Ash Grove Cement – Cement Demand In Nevada
Yes, I know I just wrote about ASHG the other day. It was more of a technical discussion, short-term article, but I did make reference to believing in the strong fundamental position of Ash Grove Cement. Furthermore, I said to go read my other stuff if you wanted more of the basics rather than some rhetoric about bids and asks. Perhaps I had it coming, but I am going to touch on some of those fundamentals right now.
Sometimes, a winner is just looking you right in the face and it is just painfully obvious what is going on. I am not talking about finding the stock that is going to double in two days – sure, that would be nice, but not a good investment approach. I am talking about the obviousness of the long-term success and merits of a company’s business model.
ASHG has made it well publicized that they are building a monster cement plant in Southern Nevada. By chance, I happen to be in Las Vegas while I am writing this article. I was actually hoping to have the chance to visit the site of the plant, which is only a handful of months away from going online. Currently, it is being built. I called ASHG and wanted to ask if I could visit the site just to check it out. My call went unreturned, but likely for the best – I mean, I had plenty to do while I was here.
While I was here, I was looking at the view from a house in Henderson, NV – the town right next store to Las Vegas. The view of the mountains was fantastic, but paled in comparison to the view of the strip from the elevated, unobstructed by anything patio. What do I see? I see a 6 mile gap between the South Point Hotel and the Mandalay Bay, which is the first/last hotel on the strip for those not familiar with the landscape of Las Vegas.
From discussions with the locals and other information about the real estate in the area, I quickly learned that plans are well in motion to continue to build the strip out. Basically, in several years, that 6 mile gap will be filled and South Point will be the first/last hotel on the strip. The gap will be filled with huge resorts and residential sky rises. The resorts that are slated to be built are momentously huge – and there is an outside chance (though very small) that the tallest building in the world will be built in the vicinity. My point is, the growth in this area is not done – and with new casinos, many being backed by the large, established organizations, we are looking at many new jobs to support the new resorts. My thought – it is going to take lots, lots, and lots of cement.
It is abundantly clear that the demand for the cement in this area is going to be huge and the $200 million ASHG is spending on building the place is no small change, especially for a family owned/operated company that happens to have a handful of shares floating around. Sure, we know we need more cement and concrete – that is no secret. However, the sheer magnitude it is going to take to build these monster buildings in the strip’s gap is almost overwhelming. I do not have any specific numbers on what it is going to take to build these new resorts and the surrounding areas – nor do I know how much cement will be needed. All I know is that ASHG will be more than well positioned to take advantage of the impending boom and return on investment is likely sooner than anyone is giving them credit for.
In summary, sometimes choosing what company to invest in for the long-term is painfully obvious in terms of the success that will be enjoyed by the business model. It does not take an economic scholar nor expert fund manager to easily see what is happening here in Las Vegas and what is to come. Short and simple – 6 miles of empty space, plans for new casinos and resorts, lots and lots of concrete – buy ASHG.
Seaboard Corporation – Aren’t They a Dry Bulk Shipper?
This is more of an alert rather than rhetoric, so it will be brief. In the past few trading days, SEB has declined under $2,200/share. The bigger news is that during this time, marine transport and dry bulk-shippers were going through the roof. SEB did not take part in the rally. Why? Perhaps since SEB is diversified with a multitude of cash producing businesses, I guess they are not a bulk shipper. Who knew, right?
SEB continues to see growth in their marine shipping business, is buying new ships (a big chunk of capital expenditures slates for 2007 and see June 14, 2007 announcement on www.seaboardmarine.com), and is one of the largest operators (perhaps the biggest?) in the Caribbean. I still like how SEB retains the huge majority of their free cash flow to reinvest in the business, rather than paying out huge dividends like some of these other shippers.
Short and simple – they are a bulk shipper, they are huge, they are expanding their fleet, they are keeping most of their money (helping to reduce taxes and allow for growth). I think that the high dividend payouts of many of the other bulk shippers will be their downfall over the long-term. Not investing more in their respective fleets and not saving cash for a rainy day could be troublesome, especially with how leveraged some of these shippers are. SEB, fortunately, is not highly leveraged. Well, I digressed a little bit – best of luck to the other bulk shippers. Of course, I wish I bought a handful of them a year ago when I started researching the shipping industry, but you cannot win them all.
SEB is not nearly as obvious as ASHG’s position in Nevada, but when a strong company shows weakness when the rest of the sector is showing strength, especially during the short term, one should take notice, particularly if there have been no material changes in the company’s financial status. I am not going to say buy more here – I will leave that up to you and timing the market. SEB can certainly drop further than it has in the past couple of weeks. Regardless, I think the future of SEB – and subsequently their stock price is obvious. And it really does not take a genius to see it – it is merely simple business principles. What am I doing with SEB, you ask? Well, that should be obvious, too.
Showing posts with label ashg. Show all posts
Showing posts with label ashg. Show all posts
Saturday, July 21, 2007
Mr. Herb Greenberg – Thank You….and You Are Welcome
Reading the Wall Street Journal the other day, I noticed an article written by reputable author, Herb Greenberg. I hate to say it, but it appears Mr. Greenberg took a page from my book mentioning Seaboard Corp (AMEX: SEB), Ash Grove Cement (Pink Sheets: ASHG), and J.G. Boswell (Pink Sheets: BWEL) all in the same breath. I said – wow. Of course, imitation is the highest form of flattery, but I must say it is great to be on the same page with a writer like him.
The article, “Strong, Silent Types: Some Companies Let Their Fundamentals Do the Talking” talks about how a handful of companies do not participate in the gala that is investor conference calls or earnings guidance. As my previous blog on the exclusivity of ownership discusses, I 100% agree with this stance.
There is not much to be said here, except that it was nice to be in the same light with this guy.
And, of course, to play devil’s advocate, there was a quote in the article that hit it right on – basically saying that if you are any good at something, there is no need to brag or draw attention to yourself. Things will take care of themselves. I know some will say that I am bragging and drawing attention to myself by writing rather than keeping my mouth shut, but I am just writing. If someone reads it, great….if not, well, so be it. I probably should keep my investment merits and failures to myself – the best fund managers do just that – but I am not that good at the investing or writing aspect yet, so I have to brag. :-)
The article, “Strong, Silent Types: Some Companies Let Their Fundamentals Do the Talking” talks about how a handful of companies do not participate in the gala that is investor conference calls or earnings guidance. As my previous blog on the exclusivity of ownership discusses, I 100% agree with this stance.
There is not much to be said here, except that it was nice to be in the same light with this guy.
And, of course, to play devil’s advocate, there was a quote in the article that hit it right on – basically saying that if you are any good at something, there is no need to brag or draw attention to yourself. Things will take care of themselves. I know some will say that I am bragging and drawing attention to myself by writing rather than keeping my mouth shut, but I am just writing. If someone reads it, great….if not, well, so be it. I probably should keep my investment merits and failures to myself – the best fund managers do just that – but I am not that good at the investing or writing aspect yet, so I have to brag. :-)
Mr. Herb Greenberg – Thank You….and You Are Welcome
Reading the Wall Street Journal the other day, I noticed an article written by reputable author, Herb Greenberg. I hate to say it, but it appears Mr. Greenberg took a page from my book mentioning Seaboard Corp (AMEX: SEB), Ash Grove Cement (Pink Sheets: ASHG), and J.G. Boswell (Pink Sheets: BWEL) all in the same breath. I said – wow. Of course, imitation is the highest form of flattery, but I must say it is great to be on the same page with a writer like him.
The article, “Strong, Silent Types: Some Companies Let Their Fundamentals Do the Talking” talks about how a handful of companies do not participate in the gala that is investor conference calls or earnings guidance. As my previous blog on the exclusivity of ownership discusses, I 100% agree with this stance.
There is not much to be said here, except that it was nice to be in the same light with this guy.
And, of course, to play devil’s advocate, there was a quote in the article that hit it right on – basically saying that if you are any good at something, there is no need to brag or draw attention to yourself. Things will take care of themselves. I know some will say that I am bragging and drawing attention to myself by writing rather than keeping my mouth shut, but I am just writing. If someone reads it, great….if not, well, so be it. I probably should keep my investment merits and failures to myself – the best fund managers do just that – but I am not that good at the investing or writing aspect yet, so I have to brag. :-)
The article, “Strong, Silent Types: Some Companies Let Their Fundamentals Do the Talking” talks about how a handful of companies do not participate in the gala that is investor conference calls or earnings guidance. As my previous blog on the exclusivity of ownership discusses, I 100% agree with this stance.
There is not much to be said here, except that it was nice to be in the same light with this guy.
And, of course, to play devil’s advocate, there was a quote in the article that hit it right on – basically saying that if you are any good at something, there is no need to brag or draw attention to yourself. Things will take care of themselves. I know some will say that I am bragging and drawing attention to myself by writing rather than keeping my mouth shut, but I am just writing. If someone reads it, great….if not, well, so be it. I probably should keep my investment merits and failures to myself – the best fund managers do just that – but I am not that good at the investing or writing aspect yet, so I have to brag. :-)
Thursday, July 19, 2007
Paint By Numbers – Brush Engineered Materials (NYSE: BW) and Ash Grove Cement (Pink Sheets: ASHG)
The famous Art of War by Sun Tzu sports a thought that the victory in a battle is actually determined before the battle is actually thought.
I must admit, I spend a fair amount of time watching the intra-day activity of the positions I follow and am long on. Such activity is typically not suggested for long-term investors or any investor that is betting on the merits of the company. I have heard rumors that Warren Buffett shuns the use of stock quote tools and relies strictly on SEC filings and industry information to make his investment decisions. I am unsure if that is true, but I hope you can relate to the above illustration, even if it only a rumor.
Watching the tape tick-by-tick has all sorts of negative consequences that can impact investment decision. More often than not, this behavior lends itself to allowing fear and greed in get in the way. Big long-term winners are often sold on unwelcome large dips and fear sets in. A stock that has had a 20% run-up plummets 5% in a single day and in the excitement, the sell order is placed. After all, you never went broke taking a profit. But, regardless, the stock quickly rebounds from its low and then proceeds to become a double or a triple over the next 12 months. On the converse, a stock you are looking to start a position has a break-out day – and thanks to greed, you chase the bid up, only to give in to placing a market order. The stock then pulls back, naturally, and although perhaps the stock does well over the long haul, you restricted your gain somewhat by buying higher than you should. Sound familiar? I think every investor has shared the above experiences in some form at some point.
However, watching tick-by-tick, especially over long periods of time, can provide valuable insight into the future of the company’s stock performance. The key is being able to remove yourself from the fear, greed, and other emotions that can cloud your investment decisions.
Brush Engineered Materials (NYSE: BW)
One of my recent additions to my portfolio, I jumped in BW when it was trading under $40 after it lowered its earnings guidance. Mind you, that my confidence was strengthened by the 485,000 purchase by 14% holder Tontine Capital Partners. Just recently, BW climbed back to over $47 showing a very strong short-term gain and making some of the $40 calls I bought extremely valuable. What happened? BW pulled back sharply, and traded in the $43s. Although the fundamental reason why I added BW has not changed, the pull back certainly eliminated some of the fat paper gains achieved thus far, particularly in the options which have a limited shelf-life. Watching the tape was gut-wrenching and the temptation to exit was strong, especially since 50% of my gains were lost in a single day and I was still very well in the black. However, recognizing the fundamental reason why I bought in the first place did not change, I took a deep breath and resolved that I would hold my position. I actually considered buying more, but that did not happen – though I should have.
Watching the tape over the past couple of days has been inspiring to my long-term confidence in BW at these levels. There has certainly been some volatility – not unexpected in any stock with a relatively small float and active trading environment. A big dip like BW saw lends itself to all sorts of strange variables into the equation. Momentum traders, shorts covering, shorts being scared into covering on small pops, active option contracts, and value investors looking to scoop up shares. This day to day activity can cause some frenetic activity, but among the battlefield, I noticed some very telling signs.
Intraday, BW would certainly have some swings. Nothing dramatic, but it would fall to $43.50, only to run to $44.50, and fall back to under $44. The trend I have noticed the last several days is that during the many up and down swings, volume at the levels tells the truth. There is no doubt that there is some distribution of shares going on out there. After all, BW has had quite a run up the past 12 months and is still up over 100% from its 52-week low, even after its 35% haircut from its 52-week high.
The important observation is that when BW goes on a little mini-run, money flow and buying of stock is strong. The size of the blocks and total volume in these mini-runs is far greater than it is when it takes a breather. My analysis suggests that there is net buying of BW at these levels. There is certainly stock for sale, no question and the blocks for sale come out in mass when the buyers are ready. Then, the buyers take a break and some net selling comes in – only to be met by fierce accumulation. I could certainly be wrong – I am no psychic and the marketplace is an expression of an environment far too complex to understand. However, making an educated investment decision based on rational though, BW is a buy. Exactly why it is being bought up, well, nobody really knows – everyone has a theory.
I liken it to an options contract. For instance, say a buyer (individual or a fund, more likely) thinks that BW is worth $60/share. Basic logic should say that the buyer should just buy up everything in sight, but we all know that makes no sense for many reasons. Why artificially drive the price up before $60 is due? For instance, today, say I believe that BW is going to $60 and I am willing to pay say only $44.25 for BW. If I am a fund managing large sums of money, I have to have a risk formula or reason for doing do. I may be 100% confident in the future of BW and hitting $60, and while I have some ideas of how it will get there, I do not know exactly when or how it will transpire. All I know is that each trading day that goes by is one day closer until it hits $60. So, today, I am willing to buy at $44.25, but say next week, as the $60 timeframe draws nearer (although it is an unknown), I am willing to pay $44.75. The duration is shorter, so I am willing to pay an additional premium to own the shares that I know are going to $60. So, I go in and buy everything in sight up until $44.75, then I back down…the sellers show up and maybe the stock even gets a pop on the incoming volume to $44.90. I patiently then will wait for it to come down below $44.75 to reinitiate my buying. As time goes on, as long as I remain convinced that $60 is the target price, I will be willing to pay more for it. For instance, say BW is at $44.25 and a buy out at $60 is 100% guaranteed to happen (I am not saying it is). Well, in one scenario, the buyout is 12 months away. Why buy now at $44.25? You may be able to do better elsewhere. However, if the stock is at $55 and the buyout at $60 is coming tomorrow, you would be all in.
The above is lengthy, but to summarize, the battle for the future of BW is being decided right now. The action that I am seeing, at least to me, is indicating that there are more buyers than sellers and more people that believe that BW has an upside versus those that believe it has a downside. One day, it will be very likely that the gap will be filled and BW may even be able to go on to even higher levels than it touched on earlier this year. There are no assurances of that, but the profits are being made now by the sophisticated buyers that will not get caught chasing BW up the tree when it breaks out. The activity I am seeing corroborates my fundamental business reasons for liking BW. I like when the stars align.
Ash Grove Cement (Pink Sheets: ASHG)
ASHG has not posted a trade in nearly two months. The spread occasionally moves, which is obviously indicative of some activity taking place, most likely in odd lot transactions. I know how this works because I will often go and buy 1, 5, 10, or even 25 shares – and the trade will never hit the tape, but I do own the shares. The spread, however, will change.
Armed with this knowledge, even when I am merely watching the inside market and taking notice of the change, I am able to learn a great deal about the marketplace out there. The fact that is hardly ever trades really brings some clarity to the table.
Just a couple of days ago, with no volume whatsoever, and after the spread ticked up to $240 x $265, without notice, the spread was $230 x $240. Now, instant reaction is obviously fear, but because I have watched the inside market on this one daily for over 2 years, I know what this means. I am not 100% certain of the specifics, but my strong bullish stance on ASHG (which I make no secret) screams out buying opportunity. Dips in the spread like this are common and I take advantage to nibble and add to my position. Long term, it likely will not matter that much if I paid $5 more per share, but it is nice to get a lower cost basis and to take advantage of such dips to cheaply add to your position. I think investors often forget that buy and hold really needs to be buy, buy, and buy. If it is a great company and there appears to be value in the price being offered, take it. For example, I am glad I bought and hold my first shares of ASHG that I purchased at $160 – but I am even happier that I added more at $180, $195, $205, $210, etc. Of course, in the end, I may be wrong, but only time will tell.
