In the Know:A Financial Blog by Michael E. Brisky

Welcome Back

2011-11-10T14:29:00.001-06:00

Hello All,

I'm writing my first post in quite some time. I'm still following the market and watching for good investments, but haven't had a lot of time to blog about them. Hopefully, I will be able to find the time to keep this up again.

A quick synopsis of my thoughts on the macro situation:

I'd be lying if I said I was an expert of what is going on in Europe with regard to various countries' debt situations. I do not buy into the fear of contagion and what effect it may have. Our market overreacts time and time again to these various threats. Are the situations serious? Yes. Is the US debt problem serious? Yes. Because I can't predict what will happen there, I'm not going to worry about it. Do I have confidence that the they will get through this? Of course. And I do know this: when the market responds, it often does so so swiftly that it becomes impossible to try and maneuver around news.

In our country, I'm most concerned not about the issues we face, but more about the political climate. No politicians or party seem to have the political will to make any necessary/tough decisions. Until we can return the view of serving in political office as a "service" and not a "job", we will have poor politicians who only care about how to get re-elected. If a candidate showed real leadership and was ready to make the tough decisions showed up, I would support him or her completely. But it appears that we have another empty election cycle coming up with more "Reality TV" politics.

Even though we have a tough political climate, a disturbing debt situation, and a tough job market, there are still some segments of our economy that are improving, and things are certainly moving in the right direction. Many companies have cut capacity, cut employees, and cut costs to adapt to this climate, and are now finding it to be very profitable. Is it ideal? Of course not. I hate seeing 9+% unemployment. I do see all these things improving over time though.

A quick update on my portfolio:

Like for most people, things were looking good for most of the year until early August. I hold a lot of small cap, value type stocks. I look for situations where I can buy these stocks a great prices relative to their current asset position, and hopefully they have a catalyst in play which will unlock growth. Or at least have something in play to get people to notice to stock and that its undervalued. What happens to these stocks typically is that over time, the value is eventually noticed and the price catches up. While waiting for this, these stocks can be subject to wild price swings though. Because of their small size, these companies can be subject to inconsistent revenues and or profits per quarter as we go along because they may not have enough of a product mix to balance things out. And because there is little to no news that comes out on these companies, investors often panic if a quarter is not so great or if the market as a whole is not doing well.

I am seeing value out there in a lot of companies, both large and small. But overall, I still mostly prefer smaller companies. They fit my investment goals best. I'm willing to be patient and have developed a tolerance for holding through market swings (its not easy at times, I know). I do mix in some larger stocks, but still using the same value philosophy.

I don't want this post to get too long here. I will be doing additional separate posts about stocks I like and what I'm doing with my portfolio.

If you're reading this, I do appreciate it, and as always, I welcome your interaction here.

Thanks!

Michael

Still Adding Shares

2011-03-04T12:23:00.000-06:00

I'm not spending a lot of time worrying about the events happening in other parts of the world. Sure, they are having some effect on the market, but a pullback was imminent. This only gave the market an excuse in my opinion. Now if we see a carry over effect and it causes fuel prices to spike (they already have, but I'm talking gasoline at $5 kind of spike), then I'd be concerned.

We're right in the middle of earnings season, and most of the stocks I own are reporting on the late end (small caps often do, I have no idea why).

I added shares of Jamba (JMBA) last week at $2.24. This will be it for me prior to earnings. If we see a sell off post-earnings and shares get closer to $2.00 or below, then I could see myself adding again.

I also added yesterday to Adams Golf (ADGF). I really like the opportunity with this company. I think they have some great new products that the market is just finally realizing, and they have some strong players on staff who are promoting the brand well. The sport has struggled in the past few years, but any improvement will only help their sales. Tiger Woods has struggled, and that is huge for the sport. If he can find his game soon (and I know he will) the sport will benefit greatly. We also have the situation of the Acushnet spinoff from Fortune Brands. This will mean that Titleist-Footjoy will be a separate entity and could be a publicly traded company. This would be the best scenario for us here. Adams is not widely followed, and thus under appreciated. Bringing a major player like Titleist to the market would have many analysts and investors taking a look at the industry, and they will discover Adams.

I added shares yesterday at $5.92. I'm pretty happy with my position in this one (started buying in the high $4's). I would add if it drops of course but own enough to be satisfied if we see a substantial move.

Hopefully earnings are solid for both of these names.

Disclosure: Long JMBA, ADGF

CEO Departs; I'm Adding Shares

2011-02-18T16:58:00.000-06:00

News today from Compass Diversified Holdings (CODI). CEO Joe Massoud is taking a leave of absence. Press release here:

Compass Diversified Holdings, an owner of leading middle market businesses, announced today that Joe Massoud, its Chief Executive Officer, has requested, and the Board has approved, a leave of absence to focus his attention on an informal regulatory inquiry that Mr. Massoud has received on matters unrelated to CODI. CODI also announced that its manager, Compass Group Management LLC ("CGM"), has nominated, and that its Board has approved, Alan Offenberg to assume the role of CEO on an interim basis, as well as Mr. Massoud's seat on the Company's Board of Directors. Commenting on the transition, Mr. Offenberg said, "I am honored to be able to serve CODI's shareholders in this capacity. Joe will continue to be available to us during his leave and we are all very excited about the many opportunities the Company has to build value for our owners."

Mr. Offenberg has been a partner with CGM and its predecessor since 1998. Prior to that, Mr. Offenberg was with Trigen Energy, Creditanstalt Bankverein and GE Capital. Mr. Offenberg is a graduate of Tulane Universityand the Northeastern University Graduate School of Business. Mr. Offenberg is currently a director and chair of American Furniture Manufacturing, Inc. and Liberty Safe and Security Products, Inc.

The stock sold off this morning, and bounced around most of the day. I took the opportunity to add shares today at $16.52. Although Massoud is integral to this company, he will still be available to management. They have an awesome portfolio of companies, and they are only getting stronger. I want to hold this company for a long, long time, and when you get opportunities to buy shares at a discount, that's what you hope to do as a value investor. They report earnings in early March, and I expect strong results.

The market continues to be quite strong, and I'm a bit cautious, but quite optimistic for returns for 2011.

Disclosure: Long CODI

New Purchase

2011-02-14T15:58:00.001-06:00

Dr. Pepper Snapple Group (DPS). If you've followed the blog in the past, you know that I've had my eye on this one awhile (link to my previous DPS posts). I've always believed in this industry. High barriers to entry and this is mostly due to brand recognition and loyalty. If you look at everyday consumer products, in almost every space, generics are there, and are often seen as viable alternatives. Why does no one buy the cheap soda? Whether its just within consumers' perceptions or not, people buy the brand in this industry and almost nothing else. Now, I'm unlikely to ever buy Coca Cola or Pepsi. They are huge mature companies. I like DPS because its still a growing brand. Through the end of 2010 their plan was to be in every US McDonalds, and the Diet in almost half of their US locations. We're obviously going to get more info during this Thursday's earnings announcement and conference call. There are a lot of growth opportunities out there for them, and they appear to be leveraging them well.

Here are some stats on their products: (via last year's CAGNY presentation):

41.3% market share in non-cola soft-drinks. Think Dr. Pepper, 7Up, Sunkist, Canada Dry, A&W, Crush.
Snapple; #1 in premium tea category.
#1 in juice. Mott's, Clamato, and Hawaiian Punch.
#1 in alcoholic mixers. Mr and Mrs T, Rose's Cocktail Infusions.
#1 in gourmet CSDs. Stewarts and IBC.

By the way, the link to that presentation is a great read if you'd like to get familiar with the company.

They also have the bottling agreements with Coke and Pepsi. Here's a rundown on their operations .

Potential threats to this investment:

1)Soda Tax- Many states and municipalities are still considering this as a way to generate more revenue. This has been in play for awhile, and I'm guessing it will come up further in the future, but they can pass prices along to consumers to some extent. Its just a matter of how significant the taxes are.

2)Overall Inflation- Think input prices. Plastics mostly. This is an issue for almost every business, but a bigger issue for a soft drink company. Again, its a matter of "how much", as a certain amount can be absorbed without disrupting consumer's buying decisions.

I like the stock at these levels, and depending on what we hear Thursday, or if the market corrects, I'd add to this stock. I'm a pretty patient investor and have made very few sales in the past 18 months. I do own many small-cap names, and love to own and watch those. But lately I've also looked to add some mid to large cap names to a just a little stability to my portfolio, and this will fit.

I bought today at $33.74.

Disclosure: Long DPS

Small Caps Coming Around

2010-11-15T10:47:00.000-06:00

The market has been pretty strong for the past quarter, and as usual, many small cap stocks are a little slow to catch up. In my opinion this is due to a few factors: 1) News flow out of small cap stocks is usually quite slow, and there are few, if any analysts to supply data to the market; 2) Investors like to wait until earnings to make decisions on these stocks (and at least all of mine report at the late end of the earnings cycle). So, we're now in catch-up mode. The news flowing out of the stocks I own has been quite good:

IGO (IGOI): Reported very good earnings, and announced a new partnership with Texas Instruments. Management has been delivering quite well with both new distribution deals, and partnerships. Many are finally noticing this stock and it has been moving.

TII Network Technologies (TIII): Reported this morning. This is a stock where almost no news comes out. But they did make an all cash acquisition earlier this year. We were waiting to see how this is turning out, and according to today's report, quite well so far. I was buying this stock as recently as last week. Lots of upside here is they continue to deliver.

Fortress International (FIGI): Reported last Friday. Another thinly traded stock. I was trying to buy this thing for weeks, and didn't want to compromise on price, and was able to lock in an order last Thursday thanks to Think or Swim's handy iPhone Application. Another cheap stock that I'll look to add to.

Jamba (JMBA) also reported last week. This was the only stock I own that kind of "underwhelmed." They are still on track to roll out some great new products and have a great plan in place. Its just takings some time. Still very confident in this company.

As always, be sure to follow me on Twitter, as I always post when I make a buy or sell.

www.twitter.com/briskycapital

Thanks!

Disclosure: Long IGOI, TIII, FIGI, JMBA

Position Update

2010-10-21T09:27:00.000-06:00

I continue to be cautiously optimistic, and more bullish than most. I finally sold off my small position in ABB, at 22.90. I've been waiting for some time to exit this position, and decided to sell into the strength here. I like the company, but just don't see as much upside for the stock as I do in others I'm looking at. That's what selling ultimately comes down to if you're value oriented. I look at basically two things: 1) Is the stock fairly valued or even over valued? and 2) Do I have somewhere better to put that cash? In this case, I feel pretty solid on both for ABB. Sure, if the market continues to rally it could move higher, but like I said before, I have a few other ideas.

Now, I'm not looking to sell anything else I own, unless we see a lot more upside. For a quick update on what I own for individual stocks, here goes:

General Growth Properties (GGP)

American Capital (ACAS)

Compass Diversified (CODI)

TII Network Technologies (TIII)

Etrade (ETFC)

Jamba (JMBA)

Pfizer (PFE)

Igo Inc. (IGOI)

I will add to any of these, if given the opportunity. I've got a few new ones in my sights as well, but as usual, I'm willing to be patient and (hopefully) not overpay.

There you have it. I'll try to update more frequently.

Disclosure: Long GGP, ACAS, CODI, TIII, ETFC, JMBA, PFE, IGOI

Buffett Sees No Double Dip Recession

2010-09-13T15:35:00.000-06:00

We've all seen the headlines. "Market drops as double-dip fears rise", or something to that effect. We get bearish analysts who specialize in producing headlines to grab onto (we know who these people are). When the market does well, those people go away; when it struggles, they come right out of the woodwork. You know who I listen to? People who actually run businesses. Not people who read sets of data, use only the data that promotes their thesis, and write analysis based on it. Is the economy clicking on all cylinders? I don't think anyone will tell you it is. But there is a lag. Sentiment is going to carry on negative for awhile before things get moving again. Rail traffic is rising, and temporary employment has improved, both of which are positive signs for the broad economy.

Buffett sees things improving "almost across the board" by the way. And they own dozens of businesses across a wide spectrum, as well as employ 200,000+ people.

I think things are improving, and will continue to. It will take time. I'd use the negative sentiment to your advantage with regard to purchasing assets, because by the time sentiment improves on a large scale, prices will be much higher.

Embrace the Fear

2010-07-09T10:12:00.001-06:00

Double-dip recession? I've heard lots of talk about it lately. The fear (at least prior to this week) was palpable in the headlines and you could tell by watching the tape. Nouriel Roubini was on TV again, and they were pulling other various people who are always bearish out to give us some scary headlines (Dow 5500, Dow 1000 etc). I found a nice post on this over at Barry Ritholtz's Big Picture, titled Can the Crowd Forecast a Double Dip Recession?

The economy is recovering. The recovery may not be particularly strong, but it is happening. Todd Sullivan at Value Plays has been laying out an excellent analysis of this during the past week. Economic indicators such as auto sales and rail traffic have been improving. And its not like the market is pricing in some huge V-shaped recovery. It may have been heading that way in late April, but it certainly isn't now. As long as we continue on a path of recovery, I think stocks will be very attractive. With rates this low, the massive amount of cash on the sidelines will work its way back into the market.

So if you're a value investor who is interested in purchasing "companies" at discounts to fair value, you should embrace the fear, as it will allow you to make even better purchases. Too many people let the market or the headlines tell them how the economy is or whether or not they should make this or that purchase. I try not to operate this way, but unfortunately its just the world we live in. Its important that we use this to our advantage.

I've been adding to a handful of names over the past two weeks, and will continue to do so it valuations become even more attractive.

Adding to Current Positions

2010-07-02T15:19:00.001-06:00

Lots of panic out there this week. As value investors, we welcome this type of action. All the talk of double-dip recession, another depression, etc. I'm sure you've heard all of it. With my time horizon, and hopefully yours, I'm quite confident the stocks I hold will be much, much higher by the time I'm ready to sell them. The problem is we're becoming more and more programmed for instant gratification, and thus time horizons have become shorter and shorter. This all plays into Wall Street's hands by the way. More trading = more commissions. The key as always, is spotting value in companies and taking advantage of a market that is full of fear and is ignoring these stocks. But you do, however, have to know what to look for.

I added General Growth Properties (GGP) Wednesday in the mid 13's.

Late today I added Tii Network Technologies (TIII) at 1.48, and Pfizer (PFE) at 14.15.

Tii completed what appears to be a good acquisition that will immediately add to earnings. The stock is still trading at less that half of book value. Lightly traded stock, so you have to deal with that. I'll continue to buy if it stays under 1.50.

Pfizer hit a fresh 52 week low today, and I bought it near that low. I see plenty of value here. Trading at 6.2x forward earnings? Even if those estimates are a bit optimistic, this thing is cheap. I know they have some drugs patents expiring in the next few years, but this stock is cheap. Throw in a 5% dividend, I'm happy to park some money here while we wait for the market to recover.

I'll do my best to post more to the blog. I always post when I make a transaction, but I would like to pass along more info about the specific names I own or am looking at, and will make more of an effort to do so.

Happy Independence Day!

Disclosure: Long GGP, TIII, PFE

Loews Corp. Presentation

2010-06-09T10:30:00.000-06:00

I haven't been posting much here lately, but I always try to pass along valuable information on any of my portfolio holdings. Loews Corp., and specifically CEO James Tisch presented last week at the Sanford Bernstein Strategic Decisions Conference. Lots of great stuff here. Tisch, as always, lays out their strategy and why their stock is a good value. He shoots straight and is very entertaining. Loews has obviously been impacted by the problems in the gulf and their exposure to Diamond Offshore. Even though I'm sure the typical re-active panic legislation is coming from congress and this will likely have some effect on the industry, Diamond is a great company. They don't operate like most energy companies that follow the cyclical, boom and bust cycles with high leverage at the peak and wash out at the bottom. Diamond uses Loews value investing theory and scoops up assets when they are cheap. This is one example that will make them a long-term player in an industry that could see some pressure for awhile.

The bottom line here is I trust Loews management, and their ability to allocate capital. That's what it comes down to with a company like this. When you buy Berkshire, you're betting on Buffett. Same deal here, except, in my opinion, this stock is much cheaper.

Just listen to the conference call, and you'll see what I'm talking about.

I'm also looking to add to a few names that I currently own.

Tii Network Technologies (TIII) looks like they made some good use of cash with their recent acquisition as it will be accretive to earnings in Q3.

I also may add to any of the following on further weakness: L, ETFCD, GGP, JMBA, CODI.

Disclosure: I own all of the names mentioned.

Crazy Stuff

2010-05-07T12:07:00.000-06:00

Wow is about all I can say after watching the tape pretty closely the past two days. My afternoon yesterday consisted much like many others, as I was shocked what I saw. Whether it was some type of trading error, glitch at an exchange or some fund blowing up and dumping everything, it was something to see as the Dow was almost down 1000 points.

These foreign debt situations have happened before, and like previous ones, this will blow over. The concern is about spillover into other countries/situations. Add that to a market that was due for a correction, and well, we all can see the result.

If you feel like stepping in and buying, feel free. I'm being cautious right now. Although I've expressed caution that the market was due for a correction, and I'd be a buyer on any weakness, when we see it happen this swiftly, you have to step back and reassess. Buying fear is the correct thing to do, but you have to be smart about it too.

There is so much happening out there. The European situation, the oil spill, terrorism issues, etc. They are all weighing on the mind of the market. GGP has been fielding increasing offers by SPG, but seems intent on going with the Brookfield deal, which offers the most long term upside for shareholders. In a market like this, when everyone is overreacting, many would rather have SPG's bid, because they can't even think about the long term.

