Showing posts from May, 2010

IB Net Payout Yields Model

Trade: Bought Massey Energy, China Armco Metals; Covered Research in Motion

Postings have been slow of late because of moving into a new house. Regardless, we've been focused on taking advantage of the drop in the market. Yesterday, the Opportunistic Portfolio bought Massey Energy (MEE) and China Armco Metals (CNAM) and covered the short on Research in Motion (RIMM). Unfortunately besides a small short on RIMM, we missed reducing exposure on the drop, but we're confident that we picked up MEE and CNAM on the cheap yesterday. Last check that portfolio is up nearly 8% today. The basic theme was to buy what China needs and the met coal from MEE and the recycled steel from CNAM were the just the ideal options. It doesn't hurt that the stocks are down 40-60% from recent highs. Its become evident that China is going to protract any rate hikes due to the issues in Europe and hence the market is likely to flock back into the China theme which means more commodities. More on this subject later.

Chart of the Day: Dow 5000?

Just amazed to see that a full 36% now and over 40% yesterday voted on this CNBC poll for the DOW to hit 5000 by year end. As they say, its difficult for something so drastic to happen if everybody predicts it. In a lot of ways, 2010 seems like the opposite of 2008. Everybody expects the Greece/Euro crisis to lead to Lehman II. The world is so different now. Asia and the US are now strong economies without the threat of a banking system collapse. In 2010, Europe has now pounced on the issue before it spread while the US waited too long thinking real estate was contained to sub-prime. The news of the ban on naked shorting in Germany yesterday likewise drew comparisons to the ban on shorting in the US in Sept 2008. Again, similar sounding situations but likely different outcomes. Germany is no US and naked shorting should be banned. The comparisons are naturally but to think the results will be similar is too simple minded. Everbody expects that. Good summary from the Reformed Trader

Oil Seaps Naturally Into the Ocean - UTEP Professor

Interesting comments by a UTEP professor regarding the BP oil spill in the Gulf of Mexico. First I've really heard about the natural seepage of oil into the worlds oceans that tiny microbs eat on a regular basis. Not that I'm any where close to an expert on oil spills, but it was non the less interesting to hear from an expert that this spill isn't the catastrophe that all claim endlessly on the news channels. It might also explain why we've yet to see much damage or impact from the oil spill other then relents fear from the media.

Fast Money Indicator

Fast Money on CNBC can be one of the best sentiment indicators among traders on TV. Having 4 traders on at the same time provides a good, quick look at the current sentiment. Anytime they are all this bearish after a huge decline in the market, its a good sign to take the other trade. The low of the day wasn't too far from this shows airing.... hmmm! Watch the last minute if you want to just see the negative predictions.

Filled the Gap on the SP500

The market seems to do what it has to do and it'll always find headlines to justify the move. Today we've had nothing but supposedly negative news from Europe. Anybody find anything actually negative? Please something more then a few snippets from an old Fed President is needed. More likely the scenario is that Mondays open created a gap in the SP500 that the market just can't stand to leave open. You won't see it on the $SPX on the market because of the sloppy open where numerous stocks are delayed several minutes before opening. The SPY though captured it. With the swoosh at the open today, that gap has been filled and in fact created another one on the opening today. The market has bounced nicely off the $113.5 level and must eventually fill the gap back up to $116 now. That will also be where it meets the 20/50ema likely for the ultimate test of whether this market is heading back up to old highs at $122 or back into the bear market abyss.

Trade: Shorted Research in Motion

Shorted Research in Motion ( RIMM ) for the Covestor - Opportunistic Portfolio as its becoming more and more apparent that they are becoming a laggard in the smart phone wars. Or at least that's the perception in the markets. With their failure to break the 200EMA just above $69, took the opportunity to short them and hedge alot of my long exposure. On a valuation basis, RIMM isn't overly expensive trading at roughly 13x 2011 estimates. Just have to wonder if RIMM will meet those estimates considering the success of the iPhone and Android products.

