Your highest conviction idea for 2014 + why

[Aberhound]

Cash. Too frothy for me. if you know the train will crash in the next ten stations when do you get off? I had this same battle in Dec 2007 when the CFA at Royal Bank pressed for a 40% bonds and 40% equity in a new portfolio despite the warnings. Prem had warned of the moral hazard problems in mortgage securitization since 2003. The CFA wanted 1/3rd of the 40% in Sterling bonds and claimed that the top Canadian bond seller could not supply any Swiss bonds? Sterling was soon devalued 1/3rd which seemed likely due to the large financial sector and massive government overspending. We stayed 100% cash and started buying in February 2009 with new CFAs. I never did get those Swiss bonds despite repeated requests which remains a mystery to me.

[bmichaud]

Aber - besides valuation, what warning signs do you see right now that are akin to 2007? Recession, fed tightening cycle, European debt flare up?

[rijk]

conduril, african resource infrastructure construction will continue for the foreseeable future

 

regards

rijk

[Orange]

Cash. Too frothy for me. if you know the train will crash in the next ten stations when do you get off? .

 

 

This is exactly my mindset. Bull markets have a lifespan. I'm focused on avoiding major losses right now.

 

Other than a lot of cash, I own some puts on Dex Media, as I think next quarter will be disastrous much like the last one.

 

 

[Palantir]

People have been saying "too frothy" since 2010.

[steph]

Funny, I am just rereading "one upon Wall Street" from Peter Lynch and he clearly thinks you should always be invested, there is always something to do.

And then he talks about an old saying on Wall Street, which I like a lot : "The bearish argument always sounds more intelligent."

[infinitee00]

I almost posted on two of the dry bulkers I own, SB and BALT but in thinking about them I realized there is a more speculative nature to them than EH which I chose as my highest conviction position.  Of course SBLK and these will move up and down together, based on the health of the Chinese economy.  So they all will rise or fall together based on the macro environment.

 

Those that are the most leveraged, the most financially insecure, will move up the most and of course move down the most in the event of a decline in the dry bulk market.  I like SBLK after reading the MS industry buy report recently but do not know it nearly as well as some of the others.  It may be time to start moving away from the least leveraged bulkers and add maybe a name or two with a little more leverage, without getting to the high leverage of an EGLE or a GNK.

 

Those that have the most exposure capes are the most exposed to the momentum in the iron ore market.  Imo that is a good bet as any drop in prices there will increase shipment volume.  This is kind of a natural hedge.

 

Its definitely the time to move away from some of the names with long term contracts like DSX a NMM to those that are more exposed directly to the BDI and short term time charters. 

 

Its hard to know what to do right now as all these names have moved quite a bit, but the outlook in China continues to be very strong and the new build situation can't come into play until 2016.  One analyst looks at new build prices and prices on older ships and believes that owners won't flood the market with new build orders until the price of older ships hits 80% of the value of new builds.  If that is correct then the earliest we are likely to see a supply response would be 2017 or 2018.  Thats more than enough time for these stocks to travel significant highly from here.

 

For me, dry bulk shipping stocks are more like a momentum trade now and I am not very optimistic about its fundamentals and 3-5 year outlook. In fact, I was quite surprised by the MS report (seemed to fly contrary to what I have known for the past 1 yr and reinforced my skepticism towards sell side analyst reports). But then again I am constantly reminded of the quote from Maynard keynes - "The market can stay irrational longer than you can stay solvent"

 

Here's a different view - http://gcaptain.com/alternative-view-morgan-stanleys/

 

You may also want to read this http://seekingalpha.com/article/1849921-diana-shippings-ceo-discusses-q3-2013-results-earnings-call-transcript?source=yahoo

 

 

 

 

[bmichaud]

With the easiest Fed on record, an accelerating economy, revenue growth finally in sight, record buybacks, low inflation, no recession on the horizon and everyone discussing the possibility of a bubble, I sincerely wonder if we don't get a 1987-type of bubble and crash. If I'm not mistaken,  the Fed began tightening well before the 87 crash, the dollar was in free fall and market leadership was narrowing. Now? Broad based market leadership, an easy Fed, significant momentum and healthy skepticism that this rally can continue, as evidenced by the "neutral" category remaining in the 30% range in the various sentiment gauges, which helps offset the lack of bears.

