BROKEN ALLIANCE

AAC

AAC came out this morning short and it was sold by a whopper 11%. Its earnings were short (0.96 vs 1.42) and its guidance significantly lowered compared with previous guidance. The stock is trade at about 30X of its 04 earnings estimate, in anticipating of a very meaningful upward guidance. Now the guidance is no longer there! The question is how could the management be so much off base? My problem is what should I do with the position? Based on its 2005 guidance, the company probably worth about 32 (vs. 30 currently), and based its 06 guidance it probably worth 40. Should I hold the position for the couple of bucks recovery or should I eat the loss move on? Would I buy this stock today based on this release and guidance? Probably not. Therefore, I probably should eat the loss and move on.

JUST IN CASE

POC / CUX

Cut some energy stocks today despite meaningful losses. I could not answer this question: when would you consider to sell some of these energy names? What happened if crude price continues to decline to, let say, $40 level? POC’s position is simply too big for me to take on and it could decline to $20 level if crude continues to decline, and that would be too much loss for me to take on. Therefore I decide to trim the position to a less meaningful level. I can always add them on later, if the trend reverses.

I HOPE I KNOW WHAT I AM DOING

RAL / SLG

I have not ventured out for a few days. It is so painful and difficult to endure the relentless fall in the oil patch and I lost my interests, motivation and self-confidence. The best plan will not be successful unless properly executed. I have a reasonably good plan, and part of that is to get out most of the positions in the oil patch before spring. Unfortunately, the plan was very poorly executed and I end up with still way too many positions in the oil patch. Moreover, positions in other areas did not help at all. I feel amateurish, particularly in terms of selling and taking profits, although I certain had made a great deal of effort this year. Still, the most difficult I continue to feel is how to deal with the situation where the market is falling. Should I get out and step aside completely or should I tough it up here. I wish I know how pros deal with such situation.

Add some RAL / SLG here, probably not the most prudent moves.

TRIM MATERIALS

TEK

Sold my entire position of TEK, and FRZ. What a terrible week and I can’t wait for it to finish. Enough said.

BREAKING RULES

ATY

Low-balling some ATY here, despite that this probably is one of the most frustrating stock, and seldom made me any money. On the other hand, it is traded at 15X of its 05E, and 12X of its 06E. That certainly seems reasonable for a growing company, provided it delivers its earnings next week. Man, I am breaking all rules of technical analysis, as both the overall markets and ATY are breaking their major support with a downward trend. We are also going into a seasonal weak period. I better put a tight stop on this one and hope for the bounce in the next few weeks.

STOP LYONDELL

LYO

LYN got stopped out today (30.50). This is terrible. Lessens leant: even good stocks could go doown fast and big if the market goes, and today the market goes pretty hard. The markets look terrible. All markets break significant resistence levels today. It is so hard to play the US market, and in a long run it is almost impossible not to invest in them.

A FEW GOOD STOCKS?

TIW

Sold my entire position of TIW today, not without a great deal of disappointment. I hold this position for almost exactly one year and have on 11.5% to show for. It’s hardly worth all the pain and sufferings in between. This is second time this year a stock got taken out with minimum premium. Oh well, at least I did not lose any money. On the other hand, I do want to continue to raise some cash as the market just does not feel well. (I also disposed GLK for a small gain).

LYO

Add some LYO here. Trend in the material sector remains positive, and valuation is still modest. LYO also has the refining business, which partially offset its chemical business. It has decent dividend yield. Canadian dollar is rather strong here and I would not be surprised if there is a correction. So I feel rather comfortable to own US securities. This probably will do better than NCX.

POC

POC announced its 2004 results and it promptly went down by 3 points. The first reaction was that production growth was flat and cash flow was down by about 22%. However, the forward guidance for 05 and 06 is very strong. Production is expected to growth by 30% in 2005 and double in 2006, and double again in next five years to 40K boe/d level. CF increased by 60% in 05 and probably will double in 06. More importantly, RLI is more than 20 years with 05 production. If the company could deliver this kind of production growth, I could see a double in 06. I ventured out to pick a bit more.

PUT CASH TO WORK

AAC

Low-balling some AAC here and got filled (36.00). I have ended up with close to 20% cash as a result of exiting more energy positions in the last few days, and I am looking pretty hard to put them to work. I thought AAC might work here as (1) I have practically no exposure in the media, and this will diversify the portfolio a bit; (2) earnings growth has been relatively consistent, which is rather hard to get; (3) the street is believing that the company will have to up its guidance going forward, which will probably lead the price higher; and (4) It is considered as a take-over target. On the negative side, the stock is not cheap, and expectation is fairly high. If the company fails to up its guidance meaningfully, watch out!.

ENERGY CORRECTION?

PKZ

PKZ got partially stopped out this morning. This is one of those securities that I have a hard time to make any money. Now it stopped me out, I am sure it will go straight up. (what else is new?). On the other hand, I am kind of like the idea to reduce the exposure on PKZ here and hold on a smaller position going forward. DII also breached my stop limit but did not got filled. I decide to cancel the stop as I believe the fundamentals remain intact and it remains under-valued.

