Saturday, June 14, 2008

Potash (POT) CEO Quote

From Bloomberg re: fertilizer prices

"We are nowhere near peak pricing." - Potash CEO Bill Doyle

Enough said.


Thursday, June 12, 2008

Investing in Tottenham Hotspur Football Club TTNM.L / TTTHF

(Note: This write-up is prefaced by a post on investing in publicly traded professional sports teams found here, right below this post).

If someone gave you the opportunity to buy a stake in the Chicago Cubs, would you do it? How about the San Antonio Spurs? Or, *insert popular and/or successful team here*. The point is, I think everyone out there, regardless of what team they are a fan of, knows a successful franchise when they see it. And, as investors, we wouldn't turn down the opportunity to invest in such a thing. Now, Tottenham Hotspur aren't quite as dominant as the New England Patriots or New York Yankees, but they're generally the 5th or 6th best team in their league. So, think of a team that is generally 5th best overall in any given American league, and ask yourself if you would buy a stake in them if you had the opportunity. My point is: to most investors, investing in professional sports teams is usually off limits because they are private entities (not publicly traded) and you don't have the millions on hand to buy these teams. However, in England, this is not the case. Some of their teams are still publicly traded companies and you can buy as little as 1 share.

I'm an avid football/soccer fan and a regular follower of the English Premier League. So, my homework is already done, as I've been following the league for years and I know many teams inside and out. So, teams that can be bought on the London Stock Exchange are limited to: Sheffield United (SUT.L), Tottenham Hotspur (TTNM.L), Birmingham City (BMC.L), and Watford (WFC.L). Now, right off the bat we're limited in our options because we want to be buying teams who compete in England's top division, the Barclays Premier League. Sheffield United and Watford compete in the second division, so we don't want them. And, we don't want Birmingham City either because they've just been relegated down into the 2nd division this past season after a horrible performance in the Premier League. So, that leaves us with one option: Tottenham Hotspur. And, surprisingly, having only 1 option to invest in is not a bad thing at all, considering how well positioned Tottenham actually is. And, here's why:

1. Tottenham continually finish in the top half of the league and usually finish anywhere from 4th-8th place, just outside what is known as the "Big 4": Manchester United, Arsenal, Liverpool, & Chelsea. And, since all the above teams are already private, Tottenham are actually our best choice based on team performance should an outside buyer want to purchase them. On paper, they are the best available option in terms of available publicly traded buyout candidates. This past season was full of turmoil for them due to mid-season coaching changes and player transfers. But, now that they are building up their squad, they are ready to compete again.

2. They have a strong fan base & thus a strong revenue stream. Tottenham finished 3rd overall in terms of "Best supported Premier League Teams," behind only Arsenal and Manchester United. Tottenham Hotspur's White Hart Lane (their stadium), saw the total amount of people that attended matches last season: 683,370, an average attendance of 35,967 in a stadium with a capacity of 36,247. This means that their stadium was 99.23% full throughout the season. Again, I want to emphasize that Tottenham are 3rd in the entire Premier League (20 teams) in terms of best supported clubs. They definitely have strong revenue streams.

3. They've made some great acquisitions as of late. First, they brought in their new coach this season: Juande Ramos. He has previously won numerous UEFA Cup titles with his old club Sevilla, provides new hope. Secondly (and more importantly), they've signed Luca Modric from Croatia and Giovanni Dos Santos from Mexico, two promising young stars who've already proven they have talent. Basically, they've signed two very good attacking players who can only get better in order to complement the core of players they already have.

4. The stock itself is up 15% over the past year, and 664% over the past 5 years. Yes, that's correct, 664%. This reflects the growth of the Premier League itself as well as Tottenham's emergence as '5th or 6th best.' I say that mockingly because breaking into the Top 4 of English football is quite hard to do, as those teams are immensely talented. However, with Tottenham's recent signings, they are definitely sending signals that they are here to compete and are here to break into the top echelon of teams in the league.

5. Takeover rumors have begun to swirl over the past few years. The number being tossed around in one of the other rumored takeovers was £400 million, while the club currently has a market cap of £121 million. Believe it or not, there were rumors at one point that Phoenix Suns' guard Steve Nash wanted to buy the team (it's his favorite football club). After all, they are now the only publicly traded team left in the Premier League. If the trend continues, that won't last for long and they'll be bought out. And, the main part of this investment thesis was based on the identification of this buyout trend.

