Invest By Model

Great Week For Top 20!

With one day to go in the 3rd quarter, here is how we look:

Top 20 enjoyed a huge takeover (MAKO), helping to drive a very strong week, with the model gaining1.18% while the S&P 500 fell 1.03%. The MAKO deal explained almost all of the 2.22% advantage, though we had a slight relative gain otherwise.  I am especially excited because it helped me to likely win the Q3 stock-picking contest in which I participate with some other professionals in Houston.  We have a 1.88% advantage over the market for the month and a stunning 7.21% outperformance for Q3, our best quarter relative to the market in years (+13.1% vs. 15.89%).  Thanks for all who have been patient!

Conservative Growth/Balanced slipped again slightly relative to the 60% stock and 40% bond benchmark.  For the week, the model lost 0.65%, which was 0.24% worse than the index.  The model is experiencing its first relative decline in over a year, rising 2.2% compared to 3.8% for the benchmark.

 

Outlook

As Q3 ends, I have no change in the views I have been sharing.  I continue to think that the market has a little upside and looks ok for now.  I will be developing my outlook for 2014 over the next month or so.  In each of the past four years when I have done this, I have been quite bullish, while this year I expect a more restrained outlook.  I need to refine my thinking, but I don't expect the market to do what it has done in each of the past two years, which is to jump out of the gate and never look back, especially if we end strongly in 2013.  

 

Articles

• Conagra - Liston Street Pulse
• Capitalizing on Cannabis:  Divergence Among the Pot Stocks - Seeking Alpha

Cannabis Investing

I recently shared that I have launched a new service focused on an emerging growth trend:  Cannabis legalization.  For those who have followed my efforts in this area, you know that I have taken a very skeptical view regarding the publicly-traded companies, most of which trade in the pink-sheets or over-the-counter.  With that said, a massive correction in the prices and a move towards transparency by at least a few of the these companies combined with recent changes in the regulatory framework and a major reversal of opinion by Dr. Sanjay Gupta of CNN regarding the merits of medical marijuana have changed the opportunities.

420Investor is devoted to helping investors navigate the rapidly evolving landscape.  My goals are to inform, build community and bring in industry leaders as part of the process.  Among many features, which include trade alerts, news alerts, analysis, education and chat, we will be hosting live webinars.  The first will be on Tuesday, and there will be a replay for those unable to participate at that time.  The video sets it up well:

 

You can link to the video directly here or skip to registration for this free event, which is required. I hope you will consider checking it out - very interesting I promise!

It's too early for me to consider any of these stocks for Top 20 - way too speculative (and overvalued, for the most part), but stay tuned over the coming years as we begin to see mainstream players that merit investment.

Have a great weekend!

 

Alan Brochstein, CFA

wwwInvestByModel.com

Top 20 Trades for 9/26

I was concerned that the new name we added today might be too volatile, so I started smaller than my full amount.  The stock offers over 45% to my target, so the position should be average in size, which it will after the buy.  On the other stock, which we sold near the highs in April, it offers about 42%, which merits a position size closer in line with the average for the portfolio.  I like this chart too!

Top 20 Trades

On the acquisition, where I don't expect another bid, we are selling MAKO.  I will have the research report on our buy uploaded shortly...

 

By the way, MAKO may go LT for many investors in the next couple of weeks, so you might consider, if possible, waiting to sell the stock (very little risk to holding).

MAKO Acquired

It looks like a great day for the Top 20 Model Portfolio, as MAKO has been acquired by a large rival, Stryker (SYK) for an almost 100% premium...

Top 20 Trades

Our exit is a challenging situation for me, as I have a lot of confidence in the story longer-term.  Meanwhile, we are up 30% in three months and the stock is very overbought, offering just 21% to my one-year target.  We are also trimming two oversized positions that both return 34-39% to my one-year target, which is slightly below average for the model.  Thus, I think it makes sense to make the positions closer towards average in size.  The Healthcare name is a bit overbought too.  We will be raising some cash - this isn't necessarily on purpose.  Rather, I am not seeing good near-term entries on the stocks in the model and prefer to be patient.  We are adding a new name that offers about double the expected one-year return of the stock we are exiting - see the research on that one.

Fed Flashes Green Light

The action was great this week for bulls despite a rough Friday.  Here is how the models look after the big options expiration today:

Top 20 had a rough Friday, but it managed to outpace the S&P 500 slightly, rising on the week by 1.5% compared to the 1.33% return for the market.  While the September performance has lagged slightly at +4.40% compared to +4.85% for the market, this has been a fantastic quarter, with the 11.77% return for the model far ahead of the 6.99% move by the market.   We avoided a landmine in our exit of OUTR last month.  