The Biotech Value Play: Cephalon

Our Growth and Opportunistic Portfolios purchased Cephalon (CEPH) last week during the downturn. Ockham Research has a good summary of the Q1 report. This basically sums up our investment thesis as well so we won't repeat it here. The company guided towards $7-7.20 for 2010 yet the market continued to sell the stock down into the upper $50s or below 9x guidance. Its interesting that the current highest estimate is only $6.98. Analysts apparently doubt the guidance. Though trading below the 200EMA is concerning from a technical basis. Today's weak bounce means the stock is likely to lag any rebound in the market. If it doesn't hold, we made trade it for a lower entry. The value thesis just becomes more attractive at lower prices.

Australia's 40% Mining Tax: Buy Non-Australian Miners

Anybody not under a rock that follows the financial world has heard about the proposed plans in Australia to tax mining profits by 40%. Not but a few weeks old and we've already seen several signs of the unintended consequences of the taxes. First, BHP Biliton CEO discussed the likelihood of putting projects on hold. Second, Peabody Energy (BTU) lowered its bid for MacArthur Coal in Australia. Stone Fox Capital's read: Buy companies with assets outside Australia in particular we've bought Freeport-McMoRan (FCX), Massey Energy (MEE), and US Steel (X). More on them later. Our reasoning is that the tax will limit the supply especially from new projects in Australia with limited impact to demand. It clearly makes assets outside Australia more attractive. In the end, the announcements this weekend could go a long way to pressure the government to ratchet back the tax plans. It clearly places short term risk around projects. BHP CEO Kloppers made it clear over the weekend that th

AerCap Holdings Posting Solid Results - Interesting Comments from a European HQ Company

AerCap Holdings (AER) reported strong results before the market opened on Friday. Naturally with panic regarding Greece, they went widely unnoticed. In fact the stock continued its massive decline as investors feared contagion dampening the key European market. AER remains the largest holding in the Growth Portfolio and returned to that title in the Opportunistic Portfolio as we added shares around $11.4 on Friday on the swoon. Could contagion spread causing a Eurozone collapse...Yes... Will it happen... Unlikely. Greece is a completely different animal compared to the other PIIGS and very likely a one-off situation. AER has direct exposure of 2 planes to one customer in Greece. Some comments from the Earnings Conference Call from the CEO. Listen from roughly around the 23 minute point (or 4:30 of the Q&A section) and listen to the response regarding the Greece contagion fears. CEO expects a repeat performance of Dubai and jokes about the 200 protesters on the Greece capital ( lat

Europe: Stronger Then You Think

Well, clearly stronger then the market thinks based on the markets last week. People still don't seem to understand that Greece had fraudulent government deficit reports and a economy in decline that is creating its need for a bailout. Other European countries like Spain and Portugal are recovering and though they face numerous issues they aren't nearly as bad off as Greece. Don't take my word on it though. Listen to the Chief Economist of JPMorgan (JPM). It actually surprised me that Europe as a whole is doing this good. PMI in the mid 50s and economic growth in the 2-4% range. Also don't forget that a lower Euro helps the export sector.

Amazing Valuations?

After a record decline in the in the DOW industrials of nearly 1,000 points, its amazing the level of valuation in the markets. Maybe its a big valuation trap. Earnings could fall apart like they did in 2008, but for the most part they all rebounded by the end of 2009. Numerous stocks that we own including AerCap Holdings (AER), Atwood Oceanics (ATW), Hartford Financial (HIG), and Teradyne (TER) now trade in the in the 6-7 PE level. Numerous other stocks trade below the 10 forward PE levels. Apple (AAPL) only trades at roughly 15x the actual 2011 estimate though they are growing at multiples beyond that. Will 2008 repeat itself just 2 years later? That just seems very unlikely with everybody stressing on the European debt issue for months now. Everybody on CNBC continues the panic mode. Why didn't anybody pound the table to buy this market? Its cheap on historic terms. This is the opposite of 2000 and 2008 is way to fresh in peoples minds for another continued panic. Is anybody sti

Will European Debt Crash the Markets?

