Thursday, August 31, 2006

Plop, Plop, Fizz, Fizz

Sometimes I wonder if I have the stomach to invest in individual stocks. I get so emotional. It isn't that I can't sleep at night, that would be a serious problem. But rather I feel that stocks or at times the markets betray me. We all crave loyalty don't we? It is a little OT, but I was so disapponted with the DRYS earnings last night (DryShips Inc. Reports Second Quarter and First Half 2006 Results). The shipping rate indices have shot up like a rocket, yet DRYS made 53 cents a share compared with 64 cents the previous quarter. The 53 cents was before a 13 cent charge for restructuring their debt.

I dug deeper. They give a list of how all their fleet is deployed and I had a little history, so I wanted to see how their daily rate was changing. Perhaps a lot of the increases were post June 30th. Not so. In February they were getting about $25,000 per day. It then dropped to 21,600 per day. As of Aug 30 it is $22,400. Blech.

Q: If actual rates have gone up so much, how come DRYS isn't realizing the increase?
A: They haven't managed their fleet well.

So I sold today at $13.67. I made an 8% gain in a week, so it is hard to whine. But I wanted this to be a LT holding. I just didn't have the stomach for it. Now where did I put my Alka-Seltzer?

On a + note, ANF had a 6% increase in SSS for Aug and an overall increase of 22%. Very nice. In basically a month (since July 27th when I went on vacation), ANF has gone from $50.90 to $65.00, about a 28% gain.

CHKE went x-div yesterday, another 60 cents per share safe in my pocket. You gotta wonder whether the div will be reduced. They don't seem to make enough $ to pay the div. The projection is to earn 58 cents this quarter and 40 cents in October. How can they pay me 60 cents? (granted their business is seasonal). Looking at analyst estimates (and we know how accurate those are) they project CHKE earning $3.00 per share for the year ending January 2007 and then dropping 50% to $2.20 for January 2008... I wonder why? Revenues are projected to increase moderately. I suspect some analyst has misplaced a decimal poi.nt

Midday thoughts. Modest up day for my MFI portfolio as I continue to gain some ground on the benchmark & breakeven. Hopefully this won't jinx me, but it has been a solid week. BB talks today, so I guess the market leaders are waiting to hear what he says. I gotta believe that the rate tightening this cycle is done, but I am wrong all the time.

The day is over. I await the earnings release for OVTI. Post-mortem... I pulled the trigger too quickly on DRYS. It steadily went up over the course of the day. That is where emotions will get ya. I almost bought BBSI as my 29th stock today. It was down about 2% and they do have a very good story to tell. But I waited. September is traditionally a bad month and I want to see if anything goes on sale post Labor Day. Instead I bought some more LPMA. I just could not stand the fact that the company is being sold for $29 in 2 months and is trading under $25. On their own merits they are worth $25, so I don't see much downside. Their prospective owner (PAY) announces their earnings tonight.

In the Boy am I Stupid Category - I was skimming some of my past postings. In the Loser posting (Loser Strategy) I mentioned four approaches to deciding which losers to sell at year-end. One of the approaches was "My Preference" meaning no rules, I just decided which stocks to sell. Of course the stock at the top of my list was IVII! Amazing that I make any money at all in my investments, my instincts are really rotten.

Wednesday, August 30, 2006

Plus a little this-a-and a little that-a

I can name that tune in 4 notes! I used to love Name that Tune. I think I knew every Broadway musical between 1950 and 1980. Do you know where the Title Lyrics come from without using a search engine? (little hint in the picture).

Pretty cool. With the aid of the snappy excel formulas from Randy this weekend, I have streamlined everything. Look for better graphics , exhibits and ability to track. I even figured out how to automate (to some extent) dividends. Like I said 3+ months ago, I am the kind of guy who likes to keep score at a baseball game... even when my team is losing.

I am relatively flush with cash. I sold my extraneous PTSC position (odd, still no Yahoo headline about the delay in filing financials) and of course I sold my IVII as well along with PFACP last week. I only plan on adding a single MFI position. The rest will go either into international stocks or else ST trades tracking when I think certain MFI stocks are "low". So far that strategy has worked "ok", but I have missed the home runs of PNCL & IVII.

Some of my MFI stocks are in the news this morning. The CEO of TRLG is complaining that his stock is undervalued (True Religion CEO says Street undervalues company). While I agree, I am not a big fan of CEOs banging the drum for their stock. Go out and buy some if you think it is cheap. Meanwhile, do your job. Remember that TRLG did hire GS to try and unlock value, so TRLG going private is not unthinkable. He does want to try and ramp up revenues from the current $148m to $1b. It is an aggressive company.

There was an article in TSCM commenting that insiders at FTO are selling (Energy Insiders Head for the Exits). I never know what to make of insider selling. Insider buying is another story. I went and looked at insider transactions and it is true that in early August a lot of FTO was sold by insiders. But if you look back over the past 2 years, you'd see a lot of additional insider selling at FTO... some how the stock has climbed despite it. There probably is some truth to the fact that some of the refiners have peaked, they really can't make much more money. But with WNR buying GI this week, I do think there is room for further consolidation.

ELX, a MFI stock of mine I rarely mention is buying Sierra Logic (a private company). The market doesn't seem to care one way or the other (Emulex Corp. to acquire Sierra Logic).

Well, the day is through. It was a green day, though not a BIG green day. I was wrong about ELX... their buying Sierra Logic was greeted with enthusiasm as the stock jumped over 7%. TGIS was the big loser, dropping 7.6% to offset the 9% gain yesterday. A day trader's dream if you time it right!

