BUYING SHARES OF NYX FOR RETIREMENT ACCOUNTS
It is fair to say that shares of NYX (NYSE Euronext) will be sensitive to bull and bear cycles. It is a company that derives its revenues from the trading and access to various types of securities on a daily basis. In fact, between all the exchanges NYX owns globally, roughly one-third of all global equity trades are made through one of their exchanges. It is the largest such entity in the world. It popped up on my radar screen as a result of the tremendous amount of insider buying taking place in the company recently. Most impressive is the seven figure buy that took place by the Deputy Chairman of the company earlier this week. The per share price has declined significantly since last year when a merger was announced with Deutsche Boerse. That merger has since been dumped by European regulators and is no longer in the picture. While the shares have recovered from their 2011 lows of roughly $22 per share, they are nowhere near their $41 high of 2011 and a long ways from the all-time of $112 made in 2006. The future share appreciation in this company comes down to market environment...plain and simple. It is essentially a play on whether the global markets will be accommodating towards investors or hostile. An accommodating market sees increased volumes, participation and opportunities that will be reflected in the share price of NYX. A hostile market will, obviously, hurt the prospects of a company that deals directly with equity trading more than most other entities. In the meantime, the company is extremely shareholder friendly. It has a 4% yield, which always helps with the process of waiting around for a company to experience capital gains. They have been in the process of buying back shares for sometime now and recently announced another $550 million to be allocated towards share buybacks. Here is a technical look at the company: click chart to enlarge On a fundamental basis, all valuation measures point to opportunity. It trades at one times book value and 10 times forward earnings. They also sport some extremely fat margins that should remain consistent over the long-term. All of this is for a global leader in its respective sector, keep in mind. NYX is a long-term buy with a time horizon of 5 years plus at a minimum. I am purchasing it for retirement and conservative accounts only. Let it sit and forget type...
THE GUN: SOME VERY SIMPLE REASONS WHY SPRT IS BUY HERE
October 1st, 2012 - SPRT sold at 4.35 for +35% gain since August 7th. August 7th, 2012 - SPRT reinitiated at 3 July 24th, 2012 - SPRT sold at 3 for +15% since June 16th. June 16th, 2012 - SPRT reinitiated at 2.60 March 29th , 2012 - SPRT sold for +21% since posting I've been following SPRT for about 8 years now. There are no intricacies or complicated stories to tell here. It's not a post-restructuring play like GSIG or PTGI. Plain and simple: It's a software company that is transitioning to new partnerships that will aide in recovering the revenue growth that has battered the stock price since its December 2010 highs. SPRT has had a near 10 year history of moving between the $1.50 range and the $7 range. It managed to make it all the way up to $15 in 2004. Please see the chart below for further technical details. click chart to enlarge Cash flow at the company has been erratic. However, they have no debt to speak of and about $1.20 per share in cash on the books. That means at current prices the company is selling for a little more than 2 times cash. That's for a company that has signed new service contracts recently with major companies including Comcast and Staples. In addition, the CEO and other officers were purchasing shares on August 1st. He probably would have been better off if he would have been reading my notes on August 1st and held off until September, at least. Nevertheless, insiders know the history of the company and the cycles it is prone to going through on an ongoing basis. The addition of RGM Capital as a form 4 owner and continued buyer doesn't hurt either. Bottomline: Very simple here...company with a substantial operating history that has a very defined business cycle is sitting at the low end of its 10 year cycle. This is while the company is transitioning to new service contracts that will increase revenue growth and profitability in 2012. It has a clean balance sheet. Insider buying by CEO and a savvy value investor throwing his support behind the company around current prices. The company is an easy double over the next 12 months, if not a three bagger. Downside risk from these levels is roughly .70 cents or 25%...worst case scenario over the next few...
