Tuesday, March 31, 2009

ETF Dreams & Nightmares




I believe someone with a loud voice should pull the curtain from behind the ETFs and let us all see what's going on with them because in case you aren't paying attention, many of them don't work. I think there just another way for bankers to make money.

Case in point, the financial ETFs are the biggest offenders and perpetrators in this area. XLF, FAS, SKF, and FAZ are among the most highly traded ETFs in the market. You would think for that reason alone the pricing and valuation would make more sense than in some thinly traded ETF. Wrong.

Have a look at the accompanying chart and draw your own conclusions. The chart shows the return for the four ETFs year to date. Question, if some are long and some are short (2 and 3 times short), how is it all are in the red for the year (3 months)? There's more going on there than meets the eye. Treat these things like derivatives even though they trade like stocks (more risk than meets the eye.

These are better as volatility or momentum plays. So when there are days and days of buying or selling in the sector, there's an opportunity to profit or lose, A LOT. Other than that, retail investors should avoid.

By the way, my point is that these things are for the average retail investor.

CLICK ON THE IMAGES TO ENLARGE

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Thursday, March 26, 2009

Model Portfolio

I've been thinking about and asked about a model 2011 portfolio and here it is as I see it. I had a few things in mind for my portfolio. This isn't a trading portfolio, but rather a good portfolio for the IRA or any intermediate to long term portfolio. I realize 2011 isn't 'long term', but this is 2011 and beyond. Notice, it's all stock and don't tell me it's too risky, because when companies like GE are taken out and nearly shot, everything has gotten risky. I ruled out any company that might not be around, like Ambac or Fannie. Growth was important and yield was a bonus. I especially like companies that happened to just be caught in the downdraft. Household names that were the subject of negative rumors, but remain sound companies were given special attention.

This is a $20,000 hypothetical portfolio where the funds are split evenly among the 10 names. The far column is the suggest highest entry price and I suggest buying at the lower of the entry price or the current price. We've had a pretty powerful run-up, so even though many of these names are trading below the suggested price, I'd wait for a general market pull back.

The project growth is the project company growth(i.e. sales and earnings), not stock growth. Notice I give no target price, as I'd look to re-evaluate in 2011. These are interesting times and there are many names that could have made my list, but I believe these companies represent exceptional value. Other companies I considered were GE, Cliffs Natural, Petrobras, Apple, and Metlife. Type any of the names on this list in the search engine on this site for company specific information.

It's good to note that the projected growth of these companies should increase substantially over the next year, so while you may be looking at a projected 5 year per annum growth of 15% now, next year that may be 25%.

I won't go into a lot of detail on the individual names, as this post is long enough, but email or comment if you'd like to know more.

Disclosure: Long all names except MOS at the moment.

CLICK TO ENLARGE IMAGE

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Window Dressing or Something More?

So are we looking at end of quarter window dressing or are we going higher for good? This is most likely a bear market rally, but if you got in during the last sell off you'll probably do well to hold at least through early next week. This is fairly typical, as we've had a couple of really good weeks toward the end of the quarter so funds may be looking to dress up their portfolios.

Some of the names I've talked about recently have done quite well, like the insurers, commodity related stocks, and sierra wireless. I'm a long term holder of stocks like these, but I would be looking to take up short positions in the big banks early next week, as I believe they've gotten carried away with this talk of returning the TARP money.

They still have major problems and are talking about throwing back the life line.

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Friday, March 20, 2009

Value & Growth?

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After being asked, I decided to post a list of some of my favorite stocks that fall into both the 'value' and 'growth' category. These are strange times and these are just a few of the stocks out there. I remember days when a company's stock was in one (value) camp or the other (growth). So here they are and a few things to note. Most of the metrics probably look familiar to most viewers except maybe the PEG ratio which is the price to earnings growth ratio and the last column, oper cf to equity and debt. A PEG ratio of less than indicates the a company's earnings per share are growing faster than the company's stock price. The last column is a good indicator of the value of a company's core business to the perceived value in the market place, as well as how well the company utilizes capital (equity and debt) - higher numbers are better here. Also I listed quite a few different metrics, as some metrics have more importance to some industries.

I went through and placed an asterisk by the standouts for each metric. I took the top 3 and each has it's own story. Aflac is the standout and I believe best on the list. It generates plenty of cash to service the relatively small amount of debt, it's projected to growth at 14% per year for the next 5 years, earnings have been revised up and it's yielding over 5%!
Sierra Wireless is another standout. I can't think of a better pure value play. It's been on a few lists lately as a great value stock. It trades at a discount to cash and has zero debt! This is one I don't understand and believe it will be bought out if it lingers down here for long.

