Special Opportunities Quarterly Review

Yesterday I gave an overview of the results for the 2nd quarter of the Income Portfolio I track on this site. Today I will do the same for the Special Opportunities Portfolio. First a cut-and-paste of the caveats:

• These are not recommendations to buy or sell any securities. The portfolios are for informational purposes only.
• Although the stocks I own are included in the portfolios, I do not own every one of them.
• The portfolio results come from starting each quarter with an equal, dollar weighted, amount of each stock. If a new stock is added during the quarter, it starts with the same dollar amount.
• I believe all of the stocks in my portfolios are good companies with good prospects. However, timing is very important and a quarterly buy and hold is most definitely not the best way to own them.

I have named this the Special Opportunities Portfolio because it really does not have a specific investment style. There is growth, value, international and turn around style of stock selections in the portfolio. The one thing most of the stocks have in common is a tendency towards smaller capitalization, generally under $2 billion. My goal is to find stocks with little following, little news and are great opportunities.

For international companies, I lean towards South America because I have some interest and knowledge of the region. I keep these portfolios of stocks I write about as a counter point to all of the financial magazines and websites that give multitudes of stock recommendations and never follow up. I closely follow the stocks in my portfolio as well as looking for new additions. With this site I try to keep readers up with the news and my results.

As I noted yesterday, for the the entire quarter, the market averages were only down slightly. It feels much worse after the results of the last few weeks. My portfolio ended in positive territory for the quarter with a 0.47% gain on share price and 0.25% in dividends for a total positive return of 0.72%. I guess I will call a very small positive return for the quarter a moral victory.

Three stocks led the loser bracket: VeraSun Energy (VSE) off 44%, AFP BBVA Provida (PVD) down 28% and Copa Holdings (CPA) back treading 27%. I think most are familiar with the problems in the corn based ethanol business and VSE is the largest producer of ethanol. I think the market is over reacting and the company will finish the year nicely profitable and have a banner 2009. PVD has suffered from changes in Chile’s pension laws limiting the company’s ability to grow. I have dropped the company from the portfolio starting the 3rd quarter. Copa is a very profitable Latin America based airline that has had it’s stock price take a hit due to high fuel prices. This company will continue to grow revenues and profits will follow, if somewhat delayed.

On the winner side there are again 3 stocks that stand out: Tetra Technologies (TTI) gained almost 50%, KHD Humboldt Wedag (KHD) up 29% and Companhia Paranaense de Energia (ELP) returned a positive 30% including a nice 3% dividend. TTI benefited from the double positive of rebuilding their profit base and being in the hot oil services sector. Profit growth should be strong for at least the remainder of the year. KHD is a small cap infrastructure play doing business in Asia, Russia and the Middle East. The market has not yet discovered this growth gem and it could easily be a $50 stock soon. ELP is an electric utility that is a nice conservative play on the overall growth in Brazil.

Several of the stocks in the portfolio, (GIGM) and (HW) come to mind, are well below the value where I believe they should currently be trading. I want to add a few more stocks and I have been looking at a couple of South American companies that have excellent prospects.

Note: I currently have long positions in VSE, KHD, GIGM and HW.

Posted in Categories: Contributor, External Research, Stocks.

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Comment by Navivest

2008-07-04 17:26:05

VSE is a very cheap stock. We analyzed it to see if we wanted to recommend it to our subscribers . It has estimates (on the higher end) of .61 cents for this year and is only trading at $4.21. However, we believe oil prices will drop - hopefully:) - and to the extent rising oil prices pull up ethanol prices, declining oil prices should pull do the opposite. And corn prices will rise too, so one can’t be sure about this stock. If you’re lucky enough to have it move a dollar soon, take profits.

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