Posts
Sorry for not updating this. I finally found an investment analyst job in November and as such will not be making anymore posts. Since this is the last post, and because my stock ideas now belong to our clients, I will keep this very high level.
The Irony is Getting Ridiculous! - Although I almost always vote Republican, I am increasingly unhappy with both parties. This rant will focus on the democrats however. Specifically, I am talking about financial reform. Let me back up and start with a premise that I think is accurate. The aggregate level of loans on bank balance sheets two years ago reflected a level of underwriting that we all now consider foolish. To put it another way, bank had made too many loans. The US Congress passed TARP legislation to support the banking sector and prevent a catastrophic collapse. Old news. Jumping to today, the democrats are howling that banks are not lending enough while at the same time basing their drive for financial reform on the premise that the banks are responsible for the Great Recession because they were reckless lenders. And the proof that banks are not lending enough? Their loan balances are shrinking. So just to be clear, banks caused this whole mess by making bad loans, but they are damaging the economy by letting their balance sheets shrink. Getting back to my original premise; if we all agree that underwriting standards were too loose, then it follows that there should be fewer loans outstanding going forward (at least until population growth and economic growth support higher debt levels at better underwriting standards). Unless we want banks to go back to making stupid loans, then we should expect their loan balances to be shrinking. And to add to the irony, the democrats have attacked TARP recipients to the point that the nations largest lenders are desperately trying to repay the money. If we want these banks to be lending, does it really make sense to attack them until they feel forced to return capital? I don't think the democrats can have it both ways.
Even more troublesome (and that is saying a lot) is the amendment to the Wall Street Reform and Consumer Protection Act of 2009 that passed the House on Friday. The specific amendment I am referring to would allow a Congressional watchdog group to audit the Federal Reserve's monetary policy decisions. Lets think about that for just a moment. Do we want politicians to have a say in where interest rates are set? Do we want the Federal Reserve Governors to be making economic decisions based on their ability to defend them to politicians after the fact? I absolutely do not want that! Even more frightening, what about emergencies? Thinking back a year, who would I have wanted calling the shots when SIVs started to have trouble rolling their ABCP, and when auction-rate security auctions failed, and when dealers started raising haircuts on repo financing, and when the OTC derivative market faced the prospect of losing a major couterparty, and when a run started on money market mutual funds? Can you imagine your Congressman or Senator handling that situation better than the Federal Reserve? Politicians make decisions that are good for their constituents and that will get them re-elected (maybe not in that order). The independence of the Federal Reserve should remain firmly in place. The good news is that I am fairly confident that this politically driven amendment will be stripped out of any final bill, but the fact that it passed the House shocked me.
After talking about ironies, this will probably sound ironic. One the one hand, I think the current political environment (rampant spending, hostility toward financial institutions, and attacks on our free market institutions) is frightening and has the potential to spiral out of control. Even though I have not participated, I understand the unease which is driving investors to buy gold and make bets on hyper-inflation etc. While I share many of their fears, I still think this will most likely end well. The economy has a very long history of cyclicality and even the current political environment will have a hard time over-riding that pattern. As such, I think we are at the beginning of an economic recovery. Jobs are about to start returning on a net basis as inventories rebuild on firming consumer spending. Inflation is unlikely to rise given the excess levels of labor and production capacity. Aggregate leverage needs to come down and that will keep this recovery more modest than it otherwise would be, but that is okay. Based on that view, I still want to own stocks, not bonds.
With the jobs number approaching zero, I opened my Prosper.com account and am waiting on a CD to mature so I can fund it. These are risky unsecured consumer loans, but from a macro perspective, I think now is a good time to invest there. Job losses should decline which will lower the odds of default. Additionally, credit card companies are being forced to raise rates on their customers in anticipation of new government regulation that will prevent them from raising rates later. This means there are a lot of credit-worthy borrowers that could benefit from a Prosper.com debt consolidation loan and I intend to participate. I will also be looking to fund small business loans because I know many banks are still short of capital and can't make them. In both cases, I think there is disruption that creates opportunity. Again, these loans are risky, so make up your own mind on how much risk you can accept.
