Completion of the Reshaping

I ended up doing more in the first quarter reshaping than I had originally intended. Here are the trades:

New Buys

  • Avnet
  • Ensco International
  • Alliance Data Systems

New Sales

  • Bronco Drilling

Rebalancing Sales

  • Valero Energy (that was fast)

The trades left me with 5% available in cash, and my normal 35 positions, with one being a double-weight (NAHC), and one being a 1.5x weight (JOF).

I didn’t want to go a lot heavier into financials, and particularly not insurance. Ensco ends up replacing Bronco; it’s time to move from the land to the sea in drilling, at these oil price levels. In addition, much as I admire Third Avenue and Curtis Jensen, I reckon their efforts to renegotiate the merger might end up with no merger, as likely as a better deal.

In technology, I tend to buy cheap simple building block companies rather than companies that face possible obsolescence from technological change. Avnet fits that bill.

As for Alliance Data Systems, they are cheaper than before the attempted acquisition, and still have decent growth prospects. This is not usually my style, but the free cash flow can support the current valuation. Yes, it is a financial, but very different from the other companies that I hold.

That’s all. Oh, what a snapback in Valero. When I bought more, I could feel the panic in the market. I bought it anyway; don’t give in to feelings of panic when you are dealing with well-capitalized companies that are leaders in their industries.


Full disclosure: long JOF NAHC AVT ADS ESV

1 Comment

  • Steven Milos says:

    David,

    Great call on VLO, I wanted to buy it down at 47.50 too, but I was fully invested and didn’t want to switch out of something into VLO ahead of their Q1 report. However, I sure didn’t expect a 25% return in a week either! Great call.

    I’ve owned ADS in the past and done very well with it, it is a very good company. Obviously the merger mess has left a bad taste in a lot of holder’s mouths, but in the long run I think you’ll do very well. If I could get it down another 10% from here I think I’ll be a buyer myself.

    Steve
    np