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Showing posts from December, 2010

Barclays Issues 2012 Guidance for Riverbed Tech

Interesting comments from Barclays regarding Riverbed Tech (RVBD) back on the 22nd. Guess I missed their report due to the holidays. The numbers they've issued are interesting because it highlights the investing conundrum involving RVBD.

Barclays upped 2011 estimates and issued 2012 numbers. On the face, RVBD trades at nearly 50x the street estimates for 2011 earnings of $.76. That PE ratio is extremely high and places RVBD on our list for pruning our holdings. Might be time to take our money and run.

What makes the decision interesting is that as the calendar rolls into 2011, the market will begin looking towards 2012 numbers which Barclays estimate at $1.09 and possibly as high as $1.3. The best guess lowers the PE to a manageable 31 or roughly in line with the growth rate around 30%. Now if RVBD hits closer to the upper estimate the PE drops to 26 and a ratio much lower then the growth rate at that point. Hence, the dilemma of investing in high growth stocks. They only appear e…

Stat of the Day: Richmond Fed Jumps Back to Recovery Highs

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The Richmond Fed reported today the December number jumped 16 points to 25. A reading close to the highs reached this summer and higher then any activity of the last 10 year. It appears that manufacturing is ending 2010 on a very high note. The Richmond Fed isn't typically seen as an important region, but it does provide the earliest insight into the December activity.

The important sub-components of Shipments and New Orders jumped to roughly 30 with the Shipments recording a new recovery high. Also interesting is that inventory levels of both finished goods and raw materials dropped signaling manufacturers will need to restock supplies.

Hiring conditions continued to improve at a moderate pace over November. Wage growth doubled so that is concerning for profit margins if it is to continue.

All in all a very solid report considering the October activity was approaching flat and within 2 months it has soared all the way to 25. Backlog Orders have gone from -12 to 14 showing the dram…

Legendary Money Manager Dies at 107

Roy Neuberger died over the weekend at 107. Maybe Warren Buffett isn't so old after all. Since Roy was already in his 90s when my financial career began, I'm not as familiar with his work, but he has an impressive track record that naturally can't be topped by living to that ripe age.

Considering he was a value investor maybe there is something to that way of investing that leads to a longer, happier life. Less worries about market swings and volatility. The Net Payout Yields portfolio attempts to follow that trend, but the rest of our portfolios are very volatile. Maybe we should adopt that philosophy. Sure would be less stress, but maybe not as much fun.

Anyway, just thought it was interesting that a pioneer in the supposedly stressful area of money management survived the stresses of the market for that long. Even more interesting is that at the ripe age of 105 he supposedly helped a Neuberger partner plow money into the market at the bottom of the financial crisis in 2…

Bullish Sentiment Can Be Bullish

In a time and age where every investor sentiment indicator is used as a contraian figure, its likely that most of the analysts spewing such non-sense haven't ever reviewed whether it is factual. First, just because a sentiment figure is calculated it doesn't mean that the pollsters are actually rigorous in their answers. Its easy to say your bullish these days, but not likely as easy to have actually invested cold, hard cash. Hasn't the consumer sentiment numbers taught us over the years that spending doesn't always match sentiment. Second, being initially bullish doesn't mean that investors can't an won't remain bullish for a long time. Opinions don't seem to swing that quickly.

Ciovacco Capital did some interesting work on investor sentiment and found out that it's not as indicative of a pending market crash as the procrastinators on TV would suggest. They worked with Robert Colby, author of The Encyclopedia of Technical Market Analysis, to better …

China To Spend 68% More on Power Generation

That headline just seems incredible considering how much China already spends on generating power and especially the commodities such as copper and met coal. According to a research report by the China Electricity Council, China plans to spend $1.7 Trillion (yes Trillion) on power generation over the next 5 years versus the previous 5 years from 2006 to 2010.

Yes, thats a whopping 68% increase!

The expectation is that power generation capacity will rise 8.5% annually to 1.437 million megawatts by 2015. By 2015 only 33 percent of the power generation will be by non-fossil fuel and some 36% by 2020. So while the percent of non-fossil fuel will increase it appears that the fossil fuel (read coal) portion will continue to rise.

Will it ever end? Can China continue to grow at an enourmous clip? Well, until they eclipse the US in GDP, they likely can keep it up. With roughly 4x the population, China should have a bigger economy. This growth means that copper at $4.27/lb might be relatively …

Original Covestor Model Tops 60% Gain for 2010

The Covestor Opportunistic Arbitrage (Levered) Model was launched on February 3rd this year. Since then the model has gained over 60% now while the SP500 is up 14.3%. Not to shabby and sure exceeds the goal of beating the market by 2-3x its gains.

The model is very aggressive with leverage probably averaging over 1.5x for the year. The model has greatly benefited from cloud computing and commodity stock gains. Lately though retail stocks such as Dicks Sporting Goods (DKS) and Liz Claiborne (LIZ) have helped out.

Please review the model on Covestor.com if you have any interest in investing in it.