Things are looking good at IGo. They reported a nice quarter, and revenues should see a bump in the coming quarters due to new distribution deals being rolled out.

Just remember that fear clouds judgement, and its important that we don't fall for the trap. Sure, many stocks I own are getting nailed. But I'm comfortable owning these stocks, and will welcome the opportunity to add to my positions at better prices, when the time is right. What I don't want to hold are stocks I'm uncomfortable with, and believe me, I've held them before. Its not fun in a market like this. This is a lesson I've learned through experience, and quite frankly through past mistakes.

Let's see what Friday afternoon brings.

Disclosure: Long GGP, IGOI

Solid Results From Loews

2010-05-03T13:45:00.000-06:00

Loews Corp. (L) reported alongside CNA financial, of which they own 90%. Solid numbers out, like I expected. Things just keep improving for their businesses. CNA is the big driver of earnings, and things are really starting to turn around there.

I listened to most of the earnings call today, and didn't pick up much quote-worthy, but if I find anything in the transcript, I'll point it out later.

Truthfully, the stock is getting pushed down because of Diamond Offshore, of which they own 50%. DO has been sold off due to earnings (they cut their special div.), and the problems due to the oil spill/Obama's offshore dilling plan. If you're looking to buy into the offshore drilling space, now is the time, and DO (or NE) is the stock. I prefer to buy the parent, and get a discount, but that's just me.

Loews book value is now $41.80/share. As I write, shares are $37.29. Value here? I'd say yes.

If you're looking for a quick run-through on their structure, this will work well.

Disclosure: Long L

Adding to 2 Positions

2010-04-22T10:46:00.000-06:00

I've taken advantage of this mornings sell off (I hope at least), and added shares of two portfolio holdings.

I added Etrade (ETFC) at $1.73. They reported solid earnings yesterday after the bell, and are well on their way back. Unless a buyout comes, this is going to take some time, but I am confident that there is money to be made here.

I also added pretty heavily to Loews Corp (L) in the 37.70's and .80's. You can buy Loews stock for basically the value of only their publicly traded assets, and they own so much more. The market is determined not to fairly value this company, and I'm willing to wait. It may take a big move by management for Wall Street to appreciate the value, and they have the resources to pull it off. They are true value investors, and are waiting for the right thing. I feel like I'm buy dollars for .70 here. Their annual report is a good read if you have the time. Also, take a look at this commentary from the Lonely Value Investor blog. I really like reading this site, and its worth your time.

There aren't many new names I'm looking at, but I have a lot of stocks I really like and currently own. I'd rather buy more shares of current names, and will continue to do so if the opportunity presents itself.

Disclosure: Long ETFC, L

Added Some GGP

2010-04-20T08:27:00.000-06:00

I've been pretty cautious on adding anything here as many of my stocks have run up a bit. I did add some General Growth Properties (GGP) yesterday around $15.11. I'm not going to speculate whether Simon Property Group, or the Brookfield group, or even someone else comes out on top. From what I've seen so far, many of the best, brightest investors have been involved in this thing and that tells me that A) There are some really good assets at stake here, and B) They are being bought at cheap levels. Now depending on the particular outcome and who emerges as the leader here, it may take more or less time, but I do believe we'll see shares higher in the months ahead. So I went ahead and added, and increased my position by about 1/3. I wish I could have been many, many more shares at my original buy price of $1.79.

Also, if you're looking for more analysis on the GGP situation, check out Todd Sullivan's Value Plays blog. It is well worth the subscription, as I've made that cost back many times over.

Disclosure: Long GGP

Taking a Step Back

2010-04-13T08:58:00.001-06:00

The market is taking a breather this morning, and it is definitely due. We crossed 11k on the Dow, and that was about as far as it went. While we're definitely due for some type of pullback, but I wouldn't be surprised if it isn't that significant. The economy continues to improve, and you can just feel the confidence come back to the market as things move gradually higher. To me, its still a market for picking stocks though. I look at the large-cap stocks that most talk about and I really don't see a catalyst for them to make a sizable move. Yes, the economy is improving, but that has been priced into many stocks. I continue to like smaller cap names, and some other non-traditional companies.

I still would point to a company like Loews Corp (L) if you're looking to find value out there. The market continues to undervalue the total group of their assets. CNA financial, which Loews owns a 90% stake is a classic case of a stock beaten down badly during 2008-2009, but is primed to perform well very soon. I also think commodities will be hot again very soon. Loews has great assets there, with a 50% stake in offshore driller Diamond Offshore, and natural gas exploration and pipeline assets as well. The stock still trades below book value, and I think there is a pretty good chance some of this value gets realized when Q1 earnings come out of these various companies. I took advantage when the stock pulled back into the 35 range in January, but haven't added to the position yet. I'll definitely look to add before earnings on May 3, and maybe a correction will play right into our hands on this one and help us buy Loews shares for cheaper.

Etrade (ETFC) is another company I may look to add as well. Their operations are improving in the loan portfolio, and the brokerage business is a good one. Although lower volatility has brought trading revenues down a bit, more funds and new accounts continue to help them grow. Someone might swoop in and buy them if the stock stays this low, and if they don't, I still see shares appreciating as they move back into profitability. Here's a good story I found at thestreet.com about a potential deal for Etrade.

If the market reacts like it has been (buying any dip), we'll probably have moved higher again by the time you read this. : )

Disclosure: Long L, ETFC

How to Follow My Portfolio

2010-04-06T08:37:00.001-06:00

I haven't been able to update here as much as I'd like, but most of my recent buys have been going well. Especially IGO (IGOI) and Jamba (JMBA). Both have lots of good things coming ahead and I'll continue to add to those positions if the opportunity presents itself.

I wanted to make sure that those out there reading can follow my trading portfolio via Covestor. Covestor tracks all my trades and keeps track of performance. They will send you email alerts when I make a trade as well. It is only tied to one of my accounts, but it is the account where most of my activity comes from. So if you're interested, sign up at Covestor.com and follow me. My username is briskycapital. You can also click the widget below to go directly to my Covestor page.

Disclosure: Long IGOI, JMBA

Sold Two Positions

2010-03-29T09:21:00.000-06:00

Last Friday RHI Entertainment (RHIE) filed their 8-K, and things are not looking particularly well. It appears they are still struggling with their debt load and revenues are not coming in quickly enough to meet those obligations. I've decided to jump ship on this one, with a good sized percentage loss. I didn't lose much as it was a very small position, and I knew going in that it was speculative. I was able to cash my shares out after hours on Friday for around 0.26. I'm not sure what will happen from here, but I'm going to focus on other things.

A couple of lessons to learn here:

1) Excessive amounts of leverage can be troublesome, especially for a small company. The small cap names I've been buying lately are in much better financial shape, which gives them a nice margin of safety in case their revenue stream slows up.
2) Don't buy a stock strictly because someone else owns it. What drew me to this stock was the fact that Seth Klarman owned it. He is an outstanding fund manager, but everybody makes mistakes from time to time, and I should have seen it as a clear warning sign when the bailed late last year.

I also sold out of Carefusion (CFN). Its still a solid company trading cheaper than its peers, but I have better things to put my money in. I don't like the uncertainty occurring for them with new health care legislation, and rather than find out, I decided to split. This is probably still a good stock, but it goes against my rules for holding stocks. Its time to sell when either: A) The company becomes fully valued or overvalued; B) The situation changes and more uncertainty arises. This is in the B category. And there are cheaper stocks out there that I can buy with that money.

So, we'll move on from these. There are lots of exciting things happening both with stocks I currently own, and ones I'm looking to buy.

Disclosure: None

Update on Positions

2010-03-25T13:53:00.000-06:00

Sorry its been a few days since I've posted, but plenty has been happening. The market continues to move to the upside, with little resistance. Some deal applies for me, I think the market is extended, but would not be surprised if it continues to run. Consumer confidence is coming back and there is too much cash out there getting terrible yields.

Jamba (JMBA) has really performed well since I've purchased it at 1.66. I added it last week at 2.12 as well. Today its trading over 2.50 as rumors are flying that Starbucks (SBX) may be interested in Jamba. The stock still has a small market cap, without a huge float and is subject to some price swings. The pattern I've noticed since volume spiked is this: someone has been acquiring the stock. Probably a few different mutual and/or hedge funds. When their big purchases come through, they are pushing the price up pretty quickly. The stock usually pulls back once that volume slows a bit, and that is the time to add if you'd like. For example, this morning when the volume kicked up, it traded as high as 2.82, and has pulled back to 2.52 as a write. I've noticed this 2 or 3 different times within the past couple of weeks. I'll probably add to my position again on any further weakness.

I'd also add iGo (IGOI) and maybe Etrade (ETFC) on weakness.

Added to Jamba

2010-03-18T14:32:00.000-06:00

I added to my Jamba (JMBA) holding late in the day today at $2.12. It has pulled back the past couple of days on a little lower volume. I'll be buying heavier if we see shares back below $2.00. They are just starting to roll out many new items, and coming into the busy season for their core products.

Just Go With It

2010-03-17T08:18:00.000-06:00

As many have said, and most of us have felt, the market feels like its at a short-term top. But I've learned to know better and markets can continue to run (or fall) much longer than we all think possible. Many businesses are continuing to show improvement, and still more are being priced for it.

I still think there are more and more individual investors coming out of the woodwork as they regain confidence in the market, and that will continue, especially in a low-volatility, but upward moving market. The yields on cash are just too low. People are going to go after a better return, and the stock market is the best spot for that right now. So while I know we're due for a correction, I wouldn't be surprised if we don't see a large one.

My small cap stocks continue to run, and I'll continue to add to my positions if opportunities present themselves. Specifically Jamba (JMBA) and iGo (IGOI).

TII Network Technologies (TIII) reported earnings this morning, and after a quick glance, they look pretty solid. Gradual improvement, and better results due to cost cutting. By the way, its awfully late to report Q4 earnings. Q1 is almost over! These small cap names with a lot of cash on hand have been doing well lately. Even if operations don't improve dramatically, you're likely to see some gains as valuations return to more normal levels as the economy picks up.

Dr. Pepper Snapple (DPS) got an upgrade last week, and an analyst noted that they're likely to enter into a bottling deal with Coke, much like the Pepsi deal. I missed my entry on that stock, and I'll buy it if it pulls back. I'm still a little surprised it hasn't taken any kind of a hit due to the threat of a soda tax. I'll continue to keep an eye on that.

Disclosure: Long JMBA, IGOI, TIII

Update on Positions

2010-03-11T10:28:00.000-06:00

Jamba- Really like where they are headed. The next few quarters will be key as they roll out new products. Can these products translate into earnings?

iGo(IGOI)- Reported last night. Earnings pretty solid. The big news was that Wal-Mart decided to bring them into all stores. Yeah, that's big news for a company of this size.

Dr. Pepper Snapple- Upgraded this morning at UBS. They believe a potential deal will be struck with Coke regarding distribution like the Pepsi deal. I haven't bought this yet, but will.

Disclosure: Long JMBA, IGOI

Jamba Reports; Stock Drops

2010-03-10T09:47:00.000-06:00

Well, those who were buying heavily last week in anticipation of strong results were mistaken. By the numbers, it wasn't too strong. They missed on EPS, revenue, and same store sales weren't great.

The key here though is everything they've been rolling out likely hasn't had a chance to be reflected in earnings, so anyone selling is jumping the gun here. Hot beverages are just being rolled out. Their relationship with Core-Mark will give them access to thousands of convenience stores. All of that will take time to roll out.

I listened to the call last night, and I continue to be impressed with management, and their plan for growing this company and brand. Here are a couple of tidbits I picked up:

-They are strengthening the balance sheet with $31.5 million in cash and basically no debt.

-They are selling off corporate owned stores to franchisees.

-They are expanding to one international market this year, with more likely to come.

-They now have a range of products that make them not only a year-round option, but they are capitalizing on healthy options for fast food, which is going to be a huge market.

-They did mention that coffee is something they'll be looking at, but will only add it if they can put their own twist on it.

I plan on adding to my position, maybe even today.

Disclosure: Long JMBA

Earnings Update

2010-03-09T14:15:00.001-06:00

Compass Diversified (CODI) reported this morning. I haven't had a chance to listen to the call yet, so I don't want to comment. The stock is down 3+% as I write, but it had ran up quite a bit prior to earnings.

Jamba Juice (JMBA) reports after the bell today, and I'm interested to see what they come out with. Although they are likely to come in pretty good, expectations have been rising among investors as the stock has rallied for the past week and a half. It is down today, which is no surprise as people are taking some profits and getting a little defensive before earnings, which is prudent if you own a big position. I just made a starting purchase and it ran up before I was able to add (I wanted to wait until after earnings). So lets see what they say, and I'll make a plan from there. I really like where this company is headed and would like to hold a larger position.

I was quite close to starting a position in Dr Pepper Snapple (DPS). I've been hearing some rumblings about a soda tax gaining momentum, and I thought that may shake the stock a bit. But, investors either haven't noticed, or aren't threatened by it. I did read that DPS's management isn't particularly worried that it will happen, but I've read a few articles talking about it. Something to watch at least.

The bears continue to look foolish as the market continues to run. I'm not selling anything, but not adding at this point either. I could easily see a pullback, but it will likely won't last long. As time goes on, investors seem content to buy the dips. I'd welcome the opportunity to buy some of my favorite stocks as better prices, as all true value investors do.

Lets see what Jamba says after the bell!

Disclosure: Long CODI, JMBA

Jamba Juice Moving Ahead of Earnings

2010-03-04T15:59:00.000-06:00

Wow, it sure didn't take long for Jamba Juice (JMBA) to start moving. I bought this thing less than two weeks ago at $1.66. It closed today at $2.08. I really like what they're doing with new products, not to mention selling off the corporate owned stores. Just a good overall philosophy. I mainly just wanted to get a starting position before earnings, and see what they said, and go from there. Well, either its been leaked that a good number is coming when they report next week, or people are, like me, realizing they've got some pretty good things happening here and the stock is undervalued. I'd like to add more shares, and maybe we'll get the opportunity tomorrow. We've got the jobs report, and you never know with that. Most traders appear ready to shrug off any number, good or bad, and move higher. But if we sell off, I'll be buying a few names.

Jamba did put out a release today as well showing a new offering of frozen fruit bars. Keep it coming!

Disclosure: Long JMBA

More Detail on DPS

2010-03-02T15:58:00.001-06:00

I've been spending some time researching Dr. Pepper Snapple (DPS). DPS was spun off from Cadbury in 2008. I love these types of opportunities where management is motivated to perform now that more eyes are upon them so to speak. It usually makes for a positive situation for shareholders.

I've been reading the transcript from the CAGNY conference on Feb 17. Its a good read to get the tone of the management and direction they are headed. Check it out. Here are a couple of quotes I wanted to highlight:

"Our win at McDonalds in 2009 marked a key milestone in the Dr. Pepper growth journey. By the end of 2010, Regular Dr. Pepper will be in all 14,000 McDonalds restaurants across the country. And we're targeting Diet Dr. Pepper to be in one half of those."

"One of the benefits we're seeing from being a core brand is greater co-promotions and tie-ins. McDonalds' 6.5 billion visitors translates to more than 22 billion impressions for Dr. Pepper."

"DPS is an amalgamation of strong brand companies and weak bottlers, acquired over a 25-year period. In fact, our company-owned DSD operations were created through acquisitions of more than 40 standalone operations over a 22-year period. These businesses received little in the way of resources from our former parent. So Priority 1 has been to integrate, invest and optimize. And I'm thrilled to tell you that we're well on our way."

They are also well positioned in the alcoholic mixer market, and are working hard to cut costs through their distribution channels. The big news in the industry is Coke and Pepsi buying their bottlers and what effect that may have on the industry.

The valuation is good, as the stock is trading at 12.5x forward earnings, while KO and PEP usually carry higher multiples. The management is committed to returning free cash flow to shareholders, and we'll likely see some share buybacks this year. I like the stock here in the 31's, and will be a buyer on any weakness.

Disclosure: None

Positive News From Jamba

2010-03-02T12:05:00.000-06:00

I purchased Jamba not too long ago. One of the reasons I liked it is the new products they are rolling out, including hot beverages, food, and packaged items in convenience stores. Today, they put out a release with some detail of the hot beverages, and where they'll be starting at. Good stuff happening here. I bought some shares at $1.66, and wanted to wait until earnings to add or hold. The stock is up 6% today, so hopefully that continues.

I'm also taking a look at Dr. Pepper/Snapple (DPS). Their stock appears to be undervalued in a growing industry with strong margins. I found some good commentary on DPS from The Lonely Value Investor blog.

Disclosure: Long JMBA

My Current View

2010-02-25T11:28:00.000-06:00

I'm always reading market commentary. Where will the market go from here? etc. While I read quite a bit, there is very little that I actually listen to and act on. My criteria for this is someone who A) I respect and has an investment view similar to my own; B) Has been successful in the past; and C) Has their own money at stake. Believe it or not, that narrows the list down to a select few.

One of those people is Carl Icahn. I read his recent letter to shareholders over at Marketfolly.com. While he says he's concerned about a double-dip recession, he sees a unique opportunity for cash-rich companies with access to capital to scoop up assets of good companies that have have poor balance sheets. This market has punished those with too much leverage, and those in better positions will benefit. The General Growth deal is a prime example of this. You have a large company with a lot of great assets that had too much debt, and because of market conditions, was forced to enter Chapter 11. Smart investors saw an opportunity from the start. Companies with access to the capital (Brookfield, Simon, etc) want the opportunity to acquire these high-quality assets.

