Wednesday, March 31, 2010

Hartford Financial Removes TARP Shackles, Looks to Breakout

Just minutes ago, Hartford Financial announced that they has repaid the US Treasury the $3.4B that HIG had borrowed during the crisis. With this out of the way, the stock price should now be free to breakout above the current range. Looking at the chart $28.50 has been strong resistance so any solid break and close above it would signal a higher range going forward.

  • The Hartford paid $3.4 billion to the U.S. Treasury to repurchase the preferred stock, plus a final dividend payment of about $21.7 million. The Hartford funded the repurchase with proceeds from its recent equity and debt offerings, as well as from available resources. The U.S. Treasury continues to hold warrants to purchase approximately 52 million shares of The Hartford’s common stock at an initial exercise price of $9.79 per share. The company does not intend to repurchase the warrants from the U.S. Treasury.

Monday, March 29, 2010

OPEC Revives Projects Now that Oil Prices Have Recovered

Considering that oil has traded in the $80s range for months now, it shouldn't be that surprising that OPEC would revive projects shut down in 2008-2009. Apparently ever project is now moving forward though that wasn't conveyed by Foster Wheeler (FWLT) and other energy engineering firms in their Q4 reports. Maybe its a sign that we'll see some awards in the next 6 months.

Today OPEC announced that some 150 projects are now moving forward to increase annual production by 12M barrels by 2030. Of those projects, some 35 were canceled/delayed and have now been restarted (other reports suggested that 135 projects were delayed). Either way the E&C firms should see higher order rates in the near future if true.

Another big issue during the crisis was financing and I'd expect with oil maintaining at these levels that will soon disappear as an issue as well.

  • Members of Opec, the oil exporters’ group, have revived the oil projects they put on hold when oil prices collapsed to close to $30 dollars a barrel early last year, writes Carola Hoyos in Cancun.
  • Abdalla El-Badri, Opec’s secretary-general, said all 35 projects that had been delayed or considered for cancellation were back on track. He said that Opec’s member countries now had a total of 150 projects under development, which would add about 12m barrels per day of oil production capacity by 2014.
  • The 35 projects that have been restarted are expected to contribute about 5m barrels per day of that capacity. They have been revived following the recovery of oil prices in the past year to about $80 a barrel. Mr El-Badri said: “They are all back on track.”
  • Speaking to the Financial Times ahead of the International Energy Forum meeting of oil-producing and consuming countries in CancĂșn, Mexico, he played down the delay caused by the year-long uncertainty on oil prices.
  • The reversal is also a sign of Opec’s optimism about future oil demand growth, especially in Asia. Oil demand in developed countries that are members of the Organisation for Economic Co-operation and Development is expected to decline.
  • “We hope the prospect for the future will be better than it is now,” Mr El-Badri said. “We base our projection not mainly on OECD countries: 80 per cent of the growth that we see in the future will come from India and China, and the Middle East and Asia as a whole.”
FWLT has long been our favorite in this sector. I'm sure FLR (too large for us). CBI, and JEC will profit as well.

Synovus Smashed By Analyst Downgrade

Synovus Financial (SNV) was hit pretty hard today by the FBR analyst downgrade. The stock slid all the way down to $3.17 or over 8% at one point. Evidently the downgrade caught some investors off guard as it didn't highlight anything new and basically just offered a different opinion to that provided by management. One that should've been a concern of any investor.

FBR claimed that SNV wouldn't be profitable this year as management claimed and that the bank wouldn't likely be bought out. Not really sure who would buy an unprofitable regional bank on a buyout hopes other then small retail investors. The whole reason to buy SNV is that they trade very cheaply compared to normalized earnings (see Tom Brown for more detail).

With the economy turning and the real estate sector likely bottoming out, I'm not sure why FBR is so eager to fight the trend. Clearly management at SNV is too be questioned so I think the fact that it only trades at $3.25 now confirms that concern. This downgrade is likely to be seen as a buying opportunity down the road. It smacked the stock right back to the 20EMA where it should be aggressively bought.

  • Paul J. Miller of FBR Capital Markets cut his rating of Synovus to "Underperform" from "Market Perform."
  • Miller wrote that he puts "low odds" on such an outcome. He expects continued erosion in tangible book value for Synovus, based in Columbus, Ga.
  • Miller attributed the rise to expectations that Synovus would turn a profit at some point this year, and speculation that the bank might be bought out.
  • "While not completely out of the question, we do not see this scenario as highly likely," Miller wrote, saying that other banks may be more attractive acquisition targets.

Tax Advantage of Stock Buybacks Should be Favored with Higher Taxes

Some good points today from Barry James of James Advantage Funds. With the expected repeal of the Bush Tax Cuts and the future Medicare Tax of 3.8% on unearned income will favor stocks that buyback stock over dividends. During the crushing losses in the 2008 bear market, we've alot of negative comments about companies that bought stock at much higher prices. It seemed alot of investors were leaning back towards dividends, but the higher taxes could very well favor companies that buyback stocks as investors won't be taxed on those.

Our Net Payout Yield Portfolio has always sought a balance between dividends and buybacks to provide cash flow for clients from dividends but also to limit any tax burden with companies that buyback stock. Besides history has shown that the combined yield is much more predictive of returns then dividend alone. It very much appears that the buyback portion could shift back into focus starting in the 2nd half of this year.

