Another year down but more importantly, another intriguing and exciting year ahead of us in the markets. The action in the markets over the past month or so certainly added to the festive cheer and while I certainly am not complaining, the contrarian in me is beginning to believe this rally is looking particularly overbought. However, with a portfolio consisting of what I believe to be undervalued, large cap stocks, I am confident that any correction should affect those smaller growth stocks as opposed to our more conservative portfolio.
In an earlier blog post, I displayed the chart below depicting how the large growth stocks had outperformed the large value stocks significantly and perhaps, how this trend could now change. It will be interesting to see how this potential scenario develops but regardless of ones investment strategies, I do believe that investors should have a portion of their portfolio designated to larger undervalued stocks with impeccable balance sheets, consistent cash flow and strong management.
Meanwhile, the past few weeks have been particularly kind to the majority of our somewhat young but expanding portfolio. I spoke before Christmas about the rather worrying looking technical picture of Raytheon but how at the same time, the company looked fundamentally cheap and appealing to long term value investors. Over the past few days, as the market seems to have lost some of its momentum, Raytheon has rebounded on what I believe is the accumulation of interest from investors seeking value and yield in favor of speculative growth. For those who have not been keeping up, as we can see in the chart below, Raytheon did also bounce in price off the support levels previously mentioned which is encouraging, and as it the current price of $49.85, the stock rests 10.8% above the $45 level that would ensure a 61% return on our investment in just over 12 months time.
Elsewhere, after Novartis popped earlier last month, it has consolidated somewhat at $57.05, sits below the $60 level we are looking for at expiry but nevertheless above the $56.25 breakeven level. Exelon continued it’s march upwards but has hit the upper channel of a downtrend technically speaking so perhaps we may see a pull back in the near term. However, our $50 strike price in January 2013 is still quite attainable and therefore it is a case of sitting, monitoring and most likely waiting patiently. As of today’s close, the position is showing a 16.7% gain in our Call Option. Our final stock, Transocean has broken through the $70 barrier and is too in positive territory, showing gains of almost 29%.
Despite these early, and night I say attractive gains, one must remember that with these OTM call options (i.e. our positions in Exelon and Transocean), time is actually against us. So, if in 12 months time these stock prices are where they are today, those gains would certainly be wiped out. It is for this reason that despite the fact we base our investment decision on the company’s fundamentals, the technicals are important in order to gauge entry and exit points. For now, while both positions are approaching oversold territory, they don’t appear to be breaking down so I am happy to wait.
Finally, I want to tell you that as of next Tuesday, I will be boarding a flight from Dublin to London. From there its straight to Malaysia. No rest however as I board my final flight before reaching my destination of Melbourne, Australia. I am intrigued by the strength of the Australian dollar and the strength in commodities in general. As an investor, I have not travelled enough and it is a criticism I have perhaps hypocritically labelled some American analysts with in the financial industry…..i.e that they tend to refuse to even consider the fact that there are other nations out there in a fundamentally stronger position than America. Don’t get me wrong, from my time in New York, I grew to love the optimism of the Americans and from getting to know many of them from working there, I find it hard to believe that they will ever simply roll over and disappear. It is their entrepreneurial spirit and ability to bounce back in the face of adversity, which has me longing to one day return to potentially live there. Regardless of how bad things may get when America finally is forced to face up to it’s deficit problem, I strong believe they can come through it. Greenspan, Paulson, Goldman Sachs etc are seen as vitally important people today but in my mind, that too will change. It is the attitude of the hard working people who will rejuvinate America, not some bunch of overpayed, overendulged cronies in overpriced suits.
For now though, it is Australia. A place where my Aunty settled down many years ago and someone who has encouraged me to visit for years. The strong Aussie dollar makes it an attractive place to work these days and should commodities remain resilient, that should remain the case. My Visa is for one year and after that, it is a case of determining where else needs to be explored. Needless to say, right now that list is topped by Asia and in particular, China, India, Singapore, Thailand, Vietnam, Malaysia and Indonesia.
Of course, due to my travel dates, I will probably not be posting here next week as I get settled in Melbourne. I will needless to say, be monitoring the markets and if something dramatic does happen within the portfolio, I will of course post it as soon as I can. I have also ran a screen for this month on potential additions to the portfolio, which I will post here before I leave next week. For now though, it’s good night. I hope you all had a great Christmas and I wish you all a happy and prosperous new year. There is money to be made my friends!
