Investment Report - March 2012: Opportunistic Levered

This model gained a solid 21.4% in February versus 4.1% for the benchmark S&P 500. This model typical outpaces the major indices by a large margin in up periods and last month was no exception.

Since the end of 2011, this model has been running on the theme that the majority of stocks would retrace the losses experienced since the July 2011 levels. In essence, our theory all along has been any losses since that time period were from irrational fear of a second financial collapse that the Europeans were unlikely to allow. Naturally this fluctuates on a case by case basis where any individual stock could move a lot higher or lower depending on circumstances since then.

This conviction has allowed us to hold onto a highly leveraged portfolio and see significant gains this year as stocks like Apple (AAPL), Dicks Sporting Goods (DKS), Liz Claiborne (LIZ), and Radware (RDWR) all reached those July levels by February.

Other stocks like Manitowoc (MTW), Sears Holdings (SHLD), and Terex (TEX) have made major runs by the end of February to reward investors for holding on during the rough summer months. Amazingly though neither of these stock had reached the July levels even after significant rebounds.

What’s even more amazing about the strong gains in the model is that several stocks have remained around 52 week lows including Alpha Natural Resources (ANR), NII Holdings (NIHD), and Savient Pharma (SVNT). Other stocks still remain far from last July levels leaving plenty of upside.

Trades

Trading for the month was limited especially as a percentage of assets. Small positions were  initiated in Freeport McMoran (FCX) and NII Holdings (NIHD), while also adding to an existing position in OCZ Technology (OCZ) .

Conclusion

The market in general remains in a uptrend that likely will lead to multi year highs and possibly eventually to all time highs in the S&P 500. This model while fully invested now will likely allow leverage to unwind with any more gains.

While a few stocks are approaching valuations that might trigger closing positions, most of the stocks owned or followed trade at extremely low valuations. Investors need to understand that growth stocks have underperformed the market during this rally since last October in favor of dividend stocks. It would not surprise us to see a period over the next few months where growth stocks surged ahead even as the S&P 500 stalls.



Disclosure: Long all stocks mentioned. Please review the disclaimer page for more details.