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Showing posts from May, 2011

Updated Covestor History

Covestor has been working hard to update the history for some of their models and I'm happy to report that they've been able to add a little over a year to my record for the Opportunistic Arbitrage Model. The validated beginning date is now 1/30/09 providing roughly 28 months of results.

As you can see below the performance is very volatile from a month to month perspective, but over time the upside has far exceeded the downside. While future performance can never be guaranteed, the longer history will hopefully give investors more confidence that the results aren't a fluke.

Click on the widget for more information about the model directly via Covestor and naturally information on how to subscribe to that model or any of my other models.



Invest like me - only at Covestor.com

Bizarre Moves By Massey Shareholders

Several Massey Energy (MEE) shareholders attempted to block the Alpha Natural Resources (ANR) buyout in court today. Talk about shooting yourself in the foot to make a point. The crux of the lawsuit is that MEE shareholders aren't getting fair value due to reckless management. Not to mention if shareholders don't want the merger they can vote it down.

Huh? Just how exactly do they expect to reclaim that value if the deal is blocked? MEE stock would surely drop without a deal. The company has very valuable assets, but its operations continue to struggle making it very difficult to attract much more of a premium.

The funds which include several pension funds claim that Massey's stock is discounted by as much as $1.5B because of management's long disregard for safety. Hmm. Well doesn't that safety record therefore impact any future value? The new CEO would have to clean up the safety record and get operations back to normal prior to getting a higher value. By then tho…

Two Really Great Clips From Mark Haines

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Mark Haines was the legendary CNBC anchor that was known to be tough but fair to guests. Unfortunately he passed away yesterday at the age of 65. May he rest in peace. These 2 clips top the list of my favorite interviews in his long history. Both clips were cut off sooner then I hoped so I'm still looking for longer versions.

In this clip he calls Arianna Huffington 'clueless'. Though the MSNBC co-hosts thought Mark was being harsh and grumpy, he was actually very factual. Arianna was spewing the typical mindset of the bank bailouts. The bailouts didn't save the equity investors. In most cases such as Citigroup (C) and AIG (AIG) the equity holders lost over 90% of there value. What was actually saved was the financial system and the employees of those banks.





In this clip, Mark has a disagreement with Barney Frank. The classic part is when Barney says the interview is over, Mark just goes on with the program as if losing out on the interview was no big deal.


Media Ignores That Youku Raises More Cash Than LinkedIn

I'm not sure many people noticed, but Youku.com (YOKUraised approximately $400M after the close last Thursday. In total, up to an aggregate of $670M of stock was sold as pre-IPO investors cashed out close to $270M. That's assuming the over allotment of 1.8M shares were bought; those results have not been announced yet. This is remarkable considering this was a follow-on offering after the December IPO.

Youku.com is the YouTube.com or Hulu of China, depending on whom you ask. It has huge growth potential, but limited revenue so far and no profits. The company will have a market cap approaching $6B after this offering. 


Read the the full report on SeekingAlpha



Hays Advisory's Bullish Codes

Great video from Don Hayes of Hays Advisory. Don and his team does one of the best jobs of translating market data into actionable information. Whats important about his information is that it shows the real picture of whether the market is too bullish or bearish. Whether valuations are attractive. Or whether the Fed is a headwind or tailwind to the economy.

According to his latest readings, the market is in a very attractive position for stocks as valuations remain extremely attractive and the monetary conditions are very positive. His only concern is psychology was too bullish leaving April, but that now appears cleared up with the drop in May. Check out the video below:



Lihua International Investor Day

Last night Lihua International (LIWA) held an investor day at their HQ and manufacturing facilities. Ok, so it was really 10am local time in China, but it was at 9pm my time. The presentation portion included a video link for those that couldn't make the trip to be there in person.

Since LIWA has been caught up in the Chinese RTO conspiracy ring, it was at least symbolically important for them to host an investor day for analysts and the media to get to meet the company management and tour facilities.

The stock only bounced 2% on a very low volume of 102K shares showing how these events just don't resonate with investors that can easily discount anything they see as staged. What it will really take is analyst coverage from some major Wall Street firms or just time to elapse as the Chinese companies still standing will eventually be seen as legit.