Thanks for reading and I can't tell you how happy I am not to be able to write about individual stocks anymore. This was fun, but having a job is better.
John
Tuesday, December 15, 2009
Saturday, October 3, 2009
Morgan Stanley is worth $40
I just bought some shares of Morgan Stanley on Friday which may surprise you given my comments about Goldman Sachs in prior posts.
But before I get into that, I had been selling some stock and my cash position was up to 15% of my portfolio. I was not unhappy with this position given my view that the market is fairly valued between 1000 and 1050 on the S&P500. The sells reflected some profit taking as well as an admission that I was wrong. For profit taking, I sold some of my Amerigon and Shutterfly shares which were purchased in March. I also sold Greenhill which I have written about before. The stock went up to over $91 and my price target was about $100 by the end of 2010. That only left me with a 7% compounded annual return to my price target, so I decided to sell and look for other ideas. I also sold my shares of Monsanto, which I had owned since last fall. I bought this stock without thinking very carefully about the valuation. The company's value proposition was very attractive to me and I bought some shares. As I re-evaluated the stock recently, I decided that the growth assumptions needed to justify the current price would be very hard for the company to beat. I sold and took a 30% loss as a result of my error.
I continue to be bullish longer term however and have been trying to find stocks that I think will perform well in an anemic recovery, which is the environment I expect to be investing in for the next two years at least. Morgan Stanley is one of the companies that I think can fulfill that role.
But why buy Morgan Stanley and sell Greenhill? Aren't they exposed to the same drivers? The answer is that they are exposed to a lot of the same drivers and I am aware of the possibility that Greenhill might go up much more than I think it should. Morgan Stanley is not the pure-play on the M&A cycle that Greenhill is, so investors are less likely to flock to it when looking to play that specific theme. However, Morgan Stanley is cheap and more diversified. Greenhill has already had a big run based on anticipation.
My valuation work suggests that Morgan Stanley is worth about $40 right now, but it trades under $30. That $40 intrinsic value should rise over time as the economy, M&A market, and broader markets go up. So I think there is 33% upside to intrinsic value and I think this is a company and stock that will have rising value to investors over the next several years.
Morgan Stanley has not come out of the recent crash with the same cache that Goldman and JP Morgan have. As the recovery fully sets in, I expect that sentiment gap between GS/JPM and the rest of the sector to narrow.
Regarding risk, I watched Bear, Lehman and Merrill fail to varying degrees and watched as Morgan Stanley and Goldman teetered on the edge for a few months. I also understand that we were watching a credit market that collapsed, intersecting with business models that had become increasingly leveraged and dependent on the credit markets. The good news is that I doubt we will see either MS or GS in a similar position for a very long time. While GS is expensive and almost universally adored, MS has almost identical drivers but is much cheaper. Right now, the credit market is comfortable supporting GS and MS largely because they are both bank holding companies and have the Fed as a backstop. While I think it is a joke to argue that MS and GS are banks, I also think the Fed will keep the status quo until the credit market is willing to fund them alone. It seems very unlikely that they will risk causing another scare right now given the fragile state of the markets and confidence. Basically, I am investing based on the belief that IF Morgan Stanley fails, it will be during the next crash. Since I think we are just coming off the last crash, I think the stock will outperform the markets for over the next 2-5 years.
But before I get into that, I had been selling some stock and my cash position was up to 15% of my portfolio. I was not unhappy with this position given my view that the market is fairly valued between 1000 and 1050 on the S&P500. The sells reflected some profit taking as well as an admission that I was wrong. For profit taking, I sold some of my Amerigon and Shutterfly shares which were purchased in March. I also sold Greenhill which I have written about before. The stock went up to over $91 and my price target was about $100 by the end of 2010. That only left me with a 7% compounded annual return to my price target, so I decided to sell and look for other ideas. I also sold my shares of Monsanto, which I had owned since last fall. I bought this stock without thinking very carefully about the valuation. The company's value proposition was very attractive to me and I bought some shares. As I re-evaluated the stock recently, I decided that the growth assumptions needed to justify the current price would be very hard for the company to beat. I sold and took a 30% loss as a result of my error.
