Infrastructure group earnings revisions

Here are some revisions per Yahoo Finance for the global infrastructure plays from old estimate (left) to new estimate (right):

FLR
EPS 07: 3.98 to 4.20
EPS 08: 4.93 to 5.18
Rev 07: 15.56 to 16.72B
Rev 08: 18.21 to 19.84B

MDR
EPS 07: 4.33 to 4.76
EPS 08: 4.81 to 5.17
Rev 07: 5.58 to 5.59B
Rev 08: 6.25 to 6.40B

FWLT
EPS 07: 5.73 to 5.40
EPS 08: 6.38 to 6.44
Rev 07: 5.02 to 4.99B
Rev 08: 5.77 to 5.86B

ACM
EPS 07: 1.09 no change
EPS 08: 1.22 to 1.25
Rev 07: 4.10B no change
Rev 08: 4.65 to 4.73B

URS
EPS 07: 2.49 to 2.52
EPS 08: 2.81 to 2.85
Rev 07: 4.71 to 4.80B
Rev 08: 5.14 to 5.29B

PCR
EPS 07: 2.66 to 3.09
EPS 08: 2.91 to 3.25
Rev 07: 4.08 to 4.31B
Rev 08: 4.41 to 4.88B

Increases were most impressive at FLR, MDR, and PCR - with a near term 2007 reduction in some of the numbers for FWLT
As mentioned earlier this week I did sell my URS, which was part of the the global infrastructure basket I originally set up and essentially replaced it with PCR, which is growing much faster. There are some litigation concerns with PCR which appear to be overhanging the stock, but it did have a nice late day move Friday up 10%.

While I have not brought over my analysis i.e. revenue growth rates, PE, PEG, EPS growth rates etc MDR, FWLT, and PCR continues to be the bargain bin stocks of the group with forward PEs of 17-18 on 07 estimates. This compares to Jacobs Engineering (JEC), KBR and Fluor in the 28-29 range. Now there might be very valid reasons for this discrepency in terms of types of contracts, level of backlog, industry groups served, but for now I am going to go with the "value" plays.

Long MDR

Some rebound

The market rebounded a bit as Fed injected more liquidity in the market, but I don't really see much in this bounce. I did make some small sales in positions that jumped very quickly to lighten up a bit on larger positions - CF, WNR, & PCR. Only took about 10-20% off of each position to offset purchases that were made very recently at much lower prices.

While I don't try to predict the market, the individual charts I am following don't look that great. Many stocks seem to have run into resistance at moving averages and short of an influx of buyers I just don't see them pushing through. With such a nervous market, I just don't see a rush of buyers coming in here in the last 2 hours ahead of the weekend. Hence will stay on the sideline for now.

(as an aside I sold a lot of trading positions in personal accounts for the same reasons; i.e. no longer long CROX)

Since this fund is run more conservatively I only lightened in a few positions that ran up quickly.

Another rough morning (notice a theme?) :)

No surprises here. Overnight, Asian markets were down hard reacting to US losses yesterday, and Europe followed suit.

The best result here would be a panicked 500 pt DOW loss - these 250 down, 150 up really are just set ups. A nice cleansing panic would be fruitful.

That said, continuing to pile into the market in pieces. Added a few new names in some high fliers (smaller positions) such as Crocs (CROX), and Baidu.com (BIDU) - these have been momentum favorites, and I am not buying large positions, but they have finally shown some weakness. When the market takes its 'generals' (leaders) out and shoots them, that is generally a sign a bottom can be found nearby. That said, I don't consider the losses in either 'shooting' - they are simply hovering near to 50 day moving averages.

I also bought a blast from the past, Broadcom (BRCM) which has exhibited serious strength the past few days, from what appears to be a sympathy move with Cisco (CSCO). I have also been able to add some to my position in Juniper Networks (JNPR); the stock has stayed up stubbornly despite the market downturns, but finally showing some weakness. With hedge funds needing to sell, they are finally letting go off some winners and/or institutions are finally heading for the hills and selling their winners.

