Monday, February 28, 2011

Tech Ticker Interview Slams Sears CEO Hire

Tech Ticker's interview with Jeff Matthews completely slams the new CEO Lou D'ambrosio hired by Eddie Lampert at Sears Holdings (SHLD). The problem is that the whole interview focuses solely on SHLD as a store based retailer. That isn't the goal of this company and it completely highlights the misunderstanding of the goal by most of Wall Street.

Eddie has longed seen this company has having valuable assets including real estate and brands. The value in the retail concept is to spin off cash. In fact see the article that we just wrote last week for Seeking Alpha: Is Sears Holdings Becoming a Tech Stock of Just a Future LBO?

Maybe Mr. Matthews is correct that they need to focus on the retail store concept, but he seems delusional that spending up to $30B on the concept would the best way to go. Seriously? The company would be broke at that point. The goal is to increase shareholder value. It's not to make SHLD a top retailer that can compete with Wal-Martt.

He does make an interesting statement that his connections say that Eddie is very focused on the tech side including the website. Bingo!

Its clear that the market still doesn't understand the plan at SHLD. Thats what we like to see in our investments. They are always going to be undervalued in those cases.



Link to video.



Disclosure: Long SHLD. See Disclaimer page. 

Friday, February 25, 2011

Covestor Webinar

Covestor.com availed me the opportunity to present my models to their audience on the 16th. Below you can view that webinar.

Would like to thank them for the opportunity. If you have any questions about their service please contact them directly. For information on investing directly via Stone Fox Capital please email me at stonefox27@ymail.com (ok, I'll get a more professional email within the next few weeks).



Opportunity is Knocking: Mark Holder from Covestor on Vimeo.

Thursday, February 24, 2011

NII Holdings Delivers Strong Customer Growth

NII Holdings (NIHD) is a leading provider of mobile communications for business customers in Latin America with main operations in Brazil and Mexico. Its the operations in these two countries plus the plans to deploy 3G services in the near term in these countries that derive the main investing theme.

The stock is up some 7% today on strong results and news that subscribers have passed 9M and expect to approach 11M by the end of 2011. While the numbers were good and guidance for 2011 solid, NIHD remains a emerging market investment and hence the stock performance will largely be derived from how the sector performs and whether Latin America remains a high growth area with soaring inflation.

As far as Q4 results, NIHD seems to right inline with expectations when stripping out a $17M charge relating to prepaid Value Added Taxes. Need to listen to the conference call to see if something was said to warrant the 7% jump. All in all, the company trades at a low valuation with expected revenues of $6.6B next year which should have very little revenue contribution from the two new 3G networks.

The emerging market/Brazil theme remains intact. Expect to continue holding this stock in client and personal accounts until at least the 3G deployment plays out.


Via NIHD PR:


  • Full year 2010 net subscriber additions of 1,641,000 resulting in an ending subscriber base of 9.0 million - a 22% increase over the subscriber base at the end of 2009.  Net subscriber additions of 436,000 in the fourth quarter.
  • Full year 2010 consolidated operating revenues of $5.6 billion - a 27% increase over 2009. Consolidated fourth quarter operating revenues of $1.52 billion.
  • Full year 2010 consolidated operating income before depreciation and amortization (OIBDA) of $1.43 billion – a 29% increase over 2009.  Consolidated fourth quarter OIBDA of $379 million.


Disclosure: Long NIHD. See Disclaimer page. 

Buy This Once Hot China IPO After Selloff

ChinaCache International Holdings (CCIH) was one of the top IPOs of 2010. The company priced above the initial range at $13.9 and eventually ended up over 90% on the opening day closing at $27.15 and hitting as high as $30.70. The stock eventually peaked out at $35 over a month later on Nov 12th. So what makes the stock so appealing now?

Well, after that massive IPO jump and follow through, the stock has plunged roughly 50%. Investors are fleeing this once high flyer just 3 months after its peak. The combination of a weak China equities market in January and the resignation of the COO on February 10th has been too much for investors to risk. Ironically though the Shanghai Index has had a good February and shows good technical signs this week. Seems like the better question is why have investors fled CCIH with it now trading at its 52 week lows other then the COO resignation crash lows and below to the IPO open price?......


See the full article at Seeking Alpha.


Disclosure: Long CCIH. Please review the disclaimer page for more information on Stone Fox Capital and the information contained in this article. 

Wednesday, February 23, 2011

The Journal Record Interview

Nice to get some exposure. Finally! Unfortunately you have to subscribe to read the article at this point.

