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.
With that in mind, we hope you find our comments of interest, and we'd be delighted to hear feedback!
With that in mind, we hope you find our comments of interest, and we'd be delighted to hear feedback!
Below are a few
excerpts from emails and/or phone calls on a variety of investment topics that
I’ve had w/investors over the course of the past week. Thought you’d find
them of interest…..
Best,
Ed
TOPIC:
What’s the strategy with “HIGH ALERT” names Himax (HIMX), American Eagle
Outfitters (AEO). Also, what’s the strategy with Cinemark (CNK)
I appreciate your questions and focus on the
portfolio. Two of the three names (HIMX and AEO) have been on my “High
Alert” list on which I put stocks that, due to unusual price action, require an
escalation of attention to ensure that the investment theme still stands and to
respond accordingly with regard to portfolio positions.
Let’s go through each in turn.
Himax (HIMX): The stock, after a meteoric rise
in 2013 (from $2.40 to $14.71), hit strong headwinds this year, starting
w/BofA’s downgrade to Underperform in March based on anticipated slowing sales
of LCoS and IC (two of their key product lines: liquid crystal on silicon and
integrated circuits), and coupled w/some industry blogs that turned negative on
the near-term outlook for the growth of the wearables market. As if that
wasn’t enough to deflate the euphoria on HIMX, word started to spread recently
that one of HIMX’s largest customers (unnamed, but most likely Samsung) was
slowing its orders of HIMX product. This was addressed in great detail on this
morning’s earnings call. The issue revolves around this large customer’s
inventory position, which due to generally weak economies around the globe
during Q1, saw a slowdown in sales of all kinds of tech products from TVs to
laptops to smartphones, etc. So in order to adjust inventory to more
appropriate levels, the end customer had to cut back on orders from HIMX.
This is not an unusual event especially in the high tech space. What is
unusual is the size of the inventory adjustment. Recent rumors that HIMX
has ‘lost’ the customer to competitors appear to be unfounded.
Today’s earnings were a beat on revenue estimates and a miss
on EPS. And the forward guidance for Q2 was very sober.
Bottom line? I believe that HIMX is going to weather
this storm. They are a formidable player in the semiconductor space and
are a leader in the technology that will likely be a key component of the
wearables market. As global economies continue to recover, the tech
revolution will likely continue and therefore sales of all the end-products
that embed HIMX technology should grow. As for the stock price, HIMX is a
very heavily trafficked stock in the tech space especially amongst a more
speculative investor group. As a result, the moves are often extreme in
terms of absolute amount and timing. Recently, we’ve seen a major
‘momentum-to-value’ move in the markets which has caused the overall Nasdaq to
underperform. HIMX was part of that. When the momentum to the
downside appears to abate, I will consider adding to our position. I
believe that as part of a longer term investment theme, HIMX should not only
perform well on its own merits, but has often been cited as a possible takeover
target, with possible suitors including the likes of Samsung and other large
players in the space.
American Eagle Outfitters (AEO): The same
premise that led me to acquire AEO still stands. It’s a retailer with
quality locations around the US and with a growth strategy abroad that is less
based on capital investment but more on partnerships with local
companies. AEO was already an underperformer when I bought it, largely
based on the market’s view that the teen customer base was fickle and had moved
its attention to AEO competitors such as H&M and Zara. Coupled with
that came the tundra-winter weather which threw most of the retail space into
flux. AEO also is one among many of the retailers that is in search
of a new CEO. The Chairman of the Board, Jay Schottenstein, has
taken over as interim CEO. He’s a very experienced retail executive and
I’d expect him to guide the ship well until he selects a star player to take
over AEO, which btw, has also been cited as a possible takeover target,
especially given its recent stock price slide. I am remaining with it and
looking for the post tundra-winter to bring on a strong spring and summer
season. In retailing, I’d give a ‘pass’ on a one season fashion miss,
maybe even two. But longer term, the company has to re-prove to the
market that it can ‘own’ the teen and twenty-something space. Currently,
I’m confident that they can do that. I’ll be monitoring the coming season
closely.