6. Two groups already have somewhat prominent stakes in the club, so they might want to takeover the club themselves, and a foreign buyer might not even be necessary. The current chairman's group, Enic, is the club's largest shareholder with 32% of shares. Secondly, Sir Alan Sugar, the former chairman, owns 14.6% of the shares. So, in addition to possible foreign buyers, you've got some large stakeholders who could possibly launch a bid as well.


At the same time, there are some barriers to entry & some possible downsides to this investment which need to be detailed.

1. Liquidity. It is only available on the London Stock Exchange or the Over the Counter (OTC) markets. And, unfortunately, if you're in America, this presents you with a problem. Even if you have an E-trade account with global trading, you still can't purchase TTNM because it does not trade directly on the London Stock Exchange, it trades on a secondary exchange (think ARCA for NYSE). E-Trade only lets you trade on the main exchange so this option does not exist for American investors. Secondly, even if it was available, this thing is not very liquid at all. Today, it traded just barely over 2000 shares. So, the only option American Investors are left with is to go with the OTC version: TTTHF. This trades just like the TTNM stock. But, you won't be able to track it easily since its OTC. For instance, if you pull a quote up for this, it shows that there is no volume, weird bid/asks, etc. Additionally, numerous brokerages won't let you buy OTC foreign ordinaries, so make sure you check with your brokerage.

2. Stock coverage. Over here in the states, you won't get the daily updates surrounding this name seeing as it trades in England. So, you'll have to take a proactive approach if you want to monitor the possible takeover situation. Not to mention, you'll want to keep an eye on the League Table/Standings, to see how well the team is performing (seeing as the stock will trade slightly based on how well they play). So, if you're not a soccer fan, this could become a burden. Not to mention, you can't even really track the equity you're technically invested in, TTTHF. You'll have to keep track of TTNM, the one that trades in London.

So, wrapping up. This is definitely not an investment for everyone considering the barriers to entry and the task of tracking developments. We have to evaluate this name by a different set of metrics simply because it trades differently than most equities. The closest comparison I can think of is biotech/biopharma stocks. Often times, biotech stocks trade on future pipeline and FDA approval, so you have to evaluate those equities in a slightly different manner. Tottenham is even more odd in that it trades on performance of the team, player signings/transfers, & possible takeover rumors/bids. Although the finances do of course matter, they play second fiddle to all the things just mentioned. I'm confident in this name because I'm an avid football/soccer fan and I have followed the league for years now. I am not biased because I'm not a fan of Tottenham. In fact, I'm actually a fan of a completely different team. So, favoritism obviously played zero role in my decision. I tried to look at things objectively from an outside , neutral perspective. Tottenham are easily the best available publicly traded football club left. And, even if there were more options for us in terms of publicly traded teams, I'd still choose TTNM.L/TTTHF simply because they're consistently in the top 33% in the league, they have a very strong fan/revenue base, and are the best possible option right now. Not to mention, reatil investors will never have a realistic chance of investing in the top 4 teams in the league (ManUtd, Arsenal, Chelsea, Liverpool).

This thesis is mainly based on a rising secular trend. We've seen increasing foreign ownership in Premier League clubs as new ownership groups take these clubs private. While this trend is gradually rising, we have to highlight that this is an event driven play and the timeframe for a catalyst is obviously unknown. While Tottenham has a lot of potential as a buyout target, there are other factors to consider. As always, do your due diligence before investing and see our disclaimer at the bottom of the site.


Investing in an Alternative Sector: Publicly Traded Professional Sports Teams

As investors, we're always looking to diversify across various industries and markets, especially internationally. And, this post is a result of combining two of my passions: investing and sports. In particular, I'm talking about investing in publicly traded football (soccer) teams. Now, I've probably lost my audience already haha, seeing how soccer is not exactly the most popular sport in America. But bear with me! Its the most popular sport practically everywhere else in the world. And, especially in the UK. So, we can capitalize on that.

