Saturday, August 16, 2014

Time To Take Stock

Taking Stock - Part 1

As my readers know,  occasionally I like to openly discuss my stocks that I own.  I think this is a good practice. With any stock you own, you should be able to articulate, in the equivalent of an elevator pitch, why you own the stock.  In doing this, I also like to score each stock/security from a 1 to a 4.

  • 1 means I would like to buy more shares right now, 
  • 2 means I would like to buy more on a pullback
  • 3 means I would sell if it went up nicely and
  • 4 means I will/should sell it tomorrow.
Obviously, if I have any fours, I should get busy on Monday. I will review 10 stocks in this blog in descending order.  Here are the first ten stocks/securities:

Stock Avg Cost    Current        Price Dividends Gain per Share Pct Gain
GTAT       10.49           17.36                 -                6.87 65.4%
GNW         9.48           13.41                 -                3.93 41.4%
KLIC       11.43           14.30                 -                2.87 25.1%
BBEP       16.74           21.81             1.86              6.94 41.4%
AOD         8.04             8.70             0.77              1.43 17.8%
RIOM         1.97             2.73                 -                0.76 38.4%
ATVI       17.39           23.36             0.20              6.17 35.5%
NTC       12.02           12.61             0.39              0.99 8.2%
GPS       40.55           41.91             0.22              1.58 3.9%
CSQ         8.74           11.84             2.03              5.14 58.8%

GTAT is my largest holding by quite a bit (more than 2x the size of GNW). To a fair extent, my portfolio goes as GTAT goes (right now it is 11% of my total).  The swoon in July for my portfolio was certainly intensified as GTAT was 19.26 on July 1st and 13.95 on August 1st.  I do have conviction regarding GTAT. They have several strong initiatives in play, the most critical being production of artificial sapphire for AAPL products.  While this is lower margin business than their traditional business (selling sapphire and solar equipment to manufacturers); it should be an extremely steady income/revenue stream for years to come. Then any breakthroughs in the other areas will be icing on the cake.  I believe that the iPhone using sapphire will be announced September 9th and I think there is a fair chance this could be a rocket stock after that if there is substantial hype. I could be wrong, so everyone should do their own due diligence.

Here is a quote from the CEO during past earnings release:

"The response from partners and potential customers for Merlin(TM) and Hyperion(TM), two of our high growth opportunities, has been very strong. We remain confident in our ability to achieve our 2016 non-GAAP earnings per share target of at or above $1.50. This is driven by the expected contributions of Merlin, Hyperion and our other new technology platforms, along with the growth of our sapphire, polysilicon and PV businesses,"

If they can really make above $1.50 per share and they have "high growth opportunities", there is no reason GTAT should not trade at 20x earnings, which would be $30 a share, say 18 months from now.  There is no shame in that as an investment.  That is why I score GTAT a 1.  The only reason I have not bought more is 11% is a pretty large stake already.  

GNW - wow, this is like a one month rollback of GTAT.  Just think, you could have bought GTAT less than a month ago for under $14 and now it is over $17, about a 20% pop in a few weeks.  While I do not expect GNW to go up as quickly, I do believe it is similarly under-valued.  This is a stock trading at $13.50 (it was $18 a quarter ago); yet is worth over $23 a share should they close their doors tomorrow.  Investors are skittish about their LTC results and perhaps to a lesser extent the fact that interest rates remain low.  But in my mind, these are both short term issues.  Over time, insurance companies can/should see their share price rise to or above their tangible book value.  And despite issues, GNW is growing book value at 7 or 8% a year.  So in my mind, it is just a matter of patience.  LNC was in the same position two years ago with a share price in the low 20s and a $45 TBV. Now they are at $50.  A catalyst will be when GNW is nursed back enough to health to begin paying a dividend again.  There is also the possibility that someone may look to buy them or they break-up into pieces.  I can wait.  My score is a 1 and I will consider strongly buying some more shares, despite them being my #2 holding.

KLIC - this is a cash cow that is making good money and in what I believe to be a cyclical upswing.  I think the big drag is they do not seem to be very shareholder friendly. They are making between 85 cents and $1.00 a share, so decent earnings power for a $14 stock. But the stunner is that they have $7.80 a share in cash - which I do not think is needed at all.  They could pay us all $5.00 per share in a special dividend, and then you would have a $9 stock making up to $1 in earnings.  I will be selling my MFI August shares on Monday, so this will be a smaller holding then. That being said, I score them a "2".

BBEP - gotta like that 41% gain you see up above.  BBEP just announced a major acquisition (Did BreitBurn Get A Good Deal By Acquiring QR Energy?).  I think it looks like a solid move.  BBEP has been just a great company is squeezing more oil out of depleted fields.  They yield 9.2% and have been great about raising distributions.  I have not been looking to buy more on pullbacks as it is already a large position and I am a bit negative on the longer term price of oil. I score them a "3".

AOD - not the world's most exciting security. But they yield 7.8% and are a closed end fund. They trade at a 13.3% discount to their NAV, which is a bigger discount than many CEFs, but is a bit below their 52 week average of 14.5%.  I would score them a "2" and I am actively reinvesting dividends.

RIOM - This has been quite a roller coaster stock this year.  You could have bought them around $1.70 in May. They are now $2.73; that is about a 60% increase in under 3 months.  They got beaten down for buying another Junior gold miner, but now it is looking like they bought that other miner at the very low point for gold mining stocks.  So I think they got a great deal.  This still has the potential (in my view) to be a $4 stock if gold prices continue to move upwards. I score them a 2, I have no interest in selling as I believe every portfolio should have some gold exposure.

ATVI - I often comment here about Joel Greenblatt's first book, (You Can Be a Stock Market Genius). In that book, he makes a strong case for buying spin-offs (assuming you have done your due diligence). ATVI was a classic example of that when Vivendi divested most of their shares and gave them independence. When I saw that ATVI insiders were putting their own money in, I knew I had a good stock.  That being said, it has been a great run (35%) and I believe ATVI is approaching full value.  While I will not sell (as it is in MFI tranches) until I have held for a year, I have to score ATVI a "3".

NTC - If AOD is not the world's most exciting security, NTC was right behind.  But it isn't about excitiment, it is what you are trying to accomplish.  NTC is simple, tax-free income.  It yields 5.4% tax free as it is a CEF based on CT municipal bonds.  Like AOD, NTC is trading at a 12.4% discount to NAV.  I would score them a "2" as I am actively reinvesting dividends.

GPS - Just like I think it is good to have a gold company, it is probably a good idea to have at least a toe in the water in retail. GPS is not lulu lemon, not Amazon - but they seem well-run and pay a decent dividend, they are reasonably valued, have an on-line presence.  I score them a "2", I am reinvesting dividends and would likely buy more on a 5 or 10% drop.

CSQ - the third CEF in my top 10. I guess I like them more than ETFs or mutual funds. They are often sold at a discount to NAV, they do use moderate leverage to increase yield and they are decent income stocks.  CSQ yields 8.4%, and you can see from my gain with them that I got a great entry price. CSQ is getting "expensive" just a 4.7% discount compared to 9.4% average.  I would score them a "2" as I am actively reinvesting dividends.

More later if I find time. 

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