I continue to be bullish longer term however and have been trying to find stocks that I think will perform well in an anemic recovery, which is the environment I expect to be investing in for the next two years at least. Morgan Stanley is one of the companies that I think can fulfill that role.
But why buy Morgan Stanley and sell Greenhill? Aren't they exposed to the same drivers? The answer is that they are exposed to a lot of the same drivers and I am aware of the possibility that Greenhill might go up much more than I think it should. Morgan Stanley is not the pure-play on the M&A cycle that Greenhill is, so investors are less likely to flock to it when looking to play that specific theme. However, Morgan Stanley is cheap and more diversified. Greenhill has already had a big run based on anticipation.
My valuation work suggests that Morgan Stanley is worth about $40 right now, but it trades under $30. That $40 intrinsic value should rise over time as the economy, M&A market, and broader markets go up. So I think there is 33% upside to intrinsic value and I think this is a company and stock that will have rising value to investors over the next several years.
Morgan Stanley has not come out of the recent crash with the same cache that Goldman and JP Morgan have. As the recovery fully sets in, I expect that sentiment gap between GS/JPM and the rest of the sector to narrow.
Regarding risk, I watched Bear, Lehman and Merrill fail to varying degrees and watched as Morgan Stanley and Goldman teetered on the edge for a few months. I also understand that we were watching a credit market that collapsed, intersecting with business models that had become increasingly leveraged and dependent on the credit markets. The good news is that I doubt we will see either MS or GS in a similar position for a very long time. While GS is expensive and almost universally adored, MS has almost identical drivers but is much cheaper. Right now, the credit market is comfortable supporting GS and MS largely because they are both bank holding companies and have the Fed as a backstop. While I think it is a joke to argue that MS and GS are banks, I also think the Fed will keep the status quo until the credit market is willing to fund them alone. It seems very unlikely that they will risk causing another scare right now given the fragile state of the markets and confidence. Basically, I am investing based on the belief that IF Morgan Stanley fails, it will be during the next crash. Since I think we are just coming off the last crash, I think the stock will outperform the markets for over the next 2-5 years.
Tuesday, September 22, 2009
A123 IPO - Risky but interesting
I have been trying to decide how much I am willing to pay for shares of A123 which is scheduled to issue shares for the first time (IPO) after market close tomorrow. As I noted in my last post, I am pretty excited about the whole battery sector and this has the potential to draw a lot more attention to the sector. Having said that, this is a risky investment case.
First, A123 is a battery company that makes Lithium phosphate batteries for use in consumer products (ex. cordless drills), vehicles (such as the Chevy Volt which they lost) and maybe the electricity grid. I am not a chemist, but my understanding is that Lithium phosphate chemistry has a better safety profile than Lithium Ion, but doesn't pack quite as much punch either.
Let me start with the risks, because they are more significant than I originally thought. First, if you buy this stock, you are expecting that Lithium phosphate chemistry will participate in the industry growth. Early indications were very good, but GM recently picked LG Chem over A123 to provide the batteries for the Chevy Volt car. Granted, this was just one car, but a company that was able to do much better analysis than I can do determined that A123 was not the best choice. I have heard that A123 may not have had the capacity in place to produce enough batteries and that was a big determinant of the outcome. I don't know if that is true. It could be more substantive issues.
Another big risk is that A123 is involved in a couple legal disputes over patents. A123 has an exclusive license from MIT for some nanotechnology used to make the lithium phosphate batteries. Evidently, there are some other patents that are in dispute. It is possible that A123 could be required to license additional patents which would be detrimental to their ability to turn a profit.
The last big risk really incorporates the others as well. A123 is not profitable right now. How much I am willing to pay for this stock depends a great deal on how soon they can break even, and how big future profits will be. These are difficult projections to make. I did end up buying shares of ENS which has an existing business that is profitable and offers some downside protection. A123 does not have that downside protection.
I hope you are reasonably nervous now. Despite those risks, this is also a company that has tremendous upside if it works. It is part of an industry that I think has huge growth ahead of it. To cut to the chase, I am going to try to buy some shares if I can get it under $9.00 per share.