Anyway, seeing the spread at $230 x $240, I knew it would not last long. I added to my position at $240. About 45 minutes later, the spread went to $235 x $240. Within minutes of that, the spread moved to $235 x $243. I actually went to add more at $243, but before the order could even be placed, the spread went to $235 x $250 and then quickly to $235 x $255. I then added a little more at $255. My limit orders at $231, $236, and $240 have gone unfilled, which is typically how this stock works. Good luck buying at the bid or not at the ask, especially if you are working with odd lots. The odd lot approach makes sense as it can be done under the radar. Who knows how much a 100 or 200 share market order would do to the spread – it could be a disaster. I’ve taken out asks before with 5 and 10 share offers.
Today, the spread is $235 x $260. The $255 ask went away the following trading day. I am glad I took the $255 shares when I did – or else I would have had to pay $260. My fundamental reasons for buying ASHG have not changed and I still think it is a value at these levels, so I will continue to add where appropriate. Being attentive to the inside market and learning how this stock behaves afforded me the opportunity to add some shares at an 8% discount to what they are currently fetching – and that fire sale lasted only a few minutes.
Obviously, other people are watching ASHG closely – likely far more closely than I am. I am not sure what happened, but my theory suggests that maybe an employee or a fund wanted out of a handful of shares – bringing the price down. And as usual, someone was there to buy them to keep the marketplace clean. It could have been another fund, though I think it is the founding family doing most of the cleanup work. They will part with a handful of shares here and there for the benefit of their employees and other investors, including institutions and goofballs like myself, but that suggests that a time for these latter groups to sell will come. If you had to bet who is more likely to sell their shares first, would you bet on me or the founding family that has owned them for 100+ years. I feel confident in the future of ASHG and its business prospects (I have written about those already in other articles, so I will spare you that) and I feel even more confident that when those decide it is time to move on from ASHG, the family will acquire those shares to keep the marketplace in balance. The battle for me has already been won. When ASHG hits $300 and potentially $400 – that is when I will remember it is on days like this where there is some form of arbitrage or what not going on that the real money was made.
I must admit, I spend a fair amount of time watching the intra-day activity of the positions I follow and am long on. Such activity is typically not suggested for long-term investors or any investor that is betting on the merits of the company. I have heard rumors that Warren Buffett shuns the use of stock quote tools and relies strictly on SEC filings and industry information to make his investment decisions. I am unsure if that is true, but I hope you can relate to the above illustration, even if it only a rumor.
Watching the tape tick-by-tick has all sorts of negative consequences that can impact investment decision. More often than not, this behavior lends itself to allowing fear and greed in get in the way. Big long-term winners are often sold on unwelcome large dips and fear sets in. A stock that has had a 20% run-up plummets 5% in a single day and in the excitement, the sell order is placed. After all, you never went broke taking a profit. But, regardless, the stock quickly rebounds from its low and then proceeds to become a double or a triple over the next 12 months. On the converse, a stock you are looking to start a position has a break-out day – and thanks to greed, you chase the bid up, only to give in to placing a market order. The stock then pulls back, naturally, and although perhaps the stock does well over the long haul, you restricted your gain somewhat by buying higher than you should. Sound familiar? I think every investor has shared the above experiences in some form at some point.
However, watching tick-by-tick, especially over long periods of time, can provide valuable insight into the future of the company’s stock performance. The key is being able to remove yourself from the fear, greed, and other emotions that can cloud your investment decisions.
Brush Engineered Materials (NYSE: BW)
One of my recent additions to my portfolio, I jumped in BW when it was trading under $40 after it lowered its earnings guidance. Mind you, that my confidence was strengthened by the 485,000 purchase by 14% holder Tontine Capital Partners. Just recently, BW climbed back to over $47 showing a very strong short-term gain and making some of the $40 calls I bought extremely valuable. What happened? BW pulled back sharply, and traded in the $43s. Although the fundamental reason why I added BW has not changed, the pull back certainly eliminated some of the fat paper gains achieved thus far, particularly in the options which have a limited shelf-life. Watching the tape was gut-wrenching and the temptation to exit was strong, especially since 50% of my gains were lost in a single day and I was still very well in the black. However, recognizing the fundamental reason why I bought in the first place did not change, I took a deep breath and resolved that I would hold my position. I actually considered buying more, but that did not happen – though I should have.
Watching the tape over the past couple of days has been inspiring to my long-term confidence in BW at these levels. There has certainly been some volatility – not unexpected in any stock with a relatively small float and active trading environment. A big dip like BW saw lends itself to all sorts of strange variables into the equation. Momentum traders, shorts covering, shorts being scared into covering on small pops, active option contracts, and value investors looking to scoop up shares. This day to day activity can cause some frenetic activity, but among the battlefield, I noticed some very telling signs.
Intraday, BW would certainly have some swings. Nothing dramatic, but it would fall to $43.50, only to run to $44.50, and fall back to under $44. The trend I have noticed the last several days is that during the many up and down swings, volume at the levels tells the truth. There is no doubt that there is some distribution of shares going on out there. After all, BW has had quite a run up the past 12 months and is still up over 100% from its 52-week low, even after its 35% haircut from its 52-week high.
The important observation is that when BW goes on a little mini-run, money flow and buying of stock is strong. The size of the blocks and total volume in these mini-runs is far greater than it is when it takes a breather. My analysis suggests that there is net buying of BW at these levels. There is certainly stock for sale, no question and the blocks for sale come out in mass when the buyers are ready. Then, the buyers take a break and some net selling comes in – only to be met by fierce accumulation. I could certainly be wrong – I am no psychic and the marketplace is an expression of an environment far too complex to understand. However, making an educated investment decision based on rational though, BW is a buy. Exactly why it is being bought up, well, nobody really knows – everyone has a theory.
I liken it to an options contract. For instance, say a buyer (individual or a fund, more likely) thinks that BW is worth $60/share. Basic logic should say that the buyer should just buy up everything in sight, but we all know that makes no sense for many reasons. Why artificially drive the price up before $60 is due? For instance, today, say I believe that BW is going to $60 and I am willing to pay say only $44.25 for BW. If I am a fund managing large sums of money, I have to have a risk formula or reason for doing do. I may be 100% confident in the future of BW and hitting $60, and while I have some ideas of how it will get there, I do not know exactly when or how it will transpire. All I know is that each trading day that goes by is one day closer until it hits $60. So, today, I am willing to buy at $44.25, but say next week, as the $60 timeframe draws nearer (although it is an unknown), I am willing to pay $44.75. The duration is shorter, so I am willing to pay an additional premium to own the shares that I know are going to $60. So, I go in and buy everything in sight up until $44.75, then I back down…the sellers show up and maybe the stock even gets a pop on the incoming volume to $44.90. I patiently then will wait for it to come down below $44.75 to reinitiate my buying. As time goes on, as long as I remain convinced that $60 is the target price, I will be willing to pay more for it. For instance, say BW is at $44.25 and a buy out at $60 is 100% guaranteed to happen (I am not saying it is). Well, in one scenario, the buyout is 12 months away. Why buy now at $44.25? You may be able to do better elsewhere. However, if the stock is at $55 and the buyout at $60 is coming tomorrow, you would be all in.
The above is lengthy, but to summarize, the battle for the future of BW is being decided right now. The action that I am seeing, at least to me, is indicating that there are more buyers than sellers and more people that believe that BW has an upside versus those that believe it has a downside. One day, it will be very likely that the gap will be filled and BW may even be able to go on to even higher levels than it touched on earlier this year. There are no assurances of that, but the profits are being made now by the sophisticated buyers that will not get caught chasing BW up the tree when it breaks out. The activity I am seeing corroborates my fundamental business reasons for liking BW. I like when the stars align.
Ash Grove Cement (Pink Sheets: ASHG)
ASHG has not posted a trade in nearly two months. The spread occasionally moves, which is obviously indicative of some activity taking place, most likely in odd lot transactions. I know how this works because I will often go and buy 1, 5, 10, or even 25 shares – and the trade will never hit the tape, but I do own the shares. The spread, however, will change.
Armed with this knowledge, even when I am merely watching the inside market and taking notice of the change, I am able to learn a great deal about the marketplace out there. The fact that is hardly ever trades really brings some clarity to the table.
Just a couple of days ago, with no volume whatsoever, and after the spread ticked up to $240 x $265, without notice, the spread was $230 x $240. Now, instant reaction is obviously fear, but because I have watched the inside market on this one daily for over 2 years, I know what this means. I am not 100% certain of the specifics, but my strong bullish stance on ASHG (which I make no secret) screams out buying opportunity. Dips in the spread like this are common and I take advantage to nibble and add to my position. Long term, it likely will not matter that much if I paid $5 more per share, but it is nice to get a lower cost basis and to take advantage of such dips to cheaply add to your position. I think investors often forget that buy and hold really needs to be buy, buy, and buy. If it is a great company and there appears to be value in the price being offered, take it. For example, I am glad I bought and hold my first shares of ASHG that I purchased at $160 – but I am even happier that I added more at $180, $195, $205, $210, etc. Of course, in the end, I may be wrong, but only time will tell.
Anyway, seeing the spread at $230 x $240, I knew it would not last long. I added to my position at $240. About 45 minutes later, the spread went to $235 x $240. Within minutes of that, the spread moved to $235 x $243. I actually went to add more at $243, but before the order could even be placed, the spread went to $235 x $250 and then quickly to $235 x $255. I then added a little more at $255. My limit orders at $231, $236, and $240 have gone unfilled, which is typically how this stock works. Good luck buying at the bid or not at the ask, especially if you are working with odd lots. The odd lot approach makes sense as it can be done under the radar. Who knows how much a 100 or 200 share market order would do to the spread – it could be a disaster. I’ve taken out asks before with 5 and 10 share offers.
Today, the spread is $235 x $260. The $255 ask went away the following trading day. I am glad I took the $255 shares when I did – or else I would have had to pay $260. My fundamental reasons for buying ASHG have not changed and I still think it is a value at these levels, so I will continue to add where appropriate. Being attentive to the inside market and learning how this stock behaves afforded me the opportunity to add some shares at an 8% discount to what they are currently fetching – and that fire sale lasted only a few minutes.
Obviously, other people are watching ASHG closely – likely far more closely than I am. I am not sure what happened, but my theory suggests that maybe an employee or a fund wanted out of a handful of shares – bringing the price down. And as usual, someone was there to buy them to keep the marketplace clean. It could have been another fund, though I think it is the founding family doing most of the cleanup work. They will part with a handful of shares here and there for the benefit of their employees and other investors, including institutions and goofballs like myself, but that suggests that a time for these latter groups to sell will come. If you had to bet who is more likely to sell their shares first, would you bet on me or the founding family that has owned them for 100+ years. I feel confident in the future of ASHG and its business prospects (I have written about those already in other articles, so I will spare you that) and I feel even more confident that when those decide it is time to move on from ASHG, the family will acquire those shares to keep the marketplace in balance. The battle for me has already been won. When ASHG hits $300 and potentially $400 – that is when I will remember it is on days like this where there is some form of arbitrage or what not going on that the real money was made.
Friday, May 25, 2007
What to Buy? New Stock Picks from INFT Winnings
1. SEB - More at $2,230
2. ASHG - More at $236
3. WNC - More at $14.10
4. SCMR - Buy at $3.68
5. GNCI - Buy at $9.05
6. TGIS - Buy at $11.00
For anyone that actively and soundly invests (or even speculates) to build wealth has heard in passing: "The stock market is just like gambling." Initially, it is easy to defensively respond to statements with some resentment, but the reality is, there are many similarities. Anything can happen, as we can see. Unexpected buyouts, miracle turnarounds, indictments of fraud coming out of nowhere – and those all play into the gambling game of the stock market. Conversely, some sports gamblers or casino gamblers will actually claim that they can research the field and find hidden value the same way that investors claim they can do the same.
I have found, however, that what separates an investor from a gambler – whether it be the stock market or a sports game – is that the investor not only makes educated decisions with sound rationale, but also has an above average success rate in coming out on top (whether it be finding a winner, cutting losers before they become total wipe outs, etc.). More importantly, the investor will take the proceeds from a win and then promptly re-invest in another position, rather than spending the money. Sports and financial 'gamblers' alike will brag about their wins, take all of the money from the wins and spend it. Short and simple, no wealth is built as all gains are disbursed out and losses, which do happen, way hard on the total performance.
My point is that I consider myself an investor and on the heels of the $4.25 buy out offer on Inforte (NASDAQ: INFT), I am taking my gains and re-investing. With the markets at all time highs, everything seems expensive, and it is hard to find value. I hate to sound fearful or bearish, but the comments from Alan Greenspan about a strong chance of us hitting recession, the recent housing data announcement making an interest rate cut unlikely, and seeing margin debt rise to levels higher than just before the 2001 market down-turn have me a little concerned about lofty valuations. Regardless, rather than sacrificing my gains to consumerism, here is the hand I will be playing next.
First, oldies but goodies.
Seaboard Corporation (AMEX: SEB)
Seaboard has had an amazing run the past several months, doubling from its Fall, 2006 lows. Back then, this one was a no-brainer, but now take a little more resolve. Seaboard has seen strong growth in its containerized cargo shipping division the past couple of years and there is no doubt that this sector has been hot. Seaboard continues to make strong capital investments in this unit and continues to maintain the efficacy of its other business lines. Off nearly 18% from its all-time high, I felt this was a good entry point to add to my position. At the close of trading on May 24, 2007, Seaboard was trading at less than 11x trailing earnings, 2.1x book value, and at less than 1.9x forward 12 months book value. An owner-friendly investment that retains much of their cash flow to fund their 20% return on equity business. I added to my position at $2,235 and I have a price target of $2,700-$2,900 per share.
Ash Grove Cement (Pink Sheets: ASHG)
Yes, this company trades on the Pink Sheets, which I know nobody really likes, but they are the 5th largest cement company in the USA and the largest American owned cement company in the country. Ash Grove Cement has committed $190M to increase capacity in its Arkansas cement plant by 70% and $250M to build only the 2nd cement plant in the state of Nevada. Ash Grove will also commit another $60M or so in 2007 to expand their cement capacity. I feel strongly that being the largest American owned cement plant will be critical in the future as cement demand increases not only domestically, but worldwide. With the growth of cement internationally expected to outpace growth in the USA over the coming years, I believe many of the international players will invest in foreign production and capacity. Of course, I would, too, but this puts the largest American player in a good position, and with the capacity, to become a more important supplier to meet the USA's substantial domestic need. Granted, I am not the cement company expert, but I do believe that the domestic vs. foreign demand issue has been somewhat overlooked. I first started my position in the Summer, 2005 at $160 per share and since then, have seen the stock rise $47% and seen the annual dividend increase by 10%. Going back further, the stock has done even better in terms of raising the dividend and providing appreciation to its owners. With the spread at $235 x $269, I have an order in to buy at $236. However, with the stock so thinly traded, I am not expecting a quick fill. Historically, I have watched the spread widen around dividend time – next ex-date is June 6, 2007 – and do expect offer price to come down post-dividend. Unfortunately, I have found on this one that if you want in, sometimes you just have to buy at the ask. It's no fun, but historically, I am glad I have done so. I do believe that upside exists to the $300-$320 range, but especially since the company does not announce financial results and is so thinly traded, patience is certainly a virtue.
Wabash National (NYSE: WNC)
One of my losers thus far, but there is value here. It will likely take several months for Wabash to see results show up in the stock price, but I believe it will happen. The stock is likely trading towards the lower end of its range and should be buoyed by the company's buy back program and some big purchases by 14% holder and heralded value/contrarian/cyclical investor, Tontine Capital Partners. The limited downside from here inclines me to add more to my position - but I will wait a little longer as the stock is up 2.8% today to $14.58 in relatively light volume. I have a target of $19-$23 and I expect Wabash to hit that in the next 12-18 months as the market for their products turns around in late 2007/early 2008, they show stronger margins in the face of growth due to their new ERP system, and see the nearly 4M shares short be forced to cover. In the meantime, this might be a long ride as the general sentiment about the industry is overwhelming negative.
