Some Portfolio Updates ~ market folly

Wednesday, May 28, 2008

Some Portfolio Updates

*Before I get to the portfolio updates, just wanted to let everyone know that the hedge fund 13f tracking series is by no means finished. I was just on vacation for the long weekend and haven't had time to finish up the research. Sorting through those 13F's and comparing them line by line is quite tedious haha. Look for posts covering Maverick Capital (Lee Ainslie), Greenlight Capital (David Einhorn), Atticus Capital (Timothy Barakett), and more in the coming days. Just need to get this portfolio update out of the way first.*

Long overdue for a Portfolio update. First, let's start with Mosaic (MOS). I've been a big fan of the fertilizers due to their global pricing power (ideal short supply and huge demand conditions). I've been scaling in and out of them ever since August 2007, taking profits and buying the dips along the way, revolving around a core position. I usually play the space through both Potash (POT) and Mosaic (MOS) because POT is best of breed, and MOS is the up and comer with better valuation. I usually enter investments in fourths so I buy 25% of my overall position in one round, then another 25% and so on. Currently, I've got 1/2 a position in POT right now but I only had 1/4th a position in MOS, that is until yesterday when my limit order at $115 hit and now i've got 1/2 a position in MOS. Now, this was a limit order set from a while ago that I lined up to coincide with the 50 day simple moving average. But, let me go over why entering MOS here would be a good idea, even with its dip below the 50 day ma. First, looking at the chart we see that of course it has touched the 50 day ma and this has been an excellent buying opportunity in the ferts whenever they pullback this far. If you look at the chart you'll see that each touch to the 50day ma has been a buying opportunity. And, notably, each touch has actually broken below the 50 day, only to sharply rebound right back above it and begin its trend higher. So, this is why the fact that it broke the 50 does not bother me: MOS seems to always do that and the buyers always come in. Secondly, look at the Full Stochastics at the very bottom of the chart. You will see that we are now in oversold territory and the stochastics have turned back up, indicating a bullish future. Look at all the other times that the stochastics have entered oversold territory (reading 20 or below). Every single time the stochastics point to oversold, MOS has rebounded for a trade at the very least, if not continuing its run higher. Lastly, looking at the RSI at the top of the chart shows us that everytime MOS sees an RSI reading of 50 or below, buyers have come in. And, yet again, buyers dipped into MOS. So, the chart really tells the story in MOS. Watch the moving averages for support, watch the full stochastics for oversold conditions (20 or below) and watch the rsi for a buying signal (50 or below). As long as MOS hits some of these conditions without massive volume, step in and pick up part of your position. If it shows heavy volume on the decline though, stay away as it probably indicates distribution and further downside.

Next up, just wanted to mention that I added Walmart (WMT) on the pullback to the 50 day moving average as well. I've been VERY patient on this one, waiting for a pullback for a nice entry. Obviously waiting for a pullback to the 50 day moving average is always a smart idea, as this level typically serves as a support level for uptrending stocks. You'll notice on the chart that smaller pullbacks have occurred along the way the past few months, but we finally got a pullback of real size and so I pulled the trigger. Notice also how the stochastics on the very bottom of the chart point to oversold. Look to other times that the stochastics crossed down around the 20 level and you will see they pointed to excellent buying opportunities in this name. This is the primary oversold indicator I use and it has served me well. Not to mention, WMT has been so strong lately that it has rarely dipped below 50 on the RSI. And, every time it has, its been a buying opportunity. We just got one, so that was yet another buy signal screaming at me. So, both the RSI and stochastics were at the lower end of their ranges and started to turn up, signaling bullish future. Combine that with the touch of the 50 day moving average and I'm more than happy to add some WMT.

Its obvious that in a recession/tough times/era of high gas prices, that consumers will hit the discount retailers more frequently. And, WMT is a one stop shop for all their needs (including gas at some Sam's club locations). So, the thesis for this play is really simple. People are living cheaper due to tough times and the only places for them to go are COST or WMT and WMT to me simply has greater exposure and offers you both the pure discount shop in its Walmart stores, as well as the bulk item membership version Sam's Club. So, I chose WMT over COST mainly for this reason, and also because just chart-wise its much healthier looking than COST. And, believe it or not, the final decision maker was just stepping into Walmarts over the past few months. They are ALWAYS packed, no joke. I even stepped inside there on a Friday night at 11:00pm to pick up some mixers before heading out and the place was absolutely packed. My jaw practically dropped. I knew it was a busy place, but even at 11pm on a friday night?! That sealed the deal for me. Target (TGT) wasn't even an option for me simply because I've been in a few Targets over the past few months as well and they are ghost towns compared to WMT. Not to mention, they aren't "cheap" in a sense like WMT and COST. TGT is a discount retailer sure, but I want the cheapest of the cheap in this kind of environment. I don't care how clean Target's stores may be, I'm focused on the pricing offered and the foot traffic. WMT ftw (for the win).