To get that number I have to make some aggressive assumptions so hold on to your hats. First I think revenues will be $100m this year, then $175m in 2010, $350m in 2011, $525m in 2012 and continued high growth thereafter than gradually slows to 10% in ten years. More importantly, I am projecting an operating margin of -93% in 2009, -30% in 2010, break even in 2011, 5% in 2012, and 10% thereafter. I am expecting battery prices to fall by 8% per year.
If those revenue assumption seem crazy, consider this scenario. There are about 70m vehicles with internal combustion engines sold globally every year. If 5% of those have an advanced battery in 2012, A123 has a 2% market share, and they sell the battery for about $8400 each, that would represent revenue of $588 million in 2012. Of course we have almost no way of knowing whether they will miss or exceed those assumptions, but I don't think they are crazy. This does not include any revenue from the power grid or consumer products.
Under those assumptions, I think the company is worth $9.94 per share, assuming a share count of 111 million after the IPO. I think it is likely that there will be a sentiment multiplier on this stock of maybe 1.2 (people will get excited about this stuff). So this stock could easily trade to $12 per share under that scenario. Given the risks, I am not willing to pay a sentiment multiplier and would like to get it at a discount to my estimated intrinsic value. As such I will probably buy a below average position if I can get it below $9, or buy an average size position if I can buy it closer to $8. My guess is that this will be a very successful IPO however, so there is a pretty good chance I won't get a shot below $9. If you buy some, please remember that this is a stock that can go to zero easier than most, so control your risk with position size and be disciplined on what you pay.
First, A123 is a battery company that makes Lithium phosphate batteries for use in consumer products (ex. cordless drills), vehicles (such as the Chevy Volt which they lost) and maybe the electricity grid. I am not a chemist, but my understanding is that Lithium phosphate chemistry has a better safety profile than Lithium Ion, but doesn't pack quite as much punch either.
Let me start with the risks, because they are more significant than I originally thought. First, if you buy this stock, you are expecting that Lithium phosphate chemistry will participate in the industry growth. Early indications were very good, but GM recently picked LG Chem over A123 to provide the batteries for the Chevy Volt car. Granted, this was just one car, but a company that was able to do much better analysis than I can do determined that A123 was not the best choice. I have heard that A123 may not have had the capacity in place to produce enough batteries and that was a big determinant of the outcome. I don't know if that is true. It could be more substantive issues.
Another big risk is that A123 is involved in a couple legal disputes over patents. A123 has an exclusive license from MIT for some nanotechnology used to make the lithium phosphate batteries. Evidently, there are some other patents that are in dispute. It is possible that A123 could be required to license additional patents which would be detrimental to their ability to turn a profit.
The last big risk really incorporates the others as well. A123 is not profitable right now. How much I am willing to pay for this stock depends a great deal on how soon they can break even, and how big future profits will be. These are difficult projections to make. I did end up buying shares of ENS which has an existing business that is profitable and offers some downside protection. A123 does not have that downside protection.
I hope you are reasonably nervous now. Despite those risks, this is also a company that has tremendous upside if it works. It is part of an industry that I think has huge growth ahead of it. To cut to the chase, I am going to try to buy some shares if I can get it under $9.00 per share.
To get that number I have to make some aggressive assumptions so hold on to your hats. First I think revenues will be $100m this year, then $175m in 2010, $350m in 2011, $525m in 2012 and continued high growth thereafter than gradually slows to 10% in ten years. More importantly, I am projecting an operating margin of -93% in 2009, -30% in 2010, break even in 2011, 5% in 2012, and 10% thereafter. I am expecting battery prices to fall by 8% per year.
If those revenue assumption seem crazy, consider this scenario. There are about 70m vehicles with internal combustion engines sold globally every year. If 5% of those have an advanced battery in 2012, A123 has a 2% market share, and they sell the battery for about $8400 each, that would represent revenue of $588 million in 2012. Of course we have almost no way of knowing whether they will miss or exceed those assumptions, but I don't think they are crazy. This does not include any revenue from the power grid or consumer products.
