Tag Archives: investing

The V20 Portfolio Week #6: Shift In Portfolio Weights

Summary The V20 Portfolio declined 7.3% against S&P 500’s decline of 3.6%. The biggest position has been trimmed. No purchases were made for Conn’s as the stock has rebounded from its previous lows. Dex Media could be nearing the final verdict. The V20 portfolio is an actively managed portfolio that seeks to achieve annualized return of 20% over the long term. If you are a long-term investor, then this portfolio may be for you. You can read more about how the portfolio works and the associated risks here . Always do your own research before making an investment. Read last week’s update here ! The market has become bearish again. This week was one of the worst weeks for the averages in months, with the S&P 500 slipping 3.6%. Unfortunately, the V20 Portfolio followed suit with a decline of 7.3%. However, due to the strong performance in the previous week, the V20 Portfolio is still positive for the month while the index is down 2.6%. Portfolio Update As I mentioned in last week’s update, this week the V20 Portfolio had to endure its biggest test. Our largest position, MagicJack (NASDAQ: CALL ), reported earnings on Monday. Although initial reactions were positive, the stock has since declined 10% to $10.30. I have been talking about trimming the MagicJack position for a couple of weeks now. Third quarter results were the push that I needed. You can read my analysis of MagicJack’s current situation here . The bottom line is that the company has transitioned into a growth stock. Although I don’t like to admit it, core operation has deteriorated (i.e. lower renewal revenue), and if the trend continues, a significant amount of value will have to come from growth. Because third quarter results were not a “smash hit,” there was no reason to maintain a large position in MagicJack. After Q3 earnings, 50% of the position was sold, lowering the portfolio’s exposure from 39% to 19%. Although I trimmed the position, the company is still around 50% cash, so relatively speaking, the downside is limited. Furthermore, new developments (Hoteligent, Movistar partnership) added significant option value to the stock. If executed well, both partnerships could be highly profitable as there is minimal capital requirement. For that reason, I believe that a 19% weight on MagicJack is justified. Moving on to our now largest position, Conn’s (NASDAQ: CONN ). While I would be happy to add to the position if the stock was trading around $19 (as was the case two weeks ago), the fact that Conn’s has rebounded from its lows means that the stock has now become more expensive than before. For that reason, I’ve decided to stay put for now and wait for a better entry point. Although it is my hope that Conn’s will decline in the near future so I can pick up more shares at a cheaper price, the management is currently executing a share repurchase program, exerting upward pressure on the stock. This is probably the reason why the stock didn’t move much in comparison to its typical volatility (only declined by 4% this week). Looking Forward With earnings season now over, there won’t be as many decisions that we have to make in relation to our holdings’ fundamentals. Nevertheless, the stock market will continue to gyrate in absence of any news, so I will continue to monitor the portfolio and seek opportunities to trim or add as I have done with MagicJack this week. There is one thing that we can look forward to however. I haven’t talked too much about Dex Media (NASDAQ: DXM ) since the position is so small (0.4%). You can find a brief overview of the company in the portfolio introduction. The initial investment rationale was that there was a chance that restructuring could provide a favorable outcome for shareholders (e.g. extending maturity). Currently, the sentiment is very negative. Although there were no official news, the stock was down 50% on Friday on rumor that the company will be pushed into bankruptcy. I invested in Dex Media with the knowledge that there was a high risk of bankruptcy, hence I sized the position carefully, so I am not too concerned. Given current prices, it is clear that the market believes that equity holders will be completely wiped out in the resulting restructuring. Of course, if equity holders do get a stake or if maturities are extended, shares could appreciate significantly. With official filing expected in December (according to the rumor), this is definitely something that we should look out for. Given the portfolio’s current weight on Dex Media, this is really a situation where it’s heads I win, tails I lose very little. Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Retail Investors Pull Back From Equity And Bond Funds

