Thursday, May 15, 2008

Last Post

Due to a future commitment, I will no longer be able to post articles on this blog. I would like to thank everybody for their support.

Best of luck,


Wednesday, April 16, 2008

Adding Nucor (NUE) & Selling Agriculture Strength

I made a few moves today. Towards the close I sold calls against some agricultural positions. Shorter term (next couple of trading sessions) I expect the agricultural stocks to come in a bit. I have been bullish on Mosaic for a 170% gain since October 3rd and have liked Terra (TRA) & Terra Nitrogen LP (TNH) for almost a year.

The infrastructure boom cannot be ignored. I am currently holding McDermott (MDR) and Vale (RIO). Today I added Nucor Steel (NUE) to the portfolio. I also considered US Steel (X), but felt that Nucor is better managed (higher operating margins and return on equity) and is also less expensive based on forward earnings estimates. US Steel is also a bit more volatile with a Beta over 2.50. Nucor reports earnings before the open tomorrow.

Monday, April 14, 2008

Energy, Ags, & Infrastucture

The only three areas that continue to work are energy, ags, and infrastructure. I see no compelling reason to own a financial. My current exposure to the financial sector is through Banco Bradesco (BBD). Wachovia's earnings miss today confirms that no bank is safe. Thornburg Mortgage (TMA) is virtually operating in bankruptcy. TMA's convertible debt offering had an exercise price of $0.01 per share.

The bottom line...

Stay long McDermott (MDR), Diamond Offshore (DO), Petrobras (PBR), Chesapeake Energy (CHK), Terra Industries (TRA) Monsanto (MON), & Mosaic (MOS).

Note: I am long MDR, DO, CHK, TRA, & MOS

Tuesday, March 11, 2008

Stocks Bounce

Today's decision by the Fed to allow certain types of debt, including mortgages, to be used as collateral in exchange for additional borrowing from the Fed helped stocks rally. The move is seen as stabilizing the mortgage markets. This may be an opportunity to get out of some of the financials on the bounce. It should be interesting to see how the markets trade the rest of the week.

As a side note, you can view CMBX Indices on the web.

Sunday, March 02, 2008

Are Commodities Recession Proof?

Gold, oil, most of the other precious metals, and the agricultural commodities continue to make new highs. Is this a bubble? I wish I knew the answer to that. I continue to remain bullish on commodities. There are two main scenarios for why commodities will trade higher regardless of how the U.S. economy proceeds.

Scenario #1
U.S. Economy enters a recession. The Fed continues to cut rates, further eroding the value of the US dollar. This means it takes fewer Euro's, Yen, and just about every other major currency to purchase more commodities that are denominated in dollars. This will lead to an increase in demand for commodities.

U.S. Economy has "bottomed," interest rates remain constant or move higher, and the U.S. GDP picks up. An increase in GDP will further increase demand for commodities. The dollar should strengthen, but demand will remain robust due to economic growth.

Stocks to Own
  • Natural Gas: Chesapeake Energy (CHK)
  • Contract Drilling: Diamond Offshore Drilling (DO)
  • Crude Oil: Petrobras (PBR)
  • Fertilizer: Mosaic (MOS) & Terra Industries (TRA)
  • Metals: Vale (RIO) & Rio Tinto Alcan (RTP)
  • Uranium: Cameco (CCJ)
  • Solar: Sunpower (SPWR) & MEMC (WFR)
Pure Commodity ETF's
  • Powershares DB Agriculture Fund ETF (DBA)
  • iShares Silver Trust (SLV)
  • streetTRACKS Gold (GLD)
  • US Oil Fund (USO)
  • US Natural Gas Fund (UNG)
Note: I have positions in CHK, MOS, TRA, & RIO

Tuesday, February 05, 2008

ICE Attractive On Pullback

The Intercontinental Exchange (ICE) has now pulled back to a more attractive level. ICE now trades at 19X forward earnings. I continue to like the exchange sector. As more volume moves electronic, volumes and margins increase for ICE. Futures clearing is a great business to be in. With the CME's $11B bid for the NYMEX (NMX), ICE is likely the next exchange to be bought.