Under those assumptions, I think the company is worth $9.94 per share, assuming a share count of 111 million after the IPO. I think it is likely that there will be a sentiment multiplier on this stock of maybe 1.2 (people will get excited about this stuff). So this stock could easily trade to $12 per share under that scenario. Given the risks, I am not willing to pay a sentiment multiplier and would like to get it at a discount to my estimated intrinsic value. As such I will probably buy a below average position if I can get it below $9, or buy an average size position if I can buy it closer to $8. My guess is that this will be a very successful IPO however, so there is a pretty good chance I won't get a shot below $9. If you buy some, please remember that this is a stock that can go to zero easier than most, so control your risk with position size and be disciplined on what you pay.
Thursday, September 10, 2009
Market Update and Batteries
I apologize for the delay making a post. I have been working through several ideas as well as continuing my job search. But maybe most important for me, I have been refining a valuation methodology that I came up with in grad school, but never really fleshed out. As I have been using it over the last few weeks, I have become increasingly convinced that the overall market is fairly valued between 1000 and 1050 on the S&P500. This is consistent with my prior view that the S&P would be up about 10% this year and another 20% next year. The S&P 500 is currently up about 15% ytd, so a little ahead of what I was expecting. Given that performance and my valuation work, I think the market is most likely to tread water for a quarter or two. The next leg up will need to be driven by real economic data which probably won't happen until well into 2010.
With that view, I think it continues to make sense to be invested in equities since the rally could start sooner than I think, but I think good stock selection or thematic ideas will be key to positive performance over the next few quarters (as opposed to just being in the market).
The theme I have been doing a lot of work on recently is batteries. Not the AA kind, but industrial batteries. There are two trends that are already in play that I think will have a long duration. First, I expect the percentage of vehicles sold around the world that have some level of hybrid capacity will skyrocket. It would not surprise me if hybrid/electric cars represent over 50% of the market within five years. Whether these cars are micro hybrid (use a battery to run functions when car is stopped), mild hybrid (that use a battery to assist the conventional engine), full hybrid (that occasionally use only a battery power to move), or Electric Vehicles (that don't have an internal combustion engine); I think the demand for advanced batteries for vehicles is likely to boom over almost a full decade. The second trend is toward using batteries to stabilize the electricity grid and to integrate alternative power sources into the grid. The existing grid is not good at storing power for peak periods of consumption. Furthermore, my understanding is that peak electricity demand is at about 7pm, but solar output is highest in the early afternoon and wind power is usually highest overnight. Large arrays of industrial batteries are a way to store power during off-peak periods and use it during peak periods. These batteries could be installed at the point of generation (for example, at a wind farm), or potentially in homes across the country (the batteries charge in your basement overnight and then run your AC in the afternoon).
There are a lot of competing technologies as you might expect. Lead acid has been around a long time and is what you use in your car. It is relatively cheap, but the batteries are heavy. There has been a new wave of R&D in this space to see if there can be improvements. If nothing else, it is a proven technology with well established recycling capacity for the lead. Some of that R&D has been toward Lead Carbon batteries, which replace the negative electrode with a carbon based material. This increases the life-cycle of the batteries, reduces their weight, and in some cases improves the speed at which they can be charged. Nickel based batteries are currently the most common in hybrid vehicles. They work pretty well, but there are concerns about the availability of nickel as an input commodity. Finally, lithium ion batteries are the coolest kid on the block. They are much lighter, have higher energy density, but cost a lot more. In addition, there are flow batteries, compressed air batteries, flywheel technology, sodium batteries, all of which are vying for acceptance.
At first, I was trying to determine which technology was likely to be the winner, but I decided that I don't need to. My best guess is that this trend is big enough to accommodate multiple technologies for various applications. The highest performance electric vehicles will probably end up using lithium ion, but mild hybrids can probably use lead carbon as a more economical solution. The power grid probably won't use lithium ion because it will be focused on economics and the cheaper, more established, solutions are more likely to win.