New finds include:
Sycamore Networks (NASDAQ: SCMR)
This has been a storied stock its entire life on the NASDAQ. Unfortunately, it has not been a good story for most investors. The company makes networking hardware and equipment, which certainly is not very exciting and has much negativity surrounding it. Sycamore is currently delinquent in its SEC filings due to the notorious options back-dating situation. Such scandal is never a good thing from the appearance of things, but will have no cash impacts on their books. Sycamore currently has about $915M in cash, or about $3.28 per share. That is about 90% of their current market cap of just over $1B. More importantly, Sycamore has shown signs of life and reported a nearly 100% increase in sales, primarily due to an acquisition. I like the cash protecting from downside risk, signs of sales growth, and one of their core products serving the MSO/Cable companies, especially as it pertains to the new digital voice/digital phone service that runs over your cable infrastructure. Comcast, Charter, Cablevision, and Time Warner have all reported strong growth in the digital telephony arena and will need hardware to handle the traffic. Granted, Sycamore competes in a competitive landscape with companies like Cisco in the mix, but I am in at $3.68 with a price target of $4.75-$5.75 in the next 9-12 months – perhaps on an acquisition.
Gencor Industries, Inc. (OTC BB: GNCI)
A small manufacturer of construction equipment and machinery, particularly that serves the highway-construction industry. Gencor also makes equipment that has exposure to the environmental control and synthetic fuel arenas. Gencor is a partner in a joint-venture and receives royalty payments, albeit not material, but growing, for production of synthetic fuels. Gencor is trading near its 52-week low as it enters the historically slower 3rd and 4th quarters. The company is small with only $73M in sales. Gencor has no debt, $52M of cash and cash equivalents, which is about 60% of its market cap, and EV/EBITDA is 1.7. Compare the latter ratio to competitors, such as Astec Industries and its 10.8 EV/EBITDA, and there appears to be some value. Individual investor Lloyd Miller III has bought 72,500 shares since March 22, 2007 and now owns nearly 907,000 shares, which is roughly 10% of the company. A strange ownership structure with Class B shares, small float, and thinly traded status makes it hard to determine where this one could go. $9.05 is a good entry point and I think that Gencor should be trading closer to $16-$18, but its market dynamics may not allow that.
Thomas Group, Inc. (NASDAQ: TGIS)
Thomas Group is a very reputable consulting firm that has no debt, pays a dividend yield of nearly 4%, and is cash flow positive. Ratios, for the most part, show that Thomas Group is not cheap: 2x sales, 6x book value, 11x levered free cash flow. However, this company has a strong track record of success and its P/E is far lower than its peer companies. Only 3M of its 10.8M shares are in the public float, so the stock has the tendency to be volatile – in either direction, of course. The stock is trading a little under $11.00 which I feel is a good entry point. It recently traded as low as $9 in early May, 2007 and traded there in June, 2006 and August, 2006 – and bounced quickly up each time. We have seen a double-top at around $16 twice in 2006, but could we have the triple bottom at $9? Stock stands to get back to $16 and perhaps higher if they continue to show good numbers, but first will need to break through the $12 resistance. This one is more of a technical play than a fundamentals play, but it is likely not going any lower than $9-$10 and has a very strong chance, with a lot of rationale behind it, to move up to $15-$16. Enter under $11 and price target is $15.
Simplistically, I am looking for value to hedge against the lofty valuations we are currently seeing and I am strengthening my positions in those that the fundamental reasons why I bought in the first place have not changed.
2. ASHG - More at $236
3. WNC - More at $14.10
4. SCMR - Buy at $3.68
5. GNCI - Buy at $9.05
6. TGIS - Buy at $11.00
For anyone that actively and soundly invests (or even speculates) to build wealth has heard in passing: "The stock market is just like gambling." Initially, it is easy to defensively respond to statements with some resentment, but the reality is, there are many similarities. Anything can happen, as we can see. Unexpected buyouts, miracle turnarounds, indictments of fraud coming out of nowhere – and those all play into the gambling game of the stock market. Conversely, some sports gamblers or casino gamblers will actually claim that they can research the field and find hidden value the same way that investors claim they can do the same.
I have found, however, that what separates an investor from a gambler – whether it be the stock market or a sports game – is that the investor not only makes educated decisions with sound rationale, but also has an above average success rate in coming out on top (whether it be finding a winner, cutting losers before they become total wipe outs, etc.). More importantly, the investor will take the proceeds from a win and then promptly re-invest in another position, rather than spending the money. Sports and financial 'gamblers' alike will brag about their wins, take all of the money from the wins and spend it. Short and simple, no wealth is built as all gains are disbursed out and losses, which do happen, way hard on the total performance.
My point is that I consider myself an investor and on the heels of the $4.25 buy out offer on Inforte (NASDAQ: INFT), I am taking my gains and re-investing. With the markets at all time highs, everything seems expensive, and it is hard to find value. I hate to sound fearful or bearish, but the comments from Alan Greenspan about a strong chance of us hitting recession, the recent housing data announcement making an interest rate cut unlikely, and seeing margin debt rise to levels higher than just before the 2001 market down-turn have me a little concerned about lofty valuations. Regardless, rather than sacrificing my gains to consumerism, here is the hand I will be playing next.
First, oldies but goodies.
Seaboard Corporation (AMEX: SEB)
Seaboard has had an amazing run the past several months, doubling from its Fall, 2006 lows. Back then, this one was a no-brainer, but now take a little more resolve. Seaboard has seen strong growth in its containerized cargo shipping division the past couple of years and there is no doubt that this sector has been hot. Seaboard continues to make strong capital investments in this unit and continues to maintain the efficacy of its other business lines. Off nearly 18% from its all-time high, I felt this was a good entry point to add to my position. At the close of trading on May 24, 2007, Seaboard was trading at less than 11x trailing earnings, 2.1x book value, and at less than 1.9x forward 12 months book value. An owner-friendly investment that retains much of their cash flow to fund their 20% return on equity business. I added to my position at $2,235 and I have a price target of $2,700-$2,900 per share.
Ash Grove Cement (Pink Sheets: ASHG)
Yes, this company trades on the Pink Sheets, which I know nobody really likes, but they are the 5th largest cement company in the USA and the largest American owned cement company in the country. Ash Grove Cement has committed $190M to increase capacity in its Arkansas cement plant by 70% and $250M to build only the 2nd cement plant in the state of Nevada. Ash Grove will also commit another $60M or so in 2007 to expand their cement capacity. I feel strongly that being the largest American owned cement plant will be critical in the future as cement demand increases not only domestically, but worldwide. With the growth of cement internationally expected to outpace growth in the USA over the coming years, I believe many of the international players will invest in foreign production and capacity. Of course, I would, too, but this puts the largest American player in a good position, and with the capacity, to become a more important supplier to meet the USA's substantial domestic need. Granted, I am not the cement company expert, but I do believe that the domestic vs. foreign demand issue has been somewhat overlooked. I first started my position in the Summer, 2005 at $160 per share and since then, have seen the stock rise $47% and seen the annual dividend increase by 10%. Going back further, the stock has done even better in terms of raising the dividend and providing appreciation to its owners. With the spread at $235 x $269, I have an order in to buy at $236. However, with the stock so thinly traded, I am not expecting a quick fill. Historically, I have watched the spread widen around dividend time – next ex-date is June 6, 2007 – and do expect offer price to come down post-dividend. Unfortunately, I have found on this one that if you want in, sometimes you just have to buy at the ask. It's no fun, but historically, I am glad I have done so. I do believe that upside exists to the $300-$320 range, but especially since the company does not announce financial results and is so thinly traded, patience is certainly a virtue.
Wabash National (NYSE: WNC)
One of my losers thus far, but there is value here. It will likely take several months for Wabash to see results show up in the stock price, but I believe it will happen. The stock is likely trading towards the lower end of its range and should be buoyed by the company's buy back program and some big purchases by 14% holder and heralded value/contrarian/cyclical investor, Tontine Capital Partners. The limited downside from here inclines me to add more to my position - but I will wait a little longer as the stock is up 2.8% today to $14.58 in relatively light volume. I have a target of $19-$23 and I expect Wabash to hit that in the next 12-18 months as the market for their products turns around in late 2007/early 2008, they show stronger margins in the face of growth due to their new ERP system, and see the nearly 4M shares short be forced to cover. In the meantime, this might be a long ride as the general sentiment about the industry is overwhelming negative.
New finds include:
Sycamore Networks (NASDAQ: SCMR)
This has been a storied stock its entire life on the NASDAQ. Unfortunately, it has not been a good story for most investors. The company makes networking hardware and equipment, which certainly is not very exciting and has much negativity surrounding it. Sycamore is currently delinquent in its SEC filings due to the notorious options back-dating situation. Such scandal is never a good thing from the appearance of things, but will have no cash impacts on their books. Sycamore currently has about $915M in cash, or about $3.28 per share. That is about 90% of their current market cap of just over $1B. More importantly, Sycamore has shown signs of life and reported a nearly 100% increase in sales, primarily due to an acquisition. I like the cash protecting from downside risk, signs of sales growth, and one of their core products serving the MSO/Cable companies, especially as it pertains to the new digital voice/digital phone service that runs over your cable infrastructure. Comcast, Charter, Cablevision, and Time Warner have all reported strong growth in the digital telephony arena and will need hardware to handle the traffic. Granted, Sycamore competes in a competitive landscape with companies like Cisco in the mix, but I am in at $3.68 with a price target of $4.75-$5.75 in the next 9-12 months – perhaps on an acquisition.
Gencor Industries, Inc. (OTC BB: GNCI)
A small manufacturer of construction equipment and machinery, particularly that serves the highway-construction industry. Gencor also makes equipment that has exposure to the environmental control and synthetic fuel arenas. Gencor is a partner in a joint-venture and receives royalty payments, albeit not material, but growing, for production of synthetic fuels. Gencor is trading near its 52-week low as it enters the historically slower 3rd and 4th quarters. The company is small with only $73M in sales. Gencor has no debt, $52M of cash and cash equivalents, which is about 60% of its market cap, and EV/EBITDA is 1.7. Compare the latter ratio to competitors, such as Astec Industries and its 10.8 EV/EBITDA, and there appears to be some value. Individual investor Lloyd Miller III has bought 72,500 shares since March 22, 2007 and now owns nearly 907,000 shares, which is roughly 10% of the company. A strange ownership structure with Class B shares, small float, and thinly traded status makes it hard to determine where this one could go. $9.05 is a good entry point and I think that Gencor should be trading closer to $16-$18, but its market dynamics may not allow that.
Thomas Group, Inc. (NASDAQ: TGIS)
Thomas Group is a very reputable consulting firm that has no debt, pays a dividend yield of nearly 4%, and is cash flow positive. Ratios, for the most part, show that Thomas Group is not cheap: 2x sales, 6x book value, 11x levered free cash flow. However, this company has a strong track record of success and its P/E is far lower than its peer companies. Only 3M of its 10.8M shares are in the public float, so the stock has the tendency to be volatile – in either direction, of course. The stock is trading a little under $11.00 which I feel is a good entry point. It recently traded as low as $9 in early May, 2007 and traded there in June, 2006 and August, 2006 – and bounced quickly up each time. We have seen a double-top at around $16 twice in 2006, but could we have the triple bottom at $9? Stock stands to get back to $16 and perhaps higher if they continue to show good numbers, but first will need to break through the $12 resistance. This one is more of a technical play than a fundamentals play, but it is likely not going any lower than $9-$10 and has a very strong chance, with a lot of rationale behind it, to move up to $15-$16. Enter under $11 and price target is $15.
Simplistically, I am looking for value to hedge against the lofty valuations we are currently seeing and I am strengthening my positions in those that the fundamental reasons why I bought in the first place have not changed.
Saturday, March 31, 2007
Washington Group International (NYSE: WNG) - $66.42
Washington Group International (NYSE: WNG) is my latest company of interest. Although I have yet to take a real position (it is in my Marketocracy fund), this appears to be a good one. I thought a good entry point was around $59, where I first purchased in Marketocracy. However, it is now at $66.42 and so that is where I will have to say I 'found' it.
Before getting in to WNG, this is just to show you the opportunities out there. There just never seems to be enough capital or money. Technically speaking, I should maybe back out of some of my losers, like INFT, and switch the money into WNG, but not wise. To quote Warren Buffet, "buy companies, don't rent stocks." INFT, for instance, is down 12% or so since my first mention, but the fundamentals for me buying INFT have not changed - if anything, they have improved. Sure, at some point, you have to move on, but if the fundamental reason why you have bought the company has not changed, there is no reason to sell. Certainly, you may miss out on some opportunity, but in the end, it is more important to stick to your strategy, especially if there is no material reason why the strategy should have changed. For instance, if INFT starts burning through cash, then that is a material reason to change my strategy, but that is currently not the case.
Anyway, on to WNG.
WNG recently moved to the NYSE from the NASDAQ, where it traded under the symbol WGII.
I was first introduced to this company by Jeffrey Gendell. He recently reported going over 5% in WNG via an SEC filing. Like all of his investments, I took a close look and initially, the picture was solid, but not making me jump.
WNG is in the engineering, construction, and consulting/management services to many private companies and business organizations worldwide. They will do just about anything, but seem to have a preference for servicing power plants, manufacturing plants, etc. That is the simplistic overview, but for instance, they don't build office buildings - they are typically involved in projects for facilities that are in some of the more environmentally unsavory areas.
Financially, things look good. The company has no long term debt, plenty of cash ($9+ per share), and is trading as less than 1x sales. WNG, however, is not cheap trading at 2.4x book value and 24x earnings. Originally, these ratios somewhat turned me off to WNG, but then I saw an announcement that changed my take on it.
WNG recently announced a $550M contract with Allegheny Power Plant for a clean-air retrofitting project. Basically, the project will reduce sulfur-dioxide emissions by 90% when the project is complete. Not only is this project 12% of WNG's trailing 12 months revenue, but it is also a significant project. WNG seems to specialize in such environmental retrofitting and remediation projects.
I believe that worldwide and in the USA, there is a significant need for such services - and more importantly, there may be regulations in place forcing companies to clean up their acts. A great example are the cement kilns owned by Ash Grove Cement (Pink Sheets: ASHG and one of my holdings). The mercury emissions from these plants are always sky high and exceeding mandated levels. Ash Grove typically just pays a fine, but the level of emissions is starting to cause a problem as it is a frequent topic in the news. Much of the emission levels are just a necessary by-product of production, but the time may come where regulatory pressure gets into place to require plants (chemical, power, manufacturing, etc.) to address the issue.
Obviously, there are other companies that can provide the same services that WNG does, though WNG is one of the larger and more established ones around. I need to do more research to see exactly how much money will be spent on similar projects in the 30 countries WNG serves each year over the next several years, but my guess is that WNGs share of these projects will be 50%-100% more than there current $3.5B in annual revenues. WNG also seems to agree as they have been repurchasing stock quite actively. WNG bought back $66M of stock during 2006 - about 3.5% of their current market capitalization.
WNG stock is trading near its 52-week and all-time high, which leads to some skepticism, but historically, they have produced 10%+ returns for their shareholders each year. Additionally, I believe that over the coming 12-24 months, projects like the one awarded to WNG at Allegheny will become more commonplace and provide significant upside to WNG's revenue and total return.
My 12-month target price for WNG is $80-$85 per share and I believe the stock trades at over $100 within the next 24 months.
Before getting in to WNG, this is just to show you the opportunities out there. There just never seems to be enough capital or money. Technically speaking, I should maybe back out of some of my losers, like INFT, and switch the money into WNG, but not wise. To quote Warren Buffet, "buy companies, don't rent stocks." INFT, for instance, is down 12% or so since my first mention, but the fundamentals for me buying INFT have not changed - if anything, they have improved. Sure, at some point, you have to move on, but if the fundamental reason why you have bought the company has not changed, there is no reason to sell. Certainly, you may miss out on some opportunity, but in the end, it is more important to stick to your strategy, especially if there is no material reason why the strategy should have changed. For instance, if INFT starts burning through cash, then that is a material reason to change my strategy, but that is currently not the case.
