Wednesday, December 26, 2007
Tuesday, November 20, 2007
Sell 200 Electronic Arts(Nasdaq: ERTS) $56.00
Buy 75 Centex (NYSE: CTX) $19.25
Buy 150 Pulte (NYSE: PHM) $10.25
Buy 50 Moody's (NYSE: MCO) $36.00
Buy 200 Countrywide Financial (NYSE: CFC) $9.00
Buy 25 Sears Holdings (Nasdaq: SHLD) $110.00
Monday, October 15, 2007
We made no changes to the portfolio in September. Meanwhile, housing related stocks including Sears Holdings (Nasdaq: SHLD) were hit hard in September dragging down the Model Portfolio’s performance for the Fiscal Year. Consider that at the end of August the Portfolio was outperforming the S&P 500 by 4.9% for the trailing 11-month period.
Earnings season is right around the corner. Perhaps Mr. Market will be so kind as to provide us with a few fat pitches.
Wednesday, September 12, 2007
August was turbulent for the markets to put it mildly. The S&P went on a roller coaster ride and based on an intraday low was down to the tune of almost 6% from its July 31st close. We raised more cash by exiting out of the Tyco spin-off companies and divesting ConocoPhillips (NYSE: COP) and Anheuser-Busch (NYSE: BUD). The Tyco companies should do well in the long run. But our thesis of buying the single stock prior to the spin-off had played out. In hindsight, we should have liquidated our position immediately after the split. Conoco had performed tremendously in the short period of time since we bought it and we will maintain our exposure to oil through Diamond Offshore Drilling (NYSE: DO). Finally, a cash infusion of $50,000 gives us more flexibility in building new positions or adding to existing ones without having to trim or altogether trade out of existing positions on a continued basis. Of course if we are not able to invest this cash, it will hurt the portfolio’s performance going forward. It should be emphasized that the goal of building a concentrated portfolio will preempt us from using this new found capital to add new positions without considering the opportunity cost of holding onto existing positions.
The subprime debacle presented us with great entry points into several stocks on our watch list. Moody’s (NYSE: MCO) was a new addition as well as Lehman Brothers (NYSE: LEH) and Countrywide Financial (NYSE: CFC). Please see Margin of Safety for more comments on these companies. Another new addition is Cadbury Schweppes (NYSE: CSG) which we have written about in the past. Worries about the disappearance of private equity bidders for the drinks division depressed the stock to levels too attractive to pass on. We also continued to add to our positions which have housing exposure in one way or another.
On the earnings front, Morningstar (Nasdaq: MORN) and Expeditors International of Washington (Nasdaq: EXPD) came through with stellar results. Morningstar is trading near all-time highs. Expeditors touched a 52-week high but could not sustain it and was probably caught in the market downdraft. CEO Rose did not disappoint and continued with his colorful commentary in the quarterly press release: "This quarter's results once again illustrate that steady growth is reliant upon both consistent and fundamental execution. We experienced good solid growth in all of our major geographic areas," commented Peter J. Rose, Chairman and Chief Executive Officer. "When Yogi Berra said, 'It ain't like football. You can't make up no trick plays' he was speaking of baseball, but he might just as well have been talking about the global logistics business. Indeed, there are no 'trick plays' or short cuts that can bail you out in this game. When the final box scores are published in this business, those who have attempted to rely on either have typically found themselves thrown out at home. While the spectacular, but intermittent, long-ball game may garner the headlines, it's the more tedious, but consistent, short-ball game that takes home the trophies," Rose said. Our kind of CEO.