There are three stocks I have decided I like for now. SAFT is a french company (which makes it hard to buy in my brokerage account but maybe not yours) that has a very well established industrial and defense battery business. This offers good downside protection since that business probably won't go away even if my growth thesis doesn't play out. The interesting part is that they have a JV with Johnson Controls to build lithium ion batteries for the auto market. This is not generating a profit yet, but I think the potential is massive. I like this stock under 33 euros. I think SAFT has a great balance of downside protection and a great chance of capitalizing on the lithium ion wave, but I probably won't be buying it unless I switch brokers.
Enersys (ticker ENS) is another established industrial battery company based in the US that is also doing work on lithium ion batteries. Again, their established business provides some downside protection and I think they are especially well positioned to win business from the electricity grid thesis. I like this stock under $25. I currently have a limit order in trying to buy it at $20.10. This is my favorite idea given the low growth assumptions needed to make $25 look attractive.
Finally, Axion Power (ticker AXPW) is a micro cap company that has a lead carbon technology. This one is much more risky because they do not have an established business so you are completely dependent on dramatic growth for their new technology. They lost money in the most recently reported quarter, but they also recently signed some contracts with Exide to provide the carbon electrodes. I just listened to a conference webcast today and it sounded to me that their biggest obstacle is increasing their capacity. Having said that, this one is tricky to value because the range of outcomes is simply massive. I am hoping to buy it closer to $2 per share. For now, I'm watching it and continuing to do more work on it.
With that view, I think it continues to make sense to be invested in equities since the rally could start sooner than I think, but I think good stock selection or thematic ideas will be key to positive performance over the next few quarters (as opposed to just being in the market).
The theme I have been doing a lot of work on recently is batteries. Not the AA kind, but industrial batteries. There are two trends that are already in play that I think will have a long duration. First, I expect the percentage of vehicles sold around the world that have some level of hybrid capacity will skyrocket. It would not surprise me if hybrid/electric cars represent over 50% of the market within five years. Whether these cars are micro hybrid (use a battery to run functions when car is stopped), mild hybrid (that use a battery to assist the conventional engine), full hybrid (that occasionally use only a battery power to move), or Electric Vehicles (that don't have an internal combustion engine); I think the demand for advanced batteries for vehicles is likely to boom over almost a full decade. The second trend is toward using batteries to stabilize the electricity grid and to integrate alternative power sources into the grid. The existing grid is not good at storing power for peak periods of consumption. Furthermore, my understanding is that peak electricity demand is at about 7pm, but solar output is highest in the early afternoon and wind power is usually highest overnight. Large arrays of industrial batteries are a way to store power during off-peak periods and use it during peak periods. These batteries could be installed at the point of generation (for example, at a wind farm), or potentially in homes across the country (the batteries charge in your basement overnight and then run your AC in the afternoon).
There are a lot of competing technologies as you might expect. Lead acid has been around a long time and is what you use in your car. It is relatively cheap, but the batteries are heavy. There has been a new wave of R&D in this space to see if there can be improvements. If nothing else, it is a proven technology with well established recycling capacity for the lead. Some of that R&D has been toward Lead Carbon batteries, which replace the negative electrode with a carbon based material. This increases the life-cycle of the batteries, reduces their weight, and in some cases improves the speed at which they can be charged. Nickel based batteries are currently the most common in hybrid vehicles. They work pretty well, but there are concerns about the availability of nickel as an input commodity. Finally, lithium ion batteries are the coolest kid on the block. They are much lighter, have higher energy density, but cost a lot more. In addition, there are flow batteries, compressed air batteries, flywheel technology, sodium batteries, all of which are vying for acceptance.
At first, I was trying to determine which technology was likely to be the winner, but I decided that I don't need to. My best guess is that this trend is big enough to accommodate multiple technologies for various applications. The highest performance electric vehicles will probably end up using lithium ion, but mild hybrids can probably use lead carbon as a more economical solution. The power grid probably won't use lithium ion because it will be focused on economics and the cheaper, more established, solutions are more likely to win.