I see where OVTI announces their earnings tomorrow. You'd think expectations are lower than the belly of an earrthworm. The stock has dropped from about $30 to $16.35 in the past quarter. Yes, it has been painful.

The other earnings excitiement for me is today with DRYS. Not an MFI stock, but I have mentioned here before. I am up over 11% in under a week. I expect strong earnings and outlook based on shipping rates. The stock will likely tank!

Buy What I Don't Buy: Wow, my short list of MFI stocks that I didn't buy post IVII have had a banner week. Up 3.5% even with JTX acting as an anchor. My full MFI complement is up 2.6%, including the IVII sale. Hard to complain... but I'm trying.

Not so Nice: NSS has inexplicably struggled in the second half of 2006. As of June 30th the stock price was $55.24, now it is $45.98. That is a drop of almost 17%. They had blow out earnings for the quarter and the CEO gushed about value-added services (meaning greater profitability to me). What gives? I think the market thinks that oil & gas production is going to slow as NG prices are so low. Also, the higher prices that were charges post Katrina & Rita may fade. Perhaps true to some extent, but all the big Oil companies are flush with cash and they have all dedicated a LOT of money to production and drilling. The shortage of gas and oil isn't going away just because we had one warm winter. And NSS trades at a paltry 6.9x next year earnings. The Bottomline... (I love that Cramer phrase), NSS is an undervalued oil & gas derivative play!

IS Nothing Sold: ISNS appears not to have sold a single share of stock today. The single buyer and seller could not come to terms. Pretty funny (on one hand) owning such small cap stocks. On the other hand, when I am ready to sell will I rock the entire market?

PTSC update: Still no headline about the delay of financials. The stock traded flat most of the day, but now is off about 4%. I am glad (right now) that I took my meager profit yesterday.

Split Pea (CU): PCU announced today that they will split 2 fer 1 (Southern Copper plans two-for-one share split). While I don't get too excited about splits, for some silly reason people would rather buy 2 shares of a $45 stock than a single share of a $90 stock... so it will probably give PCU a short term boost. I may be a seller shortly after that boost as I will have had PCU a year on October 13th.

Blog Commenting on my Blog: Hey, I got mentioned in a blog by Jamie. Someone must be reading. He thinks LPMA is an interesting opportunity. I agree, but already have a boatload of LPMA to my name (Blog by Jamie on LPMA) .

Final note - DRYS had disappointing earnings. Blech.

"Say good night"

"Good Night".

Tuesday, August 29, 2006

The Early Bird Gets the Worm

Yesterday I preached being patient in replacing IVII in my portfolio. I am still going to try, but there is the title saying as well. It seems to be true for one of the stocks on my short list (VPHM). They closed Friday at $10.98. Then they went up on Monday to $11.17... finally AH they announced some positive results in a FDA phase I trial (ViroPharma Drug Promising in Early Trial). With the positive news, the stock went to $12.25 after hours. I suspect I can strike VPHM from my short list for the time being. If I owned I would certainly sell on the news, I find that the exuberence wears off quickly. (actually BDY went up about 8% yesterday and announced after hours plans to enhance shareholder value).

Pretty cool. I sent Vivian Lewis , of the MSN Strategy Lab,(I subscribe to her newletter regarding international stocks) an email last week. I basically thanked her for her newsletter. She actually found time on her vacation to send me a response. I thought that was classy. Here is a link to anyone wanting to try a trial of her newsletter:

Global Investor's web site

I did buy her shipping stock (DRYS) last week as the BDI keeps going up. I bought it a day too early at $12.60. It dropped to $12.00 the next day but now is pushing $14.00. The good thing about DRYS is they focus mostly on not tying up ships with LT charters. That can be a risky strategy, but when rates pop up they can really benefit as they have the capacity. Still "cheap" with a 5.9% dividend and expects to earn $2.46 this year.

It is the end of the day. I don't want to get giddy, but my MFI portfolio is showing some signs of life. It shot up 0.77% for a 2nd straight strong day. Just 3.7% underwater now. TGIS was the big mover, up almost 10% and accounting for about 50% of my gains. No idea why it moved.

PTSC sank in the middle of the day from 90 cents to 84 cents. No news in the headlines, but they did file to extend reporting date of the May 31st quarter end. I had a feeling that the long wait might not be good. The filing stated that they were having difficulty accounting for 2 transactions... here is the wording:

The Company requires additional time to consider new information related to (a) the accounting treatment of convertible debentures issued during recent years, which are no longer outstanding, and (b) the method of presenting the financial results of Phoenix Digital Solutions, f.k.a. P-Newco, a limited liability company which is 50% owned by the Company.

The report sounds harmless, but it was enough to get me to sell the "extra" shares I had bought at 80 cents a week or so ago. Still made a slight profit.

In my watch of potential "new" MFI stocks to replace IVII, JTX took a hickey today, dropping 6% on a downgrade. If it goes under $30 it will be a strong candidate. I added another candidate, THO. Thor manufactures RVs. I am always a bit split on that industry. Higher gas prices says that people may be less apt to buy an RV that gets 5 to 10 mpg. But OTOH, the demographics say seniors are more likely to buy RVs and we do have an aging population. THO is down about 20% from its highs and just announced that sales have remained strong through July 31st. They are at $42.40, a move under $40 might make me a buyer.

