Best Calls of 2013

Guys,

It aint over till it’s over. I wanted to list out the stocks that made me some GREENS last year.

celg

Celgene, CELG – Until last week, this was a rockstar find.  7 straight up quarters with 25%+ earnings. Result, the stock went from below $100 to upto $170. Last week’s uneventful earnings coupled with the bad press has pushed down the stock. I got rid of 50% holdings once the 50 DMA was breached. I might drop all because my portfolio is biotech  heavy.

CMG

CMG, Chipotle Mexican Grill, a household name with outstanding profits. Now tell me how many retail/restaurants can boast that the quarter of Christmas/Holidays, its same store sales went up by 9.3% – !@#$%^&*( – I mean seriously!

I unloaded all of them at $503, when I realized that the twin peak’s floor would give away. But a day before earnings, at $480, which was the support, I decided to get my foot in again. Boy, was that a sexy call!!!!!

EWBC

East West BanCorp, EWBC – Hey, I aint Chinese and neither do I live in west cosast. So why EWBC? It’s no rocket science – when the world was crumbling, when all the banks were falling apart, there was a bank near the china town of San Francisco, EWBC. The bad loan on its books was miniscle compared to behemoths such as JPM, BAC, etc. The feds went to the extent to coerce it to buy its larger compititor to become the biggest bank in California apart from being a bridge to Beijing.

I first owned this bank at $8. It still continues to be the flag bearer bank. Recently, EWBC closed the purchase of the metropoliton bank in Houston, thus expanding its foot print.

FB

FB, FaceBook – Shall I say less!! My priniciples are the only reason I have had the hefty profit in this company even though I havent logged into FB since ages. Passion for work, stocks and helping NPOs takes it’s own toll.

I bought it at $33 and added & sold some multiple times. The breakthrough of making money via mobile adversting has been the recipe of succcess for FB. In its last quarter FB made 60% of its earnings through mobile adverstising.  FB needs to diversify else it will end up like GOOG, which also had 22% increase in adverstising revenue. But for now FB is good.

FLT

Fleetcor, FLT – Organic or inorganic, the numbers paint the true picture. This company has been growing at a brisk pace.

GILD

GILD , Gilead Sciences – Is this my poster stock? Maybe, I have owned it for two year and have sold and bought it multiple times. This might be the most profitable stock I ever owned. Look at its drug pipeline. I will quote an analyst – Gilead will annihilate the last quarter’s numbers and thus head to $100.

PCLN

PCLN, Priceline, another profitable trade, that I still own. I sold some recently.

In a nushell, these were some of my best calls of 2013!

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Top Performing Stocks in Last 3 Months

Some of prime criteria used to filter these stocks are – the outstanding earnings growth (annually or quarterly) and revenue growth annually. I also restricted the price change to 35%.

The reason for filtering out this universe of stocks –

Next time when the market corrects some of these stocks will either buck the trend or bounce off the 50 DMA. The stocks that withstand the BEAR will go sideways with movement at least 1.5 times the market correction. I don’t need to explain the technicalities of 50 DMA bounce. So make a list of these stocks and wait for Mr. Market to take a breather.

TopStocksInLast3Mons_1

TopStocksInLast3Mons_2

Random Walk and Un-Random Talk!!!

Before we get to the exciting part of portfolio holdings as of today, let’s talk about couple of not so mundane stuff.

People are bothered, puzzled, surprised and whatnot (is it even a real word?) about the market. Every now and then I am being asked – Why is the market going up? In fact the more ubiquitous question is – Why did the famous (or shall I say the infamous) sequestration  and the forth coming budget talks not stall the markets?

Surprise

My dear fellow investors, I know there has been lot of noise about the unemployment and the sluggish growth  but everyone is forgetting that the housing industry, the pillar that has historically pulled US out of recession, has turned the corner. It has finally started contributing to the economy. There are cities in US like San Francisco, Phoenix and believe it or not – Austin – where the houses are selling faster than the pancakes at IHOP and they are getting pricier (FYI – I meant houses).

Moreover the stock market is a leading indicator of economy’s health in future (4 to 6 months down the line). I guess currently Mr. Market is discounting the shenanigans and gobbledygook of Mr. Washington.

Anyways, I enjoyed the ride and hopefully you did too. Apart from the employment data, there is no significant data coming up in next few weeks that will derail this rally.

Note of caution – Currently the PE(ttm) of $SPX stands at 17.5. Last year it was 15.5 and historical mean value has been 15.5. This doesnt really bar $SPX from reaching 20 but around this number, we have seen strong pullbacks in the past.

SPX_PE

Switching topic.

