Taking Stock

Taking Stock

I am actually at my highest cash amount, both on a percentage basis (31%) and dollar basis in a long time.  I have been pondering what to do about it.  I am pretty sure I will put some dollars to work and probably move the cash component closer to 20%.  But, does it make sense to put $ in new securities or should I be looking to add to my current holdings?

One can certainly argue that I know my current holdings very, very well... so it makes the most sense to add there. Also, just mathematically, the more stocks you own, the more closely your results will correlate with the overall market.  Why would I want to put money in my 20th best idea if I can put money into my 5th best idea?  So with that basis, I think this is a good time to review my current holdings and attempt to rank them.  I think with each stock I will provide two scores: (1) for what I perceive as upside 18 months from now and (2) what the riskiness of the stock is.  I will score them 1 to 5 in each category with a 1 being the top score. Actually, I will add a third grade to each stock: (A) means I would buy more right now, a (B) means I would buy more on a pullback, a (C) means hold, (D) means sell on a nice upwards move, say 10%+ and (F) means sell right now.

Portfolio	Proportion
Dividend	20.6%
Mfi	26.0%
Discretionary	22.4%
Cash	31.0%

Current Holdings

Stock	Avg Cost	Current Price	Dividends	Gain per Share	Pct Gain	Pct of Portfolio
GTAT	3.39	12.11	-	8.72	257.2%	7.8%
GNW	7.10	15.21	-	8.11	114.1%	6.3%
KLIC	11.41	11.55	-	0.14	1.2%	4.9%
BBEP	16.16	21.08	1.05	5.98	37.0%	4.5%
INTC	22.25	24.42	1.42	3.59	16.1%	4.2%
RPXC	16.36	16.10	-	(0.26)	-1.6%	4.2%
AOD	7.93	8.27	0.58	0.92	11.6%	4.1%
NTC	12.00	12.04	0.06	0.09	0.8%	3.7%
ATVI	17.39	19.72	-	2.33	13.4%	3.6%
TGONF	10.27	10.61	0.19	0.52	5.1%	3.4%
CSQ	8.60	10.99	1.64	4.03	46.8%	3.4%
MBUU	17.50	18.35	-	0.85	4.9%	3.4%
C	51.52	48.26	-	(3.26)	-6.3%	3.3%
TC-PT	15.39	15.82	1.42	1.86	12.1%	2.9%
SBS	9.54	9.38	-	(0.16)	-1.7%	2.7%
CS	28.75	31.47	-	2.72	9.5%	2.6%
CF	185.70	242.97	2.38	59.65	32.1%	2.5%
SIRI	3.73	3.61	-	(0.12)	-3.2%	2.5%
FSC	9.64	9.71	-	0.07	0.7%	2.1%
BAC-WTA	5.35	7.11	-	1.76	32.8%	2.0%
SNDK	70.20	74.80	-	4.60	6.6%	1.9%
KLAC	61.35	64.97	0.45	4.07	6.6%	1.9%
HIG-WT	21.24	25.47	-	4.23	19.9%	1.9%
AGX	15.60	28.20	0.75	13.35	85.6%	1.9%
FGL	20.08	20.41	-	0.33	1.6%	1.9%
GA	8.96	11.38	0.23	2.65	29.5%	1.8%
WNR	39.80	38.98	0.26	(0.56)	-1.4%	1.8%
SYNA	48.01	62.27	-	14.26	29.7%	1.8%
RDA	9.74	18.04	0.10	8.41	86.3%	1.7%
RIOM	2.26	2.40	-	0.14	6.2%	1.6%
AVG	17.22	18.46	-	1.24	7.2%	1.5%
FLR	66.06	79.19	0.32	13.45	20.4%	1.2%
NVDA	13.85	18.64	0.24	5.03	36.3%	1.2%
O	20.46	43.41	15.05	38.01	185.8%	1.2%
OIBAX	4.99	6.05	1.93	2.99	59.9%	1.1%
CYOU	29.24	28.87	-	(0.37)	-1.3%	0.9%
IEV	46.28	48.08	-	1.80	3.9%	0.7%

As you can see, there are 37 positions. I suspect this may fill up a couple of blogs. While I am giving my opinion on all these securities, please keep in mind I am just a guy with a computer and a blog.  I have no special knowledge and can certainly make mistakes or not fully understand the risks or the industry.  So everyone is encouraged to do their own diligence.

GTAT - Certainly outsized, 7.8% of my portfolio, despite my selling 1/3 of holdings a couple weeks ago (and a couple of weeks early!). I am sure everyone here knows my feeling about GTAT. They are gearing up to be a big time supplier to AAPL with sapphire enhanced material. So far all the movement of the stock is based upon conjecture.  That may continue for a while, though they do report earnings on Monday.  But this stock could also be a feeding frenzy when the more average investors sees the potential for revenue expansion.  My upside projection is $20, but in all honesty, I think there is potential for exuberance to take it much high when AAPL first rolls out phones or Ipad using the Sapphire material.  That being said, there is risk. GTAT could have manufacturing issues, AAPL may get cold feet or a better offer/material from GLW.  So I rate as a "1" in upside, but a "4" is risk (I know I said "5" is the riskiest score, but I do not own a stock I would score a "5").  My overall grade is a B. Now it is critical people understand that is for me personally. I do not want to buy more unless there is a material pullback (as I already have a lot).