This is the kind of opportunity I see in this market. I don't like the prospects of the broad economy expanding at a strong pace. It will improve, but we're too reliant on stimulus which alone cannot create sustainable growth. But there are opportunities, and I'm optimistic about those. I'll continue to try and spot those, and share them here. The biggest goal of this site is to share my knowledge with whoever would like to read it. I spend a lot of time filtering out what I believe to be the best information, and pass that along. I may not be an expert at investing, but I feel I'm pretty good at knowing who to listen to, and who to ignore, and that can usually get you pretty far.

Disclosure: Long GGWPQ

Misc. Items

2010-02-23T10:31:00.000-06:00

The market action has been fairly quiet as we navigate through earnings season. Most investors appear to be a little cautious at this juncture, and I'd classify myself as "cautiously optimistic." I'll continue to pick away at stocks I like if they pull back.

Brookfield appears ready to enter the contest for General Growth Properties. Shareholders of GGP are enjoying this, as we can sit back and wait while this gets sorted out. Things continue to look good here.

Bloomberg had a story out about ABB today. Nothing too new in there, but a nice overview of their businesses and demographics.

Disclosure: Long GGWPQ, ABB.

Bought Some Jamba Juice

2010-02-19T13:45:00.000-06:00

I bought some Jamba Juice (JMBA) today at $1.66. I've been doing some work on the stock and company, and I like what I see for the most part. I'm not that familiar with the brand. I've never visited one of their locations either, so maybe some people could chime in if they like it/don't like it as far as product goes.

They have an aggressive management group that is really looking to branch out and build the brand. They currently operate 729 stores, and 511 are corporate owned. They've been launching new products over the past year like various foods and hot beverages, and the goal is to become a more "anytime" attraction. They are also getting more aggressive with franchising and marketing products to schools. They just announced an agreement for their products to be offered Core-Mark, who services 24,000 convenience stores, and that's a big step for them.

The stock is fairly cheap, but this is really about a company trying to take the next step. If these new products and offerings work, earnings are what are going to ultimately drive this stock. They are sitting on a decent cash position, which should help them if the economy continues to struggle.

I did hear about this originally when Todd Sullivan was talking about it, but didn't look at it seriously until a few days ago.

Just took a small position to start. We'll see how it acts. Earnings are upcoming, and that should give us a little clearer picture, and at that point I may decide to add some shares.

Disclosure: Long JMBA

ABB Posts Solid Results

2010-02-18T10:45:00.002-06:00

Swiss industrial-electrical company ABB reported earnings this morning, and the results were solid. I've been bullish on this company for awhile, and the stock has been, okay. I love the story here. They can service all the electrical infrastructure being built in the coming years. That includes wind, solar, hydro. You name it. They'll play an integral part in updating power grids to handle new power sources. The best part is they are truly global, so they are ready for wherever the growth comes from. I keep an eye on their order updates, and they receive big orders from Brazil, China, the Middle East and Africa, which are all high growth areas. They also have large operations in the US and Europe.

As far as results, here are some highlights from the release. Take a look at the link for a detailed story and many stats.

Fast cost take-out keeps full-year EBIT margin well within target range – 2-year savings program expanded to $3 billion
Pace of base order decline year-on-year slows in Q4, stabilizes versus Q3 2009
Q4 net income was $540 million after approx. $350 million of restructuring-related expense
Record cash from operations for Q4 of $1.8 billion
Proposal to increase dividend 6 percent to CHF 0.51 per share

Zurich, Switzerland, Feb. 18, 2010 – ABB reported earnings before interest and taxes (EBIT) of almost $800 million in the quarter, despite approximately $350 million in restructuring-related charges. Full-year profitability was well within the company’s EBIT margin target range of 11-16 percent on a combination of rapid cost take-out and solid operational execution.

Combined with record cash from operations and double-digit order growth from emerging markets, the results “show the resilience of ABB’s business portfolio and geographic scope, as well as our ability to execute in a tough market environment,” said Chief Executive Officer Joe Hogan.

Results were helped by cost-cutting, but they are obviously delivering on their goals. Lots of cash coming in as well, and as you can see the dividend was increased, which is always nice.

I've considered selling this stock a few times because I do have stocks that I think may perform better. But, I like the story, and if they continue to deliver, the stock will be a steady performer, and will probably take off once we see things heat up again in the emerging markets.

They got an upgrade this morning, and the stock is up 6%.

So, good stuff for now. I'll continue to hold my shares, and we'll see where we're at next quarter.

Disclosure: Long ABB

Market Continues to Like GGWPQ

2010-02-17T15:51:00.000-06:00

Yesterday's bid for GGP has raised a lot of speculation as to how things will end up. The market continues to like the news and is speculating that value for GGP shareholders will be higher as the stock moved higher another 7.5% today. We'll have to just wait and see, but for now it looks good.

We're seeing the quarterly filings come out, and they are always worth keeping an eye on. In particular, I take a look at Einhorn, Ackman, Buffett, Klarman, Soros and Icahn. Market Folly does an excellent job in covering these, and you should take a look at that site if you're interested.

I'm still looking to buy quite a few names. Etrade, Loews, and Forest Labs are probably at the top of my list right now.

Other than that, just enjoying the Olympic Games. Go USA!

Disclosure: Long GGWPQ, ETFC, L

SPG Makes Offer to General Growth Properties

2010-02-16T10:09:00.000-06:00

Interesting Tuesday as we awoke to news that Simon Property Group made an offer for General Growth Properties. For equity holders, it amounts to about $9/share, which was below last Friday's close. This is a classic low-ball offer. This type of offer may have worked a few months back, but GGP is on track to emerge from bankruptcy, and many have expressed interest in their assets. The market obviously feels shares are worth more, as they are currently up 25% as I write this.

When I see statements like this from their CEO, I knew it was a low-ball offer. " Simon is in a unique position of being able of being able to offer General Growth creditors and shareholders full, fair and immediate value." Immediate value is the key statement. They're looking for a quick close before the competition heats up for GGP's assets. I think its too late for that at this point. It will be interesting to see the response not only from GGP, but from some of the large shareholders like Bill Ackman.

Todd Sullivan at Value Plays has had the playbook for this whole thing, and I thank him for that. If you haven't seen his site, you need to get there and subscribe.

I'm into GGP at $1.79 after reading Todd's analysis. My only regret is not buying more shares.

We'll see where this takes us, but its likely a lot more will be happening here soon.

Disclosure: Long GGWPQ

End of Week Update

2010-02-12T15:07:00.000-06:00

Lots of back and forth action this week, without any real pattern. Good market for traders. The more time we spend at these levels, the more confidence returns back to the market. I'm seeing much more bullish commentary and buying amongst small traders compared with this time last week.

Berkshire Hathaway is joining the S&P 500 today, so there is a lot of talk about that stock. I like their businesses and I like Buffett. Whether the stock is a good deal, I couldn't say, as I haven't looked too hard at it. My guess is the stock will make a run over the next few weeks though as many will look to ride the wave of the index funds who are buying in. Berkshire also closed on the Burlington deal today. I like the rail space moving forward, but as many have reported, Buffett paid fair value for BNI. It almost felt like Buffett was just committing a huge amount of capital to something he feels good about for the next few decades in case he's not around (he is 79).

Lots of uncertainty around Greece, Dubai, and China. Any of these issues could shake the market, but any impact on the market will probably be short lived.

I'm still pretty bullish, but have been taking my time and buying small amounts of shares at a time.

The market is closed Monday, so enjoy the long weekend.

Wednesday Misc.

2010-02-10T10:09:00.000-06:00

Carefusion (CFN) reported yesterday after the bell. Earnings were pretty solid, and they upped their guidance for the upcoming quarter and the remainder of the year. The market sold the news this morning as they were hoping for a bit better numbers. I'm not particularly worried about the stock here and am taking no action. Stocks tend to be quite volatile around earnings as we all know.

I'm still waiting for Compass Diversified (CODI) to report. They have a great business model and I really appreciate the transparency of their management. Here's a nice presentation of their business model and various stats.

Market volatility has picked up and most are trying to figure out whether buyers will step back in and buy the dips, or if the correction is on. Right now, it feels like we're headed lower. As someone looking to pickup stocks, that is a good thing. I'll be buying or adding to these stocks if the opportunity presents itself: FRX,CODI,L,ETFC and a few others.

Disclosure: Long CFN, CODI, L, ETFC

Carefusion Reports

2010-02-09T15:25:00.001-06:00

Portfolio holding Carefusion (CFN) reported earnings after the bell today. I just had time for a quick glance at the numbers, and I'll listen to the call later today, but I wanted to get a quick post up here. At first glance, the numbers look pretty solid with a beat on revenue, and EPS excluding non-recurring items. They also raised revenue and net income guidance for FY 2010. Overall, nice to see this report, but we'll have to see the reaction the market gives because lately it has been selling numbers like this, so we'll see. Some commentary from the CEO:

"We continued to execute well during our second quarter and performed ahead of our expectations," said David Schlotterbeck, chairman and CEO of CareFusion. "Hospital capital spending made modest improvements during the quarter and we continued to win key customer contracts. We also benefited in our respiratory business from government and hospital flu preparedness planning.

"As I look ahead to the second half of the fiscal year, we will make progress on our long-term plans for growth, stepping up our investments in R&D and sales and marketing to grow our key franchises and extend into important market adjacencies."

Disclosure: Long CFN

Jim Tisch Tells It Like It Is

2010-02-09T10:09:00.001-06:00

We bought Loews yesterday after their quarterly results. I always like to listen to their call (or read the transcript; thank you Seeking Alpha), because CEO Jim Tisch always gives some great commentary. It usually is during the Q&A portion, and he speaks about the economy, often in detail. To me, there is aren't many better places to get good info than someone like this, who oversees businesses in many industries.

Bloomberg had a great article out today. They must have interviewed Jim Tisch because these are not quotes from the call. Either way, he tells it like it is, and I agree with him 100%.

Regarding the hotel industry:

Jim Tisch, the leader of Loews Corp., said the U.S. did a “good job of killing” the hotel business by lambasting corporate travel and hurt American International Group Inc.’s ability to return bailout funds by curbing pay.

“The criticism that took place of group travel was really a death knell for the industry,” Tisch said yesterday in an interview at an office of the New York-based holding company, which owns hotels. “It’s easy for the politician to get the sound bite. What they are doing with those sound bites is putting maids and bellmen out of work.”

About AIG:

Loews also owns natural gas exploration operations and the majority of commercial insurer CNA Financial Corp., which competes against AIG selling commercial insurance. Loews reported its third straight quarterly profit yesterday on improved results from gas exploration and Chicago-based CNA.

Loews has hired AIG staff, primarily to manage investments, who “do a phenomenal job for us,” Tisch said. New York-based AIG has a harder time retaining the “best and the brightest” managers after lawmakers criticized the company’s retention bonus awards and the Obama administration limited compensation for top executives, he said.

“Last time I looked, we don’t have indentured servitude in the United States,” he said. “The situation is such that the good people have every incentive to leave to maximize their income.”

Regarding the new bank tax:

Tisch joined billionaire Warren Buffett in opposing the Obama administration’s proposed fee on lenders to repay bailout funds. He said it is unfair to penalize financial firms when regulators, mortgage brokers and borrowers contributed to the recession as well.

“It sounds good when you say it fast,” Tisch said. “To take out this retribution solely on the banks makes sense from the populist politician’s perspective but is not necessarily good economic policy. If they put this tax in place, it will simply make it more expensive for people to borrow money because banks are in the business of earning a rate of return on their capital.”

This is one of the main reasons why Loews is so attractive to me. Not only does the company have great assets, and is trading at value prices, but their management is top notch and knows how things really work. These guys are conservative managers who don't over leverage their businesses, but know when its time to deploy capital and take risks.

Disclosure: Long L

New Purchase

2010-02-08T09:56:00.001-06:00

Loews Corp. (L) reported earnings this morning, and I'll be listening to the call momentarily. The numbers were pretty solid as operations continue to improve at CNA financial, which could really propel earnings in the next couple of quarters. Diamond Offshore was off just a bit, as we found out late last week. But overall, things are strengthening here as book value improved to $39.76. I bought some shares this morning at $35.08 to get started.

Here are the details from the announcement. I'll be posting again after I listen to the call, if there is anything noteworthy. Also, they did buyback 5.8 million shares during the past quarter, which they said they will continue to do as long as the stock stays undervalued.

We'll see what happens here, but I'd ultimately like to build this stock into one of my largest positions.

Disclosure: Long L

Predictable Monday

2010-02-01T15:33:00.000-06:00

Today's action was pretty predictable considering what happened last week. We got what appeared to be a oversold bounce. When I say oversold, I mean very short-term. I still would like to see a few more percentage points come off before I like valuations. Plus, looking back over the past few months, Mondays have been very very good.

Some stocks I am close to buying: Loews, Forest Labs, and adding to Compass Diversified Holdings.

Not much otherwise to talk about today. I'll be watching earnings in these names tomorrow: COCO,CMI,FISV,MTW,NWSA,OESX,DOW,UPS.

Disclosure: Long CODI

Good Earnings, Data Not Enough

2010-01-29T13:44:00.000-06:00

When the market decides to sell the news, or just plain sell off, there is little that can stop it. We've had three pretty significant things within the last 24 that would have allowed the market to turnaround.

1) Bernanke re-appointed. -Takes uncertainty out of the market, rates will stay artificially low, and someone on board with more stimulus.

2) Strong earnings from Amazon. -The market loved this in the past couple of quarters. They are performing well, although I couldn't buy the stock at that valuation.

3) GDP number comes in at 5.7%.- Fastest gains in six years, although we were coming off some pretty low numbers in previous quarters and that pace will be pretty hard to sustain. But, the market would have applauded this a few weeks ago.

FYI, another interesting name I found in the Pharmaceutical Industry is Forest Labs (FRX). The valuation alone makes it worth a look, and I'll write more about it if I decide to make a purchase.

Disclosure: None

More Earnings...ETFC, MOT

2010-01-28T10:15:00.000-06:00

Etrade reported after the bell yesterday, and results were pretty much in-line with expectations, with a solid revenue number. Even in a difficult year for investors, they performed well as trading volumes were up and net new accounts and assets were up for the year.

I purchased shares yesterday in anticipation of a good result, but am holding the shares for longer than just a trade. As I said yesterday, I believe they will pull off a merger, but even if that does not happen, we should be okay. As a stand alone entity, Etrade's operations are improving, and they are cleaning up their mortgage portfolio as well.

Motorola also reported this morning. Things weren't so solid there. I was keeping an eye on them due to the success they've had with resurgent sales of smart phones now that they added Google's Android platform. That transition will likely take some time, and but they are definitely behind the likes of Apple, RIM, and Nokia. Activist Carl Icahn has a large stake in Motorola, and he's in for the long haul. He usually manages to unlock some value for shareholders, so this may be worth a look as shares plunged this morning.

The market is continuing to sell-off, and many stocks are starting to look attractive again. Most investors I follow aren't doing much buying yet. We're still likely to see that rally in the dollar, which has carried a negative correlation to stocks for quite some time.

Disclosure: Long ETFC

Made a Purchase

2010-01-27T12:56:00.000-06:00

I went ahead an started a position in Etrade (ETFC), at 1.58. They do report after the bell, and I don't normally like to buy before earnings, but I just feel its a pretty good price. It has sold off a bit as it seemed to hang in the 1.70's forever. I think it is mostly due to overall market weakness. I've read a lot of research and analysis on Etrade, and the case at these prices is pretty justified, in my opinion. They have one of the strongest discount brokerages out there, and a merger of some sort seems likely. Their loan portfolio, which is been its biggest problem, has stabilized.

Here's a some good reading regarding ETFC.

I basically wanted to have some kind of a position in case they report a strong number and the stock takes off. I still think a merger is where the price increase will come from, but they are improving and should be fine on a stand alone basis in the event a merger doesn't happen.

Disclosure: Long ETFC

Patience Paying Off

2010-01-22T14:52:00.002-06:00

Finally starting to feel a little better about being cautious over the past few weeks. The market has obviously changed its mood and is selling all the news out there. Whether its low revenue numbers on earnings results, or Obama and the government announcing a new strategy with Wall St., or China, the market doesn't care right now. We've now fallen a bit more than all those mini-dips that were swiftly bought all fall. Now this one could end up just the same and we could see heavy buying next week. But we just have to wait and see.

Everybody wants a quick fix these days, and thats just not how it works. They expect the president to have a reaction to anything that goes wrong. I get the feel that him going after the banks was a political response to the Dems. losing that seat, and its unfortunate. Employment is whats really hurting him politically right now, and I wouldn't be surprised to see a few more big items tried to stimulate growth. Not what I like to see, but like I said, everyone wants a quick fix. If the market falls much further, they'll probably bring back the uptick rule debate and why we should outlaw short selling or leveraged ETFs.

Meanwhile, we just look for good businesses at good prices. I like the quote that goes something like this (Buffett may have said it) "we just wait for the money to be lying over in the corner, and we walk over and pick it up." Probably messed it up, but you get the idea.

Carefusion (CFN) has held up really well during the past few days. I imagine this was largely due to the fact that there are major questions about health care reform being passed due to the Mass. election. I liked CFN and their potential to grow earnings regardless of what does or does not pass.