[bmichaud]

Fiat would be my conviction long for the year. Once this Chrysler deal goes through, I think we r off to the races.

[phil_Buffett]

Fiat would be my conviction long for the year. Once this Chrysler deal goes through, I think we r off to the races.

 

i think the same bmichaud. after they will Merger completly with chrysler the re-valuation of the Company Shares will go on. and they will starting the engine.

[Guest valueInv]

Right now I'm torn between DOX and QCOM. That being said, I dont expect either of these to go up 100%, but do well over the long term.

 

Both trade at high FCF yields, DOX has heavy buybacks and QCOM has high rates of growth.

Qcom is very risky, I just sold all my holdings a few months ago

[scorpioncapital]

KCG holdings. Largest market maker, growing brokerage. Selling close to book value. costs are going down, earning power is going up, debt is being paid down. 2014 should be good.

[yadayada]

I almost posted on two of the dry bulkers I own, SB and BALT but in thinking about them I realized there is a more speculative nature to them than EH which I chose as my highest conviction position.  Of course SBLK and these will move up and down together, based on the health of the Chinese economy.  So they all will rise or fall together based on the macro environment.

 

Those that are the most leveraged, the most financially insecure, will move up the most and of course move down the most in the event of a decline in the dry bulk market.  I like SBLK after reading the MS industry buy report recently but do not know it nearly as well as some of the others.  It may be time to start moving away from the least leveraged bulkers and add maybe a name or two with a little more leverage, without getting to the high leverage of an EGLE or a GNK.

 

Those that have the most exposure capes are the most exposed to the momentum in the iron ore market.  Imo that is a good bet as any drop in prices there will increase shipment volume.  This is kind of a natural hedge.

 

Its definitely the time to move away from some of the names with long term contracts like DSX a NMM to those that are more exposed directly to the BDI and short term time charters. 

 

Its hard to know what to do right now as all these names have moved quite a bit, but the outlook in China continues to be very strong and the new build situation can't come into play until 2016.  One analyst looks at new build prices and prices on older ships and believes that owners won't flood the market with new build orders until the price of older ships hits 80% of the value of new builds.  If that is correct then the earliest we are likely to see a supply response would be 2017 or 2018.  Thats more than enough time for these stocks to travel significant highly from here.

The way i saw SBLK before it was up 60% , was as a company that would be trading at a 4x FCF multiple in 2015 (with rates at 20 year lows). And potentially even cheaper if the market goes up. Since they are good at operating ships cheaply, and have some cash flow from operating third party ships, you always make money on this. And you have the free option basicly of a shipping boom. If that happens they start selling the ships for a huge profit, and they would go from a 200 million something, to a billion$ plus marketcap. Even if that is 4 years away from now, the ships will be worth 4 times as much. Together with the cash flows you get before that happens, You dont need to care taht much about the macro side of it. And either they pay a % in dividend of those cash flows, or they pay it towards paying off the ships (so share holders get more when that boom happens). And it will happen if the market stays bad for long enough. And if shipping rates go from their 2013 bottoms (but not a major boom), that FCF multiple would be even lower.

 

And fwiw, I dont think we get another shipping boom now. That MS report oversaw a few things and a shit load of ships came on the market after the 2008 crisis. And China is pumping out loads of ships, allthough alot of them are low quality. A boom that can come close to 2007 might be another 4-5 years away.

[rainman]

Right now I'm torn between DOX and QCOM. That being said, I dont expect either of these to go up 100%, but do well over the long term.

 

Both trade at high FCF yields, DOX has heavy buybacks and QCOM has high rates of growth.

