Does Cal-Maine Foods Fit in My Portfolio?

 

So I decided to skip the obvious egg puns that I could have used in the title. I just didn’t have it in me. So what’s this about eggs? Cal-Main Foods (NASDAQ: CALM) is the largest producer of shell eggs in the United States. They have somewhere around 23% of the U.S. egg market, and are located mainly in the southeast.

So the first thing you might notice about this company is that it isn’t very sexy. I’d say that it’s downright boring. They don’t produce the latest silicon chips, or promise day-trips to the Moon, or even (to my knowledge) create entertaining YouTube videos. They produce eggs, lots and lots of eggs. They are a fully integrated egg producer. They own feed mills, hatcheries, processing and packing plants, distribution centers, pullet growing facilities, breeder flocks… etc. Soup to nuts, if it’s involved in producing eggs, this company has it, and for the most part OWNS it. I like that. Very little of their production is contracted out, only 4% according to their website. Still not too interesting?

So what’s been happening in the sleepy little egg industry lately? How about the government mandated slaughter of tens of millions (of chickens) to stop the spread of a disease threatening to wipe out entire populations (of chickens)? This happened a little over a year ago and sent wholesale prices of eggs soaring! How’s that for interesting? It may not be the latest episode of The Walking Dead, but it got my attention. Cal-Maine chickens were unaffected by the Avian flu, so guess who had a steady supply of fresh eggs to sell into the demand? Record profits! This more or less sent the stock from the mid $30’s to over $60 about a year ago.

Big deal, right? That was in the past, how does this help me now? Well, the laying population has recovered. The supply/demand imbalance has tipped the other way. Egg prices are near 10 year lows. GASP! When they reported Q4 results this July, they LOST a penny a share. Not bad considering they were expected to lose 19 cents a share. Yesterday, the 26th of September, they reported a loss of 64 cents a share, totally missing the expected loss of 33 cents. Revenues were down 60% from the same period last year. The share price hit a low of $40, which seems to be a strong level of support. But if it breaks below the support, there could be a major selloff. Expectations for near-term earnings are not good due to the low egg price environment. You know what happens to companies with shrinking earnings? Look out below… or so I’m hoping.

Cal-Maine Foods has a variable dividend policy. Basically it pays dividends only after profitable quarters, at a rate of one third of the income. Their dividend is all over the place, but it’s almost always THERE. But of course there is now a two quarter gap in dividends. But I think there’s something here.

Eggs are a cheap source of protein. For that and a zillion other reasons I won’t go into, it seems pretty obvious to me that demand for eggs isn’t a thing of the past. They industry isn’t going anywhere. I think Cal-Maine Foods is simply going to get bigger and bigger. They have a history of acquiring smaller egg companies. In one of their investor presentations, in a slide titled ‘ACQUISITION OPPORTUNITIES’, they list about 60 competitors by name. (How ballsy is that?) In fact, on August 2nd they announced their intent to acquire Foodonics International, Inc. and its entities doing business as Dixie Egg Company. The timing seems good, and Cal-Main’s balance sheet is great. It would only take about half of their cash and short term investments to pay off all of their liabilities. Why not buy up some smaller competitors while egg prices are low and the industry is at a discount?

Let’s talk specialty eggs. Nutritionally enhanced eggs! Organic Eggs! Cage Free Eggs! Anything ‘organic’ is hot, but look at the cage free egg phenomenon. Here’s a
Motley Fool article about all the companies that are demanding cage free eggs, and how CALM can benefit from it. Specialty eggs represents between a quarter to half of revenue for Cal-Main Foods, (depending on regular egg prices it seems) and the business is pivotal in the company’s growth strategy. Specialty eggs are less subject to price declines in the current environment, and tend to have higher margins.

So what eggxactly is the plan here? (sorry, I had to put one in somewhere). I’m going to take a wait and see approach to this. That seems to be a common theme for me. I’m hoping continued weakness in egg prices, the lack of a dividend for a few quarters, and some good old fashion general market weakness bring this down a considerable bit. Will it happen? Who knows, but I’m thinking that about $32 might be a good place to start a position. If I’m feeling brave I could start buying around $36.50. I could see myself holding this long term if things work out in my favor. Egg based dividends spend as well as silicon ones.

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.