PNCL continued it's strong move, up another 33 cents. That means that since I wrote my Ridikulus piece last week PNCL has surged almost 25%. (my other two focus stocks haven't done so smartly. ISNS is up 3.4% and PONR aka Point Of No Return is down 5.5%... still you'd have done well to have bought the basket of 3 stocks).

End of the day. Part of me is a little sad to still be below water. I have skimmed a few other blogs and other people seem to be doing better. Does that mean I have just picked unwisely? I don't think so. I am actually a a little better than some of my benchmark MFI portfolios. Looking things over, it is my June/July picks that have really killed me. They're down 15%. My 50 benchmark portfolio for June is down just 2% and the July benchmark is up 2%. Darn you ORCT, PTSC & EZEN!

A continuous debate is whether one should buy stocks equally over the year (as recommended by JG) or all at once (for the impatient). The reason for the debate is (to me) the reading of the book makes it sound like 25-30 stocks were bought at a time. Over the long term, I don't think it matters. But over the short term it does matter as shown by my sample portfolios. So if you buy at one time, you need to be prepared for the chance you could have a little more volatilty in the beginning (just look at my chart!).

Monday, August 28, 2006

Premium Gas

It is early Monday morning. Always interesting to turn on financial news on Monday mornings as that seems to be when mergers are typically announced. The one that caught my eye (Western Refining to buy Giant Industries for $1.2 billion: WSJ) was Western making a bid for Giant Indsutries (must be a big company!). Looking at the graph, you could have bought GI at about $20 just two years ago, now it'll be around $80.

I found two things intersting about this proposed merger.
  1. It must cast a bit of a halo on my FTO.
  2. The price being offered ($1.2b) is only a 15% premium over Friday's close.

I wonder, how do they come up with the 15%? Do they talk with key owners of the stock and ask hypothetically what would they accept? Do they look at past mergers in the industry and decide a fair premium? I gotta say that 15% seems pretty paltry. At such a price, I wonder if that opens the door for a counterbid?

Well shiver me timbers! As I was discussing the lack of premium in the Giant merger, Corel announced that they were buying IVII for $13 a a share, about a 30% premium (Corel to buy InterVideo for $196M, or $13/shr, cash). I sold my IVII today at $12.62 as it is now an arbitrage play. At then end, I made 16% on IVII, not bad. Had one bought them last week when under $9.10 in my rubberband blog, you'd have a very satisfactory 44% gain. In all it validates the MFI approach. This is the 2nd of my 30 stocks to be bought or taken private in six months on the gig.

Not sure what I'll do with the money. My short list (right now) includes: note closing Friday prices shown.

BVF (16.95)
VPHM (10.98)
BDY (13.77) - three pharmaceuticals I have been watching.

UNTD (10.80) - not the airline but rather a nimble ISP which I think will benefit from AOL customers leaving with their new strategy.
BBSI (20.80) - a company that outsources for businesses.
JTX (34.84) - tax preparation firm.
ELOS (21.73) - cosmetic surgery company.

I want to try and be patient (very difficult for me) and pick one of these up on a downtick. (BVF is already on a downtick, just not sure I can overcome the stench).

The IVII sale along with a nice green day really bolstered my MFI portfolio. Up a rocking 1.8%. Funny, my best stock (besides IVII) was DLX, up almost 4%. Since hitting its low on July 24th, DLX is up 31%... with a dividend kicked in for good measure. That is why I want to be patient with my next MFI buy. (pity I didn't buy BDY as it shot up over 5% today!).

The whole IVII thing reminds me of a passage from his book,(ahem)

"In short, over time the interaction of all these things - smart investors searching for bargain opportunities, companies buying back their own shares and the takeover or possibility of a takeover of an entire company - work together to move share prices towards fair value. Sometimes the process works quickly, and sometimes it can take several years."

Finally, trying a new format to mark sold stocks on my list. Sooner or later I'll need to find a way to consolidate sold stocks... but I have so few in the black I like to include them!

Stock Cost Current Gain
NCOG $19.39 $27.05 39.5%
UST $39.36 $52.65 36.6%
FTO $28.76 $36.25 26.1%
MGLN $38.34 $48.35 26.1%
PCU $78.13 $90.76 22.3%
IVII $10.93 $12.62 15.5%
TRLG $17.02 $19.65 15.5%
MTEX $13.11 $13.82 6.0%
ANF $61.13 $62.18 2.3%
PNCL $6.68 $6.82 2.1%
NSS $45.89 $46.60 1.6%
PGI $7.71 $7.75 0.5%
CHKE $37.55 $36.89 -0.2%
PTEN $27.74 $27.12 -1.9%
MSTR $94.36 $91.37 -3.2%
RAIL $58.18 $56.02 -3.7%
TGIS $10.34 $9.75 -4.6%
KG $17.31 $16.40 -5.3%
FDG $34.03 $30.73 -7.1%
ISNS $13.17 $11.82 -10.3%
ELX $17.85 $15.82 -11.4%
PACR $32.53 $27.20 -15.5%
EZEN $2.84 $2.30 -18.9%
TBL $34.50 $27.46 -20.4%
ORCT $11.83 $9.15 -22.7%
DLX $26.36 $17.71 -30.3%
PONR $32.97 $22.50 -31.8%
PTSC $1.31 $0.88 -32.8%
OVTI $27.79 $16.69 -39.9%
HW $37.42 $22.06 -41.0%

Total Gain/Loss
Benchmark Gain/Loss
Annual IRR

% Gain/Loss


Saturday, August 26, 2006

Mr Saturday Night

Slow Saturday night. Might as well punch in a few quick thoughts while watching an amazingly bad movie. FTO got upgraded by ML on Friday (Merrill Upgrades Energy Names), but it was very strange. Usually the market gets excited when a golden WS firm makes an "outperform" call. FTO started up about $1.00 early on, but gave it all back during the day. Odd, all the other stocks went up about 2.5%... I wonder why the market gave FTO the razzberry?