First, let me address the rising secular trend in this segment that I have noticed over the years: increasing foreign ownership. Specifically, in the Barclays English Premier League (England's top football/soccer division), numerous American and various other foreign owners have taken clubs private. Previously, many of these teams were actually traded on public exchanges. Today, there are only a handful left that trade on exchanges. Football clubs that have been taken private by American owners include: Manchester United by Malcolm Glazer (he also owns the Tampa Bay Buccaneers), Aston Villa by Randy Lerner (he also owns the Cleveland Browns), Liverpool by Tom Hicks & George Gillett (Hicks is the American and he owns the Texas Rangers and Dallas Stars). Additionally, you've got Stan Kroenke who has slowly but surely been building up a stake in already privately held Arsenal (he also owns the Denver Nuggets, Colorado Avalanche, and US soccer team Colorado Rapids, among other things). And, this is just covering the American owners side of things. Recent developments have seen numerous other nations trying to get involved, including Dubai International Capital (DIC), who are trying to acquire Liverpool from either Hicks or Gillett. And, a few years back, billionaire Roman Abramovich bought out Chelsea and took them private. There are even more, but those are the major ones I wanted to touch on. The point is that there are only 20 teams allowed to compete in this prestigious league, and I'm fairly confident all the rest of them will be bought out over the years.

Basically, the trend here is increasing foreign ownership of English Premier League teams. And, with only a few publicly traded teams left, now is the time to act. The main investment thesis here would be to buy a stake in a successful Premier League team on public exchanges and hope it receives a bid to be taken private, thus allowing your shares to appreciate in anticipation of this bid, or outright selling your shares to the new hopeful private owners. Now, this presents a problem in that you don't want to be investing in something *solely* with the hope of a buyout. So, there's got to be another reason to own the stock. And, luckily we've found one: team performance. These club's shares typically trade on team performance and club happenings (signings, player transfers, etc). While financials obviously still matter, these stocks trade differently than typical equities. So, the investment thesis here is more macro in nature as you seek to capitalize on increasing interest in the Barclays Premier League by investors wishing to take sole ownership of the club. But, at the same time, you will need to invest in a team who realistically has a shot of performing well in the league. And, this is where my sports passion/knowledge comes in.

By following the Premier League for years now, I've been able to really get a feel for the league in terms of successful clubs vs unsuccessful clubs. I've used this knowledge as my research in order to highlight potential investing opportunities. Again, this is mainly an event driven pick based on a rising secular trend. The caveat here is that you could be waiting a long while for the catalyst to occur. However, the trend seems to be slowly building up as investors realize the investment potential in the English Premier League. Tune in tomorrow morning for the follow-up post presenting an investment idea. Click here for the follow up post.


Wednesday, June 11, 2008

Architectural Wind: Aerovironment (AVAV)

You may have noticed the slight increase in talk about green technology/clean energy. Ok, sorry that was somewhat sarcastic. This stuff is everywhere in the media. Don't get me wrong I'm all for it, but it's getting borderline ridiculous, tons of hype. One of the clean alternative energies I think will take off is Wind power. And, unfortunately for us, the media is on to this as well and they are hyping every name out there (especially that damn Cramer). But, it looks as if I've found a slight backdoor wind play that could also serve as a defense play in your portfolio.

Primarily, Aerovironment (AVAV) is a producer of unmanned air systems/technology, ie: Armed Forces. But, they also are into "efficient electric energy technologies," or so their website says. They actually seem to be diversified across numerous industries here in terms of energy. But, be clear, they're a defense company. Taken from their site (http://www.aerovironment.com/):

"Efficient electric energy systems represent the foundation upon which AV's key developments have been built. In human powered aircraft, unmanned aircraft, solar, electric and hybrid vehicles, high efficiency motors and fast charge products, our innovative electric energy technologies enable new levels of performance and efficiency, resulting in category-creating businesses and solutions to seemingly impossible project objectives. Customers such as the US Department of Energy, NASA, Boeing, Lockheed Martin and General Motors have relied on us to provide these solutions in a timely and cost effective manner."



The main thing that got me interested though, was their Architectural Wind segment. Basically, they've constructed these small modular wind turbines that latch onto existing architecture (skyscrapers, tall buildings in general) and then start cranking. It makes perfect sense if you think about it. They don't need huge towers because they're already on the roof of a damn skyscraper. Plus, its friggin windy at the top of these buildings. They aren't giant monstrosities and you can assemble a whole mini 'farm' on top of the building. Here's a picture of what they look like.


