Thursday, March 27, 2008

Good News for a Change

ACN reported earnings after the bell this evening. The expectations were that as we head into a recession that consulting will be used less. They had a real wind at their back with the USD getting weaker. Revenues were up 11% in local currencies and up 18% in USD! Here are some headlines:
Sounds good to me! Should see some movement tomorrow.

I do wonder about JTX a bit. This is a stock that is probably down close to 50% in the past month or so. They had a poor first quarter, which included January... traditionally the kick-off of tax season (I am still working on mine). Now the million dollar question is whether that was caused by people procrastinating or by people moving to other means of doing their taxes? I don't know the answer to that, but I do wonder whether the proposed government rebate program will cause more people to use tax preparers like HRB and JTX (as you have to have filed a return to qualify for the rebate). Does that make JTX a buy at $11.03? I think so.

Now I have a bone to pick with IAR. I admit this was one of many poor stock picks I have had in the past year. I hope no one followed my lead. Today they announced they are suspending their dividend (UPDATE - Idearc to suspend dividend payment; shares fall). Now that should not be a big shock to anyone. Right now the emphasis needs to be on meeting debt payments. They did say revenues were down single digit and margins had lowered ( Idearc Executive, at Credit Suisse Conference, tells investors underlying business fundamentals sound). The stock sold off about 9%, probably an over-reaction... but what are you going to do. My "bone" is that they announced these major revisions in a conference in the middle of day. It didn't impact me, as I have already bought and will be holding for another 8 months. But that seems to give people at the conference an unfair advantage. Something like this should be announced before the opening bell.

Here is the chart showing the people close to the event probably were able to steal a march on suckers not there:

Range:1d 5d 3m 6m 1y 2y Type:Bar | Line | CdlScale:Linear | LogSize:M | L
Compare:IAR vs S&P Nasdaq Dow
Chart for Idearc, Inc. (IAR)

Tomorrow I head off for a week of vacation. I'll probably try to ignore my blog, the yahoo groups board and the stock market. That should be healthy.

Wednesday, March 26, 2008

Tracking Scorecard

Tonight I will devote my blog to the monthly tracking portfolios I have been running since January 2006. These portfolios have almost entirely been 50 stocks at 101m or greater market cap. I did have one or two early that were just 25 and I did have several with smaller market caps. That should do it for the introduction, on to the scorecard!

First a graph showing the distribution of actual annual returns of stocks that have closed. This is about 775 stock years with an average return of 9.9% and standard deviation of 41%. To read this chart, it shows the midpoint of a return range and then the proportion of stock years in that range. So the 15% return really means 10 to 20% return and about 11% of the stock years are in that range.

Now this table shows stock year returns by market cap decile. This table shows that there is a strong correlation between market cap and return so far. Somewhat interestingly the standard deviation (ie "risk") seems fairly constant from decile to decile.
Size Decile Gain Max MC Stdev
1 11% 212 57%
2 2% 329 31%
3 -2% 412 37%
4 -4% 573 40%
5 9% 805 32%
6 4% 1,012 42%
7 12% 1,686 43%
8 28% 3,211 33%
9 14% 5,957 37%
10 25% 117,016 39%
Overall 10%

Correlation 0.71

The final score card shows a distribution of results assuming random portfolios. So if you had held a portfolio of 30 stocks, you'd have a 9% chance of being under water. You'd have a 26% chance of being at a 5% gain or less... those good at math will realize that means the probability of being between 0% and 5% is 26% - 5% = 21%. What you will notice when reviewing the table is the more stocks you have held, the "tighter" the distribution, meaning you are more likely to be clumped about the mean of 10%. Clear as mud I am sure.

10 Stocks 20 Stocks 30 Stocks
Losing Money 23% 14% 9%
Less than 5% 37% 30% 26%
Less Than 15% 67% 71% 76%
Less than 20% 33% 29% 24%
Less than 25% 88% 94% 97%
Less than 30% 93% 98% 99%
More than 30% 7% 2% 1%

Tuesday, March 25, 2008

Good Buy to TGB

I sold TGB today. It was a double for me. I bought them at $2.50 and sold at $5.49. I think it got well above $6 back in the go-go days in October. Still, can't and won't complain. They are off the list and so I am moving on. They may still have upside as they did increase their reserves substantially during the year.

I am beginning to wonder if I'll ever be able to sell VALU. It is one lightly traded stock. It often has a dollar spread between the bid and the ask. Another lightly traded stock is UG (what was I thinking buying a stock with that name?). They announced earnings today (United-Guardian Reports Substantial Earnings Increase). With that announcement (which was very confusing as they said nothing about the past quarter) they traded a grand total of 6700 shares. Oh well, I have a couple more months on both those names.