Heavy earnings coming up the next couple of weeks. Everyone here know's I love Loews and am getting excited seeing it pull back. There was a nice piece written at another blog I found that you can read here. Ultimately it will come down to if Loews management can unlock the value. There is no doubt its there. Its a matter of if they need to spin off some assets, or buy something to call attention to themselves. At the end of the day, they're value investors though, and they won't sell assets at low prices. I'd say they will look to scoop up assets at a good price if they can find them. Beyond that, they will build up cash and buy back the stock if it remains this undervalued.

Something to think about over the weekend. I'll probably be buying at some point next week. Hopefully the Vikings can pull out the big win this weekend!!!

Disclosure: Long CFN

Selling the News

2010-01-21T14:24:00.000-06:00

The market seems fairly set on "selling the news" during the start of earnings season. We also had the major announcement of the restriction of various trading activities for the big banks. Something tells me the likes of Goldman and their friends will find ways around these rules.

Hopefully this sell off, which is largely in financial shares (which I don't care to own), gives us opportunities to pick up shares in companies we do like for a discount.

Etrade has been interesting for a speculative play. It is, however, no secret, and the stock has seemed to have a bid under it. I would like to pick up some shares as their operations are improving and a deal with another broker appears likely.

I also like Loews shares, which I've mentioned many times. I'm being patient here as stocks are falling, but these shares are undervalued. One of the problems with Loews is the market doesn't like to give them their due with regard to realizing their value, and it may take spinning off one of the companies, or a spike in energy prices, for this to happen. Meanwhile, Loews management seems content to buyback their own shares

There are a handful of other stocks I'm following as well. Although I haven't bought anything yet today, I'm definitely getting closer. I did buy some shares in ACAS last Friday around 3.89, and that trade has started off well.

On days like this, you have to give the market a little breathing room, and if you do buy, don't jump in too big. I'm still pretty bullish overall.

Disclosure: Long ACAS

Earnings Roundup- Some Caution Voiced

2010-01-20T15:27:00.000-06:00

Just quickly going through after-the-bell earnings and spotted the result from business services (they handle credit card and bank transactions) company Total System Services. What jumped out at me was their 2010 outlook.

TSYS’ guidance for 2010 includes the impact of deconverted portfolios (whether as the result of bank failures, portfolio sales or otherwise), price compression, reduction in one-time termination fees and currency impact, and the current economic environment of the credit card market.

2010 Guidance

Total revenues $1,616 to $1,648 (4 %) to (2 %)

Reimbursable items $279 to $284 3 % to 5 %

Revenues before reimbursable items $1,337 to $1,364 (6 %) to (4 %)

Income from continuing operations $187 to $191 (15 %) to (13 %)

EPS from continuing operations $0.95 to $0.97 (15 %) to (14 %)

Average Shares Outstanding 197.7

“While 2010 is going to be a challenging year, we will continue to work aggressively to reduce our costs, including reducing staff, while expanding internationally and maintaining our technological advantage in the market place. We have an experienced and talented team at TSYS who will successfully execute our strategy to return growth to our business. In addition, with our strong balance sheet and cash flow, we will continue to aggressively pursue strategic acquisitions that diversify us and expand our presence in the payments processing business,” said Philip W. Tomlinson, chairman of the board and chief executive officer of TSYS.

I'll have to listen to the call to get a little clearer picture, but this is an industry that I was looking at quite favorably. The revenue estimates were only lower by 2 to 4%, but they are clearly a bit skeptical, and keep in mind we're looking at estimates compared to the abysmal 2009. I've always liked Fiserv as the best of breed in this industry, but its important to keep up with what competitors have going.

I'll monitor this situation some more, and definitely pay attention when FISV reports. If I remember right, TSS was having problems a couple of quarters ago when others were a bit stronger.

Disclosure: None

Opportunity in For-Profit Education Stocks?

2010-01-19T14:18:00.001-06:00

I've been scouring the market universe looking for undervalued stocks. Unloved sectors, turnaround situations, companies re-capitalizing, re-negotiating with lenders. One of the key factors when looking for value is find stocks that have been discarded by the market, and polish them off and see if any value is there. Benjamin Graham often referred to these as "Cigar Butts."

I find the for-profit education industry a bit intriguing here. This industry was hot the past few years. You had the perfect storm of adults looking to further their skills to stay competitive, and the convenience of night, weekend, or online classes. Then the recession hit and many people became unemployed. Boom! They're going back to school. Subsequently, these stocks got bought up. Apollo (the University of Phoenix) was a big name, along with COCO, ESI, DV, STRA, CPLA.

Last fall, some studies were released that showed default rates on loans being higher in for-profit universities than state or community colleges. These stocks have since been tossed aside. Actually, STRA and CPLA are still up near highs, but the others have sold off. Do I think the defaults on loans are an issue? Yes. Do I think they will be enough to derail this industry? Probably not. So you still have all the previous positive factors in place, and earnings growth is still expected. But the risk of loan defaults has pushed these stocks to fairly cheap levels, and they are sitting with big short positions. So, a solid earnings announcement with an outlook that still shows good enrollment rates and no red flags about loan defaults could cause a nice rise in these stocks. The short squeeze would only be pouring fuel onto the fire.

The bottom line here, as it is with many value plays, is the risk/reward appears tilted in our favor for a little while. I wouldn't own some of these stocks if they become expensive, but at these levels, they may be worth a look.

I'm going to do some more digging, and will post anything relevant, as well as any related purchases.

Disclosure: None

Interesting Reading-Monday

2010-01-18T14:25:00.000-06:00

Whenever I have time (like days when the market is closed), I try to update what I'm reading for the day.

Vale to Grab Ore Share From BHP, Rio as Demand Surges - I continue to believe the in the secular growth of this industry, due to the rise of China.

Kraft’s ‘Wiggle Room’ to Win Cadbury Must Be in Cash - I like this stock, but I have no way to forecast what might happen with this deal. Ackman entering the fray obviously made it more appealing. But like Buffett said, why issue all this stock when you were buying it back over the past year. Its not like it is overvalued. I still may have to dip a toe in on this one.

Apple to Host Event Jan. 27, Signaling Tablet Debut - People go nuts over anything new from Apple these days, and this should be no different. I haven't owned the stock for a couple of years. It's not really my style of investment.

Vikings Roll Cowboys. Not exactly market related, but I just couldn't help myself. One of the best games ever for a Viking fan. I've been a Vikes fan since I was old enough to watch football. Just enjoying these games, and maybe we'll have a shot to win it this year.

A Discussion About Brokerages

2010-01-16T12:04:00.003-06:00

I wanted to take a few mintues to talk about brokerages. Everybody's using at least one, and many people use what are termed "discount brokerages." I'm talking about brokerages where trading is done primarily online, without broker assistance, and trades are usually less than $15.

I currently use two brokerages for my three accounts. I have a cash account with Scottrade, an IRA with Scottrade, and a cash trading account with Think or Swim. I have used Schwab in a limited basis, but these two I have the most familiarity with.

Scottrade is an excellent brokerage for someone looking for a straightforward, easy to use system. They have good customer service (I always get email responses within about 15 min), and they are cheap. Trades are $7. There is no fees on my IRA, which I appreciate. They are a little light on features, especially details about your cash, positions, etc. They do not offer dividend re-investment on stock positions. Another issue is idle cash. This doesn't come into play too much currently because rates are so low, but in more "normal" times, this is an issue. Schwab allows you to sweep money directly into a money market mutual fund, and I believe Etrade does as well. They can do this because they are banks and offer these funds. With Scottrade, you don't have that feature. You can buy into these funds, like Fidelity Cash Reserves, or Schwab's fund, but you have to pay for the mutual fund trade. For some reason, mutual fund trades are realatively expensive at Scottrade (they are $17), so $17 in, $17 out just to move your money around. Overall, I'd recommend Scottrade to beginners or anyone looking to just trade. This works fine for me because I'm constantly monitoring the market and market-related sites, so I get my research and information elsewhere, and use Scottrade strictly to trade.

Think or Swim is truly an innovative product. I haven't used all the brokerages out there, but I can guarantee you Think or Swim is doing things that no other brokerage does. There software has so many features, I couldn't begin to use all of them. They have a software program that you download and log directly into. You can also use web-based trading, and there is a nice application for your iphone as well. Think or Swim is made for option traders, but it can handle so much more. I'm a stock trader for the most part, but love the features they have for stocks, options, forex, etc. Its all there. You can pay commissions on a flat-fee basis ($9.95) or a per-share basis ($.015/share with a $5 minimum). At Think or Swim, I end up paying $5 per trade for stocks. Pretty dang good. As for idle cash, you can move it into one of the big funds like I mentioned before, but Think or Swim has 3 free mutual fund trades per month, so you're set there. The have other interesting features like live CNBC TV feed (even though I'm not a big fan of CNBC, I wish they'd have Bloomberg too). They also have a live feed of someone they call the "Shadow Trader" which is this guy that follows the market and executes trades and broadcasts everything. You can trade right along with him. They also have live webcasts and tutorials. Also, on their website, they have a big area that educates you about options trading. All free. I could go on and on about this brokerage.

In closing, both brokerages I use serve a good purpose for me. I'd be interested to hear what other people use and what they think about theirs. Please comment if you feel like it. Also, if you're thinking about switching brokerages or want more info about either of these, feel free to email me as well.

If you'd like to open an account with one of these, please let me know. They have refer-a-friend programs.

I'll look forward to any discussion on this.

Thanks!

A Little Different Reaction...

2010-01-15T15:33:00.000-06:00

So Intel beats, and guides higher. No surprise here, as analysts continue to play ball. But the reaction was a bit unexpected. I was thinking this was a situation where we traded higher on good news or bad news, and traded lower only on bad news. This has been the case lately. But, the market loves to make people look foolish, and if you think you've got it figured out, you usually don't. JP Morgan also reported a big profit number today, even though Dimon expressed caution.

We got a fairly ho-hum sell-off. No panic out there. Lots of interesting stuff though. I did buy a small position into American Capital (ACAS), following a few good value traders out there.

There is a ton of value out there at Loews (L). I was doing some quick math on their holdings and you can buy the stock and basically get their private businesses like Loews Hotels for free. I'll be writing more about it as a buy shares.

I've got a lot of stocks I'd like to buy, but am seeing how this plays out. If we get more "sell the news" reaction to earnings regardless the outcome, I can't say I'd be unhappy.

We've got a couple of really interesting weeks coming up, and I will be posting a lot more as I'll likely be glued to the monitor.

Have a great weekend all!

Disclosure: Long ACAS

It's All About Intel, and Then JPM

2010-01-14T14:07:00.000-06:00

The market has been extremely quiet the past few days. Volume and volatility have been low as investors are waiting for the next catalyst. Never fear, however, as earnings season has arrived. Alcoa disappointed, but the market shook that off easily. Now, we're looking to Intel after the close today, and JPMorgan tomorrow morning. In the past two cycles, Intel in particular was of high importance. So, we wait.

Health care stocks, and particularly big pharma, has been rocking. Portfolio holding Pfizer has gained about 5% this week, and its one of the few mega-cap names I really like right now.

Sticking with health care, I also really like Carefusion (CFN), and almost added to my position a few times this week. There will be some good opportunities to add soon (I'm hoping).

I still would love to establish a large position in Loews (L). They have an awesome management team and a great group of businesses. They provide us exposure to a lot of industries I like at the present (offshore drilling, natural gas, luxury hotels, to name a few). The stock is still trading below book value. They figure to earn $4.00/share this year. At a 15x multiple, that puts them at $60. You can buy shares today for $37.90.

The market could get moving again following Intel's report. To be honest, I'd love to see a bit of a pullback. I do feel the recovery will be slow, but we're still burning the stimulus fuel, and until there is a better alternative than stocks and we don't see any shocks to the system, things should be good.

Disclosure: Long PFE, CFN,

End of Week Wrap-Up

2010-01-08T16:22:00.000-06:00

The market was pretty quiet this week. The jobs report came in below expectations, and the market pretty much brushed it aside. There are plenty of risks out there, but investors are becoming a bit complacent and the risk has shifted. Earlier this year, there was the risk of collapse and the risk of being in equities. As the market snapped back, there was the risk of being out of equities. Now, there is still some risk in being out of equities as there is just no good alternative, but many equities are fairly valued or overvalued based on where the economy is at. That is why I continue to preach picking stocks and searching for value, and not "buying the market." There are plenty of opportunities if you're willing to do your homework (or read the right websites!). I'm doing my best to balance into a group of stocks that are undervalued, while still protecting against a market correction that ultimately will come.

Earnings are the next catalyst for this market, and they could cause a good-sized breakout to the upside. Analysts are still on the conservative side with estimates, and companies that have been positioning themselves well in the past quarter will likely blow through estimates. This we have to be ready for.

We'll hit it hard again Monday. Until then, enjoy the weekend. Should be some good football!

Consumer Credit in U.S. Drops Record $17.5 Billion

2010-01-08T16:06:00.001-06:00

Interesting headline out today showing this massive drop in consumer credit during November. Here's the story (via Bloomberg):

Consumer credit in the U.S. dropped a record $17.5 billion in November as unemployment close to a 26- year high discouraged borrowing and banks limited access to loans.

The slump in credit to $2.46 trillion was more than anticipated and followed a revised $4.2 billion drop in October, Federal Reserve figures showed today in Washington. The median estimate of economists surveyed by Bloomberg News projected a decrease of $5 billion. The series of 10 straight declines was the longest since record-keeping began in 1943.

A labor market that’s shed 7.2 million jobs since the recession started in December 2007 is restraining consumer spending that accounts for about 70 percent of the economy. Fed policy makers have said tighter bank lending standards and reductions in credit lines are hampering the recovery.

“Double-digit unemployment is eroding consumer confidence and the uncertainty is prompting consumers to pay down their credit card debts,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “We have not seen such a wholesale reduction in consumer credit since the last time we had double-digit unemployment rate following the early ‘80s recessions.”

Stocks were mixed and Treasury two-year notes gained the most in three weeks after the Labor Department said earlier that companies reduced payrolls in December by 85,000 workers after adding 4,000 a month earlier. The unemployment rate held at 10 percent last month.

With an economy so dependent on the health of the consumer, figures like this are a little disturbing. Consumers are obviously still de-leveraging, and savings rates are growing. Meanwhile corporations still aren't hiring at increased levels (as evidenced by today's report). This will all factor into just how robust the recovery is, and how soon it will come. There has been evidence of strength returning, but the consumer is still in rough shape. It's also important not to get too wrapped up in stories like this as the market still appears to have momentum.

Opportunity Knocks...

2010-01-07T13:11:00.000-06:00

The market has been pretty boring. We've been in the pattern of hovering near unchanged most days, with the occassional move of 1%. Everytime it appears the market is headed for a lower open, prices are scooped right up and we move higher. Fund My Mutual Fund had an interesting piece showing more evidence that the government is manipulating the market. This wouldn't be a big shock considering what else we've seen. At the end of the day, we're just looking for stocks at good prices, so we can't spend too much time worrying about things like this.

Lots of stocks I like out there right now. I've said this a million times before but I'd love to see just a little pull back to give me some comfort about moving into larger positions. My pattern lately has been to buy a small position so I'm at least in, but am waiting before getting in heavier.

Some stocks I like here are: CFN,CODI,TIII,CNI, L, EFTC, OESX, MOT. There are others that I own and may add as well like PFE and ABB. As always, I'll post transactions.

Disclosure: Long CFN, CODI, TIII, PFE, ABB

Position Update

2009-12-31T12:10:00.000-06:00

Things continue to not look so hot for RHI Entertainment (RHIE). Last week they entered into a forbearance agreement (details here). I also saw that Seth Klarman sold his stake in the company, which is a big eye opener for me as he was one of the reasons I bought the stock.

The big question now will be the value of their library. It is quite sizeable and has been their reason for staying afloat. Can it keep them afloat long enough for the market for their products to improve? With the amount that the stock has declined, it is something I'm willing to wait out and see. They are still in a good position in their industry. Their biggest problem is the large amount of debt, and if they can manage it well enought to stay afloat. I have such a small position that it really isn't affecting me much. It was a one of those "if it works, I'll get a decent but not great return; if it doesn't I'm not out much" trades.

We'll see...

Disclosure: Long RHIE

New Purchase

2009-12-30T13:31:00.001-06:00

This has been a fairly boring market as we see low volume near the end of the year. I'm curious as to how 2010 starts off, as January's trading is usually anything but boring.

I went ahead and bought some Carefusion (CFN) today after a slight pullback. It is a name I have been following for a bit. They were spun off earlier this year from Cardinal Health, and I like the prospects for this company. You can read the profile of the company here. The bottom line is now that we have a clearer view on how health care reform will affect these companies, its a little easier to make decisions on their stock.

I'm a fan of spin-offs, as they often create opportunities for companies to realize value. Management is often motivated to get off on the right foot during their first few quarters on their own. I did a piece on spin-offs earlier this year, which you can read here.

The company is in a good industry that is growing. Their earnings are estimated to grow at a solid rate, and shares trade at 1.24x book value. David Einhorn's Greenlight Capital, one of my favorite investors, owns 8.7 million shares.

The stock isn't far from its high, but I think there will be some value unlocked in the coming quarters that the stock hasn't had a chance to show yet. I started with about a 1/3 position.

For most other names, I'm just sitting on my hands waiting to see if volume and/or volitility picks up when the new decade starts.

Disclosure: Long CFN.

End of Year Thoughts

2009-12-28T10:51:00.000-06:00

This is my 600th post. Hard to believe. Even though I haven't been posting as much as I'd like for the past couple of months, I fully expect to ramp back up and keep this thing going. I enjoy it a lot and am as committed to this journey as I've ever been.