Lastly, Genworth is one of the most beaten down highly traded stocks. The insurers have been killed as a group and my readers know how I feel about the insurers and the sham rating agencies. For starters this company is actually going to make! It's projected to grow 14% per year over the next 5 years. While I understand it has a large amount of debt, it also generates plenty of cash to service it. I believe when the traders move on to another industry this will rise quickly. Be advised, it's the riskiest of the 3, but the potential rewards are 10x. Think 2011.

Some of the other stocks are nice as well. NYX is a nice balanced play with a nice yield, growth, and business that isn't going anywhere. Hartford, just another beaten down insurer that will be around years from now. Arch Coal, I believe coal is the commodity to be in over the next few years and Arch is the number 2 coal producer in the US. Not much I can say about RIMM. Great growth story, no real debt, trading at a fraction of the price it will be trading at in 2-3 years.

CLICK ON THE IMAGE TO ENLARGE

Disclosure, I'm long in some way every stock on the list and plan to be in them for about the next 2 years

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Tuesday, March 17, 2009

Trading & Driving

It's often said that good traders and investors are both disciplined and patient. The same can be said of drivers. Have you went long a stock only to watch it not do much while the market moves around a lot? Then you sell and move to something that's exhibited a good deal of volatility and moved up a lot. Then what you just purchased sells off and the first stock begins showing signs of life. You scratch your head and think some unseen force or shadowy figure must be playing with YOU.

Now, we've all been sitting in heavy traffic and looked over at the lane next to ours and watched traffic moving along while we sit. We switch lanes and don't you know as soon as we do that our old lane takes off and our new lane sits.

Both of these people tend to get to where there going after everyone else, or at least no sooner and they suffer more stress. Sometimes stocks lie dormant while attention is focused elsewhere, but eventually fundamentals move stocks (mid and long term). Gossip, rumors, speculation, fear, ect. move stocks in the short term. So decide whether you're a thrill seeker with cash to burn or an investor.

There's a huge difference between traders and investors. Most people are/should be investors, as they have day jobs, but they behave like traders. Retail traders tend to LOSE. All the data supports this. They lose in the short and long term. Disciplined retail investors tend to make money. If you're an investor, stop constantly switching lanes looking for the shortcut home. Find a good lane based on your experience/research and you'll get home before or no later than your neighbor.

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Friday, March 13, 2009

TARP/TALF Hostages

The Treasury needs to get on with it. Either approve or deny a company's request for money within a reasonable amount of time. These are a few of the companies basically being held hostage by the Treasury; Etrade, Hartford, Lincoln National, and Genworth. The Treasury gave some of their competitors cash, so why the wait on these companies? It may end up being a blessing in disguise. Should the markets relax sometime soon, they won't need the money, except maybe Etrade, and with how TARP/TALF companies are being scrutinized and roasted daily, I'd say those that get by without the help will have some pretty valuable marketing material going forward. A list of TARP/TALF recipients can be found here http://www.ustreas.gov/initiatives/eesa/transactions.shtml

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Sunday, March 8, 2009

Bear Raid/Pump & Dump Report

After Friday's shenanigans with Apple, I thought I'd write about something that everyone knows has gone on and continues to go on, bear raids on companies and the old pump and dump scheme. A bear raid happens when market participants with deep pockets go after a company's stock by short selling relentlessly, starting and propagating rumors, entice/encourage/coerce analyst to downgrade, and this is of course after they've purchased puts and/or taken up an initial short position. The good old pump and dump happens when these dubious characters start a positive rumor, get analyst to chime in with positive reviews and upgrades, then after the stock has run up a bunch, they let the air out of the sails by letting the world no that it was only a rumor. Of course they had long positions on before the rumor and sold at higher levels during the buying frenzy and possibly turned around and went short.

I've created a list of stocks that fit the bill. All the stocks on the list are actually going to make money this year. They're all trading at a mere fraction of their 52 week high. They've all been the subject of vicious rumors. GE most recently has been rumored to be near collapse, all of the insurers are said to be going out of business any hour now, and the mining and material names have suffered more as a group than any. And GE with over $30 bil in free cash flow! Remember these rumors "...insurers to get TARP money any day..." and "...US Steel to be taken over...".

Regulators have made it easy to raid a company's stock by not enforcing the naked short rule and eliminating the uptick rule. Anyone who says these things don't matter either don't get it, or don't want to get it.

