Wednesday, August 01, 2007

July Update

For the month of July the Model Portfolio’s return was -2.8% versus S&P 500’s total return of -3.1%.
It was a tough month for the markets. It was the right time to jettison Chaparral (Nasdaq: CHAP) and CBS (NYSE: CBS) and raise some cash. Chaparral will be taken private and CBS had rewarded us nicely since we purchased it post spin-off from Viacom. Finally, we sold out of Tyco (NYSE: TYC) choosing to hold on to Tyco Electronics (NYSE: TEL) and Covidien (former Tyco Healthcare) (NYSE: COV). Tyco should do well in the long run but with a 14% gain, this was a good chance to raise some cash and let the other Tyco businesses provide us with the upside.

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.

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