I can see growth for this segment of their business seeing as there are tons of skyscrapers not only in America, but worldwide. If everyone really gets behind the wind movement, sales of these could really pick up. The only obvious problem with this is eventually you run out of skyscrapers to put these on. But, that's still a ways down the road before they reach saturation. And, from the looks of things, this company is an innovator and I'm sure they'll evolve with the clean energy trends. Click here to go to the wind specific section of their site. I'd actually recommend poking around the whole site if you're interested, because there's a ton of information about what they do. I would put it on here but I'd basically be copying and pasting their entire site.

They are also involved in power processing, integrated power systems, and the electric energy segment I mentioned earlier. These guys look to be real innovators and I'm definitely intrigued by what they've got to offer. I'd almost consider this to be a hybrid defense/clean energy play, except for the fact that the extraordinary majority of their revenue comes from their unmanned aircraft segment. But, the fact that they are seeing this energy trend and embracing it is encouraging. The main thing though is that this segment of their business is tiny and just really getting off the ground. If they can grow the segment, then this could get interesting.

Taking a quick obligatory look at the financials, AVAV is moderately priced at 25 times trailing earnings and 22 times forward and have a market cap of $500 million. Their price to sales of 2.58 comes in well under 5, indicating they're undervalued. They have operating margins of 12% (decent, but nothing spectacular) and return on equity of 14% (ok I can dig that for a primarily defense company). What really caught my eye is that they've got $115 million in cash and zero debt. I thought a company as research intensive as this would have tons of debt. But, to my surprise, they have no debt. The CurrentRatio comes in at just over 7, which is the highest I've seen in a while and quite bullish. So far, so good. Now I'll have to really dig deep to see what this company is all about. But, I just wanted to get it on everyone's radar screens. No position as of now; I want to continue to monitor the situation for a quarter or two. They are definitely innovators and have been slowly building up their alternative energy solutions segment up. But, for now, they're still mainly a defense company. Just thought it was interesting.


Fundamentals / My Quick Value Scan

One thing that's bothered is me is I've come across blogs that post up "Oh I ran my scan yesterday..." but they fail to tell us what the scan actually is, as if its some huge protected secret. So, thought I would go over one of the main scans I run to get a quick glance at possibly undervalued equities.

This is a quick fundamental scan I run on yahoo finance, just to keep up to date weekly on what equities are nearing tempting levels. This is a value based scan, but I am NOT a deep value investor. So, the various banks or retailers that come up in this scan I'll take a quick look at, but I rarely invest in or trade those names. You have to weed through the garbage, because more often than not, there's some garbage that shows up. I'll call this scan "QuickValue". This scan has provided me with past beauties such as Ensco drilling (ESV) and more. Let's get to it, here's what you want to run in your scan:

PE < 15 (<25 if you want to loosen up the restrictions)
Return on Equity > 20%
PEG ratio < 1 (< 0.5 for extremely undervalued companies)
Price to book < 2.5 (< 1.2 if you wish to be like Benjamin Graham)
CurrentRatio > 1.5
Price to sales < 5

A few additional categories you can add:
Strong dividend growth
Low debt to equity
EPS growth of 3.3% of more year over year for a 5 year period
Strong Insider Ownership
Strong Institutional/Hedge Fund Presence

Now, as you can see, you can tweak a whole bunch of different things within that scan (omit a few categories, add a few categories, etc). I run the loose scan first and then fiddle around a little bit. Please note that I do NOT find all my companies through this scan. Companies like Apple (AAPL) and some of the fertilizer plays Potash (POT) and Mosaic (MOS) would never show up on these scans, and yet I'm invested in them. This is just one of the starting places I look for ideas in terms of value. Remember, this is a quick, loose VALUE scan.

Typically, the main things I look for in my companies not necessarily found in this scan are operating margins between 15-20%, a return on equity greater than 15%, strong (accelerating) quarterly revenue growth on a year over year basis, strong (accelerating) quarterly earnings growth on a year over year basis, a PEG ratio of under 1, a price to sales of under 5, insider/institutional/hedge fund ownership.