Anyway, on to WNG.
WNG recently moved to the NYSE from the NASDAQ, where it traded under the symbol WGII.
I was first introduced to this company by Jeffrey Gendell. He recently reported going over 5% in WNG via an SEC filing. Like all of his investments, I took a close look and initially, the picture was solid, but not making me jump.
WNG is in the engineering, construction, and consulting/management services to many private companies and business organizations worldwide. They will do just about anything, but seem to have a preference for servicing power plants, manufacturing plants, etc. That is the simplistic overview, but for instance, they don't build office buildings - they are typically involved in projects for facilities that are in some of the more environmentally unsavory areas.
Financially, things look good. The company has no long term debt, plenty of cash ($9+ per share), and is trading as less than 1x sales. WNG, however, is not cheap trading at 2.4x book value and 24x earnings. Originally, these ratios somewhat turned me off to WNG, but then I saw an announcement that changed my take on it.
WNG recently announced a $550M contract with Allegheny Power Plant for a clean-air retrofitting project. Basically, the project will reduce sulfur-dioxide emissions by 90% when the project is complete. Not only is this project 12% of WNG's trailing 12 months revenue, but it is also a significant project. WNG seems to specialize in such environmental retrofitting and remediation projects.
I believe that worldwide and in the USA, there is a significant need for such services - and more importantly, there may be regulations in place forcing companies to clean up their acts. A great example are the cement kilns owned by Ash Grove Cement (Pink Sheets: ASHG and one of my holdings). The mercury emissions from these plants are always sky high and exceeding mandated levels. Ash Grove typically just pays a fine, but the level of emissions is starting to cause a problem as it is a frequent topic in the news. Much of the emission levels are just a necessary by-product of production, but the time may come where regulatory pressure gets into place to require plants (chemical, power, manufacturing, etc.) to address the issue.
Obviously, there are other companies that can provide the same services that WNG does, though WNG is one of the larger and more established ones around. I need to do more research to see exactly how much money will be spent on similar projects in the 30 countries WNG serves each year over the next several years, but my guess is that WNGs share of these projects will be 50%-100% more than there current $3.5B in annual revenues. WNG also seems to agree as they have been repurchasing stock quite actively. WNG bought back $66M of stock during 2006 - about 3.5% of their current market capitalization.
WNG stock is trading near its 52-week and all-time high, which leads to some skepticism, but historically, they have produced 10%+ returns for their shareholders each year. Additionally, I believe that over the coming 12-24 months, projects like the one awarded to WNG at Allegheny will become more commonplace and provide significant upside to WNG's revenue and total return.
My 12-month target price for WNG is $80-$85 per share and I believe the stock trades at over $100 within the next 24 months.
Tuesday, March 6, 2007
Ash Grove Cement (Pink Sheets: ASHG) & The Future of Cement in this Country
Today, I ran across an interesting article located at Motley Fool.com that was originally published March 1, 2007. The article is entitled "Time for a Hard Look at Cement." I found this article while browsing through some stocks. I try to stay informed about this business, since I am not an expert by any means, and I am an avid investor in Ash Grove Cement Company (ASHG, as we have all come to know and love...well, at least if you bought some). ASHG represents a good chunk of my portfolio and I own some directly, for each of my daughters, and my IRA. I think my brother owns a few shares himself.
Specifically, the following excerpt stood out:
"During the past few decades, a progressively larger share of U.S. cement assets have become foreign owned. At the same time, domestic demand for cement has been buoyed by a series of federal highway bills, the latest of which was signed into law in 2005, and will result in the spending of about $285 billion over the next half-dozen years on highways across the nation. Somewhat as a result, even when operating near their rated capacities, U.S. cement plants in the aggregate can only produce about three-fourths of the nation's demand."
For any loyal Terence blog followers, you will know that one big reason why I like ASHG is its unique position as the largest American owned cement company in the country. I believe that our country's growing demand for the product, coupled by the even more aggressive demand of foreign countries and the fact that the top 4 producers of cement in this country are owned by foreign companies will have some serious implications. ASHG's position as the largest American owned will, I believe, play into their favor in the coming years and beyond.
Apart from the $285B Highway Spending project, which is no secret, I did not know that domestically, we only produce 75% of what we need in terms of cement, thus, we rely on imports and foreign controlled cement to sate our needs. In the future, as the price of cement rises, and as China, India, and other countries use more and more of the stuff, that missing 25% of our need is going to cause a problem.
ASHG never makes it into these articles, depsite being the 5th largest cement company in the country and the largest American owned. This is mostly because ASHG likes to keep to themselves and nobody thinks of them as a public company, even themselves. I even find articles about ASHG where an employee of ASHG says they are a private company. Who knows - it's really weird. It's probably the only company in the world that does not want anyone to know about their stock.
The biggest piece of news in the business was recently Florida Rock (NYSE: FRK) got bought out. I briefly thought about looking into buying some FRK before the buy out was announced, but too bad I did not. Anyway, FRK got bought out at a huge multiple - a 42% premium on their stock price before the deal was announced. More important, it was bought out for 11.3x EBITDA, which is a 28% higher rate than Cemex (NYSE: CX, Mexico) has offered to pay for Rinker (NYSE: RIN, Aussie, but 85% of business is USA).
In short, what this is saying is that individual companies are seeing the need and the opportunity to control more cement distribution and production, especially considering the problem of the 25% domestic production gap between what we need and what we are capable of producing (and when I say "we", I mean USA production, which, by the way, is at max capacity).
So, I know this is master of the obvious, but the importance of ASHG's huge capital expenditures is starting to come into play. ASHG dropped some serious cash the past couple of years ($200M+, I think) to build a brand new plant in Nevada and to upgrade an existing Arkansas plant to double production. These expenditures and plant upgrades will start hitting the street in 2008. I must admit, I have not extensively researched the playing field, but I have not seen other cement companies, at least USA companies, investing in new plants the way ASHG has. CX, for instance invested heavily in 2006 in new expenditures, but since they are based in Mexico, I am unsure of the locations of these expansions and what they plan to use the new production capacity for.
So, short and simple, here is my point. There is big talk about buyouts in the cement industry and big talk about public companies and their EBITDA multiples in comparison to their price in the marketplace. The general consensus, if the FRK and RIN multiples are real, is that there is upward room for cement companies to move up. However, we have one problem and gaping hole in the logic.
It is clear the USA needs more cement and more domestic production. There will be lots of cement sold in the coming years, so for instance when Vulcan Materials (NYSE: VMC) pays and arm and a leg for FRK, well, VMC wants to control that cement production. Fair enough - VMC will have more product to sell. However, in the big picture, the only way to have more cement is to make more; and if we are at max production capacity today, the only way is to increase production capacity by building new plants and expanding existing ones.
ASHG is doing this - the other companies do not appear to be doing so as aggressively. The other US based companies are looking to acquire existing production - which allows them as an individual company to produce more cement and sell more, but it does not cause the 25% need vs. capacity gap to close. ASHG's new plant in Nevada and expanded plant in Arkansas have the potential to fill some of that gap, or in a worst case scenario (well, good if you are me and an owner of ASHG), merely support the gap and make sure it does not widen further, which is a definitive possibility.
Short and simple, the need to make more cement is being solved by ASHG and not many others at least at the level they are committing to. ASHG's expenditures will put more cement in the marketplace and they will own and control that gap-filling capacity. This bodes VERY well for shareholders of ASHG and my take is that this could have some serious upward effects on ASHG's stock price and dividend payouts, especially in late 2008-2009.
Furthermore, although financial information on ASHG is relatively limited in terms of availability, since they are not subject to SEC filings, I think they are in great position. Many cement companies are heavily leveraged with debt to help finance their business growth, partially due to the pressure Wall Street puts on these companies to grow earnings, etc. ASHG is not exposed to that pressure, and while they do carry debt, naturally, I would imagine that the combination of the lack of pressure and the genuine owner mentality (family owns 90% of stock), means that they are far more conservative in terms of their debt load. Simply put, better cash position, better cash flow, better rewards to owners and shareholders.
ASHG has had a great run up in the past few years, yet they still remain somewhat of a secret. I am not sure if the secret will get out or not, but ASHG is a big winner and I forecast that over the next 3-5 years, they will outperform their competitors, especially their USA competitors. Remember, they are already the largest USA owned company - and they are about to get larger. They will help support and close the domestic production gap, especially as cement becomes a more valuable commodity and we see more and more of it go to other countries.
I meant it when I said I am planning to perhaps as much as double my position in 2007 - maybe more. We'll see. My girls need more, too.
Specifically, the following excerpt stood out:
"During the past few decades, a progressively larger share of U.S. cement assets have become foreign owned. At the same time, domestic demand for cement has been buoyed by a series of federal highway bills, the latest of which was signed into law in 2005, and will result in the spending of about $285 billion over the next half-dozen years on highways across the nation. Somewhat as a result, even when operating near their rated capacities, U.S. cement plants in the aggregate can only produce about three-fourths of the nation's demand."
For any loyal Terence blog followers, you will know that one big reason why I like ASHG is its unique position as the largest American owned cement company in the country. I believe that our country's growing demand for the product, coupled by the even more aggressive demand of foreign countries and the fact that the top 4 producers of cement in this country are owned by foreign companies will have some serious implications. ASHG's position as the largest American owned will, I believe, play into their favor in the coming years and beyond.
Apart from the $285B Highway Spending project, which is no secret, I did not know that domestically, we only produce 75% of what we need in terms of cement, thus, we rely on imports and foreign controlled cement to sate our needs. In the future, as the price of cement rises, and as China, India, and other countries use more and more of the stuff, that missing 25% of our need is going to cause a problem.
ASHG never makes it into these articles, depsite being the 5th largest cement company in the country and the largest American owned. This is mostly because ASHG likes to keep to themselves and nobody thinks of them as a public company, even themselves. I even find articles about ASHG where an employee of ASHG says they are a private company. Who knows - it's really weird. It's probably the only company in the world that does not want anyone to know about their stock.
The biggest piece of news in the business was recently Florida Rock (NYSE: FRK) got bought out. I briefly thought about looking into buying some FRK before the buy out was announced, but too bad I did not. Anyway, FRK got bought out at a huge multiple - a 42% premium on their stock price before the deal was announced. More important, it was bought out for 11.3x EBITDA, which is a 28% higher rate than Cemex (NYSE: CX, Mexico) has offered to pay for Rinker (NYSE: RIN, Aussie, but 85% of business is USA).
In short, what this is saying is that individual companies are seeing the need and the opportunity to control more cement distribution and production, especially considering the problem of the 25% domestic production gap between what we need and what we are capable of producing (and when I say "we", I mean USA production, which, by the way, is at max capacity).
So, I know this is master of the obvious, but the importance of ASHG's huge capital expenditures is starting to come into play. ASHG dropped some serious cash the past couple of years ($200M+, I think) to build a brand new plant in Nevada and to upgrade an existing Arkansas plant to double production. These expenditures and plant upgrades will start hitting the street in 2008. I must admit, I have not extensively researched the playing field, but I have not seen other cement companies, at least USA companies, investing in new plants the way ASHG has. CX, for instance invested heavily in 2006 in new expenditures, but since they are based in Mexico, I am unsure of the locations of these expansions and what they plan to use the new production capacity for.
So, short and simple, here is my point. There is big talk about buyouts in the cement industry and big talk about public companies and their EBITDA multiples in comparison to their price in the marketplace. The general consensus, if the FRK and RIN multiples are real, is that there is upward room for cement companies to move up. However, we have one problem and gaping hole in the logic.
It is clear the USA needs more cement and more domestic production. There will be lots of cement sold in the coming years, so for instance when Vulcan Materials (NYSE: VMC) pays and arm and a leg for FRK, well, VMC wants to control that cement production. Fair enough - VMC will have more product to sell. However, in the big picture, the only way to have more cement is to make more; and if we are at max production capacity today, the only way is to increase production capacity by building new plants and expanding existing ones.
ASHG is doing this - the other companies do not appear to be doing so as aggressively. The other US based companies are looking to acquire existing production - which allows them as an individual company to produce more cement and sell more, but it does not cause the 25% need vs. capacity gap to close. ASHG's new plant in Nevada and expanded plant in Arkansas have the potential to fill some of that gap, or in a worst case scenario (well, good if you are me and an owner of ASHG), merely support the gap and make sure it does not widen further, which is a definitive possibility.
Short and simple, the need to make more cement is being solved by ASHG and not many others at least at the level they are committing to. ASHG's expenditures will put more cement in the marketplace and they will own and control that gap-filling capacity. This bodes VERY well for shareholders of ASHG and my take is that this could have some serious upward effects on ASHG's stock price and dividend payouts, especially in late 2008-2009.
Furthermore, although financial information on ASHG is relatively limited in terms of availability, since they are not subject to SEC filings, I think they are in great position. Many cement companies are heavily leveraged with debt to help finance their business growth, partially due to the pressure Wall Street puts on these companies to grow earnings, etc. ASHG is not exposed to that pressure, and while they do carry debt, naturally, I would imagine that the combination of the lack of pressure and the genuine owner mentality (family owns 90% of stock), means that they are far more conservative in terms of their debt load. Simply put, better cash position, better cash flow, better rewards to owners and shareholders.
ASHG has had a great run up in the past few years, yet they still remain somewhat of a secret. I am not sure if the secret will get out or not, but ASHG is a big winner and I forecast that over the next 3-5 years, they will outperform their competitors, especially their USA competitors. Remember, they are already the largest USA owned company - and they are about to get larger. They will help support and close the domestic production gap, especially as cement becomes a more valuable commodity and we see more and more of it go to other countries.
I meant it when I said I am planning to perhaps as much as double my position in 2007 - maybe more. We'll see. My girls need more, too.
Monday, March 5, 2007
Seaboard Corporation (AMEX: SEB) Earnings & Road Trip
Today, Seaboard Corporation reported earnings after the bell. The numbers were not stellar and the company actually reported a 3% decline in net income in 2006 when compared to 2005, although sales were up. The departure of Harry Bresky, the original founder, from the board of directors was also announced. These might have some deflating effects on the company's stock price over the coming days, though I am not too sure how much as the company is off about 15% from its recent all time high of $2,300.
So, I suppose it is not stellar earnings growth, but regardless, Seaboard paid down $91M in debt, generated $284M in operating cash flow, paid out $3/share of dividends to shareholders, and added more cash to the balance sheet. With the added cash and reduced debt, even without a further decline in the company's stock price, SEB should be at less than 2x book value. SEB also added $230M in shareholders' equity, which is a key metric of the company's overall worth.
In the company's annual report to shareholders, Steven Bresky, current CEO and son of Harry Bresky, the company's founder that has formally retired as of today, there was brief discussion of the company's stock price and it's recent performance. While the ascent has been exciting, the recent activity, especially the past month, is likely more of a spike during an uptrend rather than an actual realistic valuation of the company. From a today standpoint, he is likely correct. However, I think in the coming years, SEB is in great position to add additional value to shareholders by creating shareholders' equity at a $240M year clip. In short, I think that translates into a $300-$400 per year stock price appreciation, at least over time.
It's funny as I just looked back at the 5 year stock price of the company and back in 2001, SEB was trading at around $200 per share. Fast forward 5 years, and the stock is trading about $1,800 higher. How is that for 5 years at $300-$400 per year - it's right on - it just did not happen cleanly over the course of 5 years; it happened pretty much all at once over about 2-3 years. So, as of today, SEB is probably valued right where it needs to be, but looking 5 years out, SEB is cheap. This is good as the market has not yet priced in SEB's future performance; it might take sometime, but eventually, that will come into play and should push SEB to $2,800-$3,000 sometime within the next 12-18 months.
