Thursday, July 10, 2014

Soos Global Investor Portfolio Updates: AEO, DE, CAT, BTN

Fyi….Position update…..In addition to periodic global-macro posts to this blog, we occasionally share position updates that are routinely shared with our investors.  These comments are absolutely not meant to be investment advice and readers are reminded that all comments posted here are for information and entertainment purposes only!  Any commentary, especially those that include specific mentions of 'buying' or 'selling' or 'positions', is made solely for those limited informational and entertainment purposes, and NOT as advice.  While we will be sharing some detail on changes made to our portfolios, it's important to consider that our portfolio decisions are taken in a much broader context of our overall portfolio strategies and our assessment of each of our investor's unique financial profiles.  As such, what we do, and when we do it, is specific to our investor portfolios and is NOT intended, in any way, as advice for use by others.
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Soos Global Investors:   Fyi…As I’ve indicated in recent missives, a number of factors, including sluggish economic growth, higher geopolitical risks, and markets’ beliefs that central bank rate hikes are coming soon, have made me increasingly defensive.  Today, we added another factor to the list by dusting off the European banking crisis issue “of old” (or more accurately, of “lurking beneath the surface”), as a Portuguese bank missed a debt payment and raised fears of a broader based banking problem.

The US markets responded as expected, selling off 180 points in early trading, but calm was seemingly restored later in the day, with the Dow closing down just 70 pts.  I’ll be watching closely to see how the Portuguese banking issue evolves in coming days and assessing how it will impact markets and asset valuations. 

In the meantime, below is a summary of some changes that I made to our portfolios today. 

1)      American Eagle Outfitters (AEO)….I exited from AEO today after the stock continued to trade poorly and on the heels of talk w/in the retail industry that “times remain tough”.  (Most notably, The Container Store chief yesterday noted that ‘the retail sector is in a funk’!).  The original investment premise on AEO was that the stock had already suffered due to the fickle teen  segment who had focused on discount/value buying from places like H&M rather than more upscale stores like AEO, but that AEO was adjusting its product offerings to win back that market share.  In addition, AEO was expanding overseas using a partner strategy in which the local partner would endure the heavy-lifting of the real-estate sites, and AEO would benefit from the licensing and product sales.  Along the way, however, the CEO left the firm, creating uncertainly which the market understandably didn’t like!  In addition, the teen segment continued to slow spending and to focus on discounters.  In a generally weak market, with an economy that is meandering along at roughly 2-2.5% GDP pace, I decided to step aside from AEO, cut our losses, and will continue to monitor its progress for possible re-entry down the road.  The enticing 4.4% dividend went ‘ex’ back on June 30, so we captured that payment.  Will revisit ahead of the next ex-date (and most likely after 30 days from today for the CORE taxable strategy, so that we book the tax loss).

2)      Deere (DE)….I had lightened up on DE a while ago in the mid-90’s, and exited the remaining position today at 88.54.  Following the June 30 Department of Agriculture Report which was quite bearish for agricultural commodity prices (having indicated far higher amounts of crop supply than had been anticipated), DE has struggled.  I still like Deere and would re-enter, but  I’m concerned that the recent pressure on farm equipment makers may persist.  In addition, I’ve continued to look for opportunities to shift the focus of one of our investment themes more towards the potential spending habits of the emerging middle class around the world, and to lighten up on the global emerging market infrastructure build.

3)      Caterpillar (CAT)….CAT has had a very strong run.  At current high levels, and with my defensive overall view on the economy, I exited CAT.  This is also in sync w/the shifting theme within the portfolios away from infrastructure and more toward emerging consumer middle class spending.  CAT faces increased competition around the world, and lots of the low hanging fruit that they were able to grab in recent years especially as Emerging Market countries were developing their infrastructures, is becoming more challenging to get at this time.  CAT does, however, remain a re-entry candidate at lower valuation levels.

4)      Ballantyne Strong (BTN)….I’ve started to lighten up on our position in this digital projector, lighting and computer display and servicing company.  It’s a very small company that I initially bought due to their growing business in digital theater projectors and screens.  Lots of theaters at this point, however, have already migrated to that new technology.  Even though BTN has worked hard to diversify their businesses, and I like their new focus, given my general concerns about the broader market facing headwinds which, as we saw today, could increase volatility that generally hits smaller cap companies more heavily, I’m looking to exit from the position and redeploy the capital elsewhere, while maintaining a foot in the theater play through our position in Cinemark.

As always, please email or call w/any questions or to discuss in more detail.
I’ll keep you posted.

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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 and BTN.  Positions may change at any time without notice.     


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