OVTI was downgraded by CIBC to "sector perform". I am hoping that is a contrarian call. They were sure wrong when they made it "sector outperform"on March 2nd. Since then it has gone from $23.99 to the current price of $16.62. It has been a wild ride though getting to $34.49!

PTSC.OB continues to be a stock I wonder about. I own my MFI shares plus I bought some for my non-MFI account when it dropped beneath 80 cents. I am holding my breath waiting for their earnings, it has been eons since their last earning report and the most recent quarter end was May 31st (August qtr close is almost here). My million dollar question (ok, a little hyperbole there) is does the fact that they have waited so long mean good or bad news? I think they have to report this upcoming week or the de-listing could begin... I know that would be short term negative. I am hoping that they have so much cash coming in, they are not sure how to account for it and/or whether to pay a dividend. Good news could really pump up my performance.

Last couple of thoughts... I promise. A long time ago (in a galaxy far, far away) I tried to decide between MTEX and PLAY ( A Tale of Two Stocks). I bought MTEX. I am up 4.8% plus I have a dividend, so I really can't complain. PLAY is up to $12.91 from (wait a second) $10.82. Hmm, looks like about a 20% gain. Funny, the concept of portfolio is that some of the winners offset some of the losers, but it seems everytime I have a choice I have picked the "loser".

Then an update on Hurricane Ernesto. It has begun turning north much more quickly than thought on Saturday. Good for Houston & New Orleans, not so great for Tampa. My expectation is that Cuba will suck much of the life frm the storm and it will not be a big deal. Does hurt my plan for perhaps a quick sale on PTEN, but I can't be selfish... besides I own some insurance stocks so it is good for them.

Getting Technical

Pretty funny. I think Friday was the flatest day I have had all year. My entire portfolio changed by $25. At least it was up! Wathcing Tropical Storm Ernesto in the Caribbean. It has all the makings of trouble. It is sure to make the Oil & Gas stocks spike on Monday. My PTEN stock is in my IRA and I am tempted to sell it if it spikes sharply and then will buy it back post euphoria. We'll see, I am just toying with the idea.

I have the weekly graph below, not exactly a banner week as I pass my 6 month anniversary of my 1st MFI purchase. I hope the next 6 months are better.

I want to give props to Randy Harmelink on the Yahoo MFI board. He had a superb add-in that I downloaded (Re: Kudos to Randy). There are 2 that I found super useful. The first allows you to write a function in Excel that brings a stock value straight from Yahoo into a spreadsheet. No cutting and pasting, no macros, no queries. It is super cool and if you have a question he's willing to help. I know both of my faithful readers will not overwhelm him! The second formula allows you to get the historical price for a stock! Prett neat, huh? I used this formula to update my graphs. I didn't have the stock prices the Friday I was on vacation and was too lazy to look the 29 stocks up. But with Randy's formulas, it was a snap. So the graph now does not have the interpolated value from August 4th.

Now here is my weekly update as well on stocks and their prices. As you can see, I am down 6.5%.

Stock Cost Current Gain
NCOG $19.39 $27.05 39.5%
UST $39.36 $52.71 36.8%
FTO $28.76 $35.63 24.0%
MGLN $38.34 $46.75 21.9%
PCU $78.13 $89.95 21.2%
TRLG $17.02 $18.98 11.5%
MTEX $13.11 $13.74 5.4%
NSS $45.89 $47.05 2.5%
PTEN $27.74 $27.89 0.8%
ANF $61.13 $61.38 0.7%
PNCL $6.68 $6.68 0.0%
PGI $7.71 $7.65 -0.8%
CHKE $37.55 $36.09 -2.3%
TGIS $10.34 $9.92 -2.9%
RAIL $58.18 $55.91 -3.9%
MSTR $94.36 $90.05 -4.6%
KG $17.31 $16.45 -5.0%
FDG $34.03 $30.73 -7.1%
ISNS $13.17 $11.71 -11.1%
IVII $10.93 $9.60 -12.2%
ELX $17.85 $15.67 -12.2%
PACR $32.53 $26.67 -17.1%
EZEN $2.84 $2.30 -18.9%
TBL $34.50 $26.99 -21.8%
ORCT $11.83 $9.13 -22.8%
PONR $32.97 $22.77 -30.9%
DLX $26.36 $17.04 -32.9%
PTSC $1.31 $0.86 -34.7%
OVTI $27.79 $16.62 -40.2%
HW $37.42 $21.84 -41.6%

Total Gain/Loss
Benchmark Gain/Loss
Annual IRR

% Gain/Loss


Now the final technical part of this technical post. Yahoo has a new feature which they say allows you to bring in real stuff into blogs... I want to try it. Here goes! (hmm, better save 1st).

Thursday, August 24, 2006

Caveat Emptor

First a few notes about my MFI portfolio. Then a long and boring discussion about the importance of doing due diligence. Caveat Emptor.

Pretty much a flat day for my portfolio. Can't complain, can't get excited. The amazing stock the past two days has been PNCL. It went up 10% yesterday as I noted. Today up another 5.5% to finish at $6.64. I am almost back to break-even ($6.68).