The presentation was mostly a rehash of the data from the Q1 call or in the Piper Jaffray China Growth conference from last week. A …

Net Payout Yields Model Review

The model has now been on Covestor.com for over 6 months. As you can see from the table and widget below, the model has just barely beaten the market during that time period. Not that impressive. The good news is that other then the blip over the first few days, the model has consistently beaten the market on a monthly basis.

For 2011 YTD, the model has outperformed the SP500 8.23% versus 4.75%. It's a shame that the graph doesn't reflect the great performance of the model, but for anybody interested in investing now it is clearly working as expected. If you click on the graph, once you get to Covestor.com you can click on the YTD to see how the model has done after getting over the initial startup hiccup.

The last 2 months are great examples of how the model works in up and down down markets. In April, the model outperformed the SP500 by a slight margin in a very bullish tape (3.14% vs 2.85%). May MTD though it's easily doing better then the market by only losing 1.53% vs…

Stat of the Day: SP500 Earnings Estimates Soar

As the market crashes and especially the global growth stocks, earnings estimates for SP500 stocks continue to climb into record territory. Profits are now forecast to reach $104.73 in the next 12 months, according to data compiled by Bloomberg. Some analysts are even forecasting $112 for 2012.

Whats amazing about these data points is that the four-week increase in earnings on May 2nd represented the biggest gain since May 2010. Oddly that was the same period where the market sold off in 2010. The inverse correlation between raising earnings and the market selling off seems backwards, but we've now seen it 2 years in a row. Last year was a buying opportunity and this year could easily follow.

If the market were to hit those earnings numbers around $104 and trade at the historical PE multiple around 15, the SP500 would reach over 1,600. Today the market sunk over 1% on Greece debt fears and global growth concerns after weak PMI data out of China and Germany providing a great entry …

What inflation?

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Great post at the Business Insider regarding all the deflation going on. With everybody sweating the soaring prices for energy and food, nobody seems to notice the deflation in housing and transportation. Not to mention that labor costs have been kept relatively flat.

Just because your paying more at the pump, doesn't mean that your paying more for every item.

The post has some great charts and their is nothing greater then viewing the real numbers and comparing them over the last 20 years. Even the new vehicles prices have risen the last couple of years, but they are still lower than 2003.  If an item has jumped off the 2008 lows, does it really count as inflation. And thats the biggest crux with the inflation numbers now being reported. Don't compare them to the last couple years. Compare them to 2006-07.

Maybe the most interesting chart is the household furnishings one. That category is below the lows after the dot com bust.







Check out the site forthe other declining categori…

Crane Manufacturers Report Surging Orders, Yet Stocks Slump

The worldwide crane market was crushed during the financial crisis and still hadn't recovered as 2010 ended, even though several industrial and mining equipment manufacturers have already recovered to pre financial crisis levels such as Caterpillar (CAT), Joy Global (JOYG) and Bucyrus (BUCY). Fortunately for U.S.-based crane makers, Q1 2011 saw a surge in orders and finally signals of a market recovery. Both Manitowoc (MTW) and Terex (TEX) saw huge backlog increases in the crane segment. MTW had a nearly 40% increase in backlog to $800M from the $572M reported at December 31st. TEX had a 30% increase in backlog and like MTW saw plenty of demand in North America. The total went from $774M to $1,004M.
Read the full article at Seeking Alpha.

Disclosure: Long TEX in client and personal accounts. Please read the disclaimer page. 

Cody Willard on Internet Pick and Shovel Stocks

Cody Willard has some interesting ideas about the boom in the cloud revolution. His ideas tend to dovetail ours especially the way he pushes Riverbed Tech (RVBD) that has been a big winner in our Opportunistic portfolios. What we also like is the concept of investing in the pick and shovel providers for internet companies such as the recent IPOs LinkedIn (LNKD) and Renren (REN).

Cody is very negative on the China internet plays as he basically follows Cramer's theory that all China stocks are basically scams with questionable financials. Agree that China companies have had a fair share of issues, but I don't see them that worst off then most American stocks.

With the boom of internet plays in China such as Youku.com (YOKU), Dangdang (DANG), Qihoo 360 Tech (QIHU), and RENN all provide the cash for the pick and shovel plays of China such as ChinaCache (CCIH). Maybe the company is a China scam, but at this point it provides and incredible cheap play into the sector.