This is a company I wish I could own outright. A cash producing machine that has made the founding family worth about $1.8 billion and yields them about $2.4 million in annual dividends, not to mention Steve Bresky's annual salary of $1.5 million. Not bad. Although $2.4M and $1.5M is a lot of money either way, note that the Bresky's, as owners, are making most of their money by owning the shares via the dividends. Even when you exclude the $1.8 billion of worth they have and take into consideration SEB has a payout ratio of only 1%. Note the payout ratio is defined as: "The percentage of a firm's profits paid to shareholders in the form of dividends."
Compare to some firms that payout 25%-50%, 1% of profits back to shareholders does not seem very generous, but in the case of SEB, it is not like the officers are padding their pockets. Sure, they get paid well and far more than most of us will ever make, but they are not taking 8 digit salaries; there is no issuance of stock or stock options causing dilution to the owners of the company; and there is proven performance in the business model to generate cash flow and shareholders' equity.
I like SEB a great deal and it is a fantastic ownership investment. I like where it is now because there seems to be limited downside to its stock price. Sure, it is subject to fluctuations and may decline some more, but in all fairness, it has had quite a huge run up the past 36 months and even the past 6 months. Regardless, based on what it tends to produce in shareholders' equity, which really is the true measure of the worth of a company, as of today, it is likely not undervalued, nor is it overvalued. The secret is somewhat out of the bag on this one and I believe SEB will continue to show strong results from operations going forward and if you can forecast out to 2010, it is clear SEB is undervalued at today's trading price. Prepare for a possible double, and while it won't happen in 1 year, I do not think, it is not going to take 7 years either.
On top of that, I have decided to quite possibly take a road trip - April 23-24, 2007. So, where am I going? Well, this is me we are talking about, so in that spirit, I may find myself visiting Shawnee Mission, KS and Overland Park, KS on these days. April 23 is the annual meeting of Seaboard Corporation and right down the street about 3 miles away is Ash Grove Cement in Overland Park. I might go pay them a visit, too. After all, I do own the company...both of them actually :-).
So, I suppose it is not stellar earnings growth, but regardless, Seaboard paid down $91M in debt, generated $284M in operating cash flow, paid out $3/share of dividends to shareholders, and added more cash to the balance sheet. With the added cash and reduced debt, even without a further decline in the company's stock price, SEB should be at less than 2x book value. SEB also added $230M in shareholders' equity, which is a key metric of the company's overall worth.
In the company's annual report to shareholders, Steven Bresky, current CEO and son of Harry Bresky, the company's founder that has formally retired as of today, there was brief discussion of the company's stock price and it's recent performance. While the ascent has been exciting, the recent activity, especially the past month, is likely more of a spike during an uptrend rather than an actual realistic valuation of the company. From a today standpoint, he is likely correct. However, I think in the coming years, SEB is in great position to add additional value to shareholders by creating shareholders' equity at a $240M year clip. In short, I think that translates into a $300-$400 per year stock price appreciation, at least over time.
It's funny as I just looked back at the 5 year stock price of the company and back in 2001, SEB was trading at around $200 per share. Fast forward 5 years, and the stock is trading about $1,800 higher. How is that for 5 years at $300-$400 per year - it's right on - it just did not happen cleanly over the course of 5 years; it happened pretty much all at once over about 2-3 years. So, as of today, SEB is probably valued right where it needs to be, but looking 5 years out, SEB is cheap. This is good as the market has not yet priced in SEB's future performance; it might take sometime, but eventually, that will come into play and should push SEB to $2,800-$3,000 sometime within the next 12-18 months.
This is a company I wish I could own outright. A cash producing machine that has made the founding family worth about $1.8 billion and yields them about $2.4 million in annual dividends, not to mention Steve Bresky's annual salary of $1.5 million. Not bad. Although $2.4M and $1.5M is a lot of money either way, note that the Bresky's, as owners, are making most of their money by owning the shares via the dividends. Even when you exclude the $1.8 billion of worth they have and take into consideration SEB has a payout ratio of only 1%. Note the payout ratio is defined as: "The percentage of a firm's profits paid to shareholders in the form of dividends."
Compare to some firms that payout 25%-50%, 1% of profits back to shareholders does not seem very generous, but in the case of SEB, it is not like the officers are padding their pockets. Sure, they get paid well and far more than most of us will ever make, but they are not taking 8 digit salaries; there is no issuance of stock or stock options causing dilution to the owners of the company; and there is proven performance in the business model to generate cash flow and shareholders' equity.
I like SEB a great deal and it is a fantastic ownership investment. I like where it is now because there seems to be limited downside to its stock price. Sure, it is subject to fluctuations and may decline some more, but in all fairness, it has had quite a huge run up the past 36 months and even the past 6 months. Regardless, based on what it tends to produce in shareholders' equity, which really is the true measure of the worth of a company, as of today, it is likely not undervalued, nor is it overvalued. The secret is somewhat out of the bag on this one and I believe SEB will continue to show strong results from operations going forward and if you can forecast out to 2010, it is clear SEB is undervalued at today's trading price. Prepare for a possible double, and while it won't happen in 1 year, I do not think, it is not going to take 7 years either.
On top of that, I have decided to quite possibly take a road trip - April 23-24, 2007. So, where am I going? Well, this is me we are talking about, so in that spirit, I may find myself visiting Shawnee Mission, KS and Overland Park, KS on these days. April 23 is the annual meeting of Seaboard Corporation and right down the street about 3 miles away is Ash Grove Cement in Overland Park. I might go pay them a visit, too. After all, I do own the company...both of them actually :-).
Sunday, March 4, 2007
2007 - The Year of the Owner - The Week Ahead & The Week Past
Last week, the stock market suffered its worst week in over 4 years. Everything was hit hard last week - and not just here in the USA, but overseas as well. The biggest loser was the Chinese stock market, losing 9% in a single day. European markets took big hits - this was especially noted by NBG declining 11%+ from its recent $11.25 high to close the week at a little over $10.00 per share.
Honestly, in short, I have not seen anything like this in years, or maybe ever. Sure, it has happened before, and long term, this will be yet another blip on the stock market's radar (knock on wood), but just about everything was down. Typically, you see general market weakness, but maybe a particular sector or industry shows strength. For instance, technology may be down, but energy or natural resources may be up. Not this time - everything was down - energy, materials, transportation, financial services, technology, etc. Greenspan coming out of the weeds to comment about a possible recessions by the end of the year did not help the cause of stocks.
Here is my take on it, for what it is worth. I think that last week's action was very health in terms of a correction. Although it would be nice if it could, the stock market cannot go up in a straight line forever. Even with last week's loss, the markets are still up 10% from a year go. If you take a look at my Marketocracy fund, even after last week's debacle, my fund is still up 0.9% YTD and while the NASDAQ, Dow Jones, and S&P 500 have not been as fortunate (down 2%, 2.8%, and 1.9% respectively). All I am saying, is that this is not the end of the world.
I think that the U.S. economic outlook does look good for 2007 as does the outlook for the entire global economy. I think that we will see growth in the stock market, but there will be an even increasingly strong focus on fundamentally sound and cash generating companies. I think this is so because even amidst last weeks problems, Merck (NYSE: MRK) and AIG (NYSE: AIG) both performed well as both reported very positive outlooks and results and MRK even got an upgrade. Simply put, the market is ready to reward companies that produce strong financial results, but those that are lagging will be susceptible to correction.
There is still a lot of value out there - even after the big run up, the stocks I am in still look cheap from a long term standpoint, especially NBG, PFE, MRK, SEB, and ASHG. I will be looking to add to all of these positions. Of course, I am in the automatic investing plans with PFE and MRK, so those are forgone conclusions. I added 15% to my NBG position last week and will look to increase some more, perhaps in the Spring, post dividend (assuming there is one), as that is when, at least historically, NBG trades a little weaker. If NBG can stick to their projections outlined in their 2007-2009 presentation, this one is worth $24-$28 in the next 2-3 years.
For 2007, I would like to increase my position in ASHG by 50%-100%, especially considering their recent stock activity, raising their dividend by 5%, and I expect strong financial improvements from this company to hit in 2008-2009 as their huge capital expenditures (e.g., Nevada plant development and Arkansas plant expansion) come online. Although it has not been a huge factor yet, I still believe that ASHG being the largest American owned Cement producer in the USA will be a very strong factor for this company - perhaps even a geo-political one. We'll see.
Seaboard Corp (AMEX: SEB) still looks very cheap from a long term perspective and I am very tempted to add more to my position at this time, but will wait until after they report their financial results (due out this week, I think, as they keep a tight lid on it). SEB still is a cash producing machine and are a very diverse entity - they still also appear to be undervalued from a fundamental standpoint - especially after being down 13% from their recent all-time high of $2,300, which just happened 2 weeks ago. SEB is still trading at less than 1x sales, less than 10x earnings, and about 6.4x Enterprise Value/EBITDA. Also, keep in mind that these ratios are based off of the trailing 12 months (ttm) financial results, and I expect when SEB posts their financial results, we will see an increase in sales, a stronger balance sheet, stronger EBITDA, stronger EPS, and stronger free cash flow. The joys about SEB is that because of lack of analyst coverage, the stock is not as subject to 'analyst estimates' and you can focus more on the financials and cash produced by SEB rather than market hype. Short-term, this fact may also prevent SEB from reaching its full-term value, but long term, this is good. It enables you to add more to your position cheaply and long term, companies with this tight share structure and strong financials tend, at least over the long-haul, tend to become 'overvalued', which is a great place to be if you are an owner.
Ok - that is my sales pitch for those stocks, but it is a perfect transition into my thoughts about Greenspan's comments. I do think that the economy is strong and that the environment is good for companies in terms of being able to produce cash flow. I do, however, that we will see some recession-type effects here in the US. I am unsure of how broad they will impact the country or the stock markets, but the impact of American's not saving, high foreclosure rates, getting in over their heads via credit cards, etc. will take a toll. I am no expert economist, but I just don't know how people live the lifestyles they do now-a-days in terms of what they make, what they have, etc. For private individuals, the behavior is not sustainable and I think we will see some fall out of that in the coming months, which will likely impact financial results of companies in late 2007 and early 2008. The impact will be especially true with businesses that serve the individual consumer, especially in businesses that serve the "middle class." Banks will do fine - businesses that service other businesses will do fine - companies that produce cash and shareholder's equity, and reward owners via dividends and stock buy backs, at good clips will be fine.
Simplistically, 2007 is the year for the owner - not the investor. Granted, there are some years where being an 'investor' would serve you better than acting as an owner - where you looked for aggressive capital appreciation based on market dynamics, momentum, etc. Of course, there will be opportunities along those lines this year, as they always are, but I don't see a broad technology rally or sector rally where you can just ride the wave.
Look for opportunities where being an owner makes sense - where you feel you are getting some value for your investment/purchase - where if you were actually going to 'own' the company (which you do, but you know what I mean), you would feel good about forking over the money to get in on it because you know you are getting a good deal. Buy backs, dividends, cash flow, shareholders equity - those are the things to look for and I believe the stock market will reward shareholders appropriately for such (e.g., higher price per share).
To quote Gordon Gekko:
"The richest one percent of this country owns half our country's wealth, five trillion dollars...You got ninety percent of the American public out there with little or no net worth. I create nothing. I own."
Honestly, in short, I have not seen anything like this in years, or maybe ever. Sure, it has happened before, and long term, this will be yet another blip on the stock market's radar (knock on wood), but just about everything was down. Typically, you see general market weakness, but maybe a particular sector or industry shows strength. For instance, technology may be down, but energy or natural resources may be up. Not this time - everything was down - energy, materials, transportation, financial services, technology, etc. Greenspan coming out of the weeds to comment about a possible recessions by the end of the year did not help the cause of stocks.
Here is my take on it, for what it is worth. I think that last week's action was very health in terms of a correction. Although it would be nice if it could, the stock market cannot go up in a straight line forever. Even with last week's loss, the markets are still up 10% from a year go. If you take a look at my Marketocracy fund, even after last week's debacle, my fund is still up 0.9% YTD and while the NASDAQ, Dow Jones, and S&P 500 have not been as fortunate (down 2%, 2.8%, and 1.9% respectively). All I am saying, is that this is not the end of the world.
I think that the U.S. economic outlook does look good for 2007 as does the outlook for the entire global economy. I think that we will see growth in the stock market, but there will be an even increasingly strong focus on fundamentally sound and cash generating companies. I think this is so because even amidst last weeks problems, Merck (NYSE: MRK) and AIG (NYSE: AIG) both performed well as both reported very positive outlooks and results and MRK even got an upgrade. Simply put, the market is ready to reward companies that produce strong financial results, but those that are lagging will be susceptible to correction.
There is still a lot of value out there - even after the big run up, the stocks I am in still look cheap from a long term standpoint, especially NBG, PFE, MRK, SEB, and ASHG. I will be looking to add to all of these positions. Of course, I am in the automatic investing plans with PFE and MRK, so those are forgone conclusions. I added 15% to my NBG position last week and will look to increase some more, perhaps in the Spring, post dividend (assuming there is one), as that is when, at least historically, NBG trades a little weaker. If NBG can stick to their projections outlined in their 2007-2009 presentation, this one is worth $24-$28 in the next 2-3 years.
For 2007, I would like to increase my position in ASHG by 50%-100%, especially considering their recent stock activity, raising their dividend by 5%, and I expect strong financial improvements from this company to hit in 2008-2009 as their huge capital expenditures (e.g., Nevada plant development and Arkansas plant expansion) come online. Although it has not been a huge factor yet, I still believe that ASHG being the largest American owned Cement producer in the USA will be a very strong factor for this company - perhaps even a geo-political one. We'll see.
Seaboard Corp (AMEX: SEB) still looks very cheap from a long term perspective and I am very tempted to add more to my position at this time, but will wait until after they report their financial results (due out this week, I think, as they keep a tight lid on it). SEB still is a cash producing machine and are a very diverse entity - they still also appear to be undervalued from a fundamental standpoint - especially after being down 13% from their recent all-time high of $2,300, which just happened 2 weeks ago. SEB is still trading at less than 1x sales, less than 10x earnings, and about 6.4x Enterprise Value/EBITDA. Also, keep in mind that these ratios are based off of the trailing 12 months (ttm) financial results, and I expect when SEB posts their financial results, we will see an increase in sales, a stronger balance sheet, stronger EBITDA, stronger EPS, and stronger free cash flow. The joys about SEB is that because of lack of analyst coverage, the stock is not as subject to 'analyst estimates' and you can focus more on the financials and cash produced by SEB rather than market hype. Short-term, this fact may also prevent SEB from reaching its full-term value, but long term, this is good. It enables you to add more to your position cheaply and long term, companies with this tight share structure and strong financials tend, at least over the long-haul, tend to become 'overvalued', which is a great place to be if you are an owner.
Ok - that is my sales pitch for those stocks, but it is a perfect transition into my thoughts about Greenspan's comments. I do think that the economy is strong and that the environment is good for companies in terms of being able to produce cash flow. I do, however, that we will see some recession-type effects here in the US. I am unsure of how broad they will impact the country or the stock markets, but the impact of American's not saving, high foreclosure rates, getting in over their heads via credit cards, etc. will take a toll. I am no expert economist, but I just don't know how people live the lifestyles they do now-a-days in terms of what they make, what they have, etc. For private individuals, the behavior is not sustainable and I think we will see some fall out of that in the coming months, which will likely impact financial results of companies in late 2007 and early 2008. The impact will be especially true with businesses that serve the individual consumer, especially in businesses that serve the "middle class." Banks will do fine - businesses that service other businesses will do fine - companies that produce cash and shareholder's equity, and reward owners via dividends and stock buy backs, at good clips will be fine.
Simplistically, 2007 is the year for the owner - not the investor. Granted, there are some years where being an 'investor' would serve you better than acting as an owner - where you looked for aggressive capital appreciation based on market dynamics, momentum, etc. Of course, there will be opportunities along those lines this year, as they always are, but I don't see a broad technology rally or sector rally where you can just ride the wave.
Look for opportunities where being an owner makes sense - where you feel you are getting some value for your investment/purchase - where if you were actually going to 'own' the company (which you do, but you know what I mean), you would feel good about forking over the money to get in on it because you know you are getting a good deal. Buy backs, dividends, cash flow, shareholders equity - those are the things to look for and I believe the stock market will reward shareholders appropriately for such (e.g., higher price per share).