The funny story was True Relgion Jeans (TRLG). They announced today that they hired a "Visionary" (Denim and Lifestyle Apparel Design Visionary to Join Creative Team at True Religion)... gotta love it! I just picture their home office with incense and beaded doorways with people meditating.

Warning, Warning! Discussion about doing research below. Jim Cramer fans should abort!

I know it is my MFI diary, but lessons from my Non MFI side keeping creeping in. Heck it is hard to write everyday about just MFI! I wanted to bring full circle to my comments about PFACP yesterday. I had bought this stock entirely because Thomas Ko in the MSN Strategy Lab had laid out a nice case for it. It was exactly what I wanted in a difficult market:

1. Food stock
2. Dividend
3. Undervalued

At least that was what I read from him. I do not blame Mr. Ko, everyone has to take ownership of their investment decisions. I should have done more research before buying. I did that research yesterday after deciding that his CHCI recommendation was a poor one and that he does not necessarily have a golden touch. I show the results of my research, not to embarrass myself or Mr Ko, but rather to remind people (myself included) to do their own homework.

The two big points he gave for buying the stock were (1) while they announced the termination of their 43 cent quarterly dividend, they were likely to commence it again in 2007 and (2) they own 40% of Birds Eye Foods which of itself has an enterprise value of $1b.

Both very promising for a company worth just $20m and trading at $6.00 a share (and seemingly too good to be true). Now I read the 10Q yesterday for both PFACP and for Birds Eye (a privately held corp). Here is what I found and my understanding (disclaimer: I could be wrong).

PFACP is basically a holding company. They generate very little revenue (so far as I could tell) on their own. Their primary holding is 40% of the common shares of Birds Eye Foods. Here is their history.

They basically got too leveraged when they bought Dean Foods Vegetable Company in 1998. So they had to find new equity. They made a deal in 2002 with Vestar Capital. As part of that deal, Pro-Fac got $10m a year for 5 years (the source of revenue for the dividends that is ending) and the 40% stake in common equity of Birds Eye. Vestar got 55% common equity of Birds Eye plus (and this is the important part) 100% of the preferred stock (paying 15% compounded dividends) in Birds Eye. For that, Vestar paid 175m plus the 5 $10m payments.

Now let us see where Mr Ko was wrong (IMHO).
He stated that the enterprise value of Birds Eye was about $1b. I looked at Birds Eye Financials at the net worth was about $275m. Maybe in the market, these firms trade at 4x book, but I don't see where the $1b comes from.

He stated that PFACP has 40% of Birds Eye. That isn't really true. They have 40% of the common equity. In the 10Q, the value of the preferred is $244m. Maybe I am really, really wrong, but I don't see where PFACP has any part of that $244m. In Finance 101, I remember that preferred stockholders come before common stockholders (thus the name). So the $275m of total equity is reduced by $244m (which BTW is growing at 15% compounded quarterly) leaving roughly $30m for the common guys. PFACP has 40% of the $30m = a whopping $12m and shrinking fast unless Birds Eye can grow faster than the 15% preferred dividend rate (not happening).

Point #2 - resumption of the dividend. Here is what the 10Q says: "Holdings LCC will use commercially reasonable efforts to cause Birds Eye foods to make annual distributions to Holdings LLC, which can in turn be used by Holdings LLC to fund distributions to its common unit holders, including Pro-Fac. Many factors could affect whether such distributions are made in the future and the current financing arrangements of Birds Eye Foods with its senior lenders includes a covenant which precludes such distributions without the permission of the senior lenders."

To put that into English, I read that Birds Eye Foods can only pay distributions to their common shareholders (PFACP) with the permission of the bankers. Well, I can tell you that the bankers will absolutely not allow those payments to be made if in any way it impairs Birds Eye from paying the money owed to the bankers. So the question is whether Birds Eye is awash in cash?

I gotta tell you, if they are awash in cash they are sure hiding it well on their financial statements. In the 9 months ending March 2006 Birds Eye made $11.5m. That is an annualized rate of $14.7m (granted it was higher, about $25.5m in 2005). Now going forward that would be almost $25m as they don't have the $10m distribution any more. Out of the $25m, they have to pay the preferred dividends to Vestar, which by my math will be $39m. Basically, as I see it, PFACP has no income stream. I think they made a five year deal in 2002 out of necessity (bankruptcy may have been the other option) and now they will have to pay the piper. I have to admit that I am not sure where all the money goes... I can't believe that Birds Eye could have +$900m in sales annually and only have $25m left at the end in profits. I hope I wrong, though I will be a disinterested bystander. (disclosure: I now own 0 shares, though I missed an upswing today).

Do Due Diligence!

Wednesday, August 23, 2006

Wile E Coyote vs the Roadrunner

Was there ever a better cartoon? Wile E Coyote would form some intricate scheme to capture the Roadrunner. Invariably, the Coyote would get close, only to get the infamous, "Beep-Beep" and the Roadrunner would speed away.

So it seems with my MFI portfolio. A few times I have been gaining ground on the benchmark IWV (and breakeven), only to hear, "Beep-Beep". We all think we're the Roadrunner, but in fact most of us are the Coyote. Sad but true.

A few rambling thoughts on this bleak day which saw my MFI value drop about 1.2%.

  • I was right about PNCL yesterday (for a day at least). Today they got word about NWAC renegotiating with them and the stock jumped about 10% (Pinnacle to Negotiate Flying With NWa).
  • I was wrong yesterday about PONR (for a day at least) as it sank to $23.65.
  • PTSC gave back a good chunk of recent gains, dropping over 6%.

