Adding To The Portfolio On A Pullback

It was another wild week on Wall Street. The street saw a borage of earnings report will still quite a few more to go. The President started a speaking tour to talk about the economy only to watch the market drop and interest rates climb with every word he said. The debate in financial circles is about who will succeed Ben Bernanke. Friday even saw the markets swing heavily to the negative side in the morning only climb back and close up higher.  But in the end, the value of the Magic Money Portfolio went up.

Finding value in the current market is tricky to say the least. I followed my own advice and doubled my personal position in Staples (SPLS) when the stock dipped earlier in the week. My model flipped up two BUY Flags a weeks or so ago and the stocks both had a nice pull backs recently making them very attractive. Unfortunately, my margin is currently stretched to my set maximum level so I am not able to add either stock to my own portfolio. This will happen from time to time. I will get a BUY Flag but not have the resources to act on it. Should my model give me a SELL Flag on any of my current holdings I will replace it with these stocks The two stocks about which I am talking are Entgeris (ENTG) and Xerox (XRX).

ENTG is not a real familiar stock to most people. ENTG is Mid-Cap business in the information technology sector. The company makes items used in the manufacturing processes for semi-conductors and other high-tech industries. It has a wide diversification in its product line covering everything from biomedical supplies to solar power cells. A number of analysts and brokerage firms upgraded the stock recently. I've seen price projections from $11.50 up $18.50. My model says look for something in the $13 to $14 range.

XRX is a familiar name to most people but Xerox is no longer just a copier company. Today's XRX not only sells copiers, copier supplies and copier services, they expanded into the document management and business processes arena. Throw into the mix that XRX has a global presence with roughly only 65% of its business derived in the United States. The analyst are mixed on XRX having it all over the spectrum from Strong Sell to Strong Buy. The price projections for XRX range anywhere from $7 to $18 depending on on which analysis you look. My model says buy looking for a price point in the $13 to $14 range.

Now take a look the numbers or both companies.

Book Value :

    ENTG: $5.04

     XRX: $9.37

Fair Market Value:

    ENTG: $10.10

     XRX: $15.20

Cash to Long Term Debt:

    ENTG: No Long Term Debt

     XRX : 0.1673 or about 6 times more debt (not great but workable)

Dividend: 

    ENTG:  None

     XRX: $0.23 per share or about 2.4% (close July 26, 2013)

Entegris (ENTG) 1-Year Price Chart

www.stockcharts.com

Xerox (XRX) 1-Year Price Chart

www.stockcharts.com

 

Okay, so here we go, I am going to add 500 shares each of ENTG and XRX to the Magic Money Portfolio.  I do have a stop-loss for each, $9.30 for ENTG and $8.90 for XRX. Yes, I know these are tight but remember I am buying them on a pullback and if for some reason these pullbacks go bad, I want to get out quickly.

07 June 13 - 1000 shrs IAG @ $5.29 per share.  (BUY)

13 June 13 - 500 shrs AA @ $8.20 per share.  (BUY)

21 June 13 - 100 shrs DUK @ $65.58 per share. (BUY)

28 June 13 - 200 shrs GE @ $23.19 per share. (BUY)

28 June 13 - IAG traded ex-dividend $0.125 per share

11 July 13 - 100 shrs SPLS @ $16.67 per share (BUY)

11 July 13 - IAG dividend disbursement, $0.125 per share, $125 (INCOME)

18 July 13 - 700 shrs WEN @ $6.81 per share (BUY)

19 July 13 - 100 shrs SPLS @ $16.38 per share (BUY)

26 July 13 - 500 shrs ENTG @ $9.53 per share (BUY )

26 July 13 - 500 shrs XRX @ $9.69 per share (BUY)

Magic Money Machine Portfolio (26 July 2013)

Cash:                                                                                 $  11,768.00

1000 shares IAG- $ 5.34                                                   $   5,340.00

 500 shares AA - $ 8.07                                                    $   4,035.00

 100 shares DUK - $ 70.79                                               $   7,079.00

 200 shares GE - $24.65                                                   $   4,930.00