In the past stocks like Caterpillar (CAT) and Disney (DIS) have been much more focused on buybacks then dividends.














Friday, March 26, 2010

New 52 Week Highs for Apple, AerCap Holdings, and Sears Holdings

After such a reversal yesterday its surprising to see the market up much less 3 stocks that we own in the Growth and Opportunistic Portfolios hitting new 52 week highs today. Especially considering the reversal on Apple (AAPL) yesterday seemed to foretell lower prices. AerCap (AER) and Sears Holdings (SHLD) remain very cheap value plays while AAPL would be considered a cheap growth stock.

Not sure I'd chase them today, but it further highlights how stock selection can beat the market.

Thursday, March 25, 2010

AerCap/Genesis Lease Merger Finalized Today

Finally the merger between AerCap Holdings (AER) and Genesis Lease (GLS) will be finalized today creating the largest independent airplane leasing company. Its also creates a earnings powerhouse. For 2010, they expect to earn well over $2 with the stock trading below $11 now. A PE of 5 is absurd now that global growth has returned and most of their customers should see growth even in the US market. Not to mention that 5 years earnings growth is placed at 12.5% meaning a fair valuation would be around $25.

The finalization of this merger should hopefully bring much more focus to how cheap the combined entity remains. Both stocks have rallied big time since the March 2009 lows, but they still remain insanely cheap on a historical basis. The risks of airlines going bankrupt is greatly reduced now that the financial crisis is largely over. Also, the inability of Boeing (BE) to produce its new plane has helped reduce the competition for their existing planes. It will now be years before those new planes reach a critical mass.

The stock was at $16 just prior to the Lehman blowup and considering that the airline leasing business has faced little in the way of long term impacts ala share dilutions, major customer bankruptcies, or financing issues its actually remarkable that the stock is still that far below the pre-Lehman value while the overall market that had numerous stocks significantly diluted or basically forced out of business is approaching those levels.

In fact, some major competitors like ILFC, part of the callouses mess of AIG, have been impacted to the point that AER now has a better financing situation and hence a competitive advantage they would've never had in the past. Of course, some fears have existed that ILFC would flood the market with cheap planes via a distress sale, but now that seems very unlikely with ILFC issuing debt and AIG raising major funds via a couple of large asset sales.

That was just one of the major hurdles that AER and even GLS faced in the last 2 years. First, the market feared that all of their customers were going bankrupt which only happened on a small scale. Both companies had a handfull of planes returned at most. Then, lease rates were going to be greatly impacted. AER just reported a 40% increase in the net spread (lease rates minus interest expenses). Next, financing was going to be a huge problem. Both companies were able to rather easily obtain financing for new planes or deals. Heck, the biggest complaint with GLS is that they had an expensive credit line that wasn't used. Quick, name another debt laden industry where shareholders faced the issue of credit lines that were too big.

For an industry rather unscathed by the crisis, its amazing that the stocks originally sold off so much and have in reality recovered so little. Utilization rates remain in the upper 90% range and AER has a full plate of new planes coming on board with lease terms of 100 months. Its hard to find companies with such compelling locked in gains with little downside. If they were so unscathed in the worst crisis in 70 years, why the unwillingness to pay a reasonable price?

With the closing of the merger, its hopeful that this uncertainty (AER has been counting on GLS for some financing clout) will help to unleash the stock. The combined entity will be valued at $1.3B possibly placing it into a tier that will obtain more analyst coverage. When compared to other industries that operate on long term leases, airplane lessors compare favorably to deepwater drillers (RIG or ATW) or shippers (FRO or TK). AER typically has much longer leases providing much more stability. Of course it does limit the upside that you can see when global demand soars, but as we've seen in such cyclical industries its much better to have constant, very profitable rates.

Read the latest earnings report from AerCap and you'll start to wonder why Wall Street isn't buying this stock hand over fist.


Edit 10:30am - Looks like the merger has been finalized and the stock of AER is soaring.

Wednesday, March 24, 2010

Trade: Bought Liz Claiborne

Had sold a portion of Liz Claiborne (LIZ) back in early March as the stock got overheated. With it continuing to hold above the 20EMA, we used the early morning selloff to purchase our positions back in the Growth and Opportunistic portfolios. Unfortunately we missed the early drop and had to settle for $7.01.

With support it will hopefully breakout of the double top around $7.5 on its next run. After all it traded around $20 pre-Lehman and the retail sector is heating up. Its time for the CEO to show some results.

Saks (SKS) is approaching those levels and Coach (COH) has already zoomed past the pre-Lehman disaster.


Gafisa Raises $598M Just Below the Closing Price

According to this report if accurate, Gafisa (GFA) got a good deal to close the offering just below the closing price on Sao Paulo at $12.5 reals. Of course the general market has been very strong and GFA has been held down because of this deal so it shouldn't be too surprising that it priced so close to the close. Guess it's too late but my currency conversions aren't coming up as close to the closing US price. Hmm....

Took a gamble yesterday and apparently we'll win out with this pricing. Some of the details of why we're very bullish on this stock.

