Replacement Candidates for David Merkel's Portfolio: From AA to ZZ

Here is my initial list of replacement candidates for the third quarter 2008 portfolio reshaping:

AA ACMR ACS ACXM ADP AEM AEO AET AFFM AHL AIB AINV ALL AME AN APA ARP ATWO AVID AVZA AXS AYR BAGL BCPC BDK BGC BHI BJS BKS BLL BP BRO BRS BSET CAM CBI CBK CCK CCRT CDNS CFI CKH CMI COG COLM COMS CPB CRDN CROX CSCO CSL CTB DD DELL DFG DLM DRYS DUK DVN EGLE ENH EP ETP FAST FCX FDRY FITB FLEX FLXS FRPT FRZ FSR FTEK FTO GFF GHM GIL GMT GNK HAIN HAL HAR HAST HCC HCN HCP HELE HK HLYS HNT HNZ HOC HON HRS HRZ HTH INFS IPSU IR IRE ISCA ISYS IVN JCI JNX JOSB KCI KEY KMX KOF LMC LPX LRCX LSTR LZB MAN MAS MCRL MGIC MHK MHP MI MKSI MOT MPS MPWR MWA/A MXGL MYE NBR NBTY NFX NG NM NRG NSHA NTGR NVS NWLIA OC OCR ODP OIS OKE OMAB ONNN ORI OSK OXY PAYX PBI PBY PCZ PHX PKD PKI PPC PPG PRE PRU PTEN PVA PWR PXP PZZA RCII RDC RDK ROP RS RTN SAFM SCX SENEB SFY SGIC SGY SI SII SJM SKM SKX SLB SLGN SNDK SNG SNX SNY SPSS STZ SVR SVU SWN TECUA TEX THOR TLK TMS TPX TRMA TRN TRV TSC TSO TTC TXT UNF UNT URI USU VE VLGEA VLTR VZ WAG WDC WFT WGOV WNC WRB WTI WTIU WTM WY XEL Y ZNT ZZ

Quite a melange, huh? Well, my quantitative techniques will winnow the list down. At this phase in the cycle, I am likely to lower my weights that I apply to future earnings. Profit margins are declining in many places.

The second quarter was good for me on a relative basis, though being away from home, I suspect I am off a tiny amount in the first half, and that I was a little ahead of the S&P 500 in June. The first two days of the quarter have not been kind, either. Well, the quarter is young, and we have a lot of the year remaining. The market is short-term oversold by my oscillator. When I have opportunities I add a little here and there.

Over the long weekend, I should post the results of my industry and country screens. I might begin my quarterly reshaping while on the road. Pretty amazing what one can do with a PC, the Internet, and Bloomberg out in the middle of nowhere.

I try to ignore short term market moves, and just focus on what I have done well with in stock-picking. Usually that ends up working well for me, though one can never tellwhat the future will hold. No stock-picking method is perfect. I try to make mine a little better by structuring my process highly, making fewer decisions, and making the structure of my decisions easier. I don’t have to choose the best stocks, just a few stocks that will do better than the stocks that I am selling. Keep repeating that formula, and the results can be quite good.

If you have other replacement candidate ideas, please feel free to pass them on to me and the rest of the readers. I usually throw them into the mix, and sometimes I buy one of them.

Comments

[yikes:]

how do you choose your stocks to go long with?

2008 Jul 03 02:24 PM

[Eric Fox:]

David...add ANAT to the list. It is the sister company of NWLIA - both controlled by the Moody Family. Also, KCLI is another unappreciated insurer trading below book. Disclosure - I am long both.

2008 Jul 03 03:53 PM

[Ozarker:]

Why don't you just list every stock in the world? There would probably be some good bets in there some where.

2008 Jul 04 09:45 AM

[BlueOkie:]

Too many to have any value. Not managable

2008 Jul 04 09:56 AM

[NEH:]

Why NM David? I know it's highly leveraged, but I think with patience it will shine. My one concern is how the relationship will work between NM and NMP, how the assets will shift and of course, the distribution of profits. That being said, I'm long NM and just think that in this market investors have to be more patient with their speculative holdings. Maybe I'm just willing to hold on longer than you are. I'd like to hear your thoughts.

2008 Jul 04 10:56 AM

[granger:]

Thanks for the list. I a always looking for starting points unique from my own. I will run through on my P & F charts, then start my fundamental analysis. A few on my watchlist are DHR, GPC, TECH, SYY and VFC. For growth, i am watching TSCO and BWLD.

