Shesa's APRIL 2014 INVESTMENT BLOG
13
April 2014
APRIL 2014 Investment Blog
Shesa Nayak
Market
Commentary
Welcome to my APRIL
investment blog. As usual, let’s take a quick glance to the current market
phenomena and what we can expect going forward.
Last few weeks have not
been very exciting news for the investors. The market has pulled back
significantly. The DOW Jones Industrial Average closed this
Friday at 16026.75, S&P 500 closed at 1815.69 and NASDAQ closed
at 3999.73. Meanwhile, S&P did hit all time high of 1890.90 on 2nd
April but after that things have not gone well. In last 2 days itself NASDAQ
has corrected almost 5%. On 10th April, The Labor Department said that the number of people applying for
U.S. unemployment benefits dropped to 300,000, the lowest level in nearly seven
years. But this good news was rather a bad news for the market as investors felt
that there will be no further QE and that the interest rate could go up.
Current
Market Trend: As I wrote last month, “I am sure we are enjoying
the market ride but please be prepared to take a moment to think about downside
and position ourselves accordingly”. In last few weeks, Biotech
sector and momentum stocks in particular are the hardest hit. I do not think that money is leaving the stock market. Instead,
it has rotated from high valuation growth stocks to dividend stocks. It looks like profit taking could be attributed as one of
the reason. There
is no reason to panic. Such downturn provides investor the
opportunity to buy those equities, which we were not able to buy as they were
flying high. It provides an opportunity to accumulate fundamentally superior
stocks, Mutual Funds, ETF and Bond for long term. There are many momentum
stocks those lost more than 20-30% of their value from the pick. The dividend
paying stocks such as AGNC, NLY and others will do well in such market
environment. Moreover, earnings season has started and I feel that
market will bounce back before it starts to pull back again.
Investment
Strategies
Earlier in my blog I wrote about a few investment
strategies as below:
·
Not to Lose money on Investment
·
Criteria of a successful investor
·
Diversification of portfolio
·
Remain Invested with a discipline
·
Control your Greed
and Fear
Now let’s continue and discuss some more
strategies to continue our earlier discussion.
Get greedy when others are fearful
Warren Buffet said “get greedy when others are
fearful”. Often it’s seen with companies who are fundamentally strong, great
management team and good products, reasonable valuation, good revenue and profit
growth but still stocks get beaten down heavily. Why? Because they could have missed
an earnings estimate or did not meet growth forecasted by Wall Street analysts.
When such phenomenon occurs, that may be a good time to initiate a new position
or accumulate it. Coincidently, be careful that you are not trying to catch a
falling knife. Sometime it’s difficult to find out whether it’s just a negative
sentiment or a falling knife. Be mindful what the analyst or media says but do
your own research, bank on your experience and take your decision. If you
recall, Year 2000 dot-com burst, 2008 financial crisis, everybody
was running away from stocks as if it was the end of the world. I remember some
analysts calling fair value of DOW Jones at 800 points and NASDAQ at 600
points. Some of the blue chip stocks like Citi Bank had become penny stock <
$1. Where are they today?? If you bought some of the blue chip stocks at that
time and hold it then the return could be more than several hundred %. But those
who got out of market and remained in the sideline after that market collapse; it
must have been a painful experience not to take advantage of the zooming stock
market. Such market phenomena create compelling buying opportunity but the
cleaver money should make the most of it. However, we feel that he/she was not
right on the decision then we should not forget the exit strategy.
This month I am looking into another Growth Company and a
Mutual Fund.
I have been
thinking of writing about Amazon on my Blog for a while but waited for the
right opportunity and price to take a position on Amazon. I had taken some
position when the stock was around $26. Though it has gone up significantly
after that, I still believe it is worth considering for new position. As we are
aware, Amazon happens to be the king of all retailers with $74.45 Billion in
Revenue. Its Revenue growth is around 20%. Amazon started as a Bookseller and
went on hype during the Internet bubble and then smacked to the earth when
share value dropped to less than $6 in 2001. But after that the rest is
history. It has become Walmart of online shopping. Off late, they have added so
many warehouses to facilitate faster delivery of goods. Also their customer
service happens to be one of the best in business. Recently, they came out with
its Fire TV device for streaming video content. This sleek device costs
$99. For Amazon, it may not be about hardware sales, rather selling more
digital content to consumers. With Fire TV, users get instant access to over
200,000 movies and TV shows not only from Amazon Instant Video but also from
third-party apps like Netflix and ESPN. Also the company company's recently
announced that it will now charge $99 per year for its Prime subscription,
up from $79 per year. Amazon has more than 20 million prime users and this
price $ 20 price hike could add $400 million its bottom line. Another catalyst
is recently Amazon added grocery delivery service, provides consumers in
Southern California, Seattle, and San Francisco with same-day and early-morning
delivery of fresh groceries, everyday essentials, local products, and items
from Amazon.com. All these things
added Amazon is a compelling investment opportunity, a company that’s expected
to dominate years to come.
Fundamentals: Revenue growth has been over 20%. But one gray area for the company
is its profitability. It still managed to generate a net income of $239 million
last quarter, or $0.51 per diluted share, compared with $97 million or $0.21
per diluted share in the corresponding 4th quarter of 2012. The
company is still emphasizing on growth and not profit, which may be a concern
for shareholders. But as long as there is growth and the equity value keeps
increasing one should be very happy as an investor. The recent pull back in its
share price from $408 to $311, almost 24% makes it an attractive entry point.
