Reassessing And Continuing To Monitor Portfolios For Success

by: Brian Nichols

For the last six months I have taken time to update readers on my portfolio activity, and publish any and all significant changes to my portfolio as a way of disclosure. I last reported on July 4 when my portfolio returned a 10% gain in a two week period, yet over the last several weeks I have taken time to re-diversify and look at each and every position, especially after my loss with Alcatel-Lucent (ALU), in an attempt to be better prepared for a market that is still full of many questions.

On Thursday the market rallied after Mario Draghi's pledge that "the ECB is ready to do whatever it takes to preserve the Euro… And believe me, it will be enough." This one statement sent global markets higher, including some in Europe that reached gains in excess of 5%. However, mortgage rates retreated back to record lows, and on Wednesday we had been discussing a three day loss in U.S. markets. Therefore, the markets remain volatile, so my goal as an investor is to load up on as much value as possible, of fast growing, underappreciated stocks, or companies that can excel regardless of market direction.

Top Holdings

The top three holdings in my portfolio simply trump all others: And over the last couple months it has been XPO Logistics (XPO) as the largest in my portfolio. The stock has declined 25% over the last month as investors fear that earnings in August will be disappointing due to a lack of acquisitions and a $500 million sales target that seems unattainable. Yet, I expect that XPO will announce an acquisition in its upcoming quarter, similar to how it announced an acquisition in its most recent quarterly report. And that its cold starts, and its acquisition, will be well integrated and grow fast enough to satisfy the short-term investors. Therefore I have not and will not sell any of my position in a stock with such large upside that has been so rewarding fir me as an investor.

Despite my confidence in XPO, and my belief that it will reach a price of $100 in the next few years, thanks to Bradley Jacobs, it is no longer the largest holding in my portfolio, due to its loss. Both Spectrum Pharmaceuticals (SPPI) and Sprint (S) have returned massive gains over the last month. Spectrum has returned a 52% gain in the last three months and still trades with a P/E ratio of 12.25; and if thestreet's latest sales report is correct, then all fears of falling Fusilev sales and generic pressure should be an afterthought as the company prepares to announce record earnings, and by a significant margin.

Sprint, on the other hand, which is now the second largest holding in my portfolio, behind SPPI, traded higher by nearly 20% after reporting robust earnings. And I must say, watching S (and SPPI) is a bit satisfying, as everyone told me I was crazy a couple months ago when I was calling for market leading gains in both stocks. Now after massive gains, both companies are just warming up, as SPPI is the fastest growing biotech in the market with insanely cheap stock metrics, and if S was worth $5 last year without the iPhone, and with falling revenue, then what's it worth today with rising subscribers, rising revenue, and the hottest technology device of the last 30 years? I'd say both are still very cheap.

Questionable Decisions

As for questions regarding my portfolio, there have been a lot during the last few weeks. Many have asked if I still own Ford (F) and how I plan to play the stock over the next several months. My response is simple, the company is still forecasting robust growth until 2015, is trading with stock metrics that are laughable, and since I bought it cheap my loss is still minimal. I do have a large position therefore it's a stock to watch, but with strong earnings, I think Ford's performance is more fear and European related rather than fundamental. Therefore, I think it could still see 100% upside over the next three years.

Apple (AAPL) missed earnings, although I still feel it's a great company that is in a transitional period. Once the iPhone 5, iPad mini, and new deals with large telecom companies are announced I believe the stock will trade significantly higher. I have also received several questions regarding Questcor Pharmaceuticals (QCOR) over the last two weeks. I bought the stock back in June at $40 and had set a limit order to sell the stock once it surpassed $60. On June 9 my limit order was almost executed when it nearly hit $59, but has since tanked and is trading at $40 following a negative research report and a bearish sentiment. My take on QCOR is that after its recent earnings, and 144% sales growth, the company is in line with SPPI with being the best in the space. QCOR has never traded with a P/E ratio under 20, it has always been a momentum stock, but is trading with very attractive metrics at this time. And at the end of the day, opinions are speculation and fundamentals are facts, and I'll take facts any day of the week, as facts suggest that QCOR is a great company that is growing remarkably fast and is for the first time priced very cheap.

New Additions

It's safe to say that over the last few weeks I have been very busy adding to my portfolio. In fact, I have added five new positions, which is the most I've ever added in such a short period of time, and most during the last week as the market was trading lower. Because it is my belief that investors should buy when the market is trading lower, and sell when it is trading higher, but unfortunately most investors feel more comfortable with the contrary.