Note: I am long ICE & NMX

Wednesday, January 23, 2008

Wait & See

The recent market volatility suggests more of a wait and see approach. Timing the market is difficult and near impossible. I would like to see how the market trades the next couple of days before going long or short.

Wednesday, January 09, 2008

Agriculture Continues to Deliver

The Mosaic Company (MOS) reported a terrific quarter today. Besides handily beating analyst earnings estimates, Mosaic prepaid $450M of debt with cash flow from operations. Mosaic has seen quarter over quarter price increases in its fertilizer products.

Last week, Monsanto (MON) reported a tripling of net income in its most recent quarter. Again further demonstrating the strength of the Agriculture cycle right now. Clearly a lot of the good news has been priced in to these stocks. Mosaic shares finished up .72% on the day. Taking some profits in the fertilizer and seed stocks would seem prudent.

Note: I am long MOS and have no position in MON

Thursday, December 20, 2007

Agriculture & Infrastructure Continue to Work

Despite the bearish economic sentiment in the overall market, there are several sectors that continue to outperform. Every individual investor should have some exposure to agriculture and infrastructure. Both sectors are in the middle innings of their individual "bull markets" and are under-owned by many investors. I have mentioned several of my favorite names before and will mention them again.

CF Industries (CF)
Monsanto (MON)
Mosaic (MOS)
Potash (POT)
Terra Industries (TRA)
Terra Nitrogen (TNH)

Fluor (FLR)
Foster Wheeler (FWLT)
Jacobs Engineering (JEC)
McDermott (MDR)

Note: I am long MOS & MDR

Thursday, December 06, 2007

Retail Sales

Today's higher than expected retail sales numbers should be interpreted cautiously. Overall, the numbers were mixed and many companies reporting positive November sales lowered their December forecast.The percent increases in sales were impressive at many department stores driven by successful "Black Friday" promotions. High sales are a good sign. The question is at what price? How compressed did the margins get to generate those sales? The higher end stores will come out ahead of mid-tier retailers like Macy's (M) and J.C. Penny (JCP).

Retail stocks have seen some serious multiple contraction this year. This is in anticipation of higher discounting and a thriftier consumer. I agree with what the market is saying and I would continue to avoid the sector.

Note: I have no position in JCP or M

Tuesday, November 20, 2007

Engineering & Construction

One space that has interested me is the engineering and construction (E&C) industry. There are several major players in the E&C industry (KBR, FWLT, SGR, FLR, JEC, NRG, & MDR). On pure valuation basis, McDermott (MDR) looks like the most attractive company to own. McDermott has an $8B backlog of orders for the construction of power plants, deep water drilling rigs, and nuclear projects with the U.S. government.

McDermott is in the sweet spot of the E&C industry. Offshore oil rigs command higher day rates for drillers and are extremely profitable for McDermott to build. McDermott's experience will be crucial in winning future construction contracts.

The growing global demand for electricity has mostly been driven by population growth. Another contributing factor has been technological innovation. There are now more computers, TV's, cell phones, servers, and mp3 players that demand power. The power infrastructure has been one of the most neglected industries in the world due to tight regulation of electricity rates. As rate freezes end and CO2 regulation could begin, McDermott will be busy retrofitting existing coal power plants with scrubbers and upgrades. McDermott has the expertise in nuclear, coal, and oil to handle the infrastructure upgrade cycle. Over the next three years McDermott will be the E&C stock to own.

Note: I am long MDR

Wednesday, November 07, 2007

Credit Situation Worsening

I felt that most of the credit crisis was behind us after the first interest rate cut in September. Today's market reaction paints a darker picture about the credit crisis. It's important to remember that residential mortgage rates are tied to the 10-year yield, not the Fed Funds rate. Cutting interest rates further would help the mortgage crisis, but won't solve it.