I did consider Under Armour (UA) but its just so pricey but its been a rock in this storm. As have Sandisk (SNDK) which I bought a small position, as well as another retailer, Coach (COH), on its early morning 6% dip. Coach is a retailer which I am trying to eschew for the most part but generally caters to the upper end which are doing better than ever in America and worldwide. Any retailers facing the common folk (i.e. most of us) I see a lot of struggles going forward.

Advancers to Decliners are 2:8 in the major indexes

Cash is now down to 14%. This is now at a level I need to be conservative and save some gunpowder in case of a full blown panic. I would usually like to hold cash anywhere from 5-20% levels; being long only I am relatively handcuffed from what I can do to create downside protection; so either holding cash and/or buying ETFs that appreciate during down days (i.e. QID) are really the only protection I can do within the confines of a Marketocracy fund

Long CROX (yes I bought it in my personal account for the first time ever this morning)

An ugly day for the longs

Ugly day all around. This credit background is going to be with us for quite a while. A lot of very bad stuff/ideas by very rich people have to be unraveled, and much like an onion the more you peel back the more it will stink. The question is when will the market compartmentalize these risks. What is bad for a retail stock is not necessarily bad for a global infrastructure stock; what is bad for a financial stock is not necessarily bad for a fertilizer stock but right now everything is being thrown out together. Good for long term buys, but it certainly never feels great when you are in the throes of it, especially since human emotion can carry a move, both up and down, much farther than it should based on logic. And while the market is an efficient value of logic in the long run, in the near run its a plethora of human emotions. Hence the near term could remain ugly.

I did do a lot of buying here in the last 2 hours as many 'bargains' did seem to appear. I use the word bargains lightly because what is a 25% off sale today could easily be a 40% off sale next week.

Cash is now down to 31%, and the large cash position helped buffer the fund today, with only a -1.85% loss. Considering the large exposure to heavy hitters in fertilizer, refining, Indian banks, and global infrastructure, many of which were down >5%, it is not a half bad day. Again the large cash position helped.

Cash levels

It has actually been a great week to start a mutual fund - with the inherent volatility and entry points created by the market.

As of 2 PM EST, the fund is now 57% invested with only 43% cash. I thought it would take longer to reach this level but again, many stocks have shown drops of 10-20% this week, creating entries into longer term positions I'd like to be in.

I was roughly 55% cash as of the close yesterday so have been buying liberally today.

Housing/Credit Woes

I mentioned in a piece yesterday about the nonsense that was the rally in homebuilding yesterday

Yesterday's entry

I noticed two of the 2nd, or shall we say 3rd tier homebuilder stocks up big yesterday, WCI Communities (WCI) and Tarragon (TARR), were up a lot yesterday and sort of snickered to myself "why are people bidding up these things that are most likely headed to bankruptcy court in 6 months"

Well it looks I was off by 5 months, 29 days on TARR today as its down 60%+ on liquidity concerns. Again, I don't know whom is playing these stocks on the long side, but it's playing with gasoline. Capital preservation is important in any market, but especially this market.

Now in full disclosure I had owned both WCI and TARR in the housing stock heydey in 05, but I haven't touched a housing stock in 2 years. And I doubt they will really be touchable for at least another year, aside from very short term spike/dead cat bounce trades.

No position

Doubling position in Gmarket (GMKT)

I am doubling a position I initiated on Monday with Gmarket. The company has dropped 8% today to fall to the 50 day moving average, so I have added another 600 shares to the 450 shares I bought on Monday, and 150 shares bought yesterday. Those shares were bought in mid 22 range. These shares will be mid 20s range.

Gmarket is a very interesting company which in a phrase can be described as the EBAY of Korea. Aside from the obvious growth in techno-savvy South Korea, there are also myriad potential opportunities in both Japan and China down the road.