Inception Feb 03, 2010Manager*S&P 500Avg. Sub.Month to date (%)8.896.278.401 month (%)9.76-0.239.14

Follow Up on Regions Financial

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Back on November 16th, Stone Fox Cap added to its Regions Financial (RF) position when the stock swooned on the back of the departures of the Chief Risk Officer and others in the risk management area. The initial fear and typical of Wall Street was to be concerned that this was an indication that problem loans were escalating out of control and RF would be posting some horrible numbers.

While on the surface that might be a plausible thought, it just didn't pass the rigor test. RF had performed badly during the financial crisis caught with numerous bad loans in Georgia and Florida. So if the CRO hadn't prevented RF from avoiding the housing crisis, why was the market concerned when he left? If anything, it seemed long overdue.

Back in our article on the 16th [Trade:Added Regions Financial on Management Shakeup], we suggested that this was excellent news and hence bought more shares around $5.7. Management had followed up on the resignations that the BOD wanted them to leave due…

Potential Breakout on Liz Claiborne

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Interesting movement today in Liz Claiborne (LIZ). The company is still struggling to right size its business structure and return to a profitable company. The stock is up over 5% today around the $7.65 area which is close to the recent highs of $7.79 intraday and a closing high of $7.61 just on December 6th. A close at these levels and any follow through tomorrow could signal much higher prices.

Not sure what the market is telling us other then the retail environment has been strong this holiday season. Interesting though is that Jones Group (JNY) is only up 1% today and its no where near recent highs in Oct around $21 which is much higher then the current sub $16.

Maybe LIZ is in play and thats why the stock has been strong. Regardless the stock is possibly set up for a retest of the yearly highs in the $9-9.5 range reached back in late April. LIZ isn't thought to be well run so somebody apparently knows something to aggressively buy LIZ today. Its a cheap company if they can ev…

Limelight Networks Wins Appeal on Akamai Lawsuit

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Today Limelight Networks (LLNW) announced that the United States Court of Appeals for the Federal Circuit had affirmed a District Court grant of LLNW's motion for judgement for noninfringement of Akamai's (AKAM) '703 patent. Basically confirmation that at the very least, AKAM can not prove that LLNW infringed on its patent.

Considering the stock action of late its surprising that this news was bullish for LLNW. Eight straight down days sure suggested negative news on the horizon. Highlights the issues with tech trading. Sure it might have gotten an investor out of LLNW much higher then the intraday lows sub $6, but for all the wrong reasons. The market clearly shot first without any logical reason. It clearly wasn't apparent that LLNW would lose this appeal.

In the low $6s, LLNW provides a opportune entry point into Content Delivery Networks (CDNs) and the move to cloud computing. As pointed out a few weeks back by Stone Fox, LLNW still needs to prove they can not only…

Global Hunter on Lihua International

Interesting comments on Lihua International (LIWA) by Global Hunter on theStreet.com especially considering the negative story posted all over the internet claiming fraud. So far the fraud claims seem far fetched, but you never know. Also interesting that the fraud claim wasn't addressed especially since it appears this analyst has visited their sites in China.

Global Hunter isn't a big name on Wall Street so I don't know whether this video will have a huge impact on Monday, but it will help to offset the negative story put out last Thursday. Though that story was just a rehash of previous reports from earlier this and last year it will help that it doesn't gather steam.

The analyst from Global Hunter made some interesting comments about LIWA trading at sub 4x 2011 earnings. Thats nearly $3 in expected earnings next year. The street has been much closer to $2 all year so I'm leaning towards the analyst mis-stating the number then any real research suggesting that t…

Accenture Pops on Results

Accenture (ACN) jumped roughly 8% today on the back of solid earnings released last night. Anybody following the Net Payout Yields would've been alerted to jump into this stock long before this report. Even after a big run the last few months, ACN has a solid dividend of 2% and repurchased $620M worth of shares during the last quarter providing a roughly 8% buyback yield. The total Net Payout Yield jumps to nearly 10% even with the jump in stock price.

ACN raised full year guidance to a mid point of $3.12 a share easily exceeding the $3.04 estimate. Part of this is due to the $.04 gain in this quarter alone from the buybacks. Then again analysts know they plan to buyback shares so that should be factored into estimates.

Lots of investors continue to slam buybacks but ACN provides an ample example of how they can work so masterfully. With the stock depressed over the last year, ACN used their good balance sheet and strong cash flow to buy back shares on the cheap. So cheap that it …

NII Holdings Lines Up 3G Licenses

NII Holdings (NIHD) is a recent addition to the Opportunistic Long Only portfolio and on Tuesday they announced the winning of 3G licenses in Brazil that covers the majority of the population. This comes after recently winning such licenses back in October in Mexico as well. Considering the costs of $715M to buy the Brazil license and several billion to build it out, the major issue is whether they'll have the cash to fund this massive expansion.

NIHD is a leading wireless provider in Latin America and a major force in the important markets of Brazil and Mexico. They currently have over 3M subscribers in both markets along with a total of 8.6M subscribers when adding in Argentina, Chile, and Peru.