TULSA – A Broken Arrow investor intends to use his successful Covestor model portfolio as a platform for starting an independent investment adviser company. Mark Holder achieved 75-percent growth in the first year of his “Opportunistic Arbitrage Model” (M:HOAB) portfolio at Covestor.com, its aggressive strategy out-earning the Standard and Poor’s 500 Index by more than three ...




http://journalrecord.com/2011/02/21/broken-arrow-investor-seeks-to-start-investment-adviser-company-finance/





Lihua Provides Strong Preliminary Numbers

Lihua International (LIWA) provided preliminary unaudited numbers yesterday that exceeded previous 2010 guidance. They also introduced 2011 guidance that basically met analyst estimates and provided for 30-35% earnings growth. Strip out cash and the stock trades for roughly 4x 2011 estimates.

LIWA is leading Chinese developer, designer, and manufacturer of low cost, high quality alternatives to pure copper products, including refined copper products and superfine and magnet wire.

Basically LIWA is in the sweet spot of the Chinese copper demand machine. Unfortunately though the market just doesn't respect the numbers they report. A few short sellers have done a good job in trying to scare the market though they don't appear credible.

The stock remains a attractive pick of the Opportunistic models.

2010 Preliminary results


  • Company expects revenue of $370.5 million, representing growth of 129% over $161.5 million in 2009.
  • Full-year gross profit is expected to be approximately $62.1 million, an increase of 71% over $36.2 million in 2009. Lihua's preliminary gross profit exceeds the Company's previous guidance of $57.0 - $60.0 million.
  • Non-GAAP net income for the year is expected to be $40.0 million, compared with $25.6 million in 2009.



2011 Guidance


  • Lihua is targeting 2011 gross profit of $80.0 million to $82.0 million and non-GAAP net income of $52.0 million to $54.0 million, representing year-over-year growth of 29 - 32% and 30 - 35%, respectively. The Company expects that 2011 growth will be driven by the introduction of Lihua's copper recycling facility in the second half of 2011 with continued strong demand in China for recycled copper and copper alternatives in the household appliance, consumer white goods and infrastructure markets. The new copper recycling facility will initially house two new smelters.  Once online, the new smelters will effectively double Lihua's scrap copper refinery capacity to 100,000 tons annually.



Disclosure: Long LIWA. Please see disclaimer on info provided on this blog. 

Thursday, February 17, 2011

Dennis Gartman on the Brent-WTI Spread

As most people have noticed or heard, there is an extreme difference between the West Texas Intermediate (WTI) crude price and Brent crude. One of the main reasons for the difference is the congestion at the WTI pricing hub in Cushing, OK. Being from Oklahoma it doesn't surprise me too much that Cushing has record inventories considering the companies have been busy building extra storage tankers in Cushing the last few years.

So if they build more storage tankers, wouldn't it naturally hold higher inventory levels then in the past? The market always seems to have issues with digesting news that should've been expected at some point. Honestly I don't fully understand the issue and it seems natural that if oil is treated better in Europe that explorers in Canada of the Gulf will eventually send the oil to where it is treated better such as Europe. 

Interesting discussion by commodity expert Dennis Gartman. It doesn't sound like shipping the oil from Cushing to Houston via rail or truck is a viable idea. Check the conversation about 2 minutes into this clip on CNBC. Not really sure how to take advantage of this story other then explorers that sell into non-US markets will make a lot more money.  Something to watch for now. 





Sunday, February 13, 2011

Passed the Series 65

Passed the Series 65 a few weeks back. Hopefully it won't be long before Stone Fox Capital Advisors becomes officially registered as an investment advisory in Oklahoma. All this snow in Oklahoma that has shut down school systems for the past nine days probably has helped speed up the process.

Stay tuned!

Monday, February 7, 2011

Investment Report - February 2011: Net Payout Yields

January was a solid month for this model as it beat the benchmark (2.6% versus 2.26% for the SP500). For a Risk Score 1 model the goal remains to outpace the benchmark by a slight amount each month with greatly reduced volatility from the higher risk scores.

The model intends to allow investors to sleep well at night knowing that stocks in the model gain from weakness in the markets via using their large sums of cash and profits to buyback stock and issue large dividends.

Trades
No trades were made in January which will be typical of any month especially so close to model creation in November. Its expected that stocks will remain in the model for at least 6-12 months where they will hopefully rotate out due to gains that have reduced the net payout yield below desired levels.

Top Performers
The best performing stocks for January will likely surprise most investors. Both Lockheed Martin (LMT) and Capital One Financial (COF) had gains exceeding 13%. With defense budgets in question, LMT spent the 2nd half of 2010 in the dumps. With a dividend yield above 4% when 2011 started, it should've been little surprise that investors would finally turn back to this stock. Add in a solid buyback program and this stock was set to outperform.

Likewise, COF was another stock that missed the rally that began in September. Unlike LMT, COF didn't have the yield support, but it does now have the earnings to support a return to higher dividends and possible buybacks.

