PCM Newsletter Archives

 

 

 

2017 ISSUES

June 5, 2017

 

Another terrific month in May

May was another outstanding month at Peattie Capital as most portfolios outperformed the S&P's 1.1% gain, with returns ranging from roughly flat to +5%.

For the year, most accounts have gained in the mid-high teens, with a couple above 20%. One income-oriented account has gained only 4% and there is an outlier on the high end which has gained roughly 40%, however it is highly concentrated with only six positions and is not representative of most Peattie Capital accounts. The S&P 500 has gained 7.7%, excluding dividend reinvestment.

The news for several portfolio companies has been good, and shares are responding

In the June, 2016 newsletter I recommended Veeva Sysytems ("VEEV") which reported terrific earnings on Friday, May 25 and the shares gained 8% that day. VEEV shares closed May at $63.54, a gain of 18% for the month and up about 90% since I recommended them at $33.65 a year ago. Other big performers in May were Activision ("ATVI"), Align Technologies ("ALGN"), and Alphabet ("GOOG") which gained 11%, 8%, and 6% respectively.

On Thursday, June 1, Broadcom ("AVGO") reported earnings well in excess of expectations and the shares jumped 8.5%, closing above $254. AVGO is also a Peattie Capital recommended stock, and has gained 69% since I recommended it 11 months ago in the July, 2016 newsletter.

One name has performed poorly this year, AMC Entertainment ("AMC"). AMC has been Peattie Capital's recommended stock twice in the past eight months and clearly I have been wrong about it, at least so far. The bull thesis for AMC is that it is consolidating the movie theater industry, and renovating acquired theatres by adding reclining seating, and a broader array of foods and beverages (including alcohol where permitted). The metrics from renovated theatres have been strong, but so far the market appears more concerned with company's upcoming spending needs and the potential threat that the internet will disrupt the movie theatre industry, much as it has other industries.

For now I am holding about half the original AMC position.

On the surface, US economic headlines indicate a continuing slow, steady expansion

Recent economic headlines suggest the US economy is picking up a bit, and Friday's employment report, with a 4.3% unemployment rate, shows reasonably full employment. However the underlying data in the report are not as sanguine. The new jobs total was well below forecasts, and the employment-to-population ratio and participation rate were both weak.

In addition, housing, auto sales, and commercial real estate seem to be sputtering. According to David Rosenberg of Gluskin Sheff (Breakfast with Dave June 5) "Outside of oil and gas drilling, the economy only eked out a 0.3% gain (annualized) in Q1. The economy, in a word, is weak."

I'm not in the business of predicting interest rates, but I watch the bond market and shape of the yield curve for clues to the true status of the US economy and I note that the yield curve continues to flatten, with the 10-year note about 2.15%, its lowest level since Nov. 11. Given the still positively sloped yield curve and low level of rates, broadly speaking I am ok with the overall market. That said I am watching closely and repeat what I've said several times recently, that a 10% (ish) correction could happen anytime....and will.

ETF discrepancies

I've mentioned Exxon ("XOM") in the past, as it represents my concerns with ETFs, generally speaking. At peak oil prices of $125 XOM earned roughly $10 per share. More recently XOM only earned $2+, as oil prices collapsed to the high $20s. Yet the stock price only dropped from the mid $90s to the mid $80s. My theory about that is that XOM is in so many ETFs, which are compelled to purchase shares when investment dollars arrive, which they have been doing in droves. To me this is dangerous, as owning something just because others do is not a recipe for successful investing.

Another example is the Italy ETF, ("EWI") in which seven of the top 10 holdings get an average of 72% of their sales outside Italy. Or TripAdvisor ("TRIP") which trades at 30x 2018 estimates (which are falling) and 50x trailing twelve month earnings. TRIP is in both the S&P Growth ETF ("IVW") and also in the S&P Value ETF ("IVE") (source: Horizon Kinetics Q1 2017 Market Commentary). I really have no idea why a value oriented ETF owns a company like TRIP, and my guess would be that owners of the IVE have no clue it's one of the holdings.

Note to self: Be careful! Know what you own and why you own it!

Thinking more about overall portfolio exposure

I mentioned last month I was sprinkling in a few shorts selectively, and now I am also trimming some of the most expensive long positions. In terms of overall portfolio construction I am fine with owning small amounts of them, but as they appreciate I have taken down their weighting. Examples are the aforementioned VEEV, Health Equity ("HQY") and TenCent ("TCEHY"). Each of these has had a phenomenal run but I am focusing on more reasonably priced names for the largest portfolio positions. GOOG remains the overall largest holding at Peattie Capital.