Wednesday, August 01, 2007
Sell 75 ConocoPhillips (NYSE: COP) $81.00
Sell 100 Intel (Nasdaq: INTC) $23.40
Buy 150 Moody's (NYSE: MCO) $52.50
Buy 100 USG Corp. (NYSE: USG) $40.00
Buy 300 Mueller Water Products (NYSE: MWA-B) $13.00
Buy 50 Centex (NYSE: CTX) $35.00
Buy 100 Pulte (NYSE: PHM) $18.00
Buy 50 Home Depot (NYSE: HD) $37.00
August 15 2007
Sell 150 Anheuser-Busch (NYSE: BUD) $48.00
Sell 75 Covidien (NYSE: COV) $38.00
Sell 75 Tyco Electronics (NYSE: TEL) $33.00
Buy 50 USG Corp. (NYSE: USG) $36.50
Buy 50 Centex (NYSE: CTX) $32.50
Buy 100 Pulte (NYSE: PHM) $17.00
August 16 2007
Buy 50 Centex (NYSE: CTX) $29.50
Buy 100 Pulte (NYSE: PHM) $15.75
Buy 200 Mueller Water Products (NYSE: MWA-B) $11.90
Buy 50 Moody's (NYSE: MCO) $45.00
Buy 100 Home Depot (NYSE: HD) $32.5
Buy 50 Expeditors International of Washington (Nasdaq: EXPD) $43.50
Buy 100 Lehman Brothers (NYSE: LEH) $50.00
Buy 125 Cadbury Schweppes (NYSE: CSG) $42.25
Buy 300 Coutrywide Financial (NYSE: CFC) $17.00
Buy 25 Sears Holdings (Nasdaq: SHLD) $129.00
August 31 2007
Buy 200 Mueller Water Products (NYSE: MWA-B) $10.85
We used a portion of the proceeds to continue to build our positions in USG (NYSE: USG) and Pulte (NYSE: PHM) both of which were dragged lower as a result of the sub-prime and housing jitters. Sears Holdings (Nasdaq: SHLD) lowered its earnings guidance for the second quarter and announced a $1B buyback. The stock's decline from it's high was a good opportunity to add to our position.
Earnings for many of our companies began to trickle in throughout July. No major surprises. the homebuilders continued to struggle and Diamond Offshore's (NYSE: DO) results were stellar. Ebay (Nasdaq: EBAY) tried hard and continued its buyback program but Mr. Market was not impressed. Intel (Nasdaq: INTC) was also shunned as analysts zeroed in on lower than expected margins for the quarter. Still, the company maintained its guidance for the year and is looking for a strong second half. Meanwhile, its rival Advanced Micro Devices (NYSE: AMD) is reeling. Corning (NYSE: GLW) is also worth a mention. Results were just fine but again investors chose to focus on slightly weaker telecom sales and management's reluctance to raise LCD sales guidance for the year. Meanwhile, this is a company executing a beautiful turnaround and rekindling its innovation machine. What we are focusing on is Corning's reinstatemant of its dividend and announcement of a $500m share buyback.
Tuesday, July 10, 2007
The end of June also brought with it the end of Tyco as a conglomerate and the creation of three new companies. They began trading on the first day of trading in July. Tyco (NYSE: TYC), Tyco Electronics (NYSE: TEL) and Covidien (NYSE: COV) which was formerly Tyco's healthcare division. You can check on Tyco's web site for more information on how to split your original purchase price among the three stocks. For now, we are staying put and holding all three.
Finally, the stellar performances of our energy holdings in ConocoPhillips (NYSE: COP) and Diamond Offshore (NYSE: DO) were offset by the retreat in the homebuilders. The bad news continued to pile on and they are now trading below book value. On the bright side, Home Depot (NYSE: HD) which certainly has exposure to the housing market, sold its supply business to a private equity group for about $10 billion and announced a massive $22.5 billion share buyback. We will take that.
Monday, June 11, 2007
Cisco (Nasdaq: CSCO), Electronic Arts (Nasdaq: ERTS) and Tyco (NYSE: TYC) all reported earnings in early May. Cisco’s earnings were stellar but the Street was unimpressed with the company’s guidance. It seems 15% to 16% top-line revenue growth and gross margins north of 60% are not good enough. The stock has dipped back to the mid 20s and has stayed there. We would use further weakness to add to our position. If you want to get a sense of what a networked world will mean for companies like Cisco, you should pick up a copy of Forbes’ 90th anniversary issue on Networks.
Mr. Market was not too kind to Electronic Arts either. The company’s forecast for its upcoming fiscal year fell short of analysts’ expectations. The transition to the new gaming consoles has not been as swift as anticipated, not to mention the fact that the company has decided to delay Spore, the much anticipated game by the creator of The Sims. But all this should be short term in nature. To be sure, the company has to execute better going forward. Still, with no debt on it balance sheet and a business which is throwing off plenty of cash, there is time to right the ship.
Finally, there is Tyco. Not much surprise in the company’s earnings announcement and the break up into 3 separate entities remains on track. The shares of the 3 companies are expected to trade on a When Issued basis on June 14th. The spin-off will be completed on June 29th. Stay tuned.
