Tuesday, September 14, 2010

September Investment Report

The Bullish economic news from the last few weeks has completely knocked down the double dippers. Ok, maybe most of the news wasn't overly positive, but it clearly signaled the economy is recovering if even very slowly. With the US economy and even Western Europe at least holding steady, it should allow Emerging Markets to continue growing at rapid rates.

52 Week Highs
The banter in the media claims the market and most asset classes are trading as a group, but clearly some stocks and sectors continue to stand out providing opportunities to outperform the market. This leads us to several stocks in the model hitting 52 week highs because of global exposure or the latest hot technology like cloud computing. ICICI Bank (IBN), Riverbed Technology (RVBD), and Terremark Worldwide (TMRK) all reached 52 week highs recently. All while the SP500 is still down 110 points from the April highs. The correlation in the markets might be closer then ever, but leading companies will continue to outperform the market.


Obama Election Trade
Intrade.com continues to show that Democrats and Obama will clearly lose power in the mid-term elections in November. True Intrade very much matches more sentiment based polls, but the benefit to Intrade is that the site requires 'investors' to actually place money where they thing the vote will end up. Much better poll then a phone call to a random person. It now shows a 73% chance of Republicans taking control of the House of Representatives and a 67% chance of claiming 48+ seats in the Senate. Both numbers that would significantly reduce the ability of Obama to get his agenda passed. As these numbers move higher over the next month, expect the market to climb higher. Obama is already making more market friendly comments as these predictions are likely finally controlling his objectives.


China and Copper
China and copper remain strong markets and hence themes in this portfolio. Freeport-McMoRan (FCX), Alpha Natural Resources (ANR), Massey Energy (MEE), Lihua International (LIWA), and Puda Coal (PUDA) will continue to benefit. LIWA just confirmed 2010 EPS guidance of $1.35 yet the stock only trades at $8. With the high demand for refined copper in China, this stock will move higher once the market becomes comfortable with small cap Chinese stocks.

M&A Activity
Activity has picked up in M&A land. Several stocks in this model such as Hartford Financial (HIG), Regions Financial (RF), and Terex (TEX) continue to be mentioned as possible targets. While buyouts might add some quick gains, we'd rather see these stocks reach full valuation before agreeing to offers. The rumors clearly highlight the valuation proposition such as HIG trading recently at only 50% of Book Value. This model will be happy to see these stocks slowly regain appropriate values.

Summary
August was another rough month but hang tough as the market is headed to historically the best 6 months during a 4 year Presidential cycle. Typically the 6 months (Nov - Apr) following a mid-term election are the best 6 months during the full term. The rally might even start sooner this time with any further clarity on Obama and the Democrats losing power. Remain positive!

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