To quote Gordon Gekko:
"The richest one percent of this country owns half our country's wealth, five trillion dollars...You got ninety percent of the American public out there with little or no net worth. I create nothing. I own."
Wednesday, February 21, 2007
NBG - Financial Results; ASHG Acting Up; Other Notes; Lessons Learned
This morning, National Bank of Greece (NYSE: NBG) posted their 2006 financial results. Results were very impressive. Net income rose 36% from 2005 to $1.29B. Results were towards the upper end of the analyst estimate range, but fell short of the high estimate by about 1%. Hence, the stock did not blow up today, but actually did end close up by a modest 0.3% after spending most of the day in the red. This activity is not uncommon. The financial results of NBG were being watched like a hawk by the world marketplace and anticipating a very strong showing. The market then 'prices' this activity in for the most part, so if it ends up where everyone thought it was going to go, it tends to not move much or even decline, sometimes sharply. Tomorrow, on Feb. 22, NBG, will be presenting its 2007-2009 3 year outlook, which is supposed to continue to be very positive as already indicated by NBG, though we will not see full details until tomorrow. Long term, NBG is a great buy and when I say long term, I could be talking several years and I do not believe it will disappoint in 2007. While I do not see a double in 2007, I think NBG getting to $14-$16 sometime before the end of the year is possible. I am considering adding to my position.
It is officially dividend time for Ash Grove Cement (Pink Sheets: ASHG). This stock does not trade very often or at least post trades. I think that this stock trades daily behind the scenes, but the market makets will only post a trade in 100+ share blocks. So, I often think the 100 share blocks is a consolidated trade posting of many small trades. Anyway, activity always picks up around dividend time, which is the first week of March. ASHG is pretty sneaky about this - I am able to see their dividend declaration information at www.pinksheets.com, but it is not anywhere else to be seen. For 2007, dividend is $0.42 per share, a 5% increase over 2006, so that is good stuff.
Anyway, although trades may not occur, the inside market, or bid vs. ask spread, will sometimes change during the day. This is indicative of someone stepping in to buy or perhaps some trades took place behind the scenes and are not yet posted. There are very, very few shares out there, so 5-10 share trades, that seem to be invisible to the market, can effect the spread. I know this because I have personally experienced and seen this first hand. So, yesterday, Feb 20, ASHG opened up the morning at $217 x $220. During a meeting at work, I noticed the spread ticked up as high as $250 x $350!!! I almost lost it and took every ounce of sanity to keep my clothes on and to restrain from humping the desk.
Today, the stock closed as $280 per share, up 24.4% to an all time high. The closing spread was $240 x $272.50 (the bid ticked up from $230 to $240 in some small increments through the day) and the only trade that posted was 125 shares at $295. Now, I have seen the inside market change with some rigor during dividend times, but NEVER like this in the nearly 2 years I have owned and followed this security.
I think this one will pull back some post March dividend, but we will see. I still plan to add to my position, regardless, and somewhat regret not adding more than I did along the way, but again, it's always better to wish you bought more than wish you bought less! I am not sure what is in store for ASHG tomorrow or even for the rest of the year - I thought reaching $240 would take all year - I was wrong. Next year? Who knows....5 years? $700 per share. This is a fantastic retirement investment.
Seaboard Corporatiion (AMEX: SEB) had a very strong day. Up 2.6% to an all-time closing high of $2,154 and touched on an all time high of $2,190 today. Volume today was very strong - double than usual. I am not sure of the activity, but in 7-10 years, do not be surprised to see this one at $6,000-$8,000 per share. There is certainly long term value here and I am considering adding more to my position, but it's tough, because 1 share at this stage chews up $2,154 of capital, which is well, a lot. If I were to buy more, it would be for the real long haul. At some point, the appreciation on this one will have to take a breath and slow down, at least short term. I am trying to figure out what the deal is with this one in terms of the short-term activity and what is means long-term for the stock. Perhaps it is institutions loading up for the long haul as dry bulk shipping, one of SEB's divisions, was very hot today thanks to a mention on CNBC. There is no question SEB is going higher, but under what terms? Timeframe? Retracement? Short and sweet, I like the shareholders equity and cash this beast produces.
On other notes, I added to my positions in INFT at $3.57 and WNC at $16.99. INFT has disappointed me thus far, but it just has to go somewhere. I know, famous last words, but the last time I had that feeling, I was buying up shares of CECE at $3.75-$4.25. It took many years, and I was fortunate to start adding shares just in time, but the metrics said CECE absolutely had to go higher. It did...and ran to $12 last spring and today closed at an all time high of $17. I sold out last spring on the way up to $12.
Watching CECE today - I ALMOST jumped back in at $8-$9 several weeks ago, but I didn't. I wish I did, but honestly, the money I took out of CECE (and others that maybe I sold too soon) I put into other winners:
SVVS: in at $10, out at $17; now at $48.
ASTE: in at $23, out at $34; now at $39.
Thinking about this, did I miss the boat? Well, yes and no, but not really. I took the bulk of my CECE, SVVS, and ASTE proceeds and invested in big winners like ASHG, NBG, SEB and what will hopefully become big winners, like INFT and WNC. My patiences for investments has grown tremendously. I am amazed that I have held and accumulated ASHG for 20 months now, which is a world record for me. It is tough at a young age to have a huge time horizon mentality. Plus, with the in your face of 'gotta have it now' and my need to fend off my other situation, well, as much as I would have loved to have waited the extra year for CECE to turnaround, but honestly, last spring, I didn't have a year.
Going forward, it is important to look at the scope of your investments. Of course, you can never predict the market, but sometimes, bigger gains are out there if you can open your mindset to maybe waiting 3-5 years. I have somehow been able to do that with ASHG. I think part of that has to do with the lack of activity the stock has. Unlike other issues that move up and down, I am better able to keep the fear and greed out of my decision more than the others. Regardless, it is important to set your own price targets and goals - but more importantly, how long you are willing or might have to wait. Are you willing to wait 1 1/2 years for a 75% return? That is what it would have taken for ASHG. A 300% gain requires 18 months? Well, that is SVVS for you.
Opportunities for huge gains are out there, so look for them, and if you have to wait it out, then wait it out. Of course, never underestimate the power of taking profits and successfully re-investing the proceeds in other big winners. Plus, there is only so much capital to go around. If I would have kept my hands on CECE and didn't bother buying more ASHG or SEB, I'd be feeling just as silly, but, I'd really be in the same place I am now from a numbers standpoint.
Simplistically, if you take money out of an investment, make sure you have a solid purpose for it - specifically, another investment that you feel will perform well. If you sell, that's fine, just don't piss it away, because that is when seeing the stock 100% higher than you sold it at will get to you.
It is officially dividend time for Ash Grove Cement (Pink Sheets: ASHG). This stock does not trade very often or at least post trades. I think that this stock trades daily behind the scenes, but the market makets will only post a trade in 100+ share blocks. So, I often think the 100 share blocks is a consolidated trade posting of many small trades. Anyway, activity always picks up around dividend time, which is the first week of March. ASHG is pretty sneaky about this - I am able to see their dividend declaration information at www.pinksheets.com, but it is not anywhere else to be seen. For 2007, dividend is $0.42 per share, a 5% increase over 2006, so that is good stuff.
Anyway, although trades may not occur, the inside market, or bid vs. ask spread, will sometimes change during the day. This is indicative of someone stepping in to buy or perhaps some trades took place behind the scenes and are not yet posted. There are very, very few shares out there, so 5-10 share trades, that seem to be invisible to the market, can effect the spread. I know this because I have personally experienced and seen this first hand. So, yesterday, Feb 20, ASHG opened up the morning at $217 x $220. During a meeting at work, I noticed the spread ticked up as high as $250 x $350!!! I almost lost it and took every ounce of sanity to keep my clothes on and to restrain from humping the desk.
Today, the stock closed as $280 per share, up 24.4% to an all time high. The closing spread was $240 x $272.50 (the bid ticked up from $230 to $240 in some small increments through the day) and the only trade that posted was 125 shares at $295. Now, I have seen the inside market change with some rigor during dividend times, but NEVER like this in the nearly 2 years I have owned and followed this security.
I think this one will pull back some post March dividend, but we will see. I still plan to add to my position, regardless, and somewhat regret not adding more than I did along the way, but again, it's always better to wish you bought more than wish you bought less! I am not sure what is in store for ASHG tomorrow or even for the rest of the year - I thought reaching $240 would take all year - I was wrong. Next year? Who knows....5 years? $700 per share. This is a fantastic retirement investment.
Seaboard Corporatiion (AMEX: SEB) had a very strong day. Up 2.6% to an all-time closing high of $2,154 and touched on an all time high of $2,190 today. Volume today was very strong - double than usual. I am not sure of the activity, but in 7-10 years, do not be surprised to see this one at $6,000-$8,000 per share. There is certainly long term value here and I am considering adding more to my position, but it's tough, because 1 share at this stage chews up $2,154 of capital, which is well, a lot. If I were to buy more, it would be for the real long haul. At some point, the appreciation on this one will have to take a breath and slow down, at least short term. I am trying to figure out what the deal is with this one in terms of the short-term activity and what is means long-term for the stock. Perhaps it is institutions loading up for the long haul as dry bulk shipping, one of SEB's divisions, was very hot today thanks to a mention on CNBC. There is no question SEB is going higher, but under what terms? Timeframe? Retracement? Short and sweet, I like the shareholders equity and cash this beast produces.
On other notes, I added to my positions in INFT at $3.57 and WNC at $16.99. INFT has disappointed me thus far, but it just has to go somewhere. I know, famous last words, but the last time I had that feeling, I was buying up shares of CECE at $3.75-$4.25. It took many years, and I was fortunate to start adding shares just in time, but the metrics said CECE absolutely had to go higher. It did...and ran to $12 last spring and today closed at an all time high of $17. I sold out last spring on the way up to $12.
Watching CECE today - I ALMOST jumped back in at $8-$9 several weeks ago, but I didn't. I wish I did, but honestly, the money I took out of CECE (and others that maybe I sold too soon) I put into other winners:
SVVS: in at $10, out at $17; now at $48.
ASTE: in at $23, out at $34; now at $39.
Thinking about this, did I miss the boat? Well, yes and no, but not really. I took the bulk of my CECE, SVVS, and ASTE proceeds and invested in big winners like ASHG, NBG, SEB and what will hopefully become big winners, like INFT and WNC. My patiences for investments has grown tremendously. I am amazed that I have held and accumulated ASHG for 20 months now, which is a world record for me. It is tough at a young age to have a huge time horizon mentality. Plus, with the in your face of 'gotta have it now' and my need to fend off my other situation, well, as much as I would have loved to have waited the extra year for CECE to turnaround, but honestly, last spring, I didn't have a year.
Going forward, it is important to look at the scope of your investments. Of course, you can never predict the market, but sometimes, bigger gains are out there if you can open your mindset to maybe waiting 3-5 years. I have somehow been able to do that with ASHG. I think part of that has to do with the lack of activity the stock has. Unlike other issues that move up and down, I am better able to keep the fear and greed out of my decision more than the others. Regardless, it is important to set your own price targets and goals - but more importantly, how long you are willing or might have to wait. Are you willing to wait 1 1/2 years for a 75% return? That is what it would have taken for ASHG. A 300% gain requires 18 months? Well, that is SVVS for you.
Opportunities for huge gains are out there, so look for them, and if you have to wait it out, then wait it out. Of course, never underestimate the power of taking profits and successfully re-investing the proceeds in other big winners. Plus, there is only so much capital to go around. If I would have kept my hands on CECE and didn't bother buying more ASHG or SEB, I'd be feeling just as silly, but, I'd really be in the same place I am now from a numbers standpoint.
Simplistically, if you take money out of an investment, make sure you have a solid purpose for it - specifically, another investment that you feel will perform well. If you sell, that's fine, just don't piss it away, because that is when seeing the stock 100% higher than you sold it at will get to you.
Sunday, February 18, 2007
The Lost Art of Ownership
"Well, I appreciate the opportunity you're giving me Mr. Cromwell as the single largest shareholder in Teldar Paper, to speak....Now, in the days of the free market when our country was a top industrial power, there was accountability to the stockholder. The Carnegies, the Mellons, the men that built this great industrial empire, made sure of it because it was their money at stake....You own the company. That's right, you, the stockholder."
For those of you that have seen Wall Street, you will know the above is the scene were Gordon Gekko is addressing the shareholders at the company's annual meeting.
Today, at 2pm, I will be at the annual meeting at the Pelican Yacht Club in Fort Pierce. Granted, this is nothing to compare to say the huge annual meetings of companies like Warren Buffet's Berkshire Hathaway or other large American entities like Disney, Ford, etc. But, nevertheless, it is an annual meeting, and it is the same principle. The board of directors will provide a year in review for 2006 and discuss the goals and challenges for 2007. The board of directors will be addressing the members - members who actually are sharholders and own a share of the corporation that is the Pelican Yacht Club. Granted, this is a little different as there are no dividends, stock splits, etc., but regardless, the people at this meeting are owners. Unfortunately, the vast majority of the owners will not be present. Of the 350 or so owners, I estimate maybe 100, tops, will be represented in person or via proxy.
I think today the art of ownership is lost - or at least misunderstood. I am guilty of this myself, too, on many levels, but when you purchase shares of stock in a company on the stock market - any company big or small - you become an owner. That purchase makes you an owner of the company, just as if you owned your own company. You are legally entitled to all sorts of privileges, such as the right to vote, rights to profits. Also, as an owner, you also have responsibilities, such as to learn as much about the company as you possibly can - remember, your money is at stake.
The other day, I was in the car on I-95 and passed a semi-truck. On the rubber flaps that are behind the tires, I was astonished to see the logo of Wabash National (NYSE: WNC) on the flaps. It told me that the the trailer hitched on the rig was made by Wabash National. Since then, I have seen several trucks with this same characteristic. Why should I be surprised? I shouldn't be. WNC is the #1 manufacturer of truck trailers in the country and an acquisition during 2006 of the #10 manufacturer only strengthens their position. So, from a probability stand point, I should see more Wabash National trailers than any other individual trailer manufacturer.
Seeing the logo, I felt pretty good about my position in WNC. From a performance standpoint, only time will tell if it was a good decision to buy (it appears to be so far), but I recognized the logo and felt good about it. I felt that I took pride in my ownership of WNC and that I understood it. Who knows how many WNC trucks I have seen through the years, but just was not paying attention. Now I am and I felt good about being an owner - being entitled to company dividends, sharing in the success and rewards as the company does well, and being like..."hey, my company made that trailer."
In the previous sentence, the latter may be a little zealous, but I think we have to think that way. I think we have to get beyond thinking that a share of stock is a piece of paper that has an arbitrary value that goes up or down. Sure, we all want our stocks to go up because we want to own something that increases in value over time. But, owning a stock should not be looked at as only having the right to sell it when you feel like it or when it reaches a certain price. Yes, we are all stewards of our own little nest eggs, regardless of how big or small, and we have the responsibility to make good financial decisions, but owning stock is far more than "buy low, sell high."
I think of companies in my portfolio like Seaboard Corp (AMEX: SEB) and Ash Grove Cement (Pink Sheet: ASHG). The founding families of these companies own huge blocks of the company. I estimate that the Bresky family controls 70%-80% of SEB stock and that the Sunderlands control anywhere from 80%-90% of ASHG. The latter is difficult to figure out because they not required to report ownership, but SEB is more clear. Additionally, in both cases, I suspect that both companies and families purchase additional shares of the company's stock on the open market or in private transactions and are further willing to buy what you are selling.
SEB, for instance, since they have to file with the SEC and information is more readily available. The founding family's stake is worth about $1.8B. However, they don't sell it. The CEO, Steven Bresky and member of the founding family makes a $1.5M/year salary and the Bresky family takes home about $2.6M in dividends. So, yes, that is a ton of money, but $4.1M per year is only about 0.2% of their entire SEB worth. The situation at ASHG is likely very similar, though I do not have exact #'s. The point is, nearly of the families sell their stock to buy big houses, big lifestyle, etc. They maintain their ownership where it is at, even acquire more - despite them not having access to that full amount of cash and fronting their own cash to buy more.