With TGB moving from open to closed, my best open stock is now VSNT, up all of 27%. It was up over 50% at the start of 2008. MSTR is another software company that was up 50% for me and is now up 7% (which I am thankful for, trust me). Only 8 of my 33 holdings are in the green. But Cramer says we have seen the bottom... so no need to worry!

Monday, March 24, 2008

Insider/Guru Buying

One change in my strategy of late is to give more consideration to what insiders and gurus are doing. I subscribe to GuruFocus.Com which tells you recent buys by a list of gurus. Based upon that, I bought ELOS recently (Guru=Seth Klarman). Of course I bought ODP after Greenblatt bought it. Then I bought HBMFF as Jim Jubak added it to his portfolio. I almost bought COH last week, when I saw their CEO backed up the truck. Since then it has gone from $27.81 on Wednesday to $32.78 today.

Are there other choices out there? Well, chew on this. Post TPX having sub-par earnings, Director Christopher Masto bought over 4 million shares last week around $12 a share. That is $40m+... not sure how much money Mr Masto has, but that is not a small bet.

USMO was bought by its CFO recently. It isn't on the list right now, but I think that is simply a data issue as they just came out with quarterly earnings.

Outside of MFI, I just bought a big chunk of ACF at a bit over $11. Ian Cummings has been buying it by the bucket full. I don't think you can go too wrong by following his footprints.

I see today that BVF is in the news on a negative watch today. This is old news and should not impact the stock that much going forward. It does illustrate they used to be run by crooks (in my opinion).

Looks like today will be a strong day.

Tuesday, March 18, 2008

Best Day Yet

I think today may have been my best day yet. Overall up 4.1%. Of course that is on the heels of a dreadful 9 months and the 4.1% was pretty much in line with the broader markets. Still I can not deny that it felt good to have a day in the green.

IAR was up 18.7%
HGG was up 11.6%
JTX was up 9.8%
BBSI was up 8.1% and the list goes on.

HBMFF eeked out a minor gain post their earnings this morning, which as mentioned had so-so earnings today. They might fall off the list entirely.

USHS announced their earnings this evening (U.S. Home Systems Reports Fourth Quarter and Full Year 2007 Financial Results). They are clearly no longer an MFI stock as they are not making money... but I don't think the floor will fall out further than it has already. I still have about 2 months left to hold them.

CHCG was my one loser today, down another 17% on the heels of their 38% drop on Monday.

I am considering buying another stock. COH, DELL and TEX are on my short list... I am looking at fewer small cap stocks.

Good news, the refiners which have really been beaten down did recover a bit today. Oh well, I am going to watch American Idol.

No Black Monday Replay

I was wondering yesterday if we were going to have a replay of the black Monday in Oct of 1987 (I am old enough to remember). We didn't. Still, not a great day for many MFI stocks, including ones I own.

CHCG announced their earnings (China 3C Group Reports Fourth Quarter and Full Year 2007 Financial Results). While they made 47 cents per share in 2007, they said 2008 would be a "transitional" year and they would make less. Ai-yi-yi, talk about being thrown to the wolves. CHCG ended up down 38%. I have had quite a few of these fiascos of late. I know it is because I have too many microcaps, but still you'd expect some to have good news and go up a ton.

HBMFF announced their earnings after the bell (HudBay Reports Fourth Quarter and Annual 2007 Results). Not sure what people were expecting, but bottom line the quarter sucked compared to a year ago (22 cents vs 1.32). This stock was recommended by Jim Jubak because of their strong Zinc holdings. So I am optimistid that they won't get torched too badly today as the value of mining companies is driven largely by what they have in the ground.

I didn't own TPX, but it dropped a bunch yesterday as well and is now $10 from a high of $33. I remember TPX was on the first MFI screen I ever looked at over 2 years ago and I kicked myself many times for not buying it. Now it is cheaper than February of 2006. It has been a testing ride with the MFI formula.

Refiners have been crushed of late. HOC is now down 18% for me and FTO is down 25%. These stocks were double digit in the green less than a month ago. I did find a website That shows refining margins and explains why these stocks are down (Refining Margins)).

Saturday, March 15, 2008

Things Can Always Get Worse

Not much to say, it has been a bloodbath in the markets and my portfolio continues to do worse than the benchmarks. I can't even bear to look or print the graphs. If it was possible to drop straight down, that is what you'd see. Not sure what is going to stench the bleeding, seems like every day there is more bad news. Health Insurers like Humana were down a ton this week. Bear Stearns could not even turn the lights on yesterday. I still say the steep decline in our universe of stocks (which thankfully doesn't include financials) is related to all the margin calls out there and the inability of institutions to sell their asset backed securities as credit markets are frozen.

