20 Stock Portfolio - A New Beginning
The 20 Stock Portfolio page on this blog has been very popular, so I am trying to make it more interesting and useful for myself and those who come and visit. The portfolio is my attempt to follow stock that my research leads me to believe will provide above market returns. The portfolio is not a mirror of what I own or a recommendation to buy or sell any securities.
I started the portfolio on 8/21/07 with the first stock, Gigamedia (GIGM: 18.83 -0.04 -0.21%). To date the portfolio has a total of 10 stocks with the last added on 9/14/07. I track the portfolio by “purchasing” $1000 of the stock on the day it is added to the portfolio. This give an equal starting dollar weight to each stock and does not figure in any commissions. Through the end of September 2007 the portfolio was up 9.94%, not too shabby! The leader was (ANW: 42.71 +0.53 +1.26%) up 39% in just two weeks. Following were (GIGM: 18.83 -0.04 -0.21%) and (SLW: 14.44 +0.20 +1.40%) up 31% and 25%. These were two of the earliest stocks in the portfolio. The laggers were (VSE: 6.19 -0.01 -0.16%), (SFL: 31.78 +0.49 +1.57%) and (TMA: 0.73 +0.02 +2.82%), down 7%, 5% and 4%. No dividends were earned during the holding period of the stocks.
Going forward from here I plan to track the portfolio on a quarterly basis with an extensive review at the end of each quarter. There will be shorter monthly updates and individual stock reviews as they are newsworthy. The positions will be rebalanced to and equal dollar value at the beginning of each quarter for easier tracking.
I will have a little more free time in the near future, so I plan on more research time so I can add some companies to the portfolio. The first bunch was primarily stocks or sectors I have been watching. I want to diversify into some new areas, so check back for updates.
Finally, I plan to make some changes to this blog to make the 20 Stock Portfolio information easier to find and read.
Yield Curve Steepens: Thoughts by Mark Hulbert & myself
Mark Hulbert has commentary on Market Watch.com concerning the steepening yield curve. To summarize his comments:
- A steepening yield curve historically reduces the probability of recession.
- The bond timing newsletters he tracks are not making a big deal of the change in the curve.
Overall, the impression is the change in the yield curve really hasn’t affected the pundit’s thinking.
Jeff at a Dash of Insight has a post concerning fears of the CNBC types, without seeing the big picture.
My thoughts:
The recent credit/mortgage scare will scare the majority of new mortgages to 30 year fixed for the main reason people have gotten 30 year fixed mortgages in the past: no surprises. If shorter term rates end up well below longer term rates, adjustable rate mortgages will have a significant advantage, however only the very sophisticated or more aggressive will be interested in the savings vs. future possible rate/payment increases.
If adjustable rate mortgages are sold/written without overly aggressive “teaser” rates as the start they can be less costly even with resets in a normal yield curve environment. Remember adjustables can be reset to lower rates also.
I think a higher demand for 30 year fixed mortgages could actually push up rates at the long end of the curve. And if the Fed cuts at the short end a few more times we could see a significantly higher spread between short and long rates.
20 Stock Portfolio, changes coming
The 20 Stock Portfolio page I have started on this blog is drawing a lot of hits/views so I have been thinking about some ways to enhance the page and information and to keep to concept of the 20 Stock Portfolio interesting.
I started the Portfolio as a way to keep track of the stocks I review on this blog and believe have a compelling story for investing. I like to research the stock ideas I come across in my daily reading and news, and if one has an interesting story I will write a post of my thoughts. I believe in keeping track of the companies I write about vs. the hot today, forgotten tomorrow investment touts. The Portfolio currently has 9 issues being tracked and I am on the lookout for more additions, I want to limit it to 20 stocks, because I think that should give a diversified portfolio, and hopefully I can keep up with the news of that many.
My current plans are to change the look of the 20 Stock Portfolio page to make it easier to link to the post concerning the stocks listed in the portfolio. I also plan to start regular updates of the performance of the Portfolio. There will be quarterly (at a minimum) reviews of the entire portfolio starting 10/01/07.
My goal is to find market beating, under followed stocks. Investment style tends to be no style, but if you have found interesting ideas here, check in once in a while and I will try to make it interesting.
Great advice on investment advice
The man known only by the single letter: T, writing his blog, Investing from the right, is always interesting and to the point. His blog is a great source of information and wisdom from one who has a lot of experience in investing. Today’s post is especially sharp on the value of the numerous investing systems that claim investment riches. Read it.
investingfromtheright: September 17, 2007: Investment review for most of us
Two Small Cap Triple Plays-A Contrast
This week I have been looking at two companies with a market cap in the $1 billion range, plans and operations in place to triple their business in the next few years and stock prices going in radically different directions. One is in a very old economy non global friendly business and the other is in the renewable energy business. Take a guess which is the hot stock and which is not.