Wednesday, May 02, 2007
Maintaining our exposure to the steel sector through Chaparral (Nasdaq: CHAP) has proven a to be a profitable one. A month after reporting earnings and less than two years after becoming an independent company, Chaparral announced in April that it has retained Goldman Sachs to explore strategic alternatives causing the stock to rally to yet another high. We have trimmed our position into this rally and deployed the cash into holdings with, in our opinion, a superior price/value proposition.
Earnings began to roll in throughout the month and into early May. No major surprises. Intel's (Nasdaq: INTC) earnings were received well. The price war with rival Advance Micro Devices (NYSE: AMD) may be over and margins should improve. Moreover, by waking a sleeping giant, AMD has managed to dig itself into a mighty big hole. Intel has regained the technological lead and is introducing new products at a ferocious pace. AMD is struggling and there are rumors the company may be a buyout candidate. Our thesis appears to be playing out nicely. We added to our position in April.
The majority of our companies continued to progress nicely. Comcast's (Nasdaq: CMCSA) triple play is on a roll. Corning (NYSE: GLW) had a good quarter and is reopening a fiber manufacturing plant to meet demand. Diamond Offshore Drilling (NYSE: DO) blew away Wall Street's estimates. We built up our position in this company which we believe remains attractively valued. A substantial dividend payment should be coming our way.
Morningstar (Nasdaq: MORN) and Mueller Water (NYSE: MWA) held their own and continued to execute their strategy. Morningstar hit an all-time high in April and the company is methodically growing its business. Mueller's results appeared to breathe some life into the stock. The company continued to demonstrate pricing power while containing costs and paying down its debt. Our thesis has not changed on either of these companies and we would use any weakness in shares to add to our position.
Our holdings with exposure to the housing sector continue to struggle. Centex (NYSE: CTX) and Pulte (NYSE: PHM) had nothing kind to say about the outlook for homebuilders. USG (NYSE: USG) reiterated the tough business conditions for its products. The shares of all three companies have retreated from the levels hit in late 2006 but seem to have found a floor near the lows hit last summer. USG meanwhile completed a share offering at $48 and used the proceeds for an acquisition and to further pay down its debt. In early May, we added to our position in USG and we will look for opportunities to further build our position in these companies.
During the first part of May, Expeditors International (Nasdaq: EXPD) reported earnings and Sears (Nasdaq: SHLD) held its annual shareholders meeting. Expeditors announced good results despite recently weaker demand. We have quoted him before, we will quote him again. Peter Rose, Chairman and CEO, had this to say, "We do measure our internal progress by how well we do at achieving our own expectations. Regardless of what might, or might not, be going on in the global economy, we always expect to do a little better this year than we did last year. Our first quarter results, on a net earnings basis, were very close to what was reflected in our 2007 budget. Taken in a net earnings context, we've nearly doubled our first quarter profitability since 2005 and we think that we've managed that growth pretty well. Finally, we'd be remiss in closing without publicly thanking our employees for their outstanding efforts and our customers, our vendor/partners, and our shareholders for their support. Thank you one and all!" As for Sears, the stock was punished for a weak Q1 outlook. But we are unphased by Mr. Market's reaction and leave you with this quote from Eddie Lampert at the annual meeting, "The opportunities for us to allocate capital are very significant, and we have a lot of choices." Indeed, he has transformed Sears into a cash generator and is sitting on more than $2B in cash. He is on the prowl. Stay tuned.
Finally, as May rolls on, we await earnings reports from Tyco (NYSE: TYC), Cisco (Nasdaq: CSCO) and Electronic Arts (Nasdaq: ERTS).
Sunday, April 22, 2007
Monday, April 02, 2007
Meanwhile, subprime mortgage woes unfolded fast and furious and took many by surprise. Sure enough, homebuilders have been hit hard. Nothing is going right for the housing sector these days. All this happened after we made small additions to our positions in Centex (NYSE: CTX) and Pulte Homes (NYSE: PHM). At current levels, both stocks are trading barely above book value. To be sure more land write-offs could be in the works. And the housing slump may last well into 2008. Needless to say this is the time to be buying when all others seem to be fearful of anything related to housing. Further declines from current levels will provide us with the opportunity to continue to build our position in these companies. The Model Portfolio is a cash-constrained portfolio, so inevitably we will be forced to raise cash by selling or reducing other positions to add to our homebuilder positions. If any of you are interested in contributing cash to the Model Portfolio, we would be more than willing to oblige.