  • About 20 percent of the proceeds from Sao Paulo-based Gafisa’s sale will go to acquisitions and 35 percent will be used to buy land for construction projects, the company said on its Web site. Gafisa canceled a planned share sale last year.
  • The projected sales value for new projects started in 2010 will climb to as much as 5 billion reais from 2.3 billion reais a year earlier, following a “strong improvement in market conditions,” Gafisa said Feb. 8.
  • As much as 45 percent of the new work will focus on lower- priced housing as Gafisa takes advantage of a government plan to build 1 million homes for low-income families by 2011. Brazil’s economy is expected to grow 5.5 percent in 2010, according to the median forecast of about 100 economists in a central bank survey published March 22.

Tuesday, March 23, 2010

Trade: Bought Back Gafisa

After just trimming our positions in Gafisa (GFA) on the 17th, we jumped back into a full position in the Growth Portfolio on the drop to the 200EMA. Also, added it to the Opportunistic Portfolio for the first time. The drop from $15 to $14 didn't last long. Our average purchase price was around $14.13 and the stock is now around $14.77.

The stock has mainly been weak due to an expect secondary offering possibly after the close tonight. It might dip again tomorrow in the am but any weakness should be bought. GFA is a leading Brazillian homebuilder with decades of growth ahead.


Sunday, March 21, 2010

HealthCare Passes the House But Will the Market Selloff?

At 10:45EDT the House of Representatives narrowly passed the Healthcare Reform bill. Logically it seems that the market would tank on such news. Honestly though, the reform bill was so narrowly passed (219-212) and it will likely cost numerous Democrats their seats at the November election. Politico has a good run down of the seats on the edge. Does this really give Obama the freedom to unleash his agenda? After all, that is the real fear in the market.

It all really depends on how the public reacts. If they remain negative, then its very doubtful that Democrats will commit career suicide my backing more unpopular programs like cap and trade. And considering the way the bill is being passed basically in the cover of the night almost in a secretive manner. The public voted for Scott Brown to stop healthcare reform and yet the Democrats strong armed it through. Giving special deals to gain support from the anti abortion group. This is exactly what the public doesn't want. How is this change?

When you read the bill it does little to control cost. Wasn't that what reform was about? What it actually does is include cost in the system? Most people covered, more services covered, and more people covered for longer. Does it reduce the cost of medicine? Cost of a doctors visit? Encourage people to act responsibly? Change the method of payment so that individuals are more accountable for wasted visits and procedures?

SP500 needs to hold 1150 the next couple of days. If so, the market likely rallies towards the 1225 to 1250 level by April/May. If it fails, then it could be a sign that Obama is about to push through a on ton of more anti business legislation. Personally, I think too many Democrats need to pull back in order to save their seats that Obama isn't going to have his baking. Winning by 3 votes isn't exactly overwhelming support.

Monday trading should be interesting. We bought some triple smallcap shorts (TZA) and double Russel shorts (TWM) the last few days in order to protect the downside. I'd like to see the push down to 1150 hold and possible pull these hedges.

Friday, March 19, 2010

Most Bullish Wall St Analyst: Binky Chada

Binky is the chief equity startegist at Deustche Bank. His target for year end is 1325 making him more bullish then us at this point. Listening to the clip we do agree to most of his ideas, but we're more concerned above stock prices towards year end if all these taxes on investment income actually increase. Gotta take into perspective that 1250-1300 only takes us back to where the market was pre-Lehman collapse. Yes, the market has come a long way, but he fell way too far.

With SP500 earnings expected over $80 now, 1325 isn't that far fetched. Especially went $95 for 2011 is becoming more realistic. $95 x 15 gets the market back to 1425. Might seem far fetched but when you review the real numbers surrounding corporate profits the questions should become 'Why Not?'.

With a name like Binky he better be good as well.


Very Weak Action in Our Small Cap Financials

Not sure what to make of the very weak action in the stock prices of small financials like International Assets (IAAC - old FCSX) and Phoenix Cos (PNX) that Stone Fox Capital holds in the Growth Portfolio . Both were down nearly 8% today. Luckily we sold a good portion of IAAC earlier this week at $17.04. Unfortunately we didn't sell all of it!

Both stocks are only 1.2% of our portfolio and we'll look to add to those positions on Monday assuming a lack of negative news. The move down could be related to quadruple witching today. Charts look very weak so buying is risky. IAAC at $14.50 has a natural stop there and PNX at $2.50 to start or all the way down to $2.20.


IAAC is a commodity risk management firm that should benefit from a volatile commodity environment and fast growing emerging markets that consume alot more commodities. Unfortunately they make a significant portion of their profits from short term interest on customer account balances. Not so good when rates are historically low.




Phoenix Cos is an insurance provider. Basically a play on a stock trading below book value.


Thursday, March 18, 2010

Trade: Sold 50% of Gafisa and Foster Wheeler

In order to raise some cash for the Growth and Hedged Growth Portfolios we sold roughly 50% of our positions in both Gafisa (GFA) and Foster Wheeler (FWLT). Both stocks have traded weak of late with GFA dropping below its 20 & 50 EMAs and FWLT being unable to get above the 20EMA even with such a strong tape. Long term though we still like the macro situation for both stocks. Short term we let the charts tell us that the action might turn bearish.

GFA is doing an offering next week so that explains the weakness on that stock. With FWLT, its difficult to see why it remains so weak. The news seems bullish and it continues to trade at much cheaper levels then a competitor like Jacobs Engineering (JEC).

Foster Wheeler (FWLT) estimate changed at Barclays. FWLT 2011 EPS estimates introduced at $2.50, 2010 maintained at $2.30. Reiterate Overweight rating and $38 price target.

