RD's Picks

Week one has been humbling. I closed at an NAV of 9.58, so have not only lost money, but underperformed the S&P 500. As noted in my first post, I started out with about a 30% cash position, nearly as much as I could and still meet Marketocracy's compliance rules. The compliance rules simulate the requirements a fund manager needs to meet in the real world.

Marketocracy's policy of allowing only a portion of the market volume to apply in filling orders makes buying thinly traded small caps interesting. My buy order for Rubio's has been open all week and still hasn't been completely filled.

I didn't add any new stocks to the portfolio beyond the 11 mentioned in my first post, but did put some of the cash to work over the week buying more of stocks as they got cheaper. So far that approach hasn't been terribly successful. I'm now down to about 10% cash.

My largest holding is Global SantaFe representing just under 15% of the portfolio. I continue to believe oil drillers are significantly undervalued. GSF is now trading at 7.25 times forward earnings, less than half the S&P 500's multiple. The conference call went well on Thursday, although there seems to be some concern among analysts that costs are going up for the drillers. Don't see why that should surprise anyone and the way GSF and others are able to roll over their contracts at higher dayrates, I don't believe they'll have any trouble passing those costs on to their customers - who will ultimately pass them on to us at the pump. GSF is the cheaper way to buy the new merger between GSF and RIG. At Thursday's close, GSF was at a 2.7% discount to RIG when both were put in terms of the newco (didn't run it for Friday's close). Every time I've checked them, GSF has been selling at a discount to RIG when converted to newco.

Other positions I added to over the week were Prospect Energy (PSEC) and American Railcar (ARII). PSEC is now yielding nearly 10% if the payout holds and I'm not aware of any reason it won't. I may be missing something, but it seems to me that the credit issues that have been hammering the markets should be good news for these guys since it removes some competition. If the price stays down here, this one will find a home in my real portfolio.

I haven't seen any news that would have caused the drop in ARII. Over the past two weeks it's gone from about 40 to 30. Last quarter's earnings report was a blowout, their order book is strong, and they've taken steps to add capacity. They report earnings on Aug 14. I think we'll see another good report. Another one that may find a home in my real portfolio if it stays down here long enough to come up with some cash.

I also added some to the WFC and T positions on slight dips early in the week.

I'm looking at adding Unilever NV (UN) or Proctor and Gamble (PG) to provide dividend income and add a defensive, consumer goods company to the mix. UN trades at a forward PE of 15 and has a dividend yield of 3.5%; PG trades at a forward PE of 16 and yields 2.2%, but has a little better earnings growth estimate. Need to do a little more research here and maybe look at some of the other companies in those sectors as well.

Gotta give a shout out to CSCO, RPM and T - the only picks that made money for me last week.

Don't know if I can call this fun so far, but it has been interesting.

Comments: View Comments |  Saturday August 4, 2007