2012 will be a massive year as they begin implementing the 3G networks in Brazil and Mexico, but that leaves 2011 as a year of major capital expenditures for a company with $544M in net debt. Considering they have $2.4B in consolidated cash and investments they likely will find an afford…

Deutsche Bank Sees SP500 at 1,550 in 2011

We've followed Binky Chadha, Chief US Equity Strategist at Deutsche Bank, over the last year or two. While his calls for a higher market get moderate coverage on CNBC or Bloomberg, he doesn't get near the play as Doug Kass predicting 2011 as flat or the PIMCO guys predicting a 'new normal' or of course the doom and gloom gang.

While 1,550 is a very aggressive 25% gain, its bullish that the market only gives him minor credibility though he has been accurate lately. Back in March he predicted the market would end the year at 1,325. As we suggested back then that number appeared too high, but it might not end much off the mark. Much more comfortable with a 1,400+ number next year as long as the market quickly dismisses such lofty targets.

Watch the below video, but the key point is that average investors have likely not heard his prediction and quickly dismiss it.






The Problems with Electric Cars

Note: This article was originally written at the end of November to correspond with a short position in TSLA. Unfortunately I failed to make the trade and now TSLA has swooned big time. It will definitely be followed for future entry points on the short side. The news of the Russian billionaire entering the market just further highlights the competition for a sexy market similar to airlines even when the leading independent company is far from profitable. 



While most of America is enamored with the supposed benefits of lower emissions of electric cars, the real beneficiaries appear to be utilities and coal and natural gas producers.  Lots of people debate whether electric cars reduce emissions. After all, power plants that use coal fuel electric cars. People seem to assume that batteries get charged by fairy dust.

The Washington Post had a great article a few weeks back detailing why utilities are both thrilled and worried about electric cars. Something about utilities being thrilled …

Lihua International Sees Even Higher Demand for Copper Products

Lihua International (LIWA) remains a top investment in the Opportunistic portfolios as its recycled and refined copper products remain in high demand in China. Today LIWA upped copper anodes product shipments for 2010 and increased the demand for 2011. Considering that LIWA already had demand in excess of supply even after doubling capacity, this is more great news for the company that trades at roughly 6x '11 estimates.

LIWA has already shipped 11K tons of copper anode in 2010 after only forecasting 8-10K tons back in October. Now they expect shipments of 12.5K tons for all of 2010. More great news that LIWA is exceeding internal estimates especially considering that demand continues to pile up.

Total demand has now be raised to 122-134K metric tons up from the last estimate of 110K mt. Considering they expect to increase production capacity to 75K mt in the 2nd half of 2011 it appears that demand is approaching double that of their supply. LIWA has a ton of growth opportunities …

Net Payout Yields Focus: Chubb

Chubb (CB) is a recent addition to the Net Payout Yields portfolio and provides one of the highest yields in the market these days. CB falls into the property and casualty insurance sector that continues to remain undervalued due to fears in the sector. With a PE of just 10, the stock remains cheap.

Yesterday, CB announced the continuation of its dividend plus the a new share repurchase program of up to 30 million shares or roughly 10% of the outstanding shares.

To this model, this provides the best of both worlds. First, investors get a solid 2.5% dividend providing a nice income stream and a solid return. Second, the huge stock repurchase provides a constant floor for the stock and the opportunity for a dramatic increase in earnings per share just from reducing the outstanding shares.

It remains perplexing that such stocks remain this low with such support from the company. Regardless, the Net Payout Yields portfolio will happily take advantage fo



declared a regular quarterly dividen…

Luckily Covered lululemon Athletica Short

Back in September, the Opportunistic Levered (Arbitrage) portfolio attempted to hedge some gains with a short in lululemon Athletica (LULU). LULU had a big surge on earnings back then and seemed very stretched on a valuation basis.

Well 3 months later and the stock is jumping again on the back of strong earnings. The stock jumped as much as 19% on the back of earning $.36 easily surpassing estimates of $.25. Same store sales were up a whooping 29%.

LULU also forecast numbers that will easily surpass estimates in Q4 with a high teens percentage rise in same store sales. That is phenomenal growth. Maybe they are worth the high multiples after all.

Going forward, based on a rough estimate from the guidance it seems the high end of estimates for 2011 (Jan 2012) might top out at $2. Based on the current $64 stock price, the forward PE is a lofty 32. Sure they are growing that fast this year, but will that growth be sustainable. Also for a retail operation they now have a Price to Sales rat…

Freeport-McMoRan Copper Announces Stock Split, Special Dividend

Interesting news from our prime copper investment. Freeport-McMoRan Copper (FCX) announced a $1 supplemental dividend to be paid to shareholders of record on December 20. This is on top of the increase to the annual dividend from $1.20 to $2 announced back in October. All of a sudden this volatile copper and gold play is becoming a nice yielding stock. On top of the dividend news, FCX also announced a 2-1 stock split on February 1, 2011.

In general this news shouldn't do that much for the stock as I don't think one time dividends do much for shareholders and a stock split should naturally have no impact. It is good though for companies to split when stock prices soar into triple digits. For small accounts like those on Covestor, it can be difficult to make a position in stocks like FCX or Apple (AAPL) because of the high stock price. Somebody wanting to invest $500 would either have to buy 4 shares for $440 or 5 for $550. Not ideal for a diversified portfolio.

Ultimately these…