Final Step and My Portfolio Decisions

Here’s the final list that I worked with in making my trades. Working up from the bottom of my list, I decide on what to sell. If I’m not selling something that rates low on my quantitative screen, I have to have an explanation as to why I am keeping it.

What I Am Not Selling

St. Joe – This doesn’t score well. The idea here is the land is considerably more valuable than the share price would indicate.

SPX Corp, Sara Lee – These are still in turnaround mode. Metrics don’t look good now, but should improve.

Sappi – Value of underlying assets not reflected in the metrics. South Africa is also out of favor.

Dow Chemical – it’s still cheap, and there are probably transactions that can unlock value.

DTE Energy – My one US utility. Would benefit from a sell-off of their energy production arm. I might be close to selling, but am not there yet.

Premium Standard – The merger with Smithfield will go through, and Smithfield will be able to take out costs. They might also gain a wee bit of pricing power. I think cost pressures have reached their maximum here, and profits will improve more than street estimates.

What I Am Selling

ABN AMRO – Barclays may do the deal or not. ABN Amro is fully valued here, and then some.

Devon Energy and Apache – I like them both, but their valuations have risen, and I have other places to deploy money.

What I am not Buying

After this, I look from the top down, and look for replacement candidates from the list. If I reject a highly rated name, I have to have a reason:

Group 1 Automotive – I already have Lithia Motors and Sonic Automotive. It’s in less desirable areas of the country, so I will pass on it for now, but will revisit it at a later date.

Georgia Gulf – It’s cheap, but I worry about the balance sheet, and I already own Dow and Lyondell.

Thornburg Mortgage – Would give me conflicts of interest with my employer.

Optimal Group – This is the most interesting of the ones that I did not buy. They have some interesting payments technologies, but the earnings estimate momentum was negative, and I could not really discern what competitive advantages they had.

Encore Wire – A bit of a cult stock. I just don’t like the business that they are in.

Arkansas Best, P.A.M. Transportation – I own YRC Worldwide, and these are not appreciably cheaper.

Foot Locker – Too many earnings disappointments.

Spectrum Brands – Lousy set of brands, and a poor earnings history.

Stolt Neilsen – I own Tsakos, and I think it has better growth prospects.

National Coal – Too small.

Home Solutions of America – I don’t like their business, given my view of the housing market.

What I am Buying

Bronco Drilling – Seems to be a cheap land driller, and replaces some of the exposure I lost selling Apache and Devon.

Komag, Nam Tai Electronics, Vishay Intertechnology – Cheap technology stocks that are near the beginning of the technology food chain. The businesses are more stable than those who buy their products.

Full Disclosure: long VSH KOMG NTE BRNC BCS LAD SAH DOW LYO JOE SPP SPX SLE DTE PORK YRCW TNP