200 shares SPLS - $16.54                                                $   3,308.00

700 shares WEN - $7.14                                                  $   4,998.00

500 shares XRX - $9.69                                                   $   4,845.00

500 share ENTG -  $9.53                                                 $    4765.00

Total                                                                                $ 51, 068.00

                                                                                             +  2.136%

Stop-loss list

IAG - $3.90

AA - none at present

DUK - none at present

GE - $22.75

SPLS - $16.10 (updated 26 July 2013)

WEN - $5.50

XRX - $8.90

ENTG - $9.30

A quick note on how I pick the number of shares to buy. I use the basic ballpark rule of 10%. I divide 5000 by the purchase price of the shares being bought and round DOWN to the nearest block of 100 shares.  Obviously, this does not work if the price per share is over $50 as in the case of DUKE. At the end of each quarter I change the 5000 to reflect one-tenth of the portfolio balance.

A Quick Update

Just a quick update tonight, Staples (SPLS) dipped below that $16.40 mark I mentioned a few entries back so I added another 100 shares to the Magic Money Portfolio for $16.38 per share. This purchase brings our average share purchase price down to $16.525 from $16.67. So here is what the portfolio looks like as of the market close today.

07 June 13 - 1000 shrs IAG @ $5.29 per share.  (BUY)

13 June 13 - 500 shrs AA @ $8.20 per share.  (BUY)

21 June 13 - 100 shrs DUK @ $65.58 per share. (BUY)

28 June 13 - 200 shrs GE @ $23.19 per share. (BUY)

28 June 13 - IAG traded ex-dividend $0.125 per share

11 July 13 - 100 shrs SPLS @ $16.67 per share (BUY)

11 July 13 - IAG dividend disbursement, $0.125 per share, $125 (INCOME)

18 July 13 - 700 shrs WEN @ $6.81 per share (BUY)

19 July 13 - 100 shrs SPLS @ $16.38 per share (BUY)

Magic Money Machine Portfolio (19 July 2013)

Cash:                                                                                 $ 21,398.00

1000 shares IAG- $ 4.69                                                   $   4,690.00

 500 shares AA - $ 8.07                                                    $   4,045.00

 100 shares DUK - $ 70.88                                               $   7,088.00

 200 shares GE - $24.72                                                   $   4,944.00

200 shares SPLS - $16.47                                                $   3,294.00

700 shares WEN - $6.69                                                   $   4,683.00

Total                                                                                   $ 50,132.00

                                                                                                       0.26%

Stop-loss list

IAG - $3.90

AA - none at present

DUK - none at present

GE - $22.75

SPLS - $15.80

WEN - $5.50

Check Out These Buns!

Talk about some volatility in the markets, what a week it has been. Gold is still all over the place, bunching all the way back up to $1290/oz. A couple of Wall Street biggies, McDonalds and Microsoft both get a downgrade. Long term interest rates bounced up to the 2.5% range on the 10 year note and 3.6% on the 30 year note. The equity markets went on a tear and set all kinds of new highs.

I'm still grinding numbers through my model and I found another buy I like. Take a look at Wendy's (WEN). It certainly isn't the industry Titan like McDonalds but it has remade itself after the turmoil of the last few years and is set up for a great turnaround success story. I'm looking for WEN to move up to $9.00 to $10.00 range but I have seen analyst estimate as high as $11 per share. This is a turn around play waiting to shoot up. WEN also has a $0.16 annual dividend (2.5% at current price levels) and WEN doubled their dividend in September 2012. I wouldn't be surprised to see the dividend increased again in the next 12 months. 

Wendy's (WEN) 2-Year Price Data

www.stockcharts.com

Taking a quick look at the numbers....

Book Value - about $5.10 per share

Projected Earnings Growth - 15+% each of the next few years. 

WEN Debt-to-Equity Ratio is 0.74, low for the sector

On the Technical Side - Broke through major resistant at $6.20 per share

I am going to add 700 shares of WEN to the Magic Money Portfolio at $6.81 per share (closing on July 18). I am also going to put a stop-loss on the stock at $5.50 per share.