The pressure to sell MFI stocks prior to year-end may have been relieved for me. I decided to sell my PFACP in my non MFI portfolio. After Thomas Ko appeared to be wrong on CHCI and his debate with JD I decided to re-visit in detail his arguments for buying PFACP. A little late, as I alreadu had bought the stock... note to self, do reseach first. My reading was that he had mis-stated some of the facts.

More on this later.

Tuesday, August 22, 2006


Either I am just plain stupid (not impossible) or the market is sometimes clueless.

  • PNCL - down another 10 cents today to $5.74. This company has been making regular quarterly profits of 60 cents. That means in 10 quarters they would pay for themselves.
  • ISNS - down another 24 cents to $11.52. They are growning about 30% annually and trade at about 10x earnings.
  • PONR - had a bit of a drag on earnings due to plant being closed. But all is well now, yet stock is mired at $24.40, just 4.6x trailing earnings. Trading at "40% discount to peers".

I could go on. These stocks are like coiled springs. They will bounce.

It was actually a decent day, despite my marginal whining. I did read the weekly Jubak article with some interest today (Fed Votes for Stagflation). He basically says that we could tumble into 1970s-style stagflation (low growth and high inflation for those of you not born then). Let us just say it was a tough stretch to get rich.

As I have said many times, Jubak is a bright guy... not a Chicken Little-type. So it would be foolish to ignore. Cramer was saying kind of the same thing last night. So this information begs the prudent question, "what should a rational investor do?".

For the MFI portfolio, the easy answer is "nothing". But it really isn't that easy. Even if you believe in MFI, should you be picking different types of MFI stocks if you think we're heading into turbulent waters? And if so, what types of stocks?

  • Commodites?
  • Pharmaceuticals?
  • Food/Beverages?
  • Larger Cap?
  • High dividends?

Certainly something to think about. And then my non-MFI portfolio? I remember the 70s. Gold did really well. Should I be buying gold? Financial stocks? Part of me thinks that some Berkshire Hathaway might be prudent. Mr Buffett has a lot of cash and a lot of smarts. In turbulent waters, it might be comforting to have him at the helm. Or maybe I should be thinking about demographics, and buying stocks poised to do well as the Baby Boomers move into their "golden" years.

So many questions.

Monday, August 21, 2006

Rubber Band Stock

Hand me down my walkin' cane
Hand me down my hat
Hurry now and don't be late'
Cause we ain't got time to chat
You and me we're goin' out
To catch the latest sound
Guranteed to blow your mind
So high you won't come down

I don’t think it qualifies as a great song, but it did have a catchy beat. Reading online, it is by the Spinners and is about a man who can play a Rubber Band between his toes. Betcha you didn't know that!

You now hear it all the time on a commercial. The commercial must not be effective as I can’t even tell you who it is for! Either Office Depot or Staples I think, probably OD as Staples has the Easy button (that one I remember).

IVII qualifies as my Rubber Band Stock. Since I have owned it, it has dropped below $9.10 4 times. Check out what happened each time in the following two days.

June 19th: $8.85 to $9.63 (8.8% gain)
June 28th: $9.09 to $9.73 (7.0% gain)
July 24th: $8.86 to $9.72 (9.7% gain)
August 20th: $9.02 to $9.70 (7.5% gain).

Now four points do not necessarily make a sure thing, but I think the next time IVII drops around $9.00, that I may be a buyer.

Not a great day in the market. My move last week to buy PTSC, PONR & TGIS low has paid off as PTSC went up 6.5% today. The bigger question is what is going to happening? Cramer was pretty bearish today (The Kiss of Dearth). He gave 7 (count 'em) reasons why the market will be going lower over the next 3 months. Of course I love Cramer's suggestions for making money:

But if people want to make serious money, they need to look for companies that can beat their earnings and estimates, he said.

"Stocks that beat their estimates go higher," Cramer said.

Thanks Jimbo! Of course then when a stock beats estimates and doesn't go higher, he'll talk about it being priced to perfection or that street estimates were actually higher than the analysts showed.

Saturday, August 19, 2006

My Better Half

The only thing that has kept me from committing Hari-Kari over my MFI portfolio (not that bad at -5.5%) has been the fact that I am up about 9% YTD overall on my managed portfolio. That can only mean one thing: the non-MFI component of my portfolio has done much better than the MFI component. Part of it is timing, The market did much better through May 10th than post May 10th and the first 5 months I was much more weighted towards non-MFI as I made my 1st purchase February 24th. But part has been some good stock selection as well. I do place "larger bets" in this portfolio than MFI.

Here are my non-MFI stocks:

AXS - Bermudian P&C Insurance company.
CB - US P&C company.
CNX - a coal company.
EN - an Italian utility.
IBN - Indian Bank.
LPMA - Israeli Electronic $ company. Due to merge with PAY in October at $29. For some odd reason the stock price is $25.23 .
OMG - a metal refining company.
OXY - Oil & Gas play recommended by Cramer almost a year ago.
PFACP - per Thomas Ko.
PVD - a Chilean Pension Fund Company.
SBS - a Brazilean water comapny.
STP - a Chinese Solar company.
WB - National Bank.

Stock Cost Current Gain
AXS $26.29 $31.52 19.9%
CB $47.35 $49.15 6.2%
CNX $31.39 $39.26 25.1%
EN $41.17 $45.04 20.9%
IBN $23.30 $27.31 17.3%
LPMA $22.50 $25.23 12.1%
OMG $12.95 $38.32 196.5%
OXY $35.80 $52.42 46.4%
PFACP $7.00 $5.19 -23.4%
PVD $23.50 $24.89 5.9%
SBS $19.30 $26.97 42.8%
STP $29.03 $30.48 5.0%
WB $50.10 $55.71 11.4%

These figures exclude dividends, which are substantial for some of these companies.

