Monday, January 2, 2012

2011 in review, my take on 2012, some earnings

Another year in the books, and what a year it was indeed. Huge volatile swings first beginning with Japan in March, soon leading us to the highs of the year in May, back down to the lows in August-October over European debt contagion and US default fears. For long term investors, this was probably the worst they have suffered since ’08, though the S&P 500 ended only 4 pennies below unchanged. We saw a large inflow of capital into the utility sector and large outflow from the financials. Looking at the XLF the financial sector SPDR, it was down roughly 20%, near levels not seen since July ’09. Financials finished the year near the lows, some including Bank of America, down 70%. We continue to see fear in the US banking sector over toxic mortgages and home foreclosures. Until the housing market turns around and the banking sector once again has credibility, we will continue to see weakness in this sector. The inflow of capital into utilities tells me that those long the market in the hope of a recovery are fearful and are looking for a place to hide out. If investors were to be betting on a global recovery, we would be seeing more buying into the emerging markets.

Below are two charts, one of the XLU and the EEM. You can see the inverse relationship take place, especially after the large drop off in August. I expect this trend to continue until we get some clarity in our global markets.

One positive thing we did see this year was the rally in the US dollar. This strength will benefit those who consume, giving them more of a bang for their buck. As I have stated before, 70% percent of US GDP is consumption.

Lets take a look at what happened with me this year:

Above shows trades/transactions I have made. As you can see, 2011 for me was not the best. My worst was betting on a steel rebound. I got long AKS a bit over 12 at the end of July, then got completely crushed after a straight shot to 8 ish. I got out at the end of August before it continued down to break below 7.00 and continued to stay weak and close out the year down 50%. Second worst trade, though I did not lose too much money, was going long AMR after the initial plunge under 2.00 at the beginning of October. I should have sold a week after, but waited too long and actually sold a week before they filed for Ch11 and closed under a dollar.

Above are my current holdings, worst performers being Invesco and Frontier, both of which I am holding for my IRA. I plan on selling out of Kodak within the next 2 weeks before they have to delist for a pretty substantial loss. THQ is a small position hope play for now.

This week I want to highlight 2 possible positions to take follow earnings releases. Keep in mind Q4 2011 earnings will be in full force starting January 9th. On Wednesday, we get Mosiac, and on Thursday Constellation Brands.

Looking at Mosiac, this has been beaten up pretty bad this year on fears of global slowdown, weather concerns, and glut of vegetation. Down about 25% in 2011, I see this as a long-term value play on the need for more seed/potash for global agriculture. As population increases, not necessarily in the US but other countries, there will be a greater demand for food. The income statement by quarter over a year looks a bit rocky with continuing increases in revenue, though costs also increasing, so profit margins are being squeezed. One positive note I could was the decreased amount of borrowing they have had to do from 439K on the Feb report to just 6.5K in the August report. Borrowing less creates more cash on hand for future purposes.

Some fundamental analysis shows that MOS is still doing very well, increasing amount of cash per share and profit margin since Feb.

Basic technical analysis show it a buy also.

I probably will not act on this, but will give it a buy now for a long-term investment.

Next, we will look at Constellation Brands. Per the company’s website, they sell wine, sprits, and beer of brands such as: Corona, Svedka, and Black Velvet. A large majority (core business) of their sales are done in North America (primarily USA), Canada, and New Zealand. Having done a marketing presentation on Franzia, I know about the amount of people who drink and even during hard economic times, alcohol is not terribly expensive, and people are still going to use it, hopefully responsibly, to have a good time on weekends/special events. Looking at their fundamentals, Net Income nearly doubled from May to August, 40% less borrowing also took place with revenue increasing 5%.

Fundamental analysis show STZ holding up well, decreasing EBITDA debt, increasing EBITDA/share, cash per share also stable and profit margins still increasing and very strong.

Basic technical analysis also show this a buy here and might I add on cheap valuations. P/E under 10 is basically a steal and a good place to put $ on a US recovery.

Not much in the way of earnings this week, these are just a couple that stuck out to me. I also see that Family Dollar is reporting, an earlier post of mine described my bullish sentiment on DG, basically the same business and I would also get long that name as well.

The New Year is here and it’s time to get a fresh start. I wish all of you the best of luck in 2012, catch me on twitter @peter_eller10 I’ll be here all week, lets all make some $$!!

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