Last quarter, GMKT reported .18 vs .14 expectation (28.5% beat)

07 estimates currently stand @ $0.71 (up from $0.66 before the earnings), and 08 estimates are @ $0.84 (up from $0.82 before earnings and $0.77 60 days ago)
So obviously the trend is up, and analysts are constantly underestimating the company.

At $21, this is a forward PE of 29.6 on 07, and 25 on 08. Certainly not cheap but for an Asian e-commerce site, not a bad value. (See Baidu.com valuation for an example)

Nice rebound in F5 Networks (FFIV)

FFIV is the 3rd largest holding in the fund @ 3.2%

The stock is up 7% in the early morning action. The company announced a relatively smallish acquisition earlier this week, all in cash - hence no dilution. Yet the stock cratered from the upper 80s to low 70s, where I made my first buy. The stock followed with another severe downward move the next day to the mid 60s. I doubled my position there.

Original post about building a position in FFIV

The stock was upgraded today but still sits below a key level, its 200 day moving average around $75. So without a quick move back above it, the stock could be stuck there for a while. While F5 is not my favorite stock in the networking space, its ridiculous fall created a buying opportunity that was just too hard to pass up. The stock is currently around $71.

No position

Closing position in URS (URS)

Although I just opened this position Monday, I am closing it today. I originally had bought a basket of global infrastructure stocks that included McDermott, Foster Wheeler, and URS. URS reported last night and while its earnings were solid, the results were nowhere near the growth of others in the sector. I have 10 names in this sector I follow, and I'd rather concentrate on the top 3-5.

URS EPS increased to $0.70, from year ago $0.63 (analysts expected $0.68)
Revenue rose to $1.25 Bil from $1.07 Bil in the year ago (17% growth)

A solid report but other companies are doing so much better, yet are getting their stock prices squashed. Why you might ask? Well apparently much of the good results were already built into the stock prices of companies such as FWLT, MDR, FLR but not as much as expected of URS. With the stock up a few percent this morning I will take this opportunity to sell and concentrate on the higher growth stories. I believe once the gains are digested into the higher growth names, they will have further upside and again I want to keep my portfolio limited to roughly 40 positions.

Bought 125 @ @ $48.00, and 125 @ $46.39 - sold @ $50.10

No position

New position in Perini (PCR)

Following the global infrastructure them, I have added a new position in Perini. The stock has been destroyed of late, down from mid 70s in late July to mid 40s this morning. This despite a wonderful earnings report yesterday (in which the stock rallied 10%+). This is a very weak stock and I fully expect a test of the 200 day moving average which would be approximately $43, but with how far its fallen I have begun a sizable position.

As for yesterday's earnings:
Earnings were $1.01, up from $0.16 in the year ago period. Analysts were expecting $0.61
Revenue increased 62% year over year to $1.15 Bil from $712.5 Mil in the year ago period.

The company raised its guidance for 2007 from $2.40 - $2.60 to $2.80 - $3.00, and revenue from $4.0 - $4.2 Bil to $4.1 - $4.3 Bil.

It looks like the company does a good amount of work in Iraq, and there is some fear business could slow next year if business in Iraq slows.

At the low end of its guidance, $2.80 when the stock is around $50 it trades at a forward PE of 18, putting it on par with Foster Wheeler for the lowest valuations in the sector.

I added 400 shares today.

Long PCR

Building refinery exposure: Frontier Oil (FTO) and Western Refining (WNR)

The refinery stocks are not really buy and holds in my book, but excellent trades 2-3x a year. Their value ebbs and flows with the 'crack spread' - which is essentially the difference between crude prices and gasoline prices. There is a small host of companies to play in this sector, including Valero Energy (VLO), Tesoro (TSO), Frontier Oil (FTO), Western Refining (WNR), and Holly (HOC). Western Refining seems to be the favorite of traders and the most volatile (and most highly valued), while Valero is the Microsoft of the space, if you will.