I need to do a little maintenance on the portfolio as well. I am putting a stop-loss on IAG at $3.90 and at $22.75 on GE.

07 June 13 - 1000 shrs IAG @ $5.29 per share.  (BUY)

13 June 13 - 500 shrs AA @ $8.20 per share.  (BUY)

21 June 13 - 100 shrs DUK @ $65.58 per share. (BUY)

28 June 13 - 200 shrs GE @ $23.19 per share. (BUY)

28 June 13 - IAG traded ex-dividend $0.125 per share

11 July 13 - 100 shrs SPLS @ $16.67 per share (BUY)

11 July 13 - IAG dividend disbursement, $0.125 per share, $125 (INCOME)

18 July 13 - 700 shrs WEN @ $6.81 per share (BUY)

Magic Money Machine Portfolio (18 July 2013)

Cash:                                                                                 $ 27,757.00

1000 shares IAG- $ 4.44                                                   $   4,440.00

 500 shares AA - $ 8.21                                                    $   4,105.00

 100 shares DUK - $ 71.15                                               $   7,115.00

 200 shares GE - $23.63                                                   $   4,726.00

100 shares SPLS - $16.60                                                 $  1,660.00

700 shares WEN - $6.81                                                   $  4,767.00

Total                                                                                   $49,858.00

                                                                                                 (0.28%)

Stop-loss list

IAG - $3.90

AA - none at present

DUK - none at present

GE - $22.75

SPLS - $15.80

WEN - $5.50

Fireworks on Wall Street

The 4th of July has come and gone but the 3 and half day trading week sure didn't lack volatility. As expected, many people were on vacation for the week so volume was typically light. That sure didn't stop gold from sustaining its free fall getting all the way down to $1200 per ounce. It wasn't until this week when China reported a higher than expected inflation rate that gold staged a minor comeback. After April's drop in gold prices to $1400 per ounce, it sure did look like gold was setting up a new bottom but I missed that call. Having said all of that I am encouraged by the bump up gold took in the middle of this week.

Monday saw the start of the quarterly earnings reports. Alcoa's earnings beat street expectations as did their revenue after all extraordinary items were factored out. Aluminum prices, like all metals, continue to take a beating on world markets but Alcoa is expecting improving business conditions as our economy continues to scratch out its slow growth in the second half of 2013.

Enough with the commentary, my model flagged a buy for me this week, Staples (SPLS). Everyone knows what Staples is. I won't be surprised if everyone knew where the closest Staples was, too. The street analyst rate SPLS anywhere from Hold to Strong Buy. I've seen target prices for the stock between $17 and $26 per share. My model is projecting a target price of $20 per share and it also put a STOP-LOSS at $15.80 per share.

A quick aside here: A stop-loss is a price point at which you want to sell a stock to either avoid further losses or to lock in gains when a stock stops going up.

So what do I like about SPLS? 

The Fair Market Value of SPLS is a bit more than $17 per share against a Book Value of approximately $4 per share.

The SPLS Cash to LT Debt ratio is 1.33. (They have more cash than LT Debt.)

SPLS has a respectable 2.64% yield at the current price level. (SPLS - $16.67 close July 11th, 2013.) SPLS also has increased it's dividend by 10% each  of the last few years.

The economy is coming into the time of the year when consumer spending typically increases for the fall school semester and the holidays.

 

SPLS 1-Year Price Data

www.stockcharts.com

 

Now here is a little caveat to adding SPLS to the Magic Money Portfolio. Over the last week while I've been writing this entry, SPLS has increased $0.65 per share to $16.67. While this is not a bad price, I like SPLS better between $16.00 and $16.40 per share. With that said, I will add 100 shares to the portfolio and if the price pulls back to below $16.40, I will add more to the position.

