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Louis Bacon Picks – Go with the Market

November 29, 2011 | About:
Federico Flom

Federico Flom

6 followers
Louis Bacon is Moore Capital Management's hedge fund trader. His global macro strategy based on major events has turned him into one of the top traders in the world. In fact he has become a new Forbes 400 member.

Moore is a trading powerhouse that manages $7 billion out of New York and London.

However, some ups and downs along Bacon’s life have resulted in risk becoming his calling card. Indeed Moore Capital faced two negative events during its existence: the 1994 dramatic hike in interest rates and the 2002 Enron-led meltdown in corporate credit that highly affected the company.

Nevertheless, last year Moore was favored by a 34%. How could it make it? Bacon shorted the falling US market and turned into a long position between the third and fourth quarters. He also sold short the weakening dollar and obtained profits from high-yield bonds and base metals. That is not all: his offshore fund, Moore Global Investments has had returns for 24% annually since it was organized and forecasts seem to be in the same path.

In the last quarter Moore Capital went long defensive ETF with the view that dividends and defensive stocks will protect best his portfolio from a non-trending and volatile market. I think that reflects that Bacon is not bullish about this market.

Louis Bacon is not only interested in drawing up profits. He is also engaged in philanthropic activities. Although they are less visible than Moore, he is committed to conservation and land preservation.

Now, let’s move to his Top Conviction picks.

XLP: Select Sector SPDR Consumer Staples is one of Bacon’s new positions. He bought nearly 6,000,000 shares in the company. The average price paid for them was $31 and it is now trading at $31.2. XLP has become a very good move because of its share price, the yield it is expected to produce and the capital appreciation. Today, XLP has an uptrend intact and it will definitely perform very well next quarters. I like XLP because it offers a portfolio of truly quality companies (WMT, PG, KO, PEP, etc.) combined with a good yield and low volatility.

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DVY: Ishares Dow Jones Select Dividend Index ETF is in charge of tracking Dow Jones US Select Dividend Index. There is no need to say DVY is an interesting pick. Its shares trade at $51.49 and among its holdings, you can find the most important companies across the world: Chevron (MCD), Clorox (CLX), Caterpillar (CAT) and General Mills (GIS).

That is not all. The ETF currently yields 3.67%, the expense ratio is very low, with only 0.4%, and the sector is divided into utilities (26.8%), consumer goods (18.4%), industrials (16.3%) and financials (14.8%).

DVY is the largest dividend ETF in the industry.

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XLU: The Utilities Select Sector SPDR has shown the highest dividend yield (4%) of all the Industry ETF Universe.

It is made up of companies involved in water and electrical power and natural gas distribution industries.

Although it cannot be considered a “super safe,” like XLP, the sector offers decent dividends and carries a relatively high degree of safety. The utility stocks are less volatile than the rest of the market and their earnings enable the ETF to resist even in times of uncertainty and fluctuating markets.

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GDX: itis Bacon’s fourth top position. Market Vectors Gold ETF Trust tracks the stock of gold companies. It does not invest in physical gold actually, but in gold miners' stocks. Although this type of stock is highly volatile, it is appealing for investors. Why? Because it offers investors leverage in terms of gold prices.

Mining stocks are not only exposed to the price of gold, but also to credit risks.

Bacon is risk-loving man but also very mindful. This is because he is not investing in pure gold, but he is betting on the cash flow of companies that make up GDX´s portfolio.

But, things have not been bad. GDX has performed better than the overall market, and other Gurus think that gold miners could rally if they keep improving their balance sheets.

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VZ: Verizon is Bacon’s last new position. Verizon has been doing great in the last years. Although the level of competition has increased within the sector, the company has been able to retain and even increase its customer base. Furthermore, the consensus analyst fair value estimate has gone from $34 per share to $38.

Most of its profits have been related to wireless services, but its fixed-line sector has also seen positive results. Indeed FiOS is showing progress.

Although the general economic situation has been bad, the enterprise revenue growth has been impressive.

Expectations are stable for the coming years.

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Although advisers believe 2012 will be a tough year to make money, Bacon has bet on new positions.

He knows that the U.S. economy will grow at a questionable pace. But he is very clear: The economy is not the market, nor is the market the economy.

Rating: 2.5/5 (6 votes)

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