2Q Results

It’s been a mixed 2Q, and it looks like the levee may finally be breaking. The enthusiasm that drove the markets for the past 10 months could quickly turn to pessisimism.

I knew white nativism was a problem, and wrote about it in the context of a likely HRC win, but wow. The one-night stand that is Donald Trump is beginning to disappoint investors under the harsh unforgiving light of mid-morning. No doubt the orange spray tan and outlandish hair looked good to tired eyes in a lonely, dark bar where the only other option was a woman so out of touch and overconfident that she dismissed half the bar as irrelevant and deplorable. It all sounded so good at 2am after several rounds of drinks: something random about business and taxes and healthcare reform but also some odd things about groping women, war veterans, and the disabled? Surely some sort of drunken jest.

But it’s becoming apparent that not only does our president have the awkward race relations of Strom Thurmond’s grandfather, but he is also woefully under-equipped to be president, and has only exacerbated latent culture wars. Empires crumble more often from internal rather than external pressures. It worries me, but there’s not much that can be done other than grit my teeth and hope that we as a country can do what we’ve done pretty well in the past, find a good political compromise. That and keep a sharp eye on the already stretched markets.

I dabbled in shorting a few stocks on margin (ZAYO, ENT, WIN), but I’m uncomfortable with that style so I reverted and am now buying long-dated puts instead. Margin is a tiger I don’t want to ride.

Portfolio

Things I Sold

UNIT I have held for a year. I still think that UNIT stock is safe, and unlikely to see a dividend cut, but when a stock moves this much in the wrong direction I have to cut it. I plan to keep an eye on it and will reassess, but I’ll be waiting for WIN revenue to get below 50% of all sales. Analysts have been downgrading the stock, and I expect to see more as we hit the point in coverage where they actually can. I closed out my position immediately after the earnings report around $23/share and avoided most of the downslide thankfully.

CBMX ended well. I closed up roughly 40% between the warrants and the stock.

AOBC I closed out of at break-even. The new Shield product line isn’t selling well in a highly competitive and generally trashed retail environment. I’ll sit on the side until earnings. Management deployed their last buyback to defend shares around $19 in the Spring. Will they do it again or has demand dried up?

WIN announced the cancellation of their dividend. When a company announces that they are eliminating their dividend you see a massive rotation by investors with dividend-focused mandates out of the name. So I shorted for a day and then closed out. I think this was a smart move by WIN’s part, but there was no avoiding some pain, the stock was going to take a serious hit on the news. The whole RLEC space feels strained right now with perhaps too much selling going on.

CTL Calls and Puts. CTL put up a horrible quarterly, and it has killed any stock momentum they had going from the LVLT deal. I still own a few $23 calls dated for January, and large position. I may increase my position, but I think timing this stock is hard and at these levels I’d rather take the 11% dividend. It could take Jeff Storey a long time to fix this company, but I was encouraged to see that Corvex added to their position today.

TMUS Calls. I bought some $65 calls for November for $2 when the stock was trading around $60, and slowly sold them off when the stock started rising post earnings and the price was close to $3. I think my average was something like a 50% return. I’m unwilling to hold them longer because of the uncertainty around a TMUS-S merger or acquisition. It sounds like TMUS wants to be in the driver’s seat?

WCG I closed out of after the stock had rallied 20% from February and operating metrics had declined, likely due to the acquisitions. I think the stock could still run but I’m not an industry expert and sell-side analysts have been surprisingly bearish.

GV I closed out. The energy services companies across the board have had a worse year than I had anticipated and I should have read-thru GV earnings to see what kind of hit was likely coming with ESOA. This is setting aside the increasingly unlikely potential for government supported infrastructure spending. ESOA I don’t mind holding thru the pain and will chock their operating loss this quarter to an anomaly. GV is such a trading stock and they haven’t used their buyback yet. So I’ll watch and wait here.

INSW had an OK quarter, but the tanker shipping industry is still challenged and will continue to be next year. I invested for the low net-asset valuation, and as that has largely winded up I have sold my position. This is another one I intend to watch carefully. The company has strong corporate governance compared to most shipping firms and could see more interest in a stronger market for oil tankers.

What I Bought

SNOA is a pharmaceutical firm which should be cash flow positive by the end of 2018 if things go right. The company is growing revenue and hired more sales folks, hopefully resulting in fuel for operating leverage. I bought a mix of warrants and stock.

AYSI is a mining equipment provider based in Australia. It looks as though management is cleaning up the company for a sale or an up-listing. I was impressed with how steadily the stock performed over the past several years while commodities tanked so I feel OK investing a small position here.

WSTFS is a Canadian timber supplier with a unique product mix and favorable geography. The company is cheap and recently announced a standing buyback policy, and seems like a good way to play resurgent demand from Asia and a housing rebound in the U.S. (even accounting for Trump Tariffs).

TPRFF is a Colombian gold miner with fantastic numbers, but a lot of debt. The new CFO seems pretty bright, and if they can climb the wall of debt the stock should do well. See the write-up here.

ENT and FTR Puts from my last post.

In general I think it’s a good time to own hard assets, stocks outside the U.S., or potentially both. I also have my short list and continue to groom it. For some reason the puts aren’t showing the current prices, both should be slightly in the green currently.

 

 

Advertisements

Author: secondhandstocks

The genesis for this blog stems from a Marine buddy and I came back from Afghanistan with more money than knowledge, and heedlessly tossed our hats into the stock market ring. A few months later, I remember discovering the classic book The Intelligent Investor by Graham and Dodd, and ravenously devouring my first introduction to value investing. That framework - with some generous additions by Seth Klarman, and Joel Greenblatt among others - guides my investment philosophy. I spent five years working in the intelligence field, both in the Marine Corps and then for a government agency after that. I speak Arabic and Pashto, have programming and analysis experience, and enjoy investing in technology companies as a hobby. I also spent a year on Wall Street working on a #1 Ranked Institutional Investor team, before deciding that that the Sell-Side was not for me.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s