Shesa's SEPTEMBER 2015 INVESTMENT BLOG

            13 Sep 2015

SEPTEMBER 2015 Investment Blog

Shesa Nayak  

U.S. Stock Market Commentary

Hello friends, welcome to my monthly investment blog. First let’s take a quick look to the U.S. Stock Market Indexes.

U.S. Indexes	2-Jan-15	Friday Close	Year-to-Date Change	YTD % Change
DOW Jones	17823.07	16,433.09	-1,389.98	-7.80 ê
S&P 500	2058.9	1961.05	-97.85	-4.75 ê
NASDAQ	4736.05	4,822.34	86.29	1.82 é

Major Economy News around the World

• China’s economic worries continued to dominate the headlines. In August, Chinese exports declined 5.5% and imports declined 13.8%, which continued the trend of July's decline. It is obvious that China's economic growth has slowed down substantially.
• Eurozone GDP expanded at a 1.6% annual pace, or 0.4%, in the second quarter, which was up from previous estimates for 0.2% growth.
• U.S. unemployment rate dropped to 5.1% in August. A full one-point drop in unemployment comparing to last year. So is the job market really booming? Please read below…

Will FED hike interest rate this week?

Mark your calendar for Sept 17^th. The FED is expected to announce interest rate hike. I still do not think they will do. Why not increase interest rate if economy and job market is booming? As I wrote in my August blog, corporate earnings declined about 1% in the last quarter. As far as job market is concerned, the only reason unemployment rate is going down is because more service jobs created - everything from bartenders to home healthcare workers. It is not really high paid skilled jobs are created. Also, there is not much wage growth. In fact, U.S. lost about 17,000 manufacturing jobs last month. So you can imagine the real picture…

The market is on a roller coaster now. U.S. Dollar Index has increased nearly 15% in last one year with anticipation that Fed will raise interest rate. This is impacting emerging markets, commodities, manufacturing sectors and many others. Fed has been touting to increase the interest rate for past 3 meetings. It’s better that Fed raises interest rate by a quarter point without triggering a financial earthquake. It would be “sell on news”, after that we could see a market bounce. The stock market does not like uncertainty. However, I am less optimistic that they will raise interest rate in the next meeting. Let’s wait and watch for 17^th September..

Market Correction or Bear Market? A few days ago, I updated my Google groups member and Blog about recent market correction. Let me quickly recap for the benefit of all my blog readers. The stock market has been on roller coaster for last few weeks starting Monday, August 24, when DOW Jones plummeted 1089.4 points in the first few minutes of market opening. Ultimately, the market recovered and DOW closed -588.40 at 15,871.28 points. The major concern is, Chinese economy may be slowing much faster than anticipated and Federal Reserve could hike interest rate. China is the world's second-biggest economy, which has seen explosive growth in last several years. When China’s growth slows down, all other economy around the world gets impacted.

The market sentiment is bearish now due to market correction. Correction is termed when the equity falls at least 10% to adjust for an overvaluation. It could develop to a bear market wherein market goes down more than 20%. No body knows which direction the market will take or whether it will bounce back. Hence it’s a futile exercise to predict the market rather focus on strategy for both downturn and up-turn. Now let’s discuss more on this..

Strategy for Market downturn and gain from market upturn

Everybody has his or her own strategy. But I am putting below some of my strategies. It does not necessarily fit to others. One should always evaluate risk tolerance, age, timeframe, amount available for investment and decide what is best for him/her.

The first thing is to raise cash level by taking some profit, selling some losers, trimming some positions. This may include Stock, ETF, Mutual Funds, and Bonds. Having some cash reserve helps not to be emotional when market comes down. Rather, it provides a buying opportunity to buy great stock at a much cheaper price. In addition, it minimizes the damage when market is beaten. If market does not come down, it’s OK to again get into the market and pay little extra. That’s the premium we should be ready to pay for mitigating risk rather than losing significant portion of our portfolio. Having said that, it’s extremely difficult to time the market rather use our own knowledge, experience and analysis when to get in or get out of market. If not, we should go long term and sit tight for market to recover. But if we look back to 1999 and 2008 market crash then it could be a dangerous strategy!