Cinemark (CNK): CNK’s price action
has not raised concern with me, and therefore I have not put it on my “High
Alert” list. I don’t regard CNK as a ‘high-flyer’ nor high momentum
play. In fact, I view CNK as one among the more countercyclical hedges
embedded in the portfolio. Movie theater attendance tends to rise during
tough economic times as people spend less on expensive air travel and tend to
vacation closer to home, if at all. CNK’s benefits, of being a global
player with state of the art digital technology and a strong, low debt balance
sheet, makes me comfortable to maintain our current position, and add if it
pulls back. The dividend of close to 3.5% is also a plus. Finally,
away from its countercyclical value, I’m expecting CNK’s growth to come
from their continuing expansion of theaters overseas as well as growth in sales
of snack items within theaters.
TOPIC:
Is the market in a ‘bubble’ that is about to pop?
(With reference to the following
article sent by an investor: http://www.nytimes.com/2014/05/06/upshot/time-to-worry-about-stock-market-bubbles.html?ref=business)
Please don't tell me that you're becoming a 'glass is half
empty' guy?! That's my job!! You're the sobering optimist.
The press is busy talking about bubbles. It’s a good
headline grabber, and makes people nervous. But I say “Bubble, shmubble”.
I don't believe that the whole market is in a bubble.
But there are certain names that are very over-inflated. Einhorn cited
AthenaHealth, and you see what happened. How about Twitter? The
lock-up on employee shares ended today, and the stock is down another 14%,
after already falling hard in recent months. (see chart below).
Bottom line is that, as I’ve held for a while, the market
overall is high in terms of absolute levels, but in terms of PEs, it’s not
crazy high. It is, indeed, benefitting from a global liquidity deluge
provided by central banks, but the fact remains that companies have been making
money and should be justifiably priced for a global growth scenario that is
modest. When individual names, or sectors, get overly optimistic and therefore,
overpriced, then stand clear! And I do believe that there’s a good chance
that the whole market takes some wind out of its sails. And that’s where
‘cash is king’ comes in. Keeping some powder dry to scoop up value when
it appears.
TOPIC:
on a question as to the ”right” level of cash in the portfolios and Earnings
season:
As you know, at our most ‘defensive’ back a few months ago,
I had cash holdings at historic highs of over 25%-30%! I’ve been
selectively buying on pullbacks and now we have ~11% in the CORE and ~17% in
the IRA.
I feel comfortable with these %ages, and still think that on
pullbacks, we could deploy more.
Earnings season too has been a mixed bag. Earnings
growth so far, for those who have reported, appears slightly positive, but the
top-line (sales) growth is not yet too inspiring, and I think we need to see
serious growth in top-line numbers, which would indicate strong business going
on, in order to get P/E multiple expansion. Companies can’t keep cutting
costs as the primary generator of bottom-line results.
I still think that the risk of a big across the board
pullback is possible, (though it’s not the base-case) so I’m not comfortable
getting cash down into low single digits. But at just under 10% for the
CORE and perhaps a bit above that for IRAs, for now, seems risk appropriate.
At times it feels a bit low on oxygen up here:
TOPIC:
On the issue of the NFP data and on being challenged as to why I think you
can’t judge the book by its cover! The underlying data detail tell a more
sobering story.
Fyi….strong employment number, but some sobering elements
beneath the headline:
On the other hand, the unemployment rate plunged from
6.7% to 6.3% (consensus 6.6%), but the entire decline resulted from an 806,000
drop in the civilian labor force. The number of workers actually employed
declined by 73,000. The labor force participation rate dropped to 62.8% from
63.2%. If the labor force did not decline, the unemployment rate would have
increased to 6.8%. (quote from Briefing.com)
The Dow was DOWN!!!! I’m not the only one looking at
the NFP report as a mixed bag.