100 Followers on SeekingAlpha.com

While not a huge accomplishment it is at least a start considering my focus is on investing money and not writing, but alas sometimes writing is an ends to the means of attracting investors. Or maybe its just that I have an opinion on some matters and hope to at least be heard in some small way.

Thanks to everybody that follows me on SeekingAlpha.com. Now at 102 followers as I write this tonight. Still nothing compared to the top guy - Pragmatic Capitalist - wtih 28,250 followers. Its wasn't long ago that just a 1,000 was huge. SeekingAlpha is really taking off as the place to read up on investment ideas.

Future Stat of the Week: 300K Jobs Added in March?

One thing explaining the meltup in March is that some analysts are now expecting 300K+ jobs during March. This isn't really a future stat for this week, but its a crucial future stat. Its also likely the first major jobs gain in what could be the start of dozens of months of gains.

Brian Westbury from First Trust has a nice video about the expectations for March jobs and more specifically his estimate that we'll report 300K. Now what will that mean to the stock market? Hard to tell as we've had a huge run since mid-Feb. In general though, I still see lots of stocks trading below intrinsic values. Hartford Financial (HIG) trading way below book. AerCap (AER) trading at 5.5x 2010 earnings. Puda Coal (PUDA) trading below 10x their low end guidance of $1.10. Those are just a few examples of how cheap the market remains.

Wednesday, March 17, 2010

Trade: Trimmed Synovus Financial (SNV)

Synovus Financial (SNV) has been on fire the last week As of this afternoon it was roughly 25% over the 20EMA and the RSI was 76. Both indications that the stock is extended so we sold roughly 33% of our shares in the Growth and Opportunistic Portfolios. We'll add the shares back as the stock cools down or approaches the 200EMA around $3.17.


Tuesday, March 16, 2010

Hartford Financial to Repay TARP

After the close Hartford Financial (HIG) announces plans to repay TARP. They owe $3.4B so they've chosen to do a combination of equity and debt financing. Considering the equity portion is only $1.45B this appears bullish to us.

  • The offerings announced today will consist of $1.45 billion of common stock and $500 million of mandatory convertible preferred stock, represented by depositary shares. The debt offering related to the repurchase of the government's preferred stock will consist of $425 million of senior notes. In addition, the company will pre-fund the repurchase of its senior debt maturing in 2010 and 2011 through the issuance of an additional $675 million of senior notes.
Considering how cheap HIG is compared to book value and EPS, this move could finally unlock that value as shareholders have been hesitant to load up with TARP hanging over them.

HIG is one of the largest investments in our Growth and Opportunistic Portfolios and we'd use any weakness to add to positions.


Disclosure: Long HIG

Monday, March 15, 2010

Nice Reversal on Riverbed Technology

Even the downgrade by Piper Jaffray couldn't keep the stock down today. Riverbed Tech (RVBD) looked like it would break below the 20ema at $27.44 but it was too strong to remain weak closing at $27.99.

“We anticipate the company will continue to execute well, and upside to March quarter and 2010 estimates is highly likely, but we believe this is already priced into the stock,” he writes. “Given the upside scenario already priced into RVBD shares, we think it will be hard for the stock to outperform on a relative basis.”

RVBD is the biggest holding at around 7% in our Growth Portfolio and one of the largest holdings in our Opportunistic (CV.IM) model. At this point, we're happy to hold a stock that can hold support especially on a downgrade.

Puda Coal Cools Off But It'll Heat Up Again

China is the largest user of coal and now they've become a major net importer in the last few years. Although China has embarked on several programs to focus on renewable energy sources such as solar and wind they will rely on coal fired electricity for a long time with some sources estimating that China will nearly double coal use by 2030.

The coal industry in China is very fragmented. Many of the coal mines have been operated by small companies leading to very inefficient mines and a high injury rate with several tragic mine accidents. Hence, the government has embarked on a mine consolidation plan in order to move the majority of the mines into the hands of larger operators that will be more efficient and easier to regulate. The program will reduce the number of mine operators from 1,000 to 100 while also significantly shrinking the total number of mines.


Mine Consolidator
Puda Coal (PUDA) is one of the selected mine consolidators. It's virtually unknown by investors as they recently did an uplisting to the AMEX with little fanfare. Outside of Yanzhou Coal (YZC), the other Chinese public mine operators are relatively small and unknown like PUDA leaving a lot of opportunity for the small investor to capitalize on the lack of institutional investors. To this point, PUDA has been strictly a coking coal washer al beit a very profitable one. They have 3 coal washing facilities with a 3.5M mt annual capacity.

Last year they embarked on the consolidation of 8 coal mines into 5 with the recent purchase of 2 mines in the Shanxi Province. By October, they expect to double the output of the 2 mines to 900,000 mt from the current 450,000 mt. Once completed, they expect to double the output of the original 8 mines from 1,200,000 mt to 2,700,000 mt.

Considering they expect to purchase these mines at roughly 2x EBITDA they will be significantly accretive from day 1. With 40% net income margins, they will also provide significant income to PUDA, but even at these prices the $150M price tag for all 8 mines has been weighing on the stock. PUDA after all didn't even have a $100M market cap when it announced this plan.