Thursday, March 01, 2007
Before all this happened, as you may have noticed, the portfolio was having a busy month. High turnover is not something we strive for. However, we used the run up in prices of various positions as an opportunity to consolidate and build a more concentrated portfolio.
The original intent of the Wendy's (NYSE: WEN) trade was to buy before the spin-off of Tim Hortons (NYSE: THI). That thesis played out well and we recognized a profit in excess of 30%. Similarly, our thesis on Heinz (NYSE: HNZ) played out as Mr. Peltz succeeded in joining the board and the company began implementing the various strategic measures he was advocating. Walter Industries (NYSe: WLT) continued to struggle after spinning off Mueller Water (NYSE: MWA). We decided to eliminate our position in Walter at a small loss and instead built a bigger position in Mueller Water which we believe has fantastic prospects and is deeply undervalued. At Walter, coal production has not picked up and coal prices have been under pressure. Both problems may well prove temporary. However, we believe we have effectively redeployed our capital by adding to existing positions and by adding two new holdings in the energy sector - ConocoPhillips (NYSE: COP) and Diamond Offshore (NYSE: DO) both of which we recently mentioned in Margin of Safety. Finally, we eliminated our position in Mittal (NYSE: MT) with nearly a 50% return, keeping Chaparral as our only holding in the steel sector. The steel sector has shown signs of stabilizing and with price increases planned later in the year. Consolidation is expected to continue apace.
In February, a few more earnings reports trickled in. Electronics Arts (Nasdaq: ERTS) came in with good numbers and was subject of a positive article in Barron's. Our thesis remains intact on this company. CBS (NYSE: CBS) hiked its dividend and announced a large buyback. Meanwhile, the market seemed spooked by Expeditors International's (Nasdaw: EXPD) earnings which appeared to miss 'expectations' and the stock sold off almost 10% at the open before recovering. This is a solid business and a great way to play globalization. Peter Rose, Chairman and CEO, had this to say, "Looking forward to 2007, there is no time to rest on past success. We cannot lose touch with what's most important - our people and our customers. And we cannot forget 'from whence we've come'." Meanwhile, Cisco (Nasdaq: CSCO) surprised us all. Their earnings report was stellar and the guidance was not too bad either. Last but not least, Morningstar (Nasdaq: MORN) continued to roll along with a great quarter and capped it all off with the acquisition of S&P's mutual fund data business providing the company with a presence outside of the U.S.
Friday, February 09, 2007
Sell 210 Mittal (NYSE: MT) $50.00
Sell 250 Tim Hortons (NYSE: THI) $31.25
Sell 200 Walter Industries (NYSE: WLT) $24.50
Sell 50 Chaparral (Nasdaq: CHAP) $51.50
Buy 200 Mueller Water Products (NYSE: MWA-B) $15.12
Buy 100 Western Union (NYSE: WU) $22.40
Buy 50 USG Corp. (NYSE: USG) $54.40
Buy 30 Pulthe Homes (NYSE: PHM) $32.60
Buy 25 Centex (NYSE: CTX) $52.30
Buy 75 Diamond Offshore (NYSE: DO) $79.20
Buy 75 ConocoPhillips (NYSE: DO) $79.20
Feb 9 2007
Sell 185 Wendy's (NYSE: WEN) $32.90
Sell 200 Heinz (NYSE: HNZ) $46.70
Sell 70 Chaparral (Nasdaq: CHAP) $49.00
Sell 40 CBS (NYSE: CBS) $31.80
Buy 100 Intel (Nasdaq: INTC) $21.00
Buy 70 Electronic Arts (Nasdaq: ERTS) $49.80
Buy 250 Muller Water Products (NYSE: MWA-B) $15.30
Buy 150 Western Union (NYSE: WU) $21.80
Buy 50 Expeditors International of Washington (Nasdaq: EXPD) $44.50
Buy 50 Home Depot (NYSE: HD) $41.15
Buy 30 Tyco (NYSE: TYC) $31.60
Buy 40 Anheuser-Busch (NYSE: BUD) $50.15
Sunday, February 04, 2007
Intel (Nasdaq: INTC) and Advanced Micro Devices (NYSE: AMD) continued to battle. As we had predicted, Intel continued with its price war strategy to regain market share and it appears the company is regaining its footing. The stock has held steady while AMD’s shares have been decimated over the past month. The big question is when will the price war end? Intel has unleashed a barrage of new products commanding higher selling prices. And the company is at least a year ahead of AMD technologically. Still, Intel did not boost its gross margin guidance year over year putting a cap on the stock – for now. We will add to our position on any weakness.