07 June 13 - 1000 shrs IAG @ $5.29 per share.  (BUY)

13 June 13 - 500 shrs AA @ $8.20 per share.  (BUY)

21 June 13 - 100 shrs DUK @ $65.58 per share. (BUY)

28 June 13 - 200 shrs GE @ $23.19 per share. (BUY)

28 June 13 - IAG traded ex-dividend $0.125 per share

11 July 13 - 100 shrs SPLS @ $16.67 per share (BUY)
12 July 13 - IAG Dividend @ $0.125 per share, $125 (INCOME)

Magic Money Machine Portfolio (12 July 2013)

Cash:                                                                                 $ 27,882.00

1000 shares IAG- $ 4.33                                                  $   4,330.00

 500 shares AA - $ 8.19                                                    $   4,095.00

 100 shares DUK - $ 70.15                                               $   7,015.00

 200 shares GE - $23.76                                                   $   4,752.00

 100 shares SPLS - $16.73                                                $  1,673.00

Total                                                                                  $ 49,702.00

                                                                                                 (0.60%)

 

GE Brings Good Things To Light

The Second Half of 2013

Wow, what ride the last few weeks have been in the markets! Gold got pummeled, interest rates on bond shot up, the market tanked on comments by the Fed and the DJ 30 Ind. saw something like 14 days of 3-digit swings in the last month. No wonder some many everyday investors are running for cover. Oh yea, I don't want to forget the Russell Index adjustments that hit the market in the last 10 minutes on Friday that really drove the markets down. Heck, even some of the big players were ducking for cover. As for me, I sat quietly through it chanting my favorite mantra, "Don't panic, calm is your ally, there is profit in chaos!"

In the way of news, DUK announced it is increasing its dividend from $0.765 to $0.78 per share or about 2%. A number of brokerage firms up graded IAG    indicating they believe gold has bottomed out. Although I will remind you that gold and the gold mining stocks will continue to be incredibly volatile and carry a risk factor well above average.

With all of that being said, my model tagged another buy for the portfolio. General Electric, GE, floated to the top of the list. It actually popped on top of my list before all of the recent market mayhem of the last couple of weeks.  GE management has the company in a very good position to keep moving forward after having weathered the faltering economy of the last several years.

GE is a true multi-national conglomerate with a broad spectrum of business segments covering everything from consumer loans to the manufacture of turbines (from airplane engines to power generating turbines for utilities, from appliances to light bulbs.) It's exposure is world wide. 

Now, GE doesn't have the typical tangible book value to price ratio I like too see, in fact it's book value is only about $3.61 versus it's price of $23.19 (close June 28) but its fair market value is $23.70 according to analysts' reports. The stock also carries a 3.25% yield with long track record of payments and yield increases. 

For the most part, GE missed out on the rally earlier this year but it also did not get pummeled as bad as the rest of the market over the last two months. Given its wide diversity of businesses, GE is positioned very well to take advantage of any world-wide economic improvements in the foreseeable future. Come to think about it, if you look at GE's key statistics, I'd have to say GE is a boring stock but it is steady as the rock of Gibraltar. Check the numbers out for yourself.

 

General Electric GE - 1 Year Prices

www.stockcharts.com

 

The bottom line of the whole thing is we have a very reliable stock that is a steady performer and has presented a buying opportunity.  Having said all of that, I am going to add 200 shares to the Magic Money Portfolio.

07 June 13 - 1000 shrs IAG @ $5.29 per share.  (BUY)

13 June 13 - 500 shrs AA @ $8.20 per share.  (BUY)

21 June 13 - 100 shrs DUK @ $65.58 per share. (BUY)

28 June 13 - 200 shrs GE @ $23.19 per share. (BUY)

28 June 13 - IAG traded ex-dividend $0.125 per share

Magic Money Machine Portfolio (28 June 13)

Cash:                                                                                 $ 29,424.00

1000 shares IAG- $4.33                                     $   4,330.00

 500 shares AA - $7.82.                                     $   3,910.00

 100 shares DUK - $67.50                                 $   6,750.00

 200 shares GE - $23.19                                    $   4,638.00

Total                                                                                 $ 49,052.00

                                                                                                 (1.90%)

Pending IAG Dividend disbursement.                          $       125.00

Effective Total                                                                 $  49,177.00

                                                                                                (1.65%)

Please not that the account will not receive the IAG Dividend until July 17th at which time we can add it back into the cash balance.