Over the weekend I read that Mr. Buffett was unhappy with the Berkshire’s returns. Now talk about ‘Subpar’ performance. YTD out of outstanding 27000 mutual funds only 1000 mutual funds have been able the beat the Dow Jones. This would even surprise the Dad of the baby posted earlier.

FundsBeatMkt

But this was not the most interesting thing that I read in the Journal. What really caught my eyes was an article by Jason Zweig – Have Investors Finally Cracked the Stock Picking Code?

Come on Intelligent Investor!!! Is it as simple as Kramer cracking George Costanza’s secret code? (Damn! Posting youtube video used to be free.)

Don’t the numbers speak for itself – 979/26500. Do you really think that using GROSS MARGIN to evaluate a company in addition to the Net Income will make every trader a crystal ball reader like the pretty lady below? I will leave it up to you, the Intelligent Investors, to decide.

CrystalBall

I will talk about my portfolio and it’s YTD performance tomorrow. Till then happy trading! Adios. And don’t forget to get my stock tweets @sumeetvats

Are the Homebuilders Overvalued?

After celebrating the turnaround in the housing, let’s look at some of the housing stocks. The inventories are at the rock bottom and there is pent up demand in the market. We will get deeper insight when 6 Home builders report their quarterly earnings in the coming week. So should we dip our toes in to profit or pull our money out?

ITB

Not really my dear friends. Overall, home-builders have dramatically outperformed the stock market in the last year. Pulte Group (PHM) shares have nearly tripled in price; And Ryland (RYL), Standard Pacific (SPF) and MDC Holdings (MDC) have doubled in value. As a matter of fact shares of Lennar (LEN) rose 97% and DR Horton (DHI) increased by 57%. But one thing to remember is – PulteGroup fell 69% in 2007, Lennar lost 66% in 2007 and then 52% in 2008, and DR Horton stock declined 50% in 2007 and 46% in 2008.

As Lombard Street Research analyst Melissa Kidd notes, home-builders’ profits have actually risen faster than their prices, and their net profit margins are higher than pre-crash peak levels. Let’s look at the gross margin.

GrossMargin_HB

As you can see that the gross margin of the giant Pulte and the whole sale builder DR Horton are at their pre-crash levels. But the operating margins are not there yet.

OperatingMargin_HB

All these recovery in the margins and the earnings are sans the fact that home prices are up by just 7% Year-Over-Year. Most of the analysts might concur that the recent stock price rise have all the earnings rise (see below) and the future profits baked in.

EPSchange_HB

Let’s analyze some companies whose stock prices have sky rocketed in last few months.

Even after PulteGroup’s run-up, its price-to-forward-earnings ratio is 17.7, according to FactSet; revenue for 2012 is estimated at $4.7 billion, while this year it’s expected to climb to $6.1 billion.Meanwhile, Lennar’s stock is trading at 23.3 times forward earnings, with its financial year 2012 revenue of $4.1 billion estimated to grow to $5.4 billion. It’s a similar story for DR Horton, which has a price-to-forward-earnings ratio of 21, and is expected to see its $4.4 billion FY2012 revenue grow more than 25% to about $5.6 billion. Let’s look at the historical PE comparison.

PE_HomeBuilders

Juxtaposing all the premium home-builders in US, it is easy to conclude that the mean P/E multiple was around 10 before the boom and the bust. But now the scenario is different. Even though we are far off from the peak of new home sales of 1.3 million in 2005, the new home sales are growing at brisk pace in last 5 quarters. Expectations for housing starts and new home sales are both in the 20 percent range for 2013. So a forward P/E of 23 for a growth in excess of 25% is acceptable.

Recently Lennar announced its earnings.  The Florida-based builder crushed estimates as fourth-quarter earnings more than tripled on 42% higher sales. Lennar’s new orders rose 20% and its order backlog was up 35% as of November.  Lennar CEO Stuart Miller said in the company’s earnings announcement that the housing market is stabilizing, “driven by a combination of low home prices and low interest rates, making the decision to purchase a new home more attractive.”

Similar expectations are for DR Horton and Ryland homes. The 24 analysts polled by Thomson Reuters expect Horton to report fiscal first-quarter earnings per share of 14 cents, a 56% rise from last year’s 9 cents. Sales are seen advancing 21% to $1.1 billion. Ryland is forecast to report a huge jump in Q4 EPS to 49 cents, up from 2 cents a year ago. Revenue is projected to grow 55% to $404.4 million.

