50% GAINS PORTFOLIO – DECEMBER 14
KEY RATIOS:
TECH – 15%
NON-TECH – 85%
CASH – (-1%)
OPTIONS – 1.5%
BONDS/CONVERTIBLES/PREFERREDS – 10%
IN: CPE (5.72), CUB (18.7), ACAS Jan 22.5 calls (.45)
OUT: HSIC, SKX, NXTL bonds
REDUCED POSITION: None
ADDED MORE: WTM, LUK, GIGM
TOP TEN: MAXF, TWTC (shares and bonds), LUK, WM, FBR, ING (shares and calls), UHS, UB, WMB_pi, ODFL. **Percentage of total portfolio: 50%. Top five holdings: 31%. Total portfolio: 34 companies (stocks, options, bonds, funds and shorts).
CURRENT SHORTS AND PUTS: Sold covered calls: UB Dec 45, UHS Dec 50, XJT Dec 12.5
SECTORS: Finance 46%, Energy 12.5%, Transportation 9%, Healthcare 6%, Broadcasting 4.5%, REIT 4.5%, Europe Fund 3.5%, Business Services 3.5%, Communications Services 3%, Bonds 2.5%, Communications Infrastructure 2.5%, Defense 2%, Software 1%, Internet .5%, Cash -1%.
**Quicken 2002 calculates sector %’s as a total of all investments, including margin. Total Sectors plus/minus Cash will equal 100%.
HOLDINGS:
CATEGORY - STOCK (COST BASIS updated periodically to reflect averaging into positions)
FINANCE - ACAS Jan 22.5 calls (.45), ACGL (18.31), AMG (54.77), ET (3.33), FMT_p (18.25), ING (16.75), ING Apr 20 calls (.65), LUK (39.91), MAXF (3.48), QBEIF (3.35), UB (38.9), WM (33.5), WTM (300)
ENERGY – CPE (5.72), EENC (4.76), EPD (18.74), RRI (2.65), WMB_pi (7.69), XTO (22.6)
TRANSPORTATION - EBKR (11.52), ODFL (25.5), SKYW Apr 12.5 calls (3.7), XJT (7.96), XJT Jan 12.5 calls (.35)
HEALTHCARE - KIND (18.2), UHS (44.79)
BONDS - TWTC 2011 bonds (50.75)
BROADCASTING - L (8.61), L Jan 10 calls (1.10), MOVI (17.69)
REIT - FBR (8.89)
EUROPE FUNDS - IRL (9)
COMMUNICATIONS SERVICES - TWTC (1.08)
COMMUNICATIONS INFRASTRUCTURE - CAMP (4.05), UTSI Feb 22.5 calls (.85)
DEFENSE - CUB (18.7)
BUSINESS SERVICES - MMPT (2.51)
SOFTWARE - KCARF (.74)
INTERNET - GIGM (.57)
**Monthly update on YTD performance: November 30, 2002: -1.5% YTD.
Dow -11% YTD, SP500 -18% YTD, NASDAQ -24% YTD.
COMMENT– Last month I asked: “So can everyone stop worrying and look forward to the “new bull market”? One month later, we are closer to a positive answer.
The markets were more confident than I was in November; the slowpoke DJIA and SP500 each rose 5-6% while the short-fueled NASDAQ bounced 11% off the October close. The mystery for many market observers was why, since most of my earlier concerns are still very real.
A few bright spots emerged on the economic data scene. Revised US Q3 GDP was stronger than expected, jobless claims seem to be dropping week to week, durable goods orders came in above estimates and a regional manufacturing index reversed to a slight growth reading from the previous contraction. Put them all together and we may have the beginnings of a recovery. At a minimum, the double-dip recession argument looks less convincing. That gives the broader markets more confidence.
The sudden tech stock bounce is harder to justify. Stocks in previously vibrant areas like enterprise software and storage are doubling off the October lows. But apart from Intel announcing new pricing power in selected sectors, the overall tech-spending picture remains grim. Fortune 500 CIO’s showed no indication of increasing their 2003 spending much over the bleak 2002 level.
Suddenly the tech leaders are “priced to perfection” again, opening the NASDAQ to another early spring drop like we saw in 2002.
Much of the sudden gains in beaten-up tech stocks are simply a “short squeeze” fueled by thousands of new hedge funds in the US shorting every tech stock they could find from July to October; once these low-float stocks began to turn, many rookie hedge fund managers discovered that not everyone can cover their short positions at once without generating serious upward squeezes in share prices. The early birds win, and the “bagholders” pay the price, just like sticking around too long on the long side of tech from 2000-2002.
I don’t like the risk/reward ratio in buying the worst stocks in their darkest hour. Too often, “oversold” stocks continue to go lower and become more oversold. Especially when there is no fundamental reason for a quick 100% gain in market value except a short squeeze. I leave the “casino” to the hardcore risk traders.
We did pick up a few excellent value plays in the tech world amid the wreckage. California Amplifier (CAMP) is a still-profitable DBS satellite antenna components manufacturer that feeds the growing satellite TV market in the US and abroad. The shares we bought at $4 are now trading comfortably in the mid-5’s with the potential to add another 50% if the markets hold up. Time Warner Telecom (TWTC) is a survivor of the telcoms deregulation bloodbath with a strong balance sheet and sharp management. Their shares were a steal at $1 and still cheap in the $2 range if TWTC continues to execute well.
In the large cap arena, Liberty Media (L) is emerging as a mini-Berkshire Hathaway in the media world. CEO John Malone blends strong operating properties in the cable TV world with a portfolio of high-quality media stocks and enough cash and credit to buy distressed cable and broadcasting properties that less-prudent “debt bomb” media companies are selling in a panic. The L shares that recently traded in high single digits now go for $10 with potential to reach their 2002 highs in the mid-teens again next quarter.
I am still not taking the high-risk road with my own portfolio or my clients. Over time, careful investing produces solid returns above the market averages much more reliably than hot streak-cold streak garbage chasing.
November was another solid step on the road to recovery for a battered market. Now we will see if the markets can close the year with three winning months in Q4 2002. |
