Second Quarter 2008 Portfolio Changes

For this quarter, I sold two my two placeholder assets, the Industrial and Technology SPDRs, and Arkansas Best, which had richened enough for me to trade out of it.

I had two rebalancing buys, Charlotte Russe and Avnet.  On Charlotte Russe, the rebalancing buy occurred because I tendered all my stock @ $18 in the Dutch Tender, and 45% of it got bought.  On Avnet, things aren’t as bad as the market thought on 4/15, in my opinion.  I had one rebalancing sell, Helmerich and Payne.  Just taking some off the table for risk reduction purposes.

Here is my final comparison file that was based off of data at the close of business on Monday.  To comply with the Bloomberg data license, all numeric fields remaining are ones that I calculated.  The columns of the file rank the 290 stocks on the following metrics (lower better unless noted):

  • 52-week RSI
  • Trailing P/E
  • P/Book (2)
  • P/Sales (2)
  • P/2008E
  • P/2009E
  • Dividend Yield (higher better)
  • Net Operating Accruals (2)
  • Implied Volatility
  • Neglect (higher better)

The grand rank sums up the ranks giving double weights to P/B, P/S, and NOA.  My current stocks are highlighted in yellow, except for the two middle ones, which are in orange.  Candidates for sale come from the lower half (high grand ranks), candidates to buy from the upper half.

Here were my purchases (P/2008E):

  • International Rectifier — 9.5x
  • Group 1 Automotive — 7.1x
  • OfficeMax — 9.3x
  • Universal American Financial — 5.8x

Cheap names all (and could get cheaper?).  If you asked me what my concerns might be over this group of names, I would say that credit quality is adequate but not stellar.  I would also confess a little doubt on Universal American.  It looks cheap, and lines of business they are in are stable lines.  They lost money on mezzanine subprime mortgage ABS.  I looked at the writedowns, and they seem adequate.  If you send the security vintages 2006-2007 to zero, this stock is still cheap, in my opinion.   What I can’t evaluate is whether they could have operational problems in their senior health insurance business.  It’s a good business, if managed properly.

As for International Rectifier and Group 1, I have owned them before.  With IRF, I like industrial technology — stuff that is harder to obsolete.  On Group 1, I looked at all of the small cap auto retailers, and picked this one.  I liked its business mix, and what seemed to be a clean balance sheet, with few immediate needs for liquidity.  The group as a whole has been smashed, and is discounting very unfavorable conditions.  I don’t think things are that bad, and besides, a lot of the revenues come from repairs and sales of used cars.

With OfficeMax, I think prospects are less cyclical than the market seems to believe.  Office supplies get purchased during bad economic times as well, and the current price already discounts  a lot of pain.

Well, those are my purchases.  Let’s see how they fare over the coming years.

Full disclosure: long HP CHIC AVT GPI UAM OMX IRF