Thank you,
Michael, the Stock Picking Bartender,

Reno, Nevada

All Options are on the Table

All options are on the table! WOOOT!!!! But what do I mean by that? As those of you who’ve been following my adventures in the stock market know, I’m currently very cautious when it comes to the market overall. To be clear, I actually think it will make new highs from here, so I’m not calling ‘the top’ or anything. I don’t claim to be that good.

Within the last several weeks I’ve sold most of my stock (for some very good profit), and I’m about 75% in cash. But here’s the thing, there are companies out there that I like, that are close to levels where I’d like to start a position. But what if it turns out that I’m right, and the market has a large correction sometime in the next 12 months? Well then, I’ll just buy MORE as they go down. It’s been working for me so far. But what about an additional strategy?

Via put options on stocks that I believe are overvalued, I can profit from their decline. (Here’s an Investopedia article about the basics of options.)  I can buy significantly out of the money put options that are good for ‘long’ periods, even over 12 months. If I’m right, I can make a significant amount of money by only investing a small amount upfront.

If the market tanks, these options could potentially act as a hedge against going long in the stocks I’m considering buying. If the market moves sideways, it’ll just be good old-fashion stockpicking: what am I ‘long’ versus what am I ‘short’? If the market keeps going up… well, I don’t plan on spending a ton on options, but I’ll likely lose most, if not all, of the option investments.

The GOOD: Options are relatively cheap versus the number of shares they can ‘control’. Some big money is possible using only a small investment. Shorting stocks directly is dangerous and I don’t ever plan to try it, while options only risk the amount of money invested.

The BAD: You have to be right with your timing to make money in options, even long term ones. Options lose money over time, all else being equal. Why invest in something like that? Am I THAT good?

The UGLY: What if I’m just getting cocky because of my market trouncing performance so far? What if I’m getting too fancy, too big for my britches? Options, hedges… etc. I’m just an amateur, what am I doing playing with options? I could lose my shirt. Shouldn’t I simply stick with what I’ve been good at so far? I could blow 10% of my portfolio on options that expire worthless, and still be beating the heck out of the market… but should I take the risk?

I’ll admit that when I use terms like ‘hedging’, I start to think I’ve read too many investment books. (It’s a favorite pastime of mine) So I’m aware of the vast potential for hubris here. I plan on fighting these propensities by remaining small in the options game, and not be in a hurry. I don’t think the market is going to crash tomorrow, so I can take my time. I am fully aware that options are high risk, and most people who buy out of the money options tend to regret it. I could very well end up being one of those people, but I’m planning on giving it a try with a small amount of money.

What companies do I feel have the potential to become overvalued if the market pulls them significantly higher? I’m thinking about some of the companies I’ve made money on in the past.

Energy Transfer Equity (NYSE: ETE) was good to me on the long side, with a 222% gain over 7 months. I sold it last month, and am happy I did. If it shot up to the mid $20’s I might buy some puts. It’s had a GREAT run, but the dividend is far from assured.

Ambarella Inc. (NASDAQ: AMBA) was a good investment as well, up 70% over about the same time period as ETE. I still like the company long term, but if it shot way up from here I’d consider some puts. But then, if it tanked from here I’d be a buyer.

I haven’t talked about Mattel Inc. (NASDAQ: MAT) in awhile. It was good for a 43% gain when I sold it in February after holding it about 6 months. It hasn’t done much since, but the valuation seems high, in my opinion. The dividend is far from assured, and any stumble in the turnaround story could send the stock down. A rally on little news might be a good opportunity to take the other side.

Simply because I’ve sold these companies doesn’t mean that I’ve stopped following them. At some point I hope to buy them again at lower levels, but now I’m considering expanding the tools at my disposal. At this point these are just some ideas I’m kicking around, not hard plans, but you can see my thinking. As I stated above, I believe the market is headed higher in the very near term, despite the negativity of the past several trading days. If I’m right, that might be the perfect time to try my hand at puts.

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.

Thank you,
Michael, the Stock Picking Bartender,

Reno, Nevada

Will Skechers Fit My Portfolio as Well as My Feet?

That’s an awful title, but it fits. I love Skechers, the product. One of the things that bartenders, waitresses, and barbacks routinely discuss is what brand of shoe is best for standing/walking for 8 hours straight. I am always firmly in the Skechers camp in each of these conversations, and have the evidence on my feet to back me up. So I love the shoe, but what about the stock?