Recently PUDA raised over $28M via a $13.6M stock offering and a $14.6M loan from the Chairman. These moves pressured the stock down to sub $5 but they've recently rebounded to over $10. These offerings plus cash on hand and income provides the money needed to close the deals on the first 2 mines and complete the expansion. For the other 6 mines, they are looking for partners to fund the $110M price tag and $56M in capital expenditures.

Another project they are working on is the Jiahne Project. In May of 2009, they bought a 18% ownership in a coking coal mine that has roughly 18M mt of reserves. The company has also applied to be a consolidator of 2 adjacent reserve areas giving them access to prized coking coal that could then be feed into their coal washing operation. For now they will settle for 14% dividends from the income of that mine.

Financials
Like most Chinese stocks, PUDA has phenomenal margins. They were already very profitable in the coal washing business, but now they expect to generate over 40% net margins in the mining operation.

On their 3/5 presentation to the Brean Murray Conferense, management guided to earnings of $1.10 to $1.52 for 2010. Although that is a very wide range, the results are very dependent on the finalization of the ownership of the 2 coal mines, the doubling of the mining capacity by Oct, and of course the price of thermal coal in the case of these 2 mines.

By all accounts, Puda Coal is very cheap with lots of potential. The biggest risk is that they don't have a track record as a mine operator. The ability to buy companies at 2x EBITDA doesn't come around very often making that risk worth taking in this case. Even at the low end PUDA trades at only 8x estimated earnings for 2010. Considering that 2011 is likely to easily surpass that high end, PUDA is far cheaper than US coal companies that lack the direct access to China coal demand and the benefits of the attractive consolidation program.

theStreet.com

Interesting comments from theSteet.com:
For a stock with more upside, I like small-cap Puda Coal. PUDA uplisted to the Amex exchange in September 2009 and saw its stock shoot up more than 20% on the day. The company is a supplier of high-grade metallurgical coking coal used to produce coke for steel manufacturing in China and a coal mine consolidator of eight coal mines.

The company recently raised $13 million in a common stock offering priced at $4.75 per share to fund the acquisition of two new coal mines. Investors clearly like the story because the stock has risen from below $5.00 to more than $7.00 at present.

Puda trades at only 16 times trailing earnings, which is a clear discount to U.S. comparables such as James River Coal Company (JRCC Quote), which trades at 22 times earnings and Pacific Coal (PCX Quote), which trades at more than 30 times earnings, despite having similar margins to both. As a result, over the next year, PUDA could potentially have 50%-100% upside in its share price.


Disclosure: Long PUDA

Friday, March 12, 2010

Covestor Model Up 17% in Less Then 6 Weeks

In less then 6 weeks the Covestor Model is already reporting strong results. The model is already up 17% versus a little under 5% for the market. Not bad considering the model was down 4% on its first day of February 3rd. A day the market dropped over 3% so not great timing there. Also remember that the model is up over 150% since it began in Dec 2008, but CVIM only counts the record since I became live on their Interactive Brokers platform. They do have the link to the history though for verification.

Of the 46 managers on the CVIM site, our Opportunistic Model ranks 2nd in the MTD results (click on MTD in the upper right corner) at over 13%. Check on Monday morning when they update the results from Friday and it'll be up 14%. We're proud of being 2nd because although this is an aggressive portfolio it is up against several daytraders and undiversified portfolios giving them alot more leverage for out sized short term gains.

Please email us at stonefox27@ymail with any questions or contact CVIM. Its only $5K to open an account with them. With as little as $10K, you can invest with 2 different managers giving you some diversification of managers. Something you can't get elsewhere unless you go the mutual fund route and most funds are so large and diversified into so many stocks that your almost buying the market.

Thursday, March 11, 2010

Chart of the Day: AerCap Holdings

AerCap (AER) has one amazing chart over the last couple of months. The merger with Genesis Lease (GLS) should be finalized on the 25th reducing the risk and finally allowing the stock to move forward.

Hard to understand what caused the stock to collapse from $11 to $7.5 and then rebound right back to $11 today. Is it now a double top? Likely not, but it does need to consolidate the recent gains. See the RF chart from yesterday as thats the likely scenario for this stock.

Trading at only 5.5x the $2 in earnings expected this year the stop at $11 will likely only be short term if at all.





Disclosure: Long AER and GLS

Trade: Bought Direxion Small Cap 3x Bear

Slow to report this but yesterday we bought the Direxion Small Cap 3x Bear (TZA) in the Growth, Hedged Growth and Opportunistic Portfolios. The purchase in the Hedged and Opportunistic Portfolios amounted to nearly 10% of the portfolios though the Opportunistic purchase was just to offset the margin currently in that count bringing the net bullish investment to just 100%.

TZA was purchased because it was and is extremely oversold having an RSI of 25 yesterday and a CCI below -100. Both signs that a reversal is likely. Small caps have just been too hot lately so we expect at least a minimal pullback.

For the Hedged Growth Portfolio this is on of the first hedges/shorts that we've used in the last year since the March 9th low.


Wednesday, March 10, 2010

Regional Banks on Fire Today

Most importantly to us, Regions Financial (RF) and Synovous Financial (SNV) our both up sharply today. For RF its clearly partly technical as they hit new 52 week highs and breakout from a double top. For SNV its like just a move with the sector today. Cramer was bullish on banks yesterday and in general the tone seems to be improving.

The Opportunistic/CVIM Model is doing the best today as it has a higher concentration in those 2 stocks while the Growth Portfolio is also gaining in large part to a high concentration in the financial sector at roughly 20%. Though it contains much more of Hartford Financial (HIG) and ICICI (IBN) then these 2 regional banks.