The above stories are a little extreme, but compare to the other extreme, say at our company in Vero Beach. Most everyone who works there owns shares of stock and/or stock options. I am towards the upper end of the spectrum in terms of # of shares I own, which is nice, though the shares are worthless. However, not a day goes by where a discussion of "I can't wait for the company to sell so I can dump my shares" comes up. Understood - you have to diversify and god knows I'd be likely to do the same under the same circumstances, but what happened to valuing the ownership? Why would anyone want to buy the shares from you if they know all you care about is getting rich off them and selling them to build a big house, buy a fancy car, etc. My question is, where is the honor and pride of ownership anymore?
Yes, in any given time frame, whether it be 1 month, 1 year, 10 years, or 100 years, there will always be one stock or company that does the best in terms of providing returns to shareholders. Someone has to be #1 and I think often, especially with the greed that circles around the stock market, we feel we have to be #1 all of the time. So, people move their money around from stock to stock - forgetting the art of ownership. But, even saying being the #100 performing stock of 2006 is pretty good about still puts you in the top 1% Even if your stock you owned was the #1000 performer, you would still be doing very well in terms of building wealth.
So, yes, we are here in the stock market to make money, but the #1 thing to remember is that you are an owner, so act like one. Understand where your money is because your money is at stake. Participate in annual meetings - submit your ideas and proposals to the board of directors, though do so with tact and informed expression.
There is nothing worse than the guy with 10 shares at the Ford annual meeting that just crassly screams out "RAISE THE DIVIDEND". Trust me - this happens - I have been to the Harbor Federal (now National City, NYSE: NCC) annual meetings. Dividends are great, yes, as they are returns of actual cash to the investors and owners - but, if the board feels that money can be better used by re-purchasing stock or retaining for acquisitions or other corporate purposes, then so be it. If you want more dividends, write a business case as to why you feel the cash can do better if in the hands of the owners (shareholders) rather than the company and acquire support for it, whether it be by lobbying the board members, other stockholders, or just buying all of the stock yourself.
Make the most of your ownership rights. You don't have to go crazy, but at the very least, participate in elections of directors, proxy statements (if you cannot physically attend the meeting), and act like an owner. It's hard to do all the time, especially as a stock goes down or up, but it's a good thing to keep in the back of your mind.
For those of you that have seen Wall Street, you will know the above is the scene were Gordon Gekko is addressing the shareholders at the company's annual meeting.
Today, at 2pm, I will be at the annual meeting at the Pelican Yacht Club in Fort Pierce. Granted, this is nothing to compare to say the huge annual meetings of companies like Warren Buffet's Berkshire Hathaway or other large American entities like Disney, Ford, etc. But, nevertheless, it is an annual meeting, and it is the same principle. The board of directors will provide a year in review for 2006 and discuss the goals and challenges for 2007. The board of directors will be addressing the members - members who actually are sharholders and own a share of the corporation that is the Pelican Yacht Club. Granted, this is a little different as there are no dividends, stock splits, etc., but regardless, the people at this meeting are owners. Unfortunately, the vast majority of the owners will not be present. Of the 350 or so owners, I estimate maybe 100, tops, will be represented in person or via proxy.
I think today the art of ownership is lost - or at least misunderstood. I am guilty of this myself, too, on many levels, but when you purchase shares of stock in a company on the stock market - any company big or small - you become an owner. That purchase makes you an owner of the company, just as if you owned your own company. You are legally entitled to all sorts of privileges, such as the right to vote, rights to profits. Also, as an owner, you also have responsibilities, such as to learn as much about the company as you possibly can - remember, your money is at stake.
The other day, I was in the car on I-95 and passed a semi-truck. On the rubber flaps that are behind the tires, I was astonished to see the logo of Wabash National (NYSE: WNC) on the flaps. It told me that the the trailer hitched on the rig was made by Wabash National. Since then, I have seen several trucks with this same characteristic. Why should I be surprised? I shouldn't be. WNC is the #1 manufacturer of truck trailers in the country and an acquisition during 2006 of the #10 manufacturer only strengthens their position. So, from a probability stand point, I should see more Wabash National trailers than any other individual trailer manufacturer.
Seeing the logo, I felt pretty good about my position in WNC. From a performance standpoint, only time will tell if it was a good decision to buy (it appears to be so far), but I recognized the logo and felt good about it. I felt that I took pride in my ownership of WNC and that I understood it. Who knows how many WNC trucks I have seen through the years, but just was not paying attention. Now I am and I felt good about being an owner - being entitled to company dividends, sharing in the success and rewards as the company does well, and being like..."hey, my company made that trailer."
In the previous sentence, the latter may be a little zealous, but I think we have to think that way. I think we have to get beyond thinking that a share of stock is a piece of paper that has an arbitrary value that goes up or down. Sure, we all want our stocks to go up because we want to own something that increases in value over time. But, owning a stock should not be looked at as only having the right to sell it when you feel like it or when it reaches a certain price. Yes, we are all stewards of our own little nest eggs, regardless of how big or small, and we have the responsibility to make good financial decisions, but owning stock is far more than "buy low, sell high."
I think of companies in my portfolio like Seaboard Corp (AMEX: SEB) and Ash Grove Cement (Pink Sheet: ASHG). The founding families of these companies own huge blocks of the company. I estimate that the Bresky family controls 70%-80% of SEB stock and that the Sunderlands control anywhere from 80%-90% of ASHG. The latter is difficult to figure out because they not required to report ownership, but SEB is more clear. Additionally, in both cases, I suspect that both companies and families purchase additional shares of the company's stock on the open market or in private transactions and are further willing to buy what you are selling.
SEB, for instance, since they have to file with the SEC and information is more readily available. The founding family's stake is worth about $1.8B. However, they don't sell it. The CEO, Steven Bresky and member of the founding family makes a $1.5M/year salary and the Bresky family takes home about $2.6M in dividends. So, yes, that is a ton of money, but $4.1M per year is only about 0.2% of their entire SEB worth. The situation at ASHG is likely very similar, though I do not have exact #'s. The point is, nearly of the families sell their stock to buy big houses, big lifestyle, etc. They maintain their ownership where it is at, even acquire more - despite them not having access to that full amount of cash and fronting their own cash to buy more.
The above stories are a little extreme, but compare to the other extreme, say at our company in Vero Beach. Most everyone who works there owns shares of stock and/or stock options. I am towards the upper end of the spectrum in terms of # of shares I own, which is nice, though the shares are worthless. However, not a day goes by where a discussion of "I can't wait for the company to sell so I can dump my shares" comes up. Understood - you have to diversify and god knows I'd be likely to do the same under the same circumstances, but what happened to valuing the ownership? Why would anyone want to buy the shares from you if they know all you care about is getting rich off them and selling them to build a big house, buy a fancy car, etc. My question is, where is the honor and pride of ownership anymore?
Yes, in any given time frame, whether it be 1 month, 1 year, 10 years, or 100 years, there will always be one stock or company that does the best in terms of providing returns to shareholders. Someone has to be #1 and I think often, especially with the greed that circles around the stock market, we feel we have to be #1 all of the time. So, people move their money around from stock to stock - forgetting the art of ownership. But, even saying being the #100 performing stock of 2006 is pretty good about still puts you in the top 1% Even if your stock you owned was the #1000 performer, you would still be doing very well in terms of building wealth.
So, yes, we are here in the stock market to make money, but the #1 thing to remember is that you are an owner, so act like one. Understand where your money is because your money is at stake. Participate in annual meetings - submit your ideas and proposals to the board of directors, though do so with tact and informed expression.
There is nothing worse than the guy with 10 shares at the Ford annual meeting that just crassly screams out "RAISE THE DIVIDEND". Trust me - this happens - I have been to the Harbor Federal (now National City, NYSE: NCC) annual meetings. Dividends are great, yes, as they are returns of actual cash to the investors and owners - but, if the board feels that money can be better used by re-purchasing stock or retaining for acquisitions or other corporate purposes, then so be it. If you want more dividends, write a business case as to why you feel the cash can do better if in the hands of the owners (shareholders) rather than the company and acquire support for it, whether it be by lobbying the board members, other stockholders, or just buying all of the stock yourself.
Make the most of your ownership rights. You don't have to go crazy, but at the very least, participate in elections of directors, proxy statements (if you cannot physically attend the meeting), and act like an owner. It's hard to do all the time, especially as a stock goes down or up, but it's a good thing to keep in the back of your mind.
Wednesday, February 14, 2007
SEB, DVY (New), IIBK (New), ASHG, NBG, et. al.
Man, today was just freaking huge. The markets opened up quiet and waited on the comments from the Federal Reserve about the state of the economy. It is incredible how the words of one person, federal chairman Bernanke, can impact the market so sharply. The biggest discussion was Bernanke saying the economy is 'ok' and interest rates are not going anywhere anytime soon. What this means is that interest rates will not increase, as many feared or even expected.
The impacts of this are the treasury yields staying about the same mean that for the time being, we live in a world where yields of dividend paying stocks are very close to what you would get if you invested in a U.S. treasury bond. When I stock about dividend paying stocks, I am not talking about the egregiously high yielding stocks, like oil royalty trusts - I am talking about blue chips. PFE sports a 4.4% yield, Altria (NYSE: MO) is at 4%, and Washington Mutual (NYSE: WM) is at 4.9%. My point is, if you get 4.8% from a U.S. Bond, why wouldn't you just buy WM, collect the 4.9% return on your investment via dividend and then own the stock? Exactly - you wouldn't - the 'guaranteed' return is about the same and you have a chance for stock ownership.
So, today, with rates staying the same, and that gap between dividend yields of blue chips and treasury yields remaining relatively small, money flowed into stocks today - especially blue chips as the Dow Jones closed at an all time high. It seems that this trend will continue as long as the environment is the same. Eventually, the yields of these stocks will go from say 4% for MO to maybe 3.2%-3.5% yield. Then, people see that difference between a treasury and a dividend yield and are less inclined to buy stock. But, that slowdown won't take place for a bit and stocks will continue to rise, especially blue chip stocks, creating a larger gap between the yields.
In light of that, I'd like to introduce you to NYSE: DVY. The symbol is fitting as this is an 'exchange traded fund' (ETF) and is the Dow Jones iShares Dividend Index. This 'fund' trades like a stock and invests in blue chip companies that have histories of strong dividends and consistent dividend growth over 25+ years. I like this one a great deal for my IRA and I took a position in this one in my IRA account. I think the ETF will perform well from a capital appreciation standpoint and yield about 3% in dividends. This fund supports my discussion above regarding the interest rate environment and I think is perfect for an IRA account.
I am a little more aggressive in my main portfolio, but oddly enough, I am very conservative in my IRA. Why? I mean, can't you get tax deferred growth in your IRA? Well, sure. But, I remain conservative. The key to the IRA, especially at a young age like me, is the time value of money. It is more important for me to have years generating 10%-12% returns, year after year, without exception. When stocks struggle, the dividends will help support. Over time, and with maxxing out my annual contributions, this is what will make the thing big. Taking big risks in the IRA? Well, what if a big risk doesn't grow or suffers serious depreciation? You are literally wiping out what could take you years to recover. I will stick to aggressive in my portfolio, where I can move the money, stomach a loss if it happens, and take gains out to use for my own lifestyle if need be. As long as I can get a nice, steady return in my IRA year after year, I will be fine when I can actually use the thing. Short and simple, implicit in the strategy and purpose of the IRA is to get that residual time value of money - very slow and steady. In my day to day stuff, I'll take bigger whacks at things looking for 50%+ gains in a 12 month period.
Speaking of monster gains, Seaboard Corp (AMEX: SEB) was my best performer today, up 6.2% to $2,107 per share. I started buying at $1,289. I expected it to crack $2,000 today, after yesterday's strong close, but today, in the last 30 mins. of trading, it just blew up and traded as high as $2,135. SEB is still worth $3,000+ per share - it continues to produce lots of cash and shareholders equity. Plus, their business model, especially their marine chartering business, will benefit from the opening up of Cuba. SEB has a great conglomerate going, but SEB risks never reaching full valuation because lack of coverage by the big institutions. In the mean time, remember, there seem to be no shares out there available for sale and there are buyers - supply and demand - demand is high, supply is low, and price goes up. SEB is not done yet, but it might take a breather over the next couple of days, but short term, heading to $2,300 is not out of the question. SEB will shortly be releasing its earnings report, so we will see what comes to pass in terms of EBITDA, Cash Flow, Shareholders Equity, etc. I think we will see another uptick in all of those categories for SEB and the market may be anticipating that.
National Bank of Greece (NYSE: NBG) performed strongly today, too. 2 days ago, it fell down to $10.01 (from $10.40) on the news they lost the bid for a Ukrainian bank and were looking at a bank in Russia. I almost pulled the trigger and bought more, but my adding threshold was $9.90. I wish I got more, as it is now back up to $10.51 and less than a nickel off of its 52-week high of $10.55. From a chart standpoint, this appears to be good news, especially if it can break through its old high. It broke through $10.40, the past recent high it hit before falling to $10.01 and it is higher than it was at this time last year. NBG pays its dividend annually, so there tends to be some selling come dividend time, since I guess people do not like to wait all year, so once they get it, they sell out and get back in later I guess. I do not think we will see a 20% decline post-dividend like we did last year.
Ash Grove Cement (Pink Sheet: ASHG) hit an all-time high today of $215 and is currently offered at $220. I added more in my IRA the other day and ASHG will shortly announce its dividend, payable around the first or 2nd week of March. We will see if they raise the dividend from $0.40 per quarter to something higher, as they have done the past few years. I like ASHG long-term, mostly because of market dynamics and their unique position as largest American owned cement company in the country. Their capital expenditures in 2006-2007 should start to yield some serious results starting in 2008, so the future looks bright for this cement producer. At the very least, this is a very solid long-term holding.
Finally, let me also introduce you to Idaho Independent Bank (OTCBB: IIBK) - it is trading at $34.55. I found this bank because they are my finalist for the new direct stock purchase plan for my girls and I as the program has no fees to participate. IIBK pays an annual 7% stock dividend - no cash dividend. Interestingly enough, although you can count on this 7% dilution every year come November, the additional shares has not hindered their EPS growth or hurt the supply/demand dynamics of IIBK's market. IIBK is a relatively small bank with only 10 branches and their focus is businesses, rather than consumer. Their ratios are stellar, boasting a 2%+ return on assets and very well positioned from a cash/debt standpoint. My only fear is that they may be richly valued already, trading at 3+ times book value, which is high for a bank. However, the x-factor here is the situation and the stock dynamics.
IIBK reminds me a little bit of Ft. Pierce privately held bank, Riverside National Bank, which has provided tremendous returns to shareholders and pays an annual stock dividend. Riverside's internal stock price has climbed year after year as it is governed by the financial results of the bank and the fact that there are not many 'sellers' of the stock. Sure, there is an active market, but there are more buyers than sellers. IIBK appears to have the same situation - closely held, strong growth in EPS and financial health, limited institutional holdings, and not a whole lot of people dumping shares. Only trades about 2,000 shares each day, so not a ton of liquidity or volume. The November 2006 2-1 stock split might loosen up the marketplace some, but IIBK is going up. I say $40-$42 by the end of 2007 and $50+ by end of 2008. Not a huge mover, by any means, but a great play from the direct stock purchase standpoint, especially with the 7% stock dividend and history of the additional shares not impacting the company's per share performance.
The impacts of this are the treasury yields staying about the same mean that for the time being, we live in a world where yields of dividend paying stocks are very close to what you would get if you invested in a U.S. treasury bond. When I stock about dividend paying stocks, I am not talking about the egregiously high yielding stocks, like oil royalty trusts - I am talking about blue chips. PFE sports a 4.4% yield, Altria (NYSE: MO) is at 4%, and Washington Mutual (NYSE: WM) is at 4.9%. My point is, if you get 4.8% from a U.S. Bond, why wouldn't you just buy WM, collect the 4.9% return on your investment via dividend and then own the stock? Exactly - you wouldn't - the 'guaranteed' return is about the same and you have a chance for stock ownership.
