Portfolio Changes
First, a revision of the Week 5 performance. The Friday ended a lot better than it began, as follows
Week 5 Performance
Dow -0.76%
S&P -0.4%
LIVEROCKET -2.33%
Performance since inception (Nov 4th)
Dow 1.78%
S&P 3.3%
LIVEROCKET 7.67%
-------------------------------------------------------------
We were cashed out of GYI, DESC, & PWR and turned $29,795 into $31,015. That’s a 4.1% gain in 5 weeks.
I continue to believe that the market has strength. I propose we use the cash as follows:
1. Reinvest $26K in equities
2. Purchase $5,015 puts in either Hansen or Apple at a future date
For the equities, I have considered 40+ stocks. I like the following best:
MDR - $9K
JOYG - $9K
ACL - $8K
We were in alternative energy (DESC) and we continue to need an energy play. This time 2. I have been looking for a good natural gas and coal play. Oil makes natural gas and coal much more profitable and this drives exploration and extraction. Wintertime increases energy consumption as well, adding near term benefits. I also like natural gas because it is spreading in use, making it a long term play as well.
However, I hate the daily oil-driven price fluctuations. And gas stocks are already leveling off. That’s why I prefer to find a natural gas/coal play without the volatility. The answer: equipment.
McDermott Industries (MDR) –
MDR operates and equips gas lines in the Caspian Sea, the Persian gulf, and the gulf of Mexico as well as some side businesses in superfund cleanup sites.
A few more reasons why I like the company
1. Accelerating Sales: Backlog has grown 30% to $1.7B (annual sales last 4 quarters were $1.9B)
2. Accelerating Sales pt 2: Last quarter’s business was slowed by hurricane Katrina and aftermath. Hurricanes have passed
3. Accelerating earnings: Sales have grown 12% Y/Y but earnings have grown 220%, with triple digit quarterly upside earnings surprises EVERY QUARTER for the last 4 quarters (and beyond).
4. Accelerating earnings pt 2: Babcock & Wilcox (a subsidiary) was completely written down due to burgeoning asbestos lawsuits is coming out of bankruptcy in 2006 and will add earnings
5. Low P/E: If earnings are kept flat with last quarter, the company has a current P/E of 13.
Joy Global (JOYG) - Manufactures mining equipment for coal mines. Surging interest in coal has driven sales higher: revenues up 37% and earnings up 89%. A stock spilt and dividend increase is driving near term stock price, but we will get in anyway
I like medical as a sector play during rising interest rates and possible economic slowdown on the horizon.
Alcon (ACL) – Another Medical company (we already have GILD & CERN).
ACL manufactures multiple products for the eye (something that fits well with aging boomers whose eyesight will continue to erode). Many well known products are a LASIK eye treatment and Opti-free contact lens solution. Margins have increased while the upside surprises have held consistently. They also offer a whopping 47% ROE.
I am concerned about the slowdown in LASIK machinery sales next year, and this is only a short term play. Indeed, it is richly valued, but I think the expanding earnings justify this for a short term play – we will ride the momentum of earnings season.
If ALC continues to perform, fine. If not, I have my eye on SRZ for a more long term play.
Week 5 Performance
Dow -0.76%
S&P -0.4%
LIVEROCKET -2.33%
Performance since inception (Nov 4th)
Dow 1.78%
S&P 3.3%
LIVEROCKET 7.67%
-------------------------------------------------------------
We were cashed out of GYI, DESC, & PWR and turned $29,795 into $31,015. That’s a 4.1% gain in 5 weeks.
I continue to believe that the market has strength. I propose we use the cash as follows:
1. Reinvest $26K in equities
2. Purchase $5,015 puts in either Hansen or Apple at a future date
For the equities, I have considered 40+ stocks. I like the following best:
MDR - $9K
JOYG - $9K
ACL - $8K
We were in alternative energy (DESC) and we continue to need an energy play. This time 2. I have been looking for a good natural gas and coal play. Oil makes natural gas and coal much more profitable and this drives exploration and extraction. Wintertime increases energy consumption as well, adding near term benefits. I also like natural gas because it is spreading in use, making it a long term play as well.
However, I hate the daily oil-driven price fluctuations. And gas stocks are already leveling off. That’s why I prefer to find a natural gas/coal play without the volatility. The answer: equipment.
McDermott Industries (MDR) –
MDR operates and equips gas lines in the Caspian Sea, the Persian gulf, and the gulf of Mexico as well as some side businesses in superfund cleanup sites.
A few more reasons why I like the company
1. Accelerating Sales: Backlog has grown 30% to $1.7B (annual sales last 4 quarters were $1.9B)
2. Accelerating Sales pt 2: Last quarter’s business was slowed by hurricane Katrina and aftermath. Hurricanes have passed
3. Accelerating earnings: Sales have grown 12% Y/Y but earnings have grown 220%, with triple digit quarterly upside earnings surprises EVERY QUARTER for the last 4 quarters (and beyond).
4. Accelerating earnings pt 2: Babcock & Wilcox (a subsidiary) was completely written down due to burgeoning asbestos lawsuits is coming out of bankruptcy in 2006 and will add earnings
5. Low P/E: If earnings are kept flat with last quarter, the company has a current P/E of 13.
Joy Global (JOYG) - Manufactures mining equipment for coal mines. Surging interest in coal has driven sales higher: revenues up 37% and earnings up 89%. A stock spilt and dividend increase is driving near term stock price, but we will get in anyway
I like medical as a sector play during rising interest rates and possible economic slowdown on the horizon.
Alcon (ACL) – Another Medical company (we already have GILD & CERN).
ACL manufactures multiple products for the eye (something that fits well with aging boomers whose eyesight will continue to erode). Many well known products are a LASIK eye treatment and Opti-free contact lens solution. Margins have increased while the upside surprises have held consistently. They also offer a whopping 47% ROE.
I am concerned about the slowdown in LASIK machinery sales next year, and this is only a short term play. Indeed, it is richly valued, but I think the expanding earnings justify this for a short term play – we will ride the momentum of earnings season.
If ALC continues to perform, fine. If not, I have my eye on SRZ for a more long term play.
posted by Andrew at
9:16 PM
2 Comments:
I find it interesting that you chose the equipment instead of the oil/ng themselves. I woul dnever have thought of that. What about alternate energy stocks (nuclear/solar) Is it worth looking there?
Also, can you give your opinion on BRCM?
I like equipment because I want to cash in on energy but avoid the oil price volatility.
MDR is also a small nuclear play.
I am still looking for a quality Solar/wind play.
I like BRCM, always have. But I need to spend some time analyzing them before I suggest a move. They are awfully pricey...
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