Qcom is very risky, I just sold all my holdings a few months ago

 

QCOM is trying to do the low end smart phone market. It seems to me this will not work. They do not understand how to serve the low end customer.

[Palantir]

As for QCOM, when do you think their patent will have a cliff ?

Looks like we cannot project their current earning power into infinity b/c 2/3 of their profits are from patent fees. However, the current share price doesn't count on this either.

 

Right now I'm torn between DOX and QCOM. That being said, I dont expect either of these to go up 100%, but do well over the long term.

 

Both trade at high FCF yields, DOX has heavy buybacks and QCOM has high rates of growth.

 

I'm trying to figure this out as well. But rather than patent cliff, the bigger threat is the transition to LTE networks if I am not mistaken.

[jschembs]

Long:

 

AIRT - we have an activist shareholder now on the board with a plan to extract value from the disparate business segments.

 

Also think we'll see ~20% upside in SODI on an activist campaign, and I'll be curious to see how owner/managers at JCTCF deploy cash.

 

Short:

 

CRM - http://seekingalpha.com/article/1776782-salesforce-com-the-underpants-gnomes-of-wall-street (shameless plug)

 

Also believe strong shorts are WDAY and FNGN

[Guest valueInv]

As for QCOM, when do you think their patent will have a cliff ?

Looks like we cannot project their current earning power into infinity b/c 2/3 of their profits are from patent fees. However, the current share price doesn't count on this either.

 

Right now I'm torn between DOX and QCOM. That being said, I dont expect either of these to go up 100%, but do well over the long term.

 

Both trade at high FCF yields, DOX has heavy buybacks and QCOM has high rates of growth.

 

I'm trying to figure this out as well. But rather than patent cliff, the bigger threat is the transition to LTE networks if I am not mistaken.

 

Why is LTE a threat to QCOM?

[bz1516]

I almost posted on two of the dry bulkers I own, SB and BALT but in thinking about them I realized there is a more speculative nature to them than EH which I chose as my highest conviction position.  Of course SBLK and these will move up and down together, based on the health of the Chinese economy.  So they all will rise or fall together based on the macro environment.

 

Those that are the most leveraged, the most financially insecure, will move up the most and of course move down the most in the event of a decline in the dry bulk market.  I like SBLK after reading the MS industry buy report recently but do not know it nearly as well as some of the others.  It may be time to start moving away from the least leveraged bulkers and add maybe a name or two with a little more leverage, without getting to the high leverage of an EGLE or a GNK.

 

Those that have the most exposure capes are the most exposed to the momentum in the iron ore market.  Imo that is a good bet as any drop in prices there will increase shipment volume.  This is kind of a natural hedge.

 

Its definitely the time to move away from some of the names with long term contracts like DSX a NMM to those that are more exposed directly to the BDI and short term time charters. 

 

Its hard to know what to do right now as all these names have moved quite a bit, but the outlook in China continues to be very strong and the new build situation can't come into play until 2016.  One analyst looks at new build prices and prices on older ships and believes that owners won't flood the market with new build orders until the price of older ships hits 80% of the value of new builds.  If that is correct then the earliest we are likely to see a supply response would be 2017 or 2018.  Thats more than enough time for these stocks to travel significant highly from here.

 

For me, dry bulk shipping stocks are more like a momentum trade now and I am not very optimistic about its fundamentals and 3-5 year outlook. In fact, I was quite surprised by the MS report (seemed to fly contrary to what I have known for the past 1 yr and reinforced my skepticism towards sell side analyst reports). But then again I am constantly reminded of the quote from Maynard keynes - "The market can stay irrational longer than you can stay solvent"

 

Here's a different view - http://gcaptain.com/alternative-view-morgan-stanleys/

 

You may also want to read this http://seekingalpha.com/article/1849921-diana-shippings-ceo-discusses-q3-2013-results-earnings-call-transcript?source=yahoo

 

Its not just Morgan Stanley, but Jefferies and several other houses that have weighed in with industry buys since the Jefferies report, before the MS report.  Some of his points I can't dispute or affirm one way or the other, but the ones where I have some knowledge, I don't agree.  I think he's reaching on the iron ore for example.  China he just is wrong and doesn't seem to have much knowledge of their economy.