This has been one interesting year. It has tested investors resolve and has rewarded those who can look past the noise, and in many cases those who can just go with the flow. The way I see it is that even though the rules are changing and stocks are reacting to certain events differently than before, the market still is what it is. There are still opportunities every single day. That's why we all continue to come back.

I have a lot of good feelings and ambition heading into 2010. I see lots of great opportunities out there for those who are willing to seize them. I plan on being one of those people, and I hope to continue to pass some of that along on this site.

Thanks to all those who have followed consistently. To those stopping by or seeing the site for the first time, I'd be happy to hear your comments and opinions.

Thanks again!

Wednesday Afternoon Thoughts

2009-12-09T14:47:00.000-06:00

Winter is here and there's lots to talk about in the market. The overall markets have been see-sawing a bit over the past week, but there are a few stocks on the move that are on my radar screen.

General Growth Properties has continued to climb. It now appears Brookfield is the most likely partner for them at this point, and the stock just keeps rocketing as more good news is arriving. We also have plenty of shorts trying to get out. Shares were near 8.00 when I wrote about it last week. They touched 11.00 today. I'm in a very small position at 1.65. Like many others, I wish I held more. I could add to my position.

RHI Entertainment has seen some buying of its shares lately as it seems they may have finally found a bottom. Lots of volume moving into the stock and while this could just be a bounce off the bottom, these shares are really cheap. I had an order in around .65 last Friday but didn't get a fill. I'd add a small amount if shares get back below .70 again.

I've been growing more bullish as I've been seeing signs the economy is improving. I'd love to see at least a 10% pullback which would leave me a little more comfortable with valuations, but there are a lot of good stocks out there right now and things are improving, and it may not be the time to get extremely picky as there is a lot more potential upside.

Disclosure: Long GGWPQ, RHIE

General Growth Looking Good

2009-12-03T13:23:00.001-06:00

Things continue to be looking up for General Growth Properties (GGWPQ) as they organize their plan to emerge from bankruptcy. I've held a very small position in this since June, where I was able to pick up some shares around $1.80. Shares are up near $8.00 today, making this my largest percentage gainer ever. I only wish I had picked up more shares at the time. But a nice gain nonetheless. Here are my previous posts on GGP.

An enormous thank you to Todd Sullivan for this one. He's been all over this trade from day one, and many people have made money on this one, and it appears there is more to come. Thanks Todd!

Check out his awesome site here.

Disclosure: Long GGWPQ

UPDATE: WSJ Announces that Brookfield and Simon are buying General Growth Debt and are preparing to make a bid for all or part of assets. More good news, and the stock continues to climb.

Pfizer On Board With Healthcare Reform

2009-12-01T15:28:00.000-06:00

Interesting commentary out today from Pfizer CEO Jeff Kindler. For the most part, Pfizer is on board with health care reform. As a shareholder, this is one question I was wondering. How would reform effect Pfizer? At this point, it seems like it wouldn't have many negative consequences. He also said there is no news about the much coveted dividend that was cut when the bought Wyeth.

Personally, I'm on board with the idea of health care reform, but like most large scale projects like this, I'm hesitant to believe the government will get it right.

Long PFE, and might be adding.

Position Update/Market Thoughts

2009-11-30T13:34:00.002-06:00

I wanted to take some time to update where I'm at with a few positions and what I'm looking for in this market:

We've now sustained a rally that many (myself included) doubted would last this long. I'm still not bullish on what I call "just buying stocks", but there are pockets of value out there and that's what we need to focus on now. The Dubai factor provided some fear last week, but the market appears poised to shrug it off. There will be more "shocks" that the market will undoubtedly have to deal with, and they will likely be larger that that. But those will be awfully difficult to account for.

Many people I follow whose opinions I value continue to be cautious at these levels, and although I've been cautious as well, I have waded into a few small positions.

-The Wyeth-Pfizer transaction closed and I received 33.00 per share cash, as well as some Pfizer shares. In this market, I do like the safety of a name like Pfizer, and although their dividend is lower, they picked up a great business in Wyeth. At this point, I'm holding my PFE shares and may actually add to them.

-I bought a small position in small cap Tii Network Technologies (TIII). Small cap, pure value play. 16M market cap, and 12M in cash, with almost no debt. Being lightly traded is the only reason I haven't taken too large of a position. This one could take some time.

-I bought a small position in RHI Entertainment (RHIE), on their earnings sell-off. The stock has continue to drop even much below my purchase price. I do feel its important to at least see how they come out during the current quarter, when the bulk of their revenue is expected to come in. Just looking to a return to it more normally, but still undervalued valuation as opposed to its current, dirt cheap levels. Things aren't perfect here, but I think they'll hold it together.

-I finally bit the bullet and bought some Compass Diversified Holdings (CODI) on the holiday shortened Friday sell-off. I've been writing about and following this name for far too long without actually having a position. And even though I couldn't buy it at prices I've tracked it at, its still an undervalued company at less that 1x book value. At this point, I know they are going to make their next acquisition soon and that will likely lift shares further. If it sells off from here, great, because I'd like more shares. Great management at this company.

Like I said earlier, strategy wise, I'm looking at value almost exclusively. There are some growth names out there I like (FISV, FSYS, CFN, TDC are a few examples), but I'm in no rush to buy them with the market at these levels. I see more safety in companies that aren't relying on the economy to grow at highly anticipated levels to advance further. As an aside, I do still own ABB and a few various mutal funds.

Disclosure: Long PFE, CODI, RHIE, TIII, ABB

More of the Same

2009-11-11T15:39:00.003-06:00

The market continues to show strength, as most of the news out there is positive.

RHIE dropped again today as it still hasn't found a bottom. It will be interesting to see if Seth Klarman picks up any shares at these levels, as he has in the past. As usual when this happens with a stock, you get people on message boards and blogs saying they are done for. They are most likely short the stock and aren't willing to have a conversation about it. There are always risks and its important never to risk more than you can afford to lose, especially with a stock that is this volatile. That's about all I have to say about that. I had reasons for buying it, and I still see value there. It may take time for that value to be realized. If it was easy, everyone would do it.

I continue to see more confidence out there, and as much as I feel stocks should pullback, it may just as easily not happen for awhile. There are still pockets of value out there. I don't like many large caps at this point, as most are overvalued when looking at the whole situation.

As always, I'll report any transactions and/or ideas that come up and I welcome your ideas as well.

Thanks for reading.

Disclosure: Long RHIE

Picked up Some RHIE

2009-11-10T13:38:00.004-06:00

RHI Entertainment (RHIE) is a small cap name I've spoken about for a good portion of 2009. They reported a bad quarter today, and the stock is off 60%! I took a small position at 1.16 for a couple of reasons:

-Yes the quarter was bad, but keep in mind this is a company whose earnings are tied to the releases they put out (many more coming in next quarter than previous), and their library. Seasonality is a big factor here. I'm not saying this quarter will be outstanding, but it will likely be better. I may not even own the stock by the next earnings release.

-They do have way too much debt for a company this size and are burning through their cash at this point. My bet isn't on the long-term viability and ability to grow earnings, which still remain to be seen. My bet is more on an overreaction by the market, and the possibility to make some money on the return to "normalcy" so-to-speak. Seth Klarman still owns a large stake here (I believe) and he bought when this same thing happened in the spring. Its an opportunity to buy at less than 50% of book value.

This isn't necessarily my style for buying stock, but in some ways it is. Just looking for value out there. Again, its a small position and I'll be watching it closely. Might not be the best one to follow unless you're watching it closely. If it continues to go south, I'll likely dump it quickly.

Disclosure: Long RHIE

Loews Still Attractive

2009-11-09T09:35:00.002-06:00

Loews (L) continues to provide value to its shareholders, while the market continues to undervalue its shares. I'm not going to break down each of its companies, but rather look at the bigger picture and the comments from their management.

Here are some statements by CEO Jim Tisch (one of the best around, I may add).

-Loews reported a solid quarter reflecting improved results in CNA, continued strong results in Diamond Offshore, and higher investment income in the holding company portfolio. During the third quarter Loews' book value per common share increased by over 14%, primarily as a result of the $1.7 billion increase in the mark-to-market value of CNA's investment portfolio. What a difference a quarter makes.

-At the end of the third quarter, CNA's book value per share stood at $35.38 compared to $20.92 at year end '08. This improvement was primarily the result of narrowing credit spreads in the fixed income market. While we are quite pleased to see the improvement in CNA's balance sheet, the volatility of fixed income security prices over the past year underscores how one could be potentially mislead by mark-to-market accounting, especially with the respect to unrealized losses at property and casualty insurance companies.

-And with that I'll get off my accounting soapbox and get back to our results. Diamond Offshore reported another quarter of excellent results. The big story for the quarter was Diamond's purchase of the Ocean Valor, a newly constructed dynamically positioned drilling rig that is capable of operating in 7,500 feet of water.

-Diamond was able to acquire the rig at auction for approximately $490 million, well below the recent cost to construct a similar new build rig. The rig is being actively marketed for work commencing in early 2010, which by our calculation is a lot better than waiting three years for the completion of a new build rig. This acquisition is consistent with Diamond's successful strategy of buying attractive assets at a time when purchases are possible at favorable pricing.
To replenish available cash after the rig acquisition, Diamond used its strong balance sheet to go to the debt markets and was able to issue $500 million of long-term debt due in 30 years at the very attractive rate of 5.75%. Diamond's board of directors recently declared special and regular – regular and quarterly dividends which together total $2 per share and market continuation of Diamond's policy of paying out special cash dividends reflecting the earnings and financial position of the company.

About acquisitions:

-We are always looking. The issue right now though I believe is exactly what's going to happen in the economy. My guess is that the economy is going to be very sluggish for a long time, maybe on the order of, if we're lucky, 1% to 2% growth. And I don't see this as a typical recession and I don't see this as a period where we're going to have 4% to 6% growth for the next year or so. I think it'll be very sluggish and I think that additional taxes and mandates will just be additional headwinds for the economy. I say all that as preamble because if we were to buy anything, I would not want to pay up in price anticipating that the economy and, therefore, business in the business cycle will resume. So like it said on the front page of the Wall Street Journal, jittery companies stash cash. You can count Loews Corporation as one of those companies.

And as what is usually the case, Tisch comments about the stock being undervalued:

-Well, there are two things you can do. You can complain about the prices of stock and the value of the stock, or you can do something about it. And there are multiple ways to do something about it. One is, I guess as you suggest, is to cast some holdings overboard. We're not looking to do that. The other way to deal with that is to buy in shares and in the past four months the company's brought in 4.5 million shares.

-As I like to say about our share repurchase history, we have a long and glorious history of share repurchases, buying in shares when the stock trades at a discount. Just to get on my soapbox again and provide an advertisement, Loews' stock has appreciated. Loews shareholders for the past 50 years have had a 16% rate of return on their shares compared to 9% for the S&P 500. So that if you have $1 50 years ago and you invested in the S&P 500, it would be worth about $75 now.

-On the other hand, that dollar if you would have invested in Loews at 16% would be worth $1,600 or $1,700. So the appreciation of Loews has been quite extraordinary. And one reason for that has been that we have aggressively bought in the shares. In 1970 we had the equivalent of 1.3 billion shares outstanding. Today it's below 430 million.

-For the life of me, I do not understand why the market values Loews so cheaply, but having said that I'm not complaining about it. Instead we're buying in the share and we're using that as an opportunity to create long-term value for all Loews shareholders. Beyond buying in the shares and doing what we're doing, I don't know what else we can do to close that valuation gap. It is a great frustration to me, but also I see it as a great opportunity.

So to summarize things, Loews remains on the same path. Conservative about the economy and its balance sheet. They'll look for acquisitions if they make sense. Their stock remains undervalued, and they'll continue to buyback shares if it continues. This is the kind of stock you can just buy and sit on. I plan to do some of that, but have just been a bit picky about where I buy. On a side note, that's a common approach for me. I'm usually pretty good at finding opportunities, and you're welcome to buy when I do, or be a bit more aggressive, which may pay off for you.

Tii Network Technologies Reports

2009-11-09T09:15:00.002-06:00

Tii Network Technologies (TIII) is one of those small caps I've been saying is attractive. I picked up a small amount of shares back in the middle of October. You can read my initial reason for buying through that link. Here's the release:

Net sales for the three months ended September 30, 2009 were$7,460,000 compared to $8,521,000 in the comparable prior year period, a decrease of $1,061,000 or 12.5%. Net sales for the nine months ended September 30, 2009 were $19,703,000 compared to $27,248,000 in the comparable prior year period, a decrease of $7,545,000 or 27.7%. The decrease in the 2009 periods was primarily due to the economic downturn, which has negatively impacted sales of our connectivity and network interface device products, and the loss of landlines by the service providers which has negatively impacted sales of our network interface device products. Additionally, in the three months ended September 30, 2009, the decrease in sales was partially offset by an increase in sales of our broadband products into the growing broadband market and to new customers.

Kenneth A. Paladino, President and Chief Executive Officer, stated, "The sequential increase in sales for the quarter was due to the improving economy's positive impact on our markets and sales to new customers from recent market share gains. Though total sales for the quarter were lower than the comparable prior year period, we are very pleased that sales of our more advanced broadband products were higher by almost 25%.

The decrease in gross profit margin for the quarter was to due to freight
and expediting costs incurred to satisfy an increase in demand for certain products with contracted delivery requirements where inventory levels for these products had been reduced due to the economic downturn. Increased production levels of these products have enabled us to significantly reduce expediting costs and as a result we expect to return to historical gross profit margin levels in the fourth quarter.

We continue to manage our other operating expenses and balance sheet
closely. Our operating expenses are down 22% or $1.9 million for the
first nine months. Cash is now $12.3 million, up $4.0 million for the same period.

Though our sales have not yet recovered to prior year levels, we are
confident that we are executing the right strategy and with the improved economic outlook, we expect that our profitability will also continue to improve."

I highlighted a couple of key points. The key with these small cap names is value. This company is now sitting on $12.3 million on cash with a $16.9 million market cap. In a normal market, companies like these might not be so undervalued. So this becomes more of a buy and hold until the market realizes some of its value more so than a bet on the company increasing earnings.

Disclosure: Long TIII

Not So Fast, Bears...

2009-11-09T09:10:00.002-06:00

My claim that the market had turned negative last week appears to be a little premature. The melt-up is back on with the dollar declining and stocks off to the races again. A few stocks of interest to me have reported earnings, and they have all come in strong. I'm going to do a post about each, TIII, CODI, and L.

The reflation trade, or whatever you'd like to call it, remains on.

Well Hello, Mr. Buffett

2009-11-03T08:51:00.002-06:00

If you follow financial news, or any news for that matter, you know what happened this morning. Warren Buffett's Berkshire Hathaway agreed to buy Burlington Northern. He already had a large stake (I believe around 20%), but this is a massive bet on the US economy. It really is classic Buffett. If you've read my blog at all, you know I'm bullish on railroads, and have felt BNI is the best out there. I don't own any shares, so I missed out on this one. Buffett isn't stealing it, but it will likely look like a good purchase five years from now.

In other news, Berkshire agreed to split their "B" shares 50 to 1, which is a big departure for them.

Buffett is clearly trying to make a statement here, and likely wanted another "signature purchase" (like Coca Cola, GEICO, or many others) to add to his legacy.

Market Has Turned Negative

2009-11-02T14:10:00.003-06:00

In my opinion, the market action seems to have a downward bias to it now. In the past few months, anytime negative news would come out, the market would dip, only to see bulls push through and move the market higher. Right now, it feels like the opposite. Earnings haven't been making big headlines and economic data is carrying more weight, as is the apprehension of investors and fear that stocks are overextended.

Small caps are getting hit hard. They are the most volatile and have moved the a lot to the upside during this rally, so their sell off comes as little surprise. I have a few names on my radar that I may pick at if prices continue to improve. I know I've been saying that for sometime, but I'm a very patient investor.

I do think that things are improving and many stocks could become attractive if prices fall further. I think the economy is slowly recovering, but just not to the level that stocks priced in. So if we see another over-reaction to the downside, I'd view that as an excellent opportunity to buy some stocks. In March, when we hit the lows, there were still a fair amount of major risks out there. Some of those have subsided, and some have been forgotten about. Either way, conditions are likely better than in March. So, like I said, if stocks become more attractive price wise, I think I'll be a buyer of some pretty substantial amounts.

Lets see what this week brings.

Union Pacific Not So Bullish

2009-10-22T08:59:00.002-06:00

I always keep track of the railroad earnings as I still think they are a pretty good primer for the rest of the economy. I know there are others, but this is just one that I follow. So, Union Pacific reported this morning. More of the same...Revenues still down double digits, profits helped by cost cutting (release). I've highlighted a couple key areas.

Union Pacific Corp. said Thursday its third-quarter profit fell 26 percent
as shipping demand remained weak and the overall economy stabilized.

The nation's largest railroad couldn't offset lower shipping volumes,
though it benefited from significantly lower fuel costs, improved productivity
and other cost-cutting measures. Union Pacific operates 32,400 miles of track in
23 states from the Midwest to the West and Gulf coasts.

The Omaha company said Thursday it earned $517 million, or $1.02 per share,
down from $703 million, or $1.38 per share, last year. Analysts surveyed by
Thomson Reuters, on average, expected a profit of $1 per share.

Revenue fell 24 percent, to $3.67 billion.

"Business volumes seem to have stabilized, but at very low
levels for Union Pacific," said Jim Young, the company's chairman and
CEO.