“Just because the stocks are overvalued doesn’t mean they are not going to go up more,” says David Goldberg, a housing analyst at UBS. “It’s a momentum play.” Goldberg warns, however, that there is a lot of growth baked into these stock valuations for 2013, expectations that may be tough to meet. This uptick might not be at 45 Degree angle and might have pauses but the time is not to cash out of them.

Let’s hold onto them and add some more during pullbacks. So which are the companies that are worth adding to the portfolio. Based on the operating margins, earnings growth and PE ratios (historical, TTM and Forward) I believe Lennar and DR Horton are the best of the pack. I would also like to mention TOL. But please don’t buy anything now. Be patient and wait for pull back to 50 DMA. Why DHI and LEN? We will talk about it in the next post.

Lastly, if you don’t feel comfortable buying these home builders, you can own the Home Builders ETF (ITB). Another way to play housing recovery is by buying companies such as Home Depot (HD) (re-modeling,  new home set up etc.), Sherwin-Williams (SHW) (Paints), Tronox Inc (TROX) (Pigment for paints) and Corelogix (CLGX) (Mortgage related information provider).

BREAKING OUT – 01/25/2013

With the bull still wild, we have another good set of promising breakouts.

TPX

Before we go anywhere let’s look at a breakout we talked about yesterday. Interestingly, GAAP EPS of $0.39 for Q4 were 54% lower than the prior-year quarter’s $0.84 per share. For the quarter, gross margin was 50.0%, 210 basis points worse than the prior-year quarter. Operating margin was 15.0%, 840 basis points worse than the prior-year quarter. Net margin was 6.9%, 850 basis points worse than the prior-year quarter. Decreased 7.01% to $342 million from the year-earlier quarter.

But it did one thing right – The EPS of $0.60 a share, beat the $0.55 average analyst estimate. Revenue of $342 million also beat the $339 million estimate. Result-

TPX

The surprise of the day is a break out of good ole Proctor and Gamble. Earnings is the driver for this BO. Kudos to the management’s effort, the Adjusted gross and adjusted operating margins popped 110 basis points to 51.2% and 20.0%. Underlying second-quarter sales ticked up 3% year over year–on top of a 4% increase in last year’s second quarter–including a 5% jump in baby and feminine care, 4% in health care, and 3% in fabric and home care.

PG

CHUY: Fast growing TexMex joint broke out today. But there is a road bump right ahead. I entered it at $26.4 today.

CHUY

HAL: Been a long time favorite of mine – Halliburton. It broke out today. I have owned it since it’s early 30s. I would wait for some consolidation before entering now due the run up it had in last two months.

Today’s BO was due to better than expected earnings. All three of Halliburton’s international regions and 8 of its 12 product lines set new revenue records. Sequentially, the Middle East/Asia region increased revenue 14% to $1.2 billion, and in the Europe/Africa/Commonwealth of Independent States region, revenue increased 8% over the same time frame to $1.2 billion as well. Overall, Halliburton’s international operating margin improved to 17.6% from 14.6% in the prior quarter. But the picture was exactly opposite in US. The revenue dipped 5% sequentially to $3.8 billion while adjusted operating income declined 22% over the same time frame to $465 million. The operating margin for the region declined to 12.4% from 14.1% last quarter, still above Baker Hughes’ BHI 8.7%. Overall the revenue was up 3% YoY.

HAL

Other key breakouts have been – PCLN (Priceline), ROSE (Rosetta Resources – Need to compare this with CLR), TEX (Terex), THO (Thor Industries) and CPWR (Compuware – a prime recruiter in Detroit Area.)

Break Out Watch List – KORS, JOBS, ISRG, MDVN, CTRX, LL and LNKD.

Lastly, what happens when you miss the estimates by miles –

SCSS

Analysts polled by FactSet expected the company to earn 32 cents per share on revenue of $229.8 million.

Net income fell to $12.5 million, or 22 cents per share, for the period ended Dec. 29. That compares with $15.4 million, or 27 cents per share, in the same quarter last year. Select Comfort’s total revenue increased 17 percent to $220.6 million. Select Comfort expects to earn between $1.65 and $1.80 in fiscal 2013 fiscal. Analysts forecast $1.89 per share.

Well, you get pummeled!

SCSS

I initiated a short at $23.5 with stop at $24.5. Now I will close it at $21. This being a bull market. I think any short is a risky proposition.

Portfolio as of 9/16/2012

My portfolio hasn’t changed much over last few weeks (again MUCH is a relative term;)). But first let’s pledge our allegiance to Mr. Bernanke,the great savior of the markets. Mr Bernanke came out once again to mitigate the impact of bad job numbers. I guess sooner or later Bruce Wayne will have competition.