The chart on RF looks similar to how we expect the SP500 to go over the next few weeks. Initial weakness at the recent high (Jan in the case of the SP500) and then support from the rising 20ema and an eventual push to new highs on the 3rd try at 1150.



SP500



Finally the chart of SNV. Not as impressive as RF. Still need to work thru several layers of resistance. The RSI is just at 57 so its got plenty of potential juice left to make that move.


Tuesday, March 9, 2010

One Year Later

Being the anniversary of the Bear Market low on 3/9/09, today seems like a good day to review our performance since then.

When March started last year, we were about ready to give up. So many stocks were unbelievable buys yet the market kept spiraling down. A year later we feel vindicated as all 4 portfolios have easily beat the market since we started tracking them back in 2008. The Opportunistic Model had the biggest gain in the last 12 months at 165% (200%+ by our calculations) followed closely by the Growth Portfolio.

Going forward, were looking towards another strong year as the markets likely provide another solid gain in the 2nd year of this bull market. Its very unlikely that a bull market dies after only one year. As always we'll adjust the portfolios if it appears that the market won't continue the rally. At some point in late spring or summer we're like to finally face a true 10% correction so 2010/2011 won't be as easy as the last 12 months.

Growth Portfolio

The Growth Portfolio gained 155% since the bottom in the market. Easily doubling the gains in the market and beating the SP500 by 84%. This portfolio has a huge loss entering March last year, but now its managed to claw back to a very respectable annualized 8% gain. Very impressive with the market down nearly 7% during that span.


RETURNS
Last Week 4.41%
Last Month 15.37%
Last 3 Months 14.95%
Last 6 Months 20.67%
Last 12 Months 154.51%
Last 2 Years N/A
Last 3 Years N/A
Last 5 Years N/A
Since Inception 12.92%
(Annualized) 7.32%
S&P500 RETURNS
Last Week 2.08%
Last Month 7.04%
Last 3 Months 4.78%
Last 6 Months 11.27%
Last 12 Months 70.28%
Last 2 Years N/A
Last 3 Years N/A
Last 5 Years N/A
Since Inception -11.60%
(Annualized) -6.91%
RETURNS VS S&P500
Last Week 2.32%
Last Month 8.33%
Last 3 Months 10.17%
Last 6 Months 9.39%
Last 12 Months 84.23%
Last 2 Years N/A
Last 3 Years N/A
Last 5 Years N/A
Since Inception 24.51%
(Annualized) 14.23%


Hedged Growth

The Hedged Growth Portfolio was clearly different with the portfolio actually underperforming over the 12 months by 17%. Though considering the portfolio is still 30% in total and 28% more then the SP500 in its roughly 17 month history, we'd consider that very successful. A constantly bull market isn't ideal for this portfolio but we see more possibility in the years ahead to out gain the market even in good times. Over the last 6 months its up on the market by over 2%. Its clear that the portfolio will drastically outperform in market turmoil and keep up in the good times. Basically what you want to keep capital and grow it in good times.


RETURNS
Last Week 2.68%
Last Month 7.93%
Last 3 Months 6.89%
Last 6 Months 10.56%
Last 12 Months 52.44%
Last 2 Years N/A
Last 3 Years N/A
Last 5 Years N/A
Since Inception 29.39%
(Annualized) 19.66%
S&P500 RETURNS
Last Week 2.08%
Last Month 7.04%
Last 3 Months 4.78%
Last 6 Months 11.27%
Last 12 Months 70.28%
Last 2 Years N/A
Last 3 Years N/A
Last 5 Years N/A
Since Inception 1.62%
(Annualized) 1.13%
RETURNS VS S&P500
Last Week 0.60%
Last Month 0.89%
Last 3 Months 2.10%
Last 6 Months -0.72%
Last 12 Months -17.84%
Last 2 Years N/A
Last 3 Years N/A
Last 5 Years N/A
Since Inception 27.77%
(Annualized) 18.54%


Net Payout Yield

Surprisingly was the performance of the Net Payout Yield Portfolio. Even though its comprised by mostly slow growth, high dividend stocks it outperformed the SP500 by over 16% in the last 12 months. This portfolio continues to out gain the markets on a daily, monthly, and yearly basis. It's now headed towards 4 straight years of beating the SP500.


RETURNS
Last Week 2.64%
Last Month 9.61%
Last 3 Months 5.84%
Last 6 Months 15.87%
Last 12 Months 85.56%
Last 2 Years N/A
Last 3 Years N/A
Last 5 Years N/A
Since Inception 5.20%
(Annualized) 3.21%
S&P500 RETURNS
Last Week 2.08%
Last Month 7.04%
Last 3 Months 4.78%
Last 6 Months 11.27%
Last 12 Months 70.28%
Last 2 Years N/A
Last 3 Years N/A
Last 5 Years N/A
Since Inception -5.98%
(Annualized) -3.78%
RETURNS VS S&P500
Last Week 0.55%
Last Month 2.56%
Last 3 Months 1.05%
Last 6 Months 4.60%
Last 12 Months 15.28%
Last 2 Years N/A
Last 3 Years N/A
Last 5 Years N/A
Since Inception 11.18%
(Annualized) 6.99%


Opportunistic Portfolio

These returns are impressive but I'll make a note that they seem off. Its only showing a 50% gain for the SP500 which is clearly too low. While generally accurate in the performance it seems inaccurate in the totals. Actual results should approach 200%+


Mark_Holder S&P 500
Return Since Inception 141.55
Month to Date Return 2.93 3.08
Last 3 Months Return 8.62 0.81
Last 12 Months Return 165.64 50.25
Annualized Return 109.95 -2.37
Alpha 55.85
Beta 1.58

Latest Trades

Track mark_holder to view trades.

