As markets have continued to rise since the March lows, I've stuck to my strategy of selling positions that reach my end-game targets. Despite this summer's generous boost to most people's portfolios, it produced few meaningful breakouts for individual stocks. A notable exception was Noven Pharmaceuticals (NOVN), which I sold after Hisamitsu Pharmaceutical announced its acquisition (see comment). In addition, I used the opportunity given by this summer's rally to lightened my load of Cigna (CI) - a leading health insurer (see article), and dump several small positions, which I didn't originate, in another account.
The first small position that went on the chopping block, as the summer got started was Nissan Motor Co Ltd. ADR (NSANY), which I let it go at an average of $12.04 / share in anticipation of a stimulus bill targeted at the auto industry. After the US Government announced its Cash for Clunkers program a couple weeks later, the stock drifted down. Another leg up starting in mid July took the stock to its ephemeral 52 week high of $15.65 at the beginning of August, just as Cash for Clunkers was getting popular and about to get extended. Then the stock promptly slid back down to under $14 later in the month, where it remains to this day. In the meantime, the Nissan ADR has also slipped from the big board listing to Pink Sheets. Looking back, it looks like I played it a bit too safe and left too much money on the table - about 30% from sale to peak. Looking forward, I don't see any catalysts for NSANY to appreciate from here. A scenario where Nissan stock continues to deteriorate as the company piles on more quarterly losses on top of those already reported is much more likely from here.
Another small position I closed was ING Group NV ADS (ING) (see article), which I let go at $11.86 / share in late July. It now appears that I was premature in pulling the plug on ING, as early M&A rumors have proven to hold water and multiple bidders emerged for ING's Swiss and Asian private banking business. Among those bidders are HSBC Holdings PLC, Julius Baer Holding AG and SDBS Group Holdings Ltd. The business is expected to fetch almost $2 billion for ING, which will significantly improve ING's balance sheet and give the company better focus, but at the same time remove ING's primary internal growth engine. Looking back, it appears that I sold ING too early into this rally - it is now trading at over $16. However, leaving money on the table is the name of the game you knowingly play when you sell into rallies, since you never know when they will actually end. Looking forward, ING's future does not appear to be so bright and return to heyday profits and valuations is extremely unlikely.
Also in late July I disposed of small positions in too "technology" companies - Hewlett Packard Co (HPQ) at $43.27 and Motorola Inc. (MOT) at $7.29. Both of these have drifted higher along with the markets since then. Neither company has a secret weapon in the works that could drastically change its fortune and neither has pricing power, at least not for their current products. At current valuations I see both companies as fairly valued at best. Motorola also has the added baggage of their unwanted and unsellable cell phone business. Should a synergistic buyer unexpectedly emerge even at a fraction of that business's book value, MOT stock could easily double from here. More likely, however, it will just drift back down with the S&P, as the reality of the current "recovery" sets in later this fall.
Fast forward to fall. This week brought impetus for two of the stocks I held to jump to their longtime highs and I was a quick seller on both occasions, once again playing it safe and consciously potentially leaving large chunks of cash on the proverbial table.
First on Labor Day came Kraft Foods Inc. (KFT) savory offer for the candy maker - Cadbury Plc. (CBRY in London). Cadbury's board swiftly rejected it and Cadbury and Cadbury ADR (CBY) stock prices soared above Kraft's offer price in response. A buyout offer for Cadbury has been anticipated for over a year. In fact, such eventuality was a primary driver for demerging Cadbury Schweppes Plc. and breaking it down into Cadbury and Dr. Pepper Snapple Group Inc. (DPS”Ž) components in May of 2008. My small stake in CBY goes back to a money manager purchasing Cadbury Schweppes several months before the demerger. Wednesday, September 9, 2009 came the time to sell it at $52.24 - about 40% above its pre Kraft offer announcement price. If you are still hoping for Cadburry stock to appreciate further - it's possible, but is also unlikely. Kraft's offer was more than fair and while it may be increased a bit in order to avoid a painful proxy battle in London, there is also a chance that Cadbury board holds fast, in which case Kraft may decide to abandon the acquisition altogether. Another buyer is very unlikely at this point. Of course, left alone, CBY stock would come back down to its pre offer levels. (Remember Microsoft's original bid for Yahoo!?)
Also on Wednesday, Vivus Inc. (VVUS), a small pharmaceutical company I added to my portfolio just over ten years ago, announced results of the two Qnexa Phase III clinical trials. The drug, used to control weight, combines relatively low doses of the generic stimulant phentermine and epilepsy drug topiramate (sold under the brand name Topamax) in a capsule designed to release the components timed to minimize side effects. The two trials indeed demonstrated very substantial weight loss with minimal side effects and analysts expect Qnexa to become a blockbuster. It stacks up well against competition and there are certainly plenty of people who could stand to loose some extra weight, so why wouldn't Qnexa be a big winner?
Vivus is now out on a prowl, looking for a big pharma partner to market the drug and they will have no problems finding one on terms, which should finally take the company to profitability. Vivus, which originally caught my attention due to their work in the area of female sexual desire (think Viagra for women), is far from a one trick pony - Avanafil and Luramist are not far down the pipeline. On the other hand, there are also plenty of things that could go wrong going forward. VVUS was close to making a big splash before - on my memory it happened in 2000, then again in 2002 and yet again last year. None of those opportunities quite materialized and Vivus slipped back into obscurity with associated stock price declines. Doubtlessly, this time, too, I left good money on the table, when I sold it yesterday at $11.95 / share, after it just about doubled in price from a week ago. Yet, I already made my profit on the stock, almost quadrupling my money from the $3 / share purchase price during the time that the S&P 500 declined. I don't want to be too greedy, but that should not stop anyone else from playing the Vivus card. Who knows, it may quadruple again from here.