CCIH recently…

Put-Call Ratio Signaled the Bottom

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Apparently traders had been very busy buying puts this week as the put-call ratio hit 1.15 on Tuesday. Typically when this ratio hits this level it signals a near term bottom. Interesting that it occurred so close to the top this time, but considering a lot of the 'risk on' stocks were down 15, 20, or 25% from recent highs maybe that explains the level of fear was extreme even if the overall market didn't show it.

See the below chart from Birinyi Associates via CNBC. It shows how 4 out of 5 times since the March 2009 bottom that this ratio signaled the bottom.



Investment Report - May 2011: Opportunistic Levered

*Note this investment report specifically outlines the trades and returns of the Opportunistic Arbitrage model on Covestor.com though the results will be similar to anybody invested directly with Stone Fox Capital using the Opportunistic Levered portfolio. 

This model had a difficult month as it underperformed the SP500 by a disappointing margin (-1.6% versus 2.85%). The model was hit very hard from concerns over Chinese stocks and specifically the fraud allegation against Puda Coal (PUDA). PUDA contributed nearly 3% to the underperformance and along with the other Chinese stocks in the model contributed the majority of the disappointment. Most other stocks and sectors performed well.
China Concerns abounded over Chinese Reverse Mergers including the two such stocks held in the model: PUDA and Lihua International (LIWA). Allegations surfaced (See blog post) during the month that led to a 51% decline in the stock price of PUDA and the halting of the stock. An investigation on the supposed…

Atwood Oceanics Rallies 5.5% Off Early Lows

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Interesting trading today in Atwood Oceanics (ATW) after what started as another weak day. Competitors like Transocean (RIG) ended lower, and Diamond Offshore (DO) and Seadrill (SDRL) ended basically flat on the day while ATW rallied 5.5% off the lows to end close to the highs.

Possibly ATW is getting a bid due to takeover speculation or possibly its positive news on the new drillship. The Atwood Osprey was expected to arrive on location in Australia in mid-May. This will be there first ultra-deepwater rig with a depth of 8,200 feet. Also, with day rates at $490K and a small fleet the revenue will be a huge increase for Q3. Either way hopefully ATW holds up as other stocks in the general sector continue to fold.

From Briefing.com:

2:45PM Atwood Oceanics pushes more than 5.5% off early low, stalls slightly under its 20 ema and last week/range top high at 42.15/42.21 -- session high 42.09 (ATW)41.98 +1.16 :  









China Stocks Set for Crazy Rally

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At least thats the opinion of Jim O'Neil, chairman of Goldman Sachs Asset Management, of BRIC fame. He appears to be a lot more bullish on China and other emerging markets like Russia, Turkey, Indonesia, and Mexico then the general market.

Inflation has been a huge concern in China for what appears like two years now considering the China stock market has been flat since mid 2009. China originally led the rally off the bottom during the financial crisis so its very plausible that China might be set up for the next leg up. The economy has been growing at 10% per year and the market is virtually flat. That doesn't compute.

Tidbits from the Bloomberg interview or just watch the clip below:


The view that “the West is in trouble” is wrong when nations including Germany, Sweden, Australia and Canada are performing strongly, O’Neill said in an interview with Bloomberg Television in Hong Kong, recorded yesterday and broadcast today. Investors should “stop worrying so much,” said O’Neil…

Stat of the Day: India Inflation Peaks?

Interesting CNBC story on the inflation story in India. The good news is that India inflation dipped in April to 8.66 from an adjusted 9.04 in March. The bad news is that the February number was revised upward by 1.23 percentage points meaning that the April number could possibly be closer to 10 percent. The bizarre news is that the fears for higher inflation consist of a widely expected increase in state-set diesel prices.

Maybe its only bizarre to me that goods that have government subsidies would be counted at the subsidy rate and not the market rate. Or at least when factoring inflation, the government should set policy based on what the market rate would be. After all, oil prices have plummeted in May so if anything the country is looking backwards and not forward. Now thats not much of a surprise for India.

Emerging market stocks have been weak this year because of the higher inflation fears and rising interest rates, but the plummeting commodity prices should be bullish but som…

Puda Coal's Chairman Sells Stake: Is He Raising $$ for Puda Buyout?