I had started a position in Frontier on Monday, to which I added 150 shares. I also started a new position in Western Refining in this morning's sell off. Both stocks are near to support levels on their charts; WNR to its 50 day moving average, and FTO to its 200 day moving average.

While crack spreads have been narrowing (leading to a reduction in the stock prices), I will be building positions that will probably hold for a few months as we enter the fall. Again, these are not stocks to really buy and hold for 3 years, but with their volatility can be nice longer term trades if one has patience.

FTO now is up to 2.6% of the fund's holdings, and WNR 1.4%

Long FTO, WNR

Another rough morning

As predicted this credit fallout is not even near to being completed. Today some bad news out of France with exposure to US subprime and weak retail numbers are causing a tough open.

Neither is surprising. The fun has no exposure to retail names at this point - although I still like some high end names such as Coach (COH), and high growers like Under Armour (UA), either I am wary of the sector as in the case of the former, or valuation in the latter. While the high end consumers in the US should not be too affected, the mid to low end consumer (finally?) might be feeling the heat of higher energy, higher food, and the lack of using a home as an ATM. This has been a theory for years, but the American consumer just marches on year after year. I think finally it will come to a head, most notably due to the lack of ATM usage of home equity.

No positions

More thoughts on McDermott (MDR)

On a longer term view the stock has been consolidating in $80s range since mid June, thats about 2 months now - essentially a 10 point range between $80 to $90.

Prior to that it made a huge move from $50 to $80 in 2 months, so thats a 60% gain to absorb. It takes time. Sometime in the next 3-4 months you will get another 30-40% move in a relatively short time span.

Until then the stock could be $80 or $90 and it means pretty much nothing except for short term trading. It is white noise. The earnings, guidance, all metrics are fantastic. The market is just not ready to push it up yet - when it is ready, the move will be relatively fast, and relatively furious.

Throw .37 EPS "beat" on top of the $4.33 current estimate of 07, and you are talking $4.70 - that assumes no upside to Q3/Q4.

With Q3 @ .97 and Q4 @ 1.05, and coming off 2 quarters of $1.30s EPS range, the future expectations seems a tad bit conservative - so they will need to go up.

Hence $5.00 07 EPS is very doable - throw a 25 PE on that and you are talking $125 by year end; which is nearly 50% from here. If that move will happen mostly in 4 weeks or over 3 months who knows. If that move begins tomorrow or in 4 weeks or 12 weeks who knows.

But eventually price catches up to earnings. We have the wind behind our backs in this sector.

Long MDR

Celanese (CE) affecting CF Industries (CF)?

After scrounging around the fertilizer sector trying to find a reason for the late day dip, their appears to be no reasonable explanation.

However Celanese, a speciality fertilizer co. did narrow their guidance due to a 3 month shutdown at one of its plants

CE reduced guidance range from $2.85 - $3.15 down to $2.85 - $3.00 - this came out early this morning, and the CE and CF charts look quite similar for the day with late day dips, then spikes back up, with the CF move even more exaggerated than CE. Oh well, another day in the market.

Adding to CF Industries (CF)

CF Industries is a 2nd tier fertilizer company. On the first day of the fund I bought an initial $5k stake (100 shares @ $52.24)

The stock has rebounded smartly since then; however late this afternoon it broke a support level of $55 (50 day moving average) and dipped in very short order to low $50s. I just happened to be watching at the time so I put in 3 new orders of 100 each.

ETA: Oh Marketocracy, you really messed with me on this one; I put the last 2 orders in around 52.00 and I didn't get them until 54.05 according to how Marketocracy works. Well this proves why Marketocracy is not a great tool to mimick daytrading. Well it incorrectly tagged $400 onto my cost basis, but what can you do.

ETA: not 30 minutes later CF is back above resistance at 56.30 - thank you market

Long CF