How Did We Do This Past Month? 9 Stocks in Review

We started writing the Razor’s Edge blog about a year ago as a way to reach out to the investment community through our research. The dual purpose was to highlight some of the most timely and interesting stocks in our research coverage, but also to demonstrate that we have made our research platform specifically to meet the needs of busy but engaged investors, be they individual or institutional. The response has been overwhelmingly positive and we will continue to blog because of this reception. Now, for much of the past year, the stock market has been getting kicked in the teeth and investors would be hard pressed to find an investment strategy that performed anywhere near acceptable levels. However, we are starting to see the market regain a bit of stability over the last month, and the volatile swings are becoming less frequent and less violent in nature.

This year’s market has been dominated by fear and uncertainty rather than valuations, as we have seen quite a few high quality companies with strong fundamentals beaten down in this downturn. We believe we are seeing a calming in the market or at least a return to some sense of normalcy. This is not to say that there won’t continue to be volatility, specifically in certain sectors and industries. As the markets try to absorb the massive layoff numbers that seem to be hitting the wires each day and the potentially dismal retail returns for this holiday season, we still see opportunities. Over the last month, the broad market indexes have all slowed their collapse with the S&P 500 down 2.8%, the DJIA down 1.5%, and the Nasdaq down more, heavily dropping 4.6%. However, over the last month our blog’s undervalued recommendations are up 12.5% (by simple average from the date of the recommendation to close 12/10), while our overvalued calls are down 9.5% by the same method.

Some highlights from the long side include one of our infrastructure plays, Vulcan Materials Company (VMC). We recommended Vulcan on November 25 based on the fact that President-elect Obama has been pledging a massive effort in infrastructure investment. The stock was under $50 when we wrote the post, but now Vulcan is trading just below $70. Surely, this nearly 40% two-week return got a boost from Jim Cramer of CNBC’s Mad Money making it one of his top infrastructure stocks as well (http://www.cnbc.com/id/27999508/) on the 1st of December. After this rapid appreciation, we have now rated VMC as Fairly Valued as it is just too hot to be considered Undervalued by our methodology, and in this market investors should not take that type of return for granted.

The next best performer comes from the technology sector as Hewlett-Packard (HPQ) has returned 21% since blogging about HP quarterly results on November 18. We had the good fortune of writing on them at their lows for the year. The company had elected to preannounce their earnings results as they were proud of their growth in sales in this tough environment. We love to see companies thriving despite the tough economy, so we advised to jump into the stock of this tech leader. We believe that this stock still may have room to grow, and have maintained our undervalued stance. Since the beginning of December there have been two standouts, returning more than 20% in less than 8 trading days. We wrote about the well-run REIT of Public Storage (PSA) which we have thought Undervalued for quite a while, and the market seems to be in agreement as it is up 26%.

The very next day we wrote on another infrastructure company, the engineering giant Fluor (FLR). Fluor is doing great business right now, increasing earnings and sales consistently, and could be a major benefactor from the increased emphasis on large scale infrastructure spending. There have been only two long calls that have not returned positive results since our posting them this month. The first is Campbell Soup (CPB) which we believed stood to benefit from cash strapped consumers buying this cheap meal, but up to this point we missed the mark as CPB is down 23% since our 11/26 blog. We have recently become even more positive on CPB as the stock has become more affordable, while fundamentals remain strong. The other editorial that has not gone our way is Thursday’s call on Kroger (KR). Clearly it is too early to call this one as it fell 3% after reporting earnings that beat the Street’s expectations. We only had two Overvalued calls in the last month, both in the Utilities feature regarding Gas Utility stocks in preparation for the coldest months of the year. Laclede Group (LG) is down 12% since then while Piedmont Natural Gas (PNY) is down 7%. Interestingly, the Gas Utility that we said was Undervalued - Energen Corp (EGN) - has risen 6% since that 11/14 post.

It would be nice if the market was always this in line with the companies we feature in our blogs, and we will continue to do our best to keep it that way.