Monday, August 4, 2014

5 stocks now!

Here are 5 stock picks I am recommending today for buying. These are short summaries of each and my basis for recommending them. I am also starting another tracking portfolio, KVOV, to track the performance of my picks.

Petsmart (Nasdaq: PETM; last closing price $67.43), a retailer in pet food and supplies, is primarily attractive because of the high level of its “shareholder yield” (dividends, plus net debt payback, plus net common stock repurchase). In particular, the company has reduced its share count by about 20% since 2010, adding a boost to its earnings per share, in addition to its underlying earnings growth. Business could still continue to grow, albeit at a slower pace, in the next few years. The pet supplies industry is becoming a crowded space but Petsmart is the largest company in the market. Some stores are expanding their own pet offerings, but it’ll be a while before (if?) they can become a serious threat. In the meantime, the company is still purchasing large amounts of its stock. It is also reportedly exploring other avenues, such as a sale of the company or a special dividend, which may boost shareholder returns.

Occidental Petroleum (NYSE: OXY; $97.89) has gone up slightly since I mentioned it in April. It is still trading at a large discount to what I believe it is worth and my outlook hasn’t changed.

Guangshen Railway Co. (NYSE: GSH; $20.00) operates railways in the prosperous southern Chinese province of Guangdong. Its main lines connect the three major southern business cities of Guangzhou, Shenzen and Hong Kong, giving the company a very attractive geographic market. Guangshen is affected by slowing economic growth in China, hurting its freight business in particular. However, ongoing reforms in railways in the country to subject them to market prices will be a boost to the company. It also trades cheaply compared to its Book value, even compared to its recent history and after adjusting for cash and debt on the balance sheet. In the meantime, the stock is paying a decent dividend of almost 3%.

Kyocera (NYSE: KYO; $47.37) is a Japanese firm that produces a number of electronic components from lenses for printers to solar cells modules. Their usage can vary from industrial to home to automobiles and often form the unseen parts of branded products. Kyocera looks like the perennially “undervalued” company, its share price oscillated between $40 and $55 over the past five years, often at a slight discount to its book value. Unlike previous years, Kyocera has been making a few more improvements to its financial situation, as exemplified by its Piotroski F-Score. The company still has a rock solid balance sheet with very little debt and financial leverage and a high current ratio.

Axis Capital Holdings (NYSE: AXS; $44.00) is a Bermuda-based firm with the majority of its operations in the United States. Its profits are roughly equally from the insurance and reinsurance businesses. It has moderate amount of leverage for a financial company and has been repurchasing large amounts of its own stock over the last few years, reducing its number of shares outstanding by almost a third since 2007. A good dividend yield of 2.4% and an average Price-to-Book value of about 1.0 make it an attractive purchase.

Sunday, April 27, 2014

Recommended stock pick: Occidental Petroleum

Occidental Petroleum (Symbol: OXY) is one of the largest energy companies in the U.S. It operates solely as in the exploration and production of oil and gas reserves (whereas some others might be involved in refining, transmission or retailing of oil, for instance, or even all of the aforementioned). Almost two thirds of Occidental Petroleum’s production comes from the U.S., with California being a particularly important geography where it is the biggest acreage among oil companies operating. The Middle-East accounts for about one third of the company’s production without some smaller contributions from Latin America. The company specializes in unconventional oil recovery techniques, using new technology to recover additional oil from mature fields where conventional extraction methods are no longer useful. Immediate plans for the future include are to divest the California operations into a new separate company, while Occidental Petroleum focuses on the Middle East and the unconventional operations in the Permian basin, namely Texas and New Mexico.

By a lot of measures, Occidental Petroleum has worked out superbly for investors. The company has increased its dividend each year since 2002, now paying out a yield of about 2.7%. With a market capitalization of over $75 Billion, it’s the 5th largest energy company and 47th overall in the S&P 500 index. It had a market capitalization of approximately $9 Billion at the end of 2002. That said, Occidental Petroleum’s stock value has languished in recent years. It went over $110 per share briefly in 2011 before falling to just north of $70 just a few months later and has traded up and down within that range ever since. The stock price is now at $96. This is far from the prettiest picture. That said, I believe Occidental Petroleum has the markings of a profitable investment. I score Occidental Petroleum a 9-on-10 on fundamentals score, reflecting a number of improving operational and financial metrics in the past fiscal year. The company still has high gross profitability over its invested capital, even though it’s somewhat lower than in years past, specifically in the boom years that ended in 2009. It has been consistently profitable and sports a solid balance sheet with much more equity than liabilities. Currently I believe the company has a relatively low enterprise value compared to its asset value. Operating as it is and of course barring some catastrophic unforeseen circumstances, I believe Occidental Petroleum could be worth as much as the equivalent of $190 per share within 5 to 7 years, with the spinoff of the California operations possibly acting as an early catalyst for unlocking part of that value sooner. Therefore I recommend the stock as a buy.

Diclosure: I have a long position in OXY in my Marketocracy portfolio

Wednesday, January 22, 2014

2013 Overview

2013 is closed for the books and this had been a good year on the stock market and for me also. A while ago, I created a profile and a fund at It is a website for running simulated mutual fund portfolios. The founders state their mission is to find and reward up and coming investment managers, whether they are professionals in the field or amateurs. You are given a hypothetical amount of money to manage according to SEC-like mutual fund rules, including management fees, positions restrictions, etc. There are other websites to run and track simulated portfolios like that and Marketocracy has its shortcomings (I find notably it is not the fastest website, and tracking of corporate events can be improved). But overall it is a great place to showcase your investment management skills and your business.

As of December 31, it showed that my flagship KMF mutual fund was up by almost 28% after fees for the year, compared with almost 32% for the S&P 500 index. However you’ll notice my fund was more or less flat from its start in October 2012 until April 2013. It was almost two-thirds in cash or in short-term bonds in the beginning of the year. That was due to a lack of investing ideas to start and I don’t like to trade on companies when their annual report is close to being due. I scarcely pay attention to quarterly reports and, since the vast majority of companies have their year-end in December, I basically sat on my hands rather than try to put that cash to work in stocks in the latter part of 2012 and in early 2013. So comparing the performance since the beginning of April, when I got around to investing most of the portfolio following the annual reports releases, to December 31, the performance of my fund was 27% after fees, compared to the 22% for the S&P 500 and 24% for the Russell 2000 index, a representative index for small companies.

It is entirely foolish to extrapolate what was basically 9 months’ worth of good performance into the future. Do I expect my outperformance to continue in 2014? While that would be nice, I shouldn’t expect that every single quarter or every year. If anything, all great investors had periods of time where they lagged the market, often for 2-3 years at a time or more. So of all people, I’m very unlikely to be different in that respect. I do, however, have the utmost confidence in my portfolio and my process, and I do think I’ll be able to outperform the market in the long term. As for the stock market in general for 2014, I can’t predict what’s going to happen. Neither can most trained analysts and managers for that matter. So I won’t jump into a fool’s game. Some people think that because the market went up so much in 2013, it must come down in 2014. There’s nothing preordained, just because it went up doesn’t necessarily mean it will come down sooner rather than later. That said, the market does seem to be trading at above average levels compared to overall profits. And I’ve found it to slightly harder these last few months to find new ideas. So maybe we will have a down year, who knows. Since I try to find well-defined undervalued situations, I don’t care much what the stock market will do. I think my portfolio is well protected on the downside and any correction will only help me find more opportunities.

So my fearless prediction for 2014? Like the old saying goes, “it will vary”.

My Marketocracy fund can be found here so you can track my performance for yourself.