So, today, with rates staying the same, and that gap between dividend yields of blue chips and treasury yields remaining relatively small, money flowed into stocks today - especially blue chips as the Dow Jones closed at an all time high. It seems that this trend will continue as long as the environment is the same. Eventually, the yields of these stocks will go from say 4% for MO to maybe 3.2%-3.5% yield. Then, people see that difference between a treasury and a dividend yield and are less inclined to buy stock. But, that slowdown won't take place for a bit and stocks will continue to rise, especially blue chip stocks, creating a larger gap between the yields.
In light of that, I'd like to introduce you to NYSE: DVY. The symbol is fitting as this is an 'exchange traded fund' (ETF) and is the Dow Jones iShares Dividend Index. This 'fund' trades like a stock and invests in blue chip companies that have histories of strong dividends and consistent dividend growth over 25+ years. I like this one a great deal for my IRA and I took a position in this one in my IRA account. I think the ETF will perform well from a capital appreciation standpoint and yield about 3% in dividends. This fund supports my discussion above regarding the interest rate environment and I think is perfect for an IRA account.
I am a little more aggressive in my main portfolio, but oddly enough, I am very conservative in my IRA. Why? I mean, can't you get tax deferred growth in your IRA? Well, sure. But, I remain conservative. The key to the IRA, especially at a young age like me, is the time value of money. It is more important for me to have years generating 10%-12% returns, year after year, without exception. When stocks struggle, the dividends will help support. Over time, and with maxxing out my annual contributions, this is what will make the thing big. Taking big risks in the IRA? Well, what if a big risk doesn't grow or suffers serious depreciation? You are literally wiping out what could take you years to recover. I will stick to aggressive in my portfolio, where I can move the money, stomach a loss if it happens, and take gains out to use for my own lifestyle if need be. As long as I can get a nice, steady return in my IRA year after year, I will be fine when I can actually use the thing. Short and simple, implicit in the strategy and purpose of the IRA is to get that residual time value of money - very slow and steady. In my day to day stuff, I'll take bigger whacks at things looking for 50%+ gains in a 12 month period.
Speaking of monster gains, Seaboard Corp (AMEX: SEB) was my best performer today, up 6.2% to $2,107 per share. I started buying at $1,289. I expected it to crack $2,000 today, after yesterday's strong close, but today, in the last 30 mins. of trading, it just blew up and traded as high as $2,135. SEB is still worth $3,000+ per share - it continues to produce lots of cash and shareholders equity. Plus, their business model, especially their marine chartering business, will benefit from the opening up of Cuba. SEB has a great conglomerate going, but SEB risks never reaching full valuation because lack of coverage by the big institutions. In the mean time, remember, there seem to be no shares out there available for sale and there are buyers - supply and demand - demand is high, supply is low, and price goes up. SEB is not done yet, but it might take a breather over the next couple of days, but short term, heading to $2,300 is not out of the question. SEB will shortly be releasing its earnings report, so we will see what comes to pass in terms of EBITDA, Cash Flow, Shareholders Equity, etc. I think we will see another uptick in all of those categories for SEB and the market may be anticipating that.
National Bank of Greece (NYSE: NBG) performed strongly today, too. 2 days ago, it fell down to $10.01 (from $10.40) on the news they lost the bid for a Ukrainian bank and were looking at a bank in Russia. I almost pulled the trigger and bought more, but my adding threshold was $9.90. I wish I got more, as it is now back up to $10.51 and less than a nickel off of its 52-week high of $10.55. From a chart standpoint, this appears to be good news, especially if it can break through its old high. It broke through $10.40, the past recent high it hit before falling to $10.01 and it is higher than it was at this time last year. NBG pays its dividend annually, so there tends to be some selling come dividend time, since I guess people do not like to wait all year, so once they get it, they sell out and get back in later I guess. I do not think we will see a 20% decline post-dividend like we did last year.
Ash Grove Cement (Pink Sheet: ASHG) hit an all-time high today of $215 and is currently offered at $220. I added more in my IRA the other day and ASHG will shortly announce its dividend, payable around the first or 2nd week of March. We will see if they raise the dividend from $0.40 per quarter to something higher, as they have done the past few years. I like ASHG long-term, mostly because of market dynamics and their unique position as largest American owned cement company in the country. Their capital expenditures in 2006-2007 should start to yield some serious results starting in 2008, so the future looks bright for this cement producer. At the very least, this is a very solid long-term holding.
Finally, let me also introduce you to Idaho Independent Bank (OTCBB: IIBK) - it is trading at $34.55. I found this bank because they are my finalist for the new direct stock purchase plan for my girls and I as the program has no fees to participate. IIBK pays an annual 7% stock dividend - no cash dividend. Interestingly enough, although you can count on this 7% dilution every year come November, the additional shares has not hindered their EPS growth or hurt the supply/demand dynamics of IIBK's market. IIBK is a relatively small bank with only 10 branches and their focus is businesses, rather than consumer. Their ratios are stellar, boasting a 2%+ return on assets and very well positioned from a cash/debt standpoint. My only fear is that they may be richly valued already, trading at 3+ times book value, which is high for a bank. However, the x-factor here is the situation and the stock dynamics.
IIBK reminds me a little bit of Ft. Pierce privately held bank, Riverside National Bank, which has provided tremendous returns to shareholders and pays an annual stock dividend. Riverside's internal stock price has climbed year after year as it is governed by the financial results of the bank and the fact that there are not many 'sellers' of the stock. Sure, there is an active market, but there are more buyers than sellers. IIBK appears to have the same situation - closely held, strong growth in EPS and financial health, limited institutional holdings, and not a whole lot of people dumping shares. Only trades about 2,000 shares each day, so not a ton of liquidity or volume. The November 2006 2-1 stock split might loosen up the marketplace some, but IIBK is going up. I say $40-$42 by the end of 2007 and $50+ by end of 2008. Not a huge mover, by any means, but a great play from the direct stock purchase standpoint, especially with the 7% stock dividend and history of the additional shares not impacting the company's per share performance.
Sunday, December 31, 2006
Closing Out 2006 - Winners & Losers
I spent last night working on my taxes for 2006 - yeah, I know, tons of fun. Although I have an accountant prepare my final return, I prefer to do as much of the prep work as possible to avoid having to pay CPA rates for things that are pretty easy and that programs like Quicken automatically generate for you. Plus, I was able to complete a couple of full returns myself - the ones for my daughter and the one for my corporation.
I learned more about "qualified dividends" which I should have already known more about, but I didn't - but, now I do :-). What I thought was great was that if you hold a stock that pays dividends long enough (61+ days basically), all dividends on that stock going forward become qualified dividends. Qualified dividends get taxed at a lower tax rate than ordinary dividends. Basically, from a long term standpoint, if you can accumulate stocks that pay dividends, ultimately, all dividends from that stock get a lower tax rate. So, say one day, after many years, you were able to own 50,000 shares of PFE. With the dividend currently at $1.16 - and let's just assume it stays there for now and forever (not likely as they have 40 straight years of dividend increases) you would receive $58,000 in dividend income. And let's assume this $58,000 is your only income. Since the stock has been held on for so long, it is in the form of qualified dividends. So, you would only pay the 15% tax rate on this - rather than 28%-35%. That's a pretty big savings in terms of paying taxes. Let's hope this legislation stays in place.
I also prepared my own Schedule D. Schedule D is the form that you fill out to list capital gains and losses you experienced during the year, primarily through investing in stocks. This is a good exercise to do because you really see how you actually did. You will find most people talk only about their winners, but never talk about their losers. I had a very solid year in this arena - mostly because I had a couple of big winners and was able to limit my losses quickly.
Furthermore, I significantly moved away from "day trading" which I used to do in the past with greater frequency. I did have some success in it in the past, but by going through the actual work, you can see how small incremental gains can quickly be chewed up by larger losses that you are vulnerable to when you maintain too much of a short-term focus.
Here is a great example...one of my best performers of the year, CECE. My average purchase price was $4.35/share with various purchases in 2005. My average selling price on that block of shares was $9.53, which is a 120% return. However, during the course of the run up from $4 to $13, the stock, for instance, would go from $4 to $7, back to $5.50. So, if my focus was too short-term, I would have bailed when it dropped back to $6 - sure, locking in a gain, but being distracted by the dynamics of short-term trading, I would have missed out on the larger gains.
Furthermore with CECE, after exiting the position with a gain, you always tend to feel "what if I am missing out", I bought some shares back thinking it would go back up or I'd get a quick scalp. I bought back in at an average of $9.32 and sold at an average of $9.05 a day or so later - a 2.7% loss - cutting into my gains. Turns out, I didn't miss out - CECE fell down to $7 shortly thereafter and although it rebounded back to $11 temporarily, it's at around $9.00 right now - so, I never missed the boat.
Other winners I had this year that I either closed out the position or have held on include the following.
ASTE - +38.9% (closed out)
SVVS - +17.3% (closed out, too early though, as this one ran)
RDTA - +23.1% (made some dumb trades that cut into return)
ASHG - +15.7% (1-year performance, hold)
MRK - +11,4% (Aug 2006-present, hold)
NBG - +10.1% (Sep 2006-present, hold)
SEB - +36.4% (Oct 2006-present, hold)
And, yes, I had losers - but I did a great job of cutting my losers before they got too bad. I was planning on cleaning up the portfolio on the last day of the year to sell off any losers, but I really didn't have that much of a problem as the only loser I held was LRT, down 12%.
Other losers I sold off this year before they became too bad. Note my actual loss and how much worse they could have gotten. These were mostly attempts to be 'short term' trades - and they didn't work out too well from a short term standpoint, but could have been a disaster long term.
HYBT - down 7.7% (rather 73.2%)
ATVE- down 12.2% (rather than 88.7%)
NSLT- down 5.6% (rather than 11.2%)
GHLT- down 0.8% (rather than 77.2%)
Since I was able to focus on the winners - rather than the losers and cut my losses, I was able to have a pretty strong year in this arena.
I learned more about "qualified dividends" which I should have already known more about, but I didn't - but, now I do :-). What I thought was great was that if you hold a stock that pays dividends long enough (61+ days basically), all dividends on that stock going forward become qualified dividends. Qualified dividends get taxed at a lower tax rate than ordinary dividends. Basically, from a long term standpoint, if you can accumulate stocks that pay dividends, ultimately, all dividends from that stock get a lower tax rate. So, say one day, after many years, you were able to own 50,000 shares of PFE. With the dividend currently at $1.16 - and let's just assume it stays there for now and forever (not likely as they have 40 straight years of dividend increases) you would receive $58,000 in dividend income. And let's assume this $58,000 is your only income. Since the stock has been held on for so long, it is in the form of qualified dividends. So, you would only pay the 15% tax rate on this - rather than 28%-35%. That's a pretty big savings in terms of paying taxes. Let's hope this legislation stays in place.
I also prepared my own Schedule D. Schedule D is the form that you fill out to list capital gains and losses you experienced during the year, primarily through investing in stocks. This is a good exercise to do because you really see how you actually did. You will find most people talk only about their winners, but never talk about their losers. I had a very solid year in this arena - mostly because I had a couple of big winners and was able to limit my losses quickly.
Furthermore, I significantly moved away from "day trading" which I used to do in the past with greater frequency. I did have some success in it in the past, but by going through the actual work, you can see how small incremental gains can quickly be chewed up by larger losses that you are vulnerable to when you maintain too much of a short-term focus.
Here is a great example...one of my best performers of the year, CECE. My average purchase price was $4.35/share with various purchases in 2005. My average selling price on that block of shares was $9.53, which is a 120% return. However, during the course of the run up from $4 to $13, the stock, for instance, would go from $4 to $7, back to $5.50. So, if my focus was too short-term, I would have bailed when it dropped back to $6 - sure, locking in a gain, but being distracted by the dynamics of short-term trading, I would have missed out on the larger gains.
Furthermore with CECE, after exiting the position with a gain, you always tend to feel "what if I am missing out", I bought some shares back thinking it would go back up or I'd get a quick scalp. I bought back in at an average of $9.32 and sold at an average of $9.05 a day or so later - a 2.7% loss - cutting into my gains. Turns out, I didn't miss out - CECE fell down to $7 shortly thereafter and although it rebounded back to $11 temporarily, it's at around $9.00 right now - so, I never missed the boat.
Other winners I had this year that I either closed out the position or have held on include the following.
ASTE - +38.9% (closed out)
SVVS - +17.3% (closed out, too early though, as this one ran)
RDTA - +23.1% (made some dumb trades that cut into return)
ASHG - +15.7% (1-year performance, hold)
MRK - +11,4% (Aug 2006-present, hold)
NBG - +10.1% (Sep 2006-present, hold)
SEB - +36.4% (Oct 2006-present, hold)
And, yes, I had losers - but I did a great job of cutting my losers before they got too bad. I was planning on cleaning up the portfolio on the last day of the year to sell off any losers, but I really didn't have that much of a problem as the only loser I held was LRT, down 12%.
Other losers I sold off this year before they became too bad. Note my actual loss and how much worse they could have gotten. These were mostly attempts to be 'short term' trades - and they didn't work out too well from a short term standpoint, but could have been a disaster long term.
HYBT - down 7.7% (rather 73.2%)
ATVE- down 12.2% (rather than 88.7%)
NSLT- down 5.6% (rather than 11.2%)
GHLT- down 0.8% (rather than 77.2%)
Since I was able to focus on the winners - rather than the losers and cut my losses, I was able to have a pretty strong year in this arena.
Thursday, November 30, 2006
ASTE - The End of the Road
It is a very bittersweet day - I have officially closed out my position in ASTE - exiting with approximately a 45% gain over the course of 10 weeks. It is always difficult to part with your winners - there is always the fear that they will go higher and that you will miss the boat on it. However, you have to keep your strategy in check. When I originally purchased ASTE back in September, the vision was a rebound into the mid 30s range after getting whacked down 50%+ following an excellent earnings report that did not meet Wall Street expectations. My September 5, 2006 blog highlighting ASTE at $24.71 discusses this. So, it's time to move on.
My reasoning is as follows. First, it hit my short-term target of the mid $30s. Also, although prospects for the company remain strong and ASTE could very well continue its upward trend, it appears that the current trend is running out of gas. $35+ has been challenged a couple of times, but on relatively light volume - at least compared to what brought it up to $30+.
Additionally, the downside seems to be more of a risk, especially now that the market is expecting ASTE to overperform in the 4th Quarter 2006 as that information was disclosed in the conference call regarding 3Q 2006 numbers. Basically, the bulk of the potential upside to a strong 4th Q may already be priced in.
So, now with ASTE gone, I need to find another position to fill up my day and replace ASTE in the portfolio. I will also be evaluating how I would like to use the principal and proceeds from this trade to strengthen my positions in NBG, INFT, ASHG, and possibly SEB. NBG looks very attractive right now after it reported strong earnings and is down 3.5% on the news - buy on rumors, sell on news as they say.
My reasoning is as follows. First, it hit my short-term target of the mid $30s. Also, although prospects for the company remain strong and ASTE could very well continue its upward trend, it appears that the current trend is running out of gas. $35+ has been challenged a couple of times, but on relatively light volume - at least compared to what brought it up to $30+.
Additionally, the downside seems to be more of a risk, especially now that the market is expecting ASTE to overperform in the 4th Quarter 2006 as that information was disclosed in the conference call regarding 3Q 2006 numbers. Basically, the bulk of the potential upside to a strong 4th Q may already be priced in.
So, now with ASTE gone, I need to find another position to fill up my day and replace ASTE in the portfolio. I will also be evaluating how I would like to use the principal and proceeds from this trade to strengthen my positions in NBG, INFT, ASHG, and possibly SEB. NBG looks very attractive right now after it reported strong earnings and is down 3.5% on the news - buy on rumors, sell on news as they say.
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