So how did I get interested in Skechers U.S.A., Inc. (NYSE: SKX) the stock? I’ve kept an eye on it for awhile, without really digging into the story. A few Wednesdays ago I was at a local outlet mall at the Nike (NYSE: NKE) store with my wife. She has no brand loyalty when it comes to shoes, but we were there to buy something for one of her foreign family members. Apparently Nike is cheaper in America??? I don’t know.

I didn’t need shoes, but I got the bright idea to go look at the Skechers store to see how much business it had compared to Nike. So I walked over, resisting the temptation of the frozen yogurt store on this hot August day in the greater Reno area. Now I didn’t do an exact head count, but I estimated that there were almost the exact number of adult customers in each store. I owned and operated a retail business for nearly ten years, so I felt fairly confident in my estimation. The thing is, the Nike store is over twice as large. The Adult Customer Per Square Foot metric (The ACPSqFt) seemed favorable, so I want to buy Skechers, the stock.

Ok, so it’s not quite that simple. On July 21st Skechers reported earnings of 50 cents per share, vs analyst estimates of 52 cents. The stock tumbled from about $32 to $25, going as low as $22.50 around a week later. So why the huge drop in price?

Earnings were hurt by a few things that an investor might not consider game changing. There was a fire in a Malaysia factory, a tax bill due in Brazil, and the same old currency exchange issues that are affecting many companies that do business overseas. There was also an issue with the timing of some shipments from April into March that didn’t help the situation. But what was the real problem?

Second quarter revenue was up 9.7% from the second quarter last year, and set a new second quarter record. However, recent quarterly growth numbers have hovered around 25% or higher, so that was quite a disappointment. The problem here was domestic growth. Domestic wholesale sales (sales to non-Sketchers stores) were down 5.4% compared to the same quarter last year. Domestic retail was up 15.4% at Skechers stores, but that didn’t matter. Investors fear that the domestic market might be saturated with Skechers product. America has had enough of Skechers, so run for the hills, batten down the hatches, and maybe buy Nike? Or perhaps Underarmor, Inc. (NYSE: UA).

But hold on, at the same time that the domestic story was called into question, foreign sales were up 40% from the same period. And foreign sales made up nearly 42% of the business. Skechers is expanding overseas, building stores, building out shipping facilities, and just generally doing a fine job of exporting our footwear culture to the world. While domestic growth might be cooling off big time (might), international seems like a great opportunity that is still in full swing.

So what about some of the footwear alternatives out there? Skechers has a trailing P/E of about 14.5 and a forward P/E of around 12. Nike is running about 27 & 22, while Underarmor is around 100 & 55. I don’t put these numbers on a pedestal and warship them because the forward P/E is based on estimated earnings, which may or may not be correct. And even the trailing P/E, based on historical data, can be wildly different depending on what financial website you look at. This was the case here, so I kind of averaged it out. These numbers are close enough for me, and it seems like Skechers is, valuation wise, a better deal than some of its competitors, especially if you think they have room to grow internationally in any significant way.

But of course analysts and the financial news were none too kind to Skechers after the quarter. In doing my research for this piece I came upon a wonderful article on Seeking Alpha by Tansy Trading. The article is half about Sketchers and half about a very cynical view of how Wall Street works. I happen to agree with a lot of the cynicism. It’s a great read and I recommend taking a look.

Another reason I like Sketchers? The balance sheet. They have roughly $630 million in cash and cash equivalents. While there total liabilities are $767 million. They could pay off the vast majority of their TOTAL liabilities with cash. That’s a nice position to be in. If there were some rough times ahead for the company, it’s not like their liquidity or survival could be called into question.

I suppose the real question is this: do I believe that this mixed quarter represents a true slowdown in the company, or was it a bump in the road that’s simply giving me an opportunity to buy?  As I write this, SKX can be had for about $24. All things being equal, I’d say this was a good time for me to start a position. However, for those of you who’ve been following along, I’m expecting some pretty significant weakness in the market in the fairly near future. Maybe I’ll just wait and see on this one. Perhaps I can get it closer to $20? Under $20? Who knows? Most of my portfolio is in cash, and I’m playing a waiting game with the market. Will Skechers wait for me?

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.

Thank you,
Michael, the Stock Picking Bartender,

Reno, Nevada

August Portfolio Update: Why I’m Selling for Huge Profits

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.

BHI 8-12-16

 

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.

AMBA 8-15-16

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)

ETE 8-16-16
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.

Thank you,
Michael, the Stock Picking Bartender,

Reno, Nevada

Can The Mosaic Company Help Grow My Portfolio?