Lastly, I wanted to touch on DRYS. I "twittered" (see widget on upper right of the blog) that I sold the last of my DRYS off last week, as it had a monster run and started to see sellers coming in. However, yesterday I got right back in despite seeing heavy volume distribution in the name. Firstly, you'll notice on the chart that DRYS has had a monster run yes, but it has also had a monster pullback in the span of 1 week. Shares sat around $86 and were calling my name. Look at early February and see the recent peak of around $85 and then look at where DRYS is right now, sitting smack dab right on past resistance/now future support. So, knowing that DRYS had hit support on its pullback, I started a teaser position up in the name again because it had simply seen too much selling. The stochastics once again helped me in this decision as they had gone from overbought (around 80) to oversold (around 20) in the matter of a week's time. So, the stochastics signaled a buy, DRYS was sitting on support, and it had seen a massive sell off in only a week. I figured at the very least it was worth a trade, and I was right. DRYS popped 9% today (Wednesday 28th). But, don't get me wrong, I like DRYS as an investment here due to a few reasons. 1. They just reported great earnings a few weeks ago and the Baltic Dry Index wasn't even at all time highs. 2. Since that earnings report, the Baltic Dry Index has been screaming higher, meaning DRYS can charge higher rates on the spot market 3. DRYS operates a ton (practically all) of their rates on the spot market, so they will have an absolutely monster quarter to report next go-round. But, I must urge you to proceed with caution with this name. As you can see from the chart, its very volatile (just like the Baltic Dry Index) and you've got to keep a close eye on things to make sure you don't get shredded to bits. Keep an eye on the BDI to make sure DRYS is still cranking out high rates. Also, monitor the ships' availability, as there has been a shortage of ships lately. The heavy volume on the pullback showed signs of distribution I'm aware of that, but the sector has strong underlying fundamentals right now and saw a massive sell-off due to profit taking from the massive run-up in the first place. The strong volume today as DRYS ran right back up is positive as buyers returned with force. Look to trade this name at the very least, if not invest in it for the next quarter or so, as DRYS will really benefit from high spot rates.

Lastly, I just wanted to give a run-down of my overall portfolio. This blog details the occurrences within my main investment account, as well as my short term trading account. My investment account has anywhere from 15-20 stocks/etf's in it with a slightly longer investment time frame (anywhere from 3 months to years) and I scale in and out of positions, taking profits when I deem fit, and scaling back in on dips. My other account is for shorter term trades (1 day, 1 week, 1 month) and typically only holds 1-5 names at any given time. I set up this blog with the goal of providing complete portfolio transparency through Portfolio updates like these, and live trade updates with my Twitter widget in the upper right hand corner of this blog. That way I can outline my investment theses and get feedback from others. So, by all means feel free to bash my portfolio, make helpful suggestions, or just straight up question my decisions. Any and all comments are welcome, as I love outside input to make myself sure that I am in the right names for the right reasons.

Long Positions as of Weds May 28th in no particular order: AAPL (slowly taking profits as we near $200), QCOM, MA (been selling, waiting for a meaningful pullback to re-add), V, GS (just added), USB (writing covered calls on it & picking up the 5% dividend), RSX (Russia), ILF(Brazil/Mexico: AMX, FMX, BBD, ITU), TTEK (Water/Wind, courtesy of @jmclarty who initially brought this one to my attention), ETR, NLR (been taking profits), BIIB, GILD, ACI (wishing for a big pullback to really load up), POT, MOS (just added more on pullback), UNG, CHK, WMT (just added on the pullback), TMO, SDS (hedge: ultrashort s&p)

Short Positions: COF (covering the last of it though)

Watchlist: I've owned some of these names before, but waiting for pullbacks to get back into MEE, FLR, FWLT. Want to start a new position in MIL as well... waiting.

I've probably left out a few names but that should sum it up.


Jeffrey McLarty said...

I got another one for you, CVA - Covanta. They turn garbage into energy. 9 directors bought 4500 shares each, May 1st and 2nd.

So you own RSX eh? And no China or India eh?

I quickly looked at MEE, FLR and FWLT...morningstar wasn't screaming 'buy' on any of these particular names. Just an FYI.

madhatter said...

yup, know CVA all too well, Blue Ridge's #2 holding. I'm starting to get to the point where I'm finding too many names I like and so I'm trying to stick with themes that I think will be broader in scope and have more longevity. tough to narrow it down.

China I had CHL but I sold out immediately when I found out the news that china was basically allowing more competition in the mobile space. not good for chl. might pick some up here once the dust settles though. India if anything I'd be in INFY or maybe icici bank.

MEE is a screaming buy to me simply because of coal in general. i liken coal right now to where fertilizer was back in august of last year... beginning to mount. not of the same magnitude, but still strong.

FLR and FWLT are just infrastructure and build out plays, and FLR i'm playing for their big exposure to nuclear. these companies have massive backlogs of billions of dollars. over time, they play right into the global growth and infrastructure buildout. this is one of those sectors where just glancing over things can't give you the gist of things, you've got to dig into the annual reports etc. i really like them, but at cheaper prices so that's why i'm waiting.

Jeffrey McLarty said...

Hahaha, I first learned about CVA on your blog, and it just slipped my mind! hahaha... too many tickers too many sources of news & opinion