Other top performers that garnered gains in excess of 7% were CSX Corp (CSX), Wellpoint (WLP), and Vodafone Group (VOD).

Bottom Performers
Two stocks had very weak months with losses in excess of 8%. Itau Unibanco Banco Holding (ITUB) and Lorillard (LO) were hit pretty hard for different reasons.

ITUB has been impacted by high inflation in Brazil that has led to higher interest rates. Being a strong bank in a country with bullish long term prospects, any drop appears short term.

LO was heavily impacted during the month from concerns regarding menthol bans. The company has a 6% dividend yield and spent roughy the same amount on share buybacks in 2010 leading to a 12% net payout yield. The concerns about the cigarette industry may be high, but the cash generation and decisions of management suggest remaining invested. In fact the annualized buyback yield from Q4 alone was roughly 10% after the company spent $285M on its own stock. This highlights how short term lower stock prices can actually benefit investors in these stocks.

Summary
After an initial weak month in November when the model began tracking results, it has remained consistently stable with the market. Any major outperformance by this model will be a struggle as the market zooms ahead favoring small and mid caps. The model generally provides great downside support when a correction eventually takes place. As the LO example shows, market or stock weakness can be relished in certain cases making it much easier to sleep at night.


Disclosure: The investment report relates directly to the activity of the Net Payout Yields model on Covestor.com. It is not intended as specific investment advice and should be used for informational purposes only. The author is long all the stocks mentioned in the report. 

Investment Report - February 2011

January was another decent month for the market but this model struggled to keep up. After months of strong gains numerous stocks hit the wall. The model basically ended flat although during mid month the emerging market, commodity and biotech stocks struggled mightily. Fortunately though by month end several stocks rebounded and combined with two buyouts helped narrow the relative performance gap for January.

Buyouts
Two of the major developments in the model during January were the announcement of buyouts at the end of the month.

First, Verizon (VZ) announced the buyout of Terremark Worldwide (TMRK) for $19 or a 35% premium from the previous close. TMRK is a data center operator and premium cloud services provider. This deal was timely as the model was looking to reduce exposure to this stock that continues to grow by issuing debt. The buyout allowed the exit of the position at a great price much higher then expected.

Second, Alpha Natural Resources (ANR) agreed to buyout Massey Energy (MEE) in a deal long rumored by the market. The deal calls for ANR to pay MEE 1.025 shares plus $10 in cash for each MEE share. Considering the model owns both stocks and ANR fell on the news, the immediate benefits of the deal were limited. MEE though had participated via a significant run up over the last several months. Though the model had hoped for a buyout by a competitor, the deal creates a global metallurgical coal powerhouse only topped by two other partnerships. With the dip of ANR stock following the announcement, the stock remains extremely cheap considering the assets now held and the opportunities to reduce costs.

This model will look for opportunities to exit the combined ANR/MEE position to reduce exposure to the coal sector. Along with the position in Puda Coal (PUDA), the model has more coal exposure then desired. MEE has been a great investment after loading up following the explosion at the Upper Big Branch in April. The company has been an operational mess since then, but the bet was that the massive met coal reserves would prove to buoy the stock and fortunately it worked out as planned.

Trades
Trading in January was mostly limited to taking profits in a few large gainers. In addition to the big profits booked in TMRK, this model also sold about a third of its position in Dicks Sporting Goods (DKS) and the whole position in Freeport McMoRan (FCX).

DKS had become closer to fully priced trading at a forward PE over 20. With a growth rates estimated around 17%, DKS will likely not see any further multiple expansion limiting the upside to the growth rate. The company remains the leading sporting goods retailer and a top notch operator so the remaining position will be held for now.

FCX was sold to reduce commodity exposure as it appeared the rally in commodities like copper might be ending towards the end of January. Unfortunately the price of copper has since rebounded to new all time highs leaving FCX with plenty of room to run above its recent highs in the low $60s (split adjusted). This position might be re-added considering the bullishness of copper.

The only purchase was Lincoln National Corp (LNC). Insurance companies like LNC and model favorite Hartford Financial (HIG) continue to report reliable earnings while trading at extremely low valuations. Both companies trade at 60-70% of book values and PEs in the sub 8 range. The valuation was too cheap to pass up adding more exposure.

Big Movers
The model had numerous big winners and losers last month.

Again due to the buyout, TMRK had a significant gain exceeding 46% for the month. MEE was another big winner at over 17%. The other big winners are related to rising oil or technology. Atwood Oceanics (ATW) and Foster Wheeler (FWLT) will both gain as higher oil prices lead to more capital spending on projects to boost exploration and processing of oil. Limelight Networks (LLNW) mainly benefited from a rebound in the stock price after a significant drop in December.