Let’s get dirty. Let’s dig around in the ground and look for some cash. That’s what The Mosaic Company (NYSE: MOS) does, everyday. Although lately that cash seems harder and harder to find. What do they do? They mine and process minerals that eventually make their way to farmers for use as fertilizer. Mosaic produces around 12% of the world’s annual capacity of potash, which makes up 41% of North American capacity. Their phosphate segment is even more impressive. Mosaic basically digs these important crop nutrients out of the ground and sells them to distributers and farmers.

The world population is growing, right? And people have to eat, right? Developing nations are consuming more calories. People are eating better all over the world, right? There’s only so much farmable space on the planet, so we need to utilize that space as best we can to feed all these people, huh? Slow down.

That’s been a major investment thesis for Mosaic and other fertilizer companies for years. Open a 10 year chart of Mosaic, or Potash Corporation of Saskatchewan (NYSE: POT) or most any other fertilizer or agricultural stock. Many of these charts look pretty ugly over that time period. Demand for calories is on the rise, sure, but is that the only part of the story? Generally, if an investment thesis is that obvious and well known, it seems to me that it doesn’t always work out as investors plan. Let’s dig deeper.

Mosaic is currently trading around $25 to $26, near multi-year lows. Why? Because of the price of potash and phosphates. Belaruskali, a major foreign player in the potash business, recently announced a large deal with India, selling 700,000 tonnes for $227 per metric ton. Last year the price was $332. This represents a 10 year low in potash prices. The upper end of that 10 year range is around $850. This informative Investopedia article has more detail on the deal. Phosphate prices are also currently very weak.

What makes Mosaic interesting to me? Aside from the usual ‘beaten down stock’ syndrome I seem to be so in love with, it’s the dividend. At $25, Mosaic offers a 4.4% yield. Not too shabby, as dividends go. But how safe is that dividend? There are good arguments on both sides of this ‘safety’ issue, and I believe this issue is key to finding the right time to invest in MOS.

So why might this dividend be safe? Mosaic has a great balance sheet: almost $4 billion in current assets, while only about half that in current liabilities. A nice balance sheet is great to see in a company going through tough times in its larger market. MOS pays out around $96 million in dividends each quarter, so there is reason to believe that the company could maintain the dividend in tough times, if it wanted to. Also, Mosaic’s earnings over the past year have exceeded (lowered) expectations, despite the tough pricing environment. Another positive sign, Mosaic earned $2.78 to $2.90 a share in 2015 (depending on what financial site you use to gather information!), while only paying out about $1.075 in dividends. So their coverage ratio is good!

So why MIGHT they cut their dividend? Despite Mosaic’s strong performance so far, 2016 earnings are expected to plummet. Some expect earnings to be below the current amount paid in dividends. So maybe the company tightens its belt and cuts the dividend even though it may not necessarily HAVE to because of its strong balance sheet. That’s a reasonable thing to worry about. Why drain cash to fund a dividend? Funding a dividend from cash on hand could potentially hurt the company’s credit rating.

So what will happen here? Darned if I know. If I had to guess, I’d say that Mosaic won’t cut their dividend. But that is by no means a prediction that I’d stake much on. In fact, at current prices it’s not a prediction that I’d stake anything on. So here’s the game plan. Mosaic hit a recent low of $22.02 in early February. I’m hoping that that dividend fears bring the stock price down even lower than that. Maybe to the high teens? Then I’d be very interested to start a position. Or maybe they do cut the dividend suddenly and the price dives. I’d love to be there to pick up some shares in that case. Patience can keep me out of some good investments, but it can also help keep me out of trouble while I’m learning how to navigate around Mr. Market.

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.

Thank you,
Michael, the Stock Picking Bartender,

Reno, Nevada

First Solar, Revisited

As those following along know, I got back into First Solar Inc. (NASDAQ: FSLR) last month. I first bought into First Solar in July of last year, selling my position in December, for a nice 36% gain, albeit on a very small position. Due to a recent selloff I’ve gotten back in.

I wrote about First Solar last July: Why I Think First Solar Has Upside! Have a look. The basics haven’t changed as far as I’m concerned. So why did I sell First Solar when I did? And why did the price drop so much a few months later?