There are three stocks I have decided I like for now. SAFT is a french company (which makes it hard to buy in my brokerage account but maybe not yours) that has a very well established industrial and defense battery business. This offers good downside protection since that business probably won't go away even if my growth thesis doesn't play out. The interesting part is that they have a JV with Johnson Controls to build lithium ion batteries for the auto market. This is not generating a profit yet, but I think the potential is massive. I like this stock under 33 euros. I think SAFT has a great balance of downside protection and a great chance of capitalizing on the lithium ion wave, but I probably won't be buying it unless I switch brokers.
Enersys (ticker ENS) is another established industrial battery company based in the US that is also doing work on lithium ion batteries. Again, their established business provides some downside protection and I think they are especially well positioned to win business from the electricity grid thesis. I like this stock under $25. I currently have a limit order in trying to buy it at $20.10. This is my favorite idea given the low growth assumptions needed to make $25 look attractive.
Finally, Axion Power (ticker AXPW) is a micro cap company that has a lead carbon technology. This one is much more risky because they do not have an established business so you are completely dependent on dramatic growth for their new technology. They lost money in the most recently reported quarter, but they also recently signed some contracts with Exide to provide the carbon electrodes. I just listened to a conference webcast today and it sounded to me that their biggest obstacle is increasing their capacity. Having said that, this one is tricky to value because the range of outcomes is simply massive. I am hoping to buy it closer to $2 per share. For now, I'm watching it and continuing to do more work on it.
Wednesday, August 5, 2009
Two sells
I shared some of the stocks I purchased and thought I should share when I was selling them. In the last couple days I sold about 40% of my CLWR shares at $8.96. I had put in a limit order to sell 40% of my shares at a 50% gain and that order executed. Yesterday, I sold about a third of my PFG shares at $25.81, also with a limit order I had in place. This was the second tranche of PFG shares I sold. I bought the shares at the bottom of the market in March and I sold a third when it doubled and another third when it tripled. I actually like this company, so I still have a third of my original shares and need to decide if I want to keep it as a longer term holding, or set another limit order.
I also forgot to mention that I bought some HSBC ADRs (ticker HBC) in late June at $42.13. This was largely a macro purchase. I have been an admirer of the bank for a long time and decided to use some of my idle cash to buy shares. The stock pays a good dividend that I think is more likely to go up than down over the coming years. They are one of the best positioned banks in China and in emerging markets around the world. Because I am generally bullish, I decided a diversified global bank could be a long term holding. I do not have any limit orders in to sell this stock and plan to hold it for a long time. I think of this a core holding that I will probably add to over time. Lastly on HBC, the US is both a black eye and huge opportunity in my opinion. For investors in the stock, HSBC's entry into the US consumer lending business turned out to be ill-timed and a very costly mistake. At this point, I am willing to bet that most of the losses from that portfolio have been taken. Longer term, the US is really an opportunity for HSBC. Despite being one of the largest banks in the world, most Americans have never heard of it. They have a fledgling retail and private banking presence in a few large cities, but it represents a rounding error.
I am also using HBC as a way to improve my skills analyzing non-US companies, so I will make a more detailed post on this stock in the future.
I also forgot to mention that I bought some HSBC ADRs (ticker HBC) in late June at $42.13. This was largely a macro purchase. I have been an admirer of the bank for a long time and decided to use some of my idle cash to buy shares. The stock pays a good dividend that I think is more likely to go up than down over the coming years. They are one of the best positioned banks in China and in emerging markets around the world. Because I am generally bullish, I decided a diversified global bank could be a long term holding. I do not have any limit orders in to sell this stock and plan to hold it for a long time. I think of this a core holding that I will probably add to over time. Lastly on HBC, the US is both a black eye and huge opportunity in my opinion. For investors in the stock, HSBC's entry into the US consumer lending business turned out to be ill-timed and a very costly mistake. At this point, I am willing to bet that most of the losses from that portfolio have been taken. Longer term, the US is really an opportunity for HSBC. Despite being one of the largest banks in the world, most Americans have never heard of it. They have a fledgling retail and private banking presence in a few large cities, but it represents a rounding error.
I am also using HBC as a way to improve my skills analyzing non-US companies, so I will make a more detailed post on this stock in the future.
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