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Is The Commodity Bull Market Over?

We are in the midst of a pullback in commodities and their related stocks. Is this the end of the bull market in commodities? I think not. The commodity bull run is a multivariate model. One variable was the foreign exchange factor.  As the dollar weakened, the price of commodities in dollar terms rose. This week the dollar strengthened after the market interpreted the most recent FOMC statement as sending a signal that the monetary body is likely to end its most recent cycle of interest rate cuts.

However, foreign exchange is only a part of the commodity story. Global demand outside of the United States is driving the commodity bull markets and will do so for many years. Oil demand is rising by 3% or more a year while production is flat to declining slightly.  Ethanol production is taking much need grains out of production driving food prices higher. Global construction is utilizing increasing amounts of metal and steel. This is not going away anytime soon. Furthermore, if the attempts to reinvigorate the US economy are successful then commodity demand will rise in the US once again.

This does not mean that the commodity related stocks won’t pull pack. They should and they will. However, don’t confuse some profit taking for a change in character of a long term trend. Once this pullback is over I will be looking to expand my natural gas exposure. Potential candidates for new positions are Chesapeake Energy (CHK) and Southwestern Energy (SWN). I would also consider adding to existing smaller positions that I have for Helmerich Payne (HP) or Devon Energy (DVN). As I am in no rush I can afford to wait and do more research while prices work their way lower.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of DVN and HP --- although positions can change at any time.



Posted By Scott Rothbort at May 1, 2008

The Dangers of Buy and Hold

Today, May 6, 2008 the S&P 500 (SPX) closed at 1,418.26. On December 31, 2006 the SPX closed at 1,418.30. Thus over the nearly 350 trading days in that span of time the SPX has gone nowhere.

Well, not quite. It has had a roller coaster of a ride. In that roller coaster ride is a lesson of the dangers of buy and hold.

Compare your returns to that of the SPX. If you have outperformed – great, you get an “A” from The Finance Professor.  Over that period of time I have earned for my clients’ and my personal portfolios with equity only exposure on average approximately 10% after fees and expenses.

If you performed in line with the SPX, say +/- 2% of the index then you: 1) own the market portfolio and/or 2) have subscribed to the buy and hold theory of investing without actively managing your holdings and/or 3) missed out on the bull markets sectors such as commodities and energy. Either way, give yourself a “C”. You can do better with active management.

The worst case is that you are significantly underperformed the SPX.  For that you get an “F”. What caused that poor grade? There are several symptoms which can be attributed to this condition. First, you might be holding onto the wrong stocks and have failed to exorcize them from your portfolio. Second, you might have missed the bull markets as I mentioned before and maintained overweight positions in some of the bear markets like financials, semiconductors, pharmaceuticals and consumer discretionary. Finally, you may have just been lackadaisical and did not do your homework or risk manage your portfolio. If you find yourself in this category you either need to work much harder at managing your portfolio or should hire a professional. Ask yourself this, if you had appendicitis would you remove your appendix or have a qualified surgeon do it?

Class is dismissed.



Posted By Scott Rothbort at May 6, 2008

Update on Buffalo Wild Wings

After the great run Buffalo Wild Wings (BWLD) has enjoyed the past two weeks I have decided to take some action. My analysis of the company’s earnings report and conference call resulted in increasing my 2008 price target to $32 and my 2009 price target to $38. This price target was adjusted in the TheFinanceProfessor club’s portfolio which can be viewed in the Investment Club section of the site.

With the stock having passed my 2008 price target and having accumulated the stock in the $24s range it was time to book some profits. I have sold half of the BWLD positions in the LakeView Asset Management, LLC client, personal and family accounts. If the stock were to fall near my original cost level I would be inclined to add. Should the stock continue to soar past my 2009 price target, I would be a seller on the balance of my holdings.

I anticipate other restaurant investment opportunities to materialize in the near future.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of BWLD --- although positions can change at any time.



Posted By Scott Rothbort at May 7, 2008

It Is Time For Spring Cleaning

I have been an active seller of stock the past two weeks. My cash positions are now at 10% on average and I plan to expand that as we progress through the week. Some positions that I own for our clients such as CME Group (CME) and McDermott (MDR) are off the books with the MDR position getting sold after today’s rally in the stock. Buffalo Wild Wings (BWLD) is still racing higher even after I sold half my stake. In addition I have been systematically shaving off parts of other winning stocks in the portfolios such as Google (GOOG) and Helmerich Payne (HP) all of which have had nice runs. However for those stocks I have just skimmed off some profits while pretty much maintaining full positions.

