Tuesday, November 13, 2007

Bookkeping: Closing some smaller position: Freeport McMoran (FCX) Atwood Oceanics (ATW) Perini (PCR)

With the market up (for now), I am taking this opportunity to cut back on some names in the sub 1% portion of the fund. My near term bias, until the market chances character and improves technically is we are still in downtrend until we back break above certain resistance levels on the index charts.

I am also looking at candidates who broke down below their 50 day moving average, and are not bouncing too well today. While obviously the recent downturn has not spared anyone, I'd like to see on days like today some dead cat bounce and some names have shown very little. These are 3 examples and they also tie into some fundamental themes.

First, Freeport-McMoran Copper & Gold (FCX): While I do like the gold aspect that is only 10% of sales; 80% of this company is copper. If there is indeed a global slowdown like I predict, copper is the type of base metal that will get hit first. The metal has been pretty weak the past 6-8 weeks as well. If I want exposure to metals I'd rather be in iron with some firm 1 year contract pricing (although in case of global slowdown people won't care about the 1 year pricing in iron either and toss out everything commodity related). I do still have copper exposure through Sterlite Industries (SLT) but since this is more directly exposed to the Indian domestic market which (while potentially slowing in the future) should still show far more growth than domestic markets.

Technically, Freeport-McMoran has broken its 50 day moving average of $104, and is not bouncing much today, in fact flat as I write this. Hence I will exit the last of this position. Most of my purchases have been in the low to mid $80s and most of my sales have been in the $107 to $114 range, although today's sale of 75 shares was in the $99s. With the 200 day moving average down at $83-$84, I will take my own advice about a potentially slowing global economy and exit for now. I still like the long term global growth play, but we could be facing some bumps in the road. Also, I am a big believer in "top tick" type of acquisitions and perhaps this BHP Billiton/Rio Tinto might be signaling a near term top - not sure, but my whole portfolio is based on global growth and I'd rather be emphasizing more insulated growth themes at this stage such as agriculture and infrastructure. Those groups are in general bouncing very well today and in a heavy sell off, they will pummeled like anything else, I have a lot more confidence in their fundamentals over the next 2-3 years. This company had been a position in the fund since day 1....

Second, deep sea driller Atwood Oceanics (ATW): While I do still like the 'energy' space long term, I have more than enough exposure and if a lot of the 'crowded' trades I spoke about this weekend reverse, albeit temporarily (short dollar, long crude, etc), sentiment might turn for many energy names. This is my same worry in the solar stocks. While other parts of the energy chain have much more reasonable valuations than solar, if crude drops, lemmings tend to act in concert and throw everything out.

Atwood Oceanics is also in a very similar situation technically to Freeport; in that it broke yesterday below its 50 day moving average of $78 and has not bounced that much today. It trades at just a hair below $78 so if we get a meaningful move up it can regain a nice technical aspect on its chart quickly, but I am taking the conservative route. The 200 day moving average is down at $66, which conveniently would match August lows in the name - so if we see continued selling this potentially could be where it falls. Not saying that it should, but in a 'sell the farm' scenario or "the world is slowing down, crude goes to $70" type of mentality, it could.

I've lost about 2% on my Atwood Oceanics position since inception as the stock has traded in quite a narrow range in the time I've owned it (just over a month) - I had cut back the position earlier but these are the last 100 shares out at just under $78.

Third, and probably the toughest to sell is Perini (PCR) an infrastructure play. Perini reported very good earnings, and a nice outlook but the stock just has not reacted as well over the past quarter as its more international flavored peers. While I think this is an error of the market, the price action continues to be weak and the stock continues to trade below its 50 day moving average. That said, the same could be said for a stock I have been adding of late, Shaw Group (SGR) but Shaw Group has much more international exposure, along with large scale energy projects in nuclear so should offer some protection from domestic downside potential.

I do have a lot of infrastructure names as I built quite a basket but I am going to focus the next 90 days on those that most impressed in the most recent quarter - Foster Wheeler (FWLT), Shaw Group (SGR), and Chicago Bridge & Iron (CBI) - that group (ex Shaw Group) along with Jacobs Engineering (JEC) have held up the best in this selloff, so I expect when the market does stabilize later in the year, these stocks should outperform to the upside. Again, on fundamentals alone it is hard to justify a sale of Perini - but it appears the perception (which seems to have held the stock down all of the last quarter as well) is it is too tied to the US economy and hence must slow - even if the latest earnings report and guidance disputed those claims. It is hard to argue intellectually with the herd that is the market and make money consistently, so I will cease to argue (for now).

I sold 200 shares of Perini in the $55s, this was the biggest of the 3 positions at 1% of fund. Most of my purchases were in the upper $40s back in mid August, and most of my sales have been in the mid to upper $50s, so despite a relatively quiet performance I was able to pull out about 7% gain - lagging many of its infrastructure peers of course. However, it's been a difficult stock to time for short term moves...

These sales also help me raise some (not a lot) much needed cash....

Long Foster Wheeler, Shaw Group, Chicago Bridge & Iron, Jacobs Engineering, Sterlite Industries in fund; long Foster Wheeler in personal account

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