Identifying some good equities that one would like to buy when market falls. During market correction, the stocks are beaten down significantly irrespective of their fundamentals and technical. Some good stock with great fundamentals and momentum tend to recover fast once the up-trend begins. It may be a good idea to keep that in the shopping list. Determine what would be a good price to take an initial position. If the price does not come to limit that is set then re-visit the limit price. After buying, if price falls further then keep adding and do dollar cost average. It may not be advisable to buy everything at once since it’s difficult to judge what’s the bottom of a stock.

Hedge the portfolio by buying some bear fund. In other words, these are the equity which go up when the market goes down. For example, if I have FBIOX, which is of high weightage in my portfolio, then I may add some BIS to hedge against any downturn. This could recover some loss even if the market and FBIOX goes down. Buying some Gold related stock/fund could also help during uncertain period in an inflationary situation. However, gold may not be advisable in a deflationary situation. Moreover, I believe hedging should not be more than 10% of portfolio value.

If an investor has a trading account then shorting some stocks may protect from losses. But I personally do not like shorting stocks as I feel it very risky.

Buying some Leap with sufficient time on hand could be worthy as it can provide significant return on limited investment. However, buying option is very risky and it’s better to avoid unless one is very familiar and comfortable with higher risk.

Trimming Mutual Funds: Though Mutual Funds are long-term investment it could also lose substantial values during downturn. These are not very flexible to buy and sell. Hence, one could trim some part of the mutual fund and invest that money in a better stock/ETF, which is expected to do better.

Now let’s discuss about this month’s addition to my Blog Portfolio.

Altria Group Inc. (MO)

Altria Group, Inc. is one of the world's largest tobacco corporations founded in 1985. The group is in existence since 1822. Its subsidiaries include Phillip Morris International, Phillip Morris USA. Altria Group, through its subsidiaries, it manufactures and sells cigarettes, smokeless products, and wine in the United States and internationally. It offers cigarettes primarily under the Marlboro brand; cigars principally under the Black & Mild brand and many other brands. It sells its tobacco products primarily to wholesalers, including distributors; large retail organizations, such as chain stores; and the armed services.

Why do I like this stock?

Alteria group is fundamentally very strong company which is growing its revenue and profits since many decades. It has great brands in tobacco not only in USA but also across the world. MO is a market leader in its own space. In addition to strong fundamentals, it has also handsome dividend of 4.2%. The company keeps increasing its dividend year over year. Thus, we get stock price appreciation as well as dividend accumulation. The stock is currently trading at $52.59, about 7% below its 52-week high. In such market uncertainty, we get great value of our investment for growth and dividend. This is one of the stable stock in a volatile market. I bought the stock a couple of years ago and added more recently. It has been a great addition to my portfolio. Now let’s analyze the fundamentals.

Market Cap: $103.11 Billion

Revenue: $18.51 Billion

Profit: 5.09 Billion

Earnings Per Share (EPS): $2.59

PE Ratio: 20.61, Forward PE: 17.47

Quarterly Revenue Growth: 6.7%, Profit Growth: 14.7%

Institutional Holding: 60.1%

Return on Equity (ROE): 140%

Total Cash: 1.12 Billion

Dividend: 4.23%, Beta: 0.90

Risk: Alteria group primarily deals with tobacco products. There were many lawsuits a few years ago. The stock had plummeted from $75 to $22 in Jan 2008. However, after the settlement of lawsuits the company has not looked back since 2008 and has gone up and up. Hence I think this is a stock one can invest for long term unless any significant changes take place.

Blog Portfolio

Note: It’s always a good practice to keep taking profit when a stock goes up certain %age. I may not able to remove from my blog portfolio if I hold some position but I try to take profit/los whenever I feel the stock has gone up/down certain %age point.

