Shesa's DECEMBER 2013 INVESTMENT BLOG

14 December 2013

December 2013 Investment Blog

Shesa Nayak

Market Commentary:

The DOW Jones Industrial Average closed at 15,755.71, NASDAQ closed at 4,007.22 and S&P 500 closed at 1,776.52. Late November DOW crossed 16000 points and S&P 500 crossed 1800 points for the first time in US stock market history. NASDAQ crossed 4000 points but its high was 4572 points in Jan 2000. So we may have to wait at least some more time for NASDAQ to make a new high. In the last few days, markets are in down turn except some minor gains. Market Analysts feel that the economy is doing well and Federal Reserve will soon stop buying bonds causing interest rate to go up. It may happen some day but I personally feel that Fed will not put a brake since inflation is still pretty low. They do not want to bring the economy to deflation. I feel that tapering would not happen until mid next year. US stocks moved higher Friday morning after three straight losing sessions following the House of Representatives' approving a two-year budget deal, averting another government shutdown.

Expect Year End volatility:

Market could tend to be volatile towards the end of the year as people investors may sell their losers in order to take capital loss. In addition, investor will also take profit from some of the stocks those performed well during the year. Coincidently, some of the mutual fund managers or financial institutions will try to add some blue chip securities to show their clients that they hold those great stocks! Please note that market tend to go higher after Christmas till the New Year and then it could potentially take either direction (up/down). It's dangerous to be highly aggressive but if you become too conservative then you may lose potential winners and great return! Hence it's always advisable to diligently decide on your investment mix. It all depends on your available capital, age, risk taking capability, patience to hold long term and so on.. Unfortunately, there is no single concrete answer to such questions. It all depends upon what investment principle and discipline you follow! Well, I will write more on the investment strategy later this month or on my January Blog. Stay tuned!

STOCK

This month I would like to talk about 3 stocks that I think have future potential. So let’s go straight there. Please note that these are my own analysis and projection but you have to do your homework before taking any decision. This month I have added a table at the end of the article indicating the stocks that I recommended during 2013 and their current status. I have also added a comment column to emphasize my thought.

MASTER CARD Incorporated (MA):

I recommended this stock to a lot of my friends way back in 2006 when it went public at around $42. Many folks bought it and some did not. The stock went up around 40-50% in just few months time and many of them insisted to sell it around $70. Their contention was that, they already have more than 50% return within a couple of months so better take profit and get out. My suggestion was to take some profit out of the table and sit tight. Today the stock is $788. The folks who hold this stock with patience must have hit a jackpot... do I need to say more! Such opportunity rarely comes during the lifetime!! So the question is, whether Master Card is still a good buying opportunity after such a marathon run? I guess yes! The reason: Last Tuesday after the close of the market, MasterCard declared that it will split its stock 10-for-1 effective after market close on January 9th. Shareholders will receive 9 additional shares on January 21. So if you have 1 share you will get 10 shares on Jan 21, 2014. It also announced 83% increase to its quarterly dividend to $1.10 per share, or a split-adjusted 11 cents per share. Master Card also issued a new $3.5 billion share buyback program. After the stock split, you can buy Master Card stock at around $78 assuming it stands around $788 by Jan 9^th. This split will invite more buyers. The company is still growing its quarterly revenue of around 16% and profit of about 14%. It has about $6 Billion of cash on its Balance Sheet. Return on Equity is massive 42%. The forward earning stands at 25.3% that makes it little expensive. But the share buy back may bring it down further. Hence I still feel it is a good buy for long-term investors. But a word of caution, the stock is almost on its 52 weeks high. I personally avoid buying any stock top on its pick. One should have some margin if it falls. So you can put a limit order with your own comfort level and wait for a little correction. Around $760 could be the right opportunity to take some position. In case, it comes down further it may be a good idea to do dollar cost average. If it does not come down then you may have to increase your bid.

American Capital Agency Corp (AGNC):

I wrote about this stock in June 2013. Since then the stock has corrected as interest rate has shot up. This company operates as a real estate investment trust (REIT) and invests in mortgage related assets. Currently it has dividend yield of about 15.7%. For last 5 years they have history of Avg. dividend of about 20%. The share is currently trading near its 52 week low at $20.02. As a matter of fact, it may be worth considering 1-2% of your portfolio value in such dividend paying stock as part of a diversified portfolio. But there is a risk associated to the high yield dividend paying stock because they fund the dividend by issuing additional shares. In addition, as an investor one should be aware that Fed's actions will have serious repercussions on such REIT investments. There could be further potential dividend cut going forward and no body knows for sure. However, my feeling is that it has gone too negative and most of the risks are built into the stock. Irrespective of all these risks, it would make sense to allocate a small percentage of your portfolio. I do not visualize any significant deep from here. In my next issue I will write another great dividend paying stock, which currently pays a hefty dividend.