Note the large international and insurance/banking/financial theme. Counter MFI. I do wonder if it is not coincidental that my non MFI has outperformed MFI AND IWV has out-performed MFI. It could largely be the financial sectors that are driving the outperformances.

Just the Facts

As a numbers guy, guess what? I enjoy looking at numbers! So I decided to crunch some numbers today, because that is who I am. Overall, I am now down 5.5%. Better than the near 10% I was down a few weeks ago, but it is unlikely I'll be in the green at my 6 month anniversary.

I thought it'd be interesting to cut the numbers by month of purchase. My February purchases are actually $9 in the black. Woo-hoo! June/July purchases have been a disaster, as Warren Buffett once said, "I would have been better served just going to the movies".

Month Cost Current Gain
Feb 59,275 59,284 0.0%
Mar 39,869 39,031 -2.1%
Apr 40,661 36,402 -10.5%
May 119,686 117,338 -2.0%
June/July 55,018 46,566 -15.4%

I was surprised that May wasn't more of a disaster, but it was helped by my 2 week gain on NCOG.

Here is the table of overall results:

Stock Cost Current Gain
NCOG $19.39 $27.05 39.5%
UST $39.36 $51.68 34.2%
MGLN $38.34 $46.50 21.3%
PCU $78.13 $89.81 21.0%
FTO $28.76 $33.99 18.3%
TRLG $17.02 $20.13 18.3%
MTEX $13.11 $14.02 7.6%
NSS $45.89 $48.20 5.0%
ANF $61.13 $63.77 4.6%
PGI $7.71 $8.01 3.9%
CHKE $37.55 $38.03 2.9%
RAIL $58.18 $59.13 1.6%
TGIS $10.34 $10.30 0.8%
MSTR $94.36 $93.18 -1.3%
PTEN $27.74 $27.05 -2.2%
KG $17.31 $16.44 -5.0%
FDG $34.03 $30.10 -8.9%
ISNS $13.17 $11.88 -9.8%
ELX $17.85 $15.84 -11.3%
PNCL $6.68 $5.89 -11.8%
PACR $32.53 $28.20 -12.4%
IVII $10.93 $9.02 -17.5%
TBL $34.50 $27.11 -21.4%
EZEN $2.84 $2.21 -22.0%
ORCT $11.83 $9.21 -22.1%
PONR $32.97 $24.66 -25.2%
DLX $26.36 $17.39 -31.6%
OVTI $27.79 $18.54 -33.3%
PTSC $1.31 $0.85 -35.5%
HW $37.42 $22.31 -40.4%

Total Gain/Loss
Benchmark Gain/Loss
Annual IRR

% Gain/Loss


I have to say that I am starting to watch EZEN closely. It is down 21% to $2.20. While their earnings were just ok, they were not a disaster. The big item I noted was a 64% increase in orders over 2q2005. So I think the future is brighter than the mere 9% growth they had in Q o Q revenues. Next week, I will likely shift some of my floating non MFI IRA funds over to EZEN.
I am also watching ISNS closely. They had a really good earning report and jumped about $1.00 to $13.60. Since then they have drifted back to $11.88. That is their lowest close since April. They did settle a lawsuit with a distributor, perhaps that is part of cause for the drop?

UST has really been solid for me, up about 34% in under 6 months. It spiked some yesterday (I suppose) because of positive court ruling on big Tobacco (MO went up a bunch). Makes me kicj myself for selling MO around $72 a few months ago, would have been a great ballast stock in the past turbulent quarter.

Have a great weekend everyone!

Friday, August 18, 2006

Friday Night Graphs

First Friday in 3 weeks that I'll be posting my soon to be infamous MFI graph. For those first-timers out there, the graph monitors my MFI portfolio performance (29 stocks). It assumes $10,000 in each stock, with the exception of 7 stocks which have $12,000. So total invested in portrayed by the so-called "Green Line", which for those mathematically challenged = $304,000.

There is the so-called "Magenta Line" which tracks the value of my portfolio week-by-week. It does include dividends the date the stock goes ex-dividend (so DLX gets the 25 cent dividend in the chart today).

Finally, there is the so-called "Blue Line" which tracks the benchmark IWV portfolio with purchases of the benchmark coinsiding with the MFI purchases. The astute reader witll note that the Blue Line is on top, then the Green line and then finally the Magenta line. This is not the way a savvy investor wants the graph to look.
Good as Gold. Read an interesting article about Copper prices (Copper Lifts, Gold Slips), always read with interest due to PCU holdings. Copper prices are headed back up as several Chilean mines are closed do to work stoppages. None of the mines are affilaited with PCU (one is BHP as I recall). Bad for them, good for us.

My idea to buy a few beaten down MFI stocks for ST in my IRA has worked well in first few days. The three stocks (PONR, PTSC & TGIS) are up a composite 3.8%. Not getting me rich, but I'd take that week-in and week-out.

