So I’m working on researching and writing my next company profile, Skechers U.S.A., Inc. (NYSE: SKX), and had planned to release it, well, now. But something came up. If you’ve been following me on Twitter or Stocktwits, or checking the Trades section of my blog, then you know I’ve been on a bit of a selling spree lately. In three trading days I sold 3 of my 7 positions. My portfolio has changed a lot in a short amount of time, so I felt a portfolio update was appropriate. But look for that Skechers post soon.
But WHY am I selling? The market is reaching all time highs, and that’s great. Am I now officially a ‘bear’? That’s a question I’m wrestling with. Is the market overvalued? There are a lot of inputs to a question like that, and honestly I’m a little overwhelmed by it. Has the Fed’s dovish monetary policy brought about a ‘bubble’ in stock prices? Do recent company earnings justify all time high equity prices? Is the consumer in such a great position? Is the economy in such good shape to justify all time highs? What about the upcoming presidential election and all the dissatisfaction surrounding what promises to be a real circus of an election cycle? All fine questions, each and every one. But I’m just a guy trying to make some money picking stocks.
My feeling is that in the near term the market will continue higher for awhile. Weeks, months, longer…? More new highs are probably coming. But then what? I can’t help but feel that there is a shoe to drop somewhere down the road. There’s something out there that will scare people out of stocks big time. The market will decline (crash?), and then what? That will be the new ‘time to buy’. When will this happen and what will it look like? Beats me. My plan is to be cautious now, and have a shopping list ready. But how does that caution play out? More on that later, for now, what have I done?
On Friday the 12th I sold Baker Hughes (NYSE: BHI) for a modest but nice 17% gain over about four months.
I bought BHI in April for $41.50, and sold it for $49.70. A few weeks ago when the stock was at $44 I decided I wanted to get out. I thought that the company buybacks might push the price up to around $50, close to recent resistance. As I look at the price as I write this, it’s at $52, so I could have squeezed a bit more out of it. It looks like it may be breaking out, so I might or might not be able to get back in lower.
BHI was a bit of an oddity in my portfolio. I basically bought it because I wanted more exposure to oil, without buying a driller. I bought it just before its merger with Halliburton (NYSE: HAL) was officially scuttled. I liked its chances by itself, and I liked the $3.5 billion breakup fee HAL was going to have to pay. I thought my money was safe, and I was right. Others seem to dislike BHI’s strategy of buying back shares and paying off debt with the money. I think their plans are just fine, but it felt like a boring story that had gone stale, and I’d have a chance to get in lower in the future. Time will tell.
Then the next trading day, Monday the 15th, I decided to sell Ambarella Inc. (NASDAQ: AMBA) for a very very nice 70% gain over 7 months.
I bought AMBA twice in January for $42.25 and 35.27, for an average of $38.30. I sold it at $66.20. It’s been a few days since I sold, and it’s gotten as high as $66.90, but it is currently about $64.50, so I’m feeling pretty good about my timing so far.
Why did I sell? I really like this company and its amazing balance sheet, but I felt it had gone up too far, too fast. It reports earnings on September 1st, and I believe that management will have to ‘knock it out of the park’ and provide good guidance in order for the market to feel that the move is justified. If there is any kind of stumble… look out below. But if so, I’ll be there waiting to catch it if it goes low enough. But as it looks now, between where I bought and where I sold, I’m feeling pretty smart. Time will tell if I could have been smarter.
And then the NEXT trading day, Tuesday the 16th, I sold Energy Transfer Equity (NYSE: ETE) for a very very very nice 222% gain over 7 months. 235% if you count dividends, but who’s counting? (Ok, I am)
These just seem to get better and better, don’t they? I bought in January/February at $6.75/$4.85, for an average of $5.58, and sold at $18.25. But why did I sell? First of all, I would like my readers to take a moment to appreciate the intestinal fortitude it took not to sell at $10, $13, or $16. $16 was a big one… but I felt it was headed higher. It hasn’t done much in the few days since I sold. Of course I hope it tanks now, I’ll look like a genius. So why did I sell?
A couple of reasons. First, ETE has pledged to support Energy Transfer Partners (NYSE: ETP) by forgoing incentive distribution rights for seven quarters. It’s great to help ETP, and helping ETP will eventually help ETE, but in the short term that means less money for ETE. Second, I don’t like the convertible shares that CEO Kelcy Warren and a few select investors had the opportunity to get. These shares somehow protect their owners from a distribution cut. I’d love to explain it to you, but I don’t understand it myself. That makes me wary. And in the August 4th earnings call, an analyst (Ethan Heyward Bellamy – Robert W. Baird & Co.) asked Mr. Warren if he’d consider getting rid of the convertible shares, and “…would you be willing to commit to ETE holders that you’ve taken a economic haircut on the covert if the ETE distribution were ever threatened?”
Mr. Warren’s answer… a simple ‘no’. Now I’ve listened to a lot of conference calls, from quite a few companies, and a simple ‘no’ then on to the next question is pretty rare. It seemed fairly obvious that Mr. Warren didn’t care for the question. So ETE is not accepting money due it, its CEO and a few major investors are somehow partially protected if the distribution is cut, and (this is a big one) the price has SKYROCKETED in the past several months. The price action makes my 70% gain in Ambarella seem rustic and unsophisticated. If investors smell a distribution cut, or if one actually happens, I see pain in this stocks future. My fellow investors on Stocktwits are still screaming that it’ll hit $24 any week now, and $50 in a year. That might happen, but I’m thinking not. Either way, I’ll just have to be happy with my 222%. Of course I hope they cut the distribution in half and I can buy the stock at about $8 sometime in the next couple of months… a girl can dream, right?
How are my current positions doing? Chesapeake Energy (NYSE: CHK) seems to be gaining some traction lately because of a new loan to refinance some near term debt. I’m still down about 27% on it. I’m holding for now, as it’s my bet on natural gas. ETE turned out well, maybe this one will, eventually.
PayPal Holdings, Inc. (NASDAQ: PYPL) hasn’t done much. I’m up about 16% on it, and looking to sell it at about $39.50, as I think I’ll be able to get a better price for it in the future.
8point3 Energy Partners LP (NASDAQ: CAFD) is doing well, up about 22% for me. The price seems to be inching up, and it’s still paying a good dividend. No plans to sell this one.
First Solar (NASDAQ: FSLR) has fallen more than I thought it would. I’m down about 28% on the position. Wall Street has pretty much given up on the solar companies. The narrative seems to be that through 2017 you’d rather be a flip-phone maker than a solar company. I hope it goes lower. If I can get some around $30, I’ll be happy. I don’t mind holding this one for a long time.
So what about that caution I was talking about earlier? My portfolio is over 75% cash. I have a lot of capital (by my standards) to deploy if I find the right investment. I like having cash, cash doesn’t bother me. I feel no pressure to be fully invested, but here’s my dilemma: if I believe the market will come down sometime in the near future, should I invest in beaten down companies that I like right now? If the market tanks, the companies I like will probably tank even more, offering me better entry prices. But if the market roars higher, these beaten down names that I like will probably roar higher as well, with or without me. I don’t really have a good answer other than to be cautious and not let my recent stellar performance go to my head. (Did I mention it was stellar?)
As always, feel free to look at my portfolio and see how I’m doing. Usually I own or plan to own stock in many of the companies I write about. Specific numbers I reference may not be completely accurate; different online financial sources often have somewhat conflicting information. Verify information via multiple sources you trust. Please READ MY DISCLAIMER. Make your own decisions, do your own research, and never rely on any single source for information. I am not a financial professional; do not rely on me as such.
Michael, the Stock Picking Bartender,