I am in awe by the speed and intensity of this correction in energy and material sector. This is why you need to take profit regularly, regardless how much you love your stocks, just for days like these. Is this something more sinister than a simply correction? While nobody really knows, I remain positive of the overall market. If that is the case, this correction will present buying opportunities. Having said that, I would be hesitate to add more energy exposures.


PSI

Low-balling some PSI (11.25) here. The company is traded at approximately 13X of its 06 EPS, and the company is growing at about 10%-15%. It is in a reasonable stable industry, which seems to have turned around. The most recent earnings are good, outlook positive, and management is confident and optimistic. It is rather widely followed and one of fund managers’ favorite (although a frustrating one as well).

Also add some RGY (0.95) here, bravely against the trend of fierce profit-taking in the oil pitch. Why you may ask? Let’s see, the company is expecting to grow its production and CF by 50%, yet it is trade at 4.0X of its 04CF and about 2.8X of its 05CF. Its December exit production is already exceeding 1000 boe/d, which is its 05 production average. To me, this suggests the production growth is already in the bag and chance is pretty good that it will exceed the 05 production guidance. It is traded at about 25K/boe/d at its current production level and 18K/boe/d at its 05 production level. Valuation seems extremely low in comparison with other juniors. On the other hand, this is a very small stock (cap under $20 million), and obviously is rather speculative. Under current market environment, I feel safer if I pick only those under-valued juniors.

AVERAGE UP

COM

Average up a bit of COM here. It has fallen down to its resistance, but the volume is rather low. The sector is so much hated that I feel save to add on. There will be some announcements in the next few months, which could provide the necessary catalysts to move it up, not to mention it is a take-over target. Even with today’s addition, it only accounts for about 4% of the portfolio, hardly excessive.

I also low-balled some PSI and QC and thus far they have not been filled. (QC filled at 1.95).

SPIN TO A WRONG DIRECTION

ATY

Dropped ATY this morning. I guess the rotation did not pan out, as TXN’s mid-quarter update was a tad negative. The tech continues to be extremely difficult to invest and to make any money. Better to step aside.

ATD

Also sold the entire position on ATD. EPS came out below consensus (0.45 vs. 0.55) and expectation is pretty high for this name. Going forward, we may see some more margin pressure, particularly on its gasoline business. I think we will see that forward numbers will be brought down tomorrow by sell-side analysts, and this, in general, is not kind of situations I would like to be. Again, better to step aside for now. In any event, it has generated about 20% return since mid of November. I can’t really complain.

Taking more off the table. Sold entire positions of VAQ, and BDE. Again, these probably wrong moves. On the other hand, it’s never wrong to take profit. There seems a rush of selling energy stocks today, particularly those speculative ones, despite that the crude oil continues to march higher. Overall market is also rather weak. I guess the euphoria is over, or isn’t it?

TECH BREAKOUT?

ATY

NASDAQ seems to break out its 50-day SMA on a decent volume. Is there a rotation into the laggers, i.e. tech names now? It certainly looks plausible. In any event, the focus for this week is certainly techs with the mid-quarter update of two key names (INTC / TXN). I nibbled some ATY here, just a bit under $22. Let’s see if the trend will continue.

EUPHORIA

TEK

The market is breaking out to new high, and I am looking up and down on my portfolio list and trying to sell some into this rally. Amazingly, I could not find anything to dispose, other than a couple of juniors, which I really hate to sell, despite their 30%+ gains. I did pare some TEK, mainly because its proportion has been up to close to 7.5%, although the 30% gain since late January also helped. This brings its proportion to about 5% which makes me feel more comfortable. If this rally continues next week, I have to pare more.

SPECULATIVE CALVALLEY

CVI

Picked up some CVI here, although my position is very small. This is very speculative as it has no production yet, but it appears that it has found a sizable oil reservoir. I am a bit of extended here I’d better be a little careful. Despite the continuing strong fundamentals, the market is euphoric and panic. The right thing here would be paring back some exposure, not adding more. On the other hand, so far, I have been terribly wrong of cutting my winners short!

ATI GOOD BUT NOT WORKING

ATY

Sold ATY today. Overall, this has been a disappointing pick. I think I should have been more opportunistic and sold them at 25 level. It is pretty hard to buy-and-hold on tech names these days, even good companies with decent fundamentals and valuation would not necessarily generate decent return, and ATY is a prime example. I put a bid for a couple of international energy old picks, and it does not appears that they will be filled.

Add three names (PFC, SGF, HBM) to re-deploy cash from ATY. All three names are rather speculative and will takes a lot of patient. Need to mention here that I used to own PFC but I sold it due to lack of patient. Big mistake. It has more than doubled. This is one thing I have to learn, that is to let your winners run.