This is just an idea of fundamental things to look at when you're starting your research on any stock. This is literally just the tip of the iceberg in terms of fundamentals. But, I've found it to be a good starting place to generate some ideas and find some value for the value side of the portfolio. Fiddle around with some of the constraints and see what you come up with. Anyone have any other favorite scans they use pretty often?


Background / My Investment Style

I started this blog a few months back and completely forgot to even introduce myself or give a brief overview of my investing background as well as my investment and trading styles. So, figured I should prooooobably do that.

Call me J, I'm the brains/stupidity behind "Market Folly." I've been investing for a little over 5 years now and have been intrigued with the markets in some form or another pretty much all my life. I have degrees in both Economics and Communications, hence the blog. It serves as a place for me to communicate with others as well as a place to throw down my analysis on paper (er, online). I've outperformed the markets 4 out of the 5 years I've been in "the game," and the only year I didn't beat the S&P was in my first year, when I was struggling to figure out my investment style. But, just recently, I've really stopped focusing on outperforming/underperforming the S&P. Instead, I'm shifting slightly and focusing on absolute return, straight up.

This goal suits my style because I also short sell, use options, and occasionally use leverage. As mentioned above, I both invest and trade, in 2 different portfolios which I combine in 1 account. I technically keep investments in one portfolio and trades in another portfolio so that way I can still short-term trade some of the positions I hold in my investment portfolio, without having to mess with my cost basis etc. Both accounts are at the same brokerage so I just tab back and forth and then lump the performances together to come up with my annualized return. Currently, I'm up 13.8% for the year. My investment style is a very top down approach. Its a macro thesis based style in which I like to seek out emerging trends and secular growth. I throw a little bit of value investing every once in a while when I see some overlap with my theses. I'm big on emerging markets, but they by no means make up my entire portfolio. After arriving at a macro investment thesis, I take a look at all the companies within that theme and hand pick the top 1-3 (depending on how many names are in the sector). I'll use fundamental research to back up my picks, and then I use technical analysis/chartology to determine entry/exit/stops/price targets. I'll be doing another post here soon detailing what exactly I look for in terms of fundamentals. Additionally, I'm big on monitoring a select bunch of hedge funds who have solid track records and very smart managers, to help generate ideas. My timeframe for these investments is anywhere from 6 months to 2 years typically. However, there are definitely some names in my portfolio that I'll be holding for 5 years and beyond.

My short term trading style is based pretty much on market catalysts or technical analysis. However, I'm not someone who will just pick any chart whatsoever and then trade that stock if the chart looks ok. I have to know the company and know why it's moving. My short term trades last anywhere from 1 day to 3 weeks typically. Very rarely do I actually day-trade. I'm more of a swing trader/momentum/short-term trader (a hybrid, basically). As of late, I've been more focused on momentum trades, given how things have worked out in commodities. Hopefully I'll be able to give examples as the blog goes on, so people can get a feel for how I 'roll.'

So, I think thats the gist of things. Feel free to drop me some questions/comments below. Be happy to clarify anything if people are curious or confused.

- J.


Tuesday, June 10, 2008

Brazilian Banks

Brazilian equities sold off today on the notion that the monetary policy down there would need to see continued tightening. And, this is coming after they just raised rates. This sell-off got my attention, particularly in the banks, because I've been out of these names for a while and patiently waiting on the sidelines for any sort of notable sell-off to start to scale back in. And, today, with this news, I got a chance to add 1/4th of a position. I'm not going to name which one I purchased today yet for sake of comparison here and I don't want any reader bias. These are all very good banks for the same macro reason. But, at the same time, they are all good investments for smaller, different reasons.