Yesterday, King Stone Energy Group (Hong Kong listed) released a statement that its Chairman, Mr. Wang Da Yong, had increased his holdings in the company through the purchase of 2.5 billion shares from the major shareholder Mr. Zhao Ming. Mr. Zhao Ming just happens to be the Chairman of Puda Coal (PUDA) that supposedly engaged in a illegal transfer of PUDA assets to himself and since has offered to buy the company at $12.

This deal raises about $55M and backs the believe all along that PUDA shareholders would make out ok considering Zhao Ming has a considerable amount of money to make shareholders whole or to complete a buyout at attractive prices.

It seems very unlikely that he would sell part of his stake in King Stone Energy unless PUDA is moving towards a deal.

Though we personally believe that PUDA is worth a lot more then even a sweetened bid to the $15 range, it might just be easier for all involved to take a decent offer and move on. The BOD is in a sticky situation considerin…

Will Apple be Worth $2 Trillion?

nteresting comments this week from both Cody Willard and James Altucher that Apple (AAPL) could be worth $1 Trillion if not $2 Trillion in the future. While this might seem like crazy 2000 internet bubble like forecasts, its refreshing to see investors willing to discuss the potential of the greatest retail/tech stock in the world. Not to mention as the market heads to record earnings, it should also see companies with record market caps. At some point it was crazy to think a company could be worth $100B so its inevitable that somebody will hit $1T and AAPL is the likely winner.

As I recently wrote, the market continues to give AAPL a very cheap valuation compared to its growth rate. Most analysts continue to give them valuations x amount above the current price in the $340 range. They throw out $400-500 targets even though it gives AAPL an unreasonably cheap valuation. They never seem capable of forecasting a value other then based on the current value whether expensive or cheap, hen…

Investment Report - May 2011: Net Payout Yields

April was a decent month for the Net Payout Yields model as it outperformed the SP500 by a slight margin (3.14% vs 2.85%). This model is naturally designed to slightly exceed the market in good months like April and more comfortably outperform in down markets like back during March.

Trades
April was a more typical trading month with only one trade. Yum! Brands (YUM) was sold as its NPY had been reduced over the last several months to below acceptable levels. This was partly because the stock had run to new highs.

Top Performers
April was a very volatile month with the Top 5 gainers all up nearly 8% or more. Being a more conservative model requiring market caps of $10B it's very unusual to see three stocks up more then 10%. Millicom International Cellular (MICC) and Lorillard (LO) had 12%+ gains and WellPoint (WLP) was up 10%. Hartford Financial (HIG) and Boeing (BA) both had roughly 8% gains. The general themes of these gainers were underfollowed sectors like insurance or cigarette …

Disappointing Margins at Limelight Networks

Limelight Networks (LLNW) is a leading content delivery network provider sometimes seen as a sexy play on the explosive growth of mobile and connected devices and the move into the cloud. The company recently reported Q1 numbers that showed incredible revenue growth with over 100% growth in mobile internet and tablet computing revenue, online video platform, and site and application acceleration services.




Read the full story at Seeking Alpha




Disclosure: No position in LLNW. Please review the Disclaimer page. 

Fantastic Earnings From NuVasive

After the close today, NuVasive (NUVA) reported solid results that easily beat estimates. NUVA is a medical device company focused on developing minimally disruptive surgical products and procedures for the spine.

Clearly an attractive product concept but the company was hit very hard last year when the new healthcare bill caused insurance providers to push back on lumbar reimbursements. The stock plunged from nearly $38 in October last year to a low of $22 in December. Since this was a broken stock and not a broken company, Stone Fox Capital recently added NUVA to most of the Opportunistic portfolios.

The company reported earnings of $.24 and revenue of $124.5M including a doubling of international revenue to 8% with an office opened up in Puerto Rico and one to open up in Tokoyo later this year. Revenue increased by 14.1% over 2010 showing that growth is back on track.

NUVA management continues to expect to eventually move towards a $1B revenue company with several exciting products…

The Absurd Focus on Apple's Earnings Estimates

Yetanotherquarterhaspassedandnearlyalloftheanalystandmedia discussionshavefocusedonwhetherApple (AAPL)