Union Pacific's fuel costs plummeted 59 percent, to $466
million, as the average price per gallon of diesel dropped to $1.87 from last
year's $3.70 and the railroad burned 19 percent less fuel.

Union Pacific's compensation costs and headcount fell 11
percent.

Union Pacific said it still had 4,100 employees furloughed, and it has
50,000 railcars and 1,700 locomotives stored. All those figures are down
slightly from July, suggesting that Union Pacific has started preparing for
higher shipping volumes, but Young said the economy hasn't shown much sign of
improvement.

"In 2010, we don't expect a quick rebound and have positioned
ourselves for a slow recovery," he said.

Union Pacific said its freight revenue again fell across all six of its
main business segments, and the number of carloads it carried fell 15
percent.

The biggest drop in freight revenue came in the industrial-products sector,
which fell 39 percent, to $557 million. Automotive revenue fell 30 percent, to
$227 million, even as the government's Cash for Clunkers program increased
vehicle sales.

Agricultural-shipping revenue fell 23 percent, intermodal revenue fell 22
percent, energy revenue fell 21 percent and chemicals revenue fell 16
percent.

Fuel costs obviously helped and play a big role for them. They do however, see some increase in volume when fuel prices spike as they are sometimes an alternative to shipping via other method. Still though, this is a "reality indicator" that can't be overlooked. While the market roars to new highs, look at the numbers of industrial goods and raw materials. They are showing no sign of recovery.

I'm still quite concerned about employment numbers and what they mean for the economy looking out a few quarters. We're still riding the oversold bounce and I'm not saying it won't continue. Fund managers are chasing performance as they will find themselves out of a job if they don't catch this rally after last year's situation. So while the dips will be bought, the question is when will the realities of the broad economy balance out with the market. There's your million dollar question. I wish I knew the answer.

Disclosure: None

Diamond Offshore Reports Another Strong Quarter

2009-10-22T08:43:00.003-06:00

Quick, name me a few companies that have grown revenue and net income year over year. Having trouble? Me too. Here's one. Diamond Offshore Drilling. I've written about them occasionally over the past few quarters. They operate in a very profitable industry, and to me are about the best in that industry. Here's a brief snippet from the release:

Contract driller Diamond Offshore Drilling Inc. on Thursday said third-quarter earnings rose 17 percent as rising crude prices drove up demand from oil companies for more drilling services. As the economy showed signs of recovery in the third quarter, crude oil prices stabilized, trading as high as $76 per barrel, well above a 2009 low of $46.73 per barrel in February. Diamond Offshore's quarterly earnings climbed to $364.1 million, or $2.62 per share, from $310.5 million, or $2.23 per share, during the same period last year. Analysts polled by Thomson Reuters estimated a profit of $2.30 per share, on average. Revenue rose nearly one percent to $908.4 million, up from $900.4 million in the prior-year period. Analysts forecast revenue of $874.2 million.

They operate a pretty shareholder-friendly operation as well as earnings are returned to shareholders via a regular and special dividend. This is one of those stocks you'd be alright owning a few years, which is more than I can say about a lot of stocks right now. Loews also owns about 50% of DO, and buying their stock may be a cheaper way into DO if you like the rest of their businesses (which I'll leave for another day).

Anyway, good stuff from DO. I'd be a buyer of their stock anytime it pulls back (hint: just watch the price of crude).

Disclosure: None
Besides higher sales, profit was aided by lower contract drilling costs, foreign currency gains and reduced taxes.

Pfizer Reports; Should I Sell My Shares?

2009-10-20T09:33:00.002-06:00

Now that I own some Pfizer stock (due to the acquisition of Wyeth), I feel obligated to at least post on Pfizer's earnings. (marketwatch)

-The world's largest drug maker posted net income of $2.88 billion, or 43 cents a share, compared with $2.28 billion, or 34 cents a share, for the same quarter in 2008.

-Excluding various items, Pfizer would have reported adjusted earnings of 51 cents a share, versus 62 cents. This year's quarter was also impacted by a higher tax rate, due largely to its merger with Wyeth.

-Revenue in the period fell 3% to $11.62 billion, from $11.97 billion.

-Pfizer was expected to report lower year-over-year sales, with the loss of patent protection for such former blockbusters as Norvasc and Zyrtec weighing heavily on its top line.

-Still, Pfizer's sales results managed to top Wall Street's expectations. According to a recent poll of analysts by FactSet Research, Pfizer was pegged at posting earnings of 48 cents a share on revenue of $11.44 billion.

-On Oct. 15, Pfizer finally closed its $68 billion merger with Wyeth, which was scheduled to release its earnings Thursday. Pfizer halved its once-coveted dividend several months ago to help finance the takeover.

-Pfizer also updated its 2009 financial forecast to reflect the acquisition. The drug maker now sees revenue of $49 billion to $50 billion, up from its previous forecast of $45 billion to $46 billion. Earnings are seen between $1.45 and $1.50 a share, up from $1.30 to $1.45. Adjusted earnings should come in between $2.00 and $2.05 a share, up from $1.90 to $2.00.

I'm still making up my mind about this stock. As long as it continues to move higher, I'm not going to sell it. I don't typically like companies that make massive acquisitions as I fell there is a lot of waste and its difficult to manage that many different operations and still grow. But they have a pretty strong sales pipeline now as Wyeth was a great company (that's why I owned the stock). But Pfizer did have to cut their dividend to finance this deal, which is one of the reasons to like Pfizer in the first place. I haven't had time to do a ton of research on this yet, so like I said, I'm still up in the air on Pfizer.

Disclosure: Long PFE

Caterpillar Reports; Not Much New

2009-10-20T09:15:00.003-06:00

Caterpillar reported quarterly results this morning. I like to keep an eye on companies like Cat due to their cyclical nature and I feel they can give us a tell on if the economy is improving. They beat estimates, which were laughable. Sales and profits are still substantially down, and they are selling the hope, just like many others. Here are some quotes from the Bloomberg article.

“We believe the third quarter marked the low point for Caterpillar sales and revenues in what has been the toughest recession since the 1930s,” Owens said in the statement. “We are seeing encouraging signs that indicate a recovery may be under way.”

The company narrowed its 2009 forecast range to $1.85 to $2.05 a share, from $1.15 to $2.25. The average estimate was $1.48 a share and the highest prediction was $1.75. The revenue forecast is now $32 billion to $33 billion, compared with its previous forecast of $32 billion to $36 billion.

“The world economy is still facing significant challenges,” Owens said in today’s statement. “There is uncertainty about the timing and strength of recovery.”

“We’ve already started planning for an upturn,” Owens said in the statement. “When it comes, it can come quickly, and we, our dealers and our suppliers will be prepared.”

In a preliminary forecast, Caterpillar today predicted 2010 sales would increase 10 percent to 25 percent from the midpoint of the 2009 forecast range, partly driven by the end of dealer inventory reductions.

As I've said before many times, and will continue to say, selling the hope is okay. The economy may have bottomed. But Wall Street has been buying the hope big time since late spring. Now stocks are just too expensive and have fully priced in a recovery which has yet to appear. That's why its dangerous to just "buy stocks", which is my term for just jumping back in. I still think there are deals out there, but large cap stocks have just been bid up too high in my opinion.

Onward...

Einhorn Speaks at Value Investing Congress

2009-10-19T14:49:00.004-06:00

David Einhorn of Greenlight Capital is someone I'm always eagerly listening to. He is very intelligent and manages money for a living. As I've said many times, the people that are intelligent and have their own money on the line are the only ones I truly listen to. Believe me, there are very few of them. But Einhorn is one of them.

Here's the text of his speech today at the Value Investing Congress. I got this via Rolfe Winkler's blog at Reuters. There's a lot of great stuff in here.

Here's just one good quote, about gold:

I have seen many people debate whether gold is a bet on inflation or deflation. As I see it, it is neither. Gold does well when monetary and fiscal policies are poor and does poorly when they appear sensible. Gold did very well during the Great Depression when FDR debased the currency. It did well again in the money printing 1970s, but collapsed in response to Paul Volcker’s austerity. It ultimately made a bottom around 2001 when the excitement about our future budget surpluses peaked.

A Late Friday Buy

2009-10-17T09:52:00.003-06:00

I made a small purchase at the end of the day Friday. Its a small company called TII Network Technologies (TIII). They supply products in the DSL, surge protection, and VOIP arenas, amongst other things. Click here for a full profile.

I'm just looking strictly at value on this one. It trades at less than half of its current book value. They have nearly 11M in cash, and for a company with only 16M market cap, that is a pretty good safety net if the economy doesn't recover as quickly as some predict. Like most companies, revenues are down year over year, but operations are improving.

Now is the time to scoop up values in companies like these. I'm finding more opportunities in small cap names right now. The large cap stocks are followed so closely and bought by so many funds. I just can't find much value in large cap stocks right now. The key with these small cap names is make sure they are sitting in a good cash position and won't be reliant on credit to finance operations for an extended period of time, and you'll be ok.

Its a small position, and I may add to it, but it won't become too large for me. Its lightly traded and I'm not a fan of taking big positions in stocks like this. But I do think its worthy of getting a shot here. Here's a link to their latest quarterly report. (pdf)

I got this idea from Arohan's Investing Life Premium, which is a great service. Check it out, as he has many more great ideas as well.

Earnings Commentary

2009-10-16T08:42:00.003-06:00

Well, earnings season has officially kicked off. Google and IBM reported after the close yesterday. Last quarter, these two were really the drivers that kicked the summer rally into high gear. They both reported solid numbers again, but its a little different story today. Google is trading higher, but it wasn't enough to lift stocks today. We also got results from lumbering giants Bank of America and GE, both of which weren't taken as great.

It will be interesting to see if investors continue to buy every dip, which has been the case lately. The next catalyst appears it will be economic data or just more investors gaining faith in this market as we climb the "wall of worry."

I have stocks out there I'd like to buy, but again feel many portions of this market have come too far, too fast. With earnings coming out daily, I'll be posting more frequently, and hopefully some posts will be talking about some trading activity on my part.

Have a great weekend!

Pfizer/Wyeth Close Deal...Should I keep Pfizer Shares?

2009-10-15T10:02:00.003-06:00

Pfizer completed its $68 billion dollar acquisition of Wyeth today. It amounts to $33/share in cash and 0.985 shares of PFE per share of WYE. As a holder of WYE for a couple of years, I have some mixed emotions about the deal. Wyeth is a good company and could continue to provide solid returns for years to come, so in that respect, I'm disappointed. So now I have to find another stock to provide those returns on the capital I had invested. Can Pfizer provide that? That is what I need to figure out at this point. I'm typically not a fan of companies that grow through massive acquisitions. I'd prefer companies to buy smaller companies that you may not have to pay full value for.

Wyeth shares cease trading at the bell today. I'll probably follow up on this more in the coming days/weeks. I won't immediately sell the PFE shares, but will do some more research to determine if there is a better option for this capital.

Disclosure: Long WYE

Soros on Board, But Can We Profit From Green Tech?

2009-10-12T09:19:00.002-06:00

Alternative technology and specifically energy have been a big debate over the past few years. I've spend a fair amount of time researching and looking for potential investments. I've looked specifically at wind power, geothermal energy, and natural gas for transportation. There are many other sources out there and solar is still probably the most popular. I like solar energy, but just not as an investment right now. There are too many solar companies out there right now and prices are still too high for consumers to significantly invest in this technology. As a whole, green energy is still almost entirely dependant upon being subsidized by Washington. That is gradually changing, but it will take a long time before green opportunities are just what are there for the consumer as a logical choice.

I see today that billionaire investor George Soros says he's investing $1billion into green tech. He's a very smart investor, but he's always politically motivated as well, so we have to remember that. I'd rather not get into the whole political debate over climate change, but I will say this. What do we have to lose? If we become energy independent and create sustainable alternatives that can be better for the environment at a similar cost, its a no-brainer. Even if climate change ends up not being significant, we've made a good switch.

In my opinion this whole movement comes down to this: Right now, to buy green items mean you are putting the social and environmental factors at a higher priority than the economic factors, and its just too difficult of an economy for the majority of people to do that.

Its going to be a combination of various sources that will end up working for us. The leading companies for the next few decades in this movement may not have even been created yet, and that's what makes it difficult for investors. If you really want to invest in this, I'd stick to diversified ETF's to limit single-company exposure. I'd also look at larger companies that supply products tied to this movement. ABB is one example that I've talked about before, and there are others. I'll try to find some opportunities for us in this space, but overall, I'm still a little hesitant here.

Disclosure: Long ABB

Update/Go Twins-Vikes!

2009-10-07T08:11:00.002-06:00

I apologize for the lack of posts in the past few days. I was in Minneapolis for the Monday night Vikings-Packers game, and am now back home. The market will give us plenty to keep an eye on with earnings season starting (it seems like it never ends). So I expect to be doing a lot more posting, and buying of stocks. It will depend a little on how earnings come in and especially how they do relative to exceptions, but I still expect the market to pull back a bit. Thanks for checking in, and I promise, there will be more to come.

Enjoying the big wins by my two favorite teams!

Here's me after the game on Monday.

Time to Pay Attention

2009-10-02T10:33:00.003-06:00

I've been very slow to get bullish during the summer months, and readers of the blog can attest to that. I've probably put too much energy in looking at economic data, and not enough in spotting actual undervalued stocks, which is my main objective. I feel that the ISM and employment data that has recently come up should give a reality check on the economy side. I'm not a believer in stimulus as I feel we'd be better off allowing institutions and individuals to de-leverage as opposed to encourage them to take on more debt.

Has the market topped in the near-term? Its possible. There have been plenty of people ready to buy the dips though, and I wouldn't be surprised to see that happen again either.

But like I said, I'd rather time stocks than time the market. I may make a couple of smallish buys in the next few days, and you can't expect to see more activity post-wise. As a value guy, its more fun when the market goes down as its time to pay more attention to the action again.

Let's find some value, and make some money!

Natural Gas Prices Could Fall As Storage Hits Capacity

2009-09-28T15:36:00.002-06:00

I saw this interesting piece out from Bloomberg today.

The steepest rally in natural gas prices since 2006 is coming to an end as the 400 salt caverns, depleted oil fields and aquifers used to store the fuel in the U.S. reach capacity for the first time.
Stockpiles may surpass the record of 3.545 trillion cubic feet by as much as 350 billion cubic feet this fall, Energy Department estimates show. Gulf South Pipeline Co. says its fields in Louisiana and Mississippi are so full that customers will have to pay penalties for exceeding their limits. With no place to go, producers will be forced to dump excess fuel on the market.

The worst economic slump since the 1930s will cut demand from chemical plants to carmakers to households by 2.4 percent this year, according to government estimates. The November futures contract will drop about 19 percent to near $4 per million British thermal units, said Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pennsylvania.

“I don’t know where all of this gas is going to go,” said Schork, a former natural gas trader on the New York Mercantile Exchange, who in June forecast inventories would reach near 3.8 trillion cubic feet. “We’re a month away from significant heating demand. Something’s got to give.”

The November contract has climbed 31 percent from its low of $3.662 per million Btu on Sept. 3, after economic reports signaled that the recession is ending and fuel demand will rebound in 2010. October futures, which expire today, have risen 48 percent from a seven-year low of $2.508 in the same period.

Gas for November delivery fell 16.8 cents, or 3.4 percent, to $4.78 per million Btu at 1:25 p.m. today in New York. The October contract fell 26.7 cents, or 6.7 percent, to $3.718.

Click here to read the rest of the article.

There are many dynamics at work here, but even though we are getting closer to the heating season, and the economy has shown signs of bottoming, there is still a lot of natural gas supply out there. I see pressure on prices for a while longer, and a recovery in 2010 at this point. I still like it very much as an investment looking out over the next few years.

Disclosure: None

Finding "Value" Out There

2009-09-28T14:16:00.003-06:00

Although the market does feel a little stretched, particularly in certain areas, there is still a lot of value out there. I continue to run across people successfully buying stocks at undervalued prices and participating in "Active Value Investing", or "Buy and Sell" vs. "Buy and Hold" investing. To me, that is the best way to play this market. Your belief in the long term strength (or lack thereof) of the state of the economy isn't affected as much with this approach. As opposed to a common approach of this being a good time to "buy stocks" and pour money into index funds or large mutual funds, active value investing is about timing stocks and not the market. Timing the market is nearly impossible.

I've mentioned Todd Sullivan and the excellent research he does on his site, and I wanted to mention one other service I've come across.

Arohan's Investing Life has recently launched the "premium" portion of their site complete with detailed analysis of stocks picks, complete portfolio, and real-time trade alerts. You can also interact with other members within their forums. I've spent some time recently on the premium portion of the site, and feel it is an excellent service for investors. One successful stock will more than pay for the membership fee, and you can try it for free for seven days.

If you have any questions about this service, I'd be happy to give you more detail. If you're interested in this service, click on the link and check it out.

CLICK HERE FOR A LINK TO THE PREMIUM SITE

Natural Gas Leaders Stepping up Lobbying Efforts

2009-09-17T12:22:00.004-06:00

While I'm not fan of corporations gaining influence in Washington, I do believe natural gas has a great future in our energy plan. Anyway, here's an article I spotted about the natural gas leaders trying to increase demand and shine the light on Washington and what they give to the coal industry:

Chesapeake Energy Corp. and other natural-gas producers, unhappy with climate-change legislation they say favors competing fuels such as coal, are teaming up to tout the benefits of their product to lawmakers in Washington.
Chesapeake, Noble Energy Inc. and Apache Corp. are among 28 companies that in March formed America’s Natural Gas Alliance, a Washington-based group aimed at increasing “appreciation” for natural gas. Members of the alliance met with reporters today in Washington.