After a day like today the question about European debt becomes a big scare. Will the market continue to plunge or was that swoosh around 3pm ET the bottom? Nobody really knows but I do like the fact that just about every guest on CNBC suggests more pain tomorrow and down the road. Some are already dismissing the lows because of the questioned trades. Interesting though history has typically dictating that such rebounds from the lows of the day turn out to be the bottom. Interesting note from First Trust on past debt crisis. The Latin American debt crisis in the 1980's had a bigger impact on US banks then this crisis. Maybe it can be argued that the European countries will impact the economy more but do you really think Italy and Spain will default? Without them running into problems, Greece and Portugal aren't big enough to do damage. Based on this chart, the 1980's saw significant market gains even with all the countries defaulting on debt. With a positive vote from Germ

Outlook For Copper

Now that the US is starting to increase demand for Copper, Stone Fox Capital is intrigued to see how the market handles strong demand from both China and the US. China has become the dominant copper user by far at 40% of the global market. The US, 2nd largest market at 10%, has been weak for the last couple of years at copper still surged to $3.5/lb recently. Maybe China does slowdown it's copper growth, but what if both markets are growing at the same time? The last time the US had a strong market was in 2006 and China was much smaller back then. Interesting interview with Richard Adkerson, CEO of Freeport McMorran Copper (FCX) and Co-Chairman of McMoRan Exploration (MMR). A few interesting points: FCX recently started up operations in Arizona to supply a growing US market the proposed 40% mining tax in Australia will cause investment dislocations ( to the advantage of FCX and other miner not in Australia ) MMR doesn't operate in the deep waters of the GOM though they do drill

The Tech Stock Dilema: Teradyne

After a decade of extreme negativity for tech stocks, it shouldn't be that surprising that some stocks in the sector have PE multiples unheard of for the sector. After a decade where a typical tech stock fell some 90% from their 2000 peaks, why would investors pile into them regardless of their earnings? After all, why not buy commodity and energy stocks that have been all the craze for the last 5 years. Teradyne (TER) is one such example trading on Friday's close at just 8x 2010 estimates and 5.5x the upper end of 2011 estimates. The stock is down some 85% from its 2000 peak around $100. What could the stock offer investors that were so burned by holding in the early 2000s? For starters, its gone almost unnoticed that TER just reported the highest semiconductor related orders in 10 years. Heck, Stone Fox Capital has been allocated some 20% into tech stocks like Apple (AAPL) and Riverbed Systems (RVBD), but we've mostly ignored the spaces such as semiconductors or communic

Chatter on TEX as an LBO Candidate

Not something we'd usually comment on, but the option volume sure suggests something is in the works. TEX closed at $28.18 which is close to a 52 week high. The spectacular number today is the 15K options traded for May with a large volume in the 30s. This does give some credance to the rumors of management taking them private via a LBO. TEX has been rumored of a buyout for a while now. They've cleaned up their business via some divestures that has really solidified the balance sheet. The stock trades nearly 70% below its 2007 high and management expects earnings of $6 in 2013. Means making $7-8/share is the likely internal goal. Why wouldn't you want to take it private if the market will let you? Not a huge fan of buyouts, but I'm not one to turn down free money today instead of waiting 12 months for it either. Not being an insider we aren't privy to all the news nor can we affect the outcomes. If TEX wants to offer shareholders $40 this week, I'd gladly take

Stat of the Day: ISM Manufactoring Level Suggests 6% GDP Growth

At least that's the number that First Trust quotes from the ISM. The ISM came in at a strong 60.4 which was barely above expectations, but its key to not get caught up in the expectations game sometimes and just absorb the numbers. A number above 60 represents exceptional growth and was last seen in 2004. It wouldn't surprise us to see this number move on into the mid-60s before peaking out. Especially with new orders rising to 65.7 signaling strong growth ahead. Read the report from First Trust for all the details. The 6% GDP growth is something that the market clearly does not have factored into estimates. Not sure I've heard any other economists forecast such high numbers.