Risk

Annualized Std. Deviation Sharpe Ratio Maximum Drawdown
47.33%
25.94%
2.32
0.98

-31.50%

-27.62%
Benchmark Mark_Holder
Member S&P 500

Monday, March 8, 2010

Covestor Model Manager

As of last week, Covestor Investment Management (CVIM or cv.im) began offering my portfolio as one of their Model Managers. This is a great opportunity to expand investors to the group that typically invests in mutual funds. It gives investors with only $5K the opportunity for individually managed accounts that in the past required at least $100k and in most cases $250K to open an account.

Unlike a mutual fund you get the opportunity to see current trades and portfolio holdings and you have visibility to your assets via 3rd party brokerage Interactive Brokers (IB). So anybody worrying about giving their money to an investment manager ala Madoff no longer has to fear never seeing that money again. The money remains in your name and you alone have discretion over transferring in and out. CVIM only obtains the ability to execute trades and collect fees.

How CVIM works is that I make trades in my account at IB and then the CVIM team replicates those trades within 2 minutes to investors that are subscribed to use my model. The fees are 1.5% of assets plus limited trading fees as low as $1 a trade. So in essence I'm selling CVIM my trading data for them to manage your investment account.

CVIM just began offering these services in October so its still relatively new, but it does open up money management to new levels of people. Whats interesting to me is that even a person with a $500K portfolio was somewhat limited to using one manager in the past. Now they can divide that money up into several money managers. For example give 10 managers $50K each to diversify away management risk. Also there tool makes it alot easier to move from one manager to the next since it was designed for multi managed accounts. Now more awkward scenarios of having to remove your money from a manager that has had your account for years.

The Portfolio being offered is a slightly more aggressive one then I'd manage for high net worth individuals. The main reason being, it's based on the track record of my personal account since Dec 2008 that I typically invest more aggressively and to keep true to the track record I've selected to move forward with the same investment thesis. The Portfolio will be labeled as Opportunistic (Aggressive Growth). It basically incorporates the Growth Portfolio plus the ability to use margin and shorts. Its also only targeted at 15 stocks considering the portfolio size can be as small as $5K. Fees on the trades of 30 stocks even at $1 a trade can really eat into small portfolio gains.

Please let me know if you have any thoughts on the use of CVIM or the Model in general.

Earnings Preview: Dicks Sporting Goods

Dicks Sporting Goods (DKS) reports before the market opens tomorrow on the 9th. In general, analysts expect them to easily surpass earnings as the cold weather drove high sales in the higher margin outerwear category. My main concern is that analysts seem completely fixated on the outerwear business that clearly benefits from snow and cold weather, but what about the golf division. The unusual snow in Texas and cold weather in Florida would have an impact on the golf division.

Regardless, we're very bullish on DKS long term. They trade at 19x the $1.32 estimate for this year. Not overly cheap but assuming they beat estimates and as the focus moves toward the 2011 (Jan 2012) estimates I'd expect a much higher stock price. Just don't expect a big ramp on beating estimates tomorrow.

  • Reported earnings of outwear makers like VF Corp (VFC.N) and Columbia Sportswear Co (COLM.O) as well as suppliers like Under Armor Inc (UA.N) and Nike Inc (NKE.N) suggest heightened demand for cold-weather gear, analysts said.

  • "I think the sell-through was strong for outerwear," SunTrust Robinson & Humphrey analyst David Magee said.

    Analysts on average expect the Dick's Sporting to earn 55 cents a share on revenue of $1.29 billion, while Hibbett is expected to earn 31 cents a share, on revenue of $154.4 million, according to Thomson Reuters I/B/E/S.

    SmartEstimates from Thomson Reuters StarMine, which lends more weight to recent estimates from top-ranking analysts, puts the average expectation for earnings marginally higher than the consensus for both companies.

    However, Stephens Inc analyst Rick Nelson said Wall Street profit estimates "are conservative and beatable," as the cold-weather sales could be even higher than people are expecting.

    Concerns over extreme weather conditions dampening sales in some markets seem to have eased.

    "The storms that we thought would prevent shopping didn't prevent it as much," Needham and Co analyst Sean McGowan, who is expecting an upside to his profit estimates for the companies, said.

Technically the chart is interesting as DKS pushes towards a triple top. Obviously a break above the $26 level because very bullish. Of course a breakdown from this level especially one taking the stock below the 20.50ema becomes very bearish. Its in a make or break situation.

Friday, March 5, 2010

Apple Hits All Time High! Hooplah Just Starting?

Incredibly Apple (APPL) hit another new all time high today. Ok, it's not really all that incredible to us considering we've suggested $300 and $1,000 [Apple to $1,000] targets during 2009.
Still its very rare for a tech stock to exceed the 2000 high.