Had another confrontation in the MSN strategy lab today. Mr Dlugosch felt that the amatuer Mr Ko is wrong about housing stocks being ready to rebound. Here is what he said:

The housing market is the tip of the iceberg and should sound alarm bells. Recently, Thomas Ko wrote about Comstock Homebuilding (CHCI, news, msgs). I respectfully disagree with his assessment. This is a stock that should be sold and sold immediately.
The slowdown in housing has just begun. From past experience, this industry has a tendency to go through boom and bust cycles. Those that think housing is undervalued and oversold miss the point.
These companies can -- and have gone -- bankrupt when times were tough. The potential reward in Comstock Homebuilding does not merit taking the risk. It does not matter that book value is higher than the current stock price. If asset values are shrinking and new homes are not selling, Comstock Homebuilding with its overhead could be in trouble.
I don’t want to be an alarmist as I do think we will avoid catastrophe in the homebuilding sector. The problem is that it will take many years of adjustment to recover from the recent boom. There is clearly another leg down here in my opinion, and I am selling Comstock Homebuilding immediately.

I tend to agree with JD. I was talking to a friend selling his house in NH and he said that there are a lot of sellers and not many buyers. That will place a lot of pressure on the homebuilders. Higher interest rates could cause increased foreclosures as people were too leveraged, this could also dampen the market. That being said, Ko's stock CHCI (which JD owned until today and lost a bunch) is pretty beaten down... from over $14 to $4.88 YTD. Ow. Finally, if JD is so smart, why did he buy CHCI and HSOA (another housing-related stock) at the start of the contest 6 weeks ago? Fun to watch form the sidelines, I won't have the courage to wade into housing until the Fed starts dropping rates... though I do think things are still strong in certain markets like Texas.

Enough of that. I saw an amazing sight today! RAIL is back in the Green for me!! Yes I know, I had to pinch myself as well. See all these MFI stocks can do well, you just have to buy them at the right time. RAIL strayed furtherest off the tracks on July 21st when it hit $45.10. Today it has clickety-clacked back to $59.13. That is a 31% gain for those of you who don't have their HP 12C handy.

Thursday, August 17, 2006

Loser Strategy

There are still a few months (duh) before year end. But I wanted to pontificate a little bit about strategy for selling losers. For the good of my total portfolio, I'd like to sell about $10,000 of losses by year end to minimize taxes (I hates taxes). Sadly, at this time there are a number of combinations of my stocks that I could sell to get me to such a number.

How should I go about selecting a combination? Here are some various options as I see it:

  1. Sell by date of purchase. So the losers I have held the longest get sold.
  2. Sell if no longer on any MFI list. That way I am selling stocks that JG no longer likes.
  3. Sell based upon my own preferences.
  4. Sell the minimum # of losses = sell the biggest losers.

If I followed those guidelines today I would sell:

  1. ELX, MSTR, HW & DLX
  2. ELX and ORCT - would have to find others.
  3. IVII, ELX, HW & DLX
  4. HW, OVTI, & PTSC

I have to admit that I was surprised that so many of my losers are still on the list. I suppose as they drop by so much, that the earnings yield increases. This will raise another conundrum down the road. After holding a loser for 12 months... should I sell it even if it still on the list? If I hold it, do I hold for another 12 months or am I a free agent at that time and can sell as I see fit? Not exactly black and white, this MFI investing.

End of the day is here. Another not-so-good-day (NSGD) for my MFI portfolio. While the major indices and the IWV closed up a bit, I was down 0.3%. It was my Oil & Gas stocks (FTO - down 6.6% & PTEN - down 2.4%) that did the damage. HW and EZEN were my best stocks, though I can see no reason except some bargain shopping.

It is surprising, despite my MFI portfolio being down that I have managed to eke out a 7.8% gain so far in 2006. That has probably kept me from panicking over the poor MFI performance. I haven't done the math, but it is fair to state that my non-MFI portfolio is substantially out-performing the indices. I have a new manuever in my non-MFI portfolio. I am buying and selling some MFI stocks that I feel have been beaten down too much. This is just in my IRA account and I do not count as MFI moves. But I have studied these stocks and their patterns in such depth that I feel I know when they are a buy (as I have called correctly several times here). This week I bought TGIS ($9.21), PTSC ($0.80) and PONR ($24.40). Purely ST moves.

Strategy Lab Thoughts

Every now and then I like to sneak a peek at the MSN Strategy Lab (Summary) to see what the "experts" are doing. For the record, I am a big fan of Vivian Lewis and subscribe to her International Newsletter.

  1. I am appalled at the sloppiness of the record keeping. This is a contest that the whole world can watch. Yet MSN admits that some stocks bought by VL can't be tracked by their system. Then I noted today that Ken Kam's portfolio includes OXY, which split today, yet they show him down 50% because they didn't adjust for the split.
  2. I like the approach of Jamie Dlogosch, except for some reason he always picks SIRI. I suppose at some point it does have to go up... but I don't see the economics of satellite radio.
  3. Thomas Ko makes me laugh. He buys outrageous stocks and has done quite well. He doesn't have a reputation to protect as he is a "amatuer", though it seems people track his moves. I should disclose that I have bought his PFACP... haven't done so well yet, but I like the story.
  4. Ken Kam won the last round (essentially by having ERS be a 4 bagger in under six months, since then it has gone all the way back... timing is everything) and now he is in the rear (even with OXY mistake fixed). He runs a mutual fund, which I looked at briefly. I think I saw where Morningstar gave it a single star... I quickly moved on.
  5. The funniest part of this round is a bit of back and forth between Vivian and Ken on Teva vs Elan. KK loves ELN, while Vivian has owned TEVA since she was about 5 years old. Go Vivian! (Again, her newsletter is wonderful if you want to dip a toe in international waters not going the mutual fund or ETF route).