Since last update, the market has leapt higher on kinder, gentler words from Fed Chairman Bernanke about the eventual fate of the Fed’s current asset purchase program, QE3. The S&P 500 was up 3.2% and Russell 2000 was up 5.7% as of yesterday’s close from their respective June 19 closes. However, because of the sizeable cash position held in the Almanac Investor Stock Portfolios, the market’s solid advance did not translate into similar portfolio gains. Across the board all three portfolios combined advanced 1.3% with the majority of the gains coming from the Small-Cap portfolio which gained 1.8%. This would be a poor result for a fully invested portfolio however; this gain was achieved with two-thirds of the combined portfolios’ assets in cash.
The market is in the midst of the Worst Six Months of the year and it is a post-election year which has a historically weak bias. This fact combined with a desire to not chase individual stocks or the market as a whole supports the decision to hold additional cash and await the next buying opportunity. If July does finish with a 3.5% return or greater, then history suggests that there will be a better opportunity later this summer or in autumn, as noted on the blog yesterday in a post titled Hot Julys and Autumn Buys.
Per last month’s recommendation, Telular (WRLS) has been closed out of the portfolio. WRLS was sold at $12.61 through a tender offer made by Avista Capital Partners. It had been one of the longer-term holdings in the portfolio and produced a 59.8% return excluding dividend payments received.
As a result of market strength and a surge in energy prices small-cap shorts, Approach Resources (AREX) and Contango Oil & Gas (MCF), were stopped out in early July. Both positions had modest gains last update and tight stop losses were implemented to ensure no loss would be taken. AREX and MCF were both closed out with a 0% return. AREX has since traded lower while MCF has risen. Both companies Magnet Scores have improved making them unattractive for any further shorting attempts at this time.
In the Mid-Cap portfolio three trades took place over the last four weeks. First, half of the original position in Lions Gate Entertainment (LGF) was sold when it traded above $32.00 on July 11. Next, Gulfport Energy (GPOR) was closed out per last month’s advice using its closing price from June 20 for a 21.5% gain. Finally, also per last month’s advice, the short position in Walter Energy (WLT) was covered. It too was closed out using its closing price on June 20 for a 21.4% gain. Further gains could have been realized if the position was held to month’s end as WLT eventually bottomed on June 27 at $9.94 per share.
The Large-Cap portfolio is down to just three positions. United Overseas Bank (UOVEY) and Fidelity National Financial (FNF) were both stopped out. UOVEY has since recovered modestly alongside solid earnings from larger banks. FNF however, continues to languish as housing sector data softened and housing-related stocks have slowed in the face of rising mortgage rates. Kinder Morgan (KMI) was also closed out when it was sold per last month’s advice on June 20.
Peabody Energy (BTU) appears as if it may have found bottom in late June and early July as it has subsequently climbed from sub $15 per share to nearly $17 today. Cover the BTU short trade at $16 or lower or at its stop loss of $17.
All other positions held in the three portfolios are on hold with the exception of the five new buy ideas from Tuesday. Also, note that some stop losses have been raised.
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Magnet® is a registered trademark of Jordan Kimmel. Jordan Kimmel is the Managing Member & Portfolio Manager of Magnet AE Management LLC and Jeffrey A. Hirsch is the Chief Market Strategist and a limited partner in the Magnet AE Fund.
By Christopher Mistal