Happy Holidays

Happy Holidays

Good morning everyone.  I hope all my readers are geared up for a great holiday season despite such a poor December in the markets.

My view it is all about Trump.

1. China Trade War, 
2. Fear of Mueller Investigation, 
3. What Happens When Pelosi and Team are in Charge of House, 
4. Govt Shutdown and 
5. Fear of Something Unknown and Stupid.

I note that the acceleration of selling began shortly after the "blue wave".

What To Do?

I do think there is a pretty good chance we go into a recession in 2019.  I also think there is a good chance Trump is pushed out in 2019, all but his most ardent supporters are growing weary of his act. But does he go quietly?  Does he do something stupid?  

The magic formula stocks did very well if you bought in 2008/09.  Here is a table showing what happened at various start dates and hold for a year:

9/26/2008	-4.3%
10/31/2008	18.7%
11/26/2008	50.9%
12/26/2008	48.9%
1/23/2009	59.3%
2/27/2009	92.8%
3/27/2009	85.8%
4/24/2009	69.7%
5/29/2009	31.8%
6/29/2009	21.3%
7/29/2009	19.5%
8/28/2009	7.4%
9/25/2009	12.6%
10/30/2009	22.7%
11/27/2009	24.3%
12/31/2009	23.7%

So if you bought all 50 MFI stocks in January 2009 and held for a year, you were up 59.3%.  Now I have no idea if we are currently anywhere near a bottom.  The algos and ETFs out there could easily cause an air pocket 10% drop at any time.  The advantage though of just being disciplined and reinvesting over each year means you don't have to worry about timing the market, which for me is impossible.  The better approach is just to have a long time horizon.  Don't panic. Don't get greedy.  Slow and steady wins the race.

Bargains Aplenty

With this recent drop (I am down 13% just in December, which is on par with market), there are some great bargains out there.  They may drop further, but I don't think our measuring stick should be will the market go nuts further, but rather "is the company a good deal  to buy at the current price"?

So I intend to continue in 2019 to ratchet up my MFI commitment.  MFI Formula has held up reasonably well - it is down 2.5% for me in 2018 (Russell 3000 is down 9.5%).  Sadly, my MFI Select is down 19% in 2018... too many stinkers.

Here are some stocks that I think look like a good deal.  First MFI names.

AMCX - down 3% in 2018.  Great candidate for Disney, T or NFLX to buy for their content.

AMAT - down 40% in 2018. Are you kidding me?  This a high quality company now yielding over 2.5%, classic example of value.

DLX - down 50% this year!  Yielding 3.1%.  I know checks are boring, but kind of like razor blades.

DXC - this HPE spin off is down 38% thus year.  Really?  They are trading under 6x next year's earnings.  Another baby thrown out by market with bath water.

KLAC and LRCX - pretty much like AMAT, these semi companies are really beaten down.  Look around.  Do you think demand for semiconductors in future will decline?

MU - down 30% this year.  Trading under 5x 2019 earnings.  And David Tepper's largest holding. Whadda deal!

SGH - down 19% this year and they have absolutely been knocking it out of the park.

WDC - sit down.  Has dropped 55% in 2018! Really!  Trading under 5x next year's earnings projection.

Non MFI Names

TGP - this is a shipper of natural gas.  They have ships. They have contracts.  They have like 100% visibility for next several years. They yield 6.4% with strong likelihood of further increases as cash flow builds (pretty much assured due to contracts).  They have also initiated a $100m buyback, for a firm under $1b market cap.

GLNG - another LNG play, they dropped from $35 to $25 when SLB backed out of a deal building out NG field in Africa.  They are now under $22 and BP has made the FID to go forward with the development.  Stifel, an analyst believes the deal is worth $10 in share price to GLNG and bumped their buy target price to $42 (Positive Greater Tortue Project Final Investment Decision: Golar LNG Benefits).  But stock barely budged as announced around Christmas in middle of bear market.  I added 50% yesterday.

ECA - any firm associated with oil and gas has been pummelled.  ECA more than most, down a stunning 60% this year.  But at $5.38, i see it as a screaming buy.  Oil prices will go back up as Saudis and Russia cut supply.  They have had significant insider buying.  Trading under book value and under 6x next year earnings.

T - okay, I know it is boring.  But hear me out.  They pay a 7% dividend and I think fed tightening is pretty much done for a while.  So that will not be eroded.  They are down 23% this year.  That is right!  That drop (to me) signals a bargain.  They are rolling out 5G, and if you have not read up on 5G, it is a real game changer.  People will want it.  People will be willing to pay more for it... it is that much better.  They got TWX at a good price and will use it, along with 5G and DISH to go after NFLX.  They will have the content and the pipes.  Believe it or not, T is going to be a growth company in my view.

Summary

I know it seems bleak.  No one likes to see portfolio values dropping.  But ask yourself, over the next ten years are you a net buyer or net seller of stocks?  If you are a net buyer (should be case if you're under 55), this recent drop is actually a good thing.

I will create a tracker of these 13 names and comment on how they do in 2019.  I'll call them the Baker's Dirty Dozen.

Stock	Start	Current	Dividend	Gain/Loss
AMCX	52.23	52.23	-	0.0%
AMAT	30.31	30.31	-	0.0%
DLX	37.11	37.11	-	0.0%
DXC	50.48	50.48	-	0.0%
KLAC	85.67	85.67	-	0.0%
LRCX	127.16	127.16	-	0.0%
MU	30.32	30.32	-	0.0%
SGH	28.75	28.75	-	0.0%
WDC	35.90	35.90	-	0.0%
ECA	5.38	5.38	-	0.0%
GLNG	21.72	21.72	-	0.0%
T	28.31	28.31	-	0.0%
TGP	11.82	11.82	-	0.0%
Total				-