Four weeks ago I told my colleague that I am seeing very strong buy signals. In last four years I have seen such signal fail only twice. So I went all in! WooHoo!!

I added eight new stocks and two ETFs to the portfolio in last month. I also got rid of EQIX at $199. I am thinking of adding ULTA and getting back into EQIX – Nothing as of now. I will talk about them in details in the next post.

I sold TFM due to the breakdown. I also bought and sold CRUS – bought it at $35.5 and sold it at $40.1. I am surprised by it’s move to $45 – apple effect. I also unloaded STX after a long time. I plan on hanging on with only one high beta disk drive company.

Some people might say that I own a lot of stocks but I have been tracking most of these companies for over 3 years and buy and sell signals are generated by programs. I own a lot of stocks because I dont want to overexpose myself to anyone company. The companies that I own is a mix of fast growers and slow growers (called GARP). There are handful of value stocks as well such as APA, F, HAL, etc.

Please talk to me before jumping in because we are due a 4 to 5% correction before the Santa Claus rally starts. Also being an election year, the market has to end in positive (+16% isn’t too bad either). What I mean is that we might remain flat for rest of the year. Lastly, I plan on taking some profits off the table by selling some ALXN, UA,LNKD, JPM, etc.

You can see my previous portfolio update here.

Cash=2%.

SLV=3% (Entered at $29.5)

GLD=5% (Entered at $160.5)

LNKD=5% (Entered at $101 and some at $113.5)

UTHR=5% (Entered at $53.5)

KORS=4% (Entered at $51.5)

NOV=4% (Entered at$77.5) (Price target is $100 and I plan on adding more after $86)

ARUN=4% (Entered at $19.5) (Price target is $25)

CLR=4% (Entered at$76.5 and added more at $80.2) (Price target is $95)

JPM=4% (Entered at $33.9) (Price target is $45)

DG = 5% (Enetered at $51)

WWWW=3% (Entered at $17.5 AND Will add more after $20)

EMC = 4% (Expect it to reach $29.5) . Reasons for purchase.

AAPL = 4% (Set more buy @ $630)

WDC = 4% (Expect it to reach $49.5) Why Did I buy?

QCOM=5% (Expect it to reach $69, if it stays over $59 for few more days) Why Did I buy?

APA=3% (Sold some at $88) Reasons

HAL =6% (Expect it to reach $40) Reasons

UA=4% (Set additional buys @ $54.9) Reasons for purchase. (I missed the doubling oppurtunity)

SCSS=4% (Set additional buys at $25.9) Reasons for purchase. (This is sleep number mattress which I entered at $26.1)

SWKS=4% (Will add more at $25.9) Reasons for purchase. I am very disappointed with it’s price action. I don’t know what market expects of this company even after Iphone 5 release.

ALXN=6% Reasons

FFIV =3% (In Red) Reasons

F=5% (In Red) – Worst Mistake Ever

Ready to Fold some – Portfolio as of 08/13/2012

I guess it’s time to take some profits my friends. Cash = 25%. Portfolio as of 08/03/2012

I still see opportunities such as LNKD@$102, MELI @$84, TDC@75.1, ROST@65, DKS@50.5, HIBB@63  and UTHR@52.1. But I would suggest that purchases of ROST, DKS and HIBB should be avoided till the earnings are out.

Earning’s gain. See CRUS below.


Earning’s Pain. See Priceline below.

If you can take a hit please feel free to buy 50% position in ROST and DKS.

JPM=3% (Entered at $33.9)

DG = 5% (Enetered at $51)

TFM=5% (Entered at $59.5)

WWWW=3% (Entered at $17.5 AND Will add more after $20)

STX = 1% (Sold some at $33.1). Why Did I buy?

EMC = 4% (Expect it to reach $29.5) . Reasons of purchase.

AAPL = 4% (Set more buy @ $569)

WDC = 6% (Expect it to reach $49.5) Why Did I buy?

QCOM=5% (Expect it to reach $69, if it stays over $59 for few more days) Why Did I buy?

APA=3% (Sold some at $88) Reasons

HAL =5% (Expect it to reach $40) Reasons

UA=3% (Set additional buys @ $54.9) Reasons of purchase.

SCSS=2% (Set additional buys at $25.9) Reasons of purchase.

SWKS=4% (Will add more at $25.9) Reasons of purchase.

EQIX=5% Reasons of purchase.

ALLT=4% – Will it miss next quarter’s earnings?

ALXN=6% Reasons

FFIV =3% (In Red) Reasons

F=5% (In Red) – Worst Mistake Ever

TLT=2% (Sold most TLT last week)

Lastly, I got this in the email today morning –