The first small position that went on the chopping block, as the summer got started was Nissan Motor Co Ltd. ADR (NSANY), which I let it go at an average of $12.04 / share in anticipation of a stimulus bill targeted at the auto industry. After the US Government announced its Cash for Clunkers program a couple weeks later, the stock drifted down. Another leg up starting in mid July took the stock to its ephemeral 52 week high of $15.65 at the beginning of August, just as Cash for Clunkers was getting popular and about to get extended. Then the stock promptly slid back down to under $14 later in the month, where it remains to this day. In the meantime, the Nissan ADR has also slipped from the big board listing to Pink Sheets. Looking back, it looks like I played it a bit too safe and left too much money on the table - about 30% from sale to peak. Looking forward, I don't see any catalysts for NSANY to appreciate from here. A scenario where Nissan stock continues to deteriorate as the company piles on more quarterly losses on top of those already reported is much more likely from here.
Another small position I closed was ING Group NV ADS (ING) (see article), which I let go at $11.86 / share in late July. It now appears that I was premature in pulling the plug on ING, as early M&A rumors have proven to hold water and multiple bidders emerged for ING's Swiss and Asian private banking business. Among those bidders are HSBC Holdings PLC, Julius Baer Holding AG and SDBS Group Holdings Ltd. The business is expected to fetch almost $2 billion for ING, which will significantly improve ING's balance sheet and give the company better focus, but at the same time remove ING's primary internal growth engine. Looking back, it appears that I sold ING too early into this rally - it is now trading at over $16. However, leaving money on the table is the name of the game you knowingly play when you sell into rallies, since you never know when they will actually end. Looking forward, ING's future does not appear to be so bright and return to heyday profits and valuations is extremely unlikely.
Also in late July I disposed of small positions in too "technology" companies - Hewlett Packard Co (HPQ) at $43.27 and Motorola Inc. (MOT) at $7.29. Both of these have drifted higher along with the markets since then. Neither company has a secret weapon in the works that could drastically change its fortune and neither has pricing power, at least not for their current products. At current valuations I see both companies as fairly valued at best. Motorola also has the added baggage of their unwanted and unsellable cell phone business. Should a synergistic buyer unexpectedly emerge even at a fraction of that business's book value, MOT stock could easily double from here. More likely, however, it will just drift back down with the S&P, as the reality of the current "recovery" sets in later this fall.
Fast forward to fall. This week brought impetus for two of the stocks I held to jump to their longtime highs and I was a quick seller on both occasions, once again playing it safe and consciously potentially leaving large chunks of cash on the proverbial table.
First on Labor Day came Kraft Foods Inc. (KFT) savory offer for the candy maker - Cadbury Plc. (CBRY in London). Cadbury's board swiftly rejected it and Cadbury and Cadbury ADR (CBY) stock prices soared above Kraft's offer price in response. A buyout offer for Cadbury has been anticipated for over a year. In fact, such eventuality was a primary driver for demerging Cadbury Schweppes Plc. and breaking it down into Cadbury and Dr. Pepper Snapple Group Inc. (DPS”Ž) components in May of 2008. My small stake in CBY goes back to a money manager purchasing Cadbury Schweppes several months before the demerger. Wednesday, September 9, 2009 came the time to sell it at $52.24 - about 40% above its pre Kraft offer announcement price. If you are still hoping for Cadburry stock to appreciate further - it's possible, but is also unlikely. Kraft's offer was more than fair and while it may be increased a bit in order to avoid a painful proxy battle in London, there is also a chance that Cadbury board holds fast, in which case Kraft may decide to abandon the acquisition altogether. Another buyer is very unlikely at this point. Of course, left alone, CBY stock would come back down to its pre offer levels. (Remember Microsoft's original bid for Yahoo!?)
Also on Wednesday, Vivus Inc. (VVUS), a small pharmaceutical company I added to my portfolio just over ten years ago, announced results of the two Qnexa Phase III clinical trials. The drug, used to control weight, combines relatively low doses of the generic stimulant phentermine and epilepsy drug topiramate (sold under the brand name Topamax) in a capsule designed to release the components timed to minimize side effects. The two trials indeed demonstrated very substantial weight loss with minimal side effects and analysts expect Qnexa to become a blockbuster. It stacks up well against competition and there are certainly plenty of people who could stand to loose some extra weight, so why wouldn't Qnexa be a big winner?
Vivus is now out on a prowl, looking for a big pharma partner to market the drug and they will have no problems finding one on terms, which should finally take the company to profitability. Vivus, which originally caught my attention due to their work in the area of female sexual desire (think Viagra for women), is far from a one trick pony - Avanafil and Luramist are not far down the pipeline. On the other hand, there are also plenty of things that could go wrong going forward. VVUS was close to making a big splash before - on my memory it happened in 2000, then again in 2002 and yet again last year. None of those opportunities quite materialized and Vivus slipped back into obscurity with associated stock price declines. Doubtlessly, this time, too, I left good money on the table, when I sold it yesterday at $11.95 / share, after it just about doubled in price from a week ago. Yet, I already made my profit on the stock, almost quadrupling my money from the $3 / share purchase price during the time that the S&P 500 declined. I don't want to be too greedy, but that should not stop anyone else from playing the Vivus card. Who knows, it may quadruple again from here.