Unfortunately several stocks stumbled this month. Liz Claiborne faced significant loses after preannouncing weaker Q4 results. The company continues to struggle to turn around its prospects after a miserable couple of years. They continue to control several desirable brands and trade at valuations that might entice some bids. Competitor Jones Group (JNY) also reported weak numbers giving credence to a bad sector as opposed to a bad stock.

Emerging market stock Gafisa (GFA) continued to struggle following a weak December as well. The Brazilian home builder was again crushed as high inflation led to higher interest rates. Housing needs will remain strong and the stock should rebound as interest rates hopefully stabilize.

The other weak sector was the biotech. The model has three positions in the biotech sector with two positions in small biotechs purposely held lower then average to control risk. Unfortunately both Savient Pharma (SVNT) and Rigel Pharma (RIGL) lost more then 10% in value during January. The sector remains undervalued and under owned at this point. Expect the model to either add to these positions or initiate a new position as relative value appears strongest in this sector.

Conclusion
The market headed higher for another month yet the underlying volatility of individual stocks was high. 2011 appears headed towards a strong stock market but after a extremely bullish five month period starting September 1st, I'm always on the lookout for taking profits and hedging gains. The market is bound to hit a rough patch this year but the constant calls for a correction could be reducing the likelihood of any imminent collapse. Not to mention that domestic funds are finally seeing strong inflows providing ammunition for buyers that the market hasn't seen in years.

The model began February with reduced but still high leverage above 1.3 as good valuations are still abundant. Expect more of the same unless the market changes for the worst.


Disclosure: The investment report relates directly to the activity of the Opportunistic Arbitrage model on Covestor.com. It is not intended as specific investment advice and should be used for informational purposes only. The author is long all the stocks mentioned in the report. 

Sunday, February 6, 2011

Hartford Financial CEO Sounds Positive

Hartford Financial (HIG) reported earnings that beat estimates last week yet the stock still trades considerably below its book value around $46. Analysts even expect earnings for 2011 and 2012 in the $4 range giving them a sub 8 PE. So why does the stock still trade in the $20s and not the $50s? Beats me.

Listen to the CEO, Liam McGee on the Kudlow Report on CNBC on Friday. The guy sounds very positive about the future and it clearly appears that the commercial real estate risk is behind them. Stock portfolio issues are part of the past and just about everybody dreamed up issue is overblown. Take a listen and decide for yourself.






Disclosure: Long HIG in personal accounts including Covestor accounts. 

Friday, February 4, 2011

1st Anniversary on Covestor

The Opportunistic Arbitrage model completed its first year of being available for subscription on Covestor yesterday. It seems like a long time ago that I agreed to start tracking a real portfolio on Covestor that was available to the public for real time tracking. Didn't know what to expect but its been a incredible year.

The model gained 69.16% in its first year far outpacing any of my goals. The clear goal is to outperform the SP500, but by 5,000 basis points is clearly beyond reasonable expectations. Clearly it will be difficult to repeat such a performance in year 2, but I'll definitely work hard to make the biggest gain possible while trying to keep risk reasonable.

Some of the biggest gainers were the cloud computing plays of Riverbed Tech (RVBD) and Terremark Worldwide (TMRK) that recently got a nice buyout bid from Verzion (VZ). The other big gains came from the commodity plays of Freeport McMoRan (FCX), Alpha Natural Resources (ANR), and Massey Energy (MEE). Several other stocks contributed to such a large gain as well.

Looking forward, several areas remain very attractively valued including the insurance companies, Hartford Financial (HIG) and Lincoln National (LNC), trading at 60-70% of book value and with PEs of sub 8. Also, the small cap material plays in China remain very attractive as the market continues to lump them all into fraud scenarios. Coal play Puda Coal (PUDA) and copper play Lihua International (LIWA) are the top picks.

Really looking forward to see where Covestor can take this model in its 2nd year after accumulating 33 subscribers this last year and recently peaking out at 35. Below are the results as posted by Covestor. Please contact them about subscribing to this model.



Inception Feb 03, 2010Manager*S&P 500Avg. Sub.
Month to date (%)3.811.633.65
1 month (%)-0.032.26-0.15
3 month (%)21.718.6919.94
Annualized since inception (%)69.1619.12n/a
Since inception (%)69.1619.12n/a
Sharpe (annualized)1.461.07n/a



Disclaimer: This information should not be construed as investment advice. All information on stock ideas are for information basis only and aren't intended to be used as financial advice. Mark Holder is not a registered investment advisor and therefore can not provide any specific advice. Future results can not be guaranteed. Please contact Covestor to find out more information about the subscription process.