Last month I added Arena Pharmaceuticals (ARNA) to my portfolio at $10, when I bought 750 shares. It is a small position, but I wasn't comfortable enough with the fact that its weight loss drug would control the market, but felt $10 was a good entry price. Therefore I was excited when Vivus (VVUS) traded below $23 after its approval, and I was able to buy at $22.30, spending just $7,500, giving myself a good position in both companies. Earlier this week I wrote an article in which I stated that I believed the upside for both companies will be in the first 16 months, with the "weight loss craze" of consumers. I then believe only one will stand alone, but which one is anyone's guess. Therefore I think a position in both is wise, but only a small position, as both should have significant upside considering billions in sales is likely in the weight loss space. In my opinion, the question then becomes what happens after the "weight-loss craze" and consumers have tried one if not both drugs? At this point we don't know, but I believe the upside is great enough for a small investment.

In addition to VVUS, I also spent $7,500 buying shares of IPG Photonics (IPGP) at $41 and Sodastream (SODA) at $37. I have watched both companies over the last two years, and believed that each was presenting a good price compared to fundamentals and recent developments that suggest growth. Similarly to QCOR both used to be momentum stocks, but have experienced loss over the last year despite sizable growth. I now feel that both are well positioned and that now was the perfect time to add both fast-growing companies to my portfolio.

I also purchased $5,000 worth of shares in Five Below (FIVE) which is the retail company that recently filed its IPO. Some may question this investment, however I believe it's a company that will trade more like Michael Kors (KORS), rather than Groupon (GRPN), as retailers and companies with physical businesses that don't operate through the web have been strong performers the last two years. And besides, the company is only three years old, and already has 192 stores with $325 million in sales, which is a huge gain from the $125 million in sales one year prior. Fundamentally the company is a bit pricey, but the company plans to expand to 2,000 stores in the next few years, which should create over $3 billion in sales as the store is very popular among teenagers, meaning it could become a momentum stock. And with an initial investment of just $5,000, I am prepared to add to the position in the next 6 months, perhaps double my position, especially if the stock sinks below $20.

My final purchase is the company that I find most interesting and believe has the most potential, Mellanox Technologies (MLNX). And in some ways it neglects the characteristics of a value investor. However, I feel that Mellanox Technologies is growing too fast and that semiconductor companies could provide the next bull market over the next year, and MLNX is well-positioned in the space along with the cloud. The company recently reported earnings, and I rarely see companies exceed expectations by such a large margin. It was expected to post an EPS of $0.74 but instead posted $0.99 which was a 267% gain year-over-year, in addition the company also posted revenue growth of 111% for $135.5 million, another solid beat. Now that the company has increased guidance, and is growing so rapidly, I believe it is a prime acquisition target, and if not acquired, that it will continue to grow at the same rate in a very large fast-growing industry. Therefore, its P/E ratio of 78 may look expensive, but if it continues to grow at this rate then its forward ratio would be around 25, which means long-term this is a very cheap stock. As a result, I am glad I bought $10,000 worth of shares on the pullback at $90 and expect MLNX to be a very rewarding long-term play that has all the makings of unprecedented gains.


This year has been one of the more rewarding years for myself as an individual investor. However, because of uncertainty within the economy, and volatility that can drastically change returns I believe it is always wise to reassess your portfolio, and even break it down into which stocks are presenting immediate upside, which stocks could pullback, determine how certain purchases fit into your portfolio, and always be aware of when its time to sell and when to buy, which I believe all aids in keeping your emotions in check.

Far too often we develop emotional attachments to our investments, a good example is with myself and Alcatel-Lucent, which was a stock I refused to sell until my stop-loss forced the position to close. As a result, I am always trying to asses my portfolio, and determine how each stock within my portfolio benefits me as an investor. To conclude I have included a list of my holdings, by size, and my goal is not for you to follow my choices, but rather see the thought process that I use to choose stocks. Over the years I have found that seeing how others choose stocks can be beneficial in helping others to find their own strategy, as I often read articles, books, etc and incorporate what I feel are good ideas. Therefore, I urge you to share some of your own ideas, and the reasons for owning certain stocks, which could help others in developing their strategy, and may even help you become a better investor by being able to reflect.

Company Ticker
Spectrum Pharmaceuticals
Sprint Nextel
XPO Logistics
Ford Motor Company
Mastercard (MA)
Galena Biopharma (GALE)
ImmunoCellular Therapeutics (IMUC)
Mellanox Technologies
EOG Resources (EOG)
Zagg (ZAGG)
Caterpillar (CAT)
Questcor Pharmaceuticals
IPG Photonics
Arena Pharmaceuticals
Neostem (NBS)
Oncothyreon (ONTY)
Five Below
Coffee Holding Company (JVA)


Additional disclosure: The material in this article are the opinion of the author and should not be used to make any investment decisions.