Technology, agriculture, and energy look attractive at current levels. Some long term value could be found in retail. Coach (COH) is starting to look attractive. The problem is that the institutions are avoiding retail like the plague. Calling a bottom in retail is tough with higher gas prices looming. Mosaic (MOS) is still my favorite agriculture stock to own.

Note: I have no position in COH. I am long MOS

Saturday, October 20, 2007

Use Weakness to Buy Quality

The recent market weakness has provided a great opportunity to initiate positions in high quality companies. Global agricultural demand will not be affected by problems in the credit markets. Demand for wheat, soybeans, corn, and rice will continue to remain strong. The best stock to own is Mosaic (MOS). Owning shares of Mosaic will give you exposure to crop nutrients and fertilizers. Earnings should grow 15% annually for the next three years. Mosaic has already prepaid $700M in debt since 2005 and has signaled to the markets that cash flows will remain strong. Compared to its peers, Mosaic is undervalued and should be accumulated on any weakness.

Note: I am long MOS

Monday, October 01, 2007

Invest Globally

The Fed's policy of fighting the subprime crisis with lower interest rates means higher returns for international stocks held by US investors. Lower interest rates in the US is keeping the US dollar index at historic lows. Therefore it will take more dollars to buy foreign stocks.

The conservative approach would be to invest in developed international stocks. The best way to do this would be to purchase shares in the iShares MSCI EAFE ETF (EFA) or the Vanguard Europe Pacific ETF (VEA).

The more aggressive approach would be to invest in international stocks of emerging countries. I would consider looking at iShares MSCI Emerging Markets ETF (EEM) or the Vanguard Emerging Markets Stock ETF (VWO).

Personally, I prefer owning particular stocks over the ETF's. I currently have positions in CVRD (RIO), Banco Bradesco (BBD), and CNOOC (CEO).

Wednesday, September 12, 2007

China + Crude Oil = Momentum

If you have been following the energy markets lately you would have noticed that Light Sweet Crude hit an all time intraday high of $80.17 in electronic trading today. Whether the U.S. economic slowdown will put downward pressure on oil remains to be seen. I remain bullish on oil and crude oil trading volume. I am long both the NYMEX (NMX) and the Intercontinental Exchange (ICE). The global growth story will remain bullish for energy trading and demand. Today I increased my energy exposure with the addition of CNOOC (CEO), a Hong Kong based diversified energy company. CEO is more of a technical trade as it is one of the few energy stocks making 52-week highs.

Publicly Traded Chinese Energy Companies (Market Cap)

PetroChina (PTR) $260B
China Petroleum & Chemical Corp (SNP) $93B

I am long CEO, NMX, & ICE

Saturday, September 01, 2007

Selling This Strength

I have used the recent market strength to exit several positions. I closed my positions in Silver Wheaton (SLW) and Arcelor Mittal (MT). I still remain bullish on metals but I would like to see more attractive valuations before committing money to the sector. I also closed my position in Terra Nitrogen LP (TNH). I would consider reentering TNH below $85.

Wednesday, August 22, 2007

BofA Boosts Banks

Bank America's decision to make a $2B equity investment in Countrywide (CFC) shows that there is value in the banking sector. I still remain cautious about the sector as a whole and would be hesitant to put money to work in the financials. I continue to hold shares of subprime lender Accredited Home Lenders (LEND).

Note: I am long LEND

Tuesday, August 07, 2007

An Accredited Gamble

Today I got long Accredited Home Lenders (LEND). Accredited is a subprime lender that actually has a bid from Lone Star V, a private equity fund. Lone Star bid $400M or $15.10 for Accredited on June 4th. LEND now trades under $7 a share. Technically there is 115% upside from the current price. The fact of the matter is that Lone Star is legally obligated to buy LEND and had all the necessary inside information before making its bid. The deal is expected to close by October but the market is pricing in some risk that the deal won't get done or will be repriced.

Note: I am long LEND

Wednesday, August 01, 2007

So Much For American Home Mortgage (AHM)

In March I believed that American Home Mortgage (AHM) was safe from the subprime fallout and I wrote positively about the stock on March 18th. I wouldn't touch the stock now. I did say to realize profits on March 21st. I admit I was wrong about AHM and in today's current environment I wouldn't touch any stock that has a residential mortgage unit.

