PCM Newsletter Archives





December 2, 2017


Markets surged again in November...beginning to wonder if it's a melt up

The S&P 500 gained 2.8% in November and has now gained 18.2% (excluding dividend) for the year. Peattie Capital portfolios had another good month, with most portfolios gaining between 1.0%-2.0%. For the year most portfolio gains are clustered around 30% with one outlier gaining 50%.

I continue to take profits and limit risk exposure, especially in IRAs and for clients with a shorter time horizon or who are sensitive to losses. My best guess is that markets are OK through year end, but it's highly unusual for a market to go so long without some sort of correction.

Align Technologies ("ALGN") continued to soar in November and on the 27th Morgan Stanley raised its price target from $257 to $300. ALGN has been Peattie Capital's top performer in 2017, having gained 171%. The next best performer has been Tencent ("TCEHY"), which has gained 112%. By way of reminder, Peattie Capital believes in concentrated portfolios, with typically no more than 20-30 positions.

Please note: returns vary based on individual portfolio goals and constraints, and data used to calculate returns are available upon request.

The ongoing debate about the economy

Byron Wien, Chief Investment Officer at Blackrock recently wrote to clients that he is watching a basket of indicators which could potentially disrupt the favorable global economic performance this year. Among them: an inverted yield curve (not yet but something to watch), a slowdown in the leading economic indicators index (which tends to lose momentum a year or so before a recession), slowing corporate earnings (strong growth this year is setting a high bar for next year), and an overly aggresive Federal Reserve which may have to accelerate its tightening program if inflation surprises to the upside (so far that is not the case). (Source: Barron's November 27, "What factors could upset the economy?"

On the other hand, David Rosenberg of Gluskin, Sheff has consistently been arguing that we are in the late stages of an expansion (9th year!), with equity (and credit) valuations at either multi-year or even multi-decade highs at a time when the Federal Reserve is tightening. In addition, some indicators are at levels that have preceded a recession by about a year - for example a peak in consumer confidence, currently at a 20-year high, has been followed by a recession eight times since the late 1960's. (Source: Breakfast with Dave November 29, 2017)

One other noteworthy comment from Rosenberg (Breakfast with Dave November 30, 2017): "Even with the renewed upturn in corporate profits, they still remain below the expansion peak recorded back in Q4 2014-and yet over this time the S&P 500 has risen more than 22%. This remains a multiple driven rally despite the commentary to the contrary."

Note to self: multiples don't expand during recessions or in a rising rate environment! Or, put somewhat differently, I think the "easy money" (if there is such a thing) has been made, and going forward, at least for now, good stock picking is going to become increasingly important.

A few more anecdotes.....

Credit spreads are widening, loan growth is slowing, 35 years of combined experience is leaving the Fed (Janet Yellen, Stanley Fischer, and Bill Dudley) and the "Buffett Indicator", which compares the total market capitalization of all U.S. stocks relative to the country's gross domestic product is flashing red:

"When it's in the 70% to 80% range, it's go time. When it moves well above 100%, it's time to tap the brakes. The metric sits at almost 139% at the moment, which is getting awfully close to the record 145% it hit during the peak of the dot-com bubble in 2000, the only other time the number has been this high, according to the Daily Reckoning blog's Jody Chudley" (Source: Hays Market Outlook November 16, 2017).

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 November 30.

This chart shows all PCM's recommendations for the past 35 months showing an average return of 41%. The total return of the S&P 500 in the comparable period is approximately 34%.

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.


11/2/17 Cogent Communications CCOI Buy $42.60 $46.85 10.0%
10/3/17 NGL Industries NGL Buy $11.90 $12.55 8.7%
8/2/17 Broadcom AVGO Buy $250.00 $277.94 11.6%
8/2/17 Heico HEI/A Buy $73.50 $75.78 3.1%
7/3/17 Independence Holding IHC Buy $21.00 $29.75 42.0%
7/3/17 Cogent Communications CCOI Buy $40.00 $46.85 18.3%
4/3/17 CTrip CTRP Buy $49.30 $46.08 (6.4%)
3/5/16 AMC Entertainment* AMC Buy $29.50 $20.40 (29.5%)
2/5/17 Silver Bay Realty* SBY Buy $18.20 $21.50 18.1%
2/5/17 DaVita* DVA Buy $65.00 $64.76 (0.4%)
12/5/16 Abbott Labs ABT Buy $38.50 $56.36 49.1%
11/3/16 Cogent Communications CCOI Buy $37.00 $46.85 31.3%
10/5/16 AMC Entertainment* AMC Buy $31.50 $20.40 (33.3%)
7/6/16 Monmouth Realty MNR Buy $13.40 $17.84 39.1%
7/6/16 Broadcom AVGO Buy $151.00 $277.94 87.1%
7/6/16 Wells Fargo Pref L* WFC/PRL Buy $1340 $1305 (1.2%)
6/2/16 Veeva Systems VEEV Buy $33.65 $60.22 79.0%
4/5/16 LSB Industries* LXU Buy $12.35 $9.75 (21.1%)
4/5/16 Marine Harvest MHG Buy $15.50 $17.62 28.8%
3/3/16 KVH Industries* KVHI Buy $9.25 $9.06 (2.1%)
3/3/16 Howard Hughes Co. HHC Buy $99.00 $123.98 25.2%
1/6/16 Align Tech ALGN Buy $65.00 $260.88 301.4%
11/2/15 ViaSat* VSAT Buy $65.50 $66.20 1.1%
9/2/15 Alphabet GOOG Buy $590 $1021.41 73.1%
8/4/15 DexCom, Inc* DXCM Buy $85 $84.20 (0.9%)
7/2/15 Cogent Communications CCOI Buy $32.50 $46.85 55.0%
6/2/15 Express Scripts* ESRX Buy $86.00 $81.55 (5.2%)
5/4/15 Align Technology ALGN Buy $59.00 $260.88 342.2%
3/4/15 Sabre Corp* SABR Buy $21.60 $26.57 25.5%
2/5/15 Cogent Communications CCOI Buy $38.50 $46.85 32.6%
1/5/15 Monmouth Realty MNR Buy $11.60 $17.84 68.7%
NOTES: Gains include dividends. All numbers are unaudited.
The risk of loss always exists, and past results
are not necessarily indicative of future results.
It should not be assumed that future recommendations will perform as well as past recommendations.
*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.


November 2, 2017


October 3, 2017


September 1, 2017


August 2, 2017


July 3, 2017


June 5, 2017


May 2, 2017


April 3, 2017


March 3, 2017


February 3, 2017


January 4, 2017


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