I sold in December because I’d had a nice run on my position, and I set an automatic limit order to sell, because I felt at the time that if it went up much more, it would be time to take profit and wait for a pullback. I don’t recall exactly where I placed the limit order, perhaps around $62ish. What I didn’t expect was the government to significantly extend the Investment Tax Credit (ITC) out of nowhere. When that was announced I was automatically sold out of my position at pretty much the low of the day, at $63.52. I wasn’t crying too hard, as a 36% gain in 5 months isn’t shabby at all, though eventually the stock traded as high as $74.29 a few months later. I love limit orders, but I wasn’t feeling super great about this one with First Solar in the mid $70’s.

But then again, had I not had it in place, who knows if I would have sold at all? I might not have had the opportunity to use those same funds in the recent harsh downturn in price. I think I’d have sold in the high 60’s, but that’s easy to say looking back at lines on a chart.

On April 27th First Solar reported earnings of $1.66 a share, which handily beat analyst’s expectations of 0.93 cents. Revenue, however, came in under expectations. First Solar peaked at over $74 around a month before earnings, but had fallen to around $61 – $62 when they reported. Also announced was that CEO James Hughes will be stepping down on July 1st, to be replaced by CFO Mark Widmar. James Hughes was apparently hired to whip the company’s technology into shape, which he has undoubtedly done when you look at the recent efficiency improvements in their solar panels. Mark Widmar’s job will be to take those improvements and turn First Solar into an even better money making machine. Though further efficiency improvements will certainly be important for First Solar going forward.

Mr. Market didn’t like ANY of this. Over the next few weeks First Solar dropped much further, as low as $46.67, on May 19th. And who do you think was buying? Ok… no surprise if you’re awake while reading this: I was.

This is what I love about the stock market. At some point in March FSLR was worth $74.29. Almost exactly 2 months later, it’s worth $46.67. Can this be rationally explained by investors carefully analyzing First Solar’s future earnings power? A careful consideration of how the company will deploy its resources effect shareholder value? Discounted cash flow analysis? Give me a break. The stock market is as much emotion, feeling, and instinct as anything else, at least in the short term. That’s my current opinion anyway. I don’t see anything changing it anytime soon. Have I discovered one of the secrets to wealth on Wall Street? Buy good companies when others are selling in panic? Is it really that simple? I guess I’ll find out if that’s the case here.

But if you pull back and look at the last 3 or 4 years of price action in First Solar, you see that this is nothing new, not by far. It has large swings up, and large swings down, and back up, that generally lead the stock higher. So following the pattern, I should sell around $74, just to be safe. But I think this is such a good company, so should I sell, especially since the government is trying to encourage this technology? And what about 8point3 Energy Partners (NASDAQ: CAFD)? This YieldCo, another profitable holding of mine, keeps feeding First Solar money, and should continue to buy more and more of FSLR’s projects. First Solar is a very profitable company with a GREAT balance sheet, but it’s being treated like garbage by investors. Keep it up; I’m set to buy more at $42.75!

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. Please READ MY DISCLIAMER. 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.

Thank you,
Michael, the Stock Picking Bartender,

Reno, Nevada

 

May Portfolio Update

My last portfolio update was in February, so I figure it’s about time to have another one. I’m certainly happier with my performance now than I was back in February. While at the time I was beating the market by a wide margin, I was still in the red. Now, as of writing this, I’m beating the market, but I’m in the black! I’ve made a profit of $947.32, while if I’d invested in the market, I’d only be up $194.02. Check out my portfolio to see how I calculate Mr. Market. These would be the REAL gains if I sold everything NOW, at market, as I also include the future selling transaction costs of my current positions in my numbers.

But while I’m happy with how things are going, all is not rainbows and butterflies. If I’d written this a week or two ago, it would have been pure euphoria. At one point I was up just shy of $1900, while Mr. Market was up about $350. You, my readers, would have been disgusted with my level of self-satisfaction. Yeah, I was patting myself on the back real good there for awhile. My fortunes have been in a downtrend the last week and a half, but I’m still doing very well.

Chesapeake Energy (NYSE: CHK) has been doing better lately. My cost basis on CHK is $8.38, and it’s now at $4.12, so the loss is about 52%. CHK has given me problems since I started, it being the first thing I bought. But at least it’s not $1.50 like it was in early February. No other stock in my portfolio illustrates the fear/greed cycle of Wall Street quite like CHK. One day people who own it are afraid it’s going to go bankrupt, the next day people who don’t own it think it’s going to make it through this low commodity cycle, so of course they have to buy! Personally, I’m willing to stick it out and just own it. Part of me wants to delete it from my spreadsheet and just forget about it for now, maybe check on it in a year. But that’s just not how we do things around here.

