Apr 20 2007
Sell 50 Chaparral (Nasdaq: CHAP) $64.00
Apr 27 2007
Sell 25 Chaparral (Nasdaq: CHAP) $69.25
Buy 25 Diamond Offshore Drilling (NYSE: DO) $87.00
Buy 150 Intel (Nasdaq: INTC) $21.95
Sunday, April 22, 2007
Monday, April 02, 2007
March Update
For the month of March the Model Portfolio’s return was -0.4% versus S&P 500’s total return of 1.1%. For the six months ending March 31st (our fiscal year ends in September), the Model Portfolio's return is 12.0% versus S&P 500’s total return of 7.2%.
March was a quiet month for the portfolio. One highlight was Chaparral's (Nasdaq: CHAP) strong earnings and guidance. The stock has marched on to an all time high. Speaking of steel, our decision to sell Posco (NYSE: PKX) may have been premature as Warren Buffett disclosed a 4% ownership in the South Korean steel maker in his annual report.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
February Update
For the month of February the Model Portfolio’s return was -1.5% versus S&P 500’s total return of -2.0%.
February ended with a bang. The market went on a wild ride over the last couple of days of the month. Fears of a recession sparked by comments from Alan Greenspan combined with a sharp drop in the Chinese stock market did not bode well and investors were hitting the sell button.
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.
February ended with a bang. The market went on a wild ride over the last couple of days of the month. Fears of a recession sparked by comments from Alan Greenspan combined with a sharp drop in the Chinese stock market did not bode well and investors were hitting the sell button.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
February Trades
Feb 15 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
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
January Update
For the month of January the Model Portfolio’s return was 2.5% versus S&P 500’s total return of 1.5%.
January was a quiet month for the portfolio. However, we did take the opportunity to significantly add to our position in Mueller Water Products (NYSE: MWA-B) at an attractive price.
Earnings have begun trickling in. Mueller, for one, held margins firm in the face of challenging business conditions by successfully driving its synergy plans and boosting prices. Budweiser (NYSE: BUD) and Comcast (Nasdaq: CMCSA) came in with strong quarters. The latter also announced a 3 for 2 split. After its earnings announcement, Mr. Market seemed to be warming up to Electronic Art’s (Nasdaq: ERTS) potential as a new growth cycle kicks in and new consoles gain traction. Western Union (NYSE: WU) affirmed guidance and exhibited stellar growth in India China U.S.
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
December Update
For the month of November, the portfolio was up 1.0% vs. S&P 500’s 1.4% increase.
December turned out to be an active month. We sold our position in Harrah's (NYSE: HET) which finally accepted a winning bid of $90. The trade resulted in an annualized return of about 30%. Not bad. We also took the opportunity to sell our position in Posco (NYSE: PKX) which had a great run. We maintained our exposure to the steel sector through Mittal (NYSE: MT) and Chaparral (Nasdaq: CHAP).
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.
December turned out to be an active month. We sold our position in Harrah's (NYSE: HET) which finally accepted a winning bid of $90. The trade resulted in an annualized return of about 30%. Not bad. We also took the opportunity to sell our position in Posco (NYSE: PKX) which had a great run. We maintained our exposure to the steel sector through Mittal (NYSE: MT) and Chaparral (Nasdaq: CHAP).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.
Monday, December 04, 2006
December Trades
Dec 28 2006
Buy 130 Intel (Nasdaq: INTC) $20.40
Buy 125 Western Union (NYSE: WU) $22.30
Dec 19 2006
Sell 150 Harrah's Entertainment (NYSE: HET) $81.98
Sell 110 Posco (NYSE: PKX) $83.00
Sell 60 Comcast (Nsadaq: CMCSA) $42.89
Buy 300 Leucadia National (NYSE: LUK) $28.00
Buy 200 Expeditors International of Washington (Nasdaq: EXPD) $41.70
Buy 130 Intel (Nasdaq: INTC) $20.40
Buy 125 Western Union (NYSE: WU) $22.30
Dec 19 2006
Sell 150 Harrah's Entertainment (NYSE: HET) $81.98
Sell 110 Posco (NYSE: PKX) $83.00
Sell 60 Comcast (Nsadaq: CMCSA) $42.89
Buy 300 Leucadia National (NYSE: LUK) $28.00
Buy 200 Expeditors International of Washington (Nasdaq: EXPD) $41.70
November Update
For the month of November, the portfolio was up 3.8% vs. S&P 500’s 1.9% increase.
A few more earnings trickled. Notably, Tyco (NYSE: TYC) came in with nice results and the breakup is on track for Q1 2007. Heinz's results were quite good and it appears Mr. Peltz's efforts are paying dividend. The company raised its guidance for fiscal 2007.The steel sector got a nice boost due takeover speculation and M&A activity. – for now, one announced deal involved
Meanwhile, Comcast (Nasdaq: CMCSA) was busy signing a blockbuster distrobution deal with Disney, buying Disney's stake in the E! Network and last but not least, the company announced plans to raise cable rates. The kind of business we love.
The last day of the month also saw the upgrade of homebuilders by a Banc of America analyst who was gracious enough to slap a “neutral” rating on the sector, whatever that means. Shares of Pulte (NYSE: PHM) and Centex (NYSE: CTX) both got nice boosts as a result.
Finally, we were sad to see Google (Nasdaq: GOOG) leave our portfolio for now. But the price appreciation was much faster than we had anticipated last November when the shares traded at around $400 - they recently hit a high of $513. This opened up room for a new addition in USG Corporation (NYSE: USG) which we recently discussed in more detail on Margin of Safety. USG was itself subject of takeover rumors the same day as Banc of America upgrade of homebuilders.
Happy Holidays. See you in 2007.
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