INVEST OR DIE: THESE TWO LITTLE PIGS HAVE WINGS
***PTGI sold on April 16th, 2012 +36% since posting ***GSIG sold on April 9th, 2012 +6% since posting I have two post-restructuring plays that are worth a gander: - PTGI - Primus Telecom - GSIG - GSI Group GSIG...I was long the company when it was in bankruptcy during 2010, buying initially in the $2 range and riding it up past $10. I sold out in the first quarter of 2011. The company has done nothing but strengthen its position over the past year, while the per share price has literally gone nowhere. Cliff notes version of GSIG investment thesis: overpaid for an acquisition some years ago...caused the company to go into bankruptcy...previous management tried everything to dissolve the equity in the company...activist investors became involved...equity committee was formed...activist investors litigated the matter...activist investors won in court...management ousted...company restructured...equity saved...businesses all intact...a new, experienced management team resides over the company now...generating substantial growth...largely insider owned....undiscovered still to this date. PTGI is a little more complicated of a story. I'll turn it over to Wikipedia for an explanation of what the company has gone through over the past 20 years http://en.wikipedia.org/wiki/Primus_Telecom Cliff notes version of PTGI story: much hyped telecom play in early 2000...took on too much debt...forced into bankruptcy...reduced debt substantially....activist investors have become involved...their business continues to grow...they are a cash flow machine...greatly undiscovered company....was on the pink sheets before the middle of last year...now trades on NYSE. Should the global economy and thus the markets resist the urge to cliff dive in 2012, both of these companies can see substantial upside before year...
THE GUN: AN INVESTMENT OPPORTUNITY EMERGES IN PRGS
***PRGS sold on March 28th, 2012 +27% since posting It has been awhile since I posted a report on a potential investment in an individual company. Let's see if I can shake the rust off. I came across PRGS (Progress Software) recently. Well-established software companies typically possess two key attributes: 1. Their business is extremely cyclical in nature 2. They are free cash flow machines This means that when a negative cycle kicks in, lowering per share price, it is typically a good time to buy into well-established companies with a history of solid management and free cash flow generation. PRGS has been getting beat up recently as it attempts to transition away from one segment of the marketplace to another. In the meantime, their growth has grinded to a halt, forcing the company to cut forecasts when they announced earnings on January 3rd. This cycle of disappointment has led the company on a rendezvous with the bearish segment of cyclicality within the software sector. The company has fallen from a high of $30 per share a year ago to its current price in the $18 range. Certainly a director within the company thinks it's time to buy as he bought $500,000 worth of the stock for himself on the 11th of January. Let's look at some of the key valuation metrics on a historical basis: click chart to enlarge The most significant risk to PRGS comes with management's inability to execute on their ongoing transition. This would compromise the position of the company and allow competition to diminish their market share, causing management to further lower future estimates. This outcome could take the share price to the $12-$13...
A CONTINUED LACK OF VOLATILITY WILL DEMAND A CHANGE IN STRATEGY
Volatility is a bear's best friend. A lack of volatility can become a bear's worst enemy. It slowly grinds your positions into fine powder one agonizing minute after another. I bring up the subject of volatility (or a lack thereof) because of the fact that there has been a remarkable change in the characteristics of the market over the past few weeks. This low volume grind that we are experiencing is reminiscent of all the prior low volume, grinding bull markets (dare I say it?) of the past. They grind up through negative economic data, adverse macro events and right up through ultra-bullish sentiment. It's not something that you can afford to fight if you are a stubborn short. I am not sure if I qualify as a stubborn short as of yet. I initiated my short exposure on December 23rd. I haven't been adding into strength, choosing to simply wait things out. Now it has gotten to a point where I am being forced to fold my hand both as a means of controlling risk and as a means of refreshing things. I have no problems with holding my crude oil short. The equity shorts (FAZ & TZA) will be closed on opening strength tomorrow morning. By all indications, futures are pointing towards a strong opening currently. If we are indeed entering another prolonged period of low volatility, short-term trading strategies will be turned to mush. What will work is intermediate to long-term equity strategies. I will be making my short-term strategy a smaller portion of the portfolio and allocating a majority towards intermediate to long-term equity positions as I did during all of 2010 and the first half of 2011. I am putting together some research on a small-cap name that I will be presenting here by the end of the week. It possesses all the attributes I look for in a long-term investment: positive cash flow, restructuring angle, highly incentivized management, a solid prior history and it's greatly ignored/undiscovered. That'll do it for...