TOPIC:
On the issue of Davita (DVA) and whether I’d add to current position:
Separately, been reading the transcript of the DVA earnings call.
very mixed picture. Their kidney biz is strong in terms of number of
patients, but as always, the Medicare patients are really not profitable given
the government’s tight purse string on costs. The private patients are
the ones footing the bill for earnings. The real negative for DVA is how
they’ve been handling the HCP acquisition. It’s been a series of misses
(those are the words of the CEO!). Can they get things in order and back
on track? I tend to think so, so I’m eyeing it, currently down 3.5%, as
an ‘add’ to our current 1.8% holding.
TOPIC:
On the issue Sector weightings, specifically related to Energy, Materials and
Consumer Discretionary holdings
In the CORE portfolio, the weightings are pretty close among
Industrials, Energy and Materials (roughly 8-9%). Our bigger weightings
are in Consumer Discretionary and Tech a la the ‘global emerging middle class’
theme.
In the IRA portfolios, we have the same themes at play, and
the main difference vs CORE is the Energy sector where we are lighter in the
IRAs b/c we don’t own the XLE there.
In sum, I view those three sectors (Industrials, Energy and
Materials) broadly as the more ‘cyclical’ sectors, more tied to the economic
cycle, and to some extent, a bit more tied to some of the geopolitical noise
that erupts from time to time. Commodities, both metals and energy
related, are used by markets as proxies to reflect a ‘fear factor’ related to
disruptors to economic growth (like Putin-ization or like oil-supply
disruptions in the Middle East).
As for rails, totally agree….I like NSC and am looking for
an opportunity to add.
Bottom line, I think that regardless of the economic cycle,
the middle class emergence is going to take place resulting in an larger number
of human beings who for the first time can buy all kinds of goods…from sneakers
to phones to computers to laptops, etc. When bad economic data hits, the
cyclical sectors ought to suffer more than the sectors/companies more directly
related to this middle-class growth. Currently, the global economy, while
growing, is still quite uninspiring. When we anticipate things changing,
and we believe we’ll start to see real strong growth in the US, Europe and
Asia, then I’d shift to heavier weightings in these cyclical sectors.
TOPIC:
On the issue of ‘Global Macro Thematic Value Opportunities’: an example of one
in formation: El Nino!
…great speaking w/you yesterday.
Fyi… the article in the link above in the WSJ is what we
talked about re one of the examples of a ‘global macro thematic value
opportunity’. The El Nino impact is something I’m tracking closely as it
could impact the supply chains of some current holdings (eg: Kellogg
(K)), or some EM countries, such as Brazil, if the rain further hurts the
coffee crop. (Starbucks? May have less price elasticity than other less
chique brands). Check out the chart below. Shows what’s
already happened to coffee prices in recent months…back to mid/late 2012
highs…but certainly potential to revisit highs of spring ’11.
TOPIC:
Deere…recent lightening up in portfolio
Given the run up in the stock in the past couple of months,
I trimmed the position to just 1% (from 1.5% in some accounts, 1.8% in
others). This is part of an ongoing plan to move the ‘infrastructure’
theme more towards the “consumer discretionary and related sector” themes
(related to emerging middle class spending around the world).
I hope
you found this of interest. Please share any thoughts that you have an
any of the topics above…..always eager to receive valuable input.
Best,
Ed
Please continue to visit Soos Global Market Musings for updates.
(Sign up to "Follow by Email"! And share with others!)
(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).
Disclaimer: Please read and consider important information related to all communication made by Soos Global on this site by clicking here.
Additional Disclaimer: currently long many stocks/ETFs incl. DE, K, XLE, NSC, DVA, CNK, HIMX, AEO. Positions may change at any time without notice.
(Sign up to "Follow by Email"! And share with others!)
(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).
Disclaimer: Please read and consider important information related to all communication made by Soos Global on this site by clicking here.
Additional Disclaimer: currently long many stocks/ETFs incl. DE, K, XLE, NSC, DVA, CNK, HIMX, AEO. Positions may change at any time without notice.
No comments:
Post a Comment