Tough Sledding Recently

My portfolio has definitely lost some of its mo-jo of late. Despite some stocks (like SEPR) with good news, we have definitely been trending down. Here is the chart:


There are some stocks (CHCG, CMED and JTX) that have really been taken to the woodshed for me. Here is a listing of how certain stocks have fared since my "high water" mark:

Stock	August 4th	Current	Change
UTA	16.83	10.05	-40%
CHCG	0.92	0.60	-35%
WH	5.99	4.18	-30%
JTX	6.38	4.61	-28%
CKSW	7.85	6.27	-20%
CMED	15.67	12.79	-18%
BIOC	3.80	3.35	-12%
QXM	3.11	2.75	-12%
GIGM	5.17	4.79	-7%
HCKT	3.06	2.85	-7%
KHD	9.85	9.33	-5%
FSUMF	3.68	3.49	-5%
RTN	47.63	46.56	-2%
GME	24.42	24.06	-1%
PFE	16.07	16.39	2%
ENDP	21.20	22.44	6%
AIRV	6.12	6.51	6%
FRX	26.88	28.66	7%
CBI	14.08	15.69	11%
UEPS	16.80	20.17	20%
BR	17.50	21.47	23%
WILC	3.17	4.08	29%

I was wondering why UTA was down so much. I went back and re-read their press release when they announced their earnings:

Fiscal Year 2009 Guidance

For the full year 2009, Universal Travel Group expects sales to increase from $76.8 million in 2008 to between $88.0 - $96.0 million, net income to rise from $14.5 million in 2008 to $16.8 - $18.0 million, and earnings per diluted share to range from $1.07 - $1.15 in 2009. Net income and EPS estimates exclude the non-cash stock based compensation expense, and reflect the recent three-for-one reverse split.

Sounds great, right? But when you do the math and subtract out the first two quarters of 2008 and the first two quarters of 2009 from the guidance, you're left with the 2nd half being totally flat. When I saw this yesterday, I didn't know what to make of it. I mean for the 2nd quarter they were up 56% YoY. They comment about how demand is still strong, about their initiaives, increased activity in travel and leisure in China and their new 2nd home base in a growing region. How does all that translate to flat? A real head-scratcher. Perhaps they are under-promising... perhaps way under-promising? It is tempting to buy more, though I am trying to be disciplined about my MFI approach and keep the investments relatively equal.

As I mentioned earlier this week, I am now quite cash heavy with the sale of SEPR. I am trying to stay with the mechanical portfolio discipline, so we'll see what stocks I am allowed to buy on Monday. I did see where AMED hit the top 30 list when it dropped 25% on Thursday. I also see NAVR on the top 50 list. I'd also consider the new entries from last week, JCOM and CYTK fair game.

Seth Klarman: One guru I watch closely is Seth Klarman (Ian Cummings, David Einhorn and Prem Watsa are others). I bought LINE around $12 late last year because I saw he owned it and it made me recognize that they had hedged a lot of their oil and gas production. The stock is now around $21 plus some very juicy dividends. Thank you Mr Klarman! Another stock that I saw him buy was FACT. It was a bio-tech company with a ton of cash, but no real profits (not unlike some companies we have seen on our lists: QLTI, CYTK and ONTY). I took a pass, just am not comfortable with those sorts of stocks. But Klarman's company (Baupost) bought 14% stake in FACT. Yesterday, Biogen announced they had made an offer for FACT and it went up 75%. Wow!

Keep an eye on the merger space, even if we hit some bumps in September/October, I expect the M&A to continue. That should bode well for our universe of stocks. It dawned on me why M&A is picking up. You have a bunch of firms with cash and no top line growth. With the drop in stock prices, they see some smaller competitors that are still quite cheap. It is an opportunity to "buy" revenue increases cheaply on Wall Street. And the real kicker on made it start up is ironically the stock market rising. Just like you and I don't want to buy a house when real estate is dropping (hey, we might get it even cheaper if we wait two months), M&A stopped for the same reason. Now firms recognize that these still bargain prices might not last forever and are starting to squeeze the trigger. Stay tuned!