[plato1976]

why is it VERY risky ?

 

Right now I'm torn between DOX and QCOM. That being said, I dont expect either of these to go up 100%, but do well over the long term.

 

Both trade at high FCF yields, DOX has heavy buybacks and QCOM has high rates of growth.

Qcom is very risky, I just sold all my holdings a few months ago

[bmichaud]

Dr. Hussman looks through history and attempts to fit data to each significant market peak, specifically: 1929, 1968, 1973, 1987, 1999 and 2007.

 

I find the following data interesting.

 

(ERP = equity risk premium = earnings yield - 10y UST)

 

1929: Schiller PE 31.48, 10y UST 3.42, ERP -.24

1968: 22.38, 6.03, -1.56

1973: 18.71, 6.46, -1.12

1987: 18.33, 8.76, -3.30

1999: 43.83, 5.79, -3.51

2007: 27.54, 4.75, -1.12

 

Average PE: 27.05

Average ERP: -1.81

 

Present Data:

SPX: 1841

Schiller EPS: ~72

Schiller PE: 25.57

EY: 3.91

10y UST: 3

ERP: .91

 

SPX at average PE: 1948

SPX at average ERP: 3288 (@ 4% 10y)

SPX at 1929 ERP: 2609 (@ 3% 10y)

 

Given....

 

1. Recession is off the table - as evidenced by surging intermodal carloads, declining initial jobless claims, steepening yield curve and plummeting gold prices

 

2. Broad-based market leadership - all sectors save materials and energy participating in market rise

 

3. Lack of volatility typically associates with market tops

 

4. Accelerating equity fund inflows

 

5. Strong "neutral" sentiment in various investor surveys

 

....It appears there is significant room for the market to run before we begin to see downside pressure.

 

For context around the 1987 bubble, the market returned 21% in 1985, 27% in 1986 and 25% into the 1987 market peak. (These aren't exact figures, as they are month end prices from the Schiller data excel sheet)

 

Until the market says it's time to get out via rising volatility and narrowing leadership, it appears futile to try to hedge this market right now, to say the least...

[LC]

Fiat. I think a deal with Chrysler gets done later in 2014.

 

To the market, I am about 15pct cash. I don't really hedge, IMHO cash is the best hedge.

[Guest valueInv]

why is it VERY risky ?

 

Right now I'm torn between DOX and QCOM. That being said, I dont expect either of these to go up 100%, but do well over the long term.

 

Both trade at high FCF yields, DOX has heavy buybacks and QCOM has high rates of growth.

Qcom is very risky, I just sold all my holdings a few months ago

 

Because companies like Mediatek are selling chips at a fraction of the price of Qualcomm. These companies are quickly moving up the curve. Also, the growth in the higher end where Qualcomm plays is not that high going forward.

[Guest longinvestor]

one year seems like a small measurement of time.

 

+1

[Palantir]

There is more to QCOM's business than CPUs.

[Edward]

My best one is probably Strayer Education Inc(NASDAQ:STRA). The thesis is described in great detail here:

http://www.beyondproxy.com/strayer-education-analysis/

 

The guy that has written this analysis is also the author of this excellent book:

http://www.amazon.com/Investment-Checklist-Art--Depth-Research-ebook/dp/B005OYGOZW/ref=la_B00548ANRI_1_1?s=books&ie=UTF8&qid=1386759294&sr=1-1

 

Summary: This is a business Buffett would love (he owns Kaplan through The Washington Post). ROIC is in the order of 50% + plenty of growth potential. This particular one trades at P/FCF of around 5. No serious problems with regulators, litigation, etc when compared to peers who are deep in it. Great management.

 

Enjoy, fellas!