Part of the reason for the jump today was just the overall market, but it didn't hurt that Cramer was pushing the stock last night on his Mad Money show. Cramer is bullish because the new Apple iPad product is gaining key corporate support especially in the Healthcare and Legal areas. Read doctors and lawyers. That could really feed into Mac sales as well.

With the cash on hand and what could be yet another strong product with the iPad, AAPL is likely a must own for the next couple of years.









Japan Paying $200/mt for Coking Coal?

Amazing report if its true. Looks like Japan is having to pay up get assets such as coking coal used to make steel away from the grips of China. Alpha Natural Resources (ANR) is likely our best play with their decent supply of coking coal. Puda Coal (PUDA) is a great speculative play in China. More to come on that stock.

This is the difference between coal and natural gas. China needs coal. China doesn't need natural gas.

  • JFE Holdings Inc. reportedly agreed to pay $200 per ton for coking coal in a three-month deal with Australian coal miner BHP Billiton Ltd.
  • The amount was higher than expected, said William Burns, an analyst with Johnson Rice & Co. Burns, who expected JFE and other companies to pay only about $150 per ton, said this shows how aggressive countries have become in competing with China for natural resources.
  • "China has become a black hole, and the Japanese steel makers are trying to lock up their supply," Burns said.

Wednesday, March 3, 2010

Stat of the Day: ISM Services Hits 53

ISM Non Manufacturing (Services) report came in at 53 today versus the 51 estimate and the 50.5 for January. In fact, most economists were likely expecting the number to dip below last month considering weak economic reports such as consumer confidence and intial jobless claims and the severe snow storms in the east.

The business activity (54.8) and orders (55) suggest a V shaped recovery is indeed on the way while the employment index at 48.6 provides for great profits opportunities. This may not be good news for your neighbor that is unemployed, but it should help corporate profits and hence stock prices. After all, if your activity/orders increase but you have less people/costs your profits should soar.

The report was issued today by Anthony Nieves, C.P.M., CFPM, chair of the Institute for Supply Management™ Non-Manufacturing Business Survey Committee; and senior vice president — supply management for Hilton Worldwide. "The NMI (Non-Manufacturing Index) registered 53 percent in February, 2.5 percentage points higher than the seasonally adjusted 50.5 percent registered in January, indicating growth in the non-manufacturing sector. The Non-Manufacturing Business Activity Index increased 2.6 percentage points to 54.8 percent, reflecting growth for the third consecutive month. The New Orders Index increased 0.3 percentage point to 55 percent, and the Employment Index increased 4 percentage points to 48.6 percent. The Prices Index decreased 0.8 percentage point to 60.4 percent in February, indicating an increase in prices paid from January. According to the NMI, nine non-manufacturing industries reported growth in February. Respondents' comments vary by industry and company about business conditions."


Back on the V shaped recovery, Atlanta Fed President Fred Lockart was out today talking about a not so V shaped recovery. We have to wonder what he's looking at. Looking at the graph made by First Trust it sure looks like a V shaped recovery to us. The ISM number is likely to continue much higher then 53 as well.

Trade: Sold 50% of Liz Caliborne

Liz Claiborne (LIZ) has been a favorite stock of Stone Fox Capital for a while now. The stock was looking extended on the both the CCI and RSI measures. It was also approaching a double from October so we pruned 50% of our position in the Growth Portfolio at $7.26 leaving 2,000 shares. We'll be looking to buy that position back if the shares trade back to the 20EMA which is at 6.32 today.

It's also discouraging that the stock is down in an up day. Another sign that it might need to rest before trying to breakout of the double top.


Tuesday, March 2, 2010

Performance Review: Growth Portfolio Outperforming By 13.5% Annualized

Just a little update on the Growth Portfolio that now has over a 20 month history. It's now up 125% over the last 12 months which is 69% more then the SP500. This leads to a 13.5% annualized return in excess of the SP500.


* All below returns are actually 0.75% higher on a annualized basis then the below numbers due to our tracking system at Marketocracy.com assuming a 2%+ annual fee versus the 1.25% for this portfolio.


RETURNS
Last Week 2.44%
Last Month 9.23%
Last 3 Months 8.56%
Last 6 Months 24.61%
Last 12 Months 124.50%
Last 2 Years N/A
Last 3 Years N/A
Last 5 Years N/A
Since Inception 8.15%
(Annualized) 4.71%
S&P500 RETURNS
Last Week 0.75%
Last Month 4.15%
Last 3 Months 1.11%
Last 6 Months 13.28%
Last 12 Months 55.18%
Last 2 Years N/A
Last 3 Years N/A
Last 5 Years N/A
Since Inception -13.40%
(Annualized) -8.11%
RETURNS VS S&P500
Last Week 1.70%
Last Month 5.08%
Last 3 Months 7.45%
Last 6 Months 11.34%
Last 12 Months 69.31%
Last 2 Years N/A
Last 3 Years N/A
Last 5 Years N/A
Since Inception 21.55%
(Annualized) 12.82%


For 2010 YTD, the numbers are just as impressive. After today's gains, the YTD return will approach 6% while the SP500 is around 0.6%.



Beating Today MTD QTD YTD
SFCG 0.79% 2.14% 5.08% 5.08%
S&P 500 0.23% 1.02% 0.40% 0.40%
DOW 0.02% 0.76% -0.23% -0.23%
Nasdaq 0.32% 1.58% 0.19% 0.19%



For more information contact us at stonefox27@ymail.com.