8point3 Energy Partners LP (NASDAQ: CAFD) is still chugging along, bouncing from $14 to $16, tossing me a nice dividend now and then. My cost basis here is $12.80, and CAFD is at $14.45 as I write this, so an 11% gain, about 15.5% with dividends. I don’t plan on getting rid of this one anytime soon either. I think one day people will realize the potential here and it will take off.

PayPal Holdings, Inc. (NASDAQ: PYPL) is doing a good job for me. My basis is $32.35, and it’s at $39.51, so about 20% to the positive. I love the company, and their growth potential. That said, if it has any significant strength in the near future I might sell. I feel as though there will be a better entry point in the future, despite the strength of the company. It’s something I’ve been thinking on…

Ambarella Inc. (NASDAQ: AMBA) isn’t doing so hot at the moment. My basis is $38.30, and the stock is at 36.80, so I’m down about 6%. At one point I was up about 22% on the position, but it has recently tanked. It’s now almost exactly where I got my second of two buy points in. I still believe, and would be willing to buy more somewhere around $27.

Energy Transfer Equity (NYSE: ETE) is where things begin to get really interesting. In January I bought ETE at $6.75, and in February for $4.85, for a cost basis of $5.58. Fast forward a few months, and it’s at $12.91 for a 128% gain. The current yield on ETE is almost 9%, but my yield on cost is slightly over 20%. In fact, I should get a nice payment in my account next week. The merger drama with Williams Companies (NYSE: WMB) has driven much of the movement here. I don’t have the space to get into all the details, but I want to see the deal re-negotiated so that ETE doesn’t have to pay any actual cash to WMB shareholders. I want to have my cake and eat it too. Not interested in selling here, despite the huge gain. Of course I realize I might regret that decision. Give me another $5 on the stock in the next few months, and I might consider it. Yes, I’m being greedy, but I still believe in the long term health and profitability of this company. Not willing to sell here and miss out, even if it means risking some GREAT short term gains. If I sell at $18 and then miss out, I’ll feel bad, but not QUITE as bad.

Baker Hughes (NYSE: BHI) is holding up well. I bought it a week or two before the merger with Halliburton (NYSE: HAL) finally fell through. BHI didn’t tank like some people thought it would. The $3.5 billion HAL had to pay BHI was the reason for that, in my humble opinion. I also like BHI’s plan to buy back stock and pay down some debt with most of the money. I think Baker Hughes has some really smart management, and I’m willing to keep this oil services company right where it is, especially since BHI already had a pretty nice balance sheet to begin with. I’m up 7% on the position.

Earlier this month I got the opportunity to get back into First Solar (NASDAQ: FSLR) at $55.00. I sold it back in December for $63.52 for a 36% gain. I’m back in, and happy about it. I LOVE First Solar. When FSLR recently reported quarterly earnings of $1.66, they beat the street estimate of $0.87 a share by a wide margin. Revenues didn’t quite live up to expectations, but the real shake-up was that CEO Jim Hughes was leaving to be replaced by CFO Mark Widmar. Ok, just give me the stock on the cheap. FSLR is now at $49.67, for a nearly 12% loss. Do I sound worried? In fact, I have an order in to buy more at $48.50. I didn’t get two buy points in before, I hope I do now.

Update: First Solar did hit my buy point at the end of the day, closing at $48.56, with a low of $48.49, just a penny under my order. I’ll get some nice bragging rights if that’s the low.

What am I looking at now? I’ve been following The Mosaic Company (NYSE: MOS) for a few weeks now. They mine and produce potash and phosphates used in fertilizer. Their industry has been hit by low commodity prices, though unlike oil, there hasn’t been much of a rebound yet. I won’t go into it much here because of space, and I plan to do a write-up of the company soon. I certainly will if I buy some. What’s holding me back is that cash now makes up slightly less than half of my account. This is because of buying First Solar and the awesome gain in Energy Transfer Equity. With the overall market as historically high as it is, I’m not overly comfortable initiating a brand new position. If MOS falls significantly though, I just might be tempted. Much the same could be said for Fitbit, Inc (NYSE: FIT), which I have covered in the past. I thought I missed out, but it’s starting to come back down to more attractive levels.

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. Please READ MY DISCLIAMER. 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.

Thank you,
Michael, the Stock Picking Bartender,

Reno, Nevada