Exelixis Inc (EXEL):

Last month I did put this stock on my watch list. The stock was around $5.19. Now the stock is around $5.82. This is a biotechnology company, engages in developing small molecule therapies for the treatment of cancer in the United States. It has long pipeline of cancer drug trial in Phase II and Phase III. A lot of results are expected during 2014. Exelexis has two late-stage clinical studies under way known as COMET-1 and COMET-2 for treating castration-resistant prostate cancer, or CRPC. Exelixis is expecting overall survival data from the COMET-1 study and pain palliation data from the COMET-2 study in 2014. It presented in the Annual Piper Jaffray Healthcare Conference on December 3, 2013 and looks promising! If the prostate cancer studies go very well, Exelixis could skyrocket. If not, it has some other pipelines too. But this is an aggressive biotech stock and speculative in nature. As I always say, such stocks could sky rocket or fall 30-40% down on one day depending on the FDA approval or any such major news. It all depends on how much risk you want to take. But one should not put too much money, probably restricting to 2-3% of portfolio value could be OK.

GOGO update:

As we all know GOGO did shot up to $35 then pulling back in last few trading sessions to $29.27. Why is this correction? First of all, none of the stock goes upward forever. Hence GOGO is no exception. Secondly, the 180-day lockup period will expire on 17^th December, following the June 20 IPO. This unlocking will allow the shares to be sold by directors, executives and largely held by private equity firms. It does not necessarily mean that all the vested stocks will be sold. However, GOGO had a marathon run in last few weeks so it’s obvious that some profit taking is on the card. Moreover, many folks who hold large bunch of stocks would like to diversify their portfolio. Hence, this sudden increase in supply of GOGO shares will likely lead to dip in the price of the shares at least temporarily. I believe it will create a good buying opportunity for all of us who are waiting for a dip. It may be wise to put a limit order per your comfort level and wait for the right opportunity. How long you want to wait is dependent on each individual’s risk assessment. But if you are really interested to get invested in this stock then make sure that you do not miss the boat!

AAPL (AAPL) update:

Based on Wall Street Journal, Apple Inc. has signed up agreement with China Mobile (CHL) to sell its iPhone. As I wrote last month on my blog, if that happens it will be a big catalyst for Apple. China mobile has more than 750 million subscribers. Even if Apple gets about 10% of those subscribers it will sell around 75 million iPhones. I also believe that Apple will have a strong next quarter. Only time can tell. But I personally feel that Apple should have a good 2014 resulting of the deal with China Mobile and other products pipeline. In addition, it has more than $147 billion in Cash and around 2.3% dividend, forward P/E less than 12! So I strongly feel that this giant should have a place in one’s portfolio.

STOCKS ON WATCH LIST: MZOR

Shesa's Stock Recommendations - 2013
Stock	Suggested Price (in USD)	Current Price (in USD)	Suggested	Comment
Apple (AAPL)	400, 443	$554	12/1/2011, 1/25/13	Accumulate on further dip
FBIOX	128.00	172.54	March-13	Hold
BIDU	86.43	171.24	April-13	Take some Profit and HOLD
PONDX	12.50	12.27	April-13	HOLD
GDX	27.00	21.11	April-13	Accumulate on further dip
GG	27.00	21.06	April-13	Accumulate on further dip
EDC	25.00	26.45	July-13	Accumulate on further dip
GOGO	14.00	29.27	September-13	Accumulate on further dip
SLW	22.00	20.36	October-13	Accumulate on further dip
SODA	55.80	51.22	November-13	Accumulate on further dip
FB	47.00	53.32	November-13	HOLD/Buy below $47
TSLA	135.00	147.65	November-13	Accumulate on further dip
AGNC	$25.3, $20.02	20 (15% Dividend not factored in)	6/1/2013, 12/14/13	Buy at Curent Price
MA	New $760 or current price	787	December-13	Limit Order around $760 or CP
EXEL (New)	New @5.40	5.82	December-13	Limit Order around $5.40 or CP

That’s all for today. I will write my investment ideas in next issue later this month or early next year. Stay tuned!! Thanks for your interest in reading my blog. Please feel free to send me your comments and suggestions to shesa.nayak@gmail.com

Disclaimer: This blog is meant to provide my own opinion rather than professional recommendation to buy/sell any stock, ETF, mutual fund or any other security. As an investor, it’s your hard earned money and you should decide what is best for you. The above are merely my own recommendation(s) and please contact a professional money manager to buy/sell any security. I do not earn any money by writing such article. I have position on whatever security I write on the blog and avoid recommending any security if I do not own it.