Why am I doing this spring cleaning? This is a normal part of the risk management process. These actions help to maintain proper sized positions, scale out of profits, cut out losing positions and do some research in preparation for another round of purchases once the stock market retreats after having such a fantastic run the past 8 weeks. If you have not done so, I suggest taking the time to do some spring cleaning of your own.How ever before you do you may want to read my recent article on The Street.com, Portfolio Tune-Up

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of BWLD, GOOG and HP --- although positions can change at any time.



Posted By Scott Rothbort at May 13, 2008

A Post Mortem On Dick's Sporting Goods Earnings

Last week while I was away on vacation Dicks Sporting Goods (DKS) delivered disappointing results and guidance. Since I have been well connected to analysis on DKS since the company went public, I thought that I would pass on some thoughts about the earnings report and conference call. Management has been known to be conservative with its guidance but this time the guide down was too much to ignore.  The stock was sold down sharply and traded down to a 52 week low. I have owned DKS since the company went public and have no plans to sell stock. In fact I might add on weakness. The company has had only two off quarters – 2q06 and the one just reported – since going public in October 2002. Both times the earnings miss was quite small. DKS is suffering a little from the slowing economy but even greater from a cyclical downturn in golfing. DKS has made big investments in golfing both at its flagship stores and through the recent Golf Galaxy purchase. Also, the shine is off of Under Armour (UA) which performed quite well in the year ago period. However, I can accept some bumps along the road to what is one of the best long term specialty retail growth stories in the marketplace. With the acquisition of Chick’s Sporting Goods DKS has now positioning itself in California and will be able to morph into the nation’s leading sporting goods retailer from coast to coast. If you don’t have DKS take a hard look because it is now priced at a markdown price and those don’t happen quite often for growth stocks.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of DKS --- although positions can change at any time.



Posted By Scott Rothbort at May 28, 2008

Timely Addition To Banco Bradesco Holdings

Yesterday when seeing Banco Bradesco (BBD) fall again after retreating for several days while I was on vacation I thought that it was time to add to an already smaller but profitable position that I first accumulated several weeks ago. Here is a graph of how the stock has traded the past year, as of yesterday’s close, courtesy of Yahoo! Finance (YHOO):

 

Banco Bradesco (BBD) One Year Chart with Moving Averages From Yahoo! Finance (YHOO)

 

My purchase of BBD in the midst of the recent financial stock panic was timely as BBD lifted nearly 5% today and is now nearly 6% from its all time high set earlier this month. This Brazilian bank which is growing annually in double digits is benefiting from strong domestic (Brazilian that is) economic growth and is not mired in the US financial crisis.

 

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of BBD --- although positions can change at any time.



Posted By Scott Rothbort at May 28, 2008

Sears Holdings Posts Unexpected Loss

Sears Holdings (SHLD) reported its quarterly results early this morning. Clearly SHLD earnings were a major disappointment losing 53 cents per share. SHLD was forced to markdown products to keep its inventories at manageable levels. As a result the company's gross margins dipped by 90 basis points to 27.3%. The balance sheet is another story. Total debt was flat from the prior year while cash declined $2.1 billion. The decline in cash is directly related to the nearly 22 million shares that SHLD repurchased over the past year. SHLD also announced another $500 million share repurchase. SHLD balance sheet is strong enough and in an excellent position to weather the current economic slowdown which is hitting SHLD on all fronts – appliances, automotive, home repair, lawn & garden and apparel. Operationally SHLD gets an F and a B for its Balance Sheet from The Finance Professor.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of SHLD --- although positions can change at any time.



Posted By Scott Rothbort at May 29, 2008

Scott Rothbort

About Me :

SCOTT ROTHBORT

THE FINANCE PROFESSOR

 

Scott Rothbort has over 20 years of experience in the financial services industry. In 2002, Rothbort founded LakeView Asset Management, LLC, a registered investment advisor based in Millburn, N.J., which offers customized individually managed separate accounts, including proprietary long/short strategies to its high net worth clientele. He also is the founder and manager of the social networking educational website TheFinanceProfessor.com and a frequent contributor the TheStreet.com where he also writes a weekly article as The Finance Professor

Immediately prior to that, Rothbort worked at Merrill Lynch for 10 years, where he was instrumental in building the global equity derivative business and managed the global equity swap business from its inception. Rothbort previously held international assignments in Tokyo, Hong Kong and London while working for Morgan Stanley and County NatWest Securities.

Rothbort holds an MBA in finance and international business from the Stern School of Business of New York University and a BS in economics and accounting from the Wharton School of Business of the University of Pennsylvania. He is a Term Professor of Finance and the Chief Market Strategist for the Stillman School of Business of Seton Hall University.

For more information about Scott Rothbort and LakeView Asset Management, LLC, visit the company's Web site at www.lakeviewasset.com.

 


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