I left the banks off of the list, as there's too much going on with them to get into it. Recall over the same year period, the S&P is down about 52% from it's 52 week high. So, here's the list. This list also doubles as a seriously undervalued list.

Beware of these tactics - stocks moving on word of something big happening, but the source is unknown, increased volume in the stock and options, large hedge fund activity/interest in the stock (check the 'major holders' section), then the hammer drops with a minuscule cut in earnings and no sound reason for a downgrade.

The market has become treacherous for retail investors and it's best to be informed and remember, never stand in front of a moving train.

CLICK ON THE IMAGE TO ENLARGE. If any one reading knows of any prime time candidates worthy of adding to the list, sound off.

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Friday, March 6, 2009

Irrational

Stocks like GE, Metlife, Microsoft, and Intel are trading at unreasonable levels. Microsoft actually yielding over 3% and Intel over 4%. Bets that GE is going to $2.50 and bets that Metlife is going down for the count. And today some analyst lowers his guidance on Apple by ONE CENT and the stock is taken down hard.

Don't believe the hype. The same players responsible for rumors and worse are buying at these levels. All the companies above actually make money and have solid balance sheets. Get set up for 2011. Am I paranoid, or does someone else agree with me?

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Thursday, March 5, 2009

Dry Bulk Index

Have a look down below at the dry bulk index. It's tripled from it's lows. Get ready for the run up in commodities over the next 3 years. Stocks related to commodities like coal, iron ore, and agricultural names should do nicely. See my previous post.

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Rating Agencies

Why have the rating agencies? First, they didn't want to do their jobs, now they've decided since they can't be investment bankers, they may as well throw gasoline on an already raging fire. Why threaten to downgrade a company's credit rating, just do it. The rating agencies have to be the only people hiring these days because about every 30 minutes they're downgrading something or someone. Anyway, gold has had a nice pullback. See GLD, the gold ETF. It was approaching 100, but now under 90. Worth a look, as gold should be one of the few safe harbors when the dollar comes tumbling down over the next 2 years. Gold and other commodities. By the way, are you watching the dry bulk index! Can someone give me a good reason why we should have the rating agencies?

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Monday, March 2, 2009

Big Bank Dance

For those that don't follow my http://seekingsigma.blogspot.com/ where I've talked about the banks, there's something I call the bank dance. AIG did it first (yes, I called them a bank), now Citi is doing the AIG dance, BofA will soon do the Citi dance, then Wells will do the BofA dance. Those institutions are done. I used to actually work for one of them. I won't say which one. Poor management. What made them think they could or should become so large, even when it was apparent things were spiraling out of control. Greed. They risked everything.

Make money if you haven't already by buying puts on the next pop. I like the July 7 1/2 puts and Apr 10 puts on Wells. Citi and BofA are already cooked. By the way, I'd wait for the next move up, as puts are pretty expensive given we've been in a tailspin the past couple of weeks.

For those that don't have short positions or puts in their portfolio, think about it. You can't just be long these days. Going short is riskier than buying puts as long as you don't go all in. Also if you're portfolio is 'all in' or anywhere near 'all in', you need to hedge and using puts is a pretty straight forward way to do that.

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Cliffs

Before I get to my most recent highlighted pick, don't you love it when S&P or Moodys says they're thinking about downgrading the credit rating of a company. I saw that about 3 times today. What a joke. The threat is as good as the action. They say something like, "...if the stock price falls further, we may downgrade the credit to something lower than it currently is..." Then miraculously, the stock tanks, then the downgrade comes.

Anyway, Cliffs Natural Resources (CLF). Trading at about $12. I remember when this stock was trading at about $120 and I wanted in, but thought it was too rich. I purchased some at about $16 and under $12 for my retirement account.

Let's see, strong balance sheet, no significant debt due this year which is critical to riding out the storm, levered free cash flow positive (for those that don't know that's cash from operations minus cash spent on investment and interest on debt), they're actually turning a profit, and iron ore and coal prices have stabilized and are turning up. If it stays down here long, it may be bought. I'd rather own the iron ore/coal producer than the steel producer, as both are inputs to the steel industry so any pop in steel is seen here as well. Either way, it's near the top of my list at this point along with HIG.

THINK 2011. Both these stocks are 5 baggers, at least, and should they continue to pay dividends, that's just a bonus! Can anyone think of a better coal/ore play?

disclosure: long CLF, HIG

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The Vix

About This Blog

Where we rant and rave about the market and of course give our opinions on stocks we love or hate. We're not advisors and urge you to conduct your own due diligence.

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