I will start with the company whose share price has fallen by 40% since spring, is in the new economy business of ethanol refining, the company is VeraSun Energy Corp (VSE: 6.19 -0.01 -0.16%). VeraSun is one of the largest pure ethanol producers in the U.S. The company’s plants are located in the midwest, Illinois through Nebraska, to be near their raw materials, corn. Here are a couple of highlights:
- They are an efficient, large scale producer, with their plants currently running at 105% of rated capacity. Five new facilities will start production by the end of 2008, increasing production capacity over 300% to over 1 billion gallons a year.
- VeraSun Energy has introduced their own branded E85 fuel (85% ethanol, 15% gasoline) and it is currently market through 20 of Kroger’s 652 grocery stores. They expect E85 to be 50% of production by 2012.
- The company has started processing corn oil from the Distillers Grains left over after the distillation of the ethanol. The oil is an additional revenue source and the reprocessed Distillers Grains are a higher quality livestock feed source.
The share price has been whacked as the price of corn went from $1.80 a bushel to over $4 before declining to a recent $3.30. VSE had earnings go from $1.48 for all of 2006 to a loss in Q1 of this year and 19 cents in Q2. Estimated earnings for 2008 are $1.10 giving a forward PE of 11.
My thoughtful analysis: The stock has fallen off of the Wall Street happiness wagon and the share price keeps falling. Acreage planted to corn is increasing, production efficiency is improving, government mandates increased use of renewable energy sources and the company will increase production capacity 300% in the next 6 quarters. I think the “analysts” may be underestimating future earnings and this stock could have a great 2-3 year run.
The company is the old economy business with the hot stock price is Aegean Marine Petroleum Network Inc. (ANW: 42.71 +0.53 +1.26%). Aegean Marine is the corner gas station for ships. They provide fuel and lubricants for all types of ships from 5 service centers Greece, Singapore, Jamaica, Gibraltar, and the UAE. They also have a fleet of 13 fuel trucks, errr…bunkering tankers to deliver the product to refueling ships and two Panamax class tankers for transporting larger amounts of petroleum product. Notes of interest for ANW:
- They went public December of 2006 and have used the proceeds to start building a fleet of modern double hulled bunkering tankers and service centers.
- Goals are to add several more service centers and increase tanker fleet to 44 by 2010.
- Aegean Marine has growing profits and lots of cash.
Aegean Marine went public at $15 a share and has trended higher with much stronger price increases over the last month. Today it received a buy recommendation from Jefferies & Co. and the price shot up 15% to $28. This puts the share price in the pricey 32 PE range and a forward PE of 20 on 2008’s estimated earnings of $1.40.
The quarterly earnings estimates show a nice even stair step, like this is a $80 billion company managing their quarterlies to keep Wall Street happy. I would guess the growth road will not be as smooth as the estimates show and there will be buying opportunities for this company. That said, the prospects for the next few years look excellent.
I am adding VSE and ANW to my, working on famous, but not to be taken as investment advice, 20 Stock Portfolio. The portfolio is now up to 9 stocks, working towards 20.
Followup: Thornburg Mortgage
Thornburg Mortgage (TMA: 0.73 +0.02 +2.82%) gave an almost 2 hour conference call today to review the steps the company has taken to shore up its financial position following the recent mortgage meltdown and hammering of Thornburg’s stock price. During the credit crisis the company lost access to credit markets to fund new mortgages and had margin call as the market value of their mortgage securities fell.
Thornburg management sold off $20 billion of their $56 billion mortgage portfolio, sold $500 million of convertible preferred stock, and acquired ongoing funding of an additional $1.4 billion. Some highlights of today’s call:
- The company’s mortgage portfolio and book value have shrunk by about 1/3 in value.
- They now have funding sources to start originating mortgages again and should start doing so next week.
- Because of the REIT structure of the company the $900 million (plus or minus) capital loss is not counted against income gains. Thus, the company will be profitable going forward and pay out at least 90% of income as dividends.
- The commercial paper market is currently not available for mortgage refunding and Thornburg has had to restructure their borrowing sources. Larry Goldstone indicated he was confident they enough financing sources going forward from here.
- Spreads on jumbo mortgages are currently very good, so when they start originating at a good pace, profitability will be very good.
- Right now they have very little competition in the jumbo market. Many of the players have gone out of business or pulled back to conforming mortgages.
The strong message is the company is still in business and expects to be profitable going forward.
Some rough math: If the former dividend was $2.70 a share, a linear reduction would put it around $1.80. They have sold off their lowest yielding mortgage securities, so a $1.50 to $2.00 dividend seems doable to me. Anywhere in that range is a nice return and should give a boost to the share price.
I am adding TMA to my hypothetical 20 Stock Portfolio (the stocks are real, the portfolio only exist on this blog).
Note: I am a shareholder in Thornburg Mortgage
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