Money and Investing Thoughts

As the end of the 2nd quarter nears, I am getting a few rays of hope from the three stocks that have caused the most head scratching over the last quarter. All three were chosen for this site’s tracking portfolios as well as my personal accounts because they appeared to be good companies that the market had beaten down too far. Well, I was wrong, they had much farther to fall. Each has shown surprising strength over the last couple of days even as the broader market (Russell 3000 Index) has fallen by almost 4% over the last two trading days. On to the individual stocks:

Aircastle, Ltd. (AYR: 14.29 +0.10 +0.70%) This aircraft leasing company has fallen almost 50% since April 1 on fears of airline cutbacks and bankruptcies due to high fuel prices. During the quarter the company reported very strong 1st quarter earnings and declared a 2nd quarter dividend equal to the first. The stock currently yields over 12% and is only paying out a quarter of their free cash flow. Over the past two days the stock is up 7.5% from the Thursday morning low.

City Bank (CTBK: 0.00 N/A N/A) This well run regional bank from the Puget Sound area has been crushed by 60% since the quarter started as the regional banks have become the new financial whipping boys. The stock now has a PE of 3.5 on projected 2008 earnings and a yield of 6.8%. The stock price climbed 15% from the Thursday morning low.

VeraSun Energy (VSE: 0.00 N/A N/A) The largest of the down-trodden ethanol companies has fallen 40% in the quarter as higher corn prices and very negative press concerning corn ethanol have caused investors to continue to bail out on this sector. To further show the pain, VSE stock was over $15 to start the year. I believe the market and analysts seriously misunderstand the economics of the ethanol market and VeraSun in particular and I will have an extensive post about this topic in a few days. VSE stock opened Thursday at $3.92, plunged on Friday morning to $3.77, before closing Friday at $4.50, a two day gain of 14.8%.

The last two days have given me a glimmer of hope that the market is starting to see what I see in these stocks. Time will tell. I have added to all 3 positions in the last two weeks.

Note: I have long positions in AYR, CTBK and VSE.

Now’s the time to buy and hold, says T. Rowe Price’s Rogers – MarketWatch

Just reading/scanning through the couple of hundred comments shows the T. Rowe Price chief investment officer is probably right. Skip the article linked above, go straight to the comments. (Grab a nice scotch first, I am having a Grant’s).

“If you’re a speculator, this is a gruesome market, but if you’re an investor there’s a lot to look forward to,” said Morningstar Managing Director Don Phillips.

Found at: When going gets tough, some fund managers go shopping for stocks – MarketWatch

As I sit here writing this (Friday morning) the stock market is trying to hold even on some positive personal income numbers. The last few weeks have been very hard on stocks in general. So, is this the great bear market of the new century or a short terms set back and positive growth will eventually drive stocks higher? First, let us see what some of the market averages have done since recent peaks:

• Dow Jones Industrial Average: Down 12.2% since peaking just above 13,000 in mid May.
• NASDAQ Composite: Down 8.8% since an early June peak.
• S&P 500: Down 9.7% since May 19.

Interesting that most of the major indexes peaked on May 19, but the NASDAQ was off a little on May 19 and reached a higher close on June 5. Now a couple of ETF’s of high interest sectors:

• Energy Select Sector SPDR: (XLE: 72.77 +1.26 +1.76%): Up 29.8% since low on January 22, but off 4% since May 20 peak.
• Financial Select Sector SPDR: (XLF: 14.735 +0.385 +2.68%): Current price is down 29.4% since Feb 1 peak and down 24% since recent recovery peaking on May 2.

In spite of all of the tea leaf reading and parsing of arcane government data, there are (IMO) just two factors driving the market downward. First, is the strong inflationary factor in industrial commodities with oil leading the way. Raw materials and transport for most manufactured goods are going up and high gas prices are a serious negative on consumer sentiment. Second, the forced mark-to-market and subsequent write downs of huge amount of debt instruments held by the financial institutions has caused a virtual collapse of the stock prices of all businesses that rely on lending and credit, no matter the credit worthiness of the business or collateral.

At some point in time both of these trends will correct. If the world economy is truly slowing, energy demand will slacken and prices will fall. Oil prices have doubled in the last year and emerging economies and developed economy consumers are starting to take steps to reduce their energy costs.

Although there is some true crap out their in the finance securities that have fallen so much in value, there is a bunch that has been marked down 20, 30, 40% and will at some point pay off close to par values. Because this paper is currently treated the same as radioactive waste, I am sure astute investors are buying or holding these securities and anticipating the day when their patience is rewarded.

At this point my stock holdings are off something similar to the 10% the market averages are down. Yesterday I think every stock in my tracked portfolios was down except for Silver Wheaton (SLW: 35.96 -0.69 -1.88%). Fear currently drives the market, so I am going to hold my positions, collect a few dividends, and wait for earnings season to start at the end of July into August. At that time, we should see that many companies are doing fine and the current fears are a little misplaced.

Each week I provide a short review of the previous week’s performance of the WilderHill New Energy Global Innovation Index, symbol NEX. The NEX is sponsored by New Energy Finance and is tracked by the PowerShares Global Clean Energy Fund (PBD: 9.73 +0.259 +2.73%). The index consists of approximately 90 stocks from 20 countries in 7 different sectors relating to clean/renewable energy.

For the week ending on Friday, 6/20 the NEX ended with a neglibible gain of 0.1%. This was relatively a good thing since the NASDAQ was down 3.6% and the S&P500 lost 3.1%.

Solar energy was the best performing sector with a gain of 1.8%. Hydrogen and fuel cells came in as the worst sector, losing 8.1%. Biofuel and biomass was also in the losing column, down 1.7%. Here are the best and worst performing stocks from the index for the week:

NEX top gainers since 17/06/08
EnerNoc ENOC + 22.5%
Evergreeen Solar ESLR + 20.7%
Capstone Turbine CPST + 13.1%
Babcock & Brown Wind Partners Group BBW + 12.5%
Climate Exchange CLE + 11.7%

NEX top losers since 17/06/08
Medis Technologies MDTL - 45.5%
Schmack Biogas SB1 - 23.9%
Brasil Ecodiesel Industria e Comercio de Bioc ECOD3 - 18.7%
Echelon ELON - 15.3%
International Rectifier IRF - 14.1%

Note: I have no position in any security mentioned.