Conservative Balanced/Growth squeaked out a very marginal relative gain, rising 1.22% compared to the 1.21% increase in the 60% stock and 40% bond index.  This model has been very consistent and is having  a great year, but it looks like Q3 may be the first quarter in which it has trailed its benchmark since Q2-2012.  So far, it is up 2.86% this quarter, which trails by 1.35%.  This has been a quarter in which conservative stocks, which did very well earlier in the year, have lagged the broad market.  After our buy today, we are now about 65% equities compared to a "neutral" weighting of 60%, while our bond exposure of about 25% is well behind the 40% weighting in our index.

Outlook

Summers is out - I never thought he had a serious chance of approval by Congress.  I continue to think that Janet Yellen will be appointed as Chairman of the Federal Reserve as Bernanke retires in early 2014.  This is likely going to add some volatility to the market.

Speaking of the Fed, they surprised the market by not "tapering".  This "green light" helped drop bond yields and weaken the dollar, sending stocks to new all-time highs.  I continue to think that 1800 should contain upside and expect the market to hit its 2013 high in November.  I am standing by my 1740 year-end forecast, though the chances of being spot-on are about zero!

Articles

• Apogee Enterprises:  Long-term Thesis Intact  - Seeking Alpha
• GrowLife CEO Interview - Seeking Alpha
• Terra Tech CEO Interview - Seeking Alpha
• mCig, Inc.  - 420 Investor (public access)
• American Eagle Outfitters - Liston Street Pulse
• Breakouts - TradeKing

 

Have a great weekend!

 

 

Alan Brochstein, CFA

www.InvestByModel.com

CG/B Trade

Adding to a beaten up position in which I have confidence despite the near-term setback.  The stock is very oversold and offers 40% to my one-year target...

Top 20 Trades

After the pop yesterday, I feel it's finally time to trim the medical device company that is quite speculative.  It was approaching average position size and offers just 32% to my one-year target, which is below average.  We will still have a decent position, but this stock is now somewhat overbought and near resistance.  I might look to add back on a dip, as I am gaining confidence in the company's prospects after a pretty rough 2012 but solid execution in 2013 that has rewarded us despite our premature reentry last year.  The buy, which takes the position from below-average to above-average, offers about 60% to my one-year target.  Like the stock we are trimming was back when we were buying it, it is oversold and out of favor.

Top 20 Trade

This is a tough one, but I am reading between the lines and opting to exit, for now, the stock we are selling.  The company began a tender-auction on Friday that runs through the end of October (past earnings), offering to pay $10-11.50 per share, depending on where investors are willing to sell.  Long story short, I suspect that the next report is going to stink.  Further, the stock, trading near $11, is likely to lag in a rallying market, and it feels like we are in a rallying market.  The return to my one-year target is now just 33%, so it's not one of the more promising stocks , though it should outperform the market.  My goal is to get back in in 45 days or so, after the dutch-auction ends.

The buy is one that should most certainly participate in a rallying market. Please refer to the research, but my target is 38% a year out and could be too conservative. 

Market Continues to Climb

The post-Labor Day rally continued, with the market now up 8 of the 9 trading sessions in September.  Here is how the models look as we head into the "quadruple witching" options expiration next Friday:

Top 20 had been on a tear but retreated slightly this week.  It increased 1.48%, which lagged the S&P 500 by about 0.56% .  So far this quarter, it is up 10.12%, almost double the 5.59% return for the broad market.  The returns were all over the place by stock, with two stand-out losers dragging us down overall.

Conservative Growth/Balanced gained 1.27%, which lagged its 60% stock and 40% bond benchmarket just slightly.  For Q3, the model is up 1.62% compared to a 2.97% return for the index.  

Outlook

No real change here, so I will just repeat that I don't have a lot of conviction.  The market could probe a bit higher if it makes new highs, which are very close to here, but I see some potential risk as well.  We are in the upper part of the 1500-1800 area I expect to persist over the balance of the year.  My gut says we have another five weeks or so to go to hit the 2013 high.

 

WEBINAR REPLAY

• Trading Takeover Candidates for Big Gains

 

Articles

• Big 5 Sporting Goods - Liston Street Pulse
• Deep Value Ideas - TradeKing
• Medical Marijuana, Inc. - Seeking Alpha
• Chico's FAS - Seeking Alpha

 

Have a great weekend!

 

Alan Brochstein, CFA

www.InvestByModel.com