Tuesday, August 31, 2010

Adding to Intel Position

Intel (INTC) fell below 18 today. So much for my wise idea of holding for initially trading position. Solution? Well, I bought more today. Tech company with billions in cash, paying 3.5% dividend, still growing, with almost monopoly position in CPUs for almost all computers in the world, trading at P/E 11? It's a buy in my book.

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Thursday, August 26, 2010

Starting American Capital Agency

Market is down so much, I just had to start buying. But nothing on the shopping list hit my price target yet (yes, I am a cheap bastard, especially when buying stocks). So I decided to invest in a high yield REIT: American Capital Agency (AGNC). I have one REIT in my portfolio already: Annaly (NLY), which has huge dividend, 15%. It can't get any better, right? Wrong! AGNC yields 20%! I bought it yesterday. Company has the same model as Annaly: borrowing money for cheap and buying mortgage obligations backed by Fanny Mae and Freddy Mac. Current sharp drop of debt yields should be beneficial for both companies. I don't expect growth from this stock, it falls into "Slow growers/high yield" category. Honestly, 20% yield is all you need from an investment. Boring though, but I can live with it.

Full disclosure: at the time of publication author had long positions in AGNC and NLY and no positions in other stocks mentioned. Positions can change any time.

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Tuesday, August 17, 2010

I Shouldn't Have Done This. But I Did

One of Cramer's commandments says "Thou shalt never turn trade into investment". Well, I just did. Not exactly to investment, but...
Some time ago, I bought Intel (INTC) on a signal from my 3.5x2 trading system (more on this system here). Today Intel was second day up, it's a sell signal in the system. Rule number one: discipline trumps conviction. But I'm in tech buying mode. Just bought Cisco (CSCO) last week. So I decided to take a closer look at Intel. Company has forward P/E of 9.3 and PEG of 0.72! Should be a screaming buy. When you recalculate forward P/E after taking cash out of the price, it comes to 7.3! Can tech be so cheap? Why is tech, the best sector in US for the last 40 years, is cheaper than banks or railroads? Especially companies like Intel and Cisco, which have a lot of net cash.
So I broke a lot of rules and decided to hold INTC. Maybe I'm wrong.

Full disclosure: at the time of publication author had long positions in CSCO and INTC. Positions can change any time.

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Saturday, August 14, 2010

Buying Tech

One after another, the whole sectors are getting crushed on the market. For a while, then they are coming back. We saw it with all European securities in May and June. Now the focus is on American tech. This is ridiculous. This sector is what America is about: enterprising spirit. It doesn't need TARP; best tech companies have full coffers of cash. It's not afraid of deflation: it's in its own deflationary environment since 1970s. It's not afraid of Chinese import: survived Japanese and Korean import threat in 1980s. Tech is positioned perfectly to survive.
That's why I was surprised by market reaction to Cisco (CSCO) earnings. Company beat on earnings, missed less that 1% on revenues and didn't predict any serious slowdown. Year-to-year growth is over 20%. Company has P/E of 18.09, forward P/E of 10.73 and PEG of 1.04. These are very impressive numbers. But I think that these numbers are too conservative. Demand for networking hardware is increasing, we have mobile internet infrastructure expanding now, Internet TV is coming soon, which also will require infrastructure upgrade. Besides, company has $6.85 cash per share. If you recalculate P/E, taking cash out of price, forward P/E comes to around 7.3. This is unbelievable!
That's why I bought Cisco on Thursday. And if price goes down more, I will buy more.
Cisco is not the only tech company trading too low. I'm looking for more tech to buy right now. So far, Broadcom (BRCM) and Xilinx (XLNX) are also on my screen. Honestly, even Apple
(AAPL) is way too low. I have my own reservations regarding Apple, but temptation might be too strong.
If you think that I'm taking my ideas from James Altucher: (CSCO and these 6 tech stocks will be higher a week from now), you are almost right. I agree with James on everything but HP. XLNX is his idea I am borrowing. I found other stocks using my own research. I don't like HPQ because of management problems. Even the greatest company can easily be killed by bad management.

Full disclosure: at the time of publication author had a long position in CSCO and no positions in other stocks mentioned. Positions can change any time.

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Tuesday, August 10, 2010

Another Critical Junction

Crazy action on the market continues. I'm not very optimistic medium term, my thinking is close to that of Doug Kass, who thinks that this year will be spent in a range. But look at a short term picture!
Second week in a row, market starts with a boom. And then falls on Tuesday. And now we are coming to a critical juncture, in technical terms. If you take a close look at S&P chart, you will see that 13-day moving average crossed over 200-day MA today. At the same time, index is still trading just a little bit above 13-day MA. If we don't have a down day tomorrow, it would be a strong bullish confirmation. Yeah, and 50-day MA is going up lately, which is bullish too.
Of course, fundamentals, to put it mildly, suck. Which was confirmed by uncle Ben (Bernanke) today. But sentiment is quite bearish lately, which is bullish. So, if we have bullish technicals tomorrow, things will be looking bright. On the other hand, if S&P closes under 13-day MA, that would be a problem and possibly sign of another leg down.
Interesting picture in fixed income for the last three weeks. Everything is going up, Treasuries, munies, high-rated corporate debt, junk bonds, bank preferreds, everything! Looks like some big guys are gearing up for deflation, although it beats me how junk bonds can be any good in deflation and associated depression.
Staying focused, careful and hopeful.

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