Let me preface by saying that I think Brazilian banks in particular are sitting in prime position to one of the next major trends that will emerge over the coming 5-10 years. For me, this is a longer term investment and when I say I'm scaling in, I mean it literally. I added today at the 50 day moving average, and I won't add again until we see the 200 day moving average on the charts. I'm in no hurry to assemble a full position. But, back to the trend. This trend plays out two fold. First, you've got the global expansion of financial services. And, particularly, global expansion of 'localized' banks. Brazil fits this description perfectly in that for the first time, they have become a net creditor to the world. Their energy and resource rich landscape has generated tons of new wealth and has propelled them to the top of the emerging markets. So, these banks are now recognized and competing in a global sense. Secondly, you've got an emerging middle class due to the new wealth being created in Brazil. And, who does this middle class wish to emulate? The wealthy. And, just like the wealthy, the middle class need a sophisticated place to seek out financial services for their newfound prosperity. With this rising demand, the banks are expanding their services and providing more complex services than they typically did in the past. Additionally, they are handing out more credit cards and more loans are being issued. I believe this trend is just in its infancy and some of these banks will continue to emerge onto the scene as dominant players in the global banking industry.

Overall, this is a top down theme and add into all of this the fact that their currency, the Brazilian Real, is appreciating versus the US Dollar and you've got a great recipe for success. Warren Buffett was even quoted as saying that he is investing in the Real and is looking at doing business in Brazil as they grow. Brazil's financials are immersed in a top down theme and a rising trend. So, now that we've established the macro thesis behind investing in these names, let's take a look at the 3 main players in the industry: Banco Bradesco (BBD), Banco Itau (ITU), and Unibanco (UBB).

I'm going to be comparing these 3 side by side on various valuation and fundamental metrics. Firstly, in terms of market cap:

BBD - 66.7B mkt cap
ITU - 64B mkt cap
UBB - 38.94B mkt cap

BBD is the largest, while UBB is the smallest. So, immediately you already have one way to play it. You can bet on the small guy catching up by gaining market share, or you can stick with the proven "big daddy" of the industry. Next, in terms of valuation, they are all compelling. But, there is one that is slightly more compelling than the others.

BBD- PE 12.86, forward PE 11.09
ITU - PE 12.25, forward PE 8.91
UBB- PE 47, forward PE 11

Now, do note that various research outlets were all showing different trailing PE's for all these banks, which I was a bit confused by. So, keep that in mind when doing your research. Anyways, I'm assuming everyone else sees what I see in that ITU is the cheapest on valuation by both trailing and forward metrics. Taking valuation a bit further, lets look at PEG ratio, price to sales, and price to book.

BBD - PEG ratio 0.93, PS 2.26, PB 3.42
ITU - PEG ratio 0.97, PS 3.35, PB 3.73
UBB - PEG ratio 0.90, PS & PB both negligible because the numbers appeared sky high (ie: wrong) on numerous finance websites.

So, even though we cant quite get a legit comparison out of UBB here (unless you assume that they actually are trading at 53 times book, which I highly doubt...) we can see that all 3 are very similar in terms of price to earnings growth, with UBB carrying a slight advantage. Interestingly enough, BBD, the largest bank, is actually the cheapest when evaluating it by the price to sales ratio. Both BBD and ITU appear undervalued by that metric. Next, let's look at operating margins and return on equity.

BBD- margins: 24.44%, ROE: 28.53%
ITU- margins: 44.72%, ROE: 31.77%
UBB - margins: 22.45%, ROE: 32%

Alright, so in terms of margins, ITU cleans house with a whopping 44%. In terms of R.O.E., UBB just barely edges out ITU. Last, but not least, let's take a gander at quarterly revenue growth and quarterly earnings growth, both on a year over year basis.

BBD- revgrowth: 12.2%, earngrowth: 23.3%
ITU- revgrowth: 3.60%, earngrowth: 7.5%
UBB- revgrowth: 8.3%, earngrowth: 27.5%