For the fund flows week ended November 11, the benchmark Dow Jones Industrial Average lost 165 points to settle at 17,702. Equity mutual fund investors made net redemptions of $1.7 billion for the week (of which $765 million was from large-cap funds), while equity exchange-traded funds saw net inflows of $643 million. A sour market in bonds (a decline of 0.64% for the week) may have led bond mutual fund investors to redeem shares. Overall, taxable bond mutual funds saw net outflows of $875 million for the week, which was the first outflow after four previous weeks of inflow activity. Money market funds saw net inflows of $6.5 billion, of which institutional investors added $11.3 billion and retail investors cashed out $4.8 billion. By Jeff Tjornehoj For the fund flows week ended November 11, the benchmark Dow Jones Industrial Average lost 165 points to settle at 17,702. Equity mutual fund investors made net redemptions of $1.7 billion for the week (of which $765 million was from large-cap funds), while equity exchange-traded funds (ETFs) saw net inflows of $643 million; investors backed out of the SPDR S&P 500 Trust ETF ( SPY , -$1.5 billion) and made modest contributions to the iShares Russell 2000 ETF ( IWM , +$1.6 billion) and the iShares MSCI EAFE ETF ( EFA , +$1.3 billion). A sour market in bonds (a decline of 0.64% for the week) may have led bond mutual fund investors to redeem shares. Overall, taxable bond mutual funds saw net outflows of $875 million for the week, which was the first outflow after four previous weeks of inflow activity. With no end in sight to the asset bleeding, Lipper’s Loan Participation Funds classification (-$213 million) marked 16 weeks of outflows by retail investors. Like their equity counterparts, high yield funds suffered outflows (-$543 million) among mutual fund investors, but unlike equities also saw net outflows on the ETF side (-$1.3 billion). Overall, bond ETFs saw $2.8 billion of net outflows. The week’s biggest bond ETF net outflows belonged to the SPDR Barclays Capital High Yield Bond ETF ( JNK , -$1.2 billion), while the iShares Core Total US Bond Market ETF ( AGG , +1.3 billion) led the net inflows list. Municipal bond mutual fund investors added $229 million net to their accounts, and those funds now have had inflows for six straight weeks – for their best showing since March. Money market funds saw net inflows of $6.5 billion, of which institutional investors added $11.3 billion and retail investors cashed out $4.8 billion. For more analysis please watch this video:

Buy Dominion Resources For A Nice Dividend And High Analyst Price Targets

Merrill Lynch has a price target 17% above current price of $67.9. Analysts are getting generally more positive on utilities after a year of relative underperformance. The company is one of the safest investments in the market right now. In his now legendary book, The Intelligent Investor, Benjamin Graham writes that the goal of a conservative investor is to look for investments that are likely to provide safety of principle and an adequate return. His disciple, Warren Buffett has put it slightly differently saying, “The first rule of investing is don’t lose money. The second rule is don’t forget the first rule.” Utility companies in general are a good place to look for this type of conservative investment, and it doesn’t get any safer than Dominion Resources, Inc. (NYSE: D ). D is one of the nation’s largest utilities with a market cap of over $40 billion and rock solid fundamentals. In addition to the company’s great fundamentals is the fact that analysts are lining up with price targets higher than the current price across the board. Merrill Lynch recently set a price target of $80 a share. While this is one of the higher targets, the mean target among a relatively large sample of 17 brokers isn’t far off at $78. Both of these figures provide generous upside to the stock, especially for a utility company that usually trades within a tight range. Research firm Guggenhiem also rates the stock a “buy”. D recently posted quarterly YoY earnings growth of 12% with a profit margin of almost 15%. This is a much higher margin than the industry average of 8-10%. With a forward P/E of 17, the company looks fairly valued. While 17 is slightly higher than average for a utilities company, in this case the higher multiple reflects the high quality of the company. As mentioned above, there aren’t very many utility companies that have 12% margins are growing the bottom line by 15%. This helps to make the 3.7% dividend sustainable. The company’s ROE of 14.54% is also quite strong for a utilities company, so it appears as if D is outperforming the industry pretty much across the board. As if all of the above weren’t enough to convince the conservative investor in the value of D as a safe long term bet, the stock has been picked as a top dividend stock by the Dividend Channel’s “DividendRank” report . The lowest the stock has traded in the last 52 weeks is $64 a share, which is only $4 below the current price, which is a technical indicator that points to short term upside. So by almost any measurement the stock is either fairly valued or undervalued. I rank the stock a strong “buy” for the investor looking for long term safety of principle and an adequate return. And of course we can collect the nice dividend while we wait.