The alliance has “one mission: to try and generate more natural gas demand,” Aubrey McClendon, chief executive officer of Oklahoma City-based Chesapeake, which operates the largest number of gas rigs in the U.S., said yesterday.

That goal may be stymied by climate-change legislation approved by the House in June, which requires capping carbon dioxide emissions and allocates a certain amount of pollution permits to industries for free. Gas utilities would get 9 percent of the allowances under the proposal from Democratic Representatives Henry Waxman of California and Edward Markey of Massachusetts. The Senate has yet to vote on the legislation.

“We did not have an active role in climate-change legislation in the House,” David Trice, chairman of Newfield Exploration Co. and chairman of the alliance, said of its member companies at the press briefing today in Washington. “We will correct that in the Senate.”

Natural gas produces about 50 percent less carbon dioxide than coal when burned as a power source. Under most energy-use scenarios by the government’s Energy Information Administration, gas use would be flat or decline under the Waxman-Markey plan, Jim Hackett, CEO of Anardarko Petroleum Corp., said at today’s event.

‘Hall Pass’

The Waxman-Markey legislation’s distribution of allowances “basically gives the coal industry a hall pass for up to two years, and we think that’s not fair and we’re confident that it’s not going to lower CO2 emissions,” McClendon said in a speech yesterday in Washington at an event sponsored by Johns Hopkins University’s School of Advanced International Studies.

“My job is to make sure that policy makers and politicians are aware of the abundance of natural gas and the options that gives them, particularly senators, to take another look at Waxman-Markey,” he said.

Natural gas prices have fallen 35 percent since the start of the year. Natural gas for October delivery fell 11 cents, or 2.9 percent, to $3.65 per million British thermal units at 11:49 a.m. on the New York Mercantile Exchange.

The U.S. consumes 60 billion cubic feet of natural gas a day. Gas at $3 per million cubic feet is the energy equivalent of oil at $21 a barrel, McClendon said.

New Markets

If companies can convince owners of coal-fired power plants to switch to gas, and if they can create more natural gas-fueled transportation, there is a potential market for an additional 125 bcf of gas in the U.S., McClendon said.

An industry group in June reported that the U.S. has an estimated 1,836 trillion cubic feet of potential natural gas, the highest recorded level. About a third of reserves reflects potential gas in shale-rock formations.

More gas production from “abundant” shale will help reduce volatility of prices, in part because the onshore facilities aren’t susceptible to hurricanes as are rigs in the Gulf of Mexico, said Hackett.

Environmentalists and some members of Congress have raised concerns about shale gas and the potential effect the process of breaking up the rock may have on water supplies.

‘Crack Cocaine’

Natural gas has been “the crack cocaine” of the electricity industry for the last 15 years, Jim Rogers, CEO of utility Duke Energy Corp., said during a speech in Washington yesterday.

“Every time we need power, we build a natural gas plant, not a coal plant, not a nuclear plant,” said Rogers.

McClendon said the industry hasn’t been a good salesman in the past.

“We’ve always felt like we produced a superior product and that it would sell itself,” said McClendon.

Before, the view was that the “fellows that were producing an inferior fuel had to do all the lobbying, had to do all the hard work to make sure their fuel got burned,” said McClendon. “The world’s changed.”

“We now realize our fuel can meet a lot more demand than it has historically and we have to overcome the view that natural gas is scarce or that its price is volatile.”

Chuck Davidson, CEO of Houston-based Noble, said that approach marks a big change in the industry.

“It’s a paradigm shift for a producer to really shift over and think about how to market your product,” he said yesterday at the Johns Hopkins event.

I'm still keeping an eye out for good natural gas investments.

Plenty of Momentum Left

2009-09-16T11:37:00.002-06:00

After what I'd call "churning" over the past week or so, the market has shown strength and has moved another leg higher. I still get a divided feeling out there. Many are still bearish due to macro events and extended valuations. Others are going with the flow and making money while its there to be made. And still others believe a full on bull market has taken off and this is just the start of it. I'm somewhere between group 1 and 2. I've held stocks and picked at a few positions, and haven't yet been selling into this strength (though I've been considering it). At the same time, I haven't added significant positions I plan to hold for an extended period of time. I'm definitely starting to subscribe to the "buy and sell" philosophy or active value investing. In other words I'm targeting specific stocks that are undervalued relative to the market, and selling them when I see a nice appreciation. I'm not falling in love with any positions.

I don't want to spend too much time on strategy, because I'd rather be talking about stocks. It will happen soon, I hope.

Contago Oil and Gas Results

2009-09-15T09:16:00.002-06:00

Contango Oil and Gas reported quarterly and full-year results. Press release here.

Commentary by CEO Kenneth Peak:

“Despite the prolonged shut-in of our production this past fall and losing our offices due to Hurricane Ike together with the collapse in natural gas prices, we had a profitable and successful year. We repurchased 7% of our common stock and ended the year with 22 Mcfe of proved developed reserves per fully diluted share. We are debt free and have a $50.0 million unused line of credit.”

Mr. Peak continued, “Income taxes are our biggest expense, but it is better to have a tax problem than it is to have an income problem. I have been surprised that on-shore U.S. natural gas production hasn’t fallen off more quickly. The industry is not earning a positive rate of return at anywhere near current natural gas price levels and sooner or later, the industry must earn a profit if it is to continue to attract capital to drill. We will continue to be stingy with our common stock. Our fully diluted share count now stands at 16.5 million shares, as compared to 16.7 million shares at June 30, 2001. In the past two years we have issued a combined total of 67,559 shares and options to management and the board of directors and this fiscal year we plan to issue zero stock and options.”

I've been searching for alternatives to UNG for investing in natural gas. Gas prices have recently bounced, and I expect 2010 prices to be higher than current levels. Contango appears to have a transparent group of managers concerned with shareholder value. Also, they have virtually no debt which is quite rare in this industry. Thus, if prices stay low for an extended period of time, they are much more likely to survive and even buy assets at good prices.

I may be buying some MCF soon.

Disclosure: None

Why Bubbles Will Likely Continue

2009-09-14T10:38:00.002-06:00

Since this crisis started, I have stressed that we've taken no real long-term steps to repair our financial system, but rather put a band-aid on it. You can't cure a problem involving excessive leverage by more borrowing. The Pragmatic Capitalist has a post out that can cover it better than I could, so I'll just refer you there for the rest. Keep in mind, even if what this analysis says is true, it doesn't mean stocks are doomed. Stocks will always be forward looking and can dislocate from economic reality, for awhile at least. Eventually, things will balance out. Oh, and now is not a great time to start slapping tariffs on Chinese goods. Just throwing that out there.

Friday Update

2009-09-11T12:46:00.004-06:00

The market continues to hold up even though for the past week or so its had a grinding feeling. Many stocks on my list have pulled back a touch even though the market has held up. The leadership stocks of the past couple of months (financials, tech, etc) are still strong and the market will hold as long as they do.

On the natural gas front, I have no regrets in getting out of the UNG ETF. There is too much dislocation from the actual underlying assets. I was okay with the high premium because as long as prices were this low, people will be buying it on the cheap and thus the premium could remain because of the lack of new issues. But ultimately, the closing of DXO did me in. I wasn't interested in finding out one morning that UNG decided to do the same thing. I'm still bullish on natural gas and am looking for good ways to invest in it while prices are still at these levels. If anyone reading this has ideas, I'd love to hear them.

It has been difficult to sit on my hands while this market continues to advance, but I still think its the prudent move. I may start buying here and there, but would like to see some more attractive prices before I move my cash positions to small levels.

On a housekeeping note, I'll try to post more. Its difficult to post much when I'm not focusing in on buying or selling specific names, but there are still items of interest I can comment on. I will be posting multiple times per day when I'm more active, and when time allows.

Hope everyone has a great weekend!

Senate must raise debt ceiling above $12T

2009-09-08T08:08:00.003-06:00

I'm back at it after the holiday and the unofficial start to fall. Activity always picks up on Wall Street this time of year as hedge fund managers leave the Hamptons and come back to work. We'll likely see volume pick up among other things. I'm still expecting to see some weakness heading into fall, and have a few stocks I'd love to pick up.

I saw this headline out about the Senate having to raise the debt ceiling. This is dangerous territory. The dangers of excess debt are very troublesome. You can look throughout history and individuals, corporations, and governments that take on extreme levels of debt well, lets just say its doesn't end well. Here's the news story on this (From The Hill):

The Senate must move legislation to raise the federal debt limit beyond $12.1 trillion by mid-October, a move viewed as necessary despite protests about the record levels of red ink.The move will highlight the nation’s record debt, which has been central to Republican attacks against Democratic congressional leaders and President Barack Obama. The year’s deficit is expected to hit a record $1.6 trillion.

Democrats in control of Congress, including then-Sen. Obama (Ill.), blasted President George W. Bush for failing to contain spending when he oversaw increased deficits and raised the debt ceiling. “Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren,” Obama said in a 2006 floor speech that preceded a Senate vote to extend the debt limit. “America has a debt problem and a failure of leadership.”Obama later joined his Democratic colleagues in voting en bloc against raising the debt increase.Now Obama is asking Congress to raise the debt ceiling, something lawmakers are almost certain to do despite misgivings about the federal debt.

The ceiling already has been hiked three times in the past two years, and the House took action earlier this year to raise the ceiling to $13 trillion. Congress has little choice. Failing to raise the cap could lead the nation to default in mid-October, when the debt is expected to exceed its limit, Treasury Secretary Timothy Geithner has said. In August, Geithner asked Senate Majority Leader Harry Reid (D-Nev.) to increase the debt limit as soon as possible.Changing the debt cap “does provide an opportunity to look at fiscal policy and what its failings are, and ideally it could give both sides an opportunity to think about what we need to do so we don't keep raising the debt limit,” said Robert Bixby, the executive director of the Concord Coalition, a
fiscal watchdog group.“But probably as a practical matter, it will get more attention as a partisan back-and-forth,” Bixby said.When the House raised the debt limit to $13 trillion as part of a budget resolution approved in April, Democratic leaders used a maneuver known as the “Gephardt rule,” named after former House Democratic Leader Dick Gephardt (Mo.), to avoid taking a roll call vote on the debt limit increase. The Senate isn’t so lucky. It lacks a similar mechanism, meaning each senator must cast a politically perilous vote on raising the debt ceiling. The Senate Finance Committee will “carefully review Treasury's request on behalf of the American taxpayers,” according to an aide to the committee's chairman, Sen. Max Baucus (D-Mont.).“Sen. Baucus understands the critical importance of signaling to the world that the U.S. maintains the confidence and security to continue to lead the global economy out of recession,” the Baucus aide said. “The request to raise the debt limit is serious and must be addressed thoroughly and in a nonpartisan manner.”The aide
noted that Baucus is pressing the Treasury Department to be more transparent about its efforts to pull the economy out of recession.“He will continue to demand the necessary communication and cooperation going forward,” the aide said.

Both the White House and the independent Congressional Budget Office last month said that they expect the debt to increase by another $9 trillion over the next decade. Should the Senate follow the House's lead and set the new debt limit at $13 trillion, lawmakers would probably have to raise the limit again next year, when the Obama administration expects to run a $1.5 trillion deficit.The business community has supported Geithner's push for a higher debt ceiling. Bruce Josten, the top lobbyist for the U.S. Chamber of Commerce, said it's essential to the U.S. economy.“If we fail to address this in a timely fashion, then you run the risk of having to curtail government operations,” Josten said. “The last thing our economy and the world economy needs is greater uncertainty throughout global credit markets.”Josten said that the high level of debt is a reality during the recession, but it's unsustainable and needs to be reduced by reforming Medicare and Social Security.“While we can freely and openly acknowledge completely and lobby to raise the debt ceiling and incur some more debt, the longer trends ultimately need to be reversed,” he said.Congress
raised the debt limit just a few months ago when it passed the $787 billion
stimulus package.

We've raised the ceiling three times in the past two years. This isn't a Republican or Democrat issue, its a Washington issue. Most members of congress have no real economic sense in my opinion and realize the problems their actions are causing.

How irresponsible is it to continue handing out money via various stimulus programs when our country is already at dangerous debt levels? The simple answer I can come up with is that no one wants to take the political hit for cutting back and thus making us endure some short-term pain for the long-term health of our country. This will never be accomplished by career politicians and Washington insiders. They are too worried about keeping their jobs. They are playing a game that has worked for a long time, but the rules are changing, and there is too much at stake now.

Anyways, there is my rant that comes along about once a month. Have a great week everyone!

Update on UNG

2009-09-02T12:13:00.003-06:00

Just to update, I did sell the balance of my shares this morning, around 10.14, I believe. Investors are treating it as if its going the way of DXO, which hasn't yet happened. No one seems to want to hang around and find out. According to Yahoo Finance the NAV on UNG is 9.35, but that's as of Aug 28. I'd imagine its lower now. If anyone has access to more up to date NAV data, I'd be interested in it. Its just an unfortunate situation as these ETFs can be great, but are becoming bigger than they were designed for. I'm not interested in investing when the rules are changing, and that's why I chose to leave UNG behind. I like natural gas, and will be investing in producers/alt. fuel companies in the (maybe not too distant)future.

Beyond that, I think the market is turning over a bit. Doug Kass had a nice strategy piece he put out echoing the same thing. I'll be buying if we see better prices, and I anticipate that happening this fall.

Disclosure: None

DXO to Close Fund, UNG Next?

2009-09-02T07:59:00.004-06:00

More regulatory trouble for commodity funds. Duetsche Bank announced it will redeem shares for its double-long oil fund, which I refer to as DXO, which is the symbol. These funds have been under scrutiny from the CFTC for owning too many contracts. I'm worried the same fate will happen to UNG, or the natural gas fund, which I own shares. They already halted new shares in July, and I haven't had a good feeling with it since. On one hand, a lot of people want to own natural gas because it has gotten so cheap, and the prospects are great (like I've said many times). But because of the halt of new shares, demand has held UNG at a large premium (around 20%) over NAV, which is around 9.33 as of this morning. If UNG decides to go the same route, I wouldn't be surprised if they redeemed shares closer to the NAV rather than the current trading price. If they do not, that premium could stay there awhile as a lot of people want to invest in this.

To make a long story short, I'm going to sell part of my position in UNG or maybe even all of it. This in no way changes my outlook for natural gas. I'm just going to find different ways to play it. I'm going to have to take a decent hit on UNG due to depressed gas prices, but I can make that up later as I feel gas prices will rise in 2010. I'll post when I make some purchases. Contango Oil and Gas (MCF) is one I'll likely look at, and surely I'll have some exposure if I decide to buy Loews (L).

Disclosure: Long UNG

Some Good Reading

2009-09-01T08:20:00.003-06:00

I've been updating what I've been reading as my trading activity has been light. I should start a series of posts called "things to do while not buying stocks." That's been pretty much it lately. I continue to believe this market has been pushed too high given the economic situation out there. I'm still modestly bullish on a group of stocks that I've been profiling, and will be buying them when the market corrects. Here is a good piece from Bloomberg this morning echoing these sentiments.

Goldman Sachs Wrong on Economic Recovery, Macro Hedge Funds Say

Paul Tudor Jones is quoted in that article, and he also believes this rally isn't sustainable. Its difficult to know who to listen to amongst the so-called "experts" out there. If someone invests for a living, is successful, and has been successful for a long time, I listen to them. That's who I listen to. I don't pay attention to analysts for the most part or those who get paid to make projections rather than actually invest.

UNG Still Ugly

2009-08-31T08:10:00.003-06:00

I've been writing a lot about natural gas this summer, and I've tried to back off a bit lately. But its important to keep an eye on what is going on. Supply is still high and pushing prices lower. We've got to be getting close to a price where producers can't make money producing gas and will need to shut off production. You take that, and add weather factors like a cool summer and a (so far) quiet hurricane season, and prices have fallen. One interesting thing here is that gas hasn't gotten and help from the "recovery." Now, I've been skeptical of the recovery, but to those who say its real, why hasn't gas traded higher in anticipation of higher commercial usage? Why hasn't rail traffic of raw goods increased significantly?

The primary trading vehicle for natural gas, UNG, has its own set of issues. Regulators have been coming after them and they stopped issuing new shares. Investors want to be able to play natural gas, but with no new shares the fund stops tracking what its meant to track. UNG now trades at around a 20% premium supposedly. Thats not to say it can't continue, but if investors get fed up, UNG could fall further. I'm still holding my shares, but UNG is the problem, rather than gas to me. I like the idea of getting into gas at these prices, but the uncertainty with UNG bugs me.

Here are some links to info on UNG today.

http://seekingalpha.com/article/159042-natural-gas-etf-the-short-term-story?source=yahoo

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aDSp1GtwaRpE

Disclosure: Long UNG

Prince Alwaleed Remains Richest Saudi

2009-08-29T11:01:00.002-06:00

As an investor I've always been interested in, Prince Alwaleed carries an interesting story. His Citigroup investment has been well documented, first as a wild success, and then, well we all know what happened to Citigroup in 2008. I read his biography and reviewed it awhile back (Click here to read review and purchase book).

Today, I found a piece from Bloomberg giving us an update on how he has survived the recession. So far, it looks like he's done well:

Aug. 29 (Bloomberg) -- Prince Alwaleed bin Talal, Citigroup Inc.’s largest
individual investor, was ranked the richest Saudi national by Arabian Business,
even after losing 4.6 percent of his personal wealth in the past year.