The future PE looks expensive even after the correction. But if we invest for
long term, that should not be a major concern since it keeps growing its market
share. I believe Amazon is one company that is going to keep growing its market
share for time to come. Please note that, Amazon is an aggressive and volatile
stock and there are risks associated. I could buy some now and keep
accumulating with further correction.
Fidelity Select
Chemicals Portfolio (FSCHX): This is another very good
mutual fund that I could see with solid potential for investment. I kept this
in my watch list last month. The fund has given tremendous return in last
several years. As I said, past performance is not always the reflection of
future return. While choosing a mutual fund we can analyze a lot of factors impacting
a fund before
deciding to buy. Please note that Mutual Funds are long-term investment
and not short term trading. Therefore, I would like to buy only if I have
longer time horizon in mind. Also it’s a
good practice to invest minimum requirement amount in the beginning and then
keep adding small recurring amount each month or every few months.
Let’s look
to this fund performance as of 3/31/14:
1 Year
|
3 Year
|
5 Year
|
10 Year
|
Life of Fund
|
|
FSCHX
|
26.82%
|
16.80%
|
28.92%
|
15.60%
|
14.61%
|
NAV: 142.14
Morningstar Rating: *****
Minimum Investment: $2500
Load: No Load in most of
the brokerage. Always avoid any load/transaction fees.
Expense Ratio: 0.83%,
Beta: 1.39 è Risk: this is little aggressive fund
Fund Manager tenure: 4+
years (since 4/1/2010).
In my
earlier blog(s), I mentioned about a couple of mutual funds (See table). Now
that the market has taken some beating it may be a good opportunity to initiate
a new position or keep accumulating for long term. However, we should re-visit
and re-balance our portfolio whenever required, probably once in a quarter or
few quarters.
Stock Profile (updated
4/12/2014)
|
||||
Equity
|
Suggested Price (USD)
|
Current Price (USD)
|
Suggested Date
|
My Opinion (see disclaimer)
|
STOCK
|
||||
AAPL
|
400, 443
|
519.61
|
1/25/13
|
BUY
|
BIDU
|
86.43
|
149.74
|
4/18/13
|
BUY
|
GG
|
27
|
24.09
|
4/1/13
|
BUY
|
GOGO
|
14
|
18.19
|
9/1/13
|
HOLD (see update)
|
SLW
|
22
|
22.27
|
10/1/13
|
BUY
|
FB
|
47
|
58.53
|
11/13/13
|
BUY
|
TSLA
|
135
|
203.78
|
11/13/13
|
HOLD (see update)
|
AGNC
|
$25.3, $20.02
|
22.39
|
6/1/13,
12/14/13
|
BUY
|
MA
|
78.7
|
68.68
|
12/12/13
|
BUY
|
EXEL
|
5.82
|
3.37
|
12/12/13
|
HOLD/Sell on bounce. See update.
|
NLY
|
10.77
|
11.46
|
2/2/14
|
BUY
|
KO
|
38.55
|
38.63
|
3/9/14
|
BUY
|
KNDI
|
19.4
|
12.26
|
3/9/14
|
HOLD (see update)
|
AMZN
|
311.73
|
311.73
|
4/12/14
|
BUY - New
|
ETF
|
||||
GDX
|
27
|
24.22
|
4/1/13
|
BUY
|
EDC
|
25, 25.45
|
27.64
|
7/1/13, 1/2/14
|
BUY
|
MUTUAL FUND
|
||||
FBIOX
|
128
|
172.44
|
3/1/13
|
Accumulate
|
PRHSX
|
60
|
56.78
|
2/2/14
|
Accumulate
|
FSCHX
|
142.24
|
142.24
|
4/12/14
|
BUY - New
|
STOCK
Updates:
TESLA Motors (TSLA): Looks to me a good buy at the moment. I think this is
another company that is going to dominate the future. No body knows the future
but that’s my thought.
EXEL, Inc. (EXEL):
EXEL
has lost almost 40-50% of its value in last few weeks. The company had some
disappointment over Prostate cancer drug trial as the company was asked to continue
to the final analysis that is expected later this year. This is being taken
by market as negative and stock got hammered. Unless there is a major
catalyst it will not go much higher. I will look to sell most of my position
with any bounce.
Kandi
Technologies (KNDI): This compnay was one of the high flyer. But with the
overall market down turn most of the momentum stocks have been beaten very
badly. But I will hold on to this stock. If you are a long term investor then I
think it has a strong future potenatial. The good news is that the Chinese
government could waive the 10 percent auto-purchase tax for new electric cars
and slow down the reduction of government subsidies beyond 2015.
GOGO Inc. (GOGO): Off late, this company shares have
been tumbling and not much of bounce. But I would like to have patience with
this company. This company dominates the in-flight Internet connectivity and wireless
services. A few days ago GOGO singed and agreement with Boeing wherein Boeing
will initiate evaluating Gogo's suite of technology solutions on its commercial
aircraft. I
believe that someday this company will be acquired. Anyway, it needs patience
at this point.
Economy Report to expect next week
Monday: Retail Sales, Consumer
Price Index (CPI), Business Inventories
Wednesday: Housing Starts and
Building Permits, Industrial Production
Thursday: Initial Claims for
Unemployment.
Folks, that’s all for today. Hope you are enjoying
the market ride but please be prepared to take a moment to think about downside
and position ourselves. There will be corrections but one should not get
panicked. Thanks for your time 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 personal opinion
rather than professional recommendation to buy/sell any stock, ETF, mutual fund
or any other security(s). As an investor, it’s your hard earned money and you
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 blog. I have position on whatever security I write on
the blog and avoid recommending any security that I do not follow.
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