**This article was written one Sunday morning towards the end of August, but due to constant time constraints, I havent had the time to post it until now. A quick run down of my new investments and a little behind my decision on why I chose them. Enjoy the read, please comment with any feedback you may have**
Who and What I bought in August and Why
People are worried about Europe, and have lost nearly all confidence in American politics to ease the global markets with any sense of common sense or responsibility. While I am a young investor, and it is extremely easy to get caught up in all this noise and fear, I have tried to look at the markets from multiple viewpoints: Long-term, short-term, technical, fundamental.
After doing some research, and large amounts of reading on the macro-picture, I assembled the following portfolio:
I could have easily stayed on the sidelines, joined the bear camp, and wrote off the world economy as doomed. But I am young. I am a risk taker. And to me, letting my cash sit in an account with 0.01% interest, and average inflation that’s almost 200 times more than that, I decided to take the chance and get in on some great companies at very reasonable evaluations. Most of these were picked logically, but others were more gut-feelings than anything. I will now detail why I made these picks and what exactly I am expecting to get out of them in the future.
AAPL- Real original here. This was the largest position I took on, and saw the dips in early August as a good entry point to get in on a company that is looking fundamentally stronger each month. Peter Lynch was a big advocate on buying stocks that you use and observe on a daily basis and in my case, there is no stronger example of that than Apple. Aside from the fact that I’m writing this article on my Black Mac Book (which I have had for 5 years with no major issues), or that I own an Ipad and plan on buying the new iphone 5 when it comes out (still currently stuck in 2005 with a non-smart phone), I have witnessed time and time again the “magic” of this company. Every single time I go to the mall I stop in the Apple Store and witness the hundreds of people demo-ing and buying apple products with enthusiasm and excitement rivaled by no other company in the world. It doesn’t matter what time of the day it is, there are masses of people buying Apple products, many of whom are just at the beginning stage of entering their product ecosystem. Once someone converts from a PC to a Mac, it’s only a matter of time before they purchase an iphone or ipad. That is the beauty of Apple and it is something that I believe will continue to foster their growth domestically while at the same time build their market share internationally.
I have tried to look at this company using my own opinions and feelings and not listen to the thousands of other people writing articles on a daily basis, all with some new spin on how this stock is going to $600 or $200 in the near future. The fact of the matter is that when you own a share of a company, you own a small percentage of that company’s future cash flow. There are few companies in the world that offer a more compelling case to own a share than AAPL, which has a fortress of a balance sheet, and has still has yet to penetrate many international markets. I honestly think that their biggest threat is not being able to keep up and supply the robust global demand, but I think that is a pretty good problem to have. They also face diminishing margins, but they have a serious competitive advantage when it comes to pricing power amongst its rivals, and I don’t see that changing anytime soon. I could go on for another 3 pages, getting into their absurdly low future p/e ratio, PEG ratio, and a slew of other technical indicators that make this such a strong pick, but I’ll leave that to the other 25 articles written about Apple to come out on SA today…
Next up is AGQ. I initially had quite a large position in AGQ as I was convinced that this would be a great hedge against the market, and that if Gold was going to continue to rise, it would someday have to bring up it’s ugly little brother with it. I ended up paring down my position (for a small loss, and before it made it’s run to $250 and then back down again), once I did a little more reading into SLV and some other commodity ETF’s and lost confidence in their ability to truly replicate and mirror the true value of the commodity itself. Let’s just say that I became less of a fan, but still believe that AGQ has room to cross the $300 mark, as it’s trendy yellow big-brother goes north of $2k/oz. Let it be known that I used to proceeds of my AGQ sell-off to bulker my position in AAPL, which I found to be a better (less-volatile) fit for my portfolio.
