Tuesday, August 24, 2010

August 24, 2010 Well Now I have cash

BAGAKOAA; August 24, 2010 Well Now I have cash

I have been complaining about being cash poor as our cash holding in the Salve Lucrum portfolio went from 22% to 1.2% as we were buying on dips. Well, we have had our share of dips since the August 19th, my estimation of the semi rally that started at the end of July. As a result I was stopped out of some hefty positions. I was at lunch with a couple of employees trying to solve the issue of demands and resources when my phone started pinging away. I checked to make sure it was not my abandoned 13 year son and was relieved to see it was my buddy Chuck (Charlie Schwab) telling me there was activity on a few of my accounts.

After the lunch I got the good news. I was no longer cash poor. I had stopped out of quite a few large positions as was now back to a 15.6% cash position in the Salve Lucrum account. The only thing that would have been better was if I stopped out with a gain. NOT.

Here is the damage report. AAPL stopped out at 240.00 even with an average cost of 245.80. That would be a 2% loss if you are rounding. For you accountant types that would be a 2.36% hit.

I was bounced out of Boeing at a stop of $61.98. My average cost was $63.20. That would be 2% or 2.04% for you really anal people.

Then, (and this one bummed me out) we were taken out of Flowserve at $91.62. Now I bought into this in tiny little chunks beginning in May (12th according to the blog) My average cost was $90.52 an amazing gain of 1.2%. Whoa! Ok if I head my own advice, that 1.2% was realized over a three month time period so annualized the gain is 4.8%. Which is 83% better than the 10 Year Treasury Yield of 2.62%. Don’t ever tell me I can’t find a bright side somewhere.

So now what do I do with all this cash. I can tell you what ever it is it will be done slowly and methodically.

Just to prove you are wasting your time reading this blog, I will remind you of a January 3, 2010 post:

“So in 2010 the index to watch will be the S & P 500. Since my Feb 2009 prognostication the DOW went up 33% and the S & P 500 went up 26%. There are 500 stocks in the S & P 500 and many have revenue growth as well as cost cutting strategies. The S & P 500’s forward looking PE ratio is about 16. With the year end close of 1113, I am looking for a year end S & P 500 of 1335, almost a 20% increase. This will take two critical elements that must happen. Consumer need to start spending be it frivolous or value purchases. And we need to see a bottom in real estate. If both happen by mid year, the 19 % improvement in the S & P 500 is real. If not it will be difficult if not impossible. You could extrapolate a DOW around 12, 500 based upon that guess, but I wouldn’t bet me life on it.”

Now, the next person who accuses me of only telling about my gains, I will take the binary code from this page and beat them to death with little 1s and 0s.

And to add to this self abuse, let’s see how I did with the earnings calls today. I, yes I, called a miss for Burger King, and they beat by 2 cents. Most of the gains came from overseas, but a beat just the same.

MDT, Medtronic which I suggested a beat, came in a penny short, but what really tanked the equity was the less than enthusiastic comments by the CEO. Hawkins said the top line sales were difficult and that things weren’t looking much better for the balance of the year.

Yes I did get the loss call right on Barnes and Noble, but hey that was not that tough a call. The estimate was an 81 cents a share loss. They lost 1.12 a share Ouch!. Think they got in the eBook reader market a little late? The CEO said they expect more losses ahead. There must be a White House cabinet position available for this guy, don’t you think. I shouldn’t make fun as Lawrence Summers is the only guy on the cabinet that has ever managed a budget, Bill Lynch would be an improvement. Ooops too much politics, just lost somebody’s attention.

The EGLE has not landed.

One of our readers still looking at the bulk container cargo sector, and they are looking at EGLE, Eagle Bulk Shipping Inc., which engages in the ocean transportation of bulk cargoes in the dry bulk industry. The company primarily transports iron ore, coal, grain, cement, and fertilizer along worldwide shipping routes. As of December 31, 2009, it owned and operated a fleet of 27 oceangoing vessels with a combined carrying capacity of 1,412,535 deadweight tons. The company was founded in 2005 and is headquartered in New York, New York.

Here are our ideas on this. It is a tough cyclical sector (If you watched Cramer last Friday as suggested, cyclicals are stocks that typically do good in a rising economy, they do poorly in a down or moribund economy. This is either a moribund or a down economy.) That said there are some positive things about EGLE worth mentioning. They have a fleet of ships called Handymax ships, about 27 with 9 in production and they have the temporary advantage of being able to get into shallow narrow ports in China and India. They also only use this one size of ship which makes crew mobility a competitive advantage. They were slightly ahead of the curve in ordering new vessels so they will have a short lived advantage against competitors with comparative fleets.

That short lived advantage comes at the expense of long term debt. They got in trouble with one of their loans last year and had to drop their dividend and agree to some higher interest rates for the ships they are taking control of in 2011-2014. If the global economy, especially Asia, continues to climb and does not cool off as some are expecting this will be a good bet for EGLE. If it does cool off, it will make paying for these new ships coming on line more difficult. Their forward looking P/E ratio is half of the industry average which makes this cheap stock (Under 5 dollars) a cheap stock. (Remember a cheap stock has nothing to do with the price of the stock. I would consider Berkshire Hathaway relatively cheap at $114,000 a share as of today). Their debt seems manageable, but with the cautions I already mentioned. Their margins are some of the highest in like sized companies, but that is eroding as demand drops and competitors add to fleet size.

I’d keep this baby on a watch list to see how the Baltic Dry Index (Index of going rates for ocean bound containers. The rates are determined by how many containers are in transit and how many ships are available to fulfill the demand.) shapes up over the next two months. If container demand goes up I’d put it in play. Until then I still like VLCCF Knightsbridge for the11% sustainable dividend and no debt.

And from the Left Behind in the White House Picture Vault!
"O, babe, you gotta look one more time.  It was a little black book about yay big, had some phone numbers  . . . ."

Salve Lucrum


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