What worried me is when the Fed finishes lowering interest rates, what do they do then? What if inflation really starts to kick up? What if unemployment starts to rise faster (seems possible). Then the Federal budget is spiraling out of control.

I did sell DGX this week. It ended up down about 10% for me, which sad to say makes it a great stock. I replaced it with ELOS. This is a stock that Seth Klarman has been buying actively and one of the few stocks that was actually upbeat about 2008.

I saw in Barron's where the CEO of HGG bought shares ( HHGregg Head Buys Despite Sector Softness). That makes me feel good.

Stocks with debt continue to drop. IAR is now down 65% for me and WNR is down 69%. Ouch.

I will get some excitement on Monday. CHCG will be having their earnings call first thing in the morning. I think the market realizes that they have sold the stock off too far. CHCG was just over $1.80 on Tuesday (which was the 441 point day) and rose to $2.27 by Friday. Even with the rise, I am down over 50% from when I first bought them. I do believe that they could still quickly double with some positive earnings as they should be a little more immune than other stocks to the US downturn. They did re-affirm guidance (China 3C Group Reaffirms Fiscal 2007 Financial Estimates). They expect to earn 43 to 47 cents in 2007 (at a price of $2.27) and they are growing!

VALU announced their earnings in their typical poorly formatted release which provides no color at all (Value Line, Inc. Announces Third Quarter Earnings). Still they were up 18% over last year, which might get them close to where I bought them.

BVF had their earnings call this week as well (Biovail Reports Fourth Quarter and Year-End 2007 Financial Results, Provides Strategy Update). After a zillion adjustments, they had an ok quarter. They in a state of transition (like so many of my stocks). I am starting to 2nd guess my purchase of them, but oh well.

KSW also had a decent quarter (KSW Reports Record 2007 Profits and Record Backlog). They have a strong backlog and pristine balance sheet. At under $6 they are so very cheap.

I feel better, while it has been a bloodbath I do truly believe I have some good stocks at cheap prices. Sooner or later the pendulum will swing back.

Saturday, March 08, 2008

Tough Sledding

Things are never so bad they can't get worse. The stock market and my portfolio got crushed last week. Hard to believe, as I have had plenty of bad weeks since July, but this was the worst week to date. Sometimes I feel snakebit. I bought JTX and then the very next day they announce earnings with revenues down 15% (Jackson Hewitt profit falls 34% on slow start to tax season). The stock proceeded to drop 39% in the week. I guess the good news is that I have virtually a year to recover.

It is hard not to feel snakebit, same thing happened with ODP. But realistically, we all should realize that stocks don't go down because we buy them. I have just had a bad run.

Of the 20 stocks that I have bought (and still own) since September, only 2 are in the black (PACR & SIMG). AXCA also went up nicely, but I sold when they were taken over.

I do think I understand what is happening to some extent. There has been so much turmoil in the credit markets that highly leveraged hedge funds are desperate for cash to meet their margin calls (Carlyle Fund Misses Margin Calls ) of hundreds of millions or even billions of dollars. They can't sell their bonds as those markets are literally frozen. So they have to sell stocks. And what stocks do they sell first? Ones that had so-so earnings. Smaller stocks. My stocks. At some point, the de-leveraging will end. Everyone should read a great book called "When Genius Failed" about the meltdown of Long Term Capital Management more than a decade ago. We are seeing that all over again, except there are multiple LTCMs around and no one to bail them out. People with liquidity right now have their absolute pick of the deals from these desperate sellers. While it has been painful for me, part of me would like to see the hedge funds get their just desserts as I have always been astonished that people would share 20% of their profits AND pay 2% of invested assets to these people that Warren Buffett lampooned.

There is a TON of cash sitting on the sidelines, just waiting to pounce. When that cash thinks the market has been totally oversold, they will jump in and reap the benefits. The key is to be patient. As George Harrison sang, "All Things Will Pass".

Tuesday, March 04, 2008

Two Plus Two

I used to watch the "A - Team", a very corny show with Mr. T. They would always have some crazy plan utilizing all their skills. At the end, their leader would say, "I love it when a plan comes together".