My best performing pick for the month of August was DE, and my only regret is not putting more conviction in my initial buy as it is a rather small position. With a PEG of 1.0 and a forward p/e of only 10.7, this is a very technically sound stock that seems to be somewhat undervalued given the fact that Agriculture is booming and global prices for all kinds of food and commodities are hitting record highs each day. A good friend of mine who is very well educated in the not-very-sexy but valuable niche of Agricultural-Business informed me that it has been a near record year for farming profits, and that many farmers buy new equipment in the latter half of the year to hide those profits from the government. This means they’ll have better, more efficient equipment to use in the upcoming season, and pay less taxes on the money they made the last season. If one looks back the last couple of years, DE’s performance from the beginning of July to the end of December has somewhat validated this theory (with the exception of 2008 Financial Crisis):
I like my odds heading into the end of this year. Apparently so does Bill Gates, who’s hedge fund Cascade became the largest shareholder of DE during Q2 2011 owning nearly 17 million shares.
Next up is GE, who isn’t a very sexy pick by any means, but gave me a solid value when I purchased my shares a hair over $15. I have always loved GE as a company, and love their innovation and ability to dominate markets on multiple fronts. GE has A LOT of cash on their books. How much do you ask? How about $8.59 per share… or over 91 billion dollars on their balance sheer. That’s right, more than 50% of the share price is cash. Back that out, and you get an absurdly low p/e along with a great forward p/e for a company that presents some amazing growth opportunities in emerging markets (over 60% of their revenue now comes from overseas), and who’s domestic business is still recovering from the beat down it received in 08/09. I think they will figure out the restructuring of their Capital arm, and be prepared to efficiently grow their business and receive a respectable ROIC into the future. For someone my age, GE is not a “cool” stock to own. It’s not a Netflix or Apple, and it’s chart definitely will no go parabolic anytime soon. That being said, I have no reason to doubt that GE will not cross the $20 mark by the end of 2012,which would give me a solid 30% return and a nice 3.8% dividend yield to reward me while I wait.
After GE we have CHK. I am somewhat new to energy companies, especially natural gas, but there was something that kept drawing me back to CHK as a nice growth stock to hold for a couple years. This whole “fracking” stuff has been somewhat skewed by the media with a definite negative bias, but from what research I have done, my own opinion is that it may not be as bad as everyone is making it out to be. If we want to lose some of our dependence on foreign oil, natural gas may end up being a very serious, very abundant solution, and I think CHK is very well positioned to benefit from even the slightest shift in demand for the commodity. Nat Gas has received an absolute beat down with these legislative appeals and an overall oversupply in the market, but I truly think that in the long run, this is a great company with some serious upside in asset value and earning power in the future. I am also a big fan of insider buying, and it just so happened the week I was doing my shopping, many insiders were doing the same. CHK was no exception, as Director Lois Simpson led the way snapping up a cool 100,000 shares on August 8th, but multiple other Board Members have been heavily buying the stock throughout the month of August. This stock had showed up on some of my screens earlier this summer, and I had thought about pulling the trigger at $33-$35 so I couldn’t pass up the opportunity to own it under $30/share.
Last but not least is the old (but new) Chinese dog BITA. BITA is the leading car website in China for both new and used cars, with over 90% of the market share, and over the summer signed a deal with Baidu to provide exclusive content whenever someone searches for a car on the site. They generate their revenue from advertising as well as “marketing solutions” for which they consult many of the industries top auto makers on how to best advertise and market their product. BITA was the first company I profiled on seeking alpha as a bit of an experiment into researching and evaluating a foreign IPO company. I also decided that since I wrote about it in a positive light, and spend the time researching it, I should purchase some shares. Well, that was before all Chinese companies got hit with the “Great Short”, and all of a sudden they were all frauds and book cookers. Well, I sold off for around even money, after experiencing a roller coaster ride of +30% all the way down to -30% and back to even money after I doubled down at the bottom. Since then, I have continued to track the stock and keep up with their earnings. I decided to take a chance and invest the last small bit of capital in them the day before they released their earnings. They went up over 20% the next day, and since then have floated on down to just above 10% higher than when I bought them. I still like the stock and like the company, and decided I could afford a speculative pick in a rather sound portfolio otherwise. With a forward P/E of fewer than 12, this is not a DANG or RENN or any other speculative Chinese tech company with P/E ratios in the triple digits. This is a fast growing company, making real profits, and as an industry leader should benefit from China’s growth of both Internet users and automobile owners. With an entry point just around their 52-week low, I think I’m ready to hang around and ride this one out again.
Thanks for reading.