong earnings potential they will be rediscovered.

RVBD is one of the few companies that has shown growth during this horrible economy so its amazing that the market has so quickly forgotten them. Not holding $20 today was a pretty bearish signal and the chart doesn't look very impressive. We think its hardly because RVBD has any issues, but rather the market chasing all the low quality stocks beaten up so bad last year. Expect that to turn back…

LIZ Sees Trough in Margins

Speaking at a Gloldman Sachs conference today, Liz Claiborne (LIZ) CEO claimed that they've seen a trough in both gross and operating margins. This is a very encouraging sign that a turnaround is finally at hand. LIZ finally has inventories under control and can sell new items without huge discounts.

The CEO did throw in a nugget that the new Mizrahi line at the namesake line isn't selling that well at department stores. Would be nice to get more color on this as department sales have been weak everywhere. If the margins are increasing, then at least the concept as a whole is doing better. After all inventories and margins are sometimes more important then fashion. Still, Stone Fox Capital was looking for a homerun from this stock due to the Mizrahi refresh. If this doesn't materialize the stock will still soar, but not nearly as high.

The CEO also eliminated any fears over bankruptcy potential because of hiring a turnaround expert. Since the chart confirms the CEO statement…

Cramer Agrees WIth Our Melt Up Theory

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On Mad Money last night Cramer basically backed up our theory of a huge melt up in the markets to above 1,200. It was just last Wednesday that we wrote our theory and we had originally brought up the idea over a month ago. The comments on SeekingAlpha.com were pretty negative regarding the concept of the market moving 1,200+. Hmm...maybe we'll get the last laugh.

He uses chart analysis from Dan Fitzpatrick so its backed my more then just his crazy ideas. Fitzpatrick even thinks a move to 1,272 is very possible. See below for the video and his 6 reasons to back up the chart:

Cramer is taking a deep dive into a graphic representation of where the market can go, courtesy of Dan Fitzpatrick of RealMoney.com. The technicals point to a "head and shoulders" pattern and just about any way you look at these charts, the S&P looks to go to 1200. Based on the furthest distance from its 200-day moving average, Fitzpatrick also thinks the S&P could go to 1272, which is a 24% mov…

Foster Wheeler Breaking Out

With the $31+ close, FWLT has officially broken out. Nice analyst call with a $35 target and a contract in Poland. FWLT remains one of our favorite plays as the developing world continues to need new energy power generation and construction projects. We look for FWLT to easily surpass that target this year with huge projects in Australia, Middle East, and Asia to be awarded now that the global economy is back growing.

Finally a Portfolio Manager that gets Leading Indicators

Stone Fox Capital has been literally pounding the table that the leading indicators predict substantial growth in the the US economy. While everybody else is floundering around about the August Jobs Report tomorrow Daniel Frishberg from Laffer Frishberg is on our side that it doesn't really matter as we already know the basic data sets used to calculate the number. We also know the number can be lumpy and that the trend is definitely up. The leading indicators ultimately matters. He's looking for an ultimate run to 1,150 with a possible upshoot following our 'melt up' scenario though he expects (kinda sounds like hopes) for a correction first.


















Interview from July on CNBC Asia basically highlighting the same scenario.












Buy a Farm and a Shotgun

Interesting interview as always with Dr. Marc Faber. I'd agree with the buying a farm, but I'm not so sure about the shotgun or even machine gun that he suggests as an upgrade. The Obama Administration has backed away from alot of their plans, but if the market 'melts up' as we think it might empower him to move forward with his socialistic plans such as taxing the wealthy. Still I'm basically in agreement with him that investment areas outside the US will do the best.


Net Payout Yield Focus: BP (BP)

With the crazy market of the last year, it's been difficult to focus on the Net Payout Yield stocks in our portfolios. The Net Payout Yield is the combination of the payout from a dividend and any stock buyback divided by the market cap of a stock. A lot of mutual funds, ETFs, and advisors focus on the values of investing in dividends, but not many focus on companies that buyback stock. Stock buybacks are more efficient ways for increasing the value of your portfolio, but more people seem to like getting the cash directly even if its less tax efficient. While getting cash can be important to clients, the total return usually rules investment decisions and the Net Payout Yield has proven to be a much better investing philosophy. Unfortunately this last year has made it difficult to pick such companies with so many of them cutting back stock buybacks to conserve liquidity and many financials eliminating dividends.

One of the better investments in our Net Payout Yield portfolio has b…

Will the Market Melt Up?

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You can't watch a clip on CNBC or Bloomberg or read an article on numerous websites without somebody talking about a correction in September. Even SeekingAlpha has a focus on buying gold to protect from the 'inevitable' downside. Guess the market got that start on the 1st day with the SP500 down over 2% and then over 0.5% soon after the bell on the 2nd day. Every poll I see the pollsters expect a much larger chance of a large drop rather then a large gain in September. The action on the first just seems overly convenient to suck in the shorts that have been expecting a huge sell off and Monday was there confirmation. But is that what will actually play out?

Watching Fast Money last night I was appalled and then delighted to see that they featured the PermaBear trio of David Rosenberg, Peter Schiff, and Roubini. One decent down day and they pull all the stops on the negative side. Though I do agree with Schiff in that investing outside the US will see better returns he doe…