Alwaleed’s assets are valued at $16.3 billion, compared with $17.1 billion
last year, the Dubai-based magazine said today in its 2009 Saudi Rich List,
citing the accounts of Kingdom Holding Co., the prince’s investment company.

The global credit crisis, lower oil prices and a decline in demand for crude have hurt investment and energy companies operating in Saudi Arabia. Kingdom Holding’s second-quarter profit slumped 83 percent as returns on Alwaleed’s investments in stock markets and hotels fell.

“Today, some of his more ambitious investments are showing the strain of
the global economic slowdown,” Arabian Business said. “The depreciation in value
of his 5 percent stake in Citigroup, for example, has been well-documented.”
Citigroup lost 73 percent of its value in the past 12 months as investment
losses eroded its capital.

Alwaleed, nephew of the late King Fahd bin Abdulaziz al- Saud, stands out
among more than 2,000 Saudi princes because he has made money. After earning a
bachelor’s degree from Menlo College near San Francisco, he returned to the
Persian Gulf and parlayed an inheritance of less than $1 million into a billion-
dollar fortune in the 1980s, mostly through real-estate investments, according
to Riz Khan’s biography “Alwaleed: Businessman, Billionaire, Prince”(William
Morrow, 2005).

Apple, Time Warner
The prince, 54, built his fortune by investing in brand- name companies he considered undervalued, including Apple Inc., News Corp. and Time Warner Inc. Forbes magazine estimated he was worth $13.3 billion in March, ranking him 22nd among the world’s billionaires. This year, Alwaleed’s investments haven’t kept pace with the Saudi benchmark. Shares of Riyadh-based Kingdom Holding have declined 4.3 percent. The Tadawul All-Share Index, the largest market in the Middle East by market value, has gained 19 percent.
Kingdom Holding’s assets are valued at $7.26 billion, while the Prince owns $3.18 billion of real estate and $1.56 billion of media assets such as LBC and Rotana Holding, Arabian Business said, citing his financial accounts. Alwaleed’s other major assets, including an Airbus A380, are valued at $1.7 billion.

The value of the prince’s cash remains confidential, the magazine said, adding that “we are assured it has not changed significantly since we were allowed to see the verified total figure in December.”

Rail Data Showing Some Improvement

2009-08-28T08:01:00.003-06:00

I'm always keeping an eye on the weekly rail car loading data from the Association of American Railroads. This weeks data is showing some improvement. As we continue to look for signs of strength in the economy, this is one I like to watch. Although it has been slow to improve, and some might thus view it as more of a lagging indicator, I don't think that's the case. We're looking at raw materials here. This is one of the first steps in the line. I feel that the market is continuing to price in a recovery that hasn't necessarily been shown through data. That's why I continue to be cautious about this market. Anyway, here's yesterday's release:

AAR Reports Rail Traffic Continues Slight Improvement
Carloadings at Highest Level Since Early March
WASHINGTON, D.C., Aug. 27, 2009 — The Association of American Railroads today reported that rail traffic continues to show slight improvement with rail carloadings at their highest level since early March. For the week ended Aug. 22, 2009, U.S. railroads reported originating 279,478 cars, down 16.1 percent compared with the same week in 2008. Regionally, carloadings were down 14.2 percent in the West and 18.9 percent in the East. Intermodal volume of 193,207 trailers or containers on U.S. railroads was down 16.2 percent compared with the same week last year. Container volume fell 10.2 percent and trailer volume dropped 38.2 percent. Total volume on U.S. railroads for the week ending August 22 was estimated at 29.8 billion ton-miles, down 15.6 percent from the same week last year. Eighteen of the 19 carload freight commodity groups were down from last year, with only the nonmetallic mineral category defying the trend with a 1.3 percent increase. Declines among the other commodities ranged from 5.7 percent for petroleum products to 49.3 percent for metallic ores. For the first 33 weeks of 2009, U.S. railroads reported cumulative volume of 8,715,641 carloads, down 18.8 percent from 2008; 6,151,511 trailers or
containers, down 17.1 percent, and total volume of an estimated 927.7 billion ton-miles, down 17.9 percent.
Canadian railroads reported volume of 64,267 cars for the week, down 15.3 percent from last year, and 41,971 trailers or containers, down 19.2 percent. For the first 33 weeks of 2009, Canadian railroads reported cumulative volume of 1,973,473 carloads, down 23.6 percent from last year, and 1,328,088 trailers or containers, down 16.4 percent.
Mexican railroads reported originated volume of 11,461 cars, down 1.4 percent from the same week last year, and 6,279 trailers or containers, off 3.1 percent. Cumulative volume on Mexican railroads for the first 33 weeks of 2009 was reported as 374,653 carloads, down 14.8 percent from last year; and 162,822 trailers or containers, down 20.6 percent. Combined North American rail volume for the first 33 weeks of 2009 on 13 reporting U.S., Canadian and Mexican railroads totaled 11,063,767 carloads, down 19.6 percent from last year, and 7,642,421 trailers and containers, down 17.1 percent from last year.

Employment Outlook Still Shaky

2009-08-26T09:10:00.002-06:00

Employment numbers, while their decline has moderated, still haven't recovered. This will likely take some time and will weigh heavily on the economy no matter how much other indicators improve. Not many people seem to be covering this today, but the White House did release some interesting data yesterday (bloomberg):

U.S. unemployment will surge to 10 percent this year and the budget deficit will be $1.5 trillion next year, both higher than previous Obama administration forecasts
because of a recession that was deeper and longer than expected, White House budget chief Peter Orszag said.

The Office of Management and Budget forecasts a weaker economic recovery than it saw in May as the gross domestic product shrinks 2.8 percent this year before expanding 2 percent next year, according to the administration’s mid-year economic review issued today.

The Congressional Budget Office, in a separate assessment, forecast the economy will grow 2.8 percent next year. Both see the GDP expanding 3.8 percent in 2011.

“While the danger of the economy immediately falling into a deep recession has receded, the American economy is still in the midst of a serious economic downturn,” the White House report said. “The long-term deficit outlook remains daunting.”

Also, a little tidbit from the Fed's Fisher today (reuters):

Dallas Federal Reserve President Richard Fisher said on Wednesday the U.S. economy is poised for a slow, sluggish recovery as it emerges from a painful recession.

"We're beginning to see indicators that we're coming out of this," he said in an interview with the Dallas Morning News."I think it will be a while before businesses rehire or increase pay," he said. Consumers are also likely to be cautious before starting to spend again, said Fisher, who is not a voter on the Fed's interest rate setting panel.

"They're all going to be very, very conservative on that front until they feel comfortable that we have a global economy that is proceeding," he said. "I think that will take some time." Fisher said he believes the worst declines may be over for residential investment, inventories, exports, and possibly consumption.

What I'm Reading

2009-08-24T11:22:00.007-06:00

Like many investor/blogger types, I am constantly reading a few books. My lack of trading recently has given me even more time to plow through some books. I figured I give a quick update of what I'm reading. There's a good shot I'll review some or all of these books.

Adventure Capitalist by Jim Rogers. Story of Jim's journey around the world with his modified Mercedes convertible. He shares stories of the culture in various countries, and in particular conditions for investing. One might say a book written six years ago about where to invest is outdated. But the beauty here is Rogers is always thinking with a longer time horizon than most, and he's often quite early on trends, so its actually a perfect time to be reading this book.

The Snowball by Alice Shroeder. This is the authorized recent bio about Warren Buffett. Its quite lengthy (as many biographies tend to be), so I've been taking my time with it. It covers it all, from his childhood habits and the beginnings of a great investor, to current events. I'm most interested in the war stories and how he made his successful investments more than family history etc, but this is an interesting book if you're a Buffett fan.

Active Value Investing: Making Money in Range Bound Markets by Vitaliy Katsenelson. Just started this one. I've been aware of it for awhile, but haven't had the chance to pick it up until recently. I'm excited about this one as Vitaliy is a very smart guy, and I tend to subscribe to this style of investing. Not much else to say as I'm barely into it.

If you've read these and have an opinion, feel free to comment. Otherwise, if you're interested in reading them, I've supplied the links to find them on Amazon.com. Thanks!

I'm Still Bullish on Frontier Markets

2009-08-24T07:30:00.003-06:00

I want to preface this by saying I'm not as bullish on "frontier markets" as I am on "emerging markets". (I define frontier markets as Africa, the Middle East, Eastern Europe; I define emerging markets as the BRIC countries, and a few others). But while the frontier markets were marked down especially hard in 2008, I'm still bullish on their outlook. Many are resource rich, and with political stability, their economies will grow. Keep in mind also that I have a very long time horizon until retirement, and can afford to be patient with investments like these. I do own T Rowe Price's African and Middle East Fund (TRAMX). A recent development for them (within the past year) is that they were allowed to buy shares in Saudi Arabia, which is one of the most attractive countries to invest in in that region. Although for the time being these countries mostly follow oil prices and the subsequent boom of the economy in areas like Dubai, I feel over time we'll continue to see more diversification, which will attract more investors.

I saw this note out from Goldman Sachs regarding UAE banks today (via Bloomberg):

United Arab Emirates’ banks may rise an average of 30 percent in a year as earnings “remain attractive” and valuations catch up with the emerging markets average, Goldman Sachs Group Inc. said.

Valuations of six out of the top seven U.A.E. banks that Goldman Sachs covers are likely to improve to 1.2 times their estimated 2010 book value from about 1 as they catch up with the peer average in Turkey, Russia and South Africa, Goldman Sachs’ analysts led by William A. Mejia said in an August 21 report e- mailed today.

Shares of the banks, which include Abu Dhabi Commercial Bank PJSC, First Gulf Bank PJSC, Dubai Islamic Bank PJSC and Union National Bank PJSC, have already risen by 55 percent this year, although they are still about 50 percent lower than they were a year ago, the report said. Emirates NBD PJSC, the nation’s largest bank by assets, and second-ranked National Bank of Abu Dhabi PJSC, will face higher non-performing loans this year and a “more challenging” funding environment that will hurt growth, the report said. Although borrowing costs will stay high and slower loan growth will hurt revenue, banks’ “profitability levels in general will remain attractive,” the analysts said.

“There is little to suggest U.A.E. banks should trade at a significant discount to global peers,” the report said.

Goldman Sachs raised its rating on Abu Dhabi Commercial Bank and Dubai Islamic Bank to “neutral” from “sell” and cut National Bank of Abu Dhabi to “sell” from “neutral.” It reduced its rating on First Gulf Bank to “neutral” from a “buy.”

Market Continues to Rip...Nat.Gas Does Not

2009-08-21T08:16:00.004-06:00

This market is continuing to rip higher mostly on the back of financial stocks, but pretty much everything is going along for the ride. Except natural gas, of course, which just happens to be one of my largest holdings. Natural gas prices have now moved to seven year lows as supply numbers continue to come in high. I'm not too worried, however, because we're dealing with a commodity that is necessary. We're not talking about some junk stock that just reported bad earnings. Now that the market is convinced a recovery is at hand (I dispute the size of the recovery, as the market is pricing in a fairly strong one), its only a matter of time before gas prices start to rise again. Industrial and commercial demand is the driver of usage right now, and if we do see a recovery, usage is going to jump. Although its been a cooler summer, and the hurricane season hasn't been active yet, I still think we'll see benefit heading towards, and especially into 2010.

Of course my strategy of waiting for a correction to buy heavier into stocks isn't looking great right now, but I have plenty of patience. There are a handful of stocks out there I like, and I've been discussing them over the past few weeks. I'm just playing the waiting game for a bit, and I think I'll be paid off for my patience.

Disclosure: Long UNG

Contango Oil and Gas Update/Lease Bid

2009-08-20T09:18:00.004-06:00

I saw this press release out from Contango Oil and Gas (MCF) regarding their apparent high bid in lease blocks in the Gulf of Mexico. I like the fact that they are using depressed prices to go out and find opportunities to pick up more assets. We also got some commentary from management in this release as well:

Kenneth R. Peak, Contango’s Chairman and Chief Executive Officer said, “We plan to spud our Ship Shoal 263 prospect (“Nautilus”) around November 2009, and our Matagorda Island 617 prospect (“Dude”) in early 2010. Our Matagorda Island 607/616 prospect (“El Duderino”) may or may not be drilled, depending on the results from our Matagorda Island 617 well. Each of these prospects has an estimated dry hole cost of approximately $15 million. Assuming we were to drill three prospects by June 30, 2010, our fiscal year-end, and all three wells were dry, our projected after-tax capital outlay would be about $30 million, or equal to our current cash on hand. Assuming one of these prospects was to be successful, our estimated all-in after-tax finding and development cost for these three prospects would be about $2.00/Mcfe and we would expect to add reserves approximately equal to our anticipated fiscal year 2010 production.”

Mr. Peak continued, “With the natural gas futures market trading at a seven year low, it is no surprise that this year’s Western Gulf of Mexico Lease Sale attracted half the bidders on half the number of blocks and half the dollar value of bids, as last year. This is really good news. Cheaper leases, rig rates, pipe and services are good if you are drilling and Contango will be drilling. If natural gas prices continue to decline, as many believe, we would expect to be presented with even better opportunities. Our strategy remains unchanged - we intend to continue to explore, protect our balance sheet and use periods of stock weakness to continue our share repurchase program. Since the Company first announced its $100 million share repurchase program in September 2008, we have purchased 1,224,354 shares of our common stock at an average cost per share of $42.30, for a total expenditure of approximately $51.8 million. Our fully diluted share count now stands at 16.5 million shares.”

These companies may well be the best way to play natural gas as they can make money even was gas at these prices, and make even more if prices rise. I'm still waiting until earnings from Contango before I make any move here. There are a lot of small to medium sized gas companies out there, but this was the only one I could find with net cash on the balance sheet. As I've discussed before, companies that have not gotten over-leveraged will come out of the recession stronger than their peers due to flexibility. They can buy assets at below market value and won't be at the mercy of creditors if conditions deteriorate and effect operations.

Disclosure: None, but taking a look.

China Syndrome

2009-08-19T12:44:00.003-06:00

For the second time in a week, a sharp drop in Chinese shares have shaken US markets. Today Wall Street decided that that is old news, and we've seen some buyers step in. China has had a strong surge off the bottom in its markets, so its only natural that there will be some bumps along the way. As China gains more importance in the financial realm, we will continue to become more affected by what happens in their markets.

With stocks slowing up a bit, I've started to get closer to buying some shares. I still expect a decent sized to correction, and plan to use that to do a healthy amount of buying. Many voices that I respect have been calling for this (or something like it to happen). Paul Tudor Jones recently said stocks are in a bear-market rally. David Einhorn recently sold some long positions and added a large position in S&P puts (could just be a trade there though). And there have been a handful of others.

I do agree with what Todd Sullivan has been talking about with regard to active value investing. This theory comes from Vitaliy Katsenelson, and his book Active Value Investing. There's a lot of good info in his writings, and I urge you to take a look.

Interesting Reading-Wednesday

2009-08-19T09:35:00.003-06:00

Investors Pile Into Stocks as Risk Appetite Jumps. Contrary indicator?

The Greenback Effect (Warren Buffett's Op-Ed). Weird timing on this one. I don't think anyone has missed the story about the exploding deficit. But, when Buffett speaks, people listen, so its good that he brought it up.

Favre's Return to NFL May Boost Vikings on and off the Field. As a Viking fan, I couldn't help myself. Sorry.

Interesting Reading-Monday

2009-08-17T08:52:00.002-06:00

Goldman Sach's Cohen Says Recession is Ending 'Now'. I'm sorry, but I don't listen to perma-bulls. Or perma-bears for that matter.

Hurricane Bill Strengthens in Atlantic as Storm Ana Weakens. When holding natural gas, we have to keep an eye on the hurricane activity.

Lowe's Gives Dismal Quarterly Outlook. My money is on Loews, not Lowe's.

No Respect? Cheap Natural Gas Draws Political Crowd. Washington is so behind the curve on energy issues, but eventually, they'll catch up and realize that natural gas is right there for the taking. Its clean(er), its domestic, and we have plenty of it.

Interesting Morning

2009-08-17T07:22:00.002-06:00

First off, we have futures lower by almost two percent. I've been expecting a correction now for awhile, and maybe this is the start. I'm not overly bearish, but rather feel stocks have gone too far, too fast. Thus, I'll be looking to buy some stocks if we get the opportunity at better prices. For that, we'll have to wait and see a little.

At the end of the week, the quarterly filings came in and there were a couple of things that jumped out at me. A few fund managers I follow are clearly growing more cautious. Many were trimming stakes in their larger positions. David Einhorn of Greenlight capital bought some puts for the S&P and GE. He also added a lot of shares to his Pfizer and Wyeth stakes, although that could be tied to some arbitrage on the pending acquisition. Warren Buffet moved into a more defensive position, adding to his Johnson and Johnson stake. We can't read too far into these filings as these stocks could already be sold, but its nice to spot any trends out there, and see what their core holdings are.

Should be an interesting week ahead. A quick wrap up on the PGA Championship. Congrats to Y.E. Yang, as he deserved it. The chip in on 14 was a little flukey, but that shot on 18 was money. Tiger is a better golfer, but you can't take this one away from Yang. To me, Tiger is so used to the field wilting to him that it was nice to see this. I was excited when Yang eagled 14 because I thought, "good, lets make Tiger win by pulling out some birdies, not just two-putting in." Oh well.