Some Stocks to Avoid
  • Annaly Mortgage (NLY)
  • Countrywide (CFC)
  • Freemont General (FMT)
  • Impac Mortgage Holdings (IMH)
  • NovaStar (NFI)
  • Redwood Trust (RWT)
  • Thornburg Mortgage (TMA)
  • Wells Fargo (WFC)
Note: I have no position in any of the above stocks.

Monday, July 16, 2007

Alternative Energy

I have always preferred to own oil and gas companies over stocks related to alternative energy. Mostly because alternative energy companies are highly dependent on the federal government for subsides to run a profitable business. Now many solar companies are publicly traded and less dependent on the government. The best way to play the growth of solar energy is to own MEMC Electronics (WFR). They manufacture the polysilicon for solar panels.

My second alternative energy stock is NRG Energy (NRG). NRG develops and manages power plants. The US power grid will need to be updated and NRG stands to benefit. NRG is a diverse company with operations ranging from energy trading, distribution, and generation. NRG will be a key player in the "clean coal" IGCC initiative as well as nuclear power.

Note: As of 7/16/07 I have no position in NRG or WFR

Sunday, July 08, 2007

Google's Pay Per Action Should Help The Bottom Line

In late June Google (GOOG) launched a new way for publishers to make money. Through the Google Adsense Network, publishers can receive compensation for sending a visitor to an advertiser's web site only if the visitor completes the specified task by the advertiser. For example, a publisher would only get paid if a visitor completed an online form or purchased a product. Publishers won't get paid for simply redirecting traffic.

This is great for the advertiser because they now have a direct way to calculate the ROI on their ads. In the end this will be a big win for Google because of the large base of publishers and advertisers already in their advertising network. Pay Per Action commands more dollars then regular clicks and should cut down on fraud since the tasks need to be tracked.

From an investment perspective, Google seems to be fairly valued at these levels. I would be a buyer on any weakness.

Google Press Release

Note: I am long GOOG

Saturday, June 30, 2007

Take Profits In RIMM

I have been bullish on Research in Motion (RIMM) for a while. The stock is up 32% since I recommended buying shares of RIMM on May 21st. It has been a great trade and it will continue to be a great stock to own over the next 6 months. It would be prudent to lock in some gains.

Note: I am long RIMM

Tuesday, June 19, 2007

Buy Dips in the Exchanges & Brokers

The derivative exchanges remain strong buys with continued consolidation in the group. I would be buying any weakness in Nymex Holdings(NMX), Intercontinental Exchange (ICE), and the Chicago Merc (CME).

For the longer term I even think you could buy the potential acquirers today. Both the NYSE Euronext (NYX) and the Nasdsaq (NDAQ) have been discounted to do an acquisition. The NYSE trades at just 24X forward earnings while the Nasdaq only trades at 18X forward earnings.

Note: I am long NMX

Sunday, June 10, 2007

Stay Long The Agriculture Stocks

Corn is approaching $4 per bushel and soybeans are again closing in on their highs. Higher commodity prices allows farmers to spend more money on new equipment, higher yielding seeds, and better fertilizers. I like Deere (DE) and Caterpillar (CAT) in the equipment space. Monsanto (MON) is the seed play. Potash (POT) and Terra Nitrogen (TNH) are my favorite fertilizer stocks. All of these companies will benefit from increased agricultural spending over the next 12-18 months.

Note: I am long TNH

Wednesday, May 30, 2007

Portfolio Holdings

Top Five Largest Holdings as of 5/30/2007

1. NYMEX Holdings (NMX)
2. Silver Wheaton (SLW)
3. Chipotle Mexican Grill (CMG)
4. Cerner Corporation (CERN)
5. Corrections Corp of America (CXW)

US Stocks 80%
International 20%

Large Cap 24%
Mid Cap 63%
Small Cap 13%