Equity	Suggested Price (USD)	Current Price (USD)	Suggested Date	% Changes	My Opinion (see disclaimer)
STOCK
AAPL	56.12	114.21	1/25/13	104%	BUY
BIDU	86.43	144.03	4/18/13	67%	BUY
GOGO	14	15.18	9/1/13	8%	HOLD
SLW	22	11.62	10/1/13	-47%	HOLD
FB	47	92.05	11/13/13	96%	HOLD
TSLA	135	250.24	11/13/13	85%	HOLD
AGNC	16.54	19.08	12/14/13	15%	HOLD
MA	78.7	91.35	12/12/13	16%	HOLD
NLY	8.92	10.09	2/2/14	13%	HOLD
KO	36	38.48	3/9/14	7%	SOLD on 9/10 @38.48
AMZN	311.73	529.44	4/12/14	70%	HOLD
BAC	14.64	16.04	5/11/14	10%	BUY
BX	33.33	34.01	8/24/14	2%	HOLD
VIPS	22.68	16.34	11/23/14	-28%	BUY
GILD	102.21	109.63	1/11/15	7%	BUY
ALNY	89.1	107.7	2/6/15	21%	BUY
IBN	10.5	8.28	4/12/15	-21%	HOLD
SFUN	9.95	5.67	6/14/15	-43%	HOLD
EGO	3.4	2.74	7/17/15	-19%	HOLD
AXP	80.91	75.5	8/16/15	-7%	BUY
MO	52.59	52.59	9/13/15	0%	NEW BUY
ETF
GDX	27	13.21	4/1/13	-51%	HOLD
NUGT	27.38	2.71	9/21/14	-90%	HOLD
INDA	31.94	27.69	3/15/15	-13%	HOLD
ASHR	36.66	33.33	3/15/15	-9%	BUY
USO	16.8	14.65	3/15/15	-13%	HOLD
INCO	34.46	31.77	5/15/15	-8%	BUY
IHF	139.39	133.66	8/16/15	-4%	BUY
XLY	78.36	75.72	8/16/15	-3%	BUY
MUTUAL FUND
FBIOX	117.73	260.49	3/1/13	121%	HOLD
PRHSX	55.17	79.56	2/2/14	44%	HOLD
FSCHX	137.34	124.78	4/12/14	-9%	HOLD
FSCRX	27.3	27.99	10/25/14	3%	HOLD
GASFX	28.51	26.32	12/20/14	-8%	HOLD
PRMTX	63.52	67.81	12/20/14	7%	HOLD
FHKCX	30.52	27.15	2/8/15	-11%	HOLD
MINDX	26.94	26.17	6/14/15	-3%	BUY
** DIV are included in suggested Price after end of the year. Hence price is adjusted.

Company Updates

APPLE (AAPL): Last Wednesday, 9/9, Apple revealed iPhone 6s, iPhone 6s Plus, Apple TV, iPad Pro, iOS9. In iPhone there are no significant changes. It’s more powerful, stronger and has higher resolution. They have also added 3D Touch interface and camera takes 4K video. These phones will be available to pre-order in the U.S. and select countries on 9/12 and available on stores on 9/25. 

Secondly, the company also revealed dramatic upgrades to the Apple TV. Apple developed a special operating system, tvOS, for the smart television.

Third, Apple announced the new iPad Pro, which is now as powerful as many laptops. The battery life has also been improved. Finally, Apple developed a new operating system for the Apple Watch. It’s also making iOS 9 free for iPhone, iPad and iPod users starting September 16.                         <BUY>

NUGT: NUGT was supposed to undergo a 1-for-10 reverse split Sept. 10. Due to certain issues, the reverse split will take effect on October 1. Holders get one share of the ETF for every 10 they own. Despite herculean loss I am still holding.  <HOLD>

Major Economic Report next week (week 09/14/15)

Tuesday:  Retail Sales, Industrial Production, and Business Inventories

Wednesday: Consumer Price Index è this is very important report

Thursday:  Initial Claims for Unemployment, Housing starts and Building permits

Friday:  Index of leading economic indicators

Also you can go to the following URL for more updates:

http://www.marketwatch.com/Economy-Politics/Calendars/Economic

Source: Marketwatch.com

That’s all for today. Wish you good investing! Stay tuned for my OCT 2015 blog. Thanks for your time. If you want to get alert on my action then please subscribe to shesagroup_invest@googlegroups.com. Also, feel free to send me your comments and suggestions or alert request 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 opinions. Please contact a professional money manager to buy/sell any security. I do not earn any commission by writing the blog. I have position(s) on whatever security I write on my blog and avoid recommending any security that I do not own or follow.

Note: Click on Blog archives to read all my Blogs and updates.