JANUARY 6th: PORTFOLIO ALLOCATION
I got a question recently asking how the portfolio was allocated between my positions and why I haven't added to my equity related shorts since initiating the positions on December 23rd? My largest position is currently SCO (short crude oil) making up roughly 22% of the portfolio. TZA and FAZ are around 12% each. That brings my total invested position to just under 50%. While I am bearish on equities, I have to be cautious about taking my current short ETF exposure to the next level. I plan on doubling exposure in both TZA and FAZ. As well as adding in some ERY and BGZ to round things out once all the puzzle pieces fall into place. Being that short requires timing. Being that aggressively short requires precise timing. I can't afford and won't tolerate a 4% surge once I move all my chips to the middle of the table. What am I waiting for? I need a couple more pieces of the sentiment puzzle (namely with the put/call ratios) to fall into place. This should occur within the next couple weeks either via the market moving in an extended sideways range into the latter half of January OR the market may decide to shift the rally into overdrive, causing mental trepidation and anxiety amongst both short-sellers and the underallocated bulls. Either way, I think this scenario takes place within the next couple of weeks. My current inverse ETF equity exposure is at roughly 25% of the portfolio. By the time all is said an done I would like to have it up to 75%. My only job now is to make sure I'm not swinging for the fences before there is a fence to swing...
JANUARY 3rd: PORTFOLIO POSITIONING
During the trading day today I tweeted the following: SCO (short crude oil) is now the largest position in the portfolio. I continue to hold FAZ and TZA medium sized positions. As far as overall short exposure goes, I am getting up there. There is nothing that I like more than shorting a commodity that is seeing headline targets putting it in the $140 to $200 range should war break out due to the same posturing that has been occurring for decades. I speak, of course, of the Iranian threat that is being blamed for the spike in oil recently. This has a way of clearing out short sellers and bringing in both casual longs and those wishing to profit from perceived technical breakouts (you know, those patterns that made money a decade ago) due to the momentum created from the anticipation of such an event. The tension usually just fizzles away after some weeks. I expect this to be much the same. There is simply too much at stake during such a fragile time in the world economy to start a war with Iran. All parties are keen to this fact. From a technical basis it is moving up against enormous resistance here currently, which is why I added to the position today. I'll go over that in more detail in the coming...
DEC 23rd: PORTFOLIO POSITIONING
During the trading day Friday, I tweeted the following: EDC was initiated on December 13th with an additional buy made on December 14th. I initiated mid-sized positions in TZA and FAZ. Both of these sectors will be susceptible as the market is now in the process of topping for a retest of the October lows. I outlined some of the reasons I believe we are close to putting in an intermediate term top in my article posted today. As of the close Friday, I am long three inverse ETFs: SCO, TZA and FAZ. I may be adding early next week depending on price action. Happy holidays to one and...
DEC 21st: PORTFOLIO POSITIONING
During the trading day I tweeted the following: I opened the first leg of an intermediate term short position in crude oil today via SCO. I plan on adding the next leg during the first half of January. It's a small position (less than 10% of portfolio) to start. You can read about the macro reasons crude should be up or down from here on countless other sites. My focus is on the price action. Light sweet crude has a significant amount of overhead resistance above the $104 area. In fact, it is what I like to call a "generational area" of supply. Meaning that the market will gravitate towards this area and then become overwhelmed with supply, eventually suffering a significant failure. The initial failure occurred on November 17th, with no further attempts following this failure point. Since that point crude has carved out a series of lower highs and lower lows. I expect a move back down to $80 during Q1 2012. Target of roughly 65 on SCO. There's plenty of time to put on this trade over the next few weeks I am guessing. Don't get your panties in a bunch thinking crude is going to tank tomorrow. Intermediate term trade is 1-3 month deal. Holding a medium sized short-term position in EDC (roughly 20% of portfolio) and a small intermediate-term position in SCO as of the close...
DEC 19th: PORTFOLIO POSITIONING
During the trading day I tweeted the following: Took a roughly 4 point loss on DGP and a 7 point loss on AGQ. Glad to put these trades behind me. Still holding onto EDC and will likely continue to do so until the end of the year. I can't see myself being overly active for the remainder of 2011 unless we get some extreme action one way or another. Following a triple digit percentage up year in 2010, in 2011 I am underperforming the benchmarks. For awhile in October-early November it looked like I would be able to outperform. However, the second half of November and my slip up in December have ruined my chances. If you've managed to be active in 2011 and are enjoying profits...congratulations. This has been an extremely difficult year for nearly everyone. I get the feeling that 2012 will be a lot more...