5 October 2010 Happy Birthday
Ok now believe it or not, this blog is officially one year old this week. We had some posts from September 09 but they were all posted on October 4th. That was 275 posts ago and it can be painful looking back. While I might not be like Lot’s wife and turn to a pillar of salt certain data points seem a bit uncomfortable. From the Oct 4 2009 post:
“In early July I started acquiring BEZ, they make industrialized motors and transmissions. What I liked about the company was strong 5 year earnings growth, decent cash flow, management debt (8 year payoff based upon current earnings), the belief we were at an economic bottom, but what I really liked was a paragraph that the company had instituted a very aggressive “bounty” program to get new quality accounts. This was buried in the management discussion notes in the second quarter 10K filing. I was a peddler. We all know salespeople brains are in their wallet. (Sorry if I offended you salespeople, but you know it’s true.) Anyway I am out and took a nice 14.7% profit in 90 days. I also entered a limit buy for 22.50. If it returns to those levels, consider getting back in, but do your homework.”
We never did catch that 22.50 and the limit expired. Today BEZ closed at 40 and change. On the same day we talked about taking some small profit for SQM and FMC, both up about 30% on the last 12 months. Then I talked everyone out of GVA Granite Construction because it was a 30 dollar stock that nobody liked. They still don’t as it sells for 23 a share now. (Actually it has some interesting technicals working at this level) More homework. I was also pimping HAS Hasbro as I had an average cost of 25.60 and was suggesting a Q 1 2010 price of 32 dollars. It hit 35.50 at the end of March. I took profit and missed the current 45 a share. With the one of the best if not the best Gross Margins in the sector their rally could carry to 52-54. I did not get MTNOY, the SA telecom, but nailed PBS the media ETF calling for a 30% increase from October to Q 1.
All and all my first post was nothing to be ashamed of except I did not stay at the party long enough to taste the cake. (Although the May 6 Flash Crash did have something to do with me leaving a few of those parties.)
Master of the Beta
One of our regulars sent in an interesting theory after looking at four energy stocks. He was looking at XOM, CVX, and what I have to assume would have been Royal Dutch and BP. He deduced that Exxon’s Beta (along with possible critics of the XTO Merger) have driven the stock down over the last several months. For our newbies, a brief explanation about BETA. BETA is one way of measuring one stock’s volatility to the overall market. Most investment websites measure BETA on a scale where 0 means there is no comparative volatility or correlation to the general market (usually an index like the S & P 500 or the NYSE) and the stocks price. A negative number usually means the stock price moves inversely with the market and a positive number implies it moves with the market.
Now back to his theory, if I have it right. His theory is that if one became proficient at picking the highs and lows of the volatile stock charts based upon their chart and BETA rating, you could do very well.
He then goes on to ask if this is a good time to get out of Chevron and maybe its time to get back on board XOM.
At first I am ashamed to say that I honestly thought the term Master of the Beta was a term frequently found in the investment world. Our reader may have come up with a new theory, IF it works.
We are not chartists or technicians and I do not put a lot of weight in the BETA especially in a directionless moribund market like we have seen of late. In essence the theory thrown out here is one that is based upon market timing. Let’s play along here and see if we can support the theory with XOM and CVX. I will use the charting on Charles Schwab streetsmart.
If you look at the charts below you will see similar trends over the last year. I noted where the BP Spill happened since that is where the entire energy group kinda jumped the shark. I also gave today’s BETA rating for each stock. Both are numbers that appear to move with the market. Of late, you can see CVX is moving more with the market than XOM and it shows in the BETA. Again I am not a chartists but the CVX is trading about 10% above its two hundred day moving average. That is a premium. XOM is trading just about 2% below its 200 day average. When you look at future P/E ratios, both are trading at a multiple of 9. CVX has a nicer dividend. XOM is trading at a slightly bigger discount to its analysts target prices than CVX (14% versus 10%) They both suffered a June crash as a result of a suggested downturn in the world economy and deep water drilling restrictions, as well as other BP Spill issues.
So would it be wise to use this theory in making a move into or out of any equity? I could not do it, but I would use it as one more tool to do homework on. The good thing is that charting tools makes it easy and quick to do the analysis. The reader then asks if it is not better to be in XOM versus CVX in a down market. If all we had to evaluate would be the BETA, yes. I am sticking with CVX and looking for $90-92 by years end. Due to this exercise XOM is back on my “watch close” list. That was fun.
On A Roll Baby
Sunday night we took a shot at the ISM Non-Manufacturing Survey number reported today. We broke ranks with the people in the know with an aggressive 53.5 figure. The actual came in at 53.2, a very positive number and one of the reasons for the nice market action this morning. Here was the post from Sunday.
"Tuesday we will have the ISM Non Manufacturing Survey (aka the service sector). Now we had a drop last Month which I think we called here? I can’t find the post, but I think we came close to calling that drop. The consensus is saying a slight gain from 51.5 to 52. (Remember anything over 50 indicates and expanding economy.) After seeing the robust Chicago PMI Index last week, I am thinking we will see 53.5 in this index."
In the SL Portfolio
We added to PNG as there continues to be a nat gas glut with no end in sight. We picked up some more December calls for the VXX ETF. We took some profits on CYBX which was up 6% today for a total unrealized gain of 22 % in two months. We still like this one but wanted to take some money off the table and wait for an inevitable pull back.
From the Suit Tails From The Crypt Gallery
Interesting to note that Lincoln died in 1865 and Chester Arthur died in 1886. Also my Great Grand Father was a mason (stone cutter) who worked on the Arthur Tomb and the Albany NY Capitol Building.