Speaking of price wars, Corning (NYSE: GLW) pleased by announcing they will hold LCD glass prices steady through the seasonally weak first quarter. The stock has bounced nicely from its recent lows.
Steel continued to perform well. Elimination of Posco (NYSE: PKX) from the portfolio may have been premature. Still Chaparral (Nasdaq: CHAP) and Mittal (NYSE: MT) are trading at all time highs after Nucor (NYSE: NUE) and U.S. Steel (NYSE: X) announced stronger than expected results and signs of recovery in the steel sector began to emerge.
Homebuilders continued to be volatile but have not provided us with the weakness we had hoped for in order to add to our positions. Centex (NYSE: CTX) and Pulte Homes (NYSE: PHM) announced abysmal earnings as order cancellations, land option write offs and inventory adjustments continued. But Pulte’s CEO did give some hope, noting, "[W]e witnessed some promising signs of stabilization at the conclusion of the quarter, and into the first month of 2007, although it's too early to tell how strong and sustainable this may prove to be in the months ahead.” USG (NYSE: USG) also sounded a cautious tone for 2007.
Meanwhile, Home Depot (NYSE: HD) finally departed with its embattled CEO, Bob Nardelli, leading to a minor relief rally. In January, a Forbes article estimated Home Depot’s sum of the parts valuation at $56.
Mr. Lampert’s Sears Holdings Corp. (NYSE: SHLD) provided solid guidance for its fiscal fourth quarter and forecast an eye popping cash balance of $3.5 billion.
In the coming weeks, more of our companies will announce their quarterly results. Of particular interest will be updates from Cisco (Nasdaq: CSCO), Expeditors International of Washington (Nasdaq: EXPD), Morningstar (Nasdaq: MORN) and Tyco (NYSE: TYC). The latter appears poised to complete its split up by early Q2 and has asked shareholders for approval of a 1 for 4 reverse stock split in preparation for the event.
Sunday, January 07, 2007
Friday, January 05, 2007
Our patience with Comcast (Nasdaq: CMCSA) is finally starting to pay off. The company is starting to fire on all cylinders and the cash machine should continue to hum. We are holding on to the rest of our position for now.
These trades raised enough cash for us to be able to increase our position in Intel (Nasdaq: INTC) which had drifted lower to attractive levels. We also increased our position in Western Union (NYSE: WU).
There are two new additions to the portfolio. We have been watching Leucadia National (NYSE: LUK) for some time. Ian Cumming's reputation speaks for itself. He is currently sitting on a sizable cash position. Plus, there are the billions in net operating losses which can be used to offset gains. Granted, they will eventually expire, but I am willing to give Cumming the benefit of doubt. I encourage you to read his letters to shareholders which are posted on Leucadia's web site. This is not unlike our investment in Eddie Lampert and Warren Buffett. Notice the stock is not followed by Wall Street. Just like we prefer.
The second newcomer is Expeditors International of Washington (Nasdaq: EXPD). As the year was winding down, transportation stocks were coming under pressure. In the low 40's, Expeditor seemed too good to pass on. It is about 28% below its recent peak. At first glance the stock may appear expensive. Even at these levels it commands a hefty forward P/E. But consider that this company is very well run, has consistently delivered stellar results and boasts fantastic return on capital. In the latest quarter, revenues grew by 20% while profits increased by 32%. It is a debt free, asset-light business which will do just fine even in a slowing economy. Furthermore, it's a nice way to play the globalization and outsourcing trends. Once again, I encourage you to browse the company's annual report, and if that is too boring, at least read the letter to shareholders to get a feel for the kind of company and management you are investing in. It is not every day that you see management and rank and file employees all contributing and financially benefiting from the profitable growth of their company. One more data point. A couple of days ago one of Expeditors' competitors, EGL Inc. (Nasdaq: EAGL), received a buy-out offer from its CEO (and largest shareholder) at a 27% premium to the stock price.