So, although ITU dominates in the "bread and butter" of the business, they lack in terms of growth. Here, BBD steals the show in revenue growth, while UBB wins out on earnings growth. So, conclusions: From the above, we can see that UBB, the smallest bank, is thus trading at the highest multiple because it seems to be the growth pick of the bunch. As long as it can continue to win market share and build market cap, it should continue onwards and upwards. BBD is your typical 'behemoth' bank in that its large, still chugging along growing, but its not the cheapest on valuation or anything. ITU cleans house in terms of margins and returns on equity, really outperforming in its core business lines; and, its the cheapest on valuation. So, which one did I choose? And, for that matter, which one would you choose? Eventually, I have a strong feeling I will end up owning all 3 just to build my own Brazilian financials ETF in order to diversify and drum down my risk a bit. But, for now, I've gone with ITU. The fact that its the slowest growing of the banks (at least by those calculations) is concerning. But, the fact that it is cheapest on valuation AND has the best core business numbers (margins, return on equity) won me over. So, for now, I've started 1/4th a position in ITU and will add at around the 200 day moving average and will go from there to monitor the situation. In the end, all the banks really trade in tandem if you look at their charts. So, diversifying amongst them might not even be worth it. I'll monitor that situation to see if any major divergences begin to occur as these banks continue to emerge onto the global scene. Oh, not to mention, practically every hedge fund that I track and monitor (but don't necessarily write about) has a position in all 3 of these banks. What's interesting is that some funds have large positions in 1 bank while just holding modest positions in the other 2 banks. Some funds like UBB more, others ITU, and some BBD. But, the important thing is that they hold all three. So, taking a weighted approach by owning all three but favoring ITU is something I will consider as well.






Monday, June 9, 2008

Thermo Fisher (TMO): Critical Juncture

As you can see from the chart above, Thermo Fisher Scientific (TMO) has been forming a beauty of a triangle over the past few months. Triangles of this size usually imply consolidation before a big breakout/breakdown. And, this one certainly looks like it will breakout to the upside, given the number of times it has tested overhead resistance at around $59. But, at the same time, it very well could breakdown below its triangle given the shoddy market conditions we've been seeing. I'm in this name and have been for a while. This is not a trade for me, its an investment. TMO and MIL make up my "life sciences" basket in my portfolio. And, an added bonus is that numerous very smart hedge funds have been accumulating positions in TMO over the past few quarters. (Most notably, Blue Ridge Capital, as detailed here).

So, even though I'm personally not trading this name but rather investing in it, I'm definitely keeping my eye on the overhead $59 resistance and the trendline that is established on the bottom side. If we break below this trendline and make a lower low, I will most likely exit this name and look for a better entry point to get long this as an investment again. This is why technicals are so important and can be a great weapon to add to your investment arsenal. Even though I think TMO is a great name to own, this chart is implying a big move soon, most likely to the upside. I believe this is the case because the formation has been building for months and accumulation/distribution is showing slow and steady accumulation over the months. So, keep an eye on it, and get in it for a trade or an investment, whichever you prefer. Momentum traders would like to play this name on a move upwards of $59 on some solid volume. Whereas others might like to play it right now on todays bounce off the 50 day moving average.

All I know is that TMO is making higher lows and has consolidated beautifully over the months. Look for a move with conviction in either direction. Just let the break of the triangle dictate whether to get long or short. I know I'll be monitoring my position intently due to the nature of this market and the nature of this big formation.


Sunday, June 8, 2008

Bullish on Aluminum/Alcoa (AA) and the Euro



Making the round through some of my favorite blogs and I found some interesting posts that I would like to flag to everyone's attention. Firstly, concerning Aluminum prices and Alcoa (AA). Steve Puri's blog located here has some great charts showing an excellent bull flag forming in Aluminum. And, obviously through higher prices, companies like Alcoa (AA) benefit. The first chart shows producer Alcoa, while the second one shows aluminum. I don't usually rely too much on elliott waves and fibonacci's in terms of technical analysis/chartology. But, if you're into that, Steve's got it outlined on each of those charts. I'm more concerned with the general trend. Aluminum has run up a lot, now it's consolidating in a bull flag and I expect it to break out to new highs here soon, thus benefitting Alcoa (AA). You can check out the chart on AA to figure out the best risk/reward play for your investing/trading style. With the market trading lower again, we could see a rush to "safety" again (in commodities).

Next, I found this great chart over on Kevin's Market blog located here. He points out that the Euro has become increasingly bullish and with the ECB hinting that they may actually raise rates to combat inflation, it gives the currency all the more reason to bounce. The main thing worth highlighting is the bottom part of the chart which depicts net long positions of small, large, and commercial traders. Kevin's noticed that commercial traders (red line) have taken their largest net long position in the Euro in some time. I find this interesting because the exact same thing happened in natural gas long before its initial breakout. The commercial traders amassed a large net long position and natural gas exploded to new highs. The same formation is developing in the Euro, so I wanted to flag it to everyone. Kevin's been right on by tracking the commercial traders in this aspect.