This is just a quick note to post some recent changes that I made in my portfolio.
After watching MEMC Electronic Materials (WFR) grow into one of my larger holdings on the back of near-300% gains, I decided to give in to some of my misgivings about the company's valuation, and take profits on about 40% of my holdings.
I'm still holding the balance of my WFR shares, and I do think that it's certainly possible that they will continue to climb, but there is significantly more risk in the equation now that we're dealing with a trailing P/E of 31.
The polysilicon shortage that helped to fuel WFR's rise, on the back of strong pricing, a huge ramping of demand from solar cell manufacturers, and continued strong demand from semiconductor companies, is now getting quite long in the tooth. It was part of my initial buy thesis in this stock when I bought it a little over two years ago. That means that MEMC, and their competitors have had plenty of time to see the demand curve rising and put into place plans for dramatic increases in production - which nearly all producers have done, and with some increased production already online.
I'm not enough of an expert on this industry to know whether or not the "big four" polysilicon suppliers will overplay their hand, and oversupply the market as their new supply continues to come online over the next year - so given the boom and bust history of this sector, I'm hedging my bets, taking enough profit off the table to be comfortable holding the balance, and watching the supply/demand dance play out. I sold 40% of my WFR position at $60.02, and will continue to hold the rest pending future developments.
And my other recent move, which was long overdue, was to clear the decks of my holdings in Cryo-Cell (OTCPK:CCEL). I was impressed with this cord-blood banking operation when I first picked up shares back in November of 2005, and thought that it was on the cusp of a few good things: potential re-listing on a major exchange, transition to a consistently profitable operation thanks to its ongoing relatively high-margin income from storage fees, and possibly increased public interest in its product as stem cell "miracles" come to light.
Well, how's 0 for 3? I should have listened to Yehuda Fruchter and sold my shares a while back when it began to be clear that management was either "competency challenged" or not aligned with common shareholders.
Instead of transitioning to a high-margin, solid growth company with good steady income from storage fees, Cryo-Cell has gone through a few different high risk product "near launches" that seem to have not gone well, notably for Plureon placental stem cells, an innovation that appears to still be in search of a market. It has also invested heavily in marketing, and in upgrading and/or fixing its facilities, which it had said before were already state of the art, and now appear to be trying to develop yet another higher margin (and higher risk), maternal stem cell product of some kind. Ballooning costs led to a bitter challenge for board seats that's still underway, but I don't see this ending well, at least not in the near term, so I'm clearing out my shares at about a 40% loss.
Thankfully this remained a relatively small investment for me (and a shrinking one, of course), but I'll take it as a lesson that what seem to be great business plans from microcap operators can quickly turn if management doesn't think the same way you do. I've had similar results so far from my other "microcap with a promising business plan," MMC Energy, but I'm willing to be a bit more patient with that one.
Disclosure: The author owns WFR and CCEL.OB.
WFR 1-yr chart:
CCEL.OB 1-yr chart: