Saturday, July 31, 2004

The sold list

I promised earlier that i would be listing all my sells todate. Here it is:

Name Buy Sell %profit
Ace Cash Express 13.5 31.81 130.3
Amdocs 22.5 28.5 23.12
Ameritrade 7.4 15.3 97
Ask Jeeves 19 40.1 96.8
Aspect Comm. 3.79 15.22 292
Avaya 6.9 17.4 140
Brinks 16 30.7 85
Cal. Micro Devices 3.0 13.9 331.41
Career Colleges 38 66 74
Ford 10.9 15.4 43
Fuel Cell 10.5 17.2 53.5
InterParfums 9 30.86 223
KForce 3.65 9 136.1
Midway Games
Pan Am. Silver 6.96 16.97 122.54
Red Hat 8.5 18.4 113
Starbucks 24 46 84
Tractor Supply Co.
TransWorld Ent. 3.7 9.6 150
XM Satellite Radio 12.8 25.5 98
Zixit 4.58 12.5 157
Zoltek 2.8 8.2 188

In a lot of these cases i sold since the stock moved up much faster than i expected. Most of them did trace back over the last few weeks. Some have in fact reached a stage where they are worth buying again. Given that these were long term holdings, and some have stayed with me more than a year, there is substantial tax savings too!

WARNING : there is bias towards profitable sells in this list! The whole point of this long-term strategy is not to sell something at a loss even if it is about to apply for bankrupty - the pain felt should help me refine my future picks. In addition, there is also a bias towards seeing outsized gains above - again for the same reason - something that has moved too fast, party because of the so-called "momentum" crowd, is out.

Sunday, July 25, 2004

Too cautious ?

Am i becoming too cautious ? I am asking this because i have another near miss and a costly one!
Mylan today announced that it is acquiring King Pharma for around $16.5/share, a whopping 60% premium over its Friday close of 10.3. I had added King (KG) to my list 2 weeks ago - the stock, which had a good newsletter following for a while, took a hit after accounting woes and sudden exec resignations. I took it off my earlier buy list since i thought there was more room to fall. I added it again last week (and you can still see it in my buy list for next week's lot) assuming that Bristol Myers (BMY) could be a likely suitor. Oh well!
I do own a few Mylan (MYL), but that is more a growth story than a takeover pick.
This could set off a consolidation wave in the generic drugs sector. This is one sector where i am buying every major player, but only on a pullback following bad news. Apart from Mylan i own a few of Andrx (ADRX)). In addition, i added Watson Pharma (WPI) to my buy list last week after the stock got hid badly - it is a likely takeover candidate.

Saturday, July 24, 2004

Portfolio buckets

As i noted in an earlier post, my long-term holdings are mostly via Sharebuilder and FolioFN. What different categories do my holdings fall into ? The most important common characteristic is that these are shares that i will not be forced to sell by rapid movements in the market, and that i intend to hold until a major corporate action (buyout, hopefully) or for 3-5 years. There will be exceptions, mostly for issues that have gone up too much, too fast - too much froth, and i take my profits and get out. In a later post, I will cite some that fell into such a bucket.
So, here is roughly the buckets into which the holdings fall into :

  • Acquisition candidates : around 75% of all my holdings fall into this. These can be further classified into :

    • Sector consolidation picks - think banking. The action here is definitely not a secret, and hence the picks are few and the gains are not impressive.
    • Private Equity / Management buyout targets - these are usually great cashflow, slow growth companies that are routinely ignored and trade close to book value. The premiums are usually in the 5-15% range (over the price on the announcement date).
    • Issues that also have a very respectable dividend yield and are not overpriced. These fall into the ideal group and are very few.
    • Speculative, where in the absence of takeover, bankruptcy is a real possibility. Very few fall into this, but i am well aware that i cannot get out if the heavens fall!

  • Heavyweights / Street darlings that temporarily get dumped/undervalued due to earnings misses / warnings. These i intend to sell in 8-12 months time. The natural overreaction to bad news is a good thing with overpriced stocks. These form some 20%. Again, a dividend is an added bonus. Insider buying is even more welcome.

  • Speculative - stocks that are not strong financially and are not Street favorites, and get really hurt badly with contract losses etc. Very high risk, and possibly a long wait to a recovery. Just around 5% of the portfolio.

The percentage numbers are rough and may vary slightly from time to time, but the overall picture remains true to this division.

Thursday, July 22, 2004

Hit #20

AMC Entertainment (AEN) today got a buyout offer of $19.5/share from a group of private equity investors, including J. P. Morgan and Apollo Management. This offer is a 39% premium over my purchase price of 14.0 / share in late Feb.
There are a few more such pure cash flow entities out there that must be close to going private. Sarbannes-Oxley has only added to the costs of remaining public for these companies that don't get any respect from ordinary investors or the Street. These are strong businesses in their own rights, except that the growth rates are not impressive.

Hit #17 - Part 3!

I cannot believe this, but QRS Inc has got yet another offer, of 6.75 - 7 / share , this time from an undisclosed party. This is turning into a real race!
Never thought so highly abt QRSI ! Hey, as long as they try to outbid each other i am happy.
I guess this also shows that there are still some potentially undervalued companies out there. I need to keep looking for more such hidden gems.

Monday, July 19, 2004

Hit #17 - Part 2

Looks like QRS Inc (QRSI) really has something to offer.
They got another takeover bid today, this time an all cash offer, from private equity firms Avling Partners and GTCR Golder Rauner LLC. The stock jumped 25% (from 5.1 to 6.3), on an otherwise dull (bordering on the ugly) day for the overall market.
Niche players as QRS are becoming more and more attractive to private players, who can flip such companies for a big profit in a matter of years.
There are easily some 20-30 such undervalued, ignored tech companies right now. I guess this is the bane of a market that attracts every possible company during the sunny years and then dumps them unceremoniously during the lean ones. It is like cash sitting on the road side waiting to be picked up - it will be, eventually. The only question is - what will the value of that one dollar be when it is finally picked up ?
An all-cash offer in this bad market is really very welcome and the one that i prefer. After JDA made a stock-offer for QRS, the premium was of little significance, when JDA's stock started tanking taking QRS with it.

Saturday, July 17, 2004

All that glitters IS gold ?

I have been planning to write on gold for a while now. The last 3 months have been very quiet as far as gold price goes. It is an uneasy period.
Most of the analysts out there believe that gold has topped out. To me, it looks like, they are ignoring one important factor - India!
India still has the largest private horde of gold (correct me if this has changed) and the love for gold which disappeared in the 90s is set to make a comeback. The new wealth (only in tiny percentage of the populace, but still a gold-loving part of it) and the fall of dollar as a "hard" currency over the last 2 years (when the dollar fell even against the meek rupee!) will increase the appetite for the yellow metal over the next few years.
And there is the possibility that a lot of the middle-east money now invested in the US may start flowing out - atleast a small part of it will go towards buying gold.
Moreover, the recent merger activity is very reassuring - just look at the 4-way battle among Wheaton, CDE, GSS and Iamgold!
I own a few metal stocks, some for their takeover chances and others as proxies for the metal's rise.
Here is a (incomplete) list:
  • Coeur d'Alene Mines Corporation (CDE)
  • Wheaton River Minerals (WHT)
  • Durban Rooderpoort Deep (DROOY)
  • Apex Silver Mines (SIL)
  • Pan American Silver (PAAS)
  • Newmont Mining (NEM)
  • Bema Gold (BGO)

Of these, Bema Gold, DROOY and PAAS are likely takeover targets.
As i noted earlier, Wheaton already has 2 competing bids.

Barron's software target list.

Barron's today lists all the enterprise software companies that are juicy takeover targets. I won't list them here, but the list is almost the same as the one i mentioned in my earlier Oracle on the prowl entries.
Each time someone in this list comes out with disappointing earnings, it is worthwhile to add to your positions. The wait may be long, but if Oracle does end up winning the anti-trust battle, the heavens will open as far as M & A goes. It will be a free for all!
And i do hope that happens - there is no room for all these software companies that churn out solutions that are disgusting and make customer lives hell!

Near misses!

Normally i would not be compelled to write about what coulda/shoulda, but these were close.
On Thursday, Harrah's acquired Caesars, for a small premium. I had included Caesars in the list of stocks i bought the Tuesday before, but removed it as part of my filtering, since
  a) There was no insider buying
  b) The stock looked expensive
  c) After the MGM/Mandalay merger recently, it was an open secret that Caesar's would be next. So the price reflected this.
No regrets here. 

Another close miss was PNC's purchase of Riggs Bank on Friday. After the money-laundering scandal (Gen. Pinochet makes his second appearance in this blog!), it was a well known fact that Riggs was up for sale. I did not plan to buy the stock till it was very cheap since the downside in the absence of a takeover looked substantial. The premium was decent. But it is still an unpleasant ending for a bank that was such an integral part of American history - Riggs financed the US govt's purchase of Alaska from Russia more than a century ago!.
Again, i have no regrets on missing this takeover since this one was too speculative and preserving capital still remains the most important concern for me.
I do own a few PNC shares since it is a prime candidate in the rapidly consolidating banking/S&L sector.

Tuesday, July 13, 2004

Hit #19

National Processing (NAP) was bought by Bank of America today for $1.4 billion, valuing it at 26.60/share. This is a 15% discount over yesterday's close of $29.4, but still a 36% premium over my buy price of $19.56/share in early March.

Hit #18

Magna Entertainment (MECA) got acquired by MI Developments for $7/share. That is a 25% premium on today's price, but a 57% premium over my purchase price of $4.45.
Magna is a horse racetrack operator.