Thursday, June 27, 2013

Red Islands in a Sea of Green!

Today's third straight day of triple digit gains in the Dow painted the screens in green, but for a few exceptions that didn't get the rally memo.

For one, Paychex (PAYX), who reported earnings today, missed expectations and guided lower.  The market was merciless!  How much more of a beating it takes should be watched closely, especially considering its debt-clean balance sheet and the prospect for further improvements in employment growth as the US economy continues to recover.

Next..Walgreen (WAG), which got tagged the other day due to missed earnings, continues to struggle to find its footing.  Their reconciliation w/Express Scripts last year and their acquisition of the Boots chain in Europe were powerful forces pushing the stock higher until the recent earnings miss.  Question:  Was the recent miss enough of a negative to offset all of the positive features from the Express Scripts and Boots deals that were touted as long-term strategic game-changers???

Next...Gold....and/or related companies.  In this case, Yamana Gold (AUY), whose core business is in gold and copper, has gotten shellacked along with the trashing of the underlying metals.It had a bit of a bounce today, despite gold losing further ground.  Question:  Is this a bounce that will hold?  If not, how much more of a beating does it deserve?  Is the dividend secure?  Is the current pressure on metals enough to wipe out longer term demand, especially with regard to copper, from commercial activities around the globe?  
While contemplating those questions, consider this response that I recently made to a query re gold:

I don’t own physical gold.  And I got out of miners a long time ago, and lightened up on gold/copper related companies.  The selloff has been dramatic!  And definitely smells of more than a fundamentally driven move….I am confident that all the folks who when gold was 1,700/oz were calling for 2,000, were long and wrong and are now selling aggressively as the margin calls come in!
I’m eyeing it here as a buy, though I’m more likely to add to a company in the space.  I’ve owned Yamana (AUY), to varying degrees, for some time.  I’m looking at buying more at or around these levels.  (chart below).  But I want to wait for the final ‘whoosh’ of wrong-levered-longs who are selling out.  Feels like we could be close….
While Yamana (AUY) is my only direct gold/copper related holding currently, I do have other stocks in that sector (Materials) that have fared better.  MeadWestvaco (MWV) which used to thought of as a paper company, is really a specialty packaging company for all kinds of products, having sold off their paper division.  They own lots of land and lumber, which while lumber prices currently have been hurt, over time should play well w/the housing rebound.  Also, Nucor (NUE) a steel company in the US….again, as the economy improves in the US (which seems more likely than in other places on the planet), NUE stands to benefit from that….and also to be less vulnerable to the usual Chinese steel dumping in Asia that often compresses steel prices.  I also have NewMarket (NEU) which is a specialty chemicals company that makes all kinds of additives for engines that improve performance and gas efficiency…this is especially key as global growth particularly in EM countries is dependent on machines running well and being sparing on expensive gasoline and oil.
My overall weighting in Materials is roughly 6%+/-.  I’d like to take that up a bit, but want to see more of a solid base develop, rather than the maniacal swings of the past couple of days.

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(Please note: This article is solely meant to be thought provoking and is not in any way meant to be personal investment advice. Each investor is obligated to opine and decide for themselves as to the appropriateness of anything said in this article to their unique financial profile, risk tolerances and portfolio goals).
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Additional Disclaimer: currently long many stocks/ETFs including AUY, MWV, NUE, NEU, MCD, PAYX.  Positions may change at any time without notice.

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