Among these uber-expensive stocks, the only one I no longer own is Ellie Mae ("ELLI") which provides cloud-based software solutions to banks to standardize and streamline the mortgage application process.

Stock picking is still a good way to go

Peattie Capital believes that paying the right prices to own the right stocks is a good approach to the market. For some clients, depending on their specific characteristics, I might also overlay a tactical hedging program to protect against material downdrafts which might consist of boxing existing long postions, shorting, or raising cash.

For long term investors, I (generally) agree with Warren Buffett's comment that "All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies." That is still the approach for most, not all, Peattie Capital clients as difficult as it is sometimes.

Here is an updated version of recent Peattie Capital recommended stocks, using closing prices from May 31.

This chart shows all PCM's recommendations for the past 29 months showing an average return of 25.2%. The total return of the S&P 500 in the comparable period is approximately 22.5%.

Additional recommendations are available on request. This table does not include speculative
and short sale candidates which are only appropriate for clients who have requested them.

PERFORMANCE OF PCM RECOMMENDED STOCKS

Date
Name
Ticker
Action
Price
Close
Gain
  4/3/17 CTrip CTRP Buy $49.30 $54.65 11.0%
  3/5/16 AMC Entertainment AMC Buy $29.50 $22.30 (23.7%)
  2/5/17 Silver Bay Realty* SBY Buy $18.20 $21.50 18.1%
  2/5/17 DaVita DVA Buy $65.00 $66.26 1.9%
  12/5/16 Abbott Labs ABT Buy $38.50 $45.66 20.0%
  11/3/16 Cogent Communications CCOI Buy $37.00 $39.40 8.7%
  10/5/16 AMC Entertainment AMC Buy $31.50 $22.30 (27.9%)
  7/6/16 Monmouth Realty MNR Buy $13.40 $14.60 12.5%
  7/6/16 Broadcom AVGO Buy $151.00 $239.48 60.3%
  7/6/16 Wells Fargo Pref L* WFC/PRL Buy $1340 $1305 (1.2%)
  6/2/16 Veeva Systems VEEV Buy $33.65 $63.54 88.8%
  4/5/16 LSB Industries* LXU Buy $12.35 $9.75 (21.1%)
  4/5/16 Marine Harvest MHG Buy $15.50 $17.56 20.9%
  3/3/16 KVH Industries* KVHI Buy $9.25 $9.06 (2.1%)
  3/3/16 Howard Hughes Co. HHC Buy $99.00 $128.16 29.5%
  1/6/16 Align Tech ALGN Buy $65.00 $145.20 123.4%
  11/2/15 ViaSat* VSAT Buy $65.50 $68.84 5.1%
  9/2/15 Google GOOG Buy $590 $964.86 63.5%
  8/4/15 DexCom, Inc* DXCM Buy $85 $84.20 (0.9%)
  7/2/15 Cogent Communications CCOI Buy $32.50 $39.40 29.3%
  6/2/15 Express Scripts* ESRX Buy $86.00 $81.55 (5.2%)
  5/4/15 Align Technology ALGN Buy $59.00 $145.20 146.1%
  3/4/15 Sabre Corp* SABR Buy $21.60 $26.57 25.5%
  2/5/15 Cogent Communications CCOI Buy $38.50 $39.40 10.9%
  1/5/15 Monmouth Realty MNR Buy $11.60 $14.60 38.0%
   
 
NOTES: Gains include dividends. All numbers are unaudited.
The risk of loss always exists, and past results
are not necessarily indicative of future results.
*Position sold at manager's discretion

Recommended stock: There is no recommended stock for this newsletter

Please don't hesitate to contact me with question or comments and just let me know if you'd like to be removed from distribution.

CLOSE THIS ISSUE


May 2, 2017

 



April 3, 2017

 



March 3, 2017

 



February 3, 2017

 



January 4, 2017

 



Previous Years' Newsletters

Welcome to Peattie Capital.   Who's flying your plane?
Peattie Capital Management, LLC · 1200 High Ridge Rd. Stamford, CT 06905 · 203-308-1204
© 2010-16 Peattie Capital Management, LLC    Privacy Statement   Terms of Use   Free Newsletter

 

Design + Hosting
Ossining Design Guild