2008 Jul 04 01:40 PM

[kurt walter:]

Get serious. If you must own so many stocks just buy IYY and go on vacation.

2008 Jul 04 08:11 PM

[mpharbold1:]

David, In late January you liked VSH. Today it is much cheaper, but every quarter they seem to take a new non-recurring charge that turns out to be anything but non-recurring.The stock was moving up from 8.5 to 10.5 and now after a couple of terrible weeks, its back under 9 again. It looks cheap to me, but I don't see any catalyst on the horizon for it to go up. What are your thoughts today on VSH?

2008 Jul 05 11:11 AM

[User 168670:]

very silly article-no value unless some has a week of time to review.

2008 Jul 05 02:41 PM

[maubeau:]

No value to me, completely useless in it's present form.

2008 Jul 06 02:40 PM

[DonaldRay:]

Very valuable too me.....it says too replace your loosers with winners and have a selection process....most of these stocks will probablely be winners and he knows it and says you do not have too pick the very best just one that will outperform your loosers...this is very insightfull and goes with the golden rules of trading...increase winnners and decrease loosers....

2008 Jul 06 10:35 PM

[David White:]

NM is a good bet. It has excellent value. It has an extremely low PE and FPE. It also has an excellent Price to Book value ratio. Further it has both a new fleet in South America (for the river traffic mostly) which is supposed to begin adding 35% to EBITDA beginning in the 4th quarter of this year. It got pushed further downward in the recent market move in that direction, so it is an excellent buy now.

2008 Jul 07 10:04 AM

[NEH:]

David, it's nice to hear you are in agreement. Actually, I have been in dry-bulk for a while, and bought NM because they bought a port terminal with grain silos in Uruguay. Its heavily asset-based, even if heavily leveraged, but I favor asset based equities. The Uruguay purchase, and they are keeping the previous owners on-board, is another key factor that really sets NM apart from the other dry-bulk shippers. BTW - I invest only in dry-bulk. Less risk of environmental disasters than tankers.


On Jul 07 10:04 AM David White wrote:

> NM is a good bet. It has excellent value. It has an extremely low
> PE and FPE. It also has an excellent Price to Book value ratio. Further
> it has both a new fleet in South America (for the river traffic mostly)
> which is supposed to begin adding 35% to EBITDA beginning in the
> 4th quarter of this year. It got pushed further downward in the recent
> market move in that direction, so it is an excellent buy now.

2008 Jul 07 10:57 PM

[andrewh10:]

If that is your replacement list can we see the rest of what you currently own. At first glance it seems like you may toss the majority of your energy, financials, and tech holdings. Can we get a sector percentage to give some clarification? Here I will make your task much easier, stocks on your list I would hang on to would include: AA, AYR, BDK, BKS, CBI, CMI, COMS, CPB, CSCO, DD, DRYS, DUK, FCX, FTO, HELE, HNZ, HOC, HON, IPSU, IR, JCI, KCI, KMX, NVS, OSK, PAYX, PPC, PPG, PRU, RTN, SNY, TSO, TTC, TXT, VE, VZ, WAG, WY.

2008 Jul 10 05:24 AM

[Graham Jervis:]

Hi David,

i have no idea how you pick stocks, what is your method? However, i see you have 3 companies in your list that i am long on, FTEK, FSR and FAST. I would like for you to check out ISLN, EXBD and MKL

2008 Jul 10 10:47 PM

[fxtrader07:]

4-5 index etfs probably would do it as well. don't tell me you can keep track and properly analyze and follow all of your holdings. way too many.
zero value added.

2008 Jul 18 06:20 AM

[ILL PA.:]

YOU HAVE TO MANY STOCKS TO FOLLOW.
ALL YOU NEED IS SOMETHING LIKE THESE.
CHK / CSCO / EMC / FCX / GE / HAL / IPI / MON / MRVL / MSFT / RIMM / T / TEVA / V / WB / YUM.
JUST 16 STOCKS TO FOLLOW.
THEN YOU CAN DO YOUR HOMEWORK ON EACH .

2008 Jul 30 04:41 PM

[pockyclips ...:]

This looks like a dartboard. Pick 3 sector ETFs, 3 little followed stocks
and sleep better at night.

2008 Aug 12 02:07 PM

[Dan Jacome:]

can we dump this into a spreadsheet next time and rank them a bit. this is just another snow job: )

2008 Sep 04 04:36 PM

[thomas728:]

Hey guy........where is WaMu ? Every portfolio needs a solid
financial.

Mr. Nygren

2008 Sep 10 07:06 AM