GNW - this is a stock I have owned for a long time. I bought my first shares in December 2011 at $6.53.  They are a life insurer, mortgage insurer and LTC insurer.  They were spun off from General Electrice before the subprime morass and used to trade north of $30.  Their book value is around $29, so if they can approach BV from their current price of $15.21 that would be terrific.  Their book value though will likely melt down as interest rates tick up... probably to the $23 to $24 range. A big catalyst will be when they are given the green light to start buying back their own stock (instantly accretive) or start a dividend.  The biggest risk is probably still the mortgage insurance.  They have large operations in Canada and Australia. While those housing markets have not been as frothy as the US got in 2007, they have been pretty robust (especially Australia).  Australia is dependent on China buying their raw materials, so a crash in China could cause Australia to catch a cold. I think they have upside to $23. I score them a "1" for upside and a 3 for risk.  My overall grade is a B.  As I write this, I am convincing myself to seriously think about buying more if we get a pullback.

KLIC - I love KLIC, but it is certainly unloved by the market. They are trading at 13x projected 2014 earnings.  But they also have $7.30 in cash per share with a stock price of $11.55.  I have never really dug into it, but as I think about it, I suspect more of that cash is off shore (they are based in Singapore), so it may not be directly available for dividends. Still, it is cash and makes them a prime candidate for a dividend or stock buyback.  Someday, an activist investor is going to stir the pot at KLIC and it will be $16 at the blink of an eye.  Upside: 1, Risk, 2. Overall grade A.

BBEP - One of my more savvy moves in 2013, I bought BBEP in July when it sold off in sympathy with LINE for a steal at $15.30.  I increased my position by about 30% in November when they had a secondary offering at $18.30.  I will note that these secondary offering are often a fantastic time to buy a stock (I also bought SLCA the same way and added to GTAT during their secondary in December - all three moves were quickly profitable).  BBEP specializes in buying oil and gas properties and getting more out of them than people expected (kind of like twisting a lemon to get rest of juice out). They have a rising distribution at 9.5%. Probably not much upside (at $21 now), but a solid stock for my dividend portfolio. I give them a 3 for upside and 2 for riskiness. Overall Grade is C.

INTC - the ultimate warhorse. I have owned this blue chip since September 2010, bought a bit under $19. If you ask 20 people about their future, you will probably get 20 different answers. Intel has clearly missed the first big wave of mobile. That being said, I fully believe this is a marathon, not a sprint Apple stayed with Motorola for 20 years before switching to Intel on the desktop side.  Intel has the deep pockets and expertise to stay in the game, and they are becoming completely dominant on the PC side. They trade at 12 x earnings and have a little excess cash (but not as much as other old tech companies like MSFT and CSCO).  I see upside in next 18 months to $27. So with their 3.6% dividend I score them a 3 in upside and a 2 in risk.  Overall grade is a C.

RPXC - I have bought shares in the company that helps high tech companies with patent protection in my past three MFI tranches.  I may have gone a bit overboard as I frankly have a little more exposure than I would like.  They are a smart company and spend money buying up patents and then sell the rights to generate a return. They seem to provide a form of insurance.  But when I read through their recent earnings report, I did not come away feeling warm and fuzzy.  Either they were under-promising 2014, or things are just so-so.  When I read the earnings call transcript, I felt better (the stock did pop that day); but I am a bit of a nervous nellie.  I will hold until MFI sell dates, but I will not buy more.  Upside:4 and Risk:3.  Overall grade is a D (I would sell if allowed on a 10% upwards move).

AOD - This is such a hated security.  It is a closed end fund that admittedly was poorly run and had to cut it's dividends drastically.  However, that is the old AOD. They have made a bunch of changes, yet still trade at about a 15% discount to their net asset value. Their largest holdings are certainly positions I am comfortable with (Vodaphone, Qualcomm, Nestle, Apple, Roche, Novartis, Walgreens (AOD - CEFConnect) etc. Who would not jump to own those at a 15% discount? As I write this, I think this shows the value of this approach.  This may likely be a safer buy than a new dividend stock. Upside: 2 and Risk 3. Overall Grade is an A.

NTC - This is a municipal bond fund holding CT securities.  As such, it is tax free income (sweet words) to me. That makes their yield of 5.7% equivalent to a 7.3% yield for a dividend stock and about 9.8% for a REIT type stock that is taxed as ordinary income. So not sexy, but something I should probably build over time. Upside: 5 and Risk:1. Overall Grade is a C.

ATVI - This is the video game maker. Call of Duty is their blockbuster game. I own them in my November and February MFI tranches. One thing I like about them is management alignment.  They were majority owned by Vivendi until last fall.  Now Vivendi has a minority stake. In the spin-off, ATVI management put a lot of their own money (Activision Soars After Accord to Buy Out Vivendi Holding) into the stock. I believe they still have upside and have placed a target price of $24 on them. They just had a great earnings call, with many games in the pipeline. Upside: 3 and Risk: 2. Overall Grade is a B.

TGONF - This is a financial fund in the Netherlands. They feel a bit like a closed end fund or a BDC in the states.  They hold other assets and every month they publish their NAV (Monthly Update for December 2013 - Tetragon). Right now it is $16.36. The stock trades at $10.61.  They also pay about a 5% dividend.  The security is extremely ill-liquid in the US. I think they have upside to their NAV, so say $16. Upside: 1 and Risk: 2.  Overall Grade is A (though to buy need to be cautious with limit orders).

Stay tuned for next ten...