Now consider two headlines today on two MFI stocks:

HOC - they talked about higher margins by increasing their usage of cheaper low grade oil (Holly Stock Rises on Margin Expectations). You can read the article, but the key point is they are going to ramp up their usage of lower grade oils from 5,000 bpd to 50,000 bpd. The analyst estimates that would be worth $15 a barrel in higher margins. That seems pretty exciting. In a quarter, if true that would = 15 x 45,000 x 90 = $61m. That is huge. HOC averaged making 110m in operating earnings quarterly in past 4 quarters. Makes you wonder why the stock only went up 31 cents? Now the second headline and the plan coming together.

HW - remember this stock? I have lost a fair chunk of change on HW. But if go back and look at my posts a year or so ago, I mentioned they had a proprietary technology to help refiners use low grade oil more efficiently. Interestingly, they were up 9% today as they had an analyst's day (Headwaters Incorporated Comments on Sixth Annual Analyst Day Conference). Now if you bother to read that link, you'll see them comment on their HCAT technology.

Ready to connect the dots? HW is located in Salt Lake City. One of HOC's refineries is in Salt Lake City. It seems quite clear to me with these two things being on the same day and the two sharing Salt Lake City that they are related. Now if HW has a proprietary technology that can save a medium sized refiner like HOC $240m a year, then what is that technology worth?

Disclosure: I will be buying HW on Tuesday.

I did close and then "re-buy" my JTX position yesterday. At $20.29 it seems so so cheap. I know there are issues with lending the people their money when they file taxes. But I think some compromise will be found and it should not knock over 33% off the value of a company. Taxes seems pretty recession-proof to me.

Finally TCK had some excellent news (Teck Cominco Reports New Billion Tonne Copper Resource at Quebrada Blanca). Now think about that. A Billion Tonnes of Copper. I guess that is a metric tonne. A metric tonne of copper is going for $8000. It will obviously cost $ to mine it, but that seems like it will be worth a lot. I was surprised TCK was only up a couple % on the news.

Saturday, March 01, 2008

More on Idearc

IAR got absolutely crushed this week. It went from $6.91 to $4.82, which is well below the $15 price I bought them at in December and much much further below the mid 30s they traded at last summer.

It didn't help that their new CEO, one week on the job, had to resign because of health. And then a major competitor, RHD absolutely imploded this week going from $17.48 to $7.09 on subpar earnings and suspension of their dividend (R.H. Donnelley Delivers Strong 2007 Results and Exceeds Free Cash Flow Guidance).

But I still think the market has way over-reacted to IARs problems. Is there risk? Yes. Is there a reasonable chance of a 100% return in the next 12 months? Yes. Barron's had a great lead story today on companies with heavy debt and suggested there may be some gold in the hills to mine. Listen to what they said:

Idearc: Any stock trading with a P/E ratio of two and a dividend yield of 25% is worth a closer look. Verizon Communications spun off its yellow-pages business as Idearc to its shareholders in 2006 rather than sell to private-equity buyers. Because it viewed the yellow pages as a stable business, Verizon put $9 billion of debt on Idearc, effectively creating a public LBO. That debt is proving a millstone amid a sudden weakening in phone-directory industry trends. The company's CEO resigned for health reasons last week, just a week into the job. Idearc's shares, which hit $38 last spring, now fetch under $5, valuing the company at less than $1 billion. At issue is whether recent troubles merely reflect a weak economy or a permanent shift by advertisers away from print directories. Despite its heavy debt, Idearc isn't going away anytime soon. This year's cash flow is expected to cover interest payments by a factor of two to one. Even with revenue declines in 2008, Idearc should have ample earnings to pay the annual $1.37 dividend. If revenue declines persist, Idearc could cut the dividend in order to focus on debt repayment. With its stock down 75% this year, Idearc could surge on any signs its business is stabilizing. No Safer Choice: Rival R.H. Donnelley (RHD) also has a lot of debt and similar business problems.

I found that very interesting. I did buy two new stocks on Friday: HBMFF and BVF. I also have decided to hold PACR for another year and bought shares to get me to my target holdings. I think the next stocks on my shopping list are DELL and HIRE. I am typing on my new Dell laptop, I think they have really improved their products. HIRE has been just pummeled and interestingly lists CPS (just bought by EFX) as a competitor in screening.

While it wasn't a great week, a bad Friday and I had my travails with IAR... my portfolio actually held up well. Not to say I am ecstatic, but it no longer seems the world is ending. I was really helped by spikes in my HR stocks such as HSII and KFY. I think they'll be placing lots of executives as IAR is showing and then TRID also had their president resign (
Trident Microsystems' stock down after president resigns).

I had bought HURC at $35, so I got to enjoy their surge, thought they were not part of my MFI portfolio.

Good luck everyone.